JOINT VALUE ENHANCEMENT AGREEMENT
BY AND AMONG
INFINITY OIL & GAS OF WYOMING, INC.
AND
RED OAK CAPITAL MANAGEMENT, LP
AND
SCHLUMBERGER TECHNOLOGY CORPORATION
DATED
DECEMBER 3, 2003
SUBLETTE COUNTY, WYOMING
* Certain material marked with an asterisk on p. 9
and 10 of this Agreement
has been omitted pursuant to a request for confidential
treatment. This
Agreement,
with the omitted material included, has
been filed separately
with
the Commission.
<PAGE>
TABLE OF CONTENTS
-----------------
1.
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 1
2. THE
PROJECT WELLS. . . . . . . . . . . . . . . . . . . . . . . . . .
4
3. PROJECT
GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . .
6
4. THE
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
5. SERVICE
PARTY COMPENSATION . . . . . . . . . . . . . . . . . . . . .
10
6. OPERATION
OF THE PROJECT WELLS . . . . . . . . . . . . . . . . . . .
12
7. EARLY
BUYOUT OR DISPOSAL . . . . . . . . . . . . . . . . . . . . . .
14
8. TERM . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
9. GENERAL
TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . .
16
10. CONFIDENTIAL
INFORMATION AND INTELLECTUAL PROPERTY . . . . . . . . .
16
11. NOTICES. . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. MISCELLANEOUS
PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 20
13. SEVERABILITY;
SAVINGS CLAUSE . . . . . . . . . . . . . . . . . . . . 22
14.
WARRANTIES/DISCLAIMERS . . . . . . . . . . . . . . . . . . . . . .
. 22
15. FORCE MAJEURE. .
. . . . . . . . . . . . . . . . . . . . . . . . . . 23
16. RELATIONSHIP OF
THE PARTIES. . . . . . . . . . . . . . . . . . . . . 23
17. CAPACITY OF IOGW
. . . . . . . . . . . . . . . . . . . . . . . . . . 24
18. REASONABLENESS . . . . . . .
. . . . . . . . . . . . . . . . . . . . 24
19. CONFLICTS OF
INTEREST. . . . . . . . . . . . . . . . . . . . . . . .
24
20. CORPORATE POWER
AND AUTHORITY. . . . . . . . . . . . . . . . . . . . 24
21. GOVERNMENT
APPROVALS . . . . . . . . . . . . . . . . . . . . . . . .
25
22. PUBLIC
ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . . .
25
23. MODIFICATION OF
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . 25
24. NO LIABILITY;
INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . 25
i
<PAGE>
25. COUNTERPARTS . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBITS
Exhibit A Contract
Area
Exhibit B Project
Governance
Exhibit C Master Services
Agreement
Exhibit D Engagement
Letter
Exhibit E Computations
Exhibit F Financial
Accounting Procedures
Exhibit G Form of IOGW
Collateral Documents
Exhibit H COPAS Form
Exhibit I Well Costs
Excluding Completion Costs
ii
<PAGE>
JOINT VALUE ENHANCEMENT AGREEMENT
---------------------------------
This JOINT VALUE ENHANCEMENT AGREEMENT (the
"Agreement") is entered into this
3rd day of December, 2003, by, between
and among Infinity Oil & Gas of Wyoming,
Inc. ("IOGW"), a Wyoming corporation;
Red Oak Capital Management LP, a Delaware
corporation ("Red Oak"); and Schlumberger Technology Corporation, a Texas
corporation ("Schlumberger"). Red Oak and
Schlumberger may be referred to herein
individually as a "Service Party" and collectively as the
"Service Parties."
WHEREAS, the Parties desire to work together to align
their common commercial
objectives for the purpose of increasing the
hydrocarbon potential from IOGW's
current and/or future oil and gas interests in certain properties
owned or
operated by IOGW located in Sublette County, Wyoming as more particularly
described in Exhibit A attached hereto ("Contract Area");
WHEREAS, the Parties have the stated preference of working with each
other
within a contractual and operational
framework (the "Project") based on specific
principles that are intended to align their common
commercial objectives in a
manner that will encourage the most efficient use of equipment,
personnel,
know-how and other technology;
WHEREAS, Schlumberger has entered into or will enter into a Master
Service
Agreement (defined below) with IOGW that sets out the specific terms and
conditions of the provision of goods and
services by Schlumberger to IOGW with
respect to the Contract Area;
WHEREAS, Red Oak has entered into or will enter into an Engagement
Letter
(defined below) with IOGW that sets out the
specific terms and conditions of the
provision of certain capital resources by
Red Oak to IOGW for the development of
the Contract Area;
WHEREAS, the Parties intend that this Agreement set out and govern the
relationship of the Parties with respect to the Contract Area; and
WHEREAS, the Parties desire to state the terms and
conditions under which the
activities described in this Agreement will be conducted by each of them.
NOW, THEREFORE, in consideration of the mutual promises, conditions and
agreements herein contained, the sufficiency of which is hereby
acknowledged,
the Parties agree as follows:
1. DEFINITIONS
-----------
For purposes of
this Agreement, including the Exhibits, except as otherwise
expressly
provided or unless the context otherwise requires, the
terms-defined in
this Article have the meanings assigned to them herein and
the capitalized terms defined elsewhere in this
Agreement by inclusion in
quotation
marks have the meanings so ascribed to them.
1.1 "AFE" means an Authority for Expenditure
prepared for the purpose of
estimating the
costs to be incurred
in connection with a proposal to
drill, deepen, plug
back, complete, recomplete, sidetrack or rework a
Project Well.
1
<PAGE>
1.2 "Affiliate" means, with respect to any Person, any other Person
controlling or controlled by or under common control with such
Person,
with the concept of control in such context meaning
the possession,
directly or
indirectly,
of the power to direct the management
and
policies of
another, whether by. ownership of voting securities,
contract or
otherwise. With
respect to a corporation, partnership or
limited liability
company, control is conclusively deemed to
exist
where a Person owns fifty percent (50%) or more of the voting stock
in
such corporation
or of the voting interest as a partner in such
partnership or
as a member of such limited liability company.
1.3 "Agreement" means this Joint Value Enhancement
Agreement between and
among the Parties,
including the Exhibits attached hereto or referred
to herein.
1.4 "Bundle" means a specific group of
Project Wells. The Evaluation Wells
selected by
Schlumberger
for completion shall
be referred to as the
"First Bundle".
The First Bundle may
include, at Schlumberger's sole
discretion, as
few as five (5) or as
many as ten (10) Project Wells.
The next ten (10) Project Wells that are completed, whether as
producers or
dry holes, shall be
referred to as the "Second Bundle",
and successive
groups of up to twenty (20) Project Wells that
are
completed, whether as
producers or dry holes, shall be referred to as
subsequently numbered
Bundles; provided, however, that if for any
reason the full number
of Project Wells are not drilled, in the final
Bundle, then the final Bundle shall consist only of such lesser
number
of
Project Wells as were actually commenced.
1.5 "Business Day" means any day other
than a Saturday, a Sunday, or a day
on which the United
States Postal Service is not scheduled to deliver
ordinary first
class mail.
1.6 "Deferred Payment" means the payment due a Service Party under
the
terms of this Agreement in consideration of its
provision of Risked
Services.
1.7 "Deferred Payment Account" is
defined in Article 5.4.
1.8 "Effective Date" means the effective date of this Agreement,
being
December 3,
2003.
1.9 "Engagement Letter" means that
certain letter agreement dated December
3, 2003, entered into between Red Oak Capital Management, LP and
IOGW,
pursuant to
which Red Oak will, at IOGW's request, arrange for
financing for a
portion of the services provided on the Project Wells
within the
Contract Area, a copy of which is attached hereto as
Exhibit D.
1.10 "Evaluation
Wells" means the first group of wells selected by
Schlumberger from
those listed in Exhibit I to be completed, or
recompleted, pursuant
to this Agreement. These wells may also be
referred to
as the First Bundle.
1.11 "Exhibits"
means the exhibits to
this Agreement, as such exhibits may
be amended
from time to time.
2
<PAGE>
1.12
"Hydrocarbon
Production" means all crude oil, natural gas, condensate
and other liquid and gaseous hydrocarbons
produced from the Contract
Area.
1.13 "Master
Service Agreement" means, that certain service agreement dated
December 3,
2003, entered into between Schlumberger and IOGW,
pursuant' to
which Schlumberger will provide Services
in connection
with the Project
Wells, a copy of which is attached hereto as Exhibit
C.
1.14 "Month"
means the period beginning at 7:00 a.m.
Mountain time on the
first day of any calendar month and ending at the
same time on the
first day of the next succeeding calendar month.
1.15 "Negative
Account Balance" means, at any given time, the amount
by
which the cumulative value of the Risked Services provided by
the
Service Parties exceeds the cumulative amount of the Deferred
Payments
received by
the Service Parties.
1.16 "Net
Profits" for the Project Wells for any Month shall have the
meaning set
forth in Exhibit E attached hereto.
1.17 "IOGW's
Working Interest" means that portion of
the working interest
ownership in
a given Project Well,
(determined according to industry
custom and practice)
attributable to IOGW's ownership of the lease on
which such
well is located or the lease in the
pooled, unitized or
communitized unit
associated
with such well (including farm-in
interests and
other related interests).
1.18 "Party"
means IOGW, Red Oak or Schlumberger,
individually; "Parties"
means IOGW,
Red Oak and Schlumberger, collectively.
1.19 "Payout"
means, with respect to each Bundle, that point in time
at
which the total of the Deferred Payments received by the
Service
Parties is
equal to the Service
Parties' Expenditures on the Project
Wells in such Bundle.
1.20
"Percentage" means,
as to each Service Party and as to
each Bundle,
the percentage
determined
by dividing that Service Party's
Expenditures on
such Bundle by the Total Well Construction and
Completion Costs
attributable
to that Bundle. The quantum of each
Service Party's Percentage shall vary as to a Bundle until all
Project
Wells in that Bundle have been completed, at which time it will
become
a fixed percentage as to that Bundle.
1.21 "Person"
means any individual, governmental agency, corporation,
partnership, joint
venture, trust, estate, joint venture,
unincorporated
organization, or
other entity or organization.
1.22 "Project
Well" means a well drilled, completed,
reworked; deepened,
sidetracked or
recompleted under the terms of this Agreement. For the
avoidance of
doubt, each Evaluation Well is a Project Well.
1.23 "Production
Costs" shall have the meaning set forth in Exhibit E
attached hereto.
3
<PAGE>
1.24 "Prudent
Standards"
means the standards of reasonable and prudent
business judgment and sound oil and gas field practices, in
compliance
with applicable
federal, state and local laws, rules and regulations.
1.25
"Recompletion Costs"
shall have the meaning set forth in Exhibit
E
attached hereto.
1.26 "Risked
Services" means those
Services that a Service Party agrees to
provide in exchange for Deferred Payments in accordance with the
terms
of this Agreement.
1.27
"Representative" means
a director, officer, supervisor, employee,
partner, technical consultant, attorney, accountant, lender,
financial
advisor, marketing
representative
or other consultant or
agent of a
Party.
1.28 "Service
Party Expenditures" means, as to each Service Party, the
cumulative value of the Risked Services provided by such Service
Party
on a given Bundle.
1.29 "Services"
means those products, goods and services
supplied by the
Service Parties
to IOGW as set out in Articles 4.1 and 4.2.
1.30 "Third
Party" means a Person who is not a Party
or an Affiliate of a
Party.
1.31 "Total
Well Construction and Completion Costs" means the actual
charges allocated
to IOGW's Working
Interest in the Project Well. in
connection with
the drilling and completing of a
Project Well. Such
costs shall
include without limitations all equipment
for which one
hundred percent (100%) of the costs of such equipment are allocable
to
a single Project Well; provided, however, that no portion
of Total
Well Construction
and Completion Costs shall ever
duplicate amounts
that have been
included in the Production Costs or Recompletion Costs
for that same well. For purposes of calculating Schlumberger's
Percentage in
the First Bundle, the Total Well Construction and
Completion Costs
shall be calculated as the total of
Schlumberger's
Expenditures and the
Well Costs Excluding Completion Costs set out in
Exhibit I,
each attributable to the applicable Evaluation Well.
1.32 "Unrisked
Services" means the Services for which Schlumberger has
elected to
receive payments under the terms of the Master
Service
Agreement, rather
than Deferred Payments.
2. THE PROJECT WELLS
-------------------
2.1 Overview. IOGW and the Service Parties will work
together, using the
--------
project governance
principles set forth
in Article 3, to develop the
oil and gas resources contained in that
portion of the Contract Area
in which IOGW may conduct oil and gas operations, whether
through
ownership of
oil and gas leasehold interests or through
communitization,
pooling or
unitization
agreements.
4
<PAGE>
2.2 The Evaluation Wells. IOGW and
Schlumberger will begin the development
---------------------
of the Contract Area by designing a completion program for five (5)
of
the ten (10) wells listed in Exhibit l.
Such wells shall be selected
by Schlumberger.
2.3 Operations on the Evaluation Wells are anticipated to provide
sufficient data
so that the Service
Parties may determine whether to
proceed with further development under the terms of this Agreement.
No
later than April 1, 2004,-each Service Party shall notify IOGW
whether
it wishes to proceed under the terms of this
Agreement or whether it
wishes to terminate this Agreement' in
accordance with Section 8.2.1
below. A Service Party's failure to provide such notice shall be
deemed an election by that Service Party to proceed under the terms
of
this Agreement.
2.4 Field Development Plan. As Services are underway on the
Evaluation
------------------------
Wells, the
Technical Committee will begin to generate a Field
Development Plan,
which will identify all prospective drilling
locations in the
Contract Area, the sequence of drilling these wells,
and anticipated
drilling and
completion protocols for each well. All
Project Wells
will be drilled and completed in
accordance with the
Field Development
Plan, as approved by the Executive
Committee from
time
to time.
2.5 Election to Participate. The Technical
Committee shall provide to the
------------------------
Executive Committee its proposed Field Development Plan for the
Second
Bundle no later than March 1, 2004. The Executive Committee
shall
approve such
plan, along with any
necessary modifications, and shall
provide such plan to
the Service Parties no later than April 1, 2004.
The Service Parties shall notify the Executive Committee in writing
of
their election
to provide Risked Services for, such
Bundle no later
than May 1, 2004. For each subsequent Bundle of
Project Wells, the
following shall
apply:
a) Presentation
of the Field
Development Plan for the Bundle to the
Executive Committee
no later than December 1 of the year
preceding the
calendar year in which drilling is to
commence;
b) Approval,
with necessary modification, by the Executive Committee
and provision
of such plan to the
Service Parties no later than
January 1 of the year in which drilling is to commence;
and
c) Notification
by the Service Parties to the Executive Committee of
their election
to provide Risked Services for such Bundle no
later than
February 1 of the year in which drilling is to
commence.
2.6 Project Coordination Services. Schlumberger agrees, subject to the
-------------------------------
direction of
IOGW as operator, to provide project coordination
services ("Project
Coordination
Services")
with respect to the
Contract Area
subject to and in accordance with the terms of
this
Agreement.
5
<PAGE>
3. PROJECT GOVERNANCE
-------------------
3.1 Principles. The Parties will work
together in a spirit of openness and
----------
cooperation in
an effort to achieve
efficient Hydrocarbon Production
from the Project Wells. A graphic illustration of the Parties'
anticipated
responsibilities
appears in
the attached Exhibit B.
3.2 IOGW as Operator. Based upon existing
joint operating agreements and
------------------
leasehold ownership,
the Parties anticipate that IOGW will be and
remain the
operator of all of the Project Wells. Nothing in
this
Agreement shall
have the effect of modifying or superseding
IOGW's
position as
operator. It is the
stated policy of Schlumberger not to
take any equity interest in the leases in the Contract Area,
the
production or reserves
associated therewith or other property of IOGW
in consideration for
providing the Risked Services; instead, the sole
compensation to
Schlumberger
for providing Risked
Services shall be
the Deferred
Payments.
3.3 Schlumberger as Project Well Coordinator.
Schlumberger, acting under
------------------------------------------
the direction
of IOGW in its capacity as operator,
shall coordinate
and facilitate
the effective collaboration of IOGW, the Service
Parties and
any Third Party service providers in the
supply of the
proposed products and services for the Project Wells. In
consideration
of its performance of these coordination
services; Schlumberger will
earn a fee determined by the Executive
Committee and included in the
approved AFE for each
Project Well, the full amount of which shall be
included as part of Schlumberger's Service Party Expenditures for
that
Project Well.
3.4 Executive Committee. Promptly following the execution of this
--------------------
Agreement, IOGW
and Schlumberger shall establish an Executive
Committee consisting
of four (4) members, two (2) of which
shall be
appointed by
IOGW from its management and two (2) of
which shall be
appointed by
Schlumberger from its or its Affiliate's management. The
Executive Committee
shall meet at least once each calendar quarter in
Denver, Colorado or as otherwise set out herein. Within seven (7)
days
after the execution of this Agreement, the Parties will
exchange a
list of their respective appointments, as well as any designated
alternates.
IOGW shall designate one (1) of its two (2) members as the Chairman
of
the Executive
Committee (the "Chairman"). The Chairman shall schedule
meetings of
the Executive
Committee, arrange for the preparation and
distribution of
notices as well as an agenda of the meetings and
preside and
keep minutes. Special meetings shall be held upon
the
request of
any two (2) members of
the Executive Committee under this
Agreement. The Chairman shall transmit written notices of all
meetings
to each member at least seven (7) days in advance
of the meeting. A
quorum for
the conduct of
Executive Committee business shall consist
of three (3) members, and such quorum may
be by person, by proxy, or
by telephone.
The Executive
Committee shall generally oversee all hydrocarbon
development and
production
activities
occurring pursuant to this
6
<PAGE>
Agreement. Without
limiting the generality of the foregoing, the
Executive Committee
shall have the authority and
responsibility to:
a. Appoint
a committee composed of IOGW and
Schlumberger technical
personnel ("Technical
Committee"), the responsibilities of which
shall include,
but not be limited to, the preparation and
presentation of
a plan for completing or recompleting, as
applicable, the
Evaluation Wells and, if the Executive Committee
elects to proceed with further activities, the subsequent
development of the Contract Area ("Field Development Plan"),
with
both IOGW and Schlumberger earning a fee determined by the
Executive Committee
for their work on the Technical
Committee
(including any
start-up costs) and included (without duplication
in subsequent AFEs) in the approved AFE for the next Project
Well
actually drilled, Schlumberger's share of which shall be
included
as part of Schlumberger's Service Party's
Expenditures for that
Project Well
and IOGW's share of which shall simply be an
accounting entry
in determining the
Total Well Construction and
Completion Cost
for such Project Well;
b. Approve, with
necessary modifications, the Field Development Plan
for each Bundle of Project Wells as set out in Article 2.4;
c. Approve
or disapprove an AFE for each single
operation (whether
drilling, completing,
deepening,
plugging back, recompleting,
sidetracking or
reworking)
anticipated to cost
more than Fifty
Thousand Dollars
($50,000) in connection with a Project
Well,
with the understanding that such operation will not be
undertaken
unless there
is an approved AFE;
d. Attempt
to resolve conflicts
between the Parties concerning this
Agreement and
the activities contemplated hereby;
e. Recommend
appropriate actions to optimize the performance of each
Project Well
in accordance with good production
practices; and
f. Provide IOGW
and Schlumberger quarterly reports on the activities
conducted pursuant
to this Agreement, the Service Parties'
Expenditures in respect of each Bundle, and a computation of
each
Service Party's
Percentage
in respect of each Bundle.
Matters requiring
Executive Committee action shall be decided by
unanimous vote of the Executive Committee members present at a
meeting
and voting
in person, by proxy or
by telephone. All proxies shall be
in
writing. Any action permitted to be taken by the Executive
Committee may
also be taken without a meeting by
means of a written
consent to
the action signed by all members of the Executive
Committee.
7
<PAGE>
3.5 Field Development Plan Amendments. From time to time, the
Executive
------------------------------------
Committee will
review the proposals submitted by the Technical
Committee, including
the information and recommendations
derived by
the Technical
Committee, and will
establish a Field Development Plan
that ultimately will provide for the drilling and completion of all
of
the Project Wells. The Executive Committee shall provide to each
Service Party
a copy of the initial
Field Development Plan following
its adoption
by the Executive Committee and shall
thereafter timely
inform each Service Party of all amendments and additions to the
Field
Development Plan.
3.6 Recommendation Not To Complete.
If, following formation evaluation and
------------------------------
production
forecasting,
Schlumberger
reasonably determines that the
present value
of the future Net Profits from
Hydrocarbon Production
from a Project Well, discounted at ten percent (10%), is less than
one
hundred percent (100%)
of the total expected AFE amount, Schlumberger
will recommend that
IOGW not complete such well. Schlumberger and Red
Oak shall receive Deferred Payments for Risked
Services provided on
such well both prior to and following
Schlumberger's recommendation
not to complete in accordance with this
Agreement. If IOGW elects to
complete such
well then all Deferred Payments (determined by the
Service Parties'
Percentages
on the date of their election not to
complete) attributable
to such well shall be
paid to IOGW until IOGW
has received
an amount equal to the value of the Unrisked
Services
provided to
IOGW on such well after Schlumberger elects not to
complete such well
times the applicable multiplier for such Bundle as
set out in Section 5.2.1.
4. THE SERVICES
-------------
4.1 Schlumberqer's Services and Exclusivity. IOGW hereby grants to
------------------------------------------
Schlumberger for
the term of this Agreement the exclusive
right to
provide the
following Services in the Contract Area, so long as
Schlumberger can
deliver its Services
as reasonably requested by the
Executive Committee
at Schlumberger's prevailing market price:
i.
coordination of field services
ii. well
cementing products and services
iii. formation
evaluation logging products and services
iv. well
completion products and services
v. data
management and consulting services
vi. well
perforating products and services
vii. well testing and
evaluation products and services
viii. directional drilling and measurement products and
services
ix. well
stimulation fracturing and acidizing products and services
x. coiled
tubing products and services
xi. supply of
downhole pumps
xii. slickline
products and services
xiii. well/field monitoring and measurement products and
services
8
<PAGE>
IOGW shall
not enter into any agreement that conflicts with the
exclusivity granted to Schlumberger herein, although IOGW does
reserve
the right freely to contract with Third
Parties for such Services as
Schlumberger may
be unable to provide
as reasonably requested by the
Executive Committee
at Schlumberger's prevailing market price.
4.2 Red Oak's Services. Upon
Schlumberger's designation of the percentage
-------------------
of its Services it will provide as Risked Services, Red Oak shall
have
the exclusive right to provide funding, as described in the
Engagement
Letter for any
Unrisked Services described in Article 4.1 required on
any Bundle.
4.3 Identification of Risked Services. Schlumberger shall provide *
------------------------------------
percent (*%)
of its Services in connection with
the First Bundle as
Risked Services.
If the Service Parties elect to provide Risked
Services on subsequent
Bundles, the Service Parties shall participate
in each such Bundle as follows: (i)
Schlumberger shall risk payment
for * percent (*%) of the value of the Services
it provides on each
Project Well
and (ii) Red Oak shall provide funding, as Risked
Services, for * percent (*%) of the AFE costs of the Services
provided
by Schlumberger
on each Project Well. The Parties
estimate that the
Risked Services
provided by the Service Parties will be approximately
* percent (*%) of the total Well Construction and
Completion Costs.
Schlumberger shall notify the Executive Committee of its and Red
Oaks'
election to provide
Risked Services on or before the deadline for the
applicable Bundle as set out in Article 2.5. The notice shall
indicate
the Service
Parties' availability and the proposed timing for the
provision of
such Services.
4.4 Limitation on Amount of Risked
Services.
----------------------------------------
4.4.1 Service
Parties Limitations. Notwithstanding the provisions of
---------------------------
Section 4.3, the
Service Parties shall be under no obligation
to undertake
Risked Services that
are anticipated to produce
more than (i) an anticipated US Two Million Five Hundred
Thousand Dollar
($2,500,000)
Negative Account Balance in
connection with
the Risked Services they propose to
provide
for the Evaluation Wells; (ii) more than a US Three
Million
Dollar ($3,000,000)
Negative Account Balance in connection
with the Risked Services they propose to provide for all
Project Wells
in the first Bundle; (iii) more than
a US Six
Million Dollar
($6,000,000)
Negative Account Balance in
connection with
the Risked Services they propose to
provide
for all Project Wells
in each Bundle thereafter. Finally, the
Service Parties shall have no obligation to provide any Risked
Services in
connection with any
proposed Project Well unless
each is satisfied in its reasonable
discretion that IOGW has
or will have appropriate means to satisfy all cash expenditure
requirements associated with all Project Wells in that Bundle.
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4.4.2 Absolute
Limitation. The
Service Parties shall in no event be
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obligated to
provide Risked Services in an amount which
results in the Service
Parties' Percentages in a Project Well
exceeding fifty
percent (50%) of IOGW's Working Interest
in
such well.
Notwithstanding
any other provision of this
Agreement, the Percentages of all Service Parties in a Project
Well may never exceed IOGW's Working Interest in
that well.
5. SERVICE PARTY COMPENSATION
----------------------------
5.1 Unrisked Services. Any Unrisked Services provided by Schlumberger
------------------
shall not be governed by this Agreement, but instead shall be
governed
by the Master Service Agreement.
5.2 Risked Services.
-----------------
5.2.1 Service
Parties' Deferred Payments. In
consideration for the
------------------------------------
performance of
Risked Services on a Bundle, IOGW shall
pay
to the Service Parties Deferred Payments equal to (i) *
percent (*%)
of the Net Profits of each Project Well
multiplied by the applicable Service Party's Percentage from
the date of first sale
of production from the
first Project
Well completed or recompleted in a given Bundle until Payout
and (ii) * percent (*%) of the Net Profits
of each Project
Well multiplied
by each Service Party's Percentage
after
Payout . The Service
Parties' right to Deferred Payments as
to such Bundle shall
commence in the month
that Hydrocarbon
Production is first
sold from a Project
Well in that Bundle
and
shall end:
(i) for the Evaluation Wells (the First Bundle), when
Schlumberger has received Deferred Payments equal to * percent
(*%) of Schlumberger's Service Party Expenditures on such
Bundle;
(ii) for the Second, Third and Fourth Bundles, when each
Service Party
has received Deferred Payments equal to *
percent (*%)
of such Service Party's Expenditures on each
Bundle; and
(iii) for the Fifth and any subsequent Bundles,
when each
Service Party
has received Deferred Payments equal to *
percent (*%)
of such Service Party's Expenditures
on each
Bundle.
5.2.2 Red
Oaks' Net Profit
Interest. In consideration for Red Oak's
------------------------------
Expenditures, IOGW
hereby GRANTS, BARGAINS, SELLS,
CONVEYS,
ASSIGNS, TRANSFERS,
SETS OVER AND DELIVERS unto Red Oak an
interest in
the Project Wells equal to the Net Profits
multiplied by Red
Oak's Percentage until Red Oak has received
Deferred Payments in the amounts set out in Article 5.2.1 (the
"Net Profits
Interest").
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5.3 Deferred Payment Timing. IOGW shall pay Deferred Payments to each
-------------------------
Service Party no later than the 15th day of the second Month
following
the Month during which the sale of Hydrocarbon
Production occurred.
For example,
if the first sale of Hydrocarbon Production from a
Project Well in a Bundle occurs on January 15, then the first
Deferred
Payment calculated on
Net Profits, if any, shall be due no later than
March 15. Such Deferred Payments shall be accomplished by wire
transfer pursuant to instructions given by each Service Party to
IOGW.
5.4 Deferred Payment Account. IOGW shall maintain an account (the
--------------------------
"Deferred Payment
Account") on its books and records for each Service
Party in respect of each Bundle. Each
Deferred Payment Account shall
be credited with the
aggregate of any Gross Proceeds received by IOGW
after the Effective Date for each Project Well in the Bundle,
and
shall be charged with the aggregate Production
Costs incurred after
the Effective
Date.
On or before the date of payment as set
forth in Article 5.3 hereof,
IOGW shall furnish to
each Service Party a detailed statement clear
