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I. Lease Administration A. Paid Up Leases B. Delay Rentals C. Term D. Habendum Clause

I. Lease Administration A. Paid Up Leases B. Delay Rentals C. Term D. Habendum Clause E. Pugh Clause F. Royalty G. Post Production Costs H. Shut-In Gas Royalty I. Restoration of Surface J. Mother Hubbard Clause. II. ROW Agreements. III. JOA Overview

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I. Lease Administration A. Paid Up Leases B. Delay Rentals C. Term D. Habendum Clause

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  1. I. Lease Administration A. Paid Up Leases B. Delay Rentals C. Term D. Habendum Clause E. Pugh Clause F. Royalty G. Post Production Costs H. Shut-In Gas Royalty I. Restoration of Surface J. Mother Hubbard Clause

  2. II. ROW Agreements

  3. III. JOA Overview A. Agreement to govern operations on contract area, as defined on Exhibit “A”; specifies duties and obligations of operator and non- operator For the 1982 and 1989 AAPL JOA Approved Forms: http://www.kraftbilt.com/ For the 1982 and 1989 AAPL JOA Approved Forms on Diskette: http://www.formsonadisk.com/

  4. B. 4 printed forms (but many forms typewritten - mostly from majors) 1956 No casing point election No additional election on non-consent 1977 Casing Point Election 1982 Most Used 1989 Attempt to address changes in industry and includes gas balancing language within “JOAs” and separate gas balancing agreement

  5. C. Non-Consent (penalties for not participating in proposed operation) 1. Typically range from 100%/150% to 500%/500%, and includes a. Surface Equipment (lower rate) b. Lease Operating Expenses – “LOEs” (lower rate) c. Down Hole Equipment (casing – higher) d. Intangible Drilling Costs (higher)

  6. D. Casing Point Elections 1. Issued after non-operators receive logs 2. Proposal by operator will include which formations (often includes specific intervals) are to be completed 3. Elections are required within 48 hours of receipt

  7. E. Maintenance of Unit (uniform) Interest 1. Waivers when farming out (ExxonMobil vs. Valance Operating Company) F. Exhibit “A” 1. Defines contract area as unit or wellbore and depths 2. Interest of the parties scheduled (1956 agreement listed contributed leases) 3. Revised when subsequent wells drilled

  8. G. COPAS - Council of Petroleum Accountants Societies, Inc. 1. The COPAS has many revisions (1962, 1968, 1975, 1984, 1995, 1998, & 2005) 2. When do you bill and how – Joint Interest Billing (“JIBs”) 3. Advance Billings 4. Direct Charges (what can be billed) 5. Overhead (percentage seldom used) fixed rate a. Drilling b. Producing 6. Adjustment to rate annually on April 1

  9. IV. Letter Agreements (“LAs”) - agreement as to issues between parties A. Can be simple as a non-protest at OCC B. Complex dealing with many issues 1. Offer to Purchase 2. Confidentiality Agreements – used to protect seller who is showing idea (with or without acreage) to potential buyer C. Letter Agreements typically have term, response time, obligations of parties

  10. V. Farmout Agreement (“F/Os”) – a contract for drilling party to earn oil and gas lease rights from owner A. Identification of location of acreage to be farmed out B. Test Well 1. Required spud date 2. Required depth and formation to be tested C. Assignment 1. Drill or produce to earn 2. Restrictions – wellbore versus unit, formations

  11. D. Reservations by Farmor 1. ORRI – retained or convertible at payout (must have proportionate reduction language and definition of payout) E. Well information to be provided to farmor (exhibit to the agreement) F. Consent required to assignment of contract G. Other 1. Insurance 2. Payment of delay rentals 3. Audits 4. Re-assignment provision

  12. VI. Exploration/Area of Mutual Interest Agreements (“AMIs”) A. Simple exploration agreement - selling/buying interest in a wellbore to be drilled with promote, retained by seller and prospect fee B. Exploration Agreement with “AMIs” on 2 HBP sections 1. Term 5 years 2. Primarily increased density drilling 3. “JOAs” in place

  13. C. True Exploration Agreements 1. Acreage Cost 2. Retained ORRI 3. Designated Operator 4. Test Well 5. Established area of mutual interest with term 6. “JOAs” required

  14. VII. Purchase and Sale Agreements (“PSAs”) A. Asset Sale 1. Properties to be sold 2. Purchase Price 3. Effective Date

  15. 4. Representations, Warranties and Indemnities: Seller and Buyer a. Entity is in good standing b. Right to sell/buy Seller a. No Lawsuits b. Material contracts in force and all rentals and royalties have been paid in full c. Taxes paid in full

  16. 5. Pref. Rights and Consents 6. Title – vehicle for defects 7. Environmental - vehicle for defects 8. Gas Imbalances B. Stock Purchase Agreement 1. Much more accounting, legal and tax due diligence because you are buying the entity C. Due Diligence Form

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