<PAGE>
AGREEMENT FOR
ASSIGNMENT OF LEASES
That, Geo Petroleum, Inc. 25660 Crenshaw Blvd, Suite 201, Torrance, California
90505, hereinafter referred to as
"Geo," for Ten Dollars
($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged,
subject to the terms,
reservations, limitations and provisions hereinafter set forth, without
warranty of any kind either express or implied, does hereby agree
to assign, transfer and convey subject to Geo's retained power of termination,
unto Saba Petroleum, Inc., 201 North Salsipuedes, Suite 104,
Santa Barbara, California 93103, hereinafter referred to as "Saba," two thirds
(2/3) of Geo's right, title and interest in, to and under
the oil, gas and mineral leases as set forth in Exhibit "A" attached hereto
and made part thereof
A. The interests to be assigned to Saba hereunder, include all of Geo's
interests in all
presently existing and valid oil, gas or mineral leasehold interests,
unitization, pooling, operating and communitization agreements,
declarations and orders, and in and to the properties covered and the
units created thereby, which are appurtenant to the Leases or lands
assigned, as described in Exhibit "A".
B. The interests to be assigned to Saba hereunder, shall include all of
Geo's interests in all presently existing and valid oil and gas sales,
purchase, exchange and processing agreements, joint venture
agreements, partnership agreements, right-of way easements, permits
and surface leases and other contracts, agreements and instruments,
including emission credits, insofar as the same are appurtenant to the
Leases or lands assigned.
C. The interests to be assigned to Saba hereunder, shall include all of
Geo's interests in all wells, equipment, fixtures and personal
property located on the lands described in Exhibit "A", which are
appurtenant to the Leases or lands assigned, said wells being more
specifically described in Exhibit A- 1 attached hereto subject to the
exclusion of certain wells as also cited in said Exhibit A- 1.
All of the foregoing leases, interests, rights and properties described in the
first paragraph and paragraphs A through C above, are herein
called the "Properties", located in Ventura County, California.
To have and to hold the properties forever, subject to and on the terms,
conditions and Imitations contained in the following:
1. Royalty Purchases
Saba shall attempt to acquire interests in land, royalty, overriding royalty
and mineral interests in theproperties subject hereto. Said
interests will be acquired for Saba's account at Saba's sole risk cost and
expense. Geo has the right toparticipate as to a one-third
(1/3) interest in such acquisitions by reimbursing Saba one-third (1/3) ofthe
cost of acquisition. Upon receipt ofwritten notification of
acquisition, Geo shall have Eileen days to elect to join in or decline
participation in the acquisition. ShouldSaba finance the funding
for the acqusition of the said interests from a source other than Saba's
primary bank or an affiliate, Geo shall have the right to join in
with Saba as a co-borrower as to its one-third (1/3) interest.
2. Operations
On or before one hundred eighty (180) days from the date hereof or within
thirty (30) days after Saba terminates its attempt to acquire the
interests identified in paragraph (1) above, whichever shall first occur,
Saba shall commence operations
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.
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upon said properties to produce oil, gas and/or other hydrocarbon
substances from the properties by drilling,
re-drilling, re-working and/or re-entry operations of existing wells
and in new wells utilizing primary or secondary technologies or
methods of oil and gas recovery, hereinafter referred to as
"operations." Geo shall continue to operate the properties for its
own account until such timeas Saba commences operations.Subsequent
thereto, Saba shall be entitled to one-hundred percent (100%) of all
revenue generated from the properties and shall maintain and operate
the properties at its sole cost and expense
subject to and in accordance with paragraph (4) hereof. Saba shall
conduct continuous operations on the properties with no cessation of
operations for more than a ninety (90) consecutive day period.
3. Expenditures
Saba agrees to expend a minimum sum of ten million dollars ($10,000,000) in the
conduct of its operations pursuant to paragraph two (2) above. Said amount
shall be expended over a two (2) year period from and after the date hereof
4. Payout
From and after the date on which Saba commences operations, Saba shall be
entitled to all revenue generated from the properties except for Geo's share of
any royalty, overriding royalty or mineral interest acquired pursuant to
paragraph one (1) of this agreement. Saba shall have the continued right to all
revenue generated from the
properties
until such time as Saba has recovered one-hundred percent (100%) of the total
dollars expended on the operations cited in paragraph two (2) above, except
that revenues from wells in which Geo has participated shall be shared with Geo
in proportion to its participation. Notwithstanding the two (2) year term
referred to in paragraph (3), said right to recover costs of operations shall
continue so long as the properties are capable of production and have not
terminated for any reason. On and after the date Saba commences operations
hereunder, Saba shall fumish Geo, monthly statements of the costs of
operations, revenue, and all other information required by Geo to calculate the
payout status of Saba's operations as conducted on the property.
5. Term and Interest
Subject to the terms hereof, this agreement shall remain in full force and
effect for a term of two (2) years from and
after the date hereof or until such time as Saba has expended the total sum
often minion dollars ($10,000,000) whichever shall first occur. Subsequent to
Saba having expended the ten minion dollars on operations and having recovered
the full cost of such operations out of production from the properties, Geo
shall participate as to its one-third (1/3) interest therein and the parties
hereto shall jointly operate the properties pursuant to the
Operating
Agreement attached hereto as Exhibit '11." Notwithstanding certain wells being
in a payout status, subsequent to Saba's
expenditure ofthe ($10,000,000), any and all operations on existing wells or
new wells not previously re-entered or drilled shall be jointly conducted by
Saba and Geo pursuant to the Operating Agreement. Should Saba fail to a)
expend
the agreed sum often minion dollars ($10,000,000) within the two (2) year term,
or b) diligently conduct operations with no more then ninety (90) days
cessation of such operations, subject to the terms hereof, this agreement shall
terminate and Saba shall re-assign all interest in the properties to Geo save
and except for, (a) any of the interests acquired pursuant to paragraph one
( 1) hereof and (b), a spacing unit around each well that Saba wishes to retain,
in which Saba has conducted operations as more fully described herein and in
paragraph (6). Should Saba fail to earn its interest in the entire properties
and consequently retains only its interest in a spacing unit or units,
if Saba retained three (3) or less wells, Geo shall operate said spacing
unit well or wells on Saba's behalfpursuant to the
Operating Agreement attached regardless of whether any well or wells is in a
payout status. Upon reaching payout of all costs of operations incurred by
Saba prior to the termination, Geo shall be entitled to its one-third
2
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.
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Or
(1/3) working interest in each well and spacing unit retained by Saba
subject to the operating agreement identified herein. Thereafter, the facilities
located outside any retained spacing unit, being utilized by Saba for its
continuing producing operations shall be owned, maintained and operated at a
cost equal to the ratio of dollars expended by Saba to the ten million dollars
($10,000,000.00), originally anticipated, times two-thirds (2/3).
6. Spacing Unit
To qualify as a well to be selected by Saba as a "spacing unit well" Saba shall
have expended a minimum of seventy-five thousand dollars ($75,000) on said
well in an attempt to enhance production. The spacing unit identified in
paragraph five (5) shall be in the form of a rectangle from the surface down to
all depths, the exterior boundaries of which would be a distance of one hundred
and fifty feet (150') on either side and from each end ofthe perforated inner
of each spacing unit well selected.Should the surface well site and/or
portions ofthe well bore lie outside the confines of any spacing unit created
for a well, the well site and well bore shall be considered as part of the
spacing unit retained by Saba. Geo shall not conduct any drilling or production
operations within the area of any spacing unit created execept for Geo's
right to
directionally drill a well or wells through a spacing unit (pass thru) to
bottom or complete a well/e outside the area
of a spacing unit.
7. Environmental Condition of the Assets
Within thirty (30) days after the execution ofthis agreement, Saba shall
conduct a phase I environmental survey ofthe
properties. If said survey results in the discovery of any concentrations of
hazardous substances on the propertiesor on adjoining properties which were c
aused by operations on the properties, Saba shall notify Geo in writing as to
the exact location, nature and extent of the hazardous substance, and Geo shall
forever retain full responsibility for any remediation, abatement, liability and
costs associated with the identified property. Geo further shall retain full
responsibility for any adverse environment problem which arose or occured
prior to the date ofthisagreement until such time as Saba has expended its
obligatory ten million
dollars. Thereafter, Saba and Geo shall equally be responsible for the cost of
remediation or abatement operations. Saba shall remain one hundred percent
(100%) liable for a ny adverse environmental problems caused on occasion by its
operations on the properties until such time as the parties enter into an
operating agreement forthe joint ownership of a spacing unit or the properties
in their entirety.
8. Title Defects
Geo shall, at its sole cost, attempt to correct any title defects and/or
conflicting adverse right(s), title and/or interests which are discovered by
Saba through investigation and review of Geo's records or during the conduct of
operations hereunder. For the purpose ofthis Agreement, a ("Title Defect")
shall mean a material deficiency in one
or
more following respects only:
(a) Seller's title at the Effective Date, as to one or more ofthe
properties, is subject to an outstanding mortgage, deed of trust, lien
or encumbrance or other adverse claim
(b) Seller owns more or less than the interest in the property and wells
thereon shown on Exhibit "A";
(c) Seller's rights and interests are subject to being reduced by virtue
of the exercise by a third party of a reversionary, back-in or similar
right of which Purchaser is either not aware or which is not reflected
herein;
(d) Seller is in default under some material provision of a lease, farmout
agreement, joint operating agreement, gas balancing agreement, gas
sales contract or other contract or agreement affecting the assets.
3
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9. Default
Notwithstanding any other provision hereof, should Saba fail to comply with any
ofthe material terms and conditions hereof, Geo shall notify Saba in writing of
such non-comphance. Upon receipt of such notice from Geo, Saba shall have forty
five (45) days to remedy the default or non-comphance. Should Saba fail to
remedy said default within said forty five (45) day period, except as to a) any
interest acquired pursuant to paragraph (1) hereof; b) any spacing unit to be
created and retained which was not the subject of said default and c), any
other properties or portions of properties which were not in default, Geo shall
have the option to terminate this agreement by giving Saba written notice
oftermination and Saba shall re-assign its interests to Geo as to the defaulted
portion of said property.
10. Arbitration
Except as otherwise provided in this Agreement, any controversy
between the parties arising out of this Agreement shall be submitted
to the American Arbitration Association for arbitration in Los
Angeles, Los Angeles County, California. The costs of the arbitration,
including any American Arbitration Association administration fee, the
arbitrator's fee, and costs for the use of facilities during the
hearings, shall be borne equally by the parties to the arbitration.
Attorneys' fees may be awarded to the prevailing or most prevailing
party at the discretion ofthe arbitrator. The provisions of Sections
1282.6, 1283, and 1283.05 of the California Code of Civil Procedure
apply to the arbitration. The arbitrator shall not have any power to
alter, amend, modify or change any of the terms of this Agreement nor
to grant any remedy which is either prohibited by the terms ofthis
Agreement, or not available in a court of law. The arbitrator's
jurisdiction shall be limited such that the arbitrator shall, in all
instances, accept the following as true: i) the initial capital
accounts ofthe parties as set forth in this agreement, ii) that unless
Saba has fully and strictly complied with its obligations under
paragraphs (2) and (5) ofthis agreement, Saba's interest in the
properties shall be limited to that set forth in paragraph 6 of this
agreement.
11. Force Majeure
Saba shall be excused from the performance of any of its obligations
hereunder from time to time at any time (except for obligations to
make payment of money), but only so long as it is prevented from
performance by act of God, inclement weather, accident, breakdown,
fire, strike, lock-out, labor shortage, inability to obtain equipment,
materials or supphes in the open market and at reasonable prices,
compliance with any hew, rule order or regulation which has not been
declared by a court of competent jurisdiction to be invalid, or any
other cause beyond the reasonable control of such party whether
similar or dissimilar.
12. Well Information
Saba shall notify Geo prior to commencement of operations on any well
to be drilled, reworked, recompleted or re-entered on the properties.
Prior to commencement of operations, Saba shall furnish Geo with
programs and/or prognosis describing the operation to be conducted.
While conducting such operations, Saba shall promptly furnish Geo with
copies of all logs, surveys, core analysis, test charts and tests run
in subject well along with daily reports of operations. Geo shall be
furnished copies of all forms and/or notices filed with city, county,
state or federal agencies as such reports pertain to its well
operations.
13. Insurance Requirements
4
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Saba shall secure and thereafter carry insurance in the amounts hereinafter
prescribed, and to keep such coverage in force as long as
operations are continued under this agreement.
(a) Statutory Worker's Compensation and Employer's Liability Insurance
with limits of at least $1,000,000 per occurrence to comply with the
laws of the State having jurisdiction.
(b) Comprehensive General Liability Insurance (including Owners and
Contractors Protective Liability and Contractual Liability) with
Bodily Injury Liability limits of not less than $1,000,000 per
occurrence and Property Damage Liability limits of not less than
$1,000,000 per occurrence; $1,000,000 aggregate.
(c) Automobile Bodily Injury and Property Damage Liability Insurance
(including all owned, non-owned and hired cars) in amounts of not
less than $1,000,000 for injuries to one person, $1,000,000 for all
bodily injuries in one accident, and not less than $1,000,000 for
property damage.
14. Compliance with Laws and Regulations
All work hereunder shall be performed in compliance with all
applicable federal, state and local laws, orders, rules and regulations.
And to comply with all of their terms and provisions contained in the
oil and gas leases described in Exhibit "A" hereto.
15. Relationship of Parties.
It is not intended by this agreement to create nor shall this
agreement be construed as creating any relationship between the
parties hereto of master and servant or employer and employee, or any
partnership, mming partnership or association or corporation between
the parties hereto, and the inability ofthe parties hereto shall be
several and not joint or collective and each party hereto shall be
responsible only for its proportionate share of the costs, expenses,
debts,obligations and liabilities incurred hereunder as herein
provided. This Agreement and the Relationships of the parties
are governed by and
subject ***cont.
16. Entire Agreement
This agreement and its annexures constitute the entire agreement
between the parties and supersedes any prior agreements, statements or
representation, oral or written.
17. Governing Law
This agreement shall be governed exclusively by and construed
according to the laws of the State of California as applied to contracts
between California residents entered into and to be performed entirely
within California.
18. Counterpart Execution
This agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original but all of
which together shall constitute but one and the same agreement. Only
one such counterpart need to be produced to evidence the existence
of this agreement.
19. Notice
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given (i)
upon receipt if delivered by facsimile transmittal to the party to
whom such communication was directed
(confirmed by the sender and
receiver facsimile machines) and followed by a hard
***cont. to the terms of Exhibit G. attached hereto and
incorporated herein. 5
<PAGE>
copy mailed in accordance with subparagraph (in) below, or (ii) upon delivery if
delivered by hand to the party to whom such
communication was directed, or (iii) upon written acknowledgment of receipt if
mailed by certified mail with postage prepaid addressed
or delivered to the followed:
GEO Petroleum, Inc.
Attn: Gerald T. Raydon
25660 Crenshaw Blvd, Suite 201
Torrance, California 90505
Tele: (310) 539-8191
Fax: (310) 539-0101
Saba Petroleum, Inc.
Attn: Larry Burroughs
201 North Salsipuedes, Suite 104
Santa Barbara, California 93103
Tele: (805) 884-0661
Fax: (805) 884-0672
or to such other address as a Party may designate from time to time.
20. Successors and Assigns
The terms ofthis agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the parties hereto.
IT WITNESS WHEREOF, the parties hereto have executed this agreement, this 23rd
day ofDecember, 1996.
GEO Petroleum, Inc
Gerald T. Raydon
SABA PETROLEUM, INC., a
California Corporation
Larry Burroughs, President
6
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<TABLE>
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Exbibit "A"
Attached to and Made Part of
Agreement for Assignment of Leases
Dated, December , 1996
Ventura County, California
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LESSOR LESSEE DATE RECORDING DATA DESCRIPTION OF PROPERTY
Vaca Tar Sand Unit Leases
E.E. Lenox, Single Man Raleigh P. Trimble 04-24-34 Book 426 Page: 241 Part of the Rancho
el Rio a la Colonia
known as the west 80
acres of the 119.24
acres in subdivisions
numbered 53 and 54,
lying between the Sturgis
Road, the Railroad and
the Wolff Road,
containing 80 acres.
John Hollis Lenox and Exeter Oil Company 06-04-46 Book 777 Page: 232 39 acres, more or less,
Alice Lenox Ltd. and Vaca Oil out of subdivion 53 o
Company Rancho el Rio de Santa
Clara o la Colnia
W.R Livingston Raleigh P. Trimble 04-26-34 Book 461 Page: 267 159.5 acres, more or less
out of subdivision 53 of
Rancho el Rio de Santa
Clara 0 la Colonia
Robert S. Livingston Raleigh P. Trimble 04-26-34 Book: 460 Page: 478 Insofar and only insofar
and Mayrie Daily as lease covers 149.10
Livingston, his wife acres,more orless out of
subdivision 53 and 55 of
Rancho el Rio de Santa
Clara O la Colonia
</TABLE>
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<CAPTION>
Exhibit "A"
Attached to and Made Part of
Agreement for Assignment of Leases
Dated, December , 1996
Ventura County, California
(Continued)
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LESSOR LESSEE DATE RECORDING DATA DESCRIP[TION OF PROPERTY
Document Number
Non-Unit Lease
Clarence W. Hunsucker, Sun Operating Limited 04-02-86 86-128442 Parcels B. C ~ D of Subdivision 55
J. Thomas Hunsucker Partnership of the Rancho E1 Rio De Santa Clara
and Evelyn Hunsucker O'LaColonia in theCounty of
AKA Evelyn N.Hunsucker, Ventura, State of California,
AKA Eva Newman Hunsucker according to the maprecorded in
Trustees of the Thomas O. Book 3, page 112 of maps,in the
Hunsucker Family Trust; office of the County Recorder of
Clarence W.Hunsucker said county. Together with those
as Executor of the portions ofSturgis Road, Pleasant
ValleyRoad, and Wood Road as said
roads are shown on said map lying
Estateof Thomas O. northerly, northwesterly, and
Hunsucker deceased westerly respectively of the
centerline of said roads EXCEPT
that portion of said land
lying northerly of the following
described line: Beginning at
a point in the centerline
of Wood Road,
distant thereon South 0(degree)
23' 58" West 1182.96 feet from
the intersection thereof with the
westerly prolongation of the
northerly line of subdivision 58
of said Rancho;
thence, 1st:North 88(degree) 48'
34" West 3376.48 feet
more or less to a point in the
westerly line of said Subdivision
55.
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EXHIBIT "A- 1"
Attached to and made a part of that certain agreement for assignment of leases dated December , 1996 by and between
Saba Petroleum, Tnc. as Assignee and Geo Petroleum, Inc. Assignor.
Well Schedule
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Well Names API Numbers
"Vaca Tar Sand Unit 4" 1 (111-01041)
"Vaca Tar Sand Unit 4" 2 (111-01042)
"Vaca Tar Sand Unit 4" 3 (111-01043)
"Vaca Tar Sand Unit 4" 75 (111-20989)
"Vaca Tar Sand Unit 4" 76 (111-20993)
"Vaca Tar Sand Unit 4" 77 (111-21032)
"Vaca TarSand Unit 4" 78 (111-21033)
"Vaca Tar Sand Unit 4" 79 (111-21034)
"Vaca Tar SandUnit 4" 80 (111-21356)
"Vaca Tar Sand Unit 4" 81 (111-21385)
"Vaca Tar Sand Unit4" 82 (111-21386)
"Vaca Tar Sand Unit 4" 83 (111-21396)
"Vaca Tar Sand Unit 1" 1 (111-01044) Water Disposal -- Tract 1, north of Sturgis
"Vaca Tar Sand Unit 1" 2 (111-01045)
"Vaca Tar Sand Unit 1" 3 (111-01046)
"Vaca Tar Sand Unit 3" 1 (111-01039) Water Disposal, tank farm
"Vaca Tar Sand Unit 3" 29 (111-20992)
"Vaca Tar Sand Unit 3" 49 (111-20990)
"Vaca Tar Sand Unit 3" 60 (111-21304)
"Vaca Tar Sand Unit 3" 61 (111-21355)
"Vaca Tar Sand Unit 3" 62 (111-21382)
"Vaca Tar Sand Unit 3" 63 (111-21383)
"Vaca Tar Sand Unit 3" 64 (111-21384)
"Vaca Tar Sand Unit 3" 67 (111-21082)
"Vaca Tar Sand Unit 3" 68 (111-21083)
"Vaca Tar Sand Unit 3" 69 (111-21084)
</TABLE>
Excluded from the Agreement for Assignment of Leases and Operating Agreement
are the agreements, easements and access rights, production and disposal
facilities, tanks, and all rights and interests
pertaining to the Livingston 2, 2- 1, and 1-A wells which are completed in
zones below the Vaca Tar Sand. The wells are operated pursuant to (a) that
sub-lease dated March 26, 1955, by and between US.
Diedrich as lessor and Texaco, Inc. as lessee, recorded March 26, 1955, in book
1338, page 393, Official Records of Ventura County, California, and (b) other
agreements for surface and other use which do
not grant leasehold or other rights in the Vaca Tar Sand. The 2- 1 well is in
operation as a commercial water disposal well which does not dispose of water
produced from the Vaca Tar Sand. Geo shall retain said wells and associated
rights and Saba shall have full rights ofaccess over and across the surface
areas which are subject to such agreements,easements, and access rights.
<PAGE>
EXHIBIT "B"
A.A.P.L. Form - 610-1982
MODEL FORM OPERATING AGREEMENT
Attached to and made a part of that certain agreement for assignment of leases
dated December , 1996, by and between Saba Petroleum, Inc. as Assignee and Geo
Petroleum, Inc. Assignor.
OPERATING AGREEMENT
DATED
12/ , 1996 ,
OPERATOR Saba Petroleum, Inc.
CONTRACT AREA ( See Exhibit "A")
COUNTY OF- Ventura STATE OF California
COPYRIGHT 1982 -- ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS 76137, APPROVED FORM.
A.A.P.L. NO. 610 - 1982 REVISED
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<CAPTION>
.
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
TABLE OF CONTENTS
Anide Tide Page
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I. DEFINITIONS..........................................................1
II. EXHIBITS.............................................................1
III. INTERESTS OFPARTIES..................................................2
A. OIL AND GASINTERESTS............................................2
B. INTERESTS OF PARTIES IN COSTS ANDPRODUCTION.....................2
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHERPAYMENTS........2
D. SUBSEQUENTLY CREATEDINTERESTS..................................2
IV. TITLES...............................................................2
A. TITLEEXAMINATION................................................2-3
B. LOSS OFTITLE....................................................3
1. Failure ofTitle..............................................3
2. Loss by Non-Payment or Erroneous Payment of Amount Due.......3
3. OtherLosses................................................. 3
V. OPERATOR.............................................................4
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR......................4
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR.....4
1. Resignation or Removal of Operator............................... 4
2. Selection of Successor Operator...................................4
C. EMPLOYEES.........................................................4
D. DRILLING CONTRACTS............................................... 4
Vl. DRILLING AND DEVELOPMENT............................................. 4
A. INITIAL WELL......................................................4-5
B. SUBSEQUENT OPERATIONS............................................ 5
1. Proposed Operations ........................................ 5
2. Operations by Less than All Parties..........................5-7
3. Stand-By Time ...............................................7
4. Sidetracking................................................ 7
C. TAKING PRODUCTION IN KIND ........................................7
D. ACCESS TO CONTRACT AREA AND INFORMATION.......................... 8
E. ABANDONMENT OF WELLS............................................. 8
1. Abandonment of Dry Holes.................................... 8
2. Abandonment of Wells that have Produced......................8-9
3. Abandonment of Non-Consent Operations....................... 9
Vll. EXPENDITURES AND LIABILITY OF PARTIES.................................9
A. LIABILITY OF PARTIES..............................................9
B. LIENS AND PAYMENT DEFAULTS........................................9
C. PAYMENTS AND ACCOUNTING...........................................9
D. LIMITATION OF EXPENDITURES........................................9-10
1. Drill or Deepen..............................................9-10
2. Rework or Plug Back..........................................10
3. Other Operations.............................................10
E RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES.............10
F. TAXES............................................................10
G. INSURANCE .......................................................11
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST.......................11
A. SURRENDER OF LEASES ............... ..............................11
B. RENEWAL OR EXTENSION OF LEASES .................................. 11
C. ACREAGE OR CASH CONTRIBUTIONS.....................................11-12
D. MAINTENANCE OF UNIFORM INTEREST.................................. 12
E. WAIVER OF RIGHTS TO PARTITION.....................................12
~IX. . . See Exhibit "G" .................................................. 12
X. CLAIMS AND LAWSUITS ..................................................13
XI. FORCE MAJEURE ....................................................... 13
XII. NOTICES ............................................................. 13
XIII. TERM OF AGREEMENT.....................................................13
XIV. COMPLIANCE WITH LAWS AND REGULATIONS..................................14
A. LAWS, REGULATIONS ANI) ORDERS.....................................14
B. GOVERNING LAW.....................................................l4
C. REGULATORY AGENCIES...............................................14
XV. OTHER PROVISIONS......................................................14
XVI. MISCELLANEOUS ........................................................15
11
</TABLE>
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
1 OPERATING AGREEMENT
2
3 THIS AGREEMENT, entered into by and between Saba Petroleum, Inc .
4 hereinafter designated and
5 referred to 0 "Operator", and the signatory party or parties other than
Operator, sometimes hereinafter referred to individually herein
6 as "Non-Operator", and collectively 0 "Non-Operators".
7
8 WITNESSETH:
9
10 WHEREAS, the parties to this agreement are owners of oil and gas leases
and/or oil and gas interests in the land identified in
11 Exhibit "A", and the parties hereto have reached an agreement to explore
and develop these leases and/or oil and gas interests for the
12 production of oil and gas to the extent and as hereinafter provided,
13
14 NOW, THEREFORE, it is agreed as follows:
15
16 ARTICLE I.
17 DEFINITIONS
18
19 As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
20 A. The term "oil and gas" shall mean oil, 80, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons
21 and other marketable substances produced therewith, unless an intent to
limit the inclusiveness of this term is specifically stated.
22 B. The terms "oil and gas lease", "lease" and "leasehold" shall mean the
oil and gas leases covering tractsof land
23 lying within the Contract Area which are owned by the parties to this
agreement.
24 C. The term "oil and gas interests" shall mean unleased fee and mineral
interests in tracts of land lying within the
25 Contract Area which are owned by parties to this agreement.
26 D. The term "Contract Area" shall mean all of the lands, oil and gas
leasehold interests and oil and gas interests intended to be
27 developed and operated for oil and gas purposes under this agreement.
Such lands, oil and gas leasehold interests and oil and gas interests
28 are described in Exhibit "A".
29 E. The term "drilling unit" shall mean the area fixed for the drilling
of one well by order or rule of any state or
30 federal body having authority. If a drilling unit is not fixed by any
such rule or order, a drilling unit shall be the driving unit as establish
31 ed by the pattern of drilling in the Contract Area or as fixed by
express agreement of the Drilling Parties.
32 F. The term "drillsite" shall mean the oil and gas lease or interest on
which a proposed well is to be located.
33 G. The terms "Drilling Party" and "Consenting Party" shall mean a party
who agrees to join in and pay its share of the cost of
34 any operation conducted under the provisions of this agreement.
35 H. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean
a party who elects not to participate
36 in a proposed operation.
37
38 Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural includes the
39 singular, and the neuter gender includes the masculine and the feminine.
40
41 ARTICLE II.
42 EXHIBITS
43
44 The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
45 O A. Exhibit "A", shall include the following information:
46 (1) Identification of lands subject to this agreement,
47 (2) Restrictions, if any, as to depths, formations, or substances,
48 (3) Percentages or fractional interests of parties to this agreement,
49 (4) Oil and gas leases and/or oil and gas interests subject to this
agreement,
50 (5) Addresses of parties for notice purposes.
52 O C. Exhibit "C", Accounting Procedure.
53 O D. Exhibit "D", Insurance.
55 O F. Exhibit "F", Non-Discrimination and Certification of Non-Segregated
Facilities.
56 O G. Exhibit "G", Tax Partnership.
57 If any provision of any exhibit, except Exhibits "E" and "G", is
inconsistent with any provision contained in The body
58 of this agreement, the provisions in the body of this agreement shall
prevail.
59
60
61
62
63
64
66
67
68
69
70
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1982
1 ARTICLE III.
2 INTERESTS OF PARTIES
3
4 A. Oil and Gas Interests:
5
6 If any party owns an oil and gas interest in the Contract Area, that
interest shall be treated for all purposes of this agreement
7 and during the term hereof as if it were covered by the form of oil and gas
lease attached hereto as Exhibit "B", and the owner thereof
8 shall be deemed to own both the royalty interest reserved in such lease and
the interest of the lessee thereunder.
9
10 B. Interests of Parties in Costs and Production:
11
12 Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and
13 paid, and all equipment and materials acquired in operations on the
Contract Area shall be owned, by the parties as their interests are set
14 forth in Exhibit "A". In the same manner, the parties shall also own all
production of oil and gas from the Contract Area subject to the
15 payment of royalties to the extent of as provided for in the leases subject
hereto which shall be borne as hereinafter set forth.
16
17 Regardless of which party has contributed the lease(s) and/or oil and gas
interest(s) hereto on which royalty is due and
18 payable, each party entitled to receive a share of production of oil and
gas from the Contract Area shall bear and shall pay or deliver, or
19 cause to be paid or delivered, to the extent of its interest in such
production, the royalty amount stipulated hereinabove and shall hold the
20 other parties free from any liability therefor. No party shall ever be
responsible, however, on a price basis higher than the price received
21 by such party, to any other party's lessor or royalty owner, and if any
such other party's lessor or royalty owner should demand and
22 receive settlement on a higher price basis, the party contributing the
affected lease shall bear the additional royalty burden attributable to
23 such higher price.
24
25 Nothing contained in this Article III.B. shall be deemed an assignment or
cross-assignment of interests covered hereby.
26
27 C. Excess Royalties, Overriding Royalties and Other Payments:
28
29 Unless changed by other provisions, if the interest of any party in any
lease covered hereby is subject to any royalty,
30 overriding royalty, production payment or other burden on production in
excess of the amount stipulated in Article III.B., such party so
31 burdened shall assume and alone bear all such excess obligations and shall
indemnify and hold the other parties hereto harmless from any
32 and all claims and demands for payment asserted by owners of such excess
burden.
33
34 D. Subsequently Created Interests:
35
36 If any party should hereafter create an overriding royalty, production
payment or other burden payable out of production
37 attributable to its working interest hereunder, or if such a burden existed
prior to this agreement and is not set forth in Exhibit "A", or
38 was not disclosed in writing to all other parties prior to the execution
of this agreement by all parties, or is not a jointly acknowledged and
39 accepted obligation of all parties (any such interest being hereinafter
referred to as "subsequently created interest" irrespective of the
40 timing of its creation and the party out of whose working interest the
subsequently created interest is derived being hereinafter referred
41 to as "burdened party"), and:
42
43 1. If the burdened party is required under this agreement to assign or
relinquish to any other party, or parties, all or a portion
44 of its working interest and/or the production attributable thereto, said
other party, or parties, shall receive said assignment and/or
45 production free and clear of said subsequently created interest and the
burdened party shall indemnify and save said other party,
46 or parties, harmless from any and all claims and demands for payment
asserted by owners of the subsequently created interest;
47 and,
48
49 2. If the burdened party fails to pay, when due, its share of expenses
chargeable hereunder, all provisions of Article Vll.B. shall be
50 enforceable against the subsequently created interest in the same manner
as they are enforceable against the working interest of
51 the burdened party.
52
53 ARTICLE IV.
54 TITLES
55
56 A. Title Examination:
57
58 Title examination shall be made on the drillsite of any proposed well
prior to commencement of drilling operations or, if
59 the Drilling Parties so request, title examination shall be made on the
leases and/or oil and gas interests included, or planned to Me includ
60 ed, in the drilling unit around such well. The opinion will include the
ownership of the working interest,minerals, royalty, overriding
61 royalty and production payments under the applicable leases. At the time
a well is proposed, each party contributing leases and/ar oil and
62 gas interests to the drillsite, or to be included in such drilling unit,
shall furnish to Operator all abstracts (including federal 10 status
63 reports), title opinions, title papers and curative material in its
possession free of charge. All such information not in the possession of or
(4 made available to Operator by the parties, but necessary for the
examination of the title, shall be obtained by Operator. Operator shall
65 cause title to be examined by attorneys on its staff or by outside
attorneys. Copies of all title opinions shall be furnished to each party
66 hereto. The cost incurred by Operator in this title program shall be
borne as follows:
68 O Option No. 1: Costs incurred by Operator in procuring abstracts and
title examination (including preliminary, supplemental,
69 shut-in gas royalty opinions and division order title opinions) shall be a
part of the administrative overhead as provided in Exhibit "C",
70 and shall not be a direct charge, whether performed by Operator's staff
attorneys or by outside attorneys.
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE IV
condnued
1 0 Option No. 2: Costs incurred by Operator in procuring abstracts and
fees paid outside attorneys for title examination
2 (including preliminary, supplemental, shut-in gas royalty opinions and
division order title opinions) shall be borne by the Drilling Parties
3 in the proportion that the interest of each Drilling Party bears to the
total interest of all Drilling Parties as such interests appear in Ex
4 hibit "A". Operator shall make no charge for services rendered by its
staff attorneys or other personnel inthe performance of the above
5 functions.
6
7 Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in connection
8 with leases or oil and gas interests contributed by such party. Operator
shall be responsible for the preparation and recording of pooling
9 designations or declarations as well as the conduct of hearings before
governmental agencies for the securing of spacing or pooling orders.
10 This shall not prevent any party from appearing on its own behalf at any
such hearing.
11
12 No well shall be drilled on the Contract Area until after (1) the title
to the drillsite or drilling unit has been examined as above
13 provided, and (2) the title has been approved by the examining attorney
or title has been accepted by all of the parties who are to
14 participate in the drilling of the well.
15
16 B. Loss of Title:
17
62 ..
63 3. Other Losses: All losses incurred, shall be joint losses
64 and shall be borne by all parties in proportion to their interests.
There shall be no readjustment of interests in the remaining portion of
66 the Contract Area.
68
67
3
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1982
1 ARTICLE V.
2 OPERATOR
3
4 A. Designation and Responsibilities of Operator:
5
6 Saba Petroleum, Inc . shall be the
7 Operator of the Contract Area, and shall conduct and direct and have full
control of all operations on the Contract Area as permitted and
8 required by, and within the limits of this agreement. It shall conduct
all such operations in a good and workmanlike manner, but it shall
9 have no liability as Operator to the other parties for losses sustained or
liabilities incurred, except such as may result from gross
10 negligence or willful misconduct.
11
12 B. Resignation or Removal of Operator and Selection of Successor:
13
14 1. Resignation or Removal of Operator: Operator may resign at any time
by giving written notice thereof to Non-Operators.
15 If Operator terminates its legal existence, no longer owns an interest
hereunder in the Contract Area, or is no longer capable of serving as
16 Operator, Operator shall be deemed to have resigned without any action
by Non-Operators, except the selection of a successor. Operator
17 may be removed if it fails or refuses to carry out its duties hereunder,
or becomes insolvent, bankrupt or is placed in receivership, by the
18 affirmative vote of two (2) or more Non-Operators owning a majority
interest based on ownership as shown on Exhibit "A" remaining
19 after excluding the voting interest of Operator. Such resignation or
removal shall not become effective until 7:00 o'clock A.M. on the
20 first day of the calendar month following the expiration of ninety (90)
days after the giving of notice of resignation by Operator or action
21 by the Non-Operators to remove Operator, unless a successor Operator ha
been selected and assumes the duties of Operator at an earlier
22 date. Operator, after effective date of resignation or removal, shall be
bound by the terms hereof as a Non Operator. A change of a cor
23 porate name or structure of Operator or transfer of Operator's interest to
any single subsidiary, parent or successor corporation shall not
24 be the basis for removal of Operator.
25
26 2. Selection of Successor Operator: Upon the resignation or removal of
Operator, a successor Operator shall be selected by
27 the parties. The successor Operator shall be selected from the parties
owning an interest in the Contract Area at the time such successor
28 Operator is selected. The successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest
29 based on ownership as shown on Exhibit "A"; provided, however, if an
Operator which has been removed fails to vote or votes only to
30 succeed itself, the successor Operator shall be selected by the affirmative
vote of two (2) or more parties owning a majority interest based
31 on ownership as shown on Exhibit "A" remaining after excluding the voting
interest of the Operator that was removed.
32
33 C. Employees:
34
35 The number of employees used by Operator in conducting operations
hereunder, their selection, and the hours of labor and the
36 compensation for services performed shall be determined by Operator, and
all such employees shall be the employees of Operator.
37
38 D. Drilling Contracts:
39
40 All wells drilled on the Contract Area shall be drilled on a competitive
contract basis at the usual rates prevailing in the area. If it so
41 desires, Operator may employ its own tools and equipment in the drilling
of wells, but its charges therefor shall not exceed the prevailing
42 rates in the area and the rate of such charges shall be agreed upon by the
parties in writing before drilling operations are commenced, and
43 such work shall be performed by Operator under the same terms and
conditions as are customary and usual in the area in contracts of in
44 dependent contractors who are doing work of a similar nature.
45
46
47
48
49 ARTICLE Vl.
50 DRILLING AND DEVELOPMENT
51
52 A. Initial Well: See agreement dated December _ , 1996
53
68 Operator shall make reasonable tests of all formations encountered during
drilling which give indication of containing~oil and
69 gas in quantities sufficient to test, unless this agreement shall be
limited in its application to a specific formation or formations in which
70 event Operator shall be required to test only the formation or formations
to which this agreement may apply.
- 4 -
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982 ARTICLE VI continued
1 If, in Operator's judgment, the well will not produce oil or gas in
paying quantities, and it wishes to plug
and abandon the
2 well as a dry hole, the provisions of Article Vl.E.1. shall thereafter
apply.
3
4
5
6 B. Subsequent Operations:
7
8 1. Proposed Operations: Should any party hereto desire to drill any well
on the Contract Area other than the
well provided
9 for in Article Vl.A., or to rework, deepen or plug back a dry hole drilled
at the joint expense of all parties or a well jointly owned by all
10 the parties and not then producing in paying quantities, the party desiring
to drill, rework, deepen or plug back such a well shall give the
11 other parties written notice of the proposed operation, specifying the work
to be performed, the location, proposed depth, objective forma
12 tion and the estimated cost of the operation. The parties receiving such
a notice shall have thirty (30) days
after receipt of the notice
13 within which to notify the party wishing to do the work whether they
elect to participate in the cost of the
proposed operation. If a drill
14 ing rig is on location notice of a proposal to rework, plug back or drill
deeper may be given by telephone and the response period shall be
15 limited to twenty-four (24) hours, exclusive of Saturday, Sunday and
legal holidays. Failure of a party
receiving such notice to reply within
16 the period above fixed shall constitute an election by that party not to
participate in the cost of the
proposed operation. Any notice or
17 response given by telephone shall be promptly confirmed in writing.
18
19
20
21 If all parties elect to participate in such a proposed operation, Operator
shall, within ninety,(9,01 days after expiration of the notice
22 period of thirty (30) days (or as promptly as possible after the expiration
of the twenty-four (24) hour period when a drilling rig is on loca
23 lion, as the case may be), actually commence the proposed operation and
complete it with due diligence at the
risk and expense of all par
24 ties hereto; provided, however, said commencement date may be extended upon
written notice of same by Operator to the other parties,
25 for a period of up to thirty (30) additional days if, in the sole opinion
of Operator, such additional time is reasonably necessary to obtain
26 permits from governmental authorities, surface rights (including rights
of-way) or appropriate drilling equipment, or to complete title ex
27 amination or curative matter required for title approval or acceptance.
Notwithstanding the force majeure
provisions of Article Xl, if the
28 actual operation has not been commenced within the time provided (including
any extension thereof as specifically permitted herein) and
29 if any party hereto still desires to conduct said operation, written notice
proposing same must be resubmitted to the other parties in accor
30 dance with the provisions hereof as if no prior proposal had been made.
31
32
33
34 2. Operations by Less than All Parties: If any party receiving such
notice as provided in Article Vl.B.1. or
Vll.D.1. (Option
35 No. 2) elects not to participate in the proposed operation, then, in
order to be entitled to the benefits of
this Article, the party or parties
36 giving the notice and such other parties as shall elect to participate in
the operation shall within ninety (9,01d,axs aher the expiration of
37 the notice period of thirty (30) days (or as promptly as possible after the
expiration of the twenty-four hour period when a drilling rig is
38 on location, as the case may be) actually commence the proposed operation
and complete it with due diligence.
Operator shall perform all
39 work for the account of the Consenting Parties; provided, however,
if no drilling rig or other equipment is
on location, and if Operator is
40 a Non-Consenting Party, the Consenting Parties shall either: (a) request
Operator to perform the work
required by such proposed opera
41 tion for the account of the Consenting Parties, or (b) designate one (1)
of the Consenting Parties as
Operator to perform such work. Con
42 sensing Parties, when conducting operations on the Contract Area pursuant
to this Article Vl.B.2., shall comply with all terms and con
43 ditions of this agreement.
44
45
46
47 If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable
48 notice period, shall advise the Consenting Parties of the total interest of
the parties approving such operation and its recommendation as
49 to whether the Consenting Parties should proceed with the operation as
proposed. Each Consenting Party,
within forty-eight (48) hours
50 (exclusive of Saturday, Sunday and legal holidays) after receipt of such
notice, shall advise the proposing party of its desire to (a) limit par
51 ticipation to such party's interest as shown on Exhibit "A" or (b) carry
its proportionate part of Non-Consenting Parties' interests, and
52 failure to advise the proposing party shall be deemed an elec$igp Slider
(a). In the event a drilling rig is on location, the time permitted for
53 such a response shall not exceed a total of twenty-four hours (inclusive
of Saturday, Sunday and legal
holidays). The proposing party,
54 at its election, may withdraw such proposal if there is insufficient
participation and shall promptly notify all parties of such decision.
55
56
57
58 The entire cost and risk of conducting such operations shall be borne by
the Consenting Parties in the proportions they have
59 elected to bear same under the terms of the preceding paragraph.
Consenting Parties shall keep the leasehold estates involved: in such
60 operations free and clear of all liens and encumbrances of every kind
created by or arising from the operations of the Consenting Parties.
61 If such an operation results in a dry hole, the Consenting Parties shall
plug and abandon the well and restore the surface locating at their
62 sole cost, risk and expense. If any well drilled, reworked, deepened or
plugged back under the provisions of this Article resulttin a pro
63 ducer of oil and/or gas in paying quantities, the Consenting Parties shall
complete and equip the well to produce at their sole could risk,
64
6
69
70
- 5 -
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
.
ARTICLE VI
continued
1 and the well shall then be turned over to Operator and shall be
operated by it at the expense and for the account of the Consenting Par
2 ties. Upon commencement of operations for the drilling, reworking,
deepening or plugging back of any such well by Consenting Parties
3 in accordance with the provisions of this Article, each
Non-Consenting Party shall be deemed to have relinquished to Consenting Parties,
4 and the Consenting Parties shall own and be entitled to receive,
in proportion to their respective
interests, all of such Non-Consenting
5 Party's interest in the well and share of production therefrom until
the proceeds of the sale of such share, calculated at the well, or
6 market value thereof if such share is not sold, (after deducting
production taxes, excise taxes, royalty, overriding royalty and other in
7 terests not excepted by Article III.D. payable out of or measured
by the production from such well accruing with respect to such interest
8 until it reverts) shall equal the total of the following:
9
10
11
12 (a) 100% of each such Non-Consenting Party's share of the cost of
any newly acquired surface equipment beyond the wellhead
13 connections (including, but not limited to, stock tanks, separators,
treaters, pumping equipment and piping), plus 100% of each such
14 Non-Consenting Party's share of the cost of operation of the well
commencing with first production and continuing until each such Non
15 Consenting Party's relinquished interest shall revert to it under
other provisions of this Article, it being agreed that each Non
16 Consenting Party's share of such costs and equipment will be that
interest which would have been chargeable to such Non-Consenting
17 Party had it participated in the well from the beginning of the
operations; and
18
19
20
21 (b) 300% of that portion of the costs and expenses of drilling,
reworking, deepening, plugging back,
testing and completing,
22 after deducting any cash contributions received under Article
VIII.C., and 3 0 0 % of that portion of the cost of newly acquired equip
23 ment in the well (to and including the welihead connections), which
would have been chargeable to such Non-Consenting Party if it had
24 participated therein.
25
26
27
28 An election not to participate in the drilling or the deepening of
a well shall be deemed an election not to participate in any re
29 working or plugging back operation proposed in such a well, or
portion thereof, to which the initial Non-Consent election applied that is
30 conducted at any time prior to full recovery by the Consenting
Parties of the Non-Consenting Party's recoupment account. Any such
31 reworking or plugging back operation conducted during the recoupment
period shall be deemed part of the cost of operation of said well
32 and there shall be added to the sums to be recouped by the
Consenting Parties one hundred percent (100%) of that portion of the costs of
33 the reworking or plugging back operation which would have been
chargeable to such Non-Consenting Party had it participated therein. If
34 such a reworking or plugging back operation is proposed during
such recoupment period, the provisions of this Article Vl.B. shall be ap
35 plicable as between said Consenting Parties in said well.
36
37
38
39 During the period of time Consenting Parties are entitled to
receive Non-Consenting Party's share of production, or the
40 proceeds therefrom, Consenting Parties shall be responsible for
the payment of all production, severance, excise, gathering and other
41 taxes, and all royalty, overriding royalty and other burdens
applicable to Non-Consenting Party's share of production not excepted by
42 Article III.D.
43
44
45
46 In the case of any reworking, plugging back or deeper drilling
operation, the Consenting Parties shall be permitted to use, free
47 of cost, all casing, tubing and other equipment in the well, but the
ownership of all such equipment shall remain unchanged; and upon
48 abandonment of a well after such reworking, plugging back or deeper
drilling, the Consenting Parties shall account for all such equip
49 ment to the owners thereof, with each party receiving its
proportionate part in kind or in value, less cost of salvage.
50
51
52
53 Within sixty (60) days after the completion of any operation under
this Article, the party conducting the operations for the
54 Consenting Parties shall furnish each Non-Consenting Party with an
inventory of the equipment in and connected to the well, and an
55 itemized statement of the cost of drilling, deepening, plugging
back, testing, completing, and equipping the well for production; or, at its
56 option, the operating party, in lieu of an itemized statement of
such costs of operation, may submit a detailed statement of monthly bill
57 ings. Each month thereafter, during the time the Consenting
Parties are being reimbursed as provided above, the party conducting the
58 operations for the Consenting Parties shall furnish the
Non-Consenting Parties with an itemized statement of all costs and liabilities
in
59 curred in the operation of the well, together with a statement of
the quantity of oil and gas produced from it and the amount of proceeds
60 realized from the sale of the well's working interest production
during the preceding month In determining the quantity of All and gas
61 produced during any month, Consenting Parties shall use industry
accepted methods such as, but not limited to, metering or~periodic
62 well tests. Any amount realized from the sale or other disposition
of equipment newly acquired in connection with any such Operation
63 which would have been owned by a Non-Consenting Party had it
participated therein shall be credited against the total unread costs
64 of the work done and of the equipment purchased in determining
when the interest of such Non-Consenting Party shall revert to it as
65 above provided; and if there is a credit balance, it shall be paid
to such Non-Consenting Party.
66
67
68
69
70
- 6 -
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
continued
1 If and when the Consenting Parties recover from a Non-Consenting
Party's relinquished interest the amounts provided for above,
2 the relinquished interests of such Non-Consenting Party shall
automatically revert to it, and, from and after such reversion, such Non
3 Consenting Party shall own the same interest in such well, the
material and equipment in or pertaining thereto, and the production
4 therefrom as such Non-Consenting Party would have been entitled to
had it participated in the drilling, reworking, deepening or plugging
5 back of said well. Thereafter, such Non-Consenting Party shall be
charged with and shall pay its proportionate part of the further costs of
6 the operation of said well in accordance with the terms of this
agreement and the Accounting Procedure attached hereto.
7
8
9
10 Notwithstanding the provisions of this Article Vl.B.2., it is agreed
that without the mutual consent of all parties, no wells shall
11 be completed in or produced from a source of supply from which a
well located elsewhere on the Contract Area is producing, unless such
12 well conforms to the then-existing well spacing pattern for such
source of supply.
13
14
15
16 The provisions of this Article shall have no application whatsoever
to the drilling of the initial well described in Article Vl.A.
17 except (a) as to Article Vll.D.1. (Option No. 2), if selected, or
(b) as to the reworking, deepening and plugging back of such initial well
18 after it has been drilled to the depth specified in Article Vl.A
. if it shall thereafter prove to be a dry hole or, if initially completed for
pro 19 auction, ceases to produce in paying quantities.
20
21
22
23 3. Stand-By Time: When a well which has been drilled or deepened
has reached its authorized depth and all tests have been
24 completed, and the results thereof furnished to the parties,
stand-by costs incurred pending response to a party's notice proposing a
25 reworking, deepening, plugging back or completing operation in such
a well shall be charged and borne as part of the drilling or deepen
26 ing operation just completed. Stand-by costs subsequent to all
parties responding, or expiration of the response time permitted, whichever
27 first occurs, and prior to agreement as to the participating
interests of all Consenting Parties pursuant to the terms of the second gram
28 matical paragraph of Article Vl.B.2, shall be charged to and
borne as part of the proposed operation, but if the proposal is subsequently
29 withdrawn because of insufficient participation, such stand-by costs
shall be allocated between the Consenting Parties in the proportion
30 each Consenting Party's interest as shown on Exhibit "A" bears to
the total interest as shown on Exhibit "A" of all Consenting Par
31 ties.
32
33
34
35 4. Sidetracking: Except as hereinafter provided, those provision
of this agreement applicable to a "deepening" operation shall
36 also be applicable to any proposal to directionally control and
intentionally deviate a well from vertical so as to change the bottom hole
37 location (herein called "sidetracking"), unless done to straighten
the hole or to drill around junk in the hole or because of other
38 mechanical difficulties. Any party having the right to
participate in a proposed sidetracking operation that does not own an interest
in the
39 affected well bore at the time of the notice shall, upon electing to
participate, tender to the well bore owners its proportionate share (equal
40 to its interest in the sidetracking operation) of the value of that
portion of the existing well bore to be utilized as follows:
41
42
43
44 (a) If the proposal is for sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs incurred in
45 the initial drilling of the well down to the depth at which the
sidetracking operation is initiated.
46
47
48
49 (b) If the proposal is for sidetracking a well which has
previously produced, reimbursement shall be on the basis of the well's
50 salvable materials and equipment down to the depth at which the
sidetracking operation is initiated, determined in accordance with the
51 provisions of Exhibit "C", less the estimated cost of salvaging and
the estimated cost of plugging and abandoning.
52
53
54
55 In the event that notice for a sidetracking operation is given while
the drilling rig to be utilized is on location, the response period
56 shall be limited to twenty-four (24) hours exclusive of Saturday,
Sunday and legal holidays; provided, however, any party may request and
57 receive up to eight (8) additional days after expiratioof the
twenty-four (24) hours within which to respond by paying for all stand-by time
58 incurred during such extended response period. If more than one
party elects to take such additional time to respond to the notice, stand
59 by costs shall be allocated between the parties taking additional
time to respond on a day-to-day basis in the proportion each exciting par
60 ty's interest as shown on Exhibit "A" bears to the total interest
as shown on Exhibit "A" of all the electing parties. In all other in
61 stances the response period to a proposal for sidetracking shall
be limited to thirty (30) days.
65 C. TAKING PRODUCTION IN KIND:
(I,
67 Each party shall have the option, but not the obligation to take
in kind or separately dispose of its proportionate share of all oil and gas
produced from. the Contract Area,
68 exclusive of production which may be used in development and
producing operations and in preparing and treating oil and gas for
69 marketing purposes and production unavoidably lost. Any extra
expenditure incurred in the taking in kind or separate disposition by any
70 party of its proportionate share of the production shall be
borne by such party. Any party taking its share of production in kind shall be
-7
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
continued
1 required to pay for only its proportionate share of such part of
Operator's surface facilities which it uses.
2
3 Each party shall execute such division orders and contracts as may
be necessary for the sale of its interest in production from
4 the Contract Area, and, except as provided in Article Vll.B.,
shall be entitled to receive payment directly from the purchaser thereof for
5 its share of all production.
6
7 In the event any party shall fail to make the arrangements
necessary to take in kind or separately dispose of its proportionate share of
8 the oil produced from the Contract Area, Operator shall have the
right, subject to the revocation at will by the party owning it, but not
9 the obligation, to purchase such oil or sell it to others at any
time and from time to time, for the account of the non-taking party at the
10 best price reasonably obtainable, under the circumstances,
obtainable in the area for such production.Any such purchase or sale by Operator
shall be subject
always to the right of the
11 owner of the production to exercise at any time its right to take
in kind, or separatelydispose of, its share of all oil not previously
12 delivered to a purchaser. Any purchase or sale by Operator of any
other party's share ofoil shall be only for such reasonable periods of
13 time as are consistent with the minimum needs of the industry
under the particular circumstances, but in no event for a period in excess
14of one (1) year.
15
16 In the event one or more parties' separate disposition of its
share of the gas causes split-stream deliveries to separate pipelines and/or
17 deliveries which on a day-to-day basis for any reason are not
exactly equal to a party's respective proportionate share of total gas sales to
18 be allocated to it, the balancing or accounting between the
respective accounts of theparties shall be in accordance with any gas balancing
19 agreement between the parties hereto, whether such an agreement is
attached as Exhibit "E",or is a separate agreement.
20
21 D. Access to Contract Area and Information:
22
23 Each party shall have access to the Contract Area at all
reasonable times, at its sole cost and risk to inspect or observe operations,
24 and shall have access at reasonable times to information
pertaining to the development or operation thereof, including Operator's books
25 and records relating thereto. Operator, upon request, shall
furnish each of the otherparties with copies of all forms or reports filed with
26 governmental agencies, daily drilling reports, well logs, tank
tables, daily gauge and run tickets and reports of stock on hand at the first of
27 each month, and shad make available samples of any cores or
cuttings taken from any well drilled on the Contract Area. The cost of
28 gathering and furnishing information to Non-Operator, other than
that specified above, shall be charged to the Non-Operator that re
29 quests the information.
30
31 E. Abandonment of Wells:
32
33 1. Abandonment of Dry Holes: Except for any well drilled or
deepened pursuant to Article Vl.B.2., any well which has been
34 drilled or deepened under the terms of this agreement and is
proposed to be completed as a dry hole shall not be plugged and abandoned
35 without the consent of all parties. Should Operator, after
diligent effort, be unable to contact any party, or should any party fail to
reply
36 within twenty-four (24) hours (Exclusive of Saturday, Sunday and
legal holidays) after receipt of notice of the proposal to plug and abandon
37 such well, such party shall be deemed to have consented to the
proposed abandonment. All such wells shall be plugged and abandoned in
38 accordance with applicable regulations and at the cost, risk and
expense of the parties who participated in the cost of drilling or deepening
39 such well. Any party who objects to plugging and abandoning such
well shall have the right to take over the well and conduct further
40 operations in search of oil and/or gas subject to the provisions
of Article Vl.B. 41
42 2. Abandonment of Wells that have Produced: Except for any well
in which a Non-Consent operation has been conducted
43 hereunder for which the Consenting Parties have not been fully
reimbursed as herein provided, any well which has been completed as a
44 producer shall not be plugged and abandoned without the consent
of all parties. If all parties consent to such abandonment, the well shall
45 be plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of all the parties hereto. If,
within
46 thirty (30) days after receipt of notice of the proposed
abandonment of any well, all parties do not agree to the abandonment of such
well,
47 those wishing to continue its operation from the interval(s) of
the formation(s) then open to production shall tender to each of the other
48 parties its proportionate share of the value of the well's
salvable material and equipment, determined in accordance with the provisions of
49 Exhibit "C", less the estimated cost of salvaging and the
estimated cost of plugging and abandoning. Each abandoning party shall assign
50 the non-abandoning parties, without warranty, express or
implied, as to title or as to quantity, or fitness for use of the equipment and
51 material, all of its interest in the well and related equipment,
together with its interest in the leasehold estate as to, but only as to, the in
52 terval or intervals of the formation or formations then open to
production. If the interest of the abandoning party is or includes an oil and
53 gas interest, such party shall execute and deliver to the
non-abandoning party or parties an oil and gas lease, limited to the interval
or in
54 tervals of the formation or formations then open to production,
for a term of one (1) year and so long thereafter as oil and/or gas is pro
55 duced from the interval or intervals of the formation or
formations covered thereby, such lease to be on the form attached as Exhibit
56
57
58
60
61
62
63
70
-8
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1982
ARTICLE VI
continued
1 "B". The assignments or leases so limited shall encompass the "drilling
unit" upon which the well is located. The payments by, and the
2 assignments or leases to, the assignees shall be in a ratio based upon
the relationship of their respective percentage of participation in the
3 Contract Area to the aggregate of the percentages of participation in the
Contract Area of all assignees. There shall be no readjustment of
4 interests in the remaining portion of the Contract Area.
5
6 Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production from
7 the well in the interval or intervals then open other than the royalties
retained in any lease made under the terms of this Article. Upon re
8 quest, Operator shall continue to operate the assigned well for the
account of the non-abandoning parties atthe rates and charges con
9 templated by this agreement, plus any additional cost and charges which may
arise as the result of the separate ownership of the assigned
10 well. Upon proposed abandonment of the producing interval(s) assigned or
leased, the assignor or lessor shall then have the option to
11 repurchase its prior interest in the well (using the same valuation
formula) and participate in further operations therein subject to the pro
12 visions hereof.
13
14 3. Abandonment of Non-Consent Operations: The provisions of Article Vl.
E.1. or Vl.E.2. above shall be applicable as between
15 Consenting Parties in the event of the proposed abandonment of any well
excepted from said Articles; provided, however, no well shall be
16 permanently plugged and abandoned unless and until all parties having the
right to conduct further operations therein have been notified
17 of the proposed abandonment and afforded the opportunity to elect to take
over the well in accordance with the provisions of this Article
18 Vl.E.
19
20 ARTICLE Vll.
21 EXPENDITURES AND LIABILITY OF PARTIES
22
23 A. Liability of Parties:
24
25 The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and
26 shall be liable only for its proportionate share of the costs of
developing and operating the Contract Area. Accordingly, the liens granted
27 among the parties in Article Vll.B. are given to secure only the debts
of each severally. It is not the intention of the parties to create, nor
28 shall this agreement be construed as creating, a mining or other
partnership or association, or to render the parties liable as partners.
29
30 B. Liens and Payment Defaults:
31
32 Each Non-Operator grants to Operator a lien upon its oil and gas rights
in the Contract Area, and a security interest in its share
33 of oil and/or gas when extracted and its interest in all equipment, to
secure payment of its share of expense, together with interest thereon
34 at the rate provided in Exhibit "C". To the extent that Operator has a
security interest under the Uniform Commercial Code of the
35 state, Operator shall be entitled to exercise the rights and remedies of
a secured party under the Code. The bringing of a suit and the
36 obtaining of judgment by Operator for the secured indebtedness shall not
be deemed an election of remedies or otherwise affect the lien
37 rights or security interest as security for the payment thereof. In
addition, upon default by any Non-Operator in the payment of its share
38 of expense, Operator shall have the right, without prejudice to other
rights or remedies, to collect from the purchaser the proceeds from
39 the sale of such 19on'Operator's share of oil and/or gas until the amount
owed by such Non-Operator, plus interest, has been paid. Each
40 purchaser shall be entitled to rely upon Operator's written statement
concerning the amount of any default.
Operator grants a like lien
41 and security interest to the Non Operators to secure payment of
Operator's proportionate share of expense.
42
43 If any party fails or is unable to pay its share of expense within sixty
(60) days after rendition of a statement therefor by
44 Operator, the non defaulting parties, including Operator, shall, upon
request by Operator, pay the unpaid amount in the proportion that
45 the interest of each such party bears to the interest of all such
parties. Each party so paying its share of the unpaid amount shall, to obtain
46 reimbursement thereof, be subrogated to the security rights described in
the foregoing paragraph.
47
48 C. Payments and Accounting:
49
50 Except as herein otherwise specifically provided, Operator shall promptly
pay and discharge expenses incurred in the development
51 and operation of the Contract Area pursuant to this agreement and shall
charge each of the parties hereto with their respective propor
52 tionate shares upon the expense basis provided in Exhibit "C". Operator
shall keep an accurate record of the joint account hereunder,
53 showing expenses incurred and charges and credits made and received.
54
55 Operator, at its election, shall have the right from time to time to demand
and receive from the other parties payment in advance
56 of their respective shares of the estimated amount of the expense to be
incurred in operations hereunder during the next succeeding
57 month, which right may be exercised only by submission to each such party
of an itemized statement of such estimated expense, together
58 with an invoice for its share thereof. Each such statement and invoice
for the payment in advance of estimated expense shall be submitted
59 on or before the 20th day of the next preceding month. Each party shall
pay to Operator its proportionate share of such estimate within
60 fifteen (15) days after such estimate and invoice is received. If any
party fails to pay its share of said estimate within said time, the amount
61 due shall,hear interest as provided in Exhibit "C" until paid. Proper
adjustment shall be made monthly between advances and actual ex
62 pense to the end that each party shall bear and pay its proportionate
share of actual expenses incurred, and no more. it's
63
64 D. Limitation of Expenditures:
65
66 1. Drill or Deepen: Without the consent of all parties, no well shall he
drilled or deepened, except any well drilled orldeepened
67 pursuant to the provisions of Article Vl.B.2. of this agreement.
Consent to the drilling or deepening shall include:
70
9
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VII
continued
1 C1 Option No. 1: All necessary expenditures for the drilling or
deepening, testing, completing and equipping of the well, including
2 necessary tankage and/or surface facilities.
3
4 C1 Option No. 2: All necessary expenditures for the drilling or deepening
and testing of the well. When such well has reached its
5 authorized depth, and all tests have been completed, and the results
thereof furnished to the parties, Operator shall give immediate notice
6 to the Non-Operators who have the right to participate in the completion
costs. The parties receiving such notice shall have twenty-four (24)
7 Hours (exclusive of Saturday, Sunday and legal holidays) in which to
elect to participate in the setting of casing and the completion at
8 tempt. Such election, when made, shall include consent to all necessary
expenditures for the completing and equipping of such well, in
9 eluding necessary tankage and/or surface facilities. Failure of any party
receiving such notice to reply within the period above fixed shall
10 constitute an election by that party not to participate in the cost of
the completion attempt. If one or more, but less than all of the parties,
11 elect to set pipe and to attempt a completion, the provisions of Article
Vl.B.2. hereof (the phrase "reworking, deepening or plugging
12 back" as contained in Article Vl.B.2. shall be deemed to include
"completing") shall apply to the operations thereafter conducted by less
13 than all parties.
14
15 2. Rework or Plug Back: Without the consent of all parties, no well
shall be reworked or plugged back except a well reworked or
16 plugged back pursuant to the provisions of Article Vl.B.2. of this
agreement. Consent to the reworking or plugging back of a well shall
17 include all necessary expenditures in conducting such operations and
completing and equipping of said well, including necessary tankage
18 and/or surface facilities.
19
20 3. Other Operations: Without the consent of all parties, Operator shall
not undertake any single project reasonably estimated
21 to require an expenditure in excess of thirty thousand dollars
($30,000.00)
22 except in connection with a well, the drilling, reworking, deepening,
completing, recompleting, or plugging back of which has been
23 previously authorized by or pursuant to this agreement; provided, however,
that, in case of explosion, fire, flood or other sudden
24 emergency, whether of the same or different nature, Operator may take such
steps and incur such expenses as in its opinion are required
25 to deal with the emergency to safeguard life and property but Operator, as
promptly as possible, shall report the emergency to the other
26 parties. If Operator prepares an authority for expenditure (AFE) for its
own use, Operator shall furnish any Non-Operator so requesting
27 an information copy thereof for any single project costing in excess of
thirty thousand 28 Dollars ($30,000.00) ) but less than the amount first set
forth above in this paragraph.
29
30 E. Rentals, Shut-in Well Payments and Minimum Royalties:
31
32 Rentals, shut-in well payments and minimum royalties which may be required
under the terms of any lease shall be paid by the
33 party or parties who subjected such lease to this agreement at its or
their expense. In the event two or more parties own and have con
34 tributed interests in the same lease to this agreement, such parties may
designate one of such parties to make said payments for and on
35 behalf of all such parties. Any party may request, and shall be entitled
to receive, proper evidence of all such payments. In the event of
36 Failure to make proper payment of any rental, shut-in well payment or
minimum royalty through mistake or oversight where such pay
37 ment is required to continue the lease in force, any loss which results
from such non-payment shall be borne in accordance with the pro
38 visions of Article IV.B.2.
39
40 Operator shall notify Non Operator of the anticipated completion of a
shut-in gas well, or the shutting in or return to production
41 of a producing gas well, at least five (5) days (excluding Saturday, Sunday
and legal holidays), or at the earliest opportunity permitted by
42 circumstances, prior to taking such action, but assumes no liability for
failure to do so. In the event of failure by Operator to so notify
43 Non-Operator, the loss of any lease contributed hereto by Non-Operator for
failure to make timely payments of any shut-in well payment
44 shall be borne jointly by the parties hereto under the provisions of
Article IV.B.3.
45
46 F. Taxes:
47
48 Beginning with the first calendar year after the effective date hereof,
Operator shall render for ad valorem taxation all property
49 subject to this agreement which by law should be rendered for such taxes,
and it shall pay all such taxes assessed thereon before they
50 become delinquent. Prior to the rendition date, each Non Operator shall
furnish Operator information as to burdens (to include, but not
51 be limited to, royalties, overriding royalties and production payments)
on leases and oil and gas interests contributed by such Non
52 Operator. If the assessed valuation of any leasehold estate is reduced by
reason of its being subject to outstanding excess royalties, over
53 riding royalties or production payments, the reduction in ad valorem taxes
resulting therefrom shall inure to the benefit of the owner or
54 owners of such leasehold estate, and Operator shall adjust the charge to
such owner or owners so as to reflect the benefit of such reduc
55 tion. If the ad valorem taxes are based in whole or in part upon separate
valuations of each party's working interest, then notwithstanding
56 anything to the contrary herein, charges to the joint account shall be made
and paid by the parties hereto in accordance with the tax
57 value generated by each party's working interest. Operator shall bill the
other parties for their proportionate shares of all tax payments in
58 the manner provided in Exhibit "C".
59 At.
60 If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner
61 prescribed by law, and prosecute the protest to a final determination,
unless all parties agree to abandon the protest prior to fill deter
62 mination. During the pendency of administrative or judicial proceedings,
Operator may elect to pay, under protest, all such taxed any
63 interest and penalty. When any such protested assessment shall have been
finally determined, Operator shall pay the tax for that ac
64 count, together with any interest and penalty accrued, and the total cost
shall then be assessed against the parties, and be paid b~ttem, as
65 provided in Exhibit "C". , !Xi:
66
67 Each party shall pay or cause to be paid all production, severance, excise,
gathering and other taxes imposed upon gr~with~respect to
68 the production or handling of such party's share of oil and/or gas
produced under the terms of this agreement.
70
-10
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VII
continued
1 G. Insurance:
2
3 At all times while operations are conducted hereunder, Operator shall
comply with the workmen's compensation law of
4 the state where the operations are being conducted; provided, however, that
Operator may be a selfinsurer for liability under said com
5 pensation laws in which event the only charge that shall be made to the
joint account shall be as provided in Exhibit "C". Operator shall
6 also carry or provide insurance for the benefit of the joint account of the
parties as outlined in Exhibit "D", attached to and made a part
7 hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to comply with the workmen's compensation
8 law of the state where the operations are being conducted and to maintain
such other insurance as Operator may require.
9
10 In the event automobile public liability insurance is specified in said
Exhibit "D", or subsequently receives the approval of the
11 parties, no direct charge shall be made by Operator for premiums paid for
such insurance for Operator's automotive equipment.
12
13 ARTICLE VIII.
14 ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
15
16 A. Surrender of Leases:
17
18 The leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole
19 or in part unless all parties consent thereto.
20
21 However, should any party desire to surrender its interest in any lease
or in any portion thereof, and the other parties do not
22 agree or consent thereto, the party desiring to surrender shall assign,
without express or implied warranty of title, all of its interest in
23 such lease, or portion thereof, and any well, material and equipment
which may be located thereon and any rights in production
24 thereafter secured, to the parties not consenting to such surrender.
Upon such assignment , the assigning party shall be relieved from all
28 obligations thereafter accruing, but not theretofore accrued, with
respect to the interest assigned and the operation of any well
29 attributable thereto, and the assigning party shall have no further
interest in the assigned premises and its equipment and pro
30 auction other than the royalties retained in any lease made under the
terms of this Article. The party assignee or lessee shall pay to the
31 party assignor or lessor the reasonable salvage value of the latter's
interest in any wells and equipment attributable to the assigned
32 ~ acreage. The value of all material shall be determined in accordance
with the provisions of Exhibit "C", less the estimated cost of
33 salvaging and the estimated cost of plugging and abandoning.
If the assignment is in favor of more than one party, the interest
34 shall be shared by such parties in the proportions that the interest of
each bears to the total interest of all such parties.
35
36 Any assignment, ICU_Q or surrender made under this provision shall not
reduce or change the assignor's,' or surrendering
37 party's interest as it was immediately before the assignment,surrender i
the balance of the Contract Area; and the acreage
38 assigned,r surrendered, and subsequent operations thereon, shall not
thereafter be subject to the terms and provisions of this
39 agreement.
40
41 B. Renewal or Extension of Leases:
42
43 If any party secures a renewal of any oil and gas lease subject to this
agreement, all other parties shall be notified promptly, and
44 shall have the right for a period of thirty (30) days following receipt of
such notice in which to elect to participate in the ownership of the
45 renewal lease, insofar as such lease affects lands within the Contract
Area, by paying to the party who acquired it their several proper pro
46 portionate shares of the acquisition cost allocated to that part of such
lease within the Contract Area, which shall be in proportion to the
47 interests held at that time by the parties in the Contract Area.
48
49 If some, but less than all, of the parties elect to participate in the
purchase of a renewal lease, it shall be owned by the parties
50 who elect to participate therein, in a ratio based upon the relationship of
their respective percentage of participation in the Contract Area
51 to the aggregate of the percentages of participation in the Contract Area
of all parties participating in the purchase of such renewal lease.
52 Any renewal lease in which less than all parties elect to participate
shall not be subject to this agreement.
53
54 Each party who participates in the purchase of a renewal lease shall be
given an assignment of its proportionate interest therein
55 by the acquiring party.
56
57 The provisions of this Article shall apply to renewal leases whether they
are for the entire interest covered by the expiring lease
58 or cover only a portion of its area or an interest therein. Any renewal
lease taken before the expiration of its predecessor lease, or taken or
59 contracted for within six (6) months after the expiration of the existing
lease shall be subject to this provision; but any lease taken or con
60 tracted for more than six (6) months after the expiration of an existing
lease shall not be deemed a renewal lease and shall not be~bject to
61 the provisions of this agreement.
62
63 The provisions in this Article shall also be applicable to extensions of
oil and gas leases.
64
65 C. Acreage or Cash Contributions:
66
67 While this agreement is in force, if any party contracts for a
contribution of cash towards the drilling of a well or ~any. other
68 operation on the Contract Area, such contribution shall be paid to the
party who conducted the drilling or other Operation and shall be
69 applied by it against the cost of such drilling or other operation.
If the contribution he in the form of acreage, the party to whom the con
70 tribution is made shall promptly tender an assignment of the acreage,
without warranty of title, to the Drilling Parties in the proportions
-11
<PAGE>
.
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1982
ARTICLE VIII
continued
1 said Drilling Parties shared the cost of drilling the well. Such acreage
shall become a separate Contract Area and, to the extent possible, be
2 governed by provisions identical to this agreement. Each party shall
promptly notify all other parties of any acreage or cash contributions
3 it may obtain in support of any well or any other operation on the
Contract Area. The above provisions shall also be applicable to op
4 tional rights to earn acreage outside the Contract Area which are in
support of a well drilled inside the Contract Area.
5
6 If any party contracts for any consideration relating to disposition of
such party's share of substances produced hereunder, such
7 consideration shall not be deemed a contribution as contemplated in this
Article VIII.C.
8
9 D. Maintenance of Uniform Interest:
10
11 For the purpose of maintaining uniformity of ownership in the oil and gas
leasehold interests covered by this agreement, no
12 party shall sell, encumber, transfer or make other disposition of its
interest in the leases embraced within the Contract Area and in wells,
13 equipment and production unless such disposition covers either:
14 ~
15 1. the entire interest of the party in all leases and equipment and
production; or
16
17 2. an equal undivided interest in all leases and equipment and production
in the Contract Area.
18
19 Every such sale, encumbrance, transfer or other disposition made by any
party shall be made expressly subject to this agreement
20 and shall be made without prejudice to the right of the other parties.
21
22 If, at any time the interest of any party is divided among and owned by
four or more co-owners, Operator, at its discretion, may
23 require such co-owners to appoint a single trustee or agent with full
authority to receive notices, approve expenditures, receive billings for
24 and approve and pay such party's share of the joint expenses, and to deal
generally with, and with power to bind, the co owners of such
25 party's interest within the scope of the operations embraced in this
agreement; however, all such co-owners shall have the right to enter
26 into and execute all contracts or agreements for the disposition of their
respective shares of the oil and gas produced from the Contract
27 Area and they shall have the right to receive, separately, payment of the
sale proceeds thereof.
28
29 E. Waiver of Rights to Partition:
30
31 If permitted by the laws of the state or states in which the property
covered hereby is located, each party hereto owning an
32 undivided interest in the Contract Area waives any and all rights it may
have to partition and have set aside
to it in severally its undivided
33 interest therein.
34
35
47 ARTICLE IX.
48 INTERNAL REVENUE CODE ELECTION
49
50
67
-12
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
1 ARTICLE X.
2 CLAIMS AND LAWSUITS
3
4 Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure
5 does not exceed twenty thousand Dollars
6 ($20,000.00) and if the payment is in complete settlement of such claim
or suit. If the amount required for settlement ex
7 ceeds the above amount, the parties hereto shall assume and take over the
further handling of the claim or suit, unless such authority is
8 delegated to Operator All costs and expenses of handling, settling, or
otherwise discharging such claim or suit shall be at the joint ex
9 pense of the parties participating in the operation from which the claim
or suit arises. If a claim is made against any party or if any party is
10 sued on account of any matter arising from operations hereunder over which
such individual has no control because of the rights given
11 Operator by this agreement, such party shall immediately notify all other
parties, and the claim or suit shall be treated as any other claim
12 or suit involving operations hereunder.
13
14 ARTICLE XI.
15 FORCE MAJEURE
16
17 If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than
18 the obligation to make money payments, that party shall give to all other
parties prompt written notice of the force majeure with
19 reasonably full particulars concerning it; thereupon, the obligations of
the party giving the notice, so far as they are affected by the force
20 majeure, shall be suspended during, but no longer than, the continuance
of the force majeure. The affected party shall use all reasonable
21 diligence to remove the force majeure situation as quickly as practicable
22
23 The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes,
24 lockouts, or other labor difficulty by the party involved, contrary to its
wishes; how all such difficulties shall be handled shall be entirely
25 within the discretion of the party concerned.
26
27 The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of
28 the public enemy, war, blockade, public riot, lightning, fire, storm,
flood, explosion, governmental action, governmental delay, restraint
29 or inaction, unavailability of equipment, and any other cause, whether of
the kind specifically enumerated above or otherwise, which is
30 not reasonably within the control of the party claiming suspension.
31
32 ARTICLE XII.
33 NOTICES
34
35 All notices authorized or required between the parties and required by
any of the provisions of this agreement, unless otherwise
36 specifically provided, shall be given in writing by mail or telegram,
postage or charges prepaid, or by telex or telecopier and addressed to
37 the parties to whom the notice is given at the addresses listed on
Exhibit "A". The originating notice given under any provision hereof
38 shall be deemed given only when received by the party to whom such notice
is directed, and the time for such party to give any notice in
39 response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given
40 when deposited in the mail or with the telegraph company, with postage
or charges prepaid, or sent by telex or telecopier. Each party
41 shall have the right to change its address at any time, and from time to
time, by giving written notice thereof to all other parties.
42
43 ARTICLE Xlil.
44 TERM OF AGREEMENT
45
46 This agreement shall remain in full force and effect as to the oil and
gas leases and/or oil and gas interests subject hereto for the
47 period of time selected below; provided, however, no party hereto shall
ever be construed as having any right, title or interest in or to any
48 lease or oil and gas interest contributed by any other party beyond the
term of this agreement.
49
50 [X] Option No. 1: So long as any of the oil and gas leases subject to
this agreement remain or are continued in force as to any part
51 of the Contract Area, whether by production, extension, renewal or
otherwise.
52
53 [] Option No. 2: In the event the well described in Article Vl.A., or any
subsequent well drilled under any provision of this
54 agreement, results in production of oil and/or gas in paying quantities,
this agreement shall continue in force so long as any such well or
55 wells produce, or are capable of production, and for an additional period
of days from cessation of all production; provided,
56 however, if, prior to the expiration of such additional period, one or more
of the parties hereto are engaged in drilling, reworking, deepen
57 ing, plugging back, testing or attempting to complete a well or wells
hereunder, this agreement shall continue in force until such opera
58 tions have been completed and if production results therefrom, this
agreement shall continue in force as provided herein. In the patent the
59 well described in Article Vl.A., or any subsequent well drilled hereunder,
results in a dry hole, and no other well is producing, Capable
60 of producing oil and/or gas from the Contract Area, this agreement shall
terminate unless drilling, deepening, plugging back d(~rework
61 ing operations are commenced within days from the date of abandonment of
said well. ~ 62 It is agreed, however, that the termination of this agreement
shall not relieve any party hereto from any
liability Mach has
64 accrued or attached prior to the date of such termination.
65
70
-13
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -1982
1 ARTICLE XIV.
2 COMPLIANCE WITH LAWS AND REGULATIONS
3
4 A. Laws, Regulations and Orders:
5
6 This agreement shall be subject to the conservation laws of the state in
which the Contract Area is located, to the valid rules,
7 regulations, and orders of any duly constituted regulatory body of said
state; and to all other applicable federal, state, and local laws, or
8 dinances, rules, regulations, and orders.
9
10 B. Governing Law:
11
12 This agreement and all matters pertaining hereto, including, but not
limited to, matters of performance, non-performance, breach,
13 remedies, procedures, rights, duties and interpretation or construction,
shall be governed and determined by the law of the state in which
14 the Contract Areaislocated. If the Contract Area isin two or more
states, the law of the state of California
15 shall govern.
16
17 C. Regulatory Agencies:
18
19 Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights,
20 privileges, or obligations which Non-Operators may have under federal or
state laws or under rules, regulations or orders promulgated
21 under such laws in reference to oil, gas and mineral operations, including
the location, operation, or production of wells, on tracts offset
22 tiny or adjacent to the Contract Area.
23
24 With respect to operations hereunder, Non Operators agree to release
Operator from any and all losses, damages, injuries, claims
25 and causes of action arising out of, incident to or resulting directly or
indirectly from Operator's interpretation or application of rules,
26 rulings, regulations or orders of the Department of Energy or predecessor
or successor agencies to the extent such interpretation or ap
27 plication was made in good faith. Each Non-Operator further agrees to
reimburse Operator for any amounts applicable to such Non
28 Operator's share of production that Operator may be required to refund,
rebate or pay as a result of such an incorrect interpretation or
29 application, together with interest and penalties thereon owing by Operator
as a result of such incorrect interpretation or application.
30
31 Non-Operators authorize Operator to prepare and submit such documents as
may be required to be submitted to the purchaser
32 of any crude oil sold hereunder or to any other person or entity pursuant
to the requirements of the "Crude Oil Windfall Profit Tax Act
33 of 1980", as same may be amended from time to time ("Act"), and any valid
regulations or rules which may be issued by the Treasury
34 Department from time to time pursuant to said Act. Each party hereto
agrees to furnish any and all certifications or other information
35 which is required to be furnished by said Act in a timely manner and in
sufficient detail to permit compliance with said Act.
36
37 ARTICLE XV.
38 OTHER PROVISIONS
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
<PAGE>
Article XV
Other Provisions
A. Failure to Take Gas Production In-Kind:
Notwithstanding the provisions of Article VI.C., in the event any
party shall fail to make the arrangements necessary to take in-kind or
separately dispose of its share of gas production from the
Contract Area, the non-taking party shall have the right to request that the
Operator purchase or sell to others such gas production for the account of the
non-taking party at the best price reasonably
obtainable under the circumstances in the area for such production, and
the Operator shall have the right, but not the obligation to do so. Such
requests shall be revocable at will by the party owning such gas production an
the owner of such production may, at any time, exercise
its right to revoke such request and to take in-kind or separately dispose of
its share of gas production from the Contract
Area, or to elect to be an "underproduced party". Any purchase or sale by
Operator of any party's share of gas shall be only for such reasonable periods
of time as are consistent with the minimum needs of
the industry under the particular circumstances, but in no event for a period
in excess of one (1) year.
B. Insurance:
Except as provided in Exhibit '1)", all damage or injury to the
Contract Area and property thereon shall be borne by the parties hereto in
proportion to their interest therein. The liability, if
any, of the parties hereto in damages for claims growing out of personal injury
to or death of third parties or injury to or destruction of property of third
parties resulting from operations conducted
hereunder shall be borne in proportion to their interests in the Contract Area,
and each party individually may acquire such insurance as it deems proper to
protect itself against such claims.
C. Taxes:
If Operator is required hereunder to pay ad valorem taxes based in
whole or in part upon separate valuations of each party?s working interest, then
notwithstanding anything to the contrary
herein, charges to the joint account shall be made and paid by the parties
herein in accordance with the percentage of tax value generated by each party's
working interest.
<PAGE>
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
1 ARTICLE XVI.
2 MISCELLANEOUS
3
4This agreement shall be binding upon and shall inure to the benefit of the
parties hereto and to their respective heirs, devisers,
5 legal representatives, successors and assigns.
6
7This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
8
9 IN WITNESS WHEREOF, this agreement shall be effective as of day
of , 19 9 6
10
11
12 OPERATOR
13
14
5 Saba Petroleum, Inc.
BY:
17
18 Title: President
19
20
21
22 NON-OPERATORS
23
24
25
26 Geo Petroleum, Inc.
27 By:
29 Gerald T. Raydon
President
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
63
70
- 15 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "A"
Attached to and made a part ofthat certain Operating
Agreement dated December , 1996, by and between Saba Petroleum,Inc.,
as "Operator", and Geo Petroleum, Inc., as "Non-Operator"
<S> <C>
1. Identification of Lands subject to this Agreement:
Portions of projected Sections 31 and 32 T2N, R23W and Sections 5 and
6, TIN, R23W, S.B.B.& M. Ventura County, CA
2. Percentage Interest of Parties:
Working Interests
Before Payout After Payout
Saba Petroleum, Jnc. 100% 66.67%
Geo Petroleum, Inc. 0% 33.33%
3. Addresses of Parties:
Saba Petroleum, Inc.
201 N. Salsipuedes St., Suite 104
Santa Barbara,CA 93103
4. See Attached
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit "A" (Continued)
Attached to and Made Part of
Operating Agreement Dated, December ~ 1996
Ventura County,Ca]ifonia
<S> <C> <C> <C> <C>
LESSOR LESSEE DATE RECORDING DATA DESCRIPTION OF PROPERTY
Vaca Tar Sand Unit Leases
E.E. Lenox, Single Man Raleigh P. Trimble 04-24-34 Book:426 Page: 241 Part of the Rancho el Rio a la Colonia
known as the west 80 acres of the 119.24
acres in subdivisions numbered 53 and 54,
lying between the Sturgis Road, the
Railroad and the Wolff Road, containing
80 acres.
John Hollis Lenox and Exeter Oil Company 06-04-46 Book:777 Page: 232 39 acres, more or less, out of subdivion
Alice Lenox Ltd. and Vaca Oil 53 of Rancho el Rio de Santa Clara o la
Company Coloia.
W.R Livingston Raleigh P. Trimble 04-26-34 Book:461 Page: 267 159.5 acres, more or less out of
subdivision 53 of Rancho el Rio de Santa
Clara 0 la Colonial
Robert S. Livingston Raleigh P. Trimble 04-26-34 Book:460 Page: 478 Insofar and only insofar as lease cover
and Mayrie Daily 149.10 acres, more or less out of
Livingston, his wife subdivision 53 and 55 of Rancho el Rio
de Santa Clara O la Colonial
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit "A" (Continued)
Attached to and Made Part of
Operating Agreement Dated, December , 1996
Ventura County, California
(Continued
<S> <C> <C> <C> <C>
LESSOR LESSEE DATE RECORDINGDATA DESCRIPTUION OF PROPERTY
Document Number
Non-Unit Lease
Clarence W. Hunsucker, Sun Operating Limited 04-02-86 86-128442 Parcels B. C ~ D of Subdivision 55
J. Thomas Hunsucker Partnership of the Rancho E1 Rio De Santa Clara
and Evelyn Hunsucker O'La Colonia in the
AKA Evelyn N. County of Ventura State of
Hunsucker, California according to the map
ADA Eva Newman recorded in Book 3, page 112 of
Hunsucker maps, in the office of the County
Trustees of the Thomas Recorder of said county. Together
O.Hunsucker Family Trust; with those portions of Sturgis
Clarence W Hunsucker Road, Pleasant Valley Road, and
as Executor of the Wood Road as said roads are shown
Estate of Thomas O. on said map lying northerly,
Hunsucker deceased northwesterly, and westerly
respectively of the centerline of
said roads.EXCEPT that portion of
said land lying northerly of the
following described and line:
Beginning at a point in the
centerline of Wood Road, distant
thereon South 0(degree) 23' 58"
West 1182.96 feet from the
intersection thereof with the
westerly prolongation of the
northerly line of subdivision 58 of
said Rancho; thence, 1st: North 88
(degree) 48' 34' West 3376.48
feet more or less to a point in
the westerly line of said
Subdivision 55
</TABLE>
<PAGE>
EXHIBIT "C"
1 Attached to and made a part of Operating Agreement dated 1996, by and
between Saba Petroleum, Inc, , as Operator and Geo Petroleum, Inc.
3 as Non-operator.
4
s
6
7
8 ACCOUNTING PROCEDURE
9
10 JOINT OPERATIONS
11
12 I. GENERAL PROVISIONS
13
14 1. Definitions
15
16 "Joint Property" shall mean the real and personal property subject to
the agreement to which this Accounting Procedure
17 is attached.
18 "Joint Operations" shall mean all operations necessary or proper for
the development, operation, protection and
19 maintenance of the Joint Property.
20 "Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint
21 Operations and which are to be shared by the Parties.
22 "Operator" shall mean the party designated to conduct the Joint
Operations.
23 "Non-Operators" shall mean the Parties to this agreement other than the
Operator.
24 "Parties" shall mean Operator and Non-Operators.
25 "First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct
26 supervision of other employees and/or contract labor directly employed
on the Joint Property in a field operating
27 capacity.
28 "Technical Employees" shall mean those employees having special and
specific engineering, geological or other
29 professional skills, and whose primary function in Joint Operations is
the handling of specific operating conditions and
30 problems for the benefit of the Joint Property.
31 "Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
32 "Material" shall mean personal property, equipment or supplies acquired
or held for use on the Joint Property.
33 "Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as
34 most recently recommended by the Council of Petroleum Accountants
Societies.
35
36 2.Statement and Billings
37
38 Operator shall bill Non-Operators on or before the last day of each
month for their proportionate share of the Joint
39 Account for the preceding month. Such bills will be accompanied by
statements which identify the authority for
40 expenditure, lease or facility, and all charges and credits summarized
by appropriate classifications of investment and
41 expense except that items of Controllable Material and unusual charges
and credits shall be separately identified and
42 fully described in detail.
43
44 3.Advances and Payments by Non-Operators
45
46 A.Unless otherwise provided for in the agreement, the Operator may require
the Non-Operators to advance their 47 share of estimated cash outlay for the
succeeding month's operation within fifteen (15) days after receipt of
the
48 billing or by the first day of the month for which the advance is
required, whichever is later. Operator shall adjust
49 each monthly billing to reflect advances received from the Non-Operators.
50
51 B.Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made
52 within such time, the unpaid balance shall bear interest monthly at the
prime rate in effect at Citibank 53 New York on the first day of the month in
which delinquency occurs plus 1% or the 54 maximum contract rate permitted by
the applicable usury laws in the state in which the Joint Property is
located,
55 whichever is the lesser, plus attorney's fees, court costs, and other costs
in connection with the collection of unpaid
56 amounts.
57
58 4. Adjustments
59
60 Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof;
61 provided, however, all bills and statements rendered
to Non-Operators by Operator during any calendar year shall
62 conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar
B3 year, unless within the said twenty-four (24) month period a Non-Operator
takes written exception thereto and makes
B4 claim on Operator for adjustment. No adjustment favorable
to Operator shall be made unless it is made within the same
B5 prescribed period. The provisions of this paragraph shall
not prevent adjustments resulting from a physical inventory of
66 Controllable Material as provided for in Section V.
B7
68
69
70
- - 1 -
<PAGE>
COPAS- 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
15. Audits
2
3 A. A Non-Operator, upon notice in writing to Operator and all
other Non-Operators, shall have the right to audit
4 Operator's accounts and records relating to the Joint Account
for any calendar year within the twenty-four
5 (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not
6 extend the time for the taking of written exception to and
the adjustments of accounts as provided for in
7 Paragraph 4 of this Section I. Where there are two or more
Non-Operators, the Non-Operators shall make
8 every reasonable effort to conduct a joint audit in a manner
which will result in a minimum of inconvenience
9 to the Operator. Operator shall bear no portion of the
Non-Operators' audit cost incurred under this
10 paragraph unless agreed to by the Operator. The audits shall
not be conducted more than once each year
11 without prior approval of Operator, except upon the
resignation or removal of the Operator, and shall be made
12 at the expense of those Non-Operators approving such audit.
13
14 B. The Operator shall reply in writing to an audit report within
180 days after receipt of such report.
15
166. Approval By Non-Operators
17
18 Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of
19 this Accounting Procedure and if the agreement to which this Accounting
Procedure is attached contains no 20 contrary provisions in regard thereto,
Operator shall notify all Non-Operators of the Operator's proposal,
and the
21 agreement or approval of a majority in interest of the Non-Operators
shall be controlling on all Non-Operators.
22
23
24 II. DIRECT CHARGES
25
26 Operator shall charge the Joint Account with the following items:
27
28 1. Ecological and Environmental
29
30 Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy
31 environmental considerations applicable to the Joint Operations. Such
costs may include surveys of an ecological or
32 archaeological nature and pollution control procedures as required by
applicable laws and regulations.
33
34 2. Rentals and Royalties
35
36 Lease rentals and royalties paid by Operator for the Joint Operations.
37
38 3. Labor
39
40 A. (1) Salaries and wages of Operator's field
employees directly employed on the Joint Property in the conduct of
41 Joint Operations.
42
43 (2) Salaries of First Level Supervisors in the field.
44
45 (3) Salaries and wages of Technical Employees directly
employed on the Joint Property if such charges are
46 excluded from the overhead rates.
47
48 (4) Salaries and wages of Technical Employees either
temporarily or permanently assigned to and directly
49 employed in the operation of the Joint Property if such
charges are excluded from the overhead rates.
50
51 B. Operator's cost of holiday, vacation, sickness and
disability benefits and other customary allowances paid to
52 employees whose salaries and wages are chargeable to the Joint Account
under Paragraph 3A of this Section II.
53 Such costs under this Paragraph 3B may be charged on a "when
and as paid basis" or by "percentage assessment"
54 on the amount of salaries and wages chargeable to the Joint
Account under Paragraph 3A of this Section II. If
55 percentage assessment is used, the rate shall be based on the
Operator's cost experience. 56
57 C. Expenditures or contributions made pursuant to assessments
imposed by governmental authority which are
58 applicable to Operator's costs chargeable to the Joint Account under
Paragraphs 3A and 3B of this Section II.
59
60 D. Personal Expenses of those employees whose salaries and
wages are chargeable to the Joint Account under
61 Paragraph 3A of this Section II.
62
63 4. Employee Benefits
64
65 Operator's current costs of established plans for employees' group
life insurance, hospitalization, pension, retirement,
66 stock purchase, thrift, bonus, and other benefit plans of a like
nature, applicable to Operator's labor cost chargeable to the
67 Joint Account under Paragraphs 3A and 3B of this Section II shall
be Operator's actual cost not to exceed the percent
68 most recently recommended by the Council of Petroleum Accountants
Societies.
69
70
<PAGE>
.
'
Societies
1 12. Insurance
2
3 Net premiums paid for insurance required to be carried for the
Joint Operations for the protection of the Parties. In the
4 event Joint Operations are conducted in a state in which Operator
may act as self-insurer for Worker's Compensation
5 and/or Employers Liability under the respective state's laws,
Operator may, at its election, include the risk under its self
6 insurance program and in that event, Operator shall include a charge at
Operator's cost not to exceed manual rates.
7
8 13. Abandonment and Reclamation
9
10 Costs incurred for abandonment of the Joint Property, including
costs required by governmental or other regulatory
11 authority.
12
13 14. Communications
14
15 Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and
16 microwave facilities directly serving the Joint Property.
In the event communication facilities/systems serving the Joint
17 Property are Operator owned, charges to the Joint Account shall be made as
provided in Paragraph 8 of this Section II.
18
19 15. Other Expenditures
20
21 Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which
22 is of direct benefit to the Joint Property and is incurred by the
Operator in the necessary and proper conduct of the Joint
23 Operations.
24
26 III. OVERHEAD
27
28 1. Overhead - Drilling and Producing Operations
29
30 i. As compensation for administrative, supervision, office
services and warehousing costs, Operator shall charge
31 drilling and producing operations on either:
32
33 (x ) Fixed Rate Basis, Paragraph 1A, or
34 ( ) Percentage Basis, Paragraph 1B
35
36 Unless otherwise agreed to by the Parties, such charge shall
be in lieu of costs and expenses of all offices and
37 salaries or wages plus applicable burdens and expenses of all
personnel, except those directly chargeable under
38 Paragraph 3A, Section II. The cost and expense of services
from outside sources in connection with matters of
39 taxation, traffic, accounting or matters before or involving
governmental agencies shall be considered as included in
40 the overhead rates provided for in the above selected
Paragraph of this Section III unless such cost and expense are
41 agreed to by the Parties as a direct charge to the Joint
Account. 42
43 ii. The salaries, wages and Personal Expenses of Technical
Employees and/or the cost of professional consultant
44 services and contract services of technical personnel
directly employed on the Joint Property:
45
46 ( ) shall be covered by the overhead rates, or
47 (X ) shall not be covered by the overhead rates.
48
49 iii. The salaries, wages and Personal Expenses of Technical
Employees and/or costs of professional consultant services
50 and contract services of technical personnel either
temporarily or permanently assigned to and directly employed in
51 the operation of the Joint Property:
52
53 ( ) shall be covered by the overhead rates, or
54 (X ) shall not be covered by the overhead rates.
55
56 A. Overhead - Fixed Rate Basis
57
58 (1) Operator shall charge the Joint Account at the following
rates per well per month:
59
60 Drilling Well Rate $5,500.00
61 (Prorated for less than a full month)
62
63 Producing Well Rate $550.00
64
65 (2) Application of Overhead - Fixed Rate Basis shall be as
follows:
66
67 (a) Drilling Well Rate
68
69 (1) Charges for drilling wells shall begin on the date the well is spudded
and terminate on the date 70 the drilling rig, completion rig, or other units
used in completion of the well is released, whichever
- 4 -
<PAGE>
COPAS- 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
" Societies
1 is later, except that no charge shall be made during suspension of drilling
or completion operations 2 for fifteen (15) or more consecutive calendar
days.
3
4 (2) Charges for wells undergoing any type of workover or recompletion
for a period of five (5)
5 consecutive work days or more shall be made at the drilling well
rate. Such charges shall be
6 applied for the period from date workover operations, with rig or
other units used in workover,
7 commence through date of rig or other unit release, except that no
charge shall be made during
8 suspension of operations for fifteen (15) or more consecutive
calendar days.
9
10 (b) Producing Well Rates
11
12 (1)An active well either produced or injected into for any
portion of the month shall be considered as
13 a one-well charge for the entire month.
14
15 (2)Each active completion in a multi-completed well in which production is
not commingled down 16 hole shall be considered as a one-well charge providing
each completion is considered a separate 17 well by the governing regulatory
authority. 18 19 (3)An inactive gas well shut in because of overproduction or
failure of purchaser to take the 20 production shall be considered as a
one-well charge providing the gas well is directly connected
to
21 permanent sales outlet.
22
23 (4)A one-well charge shall be made for the month in which
plugging and abandonment operations
24 are completed on any well. This one-well charge shall be
made whether or not the well has
25 produced except when drilling well rate applies.
26
27 (5)All other inactive wells (including but not limited to
inactive wells covered by unit allowable,
lease
28 allowable, transferred allowable, etc.) shall not qualify
for an overhead charge.
29
30 (3) The well rates shall be adjusted as of the first day of April each
year following the effective date of
the
31 agreement to which this Accounting Procedure is attached. The adjustment
shall be computed by multiplying 32 the rate currently in use by the
percentage increase or decrease in the average weekly earnings of Crude 33
Petroleum and Gas Production Workers for the last calendar year compared to
the calendar year preceding
as
34 shown by the index of average weekly earnings of Crude Petroleum and Gas
Production Workers as published 35 by the United States Department of Labor,
Bureau of Labor Statistics, or the equivalent Canadian index as 36 published
by Statistics Canada, as applicable. The adjusted rates shall be the rates
currently in use,
plus or
37 minus the computed adjustment.
38
39
66 2. Overhead - Major Construction
67
68 To compensate Operator for overhead costs incurred in the
construction and installation of fixed
assets, the expansion of
69 fixed assets, and any other project clearly discernible as a fixed
asset required for the development
and operation of the
70 Joint Property, Operator shall either negotiate a rate prior to the
beginning of construction, or shall
charge the Joint
- 5 -
<PAGE>
o . COPAS - 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
1 Account for overhead based on the following rates for any Major
Construction project in excess of $ :
2
3 A. 5 % of first $100,000 or total cost if less, plus
4
5 B. 3 % of costs in excess of $100,000 but less than
$1,000,000, plus
6
7 C. 1 % of costs in excess of $1,000,000.
8
9 Total cost shall mean the gross cost of any one project. For the purpose
of this paragraph, the component parts of a single
10 project shall not be treated separately and the cost of drilling and
workover wells and artificial lift equipment shall be
11 excluded.
12
13 3. Catastrophe Overhead
14
15 lb compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due
16 to oil spill, blowout, explosion, fire, storm, hurricane, or other
catastrophes as agreed to by the Parties, which are
17 necessary to restore the Joint Property to the equivalent condition that
existed prior to the event causing the
18 expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account
19 for overhead based on the following rates:
20
21 A. 5 % of total costs through $100,000; plus
22
23 B. 3 % of total costs in excess of $100,000 but less
than $1,000,000; plus
24
25 C. 1 % Of total costs in excess of $1,000,000.
26
27 Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead 28 provisions of this Section III
shall apply.
29
30 4.Amendment of Rates
31
32 The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement 33 between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
34
35
36IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
37
38 Operator is responsible for Joint Account Material and shall make proper
and timely charges and credits for all Material
39 movements affecting the Joint Property. Operator shall provide all
Material for use on the Joint Property; however, at
40 Operator's option, such Material may be supplied by the Non-Operator.
Operator shall make timely disposition of idle and/or
41 surplus Material, such disposal being made either through sale to Operator
or Non-Operator, division in kind, or sale to
42 outsiders. Operator may purchase, but shall be under no obligation to
purchase, interest of Non-Operators in surplus condition
43 A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
44
45 1. Purchases
46
47 Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of
48 Material found to be defective or returned to vendor for any other
reasons, credit shall be passed to the Joint Account
49 when adjustment has been received by the Operator.
50
51 2.Transfers and Dispositions
52
53 Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator,
54 unless otherwise agreed to by the Parties, shall be priced on the
following basis exclusive of cash discounts:
55
56 A. New Material (Condition A)
57
58 (1) Tubular Goods Other than Line Pipe
59
60 (a) Tubular goods, sized 2% inches OD and larger, except line
pipe, shall be priced at Eastern mill
61 published carload base prices effective as of date of movement plus
transportation cost using the 80,000
62 pound carload weight basis to the railway receiving point nearest
the Joint Property for which
63 published rail rates for tubular goods exist. If the 80,000 pound
rail rate is not offered, the 70,000
pound
64 or 90,000 pound rail rate may be used. Freight charges for tubing
will be calculated from Lorain, Ohio
65 and casing from Youngstown, Ohio.
66
67 (b) For grades which are special to one mill only, prices shall
be computed at the mill base of that
mill plus
68 transportation cost from that mill to the railway receiving point
nearest the Joint Property as provided
69 above in Paragraph 2.A.(1)(a). For transportation cost from points
other than Eastern mills, the 30,000
70
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<PAGE>
1 ound Oil Field Haulers Association interstate truck rate shall be used.
2
3 (c) Special end finish tubular goods shall be priced at the lowest
published out-of-stock price, f.o.b. Houston,
4 Texas, plus transportation cost, using Oil Field Haulers Association
interstate 30,000 pound truck rate,
5 to the railway receiving point nearest the Joint Property.
6
7(d) Macaroni tubing (size less than 2% inch OD) shall be priced at the
lowest published out-of-stock prices
8 f.o.b. the supplier plus transportation costs, using the Oil Field Haulers
Association interstate truck rate
9 per weight of tubing transferred, to the railway receiving point nearest
the Joint Property.
10
11 (2) Line Pipe
12
13 (a)Line pipe movements (except size 24 inch OD and larger with walls 3/4
inch and over) 30,000
pounds or
14 more shall be priced under provisions of tubular goods pricing in Paragraph
A.(l)(a) as provided above.
15 Freight charges shall be calculated from Lorain, Ohio.
16
17(b)Line pipe movements (except size 24 inch OD and larger with walls 3/4
inch and over) less than 30,000
18 pounds shall be priced at Eastern mill published carload base prices
effective as of date of shipment,
19 plus 20 percent, plus transportation costs based on freight rates as set
forth under provisions of tubular
20 goods pricing in Paragraph A.(lXa) as provided above. Freight charges shall
be calculated from Lorain,
21 Ohio.
22
23 (c)Line pipe 24 inch OD and over and 3/4 inch wall and larger shall be
priced f.o.b. the point of
24manufacture at current new published prices plus transportation cost to the
railway receiving point
25 nearest the Joint Property.
26
27- (d) Line pipe, including fabricated line pipe, drive pipe and conduit
not listed on published price lists shall
28 be priced at quoted prices plus freight to the railway receiving point
nearest the Joint Property or at
29 prices agreed to by the Parties.
30
31 (3) Other Material shall be priced at the current new price, in effect
at date of movement, as listed by a reliable
32 supply store nearest the Joint Property, or point of manufacture, plus
transportation costs, if applicable, to the
33 railway receiving point nearest the Joint Property.
34
35 4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current
36 new price, in effect on date of movement, as listed by a reliable supply
store nearest the Joint Property, or
37 point of manufacture, plus transportation costs, if applicable, to the
railway receiving point nearest the Joint
38 Property. Unused new tubulars will be priced as provided above in Paragraph
2.A.(1) and (2).
39
40 B. Good Used Material (Condition B)
41
42 Material in sound and serviceable condition and suitable for reuse without
reconditioning:
43
44 (1) Material moved to the Joint Property
45
46 At seventy-five percent (75%) of current new price, as
determined by Paragraph A.
47
48 (2) Material used on and moved from the Joint Property
49
50 (a) At seventy-five percent (75%) of current new price, as
determined by Paragraph A, if Material was
61 originally charged to the Joint Account as new Material or
52
53 (b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was
54 originally charged to the Joint Account as used Material.
55
56 (3) Material not used on and moved from the Joint Property
57
58 At seventy-five percent (75%) of current new price as determined by
Paragraph A.
59
B0 The cost of reconditioning, if any, shall be absorbed by the transferring
property.
61
62 C. Other Used Material
63
64 (1) Condition C
65
66 Material which is not in sound and serviceable condition and not suitable
for its original function until
67 after reconditioning shall be priced at fifty percent (50%) of current new
price as determined by
68 Paragraph A. The cost of reconditioning shall be charged to the receiving
property, provided Condition
69 C value plus cost of reconditioning does not exceed Condition B value.
70
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<PAGE>
1 (2) Condition D
2
3 Material, excluding junk, no longer suitable for its original purpose, but
usable for some other purpose
4 shall be priced on a basis commensurate with its use. Operator may dispose
of Condition D Material
5 under procedures normally used by Operator without prior approval of
Non-Operators.
6
7 a) Casing, tubing, or drill pipe used as line pipe shall be priced as
Grade A and B seamless line pipe
8 of comparable size and weight. Used casing, tubing or drill pipe utilized
as line pipe shall be
9 priced at used line pipe prices.
10
11 (b) Casing, tubing or drill pipe used as higher pressure service lines than
standard line pipe, e.g.
12power oil lines, shall be priced under normal pricing procedures for casing,
tubing, or drill pipe.
13 Upset tubular goods shall be priced on a non upset basis.
14
15 (3) Condition E
16
17 Junk shall be priced at prevailing prices. Operator may dispose of Condition
E Material under
18 procedures normally utilized by Operator without prior approval of
Non-Operators.
19
20 D. Obsolete Material
21
22 Material which is serviceable and usable for its original function but
condition and/or value of such Material
23 is not equivalent to that which would justify a price as provided above may
be specially priced as agreed to by
24 the Parties. Such price should result in the Joint Account being charged
with the value of the service
25 rendered by such Material.
26
27 E. Pricing Conditions
28
29(1) Loading or unloading costs may be charged to the Joint Account at the
rate of twenty-five cents (25(cent))
30 per hundred weight on all tubular goods movements, in lieu of actual
loading or unloading costs
31 sustained at the stocking point. The above rate shall be adjusted as of the
first day of April each year
32 following January 1, 1985 by the same percentage increase or decrease used
to adjust overhead rates in
33 Section III, Paragraph 1.A.(3). Each year, the rate calculated shall be
rounded to the nearest cent and
34shall be the rate in effect until the first day of April next year. Such rate
shall be published each year
35 by the Council of Petroleum Accountants Societies.
36
37 (2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down
38 price of new Material.
39
40 3. Premium Prices
41
42 Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other
43 unusual causes over which the Operator has no control, the Operator may
charge the Joint Account for the required
44 Material at the Operator's actual cost incurred in providing such
Material, in making it suitable for use, and in moving it
45 to the Joint Property; provided notice in writing is furnished to
Non-Operators of the proposed charge prior to billing
46 Non-Operators for such Material. Each Non-Operator shall have the right,
by so electing and notifying Operator within
47 ten days after receiving notice from Operator, to furnish in kind all or
part of his share of such Material suitable for use
48 and acceptable to Operator.
49
50 4. Warranty of Material Furnished By Operator
51
52 Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint
53 Account until adjustment has been received by Operator from the
manufacturers or their agents.
54
55
56 V. INVENTORIES
57
58 The Operator shall maintain detailed records of Controllable Material.
59
60 1. Periodic Inventories, Notice and Representation
61
62 At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice
63 of intention to take inventory shall be given by Operator at least thirty
(30) days before any inventory is to begin so that
64 Non-Operators may be represented when any inventory is taken. Failure of
Non-Operators to be represented at an 65 inventory shall bind Non-Operators to
accept the inventory taken by Operator.
66
67 2. Reconciliation and Adjustment of Inventories
68
69 Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six
70 months following the taking of the inventory. Inventory adjustments shal
l be made by Operator to the Joint Account for
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<PAGE>
.- EXHIBIT"D"
Attached to and made a part of that certain Operating
Agreement dated , 1996,by and between
Saba Petroleum, Inc.,as "Operator,"
and Geo Petroleum, Inc.,as 'Non-Operator"
SCHEDULE OFINSURANCE
Operator shall, at all times, carry for the benefit and protection of the
Non-Operators, insurance as follows:
(a) Statutory Worker's Compensation and Employer's Liability Insurance
with limits of at least $1,000,000 per occurrence to comply with the
laws ofthe State having Jurisdiction.
(b) Comprehensive General Liability Insurance (including Owners and
Contractors Protective Liability and Contractual Liability) with
Bodily Injury Liability limits of not less than $1,000,000 per
occurrence and Property Damage Liability Emits of not less than
$1,000,000 per occurrence; $1,000,000 aggregate.
(c) Automobile Bodily Injury and Property Damage Liability Insurance
(including all owned, non-owned and hired cars) in amounts of not less
than $1,000,000 for injuries to one person, $1,000,000 for all bodily
injuries in one accident, and not less than $1,000,000 for property
damage.
<PAGE>
EXHIBIT"F"
FEDERAL CONTRACTS REQUIREMENTS
These Federal Contract Requirements
are attached to and made a part of that certain Operating
Agreement dated , 1996, between certain
parties named therein, Including Saba Petroleum,
Inc., hereinafter called "Contractor"
A. Equal Opportunity Clause (41 CFR 60-1.4)
During the performance of this Contract, Contractor agrees as
follows:
(1) Contractor will not discriminate against any employee or
applicant for employment because of race, color, religion, sex or national
origin. Contractor will take affirmative action to ensure that applicants are
employed, and that employees are treated during employment, without regard
to their race, color, religion,sex or national origin. Such action shall
include, but not be limited to, the following: Employment, upgrading,
demotion, or transfer, recruitment or recruitment advertising; layoff or
termination, rates of pay or other forms of compensation; and selection for
training, including apprenticeship. Contractor agrees to post In conspicuous
places, available to employees and applicants for employment, notices to be
provided by the contracting officer setting forth the provisions of this
nondiscrimination clause.
(2) Contractor will, In all solicitations or advertisements for
employees placed by or on behalf of Contractor, state that all qualified
applicants will receive consideration for employment without regard to race,
color, religion, sex or national origin.
(3) Contractor will send to each labor union or representative of
workers with which Contractor has a collective bargaining agreement or other
contract or understanding, a notice to be provided by the agency
contracting officer advising the labor union of workers' representative of
Contractors commitments under section 202 of Executive Order 11246 of September
24, 1965 and shall post copies of the notice In conspicuous places
available to employees and applicants for employment.
(4) Contractor will comply with all provisions of Executive Order
11246 of September 24, 1965 and of the rules, regulations, and relevant orders
of the Secretary of Labor.
(5) Contractor will furnish all information and reports required by
Executive Order 11246 of Seplember 24, 1965 and by Ihe rules, regulations, and
orders of Ihe Secretary of Labor, or pursuant thereto, and will permit
access to his books, records, and accounts by the contracting agency and the
Secretary of Labor for purposes of invesilgalion lo ascertain compliance with
such rules, regulations, and orders.
(6) In the event of Conlraclor's noncompliance with Ihe
nondiscrimination clauses of this contract or with any of such rules,
regulations, or orders, this contract may be cancelled, terminated or suspended
in whole or
in part and Contractor may be declared Ineligible for further Government
contracts in accordance with procedures authorized In Executive Order 11246 of
Seplember 24, 1965, and such other sanctions may be Imposed and remedies
Invoked as provided in Executive Order 11246 of Seplember 24, 1965, or by rule,
regulation, or order of the Secretary of Labor, or as otherwise provided by law.
(7) Contractor will Include the provisions of paragraphs (1) through
(7) In every subcontract or purchase order unless exempted by rules,
regulations, or orders of the Secretary of Labor issued pursuant to section 204
of Executive Order 11246 of Seplember 24, 1965, so that such provisions will be
binding upon each subcontractor or vendor. Contractor will take such action with
respect to any subcontract or purchase order as Ihe contracting
agency may direct as a means of enforcing such provisions including sanctions
for noncompliance; ~i0, however, that in the event Contractor becomes involved
in, or is threatened with, litigation with a subcontractor or vendor
as a result of such direction by the contracting agency, Contractor may request
the United States to enter Into such litigation to protect the interests of the
United States.
<PAGE>
B. Employees Information Reports(41 CFR 60-1.7)
If the value of this contract is $50,000 or more and if Contractor
has 50 or more employees, Contractor agrees to file timely, complete and
accurate reports on Standard Form 100 (EEO-1) with the appropriate federal
agency.
C. Affirmative Action Program. 141 CFR 60-1.40)
If the value of this contract is $50,000 or more and Contractor has
50 or more employees, Contractor agrees to develop a written affirmative action
compliance program as required by law.
D. Certification of Nonsegregated Facilities (41 CFR 60-1.8)
Contractor certifies that it does not and will not maintain or provide
for its employees any segregated facilities at any of its establishments, and
that it does not and will not permH its employees to perform their
services at any location under its control, where segregated facilities are
maintained. Contractor agrees that a
breach of this certification is a violation of the Equal Opportunity Clause in
this contract. As used in this
certification, the term "segregated facilities" means any waiting rooms, work
areas, rest rooms and wash rooms, restaurants and other eating areas, time
clocks, locker rooms and other storage or dressing areas, parking lots,
drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive or are in fact segregated on the basis of race, creed, color, or
national origin, because of habit, local custom or otherwise. It further agrees
that (except where it has obtained identical certifications from proposed
subcontractors for specific time periods) it will obtain identical
certifications from proposed subcontractors prior to the award of subcontracts
exceeding $10,000 which are not exempt from the provisions of Equal Opportunity
Clause; that it will retain such certification in its files; and
that it will forward the following notice to such proposed subcontractors
(except where the proposed
subcontractors have submitted identical certifications for specific time
periods): NOTICE TO PROSPECTIVE
SUBCONTRACTORS OF
REQUIREMENT FOR CERTIFICATIONS OF NONSEGREGATED FACILITIES. A Certification of
Nonsegregated Facilities, as
required by the May 9, 1967 order on Elimination of Segregated Facilities, by
the Secretary of Labor (32
Fed.Reg.7439,
May 19, 1967) must be submitted prior to the award of subcontract exceeding
$10,000 which is not exempt from the provisions of the Equal Opportunity Clause.
The certification may be submitted either for each subcontract or for
all subcontracts during a period (i.e., quarterly, semiannually, or annually).
(Note: The penalty for making false
statements in offers is prescribed in 18 U.S.C. 1001.)
E. Minority Business Enterprises (41 CFR 1-1.1310-2)
1. Utilization
(a) It is the policy of the Government that minority business
enterprises shall have the maximum practicable opportunity to participate in the
performance of Govemment contracts.
(b) The Contractor agrees to use his best efforts to carry
out this policy in the award of his subcontracts to the fullest extent
consistent with the efficient performance of this contract. As used in this
contract, the term "minority business enterprise" means a business, at least
50 percent of which is owned by minority group members or, in case of publicly
owned businesses, at least 51 percent of the stock of which is owned by
minority group members. For the purposes of this definition, minority
group members are Negroes, Spanish-speaking American persons,
American-Orientals, American-lndians, American-Eskimos, and
American Aleuts. Contractors may rely on written
representations by subcontractors regarding their status as minority business
enterprises in lieu of an independent investigation.
2. Subcontracting Program.
(a) The Contractor agrees to establish and conduct a program
which will enable minority business enterprises (as defined in the clause
entitled "Utilization of Minority Business Enterprises") to be
considered fairly as subcontractors and suppliers under this contract. In this
connection, the Contractor shall:
- -2
(1) Designate a liaison officer the Contractor's minority business enterprises
program.
(2) Provide adequate and timely consideration of the potentialities of known
business enterprises in all "make-or-buy" decisions.
<PAGE>
(3) Assure that known minority business enterprises will have an equitable
opportunity to compete for subcontracts, particularly by arranging
solicitations, time for the preparation of bids, quantities, specifications,
and delivery schedules so as to facilitate the participation of minority
business enterprises.
(4) Maintain records showing (i) procedures which have been adopted to comply
with the policies set forth in the clause, including the establishment of a
source list of minority business enterprises, (ii) awards to minority business
enterprises on the source list, and (iii) specific efforts to
identify and award contracts to minority business enterprises.
(5) Include the Utilization of Minority Business Enterprises clause in
subcontracts which offer substantial minority business enterprises
subcontracting opportunities.
(6) Cooperate with the Contracting Offcer in any studies and surveys of the
Contractor's minority business enterprises procedures and practices that the
Contracting Office may from time to time conduct.
(7) Submit periodic reports of subcontracting to known minority business
enterprises with respect to the records referred to in subparagraph (4) above,
in such form and manner and at such time (not more often than quarterly) as
the Contracting Offcer may prescribe.
(b) The Contractor further agrees to insert, in any
subcontract hereunder which may exceed $500,000, provisions which shall conform
substantially to the language of this clause, including this
paragraph (b), and to notify the Contracting Offcer of the names of such
subcontractors.
F. Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era
(41 CFR 60-250) The regulations in this part apply to all government
contracts and subcontracts for the furnishing of supplies or services or for
the use of real or personal property (including construction) for $10,000 or
more.
(a) The Contractor will not discriminate against any employee or
applicant for employment because he or she is a disabled veteran or veteran of
the Vietnam Era in regard to any position for which the
employee or applicant for employment is qualified. The Contractor agrees to
take affirmative action to employ, advance in employment, and otherwise treat
qualified disabled veterans and veterans of the Vietnam Era without
discrimination based upon their disability or veteran's status in all
employment practices such as the following: employment upgrading, demotion or
transfer, recruitment, advertising, layoff or termination, rates of pay or
other forms or compensation, and selection for training, including
apprenticeship.
(b) The Contractor agrees that all suitable employment openings of the
Contractor which exist at the time of the execution of this contract and those
which occur during the performance of this contract,
including those not generated by this contract and including those at an
establishment of the Contractor other than the one wherein the contract is being
perfommed but excluding those of independently operated
corporate affiliates, shall be listed at an appropriate local office of the
State employment service system wherein the opening occurs. The Contractor
further agrees to provide such reports to such local office
regarding employment openings and hires as may be required.
State and local government agencies holding Federal contracts
of $10,000 or more shall also list all their suitable openings with the
appropriate office of the State employment service, but are not
required to provide those reports set forth in paragraphs (d) and (e).
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<PAGE>
(c) Listing of employment openings with the employment service system
pursuant to this clause shall be made at least concurrently with the use of any
other recruitment source or effort and shall involve the
normal obligations which attach to the placing of a bona fide job order,
including the acceptance of referrals of veterans and nonveterans.The listing of
employment openings does not require the hiring of any
particular job applicant or from any particular group of job applicants, and
nothing herein is intended to relieve the Contractor from any requirements in
Executive Orders or regulations regarding nondiscrimination
in employment.
(d) The reports required by paragraph (b) of this clause shall
include, but not be limited to, periodic reports which shall be filed at least
quarterly with the appropriate local office or, where the
Contractor has more than one hiring location in a State, with the central
office of that State employment service. Such reports shall indicate for each
hiring location (1) the number of individuals hired during the
reporting period, (2) the number of nondisabled veterans of the Vietnam Era
hired, (3) the number of disabled veterans of the Vietnam Era hired, and (4) the
total number of disabled veterans hired. The reports
should include covered veterans hired for on-thejob training under 38 U.S.C.
1787. The Contractor shall submit a report within 30 days after the end of
each reporting period wherein any performance is made on this
Contract identifying data for each hiring location. The Contractor shall
maintain at each hiring location copies of the reports submitted until the
expiration of one year after final payment under the Contract,
during which time these reports and related documentation shall be made
available, upon request, for examination by any authorized representatives of
the Contracting Officer or of the Secretary of Labor.
Documentation would include personnel records respecting job openings,
recruitment, and placement.
(e) Whenever the Contractor becomes contractually bound to the listing
provisions of this clause, it shall advise the employment service system in each
State where it has establishments of the name and
location of each hiring location in the State. As long as the Contractor is
contractually bound to these provisions and has so advised the State system,
there is no need to advise the State system of subsequent contracts.
The Contractor may advise the State system when it is no longer bound by this
contract clause.
(f) This clause does not apply to the listing of employment openings
which occur and area filled outside of the 50 states, the District of Columbia,
Puerto Rico, Guam, and the Virgin Islands.
(9) The provisions of paragraphs (b), (c), (d), and (e) of this clause
do not apply to openings which the Contractor proposes to fill from within his
own organization or to fill pursuant to a customary and
traditional employer-union hiring arrangement. This exclusion does not apply
to a particular opening once an employer decides to consider applicants outside
of his own organization or employer-union arrangements for that opening.
(h) As used in this clause:
(1) "All suitable employment openings" includes, but is
not limited to, openings which occur in the following job categories:
production and non-production; plant and office; laborers and
mechanics; supervisory and non-supervisory; technical; and executive,
administrative, and professional openings as are compensated on a salary basis
of less than $25,000 per year. This term includes full-time employment,
temporary employment of more than three days' duration, and
part-time employment. It does not include openings which the Contractor proposes
to fill from within his own organization or to fill pursuant
to a customary and traditional employer-union hiring arrangement nor
openings in an educational institution which are restricted to students of that
institution. Under the most compelling circumstances, an
employment opening may not be suitable for listing, Including such situations
where the needs of the Govemment cannot reasonably be otherwise supplied, where
listing would be contrary to national security, or where
the requirement of listing would otherwise not be for the best interest of the
Government.
(2) "Appropriate office of the State employment service
system" means the local office of the Federal State national system of public
employment offices with assigned responsibility for serving the
area where the employment opening is to be filled, including the District of
Columbia, Guam, Puerto Rico, and the Virgin Islands.
4
<PAGE>
(3) "Openings which the Contractor proposes to fill from
within his own organization" means employment openings for which no
consideration will be given to persons outside the
Contractor's organization (including any affiliates, subsidiaries and the parent
companies) and includes any openings which the Contractor proposes to fill from
regularly established "recall" lists.
(4) "Openings which the Contractor proposes to fill pursuant
to a customary and traditional employer-union hiring arrangement" means
employment openings which the Contractor proposes to fill from
union halls, which is part of the customary and traditional hiring relationship
which exists between the Contractor and representatives of his employees.
(i) The Contractor agrees to comply with the rules, regulations, and
relevant orders of the Secretary of Labor issued pursuant to the Act.
0) In the event of the Contractor's noncompliance with the
requirements of this clause, actions for noncompliance may be taken in
accordance with the rules, regulations, relevant orders of the Secretary of
Labor issued pursuant to the Act.
(k)TheContractor agrees to post in conspicuous places, available to
employees and applicants for employment, notices in a form to be prescribed by
the Director, provided by or through the Contracting
Officer.. Such notice shall state the Contractor's obligation under the law
to take affirmative action to employ and advance in employment qualified
disabled veterans and veterans of the Vietnam Pra for employment,
and the rights of applicants and employees.
(I) The Contractor will notify each labor union or representative of
workers with which it has a collective bargaining agreement or other contract
understanding, that the Contractor is bound by the terms of
the Vietnam Era Veterans Readjustment Assistance Act, and is committed to take
affirmative action to employ and advance in employment qualified disabled
veterans and veterans of the Vietnam Era.
(m) The Contractor will Include the provisions of this clause in
every subcontract or purchase order of $10,000 or more unless exempted by rules,
regulations, or orders of the Secretary issued pursuant to
the Act, so that such provisions will be binding upon each subcontractor or
vendor. The Contractor will take such action with respect to any subcontract or
purchase order as the Director of the Office of Federal
Contract Compliance Programs may direct to enforce such provisions, including
action for noncompliance.
G. Employment of the Handicapped (20CFR 741.3)
This provision applies to all nonexempt contracts and subcontracts
which exceed $2,500 as follows: (1) Part A applies to contracts and subcontracts
which provide for performance in less than 90 days, (2)
Parts A and B apply to contracts and subcontracts which provide for performance
in 90 days or more and the amount of the contract or subcontract is less than
$500,000, and (3) Parts A, B. and C apply to contracts
and subcontracts which provide for performance in 90 days or more and the
amount of the contract or subcontract is $500,000 or more.
PART A
(a) The Contractor will not discriminate against any employee or
applicant for employment because of physical or mental handicap in regard to any
position for which the employee or applicant for employment
Is qualified. The Contractor agrees to take affirmative action to employ,
advance in employment, and otherwise treat qualified handicapped individuals
without discrimination based upon their physical or mental
handicap in all employment practices such as the following: employment,
upgrading, demotion or transfer, recruitment or recruitment advertising,
layoff or termination, rates of pay or other forms of compensation,
and selection for training, including apprenticeship.
(b) The Contractor agrees that, if a handicapped individual files a
complaint with the Contractor that he is not complying with the requirements of
the Act, he will (1) investigate the complaint and take
appropriate action consistent with the requirements of 20 CFR 741.29, and (2)
maintain on file for three years the record regarding the complaint and the
actions taken.
- -5
<PAGE>
(c) The Contractor agrees that, if a handicapped individual files a
complaint with the Department of Labor that he has not complied with the
requirements of the Act, (1) he will cooperate with the Department in its
investigation of the complaint, and (2) he will provide all pertinent
information regarding his employment practices with respect to the handicapped.
(d), The Contractor agrees to comply with the rules and regulations of
the Secretary of Labor in 20 CFRCh.VI, Page 741.
(e) In the event of the Contractor's noncompliance with the
requirements of this clause, the Contract may be terminated or suspended in
whole or in part.
(f) The clause shall be included in all subcontracts over $2,500.
PART B
(9) The Contractor agrees (1) to establish an affirmative action
program, including appropriate procedures consistent with the guidelines and the
rules of the Secretary of Labor, which will provide the affimmative
action regarding the employment and advancement of the handicapped required
by P.L. 93-112, (2) to publish the program in his employee's or personnel
handbook or otherwise distribute a copy to all personnel, (3) to review
his program on or before March 31 of each year and to make such changes as may
be appropriate, and (4) to designate one of his principal officials to be
responsible for the establishment and operation of the program.
(h) The Contractor agrees to permit the examination by appropriate
contracting agency officials or the Assistant Secretary for Employment Standards
or his designee, of pertinent books, documents, papers and
records concerning his employment and advancement of the handicapped.
(i) The Contractor agrees to post in conspicuous places, available to
employees and applicants for employment, notices in a form to be prescribed by
the Assistant Secretary for Employment Standards, provided by
the Contracting Officer, stating Contractor's obligation under the law to take
affirmative action to employ and advance in employment qualified handicapped
employees and applicants for employment and the rights and remedies
available.
(I) The Contractor will notify each labor union or representative of
workers with which he has collective bargaining agreement or other contract
understanding, that the Contractor is bound by the terms of the
Section 503 of the Rehabilitation Act, and is committed to take affirmative
action to employ and advance in employment physically and mentally handicapped
individuals.
(k) The Contractor agrees to submit a copy of his affirmative action
program to the Assistant Secretary for Employment Standards within 90 days after
the award to him of a contract or subcontract.
(I) The Contractor agrees to submit a summary report to the Assistant
Secretary for Employment Standards, by March 31 of each year during performance
of the Contract, and by March 31 of the year following
completion of the Contract, in the form prescribed by the Assistant Secretary,
covering employment and complaint experience, accommodations made and all steps
taken to effectuate and carry out the commitments set forth in
the affirmative action program.
- -6
<PAGE>
EXHIBIT G
Attached to and made part of Agreement For Assignment
Of Leases and Operating Agreement dated
December , 1996, by and between Saba Petroleum, Inc.
"Operator" and Geo Petroleum, Inc. "Non-Operator".
1. Tax Partnership Status. Notwithstanding the provisions hereof, the
Working Interest Owners intend and agree that, both for federal and state
income tax purposes, a tax partnership under that certain VTSU
Operating Agreement ("OA") dated December , 1996 is created hereby. The name
ofthe tax partnership is the VTSU Partnership (the "Partnership"). The
Partnership's federal tax identification number is
. Working Interest Owners agree not to elect to be, or
have the arrangement evidenced by this Agreement, excluded from the application
of all or any part of Subchapter K of Chapter 1 of Subtitle A ofthe Internal
Revenue Code of 1954, as amended or any successor provisions thereto
(the "code"), and/or any similar provisions of applicable state laws.
2. Priority of Provisions. In the event of a conflict or inconsistency,
between the terms and conditions of this Exhibit G and the other terms and
conditions of this agreement, this Exhibit G will govern and control.
3. Contributions to Partnership. Unless expressly provided otherwise
in this Exhibit G. for all purposes ofthis Section and the Partnership:
a) Property and cash which under any ofthe provisions ofthis Exhibit G are
deemed contributed to the Partnership will be treated and referred to in this
Exhibit G as though actually contributed to, held
and owned by the Partnership, regardless ofthe manner in which title and
ownership are held for any purpose other than the purposes ofthis Exhibit G and
the Partnership;
b) The entire interest of each Working Interest Owner in the unit Area or any
other property subject to this Agreement will be deemed contributed to the
Partnership on the earlier of the date that interest becomes subject to this
Agreement or the OA; c) Subject to Paragraph (d) below, a Working Interest
Owner will be deemed to contribute cash to the Partnership if that Working
Interest Owner pays or incurs a fixed obligation to pay a cost, expense or
other liability to any person, if that payment or obligation is on behalf of or
in furtherance ofthe Partnership operations or is otherwise pursuant to an
obligation under this Agreement;
d) Where a Working Interest Owner contributes (or would be deemed to
contribute) cash to the Partnership which is used to acquire property, the
property will be treated as having been purchased by that Working Interest
Owner and then contributed to the Partnership at the time the
Partnership acquires that property, but the amount of cash otherwise deemed
contributed by that Working Interest Owner under
Paragraph (c) above will be reduced by the cost ofthat property to avoid a
double credit to that Working Interest Owner and the Working Interest Owners
intend that each Working Interest Owner's respective
contributions to the Partnership (i) will be strictly traced to, identified
with, and maintained in each item of Partnership property and of Partnership
expense directly related to that Working Interest
Owner's contributions and (ii) will not be affected, with respect to any item
of Partnership property and of Partnership expense, by the respective
contributions made by other Working Interest Owners to
effectuate equalization and/or other adjustments, if any, made pursuant to this
Agreement.
<PAGE>
4. Partnership Capital Accounts. A separate fair market value (SHIV) capital
account will be established and maintained for each Working Interest Owner and
will be, from time to time, increased
and decreased as follows:
a) The FMV capital accounts shall be increased by: (i) the amount of money and
the fair market value of any property contributed by each Working Interest
Owner, respectively, to the Partnership (net of inabilities assumed by the
Partnership or to which the contributed property is subject); (ii) that
Working Interest Owner's allocated share of Partnership income and gain or
items thereof under Paragraph 5; (iii) any basis increases required by Code
sections 48 (q) and 1016 (a) (24); and, (iv) that Working Interest Owner's
share of Code section 705 (a) (1) (B) and (C) items.
b) The FMV capital accounts shall be decreased by: (i) the amount of money and
the fair market value of property distributed to each Working Interest Owner
(net of liabilities assumed by such Working
Interest Owner or to which the property is subject); (ii) that Working Interest
Owner's allocated share of Partnership loss and deductions, or items
thereofunder paragraph 5; any basis decreases required
by Code sections 48 (q) and 1016 (a) (24); and, (*) that Working Interest
Owner's share of Code section 705 (a) (2) (B) items and Code section 709
nondeductible and nonamortizable items.
5. FMV Capital Account Allocations. Each item of income, gain, loss or
deduction shall be allocated to each Working Interest Owner as follows:
a) Actual or deemed income from the sale, exchange, distribution or other
disposition of production shall be allocated to the Working Interest Owner
entitled to such production or the proceeds from the
sale of such production. In the event that deemed income arising from the
in-kind distribution of production equals the fair market value of the
production distributed to a Working Interest Owner, the
Working Interest Owners recognize that the corresponding adjustments would be a
net zero adjustment and, accordingly may be omitted from the FMV capital
accounts;
b) Exploration cost, IDC, and operating and maintenance cost shall be allocated
to each Working Interest Owner in accordance with its respective contribution
to such cost;
c) Depreciation shall be allocated to each party in accordance with its
contribution to the F~IV capital account adjusted basis of the underlying asset;
d) Simulated depletion shall be allocated to each Working Interest Owner in
accordance with its F~V capital account adjusted basis in each oil and gas
property;
e) Loss (or simulated loss) upon the sale, exchange, distribution, abandonment
or other disposition of depreciable or depletable property, shall be allocated
to the Working Interest Owners in the same ratio as their respective FMV
capital account adjusted basis in the depreciable or depletable property;
f) Gain (or simulated gain) upon the sale, exchange, distribution, or other
disposition of depreciable or depletable property shall be allocated to the
Working Interest Owners so that the F~V capital account balances ofthe
Working Interest Owners with respect to such property will most closely reflect
their respective interests under the Agreement;
g) Costs or expenses of any other kind shall be allocated to and accounted for
by each Working Interest Owner in
accordance with its respective contribution to such costs or expenses; and
h) Any other income item shall be allocated to the Working Interest Owners in
accordance with the allocation of the realization.
<PAGE>
6. Returns Section.
6.1 Intent Parties. The Working Interest Owners intend that the
allocation of income, gain, losses, and
deductions be g*en Bull effect for federal and state income tax purposes, and,
in keeping with that intent, that the economic benefit or burden or each
allocation be realized or borne by the Working Interest Owner or Working
Interest Owners to whom allocated. In furtherance of that objective,
the Working Interest Owners intend and agree that all those allocations will be
reflected in the Working Interest Owner's respective FMV capital accounts
established pursuant to paragraph 4, and that,
upon termination of the Partnership, each Working Interest Owner will recede a
bona fide, economic interest (including) equitable ownership and title) in all
remaining Partnership property and cash which
is proportionate to the amount of such Working Interest Owner's FMV capital
account relat*e to the FMV capital accounts of other Working Interest Owners.
(a) Unless otherwise expressly provided herein the allocations of Partnership
items of income, gain, loss or deduction for tax return and tax basis capital
account purposes shall be the same as those
contained in Paragraph 4;
(b) The Working Interest Owners recognize that under Code section 613A (c) (7)
(D), the depletion allowance is to be computed separately by each Working
Interest Owner. For this purpose, each Working
Interest Owner's share ofthe adjusted tax basis of each oil and gas property
shall be equal to its contribution to the adjusted tax basis of such property;
(c) The Working Interest Owners recognize that under Code section 613A (c) (7)
(D) the computation of gain or loss on the taxable disposition of an oil or gas
property is to be computed separately by
each Working Interest Owner. For this purpose the portion ofthe total amount
realized by the Partnership that represents a recovery of simulated adjusted
basis in an oil and gas property will be allocated to the Working Interest
Owners in the same ratio that simulated depletion is allocated to them under
Paragraph 5 (d). Any additional amount
realized will be allocated in accordance with the
ratio of simulated gain allocation for such property under Paragraph 5 (f).
(d) Depreciation shall be allocated to each Working Interest Owner in
accordance with its contribution to the adjusted tax basis ofthe depreciable
asset;
(e) Any recapture of depreciation, IDC, and any other item of deduction or
credit shall, to the extent possible, be allocated among the Working Interest
Owners in accordance with their share ofthe
depreciation, IDC or other item of deduction or credit which is recaptured;
(f) The quahfied investment for investment tax credit purposes with respect to
any property shall be allocated among the Working Interest Owners in accordance
with their respective contributions to the
qualified investment (as defined in the code) in such property; and
(g) For Partnership property which has a value in the FMV capital accounts
which differs from the adjusted tax basis of such property, any tax items
relating to such property will be allocated to the
Working Interest Owners in a manner which takes into account the variation
between the adjusted tax basis of such property and its FMV capital account
value under Code section 704 (c).
6.2 Fair Market Value Capital Account. For purposes of establishing a
fair market value capital account, Geo shall be credited with the fair market
value of assets contributed by it to the tax partnership. The value is
$20,000,000, and consists of Geo's interests in the leases, the wells, the
production facilities, and the reserves. Saba shall be credited with all its
investments made to obtain this agreement and to develop the properties.
<PAGE>
7. Partnership Accounting.
7. l Method. For purposes of reporting on both federal and state
partnership returns, the Partnership will keep its accounts on the accrual
method of accounting.
7.2 Taxable Year. The taxable year ofthe Partnership for purposes of
reporting on both federal and state partnership returns will be the calendar
year.
7.3 Tax Returns. Federal and state partnership income tax returns will
be prepared and filed by the Unit Operator covering the operations reportable
by the Partnership. The Unit Operator agrees
to use its best efforts in the preparation and filing ofthese tax returns,
acting on behalf of itself and the other Working Interest Owners, but in doing
so, the Unit Operator will incur no inability to
the Working Interest Owners with regard to those returns or elections relating
to those tax returns. The Unit Operator shall establish and maintain FMV capital
accounts and tax basis capital accounts for
each Working Interest Owner. Unit Operator shall submit to each Working
Interest Owner along with a copy of any proposed Partnership income tax return
an accounting of its respective capital accounts as
of the period ending with such return. Each Working Interest Owner agrees to
timely furnish to Unit Operator such information relating to the operations
conducted under this Agreement as may be required
for the proper preparation of such returns and capital accounts. The Unit
Operator will submit a draft of all federal and state income tax returns for the
Partnership to all Working Interest Owners for their review no later than 30
days prior to the filing of any tax return. Any and all correspondence relating
to the preparation and/or filing of those returns should be mailed to the Unit
Operator at the following address, or to any other address as the Unit Operator
will direct:
Saba Petroleum, Inc.
201 N. Salsipuedes St., Suite 104
Santa Barbara,CA 93103
7.4 Elections. The Unit Operator, on behalf ofthe Partnership, has
made or will make the following elections:
(a) To deduct expenses and intangible drilling and development costs in
accordance with Section 263 (c) of the Code and/or comparable provisions of
state law;
(b) To compute depreciation and/or capital cost recovery allowances with
respect to all depreciable property using the most accelerated method and the
shortest depreciable useful hfe authorized by the
Code and/or comparable provisions of state law, consistent with the
maximization ofthe deductions and credits allowed under the Code and state law;
(c) To deduct as expenses all research and experimental expenditures in
accordance with Section 174 (a) ofthe Code and/or comparable provisions of state
law;
(d) To amortize over 60 months all startup costs in accordance with Section 195
(b) ofthe Code; (e) To elect to reduce basis under Section 48 (q) ofthe Code
and take full investment tax credit; (f) Solely for FMV capital account
purposes, depletion shall be calculated by using simulated percentage depletion
within the meaning of Treasury Regulations section 1.704-1 (b) (2); and
(g) Any other Partnership elections that may be approved by a 90% vote ofthe
Working Interest Owners. 7.5 Transfers.
<PAGE>
(a) Each Working Interest Owner agrees that if it makes a sale or assignment of
all or any portion of its interest in the Partnership, such sale or assignment
will be structured, if possible so as not to
cause a termination under Section 708 (b) (1) (B) ofthe Code. Any Working
Interest Owner transferring all or any portion of its interest in the
Partnership shall promptly notify the Unit Operator of such
transfer.
(b) If any Working Interest Owner transfers all or any portion of its interest
in the Partnership, both the Working Interest Owner's and the transferee's
distributive shares of Partnership items income,
gain, loss, deduction and credit will be precisely computed by an interim
closing of Partnership books as ofthe date of transfer in accordance with
Section 706 ofthe Code, the income tax regulations
promulgated under the Code and/or comparable provisions of state law. If there
is a transfer by a Working Interest Owner of any or all of its interest in the
Unit Area whether an entire interest, a fractional undivided interest or
otherwise that transfer will be treated for federal and state income tax
purposes as a sale by the transferor of an interest in the Partnership.
7.6 Designation of Tax Matters Partner. The Unit Operator is designated
tax matters partner ("TMP") as defined in Section 6231 (a) (7) of the Code. In
the event of any change in TMP, the Working Interest Owner serving as TMP for
a given taxable year will continue as TMP with respect to all matters
concerning that year. The TMP and other Working Interest Owners will use
their best efforts to comply with the responsibilities outhned in this
Paragraph and in Sections 6222 through 6232 ofthe Code (including any Treasury
regulations promulgated under the Code) and in doing so will incur no
liability to any other Working Interest Owner. Notwithstanding TMP's obligation
to use its best efforts in the fulfillment of its responsibilities, TMP will
not be required to incur any expenses for the preparation for or pursuance of
administrative or judicial proceedings unless the Working Interest Owners
agree on a method for sharing those expenses.
7.7 Notice. The Working Interest Owners will furnish TMP within two
weeks from the receipt ofthe request with such information (including
information specified in Sections 6230 (e) and 6050K
ofthe Code) as it may reasonably request to permit it to provide the Internal
Revenue Service with sufficient information to allow proper notice to the
Working Interest Owners in accordance with Sections
6223 and 6050K ofthe Code.
7.8 Termination. Termination shall occur on the earner oftermination
ofthe Partnership under Code section 708 (b) (1) or the date upon which the
Partnership ceases to be a going concern. Upon termination the business shall
be wound-up and concluded, and the assets shall be distributed to the Working
Interest Owners as described below by the end of such calendar year (or, if
later, within 90 days after the date of such termination). All assets shall
be distributed to the Working Interest Owners as provided in Paragraph 7.9
through 7.11.
7.9 Reversion. First, all money representing unexpended contributions
by any Working Interest Owner shall be returned to the contributor.
7.10 Balancing. Second, the FMV capital accounts ofthe Working
Interest Owners shall be determined under this Paragraph 7.10. The Unit Operator
shall take the actions specified under this
Paragraph 7.10 in order to cause the ratio ofthe Working Interest Owners' FMV
capital accounts to reflect as closely as possible their interests under this
Agreement. The ratio of a Working Interest
Owner's FNIV capital account is represented by a fraction, the numerator of
which is the Working Interest Owner's F~V capital account balance and the
denominator of which is the sum of all Working
Interest Owner's FMV capital account balances. Such actions are hereafter
referred to as '`balancing the SHIV capital account," and when completed, the
FMV capital accounts of the Working Interest Owners
shall be referred to as being "balanced." The manner in which the FMV capital
accounts ofthe Working Interest Owners are to balanced under this Paragraph 7.10
shall be determined as follows:
(a) The fair market value of all Partnership properties shall be determined and
the gain or loss for each property which would have resulted if a sale thereof
at such
<PAGE>
fair market value had occurred shall be allocated in accordance with Paragraph
4. If thereafter any Working Interest Owner has a negative F~IV capital account
balance, that is, a balance less than zero, such Working
Interest Owner shall contribute an amount of money to the Partnership
sufficient to achieve a zero balance FMV capital account. Any Working Interest
Owner may contribute an amount of money to the Partnership to
facilitate the balancing of the FMV capital accounts. If FMV capital accounts
are not balanced, Paragraphs 7.10 (b)
or (c) shall apply;
(b) If all the Working Interest Owners consent, any money or an undivided
interest in certain selected properties shall be distributed to one or more
Working Interest Owners as necessary for the purpose of balancing
the FMV capital accounts;
(c) Unless (b) above apphes, an undivided interest in each and every property
shall be distributed to one or more Working Interest Owners in accordance with
the ratios oftheir FMV capital accounts; and
(d) If a property is to be valued under (a) above or distributed
pursuant to (b) or (c) above, the fair market value ofthe property shall be
agreed to by the Working Interest Owners. In the event all ofthe
Working interest Owners do not reach agreement as to the fair market
value ofthe property, the Unit Operator shall cause a nationally recognized
independent engineering firm to prepare an evaluation of fair
market value of such property.
7.11 Final Distribution. Third, after the FMV capital accounts of the
Working Interest Owners have been adjusted, pursuant to Paragraph 7.10 above,
all other or remaining properties and interests then held by
the Partnership shall be distributed to the Working Interest Owners in
accordance with their FMV capital account balances .
7.12 Effect of Distribution. The Working Interest Owners specifically
intend and agree that any distribution made under either Paragraphs 7.10 or 7.11
win confer upon the distributes the actual economic
ownership and equitable title to ad those properties distributed in respect of
such distributee's Partnership capital account. If the title or form of
ownership by which any Partnership property is held under the Agreement, or
for purposes other than Partnership purposes, is different from
that necessary to fully accomplish the foregoing intent, then all Working
interest Owners agree to execute and dehver such deeds, bills of
sale and other documents, and to take those other steps, as may be necessary or
appropriate to secure to each Working Interest Owner the full economic ownership
and title in that property to which that Working Interest
Owner is entitled.
8. Ad Valorem Taxes.
8.1 Compliance Responsibility. The unit Operator will make and file
with proper taxing authorities all necessary ad valorem tax renditions and
returns and will settle all valuations and pay all taxes arising
from those returns before they become delinquent.
8.2 Information and Appeals. Each Working Interest Owner will promptly
furnish the Unit Operator with copies of notices, assessments, levies or tax
statements receded by the Working Interest Owner pertaining
to the taxes to be paid by the Unit Operator. If the Unit Operator considers
any tax assessment improper, it may,
at its sole discretion, protest within the time and manner prescribed by law and
pursue the protest to a final determination.
8.3 Allocation of Taxes. All ad valorem taxes accruing alter the
Effective Date will be Unit Expense. Ad valorem taxes on Unit Equipment will be
allocated to each item of Unit equipment in proportion to the taxing
authorities' basis for assessment against each item. Taxes allocated to each
item will be further allocated per their relative percentages of ownership in
that item. Except as may be otherwise provided in this
Agreement, ad valorem taxes will be allocated to the Working Interest Owners of
a Participating Area on the same basis as Unit Expense.
<PAGE>
8.4 Taxes Imposed on Production. Each Working Interest Owner receiving in kind
or separately disposing of all or
part of the Unitized Substances allocated to any Tract will pay or cause to be
paid all production, excise, and other taxes imposed upon or with respect to
the production or handbag of those Unitized Substances and will indemnify all
Working Interest Owners, including the Unit
Operator, against any liability for that payment.
8.5 Amendment of Tax Provisions. The Working Interest Owners agree
that certain amendments in this Exhibit G may be necessary and will perform all
acts required to effectuate those amendments
for the Partnership to conform this Exhibit G to the requirements of final
regulations to be issued under Section 704 (c) ofthe Code.
When recorded please return to:
Saba Petroleum, Inc.
201 N. Salsipuedes St., Suite 104
Santa Barbara,CA 93103
(Space above line for Recorder's use)
ASSIGNMENT
Geo Petroleum, Inc., 25660 Crenshaw Blvd., Torrance, California 90505,
hereinafter referred to as "Assignor," for and in
consideration of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is acknowledged,
does hereby assign and convey, WITHOUT WARRANTIES OR COVENANTS OF TITLE, EITHER
EXPRESS OR IMPLIED, unto Saba Petroleum, Inc., 201 N.
Salsipuedes St., Suite 104, Santa Barbara, California 93103, hereinafter
referred to as "Assignee," two thirds (2/3) of Assignor's
right, title and interest in and to properties described in Exhibit "A,"
attached hereto and made a part hereof, including, but not
limited to two thirds (2/3) of Assignor's right, title and interest in, to and
under the following (the "Assets"):
(a) The oil, gas and other mineral leasehold interests
described in Exhibit "A" attached hereto and made a part
hereof, insofar as such cover and affect the lands, substances and
depths described in Exhibit "A"; (b) The wells, equipment and
facilities located on the lands described in Exhibit "A" or
for use directly in the
operation ofthe interests described in Exhibit "A";
(c) Oil, condensate, natural gas liquid produced abler the
Efffective Date, inventory, including 'line fill" and
inventory below the pipeline connection in tanks, attributable to the
interests described in Exhibit "A"; (d) All contracts and
agreements concerning the interests described in Exhibit "A";
(e) All surface use agreements, easements, rights of way,
incenses, authorizations, permits, and similar rights and
interests applicable to, or used or useful in connection with, any or all ofthe
interests described in Exhibit "A".
Equipment, wells and personal property located on or used directly in
the operation of the Assets are assigned AS IS AND WHERE
IS. AND WITHOUT WARRANTY OF MERCHANTABILITY. CONDITION OR FITNESS FOR A
PARTICULAR PURPOSE. EITHER EXPRESS OR IMPLIED.
From and after the Closing Date, Assignee agrees to comply with any
and all laws, ordinances, rules and regulations with
respect to the Assets, where applicable, ordinances, laws, rules and
regulations governing the plugging of wells, the compliance with
laws or rules regarding inactive or unplugged wells, including bonding
requirements, and the use of explosives in shooting or pulling of casing and
tubing. Assignee agrees that it shall properly obtain and maintain all
permits required by public authorities on the Assets contained herein.
Assignee certifies and acknowledges that it has all the necessary incenses
under applicable state and federal law to accept assignment of the property.
TO HAVE AND TO HOLD the same unto Assignee, its successors and
assigns, forever.
The terms and conditions contained herein shall constitute covenants
running with the land, and shall be binding upon, and for
the benefit of; the respective successors and assigns of Assignor and Assignee.
1
<PAGE>
This Assignment is made subject to all of the terms and conditions
of that Agreement for Assignment of Leases by and between Saba Petroleum, Inc.
and Geo Petroleum Inc. dated December,1996.
This Assignment shall be effective as of December, 1996, at 7:00 a.m. local
time where the Assets are located.
EXECUTED THIS 20 day of December, 1996.
ASSIGNOR:
GEO PETROLEUM, INC.
By:
Title:
ASSIGNEE:
SABA PETROLEUM, INC
By:
Title:
2
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
On December 19, 1996 before me, George M. Kivett, Notary Public, personally
appeared George T. Raydon, (proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person, or the entity upon behalf
of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature ___________________
STATE OF CALlFORNlA
COUNTY OF Santa Barbara
On December 20, 1996 before me, Tiffany G. White, Notary Public, personally
appeared Larry R. Burroughs, (proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his authorized capacity,
and that by his signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signatur&: ___________________
<PAGE>
ILLEGIBLE NOTARY SEAL DECLARATION
(GOVERNMENT CODE 27361.7)
Icertify under penalty of perjury that the notary seal on the document to
which this statement is attached reads as follows:
Narme of Notary Larry R. Burroughs
Commission No. 101982 NNA1
Date Commission Expires April 22, 1998
Vendor I.D. No. NNA1
Date and Place of Notary Execution 20 December 1996
Date and Place of This Declaration Santa Barbara
Signature __________________________
Firm Name (if any) Saba Petroleum, Inc.
<PAGE>
<TABLE>
<CAPTION>
Exhibit "A"
Attached to and Made Part of
Assignment of Leases Dated, December , 1996
Ventura County, California
<S> <C> <C> <C> <C>
LESSOR LESSEE DATE RECORDING DATA DESCRIPTION OF PROPERTY
Vaca Tar Sand Unit Leases
E.E. Lenox, Single Man Raleigh P. Trimble 04~24-34 Book 426 Page:241 Part of the Rancho el Rio a la
Colonia known as the west 80
acres of the 119.24 acres in
subdivisions numbered 53 and 54,
lying between the Storms Road,
the Railroad and the Wolff Road,
containing 80 acres.
John Hollis Lenox and Exeter Oil Company 06-04-46 Book 777 Page:232 39 acres, more or less, out of
Alice Lenox Ltd. and Vaca Oil Company subdivion 53 of Rancho el Rio d
Santa Clara o la Colina
W.R Livingston Raleigh P. Trimble 04~26-34 Book: 461 Page:267 159.5 acres, more or less out of
subdivision 53 of Rancho el Rio
de Santa Clara 0 la Colonial
Robert S. Livingston Raleigh P. Trimble 04-26-34 Book: 460 Page: 478 Insofar and only insofar as leas
and Mayrie Daily covers 149.10 acres, more or
Livingston, his wife less out of subdivision 53 and
55 of Rancho el Rio de Santa
Clara O la Colonia.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit "A"
Attached to and Made Part of
Assignment of Leases Dated,
December , 1996 Ventura County, California
(Continued)
<S> <C> <C> <C> <C>
LESSOR LESSEE DATE RECORDING DATA DESCRIPTION OF PROPERTY
Document Number
Non-Unit Lease
Clarence W. Hunsucker, Sun Operating Limited 04-02-86 86-128442 Parcels B. C ~ D of Subdivision 55 of the
J. Thomas Hunsucker Partnership Rancho E1 Rio De Santa Clara O'La
and Evelyn Colonia in the County of Ventura State of
Hunsucker AKA Evelyn N California, according to the map recorded
Hunsucker,AKA Eva Newman in Book 3, page 112 of rnaps, in the office
Hunsucker of the County Recorder of said county.
Trustees of the Thomas Together with those portions of Sturgis
O. Hunsucker Family Trust; Road, Pleasant Valley Road, and Wood Road as
Clarence W. said roads are shown on said map lying
Hunsucker Estate northerly, northwesterly, and westerly
as Executor of the respectively of the centerline of said
of Thomas O.Hunsucker roads.EXCEPT that portion of said land lying
deceased northerly of the following described and
line: Beginning at a point in the centerline
of Wood Road, distant thereon South 0(degree)
23' 58" West 1182.96 feet from the
intersection thereof with the westerly
prolongation of the northerly line of
subdivision 58 of said Rancho; thence, 1st:
North 88(degree) 48' 34" West 3376.48
feet more or less to a point in the
westerly line of said Subdivision 55.
</TABLE>
