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JOINT DEVELOPMENT AGREEMENT

Development Agreement

JOINT DEVELOPMENT AGREEMENT | Document Parties: NOBLE ENERGY INC | CNX GAS COMPANY LLC | Noble Energy, Inc | US Express You are currently viewing:
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NOBLE ENERGY INC | CNX GAS COMPANY LLC | Noble Energy, Inc | US Express

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Title: JOINT DEVELOPMENT AGREEMENT
Governing Law: Texas     Date: 10/20/2011
Industry: Oil and Gas Operations     Law Firm: Wachtell Lipton     Sector: Energy

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Exhibit 10.1

 

 

 

 

JOINT DEVELOPMENT AGREEMENT

 

BY AND AMONG

 

 

 

 

CNX GAS COMPANY LLC,

 

and

 

NOBLE ENERGY, INC.

 

 

 

DATED September 30, 2011

 

 

 

 


 

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

ARTICLE I

DEFINITIONS AND INTERPRETATION

1

 

 

 

1.1

Defined Terms

1

1.2

References and Rules of Construction

1

 

 

 

ARTICLE II

SCOPE; PARTICIPATING INTERESTS; OPERATIONS

2

 

 

 

2.1

Scope

2

2.2

Participating Interests

2

2.3

Operations; Development Area

2

2.4

Operating Agreements

4

2.5

Operator

5

2.6

Liability of Operator

7

2.7

Rentals, Shut-in Well Payments and Royalties

8

2.8

Insurance

8

2.9

Reports

9

2.10

Marketing

10

2.11

Development Services; Overhead Rates; and Marketing Fees.

15

2.12

Contracts; Use of Affiliates

15

2.13

Non-Solicitation

16

2.14

Conflict of Interest Policy

16

2.15

Secondment

16

 

 

 

ARTICLE III

JOINT DEVELOPMENT COMMITTEE; DEVELOPMENT PLAN; ANNUAL PLANS AND BUDGETS

16

 

 

 

3.1

Joint Development Committee

16

3.2

Development Plan

19

3.3

Annual Plan and Budgets

20

3.4

AFEs

25

3.5

Non-Consent Years

25

 

 

 

ARTICLE IV

TRANSFER RESTRICTIONS

27

 

 

 

4.1

Restrictions on Transfer

27

4.2

Documentation for Transfers

29

4.3

Maintenance of Uniform Interest

29

4.4

Right of First Offer

30

 

 

 

ARTICLE V

AREA OF MUTUAL INTEREST

31

 

 

 

5.1

Creation of Area of Mutual Interest

31

5.2

Acquisition of Fill-In Interests for Drilling Units in the Development Area

31

5.3

Acquisition of Option Interests in the Development Area

32

5.4

Exceptions

33

 

 

i


 

 

ARTICLE VI

TAXES

35

 

 

 

6.1

Tax Partnership

35

6.2

Tax Information

36

6.3

Responsibility for Taxes

36

 

 

 

ARTICLE VII

CERTAIN PAYMENT OBLIGATIONS

36

 

 

 

7.1

Payment of Development Costs and Carried Costs

36

7.2

Payment Procedures

37

7.3

Carried Costs Balance Payment

38

7.4

Post Closing Cash Payments

38

7.5

Certain Order of Payments

38

7.6

Total Cost Sharing Payments

38

 

 

 

ARTICLE VIII

DEFAULTS

39

 

 

 

8.1

Defaults

39

8.2

Certain Automatic Remedies for a Default

39

8.3

Certain Other Remedies for a Default

41

8.4

Cumulative and Additional Remedies

42

 

 

 

ARTICLE IX

LAND AND GEOSCIENCE DATA; DISCLAIMERS

42

 

 

 

9.1

Land and Geoscience Data

42

9.2

Disclaimers

42

 

 

 

ARTICLE X

TERM

43

 

 

 

10.1

Termination

43

10.2

Effect of Termination

43

 

 

 

ARTICLE XI

MISCELLANEOUS

44

 

 

 

11.1

Relationship of the Parties

44

11.2

Notices

44

11.3

Expenses

47

11.4

Waivers; Rights Cumulative

47

11.5

Entire Agreement; Conflicts

47

11.6

Amendment

48

11.7

Governing Law; Disputes

48

11.8

Publicity

49

11.9

Parties in Interest

49

11.10

Successors and Permitted Assigns

49

11.11

Preparation of Agreement

49

11.12

Severability

49

11.13

Counterparts

50

11.14

Excluded Assets

50

 

 

ii


 

 

LIST OF APPENDICES AND EXHIBITS

 

Appendices

 

 

 

 

 

Appendix I

Definitions

 

 

 

Exhibits

 

 

 

 

 

Exhibit A-1

Development Area and Area of Mutual Interest

Exhibit A-2

CNX Operated Area

Exhibit A-3

NBL Operated Area

Exhibit B-1

Master JOA

Exhibit B-2

Noble Master JOA Memorandum

Exhibit B-3

CONSOL Master JOA Memorandum

Exhibit C

Insurance

Exhibit D-1

Unit JOA

Exhibit D-2

Noble Unit JOA Memorandum

Exhibit D-3

CONSOL Unit JOA Memorandum

Exhibit E

Development Plan

Exhibit F

Annual Plan and Budget

Exhibit G

Tax Partnership Agreement

Exhibit H

Marcellus Formation

 

 

 

Schedule

 

 

 

 

 

Schedule 2.3(c)

Expansion Counties

Schedule 2.10

Downstream Contracts and Hydrocarbon Sales Contract

 

 

iii


 

 

JOINT DEVELOPMENT AGREEMENT

 

THIS JOINT DEVELOPMENT AGREEMENT is made this 30th day of September, 2011 (the “ Closing Date ”) by and among CNX Gas Company LLC, a Virginia limited liability company   (“ CONSOL ”), and Noble Energy, Inc., a Delaware corporation (“ Noble ”).  CONSOL and Noble shall sometimes be referred to herein together as the “ Parties ”, and individually as a “ Party ”.

 

Recitals

 

Pursuant to that certain Acquisition Agreement (as hereafter defined), CONSOL is transferring to Noble, and Noble is acquiring from CONSOL, certain undivided interests in the Oil and Gas Assets (as hereinafter defined) described therein;

 

The Parties desire to set forth their agreements for the joint exploration, development and operation of the Subject Assets (as hereinafter defined) in a coordinated manner using CONSOL Operator (as hereinafter defined) as operator of the CNX Operated Area (as hereinafter defined) and using Noble Operator (as hereinafter defined) as operator of the NBL Operated Area (as hereinafter defined);

 

This Agreement, the Acquisition Agreement and the Associated Agreements are parts of a single, integrated transaction; and

 

The Parties desire to set forth their respective rights and obligations with respect to all such arrangements.

 

NOW THEREFORE , in consideration of the mutual agreements contained herein, the benefits to be derived by each Party, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

DEFINITIONS AND INTERPRETATION

 

1.1       Defined Terms .  Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in Appendix I .

 

1.2          References and Rules of Construction .  All references in this Agreement to Exhibits, Appendices, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Appendices, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited.  The word “including” (in its various forms) means “including without limitation.”  All references to “$” or “dollars” shall be deemed references to United States dollars.  Each accounting term not defined herein will have the meaning given to it under generally accepted accounting principles.  Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  References to any Law or agreement means such Law or agreement as it may be amended from time to time.

 

 

1


 

 

ARTICLE II

SCOPE; PARTICIPATING INTERESTS; OPERATIONS

 

2.1      Scope .  This Agreement shall govern the respective rights and obligations of the Parties with respect to the funding, exploration, development and operation of the Subject Assets, and the marketing and sale of Hydrocarbons produced therefrom.

 

2.2       Participating Interests .

 

(a)       As of the Closing Date, the Participating Interests of the Parties are as follows:

 

Party

 

Participating Interest

CONSOL

 

50%

Noble

 

50%

 

(b)       If a Party Transfers all or any undivided percentage of its Joint Development Interest pursuant to the provisions of this Agreement, the Participating Interests of the Parties shall be revised accordingly.

 

2.3      Operations; Development Area .

 

(a)       Subject to Sections 2.3(c), 2.3(d), 2.5  and 2.6 and the other terms of this Agreement, CONSOL Operator shall manage and control the participation of the Parties in all Development Operations and Area-Wide Operations relating to the portion of the Development Area described on Exhibit A-2 (as adjusted pursuant to Section 2.3(c) , the “ CNX Operated Area ”) in accordance with the Development Plan and applicable Annual Plan and Budget and such other operating guidelines as the Joint Development Committee may establish, including proposing all Development Operations on behalf of the Parties under any Applicable Operating Agreement relating to such area, making all elections on behalf of the Parties under any Applicable Operating Agreement (other than elections with respect to operations proposed by a Third Party Operator or other Third Party under an Applicable Operating Agreement) relating to such area, and conducting all Area-Wide Operations on behalf of the Parties relating to such area.  In addition, subject to Sections 2.5 and 2.6 , CONSOL Operator shall have such other powers and responsibilities as are set forth in this Agreement or as granted to it by the Joint Development Committee.

 

(b)      Subject to Sections 2.3(c), 2.3(d), 2.5 and 2.6 and the other terms of this Agreement, Noble Operator shall manage and control the participation of the Parties in all Development Operations and Area-Wide Operations relating to the portion of the Development Area described on Exhibit A-3 (as adjusted pursuant to Section 2.3(c) , the “ NBL Operated Area ”) in accordance with the Development Plan and applicable Annual Plan and Budget and such other operating guidelines as the Joint Development Committee may establish, including proposing all Development Operations on behalf of the Parties under any Applicable Operating Agreement relating to such area, making all elections on behalf of the Parties under any Applicable Operating Agreement (other than elections with respect to operations proposed by a Third Party Operator or other Third Party under an Applicable Operating Agreement) relating to such area, and conducting all Area-Wide Operations on behalf of the Parties relating to such area.  In addition, subject to Sections 2.5 and 2.6 , Noble Operator shall have such other powers and responsibilities as are set forth in this Agreement or as granted to it by the Joint Development Committee.

 

 

2


 

 

(c)       CONSOL and Noble may adjust the allocation of the Operated Areas between the Party Operators by written agreement; provided that, at any time that Drilling Units have been designated covering at least 60% of the net acreage included in the Subject Assets within the NBL Operated Area and such Subject Assets covered by such Drilling Units have become or, within the following 24-months months are reasonably expected to become, Developed Assets or P&A/Condemned Assets, then upon written request from Noble to CONSOL (an “ Expansion Request ”), Noble and CONSOL shall meet (which meeting shall occur within 15 days of such request being received by CONSOL) and use their commercially reasonable efforts to agree upon expanding the NBL Operated Area (and, if applicable, reducing the CNX Operated Area) so that Noble Operator can continue conducting drilling and completion Development Operations to the same extent and at the same pace that it was conducting drilling and completion Development Operations prior to the Expansion Request.  If Noble and CONSOL are unable to so mutually agree upon an expansion of the NBL Operated Area within 45 days of CONSOL receiving an Expansion Request, then the NBL Operated Area shall automatically be expanded by one county (each, an “ Expansion County ”), which Expansion County shall be selected by Noble by choosing one of the counties listed on Schedule 2.3(c) that is not then a part of the NBL Operated Area (and, if applicable, the CNX Operated Area shall be reduced by excluding from such area such Expansion County, provided that, notwithstanding the foregoing, from and after the date of such expansion, the CNX Operated Area shall continue to include (and the NBL Operated Area shall not include) any Drilling Units within the Expansion County that were designated by CONSOL Operator prior to such expansion and on which any drilling and completion operations had been commenced or are reasonably expected to be commenced within six months following such expansion (the “ Excluded Units ”).  Unless otherwise agreed by the Parties, an Excluded Unit shall cease to be an Excluded Unit and operatorship of such Excluded Unit shall be transferred to Noble Operator promptly after all drilling and completion operations that caused such Drilling Unit to be an Excluded Unit have been concluded by CONSOL Operator.  Unless otherwise mutually agreed, the right to expand the NBL Operated Area shall automatically terminate at the time that all counties listed on Schedule 2.3(c) have become part of the NBL Operated Area (excluding any Excluded Units).

 

(d)       Notwithstanding anything in the Agreement to the contrary, beginning on the Closing Date and ending on the date that is 90 days following the date on which CONSOL Operator receives written notice from Noble Operator that it is electing to assume operatorship of the NBL Operated Area, or such earlier date as CONSOL Operator and Noble Operator may mutually agree (the “ Operatorship Transition Period ”), the NBL Operated Area shall be deemed to be a part of the CNX Operated Area and CONSOL Operator shall serve as Party Operator of such Operated Area; provided that in the event that Noble Operator does not provide such notice to CONSOL Operator on or before December 31, 2012, then the Operatorship Transition Period shall terminate, the NBL Operated Area thereafter shall be deemed to cover none of the Development Area, the CONSOL Operated Area shall be deemed to cover both the area initially defined as the NBL Operated Area and the area initially defined as the CONSOL Operated Area and the provisions of Section 2.3(c) shall no longer be applicable.  During the Operatorship Transition Period, prior to commencing any Development Operation in the Operated Area that is described on Exhibit A-3 , CONSOL Operator shall provide a copy of any AFE and any related drilling and completion plan for such Development Operation to Noble Operator and thereafter meet with Noble Operator to discuss and review such AFE and/or related drilling and completion plan.  At the end of the Operatorship Transition Period, CONSOL Operator shall use its commercially reasonable efforts to assist Noble Operator in taking over as operator in the NBL Operated Area.

 

 

3


 

 

2.4      Operating Agreements .

 

(a)      Except for any Unit JOAs that are executed and delivered by the Parties on the Closing Date, all Leases and related assets in the Development Area:  (i) in which only the Parties hold interests as of the Closing Date, or (ii) in which the Parties hereafter both acquire interests, shall be deemed to be subject to and governed by an operating agreement in the form attached hereto as Exhibit B-1 (the “ Master JOA ”); provided that with respect to those Subject Assets that are subject to any Third Party Operating Agreement, only the lien provisions of the Master JOA shall be applicable to such Subject Assets.   On the Closing Date, the Master JOA shall be executed by the Parties and shall cover all such Subject Assets (including those Subject Assets that are subject to a Third Party Operating Agreement), excluding, however, those Subject Assets that are covered by a Unit JOA.  All Leases and related assets in the Development Area in which the Parties hereafter both acquire interests that are not subject to a Third Party Operating Agreement, shall automatically become subject to the Master JOA and, within 30 days following the end of each calendar quarter, the Parties shall supplement and/or amend each applicable Master JOA Agreement to reflect the addition of such Leases and related assets; provided that to the extent that such Leases and related assets are Developed Assets and not subject to a Third Party Operating Agreement at the time of acquisition, then such Leases and related assets shall become subject to a Unit JOA to be executed by the Parties at the time of the acquisition of such Leases and related assets.  For those Subject Assets that are subject to a Third Party Operating Agreement, such Third Party Operating Agreement shall govern the operations thereon; provided that if such Subject Assets as of the Closing Date are not Developed Assets, then the lien provisions of the Master JOA shall be applicable to such Subject Assets.

 

(b)       On the Closing Date, the Parties shall execute and file a separate Memorandum of Operating Agreement, Lien and Financing Statement, in the case of Noble, in the form attached hereto as Exhibit B-2 (the “ Noble Master JOA Memorandum ”), and , in the case of CONSOL, in the form attached hereto as Exhibit B-3 (the “ CONSOL Master JOA Memorandum ” and, together with the Noble Master JOA Memorandum, the “ Master JOA Memoranda ”) and related financing statements for the Master JOA and, within 30 days of the Closing Date, the Parties will file such Master JOA Memoranda in the real property records of each county in which the Subject Assets that are covered by the Master JOA are located and such financing statements in the proper office under the Uniform Commercial Code in the states in which such Subject Assets are located.

 

 

4


 

 

(c)       From and after the Closing Date, if a Drilling Unit is designated by CONSOL Operator or Noble Operator to cover a specified portion of the Subject Assets covered by the Master JOA that is not also covered by a Third Party Operating Agreement and such portion of the Subject Assets covered by such Drilling Unit become Developed Assets, then the Master JOA shall automatically be deemed to not cover such portion of the Subject Assets and a separate operating agreement in the form attached hereto as Exhibit D-1 (each, a “ Unit JOA ”), with CONSOL Operator or Noble Operator serving as operator (as applicable pursuant to Section 2.3 ) shall be deemed to cover such portion of the Subject Assets with respect to such Drilling Unit.   Further, from and after the Closing Date, if any portion of the Subject Assets that are subject to a Third Party Operating Agreement become Developed Assets, then the Master JOA shall automatically be deemed to not cover such portion of the Subject Assets and only such Third Party Operating Agreement shall cover such portion of the Subject Assets.

 

(d)      Within 30 days following the end of each calendar quarter, the Parties shall (i) modify or amend the Master JOA and each Master JOA Memoranda and related financing statements (including making any filings necessary to reflect such modifications or amendments in the applicable real property and other public records) to reflect any Subject Assets that have become subject to, or removed from, the Master JOA during the previous calendar quarter, (ii) execute and deliver separate Unit JOAs to cover any Subject Assets that have been deemed to have become subject to a Unit JOA during the previous calendar quarter and (iii) execute and file a separate Memorandum of Operating Agreement, Lien and Financing Statement, in the case of Noble, in the form attached hereto in Exhibit D-2 (the “ Noble Unit JOA Memorandum ”), and , in the case of CONSOL, in the form attached hereto in Exhibit D-3 (the “ CONSOL Unit JOA Memorandum ” and, together with the Noble Unit JOA Memorandum, the “ Unit JOA Memoranda ”) and related financing statements for each Unit JOA that is being executed and delivered pursuant to clause (ii) above and file such Unit JOA Memoranda in the real property records of each county in which the Subject Assets that are covered by the applicable Unit JOA are located and in the proper office under the Uniform Commercial Code in the states in which such Subject Assets are located.

 

(e)       In addition, subject to Section 2.4(a) , the Parties agree to use their respective commercially reasonable efforts to have the form of the Unit JOA adopted as the operative operating agreement by all Working Interest owners for any Drilling Unit in the Development Area in which Persons other than the Parties hold Working Interests.

 

(f)       As between the Parties, each Applicable Operating Agreement shall be subject to the provisions of the Tax Partnership Agreement unless and until the applicability of such provisions to the Subject Assets subject to each such Applicable Operating Agreement terminates in accordance with the terms of the Tax Partnership Agreement.

 

2.5      Operator .

 

(a)       CONSOL Operator .

 

(i)    CONSOL Operator is hereby designated and agrees to serve as operator under each Joint Development Operating Agreement relating to the CNX Operated Area.  In addition, to the extent requested by CONSOL Operator, the Parties agree to use their respective commercially reasonable efforts to support CONSOL Operator in any vote with respect to becoming or remaining as operator under each other Applicable Operating Agreement relating to the CNX Operated Area.

 

 

 

5


 

 

(ii)   CONSOL Operator (1) may be removed or resign as operator under an Applicable Operating Agreement pursuant to the relevant provisions of such Applicable Operating Agreement or (2) may be removed as operator under all Applicable Operating Agreements pursuant to Section 8.3(c)(ii) .  In the event that CONSOL Operator is removed or resigns as operator under an Applicable Operating Agreement relating to the CNX Operated Area or is removed as CONSOL Operator pursuant to Section 8.3(c)(ii) , Noble shall have the right, which shall be exercisable by written notice to CONSOL Operator within 15 days following such removal or resignation, to have Noble Operator named as operator of the CNX Operated Area to the extent it relates to such removal or resignation with respect to any Joint Development Operating Agreement or have CONSOL vote its interest under any Third Party Operating Agreement for Noble Operator to be named the operator under any such Third Party Operating Agreement (and if so exercised, such area shall be removed from the CNX Operated Area and added to the NBL Operated Area).

 

(b)         Noble Operator .

 

(i)   Noble Operator is hereby designated and agrees to serve as operator under each Joint Development Operating Agreement relating to the NBL Operated Area.  In addition, to the extent requested by Noble Operator, the Parties agree to use their respective commercially reasonable efforts to support Noble Operator in any vote with respect to becoming or remaining as operator under each other Applicable Operating Agreement relating to the NBL Operated Area.

 

(ii)    Noble Operator (1) may be removed or resign as operator under an Applicable Operating Agreement pursuant to the relevant provisions of such Applicable Operating Agreement or (2) may be removed as operator under all Applicable Operating Agreements pursuant to Section 8.3(c)(i) .  In the event that Noble Operator is removed or resigns as operator under an Applicable Operating Agreement relating to the NBL Operated Area or is removed as Noble Operator pursuant to Section 8.3(c)(i) , CONSOL shall have the right, which shall be exercisable by written notice to Noble Operator within 15 days following such removal or resignation, to have CONSOL Operator named as operator of the NBL Operated Area to the extent it relates to such removal or resignation with respect to any Joint Development Operating Agreement or have Noble vote its interest under any Third Party Operating Agreement for CONSOL Operator to be named the operator under any such Third Party Operating Agreement (and if so exercised, such area shall be removed from the NBL Operated Area and added to the CNX Operated Area).

 

 (c)            HSE Standards .

 

(i)    Each Party Operator shall be required to maintain health, safety and environmental policies and programs covering Development Operations and Area-Wide Operations conducted by such Party Operator in its Operated Area (as amended and modified from time to time, an “ HSE Program ”).  Each Party Operator shall conduct (i) regular audits and reviews of its HSE Program and (ii) an annual review of its HSE Program.  Prior to conducting an annual review of its HSE Program, each Party Operator shall give each other Party reasonable advance notice of such annual review and an opportunity to reasonably participate in such annual review.

 

 

6


 

 

(ii)   Each Party Operator shall submit to the HSE Committee, promptly after such annual review is completed, a written description describing in reasonable detail the results and findings of such annual review.  Each Party Operator shall meet at least quarterly with the HSE Committee to review and discuss such Party Operator’s HSE Program and its compliance therewith.

 

2.6      Liability of Operator .

 

(a)       Subject to the rights of a Party to remove any Party acting as operator under any Applicable Operating Agreement in accordance with the terms hereof or thereof, in no event shall any Party serving as a Party Operator have any liability as a Party Operator to another Party or its Affiliates under this Agreement, under any Applicable Operating Agreement or Law or common law (including on account of its marketing of any Party’s production pursuant to this Agreement) for any claim, damage, loss or liability sustained or incurred in connection with its operations with respect to any Development Operation or Area-Wide Operation (including its activities to market any Party’s production pursuant to Section 2.10) or any breach of any provision regarding the standard of performance of an operator in performing operations under any Applicable Operating Agreement, EVEN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE IN WHOLE OR IN PART FROM THE ACTIVE, PASSIVE, SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF SUCH PARTY, ANY OF ITS AFFILIATES OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR, AGENT OR EMPLOYEE OF SUCH PARTY, OTHER THAN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY, ANY OF ITS AFFILIATES OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR OR EMPLOYEE OF SUCH PARTY; provided that no Party Operator shall be released and/or exonerated from liability for a material breach of any financial, administrative or procedural (such as providing notices and voting) obligation of such Person under this Agreement or (if a Party Operator) under any Applicable Operating Agreement; and provided further that each Party acknowledges that any such claim, damage, loss or liability (other than that caused by the gross negligence or willful misconduct of a Party, its Affiliates or any officer, partner, member, director, agent or employee of a Party or any of its Affiliates or the material breach of any financial, administrative or procedural (such as providing notices and voting) obligation of a Party Operator), shall be borne severally by the Parties (including such operator) in proportion to their interests in the operations or activities giving rise to such claim, damage, loss or liability.

 

(b)      Any Party serving as a Party Operator shall bear sole liability on behalf of the Parties for any claim, damage, loss or liability sustained or incurred in connection with any Development Operation or Area-Wide Operation or any other operation or activity prescribed hereunder or any breach of any provision regarding the standard of performance of an operator in performing operations under any Applicable Operating Agreement to the extent such claim, damage, loss or liability arose in whole or in part from the gross negligence or willful misconduct of such Party or any of its Affiliates or any officer, partner, member, director, agent or employee of such Party or Affiliate of such Party.

 

 

 

7


 

 

 

(c)            Notwithstanding anything to the contrary herein or in any Applicable Operating Agreement, no Party Operator shall be liable for the gross negligence or willful misconduct of a secondee of another Party, nor shall the gross negligence or willful misconduct of any such secondee be grounds for removal of a Party Operator pursuant to Section 2.5 .

 

2.7           Rentals, Shut-in Well Payments and Royalties .  Each Party Operator shall be responsible for paying, on behalf of each Party, such Party’s share of (a) all rentals, shut-in well payments and minimum royalties required to be paid to lessors under the Leases included in the Subject Assets in such Party Operator’s Operated Area and (b) all valid and subsisting royalties, overriding royalties and other burdens required to be paid to lessors and holders of overriding royalties and other burdens on the Leases included in the Subject Assets in such Party Operator’s Operated Area; provided that, subject to this Section 2.7 , a Party Operator may determine, in its reasonable discretion as a reasonable prudent operator (after consulting with Noble, in the case that CONSOL is the Party Operator, or CONSOL, in the case that Noble is the Party Operator), not to renew, maintain or extend any such Lease in its Operated Area.  A Party Operator shall be entitled to contract with Third Parties to provide the foregoing services (including in the case of Noble Operator, contracting with CONSOL and its Affiliates in accordance with and subject to the terms of the Services Agreement (as defined in the Acquisition Agreement) during the term thereof).  If a Party Operator (after consulting with the applicable Party) determines not to renew, maintain or extend any of the Leases included in the Subject Assets in its Operated Area, such Party Operator will provide each other Party with no less than 30 days (to the extent reasonably possible) notice of such determination in writing prior to the expiration of such portion of such Lease, and each other Party will have the right (in the proportion that the participating Party’s undivided interest in such Lease bears to all other participating Parties’ undivided interest in such Lease) to pay the rental, shut-in well payment, minimum royalty, lease renewal or other payment and receive an assignment from the non-participating Parties of their respective interests in such Lease (in the proportion that the participating Party’s undivided interest in such Lease bears to all other participating Parties’ undivided interest in such Lease).  Thereafter, notwithstanding anything contained in this Agreement to the contrary, such Lease shall be deemed to be excluded from the terms and conditions of this Agreement.  A Party Operator may invoice the other Parties up to 30 days prior to the date any rental, shut-in payment, minimum royalty or any other lease renewal or maintenance payment shall become due, and each Party shall pay such invoice in accordance with Section 7.2 .  NO PARTY OPERATOR WILL BE LIABLE TO ANY PARTY FOR ANY NEGLIGENCE, ACT, ERROR, MISTAKE OR OMISSION PERTAINING TO THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS SECTION 2.7 OR ANY LOSS RESULTING FROM SUCH NEGLIGENCE (WHETHER ACTIVE, PASSIVE, SOLE OR CONCURRENT) ACT, ERROR, MISTAKE OR OMISSION UNLESS SUCH NEGLIGENCE, ACT, ERROR, MISTAKE OR OMISSION CONSTITUTES GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY SUCH PARTY OPERATOR.

 

2.8       Insurance .  

 

(a)       Each Party Operator shall use its commercially reasonable efforts to carry insurance for the benefit of the joint account of the Parties as outlined in Exhibit C (or at such other insurance level as the Joint Development Committee may approve) for those Subject Assets for which it serves as operator.  Each Party Operator shall provide copies of such policies to the Parties covered by such policies upon request, and shall notify all Parties to be covered by such policies if it has been unable to obtain or maintain any of such policies.  Except for worker’s compensation policies, each Party Operator shall use its commercially reasonable efforts to arrange for each of the Parties, according to their respective interests, to be named as additional insureds on the relevant policies, with waivers of subrogation in favor of all Parties with respect to their interests under this Agreement or such Applicable Operating Agreement where such Party Operator is the operator, as applicable.  Each Party Operator shall use commercially reasonable efforts to duly file any relevant claims and to collect for the account of the relevant Parties any proceeds under such policies.

 

 

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(b)      Notwithstanding the foregoing, any Party may obtain such insurance as it deems advisable for its own account at its own expense.  Such insurance shall, in so far as it relates to Development Operations or Area-Wide Operations, contain a waiver of subrogation by the insurers in favor of each of the other Parties.  Each Party Operator shall reasonably cooperate and assist such insurers in the investigation of insurance claims made by a Party in connection with the operations performed hereunder.

 

2.9      Reports .

 

(a)      Unless otherwise prohibited by the terms of an Applicable Operating Agreement or (subject to Section 2.9(d) below) confidentiality obligation under any other applicable contract or agreement or by applicable Law, each Party Operator shall provide the following data and reports, as they are produced or compiled after the date hereof (unless otherwise provided below), for each Development Operation for which it serves as operator and each Area-Wide Operation in its Operated Area to the other Parties that participate in such Development Operation or Area-Wide Operation:

 

(i)      copies of all logs or surveys, including in digitally recorded format if such exists;

 

(ii)    daily drilling and production reports;

 

(iii)   copies of all tests and core data and analysis reports;

 

(iv)    final well recap reports, including well bore diagrams;

 

(v)   copies of all plugging reports;

 

(vi)   as requested by a Party, copies of current geological and geophysical maps, seismic sections and shot point location maps;

 

(vii)   development schedules and annual progress reports on development projects;

 

(viii) field and well performance reports;

 

 

 

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(ix)    copies of written notices provided by any Third Party regarding violations or potential violations of applicable Law (including any applicable health, safety or environmental Laws);

 

 (x)    copies of all material reports provided to any Governmental Authority;

 

(xi)     as requested by a Party, copies of any material correspondence between such operator and any Governmental Authority;

 

(xii)   copies of all title opinions, including drill site title opinions and division order title opinions;

 

(xiii)   copies of all post-fracing flowback reports;

 

(xiv)    such other information as may be reasonably requested by a Party; and

 

(xv)     such other reports as may be directed by the Joint Development Committee.

 

(b)      Notwithstanding the foregoing, but without limiting the information required to be provided by a Party Operator pursuant to an Applicable Operating Agreement, a Party Operator will not be obligated to provide to any Party copies of: (i) any of its own independent reserve reports or evaluations or reservoir studies; or (ii) any data or report to the extent such data or report is generated, assembled or prepared by a Third Party and the Party requesting such data or report has not paid its Share of Development Costs relating to such data or report.

 

(c)            To the extent that a Party is responsible for any portion of the liability associated therewith, each Party Operator shall promptly notify such Party of any Third Party written claim or suit arising from Development Operations or Area-Wide Operations in its Operated Area of which such Party Operator becomes aware that exceeds (or is reasonably expected to exceed) $50,000, and, upon request of such Party from time to time, shall further provide, in a timely manner, the then current information in its possession regarding the progress and status of any such claims or suits.

 

(d)            Each Party Operator shall use its commercially reasonable efforts obtain a waiver of any confidentiality obligation under an applicable contract or agreement that prevents such Party Operator from providing to the other Parties the data and reports required by Section 2.9(a) .

 

2.10      Marketing.

 

(a)       Production .  Each Party retains and reserves the right to take-in-kind all of its Production in the CNX Operated Area and the Noble Operated Area subject to the terms of this Section 2.10.

 

(b)       Gas Production .

 

 

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(i)    For the Interim Marketing Period, Noble hereby designates CONSOL Operator as marketer of Noble’s Gas Production (“ Marketer ”), in the CNX Operated Area and in the Noble Operated Area, produced during the Interim Marketing Period in accordance with and subject to the following terms of this Section 2.10 .  During the Interim Marketing Period and subject to the remaining provisions of this Section 2.10 , Marketer shall have authority and responsibility to market and sell such Gas Production (but not hedge such Gas Production) and to enter into sales, transportation, gathering and treatment agreements with respect to such Gas Production on behalf of the Party that owns the same (a “ Marketing Transaction ”); provided that Marketer shall not enter into a Marketing Transaction that (i) has a noncompetition provision, area of mutual interest restriction, preferential purchase right, or dedication of properties or (ii) a term that extends beyond March 31, 2013, in each case, that is binding upon a Party without the prior written consent of such Party.  For each Marketing Transaction, Noble’s Gas Production in an Operated Area shall be marketed on terms at least as favorable as terms received by Marketer for its share of Gas Production during the Interim Marketing Period and Marketer will market all Gas Production on market-based terms as reasonably determined in good faith by Marketer.  Unless Noble otherwise consents to the same in writing, none of Noble’s Gas Production may be marketed to Marketer itself or any Affiliate of Marketer.  During the Interim Marketing Period, title to Noble’s Gas Production will pass to (A) with respect to all processed natural gas liquids, condensate or other processed products from such Gas Production (“ Processed Gas Production ”), to the processor at the point at which title is required to be transferred to such processor under the applicable processing agreement and (B) with respect to all other such Gas Production (“ Residual Gas Production ”), to Marketer at the first delivery point location into an interstate natural gas pipeline system.  During the Interim Marketing Period, all Residual Gas Production shall be sold under the NAESB Agreement and the related transaction confirmations.  Furthermore, during the Interim Marketing Period, title to Noble’s Gas Production shall at all times remain with Noble until such time as title is passed to another Person as described above, such that all products, both volume and value, sold on behalf of Noble or directly by Noble is to be reported as production volume, sales and revenue, by Noble.  During the Interim Marketing Period, the Parties will cause their Gas Production to be delivered pursuant to the Processing Agreements, as required.

 

(ii)    During the Interim Marketing Period, Marketer will make all nominations that are required under the terms of any of its Marketing Transactions.  As requested by Marketer from time to time, Noble will reasonably cooperate and coordinate with Marketer in order to permit Marketer to perform under the terms of each of its Marketing Transaction with respect to Noble’s Gas Production and Noble shall indemnify, defend and hold Marketer harmless from any breach of any Marketing Transaction to the extent arising from Noble’s failure to so reasonably cooperate and coordinate.

 

(iii)   Subject to Section 8.3(a) , during the Interim Marketing Period Marketer shall remit to Noble all amounts due to Noble under the NAESB Agreement as and when due under the NAESB Agreement.

 

(iv)   At the end of the Interim Marketing Period, each Party will take-in-kind any and all of its Gas Production in the CNX Operated Area and the Noble Operated Area and provide its own full marketing services.

 

 

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(c)      Transportation and Processing .

 

(i)    After the Interim Marketing Period, subject to Section 2.10(c) , each Party shall be responsible for obtaining their own gathering, processing and transportation agreements with respect to their Gas Production.  Prior to the end of the Interim Marketing Period and, if and to the extent required by Schedule 2.10(a) , thereafter, each Party will comply with the terms of Schedule 2.10(a) with respect to the Downstream Contracts and the Peoples Contract.

 

(ii)   During the Interim Marketing Period and for so long thereafter as CONSOL holds any of the Downstream Contracts for the benefit of Noble pursuant to Schedule 2.10(a) , Noble shall be responsible for, and shall pay in accordance with Section 7.2 , all demand charges and tariffs required to be paid by CONSOL with respect to such Downstream Contracts to the extent applicable to the Assigned FT Interests.  During the Interim Marketing Period, Noble shall be responsible for, and shall pay in accordance with Section 7.2 , in addition to any other amounts set forth herein, in the NAESB Agreement or any related transaction confirmations, a daily reservation fee of $2,700.  During the Interim Marketing Period, with respect to that amount of Noble’s and its Affiliates’ Gas Production that is delivered to the Texas Eastern Transmission interstate pipeline in Marshall, West Virginia, Green, Pennsylvania, Fayette, Pennsylvania, Westmoreland, Pennsylvania, or Indiana, Pennsylvania, that is in excess of 54,000 MMBtu per day but less than 104,001 MMBtu per day (the “ Excess Gas Production ”), CONSOL shall purchase such Excess Gas Production under the terms of the NAESB Agreement and the related transaction confirmations at the inlet meter of the Texas Eastern Transmission interstate pipeline and, notwithstanding anything in this Section 2.10 , the NAESB Agreement or any related transaction confirmation to the contrary, pay Noble and its Affiliates in respect of such Excess Gas Production as and when required under the terms of the NAESB Agreement an amount equal to (x) the first of the month Platts Inside F.E.R.C’s Gas Market Report, “Price of Spot Gas Delivered to Pipelines,” for deliveries at Appalachian Lebanon Hub for the calendar month in which such Excess Gas Production is so delivered multiplied by (y) the amount of Excess Gas Production delivered during such calendar month.

 

(iii)   For purposes of flow assurance for each Party’s share of Gas Production, it is the intent of the Parties to participate equally in any future processing agreements for Gas Production obtained by either Party after the Closing Date.  If either Party desires to acquire additional processing capacity, then prior to entering into negotiations for a new processing agreement, such Party shall provide written notice to the Joint Development Committee, which shall include, the general deal parameters and the portion or portions of the Subject Assets within the Development Area that would be affected by such new processing agreement (a “ Proposed Processing Agreement ”).  At the next meeting of the Joint Development Committee following such submission, the Joint Development Committee shall vote to authorize or not authorize a Party (the “ Negotiating Party ”) to negotiate the Proposed Processing Agreement on behalf of the Parties.  Any members of the Joint Development Committee appointed by the Party (or its Affiliates) that submits a proposal for a Proposed Processing Agreement shall be deemed to have voted to authorize a Negotiating Party to negotiate the terms of a Proposed Processing Agreement on behalf of the Parties in accordance with this Section 2.10(b)(iii) .  If the Joint Development Committee fails to authorize a Negotiating Party to negotiate a Proposed Processing Agreement on behalf of the Parties, then the Party making the proposal to acquire additional processing capacity may enter into a processing agreement covering the subject matter of the proposal for the Proposed Processing Agreement (with such revisions as are necessary to account for only such Party’s Gas Production being subject to such agreement).  If the Joint Development Committee authorizes a Negotiating Party to negotiate the Proposed Processing Agreement on behalf of the Parties, then, for a period of 90 days following the date of such authorization, such Negotiating Party shall have the exclusive right to negotiate such Proposed Processing Agreement on behalf of the Parties and no other Party shall negotiate or enter into any processing agreement relating to the subject matter of such Proposed Processing Agreement; provided that if such Negotiating Party fails to negotiate such Proposed Processing Agreement within such 90-day period, then such Negotiating Party will no longer have the right to negotiate such Proposed Processing Agreement (and until it resubmits a written notice to the Joint Development Committee to obtain the Joint Development Committee’s authorization of another Proposed Processing Agreement in accordance with the provisions of this Section 2.10(b)(iii) ).  In negotiating any Proposed Processing Agreement, the Negotiating Party shall use its commercially reasonable efforts to negotiate any processing agreement or agreements on market based terms and to negotiate separate processing agreements for each Party (with the same terms and other than revisions necessary to account for each Party’s separate Gas Production).  Upon completion of such negotiations, if applicable, the Negotiating Party shall submit the final Proposed Processing Agreement or agreements to the Joint Development Committee.  At the next meeting of the Joint Development Committee following such submission, the Joint Development Committee shall vote to approve or disapprove such agreement or agreements.  If the Joint Development Committee approves such agreement or agreements, then each Party shall promptly execute and deliver such agreement or, if applicable, its respective agreement.  If the Joint Development Committee fails to approve a Proposed Processing Agreement or Proposed Processing Agreements after such agreement(s) has been negotiated by the Negotiating Party, then the Party whose members of the Joint Development Committee voted to approve such final Proposed Processing Agreements or agreements may enter into a processing agreement covering the subject matter of the Proposed Processing Agreement (with such revisions as are necessary to account for only such Negotiating Party’s Gas Production being subject to such agreement).

 

 

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(iv)   Upon mutual agreement of the Parties, the Parties shall have the right, prior to September 25, 2011, to unwind the production dedication under the Processing Agreements in accordance with the terms of the Processing Agreements.

 

(d)            Hedging .  Each Party will be responsible for conducting (for its own account) any hedging activities with respect to its Production from the Subject Assets.

 

(e)       Administrative Services and Reporting .  Each Party or Party Operator conducting marketing activities under this Section 2.10 on behalf of another Party shall also be responsible for providing any accounts receivable, collection, revenue accounting, system balancing and other back office marketing services necessary to market such Production.  Each Party or Party Operator conducting marketing activities under this Section 2.10 on behalf of another Party shall provide to such other Party the following reports and information as such data and reports are produced or compiled (unless otherwise provided below) relating to the Production being marketed hereunder on behalf of such other Party:

 

(i)    counterparty credit exposure reports, as amended from time to time, which reports shall include a list of counterparties with to which the Parties have credit exposure, the maximum amount of potential credit exposure to each such counterparty for a 60-day period (regardless of any outstanding credit extensions to such counterparty at the time of such report) and any outstanding credit extensions to such counterparty at the time of such report;

 

 

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(ii)   prior to the first day of each calendar month, a listing on anticipated sales and volumes by counterparty for the production of such Party being sold during such relevant calendar month;

 

(iii)   copies of all transaction confirmations entered into under any NAESB agreement or similar agreement to which such Party or Party Operator is a party; and

 

(iv)   any other data or information that a Party whose production is being marketed hereunder may reasonably request relating to its Production.

 

(f)       Wellhead Condensate Production . From and after the Closing Date, each Party Operator shall have exclusive authority and responsibility to market and sell all of the Wellhead Condensate Production of the Parties in the Operated Area in which it operates (but not hedge such Wellhead Condensate Production), and to enter into any necessary marketing agreements for such Wellhead Condensate Production.  A Party Operator shall not enter into any marketing agreement that has a noncompetition provision, area of mutual interest restriction, preferential purchase right or dedication of properties that is binding upon a Party without the prior written consent of such Party.  Each Party’s Wellhead Condensate Production in an Operated Area shall be marketed by the applicable Party Operator on market-based terms at least as favorable as terms received by the applicable Party Operator for its share of Wellhead Condensate Production and the applicable Party Operator will market all Wellhead Condensate Production on market-based terms as reasonably determined in good faith by the applicable Party Operator.  Unless a Party otherwise consents to the same in writing, none of such Party’s Wellhead Condensate Production may be marketed to the Party Operator marketing such Wellhead Condensate Production or any Affiliate of such Party Operator.  Title to a Party’s Wellhead Condensate Production will remain in such Party until such time as title to such Wellhead Condensate Production is required to be transferred to the purchasing counterparty under the terms of the applicable sales contract.  As requested by a Party Operator from time to time, each Party will reasonably cooperate and coordinate with such Party Operator in order to permit such Party Operator to market such Party’s Wellhead Condensate Production.  All net proceeds from a Party’s Wellhead Condensate Production received by a Party Operator shall be held for the account of such Party and delivered by such Party Operator no later than the 25th day of the calendar month following receipt thereof by such Party Operator to an account designated by the applicable Party.

 

(g)      Drip Condensate Production .  From and after the Closing Date, each Party’s Drip Condensate Production will be handled by the gatherer of any applicable gathering agreement.  Title to a Party’s Drip Condensate Production will remain in such Party until such time as title to such Drip Condensate Production is required to be transferred to the gatherer under the terms of the applicable gathering agreement.

 

 

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2.11     Development Services; Overhead Rates; and Marketing Fees .

 

(a)       Development Services .

 

(i)     Each Party Operator shall be entitled to perform Development Services required in connection with Development Operations and Area-Wide Operations conducted by such Party Operator.

 

(ii)   Subject to Section 2.11(d) , with respect to Development Services performed by a Party Operator hereunder, each Party shall pay to the applicable Party Operator its Participating Interest share of (A) those Services Costs incurred by such Party Operator in performing such Development Services and (B) all Third Party expenses incurred by such Party Operator in performing such Development Services (except to the extent such expenses are paid pursuant to and under an Applicable Operating Agreement), in each case, in accordance with Section 7.2 .

 

(b)      Overhead Rates .  With respect to Development Operations conducted by a Party Operator under an Applicable Operating Agreement, each Party shall pay to such Party Operator such Party’s Working Interest share of the producing well and/or drilling well overhead rates specified in such Applicable Operating Agreement in accordance with Section 7.2 for such Development Operations with respect to which it participates.

 

(c)      Marketing Fee .  Subject to Section 2.11(d) , during the Interim Gas Marketing Period, Noble shall pay or reimburse CONSOL Operator a monthly marketing fee equal to $0.02  for each MMBtu of Noble’s Gas Production that is purchased by CONSOL Operator from Noble pursuant to the NAESB Agreement (the “ Marketing Fee ”), in accordance with Section 7.2 .

 

(d)      Periodic Review .   On or before August 31 in the calendar year immediately preceding the relevant calendar year, the Joint Development Committee shall review the calculation of Services Costs being charged by each Party Operator pursuant to the then current Annual Plan and Budget and the amount of the Marketing Fees chargeable by CONSOL and vote to approve the calculation of such Services Costs and the amount of such Marketing Fee for the following year (each of which may be modified by the Joint Development Committee).  If the Joint Development Committee fails to approve the calculation of such Services Costs or the amount of such Marketing Fee (with any modifications that the Joint Development Committee may approve) for such following year, then any Party may submit such matter to an expert in accordance with Section 11.7(b)  and such expert shall adjust such calculation and/or fees so that the amount of Services Costs and/or Marketing Fees chargeable to the Parties under this Section 2.11 equals in such expert’s opinion a market rate for fees being charged for similar services by other Persons in the Development Area at the time of such adjustment.

 

2.12     Contracts; Use of Affiliates .

 

(a)      Except as provided in Section 2.12(c) , each Party Operator may enter into contracts and other agreements on customary terms and conditions in connection with any Development Operations or any Area-Wide Operations conducted by or at the direction of such Party Operator.

 

 

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(b)   Except as provided in Section 2.12(c) , each Party Operator may contract with its Affiliates and related parties to provide services and materials in connection with Development Operations or Area-Wide Operations.  All services performed and materials supplied by any such Affiliates or related parties shall be performed or supplied at arm’s length and on competitive rates, pursuant to written agreements, and in accordance with customs and standards prevailing in the industry.

 

(c)   Notwithstanding Sections 2.12(a)  or  2.12(b) or any Applicable Operating Agreement to the contrary, unless either (i) such contract has been approved by the Joint Development Committee or (ii) such contract is expressly contemplated by an Annual Plan and Budget, a Party Operator shall not enter into an Affiliate Contract or a contract or agreement that contains a confidentiality obligation that would prevent such Party Operator from providing to the other Parties the data and reports required by Section 2.9(a) .

 

2.13        Non-Solicitation .

 

(a)      During the term of this Agreement and for a period of 12 calendar months thereafter, Noble and its Affiliates may not solicit or hire any officer or employee of CONSOL or its Affiliates without first obtaining the prior written consent of CONSOL; provided that this prohibition shall not apply to offers of employment made by Noble or its Affiliates pursuant to a general solicitation of employment to the public or the industry.

 

(b)       During the term of this Agreement and for a period of 12 calendar months thereafter, CONSOL and its Affiliates may not solicit or hire any officer or employee of Noble or its Affiliates without first obtaining the prior written consent of Noble; provided that this prohibition shall not apply to offers of employment made by CONSOL or its Affiliates pursuant to a general solicitation of employment to the public or the industry.

 

2.14     Conflict of Interest Policy

 

.  CONSOL Operator and Noble Operator shall develop and implement a policy regarding required disclosure of conflicts of interest that any officer, director or key employee of that Party or Affiliate of that Party may have with the interest of any of the Parties in connection with the conduct of Development Operations.

 

2.15     Secondment .  From time to time after the Closing Date, each of CONSOL or Noble may second certain of their (or their Affiliates’) employees into the organization of the other Party pursuant to the terms of the CONSOL Secondment Agreement or the Noble Secondment Agreement, as applicable.  From time to time the Joint Development Committee may increase or decrease the number of secondees and change or modify their positions in the other Party’s organization.

 

ARTICLE III

JOINT DEVELOPMENT COMMITTEE;

DEVELOPMENT PLAN; ANNUAL PLANS AND BUDGETS

 

3.1      Joint Development Committee .  

 

(a)      To facilitate the creation, approval and amendment of the Development Plan and each Annual Plan and Budget, to approve or disapprove the other matters set forth in Section 3.1(h) and to provide (directly or through a subcommittee) advice and recommendations for the conduct of Development Operations and Area-Wide Operations, there is hereby established a joint development committee composed of representatives of CONSOL and Noble (the “ Joint Development Committee ”).  CONSOL shall be entitled to appoint three representatives to the Joint Development Committee and Noble shall be entitled to appoint three representatives to the Joint Development Committee.  The initial representatives to the Joint Development Committee for CONSOL shall be Randall M. Albert, M. Charles Hardoby and Stephen W. Johnson and the initial representatives to the Joint Development Committee for Noble shall be Barry Shelden , John Lewis and Aaron Carlson.  Each Party shall have the right to change its representatives at any time by giving notice of such change to the other Parties.

 

 

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(b)           The Joint Development Committee shall have only the powers and duties expressly ascribed to it in this Agreement.

 

(c)       The representatives of a Party shall be authorized to represent and bind such Party with respect to any matter that is within the powers of the Joint Development Committee hereunder and is properly brought before the Joint Development Committee.  On all matters coming before the Joint Development Committee, the representatives of each of CONSOL and Noble shall have an aggregate vote equal to the Participating Interest of the Person (and its Affiliates) that appointed such representatives divided by the aggregate Participating Interests of all Persons (and their Affiliates) with representatives on the Joint Development Committee.  Any representative of a Party that is present or otherwise available to vote or consent on an action of the Joint Development Committee shall have the authority to cast all of the votes or consents allocated to all of the representatives of such Party.  In addition to the representatives, each Party may also send such advisors as it may deem appropriate to any Joint Development Committee meetings.

 

(d)      Unless otherwise agreed to by the members of the Joint Development Committee, the Joint Development Committee shall meet once (and no more than once unless otherwise mutually agreed) per calendar month to review and discuss reports concerning the Development Plan, Annual Plan and Budget and the drilling schedule, relevant geoscience and other data relating to Subject Assets and such other matters as may be reasonably proposed by a Party Operator or members of the Joint Development Committee.  Meetings of the Joint Development Committee may be called by either CONSOL Operator or NBL Operator by giving notice to the members of the Joint Development Committee at least 5 days in advance of such meeting, along with a proposed agenda for such meeting (which shall include any items that a member of the Joint Development Committee or a Party Operator may request to have included on such agenda).  All meetings shall be held during normal business hours at a time and place agreed to by CONSOL Operator and NBL Operator, or failing to reach such agreement, meetings occurring in even numbered months shall be held in a location selected by NBL Operator and meetings held in odd numbered months shall be held in a location selected by CONSOL Operator; provided that members of the Joint Development Committee shall be allowed to participate telephonically (or, to the extent available, by video conference) in any such meeting.

 

(e)      All decisions, approvals and other actions of the Joint Development Committee shall be decided by the affirmative vote of members of the Joint Development Committee holding collectively at least two-thirds of the votes eligible to vote on such proposals (which eligible votes, for the avoidance of doubt, shall not include any votes by the representatives of any Defaulting Party in accordance with Section 8.2(a) ).  The Joint Development Committee shall keep a written record of all meetings and actions taken by the Joint Development Committee or any of its subcommittees.  To the fullest extent permitted by Law and notwithstanding any provision of this Agreement or any Associated Agreement to the contrary, no member of the Joint Development Committee, in his or her capacity as a member of the Joint Development Committee, shall have any duty, fiduciary or otherwise, to the Parties that did not appoint such member in connection with any act or omission by such member under this Agreement or any Associated Agreement.  Each Party agrees and acknowledges that each member of the Joint Development Committee shall be entitled to determine whether or not to take any action under this Agreement or any Associated Agreement by only considering the interests of the Party that designated such member to the Joint Development Committee and not the interests of the other Party.

 

 

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(f)        In lieu of a meeting, any Party Operator may submit any proposal that is within the Joint Development Committee’s powers to approve or disapprove (including any amendment to the then existing Development Plan or Annual Plan and Budget) to the Joint Development Committee for a vote by written notice.  Such Party Operator shall provide a copy of any such proposal by written notice to the members of the Joint Development Committee.  The members of the Joint Development Committee shall communicate their votes on the proposal by written notice to the submitting Party Operator within 14 days after receipt of the proposal from such Party Operator.  If none of the representatives of a Party communicates their collective votes in a timely manner to such Party Operator, such representatives shall be deemed to have voted against such proposal.  Promptly following the expiration of the relevant time period, the submitting Party Operator shall give each member of the Joint Development Committee a confirmation notice stating the tabulation and results of the vote on such proposal.

 

(g)       The Joint Development Committee may establish such subcommittees as it may deem appropriate, including a technical committee (whose purpose would be to advise the Party Operators with respect to the development of the Subject Assets, the coordination of Development Services, the selection of Third Party contractors, the terms of contracts for Development Operations and such other matters as the Joint Development Committee may direct).  The functions of such subcommittees shall be to serve in an advisory capacity only.  CONSOL and Noble shall each have the right to appoint an equal number of representatives to each subcommittee.  The Joint Development Committee is hereby deemed to have established a HSE Committee (the “ HSE Committee ”) whose purpose shall be to (A) review violations of applicable health, safety and environmental Law by a Party Operator and (B) collaborate with each Party Operator to develop additional health, safety and environmental policies and programs in its Operated Area.

 

(h)      Notwithstanding anything else to the contrary in this Agreement, each of the following actions shall require the approval of the Joint Development Committee:

 

(i)     any amendment, modification or supplement to the Development Plan as provided in Section 3.2 ;

 

 

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(ii)    the adoption of any Annual Plan and Budget and any amendment, modification or supplement to any Annual Plan and Budget as provided in Section 3.3 ;

 

(iii)   any allocation of, and any amendment, modification or supplement to the allocation of, Development Services to be provided by the Party Operators as provided in Section 2.11 ;

 

(iv)   any Affiliate Contract or a contract or agreement that contains a confidentiality obligation that would prevent such Party Operator from providing to the other Parties the data and reports required by Section 2.9(a) , in each case, to be entered into by a Party Operator as provided in Section 2.12(c) ;

 

(v)   subject to Section 2.11(d) , approval or modification to the calculation of Services Costs or the amount of the Marketing Fee as provided in Section 2.11(d) ;

 

(vi)   formation or dissolution of any subcommittee of the Joint Development Committee;

 

(vii)   approval of, and any amendment, modification or supplement to any previously approved, operating guidelines to be followed by the Party Operators in conducting Development Operations or Area-Wide Operations;

 

(viii)   any amendment, modification or supplement to the insurance standards required to be maintained by each of the Party Operators as provided in Section 2.8 or the reports to be provided by each of the Party Operators as provided in Section 2.9 ; and

 

(ix)   any modification to the number of secondees or the positions of such secondees under either the CONSOL Secondment Agreement or the Noble Secondment Agreement as applicable.

 

(i)            Each Party will designate a representative (the “ Party Representative ”) who will be the primary, but not exclusive, day-to-day point of contact for the other Party with respect to safety, operational, technical, production, financial, land, permitting, marketing and other matters under this Agreement and any Applicable Operating Agreement.  Each Party Representative shall meet with the Party Representatives of the other Parties on a regular basis in person or by telephone to (i) discuss the status of such matters, (ii) identify and seek to resolve any issues that may arise with respect to such matters, and (iii) seek to enhance the safety, compliance, continuous improvement, production and costs of operations under this Agreement and any Applicable Operating Agreement.  The initial Party Representative of CONSOL shall be J. Michael Onifer and the initial Party Representative of Noble shall be Barry Shelden, each of whose contact information is set forth in Section 11.2 ; provided that any Party may change its Party Representative or the contact information for its Party Representative by giving notice to the other Parties in accordance with Section 11.2 .

 

3.2      Development Plan .  

 

(a)      Attached hereto as Exhibit E is a multi-year development plan for Development Operations and Area-Wide Operations which the Parties currently anticipate to be conducted by the Party Operators through calendar year 2020 (as hereafter amended, modified or supplemented, the “ Development Plan ”).  The Joint Development Committee shall have the sole right to amend, modify and supplement the Development Plan.

 

 

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(b)      Each Development Plan shall, to the extent possible, include:

 

(i)    a forecast of the number of active rigs, the drilling days from spud to rig release including the expected time from rig release to first production, including estimates for stimulation/completion days and a forecast of all relevant capital and operational costs related to the foregoing;

 

(ii)   the sequence of development of the applicable Operated Area, to the extent known;

 

(iii)   a forecast of future production in four categories: (A) wells already on stream, (B) wells stimulated but not on stream, (C) wells drilled but not stimulated, and (D) wells to be drilled (wells on stream shall be forecasted on an individual performance basis (individual decline analysis) and all other wells shall be forecasted on an area basis based on expected performance for the relevant locations (pro-forma curves)).

 

(c)   Commencing in 2017 or earlier if the Parties mutually agree, on or before August 31 of each calendar year, each Party Operator shall, with respect to its Operated Area, prepare and submit to the Joint Development Committee an amendment to the portion of the then existing Development Plan covering such Operated Area, which amendment sets forth the Development Operations and Area-Wide Operations reasonably expected to be carried out during the following three calendar years in such Operated Area.  Following distribution of all amendments to the Development Plan from each of the Party Operators, the representatives of the Joint Development Committee shall have 30 days to furnish to the other members of the Joint Development Committee any proposed revisions they desire to make to the proposed amendments to the Development Plan.  Promptly following the Joint Development Committee’s 30-day review process, the Joint Development Committee shall meet to consider the amendments to the Development Plan and any recommendations made with respect thereto by any member of the Joint Development Committee and approve or reject such amendments to the Development Plan and such recommendations.  In addition, the Joint Development Committee shall annually review the Development Plan in connection with its annual review and approval of the Annual Plan and Budget for the following calendar year and may from time to time amend or modify the Development Plan.

 

(d)   For the avoidance of doubt, any reference in this Agreement to the Development Plan shall mean the Development Plan attached hereto as Exhibit E , as such Development Plan may be amended from time to time by the Joint Development Committee pursuant to the terms hereof.

 

3.3      Annual Plan and Budgets .  

 

(a)      Attached hereto as Exhibit F is an annual development plan and budget for Development Operations and Area-Wide Operations which the Parties currently anticipate to be conducted by the Party Operators through calendar year 2012   (as hereafter amended, modified or supplemented, the “ Annual Plan and Budget ”).  Each Party Operator shall, with respect to its Operated Area, be responsible for conducting the Development Operations and Area-Wide Operations that are contemplated by, and in accordance with, the then applicable Annual Plan and Budget covering such Operated Area.  The Joint Development Committee shall have the sole right to amend, modify and supplement any Annual Plan and Budget.

 

 

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(b)          Other than with respect to calendar year 2011,   on or before August 31 in the calendar year immediately preceding the relevant calendar year, each Party Operator shall, with respect to its Operated Area, prepare and submit to the Joint Development Committee that portion of a proposed Annual Plan and Budget for such relevant calendar year that pertains to such Operated Area.  In preparing such portion of such proposed Annual Plan and Budget, each Party Operator shall prepare such Annual Plan and Budget in a manner consistent with the then current Development Plan for such relevant calendar year.  Each such portion of such proposed Annual Plan and Budget submitted by a Party Operator shall contain at least the following with respect to the Operated Area of such Party Operator:

 

(i)      all Development Operations and Area-Wide Operations that are expected to be conducted by such Party Operator in its Operated Area during such calendar year;

 

(ii)   all lease maintenance costs and expenditures required under the terms of existing Leases or existing Third Party contracts held by a Party Operator for the benefit of Development Operations and Area-Wide Operations (including each Party’s share thereof);

 

(iii)    itemized estimates of the Development Costs (including each Party’s share thereof including Carried Costs, separately stated, in the case of Noble) for Development Operations and Area-Wide Operations covered by the proposed Annual Plan and Budget by budget category containing sufficient detail, if available, to afford the ready identification of the nature, scope and duration of the activity in question;

 

(iv)   the number of wells proposed to be drilled as part of the Development Operations and Area-Wide Operations during such calendar year, the areas for drilling groups of wells and proposed locations of such wells (to the extent reasonably ascertainable at the time such Annual Plan and Budget is proposed), and the estimated Development Costs (including each Party’s share thereof) associated therewith;

 

(v)   estimates of the schedule pursuant to which the Parties’ Share of Development Costs for Development Operations and Area-Wide Operations included in the Annual Plan and Budget are anticipated to be incurred by the Parties;

 

(vi)   estimated production for the applicable calendar year; and

 

(vii)   any other information that a member of the Joint Development Committee reasonably requests to have included in such portion of such proposed Annual Plan and Budget.

 

Each Party Operator shall also provide to the Joint Development Committee any technical and interpretive data to support its proposed portion of the Annual Plan and Budget that any member of the Joint Development Committee may reasonably request.

 

 

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(c)      Following distribution of the applicable portion of the proposed Annual Plan and Budget from each of the Party Operators, the representatives of the Joint Development Committee shall have 30 days to furnish to the other members of the Joint Development Committee any proposed revisions they desire to make to such proposed Annual Plan and Budget.  Promptly following the Joint Development Committee’s 30-day review process, the Joint Development Committee shall meet to consider the proposed Annual Plan and Budget and any recommendations made with respect thereto by any member of the Joint Development Committee and approve or reject the proposed Annual Plan and Budget and such recommendations.  In addition to annually submitting an Annual Plan and Budget to the Joint Development Committee, commencing in 2012, on or prior to June 30 of each calendar year, each Party Operator shall meet with the Joint Development Committee to review the then current Annual Plan and Budget to discuss any potential amendments or modifications to such Annual Plan and Budget for the remaining portion of such calendar year that may be proposed by the members of the Joint Development Committee or such Party Operator.

 

(d)      Inclusion of an operation in an approved Annual Plan and Budget shall (unless and until such operation is removed from such Annual Plan and Budget pursuant to an amendment thereof):  (i) bind all Parties to participate in such operation, and no Party shall have the right to make any nonconsent election under an Applicable Operating Agreement with respect to such operation;   and (ii) subject to an occurrence of a Force Majeure Event affecting such operation, authorize the applicable Party Operator to propose and conduct such operation for the account of all of the Parties under the relevant Applicable Operating Agreement (provided that, to the extent any Third Party is a party to such Applicable Operating Agreement, a Party Operator shall propose such operation to such Third Party in accordance with the terms of such Applicable Operating Agreement, though, for the avoidance of doubt, such Party Operator need not re-propose such operation to the Parties but the Party Operator shall provide any AFEs required by the terms of the Applicable Operating Agreement to such Party, which shall be for informational purposes only) or under this Agreement in the case of an Area-Wide Operation.

 

(e)      Subject to a Force Majeure Event that affects such Development Operations, each Party Operator shall be responsible for proposing, and shall conduct, Development Operations relating to its Operated Area that are contemplated in an Annual Plan and Budget under the Applicable Operating Agreement; provided that, notwithstanding anything to the contrary in this Agreement, no Party Operator shall have any liability for failing to commence operations to drill all of the wells set forth in the applicable Annual Plan and Budget for any year for its Operated Area so long as such Party Operator proposes and commences the drilling of at least 95% of the wells contemplated to be drilled in an Annual Plan and Budget for its Operated Area for such year.  Other than as provided in the preceding sentence or as provided in Section 3.3(g) , no Party or its Affiliates (including any Party Operator) shall propose Development Operations under any Applicable Operating Agreement.  Other than with respect to Development Operations proposed by a Third Party Operator or a Third Party under an Applicable Operating Agreement, each Party hereby authorizes each Party Operator on its behalf to provide such notices, make such elections and take such actions as may reasonably be required under any Applicable Operating Agreement or any other Associated Agreement to implement the operations and activities contemplated by an approved Annual Plan and Budget in such Party Operator’s Operated Area.  In the event that an operation that is included in an approved Annual Plan and Budget is proposed by a Party Operator under an Applicable Operating Agreement and a Third Party to such Applicable Operating Agreement non-consents such proposal, then (i) if the Working Interest of the non-consenting Third Party with respect to such proposed operation is less than 50%, each Party shall be required to participate for its full Working Interest share of the Working Interest of such non-consenting Third Party and the applicable Party Operator shall make such elections, on behalf of each Party, as is necessary to implement the same and (ii) if the Working Interest of the non-consenting Third Party with respect to such proposed operation is 50% or more, each Party shall have the right to elect to participate for its full Working Interest share of the Working Interest of such non-consenting Third Party in accordance with the terms of the Applicable Operating Agreement; provided that if any Party elects not to participate for its full Working Interest share of the Working Interest of such non-consenting Third Party, the Party Operator shall have the option to withdraw its proposal for such Development Operation (and if the Party Operator withdraws such proposal, such Development Operation shall be deemed to have been removed from the Annual Plan and Budget).

 

 

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(f)       Each Party shall have the right to elect to participate or not to participate in any Development Operations proposed by a Third Party Operator or other Third Party pursuant to an Applicable Operating Agreement.  Any such Development Operation in which less than all of such Parties elect to participate as permitted hereunder may be conducted by the Parties electing to participate in such Development Operation under the terms of the relevant Applicable Operating Agreement.  Except as provided in Section 3.5 with respect to a Non-Consent Year, Noble’s obligation to pay the Carried Costs on behalf of CONSOL in accordance with Section 7.1 shall not apply to Development Operations proposed by a Third Party Operator or other Third Parties pursuant to an Applicable Operating Agreement unless Noble is a participating party in such Development Operation.

 

(g)          In the event that the Joint Development Committee fails to approve an Annual Plan and Budget for a particular calendar year on or prior to December 15 of the year preceding such particular calendar year (for purposes of this Section 3.3(g) , such particular year for which the Joint Development Committee fails to approve an Annual Plan and Budget, the “ relevant calendar year ”),   the Joint Development Committee shall be deemed to have approved an Annual Plan and Budget for such relevant calendar year that includes the following:  (i) all Development Operations and Area-Wide Operations that were previously commenced pursuant to an approved Annual Plan and Budget in a prior calendar year and not completed in such prior calendar year; (ii) the wells scheduled to be drilled during the relev


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