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EXHIBIT 10.20
FARMOUT AGREEMENT
BETWEEN
CHEVRON U.S.A. INC.
&
KEWANEE INDUSTRIES, INC.
AND
ENERGY PARTNERS, LTD.
DATED JUNE 9, 1998
MAIN PASS BLOCKS 122 & 133
OFFSHORE LOUISIANA
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FARMOUT AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS ................................................... 1
1.1. Farmout Lease(s) ...................................... 1
1.2. Farmout Well(s) ....................................... 1
1.3. Optional Well(s) ...................................... 1
1.4. Authorization for Expenditure (AFE) ................... 1
1.5. Original AFE .......................................... 1
1.6. Supplemental AFE ...................................... 1
1.7. Subsequent AFE ........................................ 2
1.8. AFE Operations ........................................ 2
1.9. AFE Equipment ......................................... 2
1.10. Earning Well(s) ....................................... 2
1.11. Payout Amount ......................................... 2
1.12. Net Proceeds Amount ................................... 2
1.13. Gross Proceeds ........................................ 2
1.14. Chargeable Expenditures ............................... 2
1.15. Paying Quantities ..................................... 2
2. TERMINATION OF LETTER AGREEMENT ............................... 3
3. RIGHTS AND ACCESS ............................................. 3
4. FARMOUT WELLS ................................................. 3
5. OPTIONAL WELLS ................................................ 5
6. EARNING ....................................................... 5
7. OPERATIONS AFTER EARNING WELL COMPLETION ...................... 7
8. PURCHASE AND SALE OF OIL AND GAS .............................. 8
9. PAYOUT ACCOUNT ................................................ 8
10. DRILLING AND GEOLOGICAL REQUIREMENTS .......................... 9
11. REPORTS AND STATEMENTS ........................................ 9
11.1. Notice of Commencement ................................ 9
11.2. Inventory of Material and Equipment ................... 9
12. TAX MATTERS ...................................................10
13. COMPLIANCE ....................................................10
14. INSURANCE .....................................................10
14.1. Provision of Certificate ..............................10
14.2. Specific Insurance of Farmout Risks ...................10
15. INDEMNITY .....................................................10
16. PRIOR OBLIGATIONS MAINTAINED ..................................11
17. NO LIENS OR ENCUMBRANCES ......................................11
18. NO PLEDGES ....................................................11
19. PAYMENT OF DEBTS, CHARGES .....................................11
20. BREACH ........................................................11
21. OTHER RIGHTS, REMEDIES RESERVED ...............................11
22. NO WAIVER .....................................................11
23. AUDIT RIGHTS ..................................................12
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24. ASSIGNMENTS ...................................................12
25. FORCE MAJEURE .................................................12
26. NOTICES .......................................................12
27. AMENDMENTS ....................................................12
28. TOPICAL HEADINGS ..............................................12
EXHIBITS
'A' FARMOUT LEASES, FARMOUT WELLS AND OPTIONAL WELLS
'B' TAX PARTNERSHIP
'C' DRILLING AND GEOLOGICAL REQUIREMENTS
'D' INSURANCE PROVISIONS
'E' ORIGINAL AFES
'F' FORM ASSIGNMENT
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FARMOUT AGREEMENT
THIS AGREEMENT is made and entered into DATED JUNE 9, 1998, by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation (hereinafter sometimes referred
to as "Chevron"), KEWANEE INDUSTRIES, INC., a Pennsylvania corporation
(hereinafter sometimes referred to as "Kewanee"), and ENERGY PARTNERS, LTD., a
Delaware corporation (hereinafter sometimes referred to as "EPL").
WITNESSETH
WHEREAS, Chevron owns certain mineral rights and interests created by a
certain oil and gas lease covering Main Pass Block 122, and Chevron, Kewanee and
Mobil Oil Exploration & Producing Southeast Inc. ("Mobil") own certain mineral
rights and interests created by a certain oil and gas lease covering Main Pass
Block 133 (both being collectively referred to as the "Farmout Leases"), both
being Offshore Louisiana and further described on the attached Exhibit `A'.
Pursuant to said Farmout Leases, Chevron and Kewanee have the right to conduct
operations including, but not limited to, the drilling, recompletion, reworking,
reconditioning, sidetracking and completion (and associated downhole operations)
of wells which are the subject of this Agreement (the "Farmout Wells"), and to
own the production obtained from such wells; and
WHEREAS, Chevron and EPL have entered into a Letter Agreement dated April
9, 1998 (the "Letter Agreement") pursuant to which EPL agreed to pay the costs,
and physically manage the conduct of specific downhole well activities approved
pursuant to the provisions of this Agreement (such activities being sometimes
hereinafter referred to as "AFE Operations") in an effort to re-establish
production from the above-referenced wells, with EPL recouping costs (as fully
described herein); and
WHEREAS, Chevron and EPL desire to execute this Agreement to supersede said
Letter Agreement, and to include the detailed provisions necessary to realize
the intents generally outlined in said Letter Agreement, as well as to allow
Kewanee to ratify such intents;
NOW, THEREFORE, in consideration of the mutual benefits and advantages
accruing to the parties hereto, Chevron, Kewanee and EPL have agreed and do
hereby agree, as follows:
1. DEFINITIONS
As used in this Agreement, the following words and terms shall be defined
as follows:
1.1. FARMOUT LEASE(S)
The oil and gas lease(s) governing operations in and on the Farmout
Wells, being OCS-G 13964 (covering Main Pass Block 122) and OCS-G
1633 (covering Main Pass Block 133).
1.2. FARMOUT WELL(S)
Each well (listed on Exhibit "A" attached) in which EPL has the
obligation to conduct operations in accordance with the terms of this
Agreement, with the intent of establishing production in Paying
Quantities.
1.3. OPTIONAL WELL(S)
Each well (listed on Exhibit "A" attached) in which EPL has the
option to conduct operations in accordance with the terms of this
Agreement, with the intent of establishing production in Paying
Quantities. An AFE for an Optional Well must be approved by Chevron,
Kewanee and EPL prior to conducting operations on said well.
1.4. AUTHORIZATION FOR EXPENDITURE (AFE)
A written summary, approved by Chevron and Kewanee and in a format
similar to that which is standard in the oil and gas industry, of a
proposed AFE Operation to be performed by EPL in an effort to
establish a well capable of producing in Paying Quantities. Said
summary shall include, but not be limited to, the estimated cost
associated with the conduct of such Operation and the method by which
the Operation shall be conducted. An AFE under this Agreement can be
an Original AFE, a Supplemental AFE or a Subsequent AFE. Each
Original AFE for the Farmout Wells is attached hereto as Exhibit 'E',
and shall be considered approved by Chevron, Kewanee and EPL for
purposes of this Agreement.
1.5. ORIGINAL AFE
An AFE covering the first AFE Operation on a Farmout Well pursuant to
this Agreement.
1.6. SUPPLEMENTAL AFE
An AFE which expands or changes the cost or scope in an Original AFE
for a specific Farmout Well, which plan is commenced within thirty
(30) days of the completion of operations under an Original AFE for
the same well.
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1.7. SUBSEQUENT AFE
Each AFE (other than an Original or Supplemental AFE) for a specific
Farmout or Optional Well which is approved and implemented following
the complete implementation of the Original AFE and any Supplemental
AFE for such well.
1.8. AFE OPERATIONS
All activities set forth on the attached Original AFEs, and on any
other approved Original, Supplemental or Subsequent AFEs, which are
conducted on the Farmout and/or Optional Wells. All AFE Operations
must be approved by Chevron, Kewanee and EPL. AFE Operations shall
not include plugging and abandonment of any Farmout Well, unless
separately agreed to in writing by Chevron, Kewanee and EPL. AFE
Operations shall include only those operations conducted under
Original, Supplemental or Subsequent AFEs, whether conducted by
Chevron or EPL (and if by Chevron, for cost purposes only as set
forth on such Original AFEs).
1.9 AFE EQUIPMENT
All equipment (including but not limited to pipelines, flowlines,
risers, structures, processing vessels and wellheads) and materials
for AFE Operations in, on or in support of the Farmout Wells pursuant
to this Agreement. The acquisition and installation (pursuant to an
AFE) of all AFE Equipment must be approved by Chevron, Kewanee and
EPL.
1.10. EARNING WELL(S)
The Farmout Well(s) that EPL or Chevron has caused to produce oil
and/or gas in Paying Quantities, the production from which EPL shall
recover costs paid by EPL to generate said production.
1.11. PAYOUT AMOUNT
The total aggregate amount of money to be recouped by EPL, from EPL's
Net Proceeds Amount, for costs of AFE Operations conducted and AFE
Equipment installed. Such aggregate amount shall be the total of the
following:
(a) one hundred twenty percent (120%) of the actual costs paid or
incurred by EPL for AFE Operations performed and AFE Equipment in
and on the Farmout Wells and Farmout Leases; plus
(b) 120% of all actual costs incurred due to emergencies or force
majeure occurrences; minus
(c) any applicable "E&S Penalty" or "Additional Mechanical Costs", as
more fully described in Article 6.3 below.
1.12. NET PROCEEDS AMOUNT
The amount by which EPL's share of "Gross Proceeds" (as defined
below) exceed EPL's share of "Chargeable Expenditures" (as defined
below) for any accounting month.
1.13. GROSS PROCEEDS
The total aggregate amount received by EPL from the sale of its
working interest share of oil, gas, casinghead gas, associated
hydrocarbon liquids and all other salable products obtained from or
attributable to the Earning Well(s) prior to its recovery of the
Payout Amount, less ordinary and reasonable expenses of marketing the
product therefrom.
1.14. CHARGEABLE EXPENDITURES
As used herein, Chargeable Expenditures shall be EPL's share of (1)
lease royalties that are applicable to its working interest in the
Earning Well(s), (2) severance, production, excise and other
non-income taxes attributable to its working interest in said
production, and 3) its share of lease operating expenses associated
with a Mobil non-consented interest, if any, acquired by EPL pursuant
to Article 4.4 of this Agreement.
1.15. PAYING QUANTITIES
For the purpose of this Agreement, a Farmout Well shall be considered
as being capable of producing in Paying Quantities (and therefore
classified as an Earning Well) when production of oil, gas or both at
the wellhead is producible in quantities sufficient to yield the
oil/gas equivalent of 25 BOPD based on initial production well tests
conducted for regulatory reporting purposes. The gas to oil
conversion rate for this determination shall be 6 MCF for 1 barrel of
oil. Notwithstanding anything to the contrary, no well shall be
considered as producing in Paying Quantities if the produced water
volume exceeds the produced oil volume or gas equivalent by a
multiple higher than twenty to one, without the written approval of
Chevron and Kewanee.
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2. TERMINATION OF LETTER AGREEMENT
Concurrent with the effective date of this Agreement, the Letter Agreement
dated April 9, 1998 between Chevron and EPL shall be superseded by this
Agreement. Any and all AFE Operations or issues associated with the Letter
Agreement shall be governed by this Agreement, whether or not such AFE
Operations or issues occurred prior to or after the execution date of this
Agreement.
3. RIGHTS AND ACCESS
3.1. Chevron and Kewanee agree to designate EPL as operator of the Farmout
Leases as to the Farmout Wells, and to make a good-faith effort to
obtain such designations from Mobil. At such time as EPL becomes a
operator qualified by the Minerals Management Service (MMS) to
conduct all of the operations contemplated by this Agreement, Chevron
and Kewanee hereby grant EPL the right of access to, entry upon and
use of the Farmout Leases, the Farmout Wells, the Main Pass 133 'A'
Platform and associated properties and facilities, when and as
necessary for the purpose of conducting AFE Operations pursuant to
this Agreement. Each party shall make a good-faith effort to conduct
its operations in a manner as to not interfere with any other
operations on or impacted by the Main Pass 133 'A' Platform.
3.2. EPL shall have exclusive charge, control and supervision of its
operations on the Farmout Wells, together with all obligations
arising from its AFE Operations. Chevron and Kewanee retain the right
to access EPL's operations conducted pursuant to this Agreement at
all times, except as detrimental to EPL's operations.
3.3. EPL's right to receive the Payout Amount shall terminate only upon
the earlier of (i) EPL's receipt of such Payout Amount, or (ii) the
expiration of all rights of EPL to conduct or propose operations in
the Farmout Wells.
4. FARMOUT WELLS
4.1. This Agreement shall become effective upon the satisfaction of all of
the following conditions (the "Effective Time"):
(i) Execution of this Agreement and all executable exhibits by the
parties;
(ii) Receipt by EPL of Mobil's written release of EPL to EPL's
reasonable satisfaction relating to operations by EPL pursuant
to this Agreement;
(iii) Receipt of all consents and agreements of both Mobil and
Kewanee pursuant to their joint operating agreements with
Chevron and any other related agreements; and
(iv) The filing and effectiveness of the designations of EPL for
operatorship of the Farmout Wells as contemplated by this
Agreement.
EPL shall assume control of the Farmout Well upon which operations
are being conducted by Chevron at the Effective Time within
seventy-two (72) hours (excluding weekends and force majeure) of the
Effective Time. EPL shall finish AFE Operations on said Farmout Well
in accordance with the applicable attached AFE. Failure to timely
commence AFE Operations as described in this Article 4.1 shall
terminate this Agreement in its entirety immediately.
4.2. Chevron will provide EPL with all pertinent data and information
(which it has the right to provide) relevant to said Farmout Well(s)
on which AFE Operations are proposed, and which is necessary to
assist EPL in the conduct of the AFE Operations required hereunder.
All data and information shared by Chevron with EPL shall be subject
to that certain Confidentiality Agreement between Chevron and EPL
dated March 25, 1998.
4.3. EPL must commence AFE Operations on the fourth (4th) Farmout Well
within fifteen (15) days of completion of its AFE Operations on the
prior well (subject to force majeure, and subject to any limitations
necessary to obtain the consent or non-consent of Mobil). For the
purpose of this Article 4.3, EPL shall have completed AFE Operations
on a Farmout Well at such time as the well is completed through the
christmas tree or at such time as the well is temporarily abandoned
by EPL or turned over to Chevron and Kewanee in accordance with
Article 4.6 herein. Failure to commence timely such AFE Operations,
or failure to conduct same in accordance with the approved AFE
without prior notice and approval of any significant, adverse
deviation from such AFE by Chevron or Kewanee (except for emergencies
or force majeure occurrences), shall terminate this Agreement as to
all Farmout Wells in which operations have not been commenced prior
to said termination.
4.4. EPL shall conduct AFE Operations strictly as proposed in the AFE for
each Farmout Well, with due diligence and in a workmanlike manner.
EPL shall conduct such AFE Operations in a good
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faith effort to produce oil and/or gas from each such well pursuant
to the terms hereof. All contractors or subcontractors of EPL shall
be taken from the Chevron approved contractors list. EPL shall be
obligated for, and shall coordinate the provision of and the payment
for, the cost of all AFE Equipment and services used in AFE
Operations. Notwithstanding any provision to the contrary contained
herein, it is agreed that in the event of an emergency situation, EPL
shall use its best efforts to contact Chevron but shall have the
right to utilize all services and procure all materials and equipment
reasonably necessary in light of the circumstances, which costs shall
be recouped by EPL pursuant to the payout provisions of this
Agreement.
Should Mobil non-consent (under the terms of the JOA) any AFE
Operation conducted by EPL in any Farmout Well, EPL shall pay all
costs of the AFE Operation by EPL associated with Mobil's
non-consented interest as though the interest was farmed out by
Chevron and Kewanee to EPL pursuant to this Agreement. EPL shall
recoup a) 120% of such costs, and b) all of the amounts recoupable
from Chevron's and Kewanee's interest as provided herein. However,
Mobil's share of the cost of non-consent well operations shall be
recouped only out of One Hundred Percent (100%) of Mobil's share of
such production, less Mobil's share of lease operating expense and
MMS royalties. It is the intention of the parties that should EPL's
recovery of the Payout Amount occur prior to recoupment by EPL of the
costs associated with Mobil's non-consented interest, EPL shall
continue to receive its Net Proceeds Amount hereunder until full
recoupment of the Mobil non-consent interest or until the well
bearing the penalty is abandoned with no future utility by EPL. EPL
shall not have the right to recoup its Mobil non-consent penalty from
the Net Proceeds Interest until the Payout Amount is recouped, and
then (individually or collectively) only from the well(s)
non-consented by Mobil.
If Mobil elects to participate, EPL may (at its option) cash call
Mobil. If Mobil will not allow EPL to cash call Mobil's interest
directly, then upon payment of the cash calls by Mobil to Chevron,
Chevron will promptly forward such amount to EPL for credit against
Mobil's share of costs incurred by EPL. EPL shall prepare Joint
Interest Billings for the "Joint Account" (being Chevron, Mobil,
Kewanee and EPL) for AFE Operations in compliance with the Joint
Operating Agreement and Accounting Procedure currently governing the
leases subject to this Agreement. EPL shall reconcile the cash calls
attributable to Mobil's share against Joint Interest Billings for
Mobil's share of any operations approved by Mobil. EPL shall forward
copies of its Joint Interest Billings and cash call reconciliations
directly to Mobil, and provide informational copies to Chevron.
However, Chevron shall not be liable for any differences in such cash
call/Joint Interest Billing Cost reconciliations. EPL shall also
retain Joint Account records in accordance with the Joint Operating
Agreement and Accounting Procedure currently governing the leases
subject to this Agreement. Chevron, Kewanee, Mobil and EPL shall have
the right to audit each other's Joint Account records in accordance
with the previously referenced Accounting Procedure. EPL shall
indemnify and hold harmless Chevron and Kewanee from and against any
and all losses incurred as a result of accounting errors made by EPL
with respect to the computation of Mobil's interest in the Farmout
Wells.
If at any time a Farmout Well fails to produce or ceases to produce
in Paying Quantities prior to full recovery of the Payout Amount by
EPL, that well shall cease to be considered part of this Agreement,
and EPL's interest in each such well and associated Farmout Lease
acreage will immediately be reassigned to Chevron and Kewanee (if any
such assignment has previously been made), unless EPL proposes a new
workover program acceptable to Chevron and Kewanee within ninety (90)
days of last operations or production (whichever occurs later) on
said well. Any other operations for that well (other than those
approved under a Subsequent AFE) not allowed under this Agreement
shall require new and separate negotiations unless added to the scope
of this Agreement by the mutual consent of all parties.
4.5. No AFE Operations shall be conducted in a Farmout Well without
Chevron's and Kewanee's express consent. Chevron and Kewanee shall
not unreasonably withhold consent to EPL's rework of a Farmout Well
during such time as EPL is recouping the Payout Amount. The
expenditure for such rework which has been approved by Chevron and
Kewanee through an AFE shall be added to the Payout Amount to be
recouped by EPL as provided in Article 6 below.
Either Chevron or Kewanee shall have the sole discretion to suspend
the AFE Operations upon reasonable notice to EPL, as Chevron or
Kewanee deem reasonably necessary and prudent for safe operations, or
for the economical or successful completion or temporary abandonment
of any of said Farmout Wells, provided EPL shall receive the Payout
Amount for work completed. Any AFE Operation may be modified by
Chevron and Kewanee pursuant to a Supplemental AFE prepared by EPL,
which shall require the approval of EPL only if the change in scope
creates costs and risks to EPL in excess of those approved under the
Original AFE Operation. If EPL does not approve a proposed
Supplemental AFE requested by Chevron or Kewanee, Chevron and/or
Kewanee shall have the right to conduct said operations at its/their
sole cost, risk and expense, and in compliance with all laws, rules
and regulations bearing thereon, with the
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right to utilize the contracts, materials and equipment (to the
extent possible) in place at the time that the approved AFE
Operations were completed, and with the right to utilize the drilling
services contracted by EPL at the time of Chevron's and/or Kewanee's
takeover on a day-rate basis consistent with those rates charged
hereunder. In such case, EPL shall pay for all costs it incurs to
conduct the AFE Operation, and Chevron and/or Kewanee shall pay and
be responsible for (outside the terms of this Agreement) all
additional operations which Chevron conducts that EPL does not
approve. The Net Proceeds Amount payable to EPL from any Earning Well
completed by Chevron pursuant to AFE Operations not approved by EPL
shall be suspended, as to such Earning Well, until such time as
Chevron has recovered 100% of its costs associated with said
operations. Additionally, EPL may propose modifications to the AFE
Operations, which if approved by Chevron shall be set forth in a
Supplemental AFE executed by the parties.
4.6. If a Farmout Well is incapable of producing in Paying Quantities
after AFE Operations have been conducted by EPL, or if EPL chooses,
at its sole discretion, not to complete or recomplete the well, said
Farmout Well shall be dropped from this Agreement (subject to the
option to commence additional AFE Operations as provided in Paragraph
4 of Article 4.4 above). Chevron and Kewanee shall have forty-eight
(48) hours of rig standby time at EPL's cost (and subject to recovery
as part of the Payout Amount), plus whatever amount of rig standby
time they wish to utilize at Chevron's and Kewanee's cost, after
receiving notice from EPL of its intent to temporarily abandon the
well in which to inform EPL as to whether Chevron and Kewanee wish to
take over the well and associated rig, or allow EPL to proceed with
its temporary abandonment efforts. If Chevron and Kewanee take over
the well, EPL shall release the rig to Chevron and Kewanee and shall
have no further responsibility or liability for the rig costs upon
the retransfer of operating rights to Chevron and Kewanee, and the
well shall be owned by Chevron and Kewanee. In addition, Chevron and
Kewanee shall have sole responsibility and liability for the well
operations thereafter, including the plugging and permanent
abandonment of said wells. EPL shall bear no obligation for the
plugging and abandonment of said well (nor any other well) subject to
this Agreement.
4.7 EPL agrees to pay all charges that are incurred by AFE Operations
(listed on the attached Exhibit 'E') within twenty (20) days of EPL's
receipt of a final invoice in its name.
4.8 Chevron and Kewanee hereby waive any preferential right they may have
as to the interest being transferred to and assigned to EPL.
5. OPTIONAL WELLS
5.1. One or both of the wells identified on Exhibit 'A' as an "Optional
Well" are wells which may be designated as "Farmout Wells" by mutual
agreement of the parties hereto, and AFE Operations on such wells
shall be governed by the provisions of Article 3 above.
5.2. All of the terms and conditions which apply to each Farmout Well
operated by EPL hereunder shall also apply to each Optional Well.
6. EARNING
6.1. As a result of the successful completion of the OCS-G 1633 #A-6 and
OCS-G 1633 #A-10/A-10 S/T as Earning Wells and upon the successful
completion of the other Farmout Wells or Optional Wells, EPL shall be
assigned of 75% of Chevron's and Kewanee's operating rights and
working interest in the 1/4 1/4 1/4 square of Farmout Lease acreage
in each respective completion in said Earning Well is located (the
"Earned Acreage"), together with the right to recover the Payout
Amount from production generated by all Earning Wells. Each such
assignment shall include rights from the surface to the base of the
deepest producing interval, plus one hundred feet (100'), in the
Earned Acreage for each Earning Well. Said assignment shall be
effective, as to each Earning Well, as of the date of initial AFE
Operations by EPL on said well, or date of initial production from
said well, whichever occurs first. EPL shall recoup the Payout Amount
from all Earning Wells (rather than recouping the Payout Amount on a
well-by-well basis). As such, EPL shall receive the Net Proceeds
Amount from its working interest share of production from all Earning
Wells, until such time as EPL has fully recouped the Payout Amount
associated with all AFE Operations and AFE Equipment paid for by EPL
hereunder. During the time EPL is recouping the Payout Amount,
Chevron and Kewanee shall retain 25% of their working interest in the
Earning Wells and the Earned Acreage, and shall also be responsible
for all of EPL's costs (other than Chargeable Expenses) associated
with EPL's operating rights and working interest in the Earning
Wells, including operating expenses.
6.2. In the event recoupment of the Payout Amount occurs within six months
of the date of the completion of all operations conducted on the
Farmout Wells pursuant to this Agreement, the one hundred twenty
percent (120%) risk premium specified in Article 1.10. shall be
reduced to one hundred eighteen percent (118%). If EPL has not
recouped the Payout Amount from production resulting from the Earning
Wells after one (1) year of the date of the completion of all EPL
operations conducted on the Farmout Wells, the Payout Amount as of
the conclusion of the twelfth month, and every month thereafter,
shall be increased by one point five percent (1.5%) per month until
payout from production from the Earning Wells is achieved (i.e. if
the Payout
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Amount at the end of the twelfth month is $1,000,000, the payout
amount shall be increase to $1,015,000 on the first day of thirteenth
[13th] month).
The approved sums expended by EPL pursuant to this Agreement shall be
recovered solely from the Earning Wells. Recovery from Net Proceeds,
as defined in Article 1.11, for sums expended by EPL pursuant to
obligations under this contract IS NOT GUARANTEED. Except for all
indemnity obligations hereunder, Chevron and Kewanee shall have no
obligation to reimburse EPL for any portion of the Payout Amount not
reimbursed by the Net Proceeds. Chevron and Kewanee shall bear all
lease operating expenses attributable to the interests earned by EPL
pursuant to this Agreement.
6.3. EPL's Payout Amount shall be reduced by an "E&S Penalty" upon the
occurrence of an "E&S Event" caused by EPL'S operations conducted
pursuant to this Agreement. An "E&S Event" is defined as any OSHA
recordable accident, oil spill, material incident of non-compliance
with law or regulation or any material permit non-compliance by EPL
during its work on the Farmout Wells. The "E&S Penalty" shall be a
One Percent (1%) reduction of the Payout Amount of the well in which
such "E&S Event" occurs [up to a maximum of Two Percent (2%) per
Farmout Well], for each E&S Event occurring during its conduct of AFE
Operations. No operations conducted on the Farmout Wells by parties
other than EPL, its agents and contractors shall be considered E&S
Events as defined herein.
The Payout Amount shall also be reduced as the result of "Additional
Mechanical Costs" incurred by EPL during the course of operations
conducted by EPL pursuant to the Farmout Agreement. "Additional
Mechanical Costs" are defined as that percentage of the actual costs
incurred and/or paid by EPL for AFE Operations performed and AFE
Equipment installed by EPL in and on a Farmout Well which are in
excess of the amounts of the approved AFEs for said AFE Operation and
said AFE Equipment. The reduction of the Payout Amount associated
with Additional Mechanical Costs shall be calculated as follows:
(a) For Additional Mechanical Costs of Five Percent (5%) to Fourteen
Point Nine Percent (14.9%), the Payout Amount on the particular
Farmout Well shall be reduced by One Percent (1%);
(b) For Additional Mechanical Costs of Fourteen Point Nine Percent
(14.9%) to Twenty-Four Point Nine Percent (24.9%), the Payout
Amount on the particular Farmout Well shall be reduced by Two
Percent (2%);
(c) For Additional Mechanical Costs in excess of Twenty-Five Percent
(25%), the Payout Amount on the particular Farmout Well shall be
reduced by Three Percent (3%);
provided, however, that in no event shall the cumulative reduction
per Farmout Well from the Payout Amount for Additional Mechanical
Costs alone exceed Three Percent (3%); and further provided that in
no event shall the cumulative reductions from the Payout Amount for
E&S Risk plus Additional Mechanical Costs combined exceed Five
Percent (5%) for the combination of all Farmout Wells in the program.
Additionally, if at such time as EPL has recovered the Payout Amount,
the cumulative actual costs for the entire program are less than the
cumulative costs listed on the AFEs for the entire program, then any
portion of the difference which represents a deduction from the
Payout Amount for Additional Mechanical Costs shall be reimbursed to
EPL.
6.4. Upon the full remittance of the adjusted Payout Amount to EPL, EPL's
Net Proceeds Amount shall automatically re-invest in Chevron and
Kewanee, and EPL agrees to execute any and all documents Chevron and
Kewanee require to effectuate a reassignment of any interest in the
Earning Wells and the Farmout Leases earned by EPL hereunder to
Chevron and Kewanee.
6.5. At such time as EPL has recovered the Payout Amount, EPL's
seventy-five percent (75%) working interest in the Earning Well(s)
shall be reduced to a one percent (1%) working interest, and
Chevron's and Kewanee's working interest in each said well shall
automatically be converted into a ninety-nine percent (99%) working
interest therein. In addition, Chevron and Kewanee shall own 100%
interest in all equipment, facilities, pipelines, and other property
paid for by EPL and reimbursed as part of the Payout Amount. EPL
shall bear no cost or expense of any nature in regards to its working
interest ownership in the Farmout Wells, and Chevron and Kewanee
shall bear such costs and indemnify EPL for all such costs and
expenses, including attorney's fees.
EPL shall then ratify the appropriate operating agreement bearing on
such well(s), and its one percent (1%) working interest shall be
represented by Chevron and Kewanee as to any voting issues. However,
EPL shall have the right to non-consent any AFE proposal made by
Chevron and Kewanee or Mobil after recovering the Payout Amount by
assigning all of EPL's interest in the Earning Well subject to the
AFE to Chevron and Kewanee (subject to Chevron's and
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Kewanee's right to reject said offer). EPL shall bear no cost of
plugging and permanent abandonment of said wells and areas.
6.6. Upon receipt of a written request by EPL, Chevron and Kewanee shall
execute and record an assignment of the rights and interests earned
by EPL, subject to the right of re-assignment to Chevron and Kewanee
as described herein. Prior to EPL's recovery of the Payout Amount,
any assignment earned under this Agreement shall contain a provision
that the interest vested in EPL as to each Earning Well individually
thereby shall automatically terminate and re-vest in Chevron and
Kewanee or their successors or assigns when EPL abandons production
from or AFE Operations on the applicable well. Such assignment
provision shall provide such automatic termination upon cessation of
production in Paying Quantities from the applicable well for a period
of ninety (90) consecutive days after receipt of notice from Chevron
that the well is no longer producing in Paying Quantities, and EPL
does not propose a new workover program acceptable to Chevron and
Kewanee within ninety (90) days (or shorter, if necessary to maintain
a Farmout Lease by its lease obligations) after notice is received by
EPL from Chevron that the well is no longer producing in Paying
Quantities. If and when necessary and upon receipt of a written
request, EPL agrees to execute an appropriate assignment to evidence
such revestiture. Said reassignment shall be made without cost or
expense to Chevron and Kewanee or their successors or assigns, and
shall be free and clear of any liens, encumbrances or carved-out
interests whatsoever (including, but not limited to, any overriding
royalty or production payment) created by EPL.
In addition, at the end of the life of production pursuant to this
Agreement, if the Payout Amount has not yet been recovered by EPL,
Chevron and Kewanee or their successors or assigns shall have the
option to receive an assignment of all leasehold equipment on the
reassigned premises added pursuant to this Agreement, and Chevron and
Kewanee shall pay EPL the net salvage value thereof, not to exceed
the remaining balance of the Payout Amount as of that date.
6.7. Chevron and Kewanee shall hold the continuing right and option, at
their sole election, to purchase at any time after EPL's conversion
to a 1% working interest, all of EPL's right, title and interest
earned hereunder, including but not limited to working interest in
the Farmout Leases and production from any and all Earning Wells,
for a total of $1.00.
6.8. Chevron and Kewanee represent that their working interests and net
revenue interests in the Farmout Leases are as set forth in Exhibit
'A', and that their are no liens or encumbrances affecting said
interests.
7. OPERATIONS AFTER EARNING WELL COMPLETION
7.1. It is understood that upon completion of any Earning Well and the
hooking up of such well for production as delineated in its AFE for
the well, EPL shall turn over the well operations to Chevron. Chevron
shall thereafter operate the well and take such immediate actions as
are necessary to insure that the said well is placed on production
within a reasonable period of time after the well is so turned over
to Chevron by EPL.
7.2. Upon assuming operational control of any Earning Well, Chevron shall
be designated operator of the well. Chevron shall conduct all
operations and produce the well in a good and workmanlike manner as a
prudent operator, and shall comply with all applicable federal, state
and local laws, rules and regulations. However, notwithstanding
Chevron's designation as operator of an Earning Well, it is
understood and agreed that prior to EPL's recovery of the Payout
Amount, Chevron shall obtain EPL's consent before conducting any
downhole work other than routine paraffin cutting and Chevron shall
also, prior to EPL's recovery of the Payout Amount, consult with EPL
concerning flow rates, choke sizes, gas lift design and other
production practices on and for each Earning Well. Notwithstanding
anything to the contrary herein, Chevron shall not be required to
conduct any operation or continue operations under conditions it
determines, as a reasonably prudent operator, would create a risk to
human safety or the environment, nor shall EPL be released from any
obligation for operations conducted by Chevron in an emergency
situation.
7.3. Prior to EPL's recovery of the Payout Amount, if EPL wishes to
perform any Operation in a Farmout Well, EPL may give the other party
written notice of the proposed Operation. The aforesaid written
notice shall specify the work to be performed, the location, the
depth within the Farmout Well, objective formation and the estimated
cost of the Operation. Chevron and Kewanee shall have thirty (30)
days after receipt of such notice within which to respond. If a rig
is on location, notice of such a proposal may be given by telephone
and the response period shall
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be limited to twenty-four (24) hours. This limited notice shall not
apply to a well whose rig is not being moved immediately from an
Operation in another Farmout Well. No proposed operation shall be
conducted without Chevron's, Kewanee's and EPL's express consent;
however, consent shall not be unreasonably withheld to rework a
Farmout Well. The expenditure for such rework which has been approved
by Chevron and Kewanee through an AFE shall be added to the Payout
Amount to be recouped by EPL as provided in Article 6 above.
7.4. It is understood and agreed that, prior to EPL's recovery of the
Payout Amount, no well in which EPL has earned an interest hereunder
may have any non-emergency work performed upon it that could adversely
affect production from the then producing sand, unless EPL consents to
same in writing.
8. PURCHASE AND SALE OF OIL AND GAS
8.1. Chevron, Kewanee and EPL shall each have the right to take in kind and
control the transportation, processing, and sale of its working
interest share of all oil, gas and associated liquid hydrocarbons
produced from the Earning Well(s) pursuant to this Agreement. When EPL
sells a product for its own account (including Mobil's non-consent
share of production, if any), EPL shall be responsible for providing
Chevron with the Gross Proceeds and Chargeable Expenses information
described in Article 9 below in order for Chevron to calculate the
Payout Amount on a monthly basis. EPL shall also be responsible for
paying any royalties and severance, production excise and other
non-income taxes attributable to its working interest share of
production to the appropriate governmental agency or party.
8.2. If EPL elects not to market its share of production (including Mobil's
non-consent share of production, if any) during any period that this
Agreement is in effect, Chevron shall market EPL's production on a
monthly basis under the terms received by Chevron for its share of
production from the Earning Wells, less any reasonable and mutually
agreed upon costs incurred by Chevron to market such production. In no
case will EPL's oil production receive less than Chevron's posting for
crude oil of like grade and gravity for production from the Main Pass
133 'A' Platform (before the mutually agreed upon deduction for
Chevron's marketing costs). Additionally, EPL's gas production will be
pegged to a mutually agreed upon index price (before the mutually
agreed upon deduction for Chevron's marketing costs).
Chevron shall not have the obligation to market EPL's production if
such marketing would cause material detriment to Chevron. In no case
will Chevron commit EPL's production to sales for a period greater
than thirty-one (31) days without the prior written consent of EPL.
When Chevron markets EPL's production (and Mobil's non-consent share
of production, if any) and receives the proceeds thereof, Chevron
shall pay the Net Profit Interest payments, less royalties to EPL
within fifteen (15) days after payment of MMS royalties on such
monthly production is due. Chevron shall pay the lease royalties
associated with said production. Additionally, if production is
associated with a Mobil non-consent share, lease operating expenses
attributed to that production will be deducted.
Chevron and Kewanee agree that should any of EPL's portion of the gas
stream from the Farmout Wells be captured by Mobil due to an imbalance
situation between Mobil, Chevron and Kewanee, Chevron will reimburse
EPL the equivalent value of the gas not available for sale to EPL's
account. Additionally, should there be a difference between EPL's
deliveries and entitlements, Chevron and EPL will cash out the
difference every month.
9. PAYOUT ACCOUNT
9.1. For purposes of this Agreement, there is to be created an account to
be called the "Chevron/Kewanee/EPL Payout Account", pursuant to which
Gross Proceeds and Chargeable Expenditures are to be credited and
debited on a monthly basis and applied toward the Payout Amount to be
recouped by EPL, to determine the status of said account. Chevron
shall maintain the aforesaid account and shall provide monthly
statements as further provided for herein.
9.1.1. Information used to calculate the Net Proceeds Amount on
production obtained from or allocated to Earning Wells shall
be provided by EPL to Chevron (at the address shown in
Article 9.1.3 below) within 30 days of EPL's receipt of such
information, and credited by Chevron to the
Chevron/Kewanee/EPL Payout Account not later than thirty
(30) days following EPL's receipt of the Net Proceeds Amount
information by Chevron from EPL. The Net Proceeds
information provided by EPL shall include a monthly
statement by well which itemizes EPL's share of production
by product (such as oil, gas and products) and shows the EPL
volumes and Gross Proceeds Amounts and Chargeable
Expenditures (as defined herein) used to calculate the Net
Proceeds Amount.
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9.1.2. If Chargeable Expenditures in any one month exceed the Gross
Proceeds in the same month, resulting in a net loss, such
net loss shall be applied against the Payout Amount.
9.1.3. EPL shall provide itemized statements of actual drilling,
sidetracking, reworking or recompleting costs within ninety
(90) days following the completion of any such operation to
Chevron U.S.A. Inc. at P. O. Box J, Concord, CA 94524,
Attention: Joint Interest Accounting -- Net Profits and
Payouts. In the event this information is not provided
within the above time frame, Chevron shall be authorized to
withhold payment of any Net Profit Payments to EPL until
such information is provided. Such costs shall be in
accordance with the provisions of the 1986 Offshore COPAS as
recommended by the Council of Petroleum Accountants
Societies.
9.2. Monthly, after the establishment of the Payout Account referenced in
Article 8.1 above, Chevron shall provide EPL a report setting forth
the full details and status of the Chevron/Kewanee/EPL Payout
Account. The report shall include all information necessary for EPL to
properly monitor the account, including, but not limited to, the
following:
(a) A monthly statement itemizing the Gross Proceed volumes and
dollars, less itemized Chargeable Expenditures used to
arrive at the Net Proceeds Amount received by EPL for the
month.
(b) A summary statement reflecting the beginning balance in the
Payout Account, Net Proceeds for the month, and the ending
Payout Account balance for the said month.
9.3. EPL acknowledges and agrees that production from individual wells in
the Main Pass 133 Field is not continuously measured and, as a result,
agrees that the percentage of total production allocated to an Earning
Well shall be determined based upon metering or well tests pursuant to
approved commingling authorizations from the MMS and other applicable
rules and regulations of the Federal Government.
9.4. If EPL earns a Net Proceeds Amount in more than one well, the
calculations of Gross Proceeds and Chargeable Expenditures shall be
combined so that the Net Proceeds Amount is calculated on an aggregate
basis as to all wells in which EPL has earned. In addition, it is
understood and agreed that all actual costs for Earning Wells, plus
the actual costs for the unsuccessful Farmout Wells, shall be
aggregated for the purposes of calculating the Payout Amount to be
paid to EPL out of Net Proceeds Amount from the Earning Wells. (For
example, should EPL drill or rework two wells in attempting to earn a
Net Proceeds Amount in an Earning Well and should one be temporarily
plugged and abandoned while the other is completed as a well capable
of producing in Paying Quantities as defined herein, then the Payout
Amount for the successful Earning Well and the actual costs for the
unsuccessful Farmout Well shall be used to calculate the Payout Amount
to be recovered under Article 5 by EPL out of the Net Proceeds Amount
from the Earning Well or Wells.)
10. DRILLING AND GEOLOGICAL REQUIREMENTS
EPL shall comply with the requirements of Exhibit "C", attached hereto and
made a part hereof for all purposes, and at EPL's sole cost and expense,
shall furnish Chevron and Kewanee (via one set of information to Chevron)
the material therein specified for all AFE Operations on the Farmout
Leases. Chevron and Kewanee shall be entitled to receive all such materials
pertaining to any well(s) reworked or recompleted on the Farmout Leases
while this Agreement and any lease rights earned hereunder continue in
force and effect. Failure to materially comply with Exhibit "C"
requirements shall suspend EPL's earning rights hereunder until satisfied.
11. REPORTS AND STATEMENTS
11.1. NOTICE OF COMMENCEMENT
Prior to moving any drilling equipment onto a farmout lease, EPL
shall give a 36-hour notice to:
Chevron U.S.A. Production Company
935 Gravier Street
New Orleans, LA 70112
Attention: MP 133 Field Geologist
Phone: (504) 592-6037
Fax: (504) 592-6525
11.2. INVENTORY OF MATERIAL AND EQUIPMENT
Upon receipt of each transfer of interest in an Earning Well pursuant
to this Agreement, EPL shall furnish Chevron an inventory of the AFE
Equipment in and on the well which EPL has
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installed and an itemized statement of the costs of sidetracking,
reworking, recompleting, drilling, testing, completing and equipping
such well for production.
One (1) copy of the said EPL inventory shall be forwarded to the
following address:
Chevron U.S.A. Production Company
935 Gravier Street
New Orleans, LA 70112
Attention: MP 133 Field Geologist
Phone: (504) 592-6037
Fax: (504) 592-6525
12. TAX MATTERS
As to all operations hereunder, the parties hereto shall be subject to and
shall comply and abide with the tax election provisions set out in Exhibit
"B" attached hereto and made a part hereof for all purposes.
13. COMPLIANCE
All AFE Operations by EPL pursuant to this Agreement shall be conducted in
accordance with all the terms, provisions and conditions of the farmout
lease and in compliance with all applicable laws, rules and regulations of
State and Federal governments, or any agency thereof. Without limiting the
generality of the foregoing, EPL shall comply with all provisions of the
Immigration Reform and Control Act of 1986 and EPL hereby certifies (to the
best of its knowledge) that none of its employees or employees of its
contractors who provide services pursuant to this Agreement are
unauthorized aliens as defined in said Act.
14. INSURANCE
14.1. PROVISION OF CERTIFICATE
EPL shall commence no AFE Operations hereunder before Chevron and
Kewanee receive from EPL's insurer and approves a "Certificate of
Insurance", the requirements of which are more fully described on the
attached Exhibit 'D', and which shall describe the type, policy,
limits, deductibles, and period of coverage of and state the party
insured by EPL's insurance. Such policies shall name Chevron and
Kewanee as additional assureds and waive subrogation against Chevron
and Kewanee.
14.2. SPECIFIC INSURANCE OF FARMOUT RISKS
EPL agrees to require its insurer to insert a provision in any policy
included in the Certificate of Insurance specified in Article 14.1 to
cover all of the obligations as set forth as Exhibit 'D'.
15. INDEMNITY
15.1. Except as set forth elsewhere in this Agreement, EPL agrees to
defend, protect, indemnify, and hold Chevron and Kewanee harmless
from all obligations, debts, charges, claims, damages, expenses,
fines and causes of action (collectively, "Claims") arising directly
or indirectly from EPL's or EPL's subcontractors' AFE Operations
under this Agreement, whether or not such Claims are caused wholly or
partly by negligence attributed to Chevron and Kewanee, their
employees, or agents, except to the extent such Claims arise or are
caused by Chevron's and Kewanee's gross negligence or willful
misconduct. Chevron shall have the right, as operator of the lease,
to recover any such Claims on behalf of the interests of Mobil and
Kewanee, being non-operators of the lease. In no event shall EPL be
liable or obligated to nor shall EPL indemnify any party for
consequential, punitive, loss of profit or production, loss of
reservoir or any other such indirect damages.
15.2. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
harmless from all Claims to the extent that they arise directly or
indirectly from Chevron or Kewanee's gross negligence or willful
misconduct during EPL's operations under this Agreement, whether or
not such Claims are caused partly by negligence or strict liability
attributed to EPL, its subcontractors, their employees, or agents.
15.3. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
harmless from all Claims to the extent that they are caused by
pre-existing defective conditions at the Farmout Wells or their
pertinent platforms or facilities whether or not such Claims are
caused partly by negligence or strict liability attributed to EPL,
its subcontractors, their employees, or agents.
15.4. Chevron and Kewanee agree to defend, protect, indemnify, and hold EPL
harmless from all Claims to the extent that they are caused by tax
liability of Chevron or Kewanee, and all Claims in connection with
any liens, encumbrances, rights, levies or any defects in title
whatsoever regarding the Farmout Wells (other than those arising from
EPL's operations hereunder),
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whether or not such Claims are caused partly by negligence or strict
liability attributed to EPL, its subcontractors, their employees, or
agents.
15.5. Chevron and Kewanee agree to defend protect, indemnify, and hold EPL
harmless from all Claims to the extent that they are caused by
actions or omissions of Chevron, its contractors, agents or its
invitees which arise or occur prior to or after EPL's operations at
the Farmout Wells, whether or not such Claims are caused partly by
negligence or strict liability attributed to EPL, its subcontractors,
their employees, or agents.
15.6. Chevron and Kewanee agree to defend protect, indemnify, and hold EPL
harmless from all Claims to the extent that they pertain to the
assignment of leasehold interests to EPL pursuant to this Agreement,
including but not limited to plugging and abandonment obligations,
lease operating expenses (other than those attributable to Mobil's
share as set forth in section 4.4 hereof), tax liabilities, third
party liabilities, MMS liabilities, or Claims brought by any other
governmental entity or regulatory agency or department, whether or
not such Claims are caused partly by negligence or strict liability
attributed to EPL, its subcontractors, their employees, or agents.
16. PRIOR OBLIGATIONS MAINTAINED
The termination of this Agreement, or the retransfer of interests to
Chevron and Kewanee, in whole or in part, for any reason whatsoever, shall
not relieve Chevron, Kewanee or EPL of any obligation to each other
theretofore incurred or which may subsequently occur as a result of its
acceptance of this Agreement, any AFE Operations hereunder, or the
noncompliance with any of the provisions of this Agreement.
17. NO LIENS OR ENCUMBRANCES
EPL agrees to use its best efforts to maintain the Farmout Leases, the
lease premises, the Farmout Wells, and all equipment used in connection
with its APE Operations hereunder free of debts, charges, liens, or other
encumbrances, except as to any interest committed to Energy Income Fund,
L.P. ("EIF") pursuant to Article 25 below. EPL agrees to bond out any third
party lien arising from operations it conducts or causes to be conducted
pursuant hereto.
18. NO PLEDGES
This Agreement nor any interest earned hereunder shall not be subject to
mortgage, pledge, or hypothecation by EPL in any manner whatsoever, except
as to any interest committed to EIF pursuant to Article 25 below.
19. PAYMENT OF DEBTS, CHARGES
EPL agrees to pay or satisfy all accounts payable and charges incurred in
its APE Operations hereunder within an industry standard number of days
after such become due and payable, or EPL shall make known to Chevron and
Kewanee why such debt or charge is in dispute. The provisions of this
Article 19 shall not apply to any amounts cash called against Mobil that
are not remitted to EPL or Chevron in a timely manner.
20. BREACH
Anything to the contrary notwithstanding, in the event that EPL should, in
the reasonable opinion of Chevron and Kewanee, be considered to be in
breach or default of any of the express, material provisions of this
Agreement, other than EPL's obligation to timely commence AFE Operations on
any well or wells provided for under this Agreement, then Chevron shall
notify EPL of such breach or default in writing, setting out specifically
in what respects EPL has not complied with the terms of the Agreement. EPL
shall then have thirty (30) days after receipt of such notice within which
time to meet or comply with the terms of the Agreement. Failure by EPL to
remedy or correct such breach or to fulfill such obligation within the time
period prescribed hereinabove will constitute default under this Agreement
and Chevron and Kewanee, at their election, may terminate this Agreement in
whole or in part, except as to those portions of the Farmout Area
previously assigned or earned by EPL; provided, however, that the failure
by Chevron and Kewanee to exercise at any time or from time to time, such
right of termination shall not effect a waiver of any breach of Chevron's
and Kewanee's right to subsequently terminate this Agreement in the manner
described hereinabove.
21. OTHER RIGHTS, REMEDIES RESERVED
No provision contained herein providing for the termination of this
Agreement or termination of any transfer of interest executed pursuant
hereto shall be construed as precluding, nor shall it preclude, Chevron,
Kewanee and EPL from asserting their respective rights to specific
performance, damages, or any other rights or remedies to which they may be
entitled.
22. NO WAIVER
Chevron's, Kewanee's or EPL's failure to enforce any of the provisions of
this Agreement shall not effect a waiver of any violation thereof nor
preclude enforcement of that or any other provisions hereof at that or any
other time.
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23. AUDIT RIGHTS
Upon written notice to another party, each party may audit the accounts and
records of another party related to operations conducted under the terms of
this Agreement for any calendar year, within the twenty-four month (24)
period following the end of such calendar year. Where there are two or more
parties, the non-operating parties shall make every reasonable effort to
conduct a joint audit in a manner which will result in a minimum of
inconvenience to the party being audited. The party being audited shall not
bear a portion of the non-operating parties' audit costs incurred. The
audit of a party's accounts and records shall not be conducted more than
once each year without the prior approval of the party being audited and
shall be made at the expense of the party conducting such audit. The lead
audit company's audit report shall be issued within one hundred eighty
(180) days after completion of the audit field work; provided, however, the
one hundred eighty (180) day time period shall not extend the twenty-four
(24) month requirement for taking specific detailed exception. All
exceptions shall be supported with sufficient documentation Failure to
issue the report within the prescribed time or to take specific written
exception within the twenty-four (24) month period will preclude the
parties from taking written exception to any accounting transaction within
the time frame audited.
24. ASSIGNMENTS
It is agreed that EPL shall not transfer, assign or sublease, either in
whole or in part, its interest in this Agreement or the Farmout Area
without the written consent of Chevron and Kewanee; notwithstanding this
provision, Chevron and Kewanee hereby agree to any assignment of rights
earned by EPL hereunder EIF or EIF's successor financial institution or
entity. Any further assignment by EIR shall require Chevron's and Kewanee's
consent, which consent shall not be unreasonably withheld.
25. FORCE MAJEURE
In the event that EPL is rendered unable, wholly or in part, by a force
majeure (as hereinafter defined) to carry out its obligations under this
Agreement, other than the obligations to make money payments, EPL shall
give Chevron and Kewanee prompt written notice of the force majeure with
reasonably full particulars concerning the situation; thereupon the
obligations of EPL, insofar as they are affected by the force majeure shall
be suspended during the continuance of all of the force majeure, but not
thereafter. EPL shall use all possible diligence to remove the force
majeure as quickly as possible. For the purposes of this Agreement, the
term force majeure shall mean lightening, fire, storm, flood, or explosion,
the inability or unavoidable delay in obtaining governmental permits or
authorizations for the drilling or other operations to be conducted
hereunder, and any other governmental action, governmental delay, restraint
or inaction, or the unavailability of equipment.
26. NOTICES
Except as otherwise herein provided, any notice required hereunder shall be
addressed to the parties hereto as follows:
Chevron U.S.A. Inc.
935 Gravier Street
New Orleans, LA 70112
Attention: Harvest Asset Team Landman
Telephone: 504-592-7570
Telecopy: 504-592-6750
Kewanee Industries, Inc.
935 Gravier Street
New Orleans, LA 70112
Attention: Land Manager
Telephone: 504-592-7570
Telecopy: 504-592-6750
Energy Partners, Ltd.
1100 Poydras Street, Suite 1850
New Orleans, LA 70112
Attention: Mr. James E. Orth
Telephone: 504-569-1877
Telecopy: 504-569-1874
27. AMENDMENTS
This Agreement shall not be modified or amended except by mutual agreement
of the parties in writing, and no action or failure to act on the part of
any party hereto shall be construed as a modification or amendment to, or a
waiver of, any of the provisions of this Agreement.
28. TOPICAL HEADINGS
The topical headings used herein are for convenience only and shall not be
construed as having any substantive significance or as indicating that all
of the provisions of this Agreement relating to any topic are to be found
in any particular section.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
FARMOUTOR:
CHEVRON U.S.A. INC.
By
------------------------- ----------------------------------
Title
------------------------- -------------------------------
FARMOUTOR:
KEWANEE INDUSTRIES, INC.
By
------------------------- ----------------------------------
Title
------------------------- -------------------------------
FARMOUTEE:
ENERGY PARTNERS, LTD.
By
------------------------- ----------------------------------
Title
------------------------- -------------------------------
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