Exhibit 10.1
MUTUAL RELEASE AND SETTLEMENT
AGREEMENT
The parties to this Mutual Release
and Settlement Agreement (this “ Agreement
” ) are Pioneer Natural Resources Company and Pioneer
Natural Resources USA, Inc. (“PNR”) (collectively
“Pioneer”); and the Mesa Offshore Trust (the
“Mesa Trust”), acting by and through JPMorgan Chase
Bank, N.A., in its capacity as trustee of the Mesa Trust (the
“ Trustee ”) . Pioneer, the Mesa
Trust, and the Trustee are collectively referred to as the
“ Parties. ”
WHEREAS, the Mesa Trust was
created in 1982, pursuant to that certain Royalty Trust Indenture
dated December 1, 1982 (the “Trust Indenture”), to hold
an interest in the Mesa Offshore Royalty Partnership (the
“Mesa Partnership ” ), to discharge liabilities
incurred in the operation of the Mesa Trust, and to distribute
remaining amounts to the beneficiaries of the Mesa
Trust.
WHEREAS, the Mesa Partnership is a
Texas general partnership created in 1982, pursuant to Articles of
General Partnership dated November 30, 1982 (as amended by First
Amended and Restated Articles of General Partnership dated December
1, 1982 and Amendment to First Amended and Restated Articles of
General Partnership dated December 27, 1985) (the
“Partnership Agreement”), to receive and hold certain
overriding royalty interests (the “Overriding Royalty
Interest”), to discharge liabilities incurred in the
operation of the Mesa Partnership, and to distribute remaining
amounts to the partners of the Mesa Partnership. The Mesa
Trust owns 99.99% of the Mesa Partnership.
WHEREAS, PNR is the sole managing
general partner of the Mesa Partnership and also owns or operates
leases that are burdened by the Overriding Royalty Interest owned
by the Mesa Partnership. PNR owns 0.01% of the Mesa
Partnership.
WHEREAS, the Overriding Royalty
Interest owned by the Mesa Partnership was transferred and conveyed
to the Mesa Partnership under that certain Overriding Royalty
Conveyance (the “Conveyance Agreement”), effective
December 1, 1982.
WHEREAS, Pioneer Natural Resources
Company is the parent company of PNR.
WHEREAS, JPMorgan Chase Bank, N.A.
serves as the trustee of the Mesa Trust and has executed this
Agreement on behalf of the Mesa Trust.
WHEREAS, beneficial ownership of the
Mesa Trust is divided among record and beneficial holders (the
“ Beneficiaries”) of the 71,980,216 Units of
Beneficial Interest in the Mesa Trust.
WHEREAS, on or about January 20,
2003, Woodside Energy (USA) Inc. (“Woodside”) and PNR
entered into a Farmout Agreement under which PNR agreed to transfer
to Woodside, subject to the terms and conditions of the referenced
Farmout Agreement, all of PNR’s right, title, and interest to
certain leasehold rights in Brazos Area Blocks A-7 and A-39, which
rights were burdened by Overriding Royalty Interest owned by the
Mesa Partnership under the Conveyance Agreement (the
“Woodside Farmout Agreement”).
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WHEREAS, pursuant to the Woodside
Farmout Agreement, PNR transferred to Woodside certain rights to
Brazos Area Block A-39 by that certain Partial Assignment of
Operating Rights executed on or about April 7, 2005, reserving an
overriding royalty interest of 10% of 8/8ths, proportionately
reduced, which would increase to 12.5% of 8/8ths, proportionately
reduced, after payout (the “Woodside Partial Assignment of
Operating Rights”).
WHEREAS, Pioneer maintains that,
under the terms of the Conveyance Agreement, the farmout to
Woodside of rights to Brazos Block A-39 caused the interest to be
transferred to Woodside free and clear of the Overriding Royalty
Interest owned by the Mesa Partnership burdening Block A-39 and
caused the Mesa Partnership Overriding Royalty Interest in Block
A-39 to be extinguished, subject only to the Mesa
Partnership’s right to share in the 10% (increasing after
payout to 12.5%) overriding royalty interest retained by PNR in the
Woodside Farmout Agreement and the Woodside Partial Assignment of
Operating Rights.
WHEREAS, on April 11, 2005, MOSH
Holding, L.P. ( “ MOSH”) sued the Parties to
this Agreement and Woodside in the 250th District Court of Travis
County, Texas (the “ Lawsuit ” ).
MOSH, a Beneficiary of the Mesa Trust, is a Texas limited
partnership that claims to own approximately 10% of the units of
the Mesa Trust. The Lawsuit has been transferred and is now
pending in the 334th District Court of Harris County, Texas (the
“ Court”).
WHEREAS, on December 8, 2006,
Dagger-Spine Hedgehog Corporation (“Dagger-Spine”)
filed a petition to intervene in the Lawsuit alleging claims
virtually identical to those alleged by MOSH. Dagger-Spine is
a Texas corporation that claims to own approximately 3.5% of the
units of the Mesa Trust.
WHEREAS, MOSH and Dagger-Spine
(“Plaintiffs”) allege claims against Pioneer in the
Lawsuit for, among other things, (1) a wrongful farmout of
Brazos A-39 by Pioneer, (2) a wrongful delay by Pioneer in
producing Brazos A-39, (3) fraudulent accounting practices by
Pioneer, (4) breach of fiduciary duty by Pioneer,
(5) aiding and abetting breach of fiduciary duty by Woodside,
(6) misapplication of Mesa Trust property by Pioneer,
(7) conspiracy to misapply fiduciary property by Woodside and
Pioneer, (8) common law fraud by Pioneer, (9) gross
negligence by Pioneer, and (10) breach of the Conveyance
Agreement by Pioneer, such claims as more fully stated in
MOSH’s First Amended Original Petition, Verified Application
for Temporary Restraining Order, Temporary Injunction, Show Cause
Order, Permanent Injunction, and Request for Disclosure
(“MOSH’s Petition”) and in Dagger-Spine’s
Petition in Intervention and Request for Disclosure
(“Dagger-Spine’s Petition”) on file in the
Lawsuit.
WHEREAS, Plaintiffs also allege
claims against the Trustee in the Lawsuit for, among other things,
(1) an accounting, (2) breaches of fiduciary duty,
including the duty to refrain from self-dealing, duty of loyalty,
and duty of full disclosure, (3) fraud, (4) gross
negligence, and (5) partner (vicarious) liability, such claims
as more fully stated in MOSH’s Petition and in
Dagger-Spine’s Petition..
WHEREAS, through the Lawsuit,
Plaintiffs seek various remedies from the Parties including, among
other things, (a) reconstruing the Royalty Trust Indenture to
prevent the Mesa Trust from terminating for failing to reach
certain performance thresholds set forth in the Trust Indenture;
(b) requiring the Trustee to pursue certain claims against
Pioneer and Woodside, or to
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allow Plaintiffs to pursue such
claims on behalf of the Mesa Trust; (c) setting aside any
farmouts by Pioneer in which there have been conveyances to an
affiliate of Pioneer; (d) removing JPMorgan Chase Bank, N.A.
as Trustee; (e) seeking return or forfeiture of compensation
to JPMorgan Chase Bank, N.A.; (f) recovering monetary damages
from Pioneer, Woodside, and JPMorgan Chase Bank, N.A.; and
(g) pursuing exemplary damages.
WHEREAS, controversies exist whether
Pioneer and Woodside are liable to the Mesa Trust as Plaintiffs
allege.
WHEREAS, by reason of such
controversies, the Parties have agreed to the following settlement
and compromise of any and all claims that the Mesa Trust or the
Mesa Partnership has or might have against Pioneer and Woodside,
conditioned on approval by the Court as set forth
herein.
NOW, THEREFORE, in consideration of
the mutual promises contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which the
Parties acknowledge, the Parties agree as follows, subject to
approval by the Court as set forth herein.
ARTICLE I.
CONVEYANCES AND ADJUSTMENTS
1.1.
PNR shall assign and transfer to the Mesa Partnership, or shall
cause to be assigned and transferred to the Mesa Partnership, the
A-39B ORRI (as defined in Schedule 1.1). The A-39B ORRI shall
be in lieu of and shall replace and supersede any rights and
interests that the Mesa Partnership and/or the Mesa Trust might
otherwise own, claim or be entitled to in the A-39B Property (as
defined in Schedule 1.1). The assignment provided for in this
Section 1.1 shall be effective as of first production from the A-39
No. 5 Well and shall be substantially in the form of the Assignment
of Overriding Royalty Interest attached as Schedule 1.1
hereto. On behalf of the Mesa Trust and the Mesa Partnership,
the Trustee hereby agrees and consents to this assignment and
transfer and to the related Amendment to the Conveyance Agreement
attached as Schedule 1.1A hereto.
1.2.
Pioneer, the Mesa Trust and the Trustee acknowledge that as of
October 31, 2006, PNR’s books and records reflected accrued
but unsatisfied plugging, abandonment, and decommissioning costs
incurred and projected to be incurred in the future allocable to
the Overriding Royalty Interest held by the Mesa Partnership under
the Conveyance Agreement of approximately $1.4 million (the
“Prior P&A Costs”). The Prior P&A Costs
relate to facilities now or previously located on the areas
designated as Brazos Block A-7A, Brazos Block A-7B, Brazos Block
A-39A, Matagorda Block 624, and South Marsh Island Block 155 (the
“P&A Properties”). PNR represents that as of
October 31, 2006, it had accrued no plugging, abandonment, or
decommissioning costs allocable to the Overriding
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Royalty Interest held by the Mesa
Partnership under the Conveyance Agreement relating to any
properties other than the P&A Properties. PNR agrees to
amend, and to cause the Mesa Partnership to amend, the Conveyance
Agreement such that effective October 31, 2006, the Overriding
Royalty Interest held by the Mesa Partnership shall not be subject
to or liable for deductions for allocated accruals of the Prior
P&A Costs relating to the P&A Properties. Such
amendment shall also provide that no plugging, abandonment or
decommissioning costs shall be allocated to the Overriding Royalty
Interest held by the Mesa Partnership, or be sought to be recovered
from the Mesa Partnership, with respect to the Brazos A-39 No. 5
Well and facilities related to that well. The amendment shall
contain a statement to the effect that the Mesa Partnership’s
interest under the Conveyance Agreement is unencumbered by and
bears no share of or responsibility for additional plugging,
abandonment, or decommissioning costs associated with activities
occurring on or before October 31, 2006 with respect to any Lease
(as defined in the Conveyance Agreement) or related facilities
existing as of October 31, 2006 on or used in connection with any
Lease. This amendment shall be substantially in the form of
Schedule 1.2. On behalf of the Mesa Trust and the Mesa
Partnership, the Trustee hereby agrees and consents to such
amendment.
1.3.
Pioneer, the Mesa Trust, and the Trustee acknowledge that PNR has
negotiated an agreement with a Non-Affiliate (as such term is
defined in the Conveyance Agreement), Hydro Gulf of Mexico, L.L.C.
(“Hydro”), pursuant to which PNR is to farmout and
assign to Hydro operating rights in the NE/4 of the NE/4 of Brazos
Block A-39 (the “Farmout Lands”) including the 50%
undivided interest in such property currently burdened by the
Overriding Royalty Interest under the Conveyance Agreement (the
“Hydro Farmout Agreement”). The Hydro Farmout
Agreement currently provides—in summary—that if Hydro
drills an earning well in the area designated by the parties as the
Nimitz prospect (consisting of the Farmout Lands and certain
acreage owned by Hydro in adjoining lease blocks, the “Hydro
Nimitz Prospect”) and otherwise performs its obligations
under the Hydro Farmout Agreement, then (i) PNR will assign to
Hydro operating rights in the Farmout Lands, reserving a cost-free
overriding royalty interest of 12.5% of 20% of 8/8ths production in
the Farmout Lands, and (ii) Hydro will assign to PNR a like
overriding royalty interest in the remainder of the Hydro Nimitz
Prospect. Conditioned on the absence of any material changes
to the Hydro Farmout Agreement as currently executed, and subject
to Hydro’s compliance with the terms of the Hydro Farmout
Agreement and satisfaction of all requirements for Hydro to earn an
assignment under the Hydro Farmout Agreement, PNR shall assign and
transfer to, or cause to be assigned and transferred to, the Mesa
Partnership an Overriding Royalty Interest (as such term is defined
in the Conveyance Agreement) in 50% of the Retained Interest (as
such term is defined in the Conveyance Agreement) reserved or
otherwise acquired by PNR in the Hydro transaction. Based on
the commercial terms currently expressed in the Hydro Farmout
Agreement and subject to Hydro’s compliance as stated above,
PNR will assign and transfer to, or cause to be assigned and
transferred to, the Mesa Partnership an interest equal to 90% of
50% of 20% of 12.5% of 8/8ths, or a 1.125% overriding royalty
interest in the Hydro Nimitz Prospect, subject to the terms of the
Conveyance Agreement and the Hydro Farmout Agreement. A copy
of the Hydro Farmout Agreement is attached as Schedule 1.3
hereto. The Trustee acknowledges that Farmouts to
Non-Affiliates of parts of the Subject Interests (as each of the
foregoing capitalized terms are defined in the Conveyance
Agreement) made in accordance with the Conveyance Agreement are
permitted in PNR’s discretion and that such Farmouts allow
assignment of a portion of the Subject Interests free and clear of
the Overriding Royalty Interest provided that the Royalty
Owner receives an Overriding Royalty Interest in any Retained
Interest reserved or acquired under such Farmout (as each of the
foregoing capitalized terms are defined in the Conveyance
Agreement).
1.4
Pioneer, the Mesa Trust, and the Trustee acknowledge that pursuant
to Article 3.02 of the Trust Indenture the Trustee is directed to
sell the Trust’s interest in the Mesa Partnership, or to
cause the Partnership to sell the assets of the Partnership, if the
total amount of
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cash per year received by the Trust
for each of three successive years after December 31, 1987 is less
than 10 times one-third of the total amount payable to the Trustee
for management of the Trust for such three-year period. Based
upon the audited books and records of the Trust, the amount of cash
received by the Trust for each of the calendar years 2002, 2003 and
2004 was less than 10 times one-third of the total amount payable
to the Trustee for management in such three-year period. The
Parties acknowledge that pursuant to Article 6.04 of the
Partnership Agreement the managing general partner, at the
direction of the Trustee, is required to use its best efforts to
sell or otherwise dispose of, upon such terms as may be specified
by the Trustee, the assets of the Partnership including the
Overriding Royalty Interest. The Parties further acknowledge
that the Trustee must provide at least sixty (60) days written
notice to MOSH concerning the Trustee’s causing or consenting
to the sale of the Overriding Royalty Interest owned by the Mesa
Partnership. In accordance with the provisions of the Trust
Indenture and the Partnership Agreement, and subject to the
Court’s orders in the Lawsuit, the Trustee intends and
directs, subject to the provisions of Article II below, as
follows.
(a)
PNR, as managing general partner of the Mesa Partnership, shall use
its best efforts to undertake the following steps to sell the
assets of the Partnership on the timetable stated at section 1.4(b)
below:
(i)
PNR shall arrange for the sale through The Oil and Gas
Clearinghouse, or another similar third-party firm routinely
engaged in conducting auctions of mineral interests.
(ii)
PNR shall provide to the auction firm non-confidential information
commonly utilized in creating a data room such as a description of
the assets to be sold and production and operational information
relating to the properties that are currently the subject of the
Overriding Royalty Interest. The Trust shall provide to PNR
non-confidential information in its possession concerning the
properties that are currently the subject of the Overriding Royalty
Interest as would commonly be provided to potential bidders in
auction sales for inclusion in the data room.
(iii)
PNR shall cause the assets of the Partnership to be sold at public
auction to the highest cash bidder. Pioneer shall not bid on
or purchase any of the Partnership’s assets.
(iv)
PNR shall promptly pay or make provision for the payment of any
liabilities of the Partnership from and distribute the cash
received in the sale of the Partnership’s assets in
accordance with the Partners’ Sharing Ratios as provided in
the Partnership Agreement.
(b)
PNR shall cause the sale to occur as soon as practicable,
considering the required schedule of events imposed by the selected
auction firm, after the first occurring of the dates specified
below:
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