THE JOINT OPERATING AGREEMENT - TexasBarCLE [PDF]

Oct 17, 2012 - Completion, Reworking, Recompletion, or Plug. Back and other operations;. • Abandonment of wells or non-c

43 downloads 16 Views 14MB Size

Recommend Stories


Joint Agreement
The butterfly counts not months but moments, and has time enough. Rabindranath Tagore

joint venture agreement
You have survived, EVERY SINGLE bad day so far. Anonymous

Joint venture shareholders' agreement
Your big opportunity may be right where you are now. Napoleon Hill

LLC Operating Agreement
Respond to every call that excites your spirit. Rumi

Interim Operating Agreement
The beauty of a living thing is not the atoms that go into it, but the way those atoms are put together.

artemis joint undertaking grant agreement agreement number
At the end of your life, you will never regret not having passed one more test, not winning one more

PdF The Joint Book
Don't watch the clock, do what it does. Keep Going. Sam Levenson

saskatchewan provincial operating engineers' agreement
The greatest of richness is the richness of the soul. Prophet Muhammad (Peace be upon him)

[PDF]The Fifth Agreement
Life is not meant to be easy, my child; but take courage: it can be delightful. George Bernard Shaw

[PDF] The Fifth Agreement
Keep your face always toward the sunshine - and shadows will fall behind you. Walt Whitman

Idea Transcript


THE JOINT OPERATING AGREEMENT – THE BASICS (REVISED OCTOBER 2012)

ALLEN D. CUMMINGS, San Antonio Law Office of Allen D. Cummings

State Bar of Texas OIL, GAS AND ENERGY RESOURCES 101 October 17, 2012 Houston CHAPTER 4

Allen D. Cummings is a solo practitioner with offices in Houston and San Antonio, Texas. He received his J.D. degree from the Dedman School of Law, Southern Methodist University in Dallas, Texas (1974) and is a member of the Order of the Coif. He concentrates his practice in oil and gas title examination, oil and gas transactions and oil and gas litigation, arbitration and mediation. He has practiced law in the energy area, in both corporate legal departments and in private practice since 1975 and is Board Certified in Oil, Gas & Mineral Law by the Texas Board of Legal Specialization. He was selected as a Texas Super Lawyer in oil and gas law in 2004 through 2012, he was among the Top 100 Texas Lawyers – Houston Region in 2006 and was listed in Best Lawyers in America – Energy for 2005 through 2012. Mr. Cummings has presented numerous papers on oil and gas matters at annual and special institutes and continuing education seminars sponsored by the Rocky Mountain Mineral Law Foundation, the Oil, Gas and Energy Resources Law Section of the State Bar of Texas, the University of Texas, the American and Houston Associations of Professional Landmen, and similar organizations. He is a past Chair of the Oil, Gas and Energy Resources Law Section of the State Bar of Texas and the Oil, Gas and Mineral Law Section of the Houston Bar Association. He is a member of the State Bar of Texas.

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

TABLE OF CONTENTS I.

INTRODUCTION. .................................................................................................................................................. 1

II.

EXHIBITS............................................................................................................................................................... 3

III. INTERESTS OF PARTIES .................................................................................................................................... 6 IV. TITLES ................................................................................................................................................................... 7 V. OPERATOR ............................................................................................................................................................ 7 VI. DRILLING AND DEVELOPMENT .................................................................................................................... 10 VII. EXPENDITURES AND LIABILITY OF PARTIES............................................................................................ 14 VIII.

ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST ........................................................... 15

IX. THINKING ABOUT HORIZONTAL WELLS.................................................................................................... 16 X. CONCLUSION. .................................................................................................................................................... 16 ATTACHMENT 1 - Sample AAPL Form 610-1989.................................................................................................... 19

ATTACHMENT 2 – EXHIBIT H – Model Form Recording Supplement to Operating Agreement and Financing Statement ....................................................................................................................................... 45 ATTACHMENT 3 – Authority for Expenditure – Cost Estimate ................................................................. 51

i

The Joint Operating Agreement – The Basics (Revised October 2012)

various versions of the Form 610 Model Form Operating Agreement and there are still oil and gas properties being operated under the Form 610-1956 Model Form Operating Agreement. In addition, many joint operating agreements contain additional typewritten provisions added by the parties, which vary or add to the standard printed terms. Therefore, it is important to carefully read the exact operating agreement covering a particular property in order to understand the rights and obligations of the parties. For example, what is known as the exculpatory provisions in the printed form joint operating agreement have changed between Form 610-1956 and Form 610-1989.

THE JOINT OPERATING AGREEMENT – THE BASICS (REVISED OCTOBER 2012) I. INTRODUCTION. A. A Joint Operating Agreement Solves the Cotenant Problem. One or more concurrent owners or cotenants commonly own the fee oil and gas estate in undivided fractional shares. Each of these owners may execute oil and gas leases to different lessees, who then own the oil and gas leasehold estate in fractional undivided shares. Even if a single lessee owns oil and gas leases from all of the oil and gas fee co-owners, that lessee will usually spread the cost and risk of exploration, drilling and development by assigning undivided fractional shares in its oil and gas leases to third parties. In Texas, any of the co-owners or cotenants may drill for and produce oil and gas on jointly owned lands without the consent of the other co-owners. However, this operating cotenant assumes the risk of a dry hole and must account to the other non-operating cotenants for their share of production, after the operating cotenant has recovered out of production the cost of drilling for, producing and operating the jointly owned property. 1 Because the operating cotenant assumes dry hole risk, drilling as an operating cotenant does not spread the cost and risk of drilling. Also, this common law principle does not provide detailed guidelines about the costs that the operating cotenant can recover out of production, before it must account to the non-operating cotenants for their share of production. Therefore, an operating agreement signed by all of the co-owners of the oil and gas leasehold estate solves the cotenant problem.

C. Scope of Paper. The Model Form Joint Operating Agreement, hereafter called “JOA,” is an exceeding broad topic, involving many diverse issues that have been the subject of numerous cases and articles. 2 Therefore, the best this paper can do is to acquaint you with what the form attempts to accomplish, how to complete the form and the more common issues you will encounter in using an applying the JOA to circumstances that arise in the exploration for and production of oil and gas. Different state courts have reached different results when applying the operating agreement to similar facts. Therefore, this paper will focus on Texas law, but will point out areas where the may be differences from state to state. The key for analyzing any JOA problem is to first become familiar with the JOA by reading it and becoming familiar with its structure. D. Nature of the JOA. The JOA is an agreement between co-owners of the rights to explore for and develop the oil and gas in a certain described lands, called the “Contract Area.” While the co-owners usually own undivided fractional oil and gas leasehold interests, the JOA can also cover owners of the fee oil and gas estate who would rather participate in the cost and risk of exploration and development than execute an oil and gas lease and participate only as a royalty owner. The JOA serves several roles. It identifies the property interests of the parties in identified leases and lands. The JOA commits the parties to participate in operations on the Contract Area and provides a procedure for dealing with disagreements among the parties about what operations will be conducted. In the JOA the co-owners designate one of the co-owners, (most often the co-owner with the largest fractional interest or with the most operating expertise) as the Operator to “ . . . conduct and direct and have full

B. A Short History of the Operating Agreement. This paper is limited to the onshore form of joint operating agreement. The most recent standard printed form of the most commonly used joint operating agreement is A.A.P.L. Form 610 – 1989, Model Form Operating Agreement and the discussion in this paper is based on this form. Digital versions of this form (and other A.A.P.L forms) can be found at www.formsonadisk.com and printed versions can be ordered at www.kraftbilt.com. However, there have been several versions of the commonly used printed form operating agreement. The first commonly used printed form operating agreement was the Form 6101956 Model Form Operating Agreement, which was revised and updated by committees of landmen and attorneys and published as A.A.P.L. Form 610-1977, A.A.P.L. Form 610-1982 and A.A.P.L. Form 6101989. There are important differences between the 1

Chapter 4

2 See John R. Reeves & J Matthew Thompson, Significant Cases Governing the Onshore Operating Agreement, 49 S.W. LEGAL FOUND. INST. ON OIL & GAS L & TAX’N 2-1(1998) for a listing of important cases and Gary B. Conine, Property Provisions of the Operating Agreement – Interpretation, Validity, and Enforceability, 10 TEX. TECH L. REV NO. 4 (1988) at footnote 3 for a listing of articles on the Operating Agreement.

Cox v. Davidson, 397 S.W.2d 200 (Tex. 1965)

1

The Joint Operating Agreement – The Basics (Revised October 2012)

control of all operations on the Contract Area as permitted and required within the limits of this agreement;” and sets forth the duties of the Operator. The JOA sets forth the sharing of expenses for and the allocation of liability with respect to joint operations. It provides remedies for a party’s failure to pay its share of expenses. The JOA provides for limits on a party’s rights with respect to transfer and acquisition of interests in the oil and gas leases in the Contract Area. It sets forth the rights of the parties in production from the Contract Area.

Chapter 4

here is the phrase, found on the top of Page 2 of the JOA: If any provision of any exhibit, except Exhibits "E," "F" and "G," is inconsistent with any provision contained in the body of this agreement, the provisions in the body of this agreement shall prevail. Therefore, it is important to look carefully at the typewritten provision added under Article XVI and determine whether any these provisions change how the Exhibit is to be applied, particularly Exhibit C – the Accounting procedure.

Form 610-1989 is a 17-page document with detailed provisions for the drilling, operation and production of oil and gas wells. And yet, because of the complex nature of the activities covered by an operating agreement, an operating agreement cannot cover in detail every aspect of drilling, operation and production. Nor can an operating agreement executed in 1975 (or in 1991, for that matter), and still in effect today, anticipate all of the changes in technology and the changes in how the oil and gas industry conducts its business. Non-industry parties and trial lawyers often express frustration about the lack of detail, clarity and specificity about the rights and obligations of the parties. However, what they may fail to appreciate is that the JOA is intended as an outline of rights and obligations for sophisticated industry participants seeking to cooperate in complicated business of exploring for and producing oil and gas. When disagreement among parties to the JOA results in litigation, the document will be found open to various interpretations.

3. Interests of the Parties. provisions relating to:

This Article contains



Treatment of the owners of unleased fee and mineral interests, called “Oil and Gas Interests” in the Contract Area;



By referring to Exhibit A, how the parties will bear and pay costs and own production;



Treatment of burdens payable out of production created after the date of the JOA or not listed in Exhibit A, called “Subsequently Created Burdens.”

4. Titles. This Article contains provisions relating to: •

Responsibility of the Operator and Non-Operators for title examination and title curative; and



Allocation of loss of title among the parties as either “individual loss” or “joint loss.”

5. Operator. relating to:

E. Overview of the JOA. A sample of the A.A.P.L. Form 610-1989 JOA is attached as Appendix A. The stripped down Table of Contents provides an overview of the matters covered by the JOA. This paper will address some of these Articles in detail, but will here provide a brief overview of each of the Articles.

This Article contains provisions



Designation of the Operator and a statement of Operator’s status, authority and liability for operations on the Contract Area;



Removal of Operator, selection of a successor Operator and the effect of Operator’s bankruptcy; and



The rights and duties of the Operator.

6. Drilling and Development. This Article contains provisions relating to:

1. Definitions. While this Article heading is selfexplanatory, it is important to point out that some of the defined terms may have different meanings in common oil and gas industry usage. Therefore, it is important to refer to the definition used in the JOA when applying the JOA to circumstances on the ground. This paper will address each of the definitions as they occur in the body of the JOA. 2. Exhibits. This Article heading is also selfexplanatory and this paper will discuss each of the Exhibits listed. However, what is often overlooked 2



Identification and drilling of an Initial Well on the Contract Area;



Proposals for drilling of subsequent wells or for subsequent operations on the Contract Area;



The effect of an election not to participate, i.e. go non-consent, in a subsequent operation, including relinquishment of interests by non-participating parties, assessment of non-consent risk penalties

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

and recoupment of costs out of production by the participating parties;

11. Force Majeure. explanatory.



Deepening and Sidetracking operations and order of preference of operations;



Completion, Reworking, Recompletion, or Plug Back and other operations;

12. Notices. This Article heading is self-explanatory. However, it is worth noting that if you intend to send binding notices by facsimile or e-mail, then the relevant information should be provided in Exhibit A.



Abandonment of wells or non-consent operations and termination of operations;



Taking production in kind and gas balancing.

14. Compliance with Laws and Regulations. This Article heading is self- explanatory.

7. Expenditures and Liabilities of Parties. This Article expressly provides that the liability of the parties “shall be several, not joint or collective” and expressly disclaims any intention to create a partnership among the parties. It also contains provisions relating to:

15. Miscellaneous. This Article provides for counterpart execution and that the JOA is binding on each Non-Operator executing a counterpart. This Article also includes “successors and assigns” and severability provisions.



The creation of mutual liens and security interests among the parties to secure payment and performance;



Operator’s right to demand advances of costs from Non-Operators;



Remedies for default, included suspension of rights, suits for damages and deemed non-consent; and



Payment of rentals, shut-in well payments, minimum royalties and ad taxes.

13. Term of Agreement. This Article heading is selfexplanatory.

16. Other Provisions. This Article if for the typewritten provisions often added to the printed form JOA. II. EXHIBITS. The JOA on Page 1 provides for the following exhibits to be attached: 61

62 63

8. Acquisition; Maintenance or Transfer of Interest. This Article contains provisions that: •

Limit a party’s right to release a lease subject to the JOA, without the consent of the other parties;



Require a party obtaining a renewal or extension of a lease subject to the JOA, to offer the other parties their proportionate share;





This Article heading is self-

64

65 66

Limit a party’s right to assign less than its entire or an undivided interest in the leases subject to the JOA; and

67 68

Offer the parties an option to include a preferential right to purchase in the JOA.

69

9. Internal Revenue Code Election. This Article is an election under §761 of the Internal Revenue Code by the parties, as co-owners under the JOA, to be excluded from partnership treatment, unless the parties have agreed to form a tax partnership.

70 71 72

10. Claims and Lawsuits. This Article sets forth an upper dollar limit on what the Operator may spend to settle a claim or lawsuit. Otherwise, the parties must either jointly take over handling the claim or lawsuit or delegate specific authority to the Operator.

73 74 3

A. Exhibit "A," shall include the following information: (1) Description of lands subject to this agreement, (2) Restrictions, if any, as to depths, formations, or substances, (3) Parties to agreement with addresses and telephone numbers for notice purposes, (4) Percentages or fractional interests of parties to this agreement, (5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement, (6) Burdens on production. B. Exhibit "B," Form of Lease. C. Exhibit "C," Accounting Procedure. D. Exhibit "D," Insurance. E. Exhibit "E," Gas Balancing Agreement. F. Exhibit "F," NonDiscrimination and Certification of NonSegregated Facilities. G. Exhibit "G," Tax Partnership. H. Other:

The Joint Operating Agreement – The Basics (Revised October 2012)

A. EXHIBIT A. Exhibit A describes the parties and property interests covered by the JOA. 1.

2.

3.

4.

5.

The description of the lands should satisfy the Statute of Frauds (1). An outline on a plat may not be sufficient to satisfy the Statute of Frauds unless the corners can be found on the ground – try using XY coordinates for the corners if a plat is to be used. Even though the parties own all depths, there may be a business reason to limit the coverage of the JOA to certain depths or formations (2). Article XII, Notices, refers to the addresses and telephone numbers shown on Exhibit A and if you want to use e-mail for notices, then the appropriate e-mail addresses should be shown on Exhibit A (3). The fractional interests of the parties are how they will share in the costs of operations and the ownership of production. If the Operator has sold fractional interests to the NonOperators on a promoted basis, then the fractional interests on Exhibit A may be different “before casing point” (BCP) and “after casing point” or “before payout” (BPO) and “after payout” (APO), which should be shown on Exhibit A (4). The description of the Oil and Gas Leases and/or Oil and Gas Interests should be sufficient so that they can be identified in the real property records of the county where the lands are located. For an Oil and Gas Lease it is recommended that the date, recording ;f===~TOtaJ

51 ,000 68, 000

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

AAPL - FORM 61 DRS - 1989

EXHIBIT "H" Attached to the dated

Prospect Operating Agreement, County, Texas, , between Operator, and Non-Operators

MODEL FORM RECORDING SUPPLEMENT TO OPERATING AGREEMENT AND FINANCING STATEMENT T!'liS AGREEMENT, entered into by and between , hereinafter referred to as "Operator," and the signatory party or parties other than Operator, hereinafter referred to individually as "Non-Operator:' and collectively as "Non-Operators." WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land identified in Exhibit "A" (said land, Leases and Interests being hereinafter called the "Contract Area"), and in any instance in which the Leases or Interests of a party are not of record, the record owner and the party hereto that owns the interest or rights therein are reflected on Exhibit ·'A··: WHEREAS. the parties hereto have executed an Operating Agreement dated (herein the "Operating covering the Contract Area for the purpose of exploring and developing such lands. Leases and Interests for Oil and Gas: and

Agreement").

WHEREAS. the parties hereto have executed this agreement for the purpose of imparting notice to all persons of the rights and obligations of the parties under the Operating Agreement and for the further purpose of perfecting those rights capable of perfection. NOW. THEREFORE- in consideration of the mutual rights and obligations or the parties hereto, it is agreed as follows: I. This agreement supplements the Operating Agreement which Agreement in its entirety is incorporated herein by reference, and all terms used herein shall have the meaning ascribed to them in the Operating Agreement. 2.

The parties do hereby agree that: A

The Oil and Gas Leases and/or Oil and Gas Interests of the parties comprising the Contract Area shall be subject to and burdened with the terms and provisions of this agreement and the Operating Agreement and the parties do hereby commit such Leases and Interests to the performance thereof

B. The exploration and development of the Contract Area for Oil and Gas shall be governed by the terms and provisions of the Operating Agreement as supplemented by this agreement. C. All costs and liabilities incurred in operations under this agreement and the Operating Agreement shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned. by the parties hereto, as provided in the Operating Agreement.

D. Regardless of the record title ownership to the Oil and Gas Leases and/or Oil and Gas Interests identified on Exhibit ·'A," all production of Oil and Gas from the Contract Area shall be owned by the parties as provided in the Operating Agreement: provided nothing contained in this agreement shall be deemed an assignment or cross-assignment of interests covered hereby. E. Each party shall payor deliver, or cause to be paid or delivered. all burdens on its share of the production from the Contract Area as provided in the Operating Agreement. F. An overriding royalty, production payment net profits interest or other burden payable out of production hereafter created. assignments of production given as security for the payment of money and those overriding royalties. production payments and other burdens payable out of production heretofore created and defined as Subsequently Created Interests in the Operating Agreement shall be 0) borne solely by the party whose interest is burdened therewith. (Ii) subject to suspension if a party is required to assign or relinquish to another party an interest which is subject to such burden, and (iii) subject to the lien and security interest hereinafter provided if the party subject to such burden fails to pay its share of expenses chargeable hereunder and under the Operating Agreement all upon the terms and provisions and in the times and manner provided by the Operating Agreement. G. The Oil and Gas Leases and/or Oil and Gas Interests which are subject hereto may not be assigned or transferred except in accordance with those terms. provisions and restrictions in the Operating Agreement regulating such transfers. This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto. and their respective heirs, devisees. legal representatives. and assigns. and the terms hereof shall be deemed to run with the leases or interests included within the lease Contract Area. H. The parties shall have the right to acquire an interest in renewal, extension and replacement leases. leases proposed to be surrendered, wells proposed to be abandoned, and interests to be relinquished as a result of non-participation in subsequent operations. all in accordance with the terms and provisions of the Operating Agreement.

oJ.

L

The rights and obligations of the parties and the adjustment of interests among them in the event of a failure or loss of title, each party's right to propose operations. obligations with respect to participation in operations on the Contract Area and the consequences of a failure to participate in operations. the rights and obligations of the parties regarding the marketing of production, and the rights and remedies of the parties for failure to comply with financial obligations shall be as provided in the Operating Agreement.

.I.

Each party's interest under this agreement and under the Operating Agreement shall be subject to relinquishment for its failure to participate in subsequent operations and each party's share of production and costs shall be reallocated on the basis of such relinquishment all upon the terms and provisions provided in the Operating Agreement.

K.

All other matters with respect to exploration and development of the Contract Area and the ownership and transfer of the Oil and Gas Leases and/or Oil and Gas Interest therein shall be governed by the terms and provisions of the Operating Agreement

The parties hereby grant reciprocal liens and security interests as follows: A.

Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area. and a security interest and/or purchase money security interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for usc in connection therewith. to secure performance of all of its obligations under this agreement and the Operating Agreement including but not limited to payment of expense, interest and fees. the proper disbursement of all monies paid under this agreement and the Operating Agreement the assignment or relinquishment of interest in Oil and Gas Leases as required under this agreement and the Operating Agreement and the proper performance of operations under this agreement and the Operating Agreement. Such lien and security interest granted by each party hereto shall include such party's leasehold interests, working interests. operating rights, and royalty and overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this agreement and the Operating Agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or obtained for use in

42

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

Memorandum of Operating Agreement Prospect Dated

AAPL - FORM 61ORS - 1989

connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without limitation, accounts arising from the sale of production at the wellhead), contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing. 8.

Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to the other parties

shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement and the Operating Agreement by, through or under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement and the Operating Agreement. whether by assignment, merger. mortgage, operation of law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by the Operating Agreement and this instrument as to al1 obligations attributable to such interest under this agreement and the Operating Agreement whether or not such obligations arise before or after such interest is acquired. C. To the extent that the parties have a security interest under the Uniform Commercial Code of the state in which the Contract Area is

situated, they shal1 be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon default by any party in the payment of its share of expenses. interest or fees. or upon the improper usc of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by such party, plus interest. has been received, and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party's share of Oil and Gas. All purchasers of production may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in this paragraph. D. If any party fails to pay its share of expenses within one hundred-twenty (120) days after rendition of a statement therefor by Operator the non-defaulting parties. including Operator, shall, upon request by Operator. pay the unpaid amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the liens and security rights described in this paragraph 3 and in the Operating Agreement, and each paying party may independently pursue any remedy available under the Operating Agreement or otherwise. c.

If any party does not perform all of its obligations under this agreement or the Operating Agreement. and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of this agreement or the Operating Agreement, to the extent allowed by governing law, the defaulting party waives any available right of redernption from and after the date of judgment any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a receiver is appointed. In addition. to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted hereunder or under the Operating Agreement such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice.

F. The lien and security interest granted in this paragraph 3 supplements identical rights granted under the Operating Agreement. G. To the extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the payment to Operator of any sum due under this agreement and the Operating Agreement for services performed or materials supplied by Operator. H. The above described security wi11 be financed at the wellhead of the well or wells located on the Contract Area and this Recording Supplement may be filed in the land records in the County or Parish in which the Contract Area is located, and as a financing statement in all recording offices required under the Uniform Commercial Code or other applicable state statutes to perfect the above-described security interest and any party hereto may file a continuation statement as necessary under the Uniform Commercial Code, or other state laws. 4.

This agreement shall be effective as of the date of the Operating Agreement as above recited. Upon termination of this agreement and the Operating Agreement and the satisfaction of all obligations thereunder, Operator is authorized to file of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon the request of Operator, if Operator has complied with all of its financial obligations.

5.

This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns. No sale, encumbrance, transfer or other disposition shall be made by any party of any interest in the Leases or Interests subject hereto except as expressly permitted under the Operating Agreement and, if permitted, shall be made expressly subject to this agreement and the Operating Agreement and without prejudice to the rights of the other parties. If the transfer is permitted, the assignee of an ownership interest in any Oil and Gas Lease sha11 be deemed a party to this agreement and the Operating Agreement as to the interest assigned from and after the effective date of the transfer of ownership: provided, however, that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party under this agreement or the Operating Agreement with respect to the interest transferred. including without limitation the obligation of a party to pay all costs attributable to an operation conducted under this agreement and the Operating Agreement in which such party has agreed to participate prior to making such assignment and the lien and security interest granted by Article VIl.B. of the Operating Agreement and hereby shall continue to burden the interest transferred to secure payment of any such obligations.

6.

In the event of a conflict between the terms and provisions of this agreement and the terms and provisions of the Operating Agreement. then, as between the parties, the terms and provisions of the Operating Agreement shall control.

7.

This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been executed by such NonOperator and Operator notwithstanding that this agreement is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which own. in fact, an interest in the Contract Area. In the event that any provision herein is illegal or unenforceable, the remaining provisions shall not be affected, and shall be enforced as if the il1egal or unenforceable provision did not appear herein.

8.

Other provisions.

-2-

43

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

AAPL - FORM 61ORS - 1989

EXHIBIT "H" Attached to the dated

, between

Operating Agreement, County, Texas, , Operator, and s

. who has prepared and circulated this form for execution. represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610RS-1989 Model Form Recording Supplement to Operating Agreement and Financing Statement. as published in computerized form by Forms On-A-Disk, Inc. No changes. alterations. or modifications. other than those made by strikethrough and/or insertion and that arc clearly recognizable as changes in Articles .' have been made to the form. IN WITNESS WHEREOF, this agreement shall be effective as of the

~

day of _ _

_ _, _--"

-

OPERATOR

ATTEST OR WITNESS By:

Type or Print Name Title: Date: Address:

_

~=-;;-;-=-;c___"c_c__c;_;;;;_=___,__,;c;;_7C'""""===--

NON-OPERATORS ATTEST OR WITNESS By:

Type or Print Name Title: Date: Address: - - - - - - - - - - - - - - - - - - - - ATTEST OR WIT:"JESS By:

_

~

Type or Print Name Title: Date:

_ _

Address: -::-_-::-_-:-_-::-_ _--;

_

ATTEST OR WITNESS By:

_

Type or Print Name Title: Date: Address:

-3-

44

_

_ _

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

ATTACHMENT 2 EXHIBIT H Model Form Recording Supplement to Operating Agreement and Financing Statement

45

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

AAPL - FORM 61 DRS - 1989

EXHIBIT "H" Attached to the dated

Prospect Operating Agreement, County, Texas, , between Operator, and Non-Operators

MODEL FORM RECORDING SUPPLEMENT TO OPERATING AGREEMENT AND FINANCING STATEMENT T!'liS AGREEMENT, entered into by and between , hereinafter referred to as "Operator," and the signatory party or parties other than Operator, hereinafter referred to individually as "Non-Operator:' and collectively as "Non-Operators." WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land identified in Exhibit "A" (said land, Leases and Interests being hereinafter called the "Contract Area"), and in any instance in which the Leases or Interests of a party are not of record, the record owner and the party hereto that owns the interest or rights therein are reflected on Exhibit ·'A··: WHEREAS. the parties hereto have executed an Operating Agreement dated (herein the "Operating covering the Contract Area for the purpose of exploring and developing such lands. Leases and Interests for Oil and Gas: and

Agreement").

WHEREAS. the parties hereto have executed this agreement for the purpose of imparting notice to all persons of the rights and obligations of the parties under the Operating Agreement and for the further purpose of perfecting those rights capable of perfection. NOW. THEREFORE- in consideration of the mutual rights and obligations or the parties hereto, it is agreed as follows: I. This agreement supplements the Operating Agreement which Agreement in its entirety is incorporated herein by reference, and all terms used herein shall have the meaning ascribed to them in the Operating Agreement. 2.

The parties do hereby agree that: A

The Oil and Gas Leases and/or Oil and Gas Interests of the parties comprising the Contract Area shall be subject to and burdened with the terms and provisions of this agreement and the Operating Agreement and the parties do hereby commit such Leases and Interests to the performance thereof

B. The exploration and development of the Contract Area for Oil and Gas shall be governed by the terms and provisions of the Operating Agreement as supplemented by this agreement. C. All costs and liabilities incurred in operations under this agreement and the Operating Agreement shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned. by the parties hereto, as provided in the Operating Agreement.

D. Regardless of the record title ownership to the Oil and Gas Leases and/or Oil and Gas Interests identified on Exhibit ·'A," all production of Oil and Gas from the Contract Area shall be owned by the parties as provided in the Operating Agreement: provided nothing contained in this agreement shall be deemed an assignment or cross-assignment of interests covered hereby. E. Each party shall payor deliver, or cause to be paid or delivered. all burdens on its share of the production from the Contract Area as provided in the Operating Agreement. F. An overriding royalty, production payment net profits interest or other burden payable out of production hereafter created. assignments of production given as security for the payment of money and those overriding royalties. production payments and other burdens payable out of production heretofore created and defined as Subsequently Created Interests in the Operating Agreement shall be 0) borne solely by the party whose interest is burdened therewith. (Ii) subject to suspension if a party is required to assign or relinquish to another party an interest which is subject to such burden, and (iii) subject to the lien and security interest hereinafter provided if the party subject to such burden fails to pay its share of expenses chargeable hereunder and under the Operating Agreement all upon the terms and provisions and in the times and manner provided by the Operating Agreement. G. The Oil and Gas Leases and/or Oil and Gas Interests which are subject hereto may not be assigned or transferred except in accordance with those terms. provisions and restrictions in the Operating Agreement regulating such transfers. This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto. and their respective heirs, devisees. legal representatives. and assigns. and the terms hereof shall be deemed to run with the leases or interests included within the lease Contract Area. H. The parties shall have the right to acquire an interest in renewal, extension and replacement leases. leases proposed to be surrendered, wells proposed to be abandoned, and interests to be relinquished as a result of non-participation in subsequent operations. all in accordance with the terms and provisions of the Operating Agreement.

oJ.

L

The rights and obligations of the parties and the adjustment of interests among them in the event of a failure or loss of title, each party's right to propose operations. obligations with respect to participation in operations on the Contract Area and the consequences of a failure to participate in operations. the rights and obligations of the parties regarding the marketing of production, and the rights and remedies of the parties for failure to comply with financial obligations shall be as provided in the Operating Agreement.

.I.

Each party's interest under this agreement and under the Operating Agreement shall be subject to relinquishment for its failure to participate in subsequent operations and each party's share of production and costs shall be reallocated on the basis of such relinquishment all upon the terms and provisions provided in the Operating Agreement.

K.

All other matters with respect to exploration and development of the Contract Area and the ownership and transfer of the Oil and Gas Leases and/or Oil and Gas Interest therein shall be governed by the terms and provisions of the Operating Agreement

The parties hereby grant reciprocal liens and security interests as follows: A.

Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area. and a security interest and/or purchase money security interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for usc in connection therewith. to secure performance of all of its obligations under this agreement and the Operating Agreement including but not limited to payment of expense, interest and fees. the proper disbursement of all monies paid under this agreement and the Operating Agreement the assignment or relinquishment of interest in Oil and Gas Leases as required under this agreement and the Operating Agreement and the proper performance of operations under this agreement and the Operating Agreement. Such lien and security interest granted by each party hereto shall include such party's leasehold interests, working interests. operating rights, and royalty and overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this agreement and the Operating Agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or obtained for use in

47

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

Memorandum of Operating Agreement Prospect Dated

AAPL - FORM 61ORS - 1989

connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without limitation, accounts arising from the sale of production at the wellhead), contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing. 8.

Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to the other parties

shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement and the Operating Agreement by, through or under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement and the Operating Agreement. whether by assignment, merger. mortgage, operation of law, or otherwise, shall be deemed to have taken subject to the lien and security interest granted by the Operating Agreement and this instrument as to al1 obligations attributable to such interest under this agreement and the Operating Agreement whether or not such obligations arise before or after such interest is acquired. C. To the extent that the parties have a security interest under the Uniform Commercial Code of the state in which the Contract Area is

situated, they shal1 be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon default by any party in the payment of its share of expenses. interest or fees. or upon the improper usc of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by such party, plus interest. has been received, and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party's share of Oil and Gas. All purchasers of production may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in this paragraph. D. If any party fails to pay its share of expenses within one hundred-twenty (120) days after rendition of a statement therefor by Operator the non-defaulting parties. including Operator, shall, upon request by Operator. pay the unpaid amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the liens and security rights described in this paragraph 3 and in the Operating Agreement, and each paying party may independently pursue any remedy available under the Operating Agreement or otherwise. c.

If any party does not perform all of its obligations under this agreement or the Operating Agreement. and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of this agreement or the Operating Agreement, to the extent allowed by governing law, the defaulting party waives any available right of redernption from and after the date of judgment any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a receiver is appointed. In addition. to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted hereunder or under the Operating Agreement such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice.

F. The lien and security interest granted in this paragraph 3 supplements identical rights granted under the Operating Agreement. G. To the extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the payment to Operator of any sum due under this agreement and the Operating Agreement for services performed or materials supplied by Operator. H. The above described security wi11 be financed at the wellhead of the well or wells located on the Contract Area and this Recording Supplement may be filed in the land records in the County or Parish in which the Contract Area is located, and as a financing statement in all recording offices required under the Uniform Commercial Code or other applicable state statutes to perfect the above-described security interest and any party hereto may file a continuation statement as necessary under the Uniform Commercial Code, or other state laws. 4.

This agreement shall be effective as of the date of the Operating Agreement as above recited. Upon termination of this agreement and the Operating Agreement and the satisfaction of all obligations thereunder, Operator is authorized to file of record in all necessary recording offices a notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon the request of Operator, if Operator has complied with all of its financial obligations.

5.

This agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns. No sale, encumbrance, transfer or other disposition shall be made by any party of any interest in the Leases or Interests subject hereto except as expressly permitted under the Operating Agreement and, if permitted, shall be made expressly subject to this agreement and the Operating Agreement and without prejudice to the rights of the other parties. If the transfer is permitted, the assignee of an ownership interest in any Oil and Gas Lease sha11 be deemed a party to this agreement and the Operating Agreement as to the interest assigned from and after the effective date of the transfer of ownership: provided, however, that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party under this agreement or the Operating Agreement with respect to the interest transferred. including without limitation the obligation of a party to pay all costs attributable to an operation conducted under this agreement and the Operating Agreement in which such party has agreed to participate prior to making such assignment and the lien and security interest granted by Article VIl.B. of the Operating Agreement and hereby shall continue to burden the interest transferred to secure payment of any such obligations.

6.

In the event of a conflict between the terms and provisions of this agreement and the terms and provisions of the Operating Agreement. then, as between the parties, the terms and provisions of the Operating Agreement shall control.

7.

This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been executed by such NonOperator and Operator notwithstanding that this agreement is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which own. in fact, an interest in the Contract Area. In the event that any provision herein is illegal or unenforceable, the remaining provisions shall not be affected, and shall be enforced as if the il1egal or unenforceable provision did not appear herein.

8.

Other provisions.

-2-

48

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

AAPL - FORM 61ORS - 1989

EXHIBIT "H" Attached to the dated

, between

Operating Agreement, County, Texas, , Operator, and s

. who has prepared and circulated this form for execution. represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610RS-1989 Model Form Recording Supplement to Operating Agreement and Financing Statement. as published in computerized form by Forms On-A-Disk, Inc. No changes. alterations. or modifications. other than those made by strikethrough and/or insertion and that arc clearly recognizable as changes in Articles .' have been made to the form. IN WITNESS WHEREOF, this agreement shall be effective as of the

~

day of _ _

_ _, _--"

-

OPERATOR

ATTEST OR WITNESS By:

Type or Print Name Title: Date: Address:

_

~=-;;-;-=-;c___"c_c__c;_;;;;_=___,__,;c;;_7C'""""===--

NON-OPERATORS ATTEST OR WITNESS By:

Type or Print Name Title: Date: Address: - - - - - - - - - - - - - - - - - - - - ATTEST OR WIT:"JESS By:

_

~

Type or Print Name Title: Date:

_ _

Address: -::-_-::-_-:-_-::-_ _--;

_

ATTEST OR WITNESS By:

_

Type or Print Name Title: Date: Address:

-3-

49

_

_ _

The Joint Operating Agreement – The Basics (Revised October 2012)

ATTACHMENT 3 Authority for Expenditure – Cost Estimate

51

Chapter 4

The Joint Operating Agreement – The Basics (Revised October 2012)

Chapter 4

A....ority For EzpeDdiIare· Cost_Ie Lease & Well NO,-::B County and _

--.:-::=___

1

County. Texas

Field l.ocatioo

_r_or . . . .

AFE Desaiplion Dri111D 13,II)(r,_5" c:asingand ~ with fiac

-Iti... ~ F grind tIIat tile IlIIlOWIU provided for-ltereia'are-estimates Daly, and approval of this autlwrizatioa sbaD ~ ... 1Ile _ _ lacarftd ia--.,.lIle _ _ .pI "lied, _sotoat.

~

2.'

031 041 OS] 06 Cement and'

·

,scm""

:~~ ~

30,000

$

· ·

lDdia'

.

25,000

. . .

·

·

~\iJeI, and bils

~:

, ......

13,100'""Oi5"

$ S

I;:

10,000

· 420,000 -

420,000

:

1~'-+---:::.19:~



s



.

$

SO,1lOO 687,000 $

'"'"

741

s $

Prepared by -

AFEno. _ _ _ _ __

Approved By: Approved fur:

Date:_--,_ __

53

20,(01) • 2O,1lOO· 20,000 ; 30,(01); 250.000

.

·

154

~~

1j

·

153 liner

·

:~::.

10,000 • • •

84.000 35,000 11l,000 90,000 15,000

2@: ·



·

India'

120,UUO

42.1 10

·

(}7]

14]

--w:ooo .

b;;="';~;;;;;; :";f===~TOtaJ

51 ,000 68, 000

Smile Life

When life gives you a hundred reasons to cry, show life that you have a thousand reasons to smile

Get in touch

© Copyright 2015 - 2024 PDFFOX.COM - All rights reserved.