SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Trinity Energy Resources, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 87-0431497
(State of other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
11757 Katy Freeway, Suite 1430, Houston, Texas 77079
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (281) 589-7675
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be
registered
________________________________ ____________________________________
________________________________ ____________________________________
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
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(Title of class)
Preferred Stock, Par Value $.001
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(Title of class)
1
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TABLE OF CONTENTS
PART I PAGE
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Item 1 Description of Business 3
Item 2 Management's Discussion and Analysis or Plan of Operation 9
Item 3 Description of Property 14
Item 4 Security Ownership of Certain Beneficial
Owners and Management 21
Item 5 Directors, Executive Officers, Promoters and Control Persons 22
Item 6 Executive Compensation 23
Item 7 Certain Relationships and Related Transactions 26
Item 8 Description of Securities 26
PART II
Item 1 Market Price of and Dividends on the Registrant's
CommonEquity and Other Shareholder Matters 29
Item 2 Legal Proceedings 29
Item 3 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure 33
Item 4 Recent Sales of Unregistered Securities 33
Item 5 Indemnification of Directors and Officers 35
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FINANCIAL STATEMENTS
See attached Financial Statements for the fiscal years ended December 31, 1999
and 1998
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION/HISTORICAL BACKGROUND
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The Company was originally incorporated in Utah in 1986 as Celebrity Limousines
Ltd. In 1990 it was redomiciled in Nevada as Limousines Limited but in November
1990 it ceased operations. The Company was dormant until July 9, 1993. On that
date Sidney W. Sers exchanged certain oil and gas assets from his wholly-owned
Texas corporation for 18,275,036 shares and control of Limousines Limited. He
then changed the name of the Company to Trinity Gas Corporation. The Company
then developed the assets (with investor contributions) and has since conducted
oil and gas operations. During the period from July, 1993 to January 1998, Mr.
Sers served as Chairman of the Board, President and CEO. On March 17, 1999 the
shareholders approved a change in the name of the Company to "Trinity Energy
Resources, Inc."
In June, 1997 the Company retained the accounting firm of Samson Robbins &
Associates, P.L.L.C. to prepare audited financial statements for the fiscal year
ended December 31, 1996. The Company's purpose in obtaining the audit was to
qualify the Company as a reporting company under the Securities Exchange Act of
1934.
On October 6, 1997 Samson Robbins resigned, citing:
- that the Company's financial statements for the years 1993, 1994 and
1995 contained material misrepresentations
- that Mr. Sers had misused the Company's funds
- that the Company had disseminated highly inflated oil and gas reserve
data
- that significant amounts of the Company's stock had been issued and
sold using questionable exemptions.
The resignation of Samson Robbins motivated one of the Company's directors,
William W. Ruth, and its recently fired Vice-President of Investor Relations,
Richard E. Guillemin, to seek the advice of outside counsel. In turn, that led
to an investigation of the Company and Mr. Sers by the Securities and Exchange
Commission. On November 6, 1997 the SEC stopped trading in the Company's stock.
As a result of the stop in trading, it became necessary for the Company to
provide new, up-dated information to its marketmakers before trading could
resume. The filing of this Form 10-SB is intended to fulfill that obligation in
order to permit trading to recommence. (See Part II, Item 1, page 25 for
further discussion and disclosure.) On December 8, 1997 the SEC filed an
enforcement action against the Company, Mr. Sers and others in the U.S. District
Court. As a result of the SEC's action, the Court froze certain liquid assets
held by a Sers related group.
On December 9, 1997 Messrs. Ruth and Guillemin filed a shareholders' derivative
action against Mr. Sers and others.
On December 23, 1997, apparently in response to the SEC enforcement action and
to the shareholders' derivative action, Mr. Sers caused the Company to file a
Chapter 11 petition. The Chapter 11 proceeding was docketed to Case No.
697-60425-JCA-11 in the United States Bankruptcy Court for the Northern District
of Texas, San Angelo Division.
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On January 12, 1998 Mr. Sers resigned as a director of the Company. On January
16, 1998 the Judge in the SEC enforcement action ordered the arrest of Mr. Sers
for violation of the Court's freeze order.
On January 9, 1998 the Bankruptcy Court appointed a Chapter 11 Trustee who
effectively took control of the Company. On February 5, 1998 the Bankruptcy
Court appointed the Official Committee of Equityholders of Trinity Gas
Corporation. Mr. Dennis Hedke, now one of the Company's directors and its
Executive Vice-President and Chief Operating Officer (Interim President & Chief
Executive Officer), was appointed Chairman of the Committee.
During 1998 the Committee recruited new management and with that management
developed a Plan of Reorganization. The Plan, as amended, was confirmed by the
Bankruptcy Court on October 26, 1998, and the Company emerged from Chapter 11
and began to implement the Plan. Upon confirmation of the Plan, the Board of
Directors engaged T.C. O'Dell to become the new Chief Executive Officer and
Chairman of the Board and Michael L. Wallace to become the new President and
Chief Operating Officer of Trinity Gas Corporation. Although both men have since
resigned, the Company is continuing to pursue numerous opportunities. (See
"Compensation of Management-Employment Agreements"). Interested investors may
obtain a more detailed description in the Disclosure Statement for the Third
Amended Plan of Reorganization filed in the United States Bankruptcy Court for
the Northern District of Texas, San Angelo Division on July 27, 1998. That
document appears as Exhibit 2.1 to this Filing.
BUSINESS
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The Company is involved in various energy industry projects which relate
primarily to oil and gas exploration and development in both the United States
as well as international markets. The Company is also reviewing the potential
for involvement in energy product marketing and throughput management. The
Company currently operates oil and gas wells in Texas, Colorado and Wyoming and
has an interest in an international concession in the African Republic of Chad.
It is also reviewing potential involvement in various global exploratory and
development projects related to energy resources.
We currently operate one oil and gas well in Ward County, Texas. We also operate
24 wells wells in Elbert County (Colorado) and three in Crook and Campbell
Counties (Wyoming). Certain wells in the Company's inventory are currently
non-productive. A comprehensive listing of the Company's well inventory and
individual well status is given in Item 3 below. Due to low oil prices during
late 1998 and continuing through first quarter 1999, and limited capital
resources, virtually no maintenance was accomplished at any of these production
facilities during 1998 or 1999. Geological and engineering evaluations have
been underway to determine where capital resources should be focused to
re-establish fundamental production levels and enhance production where feasible
to do so. A workover program has been implemented to rejuvenate many formerly
non-productive wells. We will continue to closely monitor production results and
wells that fail to meet minimum internal rate of return of approximately 15%
will either be converted to service wells or plugged and abandoned according to
state specifications.
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If market conditions are favorable, the Company may sell certain of its
properties if it is believed we can transfer such interests profitably and in
such a way as to bring appropriate short, medium or long term benefit to
shareholders. Current workover activities and subsequent well performance
evaluations will guide our decision as to which properties, if any, would be
appropriate for marketing as saleable properties.
Historically, the Company had additional producing property interests in a 15
well oil and gas production facility in Brown County, Texas, which included the
properties known as the Smith, Smith 'A' and Smith 'C' leases. The internal
rate of return on these properties was not consistent with Company objectives
and the asset has been transferred to an entity that assumed operations as of
January 28, 2000. The asset, which had nominal book value, was transferred in
exchange for the assumption of plugging liability, estimated at $18,000, by the
receiving party.
The Company also had an interest in a gas processing and sales facility in
Coleman County, Texas. Oil and gas leases related to this facility were the
Jamison and Skelton leases. A total of 19 wells used to produce at this
facility. That facility has been partly disassembled, some assets were
disposed of through a sale in 1998, and the property is subject to final
plugging and abandonment by Trinity. We expect plugging costs associated with
this facility will be approximately $22,800. Final action regarding this
property, including plugging of all wells, is expected to occur in the second
quarter 2000.
We also owned an interest in a Colombia, South America concession negotiated and
acquired by Sers through a foreign wholly-owned subsidiary, Trinity Gas
Colombia, Ltd. ("Trinity-Colombia"). Four exploratory wells were ultimately
drilled in the concession and none were successful. Operations ceased when the
concession was terminated by the government of Colombia due to non-performance.
Sers had contested ownership of Trinity-Colombia, and instead of pursuing court
proceedings in Colombia, the Company obtained a $3.1 million judgment against
Trinity-Colombia in the United States on May 27, 1999. We are still attempting
collection of this judgment. It appears, however, that Trinity-Colombia may
have no assets and collection of the judgment is unlikely.
We acquired an interest as operator in an international concession in Chad,
Africa on November 15, 1998, covering 108 million acres of unproved potential
reserves in three separate areas of the country. This acreage is considered
valuable because proved reserves are to be extracted by Exxon and others on
adjacent acreage, pending planned pipeline construction. On December 27, 1999,
we assigned this interest as a farmout to Cliveden Petroleum Company, Ltd.,
("Cliveden") because we lacked the substantial resources needed to maintain and
develop the concession. Under the Cliveden farmout, we are entitled to sunk
cost recovery of $1.5 million from the net proceeds received by Cliveden, as it
recovers its own costs to market and develop the prospect, and we may also, if
economic conditions warrant, continue to participate with up to a 5% working
interest ownership after Cliveden recovers its exploratory and exploitation
expenditures. Costs associated with this activity may exceed $26 million in the
first 5 years of project activity.
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The Company will continue to pursue opportunities both domestically and
internationally where it can find appropriate rates of return for the
shareholders. The Company believes it can compete in both arenas,
notwithstanding the fact that international operations carry certain risks that
do not apply to domestic properties.
The Company is in the process of evaluating opportunities related to the
accumulation of interests in oil and gas leases and concessions in various
domestic and international projects. Upon the conclusion of any such
acquisitions, the Company will engage itself in either the participation with
other operators in the drilling of exploratory and development wells, or in the
marketing of such interests to interested parties, with the ultimate intent of
drilling exploratory and development wells. It is also possible that certain
projects under review may involve other market opportunities where our staff or
designated independent contractors or consultants have qualified expertise, such
as natural gas futures trading. Careful risk analysis and comprehensive market
research will be conducted internally and will precede commitments to any such
endeavor.
At the present time the Company has 4 full time employees and draws upon from 2
to 5 consultants and independent contractors to assist on temporary project
needs. As recently as the third quarter 1999, the Company had as many as 8 full
time employees and was served by a group of as many as 11 consultants and
independent contractors. Staff reductions occurred to reduce overhead,
especially as the financial burden associated with the Chad project was phased
out.
Competition
The energy business is highly competitive. The Company competes with companies
which in many cases have larger staffs and financial resources than those
currently available to the Company. Nonetheless, the Company believes that due
to its ability to focus attention on relevant and achievable objectives, it will
be successful in pursuing carefully selected opportunities fit for an
organization of our present size and structure. The purchase of existing
production, involving properties where monthly revenues exceed operating costs
by a significant margin, to increase our cash flow and the participation in
drilling ventures are examples of such objectives. Our selection criteria will
be based on the projected minimum internal rate of return and other internal
review processes, including for example 3-dimensional seismic data analysis.
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Marketability
Crude Oil - The marketability of the Company's crude oil, natural gas and
natural gas liquids (NGL's) or condensate has not been a problem historically.
The current Colorado and Wyoming oil production is purchased and trucked by
Equiva Trading. Contract terms call for pricing according to the basis for
geographic area, adjustment for crude oil quality and then applying a bonus to
the prevailing field posted price at the time of field pickup. On December 9,
1999, the adjusted price paid for our Colorado crude oil was $23.00 per barrel;
the $1.10 bonus appropriate to our contract yielded a net sales price of $24.10
per barrel sold on that day.
The Company's Ward County, Texas crude oil production is purchased and trucked
by Sunoco, Inc and sold at the prevailing field price for West Texas
Intermediate, whereby our property type was designated as "active full rate",
subject to a "temporary marketing adjustment" deduction of $1.60 per barrel.
The present contract with Sunoco was initiated November 1, 1999 and extends
month to month, unless written notice of 30 days is given by either party to
terminate the agreement. An example of recent sales activity at the Hartwich
lease on November 23, 1999, showed a purchase price of $25.35 per barrel.
Existing contracts for crude oil purchased by Equiva Trading and Sunoco are
provided as Exhibits 10.14 and 10.15.
Oil prices are volatile and subject to significant day-to-day variations. This
volatility is beyond the Company's control and includes the following factors:
political turmoil; domestic and foreign production levels, the Organization of
Petroleum Exporting Companies (OPEC)'s ability to adhere to production quotas,
and possible governmental control or regulation. As the Company's daily
production volume increases it may also become desirable to enter into futures
contracts for purposes of hedging which can provide longer term stability for
the sales of our produced hydrocarbons.
Natural gas - The Company's natural gas production in Colorado is transported by
pipeline and purchased by North American Resources Company (NARCO). The
Company's natural gas production in Ward County, Texas is purchased by Dynegy
Midstream Services, Limited Partnership ("Dynegy").
Natural Gas Liquids - The Company's condensate production in Colorado is
gathered and purchased by NARCO. Condensate production at the Hartwich lease in
Ward County, Texas is gathered and purchased by Dynegy.
Contracts related to the sales of natural gas and natural gas liquids in
Colorado are currently under review and are expected to be renegotiated pending
these reviews. Existing contracts with NARCO are provided as Exhibits 10.16 and
10.17. Contract terms with Dynegy are also under review and are expected to be
renegotiated. The existing contract with Dynegy appears as Exhibit 10.18.
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Business Risks
Oil and gas exploration and development drilling involves significant risk.
Exploration drilling involves the high risk drilling of wells in regions not
known to be commercially productive. Oil and gas development drilling involves
less risk, but still has a significant level of uncertainty associated with
drilling and completing oil or gas wells. Development drilling involves the
drilling of wells in areas believed to be in a high probability of petroleum
reservoir accumulation. The Company expects to employ methods, such as
three-dimensional seismic data coverage, and gravity and magnetic data
evaluation within the Company's acreage positions, to reduce risk in both
exploratory and development drilling situations.
There are other risks associated with the drilling, completion, and producing of
oil and gas reservoirs. Unusual or unexpected subsurface formations or
excessive reservoir pressure are among issues that may occur during exploration
and development activities. When operating in remote locations it is also
possible that a shortage of drilling rigs, supporting materials such as casing,
drilling mud and other services necessary in the drilling and completion of oil
and gas wells may become temporarily unavailable. In contracting for such
services the Company will make every effort to mitigate or eliminate such risks,
but no assurance can be given that the Company can avoid such circumstances.
Governmental regulation is a significant business risk of an oil and gas
company. Both domestically and internationally, new regulations promulgated
subsequent to the startup of operations in any given area may substantially
impact the economics of a project. The Company attempts to quantify these risks
to the best of its ability, but political climates and regulatory bodies are
difficult to predict. Domestically, the Company is subject to local, state and
federal laws which have an increasingly larger impact on the conduct of
business. Some of the federal laws that the Company is subject to include the
Clean Air Act, the Clean Water Act and the Endangered Species Act.
The Company may incur losses due to environmental hazards against which it
cannot insure or which it elects not to insure against because of high premium
costs or other reasons. Consequently, substantial uninsured liabilities to
third parties may arise, the payment of which could result in significant loss
to the Company. We are not currently aware of any unrecorded environmental
remediation liabilities at this time.
Environmental regulation and taxes imposed by state governments also impose
significant burdens on operations. These burdens can render uneconomic certain
properties which could have continued producing hydrocarbons had the regulations
not been imposed. The Company is vigilant in its assessment of these burdens
and the impact such regulations and taxes have on its internal rate of return.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
We entered bankruptcy on December 23, 1997. Our Plan of Reorganization was
approved October 26, 1998, at which time we emerged from Chapter 11. We expect
to close the bankruptcy proceeding in May, 2000 after the Court has disposed of
the remaining fee applications for professional services rendered during the
proceedings. Since the Plan became effective, we have been under Court
supervision with most of our cash held by the Court or various trustees for
payment of bankruptcy-related legal and other costs. Only limited cash has been
available to us for operations.
We claim that Sers stole millions in assets from us during 1993 through January
1998. Court proceedings resulted in our recovering $4.3 million in cash, and an
additional judgment against Sers for $4.8 million is pending execution.
However, the bankruptcy cost us $2.3 million out-of-pocket legal and other costs
during 1998 and 1999, and preoccupied management. The producing wells were
allowed to languish and management spent most of its time preoccupied with
bankruptcy matters.
Operating losses, net of revenues and before bankruptcy costs, were $2,010,069
and $365,166 in 1999 and 1998, respectively. Significant changes are described
in the following paragraphs.
Lease operating costs declined from $150,083 in 1998 to $108,663 in 1999. The
decline was due to the bankruptcy trustee (who ran the Company during almost all
of 1998) continuing field personnel wages early in 1998 before laying them off
in March 1998 ($30,372) and other field costs ($11,048).
Interest expense increased from $0 in 1998 to $51,711 in 1999, because of 1999
short-term borrowing. The Company had no interest bearing debt in 1998.
General and administrative expense increased from $227,828 in 1998 to $1,846,217
in 1999 due to the following:
- $160,390 in auditing expense in 1999, vs $0 in 1998. This audit was
begun to qualify for trading our stock in the public marketplace.
- $29,898 in website creation and maintenance in $1999, vs $0 in 1998.
- $185,913 in fees paid for obtaining debt financing in 1999, vs $0 in
1998.
- $1,031,591 in consulting fees, contract services and wages paid in 1999,
vs $144,212 in 1998. We opened our Houston office in late 1998, and
hired several people full-time, plus consultants, to negotiate and
operate new oil and gas ventures, such as the Chad project.
- $87,556 in nonbankruptcy-related legal fees in 1999, vs $0 in 1998.
These 1999 fees related mostly to preparing for pending SEC registration
and the Chad Concession negotiation.
- $143,577 in non-affiliate rent in 1999 vs $40,000 in 1998
- a remaining $150,547 in various other administrative costs, vs. a
remaining $25,461 in various other 1998 administrative costs.
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Rent paid to affiliates increased from $30,000 in 1998 to $59,500 in 1999,
because the office lease was initiated in September 1998 and was terminated in
August 1999.
We had little in the way of operations in 1998, but a bankruptcy court trustee
managed to expend over $600,000 in a very short period of time, primarily in
legal fees. Our bankruptcy counsel assisted us in preparing for our Disclosure
Statement and Third Amended Plan of Reorganization. Only minimal well operating
and maintenance expenses were paid in 1998, and Company replacement management
didn't begin revival efforts until November, 1998. Our Brownwood, Texas
corporate office was shut down and moved to Houston, where recent and current
management resides. All non-productive company equipment existing at the
bankruptcy filing was sold for $51,455 in total during 1999 and 1998.
We utilized three methods in 1999 to raise capital for our operations, all of
which were approved by the bankruptcy court. We issued short term notes payable
with maturities of mainly 6 months, with 15% interest, netting $1,057,721. In
a private placement to accredited investors under Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1993, we issued redeemable preferred stock
with maturity of 1 year, with a 12% dividend, netting $1,267,500. Pursuant to
our Third Amended Plan of Reorganization and Section 1145 of the Bankruptcy
Code, we sold 1,705,391 shares of our common stock to our existing shareholders,
and netted $370,628, after $54,015 in issuance costs.
These monies funded net operating activities in 1999 of $1,043,134, Chad
acquisition and development costs of $1,120,228, the purchase of office
furniture and equipment for $156,816, and $48,747 investigating an electricity
generation and marketing project in Costa Rica. The balance of cash raised by
the issuance of stock and notes payable during 1999 was used to pay various
bankruptcy-related costs not paid by the trustee or our bankruptcy law firm from
cash collected from Sers during 1998 and 1999.
Collections from Sers have been segregated and kept from our use until January
14, 2000, when we received a wire transfer for $2,570,184 from our bankruptcy
law firm, who is still reserving $499,668 to pay accumulated but unpaid legal
and other bankruptcy-related costs incurred in 1998 and 1999.
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LIQUIDITY AND CAPITAL RESOURCES
There are several factors that will impact our liquidity during this fiscal
year. Redeemable preferred stock of $1,617,500, notes payable of $52,062, and
pre-petition allowed claims, current accounts payable and accrued expenses of
$1,040,491 are all due and payable. We expect to meet these remaining
liabilities with our current cash position, funds held by the trustees, cash
from oil and gas production, new ventures yet to be announced and, if necessary,
through temporary financing. We expect that some of the redeemable Preferred
Stock will be converted to equity, thereby relieving to some extent the debt
redemption requirement. We also hold open the option for a public offering as we
proceed forward with conclusion of our public filings with the SEC and NASDAQ.
We owe the Internal Revenue Service $213,564 in unpaid payroll and income taxes
and related penalties for failure to file returns covering these taxes from 1993
to 1996. We believe we may still get this judgment voided, but if we have to pay
all of this amount, only $35,594 is due in 2000, with the balance due in 5
remaining annual installments. The $35,594 was included in the prior listing of
currently-due accounts payable and accrued expenses.
We have several pending or threatened lawsuits against us. Ron Lemon, a former
employee, sued us for breach of an alleged employment contract. Rudy Olschewski
threatened a lawsuit related to an alleged promise to reimburse his prior cost
on the Costa Rica project. We have a possible dispute concerning a $500,000
contingent sunk cost reimbursement, originally agreed to be owed to Carlton
Energy Group, LLC, subject to Trinity's review and approval of such costs.
Carlton Energy Group's chairman, our former CEO, T.C. O'Dell, promised to
forgive this obligation prior to the Chad farmout to Cliveden. The document
relating this agreement has not yet been received in writing from O'Dell. We
might have to pay something to settle these claims, but we feel we owe nothing
on them.
This obligation is not shown as a liability on the balance sheet, because we
feel the likelihood of payment is remote.
We owe $463,177 to 5 employees and $109,500 to 3 consultants during 2000
according to contracts we signed in 1999. In addition, we are still liable for
$136,557 in office rent during 2000. We are currently trying to renegotiate
several of these obligations.
The above obligations are substantial and daunting. However, we have a number
of opportunities available to us in 2000 to enable us to meet these obligations
and more.
We have 18 wells, most of which had been in need of varying amounts of downhole
equipment replacement and reservoir stimulation investment in order to return to
profitability. We have already accomplished much of the workover (equipment
replacement / stimulation) activity as specified in the Third Amended Plan of
Reorganization with positive results. See an expanded discussion of this
activity in Item 3, Description of Property. In addition, certain of our oil
and gas leases are indicated to have potential for additional development
drilling. We have spent considerable time studying these in-house opportunities
and currently estimate our workover and development drilling investment could be
up to $1,436,000 in 2000. If made immediately, and if our estimated recovery
occurs, we should more than recover our costs. However, key assumptions in this
analysis are still being assessed, and we don't yet know how much of this
investment we will make. Various third parties have also expressed interest in
participating in some of these wells.
We are also seeking immediate cash flow generating opportunities with manageable
risk in both domestic and international oil and gas exploration and development
markets. Joint ventures with other companies engaged in oil and gas exploration
and development and the purchase of producing properties whose current net
proceeds are likely to significantly exceed current and projected future
expenses are examples of such opportunities.
We are actively engaged in additional fundraising efforts to increase our
working capital for 2000. These efforts can include additional stock and debt.
If we are successful in these efforts, we will proceed with the commitment of
funding those projects which our internal evaluations have verified to be
consistent with our internal rate of return objectives. If we are not
successful in these efforts, we will take steps in the immediate future to
carefully manage existing capital. These steps would include further staff
reductions and other strategic decisions which might include attempts to sell
some of our existing assets. Based on the current status of discussions with
financial entities who have expressed an interest in providing us capital
support in the near term, we expect to be successful in our attempts to raise
capital funding. Subsequent to these anticipated outcomes, we are confident
that we can finish the year 2000 with a healthier balance sheet, all of the
bankruptcy claims forever behind us, and an active trading stock.
1997, 1998, 1999 DOMESTIC OIL, GAS AND CONDENSATE PRODUCTION STATISTICS:
Oil and gas production at various Company properties in the states of Texas,
Colorado and Wyoming is summarized as follows:
1999 1998 1997
------ ------ ------
Average Sales Price per Barrel of Oil $16.81 $10.82 $17.86
Average Sales Price per MCF of Gas $1.795 $1.378 $1.418
Average Production (Lifting) Cost
per Barrel Oil Equivalent $14.53# $10.22 $9.14
# The excessive unit lifting costs for 1999 are primarily related to an event in
the attempt to restore production at one of the Nova Wyoming properties. This
event occurred prior to Trinity's taking effective control of Nova operations.
The Company's target for lifting costs in these properties is to be below $5.00
per barrel by yearend 2000. Excepting this singular event in, lifting costs for
1999 would have been $7.11 per barrel. Lifting costs in 1998 were largely
impaired by the then controlling Trustee who expended significant capital toward
virtually non-productive Texas assets. Exclusive of this activity, lifting
costs would have been $8.70 per barrel.
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Productive Wells*
Oil Gas
------ -----
Gross 19 16
Net 16.62 14
* Not all wells that can produce are currently producing. See Item 3.
All but three wells in the inventory produce both oil and gas.
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Developed Acreage Gross 3720 acres
Net 3173 acres
Undeveloped Acreage Gross 640 acres
Net 338 acres
Drilling Activity 1999: None
Present Activity:
Numerous wells in the Colorado inventory have recently undergone workover
activity. The Hartwich #1 is under staged workover, beginning November 1999.
Pending final results of this workover, the potential exists for the drilling of
at least one or more locations which would further develop this reservoir.
Other leases in the Company's inventory also have potential for development
drilling. See Item 3.
At the time of this writing, workover equipment was on location in Ward County,
Texas, on behalf of the Company and making progress toward recompletion of the
Hartwich well in our Quito field property.
Texas Property - Quito Field, Hartwich lease, Ward County
(Unaudited)
1999 1998 1997
---- ---- ----
Oil Production (BBLS) 0 0 841
Gas Production (MCF) 0 0 1,833
Colorado Property - Comanche Creek / Deadeye Fields, Elbert County
1999 1998 1997
---- ---- ----
Oil Production (BBLS) 1,942 6,279 7,657
Gas Production (MCF) 6,382 24,537 32,907
Wyoming Property 1 - Davis Federal Lease, Campbell County
1999 1998 1997
---- ---- ----
Oil Production (BBLS) 1,059 0 1,471
Wyoming Property 2 - Carey Federal Lease, Crook County
1999 1998 1997
---- ---- ----
Oil Production (BBLS) 0 941 783
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Wyoming Property 3 - Wood Field, Crook County
1999 1998 1997
---- ---- ----
Oil Production (BBLS) 1,688 1,826 1,963
Total Gross Oil Production(BBLS) 4,689 9,046 12,715
Total Gross Gas Production(MCF) 5,993 24,537 34,740
Total Net Oil Production (BBLS) 4,098 7,906 11,113
Total Net Gas Production (MCF) 5,238 21,445 30,362
Overall Field Operations - Domestic:
(Consolidated Trinity & Nova) 1999 1998 1997
---- ---- ----
Revenues from Oil
and Gas Production $78,382 $82,786 $326,316
Lease Operating Costs 108,663 150,083 169,254
Federal, State And Local Taxes 7,283 15,265 29,316
Depletion 11,985 27,367 38,839
Total Cost of Field Operations 127,931 192,715 237,409
Net Income (Loss)
from Field Operations (49,549) (111,977) 88,907
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns an interest in various oil and gas wells in Colorado, Wyoming
and Texas. Some wells in the Company's inventory are currently non-productive
due to lack of maintenance and capital resources over the course of the past two
years. The following table summarizes all proven developed producing (PDP) and
proven developed shut-in (PDSI) properties in the Company's inventory, as of
March 27, 2000:
14
<PAGE>
<TABLE>
<CAPTION>
Lease / Well Name Field / State Status Working Net Revenue
Interest Interest
<S> <C> <C> <C> <C>
Hartwich 1 Quito /TX PDP 1.000 .750
Wood 14-1 Wood/WY PDP 1.000 .8550
Davis Federal 24-33 Heath / WY PDP 1.000 .902624
Carey Federal 2 Gas Draw/WY PDSI 1.000 .9570
Amoco 'E' 469-1 Comanche Creek/CO PDP 1.000 .8200
Amoco 'E' 469-2 Comanche Creek PDP 1.000 .8200
Amoco 'E' 469-4 Comanche Creek PDP 1.000 .8200
Whitehead 4-11 Deadeye/CO PDP 0.706015 .616697
Whitehead 4-13 Deadeye PDP 1.000 .873934
Whitehead 8-15 Deadeye PDP 1.000 .8747
Whitehead 12-7 Deadeye PDP 1.000 .8750
Whitehead 12-16 Deadeye PDP 1.000 .8750
Whitehead 18-04 Deadeye PDP 1.000 .8739
Miller 6-11 Comanche Creek PDP 1.000 .8500
Miller 6-15 Comanche Creek PDSI 1.000 .8500
Morris 13-4 Comanche Creek PDP 1.000 .8744
Morris 24-4 Comanche Creek PDP 1.000 .8744
Sarti 24-2 Comanche Creek PDP 1.000 .8739
Sarti 24-10 Comanche Creek PDP 1.000 .8739
</TABLE>
Existing Domestic Production Interests
The Company is addressing opportunities for workover and/or development
drilling on the Hartwich lease in Ward County, where both oil and gas can be
produced and sold to a local gathering system. Engineering and geologic due
diligence reviews are underway to determine the most appropriate options for our
long term interests in this property. A detailed description of objectives in
this lease appear below.
In addition to the above, Trinity entered into an agreement in 1996 where
Trinity would effectively absorb the assets of a Casper, Wyoming based company
named 'Nova Energy, Inc.' The properties are located in Campbell and Crook
Counties, Wyoming and Elbert County, Colorado and are more fully described in a
section below.
Texas Property
The Company has divested itself of a non-producing asset, consisting of property
located in Brown County, Texas, by virtue of assignment of its "Smith" leases
within the Brown County Regular Field to H & W Marketing Company, Abilene,
Texas, an unrelated company. The transaction became effective on January 28,
2000. The transaction includes the assumption by H&W Marketing Company of the
plugging liability of 15 wells which at one time produced, and which still may
produce from the Cross-Cut Sand at approximately 1200 feet below ground surface.
15
<PAGE>
The Company is in the process of closing down operations on a non-producing
property in Coleman County, Texas where at one time natural gas was produced in
conjunction with the operation of a nitrex plant. Trinity will be plugging 19
wellbores in the "Jamison" and "Skelton" lease areas within the Coleman County
Regular and Jamison South Fields. We expect to spend approximately $22,800
plugging these wells during the second quarter 2000.
Delaware Basin of Greater Permian Basin Ward County,Texas
Quito Field
Hartwich No. 1
640 acres gross, 320 acres net on 40-acre checkerboard
75% Net Revenue Interest/100% Working Interest
A well originally drilled in 1972 and completed by Pennzoil in January, 1973,
has potential value as a workover candidate. Original total depth (TD) for the
well was 17,500 feet, with original completion accomplished in the 'Fusselman'
zone, flowing approximately 2.08 Billion cubic feet gas (BCFG), with no reported
water production, in about one and a half years before abandonment for unknown
reasons. Downhole complications or rapid water encroachment are suspected.
Pennzoil then moved uphole in 1975 to produce from the 'Delaware' at about 4850
feet, eventually producing about 7,500 barrels oil (BO), prior to abandonment of
that zone in 1977. At the time of abandonment, the well was producing 5.0
barrels oil per day (BOPD), 11 thousand cubic feet gas per day (MCFGD) and 7.5
barrels water per day (BWPD). This zone is considered as potential and
inexpensive re-entry candidate. Based on other nearby Delaware producing wells,
the zone could yield a minimum of 20,000 barrels (BBLS) additional primary
production. It is conservatively estimated that payout of such a workover
would range from three to six months.
In 1978 Pennzoil closed off Delaware perforations to move back downhole to
address what were then termed 'Wolfcamp' sand zones. Production was established
over a depth range of 10,605 to 10,786 feet. Recompletion of this zone involved
a small and, by today's standards, probably inadequate hydraulic fracture (frac)
stimulation which included the placement of 40,000 lbs sand acting as fracture
proppant (opening) material into hydraulically created fractures in the
producing formation. Initial production flowing from the zone was 22 BOPD, 66
MCFGD and 16 BWPD, from what we now know to be the 'Bone Spring' zone. The well
was eventually shut-in from about 1987-1990. Trinity (then Jubilee) attempted
to re-establish production, but has never had economic production from the zone.
We are currently underway with preliminary production testing and workover
equipment to determine our future involvement in this lease.
Nearby and in the recent past, operators such as Enron, Pioneer Resources and
others have been successful in applying new technologies to better address the
relatively low natural permeability of the Bone Spring sands. Initial
production rates as high as 800 BOPD have been reported, with rates of 250 BOPD
not uncommon in wells placed in geologically appropriate locations. These new
generation fracs are designed to pump up to 200,000 lbs sand into as many as
five separate sand bodies. Recent estimates for the typical stimulation
procedure, including workover rig and all service company facilities are about
$125,000- $150,000.
16
<PAGE>
Depending on initial production rates, the Company anticipates the procedure
should payout in from one to three months. Some nearby wells in the trend have
yielded cumulative production of over 200,000 BO (and over 0.25 BCFG) in less
than 2 years. Wireline log calculations and all pertinent geological indicators
are favorable for this re-entry. If successful, the drilling of additional
proved undeveloped locations would be warranted.
Colorado Properties
Denver Basin Elbert County, Colorado
Comanche Creek & Deadeye Fields
Acreage Block: 3,560 acres
Working Interest/Net Revenue Interest: 100% to 70.6% / 87.5% to
61.66%
Total wells currently producing: 15
Producing zone @ Depth: 'D'&'J' Sands, Cretaceous Muddy @ 7500-7800 ft
Current Daily Production: 60 BOPD + 250 MCFGD
The daily production indicated above is the result of the judicious application
of workover funding fieldwide. Immediately prior to the workover activities,
daily oil production had declined to about 2.5 BOPD and about 10 MCFGD. We do
anticipate that daily production levels listed above will decline in the near
future as the formerly built up pressures and oil and gas volumes in the
immediate vicinity of the wellbores decrease. We do not know how long it will
take for the reservoir to settle back to a consistent production level. If the
production rates above occurred consistently over a one year period, production
revenue exclusive of operating costs would be approximately $480,420 assuming an
average oil price of $22/bbl.
Operating expenses will increase with these reconditioned facilities, but the
property will be profitable. Production characteristics will be monitored
carefully to insure that profit margins meet or exceed our internal
requirements.
17
<PAGE>
Secondary Recovery Potential
Consideration is being given to the feasibility of either a secondary recovery
effort which could involve either a waterflood or a carbon dioxide (CO2) flood
to recover additional reserves from this reservoir. To the extent of our
current knowledge, no part of the Comanche Creek / Deadeye complex has been the
subject of any type of secondary recovery pilot. The nature of sand body
distribution, porosity, permeability and other factors lead us to conclude that
the matter deserves further attention. Given that the reservoir has largely
been gas-depletion driven throughout it's history, it would seem more amenable
to CO2 flooding; however, this method may be cost prohibitive due to
transportation costs and other factors which have not been fully examined.
- --------------------------------------------------------------------------------
Wyoming Properties - Powder River Basin
Crook County, Wyoming Wood 14-1
Net acreage: 40 acres
Working Interest / Net Revenue Interest 100% / 85.5%
Wells producing: 1
Producing Zone @ Depth Cretaceous Dakota @ 5580 ft
Current Daily Production / Potential 5.5 BOPD / 5.5 BOPD
Development Potential: None indicated at this time.
Crook County, Wyoming 2 Carey Federal
Net Acreage: 80 acres
Working Interest / Net Revenue Interest: 100% / 95.7%, Production level
dependent
Wells producing: 1 (currently shut-in)
Producing Zone @ Depth: Cretaceous Muddy @ 7300 ft
Current Daily Production / Potential: 0 BOPD / 3.0 BOPD (down for repairs)
Development Potential: Subsurface mapping supports the drilling of one
additional well, a direct offset east of the currently shut-in well. Such a
well should encounter structurally and stratigraphically advantageous conditions
compared to 2 Carey Federal. Reserves associated with this location should
exceed 85,000 BO. Feasibility studies relating to this potential are underway.
Campbell County, Wyoming Davis Federal 24-33
Net Acreage: 40 acres
Working Interest/Net Revenue Interest: 100% / 90.2%, variable, production
level dependent
Wells producing: 1
Current Daily Production: 7.0 BOPD
Development Potential: None indicated at this time.
18
<PAGE>
DOMESTIC OIL AND GAS PROPERTY RESERVES
The future income related to the current oil and gas producing property
inventory is summarized in the following table:
Net Reserves Net Revenues
Category Oil Gas Total NPV @10%
(Barrels) (MCF) Discount
Proved Developed 94,930 281,000 $1,135,300 $877,100
Proved Undeveloped 84,216 0 $1,234,600 $796,100
Total Proven Reserves 179,146 281,000 $2,369,900 $1,673,200
Regarding the table above, the following definitions apply:
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e. prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based on future conditions.
Proved Developed Oil and Gas reserves: Proved developed oil and gas reserves are
- -------------------------------------
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods.
Proved Undeveloped Reserves: Proved undeveloped oil and gas reserves are
- -----------------------------
reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably certain of production when
drilled.
19
<PAGE>
International Initiatives
Republic of Chad:
Trinity entered into an agreement with Oriental Energy Resources, Ltd. and
Carlton Energy Group in November 1998 wherein Trinity would become 100% working
interest owner and Operator of a 108 million acre concession in the Republic of
Chad. The Chadian Ministry of Petroleum approved a Convention Agreement in
February 1999 which specified work obligations and commitments into the future.
While the project was attractive for a number of reasons, it was, from its
inception, agreed that outside party assistance would be required in order to
satisfy all ongoing obligations associated with the project. Substantial
efforts were applied by Trinity toward the goal of establishing industry
partnerships to advance the project. Eventually, a Farmout Option Agreement was
entered into between Trinity and Cliveden Petroleum Company, Ltd. ("Cliveden")
on May 5, 1999.
Our ability to market the project was significantly linked to the
expectation of the Chad Export Pipeline being approved by the World Bank as
early as September, 1999. As of the date of this report the approval has not
yet been rendered. In mid-November, Royal Dutch Shell's Chad affiliate and Elf
Aquitaine's Chad affiliate, both partners with a Consortium leading Exxon Chad
affiliate, appeared to be withdrawing their position in the pipeline project.
This apparent condition was publicly disclosed in an announcement made by the
Chad government. Confirmation and explanation of this apparent withdrawal have
yet to be announced. Nonetheless, the current makeup of the Exxon-led
Consortium remains unresolved. Given the uncertainty in the pipeline issue and
economic factors, Trinity redefined its goals as to its future position in the
project.
Trinity has entered into a Farmout Agreement with Cliveden, a British
Virgin Islands corporation, whereby Cliveden will be responsible for funding all
ongoing operations, including all exploration, drilling and completion
expenditures. The Agreement was dated December 27, 1999 and appears as Exhibit
10.12 to this filing. This obligation includes the maintenance and operation of
the N'Djamena, Chad office opened by Trinity in June, 1999. In exchange for
this assumption of our funding and management obligations, we anticipate
receiving payment of $1.5 million pro rata with Cliveden's recovery of its
prospect marketing costs, and an opportunity to participate for up to a 5%
working interest in the project after payout of exploratory costs. Exploratory
costs associated with the project over the initial five years may approach $26
million. Production proceeds, if any, will need to exceed these costs prior to
Trinity's back-in privilege becoming effective. The farmout agreement and the
assignment of the acreage is pending final approval by the Chad government. We
anticipate final approval of the assignment to be occurring in the very near
future. In the event that the assignment is not approved, Trinity and Cliveden
would attempt to work together to resolve the issue.
20
<PAGE>
Potential Involvement in Angola Offshore Block 6
By virtue of its relationship with Carlton Energy Group, LLC.("Carlton"),
Trinity was invited to participate for a variable interest of up to 35% in an
offshore Production Sharing Agreement, wherein Carlton Energy was charged with
assembling a Consortium for exploration of said Block. As of the date of this
document, Carlton has not been successful in presenting its plan for Consortium
action to Sonangol, the State Oil Company of Angola. By virtue of continuing
agreement clauses with Carlton, Trinity believes it has preferential rights
which may result in an ultimate position in the project. Trinity's Board was
awaiting additional information from Carlton when an agreement between the
parties expired on December 31, 1999. However, such termination date shall be
extended indefinitely as long as actual negotiations on Block 6 between the
Government of Angola (Sonangol) and Carlton Energy Group, LLC are continuing.
Carlton has disputed any continuing right or interest on the part of Trinity in
this agreement. Trinity reserves any further comment at this time.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 19, 2000, information regarding
the beneficial ownership of shares of Common Stock by each person known by us to
own five percent or more of the outstanding shares of Common Stock, by each of
our Officers, by each of our Directors, and by our Officers and Directors as a
group. On December 31, 1999 there were 63,430,454 shares issued and outstanding
of record.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
NAME & ADDRESS OF COMMON AS OF
BENEFICIAL OWNERS STOCK DECEMBER 31, 1999(1)
- ------------------------------------- -------------- --------------------
<S> <C> <C>
Dennis E. Hedke 95,000 (2),(3) .1%
2002 S. Mason Road, Apt. 1311
Katy, TX 77450
Arthur C. Teichgraeber 875,000(3) 1.3%
3650 Piping Rock
Houston, TX 77027
Bruce A. Reichert 65,000(3) .1%
2703 McKeever Road
Rosharon, TX 77583
John W. Mahoney 0 0
15030 Cypress Falls Drive
Cypress, TX 77429
James E. Gallien, Jr. 0 0
4403 Adonis
Spring, TX 77373
All Executive Officers and Directors
as a group (5 persons) 1,031,000 1.6%
- ----------------
<FN>
1 Based upon 63,430,454 shares issued and outstanding on December 31, 1999
without giving effect to the possible conversion of the 161,750 shares of
Preferred Stock issued and outstanding which if fully converted would result in
the issuance of 6,470,000 additional shares of Common Stock
2 Mr. Hedke disclaims any beneficial interest in the shares owned by his
father (10,000 shares) or by his brothers (6,000 shares and 4,000 shares,
respectively) or his two children (100 shares each).
3 Does not include options to purchase an additional 65,000 shares at $.75
per share, being issued for services as a director.
</TABLE>
21
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position
- ---- --- --------
Dennis E. Hedke 47 Exec. Vice-President, COO, Director
(Interim President, CEO)
Arthur C. Teichgraeber 43 Director
Bruce A. Reichert 42 Director
John W. Mahoney 45 Vice-President, Secretary, General
Counsel
James E. Gallien, Jr. 52 Exec. Vice-President, CFO,
Director
The terms of office for the current members of the Board of Directors, excepting
James E. Gallien, Jr. commenced on October 27, 1998, upon confirmation by the
Bankruptcy Court of the Plan of Reorganization. Their terms are for a period of
one year or until their successors are duly elected and qualified. James E.
Gallien, Jr. was elected to the Board on October 27, 1999. Messrs. Hedke,
Teichgraeber and Reichert were re-elected on October 27, 1999.
At present, the Board of Directors has an Audit Committee, and Executive
Compensation Committee and a Strategic Planning Committee. The Audit Committee
consists of Messrs. Gallien, Teichgraeber and Reichert (Chairman). The
Executive Compensation Committee consists of Messrs. Teichgraeber (Chairman)
Reichert and Hedke. The Strategic Planning Committee consists of Messrs.
Teichgraeber (Chairman) and Hedke. The Executive Committee consists of Messrs.
Hedke (Chairman), Gallien and Mahoney.
22
<PAGE>
Biographies for the directors and significant employees are:
DENNIS E. HEDKE has, since 1986, served as an oil and gas exploration consultant
to a variety of firms engaged in domestic and foreign exploration and
development. He has had extensive domestic assignments in the Mid-Continent,
Rocky Mountains, Texas and Gulf Coast. His international assignments have
included projects in the Middle East, the former Soviet Union, West Coast
Africa, and Colombia, South America. His responsibilities have covered deal
structuring and negotiation, technical data assessment, economic assessment and
operations control. Mr. Hedke was graduated in 1976, with a B.S. in Geophysics,
from Kansas State University and then received an M.S. in Materials Science from
the University of Virginia in 1979.
A.C. TEICHGRAEBER received a degree in Production Management Engineering
Technology from Kansas State University in 1978. Since July 1, 1999 he has been
President and Chief Executive Officer of Oil Quip, Inc., Houston, Texas.
Immediately prior to his present involvement, from April 17, 1997 to July 1,
1999, he had been President and Chief Operating Officer of the Drilling
Equipment Division of IRI International Corporation, with responsibility for
worldwide sales and manufacturing activities. From 1989 to 1997 he was
President and Chief Executive Officer of Cardwell International, Ltd., in charge
of purchasing technology and licenses to manufacture the line of Cardwell
drilling, workover and well servicing rigs.
BRUCE A. REICHERT has been Vice President of Engineering for Input/Output, Inc.,
a manufacturer of equipment used in the seismic exploration for oil and gas,
where he is responsible for the development of new products while improving
existing products, since January, 1998. Before that he was an Associate
Professor of Mechanical Engineering at Kansas State University from October,
1994 to January, 1998. From May, 1989 to October, 1994 Dr. Reichert was a
Research Engineer at the NASA Lewis Research Center. Dr. Reichert was graduated
from the U.S. Naval Academy in May, 1979 with a B.S. in Mechanical Engineering.
He also holds both a Masters Degree (1987) and a PhD (1991) in Mechanical
Engineering from Iowa State University.
JOHN W. MAHONEY was associated with the law firm of Williams, Birnberg &
Andersen LLP in Houston, Texas from January, 1996 to July, 1999. Before that he
was associated with the Houston law firm of Hofheinz, Mahoney & Jones from 1993
to December, 1995. Mr. Mahoney is a 1976 graduate of Central Missouri State
University and received his J.D. from the College of Law of the University of
Tulsa in May, 1979.
JAMES E. GALLIEN, JR. is a Certified Public Accountant since 1975. After he was
graduated by Louisiana State University in 1970 with a B.S. in Finance, Jim was
in the armed forces until 1972 and then held accounting jobs until 1980. In
1980 he opened his own accounting practice which he continued until 1998. He
was CFO of Winn Fuel Systems, Inc. from January,1998 until June 30, 1999, when
he joined us.
23
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION OF MANAGEMENT - EMPLOYMENT AGREEMENTS
- -------------------------------------------------------
The Plan of Reorganization as approved by the Bankruptcy Court authorized the
execution of three-year employment agreements with Messrs. O'Dell and Wallace,
with terms consistent with those set forth in the Plan. Both employment
relationships have been terminated. Mr. Wallace resigned as President on August
24, 1999, after disagreements regarding philosophy and management style
developed between Mr. Wallace, President and Chief Operating Officer and T.C.
O'Dell, Chairman of the Board and Chief Executive Officer. Accordingly, it was
mutually agreed that Mr. Wallacee's employment relationship should be
terminated, with the Company receiving the benefit of continuity of his advice
as a Consultant. His Employment Agreement, which contained certain severance
provisions, was replaced and the severance provisions were superceded by a one
year consulting agreement calling for monthly payments of $10,000 and providing
for 3,000,000 stock options each exercisable for five years after vesting to
purchase one share of our Common Stock per option, which vest and have exercise
prices as follows:
(i) one third after the nine month anniversary of the confirmation of the
Plan of Reorganization at an exercise price of $ .25 per share;
and
(ii) one third after the fifteen month anniversary of the confirmation of
the Plan of Reorganization at an exercise price of $ .25 per share;
and
(iii)one third upon the termination of the consulting agreement at an
exercise price of $1.50 per share.
Mr. O'Dell resigned on January 25, 2000. After careful consideration and
discussion, the Board of Directors and Mr. O'Dell decided that Mr. O'Dell would
resign as President, Chief Executive Officer and Board member because of
philosophical differences about the direction of the Company. As part of the
settlement reached with the Company, which superseeded the severence provisions
of his employeement contract, he received 3,250,000 stock options,
exercisable for two years from the date of resignation to purchase one share of
our Common Stock per option at a price of $ .25 per share.
On July 1, 1999 we entered into an Employment Agreement with Mr. Mahoney. The
term of the Agreement is for two years, the salary due is $10,000 per month,
there are fringe benefits including a $667.00 per month car allowance, a monthly
health insurance provision of $239 to cover a pre-existing policy, and Mr.
Mahoney received 999,000 stock options, each exercisable for a term of five
years after vesting to purchase one share of our Common Stock per option, which
vest and have exercise prices as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days prior
to the second anniversary; and
(iii)one third after the second anniversary of the confirmation of the Plan
of Reorganization at a price per share of 30% under the average of
the last five trading days prior to such second anniversary.
On September 1, 1999 we entered into an Employment Agreement with Mr. Hedke.
The term of the Agreement is for three years, the salary due is $10,000 per
month, there is a $750 per month car allowance, and there is an agreement to pay
Mr. Hedke's relocation expenses from Kansas, including temporary storage of his
personal effects until he establishes a permanent residence. The total amount
paid for these expenses in 1999 was $9,691. There is a $300 per month provision
for medical benefits allowance, which has not been taken as of 12/31/99. Mr.
Hedke received 1,000,000 stock options, each exercisable for a term of five
years after vesting to purchase one share of our Common Stock, which vest and
have exercise prices as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the eighteen month anniversary of employment at a
price per share of 30% under the average of the last five trading
days prior to such anniversary; and
(iii)one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days
prior to such second anniversary.
24
<PAGE>
Also on September 1, 1999 we entered into an Employment Agreement with Mr.
Gallien. The term of the Agreement is for three years, the salary due is
$10,000 per month, there is a car allowance of $750 per month, and $300 per
month allowance for medical benefits, which has not been taken as of 12/31/99.
Mr.Gallien received 1,000,000 stock options, each exercisable for a term of five
years after vesting to purchase one share of our Common Stock, which vest and
have exercise prices as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the eighteen month anniversary of employment at a
price per share of 30% under the average of the last five trading
days prior to such anniversary; and
(iii)one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days
prior to such second anniversary.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
<S> <C> <C> <C> <C>
Name and Principal Car
Position at 3/31/00 Year Salary Bonus Allowance
Dennis E. Hedke 1999 $120,000 None $9,000
Executive Vice-President 2000 $96,000* None None*
(Interim President & CEO)
James E.Gallien, Jr. 1999 $120,000 None $9,000
Executive Vice-President and 2000 $96,000* None None*
Chief Financial Officer
John W. Mahoney 1999 $120,000 None $8,004
Vice-President and General 2000 $96,000* None None*
Counsel
<FN>
* Effective current rates as of April 1, 2000. Members of the Executive Committee have all
agreed to accrue 20% of their salary allotments and 100% of Car Allowances until such time as
the Company has confirmed capital funding support currently being formulated. Similar cuts
have been instituted across the board to include consultants and independent contractors.
</TABLE>
A provision for a $250,000 death benefit for all above employees was included in
original contracts with these individuals. However, all have waived that
provision until the Company can afford such a policy.
No salaried compensation was provided for the above individuals prior to 1999.
25
<PAGE>
Option Grants in the Last Fiscal Year
Set forth below is information relating to grants of stock options to the former
Chief Executive Officer pursuant to the Company's Stock Option Plans during the
fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
% of Total
Options
Granted to Exercise or
Employees Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date
<S> <C> <C> <C> <C>
T.C. O'Dell 3,250,000 76.47% $ 0.25 1/25/2002
Michael L. Wallace 1,000,000 23.53% $ 0.25 6/26/2004
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following his retirement from Conoco Overseas Oil Company, Thomas C. O'Dell
organized Carlton Energy Group, LLC., of which he is the Chairman and Managing
Director, to pursue energy sector investments worldwide. He was approached by
members of the Shareholders' Committee in the Chapter 11 proceeding and agreed
to assume a management role in the Company. Until his resignation on January
25, 2000, he was Chairman, President and Chief Executive Officer of the Company.
On behalf of Carlton Energy Group, LLC. he has been seeking out and negotiating
oil and gas exploration, development and production contracts. Under his
employment agreement, now terminated, he had agreed to assign such contracts to
us, or to permit us to participate in consortiums which are pursuing or
exploiting such contracts. The Chad Concession contracts were the result of such
arrangement.
Mr. O'Dell loaned up to $400,000 to the Company for operating capital during
1999, with interest ranging from 8.75% - 12% and collateralized by the Texas
Hartwich lease. As of March 31, 2000, the unpaid balance is $0.
The Company leased office space from O'Dell's company, Carlton Energy Group,
Inc. at $7,500 per month through August 1999, totaling $59,500 in 1999 and
$30,000 in 1998.
26
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
At a Special Meeting of our Stockholders held on March 17, 1999, our capital
structure was changed. Our new capital structure consists of shares of
Preferred Stock and Common Stock, both having a par value of $.001 per share.
The authorized classes, and the amount or number of each which are authorized
and outstanding as of January 18, 2000, are as follows:
AUTHORIZED OUTSTANDING
---------- -----------
Preferred Stock 50,000,000 Only 1999 Series Designated
1999 Series 1,600,000 161,750
Common Stock 300,000,000 63,430,454
PREFERRED STOCK
- ----------------
The 50,000,000 shares of Preferred Stock authorized are undesignated as to
preferences, privileges and restrictions. As the shares are issued, the Board
of Directors must establish a "series" of the shares to be issued and designate
the preferences, privileges and restrictions applicable to that series. To
date, the Board of Directors has designated only one series: the 1999 Series of
Convertible Redeemable Preferred Stock, consisting of 1,600,000 shares with the
following characteristics:
Stated Capital - the stated capital is $10.00 per share, which is the price paid
by the investors in the 1999 series.
Relative Seniority - The 1999 Series is senior to the Common Stock and will be
senior to all other series of the Preferred Stock which, when issued, are
designated as junior.
Voting - The 1999 Series votes as a class with the Common Stock and each share
has 40 votes.
"Put" for Repurchase - After a holding period of 12 months, a holder may put his
shares back to us for repurchase. The repurchase price is $10 (the stated
capital) plus a premium calculated as 12% per annum of the stated capital from
the date of issuance, less any dividends declared and paid.
Redemption - We have the right, exercisable after June 30, 1999, to redeem the
shares of the 1999 Series. The redemption price is $10 (the stated capital) plus
a premium calculated as 12% per annum of the stated capital, less any dividends
declared and paid.
Conversion - Each share converts into 40 shares of our Common Stock, at the
discretion of the holder, at any time after June 30, 1999.
Liquidation Preference - The holders of the 1999 Series shall receive a
preferential liquidation distribution of $10 per share, plus any dividends
declared but unpaid, before any distribution is made with respect to any junior
class or series of stock.
Preemptive Rights - The 1999 Series does not carry preemptive rights to
subscribe to future stock issuances.
27
<PAGE>
COMMON STOCK
- -------------
The authorized common equity of the Company consists of 300,000,000 shares of
Common Stock, with a $.001 par value, of which 63,430,454 shares of Common Stock
are issued and outstanding as of January 18, 2000Shareholders (i) have general
ratable rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors; (ii) are entitled to share ratably in all
assets of the Company available for distribution to shareholders upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters on which shareholders may vote at all
shareholder meetings.
The Common Stock does not have cumulative voting rights, which means that the
holders of more than fifty percent of the Common Stock voting for election of
directors can elect one hundred percent of the directors of the Company if they
choose to do so. The Company, which has had no earnings, has not paid any
dividends on its Common Stock and it is not anticipated that any dividends will
be paid in the foreseeable future. Dividends upon Preferred shares must have
been paid in full for all past dividend periods before distribution can be made
to the holders of Common Stock. In the event of a voluntary or involuntary
liquidation, all assets and funds of the Company remaining after payments first
to any creditors of the Company, and secondly to the holders of Preferred Stock,
will then be divided and distributed among the holders of Common Stock according
to their respective shares.
Upon re-commencement of public trading, our Company's Common Stock will be
subject to the penny stock rules. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on NASDAQ provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system) or to other than established
customers or accredited investors. (In general, "accredited investors" are
defined as institutions with assets in excess of $5,000,000 or individuals with
net worths in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 with their spouses.) The penny stock rules require a broker-dealer,
before a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in connection
with the transaction, and monthly account statements showing the market value of
each penny stock held in the customer's account. In addition, the penny stock
rules generally require that before a transaction in a penny stock, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. As a result of these rules and
their impact on trading, our stockholders may find it more difficult to sell
their securities.
28
<PAGE>
DIVIDEND POLICY
- ----------------
We have not had any dividends for our Common Stock. Our proposed operations are
capital intensive and we need working capital. Therefore we will be required to
re-invest any future earnings in the Company's operations. Our Board of
Directors has no present intention of declaring any cash dividends, as we expect
to re-invest all profits in the business for additional working capital for
continuity and growth. The declaration and payment of dividends in the future
will be determined by our Board of Directors considering the conditions then
existing, including the Company's earnings, financial condition, capital
requirements, and other factors.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
In October, 1997 the Securities and Exchange Commission began an investigation
into the market activity of our Common Stock, which was then traded on the OTC
Bulletin Board. On November 6, 1997 the SEC ordered a ten (10) day suspension
in trading of our stock. Following such a suspension, a company would be
required to provide new, up-dated information to its marketmakers before trading
could be resumed. That was not done, as on December 8, 1997 the SEC filed a
complaint against us, the then current President, Sidney W. Sers, and certain
nominal defendants (See Item 2, Legal Proceedings, following) and Mr. Sers
subsequently caused us to file a petition pursuant to Chapter 11 of the United
States Bankruptcy Code with the United States Bankruptcy Court for the Northern
District of Texas, San Angelo Division. Mr. Sers then resigned on January 12,
1998. Thereafter, we were under the operational control of the Chapter 11
Trustee. To date, there has been no re-filing of the data required to permit
the marketmakers to resume a trading market, as we have preferred to rely upon
the filing of this Form 10-SB to recommence trading. Accordingly, although
there have been sporadic transactions in our Common Stock there has been no
regular trading market.
We have never had any earnings or profits and we have never paid a dividend on
our Common Stock. (See Part I, Item 8, "Dividend Policy")
ITEM 2. LEGAL PROCEEDINGS
Except as described below we are not engaged in any pending legal proceedings.
We are not aware of any legal proceedings pending, threatened or contemplated,
against any of our officers and directors, respectively, in their capacities as
such.
29
<PAGE>
We were a defendant in the SEC's enforcement action (See Part I, Item 1
"Description of Business - Organization/Historical Background"). The action,
filed December 8, 1997 in the U.S. District Court, Northern District of Texas,
Fort Worth Division, Case No. 4-97CV-1018Y, is captioned Securities and Exchange
Commission v. Trinity Gas Corporation, Sidney W. Sers, et al. The SEC alleged
numerous violations of the Securities Act of 1933 and the Securities Act of 1934
by Sers and the Company, including (i) fraud in connection with the purchase and
sale of securities, (ii) fraud in the offer and sale of unregistered securities
and (iii) the unauthorized selling of unregistered securities. The SEC's
enforcement action has been settled with respect to us, by the entry of a
Consent Decree, although it is proceeding against Mr. Sers and the other
defendants. As our part of the settlement, we agreed not to violate the
securities laws and consented to the entry of an injunction against our
violation of the securities laws.
On December 9, 1997, Messrs. Ruth and Guillemin, former officers and in the case
of Mr. Ruth, a former director of the Company filed a stockholders' derivative
action. The action, filed in the United States District Court, Northern
District of Texas, Fort Worth Division is captioned Trinity Gas Corporation by
Richard E. Guillemin and William W. Ruth v. Sidney W. Sers, et al and docketed
as Civil Action No. 4-97-CV-1020Y. On February 11, 1998 the Company's Trustee
in the Chapter 11 proceeding substituted himself as the plaintiff. Neither Mr.
Sers nor the other defendants filed an answer to the complaint. On May 25, 1999
the District Court entered a final judgment against Mr. Sers in the amount of
$4,803,522 together with post-judgment interest. On May 27, 1999 the District
Court entered a default judgment against Trinity Gas Colombia, Ltd. awarding
damages to us in the amount of $3,130,000 together with post-judgment interest.
On December 23, 1997 the Company filed a Chapter 11 Petition for Reorganization,
docketed to Case No. 697-60425-JCA-11 in the United States Bankruptcy Court for
the Northern District of Texas, San Angelo Division. An official Equity
Committee was appointed by the United States Trustee to represent the
shareholders interest in the case. During 1998 the Equity Committee recruited
new management and with that management developed a Plan of Reorganization. The
Plan, as amended (Third Amended Plan of Reorganization dated July 27, 1998), was
confirmed by the Bankruptcy Court on October 26, 1998.
On March 31, 1999 the City Bank & Trust Company of Natchitoches (Louisiana)
filed an action against certain defendants, including us, in the Louisiana state
courts. On July 9, 1999 Trinity intervened to preserve its rights regarding the
real property which is the subject of the action and removed the case to the
United States District Court for the Western District of Louisiana, Alexandria
Division, where it was docketed to Civil Action No. 99-1239 . In this action
the plaintiff bank seeks to foreclose its lien and extinguish all other claims
to the property known as the Natchitoches Hotel, and also seeks to recover
approximately $2,000 from us for ancillary discovery proceedings. Our interest
in the hotel, which has been vacant for several years and reportedly is
contaminated with asbestos, arises because Mr. Sers used corporate funds and/or
stockholder funds to acquire the hotel. As Intervenor, Trinity filed
counter-claims seeking affirmative relief. On October 5, 1999 we assigned our
rights in this litigation to William W. Ruth, Trinity's former counsel, in
consideration of the services rendered by Mr. Ruth during certain litigation
during the bankruptcy court proceedings. Under the terms of the assignment, Mr.
Ruth will bear all expenses and costs of the litigation and will retain any real
property rights recovered as well as receive 95% of all gross proceeds received
in the litigation up to $100,000; we will receive 5% of all gross proceeds up to
$100,000 and all gross proceeds over $100,000. We do not expect to receive any
proceeds from this litigation.
30
<PAGE>
On June 21, 1999, within the main bankruptcy proceedings, we filed an action,
docketed to Adversary No. 699-6012, against the Internal Revenue Service, Sidney
W. Sers, Patricia Sers and Amanda Sers seeking recovery of approximately
$1,000,000. Our claim is that these funds can be directly traced to the
issuance of shares of our Common Stock, without consideration, to his daughter,
Amanda Sers. After Amanda Sers sold the stock, Mr. Sers allegedly used the
proceeds to pay his personal income tax liability for 1997. The Internal
Revenue Service contends that the funds were never the Company's property and
that the funds were transferred more than one year before the filing of the
Chapter 11 petition (thus precluding recovery). In addition to the claim for
the $1,000,000 we also claim an offset against the $213,564 tax liability
currently owed by us to the Internal Revenue Service. On January 6, 2000 the
Bankruptcy Court granted summary judgment in favor of the Internal Revenue
Service both with respect to the claim to the funds and the claim for an offset.
We have appealed this decision to the U.S. District Court.
On June 30, 1999, also within the main bankruptcy court proceedings, we filed an
objection to the claimed interest of Crystal Coral, Ltd. and certain affiliates.
We sought to cancel 2,000,000 shares of our Common Stock which were issued to
Crystal Coral, Ltd. The reason for our objection and effort to cancel the
shares is that Crystal Coral, Ltd. did not pay the fair market value for the
shares, but that Mr. Sers issued the shares to Crystal Coral, Ltd., whose
principal is Dr. Robert Milton, a former business associate of Mr. Sers, without
consideration. A settlement has been reached whereby 1,100,000 shares will be
returned to us and canceled and along with an obligation of one of the
defendants to us, amounting to a $40,000 payment of a note, which is
collateralized by 750,000 shares of our Common Stock, which shall be paid by
July 1, 2000.
On December 23, 1999, also within the main bankruptcy court proceedings, we
filed a complaint against Rockcrest Capital Corporation, Rockcrest Securities,
LLC, D.W. Mitchell, Max Chapman, Jim Harris, Julie Chambers and the City of
Natchitoches, Louisiana alleging fraudulent transfers of funds to these persons
based on improper acquisition and sale of our Common Stock, and, with respect to
Mr. Chapman, breach of contract for having misrepresented his ability to perform
accounting services and for overcharging us. This suit has just commenced and
the complaints are being served. Our damages are substantially unliquidated,
but we anticipate showing that several hundred thousand dollars were
fraudulently transferred.
We will preserve our claims and causes of action against our former securities
counsel, Sheinfeld, Maley & Kay ("Sheinfeld") and Robert Yeager ("Yeager")
should we determine to assert such claims. Our claims against Sheinfeld and/or
Yeager include, but are not limited to, claims for legal malpractice arising in
connection with Sheinfeld and/or Yeager's representation of us with respect to
securities issues. Specifically, Sheinfeld and/or Yeager may have failed to
provide proper legal advice concerning Samson Robbins' October 6, 1996
resignation letter and the adverse effects of failing to release that letter
into the public domain. Sheinfeld and/or Yeager may have also failed to
properly advise us regarding the use of unlicensed brokers to sell securities in
violation of federal and state securities laws and regulations.
31
<PAGE>
On December 30, 1999 Ron Lemon filed suit, docketed to No. 1999-64074 in the
133rd Judicial District Court of Harris County, Texas alleging breach of
contract and common law fraud arising out of a purported employment contract to
be our Vice President - Trading and Transactions. It is our position that prior
to the execution of the contract signed by Mr. Lemon, he was informed by our
then-Chief Executive Officer and Chairman of the Board, Mr. O'Dell, that the
proposed contract terms were unacceptable to us and that other contract terms
would have to be agreed upon in order for Mr. Lemon to become employed by the
Company. In any event, the contract signed by Mr. Lemon and the then-President
Michael L. Wallace, was never approved by the Board of Directors as required by
our bylaws. We have been served and have filed our answer to the suit, which we
shall vigorously defend.
During 1999 the Oil and Gas Conservation Commission of the Colorado Department
of Natural Resources undertook field inspections of our various wells in that
State. As a result, a number of "Notices of Alleged Violations" ("NOAVs") were
issued. Initially, our field staff did not notify us of these NOAVs and
attempted to resolve the problems, which included the failure to remove oil from
production pits, location of production pits in sensitive areas, and oil
spills. When the four initial NOAVs were not resolved the Commission instituted
proceedings, which ultimately called Management's attention to the problem.
Negotiation and settlement resulted in the filing of Administrative Orders By
Consent ("AOCs"). The proceedings were docketed to Nos. 9812-OV-17, 9812-OV-18,
0002-OV-05 AND 0002-OV-06 at the Commission. Those four AOCs were heard at the
COGCCs February 14-15, 2000 meeting. The settlements resulted in the imposition
of fines totaling $14,000 in addition to the future remediation of the problems
cited. The remaining NOAVs are being resolved by Management, in the field, and
we do not expect any further proceedings to be instituted. The $14,000 in fines
have been paid. Environmental remediation activities are underway at two sites
associated with the AOC's and we estimate costs associated with remediation
efforts will not exceed $35,000.
We have instructed our Country Manager in Chad to institute civil legal
proceedings against Mohammed Alhaji Indimi, the Managing Director of Oriental
Energy Resources, Ltd., the originator of the Chad-Carlton-Trinity consortium.
In May, 1999 we paid $350,000 to Oriental which was intended to be used for
payment fo the Chad Consortium's acreage rental for 1999. Oriental did not make
the payment and the funds were allegedly converted by Mr. Indimi.
Rudy Olschewski threatened a lawsuit related to an alleged promise to reimburse
his prior cost on the Costa Rica project. No lawsuit has been filed nor has any
other communication regarding this matter been sent to Trinity by Olschewski.
We have a possible dispute concerning a $500,000.00 contingent sunk cost
reimbursement, originally agreed to be owed to Carlton Energy Group, LLC,
subject to Trinity's review and approval of such costs. Carlton Energy Group's
chairman, T. C. O'Dell, who is also our former chairman and CEO, promised to
forgive this obligation prior to the Chad farmout to Cliveden. The document
relating to this agreement has not yet been received in writing from O'Dell and
no further demand has been made by O'Dell. Linda S. Bryant, through her
attorney, has threatened a lawsuit related to the termination of her employment
contract with us. We might have to pay something to settle these claims, but we
feel we owe nothing to any of these parties.
32
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 15, 1999, we dismissed our Accounting firm, Samson, Robbins &
Associates, PLLC ("Samson & Robbins"), and hired Malone & Bailey, PLLC ("Malone
& Bailey") to replace them. We had hired Samson & Robbins in July 1999 to
perform the required initial two-year audit for inclusion in this Form 10-SB as
required. We dismissed them after we discovered they had made very little
progress in conducting the audit since July, although they had charged us over
$120,000 to date and had given repeated assurances that they were almost
complete. The Board of Directors unanimously agreed with this change.
Samson & Robbins completed no prior audits for us, although they had also been
engaged in 1997 by previous management to perform the required initial two-year
audit. They had resigned in October 1997 after discovering fraud by this
previous management. See the "History" section for more discussion.
We had no disagreements with Samson & Robbins on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure which could not be resolved. Additionally, they never notified us
that required internal controls did not exist, that management's representations
were unreliable, or that they were unwilling to be associated with our financial
statements.
We did not request any answer from Malone & Bailey regarding application of
accounting principles or audit opinion type prior to engaging them to replace
Samson & Robbins. We have selected the firm of Malone & Bailey PLLC with offices
at 5444 Westheimer, Suite 2080, Houston, Texas 77056, as our independent
accountants and auditors, for the audit of our financial statements for the
fiscal years ended December 31,1999 and 1998. We have included our audited
financial statements for these years in this filing in reliance on the report of
that firm and upon the authority of that firm as expert in auditing and
accounting.
33
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During 1997, the prior Management issued 37,619,267 shares in various
transactions claiming various exemptions from the registration provisions of the
Securities Act of 1933. These issuances were among the reasons for the
Securities and Exchange Commission's enforcement action, brought on November 6,
1997 (See Part I, Item 1, Description of the Business - Background). We have
already secured the cancellation or forfeiture of shares and we are currently
pursuing additional litigation (See Part II, Item 2, "Legal Proceedings"). At
the end of 1997 we had 94,733,211 shares of Common Stock issued and outstanding.
We have secured the cancellation or forfeiture of 32,762,433 shares as more
fully described in the section below.
During 1998, the Bankruptcy Court issued various orders with respect to our
shares of Common Stock. First, 30,542,433 shares held by the Sers family and
affiliates were ordered canceled. Second, on November 18, 1999 we issued 30,000
shares for a claim of $7,500. We also issued 50,000 shares for a claim of
$12,500. These issuances were considered exempt from registration under Section
4(2) of the Securities Act. Third, as provided in the Third Amended Plan of
Reorganization as of October 27, 1998, we issued 65,000 shares of our Common
Stock to each of three of our Directors (Messrs. Hedke, Teichgraeber and
Reichert) and to each of the three members of the Advisory Board of Directors as
compensation for their services. These issuances were considered exempt from
registration under Section 4(2) of the Securities Act. Fourth, 540,000 shares,
out of a total holding of 2,040,000 shares, were ordered canceled as settlement
of bankruptcy claims against the holder, leaving him with 1,500,000 shares. As
a result of these various Bankruptcy Court orders, we had 64,120,778 shares
issued and outstanding at the end of 1998.
Under the Third Amended Plan of Reorganization, the Bankruptcy Court authorized
two alternatives to existing shareholders who were treated as claim holders in
order to resolve all liabilities relating to the actions of prior management:
(1) a so-called "Equity Option" whereby their allowed interests
permitted an exchange of their shares of Common Stock for (a) an
equal amount of shares of New Common Stock and (b) rights to
purchase an equal number of shares of New Common Stock at a price
of $ .25 per share; or
(2) a so-called "Cash Out Option" whereby their allowed interests
would liquidated by the distribution of a value to be calculated.
In addition, the Bankruptcy Court authorized an offering, in a private
placement, of up to approximately 64,000,000 shares at an offering price of $
.25 per share.
Shareholders holding a total of 569,011 shares elected the Cash Out Option. The
balance of the shareholders elected or were deemed to have elected the Equity
Option. The issuance of the New Common Stock and Rights was considered exempt
from registration by reason of Section 1145 of the Bankruptcy Code.
Shareholders holding a total of 1,705,391 Rights exercised those Rights. The
issuance of the 1,705,391 shares of New Common Stock upon exercise of those
Rights was also considered exempt under Section 1145 of the Bankruptcy Code.
During 1999 we issued 603,296 shares in full or partial payment for services
rendered to us. Of these, 87,476 shares were issued on 2/29/2000 to four
consultants on the Chad project, 132,830 shares were issued on 1/3/2000 to a
media consultant for work on our website and our internet stockholder voting
program, and 421,100 shares were issued on 2/29/2000 and 3/28/2000 to three
business and financial consultants. The services were valued on the basis of
the value of the services rendered and taking our shares at a value of $ .25 per
share. These issuances were considered exempt from registration under Section
4(2) of the Securities Act.
34
<PAGE>
During 1999 the Bankruptcy Court ordered the cancellation of an additional
1,680,000 shares, including 1,100,000 shares in the Crystal Coral, Ltd./Robert
Milton litigation (See Part II, Item 2, "Legal Proceedings"). In addition, we
are holding 750,000 shares under that same litigation as collateral for the
payment of the $40,000 obligation of one of the defendants.
At December 31, 1999 we had a total of 63,430,454 shares of Common Stock issued
and outstanding.
In addition during 1999 we made an offering of our 1999 Series of Convertible
Redeemable Preferred Stock under Rule 506 of Regulation D promulgated under the
Securities Act of 1933. We issued 126,750 shares to eleven accredited
investors. We received gross proceeds of $1,267,500 and paid finders fees and
issuance costs of $120,450 for net proceeds of $1,147,050. These issuances were
considered exempt under Rule 506 and Section 4(2) of the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following areas of indemnification apply to our Company:
NEVADA CORPORATION LAW
- ------------------------
Section 78.7502 of the Nevada General Corporation Law contains provisions
authorizing indemnification by the Company of directors, officers, employees or
agents against certain liabilities and expenses which they may incur as
directors, officers, employees or agents of the Company or of certain other
entities. Section 78.7502(3) provides for mandatory indemnification, including
attorney's fees, if the director, officer, employee or agent has been successful
on the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein. Section 78.751 provides that
such indemnification may include payment by the Company of expenses incurred in
defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the
person indemnified to repay such payment if he shall be ultimately found not to
be entitled to indemnification under the Section. Indemnification may be
provided even though the person to be indemnified is no longer a director,
officer, employee or agent of the Company or such other entities. Section
78.752 authorizes the Company to obtain insurance on behalf of any such
director, officer employee or agent against liabilities, whether or not the
Company would have the power to indemnify such person against such liabilities
under the provisions of the Section 78.7502.
35
<PAGE>
Under Section 78.751(e) the indemnification and advancement of expenses provided
pursuant to Sections 78.7502 and 78.751 are not exclusive, and subject to
certain conditions, the Company may make other or further indemnification or
advancement of expenses of any of its directors, officers, employees or agents.
Because neither the Articles of Incorporation, as amended, or By-laws of our
Company otherwise provide, notwithstanding the failure of the Company to provide
indemnification and despite a contrary determination by the Board of Directors
or its shareholders in a specific case, a director, officer, employee or agent
of the Company who is or was a party to a proceeding may apply to a court of
competent jurisdiction for indemnification or advancement of expenses or both,
and the court may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses if it determines that the petitioner is entitled to mandatory
indemnification pursuant to Section 78.7502(3) because he has been successful on
the merits, or because the Company has the power to indemnify on a discretionary
basis pursuant to Section 78.7502 or because the court determines that the
petitioner is fairly and reasonably entitled to indemnification or advancement
of expenses or both in view of all the relevant circumstances.
ARTICLES OF INCORPORATION AND BY-LAWS
- -----------------------------------------
Our Articles of Incorporation and By-laws empower us to indemnify current or
former directors, officers, employees or agents of the Company or persons
serving by request of the Company in such capacities in any other enterprise or
persons who have served by the request of the Company in such capacities in any
other enterprise to the full extent permitted by the laws of the State of
Nevada.
INDEMNITY AGREEMENTS
- ---------------------
To induce and encourage highly experienced and capable persons to serve as
directors and officers, our Company has entered into an Indemnity Agreement with
each director and officer presently serving the Company and will provide the
same agreement to future directors and officers as well as certain agents and
employees. The Agreement provides that we shall indemnify the director and/or
officer, or other person, when he or she is a party to, or threatened to be made
a party to, a proceeding by, or in the name of, the Company. Expenses incurred
by the indemnified person in any proceeding are to be paid to the fullest extent
permitted by applicable law. The Agreement may at some time require the Company
to pay out funds which might otherwise be utilized to further the Company's
business objectives, thereby reducing our ability to carry out our projected
business plans.
SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY
- -------------------------------------------------------------------
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. If a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy expressed in the Securities Act
of 1933, as amended, and will be governed by the final adjudication of such
issue.
36
<PAGE>
OFFICERS AND DIRECTORS LIABILITY INSURANCE
- ----------------------------------------------
At present, we do not maintain Officers and Directors Liability Insurance and,
because of the anticipated cost of such insurance, we have no present plans to
obtain such insurance.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRINITY ENERGY RESOURCES, INC.
Date: March 31, 2000 By: /S/ Dennis E. Hedke
-----------------------------
Dennis E. Hedke
Principal Executive Officer
/S/ James E. Gallien Jr.
-----------------------------
James E. Gallien Jr.
Principal Financial Officer
37
<PAGE>
FINANCIAL STATEMENTS
PART III
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Trinity Energy Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Trinity Energy
Resources, Inc. (formerly Trinity Gas Corporation) as of December 31, 1999 and
1998, and the related statements of consolidated income, stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trinity Energy Resources, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule in footnote 15 is presented
as supplementary information not a part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required in relation to the basic
financial statements taken as a whole.
Malone & Bailey, PLLC
Houston, Texas
January 26, 2000
F-1
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<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
------------- --------------
<S> <C> <C>
Current Assets
Cash $ 138,910 $ 105,047
Cash held by trustees 3,069,852 3,733,890
Other 36,616 20,111
------------- --------------
Total Current Assets 3,245,378 3,859,048
------------- --------------
Oil and gas properties, using successful efforts method
of accounting
Proved properties 599,537 599,537
Unproved property - Chad concession 1,173,771
Wells and related equipment and facilities 99,726 99,726
Less accumulated depreciation and depletion (103,629) (91,644)
------------- --------------
Net oil and gas properties 1,769,405 607,619
------------- --------------
Other assets
Office furniture and equipment, net of accumulated
depreciation of $8,511 148,305
Deposits and equipment held for sale 65,225 159,982
------------- --------------
TOTAL ASSETS $ 5,228,313 $ 4,626,649
============= ==============
LIABILITIES
Current Liabilities
Redeemable preferred stock payable $ 1,617,500
Notes payable 707,721
Accounts payable 776,816 $ 306,861
Liabilities subject to compromise 132,862 98,036
Due to Sers family 78,310
Accrued expenses 480,519 96,197
------------- --------------
Total Current Liabilities 3,715,418 579,404
Long-term portion of liabilities subject to compromise 177,970 213,564
------------- --------------
Total Liabilities 3,893,388 792,968
------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par, 50,000,000 shares authorized,
161,750 and 0 shares issued and outstanding, respectively
(reclassified to current liabilities)
Common stock, $.001 par, 300,000,000 shares authorized,
63,430,454 and 64,120,778 issued and outstanding,
respectively 63,430 64,121
Paid in capital 12,483,436 11,994,202
Retained (deficit) (11,211,941) (8,224,642)
------------- --------------
Total Stockholders' Equity 1,334,925 3,833,681
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,228,313 $ 4,626,649
============= ==============
</TABLE>
See summary of accounting policies and notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
--------------- ---------------
<S> <C> <C>
Revenue - oil and gas sales $ 78,382 $ 82,786
Expenses
Lease operating 108,663 150,083
Production taxes 7,283 15,265
Exploration expenses 0 0
Depreciation, depletion, and amortization 20,496 27,367
Interest expense 51,711 0
General and administrative 1,846,217 227,828
Rent paid to affiliates 59,500 30,000
Interest income (5,419) (2,591)
--------------- ---------------
Total expenses 2,088,451 447,952
--------------- ---------------
(Loss) before reorganization items and income tax benefit (2,010,069) (365,166)
--------------- ---------------
Reorganization items:
Loss on sales of assets (43,001)
Professional fees (1,039,192) (1,291,541)
Other costs (37,951) (158,613)
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 142,914 120,684
--------------- ---------------
(977,230) (1,329,470)
--------------- ---------------
(Loss) before income tax benefit (2,987,299) (1,694,636)
Income tax benefit 4,657
--------------- ---------------
Net (loss) $ (2,987,299) $ (1,689,979)
=============== ===============
Net (loss) per common share $ (.05) $ (.03)
Weighted average common shares outstanding 62,083,720 61,056,767
</TABLE>
See summary of accounting policies and notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
- - Common Stock - - Paid In Retained
Shares $ Capital (Deficit) Totals
-------------- ------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balances
- December 31, 1997 94,733,211 $ 94,733 $ 11,846,010 $(6,534,663) $5,406,080
Forfeitures by Sers family (30,542,433) (30,542) 30,542
Shares issued to settle claims 80,000 80 20,000 20,080
Shares canceled by
bankruptcy court (540,000) (540) 540
Stock issued to directors
for services 390,000 390 97,110 97,500
Net (loss) (1,689,979) (1,689,979)
-------------- ------------- -------------- -------------- -----------
Balances
- December 31, 1998 64,120,778 64,121 11,994,202 (8,224,642) 3,833,681
Stock issued for
- cash 1,705,391 1,705 424,643 426,348
- less costs of equity
fundraising (54,015) (54,015)
- services 603,296 603 150,221 150,824
Shares repurchased,
pursuant to bankruptcy
"cash out" offer (569,011) (569) (34,045) (34,614)
Shares canceled by
bankruptcy court (1,680,000) (1,680) 1,680
Milton shares not yet
paid for (750,000) (750) 750
Net (loss) (2,987,299) (2,987,299)
-------------- ------------- -------------- -------------- -----------
Balances
- December 31, 1999 63,430,454 $63,430 $12,483,436 $(11,211,941) $1,334,925
============== ============= ============== ============== ===========
</TABLE>
See summary of accounting policies and notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows provided (used) by operating activities
Cash received from customers $ 74,603 $ 136,192
Interest received 5,419 2,591
Cash paid to suppliers and employees (1,169,154) (10,242)
---------------- ---------------
Net cash provided (used) by operating activities
before reorganization items (1,089,132) 128,541
---------------- ---------------
Operating cash flows provided (used) by Chapter 11 reorganization:
Interest received on cash accumulated by trustees 142,914 120,684
Collections from former officer Sid Sers 4,280,921
Professional fees paid for related services rendered (1,039,191) (1,291,541)
Other bankruptcy costs (37,952) (158,614)
Net proceeds from sale of assets due to Chapter 11 proceeding 47,455 4,000
(Increase) refund of deposits made by trustee 4,300 (4,300)
---------------- ---------------
Net cash provided (used) by Chapter 11 reorganization (882,474) 2,951,150
---------------- ---------------
Net cash provided (used) by operating activities (1,971,606) 3,079,691
---------------- ---------------
Cash flows used in investing activities
Chad property acquisition and development costs (1,120,228)
Purchase of office furniture and equipment (156,816)
----------------
Net cash used in investing activities (1,277,044)
----------------
Cash flows from financing activities
Net borrowings from shareholders (post petition) and others
Redeemable preferred stock payable 1,267,500
Notes payable 1,057,721
Common stock issued, net of $54,015 issuance cost 372,333
Payment to Sers family to settle litigation (78,310)
Principal payments on prepetition debt authorized by court (769) (13,000)
---------------- ---------------
Net cash flows provided by financing activities 2,618,475 (13,000)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents (630,175) 3,066,691
Cash and cash equivalents
- at beginning of year 3,838,937 772,246
---------------- ---------------
- at end of year $ 3,208,762 $ 3,838,937
================ ===============
</TABLE>
See summary of accounting policies and notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
-------------- ---------------
<S> <C> <C>
Reconciliation of net loss to net cash provided by
operating activities
Net (loss) $ (2,987,299) $ (1,689,979)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities
Depletion and depreciation 20,496 27,367
Proceeds from sale of assets under court supervision 47,455 4,000
Loss on sale of assets 43,001
Stock issued for services 150,824 97,500
Changes in
Other current assets (16,505) 71,337
Receivable from former officer Sid Sers 4,280,921
Deposits made by trustee 4,300 (4,300)
Accounts payable 435,342 300,361
Accrued expenses 330,780 (7,515)
-------------- ---------------
Net cash provided (used) by operating activities $ (1,971,606) $ 3,079,692
============== ===============
Supplemental information
Non-cash transactions:
During bankruptcy court pendency:
Reclassification to accounts payable for shareholders
electing "cash out" option $ 34,614
Prepetition creditors agreeing to payment in stock $ 20,080
Accrued interest capitalized on unproved property development 53,543
</TABLE>
See summary of accounting policies and notes to financial statements.
F-6
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of business. Celebrity Limousines, Ltd. was incorporated in Utah in
- --------------------
1986. The name and state of incorporation were changed to Limousines Limited
and Nevada, respectively in 1989. Limousines Limited ceased operations shortly
thereafter and remained dormant until July 9, 1993. On that date Sidney W. Sers
contributed certain oil and gas assets he owned in exchange for 18,275,036
shares and control (93.48% ownership) of Limousines Limited. He changed the
corporate name to Trinity Gas Corporation and operated it until early 1998, when
he abruptly resigned and fled the country in the wake of accusations of fraud,
misrepresentation and other charges. New management changed the name to Trinity
Energy Resources, Inc. ("Company") in Nevada on March 17, 1999. In Texas, the
Company operates under the name Trinity (Texas) Energy Resources, IncSee Note 2
for further information.
Since 1993, the Company has been and is still engaged primarily in the
acquisition, development, production, exploration for, and the sale of, oil, gas
and natural gas liquids. The Company is the operator of one property in Texas,
and of several properties in Colorado and Wyoming. In 1999, the Company
acquired an interest as operator in an unproved exploratory concession in Chad,
Africa.
Use of estimates. The preparation of financial statements in conformity with
- ------------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation. The consolidated financial statements include the
- ----------------------------
accounts of the Company and its wholly-owned subsidiary Nova Energy, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Other current assets includes minor amounts of trade accounts receivable from
- ----------------------
the sales of oil and gas and an inventory of crude oil stored on location.
Revenues are recognized when oil and gas are delivered. Inventories are stated
at the lower of cost or market.
Oil and gas properties are accounted for using the successful efforts method of
- -----------------------
accounting. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Costs to drill exploratory wells that
do not find proved reserves, geological and geophysical costs, and costs of
carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Capitalized costs of
producing oil and gas properties, after considering estimated abandonment costs
and salvage values, are depreciated and depleted by the units-of-production
method.
F-7
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation and depletion are eliminated from the property
accounts, and the resultant gain or loss is recognized. On the retirement or
sale of a partial unit of proved property, the cost is charged to accumulated
depreciation and depletion with a resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash, gain or loss
on the sale is recognized, taking into consideration the amount of any recorded
impairment if the property had been assessed individually. If a partial
interest in an unproved property is sold, the amount received is treated as a
reduction of the cost of the interest retained.
Capitalized interest. The Company capitalizes interest on expenditures for
- ---------------------
significant exploration and development projects while activities are in
progress to bring the assets to their intended use. Total interest incurred in
1999 was $124,030, of which $72,319 was capitalized as a development cost of the
Chad concession. There was no interest incurred in 1998.
Cash and cash equivalents includes cash in banks and cash held by the bankruptcy
- -------------------------
court and Company law firm trustees. Certificates of deposit for $65,000 held
by the states of Colorado and Wyoming as security for eventual producing well
plugging and site cleanup are included in deposits in other assets.
Long-lived assets are reviewed for impairment whenever events or changes in
- ------------------
circumstances indicate that the related carrying amount may not be recoverable.
When required, impairment losses on assets to be held and used are recognized
based on the fair value of the asset and long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
Income tax expense includes taxes payable or refundable for the current year and
- ----------
deferred taxes on temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rate
are enacted, deferred tax assets and liabilities are adjusted through income tax
expense.
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11
On December 23, 1997, the Company ("Debtor") filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court
for the Northern District of Texas ("Court"). Generally under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. These claims are
reflected in
F-8
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11 (continued)
the December 31, 1999 and 1998, balance sheets as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise) might arise
but probably cannot be sustained subsequent to January 23, 2000, the date of the
auditors' report, because the Court
issued its Confirmation Order on October 27, 1998, and all known claims against
the Company that existed as of December 23, 1997, have been adjudicated. The
Confirmation Order confirmed the reorganization plan as previously submitted and
amended by the Company. All provisions of this plan have been incorporated into
these financial statements.
A summary of the terms of the October 27, 1998, Confirmation Order are as
follows:
Cancellation of all Sers family stock ownership in the Company, or
30,542,433 shares,
or about 32% of total shares outstanding when the bankruptcy was filed.
Other stock certificates for 2,220,000 shares were canceled. These shares
were transferred improperly by Sers to third parties for less than fair
value, or for consideration not received by the Company, as determined
by the Court.
Two creditor claims were converted into 80,000 shares of stock.
Another 750,000 shares were specified as collateral to repay a $40,000 loan
made by the company in 1997. These shares are shown as a reduction in
shareholders' equity until such payment is received, and are valued at the
$40,000 face value of the note receivable. There is no separate asset
recorded for this amount. The note was originally issued by Sers for a
$40,000 cash loan, repayable on demand, which was never repaid.
The Company received an exemption from security laws restrictions to sell
additional stock at $.25 per share during pendency of the filing.
1,705,391 shares were sold, yielding $372,333 after paying $54,015
in costs of the stock sales.
Issuance of 390,000 shares to 6 directors for services rendered in 1998 was
approved.
Stockholders were allowed to elect to either keep their shares or "cash out"
for the net book value of cash proceeds from Sers' asset seizures.
Holders of 569,011 shares elected to receive their share of these
proceeds, or $34,614, and this amount has been reclassified to accounts
payable.
Secured, allowed claim creditors were allowed to repossess their collateral.
Non-productive Company equipment was sold for $51,455.
Small allowed, unsecured creditors (< $500 apiece) are to be paid in their
entirety.
All other allowed, unsecured claims are to be paid in full within 2 years
in 4 semi-annual principal payments, plus accrued interest at 7.5%
per year. The first installment was paid in July 1999. All remaining
installments are due before December 31, 2000.
By agreement, the Internal Revenue Service claim was reduced to $213,564,
which the Company is still contesting. The to-be-settled amount
is due in 6 annual installments, the first of which is included as
"short-term" as of December 31, 1999, and the remainder shown as
"long-term."
Sers had managed the Company from his purchase of the Limousines Limited shares
in 1993 until early 1998. In 1997, he began the documentation process required
to take the Company
F-9
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11 (continued)
public. The Company independent auditors found evidence of improprieties and
resigned in October 1997. In December 1997, Sers put the Company into
bankruptcy. Facing accusations of fraud, misappropriation and
misrepresentation, Sers fled the country shortly afterward. In early 1998, the
Court ordered seizure and subsequent sale of all Sers family assets to satisfy
the Company claim against Sers. During 1998, the Company received $4,280,921
from seizure and court-ordered sale of Sers personal assets. Sers' wife and
children asserted their claims to certain of these properties and settled
with the Company in 1998 whereby Mrs. Sers was allowed to keep the family
residence in Brownwood, Texas and the Company returned possession of several
vehicles and $78,310 in cash, all in 1999. In exchange, the family dropped all
claims against the Company. In 1999, the Company received a judgment against
Sers for an additional $4,803,522, none of which has yet been received The
Company also received a judgment for $3,130,000 from a former foreign
subsidiary, Trinity Gas Colombia, Ltd. The Colombian courts have not ruled on
who now owns Trinity Gas Colombia, Ltd., and no collections on this amount have
been received. The Company also has various claims against certain other
entities involved in the improprieties and is still pursuing these claims, which
are valued at $0 after deducting a 100% allowance for uncertain collection.
"Liabilities subject to compromise" consists of the following:
1999 1998
-------- --------
Current portion
Trade payables, incurred prior to bankruptcy filing $97,268
Federal income and payroll taxes, and penalties,
also incurred prior to bankruptcy filing 35,594
---------
$132,862
=========
Long-term portion $177,970 $213,564
======== ========
The Company emerged from bankruptcy by final Court plan confirmation on October
27, 1998, and expects to close the bankruptcy case during May 2000.
NOTE 3 - CASH HELD BY TRUSTEES
The Court trustee managed the cash of the Company from January 9 through
December 12, 1998. By Court order, the Company's bankruptcy law firm, Andrews &
Kurth, kept as custodian Company monies collected from the Sers seizures (see
Note 2) beginning December 1998 through January 14, 2000. On that date,
$2,570,184 was transferred to a Company bank account. The difference between
that amount and the $3,069,852 shown on the balance sheet as of December 31,
1999, is $499,668, which is being retained by the law firm to pay certain legal
and other bankruptcy-related costs included in accounts payable as of December
31, 1999.
F-11
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 4 - UNPROVED PROPERTY - CHAD CONCESSION
On May 7, 1998, Carlton Energy Group, LLC ("Carlton"), an entity majority-owned
by T. C. O'Dell, the former chief executive officer of the Company, entered into
an agreement with Oriental Energy Resources Limited ("Oriental"), a Nigerian
corporation, to jointly pursue acquisition of a minerals interest in Chad,
Africa, and then seek a farmout to a third party capable of acting as operator.
On July 31, 1998, Carlton and Oriental entered into a Memorandum of
Understanding with the Chad Ministry of Petroleum conveying a 5-year minerals
lease on 160 million acres of undeveloped land with unproved reserves in Chad.
On November 15, 1998, the Company entered into an agreement with Carlton and
Oriental assigning their rights to the Company in exchange for royalties
totaling 7.5% to Carlton and Oriental and up to $500,000 and $1.5 million in
prior costs reimbursement to Carlton and Oriental, respectively. The agreement
with Chad was formalized on February 23, 1999, and the initial lease bonus
payment of $341,765 was paid by the Company on June 17, 1999.
In late 1999, Carlton and O'Dell orally promised to forgive the contingent
$500,000 due under the November 15, 1998, agreement as partial consideration for
the Cliveden farmout negotiation. They have refused to sign a written
acknowledgment and as of January 26, 2000, this dispute has not been resolved.
Management feels the likelihood of any payment due under this arrangement is
remote, and no provision has been recorded in the financial statements.
On December 27, 1999, the Company assigned its Chad working interest to Cliveden
Petroleum Co. Ltd. of Switzerland. Under this agreement, Cliveden assumes
operator status and all related obligations under the Chad agreement, subject to
final Chad government approval. In exchange, the Company retains a 5% working
interest, and will receive its share of revenues from production beginning after
payout of all development costs to be incurred by Cliveden. The 5% working
interest becomes effective after payout of exploratory costs which are estimated
by management to be up to $26 million. Trinity will also receive reimbursement
of up to $1.5 million in deemed sunk costs on a basis pro rata with Cliveden's
total cost recovery from revenues to be received. In addition, Cliveden agreed
to conversion of $350,000 loaned to the Company on May 7, 1999, to Company
redeemable convertible preferred stock (see Note 6), with cash redemption at the
option of Cliveden to occur on December 27, 2000.
Also, on May 7, 1999, $350,000 was advanced to Oriental to pay the initial lease
bonus
payment, but this money was not paid to the Chad government. Instead, it was
kept by Oriental as a partial reimbursement of the $2 million as agreed in the
November 15, 1998, Chad lease assignment from Oriental and Carlton to the
Company. The Company disputes this, and claims that required documentation
supporting the $2 million in law-abiding actual costs was never received and
because this documentation was a pre-condition of payment, then the $350,000 was
improperly kept by Oriental's owner, Alhaji Indimi. The Company has begun legal
proceedings in Chad to recover this money, which is currently capitalized as a
Chad property acquisition cost. No part of the $1.5 million claimed by Oriental
is accrued as a Company liability because Oriental has refused to provide
documentation as required in the contract, and because all potential liability
for this debt has been assumed by Cliveden.
F-11
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 4 - UNPROVED PROPERTY - CHAD CONCESSION (continued)
The required Chad government approval of the farmout assignment to Cliveden has
not been obtained as of January 26, 2000, but such approval is expected by
management. Total costs invested in the Chad property to date are $1,173,771.
NOTE 5 - ACQUISITION OF NOVA ENERGY, INC.
Nova Energy, Inc. ("Nova") was acquired on August 22, 1996, from Nova
stockholder Don Brause and Nova major creditor Tom Getter, for 2,220,000 in
Company stock and $180,000 cash. The cash was paid in monthly installments to
Getter in late 1996 and 1997. The Company contested Brause's ownership in the
bankruptcy case, and the Court reduced Brause's ownership from 2,040,000 of the
initial total shares to 1,500,000. The Nova purchase price, as restated, is
1,680,000 shares and $180,000 cash, or $600,000. This price was allocated to
the various assets and liabilities of Nova as of 1996, and $500,832 was assigned
to the producing oil and gas properties that Nova owned.
NOTE 6 - REDEEMABLE PREFERRED STOCK PAYABLE
In March and October 1999, the Company solicited investments in Company
redeemable convertible preferred stock from investors at $10 per share. Each
share is convertible to 40 shares of Company common stock, or is redeemable
after a 12-month holding period by each investor with a 12% premium, less any
dividends paid. Holders have 40 common shares' vote with each preferred share
held. The Company may redeem shares issued under the March offering anytime
after December 31, 1999, and may redeem shares issued under the October offering
anytime after June 30, 2000. All shares issued are redeemable during 2000, and
the total amount is included in current liabilities as of December 31, 1999.
Accrued dividends are included in interest expense, as these instruments bear
more attributes of debt than of equity.
NOTE 7 - NOTES PAYABLE
The Company borrowed various amounts from individuals during 1999. The loans
bear interest mostly at 15% APR, and are collateralized by the Texas Hartwich
oil lease, carried on the balance sheet at cost of $70,594, but the present
value of net revenues from proven reserves is valued at $1,340,000. Most are
due 6 months after making, and all are due during 2000.
NOTE 8 - INCOME TAXES
The Internal Revenue Service ("IRS") filed a claim with the Court in excess of
$2 million for income and payroll taxes due for the periods 1993 through 1996,
plus penalties and interest. In the spirit of cooperation, the IRS prepared a
1997 federal income tax return for the Company showing a $8,784,675 net loss
after a $9,004,496 embezzlement loss deduction was allowed. After carryback of
this loss to prior years, the IRS reduced their net claim to $213,564.
F-12
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
The NOTE 8 - INCOME TAXES (continued)
Company is obligated to pay this in six equal annual installments, beginning
2000. The $213,564 is carried as a liability in the caption "Liabilities
subject to compromise," with the first installment shown as current portion, and
the remainder as long-term portion.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999,
are as follows:
Deferred tax asset:
Net operating loss carryforward $2,714,743
Less: valuation allowance (2,714,743)
-----------
Net current deferred tax asset $ 0
==============
The difference between the Company's "expected" tax (benefit), as computed by
applying the U.S. federal corporate tax rate of 34% to net pre-tax (loss) is
reconciled in the following chart:
1999 1998
------------ ------------
Net (loss) $(2,987,299) $(1,694,636)
============ ============
Expected tax benefit at 34% $(1,015,682) $(576,176)
Refund from carryback of net operating loss 4,657
Change in valuation allowance 1,015,682 576,176
------------ -----------
Income tax (provision) or benefit $0 $4,657
============ ============
The Company has net operating loss carryforwards of about $8.0 million, which
expire in 2018 and 2019.
NOTE 9 - CONTINGENT LIABILITIES
The Company has several postpetition threatened or pending lawsuits relating to
the disputed value of services allegedly provided to the Company that the
Company has contested. Management believes the ultimate liability of the
Company in connection with its legal proceedings will not have a material
adverse effect on the Company's financial position or the results of operations
in any future period.
In addition, $14,000 in fines were levied, and remediation action was ordered by
the Oil and Gas Conservation Commission of the Colorado Department of Natural
Resources in a 1999 inspection. The fines payable and $30,375 in estimated
remediation costs have been accrued as of December 31, 1999.
F-13
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 10 - CAPITAL STOCK
The Company distributed rights to purchase its common stock to existing
stockholders under Court supervision. These rights entitled the holder of each
share to purchase one additional share of Company stock at $.25. During 1999,
stockholders exercised rights to purchase 1,705,391 shares, for gross proceeds
of $426,348. These rights expired on December 27, 1999.
The Court also ordered that 750,000 shares previously issued be reserved as
collateral to enforce repayment of $40,000 loaned by the Company to Robert
Milton in 1997. As this amount has not been received as of January 26, 2000,
the 750,000 shares are deducted from total shares outstanding until this amount
is received.
NOTE 11 - EMPLOYMENT AGREEMENTS
To entice new management and consultants, the Company signed employment and
consulting contracts in 1999 still effective as of January 26, 2000, with
several individuals as follows:
Totals 2000 2001 2002
---------- --------- -------- --------
Annual Compensation
Employees $1,032,179 $463,177 $397,002 $172,000
Contractors 104,000 104,000
------------ --------- -------- --------
Totals $1,136,179 $567,177 $397,002 $172,000
========== ========= ======== ========
NOTE 12 - STOCK OPTIONS
Beginning at inception, the Company adopted the disclosure requirements of FASB
Statement 123, Accounting for Stock Based Compensation Plans. The Company
grants non-qualified options from time to time to employees and consultants of
the Company, pursuant to its Stock Option Plan as approved by the Court. Stock
option issuances are administered by the Board of Directors of the Company, who
have substantial discretion to determine which persons, amounts, time, price,
exercise terms, and restrictions, if any. All options are non-transferable.
The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. Vesting occurs on the various anniversary dates of issuance in accordance
with the plan, and the measurement date for all options is either the grant date
for fixed-price options (since the only significant requirement for vesting is
that the employee remain with the Company during that period) or the vesting
date for options priced at 30% below the then-market price. Compensation
expense for options exercisable at 30% below market will be recognized at the
30% discount amount in the years the options become exercisable.
F-14
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 12 - STOCK OPTIONS (continued)
During the years ended December 31, 1999 and 1998, no compensation expense was
recognized for the issuance of these options and warrants, because either no
option prices were below market prices at the date of grant (fixed-price
options), or no options priced at 30% below market vested in 1999 or 1998. No
options were granted during 1998 and none granted in 1999 have been exercised.
Total options outstanding at December 31, 1999, are 10,341,666, with a weighted
average share exercise price of $.40. Additional disclosures as of December 31,
1999, are:
Options at
Options Options at Market
at $.25 $.75 - $1.50 less 30%
----------- ------------ ----------
Total options
Number of shares 5,641,666 2,000,000 2,699,999
Remaining life 4 years 5 years 5 years
Currently exercisable options
Number of shares 4,450,000 0 0
The Company's stock has not traded on a public market since the Securities and
Exchange Commission suspended trading in November 1997. Thus, an option pricing
model based on share trading price volatility is not applicable. Fair value of
the Company's common stock is estimated by management at $.25 per share. $.25
per share is the price during 1999 that shares were sold. Because no shares are
exercisable currently at prices less than $.25 per share, pro forma net loss and
loss per share for 1999 and 1998 are therefore the same as reported net loss and
loss per share amounts.
NOTE 13 - OPERATING LEASE
On July 1, 1999, the Company signed an office space sublease agreement with Aker
Engineering, Inc. to rent 9,842 square feet at $15,173 per month. This
agreement is for 60 months ending June 2004. Total annual rent expense under
this agreement before any operating expense escalations is $91,038 for 1999,
$182,076 for each of 2000, 2001, 2002, and 2003, and $91,038 for 2004.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company's former CEO, T. C. O'Dell, loaned up to $400,000 to the Company for
operating capital during 1999, with interest ranging from 8.75% - 12% and
collateralized by the Texas Hartwich oil lease. As of December 31, 1999, the
unpaid balance is $75,000 and is included in short-term notes payable.
The Company leased office space from O'Dell's company, Carlton Energy Group,
Inc., at $7,500 per month through August 1999, totaling $59,500 in 1999 and
$30,000 in 1998.
F-15
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 15 - ASSET IMPAIRMENT AND DISPOSALS
In January 2000, the Company sold 3 leases in Brown County, Texas, in exchange
for the assumption of future costs. In addition, 19 wells in Coleman County,
Texas, are to be plugged and abandoned in 2000. The Company carried these
assets at $0 value, and had no significant revenues or expenses directly
associated with these 3 wells in 1999 or 1998. Related costs of plugging and
abandoning are accrued. There was no loss recorded from the disposition of
these wells in 1999 or 1998, because carrying value was reduced to $0 and
related costs were recorded in 1997.
In addition, the Company acquired a concession in Colombia, South America, in
1995, and attempted development in 1996 and 1997. All acquisition, development
and exploration costs were written off prior to 1998.
The Company experienced historically low oil prices in late 1998, as did most
other oil and gas producers during that time. No writedowns of producing
properties were required, because the net book value of proved properties and
related equipment was much lower than the discounted present value of estimated
reserves, by field, as of that date.
NOTE 16 - DEPOSITS AND EQUIPMENT HELD FOR SALE
Deposits were $69,525 and $65,225 in 1998 and 1999, respectively. Equipment
held for sale was $90,456 and $0 in 1998 and 1999, respectively, and included
various lease and well equipment and office equipment held in Texas in 1997 and
seized by the bankruptcy court in 1998. This equipment was sold to unrelated
parties for the best available price during 1999. It was recorded as of
December 31, 1998, at its original cost less accumulated depreciation. A loss
of $43,001 was recognized in 1999 on its disposal.
NOTE 17 - SUPPLEMENTAL OIL AND GAS INFORMATION (unaudited)
Costs Capitalized Relating to Oil and Gas Producing Activities at
December 31, 1999, using the Successful Efforts Method of Accounting
Unproved oil and gas property (Chad, Africa) $1,173,771
Proved oil and gas properties 599,537
Support equipment and facilities 99,726
-------------
1,873,034
Less accumulated depreciation, depletion,
and amortization (103,629)
------------
Net capitalized costs $1,769,405
============
F-16
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 17 - SUPPLEMENTAL OIL AND GAS INFORMATION (unaudited) (continued)
Costs Incurred in Oil and Gas Producing Activities for the
Year Ended December 31, 1999
Property acquisition costs
Proved $ 0
Unproved 691,765
Exploration costs 482,006
Development costs 0
Results of Operations for Oil and Gas Producing Activities for the
Year Ended December 31, 1999
Oil and gas sales $78,382
Production costs 115,946
Exploration expenses 0
Depreciation, depletion and amortization 20,496
----------
(58,060)
Income tax expense 0
Results of operations for oil and gas producing activities
(excluding corporate overhead and financing costs) $(58,060)
===========
Reserve Information
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are
inherently imprecise. Accordingly, these estimates are expected to change as
future information becomes available. All of the Company's reserves are located
in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses (based on year-end statutory
tax rates) to be incurred on pretax net cash flows less tax basis of the
properties and available credits, and assuming continuation of existing economic
conditions. The estimated
F-17
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 15 - OIL AND GAS RESERVE INFORMATION (unaudited) (continued)
future net cash flows are then discounted using a rate of 10 percent a year to
reflect the estimated timing of the future cash flows.
<TABLE>
<CAPTION>
1999 1998
-------------------- ----------------
Oil Gas Oil Gas
(M Bbls) (MMcf) (M Bbls) (MMcf)
--------- --------- -------- ------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves
Beginning of year 268 287 277 311
Production (5) (6) (9) ( 24)
--------- --------- -------- ------
End of year 263 281 268 287
========= ========= ======== ======
Proved developed reserves
Beginning of year 184 287 193 311
End of year 179 281 184 287
Standardized Measure of Discounted Future
Net Cash Flows at December 31, 1999 (000's)
---------
Future cash inflows $ 4,188
Future production costs 1,400
Future development costs 418
Future income tax expenses 0
---------
$ 2,370
Future net cash flows
10% annual discount for estimated timing of cash flows ( 697)
---------
Standardized measures of discounted future net cash flows
relating to proved oil and gas reserves $ 1,673
=========
Income tax expense shown above is calculated by including the Company's net
operating loss carryforward and properties tax bases.
The following reconciles the change in the standardized measure of discounted
future net cash flow during 1999
Beginning of year $ 891
Sales of oil and gas produced, net of production costs 78
Net changes in prices 860
---------
End of year $1,673
=========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit
Number Description
--------------------------------------------------------------------
<C> <S>
2.1* Third Amended Plan of Reorganization and Disclosure Statement
3.1* Articles of Incorporation, 1986, Utah, Celebrity Limousines, Ltd.
3.2* Articles of Incorporation, 12/1/1989, Nevada, Limousines, Ltd.
3.3* Articles of Merger, 1/31/1999, Utah, Celebrity Limousines, Ltd. And
Nevada Limousines, Limited - Nevada Corporation Limous
3.4* Articles of Amendment 7/9/1993, name change from Limousines, Limited
to Trinity Gas Corporation.
3.5* By-Laws of Trinity Gas Corporation.
3.6* Articles of Amendment, 3/29/1999, Nevada, to change name of
corporation to Trinity Energy Resources, Inc., authorize undesignated
shares of Preferred Stock, and increasing the authorized number of
shares of Common Stock.
3.7* Certificate of Authority to Transact Business in Texas, 10/06/1999.
3.8* Assumed Name Certificate in Texas, 10/12/1999
3.9* Amended Certificate of Designation, Powers, Preferences and Rights of
the 1999 Series of Convertible Preferred Stock 1/25/2000.
10.1* Mr. John W. Mahoney - Employment Agreement
10.2* Mr. Dennis E. Hedke - Employment Agreement
10.3* Mr. James E. Gallien, Jr. - Employment Agreement
10.4* Mr. Michael L. Wallace - Independent Contractor Agreement
10.5* Letter Agreement between Carlton Energy Group, Oriental Petroleum
Resources, Ltd., and Trinity Gas Corporation
10.6* Chad Convention, French Translation
10.7* Chad Convention, English Translation
10.8* Cliveden Agreement, 5/5/1999
10.9* Cliveden Agreement, 11/29/1999
10.10* Purchase and Sale Agreement between Carlton Energy, Trinity Gas,
Ian Nordstrom and Rudy Olschewski
10.11* Aker Maritime Sublease
10.12* Cliveden Agreement, 12/27/99
10.13* Assignment to Cliveden Petroleum Co., Ltd., 1/14/2000
10.14 Crude Oil Purchasing Contract-Equiva Trading Company
10.15 Crude Oil Purchasing Contract - Sunoco, Inc.
10.16 Natural Gas Purchasing Contract-North American Resources Company #281
10.17 Natural Gas Purchasing Contract-North American Resources Company #282
10.18 Natural Gas Purchasing Contract-Dynegy Midstream Services, Limited
Partnership
16.0# Letter on Change in Certifying Accountant
<FN>
* Previously filed with Form 10-SB.
# Exhibit not yet received; will be included in next amendment to this filing
</TABLE>
38
<PAGE>
EQUIVA
TRADING COMPANY
Shell, Texaco & Saudi Aramco Working Together
FEBRUARY 22, 1999
NOVA ENERGY INC
400 E 1st ST STE 203
CASPER WY 82601
ATTN: DON BRAUSE
RE: LEASE PURCHASE AGREEMENT NUMBER:
95871RO1
DEAR MR. BRAUSE:
This confirms our understanding to amend the referenced agreement to
conform with the enclosed Attachment(s)-012. Please include Attachment(s)-012
effective FEBRUARY 1, 1999, with your copy of the referenced agreement as
replacing Attachment(s)-011.
Please verify this agreement by signing and returning one of enclosed
originals to the attention of Diana L. May.
Regards,
/s/SHERYL DAVIS
--------------------------------------------
SHERYL DAVIS
TRADING MANAGER - ONSHORE
NOVA ENERGY INC
/s/Don Brause
--------------------------------
By: Don Brause
Date: 3/3/99 (HAND DATED)
-----------------------------
:dlm
P.O. Box 4604 Houston, TX 77252-4604
<PAGE>
<TABLE>
<CAPTION>
Lease Lease PROPERTY NAME PAY TAX PRICE PRICE PURCHASE
Holder Number COUNTY, STATE OPERATOR NAME TERMS STAT BASIS DIFF. DECIMAL
<C> <C> <S> <C> <C> <C> <C> <C> <C>
CAREY FEDERAL #2
35014 CAMPBELL, WY NOVA ENERGY INC DB A TWF +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
FULLER FED 4-3-13
55260 FREMONT,WY NOVA ENERGY INC DB A QWB +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WOOD B 14-1
38550 CROOK, WY NOVA ENERGY INC DB A WSF +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
NOVA 24-33
55785 CROOK, WY NOVA ENERGY INC DB A TWP +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MILLER 6-11
50425 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MILLER 6-15
50743 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEAD4-11
50653 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEAD4-13
50654 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEAD12-1
50659 50660 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEAD12-7
50669 50661 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
CHAMPLIN 69 AMOCO #1
50677 53542 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
CHAMPLIN 69 AMOCO #2
50677 53543 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
CHAMPLIN 69 AMOCO #4
50677 53544 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
18}4WHITEHEAD
55715 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MORRIS 24-12
55735 55722 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
SRTI24-12
55714 55725 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
SRTI24-6
55714 55725 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
SRTI24-10
55714 55726 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
24}4MORRIS
55735 55729 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MORRIS13-8
55734 55730 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MORRIS14-16DE
55735 55731 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEADB-15
55736 55749 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
WHITEHEAD12-16
55751 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MORRIS13-4
50509 55755 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
MORRIS14-8
50509 55756 ELBERT, CO NOVA ENERGY INC DB A ECQ +1.1000* 1.0000000
----- -------------------- --------------- -- - --- -------- ---------
</TABLE>
<PAGE>
EQUIVA TRADING COMPANY
PAGE 3
COMPANY NAME : NOVA ENERGY INC
ETCO / OTHER CO CONTRACT : 95871ROI /
EFFECTIVE DATE : FEBRUARY 1, 1999
NOTES
-----
PAYMENT TERMS
- ------------------------
DB = BY ETCO TO INDIVIDUL INTEREST OWNERS
TAX STATUS
- -------------------------
A = ETCO IS FIRST PURCHASER. ETCO WILL COLLECT AND REMIT
PRICE BASIS
- -------------------------
TWF = EQUIVA POSTED PRICE FOR WYOMING SWEET (OTHER) DEEMED AT 40.0 GRAVITY
IN EFFECT ON DATE OF DELIVERY
QWB = EQUIVA POSTED PRICE FOR WYOMING SWEET (OTHER) DEEMED AT 40.0 GRAVITY **
WSF = EQUIVA POSTED PRICE FOR WYOMING SWEET (OTHER) **
TWP = EQUIVA POSTED PRICE FOR WYOMING SWEET (OTHER) IN EFFECT ON DATE OF
DELIVERY FOR GRAVITY DELIVERED
ECQ = EQUIVA POSTED PRICE FOR COLORADO EASTERN SWEET DEEMED AT 40.0 GRAVITY **
OTHER
- ---------------------------
* = INDICATES CHANGE MADE ON REFERENCED EFFECTIVE DATE.
** = FOR PRICING PURPOSES, CRUDE OIL SHALL BE DEEMED TO HAVE BEEN
DELIVERED IN EQUAL DAILY QUANTITIES DURING EACH CALENDAR MONTH.
<PAGE>
TEXACO TRADING AND TRANSPORTATION INC. 1670 Broadway
Denver CO 80202-4899
303-861-4475
JULY 8, 1992
NOVA ENERGY INC
2055 S COFFMAN
CASPER, WY 62604-0000
ATTN: DON BRAUSE
RE: LEASE PURCHASE AGREEMENT NUMBER:
95871ROI
DEAR MR. BRAUSE:
This confirms Texaco Trading and Transportation Inc's ("TTTI") agreement to buy
and NOVA ENERGY INC's ("Seller") agreement to sell and deliver crude oil
production from the lease(s) described in the enclosed Attachment(s) to carriers
designated by TTTI. Provisions relating to crude type(s), decimal interest(s)
for purchases from each lease, price, payment for crude oil and payment of taxes
are stated in Attachment(s).
This agreement will continue from the date indicated on Attachment(s) until
cancellation by either party 30 days after written notice to the other and is
also subject to the terms and conditions stated in the General Provisions, a
copy of which is attached hereto and made a part hereof.
Please verify this agreement by signing and returning the enclosed copy of this
letter to the attention of the undersigned.
Regards,
/s/ W. R. Coughlin
-------------------------
W. R. Coughlin
TEXACO TRADING AND TRANSPORTATION INC.
NOVA ENERGY INC
By:
-----------------------------
Date:
---------------------------
<PAGE>
Texaco Trading and Transportation Inc. General Provisions
1. The specific agreement terms stated on page one and on the
Attachrnent(s) to this agreement shall control over the following general
provisions and altogether comprise an integrated contract between Texaco and
Seller.
2. The term "crude oil" as used in this agreement shall include all
marketable liquid hydrocarbons.
3. All crude oil delivered to TTTI under this agreement shall be
merchantable crude oil. Title and risk of loss shall pass to TTTI as soon as
TTTI receives such crude oil into its custody or that of any carrier designated
by it.
4. TTTI shall compute quantity and quality and make corrections for
temperature and deductions for impurities according to the prevailing API/ASTM
standards in effect at the time and place of delivery and the laws and
regulations prescribed by the governmental authorities having jurisdiction.
5. Seller warrants that all crude oil delivered under this agreement
will be produced and delivered in compliance with all applicable laws and
regulations; and free of any and all claims against title when received by TTTI.
6. If TTTI makes payment to the individual owners of interests in the
crude oil to be delivered to TTTI under this agreement, Seller agrees to provide
accurate information concerning each owner's title sufficient to enable TTTI
to make such payments to protect, indemnify and hold harmless TTTI from any
claims resulting from errors or omissions in such information. TTTI agrees to
protect, indemnify and hold harmless Seller from any claims resulting from
errors or omissions made by TTTI in making payments in accordance with the
information provided by Seller.
7. If payment by TTTI to Seller includes payment for interests owned by
others in the crude oil, Seller agrees to pay all persons and entities who may
have any right, title or interest in and to the crude oil and further agrees to
protect, indemnify and hold harmless TTTI from any claims for payment by any
such persons and entities.
8. Neither party shall be liable to the other for failure or delay in
making or accepting delivery hereunder to the extent such failure or delay may
be due to compliance with acts, orders, regulations or requests of any federal,
state or local civilian or military authority or any persons purporting to act
therefor; riots; strikes; labor difficulties; action of the elements;
transportation difficulties; any subsequently enacted law or regulation having a
material adverse economic impact upon either party's ability to perform this
agreement; or any other cause reasonably beyond the control of such Party,
whether similar or not.
9. This agreement shall be governed by the laws of the state in which
the crude oil is produced.
10. In addition to the legal rights provided by the terms and provisions
of this document, the Seller may have certain statutory rights under the laws of
the state of production.
<PAGE>
TEXACO TRADING AND TRANSPORTATION INC.
ATTACHMENT 1-000
RECEIPT LEASES
COMPANY NAME : NOVA ENERGY INC
TTTI / OTHER CO CONTRACT : 95871RDl /
EFFECTIVE DATE : JUNE 1, 1992
<TABLE>
<CAPTION>
Lease Lease PROPERTY NAME PAY TAX PRICE PRICE PURCHASE
Holder Number COUNTY, STATE OPERATOR NAME TERMS STAT BASIS DIFF. DECIMAL
<C> <C> <S> <C> <C> <C> <C> <C> <C>
- ------ ------ --------------------------- --------------- ----- --- ------ ---------- ----------
50425 MILLER 6-11 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50473 MILLER 6-11 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50509 50509 MORRIS 13-4, 14-8 HDR NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50653 WHITEHEAD 4-11 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50654 WHITEHEAD 4-13 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50659 50659 WHITEHEAD 12-1, 12-7 HEADER NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50650 WHITEHEAD 12-1 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50659 50661 WHITEHEAD 12-7 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
50677 CHAMPLIN 569 AMOCO E-1 NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
55714 55714 SARTI NOVA ENERGY INC DB A CN +O.4000 1.0000000
ELBERT, CO
55715 18-4 WHITEHEAD NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT, CO
55735 55722 24-12 MORRIS NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT, CO
55714 55724 24-2 SARTI NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT, CO
55714 55725 24-6 SARTI NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
55714 55726 24-10 SARTI NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT, CO
55735 55729 24-4 MORRIS NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT. CO
55734 55730 13-8 MORRIS NOVA ENERGY INC DB A CN +0.4000 1.0000000
ELBERT, CO
55735 55731 14-16 MORRIS NOVA ENERGY INC DB A CN +0.4000 l.0000000
ELBERT. CO
</TABLE>
<PAGE>
Exhibit 10.15
SUNOCO, INC.
SUITE 515
1004 N Big Spring
Midland TX 79701-3483
915 686 7080
Fax 915 687 2641
CRUDE OIL PURCHASE AGREEMENT
SUNOCO REFERENCE NO. 520627
This agreement, made and entered into as of this __19th day of January ,
---- ---------
1999 2000 by and between "Buyer" and "Seller" as follows:
Buyer: Seller:
- ----- ------
Sunoco, Inc. (R&M) Trinity Texas Energy Resources
("SUNOCO") 11757 Katy Freeway, Suite 1430
1004 N. Big Spring, Suite 515 Houston, Texas 77079
Midland, Texas 79701
WITNESSETH:
WHEREAS, Seller owns or is authorized to sell all of the volumes of crude
oil and condensate produced from the properties described in Exhibit "A"
attached hereto; and
WHEREAS, Buyer desires to purchase and receive said crude oil and
condensate and Seller desires to sell and deliver said crude oil and condensate
in accordance with the terms of this agreement;
1 Sale and Purchase. Subject to the provisions hereof, Seller shall
-------------------
sell to Buyer and Buyer shall purchase from Seller all of the crude oil and
condensate produced from the properties described in Exhibit "A" attached
hereto. Seller hereby commits and dedicates to the performance of this agreement
all of the crude oil and condensate produced from the lease(s) included on
Exhibit "A" attached hereto. The parties hereto, by mutual consent, may amend
this agreement at any time to include additional properties to Exhibit "A".
2. Term. This agreement shall remain in effect for an initial term of two
----
(2) months, commencing on November 1, 1999 and from month to month thereafter,
unless and until terminated by either party upon written notice thereof given
thirty (30) days in advance of the end of the primary term of this agreement or
any extension thereof.
3. Delivery Point. Delivery shall take place and title shall pass from the
---------------
Seller to the Buyer when the crude oil passes the outlet flange of the Seller's
lease facility to the receiving equipment of Buyer or Buyer's designated agent.
4. Warranty of Title and Authority to Sell. Seller hereby warrants and
-------------------------------------------
guarantees that the title to the portion of the crude oil sold and delivered
hereunder which is owned by Seller is free and clear of all liens and
encumbrances and warrants that as to the remaining portion of the crude oil sold
and delivered hereunder Seller has the right and authority to sell and deliver
said crude oil for the benefit of the true owners thereof. Seller further
warrants that the crude oil has been produced, handled, and transported to the
delivery point hereunder, in accordance with the laws, rules and regulations of
all governmental authorities having jurisdiction thereof. Seller shall
indemnify and hold Buyer harmless from and against any and all cost, damage and
expense suffered and incurred by reason of any failure of the title so warranted
or any inaccuracy in the representation of Seller's right and authority to sell
said crude oil made herein.
<PAGE>
5. Price. Effective November 1, 1999, Sunoco's posted price for West Texas
-----
Intermediate crude oil (currently Sunoco's Col. 4), in effect on date of
delivery, available in Sunoco's Crude Oil Price Bulletin Summary as published,
modified by the net adjustment. Buyer and Seller agree that the net adjustment
shall be computed as set forth in Exhibit "A". The Temporary Marketing
Adjustment (T.M.A.) currently equals one dollar and sixty cents ($1.60) per
barrel.
For pricing purposes, the daily volume of crude delivered in each month
shall be determined either by reference to delivery tickets or other records
showing actual daily deliveries of such crude or, in the absence of such
records, shall be deemed to have been delivered in equal daily quantities for
each day of the given month.
Buyer and Seller further agree that for the term of this agreement, or any
extension thereof, seller shall not be charged gravity deductions on leases
listed on the attached exhibit "A", and any additions thereto.
6. Manner of Payment. Subject to verification of deliveries, payment for
------------------
crude oil sold and delivered shall be made by check on or about the twenty-third
(23rd) day of the month following the month of delivery. Payment shall be made
to the Seller utilizing Buyer's Division Order (excluding taxes).
7. Taxes. Buyer is hereby authorized to withhold from the proceeds
------
allocable to the sale and delivery of crude oil hereunder the amount of
severance taxes levied by State and Federal Agencies.
8. Prevailing Document. In the event of any conflict between the provisions
-------------------
of this agreement and the provisions of any applicable division order executed
in accordance with the terms hereof, the provisions of this agreement shall
control.
9. Quality Requirements. If the crude oil shall not meet Sunoco's West
---------------------
Texas Intermediate requirements at the delivering point, then Buyer shall have
the right to terminate this Crude Oil Purchase Agreement by giving thirty (30)
days written notice.
10. General Provisions. The General Provisions attached to this agreement
--------------------
are made a part of this agreement.
ALL SIGNATURES MUST BE WITNESSED
SUNOCO, INC. (R&M)
Witness
By (SIGNED)
----------------------------------
Landon E. Ophiem
(SIGNED)
- ------------------------
Title Crude Oil Representative
----------------------------------
TRINITY TEXAS ENERGY RESOURCES
Witness
By (SIGNED)
----------------------------------
- ------------------------
Title Chief Operating Officer
----------------------------------
Hand written
<PAGE>
SUNOCO, INC. (R&,M
------------------
COPA GENERAL PROVISIONS
-----------------------
1. Existing Laws. This Agreement will be governed by existing laws of the
--------------
State of Texas.
2. Force Majeure. Neither party shall be liable to the other for failure
---------------
or delay in making or accepting deliveries hereunder to the extent that such
failure or delay may be due to compliance with acts, orders, regulations or
requests of any federal, state or local civilian or military authority or as a
result of insurrections, wars, rebellion, riots, strikes, labor difficulties,
action of the elements, disruption or breakdown of production or transportation
facilities, or any other cause, whether or not of the same class or kind,
reasonably beyond the control of such party.
3. Quality and Measurement. Seller warrants that all crude oil purchased
-------------------------
hereunder shall be of merchantable quality (that is, unaltered and
uncontaminated by any foreign substances or chemicals not normally associated
with oil) and suitability shall be determined within the Buyer's exclusive, good
faith opinion. Quantities of oil delivered hereunder shall be determined by a
method of measurement generally accepted within the industry including, but not
limited to, the use of automatic measuring equipment, tank gauges on 100% tank
table basis, and certified truck gauges and meters. Meters shall be proven in
accordance with the latest American Petroleum Institute standards. Volume shall
be measured in barrels of forty-two (42) U.S. Gallons as adjusted for
temperature to 60 degrees Fahrenheit, less deductions for basic sediment and
water and other impurities determined according to applicable API practices. Oil
containing basic sediment and water in excess of the quantity permitted by the
carrier's tariff shall be treated by Seller to render it merchantable. Tests for
quality shall be made at regular intervals by Buyer or Buyer's Agent in
accordance with recognized procedures. Each party shall have the right to have a
representative present to witness all tests and measurements but in the absence
of either party's representative, the results of the tests and measurements
performed by the Buyer shall be deemed to be conclusive.
4. Waiver. Failure by either party to object to any failure of performance
------
by the other party of any provision of this Agreement shall not constitute a
waiver of, or estoppel against, the right of such party to require such
performance by the other. Nor shall any such failure to object constitute a
waiver or estoppel with respect to any succeeding failure of performance.
5. Assignment. This Agreement shall not be assignable by either party
-----------
without the prior written consent of the other. Any attempted assignment without
such consent shall be void.
6. Compliance with Laws. Each party agrees that the performance of this
----------------------
contract shall comply with all applicable state, federal and local laws. Each
party shall supply evidence of compliance, if required.
7. Security. If, in the reasonable opinion of either party, the financial
---------
responsibility of the other party is or becomes impaired or unsatisfactory, or
if the other party fails to make any payment or delivery when required, the
requesting party may require satisfactory security to secure performance or
payment or both, whether by way of stand-by or documentary letter of credit,
guaranty, advance payment, or otherwise. Failure to provide the required
security shall constitute a material breach of the Agreement entitling the
requesting party to cancel or suspend its delivery obligation and to offset any
payments or deliveries due the other party under this Agreement or other
Agreements between the two parties.
<PAGE>
8. Damages. The parties agree that in the event of a material breach of
--------
this Agreement resulting from a repudiation of an obligation or a failure to
deliver or receive all or a material portion of the required quantities, the
non-breaching party shall be entitled to recover contract damages,
administrative costs for any cover or resale and any other costs including but
not limited to court costs and reasonable legal fees incurred in recovering such
damages.
9. Condition of the Property. Seller agrees to maintain its tanks and
----------------------------
appurtenances related thereto such as ladders, handrails and catwalks, other
equipment used in the crude oil measuring and delivery areas, the ingress and
egress roads and other improvements to the property as well as the property
itself in a safe and workmanlike condition such that Buyer, its employees and
agents may access the property to perform the duties and obligations set forth
in this agreement without injury. Seller agrees to indemnify and hold Buyer
harmless from any cost, expense, loss or liability (including reasonable
attorney's fees) for personal injury and/or property damage caused by or related
to the condition of the tanks, appurtenances, equipment, roads or property
whether suffered by Buyer, Buyer's employee, or an employee of Buyer's
contractors, agents, or affiliates unless such injury or damage was caused by
the sole negligence of Buyer or Buyer's contractor or agent.
10. Default. If the Seller fails to sell and deliver or the Buyer fails to
-------
take delivery of or pay the purchase price for all of the Oil required to be
sold and delivered by the terms of this Agreement; or if either party fails to
establish any letter of credit required elsewhere in this Agreement; or if
either party becomes insolvent (defined for the purposes hereof as a failure to
meet its obligations as they become due); files a voluntary petition in
bankruptcy, or seeks reorganization receivership, or arrangements with respect
to its debts; files an answer admitting any material allegation of any
insolvency petition filed pursuant to any insolvency act, whether federal or
state; applies for, consents to, or fails to obtain the dismissal or discharge
of an order for the appointment of a receiver or trustee for any substantial
part of its property or assets; or, fails to satisfy or to appeal from any
material judgment or attachment within 30 days from the date of entry; or if
either commits any other material breach of the terms of this Agreement and
fails to promptly cure such breach after notice by the other party, that party
shall be in default. In any such event the other party may cancel or suspend
deliveries or receipts or cancel this Agreement and offset any payments due the
other party under this Agreement or other Agreements between the two parties,
and may do so without prejudice to any claim for damages or any other right or
remedy under this Agreement or applicable law.
I 1. Integration and Amendments. This Agreement, embodies the entire
-----------------------------
understanding of the parties hereto and supersedes all prior negotiations,
understandings and agreements between them with respect to the entire matter
hereof. The provisions hereof may be waived, supplemented or amended only by
an instrument in writing signed by a duly authorized representative of each of
the parties hereto.
12. Severability. If any portion of this Agreement should be adjudged
-------------
illegal or unenforceable, the remainder of this Agreement shall continue to be
enforceable if commercially reasonable.
13. Notices. All notices, statements or other communications to be given,
-------
submitted or made by either party to the other shall be sufficiently given if in
writing and sent by air mail, postage prepaid, or by telegraph, telex, radio or
cable to the address of such other party as specified on page one of this
Agreement. Either party may change its address for the purpose set forth in this
paragraph upon giving fifteen (15) days prior written notice to the other party.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "A"
TRINITY TEXAS ENERGY RESOURCES - - COPA 520627 EFFECTIVE: 11101/99
EFF. SUNOCO TEMP TRANS NET
DATE PROP. # LEASE NAME FIELD COUNTY/ST MKTG. ADJ. (-) ADJ. (=) ADJ
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/01/99 0260180000 HARTWICH QUITO (WOLFCAMP) WARD, TX $ 1.60 $ 0.00 $1.60 SUNOCO'S WT INT (COL. 4)
LEASE NAME (+) PRICE*
- --------------------------
<S> <C>
HARTWICH
</TABLE>
*AS PUBLISHED IN SUNOCO, INC. (R&M) CRUDE OIL PRICE BULLETIN SUMMARY.
<PAGE>
<TABLE>
<CAPTION>
CONTRACT SUMMARY BRIEF
<S> <C> <C> <C>
ContractNumber 281
ProducerNumber 23557
ContractType P 80% of Residue Gas
ContractDate 2/12/74
EffectiveDate 2/12/74
ContractTerm 1188 50% of Liquids
ExpirationDate 01-Dec-99
RenewalCode A (HAND WRITTEN)
TerminationNoticeDays 0
UnprofitabilityNoticeDays 30
MeasurementTest 6
BtuTest 6
PaymentDays 30
AuditProvision 0
ProductSalesPercent 0.5
ProductSalesBase 99
ResidueSalesPercent 0.8
ResidueGasBase 99
CondensateSalesPercent 0
CondensateSalesBase 99
WellheadPriceCode
FixedPrice 0
IndexCode 0
IndexAdjustment 0
BasePrice 0
PercentPriceIncrease 0
PriceIncreaseBase 0
UnitOfMeasure Mmbtu
PressureBase 14.65
Deduct1Code 30
Deduction Rate Codes.DeductRateDesc. Third Creek Gathering
Deduction Rate Codes.DeductRate 0.12
Deduction Rate Codes.Unit of Measure Mcf
Deduct1CalcCode 9
Deduction Calculation Codes.DeductCalcDesc Wellhead Mcf
Deduct2Code 99
Deduction Rate Codes 3.DeductRateDesc Not Applicable
Deduction Rate Codes 3.DeductRateDesc 0
Deduction Rate Codes 3.Unit of Measure
Deduct2CalcCode 99
Deduction Calculation Codes 1.DeductCalcDesc Not Applicable
Deduct3Code 99
Deduction Rate Codes 1.DeductRate Desc Not Applicable
Deduction Rate Codes 1.DeductRate 0
Deduction Rate Codes 1.Unit of Measure
Deduct3CalcCode 99
Deduction Calculation Codes 2.DeductCalcDesc Not Applicable
Deduct4Code 99
Deduction Rate Codes 2.DeductRateDesc Not Applicable
Deduction Rate Codes 2.DeductRate 0
Deduction Rate Codes 2.Unit of Measure
Deduct4CalcCode 99
Deduction Calculation Codes 3.DeductCalcDesc Not Applicable
PayOperator FALSE
Denver Central System, Elbert County, Legal
Description:
Sec4,T6S,R62W, Koch Contract Number 1875
Term is Life of Lease Renewal Code "E" above is
the only code
LastUpdateUser fres
LastUpdateDate 05-Sep-97
MaximumResiduePercent 0
MinimumResiduePercent 0
MaximumLiquidsPercent 0
MinimumLiquidsPercent 0
MaximumVolumeLimit 0
MinimumVolumeLimit 0
VolumeLimitCode 1
VolumeMeasureCode 1
EthaneRecoveryFactor 0
PropaneRecoveryFactor 0
IsoButaneRecoveryFactor 0
NormalButaneRecoveryFactor 0
IsoPentaneRecoveryFactor 0
NormalPentaneRecoveryFactor 0
HexanesRecoveryFactor 0
RecoveryCalcCode 99
GuaranteedFL&Upercent 0
FL&UCalcCode 99
Contract Number Third
Meter Party
Number Number Meter Name
281 1413 HAY 4-5
281 1414 WHITEHEAD 8-9
281 1415 WHITEHEAD 4-13
281 1416 WHITEHEAD 4-11
281 1417 MILLER 6-15,6-9
281 1428 MORRIS 13-4 & 14-8
281 1430 MORRIS 13-14
281 1431 SARTI 24-2,6,10
281 1434 WHITEHEAD 12-16
281 1435 WHITEHEAD 18-4
281 1436 WHITEHEAD 12-1,12-7
281 1438 MILLER 6-13
281 1439 MILLER 6-11
281 1440 MILLER 6-7
</TABLE>
<PAGE>
#281 (HAND WRITTEN)
TCK - 1927 (HAND WRITTEN)
AMENDMENT
TO
GAS SALES AGREEMENT
This agreement, made and entered into as of the 1st day of August, 1986 by
and between BWAB, INC., hereafter referred to as "Seller" and SUN OPERATING
LIMITED PARTNERSHIP, hereinafter referred to as "Buyer".
WHEREAS, Seller and Buyer are parties to that certain Gas Sales and
Purchase Contract dated February 12, 1974, covering the sale and purchase of gas
for processing for the recovery of liquefiable products and residue gas covering
certain properties in Arapahoe and/or Elbert Counties, Colorado; and,
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, Seller and Buyer hereby agree that the Gas Sales and Purchase
Contract dated February 12, 1974, as it may previously have been amended, is
hereby further amended by eliminating in its entirety Article IX Price and
inserting the following in lieu thereof:
ARTICLE IX
PRICE
9. 1 (a) The price to be paid by BUYER to SELLER for Residue Gas shall be
an amount equal to eighty percent (80%) of the net proceeds from the sale of
residue which is attributable to the gas delivered hereunder, except as set out
in paragraph 6 (c) below. The actual residue gas measured and delivered from the
processing plant will be allocated and attributed to each producing source in a
similar manner reflecting actual allocated fuel consumed, allocated gains or
losses experienced in the gathering and processing of all streams, and allocated
shrinkage due to recovery of liquid products.
4M6/2130 (1)
51805 (STAMPED)
<PAGE>
PAGE 2
Liquid allocations and shrinkage volumes attributable to the recovery of
plant liquids will be based on the most recently published GPA Standard 2145 and
testing procedures conducted on all plant and lease streams in a similar manner.
Such tests shall be run on a semiannual basis.
The "total actual volume of residue gas remaining" shall be measured by a
suitable orifice meter or meters of standard make to be installed and kept in
repair by BUYER at the Plant. For all purposes of this agreement, the quantity
of gas processed through the Plant during any period shall be treated as
SELLER'S gas delivered hereunder in the proportion which the quantity of gas
delivered hereunder during such period bears to the total quantity of gas
delivered to the Plant from all sources during such period.
(b) As additional compensation for said gas, it is agreed that BUYER shall
pay SELLER for the gas delivered hereunder a price computed by multiplying the
gallons of Liquid Products, i.e., natural gasoline, butane, propane and ethane,
recovered and saved at the Plant and attributable to the gas delivered hereunder
during any month by the sales price per gallon of such liquid products as
hereinafter defined, and by multiplying the result thus obtained by fifty
percent (50%). The gallons of liquid product attributable to the gas delivered
hereunder shall be determined by multiplying the measured quantity of each
liquid product recovered and saved at the Plant during the month by a fraction,
the numerator of which is the theoretical gallons of each liquid product
contained in the gas delivered hereunder during such month (determined by
multiplying each liquid product content per thousand cubic feet, arrived at by
test, by the quantity of gas delivered hereunder during such month expressed in
thousands of cubic feet) and the denominator of which is the total theoretical
gallons of each liquid product contained in all the gas delivered to the Plant
during such month.
4M6/2130 (2)
5 1 8 0 5 (STAMPED)
<PAGE>
PAGE 3
The sales price per gallon of such liquid products shall be the weighted
average sales price net at the Plant received per gallon of liquid products by
BUYER during the month for which accounting is made. If there are no liquid
products sold at the Plant during such month, the market value at the Plant of
such liquid products shall control.
(c) For gas qualifying under the NGPA, the prices referred to above shall
be contingent upon SELLER filing for and receiving regulatory approval for the
maximum price allowable under the Natural Gas Policy Act of 1978 for the residue
attributable to the gas covered by this agreement.
Except as herein amended, and heretofore amended, said Gas Sales and
Purchase Contract shall remain in full force and effect and as originally
written.
In consideration of Buyer paying the aforementioned price to Seller for gas
subject to aforementioned contract dated February 12, 1974, as amended, Seller
will repay to Buyer those proceeds paid by Buyer to Seller in excess of the
price determined to be proper, by the Federal Energy Regulatory Commission or
any other federal or state regulatory body or bodies having jurisdiction
thereof. Seller agrees to make above refund to Buyer within sixty (60) days of
proper notification to Seller by Buyer that the price heretofore agreed upon is
in excess of the maximum price allowed by regulatory body. Buyer may withhold
any proceeds due Seller for gas attributable to said contract until the full
refund is made, beginning with the sixty-first days' production after proper
notification has been given Seller, if Seller has not refunded that amount in
excess of the proper price as determined by and of the aforementioned
regulatory body or bodies having jurisdiction thereof.
This amendment shall become effective on August 1, 1986.
4M6/2130 (3)
5 1 8 0 5 (STAMPED)
<PAGE>
PAGE 4
If the foregoing is acceptable to you, please evidence your acceptance and
agreement to be bound in accordance herewith by executing and returning two
copies of this agreement. One fully executed copy will be returned for your
files.
"SELLER" "BUYER"
BWAB, Incorporated SUN OPERATING LIMITED PARTNERSHIP,
BY SUN EXPLORATION AND PRODUCTION
COMPANY, Its Managing General Partner
ACCEPTED AND AGREED TO THIS
9TH DAY OF JULY(HAND DATED , 1986.
- ---- ----------------------
BY (SIGNED)
--------------------------------------
MANAGER, GAS PURCHASES AND TRANSPORTATION
BY (SIGNED)
-----------------------------
Vice President
ATTEST
(SIGNED)
-----------------------------
4M6/2130 (4)
5 1 8 0 5 (STAMPED)
<PAGE>
GWG-OWG
11-19-73
GAS SALES AND PURCHASE CONTRACT
BETWEEN
SUN OIL COMPANY (DELAWARE)
Buyer
AND
BANDER OIL COMPANY
ARAPAHOE AND ELBERT COUNTIES, COLORADO
Replaces Contract
40480 dated 10-15-7 (HAND WRITTEN
51805 (HAND WRITTEN)
--------------
<PAGE>
<TABLE>
<CAPTION>
I N D E X
---------
ARTICLE PAGE
<S> <C> <C>
I Definitions 1-3
II Purpose and Commitments 3
III Delivery Date and Place 4-5
IV Quantity 5-6
V Quality 6-7
VI Meters and Computations of Volumes 7-10
VII Tests 10-11
VIII Residue Gas 11-13
IX Price 13
X Payment 13-14
XI Warranty 14
XII Reservations of Parties 14-15
XIII Royalty and Taxes 15
XIV Drip 16
XV Force Majeure 16-17
XVI Unprofitable Gas 17
XVII Producing Schedule 17-18
XVIII Right-of-Way 18
XIX Indemnity 18
XX Scope 18
XXI Regulatory Bodies 19
XXII Unitization 19
XXIII Term 19
XXIV Counterpart Execution 20
XXV Assignment 20
XXVI Notices 20-21
Exhibit "A" 22
</TABLE>
40480 - A (STAMPED)
---------
<PAGE>
GAS SALES AND PURCHASE CONTRACT
THIS CONTRACT, made and entered into as of the 12th day of February
---- --------
1974, by and between BANDER OIL COMPANY hereinafter referred to as
"Seller", and SUN OIL COMPANY (DELAWARE), hereinafter referred to as "Buyer".
WITNESSETH THAT:
WHEREAS, Seller owns and holds a certain valid and subsisting lease or
leases and/or interest therein covering lands in Arapahoe and Elbert Counties,
Colorado, which lease/s and land/s are more particularly described in Exhibit
"A" attached hereto and made a part hereof; and,
WHEREAS, subject to the terms and conditions hereof, Seller desires to sell
and Buyer desires to purchase all the gas, and herein defined, now or hereafter
produced from the said lease/s and land/s; and,
WHEREAS, Buyer intends or has constructed a Gas Plant and desires to
purchase said gas for processing for the recovery and disposition of plant
products as herein provided.
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and
valuable considerations, the receipt of which is hereby acknowledged, and other
payments and covenants hereinafter specified, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 For the purpose of this contract, certain terms and expressions
herein used are defined, as follows:
40480 - A (STAMPED)
---------
<PAGE>
a. "Gas" shall mean both "oil-well gas" and "gas-well" gas. "Oil-well
gas" shall mean gas issuing from oil wells whether produced from the same strata
from which oil is produced, or by the induction of gas with compressors or
other means for flowing oil and gas vaporized from oil after production.
"Gas-well gas" shall mean all gas which is not oil-well gas.
b. "Gas plant" or "plant" shall mean all tanks, machinery, equipment,
fixtures, appliances, pipe, valves, fitting and material of any nature of kind
whatsoever located, or to be located, on the site or sites at which the
compressing and processing facilities of Buyer are located, all easements
pertaining to such site or sites and the operation of the plant; gas gathering
system, and any and all other facilities and appurtenances located, or to be
located, on or away from such site or sites deemed by Buyer to be necessary for
the successful operation of the plant.
c. "Liquid products" shall mean commercial propane, commercial butanes
and natural gasoline, individually or as a mixture, and any other liquid product
recovered in Buyer's plant.
d. "Residue gas" shall mean that portion of the natural gas remaining
after shrinkage due to recovery of liquid products.
e. "Residue gas remaining" shall mean residue gas as herein defined,
less such portion thereof required for plant operations.
f. "Surplus residue gas" shall mean residue gas remaining as herein
defined, less such portion thereof returned to leases from which natural gas is
supplied to the plant.
g. "Plant products" shall mean any one or all of liquid products, and
surplus residue gas as above defined.
-2-
<PAGE>
h. "Cubic foot of gas" shall mean the amount of gas necessary to fill a
cubic foot of space, when the gas is at a pressure of fourteen and sixty-five
one hundredths (14.65) pounds per square inch absolute and at a temperature of
sixty (60) degrees Fahrenheit.
i. "Day" shall mean a period of twenty-four (24) consecutive hours
beginning and ending at 7:00 o'clock A.M. Rocky Mountain time.
j. "Month" shall mean the period beginning at 7:00 o'clock A.M. on the
first day of a calendar month and ending at 7:00 o'clock A.M. on the first day
of the next succeeding calendar month.
ARTICLE II
PURPOSE AND COMMITMENTS
2.1 The gas hereby sold is conveyed to Buyer for the purpose of
recovering and disposing of such plant products as are made from time to time.
2.2 Subject to the stipulations and conditions herein specified and to
the extent of Seller's interest, Seller hereby commits, grants, bargains, sells
and agrees to deliver to Buyer, and Buyer agrees to purchase and receive from
Seller, Seller's share of all gas produced from all formations from the surface
of the ground to the base of the lowest formation of Cretaceous Age from wells
now or hereafter located upon the leases and lands described in Exhibit "A"
hereof.
2.3 Seller shall install, maintain and operate, at Seller's sole cost,
risk and expense, all requisite facilities of standard make and adequate
capacity to enable Seller to deliver gas to Buyer at the point of delivery.
Buyer shall install, maintain and operate, at Buyer's sole cost, risk and
expense, a suitable orifice meter or meters and other requisite facilities to
enable Buyer to receive gas from Seller the point of delivery.
-3-
<PAGE>
ARTICLE III
DELIVERY DATE AND PLACE
3.1 The delivery and reception of said gas shall begin 60 days after the
--
signing of this contract, and Buyer's failure to accept and/or agree to pay
Seller for all oil-well gas and substantial quantities of gas-well gas shall
give Seller the right to cancel this contract at any time thereafter before
deliveries of such quantities begin by serving ten (10) days written notice to
Buyer. The plant shall be designed to recover a significant percentage of
propane, butanes and essentially all of the heavier liquefiable hydrocarbons.
After commencement of taking of gas hereunder, Buyer's obligation to pay for the
same shall be computed as otherwise provided herein.
3.2 The point of delivery of the gas, for measurement, allocation
purposes and sampling hereunder shall be at vapor tight flow tanks and/or the
gas outlet of the mechanical liquid-gas separators furnished by Seller and/or at
the casingheads of the wells located on the leased premises covered hereby.
Buyer shall have the right to install equipment acceptable to Seller on Seller's
storage tanks for the purpose of saving and utilizing vapors therefrom, which
vapors for the purpose of this contract, shall be considered oil-well gas. Gas
(other than storage tank vapors) shall be delivered by Seller to Buyer at
sufficient pressure to enter Buyer's gathering system, which shall not be
operated at pressures in excess of 25 pounds per square inch gauge. Gas-well
gas shall be delivered by Seller to Buyer at pressures not to exceed 700 pounds
per square inch gauge except that Buyer shall lower its line pressure as
required to permit Seller's gas wells to deliver in commercial quantities.
-4-
<PAGE>
3.3 It is further agreed that subsequent to the date Buyer commences
receiving gas from any lease hereunder, in the event other leases covered hereby
become productive of gas, Seller shall promptly give Buyer notice in writing
thereof. Thereafter, Buyer shall promptly determine the quality and quantity of
additional gas available and shall have ninety (90) days after said notice to
connect to and commence receiving such gas; provided however, that if Buyer
determines that the connection of such gas is uneconomical due to the quality
and/or quantity thereof, Buyer shall promptly give Seller notice thereof, and
Buyer shall be relieved henceforth of any obligation to connect such gas, and
Seller may by thirty (30) days wirtten notice withdraw such gas and the acreage
attributable thereto from the terms of this contract.
3.4 Title to all gas and all components shall pass from Seller to Buyer
at the point of delivery. Seller shall be solely liable and responsible for said
gas prior to delivery thereof to Buyer, and Buyer shall be liable and
responsible therefor from and after the point of delivery.
ARTICLE IV
QUANTITY
4.1 The Buyer agrees to take (a) all the oil-well gas which tests more
than seven-tenths (.7) of a gallon of pentanes and heavier liquefiable
hydrocarbons per thousand cubic feet of gas, determined in accordance with
Paragraph 7.1 (a) hereof, and (b) all of the gas-well gas. During periods when
gas production from all properties connected to Buyer's plant exceeds the
capacity of Buyer's plant and/or Buyer's surplus residue gas market, Buyer shall
be obligated to take production by Seller from a given gas-bearing reservoir at
-5-
<PAGE>
rate which is equitable or ratable when compared to production from such
reservoir by all producers marketing gas from same, giving first preference in
Buyer's plant to the receipt and taking of oil-well gas. Seller shall have the
right to dispose of any gas not taken by Buyer, provided, however, Seller must
give Buyer Thirty (30) days notice that it proposes to dispose of said gas, and
Buyer shall have the option to elect to take said gas by giving written notice
within said thirty (30) days period to Seller that it elects to release said gas
or to take said gas under the terms and conditions of this contract, in which
event, Buyer shall have one hundred twenty (120) days to construct additional
facilities for the taking and processing of said gas. In event Seller should
not dispose of all or any part of said gas within one hundred eighty (180) days
after the expiration of said first thirty (30) day notice, Seller will again be
required to give thirty (30) days notice of its intention to dispose of said gas
and Buyer will again have the option to elect to take said gas as hereinabove
set forth.
ARTICLE V
QUALITY
5.1 Buyer may, but shall not be obligated to, receive and purchase gas
hereunder that fails to meet the following specifications:
a. At the point of delivery be free of water or crude oil exist-
ing as a liquid at the conditions of delivery, as such conditions exist from
time to time, and be free of dust, gums or other solid matter which may become
separated from the gas and interfere with its transmission;
b. Have a gross heating value of not less than one thousand and
one hundred (1100) BTU's per cubic foot of gas when saturated with water vapor,
as determined by test procedures approved by the American Gas Association.
-6-
<PAGE>
c. Not contain non-hydrocarbon substances which will cause the
Plant products to fail to meet the specifications of the purchasers thereof
5.2 In the event the gas tendered by Seller to Buyer should fail to
meet any one or more of the above specifications from time to time, then Buyer
shall have the continuing right at its election to cease receiving the delivery
of gas from Seller so long as such conditions exist. In the event Buyer refuses
to accept gas tendered it hereunder for a period of sixty (60) consecutive days,
then Seller may, upon thirty (30) days prior written notice, withdraw from this
contract such well or wells and the gas reserves attributable thereto from which
such gas causing the quality deficiency is being produced; provided, however,
Buyer may keep this agreement in force and effect as to such well or wells by
agreeing to and commencing to receive said gas hereunder within said thirty (30)
day period.
ARTICLE V
METERS AND COMPUTATIONS OF VOLUMES
6.1 Buyer shall install, operate and maintain suitable orifice meter,
or meters, of standard make at the points of delivery provided for herein. All
meters shall be installed and operated and volumes computed in accordance with
the specifications prescribed in Gas Measurement Report No. 3 dated April 1955
of the Natural Gas Department of the American Gas Association, with revisions of
September 1969, as the same may be amended from time to time or by any other
method agreed upon between the parties hereto; provided, however, the manometer,
Reynolds number and expansion factors shall be considered unity. Seller may, at
its option and expense, install and operate
-7-
<PAGE>
meters to check Buyer's meter, provided such check meter installation in no way
interfers with the proper operation of Buyer's meter. The amount of gas so
metered shall be computed to a standard pressure of 14.65 psia and at a standard
temperature of 60 Fahrenheit. For the purposes of computation it shall be
assumed that the atmospheric pressure is 12.1 psia and that the gas obeys the
Ideal Gas Laws as to variations of volume with pressure less than 100#, specific
gravity and temperature. The flowing temperature of the gas being delivered at
any point of delivery shall be assumed to be 60 Fahrenheit; provided however,
Buyer, at its option, or at request of Seller, shall determine the actual
flowing temperature of such gas by spot thermometer readings made as often as
found necessary by practice, or by recording thermometer.
6.2 At least once each six (6) months, Buyer at its expense shall
verify the accuracy of its Measuring equipment. If either party shall notify the
other that it desires a special test on any measuring equipment, the parties
shall cooperate to secure a prompt verification of the accuracy of such
equipment. Unless otherwise agreed upon Buyer shall notify Seller in writing, at
least ten (10) days prior to any test of its measuring equipment, in order that
the Seller may conveniently have its representative present. Cost of special
tests shall be borne by party requesting same if measuring equipment is found to
be registering accurately, and by Buyer if found to be registering inaccurately.
6.3 If upon test any measuring equipment is found to be in error not
more than two percent (2%), previous recordings of such equipment shall be
considered accurate in computing deliveries hereunder, but such equipment shall
be adjusted at once to record accurately. If upon test any measuring
-8-
<PAGE>
equipment shall be found to be inaccurate by an amount exceeding two percent
(2%) at a recording corresponding to the average hourly rate of flow for the
since the last preceding test, then such equipment shall he adjusted at once to
record accurately, and any previous recordings of such equipments be corrected
to zero error for any period which is known definitely or agreed upon, but in
case the period is not known definitely or agreed upon, such correction shall be
for a period extending over one-half of the time elapsed since the last test.
6.4 In the event a meter is out of service or registering
inaccurately, the volume of gas delivered hereunder shall be estimated by the
first of the following methods which is feasible;
a. Using the registration of any check meter or meters if
installed and accurately registering, or
b. In the absence of such check meter or meters, by correcting the
error if the percentage of error is ascertained by calibration or mathematical
computation, or
c. In the absence of both (a) and (b) the volume of gas delivered
during any such period when meter is out of service or registering inaccurately
shall be determined by multiplying the number of barrels of oil or condensate
produced during such period from the wells from which gas is delivered through
the meter by the average volume of gas delivered hereunder per barrel of oil or
condensate produced during the thirty (30) day period prior to the last test of
the meter reflecting accurate measurement.
6.5 The meter or meters installed by Buyer to measure gas sold and
purchased hereunder shall be open to inspection at all reasonable times to
Seller in the presence of Buyer. If requested, Buyer shall send the charts to
Seller for checking, after which they are to be returned to Buyer within twenty
(20) days after receipt.
-9-
<PAGE>
6.6 In the event the volume of gas received under this contract trom
any delivery point during any month shall, in the judgment of Buyer, be
sufficient to justify the expense of continuous measurement, Buyer may at its
election discontinue continuous measurement of the gas purchased hereunder as
above provided and in lieu of such continuous measurement determine the daily
average volume of gas received by periodical meter measurements. Such periodical
measurements shall be for periods of not less than two weeks and shall be made
whenever, in the opinion of either party and in any event within thirty (30)
days after written demand of Seller, the volume of gas delivered hereunder has
changed sufficiently to again warrant measurement, but in no event shall such
periodical measurement be made less often than once each calendar year. The
daily average volume of gas determined by each such periodical measurement shall
be used until, and shall be superseded by the next periodical measurement as
herein provided.
ARTICLE VII
TESTS
7.1 Buyer shall, at its expense, test the gas purchased and sold here-
under to determine the composition of the gas and specific gravity as
hereinafter provided:
a. Composition of the Gas: Buyer shall obtain a spot sample of
------------------------
the gas purchased and sold hereunder while the gas is being produced under
normal operating conditions. Analysis of such sample shall be made by Buyer at
its election either by low temperature fractional analysis, gas chromatography,
mass spectometer, or any other method accepted in the industry. The gallons per
thousand cubic feet of each component shall be determined from said analysis by
utilizing applicable conversion factors (corrected to the
-10-
<PAGE>
measurement conditions herein stated) as contained in N.C.P.A. Publication
:Bulletin 2145 as revised from time to time.
b. Specific Gravity: The specific gravity of the gas purchased
-----------------
and sold hereunder shall be determined by Buyer, at its election, either by the
impulse or momentum method as set out in A.G.A. gas measurement report, or any
other method generally accepted in the industry.
7.2 The tests provided to be made under the provisions of 7.1 (a) and
(b) above shall be made semi-annually by Buyer, after ten (10) days prior notice
to Seller; each such test shall be effective the first day of the month
following the making of such test and shall endure for a period of six (6)
months unless prior thereto such tests are superseded by a special test, as
hereinafter provided. Either party hereto may request in writing that special
tests be made, at the expense of the party requesting same, when, in their
opinion, the composition of the gas or its specific gravity differs from the
results of earlier analysis materially. In the event any such special tests are
made, same shall be effective immediately upon completion and shall endure for a
period until the end of the semi-annual period within which such test was made,
or until superseded by another special test.
ARTICLE VIII
RESIDUE GAS
8.1 Buyer may, but shall not be obligated to, return residue gas to
those points where gas was originally received and measured under Article III of
Paragraph 3.2, such gas to be for the development and above ground operations of
Seller's lease/s, the amount of such residue gas not to exceed an amount equal
to the "residue gas remaining" from the gas currently delivered to Buyer
-11-
<PAGE>
from said lease. Buyer may deliver residue gas to Seller, at such points, at
any pressure, but Buyer shall be under no obligation to deliver residue gas to
Seller at such points at pressures in excess of ten (10) pounds per square inch
gauge. "Residue gas remaining" shall be determined by multiplying the total
actual volume of residue gas remaining from all natural gas delivered to said
plant by a fraction, the numerator of which shall be the lease theoretical
volume of residue gas remaining from the gas delivered from such lease and the
denominator of which shall be the lease theoretical volume of residue gas
remaining attributable to all leases delivering natural gas to the plant for
processing.
8.2 The lease theoretical volume of residue gas remaining from any
lease shall be determined by multiplying the volume of gas delivered at the
point of delivery by whichever of the following is applicable:
a. The Mol percent of ethane and methane components in the gas
when ethane or ethane rich gas is not being recovered and sold, or
b. The Mol percent of the methane component in the gas when ethane
or ethane rich gas is being recovered and sold.
8.3 The volume of residue gas delivered to Seller's lease for
development and above ground operations shall be measured and computed upon the
pressure base set out in Paragraph 6.1 hereof, except in the event the volume of
such gas does not, in Buyer's judgment justify a meter installation. During such
time as no measurement is obtained, the volume of residue gas delivered to
Seller shall be computed monthly from estimates based on the number of hours the
consuming or using equipment is operated; such estimates to give due
consideration to the size, type, horsepower, and/or capacity of such equipment.
In lieu of the above, Buyer may, at its election, allocate the residue gas
returned to leases as measured at the plant discharge into the residue gas
system on the basis that each lease metered and/or estimated
-12-
<PAGE>
volume utilized, as above determined, bears to the summation of all lease
metered and/or estimated volumes of residue gas utilized as determined in a
like manner.
8.4 In the event residue gas remaining to be returned hereunder by the
Buyer shall be insufficient in quantity for the purpose of development and
operations of said lease, the Seller hereby reserves the right to use gas from
its lease sufficient in quantity to make up the deficiency. Utilization of said
residue gas remaining so returned by Buyer shall be at Seller's risk.
8.5 If Seller accepts and uses residue gas furnished by Buyer, such
volume of residue gas shall be deducted each month from the volume for which
Buyer is to pay Seller as provided in Article IX hereof.
ARTICLE IX
PRICE
9.1 Buyer shall pay Seller each month for the gas delivered hereunder
as determined at each delivery point a value which shall be in full
consideration for the gas and, all components, and all plant products.
a. Upon the effective date and for one year thereafter -- twenty
six cents (26 ) per thousand cubic feet (MCF).
b. The above price shall be increased one cent (1 ) per thousand
cubic feet (MCF) at the beginning of the second year and each year thereafter
over the price paid for the previous year.
ARTICLE X
PAYMEN'T
10.1 Payment shall be made by the Buyer not later than the last day of
each month for all gas delivered hereunder during the preceding month, and
-13-
<PAGE>
at the time payment is made a statement showing full details of the accounts
shall be transmitted to the Seller accompanying the Buyer's check in payment
therefor. Examination by the Seller of the books of account kept by the Buyer
respecting said gas account shall be permitted by the Buyer at any and all
reasonable hours.
ARTICLE XI
WARRANTY
11.1 Seller warrants title to the gas delivered hereunder and that it
has good right to sell gas to Buyer; however, Buyer shall not be required to
make payments to Seller until Seller shall have submitted abstracts of title
covering said leasehold showing good and merchantable title in Seller and that
Seller has good right to sell said gas, all to the satisfaction of the attorneys
of Buyer; provided however, if the title of Seller is questioned, or involved in
any action, Buyer shall have the right to withhold payment during the pendency
of such action or until said title is freed from such question, or until Seller
furnishes bond conditioned to save Buyer harmless with surety acceptable to
Buyer.
ARTICLE XII
RESERVATIONS OF PARTIES
12.1 Seller reserves gas for above ground development and operation of
the leases and/or lands covered hereby, and for delivery to its lessors as
required under the terms of its oil and gas leases.
12.2 Seller may at any time, without liability to Buyer, clean out,
deepen, re-work, plug back, use for injection or abandon any well or wells on
the above described lands or use any efficient, modern, or approved method
-14-
<PAGE>
for the production of oil. Before any well or wells are taken out of service
for any reason whatsoever, Seller shall, at its sole risk, cost, and expense,
first disconnect same from Buyer's gas gathering system.
12.3 Seller hereby specifically reserves the right to introduce air,
gas, water, or any other extraneous substances into the well or wells covered
hereby or into the formation or formations from which said well or wells are
producing when in the exclusive judgment of Seller, the introduction of such
substances is desirable in the operation of such well or wells for the
production of oil and/or gas, even though such well or wells may be entirely
destroyed as a producer or producers of gas; provided that if Seller's
operations under this paragraph create a condition which, in the exclusive
judgment of Buyer, makes the taking and utilization of gas therefrom
unprofitable to Buyer, or should such operations tend to endanger the plant or
property of Buyer or the lives of Buyer's employees should such diluted or
contaminated gas be taken, then Buyer reserves the right to discontinue taking
gas from the particular well or wells while being so operated.
ARTICLE XIII
ROYALTY AND TAXES
13.1 Seller agrees to account and pay to the lessors or royalty owners
in the lease/s above described, in strict accordance with the provisions
thereof, the royalty on the gas sold and delivered hereunder to Buyer.
13.2 In the event any new or additional tax should be assessed on the value
of the gas sold hereunder and if Buyer is reimbursed by the purchaser of residue
gas for such new or additional tax under the provisions of the Gas Purchase
Agreement between Colorado Interstate Gas Company and Buyer, then to the extent
such tax reimbursement applies to the gas purchased hereunder, Buyer shall
reimburse Seller.
-15-
<PAGE>
ARTICLE XIV
DRIP
14.1 Buyer shall keep reasonably clear of obstruction all its pipe
lines through which said gas is being delivered and shall own all liquid
collected in such line.
ARTICLE XV
FORCE MAJEURE
15.1 Any failure of either party hereto to perform any of the
obliga-tions hereunder shall be excused if such failure is due to "force
majeure" as hereinafter defined. The term "force majeure" shall mean acts of
God, strikes, lockouts, or other industrial disturbances, acts of the public
enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, flood, washouts, arrests and restraints of the
Government, either Federal or State, civil and military, civil disturbances,
explosions, breakage or accident to machinery or line of pipe, freezing of wells
or lines of pipe, partial or entire failure of wells, inability of any party
hereto to obtain necessary materials, supplies or permits, due to existing or
future rules, regulations, orders, laws or proclamations cf Governmental
Authorities (both Federal and State), including both civil and military, and any
other causes, whether of the kind herein enumerated or otherwise not reasonably
within the control of the party claiming suspension.
15.2 It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty, and that any force majeure shall be remedial with all reasonable
-16-
<PAGE>
b. Accept and follow a producing schedule for all wells connected to the
plant to be established by Buyer in cooperation with all gas suppliers
delivering gas to the plant.
ARTICLE XVIII
RIGHT-OF-WAY
18.1 Insofar as Seller's lease/s and/or lands permit, Buyer is granted
the right to lay and maintain lines and to install any necessary equipment on
said lease/s and/or lands and shall have the right to free entry for any purpose
incidental to this contract so long as such purpose does not interfere with
lease operations or the rights of owners in fee. All lines and other equipment
placed by Buyer on said leases and/or lands shall remain the property of the
Buyer and, subject to the terms of this contract, may be removed by Buyer at any
time.
ARTICLE XIX
INDEMNITY
19.1 Buyer shall indemnify and hold Seller harmless against any claims
for damages growing out of the operations conducted hereunder by the Buyer.
Likewise, Seller shall indemnify and hold Buyer harmless against any claims for
damages growing out of Seller's operations of the lease herein described.
ARTICLE XX
SCOPE
20.1 In the event the property above described covers more than one lease,
this contract shall be construed as a separate.contract on each lease.
-18-
<PAGE>
ARTICLE XXI
REGULATORY BODIES
21.1 This contract shall be subject to all valid present and future
orders, rules and regulations of any duly constituted Federal or state
regulatory body having jurisdiction of the production, transportation, purchase
or sale of gas, and any and all failures of Seller to deliver, and of Buyer to
receive, gas hereunder caused by such orders, rules and regulations shall be
deemed to be excused under the provisions of "force majeure".
21.2 All gas purchased, sold and delivered hereunder shall be
transported, sold, consumed and utilized within the State of Colorado, and
will not be utilized in interstate commerce.
ARTICLE XXII
UNITIZATION
22.1 Seller reserves the right to unitize any of the lease/s and/or
lands covered hereby with other properties, in which event this contract will
cover Seller's interest in any such unit, but only insofar as such interest is
attributable to the lease/s and/or lands covered hereby.
ARTICLE XXIII
TERM
23.1 This contract shall be effective as of the date and year first
above written and shall remain in full force and effect for the life of the oil
and gas lease/s of Seller or any extension or renewal thereof or in the case of
mineral fee lands, so long as Buyer continues the operation of its plant.
-19-
<PAGE>
ARTICLE XXIV
COUNTERPART EXECUTION
24.1 The rights and obligations imposed by this contract shall be
severable as to each person or group of persons among those listed as "Seller"
owning a distinct legal interest in the lease described and the oil and gas
produced pursuant to the provisions thereof; and, this contract shall be fully
binding upon such person or group of persons after execution, irrespective of
whether or not all other persons described as "Seller" join in the execution of
this contract or of an exact counterpart thereof.
ARTICLE XXV
ASSIGNMENT
25.1 This contract shall extend to and be binding upon the parties
hereto, there heirs, administrators, successors and assigns, but no transfer of
or succession to the interest of the Seller hereunder, wholly or partially,
shall affect or bind the Buyer until it shall have been furnished at the office
of the Buyer in the City of Tulsa, Oklahoma, with the original instrument or
with the proper proof that the claimant is legally entitled to such interest.
ARTICLE XXVI
NOTICES
26.1 Notices to be given hereunder shall be deemed sufficiently given
and served when and if deposited in the United States Mail, postage prepaid and
registered or certified, addressed as follows:
-20-
<PAGE>
Seller: BANDER OIL COMPANY
- -------
1660 Lincoln Street
Suite 1420
Denver, Colorado 80203
Buyer: Sun Oil Company (Delaware)
- ------
P. 0. Box 2039
Tulsa, Oklahoma 74102
or to such other address as either party respectfully hereinafter designates.
26.2 Routine communications, including monthly statements, payments and
notices of tests shall be considered as duly delivered when mailed by either
registered or certified mail or ordinary first-class mail, postage prepaid, to
the appropriate address above specified.
INWITNESS WHEREOF, the parties have hereto subscribed their names:
SUN OIL COMPANY (DELAWARE)
BY: (SIGNED)
-------------------------------
Attorney-In-Fact
BANDER OIL COMPANY
BY: (SIGNED)
-------------------------------
"Individually and as Operator"
-21-
<PAGE>
40480 - A (STAMPED)
EXHIBIT "A"
To Gas Purchase Contract, dated the 12th day of February ,1974,
---- ------------------------ --
between Bander Oil Company referred to
as "SELLER", and SUN OIL COMPANY (DELAWARE), hereinafterer referred to as
"BUYER".
<TABLE>
<CAPTION>
Lease Number Description Gross Acres Net Acres
- -------------- -------------------------- ----------- ---------
<S> <C> <C> <C>
CO - 6565 N/2 18 & N/2 N/2 20-6S-62W 480 480
CO - 6804 S/2 & S/2 N/2 20-6S-62W 480 480
CO - 6817, 18 SE/4 18-6S-62W 160 160
CO - 6817, 1-5 All 13-6S-63W 640 640
CO - 7188 Lot 2, E/2 SW/4 18-6S-62W 154.54 154.54
</TABLE>
Shell's 50% working interest in Sections 17, 18, and 20-T6S-R62W, and Section
13-T6S-R63W, Elbert County, Colorado, as set out in the Operating Agreement
dated January 1, 1969, between Union Pacific Railroad.Company (now Champlin
Petroleum Company) and Shell Oil Company. Shell's interest is represented by
Shell's leases covering the above acreage.
40480 - A (STAMPED)
-22-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "A"
To Gas Purchase Contract, dated the 12th day of ________February____, 1974,
---- ------------- --
between Bander Oil Company referred to as "SELLER",
and SUN OIL COMPANY (DELAWARE), hereinafter referred to as "BUYER".
Lease Number Description Gross Acres Net Acres
- -------------- ------------------------------ ----------- ---------
<S> <C> <C>
(hand written) Whitehead 18-4 (op. by Sohio)
CO - 6565 N/2 18 & N/2 N/2 20-6S-62W 480 480
(hand written) Sabo 13-20 (op. by Champlin)
CO - 6804 S/2 & S/2 N/2 20-6S-62W 480 480
(hand written) C. Morris (op. by Champlin)
CO - 6817, 18 SE/4 X 18-6S-62W 160 160
CO - 6817, 1-5 X All 13-6S-63W (Morris 13-4, 13-6, 13-8,
13-12, 13-14 (op. by Sohio); Morris 44-18 op. by Champlin) (hand written)
CO - 7188 Lot 2, E/2 SW/4 18-6S-62W (Clark) 154.54 154.54
Bander int. only (hand written)
</TABLE>
Shell's 50% working interest in Sections 17, 18, and 20-T6S-R62W, and Section
13-T6S-R63W, Elbert County, Colorado, as set out in the Operating Agreement
dated January 1, 1969, between Union Pacific Railroad Company (now Champlin
Petroleum Company) and Shell Oil Company. Shell's interest is represented by
Shell's leases covering the above acreage.
40480 - A (STAMPED)
-22-
<PAGE>
NARCO #282 (HAND WRITTEN)
KOCH
- --------------------------------------------------------------------------------
KOCH HYDROCARBON COMPANY
December 28, 1989
Amoco Production Company
P. 0. Box 591
Tulsa, OK 74102
Re: The Gas Processing Agreement dated June 1 1986, ("The Agreement") between
Amoco Production Company ("Producer") and Koch Hydrocarbon Company (successor in
interest of Oryx Energy Company, hereinafter referred to as "Processor").
Gentlemen:
As you may be aware, Processor has purchased the Denver Central Plant which was
owned by Oryx. Your gas covered by The Agreement(s) referenced above has been
processed in that Plant.
If justified economically, Processor may terminate operation of the Denver
Central Plant and place into service a gathering line connecting your production
with Processor's Third Creek Plant. If this operational change is made, we
believe you will see an increase in the price you are paid for your gas for the
reason that (i) the Third Creek Plant is more efficient than the Denver Central
Plant, and (ii) the geographical location and liquid and residue sales lines out
of the Third Creek Plant will allow Processor to sell its Plant liquids and
residue gas residue gas at prices which are generally higher than obtainable
from the Denver Central Plant. A comparison of prices of the Denver Central
Plant versus the prices of the Third Creek Plant for the month of October, 1989,
is attached to this letter. (Such comparison is based on actual October prices
but is an example for illustrative purposes only, and does not constitute a
warranty of minimum or periodic prices.)
In order to defray a portion of Processor's costs in connecting your gas to the
more efficient Plant and enhanced marketing situation, it will be necessary for
Processor to charge Producer a Gathering Fee of twelve cents ($.12) per
The Dome Tower - Suite 1570 - 1625 Broadway - Denver, Colorado 80202 -
303/623-1993
<PAGE>
Amoco Production Company
December 28, 1989
Page Two
MCF of gas delivered through this connecting line, based upon the MCF's of gas
delivered to Processor at the Point(s) of Delivery provided for in The
Agreement(s), effective December 1, 1989.
If you are in agreement with the foregoing provisions of this letter, please so
indicate by signing as provided for below. In order for you to take advantage
of the enhanced marketing opportunity, please return executed copies of this
letter to the undersigned no later than the end of the month of January;
otherwise, we will assume you wish to remain with the status quo with respect to
the marketing of your liquids and residue gas.
Except as hereinabove amended, The Agreement(s), and any amendments thereto not
hereby superseded, shall remain in full force and effect.
If you have any questions in regard to the foregoing, please call either Ms.
Janie Hostetter or Mr. Lance Larkin @ 303- 623-1993.
Yours truly,
D. J. Zaloudek
Accepted and agreed to this day of
14 day of February , 1990
----- -------- --
AMOCO PRODUCT COMPANY
By: (SIGNED)
----------------------
Its: Attorney-in-Fact
-----------------------
<PAGE>
<TABLE>
<CAPTION>
CONTRACT SUMMARY BRIEF
<S> <C>
ContractNumber 282
ProducerNumber 23557
ProducerName Nova Energy
ContractType P
ContractDate 6/1/1986
EffectiveDate 6/1/1986
ContractTerm 60
ExpirationDate 1Jun91
RenewalCode A
TerminationNoticeDays 90
UnprofitabilityNoticeDays 30
MeasurementTest 6
BtuTest 6
PaymentDays 25
AuditProvision 0
ProductSalesPercent 0.65
ProductSalesBase 99
ResidueSalesPercent 0.65
ResidueGasBase 99
CondensateSalesPercent 0
CondesateSalesBase 99
WellheadPriceCode
FixedPrice 0
IndexCode 0
IndexAdjustment 0
BasePrice 0
PercentPriceIncrease 0
PriceIncreaseBase 0
UnitOfMeasure Mmbtu
PressureBase 14.65
Deduct1Code 30
Deduction Rate Codes.DeductRateDesc Third Creek Gathering
Deduction Rate Codes.DeductRateDesc 0.12
Deduction Rate Codes.Unit of Measure Mcf
Deduct1CalcCode 9
Deduction Calculation Codes.DeductCalcDesc Wellhead Mcf
Deduct2Code 99
Deduction Rate Codes 3.DeductRateDesc Not Applicable
Deduction Rate Codes 3.DeductRateDesc 0
Deduction Rate Codes 3.Unit of Measure
Deduct2CalcCode 99
Deduction Calculation Codes 1.DeductCalcDesc Not Applicable
Deduct3Code 99
Deduction Rate Codes 1.DeductRateDesc Not Applicable
Deduction Rate Codes 1.DeductRateDesc 0
Deduction Rate Codes 1.Unit of Measure
Deduct3CalcCode 99
Deduction Calculation Codes 2.DeductCalcDesc Not Applicable
Deduct4Code 99
Deduction Rate Codes 2.DeductRateDesc Not Applicable
Deduction Rate Codes 2.DeductRate 0
Deduction Rate Codes 2.Unit of Measure
Deduct4CalcCode 99
Deduction Calculation Codes 3.DeductCalcDesc Not Applicable
PayOperator FALSE
Denver Central System, Elbert County, Legal Description:
Sec7,T6S,R62W,Koch Contract Number 1903
ContractDedication
LastUpdateUser Receptionist
LastUpdateDate 18Nov96
MaximumResiduePercent 0
MinimumResiduePercent 0 Term @ 6-1-86 5 years
MaximumLiquidsPercent 0 Thereafter - year by year
MinimumLiquidsPercent 0 Terminate 3 months notice
Maxi8mumVolumeLimit 0 See page 25
MinimumVolumeLimit 0 (HAND WRITTEN)
VolumeLimitCode 1
VolumeMeasureCode 1
EthaneRecoveryFactor 0
PropaneRecoveryFactor 0
IsoButaneRecoveryFactor 0
NormalButaneRecoveryFactor 0
IsoPentaneRecoveryFactor 0
NormalPentaneRecoveryFactor 0
HexanesRecoveryFactor 0
RecoveryCalcCode 99
GuaranteedFL&UPercent 0
FL&UCalcCode 99
Third
Contract Number Meter Party
Number Number Meter Name
282 1437 CHAMPLIN 569-E
</TABLE>
<PAGE>
GAS SALES and PURCHASE CONTRACT
Between
AMOCO PRODUCTION COMPANY
(HAND WRITTEN)
SELLER
and
AMOCO PRODUCTION COMPANY
BUYER
Dated ____JUNE 1, 1986__(HAND WRITTEN)__
----------------------------------
Amoco Contract No.____118689_(HAND WRITTEN____
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TABLE OF CONTENTS
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Page
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Article I Definitions 2
Article 11 Purpose and Commitments 4
Article III Point of Delivery 4
Article IV Quantity 5
Article V Quality 6
Article VI Meters and Computations of
A Volumes 8
Article VII Tests 11
Article VIII Residue Gas 12
Article IX Liquid Products and Ethane 14
Article X Price 16
Article XI Payment 18
Article xii Warranty 18
Article XIII Reservations of Parties 19
Article XIV Royalty and Taxes 20
Article XV Drip 20
Article XVI Force Majeure 21
Article XVII Unprofitable Gas 22
Article XVIII Producing Schedule 23
Article XIX Right-of-Way 24
Article XX Indemnity 24
Article XXI Regulatory Bodies 25
Article XXII Unitization 25
Article XXIII Term 25
Article XXIV Counterpart Execution 26
Article XXV Assignment 26
Article XXVI Notices 26
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Execution of Contract
Exhibit "A"
CON391
55295 (STAMPED)
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GAS SALES AND PURCHASE CONTRACT
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hereinafter referred to as "Seller," and AMOCO PRODUCTION COMPANY, a Delaware
Corporation, as Operator of the Peoria Gas Plant, and acting individually and as
authorized by those Plant Owners purchasing a proportionate share of gas
hereunder in accordance with that certain Agreement for the Ownership, Arapahoe
County, Colorado, hereinafter referred to collectively as "Buyer."
W I T N E S S E T H, That:
WHEREAS, Seller owns and holds certain valid and subsisting oil and gas
leases on or oil and gas mineral interests in lands in Adams, Arapahoe, and
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Elbert_(HAND WRITTEN)County, Colorado, which leases, lands and interests are
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more particularly described in Exhibit "A" attached hereto and made a part
hereof; and,
WHEREAS, Buyer desires to purchase gas hereunder for processing in its Peoria
Gas Plant for the recovery of liquefiable products and residue gas from the area
in which said leases or mineral interests of Seller are located.
NOW THEREFORE, in consideration of One Dollar ($1.00) and other good and
valuable payments and covenants hereinafter specified, the parties agree as
follows:
55295 (STAMPED)
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ARTICLE I
DEFINITIONS
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1.1 For the purpose of this contract, certain terms and expressions
herein used are defined as follows:
a. "Gas" shall mean all gaseous hydrocarbons or mixtures thereof
produced in the vapor state from a well, including casinghead or oil well gas,
gas well gas, and gas vaporized from oil or condensate.
b. "Gas well" shall mean a well that produces gas that is not
associated or blended with oil at the time of production, or that produces gas
from a formation or producing horizon productive of gas only encountered in a
well bore through which oil also is produced through the inside of another
string of casing, or that produces more than 100,000 cubic feet of gas to each
barrel of oil from the same producing horizon.
c. "Oil well" as used herein shall mean a well from which the gas
produced is indigenous to oil, in its natural state as produced, whether
produced from the same strata from which oil is produced, or by the enduction of
gas by compressors, or other means for lifting oil, as well as gas vaporized
from oil after production.
d. "Gas Plant" or "plant" shall mean all tanks, machinery, equipment,
fixtures, appliances, pipe, valves, fittings and material of any nature or kind
whatsoever, including appropriate storage, shipping, treating, dehydration, and
delivery facilities for plant products; all buildings and structures of any kind
whatsoever located, or to be located, or the site or sites at which the
compressing and processing facilities of Buyer are located, all
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easements pertaining to such site or sites and the operation of the plant, gas
gathering system, and any and all other facilities and appurtenances located, or
to be located, on or away from such site or sites deemed by Buyer to be
necessary for the successful operation of the plant.
e. "Liquid products" shall mean ethane if removed, propane, butanes and
natural gasoline, individually or as a mixture, and any other liquid hydrocarbon
product recovered in Buyer's plant.
f. "Residue gas" shall mean that portion of the gas remaining after
recovery of liquid products.
g. "Residue gas remaining" shall mean residue gas as herein defined,
less such portion thereof required for plant operations.
h. "Surplus residue gas" shall mean residue gas remaining as herein
defined, less such portion thereof returned to leases or mineral interest from
which gas is supplied to the plant.
i. "Plant products" shall mean any one or all of liquid products and
residue gas as above defined. "Cubic foot of gas" shall mean the amount of gas
necessary to fill a cubic foot of space, when the gas is at a pressure of
fourteen and sixty-five one hundredths (14.65) pounds per square inch absolute
and at a temperature of sixty (60) degrees Fahrenheit.
k. "MCF" shall mean one thousand cubic feet of gas.
l. "Day" shall mean period of twenty-four (24) consecutive hours
beginning and ending at 7:00 o'clock a.m. Rocky Mountain Time.
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m. "Month" shall mean the period beginning on the first day of a
calendar month and ending on the first day of the next succeeding calendar
month.
ARTICLE II
PURPOSE AND COMMITMENTS
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2.1 The gas hereby sold is conveyed to Buyer for the purpose of
recovering and disposing of such plant products as are made from time to time
including the disposition of surplus residue gas.
2.2 Subject to the stipulations and conditions herein specified and to
the extent of Seller's interest, Seller hereby commits, grants, bargains, sells
and agrees to deliver to Buyer, and Buyer agrees to purchase and receive from
Seller, Seller's share of all gas produced from all formations from the surface
of the ground to the base of the lowest formation of Cretaceous age from wells
now or hereafter located upon the lands described in Exhibit "A" attached
hereto.
ARTICLE III
POINT OF DELIVERY
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3.1 The point of delivery of the gas, for measurement, allocation
purposes, and sampling hereunder shall be at a mutually agreeable location or
locations on the Plant gathering system. Seller shall provide adequate
liquid-gas separation facilities upstream of the point of delivery.
3.2 Gas shall be delivered by Seller to Buyer at a sufficient pressure
to enter Buyer's gathering system not to exceed 60 psig, and Seller agrees to
operate its mechanical liquid-gas separators at the minimum pressure to effect
the delivery of gas hereunder.
3.3 It is further agreed that during the term hereof, in the event any
well located on lands shown on
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Exhibit "A" is productive, or becomes productive of gas, Seller shall promptly
give buyer notice in writing thereof. Thereafter, Buyer shall promptly determine
the quality and quantity of gas available. If Buyer determines that the
connection of such gas is uneconomical due to the quality and/or quantity
thereof; or if, in the Buyer's exclusive opinion, his plant does not have
sufficient capacity to process the tendered gas, or for any reason Buyer elects
not to connect such gas, Buyer shall promptly give Seller notice thereof, and
Buyer shall be relieved henceforth of any obligation to connect such gas for
processing at the plant, and Seller may by thirty (30) days written notice
withdraw such gas and the acreage attributable thereto from the terms of this
contract. If Buyer elects to connect such gas, he shall have forty-five (45)
days after right-of-way has been obtained by Buyer to connect and commence
receiving such gas.
3.4 Title to all gas shall pass from Seller to Buyer at the point of
delivery. Seller shall be solely liable and responsible for said gas prior to
delivery thereof to Buyer, and Buyer shall be liable and responsible therefor
from and after the point of delivery.
ARTICLE IV
QUANTITY
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4.1 The Buyer agrees to take all the gas testing more than nine-tenths
(.9) of a gallon of propane and heavier liquefiable hydrocarbons per thousand
cubic feet of gas, determined in accordance with Paragraph 7.1 (a) hereof,
provided that during periods when gas production from the properties connected
to Buyer's plant exceeds Buyer's pipeline or compressor capacity in the field or
plant capacity and/or Buyer's surplus residue gas market,
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Buyer shall be obligated to take ratably as to quantity first from all oil wells
connected to Buyer's plant, and thereafter, to the extent possible, from all gas
wells connected to Buyer's plant, it is being understood that the taking of gas
well gas shall be subservient to the taking of oil well gas during such periods.
Seller shall have the right to dispose of any gas not taken by Buyer; provided,
however, Seller must give thirty (30) days notice that it proposes to dispose of
said gas, and Buyer shall have the option to elect to take said gas by giving
written notice within said thirty (30) day period to Seller that it elects to
take said gas under the terms and conditions of this Contract. If Buyer does not
resume taking said gas by the end of said thirty (30) day period, Seller may
dispose of said gas, and Buyer shall release said gas from this Contract,
provided Buyer's residue gas sales contract allows such a release. In the event
Seller should not dispose of all or any part of said gas within one hundred
eighty (180) days after the expiration of said first thirty (30) days' notice of
its intention to dispose of said gas, Buyer will again have the option to elect
to take said gas as hereinabove set forth.
ARTICLE V
QUALITY
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5.1 The gas delivered hereunder shall comply with the following
specifications:
a. The gas shall be free from dust, gums, free water, crude oil,
impurities and other objectionable substances which may become separated from
the gas and interfere with its transmission.
b. The gas shall contain not more than one-fourth (1/4) grain of
hydrogen sulphide per hundred
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cubic feet, not more than five (5) grains of total sulphur per hundred cubic
feet, not more than one (1) grain of mercaptan per one hundred (100) cubic feet
and not more than three percent (3%) by volume of carbon dioxide.
c. The gas shall not contain in excess of two-tenths of one percent
(0.2%) by volume of oxygen.
d. The gross heating value of the gas, wet basis, shall not be less than
one thousand one hundred (1,100) British thermal units per cubic foot.
5.2 If Buyer accepts delivery of any gas not complying with any of the
specifications in Sub-paragraphs 5.1 (a) and (b) above, Buyer shall have the
right to deduct from the price otherwise payable under Article X hereof the
reasonable cost, including return on undepreciated investment, of purifying all
such gas so accepted by Buyer.
5.3 The determinations as to conformity of the gas with the
specifications set forth in Subsections (b), (c), and (d) of Paragraph 5.1 above
shall be made by Buyer in accordance with generally accepted procedures of the
industry. Such determinations shall be made as often as Buyer deems necessary.
Buyer shall notify Seller in writing of the date of making any such
determinations
at least ten (10) days prior thereto. Seller may witness the determinations or
make joint determinations with its own appliances.
5.4 In the event the gas tendered by Seller to Buyer should fail to
meet any one or more of the above specifications from time to time, then Buyer
shall have the continuing right at its election to cease receiving the delivery
of gas from Seller so long as such conditions exist. In the event buyer refuses
to accept gas tendered it hereunder for a period of sixty (60) consecutive days,
then Seller
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may, upon thirty (30) days prior to written notice, withdraw from this contract
such well or wells and the gas reserves attributable thereto from which such gas
causing the quality deficiency is being produced; provided, however, Buyer may
keep this agreement in force and effect as to such well or wells by agreeing to
and commencing to receive said gas hereunder within said thirty (30) day period.
ARTICLE VI
METERS AND COMPUTATIONS OF VOLUMES
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6.1 Buyer shall install, operate and maintain suitable orifice meter,
or meters, of standard make at the points of delivery provided for herein. All
meters shall be installed and operated and volumes computed in accordance with
the specifications prescribed in the 1978 edition of ANSI/API 2530 on Orifice
Metering of Natural Gas (formerly Gas Measurement Committee Report No. 3 of
the Natural Gas Department of the American Gas Association) as the same may be
amended or supplemented from time to time or by any other method agreed upon
between the parties hereto. Seller may, at its option and expense, install and
operate meters to check Buyer's meter, provided such check meter installation in
no way interferes with the proper operation of Buyer's meter. The amount of gas
so metered shall be computed to a standard pressure of 14.65 psia and at a
standard temperature of 60 Fahrenheit. For the purposes of computation, it
shall be assumed that the atmospheric pressure is 12.1 psia and that the gas
obeys the Ideal Gas Laws as to variations of volume with pressure, specific
gravity and temperature. The flowing temperature of the gas being delivered at
any point of delivery shall be assumed to be 60 Fahrenheit; provided however,
Buyer, at its option, may determine the actual
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flowing temperature of such gas by continuous temperature recording or by spot
thermometer readings made as often as found necessary.
6.2 At least once each six (6) months, Buyer at its expense shall
verify the accuracy of its measuring equipment. If either party shall notify the
other that it desires a special test on any measuring equipment, the parties
shall cooperate to secure a prompt verification of the accuracy of such
equipment. Unless otherwise agreed upon, Buyer shall notify Seller in writing at
least ten (10) days prior to any semi-annual test of its measuring equipment, in
order that the Seller may conveniently have its representative present. Cost of
special tests shall be borne by party requesting same if measuring equipment is
found to be registering accurately and by Buyer if found to be registering
inaccurately.
6.3 If upon test any measuring equipment is found to be in error not
more than two percent (2%), previous recordings of such equipment shall be
considered accurate in computing deliveries hereunder, but such equipment shall
be adjusted at once to record accurately. If upon test any measuring equipment
shall be found to be inaccurate by an amount exceeding two percent (2%) at a
recording corresponding to the average hourly rate of flow for the period since
the last preceding test, then such equipment shall be adjusted at once to record
accu- rately, and any previous recordings of such equipment shall be corrected
to zero error for any period which is known definitely or agreed upon, but in
case the period is not known definitely or agreed upon, such correction shall be
for a period extending over one-half of the time elapsed since the last test.
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6.4 In the event a meter is out of service or registering inaccurately,
the volume of gas delivered hereunder shall be estimated by the first of the
following methods which is feasible:
a. Using the registration of any check meter or meters if installed and
accurately registering, or
b. In the absence of such check meter or meters, by correcting the error if
the percentage of error is ascertained by calibration or mathematical
computation, or
c. In the absence of both (a) and (b) the volume of gas delivered
during any such period when meter is out of service or registering inaccurately
shall be determined by multiplying the number of barrels of oil produced during
such period from the wells from which gas is delivered through the meter by the
average volume of gas delivered hereunder per barrel of oil produced during the
thirty (30) day period prior to the last test of the meter reflecting accurate
measurement.
6.5 The meter or meters installed by Buyer to measure gas sold and
purchased hereunder shall be open to inspection at all reasonable times to
Seller in the presence of Buyer. If requested, Buyer shall send the charts to
Seller for checking, after which they are to be returned to Buyer within twenty
(20) days after receipt.
6.6 In the event the volume of gas received under this contract during
any month shall, in the judgment of Buyer, be insufficient to justify the
expense of continuous measurement, Buyer may at its election discontinue
continuous measurement of the gas purchased hereunder as above provided and in
lieu of such continuous measurement determine the daily average volume of gas
received by
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periodical meter measurements. Such periodical measurements shall be for periods
of not less than two weeks and shall be made whenever, in the opinion of either
party and in any event within thirty (30) days after written demand of Seller,
the volume of gas delivered hereunder has changed sufficiently to again warrant
measurement, but in no event .shall such periodical measurement be made less
often than once each calendar year. The daily average volume of gas determined
by each such periodical measurement shall be used until, and shall be superseded
by, the next periodical measurement as herein provided.
ARTICLE VII
TESTS
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7.1 Buyer shall, at its expense, test the gas purchased and sold
hereunder to determine the composition of the gas and specific gravity as
hereinafter provided:
a. Composition of the Gas: Buyer shall obtain a spot sample of the
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gas purchased and sold hereunder while the gas is being produced under normal
operating conditions. Analysis of such sample shall be made or caused to be made
by Buyer by gas chromatography, or any other method accepted in the industry.
The gallons per thousand cubic feet and Mol percent of each component and the
heat content shall be determined from said analysis.
b. Specific Gravity: The specific gravity of the gas purchased and
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sold hereunder shall be determined by Buyer from the analysis made under the
provisions of 7.1 (a) above after adjusting such analysis to eliminate the
presence of air,
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or Buyer may use any other method accepted in the industry.
7.2 The tests provided to be made under the provisions of 7.1 (a) and
(b) above shall be made semi-annually by Buyer, after ten (10) days prior notice
to Seller; each such test shall be effective the first day of the month
following the making of such test and shall endure for a period of six (6)
months unless prior thereto such tests are superseded by a special test, as
hereinafter provided. A copy of the results of each such test shall be provided
to Seller. Either party hereto may request in writing that special tests be
made, at the expense of the party requesting same, when, in their opinion, the
composition of the gas or its specific gravity has changed materially. In the
event any such special tests are made, same shall be effective immediately upon
completion and shall endure for a period until the end of the semi-annual period
within which such test was made, or until superseded by another special test.
ARTICLE VIII
RESIDUE GAS
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8.1 Buyer may, but shall not be obligated to, return residue gas to
those points where gas was originally received and measured under Paragraph 3.1,
or to other mutually agreeable points. Seller agrees to accept such residue gas
"as is," and Buyer does not warrant the quality, composition or odorization of
such residue gas. The use of such residue gas shall be for the development and
above ground operations of Seller's leases and mineral interests covered hereby
and the amount of such residue gas delivered to Seller is not intended to exceed
an amount equal to the "residue gas remaining" from the gas currently
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delivered to Buyer from Seller. Buyer may deliver residue gas to Seller, at such
points, at any pressure. "Residue gas remaining" attributable to Seller shall be
determined by multiplying the total actual volume of "residue gas remaining"
from all gas delivered to said plant by a fraction, the numerator of which shall
be the theoretical volume of "residue gas remaining" from the gas received at
each point of delivery hereunder from Seller and the denominator of which shall
be the total theoretical volume of "residue gas remaining" attributable to all
gas received for processing in the Plant.
8.2 The theoretical volume of "residue gas remaining" from gas received
at each point of delivery under Paragraph 3.1, shall be determined by
multiplying the volume of gas delivered at such point of delivery by whichever
of the following is applicable:
(i) The sum of the Mol percents of the ethane and methane
components in the gas when ethane is not being recovered, or
(ii) The Mol percent of the methane component in the gas when
ethane is being recovered.
8.3 The volume of residue gas delivered to Seller for development and
above ground operations shall be measured and computed upon the pressure base
set out in Paragraph 6.1 hereof; except when, in the event the volume of such
gas does not, in Buyer's judgment, justify a meter installation. If meters are
not used, the volume of residue gas delivered to Seller shall be computed
monthly from estimates based on the number of hours the consuming or using
equipment is operated; such estimates to give due consideration to the size,
type, horsepower, and/or capacity of such equipment. Buyer shall allocate the
residue gas as measured at the plant discharge into the
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residue gas system on the basis that each metered and/or estimated volume as
determined at each point of delivery bears to the summation of all metered
and/or estimated volumes of residue gas delivered to all Sellers. Title to all
residue gas remaining shall pass from Buyer to seller at the point of delivery,
or other mutually agreeable point at which Buyer delivers residue gas remaining
to Seller, and Seller shall thereafter own such gas at Seller's risk.
8.4 In the event "residue gas remaining" to be delivered hereunder by
Buyer to Seller shall be insufficient in quantity for the purpose of development
and above ground operations of Seller's properties, the seller hereby reserves
the right to use gas from the lands committed to this Contract pursuant to
Paragraph 2.2 above and described on Exhibit "A" attached hereto in sufficient
quantity to make up the deficiency.
8.5 If Seller accepts and uses residue gas furnished by Buyer, in
excess of amount of "residue gas remaining" to which Seller is entitled, Seller
shall pay Buyer for such excess gas during each month the weighted average price
per thousand cubic feet of residue gas which Buyer received for all residue gas
sold from the Plant.
ARTICLE IX
LIQUID PRODUCTS AND ETHANE
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9.1 Liquid Products:
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a. The liquid products attributable to the gas from each point of
delivery hereunder during each accounting period shall be determined by
multiplying (1) the total gallons of each liquid product recovered and sold from
the plant attributable to all gas processed in the plant during
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such accounting period times (2) a fraction, the numerator of which shall be the
theoretical gallons of each such liquid product attributable to Seller's gas
contained in such gas during such accounting period and the denominator of which
shall be the sum of the theoretical gallons of each such liquid product
contained in all gas delivered to the plant for processing during such period.
b. Seller's theoretical gallons of each liquid product contained in the
gas during any period shall be determined by multiplying the volume in MCF of
gas received at each point of delivery hereunder during such period by the
gallons of propane, butane, pentane, and heavier liquefiable hydrocarbons per
thousand cubic feet, respectively, contained in the gas as determined pursuant
to Paragraph 7.1 hereof.
9.2 Ethane:
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a. Whenever ethane is manufactured and sold from the plant, the ethane
attributable to the gas received at each point of delivery hereunder during any
accounting period shall be determined by multiplying (1) the total volume of
ethane recovered and sold from the plant attributable to all gas processed in
the plant during said accounting period times (2) a fraction, the numerator of
which shall be the volume of theoretical ethane attributable to Seller's gas
contained in such gas during such accounting period and the denominator of which
shall be the sum of the volumes of the theoretical ethane contained in all gas
delivered to the plant for processing during such period.
b. Seller's theoretical volume of ethane contained in the gas during
any period shall be determined
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by multiplying the volume in MCF of gas received at each point of delivery
hereunder during such period by the gallons of ethane per thousand cubic feet
contained in the gas as determined pursuant to Paragraph 7.1 hereof.
ARTICLE X
PRICE
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10.1 As full consideration for the gas delivered by Seller and
purchased by Buyer each month hereunder, Buyer shall pay Seller the sum of the
proceeds computed in accordance with Paragraphs 10.2 and 10.3 below, less any
amounts to be deducted in accordance with Paragraph 5.2 hereof, but in any event
not more than the maximum lawful price for said gas under the Natural Gas Policy
Act of
1978 or subsequent legislation or regulations thereunder.
10.2 Liquid Products:
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a. For liquid products, Buyer shall pay Seller sixty-five percent
(657.) of the value determined by multiplying (1) the gallons of each liquid
product attributable to the gas delivered from each point of delivery hereunder,
as determined in Paragraph 9.1 hereof, times (2) the weighted average net sales
price per gallon received for each liquid product recovered and sold, as
determined in accordance with Paragraph 10.2 (b) below.
b. The weighted average net sales price per gallon shall be (1) the invoiced
value F.O.B. plant for each liquid product recovered and sold from the plant and
attributable to all natural gas processed in the plant during the accounting
period for which settlement is made, minus any applicable taxes, tank car
rentals, cash discounts, trade allowances, freight
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equalizations, remote underground storage costs, commissions to third parties
and any claims allowed for outages, impurities and contamination, divided by (2)
the total gallons of each such liquid product recovered and sold during said
period.
10.3 Residue Gas:
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a. In the event that residue gas remaining from gas purchased from any
lease hereunder, as determined in accordance Paragraph 8.1, shall be more than
sufficient for the needs and requirements of Seller for development and above
ground operating purposes upon the premises from which said gas is produced,
then it is agreed and understood by and between the parties hereto that Buyer
shall have the right to sell any or all of such surplus residue gas remaining.
Buyer shall pay Seller sixty-five percent (65%) of the value determined by
multiplying (1) the MCF of surplus residue gas remaining and sold that is
attributable to Seller in accordance with Paragraph 10.3 (b) below, times (2)
the weighted average price per MCF that Buyer receives for all gas sold from the
Plant.
b. The surplus residue gas remaining and sold from the plant shall be
allocated to each point of delivery in the ratio that the surplus residue gas
remaining from such delivery point bears to the surplus residue gas remaining
from all gas delivered to the plant (determined in a like manner).
c. It shall be the sole obligation of Seller to file and diligently
pursue any application required by the Natural Gas Policy Act of 1978 or
subsequent legislation or regulations thereunder for a determination of
eligibility for maximum lawful price categories or for price deregulation if
Buyer requests
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such filings to be made to enhance the value of the gas purchased hereunder to
Buyer at resale.
ARTICLE XI
PAYMENT
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11.1 Payment will be made by the Buyer not later than the 25th day of
the month following the month in which delivery occurred and at the time payment
is made a statement showing details of the accounts will be transmitted to the
Seller accompanying the Buyer's check in payment therefor. Examination by the
Seller of the books of account kept by the Buyer respecting said gas account
shall be permitted by the Buyer at any and all reasonable hours; however, such
examination by the Seller shall be limited to the books of account for the
current year plus the two preceding years.
ARTICLE XII
WARRANTY
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12.1 Seller warrants title to the gas delivered hereunder and that it
has good right to sell gas to Buyer; however, Buyer shall not be required to
make payments to Seller until Seller shall have submitted abstracts of title
covering said lands or other suitable documentation showing good and
merchantable title in Seller and that Seller has good right to sell said gas,
all to the satisfaction of the attorneys of Buyer; provided, however, if the
title of Seller is questioned, or involved in any action, Buyer shall have the
right to withhold payment during the pendency of such action or until said title
is freed from such question, or until Seller furnishes bond conditioned to save
Buyer harmless with surety or other
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indemnities acceptable to Buyer. Any payments so withheld by Buyer shall bear
interest at the prime rate.
ARTICLE XIII
RESERVATIONS OF PARTIES
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13.1 Seller reserves gas for above ground development and operations of
its properties covered hereby; and, if Seller's leases and mineral interests
covered hereby are unitized with others in the field where produced for
secondary recovery of oil, then Seller reserves from delivery hereunder such gas
as is required for below ground injection and repressuring.
13.2 Seller reserves gas for delivery to its lessors as required under
the terms of its oil and gas leases.
13.3 Seller may at any time, without liability to Buyer, clean out,
deepen, re-work, plug back, use for injection or abandon any of Seller's wells,
or Seller may use any efficient, modern, or improved method for the production
of oil. Before any well or wells are taken out of service for any reason
whatsoever, Seller shall, at its sole risk, cost, and expense, first disconnect
same from Buyer's gas gathering system.
13.4 Seller hereby specifically reserves the right to introduce air,
gas, water, or any other extraneous substances into its well or wells or into
the formation or formations from which said well or wells are producing when in
the exclusive judgment of Seller, the introduction of such substances is
desirable in the operation of such well or wells for the production of oil
and/or gas, even though such well or wells may be entirely destroyed as a
producer or producers of gas; provided that if Seller's operations under this
paragraph create a condition which, in the exclusive judgment of Buyer, makes
the taking and
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utilization of gas therefrom unprofitable to Buyer, or should such operations
tend to endanger the plant or property of Buyer or the lives of Buyer's
employees should such diluted or contaminated gas be taken, then Buyer reserves
the right to discontinue taking gas from the particular well or wells while
being so operated.
ARTICLE XIV
ROYALTY AND TAXES
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14.1 Seller agrees to account and pay to the lessors or royalty owners
under its leases, in strict accordance with the provisions thereof, the royalty
on the gas sold and delivered hereunder to Buyer.
14.2 Seller shall pay all taxes against the gas sold hereunder. In the
event any new or additional tax should hereafter be assessed on the value of the
gas sold to Buyer hereunder, the Seller shall pay the same. If such new or
additional tax is a type of tax which is assumed by a purchaser of surplus
residue gas under the provisions of any gas purchase agreement entered into by
Buyer, then to the extent such tax is required to be assumed by such purchaser
of surplus residue gas, Buyer agrees to pay to the Seller those proceeds
received by Buyer, insofar as such reimbursements represent the Seller's
proportionate share of such funds paid by the purchaser of surplus residue gas
under such agreement.
ARTICLE XV
DRIP
----
15.1 Buyer shall keep reasonably clear of obstruction all its pipelines
through which said gas is being delivered and shall own all liquid collected in
such line.
CON391 20
<PAGE>
ARTICLE XVI
FORCE MAJEURE
-------------
16.1 Any failure of either party hereto to perform any of the
obligations hereunder except payments of monies due shall be excused if such
failure is due to "force majeure" as hereinafter defined. The term "force
majeure" shall mean acts of God, strikes, lockouts, or other industrial
disturbances, acts of the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, storms, flood, washouts,
arrests and restraints of the government, either Federal or State, civil and
military, civil disturbances, explosions, breakage or accident to machinery or
line of pipe, freezing of wells or lines of pipe, partial or entire failure of
wells, inability of any party hereto to obtain necessary materials, supplies or
permits, due to existing or future rules, regulations, orders, laws or
proclamations of Governmental Authorities (both Federal and State), including
both civil and military, and any other causes, whether of the kind herein
enumerated or otherwise not reasonably within the control of the party claiming
suspension.
16.2 It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty, and that any force majeure shall be remedied with all reasonable
dispatch; however, such remedy shall not require the settlement of strikes or
lockouts by acceding to demands of opposing party when such courses are
inadvisable in the discretion of the party having the difficulty.
CON391 21
<PAGE>
ARTICLE XVII
UNPROFITABLE GAS
----------------
17.1 In the event the gas from any source of supply on Seller's
property is or becomes insufficient in volume or liquefiable hydrocarbon
content, or for any cause is or becomes unprofitable in Buyer's sole opinion to
gather, compress and extract the liquid products therefrom, Buyer shall have the
right to refuse to take the gas and will release that gas for Seller's disposal.
It is further provided that if at any time the volume and/or liquefiable
hydrocarbon content of the gas available to Buyer, or if any cause beyond its
control, shall render the operation of said plant unprofitable, in Buyer's sole
opinion, Buyer may, by thirty (30) days written notice, cancel this contract.
17.2 If at any time the price payable for any portion of the gas
purchased and sold, pursuant to the terms hereof, should, in Buyer's sole
judgement, result in an uneconomical situation for Buyer, Buyer may, at its
option, reduce the price payable hereunder by furnishing Seller 30 days written
notice of such reduced price so that, in Buyer's sole judgement, such
uneconomical situation is alleviated. Should Buyer exercise its option as stated
above, Seller shall have the right to seek a higher price from other purchasers.
If, within one hundred twenty (120) days from the date buyer notifies Seller of
the reduced price, Seller has obtained a bona fide offer in writing for the
purchase of such gas, which Seller is willing to accept, which is for a price
higher than Buyer's reduced price, Seller shall give notice to Buyer in writing
of such offer within ten (10) days of receipt of such offer. Buyer thereafter
shall have the option to continue the purchase of such gas at the same terms and
conditions of
such offer by notifying Seller in writing within twenty (20)
CON391 22
<PAGE>
days from receipt of Seller's notice that Buyer elects to continue to purchase
such gas at the higher price. If Buyer does not elect to continue to purchase
said gas this agreement at Seller's option may be terminated with respect to
said gas by forwarding written notice of such termination to Buyer no later than
thirty (30) days prior to the date deliveries are to cease. If Seller does not
notify Buyer of a bona fide offer to purchase such gas at the higher price, this
contract shall continue in effect at the reduced price for one year, after which
the original contract price shall be redetermined. Should both parties then be
unable to agree on a redetermined price, either party may, by thirty (30) days
written notice, cancel this Contract. The effective date of any price change
pursuant to this Article XVII shall be the date specified in Buyer's notice to
Seller of the aforesaid reduced price.
ARTICLE XVIII
PRODUCING SCHEDULE
------------------
18.1 In the interest of conservation and to secure the maximum benefits
to Seller and Buyer, it is desired by the parties hereto to maintain a
reasonably uniform rate of flow of gas to said plant over each twenty-four (24)
hour period throughout the month. It is therefore agreed that Seller shall, at
its option, either
a. Regulate its producing schedule so that gas will be delivered at a
reasonably uniform rate of flow, or
b. Accept and follow a producing schedule for all wells connected to
the plant to be established by Buyer in cooperation with all gas suppliers
delivering gas to the plant.
CON391 23
<PAGE>
18.2 In the event Seller refuses to comply with either 18.1 (a) or (b)
above, Buyer shall have the right, without incurring liability to Seller of any
character whatsoever, to refuse to take any part or all of Seller's gas during
the periods of such noncompliance.
ARTICLE XIX
RIGHT-OF-WAY
------------
19.1 Insofar as Seller's leases or mineral interests permit, Buyer is
granted the right to lay and maintain lines and to install any necessary
equipment on said properties and shall have the right to free entry for any
purpose incidental to plant operations so long as such purpose does not
interfere with lease operations or the rights of others. All liens and other
equipment placed by Buyer on said properties shall remain the property of the
Buyer and, subject to the terms of this contract, may be removed by Buyer at any
time.
ARTICLE XX
INDEMNITY
---------
20.1 Buyer shall defend, indemnify and hold Seller harmless from any
claims for damages, causes of action, or judgments arising out of the operations
conducted hereunder by Buyer. Seller shall defend and indemnify and hold Buyer
harmless from any claims for damages, causes of action or judgments arising out
of Seller's operations of the leases or mineral interests herein described, or
Seller's actions taken with respect to Gas prior to delivery to Buyer, or
Seller's actions taken with respect to Residue Gas after redelivery by Buyer to
Seller.
CON391 24
<PAGE>
ARTICLE XXI
REGULATORY BODIES
-----------------
21.1 This contract shall be subject to all valid present and future
orders, rules and regulations of any duly constituted Federal or State
regulatory body having jurisdiction of the production, transportation, purchase
or sale of gas, and any and all failures of Seller to deliver, and of Buyer to
receive, gas hereunder caused by such orders, rules and regulations shall be
deemed to be excused under the provisions of "Force Majeure."
ARTICLE XXII
UNITIZATION
-----------
22.1 Seller reserves the right to unitize any of the leases and mineral
interests covered hereby with other properties, in which event this contract
will cover Seller's interest in any such unit, but only insofar as such interest
is attributable to the leases and mineral interests covered hereby.
ARTICLE XXIII
TERM
----
23.1 This contract shall be effective as of the date and year first
above written and shall remain in full force and effect for a term of five (5)
years and thereafter on a year to year basis until terminated by written notice
by either party to the other to be given at least three months prior to the
anniversary date. If this contract is terminated for any gas production
dedicated hereunder pursuant to the conditions of Article XVII, the well or
wells associated with said gas shall be disconnected from Buyer's collection
system.
CON391 25
<PAGE>
ARTICLE XXIV
COUNTERPART EXECUTION
---------------------
24.1 The rights and obligations imposed by this contract shall be
severable as to each person or group of persons among those listed as "Seller"
owning a distinct legal interest in the leases or mineral interests covered
- -hereby, and this contract shall be fully binding upon such person or group of
persons after execution, irrespective of whether or not all other persons
described as "Seller" join in the execution of this contract or of an exact
counterpart thereof.
ARTICLE XXV
ASSIGNMENT
----------
25.1 This contract shall extend to and be binding upon the parties
hereto, their heirs, administrators, successors and assigns, but no transfer of
or succession to the interest of the Seller hereunder, wholly or partially,
shall affect or bind the Buyer until it shall have been furnished at the office
of the Buyer in the City of Denver, Colorado, with the original instrument or
with the proper proof that the claimant is legally'entitled to such interest.
ARTICLE XXVI
NOTICES
-------
26.1 Notices to be given hereunder shall be deemed sufficiently given
and served when and if deposited in the United States Mail, postage prepaid and
registered or certified, addressed as follows:
Seller: Notices AMOCO PRODUCTION COMPANY
------ -------
1670 Broadway
P. O. Box 800
Denver, CO 80201
Attn: Natural Gas Marketing Department
(HAND WRITTEN)
---------------
Revenues Amoco Production Company
- --------
P. O. Box 591
Tulsa, Okla. 74102
(HAND WRITTEN)
---------------
CON391 26
55295 (STAMPED)
<PAGE>
Buyer: Amoco Production Company
Amoco Building
Denver, Colorado 80202
Attn: Natural Gas Marketing Department
or to such other address as either party respectfully hereinafter designates by
registered or certified mail addressed to the other party or parties.
26.2 Routine communications, including monthly statements, payments,
and notices of tests shall be considered as duly delivered when mailed by either
registered or certified mail or ordinary first-class mail, postage prepaid, to
the appropriate address above specified.
IN WITNESS WHEREOF, the parties have hereto subscribed their names.
AMOCO PRODUCTION COMPANY
By (signed)
--------------------------------
Attorney-in-Fact
"Buyer"
ATTEST:
_______________________ By (signed)
--------------------------------
"Seller"
ATTEST:
_______________________ By _________________________________
"Seller"
ATTEST:
_______________________ By _________________________________
"Seller"
ATTEST:
_______________________ By _________________________________
"Seller"
CON391 27
55295 (STAMPED)
STATE OF COLORADO )
CITY AND : ss.
COUNTY OF DENVER )
The forgoing instrument was acknowledged before me this 9th day of
---
January ,1987 by DAVID G. WIGHT. Attorney-in-Fact for AMOCO
- ---------------- -------------------------------------------
PRODUCTION COMPANY, a Delaware corporation.
WITNESS my hand and official seal.
My Commission expires:
January 4,1989
(STAMPED) (SIGNED)
----------------------
Notary Public
1670 BROADWAY
My Commission expires: DENVER,CO 80201
January 4, 1989
(STAMPED)
STATE OF )
CITY AND : ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this _____ day of
_________________, 1984, by _________________________________.
WITNESS my hand and official seal.
______________________________
Notary Public
My Commission expires:
_____________________ Amoco Building
Denver,
Colorado 80202
STATE OF )
: ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this day of
_________________, 1984, by _________________________________.
WITNESS my hand and official seal.
____________________________________
Notary Public
My Commission expires: Amoco Building
Denver, Colorado 80202
_____________________
<PAGE>
STATE OF
SS. COUNTY OF
The foregoing instrument was acknowledged before me this day of
1 1984, by
WITNESS my hand and official seal.
Notary Public
My Commission expires:
Amoco Building
Denver, Colorado 80202
STATE OF
SS. COUNTY OF
The foregoing instrument was acknowledged before me this day of
1984, by
WITNESS my hand and official seal.
Notary Public
my commission expires:
Amoco Building
Denver, Colorado 80202
CON391 29
<PAGE>
EXHIBIT "A" TO
THE GAS SALES AND PURCHASE CONTRACT DATED @'VnellllL7 COVERING LEASES AND LANDS
-------------------------------------
IN VARIOUS FIELDS
- -------------------
ADAMS, ARAPAHOE,AND ELBERT COUNTIES, COLORADO
- ----------------- ---------------------------
SELLER: AMOCO PRODUCTION COMPANY
--------------------------
GROSS
LEASE NAME SEC. TWP. RGE.
DESCRIPTION ACRES WI./.
UPRR No. 11-9 11 4S 63W
E/2 SE/4 80 100 Champlin 321 Amoco "All No. I
11 4S 63W NW SE 40 100 Amoco Champlin 569
A-1 5 6S 62W NE SE 40
100 Amoco Champlin 569 D-1 3 6s 62W
SW NW 40 100 Champlin 100 Amoco "All No. 1
17 3S 58W NW NW Champlin 100 Amoco "All No. 2
17 3S 5aw SW NW Champlin 100 Amoco "All No. 3
17 3S 58W NW SW Champlin 100 Amoco "All No. 4
17 3S 58W SW SW Champlin 100 Amoco "All No. 5
17 3S 58W SE SW Champlin 100 Amoco "All No. 6
17 3S 5aw NE SW Champlin 100 Amoco "All No. 7
17 3S 5aw SE NW Champlip 100 Amoco "All No. 8
17 3S 5aw NE NW Champlin 100 Amoco "B" No. 1
7 3S 58W SW SE Poncho J Sand Unit No. 17
4 4S 59W NE SE
Champlin 548 A #1 1 6S 63W SE
SE 40 Champlin 548 A #2 1 6S
63W NW SE 40 Champlin 569 A #2
5 6s 62W SW SE 40 Champlin 569 A #3
5 6S 62W NE SW 40 Champlin 569 A #4
5 6S 62W SW SW 40 Champlin 569 A #5
5 6S 62W SW NW 40 Champlin 569 D #2
3 6S 62W NE NW 40 Champlin 569 E #1
7 6S 62W NW NW 40 Champlin 569 E #2
7 6s 62W SE NW 40 "-'hamplin 569 E #3
7 6S 62W SW NW 40 Champlin 569 E #4
7 6S 62W NE NW 40
Champlin 126 Amoco I'D" No. 2 15 5S 62W
c-sw SW 68.75% Champlin 93 Amoco "All No. 1
7 3S 61W W/2 SW/4 so 100
<PAGE>
EXHIBIT "A" TO
THE GAS SALES AND PURCHASE CONTRACT DATED
COVERING LEASES AND LANDS IN VARIOUS FIELDS
ADAMS, ARAPAHOE, AND ELBERT COUNTIES, COLORADO
- ---------------------------------------------------
SELLER: AMOCO PRODUCTION COMPANY
--------------------------
GROSS
LEASE NAME SEC. TWP. RGE.
DESCRIPTION ACRES WI%
UPRR No. 11-9 11 4S 63W
E/2 SE/4 80 100 Champlin 321 Amoco "All No. I
11 4S 63W NW SE 40 100 Amoco Champlin 569
A-1 5 6S 62W NE SE 40 100
Amoco Champlin 569 D-1 3 6S 62W SW
NW 40 100 Champlin 100 Amoco "All No. 1 17
3S 5aw NW NW Champlin 100 Amoco "All No. 2 17
3S 58W SW NW Champlin 100 Amoco "All No. 3 17
3S 5aw NW SW Champlin 100 Amoco "All No. 4 17
3S 58W SW SW Champlin 100 Amoco "All No. 5 17
3S 58W SE SW Champlin 100 Amoco "All No. 6 17
3S 5sw NE SW Champlin 100 Amoco "All No. 7 17
3S 58W SE NW Champlin 100 Amoco "All No. 8 17
3S 58W NE NW Champlin 100 Amoco "B" No. 1 7
3S 58W SW SE Poncho J Sand Unit No. 17 4
4S 59W NE SE
Champlin 548 A #1 1 6S 63W SE
SE 40 Champlin 548 A #2 1 6S
63W NW SE 40 Champlin 569 A #2
5 6S 62W SW SE 40 Champlin 569 A #3
5 6s 62W NE SW 40 Champlin 569 A #4
5 6S 62W SW SW 40 Champlin 569 A #5
5 6S 62W SW NW 40 Champlin 569 D #2
3 6S 62W NE NW 40 Champlin 569 E #1
7 6S 62W NW NW 40 Champlin 569 E #2
7 6S 62W SE NW 40 Champlin 569 E #3
7 6S 62W SW NW 40 Champlin 569 E #4
7 6S 62W NE NW 40
Champlin 126 Amoco I'D" No. 2 15 5S 62W
c-sw SW 68.75y,, Champlin 93 Amoco "All No. 1
7 3S 61W W/2 SW/4 80 100
<PAGE>
162 (7-85) GPC
162-0159-90 (Stamped)
GAS PURCHASE CONTRACT
---------------------
THIS AGREEMENT, made and entered into this 22 day of __JUNE__,19_92_,by
----- ---- --
and between WARREN PETROLEUM COMPANY, a Division of Chevron U.S.A. Inc.,
hereinafter referred to as "Buyer", and JUBILEE OIL & GAS CORPORA'I'ION,
hereinafter referred to as "Seller";
WITNESSETH:
WHEREAS, Seller owns and holds one or more valid and subsisting oil and/or
gas mining leases covering the following described lands situated and being
within the County of Ward, State of Texas, to-wit:
Pennzoil Hartwich Lease - Section 219, Block 34, H&TC Survey
and,
WHEREAS, Seller is operating the above-described properties and certain
wells on said lands are productive, of what is termed casinghead gas, and/or gas
well gas, and Seller desires to sell the gas which may hereafter be produced
from wells located on said premises; and,
WHEREAS, Buyer desires to purchase said gas;
NOW, THEREFORE, in consideration of the mutual covenants and agreements to
be kept and performed by the parties, Seller hereby grants, bargains, sells, and
agrees to deliver to Buyer and further agrees to purchase and take from Seller,
subject to the stipulations and conditions hereinafter specified, Seller's
interest in gas now or hereafter Produced from wells on the lands hereinabove
described.
1. PURPOSE- The gas hereby sold is conveyed to Buyer for the purpose of
-------
extracting therefrom liquid hydrocarbons. Seller agrees that prior to delivery
to Buyer, the gas shall not be processed other than in a conventional mechanical
gas oil separator or separators, operating with no internal piping for heat
interchange. The term "gas' as used throughout this contract means gas issuing
from oil wells or gas produced from gas wells as classified by the Texas
Railroad Commisson.
2. DELIVERY PLACE- The delivery of gas shall he made at vapor tight flow
---------------
ranks and/or gas traps furnished by Seller and/or at the casingheads of the
wells. Buyer may, with Seller's consent, install equipment acceptable to Seller
on Seller's storage links for the purpose of saving and utilizing vapors
therefrom, which vapors for the purpose of this contract shall he considered
gas.
3. DELIVERY DATE- The delivery and reception of said gas hereunder shall
--------------
begin on or before sixty (60) days from the date this contract, signed by
Seller, is received by Buyer at its offices in Tulsa, Oklahoma. If Buyer fails
to accept and/or agree to pay for said gas by said date, Seller's sole remedy
shall be the right to cancel this contract any time thereafter before actual
utilization begins by serving ten (10) days' written notice on Buyer, in which
event this contract shall terminate at the end of said ten-day period unless on
or before the last day thereof Buyer either starts receiving said gas or agrees
to pay for the same as though received.
(HAND WRITTEN)C-162158
-------------
<PAGE>
162(7-85)/GPC
(HAND STAMPED) 162-0159-00
4. LEAN AND FLUSH GAS- Buyer agrees to take all the gas testing more than
---------------------
0.50 gallons of gasoline to one thousand (1,000) cubic feet of gas, provided
that during flush gas production and during periods of curtailment by the
residue gas purchaser or purchasers Buyer shall only be obligated to take gas
ratably as to quantity with all other casinghead gas connected to its gathering
line and only obligated to take gas well gas ratably with other gas well gas of
the same type connected to Buyer's plant. A flush gas condition is hereby
defined to exist whenever Buyer's gathering line or plant is of insufficient
capacity to gather or process all of the gas connected thereto. Unless Buyer
within six (6) months from the commencement of such excess production arranges
to take or pay for any part or all of such excess gas, Seller shall have the
right to dispose of any such excess gas not taken or paid for by Buyer.
4. RESIDUE GAS- The term 'residue gas' is defined as and shall be any gas
------------
connected to Buyer's plant gas gathering system which is sold before processing
or which is discharged in the form of gas from the gas processing facility.
Buyer shall not be obligated to return residue gas to Seller's lease for use in
the development and operation of such lease, though Buyer may do so at any time
that it so elects. Until such time as Buyer does return residue gas to Seller's
lease, Seller may use gas produced from said lease for the purpose of developing
and operating the lease, excluding the use of gas for gas lifting or for
pressure maintenance and/or cycling operations. Upon Buyer's election to return
residue gas, Buyer agrees to return to the nearest boundary line of Seller's
lease, heretofore described, sufficient residue gas for developing and operating
said lease, the amount of such gas not to exceed an amount equal to the "residue
gas remaining" as hereinafter determined, provided that in the event the
"residue gas remaining" shall be insufficient in quantity for the purpose of
developing and operating said lease, Seller hereby reserves the right to use gas
from its lease sufficient in quantity to make up the deficiency. The volume of
residue gas returned to Seller shall be computed on the same basis of
measurement as provided in Paragraph 9, MEASUREMENT; provided, however, such
volume of residue gas may, at Buyer's option, be estimated in accordance with
methods followed generally in the natural gas processing industry. Utilization
of said residue gas so delivered by Buyer shall be at Seller's risk. In the
event Seller accepts and uses residue gas furnished by Buyer in excess of the
amount of residue gas to which Seller is entitled, Seller shall pay Buyer for
such gas at the weighted average price per MCF paid by the major purchasers of
residue gas sold from Buyer's plant for the residue gas sold to such purchasers
from said plant. In the event Seller accepts and uses gas other than residue gas
in excess of the amount of residue gas to which Seller is entitled, Seller shall
pay Buyer for such excess gas at Buyer's cost at point of delivery to Seller.
Seller shall not permit wasteful use of gas returned hereunder. The term
"wasteful use" shall include, but not by way of limitation, the use of gas as a
working fluid in steam pumps or turbines and the burning of gas in open flares.
The volume of "residue gas remaining" shall be determined by (1) multiplying the
volume of said gas delivered from said lease by the applicable theoretical
percentage as shown in the following table, the result being the "theoretical
volume of residue gas remaining" from the gas delivered from said lease, (2)
dividing the "total actual volume of residue gas remaining" (determined in the
manner hereinafter provided) from all gas delivered to said plant by the total
"theoretical volume of residue gas remaining" from all gas delivered to said
plant (the latter being the sum of the theoretical volumes for all leases from
which gas is delivered to said plant determined as to each lease in accordance
with (1) above) and expressing the result in percentage, and (3) multiplying the
"theoretical volume of residue gas remaining" from Seller's said lease by said
last-mentioned percentage. The "total actual volume of residue gas remaining"
from all gas delivered to said plant as used herein shall mean that volume of
residue gas remaining, after the extraction of gasoline and additional products,
from all gas processed in Buyer's plant, less the volume of residue gas
necessary for plant operation. Said "total actual volume of residue gas
remaining" shall be measured by suitable orifice meters of standard make to be
installed and kept in repair by Buyer at the various points where the residue
gas is delivered to producers and to purchasers (if not measured by purchasers)
and to flare; provided, however, that Buyer shall not be required to measure the
deliveries of small quantities of residue gas which would not, in Buyer's
judgment, justify a meter installation and the volumes of such deliveries shall
he estimated by Buyer in accordance with methods followed generally in the
natural gas processing industry.
2
<PAGE>
162- 0159-00 (STAMPED) 162(7-85)/GPC
Notwithstanding anything in this agreement to the contrary, Buyer, at its sole
discretion, may at any time change the residue gas allocation procedure set
forth herein to a procedure which takes into account the BTU content of the gas,
thereby providing that the total BTU's in the actual Plant residue gas remaining
will he allocated between leases/wells connected to the Plant on the basis of
the theoretical BTU's remaining from each lease/well after the extraction of the
products and the consumption of fuel. Likewise, Buyer may change the method of
product allocation set forth herein to one based on the theoretical product
content of the gas from each lease/well as determined by measurement and
chromatographic analysis of the gas from each lease/well.
Theoretical Percentage of Gas Remaining as Residue After Extraction of Gasoline
- -------------------------------------------------------------------------------
and Plant Use Based Upon Gasoline Content in Gallons per 1,000 Cubic Feet (GPM).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GPM % GPM % GPM % GPM % GPM % GPM % GPM %
- ---- ------- ---- ------ ---- ------ ---- ------ ---- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.00 100.00 2.00 72.90 4.00 54.30 6.00 38.30 8.00 25.10 10.00 13.70 12.00 3.50
.05 93.10 2.05 72.45 4.05 53.85 6.05 37.90 8.05 24.80 10.05 13.35 12.05 3.25
.10 92.60 2.10 72.00 4.10 53.40 6.10 37.50 8.10 24.50 10.10 13.00 12.10 3.00
.15 92.10 2.15 71.50 4.15 52.95 6.15 37.20 8.15 24.25 10.15 12.75 12.15 2.75
.20 91.50 2.20 71.00 4.20 52.50 6.20 36.90 8.20 24.00 10.20 12.50 12.20 2.50
.25 91.05 2.25 70.50 4.25 52.15 6.25 36.55 8.25 23.65 10.25 12.25 12.25 2.30
.30 90.50 2.30 70.10 4.30 51.80 6.30 36.20 8.30 23.30 10.30 12.00 12.30 2.10
.35 90.05 2.35 69.60 4.35 51.30 6.35 35.80 8.35 22.95 10.35 11.75 12.35 1.85
.40 89.60 2.40 69.10 4.40 50.80 6.40 35.40 8.40 22.60 10.40 11.50 12.40 1.60
.45 89.00 2.45 68.65 4.45 50.40 6.45 35.10 8.45 22.30 10.45 11.25 12.45 1.40
.50 88.40 2.50 68.20 4.50 50.00 6.50 34.80 8.50 22.00 10.50 11.0O 12.50 1.20
.55 87.85 2.55 67.70 4.55 49.65 6.55 34.45 8.55 21.70 10.55 10.75 12.55 .90
.60 87.30 2.60 67.20 4.60 49.30 6.60 34.10 8.60 21.40 10.60 10.50 12.60 .60
.65 86.80 2.65 66.70 4.65 48.85 6.65 33.80 8.65 21.10 10.65 10.25 12.65 .35
.70 86.30 2.70 66.20 4.70 48.40 6.70 33.50 8.70 20.80 10.70 10.00 12.70 .10
.75 85.75 2.75 65.75 4.75 47.95 6.75 33.15 8.75 20.55 10.75 9.75
.80 85.20 2.80 65.30 4.80 47.50 6.80 32.80 8.80 20.30 10.80 9.50
.85 84.70 2.85 64.90 4.85 47.15 6.85 32.50 8.85 20.05 10.85 9.25
.90 84.20 2.90 64.50 4.90 46.90 6.90 32.20 8.90 19.80 10.90 9.00
.95 83.65 2.95 63.95 4.95 46.35 6.95 31.85 8.95 19.50 10.95 8.75
1.00 83.10 3.00 61.40 5.00 45.90 7.00 31.50 9.00 19.20 11.00 8.50
1.05 82.50 3.05 62.95 5.05 45.50 7.05 31.15 9.05 18.85 11.05 8.25
1.10 81.90 3.10 62.50 5.10 45.10 7.10 30.80 9.10 18.50 11.10 8.00
1.15 81.50 3.15 62.00 5.15 44.75 7.15 30.50 9.15 18.20 11.15 7.70
1.20 80.90 3.20 61.50 5.20 44.20 7.20 30.20 9.20 17.90 11.20 7.40
1.25 80.40 3.25 61.00 5.25 43.85 7.25 29.95 9.25 17.60 11.25 7.20
1.30 79.90 3.30 60.50 5.30 43.50 7.30 29.50 9.30 17.30 11.30 7.00
1.15 79.45 3.35 00.15 5.35 43.05 7.35 29.25 9.35 17.05 11.35 6.75
1.40 79.00 3.40 59.80 5.40 42.60 7.40 29.00 9.40 16.80 11.40 6.50
1.45 78.50 3.45 59.30 5.45 42.25 7.45 28.65 9.45 16.50 11.45 6.25
1.50 78.00 3.50 58.80 5.50 41.90 7.50 28.30 9.50 16.20 11.50 6.00
1.55 77.50 3.55 58.15 5.55 41.55 7.55 28.00 9.55 16.00 11.55 5.80
1.60 77.00 3.60 57.90 5.60 41.20 7.60 27.70 9.60 15.80 11.60 5.60
1.65 76.50 3.65 57.40 5.65 40.80 7.65 27.30 9.65 15.50 11.65 5.35
1.70 76.00 3.70 56.90 5.70 40.40 7.70 26.90 9.70 15.20 11.70 5.10
1.75 75.50 3.75 56.55 5.75 40.15 7.75 26.70 9.75 14.95 11.75 4.95
1.80 75.00 3.80 56.20 5.80 39.90 7.80 26.50 9.80 14.70 11.80 4.60
1.85 74.50 3.85 55.75 5.85 39.50 7.85 26.20 9.85 14.41 11.85 4.35
1.90 74.00 3.90 55.30 5.90 39.10 7.90 25.90 9.90 14.20 11.90 4.10
1.95 73.45 3.95 54.80 5.95 38.70 7.95 25.50 9.95 13.95 11.95 3.80
</TABLE>
3
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162 (7-85)/GPC
6. DILUTFD GAS- Should Seller's operations under this paragraph create a
------------
condition which in the exclusive judgment of Buyer makes the taking and
utilization of gas therefrom unprofitable to Buyer, or should such operations
tend to endanger the plant or property of Buyer or the lives of Buyer's
employees should such diluted or contaminated gas be taken, then Buyer, at its
election, may discontinue taking the gas from the particular well or wells while
being so operated.
7. RIGHT OF WAY - To the full extent that Seller is able to convey such
--------------
rights, Seller hereby assigns and grants to Buyer an easement across the
premises covered hereby to lay and maintain lines and to install, maintain and
operate any equipment necessary to its operations hereunder and Buyer shall have
the right of free entry for any purpose connected therewith. All lines and
equipment placed by Buyer on said premises shall remain the property of Buyer
and may he removed by Buyer before or within a reasonable time after the
expiration of this Agreement.
8. SETTLEMENT TESTS- The gasoline content per thousand cubic feet of gas
-----------------
delivered to Buyer hereunder shall be determined by a field compression test, or
chromatographic analysis, at Buyer's option, made in accordance with the
official code of the Gas Processors Association for testing natural gas for
gasoline content. The specific gravity shall be determined by the use of a
gravitometer of the Ranarex type. The tests for gasoline content and specific
gravity shall be made by Buyer semiannually except when, in the opinion of
either party, a change in the method of operations of the lease will affect
materially the gasoline content and specific gravity of the gas, in which event
the tests shall be made at the demand of either party upon five (5) days' notice
to the other party. Buyer shall notify Seller in writing ten (10) days previous
to the semiannual tests in order that it may have a representative present to
witness said tests and/or make joint tests with its own appliances. The content
tests shall be computed to a standard pressure base of 14.65 pounds per square
inch absolute and at a standard base temperature of sixty (60) degrees
Fahrenheit.
9. MEASUREMENT- The gas delivered hereunder shall be measured by a suitable
-----------
orifice meter, or meters, of standard make to be furnished, installed, and kept
in repair by Buyer near tile point of delivery of such gas. Buyer may, at its
option, install an electronic flow recorder to record the static and
differential pressures, flowing temperature and volume of such gas. All gas
volumes measured hereunder shall be computed to a standard pressure base of
14.65 pounds per square inch absolute at a standard base temperature of sixty
(60) degrees Fahrenheit. For purposes of measurement computations tile average
atmospheric pressure shall be assumed to be 13.2 pounds per square inch and the
average flowing temperature shall be assumed to be sixty (60) degrees
Fahrenheit. All orifice coefficient computations shall be made in accordance
with published procedures adopted as American National Standard, "Orifice
Metering of Natural Gas," published as ANSI-API 2530 (Formerly prescribed by the
API and published as API2530, including therein the American Gas Association
Report No. 3 adopted in 1975 by API and further approved by the American
National Standards Institute June 28, 1977) as amended or revised from time to
time, except that the Reynolds Number, Expansion, and Manometer Factors shall
each be considered as unity, and only those gas volumes measured at pressures of
100 pounds per square inch gauge or greater shall be corrected for deviation
from Boyle's Law. Notwithstanding the foregoing, at Buyer's option the flowing
temperature of the gas may be determined by means of a recording thermometer
installed by and at the expense of Buyer. In the event Buyer elects to exercise
such option, the arithmetical average of the recorded temperatures of the gas
delivered during each month shall be deemed to be the temperature of such gas so
delivered during such month. Buyer shall test, and if necessary adjust and
repair, any meter installed by it hereunder at or about the time the tests for
gasoline content are made. Said meter, or meters, shall be open to inspection at
all times by Seller in the presence of Buyer. In case any question arises as to
the accuracy of the meter measurement, said meter, or meters, shall be tested
upon the demand of either party. The expense of such tests shall be borne by the
party demanding same if the meter is found to be correct and by Buyer if found
incorrect. A registration within 2% of correct shall be considered correct.
4
(HAND WRITTEN) C - 162158
<PAGE>
162 (7-85)/GPC
If at any time any of the measuring or testing equipment is found to be out of
service, or registering inaccurately in any percentage, it shall be adjusted at
once to read accurately, within the limits prescribed by the manufacturer. If
such equipment is out of service, or inaccurate by an amount exceeding two
percent (2%) at a reading corresponding to the average rate of flow for the
period since the last preceding test, the previous readings of such equipment
shall be disregarded for any period definitely known or agreed upon, or if not
so known or agreed upon, for a period of sixteen (16) days or one-half (1/2) of
the elapsed time since the last test, whichever is shorter. The volume of gas
delivered during such period shall be estimated by:
(a) Using the data recorded by any check-measuring equipment if installed
and accurately registering, or if not installed or registering accurately;
(b) By correcting the error if the percentage of error is ascertainable by
calibration, test or mathematical calculation, or if neither such method is
feasible;
(e) By estimating the quantity, or quality, delivered based upon deliveries
under similar conditions during a period when the equipment was registering
accurately. No corrections shall be made for recorded
inaccuracies of two percent (2%) or less.
If requested, Buyer shall send charts or flow computer unit data printouts to
Seller for checking after which they shall be returned to Buyer.
10. PRICE
-----
A. Natural Gasoline Value- The gasoline content values due each connection
------------------------
shall be determined by multiplying the "Total Gasoline Value" by a fraction, the
numerator of which is the "Adjusted Gasoline Content of Each Connection" and the
denominator of which is the "Adjusted Gasoline Content of All Connections," and
then multiplying the result by whichever of the following percentages is
applicable, to-wit:
Monthly Delivered Volume (MCF Percentage
-------------------------------- ----------
Less than 9,125 55%
9,125 or more, but less than 15,200 60%
15,200 or more 65%
The "Total Gasoline Value" shall be the total value invoiced for deliveries of
natural gasoline.
The "Adjusted Gasoline Content of Each Connection" shall be determined by
multiplying the "Gasoline Content Per Thousand Cubic Feet", as determined in
accordance with Section 8 hereunder, by a fraction, the numerator of which shall
be the "Actual Net Plant Production of Natural Gasoline" and the denominator of
which shall be the "Gasoline Content of all Connections", then multiplying the
result by the applicable measured volume of gas from each connection.
The "Actual Net Plant Production of Natural Gasoline", expressed in gallons,
shall be the total net deliveries of natural gasoline adjusted for change in
inventory.
The "Adjusted Gasoline Content of All Connections" shall be the sum of the
"Adjusted Gasoline Content of Each Connection" for all connections.
The "Gasoline Content of all Connections" shall be the sun or the products
obtained by multiplying the "Gasoline Content Per Thousand Cubic Feet" of each
connection by the applicable measured volume of gas from each connection.
5
(HAND WRITTEN) C - 162158
<PAGE>
162 (7-85)/GPC
B. Additional Products Value- The additional products value for each
---------------------------
connection shall he determined by multiplying the "Total Additional Products
Value" by a fraction, the numerator of which is the "Adjusted Gasoline Content
of each Connection", as defined in Section 10-A, and the denominator of which is
the "Adjusted Gasoline Content of all Connections", also as defined in 10-A, and
then by whichever of the following percentages is applicable, to-wit:
Monthly Delivered Volume (MCF Percentage
-------------------------------- ----------
less than 9,125 55%
9,125 or more, but less than 15,200 60%
15,200 or more 65%
The "Total Additional Products Value" shall be the total value invoiced for
deliveries of additional products. The value invoiced shall include any and all
adjustments from prescribed quality specifications including but not limited to
impurities and contamination claims, if allowed by Buyer, but shall not include
any cash discounts.
Notwithstanding the foregoing, the individual liquid hydrocarbon products,
delivered by Buyer into a pipeline operated by others or delivered to remotely
located fractionation facilities owned by Buyer or remotely located storage
owned by Buyer shall he deemed to have been sold; and each of said individual
products except methane shall be priced for settlement purposes hereunder at an
amount per gallon equal to the weighted average price per gallon paid by Buyer
for all like product purchased by it under arms-length contracts from suppliers
(other than any corporation more than 50% of the capital stock of which is owned
directly or indirectly by Buyer or other entity which controls Buyer) and
delivered during such settlement period into Chevron Pipe Line Company's
(formerly Gulf Pipeline Company's) LPG Pipeline System at points west of Taylor
County, Texas, for transportation to Buyer's MtBelvieu fractionation
facilities. Methane, if any shall be priced at the same price as heretofore
provided for ethane.
In the event such deliveries of said products to Buyer's remotely located
fractionation or storage facilities are made as a composite stream or streams,
the composition of such composite stream delivered during each accounting period
hereunder shall be deemed to be the same as that revealed by a chromatographic
analysis of a representative sample of such stream taken by Buyer during such
month. Such samples shall be analyzed at Buyer's expense.
The parties hereto acknowledge that governmental regulations, both currently and
prospectively, may limit the price Buyer may charge third parties for the
respective liquid products attributable to the gas purchased hereunder. When so
limited, Buyer may elect to pay Seller, notwithstanding the above paragraph, an
amount equal to the applicable percentage of such limited price, multiplied by
the volume of the subject product saved and sold at Buyer's Plant which is
attributable to Seller's gas purchased hereunder.
C. Residue Gas Sales Value - If the "residue gas remaining" (determined as
-------------------------
heretofore provided) from Seller's gas shall he more than sufficient for the
needs and requirements of Seller for development and operation purposes upon the
premises from which said gas is produced, Buyer shall have the right to sell any
or all of such surplus residue gas or to use such surplus residue gas in its
operations. If Buyer sells any surplus residue gas remaining from the gas
delivered hereunder, Buyer shall pay to Seller eighty percent (80%) of the "net
proceeds received from the sale of such residue gas," hereinafter defined. The
"net proceeds received from the sale of such residue gas" shall be deemed to be
the gross proceeds received from the sale of such residue gas less Buyer's costs
of treating, dehydrating, and compressing such gas to the pressure required for
delivery to the purchaser thereof (whether treated, dehydrated, or compressed
before or after processing in Buyer's plant), and less the cost of any
transportation necessary to market the residue gas. For the purposes hereof,
Buyer's said treating cost shall be deemed to be 0.5 per MCF, Buyer's said
dehydration cost shall be deemed to be 0.25 per MCF, and Buyer's said
compression cost shall be deemed to be 1.0 per MCF for each stage of
compression.
6
<PAGE>
In the event Buyer should elect to utilize the surplus residue gas attributable
to the gas delivered hereunder, said residue gas shall he valued at the price
Warren receives for said gas from the Company, Division, or Department utilizing
such gas.
The volume of surplus residue gas available for sale from the gas delivered
hereunder shall be the remainder obtained by subtracting the volume, determined
either by estimate or measurement, that actually was delivered to Seller for
lease operation during the month for which settlement is to be made from the
volume of "residue gas remaining" determined by application of Paragraph 5
hereof. The volume of surplus residue gas sold from the gas delivered hereunder
shall be deemed to be that proportionate part of the total volume of surplus
residue gas sold from Buyer's plant which the volume of surplus residue gas
available for sale from the gas delivered to Buyer hereunder, determined as
heretofore provided, bears to the total volume of surplus residue gas available
for sale from all gas delivered to Buyer for processing in such plant.
11. SEVERANCE TAXES - Buyer hereby agrees to reimburse Seller for all state
----------------
severance taxes which are actually borne by Seller and which Buyer actually
collects from its purchaser of residue gas under the terms of Buyer's residue
sales contract or applicable law or regulation.
12. FUEL GAS & ELECTRICAL POWER- In the event, Buyer elects to utilize
-------------------------------
electrical power in the operation of compressors at the processing plant or
located in the field, such electrical power costs will be allocated to Seller's
gas by multiplying the total electrical power cost times a factor, the numerator
of which is the volume of gas delivered hereunder and the denominator of which
is the total volume of gas utilizing such electrical cost. This total lease
allocated electric cost will then be subtracted from the lease residue value
before dividing the residue income between Buyer and Seller as provided in
Section C of Article 10.
13. PAYMENT - Payment shall he mailed by Buyer not later than the last day
-------
of each month for all gas purchased hereunder during the preceding month, and at
the time payment is made a statement showing full details of the account shall
he transmitted to Seller accompanying Buyer's check in payment therefor.
Examination by Seller of the books of account kept by Buyer respecting said gas
account shall be permitted by Buyer at any and all reasonable hours. All
statements rendered to Seller by Buyer during any calendar year shall be
conclusively presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
month period Seller takes written exception therein and makes claim on Buyer for
adjustment. Failure on the part of Seller to make claim on Buyer for adjustment
within such period shall establish the correctness thereof and preclude the
filing of exceptions thereto or making of claims for adjustment thereof.
If the lease or leases described herein are owned by two or more parties, the
Gas Purchase Statement will be sent to the operator and payment of any sums due
to Seller hereunder shall be made to the party designated as Operator of such
lease or leases and he shall make proper distribution of the sums to the parties
Seller.
14. TITLE - Title to the gas conveyed hereunder shall pass to Buyer at the
-----
point of delivery. Seller warrants that it has clear title to the gas being
conveyed hereunder and that it has good and merchantable title in the leasehold
from which the gas is produced. Seller also warrants and represents that it has
a good and clear right to sell all of the gas conveyed to Buyer hereunder.
Seller also agrees that upon demand by Buyer it will submit abstracts of title
covering said leasehold and such other documents as may be necessary or
desirable to satisfy the attorneys of Buyer that Seller has good and clear title
to the gas being conveyed hereunder; provided, however, that if the title of
Seller is questioned, or involved in any action, Buyer shall have the right to
withhold payment for such gas without liability for interest during the pendency
of such action or until said title is freed from such question, or until Seller
furnishes Buyer with a bond acceptable to Buyer that will save Buyer harmless
from any losses that may arise from Buyer having made payment to Seller for gas
in which Seller did not have a good and clear title.
7
<PAGE>
162 (7-85)/GPC
15. ROYALTY - Seller agrees to account and pay to the persons entitled
-------
thereto all royalties, overriding royalties, bonus payments and production
payments due with respect to the gas sold or delivered hereunder. Seller further
agrees to defend, indemnify and hold Buyer harmless from all suits, actions,
debts, accounts, damages, costs (including court costs and reasonable attorneys
fees), losses and expenses arising from or out of any of said payments.
16. DRIP - Buyer shall keep reasonably clear of obstruction all its
----
pipelines through which said gas is being delivered and shall own all liquids
collecting in such lines.
17. FORCE MAJEURE- In the event of either party hereto being rendered
--------------
unable, wholly or in part, by force majeure to carry out its obligations under
this Agreement, other than to make payments due hereunder, the obligations of
the party suffering force majeure, so as they are affected by such force
majeure, shall be suspended to the extent and for the period of such force
majeure condition. Such party suffering force majeure shall give notice and full
particulars of such force majeure in writing or by telegraph to the other party
as soon as possible after the occurrence of the cause. Such cause shall as far
as possible he remedied with all reasonable dispatch. The term "force majeure"
as employed herein shall mean acts of God, strikes, lockouts or other industrial
disputes or disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, arrests and restraints of governments and people,
civil disturbances, explosions, breakage or accidents to machinery or lines of
pipe, the making of repairs or alterations to lines of pipe or plants, inability
to secure labor or materials, freezing of wells or lines of pipe, partial or
entire failure of wells or gas supply, necessity for compliance with any court
order, or any law, statute, ordinance, regulation or order promulgated by a
governmental authority having jurisdiction, inclement weather that necessitates
extraordinary measures and expense to construct facilities and/or maintain
operations and any other causes, whether of the kind enumerated herein or
otherwise, not within the control of the party claiming suspension and which by
the exercise of due diligence such party is unable to prevent or overcome. Such
term shall likewise include (a) in those instances where either party hereto is
required to obtain servitudes, right-of-way grants, permits or licenses to
enable such party to fulfill its obligations hereunder, the inability of such
party to acquire, or delays on the part of such party in acquiring, at
reasonable cost and after the exercise of reasonable diligence, such servitudes,
right-of-way grants, permits or licenses, and (b) in those instances where
either party hereto is required to furnish materials and supplies for the
purpose of constructing or maintaining facilities or is required to secure
permits or permissions from any governmental agency to enable such party to
fulfill its obligations hereunder, the inability of such party to acquire, or
delays on the part of such party in acquiring, at reasonable cost and after the
exercise of reasonable diligence, such materials, supplies, permits and
permissions. It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty, and that the above requirements that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of opposing party when such
course is inadvisable in the discretion of the party having difficulty. Either
party may briefly interrupt its performance hereunder for the purpose of making
necessary or desirable inspections, alterations and repairs; and the party
requiring such relief shall give to the other party reasonable notice of its
intention to suspend its performance hereunder, except in cases of emergency
where such notice is impracticable or in cases where the operations of the other
party will not be affected the party requiring such relief shall endeavor to
arrange such interruptions so as to inconvenience the other party as little as
possible. Service interruptions on the part of either party which are sanctioned
by this provision are expressly included within the definition of "force
majeure" for the purposes of this contract.
In the event that during the term of this Agreement Seller claims a suspension
of its obligation to deliver gas to Buyer for thirty (30) or more days for the
reason of one or more events of force majeure, then the term of this Agreement
shall he extended for the number of days during which such force majeure
condition is claimed.
8
<PAGE>
162 (7-85)/GPC
18. UNPROFITABLE GAS- If, in Buyer's sole judgment, the gas available at any
----------------
delivery point provided for hereunder is or becomes insufficient in volume or
liquefiable hydrocarbons content, or for any other cause is or becomes
unprofitable for the extraction of liquefiable hydrocarbons therefrom, Buyer
shall not be required to take such gas so long as such condition exists. If at
any time the volume and/or liquefiable hydrocarbons content of the gas available
to Buyer, or any other cause beyond Buyer's control, shall render the operation
of Buyer's plant or the gas gathering lines to Seller's lease unprofitable in
Buyer's sole judgment, Buyer may by thirty (30) days written notice to Seller
cancel this contract.
19. PRIORITY RIGHTS OF SELLER - Seller may, at any time, without liability
---------------------------
to Buyer clean out, deepen, or abandon any well or wells on the above-described
properties, or may use any efficient, modern, or improved method for the
production of oil or gas. Before any well or wells are taken out of service for
any reason whatsoever Seller agrees to first shut off the same from
communication with Buyer's gathering system.
20. INDEMNITY - Seller agrees to defend, indemnify and save harmless Buyer,
---------
from and against any and all loss, damage, injury, liability and claims thereof,
for injury to or death of any person (including an employee of Seller or Buyer)
or for loss or damage to property (including the property of Buyer), resulting
from Seller's performance of this Agreement, including such loss, damage,
injury, liability and claims as are attributable to the gas covered by this
Agreement, prior to the delivery of said gas to Buyer. This indemnity shall
apply regardless of whether liability without fault is imposed or sought to be
imposed on Buyer. This indemnity shall not apply to the extent that said loss,
damage, injury, liability and claims arise from personal injury, death or
property damage which is caused by or results from the sole or concurrent
negligence of Buyer, or an individual contractor directly responsible to Buyer.
Seller and Buyer specifically intend that the foregoing obligation of Seller to
defend, indemnify and save harmless shall cover and apply to, but is not limited
to, all loss, damage, injury, liability and claims as are caused by, result from
or are attributable to the sole, comparative, contributory or concurrent
negligence of Seller or any third party.
21. SCOPE - In the event the above-described property is covered by more
-----
than one lease, this contract shall be construed as a separate
contract as to each lease.
22. TAXES - Seller shall bear all taxes imposed upon Seller with respect to
-----
the gas delivered hereunder and Buyer shall bear all taxes imposed upon Buyer
with respect to such gas after delivery thereof to Buyer. If required by law or
requested by Seller, Buyer shall remit taxes to the proper authority and deduct
Seller's portion thereof from Buyer's payment to Seller.
23. LAWS AND REGULATIONS- This contract and all provisions herein shall be
----------------------
subject to and performed in accordance with all present and future, applicable
and valid orders, laws, rules or regulations of any duly constituted federal,
state or local governmental authority now or hereafter having jurisdiction over
the parties, their facilities, the gas delivered hereunder, or this Agreement.
24. TERM - This Agreement will become effective on the date hereof and will
----
remain in full force and effect for a period of five (5) years from the date of
initial delivery of gas hereunder. At the end of such period, this Agreement
will continue in effect from year-to-year thereafter, until canceled by written
notice given by either party to the other not less than one (1) month prior to
the end of the initial five (5) year term or any subsequent anniversary date.
However, in the event the oil and gas lease covering the above-described
property should terminate before the expiration of the term of this Agreement,
then this Agreement shall be canceled contemporaneously with such termination.
Upon termination, this Agreement will cease to have any force or effect, except
as to unsatisfied obligations or liabilities of either party attributable to the
period prior to 12:00 midnight on the date of termination, or arising thereafter
as a result of such termination.
9
(HAND WRITTEN) C - 162158
<PAGE>
162 (7-85)/GPC
25. ASSIGNMENT- The provisions of this Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto, their heirs, successors and assigns.
If Seller assigns or conveys all or any part of the leases or other properties
covered hereby, Seller shall provide in any instrument of assignment or
conveyance that the leases or other properties are assigned or conveyed subject
to the terms and conditions of this Agreement and that the party or parties to
whom such assignment or conveyance is made shall be bound by the terms of this
Agreement. No assignment of any of Seller's rights or obligations hereunder
shall be made without the consent of Buyer, except to any company with which
Seller is affiliated or to a trustee or trustees, individual or corporate, as
security for bonds, security or other obligations. No transfer of or succession
to the interest of Seller hereunder, wholly or partially, shall Affect or bind
Buyer until Buyer shall have been furnished with written notice and the original
instrument or a certified copy or an acceptable photocopy of the instrument or
instruments effecting such changes of ownership.
26. PRODUCTION IN CONFORMANCE WITH FLOW SCHEDULE - In order to maintain
-------------------------------------------------
maximum plant efficiency on a 24-hour operating schedule, it is desired by the
parties hereto to maintain a reasonably uniform rate of flow of gas to said
plant over each 24-hour period. It is, therefore, agreed that Seller shall, at
its option, either (1) regulate its producing schedule so that the gas shall be
supplied from Seller's lease at a reasonably uniform rate of flow; or (2) accept
and follow a producing schedule to be established by Buyer for all wells
connected to Buyer's plant, provided that Buyer shall consider the wishes of
Seller in establishing the producing schedule for Seller's well or wells.
Anything else contained in this agreement to the contrary notwithstanding,
Seller hereby agrees that in the event it fails to comply with the above
provisions of this paragraph, such failure shall give Buyer the right, at its
option, to refuse to accept delivery of Seller's gas during any period of such
non-compliance.
27. COUNTERPART SIGNATURES - This Agreement may be executed in any number of
----------------------
counterparts, each of which, when executed by [any] Buyer and [any] Seller,
shall be deemed to be an original, binding agreement between such Buyer and
Seller, as of the effective date hereof, regardless of any failure by one or
more parties to execute such contract.
28. CANDELLATION OF PRIOR CONTRACTS - Upon commencement of deliveries of gas
-------------------------------
hereunder, this Agreement shall supersede any prior gas contracts and any
amendments thereto effective between the parties hereto insofar as such
contracts cover the properties hereinbefore described.
IN WITNESS WHEREOF the parties have hereunto subscribed their names.
WARREN PETROLEUM COMPANY,
A Division of Chevron U.S.A. Inc.
By (SIGNED)
---------------------------------
Attorney-in-Fact
"BUYER'
ATTEST: JUBILEE OIL & GAS CORPORA'I'ION
Juanda Harrell (SIGNED) Sidney W. Sers, President(SIGNED)
----------------------- ---------------------------------
Sidney W. Sers, President
---------------------------------
"SELLER"
10
(HAND WRITTEN) C - 162158
<PAGE>
