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.”
|
2
|
|
(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.
|
3
|
|
(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
|
|