TRANSITION SERVICES
AGREEMENT
This TRANSITION
SERVICES AGREEMENT (the “ Agreement ”), dated
April 23, 2007, is entered into between COG Operating LLC, a
Delaware limited liability company (“ COG ”),
acting for itself and COG Oil & Gas LP, a Texas limited
partnership (“ COG LP ”), each with a mailing
address of 550 W. Texas Avenue, Suite 1300, Midland, Texas
79701, (COG and COG LP, collectively herein, “ Concho
”), and Mack Energy Corporation, a New Mexico corporation,
with a mailing address of P.O. Box 960, Artesia, New Mexico 88211,
(“ Contractor ”), as follows:
WHEREAS, COG is
the operator of record of certain oil and gas properties described
in Exhibit A attached hereto (the “ Properties ”
or “ Contract Area ”);
WHEREAS, Concho
and Contractor are parties to that certain Contract Operator
Agreement dated February 24, 2006 (the “ COA
”), under which Contractor provides the services described
therein with respect to the Properties;
WHEREAS, Concho
and Contractor now desire to immediately terminate the COA in all
respects and, in connection therewith, Concho shall assume and
perform all duties and responsibilities as operator of the
Properties, except for such services related thereto that are to be
performed by Contractor under this Agreement; and
WHEREAS, Concho
and Contractor desire that Contractor continue to provide certain
services with respect to the Properties, as provided hereunder (all
of the services performed by Contractor on behalf of Concho under
this Agreement, inclusive of the personnel, materials, equipment
and supplies of Contractor provided for performing such services,
are herein called the “ Services ”).
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NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement,
the parties agree as follows:
1.
Services to be Provided Respecting Producing Wells . During
the term hereof, Contractor shall perform the following Services on
or respecting producing or shut-in wells currently located on or
hereafter drilled upon the Properties:
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(a)
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Manage and oversee the day-to-day
routine supervision and maintenance of each of the wells and
Properties associated therewith, including, without limitation,
maintenance, supervision, management and minor repairs and up-keep
of existing wells (including pumping services), structures,
equipment and facilities associated with each well. Contractor
shall give prior notice to and obtain consent from Concho for any
individual Service on or respecting any well or Property that
Contractor reasonably expects will cost in excess of $75,000.00,
except that such prior notice shall not be required for emergency
Services necessary for the protection of the public safety and
health or the environment. Contractor shall promptly report any
such emergency and responsive Services to Concho.
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(b)
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Supervise subcontractors, suppliers,
vendors and any other contract personnel retained by Concho or
retained by Contractor at the request of Concho as required to
perform and fully satisfy its obligations under this
Agreement.
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(c)
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Monitor production from the
Properties and provide to Concho daily production volumes from the
Properties and, as requested, conduct and report on well
tests.
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2. Quarterly
Development Plan . At least fifteen (15) days prior to the
first day of each calendar quarter during the term hereof,
commencing with the quarter beginning July 1, 2007, Concho
shall provide Contractor a development plan for such following
quarter listing the wells to be drilled, reworked, recompleted,
plugged and abandoned, or subject to other operations (the “
Quarterly Development Plan ”) for which
Contractor’s Services will be required under Section 3
below during such quarter. Concho, after consultation with
Contractor, shall have the right to propose the drilling,
recompletion, workover, plugging and abandonment or other operation
for wells not made a part of the Quarterly Development Plan, and
Concho shall have final authority concerning the content and
implementation of the Quarterly Development Plan. The Quarterly
Development Plan shall also set forth in reasonable detail the
sequence in
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which all of
such operations are to be conducted. Contractor will not deviate
from the sequence of operations specified in the Quarterly
Development Plan, except as agreed to by Concho. For each well to
be drilled pursuant to the Quarterly Development Plan, Concho shall
specify in reasonable detail the total depth to be drilled, the
objective zones, well design and drilling procedures for such well.
For each well to be worked-over or recompleted, Concho shall
specify in the Quarterly Development Plan the objective zones to be
completed and the designated completion procedures. For workover
and completion operations specified in the Quarterly Development
Plan, Contractor shall provide Concho with a continuous fifteen
(15) day forecast of the availability of Contractor’s
pulling units to facilitate such workover and completion
operations. Contractor’s Services performed in connection
with implementing the Quarterly Development Plan shall in all
respects be subject to the availability of Contractor’s
personnel, pulling units, equipment, materials and supplies
necessary to complete and perform such services. Within five
(5) days after receipt of each Quarterly Development Plan,
Contractor may provide written notice to Concho listing or
identifying those Services required to implement the Quarterly
Development Plan that Contractor will be unable to perform because
of the lack of available personnel, equipment, materials or
supplies needed to perform such Services (“Contractor’s
QDP Notice”). Concho may use other service providers or
vendors to ensure implementation of its Quarterly Development Plan
if and to the extent Contractor is unable to perform the services
to be provided by such service providers or vendors as set forth in
Contractor’s QDP Notice. Concho and Contractor will operate
under the Quarterly Development Plan adopted for the quarter period
ending June 30, 2007 under the COA until the Quarterly
Development Plan for the quarter period beginning July 1, 2007
is adopted according to this Section 2.
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3.
Services to be Provided Respecting Drilling Operations . At
Concho’s request as identified in each Quarterly Development
Plan, Contractor shall perform the following Services with respect
to drilling operations to be conducted on the Properties by
Concho:
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(a)
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If
and to the extent comparable Services will not be provided by
Contractor under this Agreement, Concho shall retain and contract
with drilling contractors and any other third-party contractors,
including any of Contractor’s Affiliates, which provide
labor, materials or services in connection with any and all
drilling, completion, fracing, re-working and all other operations
to be conducted on the Properties by Concho. At Concho’s
request, Contractor may make recommendations to Concho regarding
specific third-party service or material providers and vendors for
services, equipment and materials that will not be provided by
Contractor as part of its Services, including Contractor’s
Affiliates, but Concho shall have sole authority to retain service
providers and vendors for such services, equipment and materials
that will not be provided by Contractor as part of its Services;
provided, however, that due consideration shall be given
Contractor’s Affiliates if their costs for services or
materials are equal to or less than the costs for such services or
materials offered by other service providers and
vendors.
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(b)
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Concho shall obtain all applicable
permits for a well and shall initiate the staking of each proposed
well location to be prepared and drilled hereunder, and Contractor
shall provide well site supervision in the staking of each such
well and the preparation of the well site for drilling operations.
All necessary rights-of-way, easements and other surface use
agreements will be negotiated and obtained by Concho.
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(c)
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Contractor shall follow
Concho’s designated procedures for Services to be provided by
Contractor for the drilling (including logging suite), completing,
fracing, recompleting, reworking, testing, plugging and abandoning
and otherwise operating wells and shall supervise all other
operations and activities specifically requested to be performed by
Contractor under any Quarterly Development Plan. At Concho’s
request, Contractor will provide recommendations concerning any
drilling, completing, fracing, recompleting, re-working, testing or
plugging and abandonment operations conducted by Concho on the
Properties. Contractor shall have direct contact with drilling
contractor(s) during drilling operations, and shall provide to
Concho or cause to be provided by such contractors, such related
reports and information as requested by Concho, including, but not
limited to, daily drilling reports, completion reports, and all
information related to formation evaluation.
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(d)
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Upon reaching the objective depth on
any well, Concho shall be responsible for logging the well,
providing cement volumes and types of
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Page 4 of 18
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cement, placement of DV tools and
other pre-completion activities prior to running casing. At
Concho’s request, Contractor shall recommend to Concho
whether to complete or plug and abandon the well or to conduct
additional drilling or testing and, if Concho elects to complete a
well, completion procedures. Concho has the sole authority to
decide whether to complete or plug and abandon the well or to
conduct additional drilling or testing. If Concho elects to
complete a well, Concho shall provide Contractor with the
designated layout of production facilities and equipment for such
well within five (5) days of the release of the drilling
rig.
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(e)
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Concho agrees to provide timely
instructions to Contractor concerning the Services to be provided
by Contractor under this Section 3. Concho shall at all times
(i.e., 24 hours a day, 7 days a week) have a designated
representative available to instruct and advise Contractor
concerning its Services to be performed under this
Section 3.
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(f)
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Contractor shall provide drilling
and completion supervisors and other Services it performs in
connection with the drilling, completion and plugging and
abandonment of wells and other personnel, labor, equipment
(including pulling units), materials and supplies necessary to
perform Services to complete, equip, and connect wells for
production or plugged and abandoned wells.
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(g)
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Contractor shall perform any other
reasonable Services and activities with respect to the operation,
management and administration of the Properties as requested by
Concho under a Quarterly Development Plan or otherwise.
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4. Operations
– Salt Water Disposal System . Concho, Contractor, Chase
Oil Corporation and Caza Energy LLC (collectively,
“Chase”) jointly own certain saltwater disposal wells
in the Contract Area (the “Disposal Wells”) and
associated permits, governmental orders, surface use agreements,
right-of-way agreements and other agreements (collectively, the
“SWD System”), pursuant to which saltwater and other
fluids are transported from the Properties and other properties not
part of the Contract Area for disposal into the Disposal Wells.
Each of Concho and Chase has access to and use of the SWD System
pursuant to the terms of that certain Salt Water Disposal System
Ownership and Operating Agreement dated February 24, 2006.
Contractor agrees to perform the following Services respecting the
SWD System (which is
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deemed a
Property hereunder) on behalf of Concho and Chase pursuant to the
terms of this Agreement:
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(a)
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Under the Services to be provided
according to Section 1 of this Agreement, Contractor shall
manage and oversee the day-to-day management and maintenance of the
SWD System, including, without limitation, management and
maintenance of the Disposal Wells and related equipment and
facilities, and notice to Concho of any problems, including system
capacity problems, and of any upgrade and expansion requirements
known to Contractor.
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(b)
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Under the Services to be provided
according to Section 3 of this Agreement, and at the direction
and designated procedures of Concho and as specified in the
Quarterly Development Plan, Contractor shall conduct such
operations required to drill additional disposal wells (or convert
previously producing wells to disposal wells) to be connected to
the SWD System or to connect additional producing wells to the SWD
System, thereby expanding the SWD System.
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5. Joint
Interest Billings and Third-Party Invoices .
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(a)
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Contractor will not and shall not be
required to prepare and collect joint interest billings or other
third-party invoices, prepare and maintain division order records,
pay royalties, revenues, delay rentals or shut in royalties or pay
right-of-way damages in connection with any Property.
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(b)
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Third-party invoices for Services
conducted on, or materials or equipment supplied to, the
Properties, including the drilling operations outlined in this
Agreement, shall be addressed to Concho c/o Contractor at P.O. Box
1470, Artesia, New Mexico 88211. Contractor shall review and make
appropriate adjustments to all third-party invoices and inform
Concho of any discrepancies or other problem with such invoices.
After making appropriate adjustments, Contractor shall submit such
invoices, together with all supporting information requested by
Concho, to Concho. Concho shall deal directly with service and
material providers and vendors in resolving any discrepancies,
adjustments or problems with invoices.
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(a)
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The
term of this Agreement shall be the period commencing
April 23, 2007 (the “ Effective Date ”) and
ending upon the earlier to occur of (1) February 28,
2011; (2) the date on which Concho Resources Inc. completes
the initial sale of its shares of common stock to the public
pursuant to a registration statement filed under the Securities Act
of 1933, as amended; or (3) a Change of Control, as provided
herein, unless terminated sooner as otherwise provided for in this
Agreement or by the mutual written agreement of both
parties.
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Page 6 of 18
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(b)
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Notwithstanding anything herein to
the contrary, a party shall have the right to terminate this
Agreement by written notice upon or within sixty (60) days
after a Change of Control of or pertaining to the other party
hereto or its ultimate parent entity (“ Change of Control
Entity ”). As used herein, “ Change of
Control ” means:
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(1)
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the
liquidation, dissolution or winding up of the affairs of a Change
of Control Entity, whether voluntary or involuntary;
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(2)
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a
sale, in one or more related transactions, of all or essentially
all, of the assets of a Change of Control Entity;
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(3)
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any
merger, consolidation, reorganization or other transaction with or
into another entity, or other transactions resulting in the equity
owners of a Change of Control Entity, as of the date hereof,
directly or indirectly, holding less than a majority of the voting
power and control of a Change of Control En
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