Negotiations

Eric R. King

Week ElevenNovember 4, 2010

Speed controls being used in Canada . . . How’s this for effective

speed control?

I don't know about you, but this would certainly slow me down!

People slow down and actually try to "straddle" the hole.

This is an actual speed control device that is currently in use.

It is MUCH cheaper than speed cameras, radar guns, police

officers, etc.

Pretty clever -- especially when they move them around every

day.

Isn't art wonderful?

Definitions

• Williams & Meyers, “Manual of Oil and Gas Terms,” Thirteenth Edition

Joint Operating Agreement

• An agreement between or among interested parties for the operation of a tract or leasehold for oil, gas and other minerals.

• This type of agreement is frequently entered into before there has been any development.

• Typically the agreement provides for the development of the premises by one of the parties for the joint account.

• The parties to the agreement share in the expenses of the operations and the proceeds of development, but the agreement normally is not intended to affect the ownership of the minerals or the rights to produce, in which respects, among others, the joint operating agreement is to be distinguished from a unitization agreement and from a mining partnership.

Non-Consent Provisions

• An affirmative election by a working interest owner not to participate with his/her working interest in the drilling of a well. Under a JOA, the working interest owner will have 100% of his/her interest returned/re-instated/come back in after 400% Payout on the well (4 times).

• Non-consent InterestThe name which has been applied to a form of

carried interest held by non-consent parties under a widely used form of operating agreement.

A share of the working interest in a drilling and spacing unit whose owner does not consent to bear his proportionate share of the costs of the drilling and operation of a well, and which interest is picked up by others under the JOA who elected to participate with their proportionate share of the “non-consent acreage.”

• Non-consent PartyA party to a joint venture, a joint operating

agreement, or a pooling or unitization agreement who does not agree in advance to participate in drilling, reworking, deepening, or plugging back of a well.

Under such circumstances, the interest of the non-consent party becomes subject to a non-consent penalty.

• Non-consent PenaltyA penalty against a party to a joint venture, a

joint operating agreement, or a pooling or unitization agreement, or a pooling order of a state agency who did not agree in advance to participate in drilling, reworking, deepening, or plugging back of a particular well by the operator or another party to the agreement or agency order.

The penalty under a JOA is expressed as a percentage, in Oklahoma typically 4 times the recovery of the amount expended as to this non-consent interest (400%).

Industry practice in voluntary pooling agreements between lessees calls for non-consent penalties ranging from 200 to 400 percent for development of wells, at lease 300 percent for most exploratory (wildcat) wells, and in very expensive areas, particularly offshore operations, as much as 1,000 percent.

With respect to pooling or unitization orders, the non-consent or risk penalty may be fixed by statute, or the statue may give discretion to the agency to set the penalty within a determined range.

The statute may define the costs subject to the risk penalty with some specificity, or it may leave the terms rather general, with the agency having the authority in either instance to resolve disputes as to costs.

Casing Point Election

• A right to elect whether a party wants to participate in a completion attempt. After the well has reached casing point or liner point.

Overhead

• A term employed loosely in the oil and gas industry to describe a variety of expenses.

• Monthly overhead is the amount paid to the operator under the terms set out in the JOA.

Joint Interest Billings(JIBs)

• Statement attached to a check disclosing well names, month of expenses, total expenses, and venturer’s shares.

• JIB’s reflect an owner’s proportionate share of all costs associated with a well for a one month period (an invoice for those charges).

Area of Mutual Interest Agreements

• An agreement between or among parties to a farmout agreement or a joint operating agreement, or other agreement by which the parties attempt to describe a geographical area within which they agree to share certain additional leases or other interests acquired by any of them in the future.

Farmout Agreement

• A very common form of agreement between operators, whereby a lease owner not desirous of drilling at the time agrees to assign the lease, or some portion of it (in common or in severalty) to another operator who is desirous of drilling the tract, where there is no cash involved in the transaction.

Right of Way Agreements

• An agreement whereby one party acquires the rights to cross a surface owner’s land for a specific purpose, e.g. for a pipeline, for a road, for a utility, for underground gas storage.

• This is a right to use the land for a specific purpose, but does not give ownership of the land to the right-of-way owner.

Purchase and Sale Agreements

• An agreement for the purchase and sale of oil and/or gas produced from designated leases, setting forth the terms and conditions of purchases and sale, and requirements as to quality and condition of the product and measurement of quantities.

Eric R. KingOne Leadership Square, 15th Floor

211 N. Robinson Ave.Oklahoma City, OK 73102

(405) 235-5518