SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) December 8, 1997
DENBURY RESOURCES INC.
(Exact name of Registrant as specified in its charter)
Canada
(State or other
jurisdiction
of incorporation or
organization)
33-93722 Not applicable
(Commission File (I.R.S. Employer
Number) Identification No.)
17304 Preston Road
Suite 200
Dallas, TX 75252
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, (972)713-3000
including area code:
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Item 2. Acquisition or Disposition of Assets
On November 25, 1997, Denbury Management Inc. ("Denbury"), a indirect
wholly-owned subsidiary of Denbury Resources Inc., announced that it had entered
into an asset sale agreement to purchase producing oil properties in the
Heidelberg Field, Jasper County, Mississippi, for approximately $202 million
from Chevron U.S.A. Inc. (the "Chevron Acquisition"). This field is in the same
area as the Company's other core Mississippi properties and includes operated,
non-operating and royalty interests with approximately 122 producing wells, of
which 96 wells will be Company operated. The Company will have an average
working interest of 94% and an average net revenue interest of 81% in these
operated wells which account for approximately 99% of the net average daily
production in this field. The average daily production from these properties
during the nine months ended September 30, 1997 was approximately 2,900 Bbls/d
and 600 Mcf/d, net to the acquired interest.
The Company has also acquired minor interests in Heidelberg Field from
three other entities at an aggregate cost of approximately $5.9 million. These
four acquisitions are expected to add net proved reserves of approximately 29.9
million barrels of oil and 1.8 billion cubic feet of gas, or approximately 30.2
million barrels on a BOE basis, as of January 1, 1998, to the Company based on
preliminary estimates by Netherland, Sewell and Associates, Inc., the Company's
independent petroleum engineers. For comparison, as of December 31, 1996, the
Company's net proved reserves consisted of approximately 15 million barrels of
oil and 74.1 billion cubic feet of natural gas or approximately 27.4 million
barrels on a BOE basis. As a result of the significant amount of future work to
be performed and its expected effect on future reserves and production, the
Company has attributed approximately $75 million of the purchase price to
unevaluated properties.
Heidelberg Field was discovered in 1944 and has produced an estimated 191
MMBbls and 36 Bcf since its discovery. The Field is a large salt cored anticline
which is divided by faulting into a western and eastern half. Production is from
a series of normally pressured Cretaceous and Jurassic sandstone horizons
situated between 4,500 feet and 11,500 feet. There are 11 producing formations
in Heidelberg Field containing 44 individual reservoir intervals, with the
majority of the current production coming from the Eutaw and Christmas sands at
depths of approximately 5,000 feet.
The West Heidelberg Eutaw sands have been unitized and water injection
began late in 1996 in order to increase the bottom hole pressure and improve
recoveries from the formation. A production response to the injection is
expected during 1998. The Eutaw East One Fault Block Oil Pool Unit (Eutaw
formation in East Heidelberg) was unitized in October 1997 and injection is
projected to commence in March 1998. These waterflood projects, particularly the
East Unit, comprise a significant portion of the potential reserves at
Heidelberg. The Company has a 78% working interest in the East Unit, 59% of
which was acquired in the Chevron Acquisition and the remaining 19% recently
acquired in the other acquisitions. The Company operates a similar type Eutaw
unit at its East Eucutta Field, located approximately nine miles to the
southeast, with production from sands with similar porosity, permeability,
thickness, and drive mechanisms.
The Company has identified several potential development projects during
its initial evaluation of the field. This includes initiating the East
Heidelberg waterflood project, upgrading lift capacity in over 15 wells and
recompleting 30 wells in new zones. In addition, the Company has identified over
40 potential drilling locations plus other potential secondary and tertiary
recovery projects. The Company has experienced success in its horizontal
drilling program at nearby Davis, Quitman and Eucutta Fields and based on this
information, the Company anticipates that 25 of the proposed future wells will
be horizontal wells. The total development budget during 1998 for this field is
expected to be approximately $28 million.
Denbury anticipates funding this acquisition initially with an expanded
bank financing and is currently exploring its alternatives to fund this
acquisition with other more permanent forms of capital. The transaction is
effective January 1, 1998 and is expected to close in late December, 1997. It is
subject to the possible effect of preferential purchase rights held by third
parties and typical purchase price adjustments and closing conditions.
This Form 8-K contains forward-looking statements that involve risks and
uncertainties including expected reserves, planned development and drilling
activity, expected production efforts, volumes and budgeted capital expenditures
and other risks and uncertainties detailed in the Company's SEC reports. Actual
results may vary materially.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Audited statements of revenues and direct operating expenses
attributable to the Chevron Acquisition for the years ending December
31, 1995 and December 31, 1996 and the nine months ended September 30,
1997 are not presently available. They will be filed by amendment as
soon as practicable, but not later than 60 days after the due date for
the filing of this report on Form 8-K.
(b) Pro forma results of operations of Denbury Resources Inc. for the year
ended December 31, 1996 and nine months ended September 30, 1997 as if
the acquisition had occurred at the beginning of each respective
period and a pro forma balance sheet as of September 30, 1997 are not
presently available. They will be filed by amendment as soon as
practicable, but not later than 60 days after the due date for the
filing of this report on Form 8-K.
(c) Exhibits:
Exhibit No. Exhibit
(2) Purchase and sale agreement between the
Company and Chevron U.S.A. Inc. dated
November 24, 1997.
(99) Reserve estimates as of January 1, 1998
regarding certain reserve additions from
Netherland, Sewell & Associates, Inc.,
independent petroleum engineers.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Denbury Resources Inc.
(Registrant)
DATE: December 8, 1997 By: /s/ Phil Rykhoek
-------------------------
Phil Rykhoek
Chief Financial Officer
Item 7(c)
Exhibit (2)
ASSET SALE AGREEMENT
HEIDELBERG AREA FIELDS
JASPER COUNTY, MISSISSIPPI
BETWEEN
CHEVRON U.S.A. INC.
(As Seller)
and
DENBURY MANAGEMENT, INC.
(As Buyer)
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ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT (this "Agreement"), dated November 24, 1997, is
between CHEVRON U.S.A. INC., a Pennsylvania corporation with a mailing
address of 1301 McKinney, Houston, Texas 77010 its successors and assigns
("Seller") and DENBURY MANAGEMENT, INC. a Texas corporation with a mailing
address of 17304 Preston Road, Suite 200, Dallas, Texas 75252, its
successors and assigns ("Buyer"),
W I T N E S S E T H:
That Seller desires to sell to Buyer and Buyer desires to purchase from
Seller on the terms set forth in this Agreement those certain oil and gas
interests and associated assets described herein. Accordingly, in
consideration of the mutual promises contained herein, the mutual benefits
to be derived by each party hereunder and other good and valuable
considerations, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Seller agree as follows:
1. SALE AND PURCHASE OF ASSETS
1.1 Assets To Be Sold.
1.1.1 Seller shall sell, transfer, and assign, or cause
others to sell, transfer and assign and deliver to Buyer,
and Buyer shall purchase and receive all of Seller's rights,
title, and interests and obligations (but exclusive of the
equipment, machinery, and other real, personal, movable,
immovable and mixed property expressly reserved by Seller
pursuant to Section 1.2 hereof) in and to the following:
a) the oil and gas leases listed and described in
Exhibit "A" (collectively, "Leases"), including, but
not limited to, all associated minerals, substances,
materials and compounds contained in the soils,
subsurface, waters, and groundwaters of the Leases or
that are a part of the Leases;
b) all oil and gas wells, salt water disposal wells,
injection wells and other wells, plugged or unplugged,
located on the Leases or on lands pooled therewith
(collectively the "Wells");
c) all equipment, machinery, fixtures, flowlines,
materials, improvements listed on Exhibit "A-1", and
any other real, personal, movable, immovable and mixed
property located on, used or formerly used in the
operation of, or relating to the production, treatment,
sale, or disposal of hydrocarbons, water, and
associated substances produced from the Leases (the
"Personal Property"), including, but not limited to,
any ponds, pits, wells, mounds, or other facilities
located on the Leases or on the lands pooled therewith
and used for the management, handling, storage or
disposal of any substances, wastes, byproducts, or
contaminants produced from or discharged onto the site
of the Leases, including, but not limited to, any
environmental conditions, hazardous substances, or
Naturally Occurring Radioactive Materials (NORM) that
might be present on the Leases;
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d) all natural gas, casinghead gas, drip gasoline,
natural gasoline, natural gas liquids, condensate,
products, crude oil and other hydrocarbons, whether
gaseous or liquid, produced from or allocable to the
Assets (as hereinafter defined) after the Effective
Date (the "Hydrocarbons");
e) to the extent transferable, all contracts, permits,
rights-of-way, easements, licenses, servitudes and
agreements (including but not limited to those
described on Exhibit "A") relating to the Leases, Wells
or Personal Property or the ownership or operation
thereof, or the production, treatment, sale, storage or
disposal of hydrocarbons, water, or substances
associated therewith (the "Applicable Contracts");
f) copies of records relating to the Leases, Wells,
Hydrocarbons, Applicable Contracts and Personal
Property, owned by Seller and which Seller is not
prohibited from transferring to Buyer by law or
existing contractual relationship including as follows:
all (i) lease, land, and division order files
(including any abstracts of title, title opinions,
certificates of title, title curative documents, and
division orders contained therein), (ii) the Applicable
Contracts; (iii) all well, facility, and historic
production files (collectively, the "Records")and (iv)
all geological files (including structure maps, logs
and isopach maps) relating directly to the Leases (the
"Geologic Data"), said Geologic Data being accepted "AS
IS, WHERE IS" without warranty or representation of any
nature or kind as to the accuracy, completeness,
materiality, validity or fitness for any purpose of
such Geologic Data and with all faults and same is
delivered for the purpose of Buyer's independent
evaluation and any use or reliance thereon is at
Buyer's sole risk. Such Geologic Data shall not be
further transferred without Seller's express written
consent;
g) any agreements burdening any part of the Assets,
including but not limited to that certain unrecorded
Farmout Agreement (LR-023456) dated April 4, 1997, by
and between Bob McAdams, Inc. and Seller; and
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h) a non-exclusive seismic license agreement, attached
hereto as Exhibit A-2, to use the seismic data obtained
from Seller's 1993 Heidelberg 3-D seismic survey
covering a 36 square mile area around the properties in
Jasper County, Mississippi.
All of the above including, but not limited to, the
Leases, Wells, Personal Property, Hydrocarbons,
Applicable Contracts, and Records are hereinafter
collectively referred to as the "Assets."
1. The transfer of the Assets shall be made at Closing (as
hereinafter defined in Section 10.2.1), but shall be made
effective as of the Effective Date (as hereinafter defined).
Seller and Buyer shall execute such additional documents as
may be necessary to transfer the interests herein sold and
purchased on the records of any purchaser of hydrocarbons
produced from or allocable to the Assets.
A. Exclusions and Reservations: Specifically excepted and
reserved from this transaction are the following, including those
items described on Exhibit "A-3", hereinafter referred to as the
"Excluded Assets":
a) Any of Seller's reserve estimates, economic
analyses, pricing forecasts, legal opinions or
analyses, or information considered by Seller as
confidential or protected by "Attorney-Client
Privilege";
b) Subject to the provisions of Section 11.2, all
rights and claims arising, occurring, or existing in
favor of Seller prior to the Effective Date including,
but not limited to, any and all contract rights,
claims, penalties, receivables, revenues, recoupment
rights, recovery rights, accounting adjustments,
mispayments, erroneous payments, personal injury,
property damage, royalty or other rights and claims of
any nature in favor of Seller relating to any time
period prior to the Effective Date;
c) All corporate, financial, and tax records of Seller;
however, Buyer shall be entitled to receive copies of
any financial and tax records which directly relate to
the Assets, or which are necessary for Buyer's
ownership, administration, or operation of the Assets;
d) All rights, titles, claims and interests of Seller
related to the Assets for all periods prior to the
Effective Date (i) under any policy or agreement of
insurance or indemnity, (ii) under any bond, or (iii)
to any insurance or condemnation proceeds or awards;
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e) All hydrocarbons produced from or attributable to
Seller's interest in the Assets with respect to all
periods prior to the Effective Date, which are removed
or sold by Seller within 30 days of the Effective Date,
together with all proceeds from or of such
hydrocarbons;
f) Claims of Seller for refund of or loss carry
forwards with respect to (i) production, windfall
profit, severance, ad valorem or any other taxes
attributable to the Assets for any period prior to the
Effective Date, (ii) income or franchise taxes;
g) All amounts due or payable to Seller as adjustments
or refunds under any contracts or agreements affecting
the Assets for all periods prior to the Effective Date;
h) All amounts due or payable to Seller as adjustments
to insurance premiums related to the Assets for all
periods prior to the Effective Date;
i) Subject to the terms hereof, all monies, proceeds,
benefits, receipts, credits, income or revenues (and
any security or other deposits made) attributable to
the Assets prior to the Effective Date; and
j) All Seller's patents, trade secrets, copyrights,
names, marks and logos.
B. Conveyancing Instruments. "The portion of the Assets to be
conveyed by Seller which are referred to in Section 1.1.1 a)
above shall be by special warranty of title, by through and under
Seller. The remainder of the Assets to be conveyed by Seller to
Buyer pursuant to Section 1.1.1 shall be conveyed "AS IS, WHERE
IS" with the express conditions and limitations contained in this
Agreement. The Assets to be transferred to Buyer pursuant to
Section 1.1.1 shall be transferred pursuant to an Assignment and
Bill of Sale as provided in Section 10.2 hereof in substantially
the form of Exhibit "B" (the "Assignment").
C. Seller's Election to Effect IRC S1031 Exchange. In the event
Seller so elects, Buyer agrees to accommodate Seller in effecting
a tax-deferred exchange under Internal Revenue Code S1031, as
amended. Seller shall have the right to elect this tax -deferred
exchange at any time prior to the date of Closing. If Seller
elects to effect a tax deferred exchange, Buyer agrees to execute
additional escrow instructions, documents, agreements, or
instruments to effect the exchange, provided that Buyer shall
incur no additional costs, expenses, fees or liabilities as a
result of or connected with the exchange.
D. Suspended Proceeds. In the event the Assets include funds
being held by Seller in suspense for the benefit of a third party
or parties, Seller shall transfer and pay to Buyer, and Buyer
agrees to accept from Seller and hold for the benefit of Seller
and the party or parties entitled to receive payment thereof, all
monies representing the value or proceeds of production removed
or sold from the Assets and then held by Seller for accounts from
which payment has been suspended, such monies being hereinafter
called Suspended Proceeds. Buyer shall be solely responsible for
the proper distribution of such proceeds to the party or parties
entitled to receive payment of the same, and hereby agrees to
indemnify, defend and hold Seller harmless from any claims
therefore to the extent of monies transfered for any particular
suspended interest.
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I. PURCHASE PRICE AND EFFECTIVE DATE
A. Purchase Price. As consideration for the sale of the Assets,
Buyer shall pay to Seller or its respective designee, Two Hundred
Two Million United States dollars ($202,000,000.00) (the
"Purchase Price"), as set forth below. The Purchase Price as
adjusted in accordance with Section 2.4 shall be referred to as
the "Adjusted Purchase Price."
1. A deposit in the amount of five percent (5%) of the
Purchase Price (the "Deposit"), or Ten Million One Hundred
Thousand dollars ($10,100,000.00) shall be paid upon
execution of this Agreement by Buyer, but in no event later
than November 26, 1997.
2. The balance of the Adjusted Purchase Price less the
principal amount of the Deposit, exclusive of interest
earned, shall be paid at Closing by wire transfer, in
immediately available funds, as provided below.
B. Transfer of Purchase Price. The Deposit and Adjusted Purchase
Price shall be paid by Buyer on the dates provided in Sections
2.1.1 and 2.1.2 above by completed wire transfer, in immediately
available funds to:
Union Bank of California
ABA #122000496
Attn: Domestic Custody
for further credit to Royal Palm Equity Exchange, Inc.
Account No. 250009060-01
Attn: Aran King or Moon Lee
C. Allocation of Purchase Price. The Purchase Price shall be
allocated among tangibles and intangibles comprising the Assets
as follows: Eighty Percent (80%) of the Purchase Price shall be
attributed to the Leases and associated agreements and Twenty
Percent (20%) of the Purchase Price shall be attributed to the
wells, equipment and other Personal Property. Buyer and Seller
agree to be bound by the allocation of the Purchase Price among
tangible and intangible Assets set forth herein for all purposes;
to consistently report such allocations for all federal, state
and local income tax purposes; and to timely file all reports
required by the Internal Revenue Code of 1986, as amended,
concerning the Purchase Price allocations.
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For any Purchase Price adjustments under Section 7 hereof, Buyer
and Seller have mutually agreed upon an allocation of purchase
price on a property by property basis as indicated on Exhibit "A"
attached hereto.
D. Adjustments to Purchase Price. The Purchase Price shall be
adjusted in accordance with this Section 2.4.
1. The Purchase Price shall be increased by the following
amounts (without duplication):
a) subject to the limitations of Section 9.1, the
amount of all actual operating or capital expenditures
or prepaid expenses attributable to the Assets
(inclusive of Seller's overhead or administrative
expenses attributable or allocable to the Assets)
including, without limitation, royalties, rentals and
other similar charges, excise, severance and production
taxes and any other taxes based upon or measured by the
production of hydrocarbons or the receipt of proceeds
therefrom, and, subject to the limitations of Section
9.1, expenses paid to Seller or a third person under
applicable joint operating agreements or other
contracts or agreements included in the Assets, or in
the absence of any joint operating agreement, those
customarily billed under such agreement, including
without limitation, drilling, completion, reworking,
deepening, side-tracking, plugging and abandoning,
geological and geophysical and land costs paid by or on
behalf of Seller in connection with the operation of
the Assets which are attributable to the period of time
from the Effective Date to the Closing ("Closing
Period");
b) the value of merchantable liquid hydrocarbons in
storage above the pipeline connection on the Effective
Date which are produced from or allocable to the Assets
prior to the Effective Date (it being understood that
such value shall be based on the price at which such
hydrocarbons were sold after the Effective Date (on a
first-in, first-out basis), less applicable taxes and
royalty payments) ("Inventory Value");
c) the amount of any property or ad valorem taxes paid
by Seller prorated in accordance with Section 5.1;
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d) any other amount agreed upon by Seller and Buyer;
e) an amount equal to any appropriate increases in
value of the Assets, as determined in accordance with
Section 7.7; or
f) the value of capital equipment added to the Assets
between the date of this Agreement and the Effective
Date.
2. The Purchase Price shall be decreased by the following
amounts:
a) an amount equal to the gross proceeds received by
Seller from the sale of hydrocarbons, both liquid and
gaseous, produced from or allocable to the Assets after
the Effective Date (during the Closing Period), net of
all applicable taxes not reimbursed to Seller by a
purchaser of hydrocarbons and royalty payments;
b) reductions due to Title Failures as provided for in
Section 7.5;
c) reductions due to Material Contamination as provided
for in Section 8.3;
d) the amount of any property or ad valorem taxes
prorated in accordance with Section 5.1 and
e) reductions due to Force Majeure as provided in
Section 11.4.
E. Effective Date of Sale. The effective date of the sale of the
Assets described in Section 1.1, hereof, shall be January 1,
1998, as of 7:00 a.m., local time where the Assets are located
(the "Effective Date").
II. ALLOCATION OF REVENUES, ASSUMPTION OF LIABILITIES AND INDEMNIFICATION
A. Allocation of Revenues. Seller shall receive all proceeds from
the sale of hydrocarbons physically produced from or allocable to
the Assets prior to the Effective Date, and shall also receive
all other revenues and benefits attributable to the Assets
accruing or relating to all periods before the Effective Date.
Buyer shall receive all proceeds from the sale of hydrocarbons
physically produced from or allocable to the Assets on or after
the Effective Date, and shall also receive the proceeds of all
other revenues and benefits attributable to the Assets accruing
or relating to all periods after the Effective Date.
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B. Payment of Invoices. After the Closing, Seller shall be
required to pay only that portion of invoices received that are
applicable to work performed or material received in the period
prior to the Effective Date; other charges and invoices shall be
returned to the vendor for rebilling to Buyer. Similarly, after
the Closing, Buyer shall pay only that portion of invoices
received that are applicable to work performed or material
received in the period on or subsequent to the Effective Date;
other charges and invoices will be returned to the vendor for
rebilling to Seller.
C. Liabilities After Closing and Indemnities.
1. As additional consideration for the sale of the Assets,
Buyer shall timely and fully satisfy all Abandonment
Obligations associated with the Assets. As used herein, the
term Abandonment Obligations shall mean and include all
obligations associated with and liability for (i) the
plugging and abandonment of all wells, either active or
inactive, (ii) the removal of structures, facilities,
foundations, pits, ponds, wellheads, tanks, pipelines,
flowlines, pumps, compressors, separators, heater treaters,
valves, fittings and equipment and machinery of any nature
and all materials contained therein, located on or used in
connection with the Assets, (iii) the clearance, restoration
and remediation of the surface and subsurface of the Assets,
and (iv) the removal, remediation and abatement of any
petroleum material, any contamination or pollution
(including, without limitation, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, leaching, dumping
or disposing of any chemical substance, pollutant,
contaminant, toxic substance, radioactive material,
hazardous substance, NORM, waste, saltwater, crude oil, or
petroleum product) of the surface (including surface water),
subsurface (including groundwater) air or subsurface strata,
all in accordance with or as required by applicable
agreements, implied or express, including without
limitation, leases, unit agreements and operating
agreements, or by law, regulation, order, permit, judgment
or decree. Except as to Claims asserted or filed prior to
the Effective Date, Buyer shall protect, indemnify, hold
harmless and defend Seller, its affiliates, officers,
directors, employees and agents, against any and all claims,
demands, losses, liabilities, liens, judgments, settlements,
suits, causes of action, fines, penalties, fees (including,
without limitation, attorney"s fees), costs, expenses
(including, without limitation, expenses associated with
investigation of claims, testing and assessment) whether
based on any theory of liability, including, but not limited
to, tort, breach of contract (express or implied), breach of
warranty (express or implied), strict liability, regulatory
liabilty, or statutory liability, and whether arising from,
resulting from or related to Buyer's failure to timely and
fully satisfy the Abandonment Obligations or under any
obligations under this Agreement or imposed by any
applicable statutes, laws, rules, or regulations, or orders.
Buyer further agrees to take whatever actions are necessary
to protect Seller from being subjected to any such claims,
demands, losses, liabilities, liens, judgments, settlements,
suits, causes of action, fines, penalties, fees, costs, or
expenses, including, but not limited to remediation and
restoration, and will comply with reasonable requests by
Seller that Buyer take such action. Any future conveyance of
the Assets shall specifically reference and describe Buyer's
obligations to Seller set forth herein and any purchaser
thereunder shall expressly acknowledge and assume said
obligations.
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2. Buyer shall observe and comply with all covenants, terms,
and provisions, express or implied, contained in the
agreements, leases, easements, permits, commingling
authorizations and other contracts appertaining to Seller's
interest in the Assets as of the time of Closing of this
purchase and sale; and this purchase and sale is made
expressly subject to all agreements, leases, easements,
permits, commingling authorizations and other contracts,
whether or not the same are herein specifically identified.
Buyer shall assume and be responsible for all obligations of
Seller accruing under such agreements after the Effective
Date."The Buyer shall assume operations effective January 1,
1998, and shall be responsible for the payment for
production which accrues from and after that date. The
Seller shall indemnify the Buyer for all payments made for
production which accrued prior to the Effective Date in all
respects."
3. As used in any provision of this Agreement, "Claims"
shall mean all liabilities, losses, costs, damages,
expenses, penalties, fines, obligations, judgments, costs of
investigation, attorney's fees, expert's fees and
disbursements of any kind or of any nature whatsoever,
claims, actions, causes of action, demands, filings,
investigations, administrative proceedings, arbitrations,
mediations, suits or other legal proceedings.
4. Buyer shall defend, protect, indemnify and hold Seller
harmless against any and all Claims resulting from any and
all damages, liabilities, claims, demands, orders and suits
or causes of action asserted or filed on or after the
Effective Date in any way arising from ownership, operations
or activities related to the Assets and the contracts and
agreements appertaining thereto including but not limited to
acts or omissions of Seller, based upon any theory, whether
in contract, negligence, willful misconduct, liability
without fault, strict, liability, tort or other.
5. Buyer specifically assumes the risk of description,
title, and the condition of the Assets and shall inspect the
Assets prior to the Closing. Such inspection shall cover but
not be limited to the physical and environmental condition,
both surface and subsurface, of the Assets. Buyer shall as
part of its environmental assessment test for the presence
of Naturally Occurring Radioactive Materials (hereinafter
referred to as "NORM"). The generation, formation, or
presence of NORM in or on the Assets shall, after the
Effective Date set forth herein, be the sole responsibility
of the Buyer and the Buyer shall defend, indemnify and hold
Seller harmless from any and all Claims resulting from any
and all claims, demands, losses, liabilities, liens,
judgments, settlements, suits, causes of action, fines,
penalties, fees (including, without limitation, attorneys
fees) costs, expenses, whether based on any theory of tort,
breach of contract, strict liability or statutory liability
asserted or filed on or after the Effective Date in any way
arising from, resulting from or related to the presence of
NORM. Buyer agrees that any future assignment of the Assets
shall contain similar language binding its assignee and all
further assignees concerning the presence of NORM.
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III. ESCROW AGREEMENT
A. Form, Amount, Timing. SEE ATTACHED EXHIBIT A-4
IV. TAXES AND PAYABLES
Payment of Taxes. All real estate, occupation, ad valorem,
personal property taxes and charges on any of the Assets
shall be prorated as of the Effective Date. Seller shall pay
all such items for all periods prior to such date and shall
be entitled to all refunds, recoupments, rebates and credits
with regard to such periods. Seller shall be responsible for
all oil and gas production taxes, windfall profits taxes,
and any other similar taxes applicable to oil and gas
production occurring prior to the Effective Date, and Buyer
shall be responsible for all such taxes applicable to oil
and gas production occurring on and after the Effective
Date. Buyer shall be responsible for all sales, use and
similar tax arising out of the sale of the Assets. At the
Closing, Buyer shall pay Seller all state and local sales or
use taxes applicable to that portion of the Assets which is
tangible personal property, and Seller shall remit such
amount to the appropriate taxing authority in accordance
with applicable law, provided, however, that if Buyer holds
a direct payment permit which is valid at the time of the
Closing, Buyer shall assume all responsibility for remitting
to the appropriate taxing authority the state and local
sales and use taxes due, and shall provide Seller with any
exemption certificates or other documentation required under
applicable law in lieu of paying Seller the taxes due. Buyer
shall hold harmless and shall indemnify Seller for any sales
or use taxes assessed against Seller by any taxing authority
in respect of this sale, including the amounts of any
penalties, interest and attorney's fee. Any legal expenses
incurred by Seller to reduce or avoid any of the
aforementioned taxes attributable to Buyer, shall be paid or
reimbursed by the Buyer.
Should this purchase and sale constitute an isolated or
occasional sale and not be subject to sales or use tax with
any of the taxing authorities having jurisdiction over this
transaction, no sales tax will be collected by Seller from
Buyer at the date of Closing. Seller agrees to cooperate
with Buyer in demonstrating that the requirements for an
isolated or occasional sale or any other sales tax exemption
have been met.
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V. REPRESENTATIONS AND WARRANTIES
A. Seller's Representations and Warranties. Seller represents and
warrants to Buyer that, as of the date hereof and as of Closing,
the following statements are accurate:
1. Seller is a corporation duly organized and validly
existing, in good standing, under the laws of the State of
Pennsylvania. Seller has the corporate power and authority
to own its property and to carry on its business as now
conducted and to enter into and to carry out the terms of
this Agreement.
2. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on
behalf of Seller and Seller is not subject to any charter,
by- law, lien, or encumbrance of any kind, agreement,
instrument, order, or decree of any court or governmental
body (other than any governmental approval required) which
would prevent consummation of the transactions contemplated
by this Agreement.
3. Seller is not a party to, or in any way obligated under,
nor does Seller have any knowledge of, any contract or
outstanding claim for the payment of any broker's or
finder's fee in connection with the origin, negotiation,
execution, or performance of this Agreement for which Buyer
will have any liability.
4. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE
ASSETS ARE TO BE SOLD AS IS, WHERE IS AND WITH ALL FAULTS
AND SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED IN FACT OR BY LAW, WITH RESPECT TO ORIGIN, QUANTITY,
QUALITY, OPERATING CONDITION, SAFETY OF EQUIPMENT, TITLE TO
PERSONAL PROPERTY, TITLE TO REAL PROPERTY, COMPLIANCE WITH
GOVERNMENT REGULATIONS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSES, CONDITION, THE QUANTITY, VALUE OR
EXISTENCE OF RESERVES OF OIL, GAS OR OTHER MINERALS
PRODUCIBLE OR RECOVERABLE FROM THE LEASES OR WELLS, OR
OTHERWISE, CONCERNING ANY OF THE ASSETS. ALL WELLS, PERSONAL
PROPERTY, DATA, RECORDS, MACHINERY, EQUIPMENT AND FACILITIES
THEREIN, THEREON AND APPURTENANT THERETO ARE TO BE CONVEYED
BY SELLER AND ACCEPTED BY BUYER PRECISELY AND ONLY "AS IS,
WHERE IS".
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B. Buyer's Representations and Warranties. Buyer represents and
warrants to Seller that, as of the date hereof and as of Closing,
the following statements are accurate:
1. Buyer is a corporation duly organized and validly
existing, in good standing, under the laws of the State of
Texas and is or will be prior to Closing, duly qualified to
carry on its business in each of the states in which it is
required to be qualified and has the corporate power and
authority to own its property and to carry on its business
as now conducted and to enter into and to carry out the
terms of this Agreement and the transactions contemplated by
this Agreement.
2. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on
behalf of Buyer and Buyer is not subject to any charter,
by-law, lien or encumbrance of any kind, agreement,
instrument, order or decree of any court or governmental
body which would prevent consummation of the actions
contemplated by this Agreement.
3. Buyer is not a party to, or in any way obligated under,
nor does Buyer have any knowledge of, any contract or
outstanding claim for the payment of any broker's or
finder's fee in connection with the origin, negotiation,
execution, or performance of this Agreement for which Seller
will have any liability.
4. Buyer shall comply with all applicable laws, ordinances,
rules and regulations and shall promptly obtain and maintain
all permits required by public authorities in connection
with the Assets purchased.
5. Buyer has made, or arranged for others to make, an
inspection of the Assets. Subject to Seller's foregoing
representations and warranties, Buyer, at Closing, will
accept all Assets in "as is and where is" condition, with an
expressed acceptance and understanding of the
representations and disclaimers contained herein.
6. Buyer acknowledges that the Assets have been used for oil
and gas drilling and producing operations, transportation
operations, related oilfield operations and possibly the
storage and disposal of waste materials incidental to or
occurring in connection with such operations, and that
physical changes in the land may have occurred as a result
of such uses and that Buyer has entered into this Agreement
on the basis of Buyer's own investigation of the physical
condition of the Assets, including subsurface conditions.
Buyer is acquiring the Assets precisely and only in an "as
is and where is" condition and assumes the risk that adverse
physical conditions including, but not limited to, the
presence of unknown abandoned oil and gas wells, pits and
landfills, flowlines, pipelines, water wells and sumps which
may not have been revealed by Buyer's investigation are
located thereon. Buyer hereby agrees to assume full
responsibility for compliance with all obligations or
regulations concerning all of such conditions, known or
unknown, and further agrees to indemnify Seller for same,
including, but not limited to, indemnification for liability
under all Environmental Laws, as defined in this Agreement.
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7. WAIVER OF CONSUMER RIGHTS. BUYER WAIVES ITS RIGHTS UNDER
THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT,
SECTION 17.41 et seq., TEXAS BUSINESS & COMMERCE CODE, A LAW
THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF BUYER'S OWN SELECTION,
BUYER VOLUNTARILY CONSENTS TO THIS WAIVER.
TO THE EXTENT APPLICABLE TO THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, BUYER ALSO WAIVES THE PROVISIONS OF TITLE
75, CHAPTER 24 OF THE MISSISSIPPI CODE, "REGULATION OF
BUSINESS FOR CONSUMER PROTECTION".
8. IN ORDER TO EVIDENCE ITS ABILITY TO GRANT THE ABOVE
WAIVERS, BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT
BUYER (I) IS IN THE BUSINESS OF SEEKING OR ACQUIRING, BY
PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR
BUSINESS USE, (II) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL
AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS
AND RISKS OF THE TRANSACTION CONTEMPLATED HEREBY AND (III)
IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION.
VI. TITLE MATTERS.
A. Asset Title Review. Prior to Closing, Seller will have made
available to Buyer, without express or implied warranty of any
kind regarding the accuracy of such information, copies of all
information in Seller's possession regarding Seller's title to
the Assets, which information Buyer may copy at its sole cost and
expense (unless prohibited by agreement between Seller and a
third party). Buyer may review the information at Seller's office
at 11111 S. Wilcrest, Houston, Texas 77236; or any other location
where such information may be available, depending on the files
reviewed. Except as otherwise provided in this Agreement, Seller
shall not perform any additional title work. Any existing
abstracts and title opinions have not been made and will not be
made current by the Seller. Buyer specifically agrees that any
conclusions made from any examination done or caused to be done
have resulted and shall result from its own independent review,
skill, knowledge and judgment only. With regard to Buyer's due
diligence review of Seller's files, Buyer or Buyer's
representative, will be entitled to review and audit Seller's
records, including but not limited to, confirmation of review and
direct lease operating expenses covering the previous two year
periods (1995 and 1996) and the interim period from January 1,
1997 through September 30, 1997.
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B. Title Adjustments. If prior to Closing Buyer determines the
existence of a "Title Defect" as defined in Section 7.3 below,
Buyer shall notify Seller in writing of any matter Buyer
considers to be a Title Defect as soon as Buyer becomes aware of
such Title Defect but, in any event, by not later than 4:00 p.m.
CST on December 17, 1997 (the "Defect Notice Date"). Such notice
("Notice of Title Defect") shall include (i) a specific
description of the matter Buyer asserts as a Title Defect, (ii) a
specific description of the Asset or portion of the Assets that
is affected by the Title Defect, (iii) Buyer's calculation of the
amount by which each Title Defect has diminished the value of the
Assets, such amount to be determined by Buyer in good faith and
in a commercially reasonable manner, and (iv) all necessary and
desirable supporting documentation. Buyer shall be deemed to have
waived any Title Defect which Buyer fails to assert in its Notice
of Title Defect on or before the Defect Notice Date.
C. Title Defect. The term "Title Defect" shall refer to any
defect or deficiency in title, except for Permitted Encumbrances
that (i) creates a lien, claim, encumbrance or other obligation
affecting the interests of Seller in the Assets, (ii) diminishes
Seller's net revenue interest (defined as Seller's share of the
proceeds from the sale of hydrocarbons produced from and
allocable to the Assets, net of all royalties, overriding
royalties, or other burdens on production or non-operating
interests applicable thereto) from that set forth on Exhibit "A",
(iii) increases Seller's working interest (defined as Seller's
share of the costs of operation, development or production borne
by the owner of such interest) from that set forth in Exhibit "A"
without a corresponding increase in Seller's net revenue
interest, or which creates an obligation to pay costs or expenses
in an amount greater than such interest.
D. Permitted Encumbrances. As used in this Section, the term
"Permitted Encumbrance" means:
a) lessor's royalties, non-participating royalties,
overriding royalties, and division orders and sales and
transportation contracts containing customary terms and
provisions covering oil, gas or associated liquefied or
gaseous hydrocarbons, reversionary interests, and similar
burdens if the net cumulative effect of such burdens does
not operate to reduce the net revenue interest in any Asset
to an amount less than the net revenue interest set forth on
Exhibit "A" or increase the working interest of any Asset
from that set forth in Exhibit "A" without a corresponding
increase in the revenue interest;
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b) subject to the provisions of Section 9.2 hereof,
preferential rights to purchase and required
non-governmental third party consents to assignments and
similar agreements with respect to which prior to Closing
(i) waivers or consents are obtained from the appropriate
parties, or (ii) the appropriate time period for asserting
such rights has expired without an exercise of such rights;
c) liens for taxes or assessments not yet due or delinquent
or, if delinquent, that are being contested in good faith in
the normal course of business;
d) all rights to consent by, required notices to, filings
with, or other actions by governmental entities in
connection with the sale or conveyance of oil and gas leases
or interests therein, if the same are customarily obtained
subsequent to such sale or conveyance and Buyer and Seller
have no reason to believe they cannot be obtained;
e) conventional rights of reassignment requiring less than
ninety (90) days notice to the holders of such rights;
f) such Title Defects as Buyer may have waived;
g) easements, rights-of way, servitudes, permits, surface
leases and other rights in respect of surface operations;
provided they do not materially interfere with Buyer's
operation or use of the Assets;
h) defects, irregularities and deficiencies in title of or
to any rights-of-way, easements, surface leases or other
rights which in the aggregate do not materially impair the
use of such rights-of-way, easements, surface leases or
other rights for the purpose of which such rights will be
held by Buyer and would not have a material adverse effect
on the operation or value of any of the Assets;
i) environmental laws and regulations to the extent valid
and applicable to the Assets;
j) vendors', carriers', warehousemen's, repairmen's
mechanics' workmen's, materialmen's, construction or other
like liens arising by operation of law in the ordinary
course of business or incident to the construction or
improvement of any property in respect of obligations which
are not yet due;
k) all other liens, claims, charges, encumbrances,
contracts, agreements, instruments, obligations, defects,
and irregularities affecting the Assets relating to
obligations not yet in default, and/or which individually or
in the aggregate are not such as to interfere materially
with the operation, value, or use of any of the Assets, do
not materially prevent Buyer from receiving the proceeds of
production from the Assets, do not reduce the net revenue
interest of any of the Assets to less than the net revenue
interest set forth on Exhibit "A" and do not obligate Buyer
to bear costs and expenses relating to the maintenance,
development, and operation of any of the interests in any
amount greater than the working interest set forth on
Exhibit "A" (unless the net revenue interest for such Asset
is greater than the net revenue interest set forth in
Exhibit "A" in the same proportion as any increase in such
working interest).
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E. Remedies for Title Failures. With respect to each Title Defect
asserted by Buyer in the Notice of Title Defect, if Seller
requests, Seller and Buyer shall discuss and agree whether a
particular matter constitutes a Title Defect. Seller shall have
the right but not the obligation to cure any Title Defect
asserted in such Notice at its own expense prior to Closing, in
which case the parties shall proceed to Closing without
adjustment of the Purchase Price. If Seller fails to cure any
Title Defect on or prior to Closing, it shall be deemed to be a
title failure ("Title Failure") for the relevant Asset. Buyer
shall not be entitled to any adjustment to the Purchase Price
until such time as the Title Failures aggregate to 3% of the
initial unadjusted Purchase Price set forth in Section 2.1 (the
Deductible Amount"). Notwithstanding the provisions of the
foregoing sentence or any other provision of this Agreement, it
is specifically agreed and understood that liquidated amounts due
and owing in respect of vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction
or other like liens shall not be included in the Deductible
Amount, but shall otherwise be treated as Title Defects in
accordance with the provisions of Section 7, including, without
limitation, the provisions of Section 7.5 (a)-(c). Buyer and
Seller shall negotiate in good faith to reach agreement regarding
the value of any Title Failure, and unless waived by Buyer shall
mutually agree to one of the following options with respect to
each Title Failure:
a) if the Title Failure results from a difference in net
revenue interest from that shown on Exhibit "A", the parties
shall proceed to Closing and reduce the Purchase Price by an
amount ("Defect Amount") determined by multiplying the
Purchase Price by a fraction the numerator of which shall be
the difference between the actual net revenue interest being
conveyed and the net revenue interest shown on Exhibit "A"
and the denominator of which shall be the net revenue
interest shown on Exhibit "A";
b) if the Title Failure results from a difference in the
working interest from that shown on Exhibit "A", the parties
shall proceed to Closing and reduce the Purchase Price by a
Defect Amount determined by multiplying the Purchase Price
by a fraction the numerator of which shall be the difference
between the actual working interest being conveyed and the
working interest shown on Exhibit "A" and the denominator of
which shall be the working interest shown on Exhibit "A";
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c) if the Title Failure is one other than described in items
(a) or (b), the Defect Amount shall be an amount determined
in good faith by the mutual agreement of Buyer and Seller,
taking into account the portion of the Purchase Price to be
allocated by agreement of Seller and Buyer to the portion of
the Assets affected by the Title Failure, the legal effect
of the Title Failure, and the potential economic effect of
the Title Failure over the life of the Assets.
F. Termination Amount. Notwithstanding anything to the contrary
herein, if the aggregate amount of adjustments to the Purchase
Price for Title Failures reaches an amount equal to 25% of the
initial unadjusted Purchase Price set forth in Section 2.1 (the
"Termination Amount"), either Buyer or Seller shall have the
option to terminate this Agreement, without any liability, upon
written notice to the other party on or prior to the Closing. For
purposes of determining each party's right to terminate this
Agreement pursuant to this Section 7.6, the amount of Title
Defect adjustments shall be the amounts set forth in Buyer's
Notices of Title Defects unless Buyer and Seller agree to a
lesser amount in accordance with Section 7.5. If either party
exercises its option to terminate this Agreement pursuant to this
Section 7.6, this Agreement shall become void and have no effect,
and neither party shall have any further right or duty to or
claim against the other party under this Agreement, except as
expressly provided to the contrary in this Agreement. In the
event of termination under this Section 7.6, the Deposit shall be
refunded to Buyer.
G. Increase in Purchase Price. Seller shall be entitled to an
increase in the Purchase Price with respect to any interest to
which Seller has (i) record title ownership of a net revenue
interest that is greater than the net revenue interest set forth
on Exhibit A of this Agreement and/or (ii) an ownership interest
in any Personal Property greater than the interest for such Asset
set forth on Exhibit A (the "Additional Interest"). In the event
that Seller is entitled to an adjustment, such adjustment shall
be calculated in the same manner as downward adjustments to the
Purchase Price.
VII. ENVIRONMENTAL MATTERS
A. Environmental Review. Promptly after signing this Agreement,
Buyer shall have access to environmental data in Seller's files
for the Assets to be sold herein. Buyer shall review the
information at Seller's office at 1301 McKinney, Houston, Texas
77010 or other locations specified by Seller. Buyer specifically
acknowledges that such access is given as an accommodation only,
that Seller makes no representations whatsoever as to the
accuracy, completeness, or reliability of any such environmental
information so or otherwise disclosed to or obtained by Buyer and
that Buyer relies and depends on and uses any and all such
environmental information exclusively and entirely at its own
risk and without any recourse to Seller whatsoever. Seller shall
cooperate with Buyer for the performance by Buyer of any
additional environmental testing at Buyer's expense, which
testing shall be conducted in a reasonable manner so as not to
interfere with Seller's operation of the Assets, and Seller and
Buyer shall cooperate to ensure that such testing is performed on
an expedited basis before Closing.
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B. Material Contamination. If as a result of information provided
pursuant to Section 8.1, or any additional information which
Buyer obtains from other sources, or any such testing done by
Buyer, it is determined prior to Closing that the environment
associated with the Assets has been materially contaminated
("Materially Contaminated" or "Material Contamination", such
terms being defined as the violation of existing applicable
federal or state laws or regulations or common law principles
existing as of the Effective Date, with respect to environmental
conditions, to the extent that as to each claim or all claims in
the aggregate (i) prosecution, if instituted, would be reasonably
likely to result in a penalty, fine or damage payment of
$500,000.00 or more or (ii) removal and remediation of such
contamination required by federal or state laws or regulations
existing as of the Effective Date would be reasonably likely to
result in expenditures of $500,000.00 or more), Buyer shall
notify Seller in writing of any and all such Material
Contamination claims no later than 4:00 p.m. CST, on December 17,
1997. Such notification shall include (i) a detailed description
of such claims, (ii) a copy of any environmental assessment,
reports, data and information pertaining to such claims, and
(iii) Buyer's calculation of the amount by which such claims have
diminished the value of the Assets, such amount to be determined
by Buyer in good faith and in a commercially reasonable manner.
As used in this Section 8, the term Damages shall mean any and
all claims, demands, losses, liabilities, liens, judgments,
settlements, suits, causes of action, fines, penalties, fees, or
expenses (including but not limited to reasonable attorneys' fees
and all costs of court, reasonable costs of investigating any
claim, site assessments, testing and remedial actions).
C. Remedies for Material Contamination. Either:
a) Buyer shall correct or make arrangements for the
correction of such Material Contamination and the parties
shall proceed to Closing with a reduction of the Purchase
Price in an amount mutually agreed to by the parties and
with Buyer defending, indemnifying and holding Seller
harmless against all Damages attributable to such Material
Contamination; or
b) Prior to or at Closing, Seller and Buyer shall mutually
agree in writing separate and apart from this Agreement that
Buyer shall accept the Assets subject to such Material
Contamination, that the parties shall proceed to Closing
without adjustment of the Purchase Price, and that Seller
shall indemnify Buyer against all Damages incurred by Buyer
with respect to such Material Contamination up to but in no
event to exceed 5% of the initial unadjusted Purchase Price
set forth in Section 2.1 and only as to that portion of such
Damages which are in excess of $500,000.00 of the initial
unadjusted Purchase Price set forth in Section 2.1. (such
amounts being cumulative for any and all claims of Material
Contamination made by Buyer).
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If the parties are unable to agree upon one of the foregoing
options, either party shall be entitled to terminate this
Agreement without further liability for either party, unless
Buyer agrees to waive such Material Contamination and assume
all liability and obligations relating thereto. If Buyer
does not agree to waive Material Contamination, the Deposit
shall be refunded to Buyer. Each party shall cooperate with
the other party's reasonable corrective work, and any
operations unreasonably interfering with the corrective work
shall cease until correction is completed.
D. Indemnities for Material Contamination. The indemnities
provided for in paragraphs (a)-(c) of Section 8.3 by Buyer and
Seller, as the case may be, for Damages relating to Material
Contamination identified in the notice to Seller under Section
8.2 shall include, without limitation, an agreement to protect,
indemnify, hold harmless and defend the Buyer or Seller, as the
case may be, its affiliates, officers, directors, employees and
agents, against any and all claims, demands, losses, liabilities,
liens, judgments, settlements, suits, causes of action, fines,
penalties, fees (including, without limitation, attorney's fees),
costs, expenses (including, without limitation, expenses
associated with investigation of claims, testing and assessment)
whether based on any theory of liability, including, but not
limited to, tort, breach of contract (express or implied), breach
of warranty (express or implied), strict liability, regulatory
liability, or statutory liability, arising under any obligations
under this Agreement or imposed by any applicable statutes, laws,
rules, or regulations, or orders. The indemnities will further
include an agreement by the party providing the indemnification
to take whatever actions are necessary to protect the party being
indemnified from being subjected to any such claims, demands,
losses, liabilities, liens, judgments, settlements, suits, causes
of action, fines, penalties, fees, costs or expenses, and to
comply with reasonable requests by the party being indemnified
take such actions.
E. Post-Closing Environmental Indemnification by Buyer. As of the
Closing, Buyer specifically assumes and shall be responsible for
all obligations and liabilities and shall defend, indemnify and
hold Seller harmless in accordance with Section 3.3 including,
but not limited to, indemnification for liability under any
federal, state or local laws, rules, orders and regulations
(i.e., any "Environmental Law", which specifically includes but
is not limited to the Occupational Safety and Health Act, 29
U.S.C.A. S651, et seq.; the Resource Conservation and Recovery
Act, 42 U.S.C.A. S6901, et seq.; the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C.A. S9601, et
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seq.; the Clean Water Act, 33 U.S.C.A. S1251 et seq.; the Clean
Air Act, 42 U.S.C.A. S7401, et seq.; the Safe Drinking Water Act,
42 U.S.C.A. S3001, et seq.; the Toxic Substances Control Act, 15
U.S.C.A. S2601 et seq.; the Oil Pollution Act of 1990, 33
U.S.C.A. S2701 et seq.; and all rules, regulations and orders
adopted under the foregoing statutes applicable to any waste
material, produced water, tank bottoms, sludge, or constituents
thereof, radioactive materials, or hazardous substances on or
included with the Assets or the presence, disposal, release or
threatened release of all waste material, produced water, tank
bottoms, sludge, or constituents thereof, radioactive materials,
or hazardous substances, on, included with, or from the Assets
into the atmosphere or in or upon land or any water course or
body of water, whether above or below the ground, and all other
federal, state and local environmental and oil and gas laws and
regulations, as well as all acts, laws, and regulations
amendatory or supplemental thereto) against any and all Damages
pertaining to the environmental condition of the Assets (whether
relating to periods before or after the Effective Date) with the
exception of Material Contamination identified in conformance
with Section 8.2 and assumed by Seller pursuant to Section 8.3
(b).
F. NORM: It is expressly recognized that the lands and/or water
bottoms, along with surface facilities and production equipment
located thereon, having been used in connection with oil, gas,
and water production, treatment, storage, and disposal
activities, may contain Naturally Occurring Radioactive Materials
(NORM) as a result of these operations. Accordingly, lands, the
Wells, and the Personal Property to be transferred pursuant to
this Agreement are to be transferred with the restriction that
they will be used only in connection with oil and gas producing
activities associated with the Leases, and will not be
subsequently transferred for unrestricted use unless the
concentrations of NORM associated therewith are below the levels
specified as allowable for unrestricted transfer as set forth in
any and all applicable laws, orders, rules or regulations of any
governmental agency or court having jurisdiction. Additionally,
Buyer agrees to comply with all provisions of such laws, orders,
rules or regulations applicable to said lands, the Wells, and the
Personal Property. Buyer further agrees to include the provisions
of this clause in any subsequent sale or assignment of any
interest in the leases therein transferred. As specified under
Section 8.1 above, Seller shall furnish Buyer with copies of all
NORM surveys which have been prepared for the Assets to be sold,
as same are required under Rule 69 of the Mississippi Oil and Gas
Board.
VIII. ADDITIONAL COVENANTS
A. Operations Prior to Closing. After the date of this Agreement
and prior to the Closing, Seller, in its sole discretion, shall
use and maintain the Assets in substantially the same manner in
which they have been used and maintained prior to this Agreement.
Unless Seller and Buyer otherwise agree, Seller shall only enter
into agreements or transactions in relation to the Assets which
(i) individually involve a fair market value of less than Fifty
Thousand United States dollars ($50,000.00), and (ii) are entered
into in the ordinary course of business consistent with past
practices. Seller shall not be obligated for any expenditures
between the execution of this Agreement or the Effective Date,
whichever is the earlier and the Closing. In the event that an
expenditure for purposes other than day-to-day operations is
proposed or contemplated, Seller shall submit such proposal to
Buyer for concurrence. Buyer will assume the risk of any
consequences which arise as a result of Buyer's failure or
refusal to approve and pay such expenditure. Additionally, after
the signing of this Agreement and prior to Closing, Seller shall
have the right to make any changes, repairs or modifications, or
incur any expenditures necessary relative to the premises to
prevent or react to an emergency or environmental incident. With
regard to the preceding sentence, Seller shall attempt to secure
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Buyer's consent prior to any such expenditure or action, however,
Seller shall have the right to effect such expenditure or action
with or without such approval, acting as would any prudent
operator under similar circumstances. Unless Buyer and Seller
otherwise agree, Seller shall not materially alter the Assets
(other than the use of supplies and consumables) or remove any
improvements, equipment or property which comprise the Assets
(other than the use of supplies and consumables). If because of
legally binding agreements which existed prior to the date of
this Agreement, Seller, after the date of this Agreement, but
prior to Closing, acquires assets related to the Assets or
otherwise improves the Assets, the Purchase Price shall be
increased by an amount equal to the consideration to be paid by
Seller for such acquisition or improvement of the Assets, and the
acquired asset or improvement shall be transferred hereunder.
Seller shall promptly notify Buyer of any material matter
affecting the Assets known to Seller which arises from the date
of this Agreement to the date of Closing.
B. Preferential Rights and Consents to Assign. The transfer by
Seller of the Assets, or any portion thereof, may be subject to
the approval of lessors or governmental agencies having
jurisdiction, or other forms of consent, rights of first refusal
or preferential rights of purchase in favor of third parties. The
process of obtaining such approvals and consents may continue
after Closing. Seller and Buyer shall cooperate with one another
to attempt to obtain the necessary non-governmental approvals and
consents to assign and request releases of the rights of first
refusal/preferential rights of purchase. If consents are denied
or third parties exercise a right of first refusal/preferential
right of purchase and the portion of the Assets subject thereto
produced in the first six months of 1997 is in excess of one-half
of the total production of all the subject Assets during such six
month period, then either Buyer or Seller may terminate this
Agreement and the Deposit, interest thereon, shall be refunded to
Buyer. If neither Buyer nor Seller elect to terminate this
Agreement, or if Assets having a value of less than one-half of
the Purchase Price are affected, the affected Assets shall be
deleted from this Agreement and the Purchase Price decreased with
the remaining Assets to be sold hereunder. If the Asset is
deleted as the result of the exercise of a right of first
refusal/preferential right of purchase, the Purchase Price shall
be decreased by the allocation attributable to the deleted Asset
as specified in Buyer's bid letter dated November 12,1997. If the
Asset is deleted as a result of the denial of consent from third
parties, the Purchase Price shall be decreased in the manner
provided for the deletion of an Asset with defect as described in
Section 7 hereof, and the remaining Assets shall be sold
hereunder.
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IX. CLOSING, TERMINATION AND FINAL ADJUSTMENTS
A. Conditions Precedent. Each party's obligation to consummate
the transactions contemplated by this Agreement is subject to the
satisfaction or waiver by the other party of the following
conditions:
1. Each party shall have performed and complied with all
terms of this Agreement required to be performed or complied
with by it at or prior to Closing.
2. No action or proceeding by or before any governmental
authority shall have been instituted or threatened (and not
subsequently dismissed, settled or otherwise terminated)
which might restrain, prohibit or invalidate any of the
transactions contemplated by this Agreement, other than an
action or proceeding instituted or threatened by a party or
any of its affiliates.
3. The representations and warranties contained in Section 6
shall be true and correct in all material respects on the
Closing Date as though made on and as of the Closing Date.
B. Closing.
1. The Closing of the transactions contemplated herein and
the transfer of the Assets shall occur on or before December
29, 1997, at Chevron's office, 1301 McKinney, Houston,
Texas, at 10:00 a.m., local time, or such other date, time,
and place as Seller and Buyer may agree in writing (the
"Closing").
2. At Closing, the following shall occur:
a) Buyer and Seller shall execute and acknowledge an
Assignment in substantially the form of Exhibit "B", in
form and substance sufficient to convey title to the
Assets in accordance with the terms of this Agreement;
b) Buyer and Seller shall execute and acknowledge any
such other instruments as are reasonably necessary to
effectuate the conveyance of the Assets to Buyer,
including without limitation, separate assignments of
the Assets on officially approved forms in sufficient
counterparts to satisfy applicable statutory and
regulatory requirements for the transfer of the Assets;
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c) To the extent permitted by law or contract, Seller
shall execute and deliver at Closing the requisite
number of Designation of Operator forms and any other
necessary forms as may be required by any governmental
agency having jurisdiction.
3. At the Closing, upon and against delivery of the
documents and materials described in this Section 10.2,
Buyer shall pay to Seller the Adjusted Purchase Price as
provided in Section 2.1 and shall deliver to Seller the
Guaranty as provided for in Section 4.1 hereof.
C. Termination. This Agreement and the transactions contemplated
hereby may be terminated in the following instances:
1. By Buyer or Seller in accordance with Section 7.6;
2. By Buyer or Seller in accordance with Section 8.3;
3. By Buyer or Seller if any condition set forth in Section
10.1 has not been satisfied or waived by Closing;
4. By mutual written agreement of Buyer and Seller; and
5. If Buyer, through no fault of Seller, fails, refuses, or
is unable for any reason not permitted by this Agreement to
close the sale pursuant hereto, Seller may, at its option,
assert its right of specific performance, declare the
Deposit forfeited and retain same, or pursue any other
rights or remedies to which it may be entitled, at law or in
equity.
6. If Seller, through no fault of Buyer, fails, refuses, or
is unable for any reason not permitted by this Agreement to
close the sale pursuant hereto, Buyer may, at its option,
assert its right of specific performance, have the Deposit,
or pursue any other rights or remedies to which it may be
entitled, at law or in equity.
D. Final Adjustments. Within one hundred eighty (180) days after
the date of Closing, Seller shall prepare a final accounting (the
"Final Accounting") for the adjustments to the Purchase Price
provided for in Section 2.4 and any amounts arising pursuant to
Section 11.2 (b). Seller shall submit the Final Accounting
statement to Buyer, along with copies of third party vendor
invoices or other evidence of expenses agreed to by Buyer and
Seller, and Buyer shall have thirty (30) days to audit same and
confirm the accuracy thereof. Upon agreement by Buyer and Seller
as to the accuracy of said Final Accounting, or upon the
expiration of said thirty (30) day period, whichever occurs
first, Seller or Buyer, whichever the case may be, shall promptly
pay to the other such sum as may be found due, after making
adjustments for any payments made at Closing in accordance with
the Closing Statement.
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If Buyer and Seller are unable to agree to all adjustments
respecting the Final Accounting within thirty (30) days after
Buyer's receipt of the Final Accounting submitted by Seller,
adjustments which are not in dispute shall be made between Buyer
or Seller at the expiration of such 30-day period, and as to the
adjustments which remain in dispute, Buyer and Seller shall
continue to negotiate in good faith to reach a final agreement as
to such disputed adjustments. Provided, however, if Buyer and
Seller are unable to agree to such final adjustments within sixty
(60) days after Seller provides the Final Accounting to Buyer,
the parties shall submit such disagreement to arbitration which
shall be conducted under the Texas General Arbitration Act and
the rules of the American Arbitration Association to the extent
such rules do not conflict with the terms of such Act and terms
hereof. The costs and expenses of the arbitration shall be shared
equally by Seller and Buyer. Within five (5) days after the
decision of the arbitrator, the Buyer or Seller, as the case may
be, shall promptly make a cash payment to the other equal to the
sum as may be found to be due as the Final Accounting.
Nothing in this Section 10.5. shall limit any right of either
party to assert a claim for revenues or reimbursement after the
Final Accounting, and in this regard (i) should any party receive
revenues to which the other is entitled, such party shall pay
over such revenues to the appropriate party within 30 days of
receipt thereof, and (ii) should any party pay for costs or
expenses for which the other party is responsible, such party
shall reimburse the other party within 30 days of the date the
responsible party receives an invoice for such costs and
expenses.
X. MISCELLANEOUS
A. Oil, Gas and End Product Imbalances. Prorationing of accounts,
as described in Section 5.1, is not applicable to an imbalance in
Seller's production account, whether or not a gas or oil delivery
balancing agreement is in effect. Regardless of whether Seller is
overproduced or underproduced as to its share of total oil,
condensate, gas or end product production, any balancing
obligation or credit arising from such over or underproduction
with third parties or under a pipeline imbalance prior to or as
of the Effective Date shall transfer to Buyer on the Effective
Date, and Seller shall have no further liability therefore nor
benefit therefrom (whichever the case may be) and as of the
Effective Date, Buyer assumes any such obligation or credit. If
Seller is a party to a gas balancing agreement(s) or other
reconciliation obligations pursuant to any commingling authority
covering all or a portion of the Assets, Buyer shall assume all
rights and duties of Seller pursuant thereto. If all or a portion
of the Assets are not covered by a gas balancing agreement or
other reconciliation obligations pursuant to any commingling
authority, Buyer shall fulfill its obligations under this
provision in accordance with applicable law. Buyer agrees to
indemnify, defend and hold Seller harmless against any and all
losses, claims, suits and liabilities arising directly or
indirectly out of Buyer's failure to fulfill its obligation under
this provision.
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B. Insurance. With regard to any Seller operated properties:
a) Seller and Buyer acknowledge that insurance coverage for
the Assets and the operations in which the Assets have been
used has been provided, in part, under insurance programs
arranged and maintained by Chevron Corporation for itself
and its subsidiaries and affiliates (such policies are
herein called "Chevron Policies").
b) Seller and Buyer agree that, as of the Closing Date, all
of the Chevron Policies shall cease to apply to the Assets
and the operations in which the Assets are used and that
Buyer shall make no claims under the Chevron Policies with
respect to any matter whatsoever, whether arising before or
after the Closing Date.
c) In the event that any claim is hereafter made under or
with respect to any of the Chevron Policies by or through
Buyer or any person subrogated to its rights, Buyer shall
indemnify and defend Seller and its affiliates against and
shall hold them harmless from such claim and all costs and
expenses (including without limitation attorneys' fees)
related thereto.
C. Force Majeure. In the event any physical asset(s), including
fixtures and improvements, valued at less than twenty-five (25%)
percent of the Purchase Price and to be sold hereunder is damaged
by fire or other calamity before Closing, Seller may repair the
damage at its cost or, at its sole option, either reduce the
Purchase Price by the cost of the damage or withdraw the damaged
Asset from the sale and reduce the Purchase Price by the
undamaged value thereof. Should Buyer and Seller not agree as to
the amount of such price reduction or if the amount of the price
reduction, as mutually agreed, exceeds twenty-five (25%) percent,
either Buyer or Seller may terminate this Agreement, in which
event the Deposit shall be refunded to Buyer.
D. Books and Records. With the exception of books of account, tax
returns and correspondence relating thereto, technical and
interpretive data excluded from this sale, any documents of
overall significance to Seller's business and all of the Excluded
Assets, Seller shall deliver to Buyer at Closing or within a
reasonable time thereafter copies of the Records.
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E. Publicity. Seller and Buyer shall consult with each other with
regard to all press releases or other public or private
announcements made concerning this Agreement or the transactions
contemplated hereby, and except as may be required by applicable
laws or the applicable rules and regulations of any governmental
agency or stock exchange, neither Buyer nor Seller shall issue
any such press release or other publicity without the prior
written consent of the other party, which shall not be
unreasonably withheld.
F. Assignment. Prior to Closing Buyer may not assign any rights
acquired hereunder or delegate any duties assumed hereunder
without the prior written consent of Seller or its respective
successors and assigns. After Closing, Buyer may not sell,
transfer, assign or sublease delegate any rights or interests
acquired under this Agreement and the Assignment or delegate any
duties assumed thereunder without any such grantee, transferee,
assignee, sublessee or delegee having agreed in writing to be
bound by all of the terms and provisions contained in this
Agreement and the Assignment, and any such grantee, transferee,
assignee, sublessee or delegee shall assume all duties and
obligations set forth herein and therein or arising herefrom and
therefrom; and any such transfer, assignment, sublease or
delegation shall so provide. Notwithstanding anything herein to
the contrary, Buyer shall remain responsible to Seller for all
obligations and liabilities under this Agreement and under the
Assignment. Buyer further agrees to give Seller notice before
Buyer transfers, sells, assigns, subleases or delegates any
rights or interests acquired under this Agreement, and to attach
a copy of this Agreement to any agreement or other document by
which the Buyer effects the transfer, sale, assignment, sublease
or delegation of any rights or interests acquired under this
Agreement.
G. Entire Agreement. This Agreement constitutes the entire
agreement between Seller and Buyer with respect to the
transactions contemplated herein, and supersedes all prior oral
or written agreements, commitments, understandings, or
information otherwise furnished by Seller to Buyer with respect
to such matters. No amendment shall be binding unless in writing
and signed by both parties. Headings used in this Agreement are
only for convenience of reference and shall not be used to define
the meaning of any provision. This Agreement is for the benefit
of Seller and Buyer only and not for the benefit of third
parties.
H. Notices. All notices and consents to be given hereunder shall
be in writing and shall be deemed to have been duly given if
delivered either by personal delivery, telex, telecopy or similar
facsimile means, by certified or registered mail, return receipt
requested, or by courier or delivery service, addressed to the
parties hereto at the following addresses:
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<PAGE>
If to Seller: If to Buyer:
Chevron U.S.A. Inc. Denbury Management, Inc.
1301 McKinney 17304 Preston Road
Suite 1622 Suite 200
Houston, TX 77010 Dallas, Texas 75252
Attn: K.O. Rice Attn: Lynda F. Perrard
Manager, Property Enhancement V.P. Land
Fax No.: Fax No.:
713-754-5088 972-380-6967
or at such other address and number as either party shall have
previously designated by written notice given to the other party
in the manner herein above set forth. Notices shall be deemed
given when received, if sent by facsimile means (confirmation of
such receipt by confirmed facsimile transmission being deemed
receipt of communications); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is
refused), if hand-delivered, sent by express courier or delivery
service, or sent by certified or registered mail, return receipt
requested.
I. Governing Law. This Agreement shall be governed by the laws of
the State of Texas without giving effect to any principles of
conflicts of law. The validity of the conveyances affecting the
title to real property shall be governed by and construed in
accordance with the laws of the jurisdiction in which such
property is situated. The provisions contained in such
conveyances and the remedies available because of a breach of
such provisions shall be governed by and construed in accordance
with the laws of the State of Texas without giving effect to the
principles of conflict of laws.
J. Confidentiality. Buyer acknowledges that all information
furnished or disclosed pursuant hereto must remain confidential
prior to Closing. Buyer may disclose such information only to its
subsidiaries or affiliates, agents, advisors, counsel or
representatives (herein "Representatives") who have agreed, prior
to being given access to such information, to be bound by the
terms of this Agreement. In the event that Closing of the
transactions contemplated by this Agreement does not occur for
any reason, Buyer and its Representatives shall promptly return
to Seller any and all materials and information, including any
notes, summaries, compilations, analyses or other material
derived from the inspection or evaluation of such material and
information, without retaining copies thereof. Notwithstanding
the provisions of Section 11.8, nothing in this Section 11.11 and
this Agreement shall have the effect, prior to Closing, of
terminating, modifying or superseding that certain
Confidentiality Agreement dated October 7, 1997, between Buyer
and Seller.
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K. Conflict of Interest. Conflicts of interest related to this
Agreement are strictly prohibited. Except as otherwise expressly
provided herein, neither Buyer nor any director, employee or
agent of Buyer shall give to or receive from any director,
employee or agent of Seller any gift, entertainment or other
favor of significant value, or any commission, fee or rebate.
Likewise, neither Buyer nor any director, employee or agent of
Buyer shall enter into any business relationship with any
director, employee or agent of Seller (or of any affiliate of
Seller), unless such person is acting for and on behalf of
Seller, without prior written notification thereof to Seller.
Each party shall promptly notify the other party of any violation
of this Section 11.12, and any consideration received by a party
as a result of such violation shall be paid over or credited to
the other party. Each party, or its designated representative(s),
may audit any and all records of the other party for the sole
purpose of determining whether there has been compliance with
this Section 11.12.
L. Default. Seller shall notify Buyer in the event that Seller
becomes aware that Buyer or Buyer's successors or assigns have
failed to satisfy one or more obligations assumed by Buyer
pursuant to the terms of this Agreement, the Assignments, and/or
any amendments thereto (any such failures hereinafter referred to
as "Defaults"). Buyer shall correct or redress or respond to or
begin to correct or redress or respond to such Defaults within
thirty (30) days after receipt of such written notice or such
lesser or greater time as may be dictated by any emergency
situation or as required by applicable agreements or as required
by any law, order, rule or regulation of any governmental
authority.
If (i) within such time as defined hereinabove, Buyer does not
correct or redress or respond to or begin to correct or redress
or respond to such Defaults, or (ii) after beginning such efforts
Buyer does not correct or redress such Defaults within a
reasonable amount of time and within the time required by any
applicable agreements or required by any law, order, rule or
regulation of any governmental authority, or (iii) Seller is
unable to locate Buyer in order to notify Buyer after reasonable
efforts to do so, Seller, at its option, may endeavor to and
shall be authorized to plug and abandon well(s), remove
facility(ies) or equipment or restore the surface area(s), or
otherwise correct such defaults, or cause such to be done
provided that Seller shall exercise reasonable discretion and
endeavor to accomplish only that necessary to remedy such
Defaults, all at the entire cost, risk, expense of Buyer except
that Buyer shall not be responsible for costs and expenses of any
such work done by Seller or Seller's affiliates in excess of
amounts typically charged by unaffiliated third parties for like
or similar services in the area, and furthermore, Buyer shall
only be liable for costs attributable to Buyer's interest to be
acquired pursuant to the terms of this Agreement. Compliance with
the Notice Requirements under Section 11.9 of this Agreement
shall be considered as sufficient notice under this Section.
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Within a reasonable period of time after any such efforts by
Seller to correct or redress such Defaults, Seller shall furnish
Buyer at its last known address with detailed invoices and
supporting documentation for expenses incurred by Seller in the
efforts to correct such Defaults, including appropriate charges
for overhead, salaries, legal costs, permits, penalties,
interest, or other losses or expenses incurred for or by Seller
or Seller's employees for the purpose of correcting or redressing
such Defaults. In the event that Buyer does not pay Seller within
fifteen (15) days after the mailing of said invoices and
supporting documentation, Seller shall be entitled to reimburse
itself for such invoices by recovering such sums under the Escrow
Agreement. Any such recovery by Seller under the Escrow Agreement
shall satisfy only those liabilities and obligations of Buyer
with respect to the particular Default and only to the extent
that Seller has been reimbursed therefor by recovery under the
Escrow Agreement.
Seller's right to proceed in the manner above described to
correct or redress Defaults of Buyer or its successors or assigns
is not intended to be nor shall it limit or be exclusive of any
other right or remedy, whether personal or "in rem", available to
Seller under this Agreement, the Assignments, and/or any
amendments thereto, or otherwise by law, all of which remedies
are expressly and fully ratified, granted and reserved to Seller.
Seller shall in no event be obligated to satisfy any Defaults by
Buyer or its successors or assigns.
The recovery by Seller of amounts under the Escrow Agreement is
not intended and shall not be deemed to be a waiver by Buyer of
any claim, protest, dispute or cause of action conceding the
amount or nature of the activities performed by Seller pursuant
to this Section 11.13 or the necessity thereof or the amounts
expended therefor. Notwithstanding any recovery by Seller of
amounts under the Escrow Agreement, Buyer shall have the right to
pursue in any manner all rights and remedies available to it in
connection with any such claim, protest, dispute or cause of
action.
M. Survival. The terms and provisions of this Agreement shall
survive the Closing.
N. Brokers' Fees. Seller and Buyer warrant that neither has
incurred any liability, contingent or otherwise, for brokers' or
finders' fees relating to this agreement for which the other
shall have responsibility. All fees, costs, and expenses incurred
by Seller or Buyer relating to this agreement shall be paid by
the party incurring same. All recording and transfer fees shall
be paid by Buyer.
O. Commissions or Fees. Each of Buyer and Seller, for itself and
for its respective directors, partners, employers, and agents
warrants, covenants and represents to the other that, except as
otherwise expressly provided in this Agreement, neither it nor
any of its directors, employees, partners or agents has given to
or received from the other party, for any such party's directors,
partners, employees or agents any commission, fee, rebate, gift
or other thing or service in connection with this Agreement, and
Buyer and Seller each agree that its books and records shall be
subject to reasonable audit by the other as may be required to
substantiate compliance with this provision.
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P. Further Cooperation. After the Closing, each party shall
execute, acknowledge, and deliver all documents, and take all
such acts which from time to time may be reasonably requested by
the other party in order to carry out the purposes and intent of
this Agreement.
Q. Counterparts. This Agreement may be executed in one or more
counterparts with the same effect as if all signatures of the
parties hereto were on the same document, but in such event each
counterpart shall constitute an original, and all of such
counterparts shall constitute one Agreement; but in making proof
of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart signed by each party.
R. Exhibits. All of the Exhibits referred to in this Agreement
are hereby incorporated into this Agreement by reference and
constitute a part of this Agreement. Each party to this Agreement
and its counsel has received a complete set of Exhibits prior to
and as a part of the execution of this Agreement.
S. Severability. If any term or provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of
law, all other conditions and provisions of the Agreement shall
nevertheless remain in full force and effect so long as the
economic or legal substance of the transaction contemplated
hereby is not affected in any adverse manner to the other party.
T. Expenses and Recording. Except as otherwise specifically
provided, all fees, costs and expenses incurred by Buyer or
Seller in negotiating this Agreement or in consummating the
transactions contemplated by this Agreement shall be paid by the
party incurring the same, including, without limitation, legal
and accounting fees, costs and expenses. Buyer shall be
responsible for the filing and recording of the assignments,
conveyances or other instruments required to convey title to the
Assets to Buyer and Buyer shall bear all required documentary,
filing and recording fees and expenses incurred in connection
therewith.
U. Nominations and Accounting Procedures. The parties hereto
agree that starting with February 1, 1998 production, Buyer will
begin nominating, marketing, and performing the accounting
responsibilities and procedures, including payment of royalties,
on the Assets.
V. Removal of Signs and Markers. Buyer shall, at its own expense
and in a timely manner after the Effective Date or Closing,
whichever is later, remove all lease and well signs and placards
which indicate Seller's prior ownership in the Assets and erect
or install signs and placards as may be required by state or
other governmental agencies indicating the Buyer as the
owner-operator of the Assets.
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W. CONSPICOUSNESS/EXPRESS NEGLIGENCE. THE DEFENSE,
INDEMNIFICATION AND HOLD HARMLESS PROVISIONS PROVIDED FOR IN THIS
AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE DAMAGES, LOSSES,
INJURIES, LIABILITIES, COSTS OR EXPENSES IN QUESTION AROSE SOLELY
OR IN PART FROM THE ACTIVE,, PASSIVE OR CONCURRENT NEGLIGENCE, OR
OTHER FAULT OF ANY INDEMNIFIED PARTY. BUYER AND SELLER
ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE RULE AND IS CONSPICUOUS.
X. Gas Contract(s). All or a portion of the natural gas produced
from the Assets covered hereby has heretofore been committed to
the following gas contract(s): Natural Gas Purchase Contract
No.1389, dated March 1, 1997 and month to month thereafter, by
and between Pan Energy Field Services, Inc., as Buyer and Chevron
U.S.A. Production Company, as Seller.
11.25 Disclosure of Royalty Valuation Claims, Demands and/or
Lawsuits. Seller hereby notifies Buyer, and Buyer hereby
acknowledges, that the leases to be assigned pursuant hereto may
be subject to the following lawsuit(s): (1) that certain lawsuit
styled Stanley, et al v. Gulf, et al, a purported nationwide
class action filed in U.S. District Court, Southern District of
Mississippi alleging federal antitrust violations and asserting
other non-federal claims arising from the alleged underpayment of
royalty based on Seller's use of the posted price of crude oil
allegedly set below market value (also includes discovery
requests for natural gas and processed products); (2) that
certain lawsuit styled McMahon Foundation et al v. Amerada Hess
Corporation, et al, a purported nationwide class action filed in
U.S. District Court, Southern District of Texas, alleging
defendants violated federal antitrust statutes through payment of
royalties based on posted prices allegedly set below market
value; (3) that certain lawsuit styled Randolph Energy, Inc. v.
Amerada Hess Corporation, et al, a purported nationwide class
action filed in U.S. District Court , Southern District of
Mississippi, alleging defendants violated federal antitrust
statutes through payments to royalty and working interest owners
based on posted prices allegedly set below market value, alleging
violations of contracts, certain covenants and specific
Mississippi statutes;and (4) that certain lawsuit styled R..M.
Lovelace, et al. v. Amerada Hess Corporation, et al, a purported
nationwide class action filed in Circuit Court of Escambia
County, Alabama, alleging defendants violated state antitrust
statutes of Alabama and other states through payments to royalty
and working interest owners based on posted prices allegedly set
below market value. The leases to be assigned pursuant hereto may
also be subject to claims, demands and/or lawsuits which may be
substantively similar to the above named lawsuit(s).
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Notwithstanding anything to the contrary contained herein, for
events occurring prior to the effective date hereof, Buyer shall
have no liability for any damages resulting from the above named
lawsuit(s) or any claims, demands and/or lawsuits which may be
substantively similar to the above named lawsuit(s), such
liability shall be retained by Seller, and Seller shall indemnify
Buyer for any costs incurred by it in conjunction with said
suits.
Seller further hereby notifies Buyer, and Buyer hereby
acknowledges, that a civil action was filed on October 30, 1997,
styled L.H. Martin v. Chevron U.S.A. Inc. in the Circuit Court of
the First Judicial District of Jasper County, Mississippi, being
Civil Action No. 97-0065. Notwithstanding anything to the
contrary contained herein, for events occurring prior to the
Effective Date, Buyer shall have no liability for any damages
resulting from the named lawsuit and Seller shall indemnify Buyer
for any costs incurred by it in conjunction with said suit.
11.26 Convenant Running With The Land. All obligations and
indemnities in this Agreement including, but not limited to,
Sections 3.3, 4, 8.4, 8.5 and 8.6 are convenants running with the
real property to be sold pursuant to this Agreement.
11.27 COVENANTS, ASSIGNMENTS AND CONTINUING OBLIGATIONS. It is
the intent and effect of this Asset Sale Agreement that the
transfer of any Assets by Buyer or any future assignment made by
Buyer shall not in any way diminish, compromise, extinguish, or
effect a release of Seller's rights against Buyer, or Buyer's
obligations to Seller. It is also the intent and effect of this
Asset Sale Agreement that the transfer of any Assets by Buyer or
any future assignment made by Buyer shall create rights in favor
of Seller under this Asset Sale Agreement and under any
subsequent agreements or assignments pertaining to the Assets,
and that the Seller is a third party beneficiary of such
subsequent agreements or assignments, so that the party to whom
Buyer transfers or assigns any Assets shall likewise be bound to
Seller for performance of Buyer's obligations to Seller under
this Asset Sale Agreement. Buyer specifically agrees and warrants
that in the event of any future conveyance of the Assets (in
whole or in part) by Buyer, Buyer shall require that as part of
the conveyance the party to whom the Assets are conveyed shall
agree to be bound by and subject to all of Buyer's obligations to
Seller and shall fulfill those obligations. Buyer further agrees,
understands and warrants that in the event of any future
conveyance of the Assets (in whole or in part) by Buyer, Buyer
shall remain bound and subject to all of Buyer's obligations to
Seller and shall remain responsible for fulfilling those
obligations even though Buyer has conveyed the Assets. Buyer
further agrees, understands and warrants that any future
assignment of any Assets must also be accompanied by the
assignees' acceptance of the obligations that Buyer owes to
Seller. The obligations and responsibilities of Buyer to Seller,
and of Buyer's assignees to Seller, shall be joint and several
and shall run with the Assets assigned so that any subsequent
assignee also accepts the same obligations to Seller, without
Buyer or any assignees being released of any of their obligations
to Seller. Such obligations shall include, but not be limited to,
those involving abandonment obligations, covenants, terms,
conditions, indemnities, liabilities, and assumed risks.
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11.28 Notwithstanding anything else to the contrary, Seller shall
remain liable for personal injury or wrongful death claims or
lawsuits arising out of operation or ownership of the Assets
prior to the Effective Date for which claim is made or suit filed
within two (2) years of the Effective Date.
EXECUTED as of the date first above written.
SELLER: BUYER:
CHEVRON U.S.A. INC. DENBURY MANAGEMENT, INC.
By: By:
____________________________
Name: ________________________________ Name: Lynda F. Perrard
Assistant Secretary Title: Vice President-Land
37
Item 7(c)
Exhibit (99)
Reserve Report from
Netherland, Sewell & Associates, Inc.
<PAGE>
December 8, 1997
Mr. William E. Gross
Denbury Management, Inc.
17304 Preston Road, Suite 200
Dallas, Texas 75252
Dear Mr. Gross:
In accordance with your request, we have estimated the proved reserves, as
of January 1, 1998, to the combined interests of Denbury Management, Inc. (DMI)
and Chevron U.S.A. Inc. (CUSA) in certain oil and gas properties located in the
East Heidelberg and West Heidelberg Fields, Jasper County, Mississippi. These
properties include those acquired from Lake Ronel Oil Company, Lawco Exploration
Inc., and Deepwell Co. during 1997 and those currently being acquired from CUSA.
This report has been prepared using constant prices and costs as set forth in
this letter. Economics have been considered only to the extent necessary to
establish the profitability of certain operations and to determine the economic
limits of the wells.
We estimate the net reserves to the combined interests of DMI and CUSA in
the East Heidelberg and West Heidelberg Fields, as of January 1, 1998, to be:
<TABLE>
<CAPTION>
Net Reserves
----------------------------
Oil Gas
Category (Barrels) (MCF)
- ----------------- ----------- ------------
<S> <C> <C>
Proved Developed
Producing 9,824,707 1,057,655
Non-Producing 4,246,437 1,496,865
Proved 16,487,090 0
Undeveloped
----------- ------------
Total Proved 30,558,234 2,554,520
</TABLE>
The oil reserves shown include crude oil and condensate. Oil volumes are
expressed in barrels which are equivalent to 42 United States gallons. Gas
volumes are expressed in thousands of standard cubic feet (MCF) at the contract
temperature and pressure bases.
The estimated reserves shown in this report are for proved developed
producing, proved developed non-producing, and proved undeveloped reserves. This
report does not include any probable or possible reserves which may exist for
these properties.
For the purposes of this report, a field inspection of the properties has
not been performed nor has the mechanical operation or condition of the wells
and their related facilities been examined. We have not investigated possible
environmental liability related to the properties.
Economic parameters have been considered, for the purposes of this report,
only to the extent necessary to establish the profitability of certain
operations and to determine the economic limits of the wells. As requested, oil
prices used in this report are based on a NYMEX Cushing West Texas Intermediate
price of $19.75 per barrel, adjusted by lease for gravity, transportation fees,
and regional posted price differentials. The gas price used in this report is
$2.50 per MCF. Oil and gas prices are held constant throughout the life of the
properties.
<PAGE>
Lease and well operating costs are based on operating expense records of
DMI and CUSA. For non-operated properties, these costs include the per-well
overhead expenses allowed under joint operating agreements along with costs
estimated to be incurred at and below the district and field levels. As
requested, lease and well operating costs for the operated properties include
only direct lease and field level costs. Headquarters general and administrative
overhead expenses of DMI and CUSA are not included. Lease and well operating
costs are held constant throughout the life of the properties. Capital costs are
included as required for workovers, new development wells, and production
equipment.
We have made no investigation of potential gas volume imbalances which may
have resulted from overdelivery or underdelivery to the DMI and CUSA interests.
Therefore, our estimates of reserves do not include adjustments for the
settlement of any such imbalances; our projections are based on DMI and CUSA
receiving their net revenue interest share of estimated future gross gas
production.
The reserves included in this report are estimates only and should not be
construed as exact quantities. They may or may not be recovered; if recovered,
the revenues therefrom and the costs related thereto could be more or less than
the estimated amounts. The sales rates, prices received for the reserves, and
costs incurred in recovering such reserves may vary from assumptions included in
this report due to governmental policies and uncertainties of supply and demand.
Also, estimates of reserves may increase or decrease as a result of future
operations.
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland, Sewell &
Associates, Inc., nor has the actual degree or type of interest owned been
independently confirmed. The data used in our estimates were obtained from
Denbury Management, Inc., Chevron U.S.A. Inc., and the nonconfidential files of
Netherland, Sewell & Associates, Inc. and were accepted as accurate. We are
independent petroleum engineers, geologists, and geophysicists; we do not own an
interest in these properties and are not employed on a contingent basis. Basic
geologic and field performance data together with our engineering work sheets
are maintained on file in our office.
Very truly yours,
/s/ Fred Sewell
--------------------
Fred Sewell
DMA:MMD
