The URL can be used to link to this page

Browse Search

Home My WebLink About891311.tiff RESOLUTION RE: APPROVE RATIFICATION AND JOINDER OF PILOT PROJECT CONTRACT AND AUTHORIZE CHAIRMAN TO SIGN WHEREAS, the Board of County Commissioners of Weld County, Colorado, pursuant to Colorado statute and the Weld County Home Rule Charter, is vested with the authority of administering the affairs of Weld County, Colorado, and WHEREAS, the Board has been presented with a Unit Agreement for the gas injection Pilot Project for the Lilli Field, and WHEREAS, the Board has also been presented with a Ratification and Joinder of the Pilot Project Contract concerning Tract #5 , or Si NWj of Section 8 , Township 8 North, Range 58 West, Weld County, Colorado, and WHEREAS, after review, the Board deems it advisable to approve said Ratification and Joinder, a copy being attached hereto and incorporated herein by reference. NOW, THEREFORE, BE IT RESOLVED by the Board of County Commissioners of Weld County, Colorado, that the Unit Agreement and the Ratification and Joinder of the aforementioned Pilot Project Contract be, and hereby are , approved. BE IT FURTHER RESOLVED by the Board that the Chairman be, and hereby is, authorized to sign said Ratification and Joinder. The above and foregoing Resolution was , on motion duly made and seconded, adopted by the following vote on the 18th day of December, A.D. , 1989 . ►a BOARD OF COUNTY COMMISSIONERS ATTEST: WELD COUNTY, COLORADO Weld County C erk and Recorder A and Clerk to the Board C.W. Kir y, airman EXCUSED DATE OF SIGNING - AYE BY: G p R. Brantner, Pro-Tem D puty County C erk P72-57-47--itte--,72tX e APPROVED AS TO FORM: Constance L. Harbe : ,. eorge Kcy n > . County Attorney Gor o ac f /// � i,, 891311 RATIFICATION AND JOINDER OF PILOT PROJECT CONTRACT In consideration of the execution of the Pilot Project Contract for the development and operation of the Lilli Field Pilot Gas Project Gas Area, County of Weld, State of Colorado, dated December 1 , 1989, the undersigned (whether one or more) hereby expressly ratifies, approves, adopts and confirms said Pilot ect Contract as fully as though the undersigned had executed the original instrument . This Ratification and Joinder shall be effective as to the undersigned ' s interests in any lands and leases, or interests therein, and royalties presently held or which may arise under existing option agreements or other interests in unitized substances, covering any lands within the Pilot Area in which the undersigned may be, found to have an oil or gas interest . This Ratification and Joinder shall be binding upon the undersigned, his , her, or its heirs , devisees, assigns, or successors in interest . EXECUTED this 18th day of December , 19 89 . TRACT(S) 5 Weld County, Colorado Board of County Commissioners ATTEST: By: GCG� > C.W. Kirby, Chair n Deputy ounty C k Address: P.O. Box 758 Greeley, CO 80632 Tax I .D. or Social Security No. : 84-600813 STATE OF nlo�� It-I0 ) Ss . 0 COUNTY OF ) The foregoing instrument was acknowledged before me by � . LI. -7`49 � . This 1 -ith day of .L,K'Cc-FrikE'✓ , 19 839 . WITNESS my hand and official seal . My // ,1990 Commission expires: Cbw 2l GIGL'I /( ,1�_ `'�) otary 1:47.31ubl c 9/s_ ( ref :013A/DD13 891311 DOC Diversified Operating Corporation December 21 , 1989 Mr. Tom David • '•`�� F�� vq Weld County Attorney P.O. Box 1948 Greeley, Colorado 80632 Re: Pilot Project - Lilli Field Weld County, Colorado Dear Mr David: This is to advise you that the Colorado Oil and Gas Commission denied our as Pilot orojove for 100%the thatvno other wellsw denied in the field would basis impairede would by the have to prro project. which would not be possible. We appreciate your help and there is no need for you to do any more on this matter . Very truly yours. DIVERSIFIED OPERATING CORPORATION Carl Bomholt Contract Landman C8:dg 891311 Hudson's Bay Centre•Suite 1900• 1600 Stout Street•Denver,Colorado 80202.3031595-3957•FAX:303/595-0429 • DOC Diversified Operating Corporation December 13, 1969 c.-` • Mr. Tom David _)E(; 1 _'•` Weld County Attorney 1 P.O. Box 1948 ; - Greeley, Colorado 80632 Re: Pilot Project Lille Field Weld County, Colorado Dear Mr. David: Pursuant to our telephone conversation, please find enclosed copy of the Unit Agreement for the gas injection Pilot Project for the Lille Field. Weld County owns 100% of the mineral interest under the 5/2 NW/4 of Section 8, Township 8 North, Range 58 West, Weld County, Colorado, or Tract tf5. Presently the wells in the Lilli Field are allocated to an allowable of 150 barrels of oil per month or 1 ,250 MCF of gas, whichever comes first. It is the intent to re-inject the gas produced from the wells within the outline as shown on the map, plus purchase gas for injection into the producing formation in order to re-pressure the pilot area. We estimate that by the fourth month of re-pressuring, total oil produced from the nine wells would be 8, 100 barrels or 900 barrels per well. This project would be in force for a period of one year. The production would be allocated on a proportionate well basis, with each well deriving one-ninth ( 1/9th) of the oil production. At the end of the project, the purchased gas would be the first gas to be taken out, until the total amount of purchased gas was recovered, after which the royalty interests would participate in their share of gas revenues. We would appreciate your approval of this project by signing the Ratification and Joinder to the Unit Agreement and returning it to our office. The hearing before the Colorado Oil and Gas Commission is set for December 18, 1989. so hopefully we will have approval by 80% of the royalty owners before then. /9j 314 Hudson's Bay Centre•Suite 1900•1600 Stout Street•Denver,Colorado 80202•303/595-3957•FAX:303/595-0429 Mr. Tom David Weld County Attorney December 13, 1989 Page Two Thank you for your consideration and should you have any questions, please let us know. Very truly yours, DIVERSIFIED OPERATING CORPORATION Carl Bomholt Contract Landman CB:dg Enclosures 891311 PILOT PROJECT CONTRACT Lilli Field Weld County, Colorado December 1, 1989 891311 TABLE OF CONTENTS Article Title Page 1 DEFINITIONS 1 1 . 1 Pilot Area 1 1 .1 .1 Pilot Objective 1 1 .2 Contract Formation 2 1 .3 Contract Substances 2 1.4 Working Interest 2 1 .5 Royalty Interest 2 1 .6 Royalty Owner 2 1 .7 Working Interest Owner , Owner, or Lessee 2 1 .8 Tract 2 1 .9 Pilot Project Operating Agreement 3 1 . 10 Pilot Operator 3 1 .11 Tract Participation 3 1 .12 Pilot Participation 3 1 .13 Outside Substances 3 1. 14 Oil and Gas Rights 3 1 .15 Pilot Operations 3 1 . 16 Pilot Equipment 3 1 .17 Pilot Expense 3 1 .18 Effective Date 3 1 .19 Party 4 1.20 Excluded Wells 4 1 . 21 Contract Reservoir 4 2 EXHIBITS 4 2.1 Exhibits 4 2.1 . 1 Exhibit A 4 2.1 .2 Exhibit B 4 2. 1 .3 Exhibit C 4 2.2 Reference to Exhibits 4 2. 3 Exhibits Considered Correct 4 2.4 Correcting Errors 4 2. 5 Filing Revised Exhibits 5 3 CREATION AND EFFECT OF PILOT 5 3 . 1 Oil and Gas Rights 5 3.2 Personal Property Excepted 6 3. 3 Amendment of Leases and Other Agreements 6 3 .4 Continuation of Leases and Term Interests 6 3.5 Titles Unaffected 7 3 .6 Injection Rights 7 3 .7 Development Obligation 7 3.8 Cooperative Agreement 7 4 PLAN OF OPERATIONS 7 4.1 Pilot operator 7 4. 2 Method of Operation 8 4.3 Change of Method of Operation 8 5 TRACT PARTICIPATIONS 8 5.1 Tract Participations 8 5. 2 Relative Tract Participations 8 6 ALLOCATION OF CONTRACT SUBSTANCES 8 6 . 1 Allocation to Tracts 8 6.2 Distribution Within Tracts 9 6. 3 Taking Contract Substances in Kind 9 6.4 Failure to Take in Kind 10 6. 5 Responsibility for Royalty Settlements . , 10 6.6 Royalty on Outside Substances 10 7 PRODUCTION AS OF THE EFFECTIVE DATE 11 7 .1 Oil or Liquid Hydrocarbons in Lease Tanks 11 7 . 2 Overproduction 12 7.3 Allowable Defined 12 - i - 891311 8 USE OR LOSS OF CONTRACT SUBSTANCES 12 8.1 Use of Contract Substances 12 8.2 Royalty Payments 12 9 TRACTS TO BE INCLUDED IN PILOT 12 9.1 Pilot Tracts 12 10 TITLES 12 10. 1 Production Where Title is in Dispute 12 10. 2 Payment of Taxes to Protect Title 13 10. 3 Loss or Failure of Title 13 11 EASEMENTS OR USE OF SURFACE 14 11.1 Grant of Easements 14 12 CHANGES AND AMENDMENTS 14 12.1 Changes and Amendments 14 12. 2 Enlargements of Pilot Area 15 12. 2. 1 Participation Fair and Reasonable 15 12.2 . 2 No Retroactive Allocation 15 12.3 Determination of Tract Participation 15 12.4 Effective Date of Enlargement 15 13 TRANSFER OF TITLE-PARTITION 15 13. 1 Transfer of Title 15 13 . 2 Waiver of Rights to Partition 16 14 RELATIONSHIP OF PARTIES 16 14. 1 No Partnership 16 14. 2 No Joint Refining or Marketing 16 14. 3 Royalty Owners Free of Costs 16 14.4 Information to Royalty Owners 16 15 LAWS AND REGULATIONS 17 15.1 Laws and Regulations 17 16 FORCE MAJEURE 17 16. 1 Force Majeure 17 17 EFFECTIVE DATE 17 17. 1 Effective Date 17 17. 2 Ipso Facto Termination 17 17 . 3 Certificate of Effectiveness 18 18 TERM 18 18. 1 Term 18 18. 2 Effect of Termination 18 18. 3 Salvaging Equipment Upon Termination 19 18.4 Certificate of Termination 19 19 EXECUTION 19 19.1 Original, Counterpart, or Other Instrument 19 19.2 Joinder in Dual Capacity 19 20 GENERAL 19 20. 1 Action by Working Interest Owners 19 20. 2 Lien and Security Interest of Operator 19 21 SUCCESSORS AND ASSIGNS 20 21 .1 Successors and Assigns 20 -ii- 891311 PILOT PROJECT CONTRACT Lilli Field Weld County, Colorado THIS CONTRACT, entered into as of the day of , 19 , by the Parties who have signed the original of this instrument, a counterpart thereof, or other instrument agreeing to become a Party hereto, or whose interests are made subject hereto by operation of law; WITNESSETH: WHEREAS, in the interest of the public welfare and to promote conservation and increase the ultimate recovery of Contract Substances from the Lilli Field, in Weld County, Colorado and to protect the rights of the owners of interests therein, it is deemed necessary and desirable to enter into this Contract to unitize the Oil and Gas Rights in and to the Unitization Formation in order to conduct a Pilot Project for Gas Injection consisting of Pilot Operations as herein provided. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, it is agreed as follows: ARTICLE 1 DEFINITIONS As used in this Contract: 1. 1 Pilot Area is the land described by Tracts in Exhibit A and shown on Exhibit B as to which this Contract becomes effective or to which it may be extended as herein provided. 1. 1 .1 Statement of Objective of this contract is to evaluate gas injection as a potential secondary recovery method for the Lilli Field with the purpose of furthering the eventual unitization of the Lilli Field. Upon termination of this Contract for whatever reasons, the parties will diligently consider fieldwide secondary recovery operations . The results of this Pilot Project will be used in determining which pressure technique should be utilized in the field wide secondary recovery operation. - 1 891311 1 . 2 Contract Formation is the subsurface portion of the Pilot Area described as the "D" Formation of Cretaceous Age and within the Unitized Reservoir encountered between 6, 336 feet and 6, 346 feet, inclusive, measured from the Kelly Bushing (which is ten feet above ground level) in the Bringelson *14-4 Well, located in the SE/4 SW/4 of Section 4, Township 8 North, Range 58 West, Weld County, Colorado, and as shown on the dual induction log for the Well . 1 . 3 Contract Substances are all oil, gas, gaseous substances, and sulphur contained in gas , condensate, distillate, and all associated constituent substances other than Outside Substances within or produced from the Contract Reservoir . 1.4 Working Interest is an interest in Contract Substances by virtue of a lease, operating agreement , fee title or otherwise, including a carried interest, the owner of which is obligated to pay, either in cash or out of production or otherwise, a portion of the Unit Expense; however, Oil and Gas Rights that are free of lease or other instrument creating a Working Interest shall be regarded as a Working Interest to the extent of seven-eighths (7/8) thereof and a Royalty Interest to the extent of the remaining one-eighth (1/8) thereof. A Royalty Interest created out of a Working Interest subsequent to the execution of this Contract by the owner of such Working Interest shall continue to be subject to such Working Interest burdens and obligations that are stated in this Contract and the Pilot Project Operating Agreement . 1 .5 Royalty Interest is a right to or interest in any portion of the Contract Substances or proceeds thereof other than a Working Interest. 1 .6 Royalty Owner is a Party who owns a Royalty Interest . 1 .7 Working Interest Owner, Owner, or Lessee is a Party who owns a Working Interest . 1 .8 Tract is the land identified as such and given a tract number in Exhibit A. - 2 - 891311 1 .9 Pilot Project Operating Agreement is the Agreement entered into by Working Interest Owners, having the same Effective Date as this Contract, entitled "Pilot Project Operating Agreement, Lilli Field, Weld County, Colorado. " 1 .10 Pilot Project Operator is the Party designated by Working Interest Owners under the Pilot Project Operating Agreement to conduct Pilot Operations, acting as operator and not as a Working Interest Owner. 1 . 11 Tract Participation is the percentage shown on Exhibit A for allocating Contract Substances to a Tract . 1 . 12 Pilot Participation of a Working Interest Owner is the sum of the percentages obtained by multiplying the Working Interest of such Working Interest Owner in each Tract within the Pilot Area by the Tract Participation of such Tract. 1.13 Outside Substances are substances purchased or otherwise obtained for a consideration by Working Interest Owners and injected into the Contract Formation. 1 .14 Oil and Gas Rights are the rights to explore, develop, and operate lands within the Pilot Area for the production of Contract Substances, or to share in the production so obtained or the proceeds thereof. 1 .15 Pilot Operations are all operations conducted pursuant to this Contract or the Pilot Project Operating Agreement . 1 .16 Pilot Equipment is all personal property, lease and well equipment, plants , and other facilities and equipment taken over or otherwise acquired for the joint account for use in Pilot Operations. 1 . 17 Pilot Expense is all cost, expense, or indebtedness incurred by Working Interst Owners or Pilot Operator pursuant to this Contract and the Pilot Project Operating Agreement for or on account of Pilot Operations. 1 .18 Effective Date is the time and date this Contract becomes effective as provided in Article 17. - 3 - 891311 1 .19 Party is any individual, corporation, partnership, association, receiver, trustee, curator, executor, administrator, guardian, tutor, fiduciary, or other representative of any kind, any department, agency, or instrumentality of the state, or any governmental subdivision thereof, or any other entity capable of holding an interest in the Contract Formation. 1.20 Excluded Wells are those wells shown as "Wells Excluded from Pilot Project" on Exhibit A. The Excluded Wells, including all production therefrom and all personal property used in connection therewith, are expressly excluded from this Contract and the Pilot Project Operating Agreement. 1 .21 Contract Reservoir is that separate pool or reservoir in the Contract Formation. ARTICLE 2 EXHIBITS 2. 1 Exhibits. The following exhibits, which are attached hereto, are incorporated herein by reference. 2.1. 1 Exhibit A is a schedule that describes each Tract in the Pilot Area and shows its Tract Participation. Exhibit A also lists the Excluded Wells. 2. 1 . 2 Exhibit B is a map that shows the boundary lines of the Pilot Area, the Tracts therein, the boundary of the Contract Formation, all wells completed in the Contract Formation and the Excluded Wells . 2. 1 .3 Exhibit C is a list of the reports and information which shall be supplied by the Pilot Operator to the Bureau of Land Management. 2.2 Reference to Exhibits . When reference is made to an exhibit, it is to the exhibits as originally attached or, if revised, to the last revision. 2.3 Exhibits Considered Correct. Exhibits A and B shall be considered to be correct until revised as herein provided. 2.4 Correcting Errors. The shapes and descriptions of the respective Tracts have been established by using the best information available. If it subsequently appears that any - 4 - 891311 Tract, because of diverse Royalty or Working Interest ownership on the Effective Date, should have been divided into more than one Tract, or that any mechnaical miscalculation or clerical error has been made, Pilot Operator , with the approval of Working Interest Owners and, if required, the Oil and Gas Conservation Commission of the State of Colorado, shall correct the mistake by revising the Exhibits to conform to the facts . Revisions shall not be made as a result of any re-evaluation of engineering or geological interpretations used in determining Tract Participation. Each revision of an exhibit made prior to thirty ( 30) days after the Effective date shall be effective as of the Effective Date. Each revision thereafter made shall be effective at 7:00 a.m, on the first day of the calendar month next following the filing for record of the revised exhibit or on such other date as may be determine by Working Interest Owners and set forth in the revised exhibit. 2.5 Filing Revised Exhibits . If an Exhibit is revised, Pilot Operator shall execute an appropriate instrument with the revised Exhibit attached and file the same with the Oil and Gas Conservation Commission of the State of Colorado, if required, and for record in any count or counties in which this Contract is filed. ARTICLE 3 CREATION AND EFFECT OF PILOT PROJECT 3 . 1 Oil and Gas Rights. All Oil and Gas Rights of Royalty Owners in and to the lands described in Exhibit A, and all Oil and Gas Rights of Working Interest Owners in and to said lands, are hereby contracted insofar as the respective Oil and Gas Rights pertain to the Contract Reservoir, so that Pilot Operations may be conducted with respect to the Contract Reservoir as if the Pilot Area has been included in a single lease executed by all Royalty Owners , as lessors, in favor of all Working Interest Owners, as lessees , and as if the lease contained all of the provisions of this contract. - 5 - 891311 3. 2 Personal Property Excepted. All lease and well equipment, materials, and other facilities heretofore or hereafter placed by any of the Working Interest Owners on the lands covered hereby shall be deemed to be and shall remain personal property belonging to and may be removed by Working Interest Owners. The rights and interests therein as among Working Interest Owners are set forth in the Pilot Project Operating Agreement . 3.3 Amendment of Leases and Other Agreements . The provisions of the various leases, agreements, division and transfer orders, or other instruments pertaining to the respective Tracts or the production therefrom are amended to the extent necessary to make them conform to the provisions of this Contract, but otherwise shall remain in effect . The terms, conditions, and provisions of all leases, subleases, and other contracts relating to exploration or operations for oil or gas on Federal lands in the Pilot Project Area are hereby expressly modified and amended to the extent necessary to make the same conform to the provisions hereof, but otherwise shall remain in full force and effect . Federal regulations concerning extensions of Federal leases beyond their primary terms as set forth in 43 CFR 3107 are expressly exempt from application under the Contract . Notwithstanding any other terms and conditions contained in the Contract, nothing in the Contract shall modify the special lease stipulations attached to the individual lease between the United States and the Contract Operator or their successors and assigns. 3.4 Continuation of Leases and Term Interests . Production from any part of the Contract Reservoir, except for the purpose of determining payments to Royalty Owners, or other Pilot Operations shall be considered as production from or operations upon each Tract, and such production or operations shall continue in effect each lease or term mineral or royalty interest as to all lands and formations covered thereby just as if such operations were conducted on and as if a well were producing from each Tract. - 6 - 891311 3.5 Titles Unaffected. Nothing herein shall be construed to result in the transfer of title to Oil and Gas Rights by any Party hereto to any other Party or to Pilot Operator . 3.6 Injection Rights . Royalty Owners hereby grant Working Interest Owners the right to inject into the Contract Reservoir any substances in whatever amounts Working Interest Owners deem expedient for Pilot Operations, together with the right to drill, use, and maintain injection wells on the Pilot Area, and to use for injection purposes any non-producing or abandoned wells or dry holes, and any producing wells completed in the Contract Formation. 3 .7 Development Obligation. Nothing herein shall relieve Working Interest Owners from any obligation to develop reasonably the lands and leases committed hereto. 3.8 Cooperative Agreement. Pilot Operator may, after approval by Working Interest Owners under the voting procedure established in the Pilot Project Operating Agreement, enter into cooperative agreements with respect to lands adjacent to the Pilot Area for the purpose of coordinating operations. The Parties specifically understand and agree that Pilot Operator, Diversified Operating Corporation ( "DOC" ) , also may be the operator for one or more units adjacent to the Pilot Project . The parties agree that DOC shall have no liability to any Party hereunder for DOC' s acts or omissions as Operator of an adjoining unit provided any such acts or omissions were performed by DOC in good faith as a reasonable and prudent operator of two adjoining units. ARTICLE 4 PLAN OF OPERATIONS 4. 1 pilot Operator. Working Interest Owners are concurrently herewith entering into the Pilot Project Operating Agreement designating Diversified Operating Corporation as the initial Pilot operator. Pilot Operator shall have the exclusive right to conduct Pilot Operations, which shall conform to the provisions of this Contract and the Pilot Project Operating Agreement. If there is any conflict between- such agreements, this contract shall govern. - 7 891311 4.2 Method of Operation. To the end that the quantity of Contract Substances ultimately recoverable may be increased and waste prevented, Working Interest Owners shall, with diligence and in accordance with good engineering and production practices, engage in pressure maintenance operations by reinjection of produced gas or any other enhanced recovery operation. 4.3 Change of Method of Operation. Nothing herein shall prevent Working Interest Owners from discontinuing or changing in whole or in part any method of operation which, in their opinion, is no longer in accord with good engineering or production practices. Other methods of operation may be conducted or changes may be made by Working Interest Owners from time to time if determined by them to be feasible, necessary or desirable to increase the ultimate recovery of Contract Substances. Changes in the method of operation shall be subject to approval , if required, of state agencies having jurisdiction. ARTICLE 5 TRACT PARTICIPATION$ 5 .1 Tract Participations . The Tract Participation of each Tract is shown in Exhibit A. 5.2 Relative Tract Participations . If the Pilot Area is enlarged or reduced, the revised Tract Participations of the Tracts remaining in the Pilot Area and which were within the Pilot Area prior to the enlargement or reduction shall remain in the same ratio one to another. ARTICLE 6 ALLOCATION OF CONTRACT SUBSTANCES 6.1 Allocation to Tracts . All Contract Substances produced and saved, except such portion thereof as is used, lost or consumed in Pilot Operations, shall be allocated to the several Tracts in accordance with the respective Tract Participations • effective during the period that the Contract Substances were produced. The amount of Contract Substances allocated to each Tract, regardless of whether the amount is more or less than the _ 8 _ 891311 actual production of Contract Substances from the well or wells , if any, on such Tract, shall be deemed for all purposes to have been produced from such Tract. 6.2 Distribution Within Tracts, The Contract Substances allocated to each Tract shall be distributed, or accounted for, to the parties entitled to share in the production from such Tract in the same manner, in the same proportions, and upon the same conditions as they would have participated and shared in the production from such Tract, or in the proceeds thereof, had this Contract not been entered into, and with the same legal effect . If any Oil and Gas Rights in a Tract hereafter become divided and owned in severalty as to the different parts of the Tract, the owners of the divided interests, in the absence of any agreement providing for a different division, shall share in the Contract Substances allocated to the Tract, or in the proceeds thereof, in proportion to the surface acreage of their respective parts of the Tract . Any royalty or other payment which depends upon per well production or pipeline runs from a well or wells on a Tract shall, after the Effective Date, be determined by dividing the Contract Substances allocated to the Tract by the number of wells on the Tract capable of producing Contract Substances on the Effective Date; however, if any Tract has no well thereon capable of producing Contract Substances on the Effective Date, the Tract shall, for the purposes of this determination, be deemed to have one such well thereon. 6.3 Taking Contract Substances in Kind. The Contract Substances allocated to each Tract shall be delivered in kind to the respeective Parties entitled thereto by virtue of the ownership of Oil and Gas Rights therein or by purchase from such owners. Such Parties shall have the right to construct, maintain, and operate within the Pilot Area all necessary facilities for that purpose, provided they are so constructed , maintained, and operated so as not to interfere with Pilot Operations. Any extra expenditures incurred by Pilot operator by reason of the delivery in kind of any portion of Contract Substances shall be borne by the owner of such portion. If a - 9 - 891311 Royalty Owner /has the right to take in kind a share of Contract Substances and fails to do so, the Working Interest Owner whose Working Interest is subject to such Royalty Interest shall be entitled to take in kind such share of Contract Substances . 6.4 Failure to Take in Kind . If any party fails to take in kind or separately dispose of such Party' s share of Contract Substances , Pilot Operator shall have the right, but not the obligation, all the time being and subject to revocation at will by the Party owning the share, to purchase or sell to others such share; however, all contracts of sale by Pilot Operator of any other Party' s share of Contract Substances shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the circumstances, but in no event shall any such contract be for a period in excess of one year . The proceeds of the Contract Substances so disposed of by Pilot Operator shall be paid to the Working Interest Owners of each affected Tract or a Party designated by such Working Interest Owners who shall distribute such proceeds to the Parties entitled thereto. Notwithstanding the foregoing, Pilot Operator shall not make a sale into interstate commerce of any other Party' s share of gas production without first giving such other Party sixty (60) days notice of such intended sale. 6.5 Responsibility for Royalty Settlements. Any Party receiving in kind or separately disposing of all or part of the Contract Substances allocated to any Tract shall be responsible for the payment of all royalties, overriding royalties, production payments, and all other payments chargeable against or payable out of such Contract Substances, and shall indemnify all parties hereto, including Pilot Operator, against any liability for such payment. 6.6 Royalty on Outside Substances. If any Outside Substance consisting of gases is injected into the Contract Reservoir, fifty percent (50%) of any like substance contained in Contract Substances subsequently produced and sold whether before termination of this Agreement or not, or used for other than Pilot Operations , shall be deemed to be the Outside Substance so - 10 - 831311 injected until the total volume thereof equals the total volume of the Outside Substance so injected. If any Outside Substance which prior to injection is liquefied petroleum gas or other liquid hydrocarbons is injected into the Contract Reservoir , ten percent ( 10%) of all Contract Substances produced and sold after one year from the time the injection of such Outside Substance was commenced shall be deemed to be a part of the Outside Substance so injected until the total value of the production deemed to be such Outside Substance equals the total cost of the Outside Substance so injected. Such ten percent (10%) of the Contract Substances deemed to be Outside Substances will be in addition to that which is being recovered for gases as hereinabove provided if both liquefied petroleum gas or other liquid hydrocarbons and gases are injected. No payment shall be due or payable to Royalty Owners on substances produced from the Contract Reservoir that are deemed to be Outside Substances . ARTICLE 7 PRODUCTION AS OF THE EFFECTIVE DATE 7. 1 oil or Liquid Hydrocarbons in Lease Tanks . Pilot Operator shall gauge or otherwise determine the amount of merchantable oil or other liquid hydrocarbons produced from the Contract Reservoir that are in lease and power-oil tanks as of 8:00 a.m. on the Effective Date. Oil or other liquid hydrocarbons in treating vessels , separation equipment , and tanks below pipeline connections shall not be considered merchantable. Any merchantable oil or other liquid hydrocarbons that are part of or attributable to the prior allowable of the wells from which they were produced shall remain the property of the Parties entitled thereto as if this Contract had not been entered into. Any such merchantable oil or other liquid hydrocarbons not promptly removed may be sold by Pilot Operator for the account of the Working Interest Owners entitled thereto who shall pay royalty due thereon under the provisions of applicable leases or other contracts . Any oil or liquid hydrocarbons in excess of that attributable to the prior allowable of the wells from which they were produced shall be regarded as Contract Substances produced after the Effective Date. 891311 - 11 - 7.2 Overproduction. If, as of the Effective Date, any Tract is overproduced with respect to the allowable of the wells on that Tract, and if the amount of overproduction has been sold or otherwise disposed of, such overproduction shall be charged against such Tract as having been delivered to the Parties entitled to Contract Substances allocated to such Tract . 7.3 Allowable Defined. For purposes of this Article 7, the term "allowable" as related to oil production from wells in the State of Colorado, shall refer to oil production restrictions applicable to Colorado lands within the Pilot Area ordered by the Colorado Oil and Gas Conservation Commission which were in effect during the period prior to the Effective Date. ARTICLE 8 USE OR LOSS OF CONTRACT SUBSTANCES 8.1 Use of Contract Substances. Working Interest Owners may use or consume Contract Substances for Pilot Operations , including but not limited to the injection thereof in the Contract Reservoir, provided that crude oil shall not be used for fuel for pilot Operations. 8.2 Royalty Payments . No royalty, overriding royalty, production, or other payments shall be payable on account of Contract Substances used, lost, or consumed in Pilot Operations . ARTICLE 9 TRACTS TO BE INCLUDED IN PILOT PROJECT 9. 1 Pilot Tracts . On and after the Effective Date and until the enlargement or reduction thereof, the Pilot Area shall be composed of the Tracts listed in Exhibit A. ARTICLE 10 TITLES 10. 1 Production Where Title is in Dispute. If the title or right of any Party claiming the right to receive in kind all or any portion of the Contract Substances allocated to a Tract is in dispute, Pilot Operator at the direction of Working Interest Owners shall either: - 12 - 891311 (a) require that the Party to whom such Contract Substances are delivered or to whom the proceeds thereof are paid furnish security for the proper accounting therefor to the rightful owner if the title or right of such Party fails in whole or in part; or (b) withhold and market the portion of Contract Substances with respect to which title or right is in dispute, and impound the proceeds thereof until such time as the title or right thereto is established by a final judgment of a court of competent jurisdiction or otherwise to the satisfaction of Working Interest Owners, whereupon the proceeds so impounded shall be paid to the Party rightfully entitled thereto. 10. 2 Payment of Taxes to Protect Title. The owner of surface rights to lands within the Pilot Area, or severed mineral interests or Royalty Interests in such lands, or lands outside the Pilot Area on which Pilot Equipment is located, is responsible for the payment of any ad valorem taxes on all such rights, interests, or property, unless such owner and Working Interest Owners otherwise agree. If any ad valorem taxes are not paid by or for such owner when due, Pilot Operator may, with approval of Working Interest Owners , at any time prior to tax sale, or expiration of period of redemption after tax sale, pay the tax, redeem such rights, interest , or property, and discharge the tax lien. Any such payment shall be an item of Pilot Expense. Pilot Operator shall, if possible, withhold from any proceeds derived from the sale of Contract Substances otherwise due any delinquent taxpayer an amount sufficient to defray the costs of such payment or redemption, such withholding to be credited to Working Interest Owners . Such withholding shall be without prejudice to any other remedy available to Pilot Operator or Working Interest Owners. 10. 3 Loss or Failure of Title. in the event of the loss or failure of the title, in whole or in part, of any Party hereto to any lease, or to any oil and gas mineral estate or any interest therein covered hereby, the interest of such Party in and to Contract Substances shall be reduced in proportion to such loss - 13 - 891311 or failure to title as of the date such loss or failure of title is finally determined; provided, that such revision of ownership interest shall not be retroactive as to Pilot Expenses incurred or as to revenues or Contract Substances obtained prior to such date; provided, further , that each Party hereto whose title has been lost or has failed, as aforesaid, shall indemnify the other Parties hereto against, and shall hold such other Parties harmless from, all loss, cost, damage and expense which may result from, or in any manner arise because of, the delivery to such Party of Contract Substances or the payment to such Party of proceeds thereof, prior to the date said loss or failure of title is finally determined; however, if title to a Working Interest is lost by reason of Pilot Operations , such loss shall not be considered a failure of title, and any such loss shall be the joint loss of all Working interest Owners borne in proportion to their respective Pilot participations. ARTICLE 11 EASEMENTS OR USE OF SURFACE 11 . 1 Grant of Easements . The Parties hereto, to the extent of their rights and interests , hereby grant to Working Interest Owners the right to use as much of the surface of the land within the Pilot Area as may be reasonably necessary for Pilot Operations and the removal of Contract Substances from the Pilot Area; however, nothing herein shall be construed as leasing or otherwise conveying to Working Interest Owners a camp site or a plant site for water injection, gas injection, or gas processing. ARTICLE 12 CHANGES AND AMENDMENTS 12. 1 Changes and Amendments . Any enlargement or reduction of the Pilot Area or any amendment to this Contract or to the Pilot Project operating Agreement shall be in accordance with Article 60 of Chapter 34 of the Colorado Revised Statutes, as amended. - 14 - 891311 12. 2 Enlargements of Pilot Area. The Pilot Area may be enlarged from time to time to include acreage reasonably proved to be productive upon terms as may be determined by affirmative vote of the Working Interest Owners pursuant to Article 4.3. 2 of the Pilot Project Operating Agreement including, but not limited to, the following: 12.2.1 The participation to be allocated to the acreage shall be fair and reasonable, considering all available information; 12.2 . 2 There shall be no retroactive allocation or adjustment of Pilot Expenses or of interests in the Contract Substances produced, or proceeds thereof; however, the limitation shall not prevent an adjustment of investment by reason of the enlargement . 12. 3 Determination of Tract Participation. Pilot Operator, subject to approval by Working Interest Owners under the voting procedure established in the Pilot Project Operating Agreement and further subject to Section 5 .2 hereof, shall determine the Tract Participation of each Tract within the Pilot Area as enlarged, and shall revise Exhibits A and B accordingly. 12.4 Effective Date of Enlargement. The effective date of any enlargement of the Pilot Area shall be 7:00 a.m. on the first day of the calendar month following compliance with conditions for enlargement as specified by Working Interest Owners, and the filing for record of revised Exhibits A and B in the counties in which this Contract is recorded, and compliance with the applicable provisions of state laws and regulations . ARTICLE 13 TRANSFER OF TITLE-PARTITION 13.1 Transfer of Title. Any conveyance of all or any part of any interest owned by any party hereto with respect to any Tract shall be made expressly subject to this Contract. No change of title shall be binding upon unit operator, or upon any Party hereto other than the Party so transferring, until 7:00 a.m. on the first day of the calendar month next succeeding the - 15 - 891311 date of receipt by Pilot Operator of a photocopy, or a certified copy, of the recorded instrument evidencing such change of ownership. 13.2 Waiver of Rights to Partition. Each party hereto agrees that, during the existence of this Contract, it will not resort to any action to partition the Contract Formation or the Contract Reservoir or the Pilot Equipment , and to that extent waives the benefits of all laws authorizing such partition. ARTICLE 14 RELATIONSHIP OF PARTIES 14. 1 No Partnership. The duties, obligations, and liabilities of the Parties hereto are intended to be and shall be several and not joint or collective. This Contract is not intended to create, and shall not be construed to create, an association or trust, or to impose a partnership or fiduciary duty, obligation, or liability with regard to any one or more of the Parties hereto. Each Party hereto shall be individually responsible for its own obligations as herein provided. 14. 2 No Joint Refining or Marketing. This Contract is not intended to provide, and shall not be construed to provide, directly or indirectly, for any joint refining or marketing of Contract Substances. 14. 3 Royalty Owners Free of Costs . This Contract is not intended to impose and shall not be construed to impose, upon any Royalty Owner any obligation to pay Pilot Expense unless such Royalty Owner is otherwise so obligated; provided, however, that any interest created out of a Working Interest shall be subject to the security rights provided by the Pilot Operating Agreement . The owner of any such interest shall be subrogated to the security rights available against the Working interest out of which such interest was created. • 14.4 Information to Royalty Owners . Each Royalty owner shall be entitled to all information in possession of Pilot Operator to which such Royalty Owner is entitled by an existing agreement with any Working Interest Owner. - 16 - 891311 ARTICLE 15 LAWS AND REGULATIONS 15 .1 Laws and Regulations, this Contract shall be subject to all applicable federal, state, and municipal laws , rules, regulations, and orders. ARTICLE 16 FORCE MAJEURE 16.1 Force Majeure. All obligations imposed by this Contract on each Party, except for the payment of money, shall be - suspended while compliance is prevented, in whole or in part, by a labor dispute, fire, war, civil disturbance, act of God ; by federal, state, or municipal laws; by any rule, regulation, or order of a governmental agency; by inability to secure materials, permits or rights of way; or by any other cause or causes, whether similar or dissimilar, beyond reasonable control of the Party. No Party shall be required against its will to adjust or settle any labor dispute. Neither this Contract nor any lease or other instrument subject hereto shall be terminated by reason of suspension of Pilot Operations due to any one or more of the causes set forth in the Article. ARTICLE 17 EFFECTIVE DATE 17 . 1 Effective Date. This Contract shall become binding upon each Party as of the date such Party signs the instrument by which it becomes a Party hereto, This Contract shall become effective as of 8:00 a.m. on the first day of the month following approval of the formation of this Pilot by state and federal agencies whose approval is required under applicable state and federal laws and regulations, 17 . 2 Ipso Facto Termination, If this Pilot does not become effective before April 1, 1990, this Contract shall ipso facto terminate on that date (hereinafter called "termination date") and thereafter be of no further effect, unless prior thereto Working Interest Owners owning a combined Pilot Participation of at least eighty percent (80%) have approved this Contract and - 17 - 891311 Working Interest Owners owing eighty percent (80%) or more of that percent have decided to extend the termination date for a period not to exceed one year. If the termination date is so extended and this Pilot is not made effective on or before the extended termination date, this Contract shall ipso facto terminate on the extended termination date and thereafter be of no further effect. For the purpose of this Section, Pilot Participation shall be as claculated on the basis of Tract Participation shown on the original Exhibit A. 17 . 3 Certificate of Effectiveness, Pilot Operator shall file with state agencies, as required, and for record in Weld County, Colorado, a certificate stating the Effective Date. ARTICLE 18 TERM 18. 1 Term. The term of this Contract shall be for a period of one ( 1) year from the Effective Date, unless sooner terminated by Working Interest Owners owning a combined Pilot participation of eighty percent (80%) or more whenever such Working Interest Owners determine that Pilot Operations are no longer economically feasible; or unless sooner terminated by representatives of the United States of America, a mineral and Royalty owner in the Pilot Area. 18.2 Effect of Termination. Upon termination of this Contract, the further development and operation of the Contract Reservoir as a Pilot shall be abandoned, and Pilot Operations shall cease. Each oil and gas lease and other agreement covering lands within the Pilot Area shall remain in force for sixty (60) days after the date on which this Contract terminates, and for such further period as is provided by the lease or other agreement . The relationships among owners of Oil and Gas Rights shall otherwise and thereafter be governed by the terms and provisions of the leases and other instruments, not including this Contract affecting the separate Tracts. Possession of the equipment and wells shall be delivered to the prior operator thereof. - 18 - 891311 18.3 Salvaging Equipment Upon Termination. If not otherwise granted by the leases or other instruments affecting each Tract, Royalty Owners hereby grant Working Interest Owners a period of six (6) months after the date of termination of this Contract within which to salvage and remove Pilot Equipment . 18.4 certificate of Termination. Upon termination of this Contract, Pilot Operator shall file with state agencies, as required, and for record in Weld County, Colorado, a certificate that this contract has been terminated , stating its termination date. ARTICLE 19 EXECUTION 19. 1 Original, Counterpart , or Other Instrument. An owner of Oil and Gas Rights may become a Party to this Contract by signing the Original, a counterpart thereof, or other instrument agreeing to become a Party hereto. The signing of any such shall have the same effect as if all parties had signed the same instrument. 19.2 Joinder in Dual Capacity. Execution as herein provided by any party as either a Working Interest Owner or a Royalty Owner shall commit all interests owned or controlled by such Party and additional interest thereafter acquired by such Party. ARTICLE 20 GENERAL 20. 1 Action by Working Interest Owners . Except as otherwise provided in this Contract , any action or approval required by Working Interest Owners hereunder shall be in accordance with the provisions of the Pilot Operating Agreement . 20.2 Lien and Security Interest of Pilot Operator. Pilot Operator shall have a lien and security interest in the interests of Working Interest Owners in the Pilot Area as provided in the Pilot Operating Agreement. - 19 - 891311 ARTICLE 21 SUCCESSORS AND ASSIGNS 21 .1 Successors and Assigns . This Contract shall extend to, be binding upon, and inure to the benefit of the Parties hereto and their respective heirs, devisees, legal representatives, successors, and assigns, and shall constitute a covenant running with the lands, leases , and interest covered hereby. IN WITNESS WHEREOF, the Parties hereto have approved this Contract on the dates opposite their respective signatures . Attest: By Secretary Title: Date Signed: Attest: By Secretary Title: Date Signed: - 20 - 891311 Date Signed: By ACKNOWLEDGEMENTS STATE OF ) COUNTY OF ) ss . The foregoing instrument was acknowledged before me this day of , 19_, by as of a corporation, on behalf of the corporation. Witness my hand and official seal . My Commission expires: Notary Seal (S E A L) STATE OF ) COUNTY OF ) ss . The foregoing instrument was acknowledged before me this day of 19_, by as of corporation, on behalf of the corporation. a Witness my hand and official seal. My Commission expires: Notary Seal (S E A L) STATE OF ) COUNTY OF ) ss . ) The foregoing instrument was acknowledged before me this day of , 19 , by Witness my hand and official seal. My Commission expires : Notary Seal (S E A L) ref:007A/DD15 - 21 - 831311 EXHIBIT 'A" TO PILOT PROJECT CONTRACT A. Lands in pilot Project Described by Tract and Tract Participation. Tract No. Tract Description Tract Participation 1 . Section 5 : W/2 SE/4 11 .11112% 2. Section 5: E/2 SE/4 11. 11111% 3. Section 4: W/2 SW/4 11 .11111% 4. Section 4: E/2 SW/4 11 . 11111% 5 . Section 8: S/2 NW/4 11 .11111% 6. Section 8: N/2 NE/4 11 . 11111% 7. Section 8: S/2 NE/4 11 . 11111% 8. Section 9: N/2 NW/4 11 . 11111% 9. Section 9: S/2 NW/4 11 . 11111% All Township 8 North, Range 58 West, 6th P.M. Weld County, Colorado B. Excluded Wells: None 891311 a ire i:861 • m „ • 0 • a st is . .� • • • Is • • • 4 r • • • ;i iitt . w LI • N •• / • 2...... 62 . • ^�h13 .o • w►aa a y-¢' '^ • etIIa w W +' • 4+ ' IP l' z a • m 3 ft, • a . • il II I i11;4.* 3 HHa • Kt, . :l • � � �� . • • 1Rh ' •� ja 3 ri5 3gll • •4Hiililt • '^ ♦ .-Mnlnemea.9: ii tt el s • ' h • i # • • EXHIBIT "C" TO PILOT PROJECT CONTRACT Pilot Operators shall provide the following data to the Bureau of Land Management : 1 . The Pilot Operator shall file with the Minerals Management Service a Monthly Report of Operation under the assigned Bureau of Land Management contract number for the life of Contract and continue doing so after the termination of the Contract until such time all gas injected is considered recovered from the Pilot Area. The comment section of the Monthly Report of Operation shall reflect the total amount of gas injected and the total amount of gas produced which is considered to be injected gas as provided under the terms of this Contract. 2. Every three months the Pilot Operator shall report the results of its production monitoring of all wells within the Pilot Area or offsetting Pilot Area, as well as any pressure or other data required by the State of Colorado, to be filed with the Oil and Gas Commission of the State of Colorado. 891311 Hello