Exhibit 10.2
UPSIDE SHARING PAYMENT
AGREEMENT
This Upside Sharing Payment
Agreement (this “ Agreement ”) is made this 16
th day of June 2004, but effective as of
March 1, 2004, by and between TEXAS INDEPENDENT EXPLORATION
LIMITED, a Texas limited partnership and successor by conversion of
Texas Independent Exploration, Inc., GULFCOAST ACQUISITIONS
LIMITED, a Texas limited partnership and successor by conversion of
Gulfcoast Acquisition Corporation, FREDERICK W. ZIMMERMAN d/b/a
ISLAND RESOURCES and FREDERICK W. ZIMMERMAN, individually,
hereinafter collectively referred to as “ Seller
” or “Sellers”) and WHITTIER ENERGY COMPANY, a
Nevada corporation (hereinafter referred to as “ Buyer
”).
WITNESSETH
:
WHEREAS, on even date herewith,
Seller and Buyer consummated the purchase and sale of certain oil
and gas assets pursuant to that certain Offer to Sell Agreement
dated effective as of March 1, 2004 (the “ Purchase
Agreement ”); and
WHEREAS, as additional consideration
for the transactions contemplated in the Purchase Agreement, Buyer
agrees to pay to Seller the herein below provided Upside Sharing
Payments (as defined below) accruing to Buyer from the annual sale
of production from the Properties and received by Buyer;
NOW, THEREFORE, based upon the mutual covenants
and considerations contained herein, Seller and Buyer agree as
follows:
1.
Defined Terms
.
(a)
All capitalized terms not otherwise
defined in this Agreement shall have the meaning contained in the
Purchase Agreement.
(b)
“ Agreement ”
shall mean this Upside Sharing Payment Agreement.
(c)
“ Buyer’s Net Revenue
Interest ” shall mean Buyer’s share of production
in the Properties acquired from Seller pursuant to the Purchase
Agreement.
(d)
“ Buyer’s Upside
Sharing Agreement Volumes ” shall mean the difference
between the volumes of gas produced, saved and sold attributable to
Buyer’s Net Revenue Interest in production less Scott &
Hopper #3 Well Excess Production Volumes.
(e)
“ Final Upside Sharing
Payment ” shall mean the Upside Sharing Payment made to
Seller pursuant to this Agreement for the last “Sharing
Year”, if any such payment is due.
(f)
“ MCF ” shall
mean thousand cubic feet. “ Target Price” is on
an MCF basis for each “ Sharing Year ” during
the term hereof as set forth on Exhibit A attached hereto and made
a part hereof.
(g)
“ Net Back Price On A
Wellhead MCF Basis ” is defined as the quotient resulting
from dividing the (1) difference between (i) the sum of actual gas
sales proceeds received by Buyer from all gas purchasers plus plant
product proceeds received by Buyer from all gas plants,
attributable to Buyer’s Upside Sharing Agreement Volumes,
less (ii) the sum of any and all (a) Third Party Costs allocable to
Buyer’s Upside Sharing Agreement Volumes plus (b) fuel and
shrinkage losses allocable to Buyer’s Upside Sharing
Agreement Volumes that have not already been deducted from the
calculation of such proceeds, plus (c) hedge settlements from
hedges entered into subsequent to the Closing that are specific to
Buyer’s Upside Sharing Agreement Volumes, by (2) the MCF of
gas comprising Buyer’s Upside Sharing Agreement
Volumes..
(h)
“ Purchase Agreement
” shall have the meaning given such term above.
(i)
“ Scott & Hopper #3
Well Excess Production Volumes ” shall have the meaning
given such term in the Purchase Agreement.
(j)
“ Sharing Year ”
shall mean each of the one year periods identified on Exhibit A
attached hereto and made a part hereof.
(k)
“ Third Party Costs
” shall mean expenses paid by Buyer for actual processing or
transportation charges that occur downstream of the sales meter
located on the leased premises on which the producing well is
located.
(l)
“ Upside Sharing
Payments ” shall have the meaning given such term in
Section 2 below.
Other terms defined elsewhere in
this Agreement have the meanings given such terms as set forth in
such other provisions of this Agreement.
2.
Upside Sharing
Payments. As
additional consideration for the transactions contemplated in the
Purchase Agreement, for each Sharing Year during the term hereof in
which the actual weighted average Net Back Price On A Wellhead MCF
Basis received for that Sharing Year exceeds the Target Price for
that Sharing Year, Buyer shall pay to Seller a payment determined
by first, multiplying 50% of the amount of Buyer’s Upside
Sharing Agreement Volumes for that Sharing Year times the
difference between the actual weighted average Net Back Price On A
Wellhead MCF Basis for that Sharing Year less the Target Price for
that Sharing Year, and second, subtracting from such product
severance and ad valorem taxes that are allocable to such
product. The payments made pursuant to this Paragraph 2 shall
be referred to hereinafter as “ Upside Sharing
Payments ”.
2
3.
Time and Method of
Payment. Buyer shall pay to Seller the Upside Sharing
Payments on or before 120 days following the end of the Sharing
Year in which any such payment accrued. All payments
hereunder shall be made by wire transfer of immediately available
funds to an account designated by Seller, which designation shall
be made not later than two (2) Business Days prior to the date such
payment is due.
4.
Reports
. During the term hereof,
Buyer shall pr
