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EXPLORATION AND DEVELOPMENT AGREEMENT

Development Agreement

EXPLORATION AND DEVELOPMENT AGREEMENT | Document Parties: AMVEST OSAGE, INC | Osage and AMVEST West, Inc You are currently viewing:
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AMVEST OSAGE, INC | Osage and AMVEST West, Inc

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Title: EXPLORATION AND DEVELOPMENT AGREEMENT
Date: 2/27/2009
Industry: Oil and Gas Operations     Sector: Energy

EXPLORATION AND DEVELOPMENT AGREEMENT, Parties: amvest osage  inc , osage and amvest west  inc
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Exhibit 10.23

EXPLORATION AND DEVELOPMENT AGREEMENT

THIS EXPLORATION AND DEVELOPMENT AGREEMENT (“Agreement”) dated this 25th day of July, 2005, by and between THE OSAGE NATION, as represented by the Osage Tribal Council in accordance with the Act of June 28, 1906 (34 Stat. 539), as amended, (the “Osage”), by Jim Roan Gray, Principal Chief, under authority of Resolution No. 31-1196 of the Osage Tribal Council (the “Council”), dated July 25, 2005; and AMVEST OSAGE, INC., a Virginia corporation, (“AMVEST”). the Osage and AMVEST are collectively referred to herein as the “Parties” and individually as a “Party.”

Recitals

WHEREAS, by Amended and Restated Exploration and Development Agreement dated October 29, 2001, between the Osage and AMVEST West, Inc., predecessor in interest to AMVEST, as amended from time to time, (the “AMVEST Agreement”), the Osage granted AMVEST certain exclusive rights for the exploration, leasing and development of portions of the Osage Mineral Estate with the goal of increasing production from the Osage Mineral Estate; and

WHEREAS, the Parties acknowledge that considerable investment in gas gathering, transportation and handling infrastructure in southeast Osage County has been made by AMVEST and third parties, and must continue to be made to ensure effective development of coalbed methane and natural gas resources on the Osage Mineral Estate; and

WHEREAS, the Parties acknowledge the exploration and development efforts performed to date by AMVEST have identified various technical, operational and economic issues that will affect the future development of coalbed methane resources from the Osage Mineral Estate; and

WHEREAS, the term of the AMVEST Agreement is nearing completion and the Parties desire to formally terminate the AMVEST Agreement and execute a new, comprehensive agreement regarding the leasing, exploration and development of portions of the Osage Mineral Estate for the long-term, mutual benefit of the Parties.

Agreement

NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Osage and AMVEST do hereby covenant and agree as follows:

 

1.

Definitions . As used in this Agreement, the following terms shall have the meanings herein specified, unless the context otherwise requires:

 

 

(a)

“Advance Option Payment” shall mean the advance payments provided for in Section 5, below.

 

 

(b)

“Affiliate” or “Affiliates” shall mean, as to any company, any other company (or companies) or entity (or entities) which, directly or indirectly, is in control of, is controlled by, or is under direct or indirect common control with, such company.

 

1


 

(c)

“AMVEST” shall mean AMVEST Osage, Inc.

 

 

(d)

“Area of Interest” shall mean all of the property in Osage County, Oklahoma identified and depicted on the map marked Exhibit “A,” within which the following are located: (i) the Existing Licensed Acreage comprised of 190,000 acres, (ii) the Available Acreage from which AMVEST may select the Phase I Acreage, the Phase II Acreage, the Phase III Acreage and the Phase IV Acreage; and (iii) the Excluded Acreage.

 

 

(e)

“Available Acreage” shall mean the acreage within the Area of Interest depicted on Exhibit “A,” and more precisely described on Exhibit “A-1,” which is subject to this Agreement and from which AMVEST may select the Phase I Acreage, the Phase II Acreage, the Phase III Acreage and the Phase IV Acreage.

 

 

(f)

“BIA” shall mean the Osage Agency, Bureau of Indian Affairs, United States Department of the Interior.

 

 

(g)

“Council” shall mean the Osage Tribal Council.

 

 

(h)

“Effective Date” shall mean January 1, 2005.

 

 

(i)

“Excluded Acreage” shall mean the acreage within the Area of Interest which is not currently available for leasing because such property is included in an existing lease, option, concession or development agreement between the Osage and third parties.

 

 

(j)

“Exhibit “A” shall mean that map or plat attached hereto and made a part hereof which, as of the Effective Date, depicts: (i) the Area of Interest, (ii) the Existing Licensed Acreage, (iii) the Available Acreage, and (iv) the Excluded Acreage.

 

 

(k)

“Exhibit “A-1” shall mean that schedule attached hereto and made a part hereof, consisting of 17 pages, which, as of the Effective Date, sets forth the acreage descriptions of the Existing Licensed Acreage and the Available Acreage.

 

 

(l)

“Existing Licensed Acreage” shall mean the initial 190,000 acres of land depicted on Exhibit “A,” and more precisely described on Exhibit “A-1,” which have previously been identified and accepted by the Parties prior to the Effective Date.

 

 

(m)

“Horizontal Well” shall mean any drilling or jetting of a horizontal or near- horizontal lateral into a potentially-productive interval (whether into a coal seam or non-coal formation) from a vertical or slant wellbore including, but not limited to, the drilling or jetting of a long-, medium- or short-radius lateral (as such terms are commonly used in the industry), the long axis of which lateral is oriented approximately parallel to the bedding plane of the formation being drilled into.

 

 

(n)

“Leases” shall mean the Coalbed Methane leases or Coalbed Methane, oil and/or gas leases (as appropriate) selected by AMVEST on a quarter-section basis, more or less, from the “Licensed Acreage.”

 

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(o)

“Licensed Acreage” shall mean the Existing Licensed Acreage, the Phase I Acreage (when and if added), the Phase II Acreage (when and if added), the Phase III Acreage (when and if added), the Phase IV Acreage (when and if added), the Excluded Acreage (when and if added), and the remaining Available Acreage (when and if added), for which AMVEST has the exclusive right to enter into the Leases.

 

 

(p)

“Material Breach” shall mean a breach by one Party that substantially impairs the value or benefit of this Agreement to the other Party.

 

 

(q)

“Osage” shall mean the Osage Nation of Indians, or any other name by which it is denominated, as represented by the Osage Tribal Council in accordance with the Act of June 28, 1906 (34 Stat. 539), as amended.

 

 

(r)

“Phase I,” “Phase II,” “Phase III” and “Phase IV” shall have the meanings set forth in Section 2 of this Agreement.

 

 

(s)

“Phase I Acreage” shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase I from properties identified on Exhibit “A” and more precisely described on Exhibit “A-1.”

 

 

(t)

“Phase II Acreage” shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase II after completion of Phase I from properties identified on Exhibit “A” and more precisely described on Exhibit “A-1.”

 

 

(u)

“Phase III Acreage” shall mean the cumulative 60,000 acres of land that may be selected by AMVEST, in its sole discretion, during Phase III after completion of Phase II from properties identified on Exhibit “A” and more precisely described on Exhibit “A-1.”

 

 

(v)

“Phase IV Acreage” shall mean the 12,480 acres of land that may be selected by AMVEST, in its sole discretion, during Phase IV after completion of Phase III from properties identified on Exhibit “A” and more precisely described on Exhibit “A-1.”

 

2.

Term . (a) The term of this Agreement shall be for sixteen (16) years from the Effective Date of this Agreement. The term shall consist of four (4) phases: (a) “Phase I” which is to extend for four (4) years following the Effective Date; (b) “Phase II” which is to extend for four (4) years following the termination of Phase I, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase II; (c) “Phase III” which is to extend for four (4) years following the termination of Phase II, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase III and (d) “Phase IV” which is to extend for four (4) years following the termination of Phase III, if AMVEST elects to proceed and if AMVEST qualifies for entry into Phase IV. Subsequent to the termination of this Agreement, during whatever phase the Agreement terminates, the activities of AMVEST shall be governed by the provisions of the Leases that AMVEST has entered into with the Osage.

 

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(b)

On or around January 31 of each calendar year during the term of this Agreement (commencing in 2006), at a time convenient for the Parties, AMVEST shall make a presentation to the Osage Tribal Council and BIA (as appropriate) to: (i) review the results of exploration, drilling, production and infrastructure development performed by AMVEST during the preceding calendar year, (ii) present AMVEST’s preliminary plans for exploration and development of Coalbed Methane on the Osage Mineral Estate during the current calendar year, and (iii) address any questions or concerns raised by the Osage Tribal Council and/or BIA concerning AMVEST’s prior or planned Coalbed Methane exploration and development activity. The Parties acknowledge, however, that ongoing exploration and development results, evolving gas transportation and market conditions, and other factors, may impact and alter AMVEST’s planned activity during any particular year, in which case AMVEST shall timely advise the Osage as to material changes in AMVEST’s planned exploration and development efforts.

 

3.

Grant . During the term of this Agreement, the Osage grants to AMVEST the exclusive right to enter into the Leases within the Licensed Acreage on a quarter section (i.e., 160- acre, more or less) basis upon the terms that have been pre-negotiated between the Parties as stated herein.

 

4.

Licensed Acreage . (a) The Licensed Acreage initially consists of the Existing Licensed Acreage. Effective January 1, 2005, Phase I shall commence and during Phase I, AMVEST may, at its election, elect to specify and include up to 15,040 acres of the Phase I Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase I, plus up to 14,880 acres during the fourth and final calendar year of Phase I (i.e., cumulative 60,000 acres of Phase I Acreage). AMVEST shall make its election with regard to including Phase I Acreage prior to the end of each calendar year. Any Phase I Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase I, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase I Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase I Acreage as set forth in Section 5 below, and such portions of the Phase I Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

 

 

(b)

Provided, however, if this Agreement extends to Phase II, or if AMVEST has drilled 420 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase II, or after AMVEST has drilled 420 production wells, elect to specify and include up to 15,040 acres of the Phase II Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase II, plus up to 14,880 acres during the fourth and final calendar year of Phase II (i.e., cumulative 60,000 acres of Phase II Acreage). AMVEST shall make its

 

4


 

election with regard to including Phase II Acreage prior to the end of each calendar year. Any Phase II Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase II, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase II Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase II Acreage as set forth in Section 5 below, and such portions of the Phase II Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

 

 

(c)

Provided, further, if this Agreement extends to Phase Ill, or if AMVEST has drilled 620 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase III, or after AMVEST has drilled 620 production wells, elect to specify and include up to 15,040 acres of the Phase III Acreage within the Licensed Acreage during each of the first, second and third calendar years of Phase III, plus up to 14,880 acres during the fourth and final calendar year of Phase III (i.e., cumulative 60,000 acres of Phase III Acreage). AMVEST shall make its election with regard to including Phase III Acreage prior to the end of each calendar year. Any Phase III Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase III, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement. If AMVEST elects to include the Phase III Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase III Acreage as set forth in Section 5 below, and such portions of the Phase III Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

 

 

(d)

Provided, further, if this Agreement extends to Phase IV, or if AMVEST has drilled 820 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, AMVEST may, at its election to be exercised in writing at any time after the commencement of Phase IV, or after AMVEST has drilled 820 production wells, elect to specify and include all 12,480 acres (or a portion thereof) of the Phase IV Acreage within the Licensed Acreage during any calendar year of Phase IV. AMVEST shall make its election with regard to including Phase IV Acreage prior to the end of each calendar year. Any Phase IV Acreage that AMVEST does not elect to include in the Licensed Acreage in any year of Phase IV, may be included in the Licensed Acreage in a subsequent year during the term of this Agreement, if applicable. If AMVEST elects to include the Phase IV Acreage, or portions thereof, within the Licensed Acreage, AMVEST shall pay the Advance Option Payment for the Phase IV Acreage as set forth in Section 5 below, and such portions of the Phase IV Acreage shall automatically be included in the definition of the

 

5


 

Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement.

 

 

(e)

If this Agreement extends beyond Phase IV, or if AMVEST has drilled 1,020 production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date), whichever is earlier, if and when portions of the Excluded Acreage become available for leasing because of the expiration or termination of the applicable lease, option, concession or development agreement between the Osage and a third party, AMVEST may, at its election to be exercised in writing within 30 days of the BIA’s publication of such expiration or termination, elect to include all or portions of the Excluded Acreage within the Licensed Acreage. If AMVEST elects to include within the Licensed Acreage all or portions of the Excluded Acreage, AMVEST shall pay the Advance Option Payment for the Excluded Acreage, as set forth in Section 5 below, and the Excluded Acreage shall automatically be included in the definition of the Licensed Acreage and thereby become subject to the terms of this Agreement as if it had been included within the Licensed Acreage at the execution of this Agreement. To the extent portions of the Excluded Acreage become available for leasing after the Effective Date, but prior to the expiration of Phase IV or before AMVEST has drilled 1,020 production wells, the Osage shall not enter into any lease, option, concession or development agreement with regard to such Excluded Acreage with any third party until it has first offered AMVEST the option, and AMVEST has elected not to include such Excluded Acreage within the Licensed Acreage pursuant to the terms set forth herein.

 

 

(f)

Notwithstanding the terms of Section 4(e) above, the total Licensed Acreage shall not exceed 382,480 acres unless AMVEST has first drilled a minimum of one thousand twenty (1,020) production wells on the Osage Mineral Estate (which shall include 224 production well credits earned by AMVEST prior to the Effective Date). In the event AMVEST has drilled one thousand twenty (1,020) production wells on the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage and Phase IV Acreage, and provided that AMVEST pays the Advance Option Payment of Four Dollars ($4.00) per net acre to be added to the Licensed Acreage pursuant to Section 5, AMVEST shall have the right to add and include the Excluded Acreage and/or any remaining Available Acreage in the Area of Interest that was not included in the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage or Phase IV Acreage, such that the total Licensed Acreage may exceed 382,480 acres. In the event the Licensed Acreage exceeds 382,480 acres, the Osage and AMVEST shall act in good faith to amend the term as set forth in Section 2 and to amend the drilling requirements of Section 11, by increasing both provisions to reflect the additional development.

 

 

(g)

During the term of this Agreement, AMVEST may, at its election from time to time, release or surrender to the Osage portions of the Licensed Acreage by providing written notice thereof and such acreage so released or surrendered shall

 

6


be excluded from the Licensed Acreage (unless AMVEST subsequently elects to include it pursuant to the provisions set forth herein), but such acreage so released or surrendered shall remain and constitute part of the Available Acreage. If AMVEST so elects, it may, by providing written notice to the Osage, nominate a number of acres from the Available Acreage which is equal in number to the acreage so released or surrendered which nominated acreage shall, at no additional cost to AMVEST, become a part of the Licensed Acreage in lieu of the acreage so released or surrendered.

 

5.

Advance Option Payments . As part of the consideration for the licenses, rights and privileges granted under this Agreement, the Osage acknowledges and agrees that, prior to the Effective Date, AMVEST paid the Osage as an Advance Option Payment, a total sum equal to Four Dollars ($4.00) per net acre for each acre of the Existing Licensed Acreage. No part of these Advance Option Payments is refundable or recoupable.

 

 

(a)

During Phase I, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase I Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase I Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST’s election. No part of these Advance Option Payments is refundable or recoupable.

 

 

(b)

If this Agreement extends to Phase II, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase II Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase II Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST’s election. No part of this Advance Option Payment is refundable or recoupable.

 

 

(c)

If this Agreement extends to Phase III, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase III Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase III Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST’s election. No part of this Advance Option Payment is refundable or recoupable.

 

 

(d)

If this Agreement extends to Phase IV, and if AMVEST elects to add to the Licensed Acreage all or part of the Phase IV Acreage, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Phase IV Acreage selected by AMVEST and added to the Licensed Acreage, which shall be paid within 30 days of AMVEST’s election. No part of this Advance Option Payment is refundable or recoupable.

 

 

(e)

If AMVEST elects from time to time to add to the Licensed Acreage all or part of the Excluded Acreage, or any remaining Available Acreage within the Area of Interest that was not included under the Existing Licensed Acreage, Phase I Acreage, Phase II Acreage, Phase III Acreage and Phase IV Acreage, pursuant to the terms and procedures set forth in Sections 4(f)

 

7


 

and 4(g) above, AMVEST agrees to pay the Osage as an Advance Option Payment, a sum equal to Four Dollars ($4.00) per net acre for each acre of the Excluded Acreage and remaining Available Acreage selected by AMVEST and added to the Licensed Acreage. The total amount of this Advance Option Payment shall be paid from time to time within 30 days of AMVEST’s election. No part of this Advance Option Payment is refundable or recoupable.

 

6.

Reservations . Notwithstanding any provision to the contrary contained in this Agreement, all grants and rights contained herein shall be subject to the rights of third party oil and gas lessees of the Osage which are of record with the BIA prior to the Effective Date of this Agreement and are further subject to all rights of surface owners.

 

7.

Reports . AMVEST shall make periodic verbal and/or written progress reports to the BIA and the Osage, summarizing the operations undertaken during the term of the Agreement. These reports shall be a summary of wells staked, when spudded, wells drilled and the status of each, location of each well, and in similar fashion for wells re-entered, plus Leases purchased and their location. The progress reports shall not replace any reports for Leases and wells required by the BIA, in accordance with applicable laws and regulations, or the Osage.

 

8.

Coalbed Methane Acquisition and Development Program

 

 

(a)

Coalbed Methane zones (sometimes called coal seam gas or carbonaceous shale zones) are zones which produce, or are capable of producing, Coalbed Methane, as defined below, and occur as scattered lithologies in the interval between the top of the Skiatook Group and the top of the Arbuckle formation which include, but are not limited to, the Woodford Shale, Krebs, Cabaniss, Marmaton and Skiatook Groups. The granting of lease rights on Coalbed Methane zones shall be restricted to the individual coalbeds, seams and carbonaceous shale zones. AMVEST shall provide stratigraphic information to the Osage and BIA such as electric logs that identify geological formation names in the area of their reentries and drilling. “Coalbed Methane” shall mean all gas and oil produced from within the stratigraphic interval described above from coalbeds, coal seams, coal zones, coal-bearing zones, mined-out areas and carbonaceous shale formations. The term “carbonaceous” is authoritatively defined as containing carbon, usually of organic origin, such as shale with plant or other organic remains.

 

 

(b)

AMVEST shall assume the burden of proof of defining Coalbed Methane zones as differing from the remaining penetrated zones in a wellbore such as by chemical analysis of the gas and/or oil and lithologic analysis of the footage penetrated, as determined from electric logs (e.g., density/neutron, gamma ray, resistivity, etc.).

 

 

(c)

AMVEST shall provide the Osage and the BIA with drilling and logging information to enable evaluation of zones penetrated but not covered by a Coalbed Methane Lease nor covered by an oil or gas Lease.

 

8


9.

Lease Terms . AMVEST shall have the exclusive right to enter into Leases with the Osage pursuant to which Coalbed Methane can be produced and marketed from the Licensed Acreage. If AMVEST elects to enter into a Coalbed Methane-only Lease with regard to any of the Licensed Acreage and if the oil and/or gas interest on the area included in said Lease is unleased at the time, AMVEST may subsequently exercise its right, pursuant to Section 14(b), to lease the oil and/or gas by providing written notice to the Osage and paying the incremental lease bonus as set forth below. In the event that AMVEST elects to exercise its option to lease certain tracts under this Agreement, the Osage and AMVEST shall execute a Lease(s), which the BIA shall approve, which contains the following lease terms:

 

 

(a)

Each Coalbed Methane Lease granted hereunder shall be on quarter-section tracts of generally l60 acres (more or less), either drilled or undrilled, or those with plugged, abandoned or unplugged wells. All activities conducted with respect to any such tracts shall be subject to the rights of existing leaseholders. Consideration shall be Twenty Dollars ($20) per net acre lease bonus for Leases which include Coalbed Methane only, Thirty-Five Dollars ($35) per net acre lease bonus for Leases which include Coalbed Methane and gas, Fifty Dollars ($50) per net acre for Leases which include Coalbed Methane, gas and oil, or Fifteen Dollars ($15) per net acre lease bonus if AMVEST is electing to add gas to an existing Coalbed Methane-only Lease or add oil to an existing Coalbed Methane and gas Lease, or Thirty Dollars ($30) per net acre lease bonus if AMVEST is electing to add oil and gas to an existing Coalbed Methane-only Lease. Royalty for oil shall either be 3/16 (18.75%) or 20%, whichever is the highest applicable royalty required by BIA regulations. Royalty for Coalbed Methane and gas shall be 3/16 (18.75%), paid in accordance with reasonable and customary practices on gas sales, as approved by the BIA. The primary term of the Lease shall be three (3) years. Rentals under a Coalbed Methane-only Lease shall be One Dollar ($1.00) per net acre for each of the second and third years if the Coalbed Methane-only Lease is not held by production. Rentals under a Coalbed Methane, oil and/or gas Lease shall be Two Dollars ($2.00) per net acre for each of the second and third years if the Coalbed Methane, oil and/or gas Lease is not held by production. Leases shall be for either Coalbed Methane only or Coalbed Methane, oil and/or gas, as may be specified by AMVEST from time to time. The lease forms to be used are attached as Exhibit “B,” which have been previously approved by the BIA and are in use by the Osage. For purposes of settling Coalbed Methane and gas royalties due the Osage under the Leases, AMVEST may deduct from its sales proceeds, gas gathering, transportation, handling, compression and dehydration costs (including depreciation for all services), fuel use and shrink, etc., based on competitive industry charges for similar services. The specific deductions for gas gathering, transportation and processing (to facilitate marketability of such gas) shall be as set forth in Gas Purchase Agreements, as hereinafter defined, between AMVEST and the first purchaser of its gas (including, without limitation, Northeast Shelf Energy, L.L.C.), which Gas Purchase Agreements are subject to approval by the BIA. Northeast Shelf Energy, L.L.C., an Affiliate of AMVEST, purchases gas from AMVEST at the wellheads and performs subsequent

 

9


 

gathering, compression, dehydration and such other services and processes as may be required in order for the gas to satisfy the quality specifications of downstream third-party purchasers of the gas.

 

 

(b)

All Leases taken under any phase of this Agreement shall continue in full force and effect by their own terms upon any termination of this Agreement for so long as a well on the Lease is producing in paying quantities. A well shall be deemed producing in paying quantities as long as it is in continuous production except for such periods of time when production is temporarily suspended for recompletion, rework, workover, maintenance or repair of the well or its associated facilities, or problems with downstream pipelines or related facilities.

 

 

(c)

At any time after the Effective Date and during the term of this Agreement, AMVEST may serve written notice upon the Osage and the BIA that AMVEST wishes to enter into Lease(s) of specific quarter-section tracts within the Licensed Acreage. The Principal Chief of the Osage (or authorized representative) shall execute each such Lease on behalf of the Osage without any further approval required by the Council, and the BIA shall process each such Lease in a timely manner. The processing of Leases by the BIA shall be promptly forthcoming if the provisions of this Agreement are complied with and if there is compliance with applicable legal and regulatory provisions. AMVEST, the Osage, and the BIA agree that changes in economic conditions or the potential production from the Licensed Acreage to be covered by a Lease shall not change the pre-negotiated terms and conditions of each such Lease, which terms and conditions are set forth in this Section 9.

 

 

(d)

With regard to assignments of Leases, the BIA will evaluate each such assignment within a reasonable time. The BIA will have the right to reject any assignment(s) of such Lease(s) for good cause within the scope of existing regulations within a reasonable time after the BIA’s receipt of such assignment(s) from AMVEST, or from one of AMVEST’s assignees. The BIA will attempt to approve or disapprove all such submissions of assignments within ten (10) days after the receipt thereof. The approvals of the BIA under this Section 9 will not be unreasonably withheld. I , AMVEST may assign, sublease, dedicate and/or farmout Lease(s), or production therefrom, to its Affiliates, including, but not limited to, Northeast Shelf Energy, L.L.C., without first obtaining written approval.

 

 

(e)

The Parties acknowledge that AMVEST has obtained the approval of the BIA to the form of gas purchase agreement (“Gas Purchase Agreement”) pertaining to production from production wells drilled and developed on property included within the Leases. In the future, if AMVEST elects to execute new Gas Purchase Agreements, AMVEST shall obtain the approval of the BIA to a form of Gas Purchase Agreement which would pertain to production from production wells drilled and developed on property included within the Lease, which form of Gas Purchase Agreement shall not include terms inconsistent with the terms and conditions set forth herein. To the extent that AMVEST does not obtain the approval of the BIA to the proposed form of Gas Purchase Agreement and AMVEST elects to continue its obligations under this

 

10


 

Agreement, AMVEST shall have the right to connect immediately into sales lines all wells drilled or recompleted pursuant to this Agreement, but no such gas may be sold until the Gas Purchase Agreement or a temporary agreement is approved by the BIA pursuant to the provision of 25 CFR 226.14.

 

 

(f)

Except for royalty settlement terms and other provisions contained in various Gas Purchase Agreements, which may change from time to time, nothing herein shall be deemed to affect production from any Leases taken by AMVEST under the AMVEST Agreement.

 

10.

Well Information, Well Requir


 
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