PLAN OF UNITIZATION FOR NORTHEAST PURDY SPRINGER SAND UNIT "A' l GARVIN COUNTY, OKLAHOMA TABLE OF CONTENT S 5EG TION PAGE DEFINITIONS 1.1 Unit 1.2 Commission 1.3 Person 1.4 Springer Sand 1.5 Unit Production 1.6 Lessee 1.7 Royalty Owne r 1.8 Tract Participation 1.9 Unit Operato r 1.10 Oil and Ga s 1.11 Outside Substances 1.12 Oil and Gas Rights 1.13 Effective Date 1.14 Unit Expens e 1.15 Supervisor 1.16 Hart Sand Unit 1 1 1 1-2 2 2 2 2 2 2 3 3 3 3 3 3 y 2 EXHIBITS 2, 1 Exhibit s 2, 1. 1 Exhibit "A ll Attached 2. 1.2 Exhibit "B" Attached 2.1.3 Exhibit 1101 Attached 3 3 3 3 3 NAME AND UNIT AREA 3.1 Name 3.2 Unit Are a 3 4 4 SEPARATELY OWNED TRACTS 4.1 Separately Owned Tract s 4 5 GENERAL POWERS 5.1 General Powers 4 i,
the approval of all necessary expenditures in drilling, completing and equipping such well or wells or carrying out such project. 8. Z. 6 To determine from time to time the rate at which, and the well from which, the Unit Production shall be produced in conformity with good engineering practices and are applicable conservation laws or r e gulations. 8.2,7 To pass upon, approve or di sapprove the sale o r other disposition of any maj o r item of surplus equipment the cu r rent list pr ic e of new equipment similar the r eto be ing one thousan d five hundr ed dol lars ($1, 500. 00) or mor e. 8.2.8 To approve and authorize the purchase, construction, location, abandonment, sale or other disposal of any compressor plant, tank batteries, salt water disposal system or other facilities serving the Unit Area. 8. Z 9 To dete r mine the kind, charac ter and me tho d of oper ation of any t ype of r ecove ry program to accompli sh the Plan of Op e r ation se t fo rth in Sec tion 1 4 h ereof. 8. Z. 10 T o provide for the p rope r audi ting of the ac c ounts of the Unit Operato r with respec t to the opera tion and d evelopment of th e Unit Area as provide d in Parag raph 18. 1 hereof, 8. 2. 11 To appoint such subcommittees as i t may dee m pro per and requisi te to act unde r the authority and subj ect to the contr ol of the Ope ra ting Committee in accordance wi th the term s of thi s Plan of Unit - ization. 8. 2. 12 T o approve o r disappr ove any pr opo se d plan of deve lop - ment or o peration or amend ment the r eof r equi re d to be submitted to any regulato ry bo dy having jur i s dic tion of the subj ec t matte r the re of. 8. 2. 1 3 To app r ove or disapprove an y proposed e xpend itur e s for expert technical a dvice, including any extra services re nd e r e d by the Unit Ope rator' s technical s taff, not contemplat e d by the provisions of the Ac counting Proce dure he r eto attached, mar ke d Exhibit " C ". 8. 2. 14 To direct and consult with the Unit Operator in all matters pertaining to the duties and functions of the Unit Operator. 8. 2. 15 To de te r mine the type of s tatements and bi llings to be re nd ered to L essees by Uni t Ope rato r. 1 0.
8. 3 Voti ng Inte rest. Each Lessee within the Unit Area shall have a vote equal to the proportionate in terest of said Lessee in the Unit determined as follows : 8, 3. 1 With respec t to each Separa tely O wne d T r act, the Lessee or Lessees thereof shall have a vo t e equal t o th e Tr act Pa r ticipa ti on a s shown in Ex hibit " B" hereto attached. 8. 3. Z S hould the r e be more than one Lessee of a Separately Owned Tract, the vote in respect the reof, shall be divide d among such Lessees in t he proportion as such L essees s hare in th e Uni t Ex pense is charge - able to such tract. 8. 3. 3 The vote of a Lessee having an inte res t in more than on e Se pa rately Owned Tract shall be the sum total of the votes of such Lessee with r espect to all such t rac t s, 8, 4 Vote R equired. Except as otherwise herein provided, all governing a c tion of the Operatiommittee shall be affi r ma t ive vote of thr ee or more L essees having fifty-five percent ( 55% ) or more of the voting interes t in the Unit ; provided, howeve r, if any single L essee has a vo ting interest in excess of forty pe r cent ( 40% ) and suc h L essee fails to vote or votes against a mo t ion o r resolutio n, then the affirmative vo t e of L essees having ninety pe r cent (90% ) or more of the r emaining voting int erest in the Unit s hall be sufficient to pass the mo t ion or resolution. 8. 5 Poll Vote. T he Ope rating Commit tee shall estab l ish a p r oce dur e whereby the Unit Ope rator may poll its membe r s to secure thei r appr oval of any ac t ion necessary to the p r oper corrluct of t he Uni t opera t ions. Th e resul t s of such poll sha ll be reported and made a part of the minutes of the next succeeding meeting of the Operating C ommi tt ee. 8.6 Notices. Notices or other communications addressed and sent to the Unit or to the Operating Committee by United States mail or telegraph in care of the Unit Operator shall be deemed to have been properly given to or. served upon the Unit or Operating Committee. The Unit Operator shall promptly deliver all such notices or communications to the Chairman or Secretary of the Operating Committee. 9 ORGANIZATION OF UNIT AND EFFECTIVE DAT E 9. 1 Organization Meeting. Subj ect to call by the Unit Ope rator, the 11.
r ep r esenta t ives designated by the several Lessees t o serve on the O pe r ating Committee shall meet at some convenient place to perfec t the organization of the Operating Commit tee. Such meeting may be held at a ny time a fte r t en (1 0 ) days from the date of the ordcr of the Comm i ssion de termining tha t this Plan of U nitization has been ra t ified or approved b y t h e requisi t e L essees and R oyalty Owners as required by law. Notice of the time and place of said mee t ing shall be mailed a t l east ten ( 10 ) day s prior thereto t o all Lessees within the U ni t Are a whose names and addresses are known to the Unit Operator, as well as those Lessees who shall have within ten (1 0 ) days from the date of said order notified the Secretary of the Commission, in writing, of their desire to be so no tified of the meeting. Any Lessee within the Unit Area desiring notice of such meeting may file a statement of such desire with the Secretary of the Commission, giving its name and the address to which it desi res the notice to be sent. 9. 2 Office rs. The Operating Committee shall organize by selecting a Chairman, a Secretary and such other officers as the Committee may deem proper. The representative of the Unit Operator shall be designated as Chairman. The Secretary and other officers may or may not be members of the Committee. The Chairman shall preside at all meetings of the Operating Committee and shall be the chief executive officer of the Unit. The Secretary shall keep and maintain all the records of the Committee and shall also be Secretary of the Unit. Such officers shall serve at the will of the Operating Committee and perform such other duties as may be delegated to them by the Operating Committe e. 9. 3 Effective Date. Upon completionof its organization, the Operating Committee shall proceed to make plans and preparations and take such steps as are necessary including an inventory of all properties for the taking over of the unitized operations and further development of the Unit Area by the Unit. It shall, in advance thereof, fix the time when the Unit will take over such operation and development, and give the Lessees within the Unit Area reasonable notice thereof. The time so fixed shall not be less than fifteen (15) days afte r the entry of the order of the Commission determining that this Plan of Unit i zation has been ratified or -approved by the requisite Lessees and Royalty Owners as required by law, nor more than six months after the time when said order shall have become final as set out in Paragraph 9.6, The time when the Unit takes over the operation and further development of the Unit Area shall be the Effective Date of this Plan of Unitization. 9. 4 Failure to Take Over Operations. In the event the Unit shall fail to assume and take over the operation of the Unit Area on or before six (6) months after the time when the order or orders of the Commission creating the Unit and determining that this Plan of Unitization has been ratified or adpr pved by the SHAL HAVE BECOML FINAL requisite Lessees and Royalty Owners as prescribe~by law/ then anc~ in that event the Unit shall, without further action on the part of the Operating Committee or the Commission, be dissolved and all rights and obligations under this Plan of Unitization shall be at an end, except that any and all costs and expense incurre d 12.
by the Unit or Unit Operator inciden t to its o rganization or preparatory to the taking over of the ope ra tion of the Unit Area shall be borne and paid for b y the Lessees who have executed t his Plan of Unitiza tion in proportion as the interest of each such Lessee in and to the tracts comprising the Unit Area as se t out in Exhibit "B" bears t o the total interest of all such Lessees who have signed this Plan of Unitization. 9. 5 Duration. In the event the Unit assumes and takes over the operation of the U nit Area within the t ime so named, t his P lan of U ni tiza tion shall thereafter remain in force and effect until such time as the Unit is dissolved and abandoned as provided in Section 24 hereof or un til otherwise superseded as p rovided by law. 9.6 Commission O rder Final. The afores a id order of the Commiss i on shal l be regar d ed a s having become final at the end of the t ime allowed by law for any appeal therefrom, if no appeal is ta ken, upon t he final dete r mination of an y such appeal. or if an appeal is taken, then 9. 7 Filing of Plan. Th e Uni t Operator on o r befo r e fifteen ( 15 ) day s afte r the Effective Dat e hereof shall fil e with the C ounty Clerk of Garvin County, Okl ah oma, the Secretar y of the Commission and the Supe r viso r, a written decl arat ion signed b y th e Chairman and Secre t a r y of t he Operating Commi tt ee setting forth : 9. 7. 1 The hour, da y, month and year on which the Uni t took ove r the operation of the Unit A rea. 9. 7. 2 A desc ription or plat of the land s include d within the Uni t Area. 9. 7. 3 The cause numbe r and date of the Commissio n or der appr oving this Plan of Unitization, with an appr opriate refe re nc e to such order and the files of the Comm i ssion for further informa ti on concerning this Plan of Uni tizat ion. 1 0 UNIT O PERATO R 1 0. 1 Conduc t of Ope rations. Subject to the fur the r p rovis ions of this Plan of Unitizati on, ope rations in connection wi th the developm e nt and the ope rations of the Uni t A rea for Oil and Ga s shall be c arrie d on and condu cte d 1 3.
s follows by Unit Operator in accordanc e w i th the instr uct i ons of the Op e rat in g Committee. 10.2 Initial Unit Operator. Cities Service Oil Company is hereby designated as Unit Operator. 1 0. 3 Duties. T he Unit Operato r shall : 1 0. 3, 1 Conduct al l such operations in a good and workmanlike manner. 1 0. 3. 2 K eep full, tr ue and correct books, accounts and r eco r ds of its oper ations hereunder which shali be made available for inspec tion at all reasonable times by any of the Lessees within the Unit Area. 1 0. 3, 3 Mail to each Lessee and the Supervisor on or before the 20th day of each calendar month a true an d cor r ect statement of al l Unit Production for the previous calendar month showing the volum e of Oil and Gas sold together wit h such reports as are deemed necessary to compute th e monthly royalties due the restricted Indian lessors. 10. 3.4 Carry ins urance with respect to Unit Operations conducted by Unit Op erato r on al l lands subject to th i s Plan of U nitization a : 1 0. 3,4. 1 Wo r kmen ' s Comp e nsation in compliance with the Wo rkmen ' s Compensation Law of the State of Ok l ahoma, includ i n g Employer's Liability wi th a minimum of one hundred thousa nd dol lars ($ 100, 000. 00 ). 1 0. 3.4. 2 Comprehensive General Public Liabi lity Insurance with minimum limits of one hundred thousand dolla r s ($1 00, 000. 00 ) fo r i nj ur ies to one Person, two hundred thousand dollars ($ 200, 000. 00 ) f or any one accide nt and twen ty-five thousand dollars ($ 25, 000.00 ) for injury to property. 1 0. 3,4.3 Automobile Public Liabili ty and Prope rty Damage Ins urance with minimum limits of one hundred thousand dollars ($1 00, 000. 00 ) for inj uries t o one Person, t hree hun dr ed thousan d dolla r s ($ 300, 000. 00 ) fo r inj uri es in any one accident, and ten thousand do lla r s ($1 0, 000. 00 ) property damage. 1 0. 3.4.4 Suc h additional insur a nce as may be required by the Op er atin g C ommittee. All insurance cov erage r equir ed he r eby shall be ca rr ied at the j oint expe nse and for the benefit of the pa r ties he re - to, except for premiums for Au t omobile Public Liability and P ro perty 14.
D amage Insu r ance on Unit Operator's fu l ly-owne d equipment, which s hall not be cha rged directly to the joint ac c ount but will, in stea d be covered by the flat rate charges assessed the Uni t for the use of such equipment. Unit Operator wi l l not carr y fi r e, explosion, w indstorm or other property haza r d insurance nor un d erground d amage l iabili ty insura n ce cove r ing opera t ions hereunder. U nit Operator shall require its contractors and subcontractors working and pe rforming se r vices on lands committed hereto t o comply with t he W orkme n's Compensa tion Laws of the State of Oklahoma and to carry s uch other insurance and in such amounts as Unit.Operator shall deem necessary. Lessees will be notified of losses as provided fo r in Exhibit "C". If the Lessees here to or any of them shall insure their res p ec t ive ris k s beyond the specific l imits of insurance requ i red t o be carried by Unit Operator under the terms of this Plan of Unitization, the benefi ts of such insurance shall inure to the Lessees procurin g and maintaining the same, respectively, and the cost of such insurance shall be borne by such Lessees, respectively, without reimbursement one fr om the other and without entering into the accounting hereunder. 1 0. 3. 5 Keep the lands and leases wi thin the Unit A r ea free from lien s and encumbrances oc casioned by the operations of the Uni t Operator save onl y th e lien granted the Unit and t he Unit Operato r under t h is Plan o f Unitization. 10, 3. 6 Render for ad valorem tax purposes, any and all leasehold rights and interests, facilities and personal property comprising or used in connection with the operation of the Unit Area and which may be subject to ad valorem taxation under present or future laws, and shall pay all such ad valorem taxes at the time and in the manner required by law. Taxes so paid shall be charged to the joint account as other items of Unit Expense. 1 0. 4 Emplo yees. T he number of emplo yees, t he selection of such empl o y - e es, the hou r s of labor and the compensation fo r services to be pai d any and all suc h employees shall be de te r mine d by the Unit Operator. Such employ ees shall be the employees of the Unit Ope rator, 10. 5 Drilling b y Unit Ope rator. The Unit Ope ra t or shall have the right to drill any well to be d rilled he r eunder in the U nit Are a with its own o r rented tool s a nd equipment, or t o cause such well to be drille d b y a r esponsible d rill - ing con t rac t or selec t ed by the Unit Ope rat or on a competitive bi d bas i s. Each s u ch well shall be d rille d un der the same terms and condi tions a s are customary 15.
and usual in the immediate area of the Unit in contracts of independent contractors who are doing work of a similar nature. Before the commencement of drilling of any such well on which the Unit Operator uses its own or rented tools, the - Operating Committee shall approve the basis on which said well shalt be drilled. 10.6 Discharge of Unit Operator and Election of Successor. The Operating Committee may discharge a Unit Operator by the affirmative vote of a majority of the Lessees having not less than seventy-five percent (75 16) of the combined voting interest in the Unit exclusive of the voting interest of the Unit Operator. The election of a successor Unit Operator shall be by the affirmative vote of not less than five (5) Lessees owning not less than seventy-five percent (75 70 ) of the combined voting interest of all Lessees ; provided that the discharged Unit Operator shall not vote to succeed itself as Unit Operator. A Unit Operator may resign at any time ; however, neither the initial Unit Operator nor any successor Unit Operator hereunder, sha11 be released from the powers, rights and dutie s of Unit Operator for six (6) months after its discharge or resignation, unless a successor Unit Operator shall have been designated by the Lessees and shall have taken over the powers, rights and duties of Unit Operator hereunder prior to the expiration of said period. 1 1 UNIT EXPENS E 11, 1 Payment of Cost. The Unit Operator in the first instance shall pay and discharge all cost and expense incurred in the development and operatio n of the Unit Area and in the conduct of the activities and affairs of the Unit. All such cost and expense incurred in the development and operation of the Unit Area shall be in accordance with this Plan of Unitization and the Accounting Procedure hereto attached, marked Exhibit "C", and made a part hereof; provided, however, that in all cases where a conflict exists between the body of this Plan of Unitization and said Exhibit "C", the provisions of the body of this Plan of Unitization shall control. All other costs and espenses shall be only such sums as are approved by the Operating Committee. 1 1. 2 A ppo rtio nment of Unit Expense. A ll s uch Unit Expen se as it a cc r ues shall be charged to the several Separately Owned Tracts in the Un it Are a in p r op o r tion to thei r respective percentages of inte r es t in the Uni t as set forth and shown in Exhibit " B". 11.3 Payme nt by Le s sees. Exce pt as may be otherwise h e r ei nafter specifically provided, the Lessee or Lessees ob ligated o r responsibl e for the cost and expense of o per ating a Separate ly Owned T r act for Oi l an d Gas in the absence of unitization sha ll, in th e same pr o po r tion and to the sam e e xt ent, be 16.
chargeabl e with and responsi ble for th e p a ym e nt of th e Unit Exp e ns e c harged against such Separately Own e d Tr ac t. 11, 4 Bi lling and Advance Payment. The Unit Operator shall on or before the last day of each calendar month render to each Lessee within the Unit Area a statement of all charges and credits during the preceding month and of the amount due from or to each such Lessee with respect to each Separately Owned Tract. If the Unit Operator so elects, such statement of accoun t may also include a charge by way of an advance of the propor tionate pa rt of the estima ted Unit Expense for the ensuing month chargeable to the L essee against whom such statemettt is rendered, using as a basis therefor the budge t hereinafter p r ovided for. E xce pt as ma y be o the rwise provided herein, each Lessee cha rgeable with the pa yment thereof shall, within twenty (20 ) days from the mailing o f such sta t emen t, p ay to t h e Unit Operator the amount thereof. If not pai d wh en due, the unpaid balance shall bear in terest at the rate of six percent (6%) per annum, compounded annual ly, until paid. Payment of any such statement shall no t pre j udice th e r igh t of an y Lessee t o pro t est or question the correctness thereof ; provided, the Un i t Ope ra tor shall not be r equired to adjus t any item of cha r ge or c r edi t unless a c l aim therefor has been p r esented in writing within t welve ( 12 ) month s afte r the approval by the Ope rating Committee of the audit for the pe r io d in which the charge or c redit was made. 1 1, 5 Budge ts. Before or as soon as pr actical after the Effective Dat e he r eof the Unit Operato r, subj ect to the app roval of the Ope r ating Committee, shall pr epa re a budge t of estimated Uni t Expense fo r the remaind e r of the calendar yea r an d on o r befor e the fi r s t day of each O c tober the reafter s hal l p repa re a budge t of estimated Unit Expense for the ensuing calenda r yea r, which budgets s hall se t fo rth the estimated Uni t Expense by quarte r ly pe r iods. Un l ess otherwise specified in t he budge t, i t s hall presumed for the pu r pose o f advance bill i ngs as afo r esaid, that the estimated U ni t Expense fo r eac h month of a quarterly period shall be one-third ( 1 /3 ) of the estimate for the qua rterly pe riod. B udge t s sopre pared shall be estima tes only and shall be subject t o adjustment and correction by the Operating Committee and Unit Operator from time to time wheneve r i t shall a ppea r that an adjus tment o r co rr ection is p rope r. A copy of e a ch such bu d get and adjusted bud get shall be p romptly furnishe d eac h L essee within the Unit Area. 11. 6 Non- Payment by Individual Lessee. In the event a Lessee is unable to mee t pr omptly it s financial obligations in connec tion with the Unit, the unpaid balance of its portion of Unit Expense shall be car r ied by the o the r Lessees, who have execu ted this Plan of Unitization a nd such amount shall bea r inte r es t at the rate of six pe r cent ( 616 ) pe r annum, compound ed annually, and shall be due and payable out of the total p roceeds from such defaulting Lessee's share of the Unit Pr o duction. All c r edits to any such L essee on a c count of the sale or 17.
other disposal of surplus material or equipment, or otherwise, shall be applied against any such unpaid Unit Expense charged against such Lessee. 11. 7 B illing of D efaulted P a yments. Amounts so carried as aforesai d in Paragraph 2 1. 6 shall be billed to and paid by all non-defaulting Lessees, who have executed this Plan of Unitization in the proportion that the interest of each in the Unit bears to the total interest in the Unit of a ll such Lessees. Lessees so pa ying th e same shall be reimbursed therefor, toget h e r with interes t thereon, as and when the amounts so carried and the interes t thereon are collected from the Lessees prima r ily cha r geable therewith. 1 1. 8 Liens and Foreclosu res. The Unit shall have a first and prior lien upon the l easehold interest ( exclusive of a 1/8 royalty interest ) in and to each Separa t ely Owned Tract, the interes t of the owners thereof in and to the Unit Production and all equipment in possession of the Unit, t o secure th e payment of the Unit Expense and other items of cos t proper ly charged to and against such Separately Owned Tract, provided that such lien may be enforced agains t over r iding roya l ty in t erests, O il and Gas payment s, royalty interes t s in excess of a 1/8 of the production, or o the r interests which are otherwise not c har geable with such costs, only in the event the owner of the interest or interests primarily responsible fails to pay suc h Unit Expense when due, an d the p roduc ti on to the credit thereof is insufficient for tha t purpose. In the event the owne r of any royalty interes t, over ri ding royalty, Oil and Gas paymen t or othe r in t e r es t w h ich under thi s P lan of U n it ization is not primarily responsible therefo r pay s any part of such Unit Expense for the purpose of pro tecting such interest, o r the amoun t of such Unit Expense in whole or in part is deducted from the Unit Production to the c redit of such interest, the owner shall, to the ex tent of such paym en t or deduc t io n be subrogated to all of the'rig hts of the Uni t and of t he Unit Op e ra tor with respect to the interest or inte r ests primarily chargeable wi th such Unit E xpense. A one-eighth ( 1 /8 ) part of t he Unit P roduction allocated to each Se parately Owned T ract shall in all events be regar d ed as royalty to be distributed to and among or the proceeds the r eof paid to the owners of the normal one-eighth (1 /8 ) royalty free and clear of all Unit Expense and fr ee of an y lien therefor. The l ien he r e i na b ove provided for sha l l be for the use, benefit an d protection of t he Unit Operator or other Lessees or Persons entitled to receive or share in the monies, the payment of which is secured t hereby, and in the event of failure of the Uni t to enforce such lien, the Uni t Operato r or other P ersons entitle d t o the benefit th ereof, shall be sub r ogated t o the lien rig ht s of th e U nit, inc ludi ng the right of foreclosure. T he lien may be foreclosed a t any ti me after a Person is in default. For eclosure shall be made by a p r oceeding in equi ty in the Dist rict Cour t of Garvin County, Oklahoma, o r othe r court having jurisdi ction. 1 8.
11. 9 Sate of Unit Production to Pay Cost. In the event of a failure of any Lessee to pay its share of the Unit Expense when due, the Unit Operator shali be entitled to take and market, or itself purchase at the prevailing market price in the area the Unit Production to the credit of such Lessee or to the credit of the interest or interests chargeable with such Unit Expense, or to otherwise coltect and receive the proceeds from the sale thereof, and shall apply all such sums so collected against the delinquent or unpaid Unit Expense due from such Lessee or interest, the balance of such proceeds, if any, to be paid to such Lessee or Person entitled thereto ; provided, that such defaulting Lessee or Person shall be permitted to take its share of the Unit Production so long as it shail account to Unit Operator on a current month to month basis for its proportion of the value thereof as might have been deducted from the proceeds by Unit Operator under Paragraph 11, 6 of this Section 11 had said Unit Production been sold by Unit Operator. Unit Operator shall be entitled to take and market or itself purchase such Unit Production only during such time or times as such Lessee or Person fails to pay its share of Unit Expense when due, with accrued interest thereon, if any ; provided, however, that the Unit Operator shall not be entitled to take and market, or itself purchase, the Unit Production to the credit of a Lessee who fails to pay its share of Unit Expense when due, or to the credit of the interest or interests chargeable with or subject to the lien of such Unit Expense, if, and during such time, as the proceeds of such Unit Production are made payable to the Unit Operator by the execution and delivery of a good and sufficient assignment, division order, transfer order or other appropriate instrument, and such Unit Production is sold by the Lessee or other Person or Persons entitled thereto at prices not less than the current market prices prevailing from time to time. The Unit Operator may likewise take any other credit due any such Lessee or interest and apply the same against sums due from such Lessee or interest for Unit Expense. 11, 10 Cr edits. Any and all in c ome and c redits r eceived by Unit Operator on account of Unit operations hereunder, from whatever source received, shall currently be a cc ount ed for and cre di t e d to the Lessees o r inte r es t s entitled to credit therefor. 1 2 INITIAL ADJ USTMENT OF INVESTME N T 1 2. 1 Property Taken Over. Upon the Effective Date hereof the Lessees shall deliver to U nit Opera t o r possession of : 12. 1. 1 ALL wells within the Unit Area completed in the Springer Sand in suitable mechanical condition as determined by the Operating Committee. 1 2. 1, 2 The casing in any well within the Uni t Area completed in the Springer Sand shall be long to the Unit. 1 9.
1 2,1. 3 The rods, tubing, packers and other subsurface equipment in the well if a single completion in the Springer Sand, and if a dual compietion the subsurface equipment which serves the Unit. 1 2, 1.4 All other lease and operating equipmen t serving the Unit used in the operation of such wells except that which the Operating Gommittee considers ob solete or unsuitable to the future operation of the Unit. 1 Z, i. 5 All production and welt records and other well data pe rtinent thereto. 1 2. 2 Prope rty Not Taken Ove r. Upon the Effective Date hereof the Lessees shall r etain possession of : 12, Z. 1 The rods, tubing, packers and other subsurface equipment in and on a dually completed well which is serving a ormation other than the Springer Sand. 12.2.2 Lease and operating equipment which is serving a formation other than the Springer Sand. 12. 3 Inve ntory and Eva luat ion of Personal Property. The Operating Commit tee shal l : 1 2, 3. 1 Inventory and evaluate in accordance with the provisions of Exhibit "C" all personal prope r ty and equipment so taken over excep t casing in the wells ; provided, that items of property or equipment con - si d e r ed o b solete or not suitable to t he fut ure operation of the U ni t shall r emain the property of the Lessee. 12, 3. 2 Inventory the oil string only in wells and if 7", the value shall be $Z,25 per foot, and if 5 1/2" the value shaii be $1.50 per foot. 1 2. 3, 3 The cost of taki ng and pr icing such invento ry shall be borne as an item of Unit Expense. 1 2. 4 A djus tment for Intangible Drilling Costs. There shall be no adjus t men t of intangible d r illing costs fo r Springer Sand wells within t he Unit Ar ea drilled and completed prior to the Effective Da t e hereof ; however, fo r each Separately Owned Tract on which a Springer Sand well has not bee n com - pl ete d on the Effective Da t e of unitization and which has not been at tributed to a com ple ted gas w el l, the following p r ovisions shall a pply : 20.
12.4.1 The L essee of any suc h Separately Owned Tract ma y e l ect, prior to or within ten ( 10 ) days after the order of the Commission creat - ing the Un it and presc ribing this Plan of Unit ization becomes final, to pay to th e Unit Operat or the sum of thirty-nine t housand dollar s ($ 39, 000. 0 0 ) for intangible cos t s of drilling a Springe r Sand well the r eon or in the eve nt suc h Tract contains a well in accep table mechanical con - dition, including casing, whic h has been drilled through bu t not complete d in the Sp r inger Sand, pay to Unit Operator the sum of ten thousand dollar s ($10, 000. 00) which sum approximates the cost of completing such well i n the Springe r Sand. Any sums of money received by Unit Operator unde r p rovisions of this pa ragraph shall be apportioned among the Lessees o f the seve ral Se parately Owned T racts in pr oportion to their respectiv e pe r centages of pa rticipa tion in the Uni t. 12, 4. 2 In the event the Lessee of any such Separately Owned Tract does not make the election specified in Paragraph 12.4. 1 in regard to s uch tract, then suc h Separately Owned Tract shall be charged as of the Effective D ate of Unitization, the sum of thirt y -nine t housand dollars ($ 39, 000. 00 ) in the case of a tract where no we l l is drilled or ten thousand dollars ($10, 0 00. 00 ) in t he case of a t ract which contains a we l l drilled through, but n ot c omple te d in the Springer Sand, and such c harge shall be r egarded th e same as any o ther cha r ge for Unit Expense chargeable t o such tract and shall be payable, under the provision of Sec tion 11 he reof, only out of the Unit P roduction allocated to such Separa t ely Owned T ract. Any amounts of money collected under t h e provisions of this Parag raph shall be apportioned among the several Lessees of the several Se para t el y Owned Tracts in propor tion t o thei r respective percentages of pa rticipation in the Unit. 1 2, 5 Investment Adjustment. An accounting of all controllable tangible lease and operating equipmen t including the production casing in the wells, so transferred to and taken ove r by the Unit shall be made as betwee n the owners thereof and the Lessaes within the Unit Ar ea on the basis of the value the reof de t ermined as provided in P aragraph 1 2. 3 and proper cha r ges an d c r edi t s entered agains t the seve ral Separately Owne d Tracts, all to the end that on and afte r the Effective Date hereof each of the seve r al L essees within the Unit Area, ins tea d of sepa r atel y owni n g t he equipment delivered to the U nit b y such L essees, w il l have exc hange d the same for an undivided interest in and to all equipment so t a k e n over and acquired by t he U nit and will h ave paid or been paid, a s t he case may be, for any difference in value. The amount of any net charge made against any Se parat ely Owned Tract under this section shall be tr eat ed and r egarded in all res pe c ts the sam e as any other Uni t Expense chargeable to such tract. 12.6 Gene ral Facilities. The acquisition of warehouses, wa r eho us e 21.
stocks, lease houses, camps, facility systems, and office buildin gs considered necessary or desirable to the o p eration and development of the Unit Area shall be by negotiation between the owner thereof and the Unit O perator, subject to the approval of the approval of the Operating Committee. There shall be no adjustment for roads, bridges, cattle guards, etc. 1 3 OIL AND GAS MARKETED IN EXCESS OF ALLOWABLE AND OIL IN LEASE TANKS AS OF EFFECTIVE DAT E 13. 1 Oil and G as Mark e ted i n Excess of Allowable. If on t he Effective Date of unitization Oil and Gas in excess of allowable has been produced and marketed from a Separately Owned Tract, such excess Oil and Gas production shait be co n sidered Unit Production de l ivered to such tracts. 13.2 Gauging and A ccounting. As of 7 :00 a.m. on the Effective Date a proper gauge shall be made of all tease tanks or other tanks taken over by the Unit to ascertain the amourt of merchantable oil in such tanks, above the pipeline connection at the time the Unit assumes and takes over the developmen t and operation of the Unit Area. So much of such oil as has been legally produced shall remain and be the property of the parties entitled thereto had not the Unit been created, and upon request, shall be delivered in kind to Persons entitled thereto, or in the absence of such request, shall be sold by the Unit Operator for the credit of such Persons at not less than the prevailing market price and the proceeds thereof paid to such Persons. Any other oil in such tanks shall be considered as Unit Production. 1 4 PLAN OF OPERATIO N 14. 1 Plan of Operation. From and after the Effective Date hereof the Unit Ar ea sha[[ be developed and o perated as a Unit as follows : 14. 1.1 As soon as reasonably practical after the Effective Date hereof the Operating Committee with due diligence and in accordance with good engineering and production practices e haltinitiate the injection of gas, water or other substances into the Unit Area to effectively and without waste and within economic limita tions result in the greatest ultimate recovery of Oil and Gas from the Unit Area. 1 4. 1, 2 Such other methods of operations shall be conducted as m ay from time to time be determined by the O perating Committee to b e 22.
feasible, necessa ry or desirable to efficiently a n d substantially increas e the ultimate recover y of Oil an d Gas from the Unit Areao p rovided the estimated additional cost thereof does not exceed the value of the addi - tiohal Oit and Gas to be so recovered, 1 4, 1. 3 N othing herein contained shall prevent the Operating Gommittee from abandoning or changing, in whole or in pa r tj any particular method or methods of operation, including the operations required under Paragraph 14. 1.1 above. 1 5 R IGHT TO INFORMATIO N 1 5. 1 A ccess to A rea and Records. Each and all Lessees within the Unit Area and the Su p erviso r shali have access to the entire Unit Area at all reasonable times to inspec t and observe operations of eve ry kind and character on the prope rty, and shal l have access at all reasonable times to any and all i nfo r mation pe r taining to wells drilled, production secu r ed, marketing of U ni t Production and to the books, records and vouchers relating to the operation of the Unit Area. Unit Ope rator shall, upon request, furnish to any such Lessee a record of crude oil runs, reports of stock on hand at the first of each month, and any other pertinen t i n fo r mation pertaining to the U nit A rea or development and ope r - ation thereof. 1 6 LIA. BI LI T Y 1 6. 1 Member s of Comm ittees. No membe r of the Ope rating Co mm ittee or a n y ot h er Committee sha l l be pe r sonally liable o r individually responsible fo r any ac t, e rr or, default or omission as a member of such Committee or Committees. 1 6.2 Unit and Unit Operator. N ei ther the Uni t no r the Unit Ope rator shall be liabl e o r responsib le under any of the provisions of this Plan of Uniti zation for any acts o r omission s resulting from ca uses beyond t h e control of the Uni t or such Uni t O pe r ator, or f rom othe r causes whic h by the e xe r ci s e of due dili gence could not have bee n p revente d o r overcome. 16. 3 Damage to Unit A rea. Un it Operator shall n ot be lia bl e or responsible for any damage to th e Unit A rea o r the pro p erty, equ i pment or faci lities used in th e d eve lopm ent and operation thereof, or for the loss of any pro du c tion arising out of it s ope ration of the Unit A rea, except on ly fo r bad faith o r g ros s neg li ge nce in connection the r ewith. 23.
16.4 Payment. In the event, notwithstanding the foregoing provision g s of this Section, the Unit, the Unit Operator or any member of the Operatin Committee or other Committee or any Person is held liable, by a court of cornpetent jurisdiction, for any matter or thing for which it is herein provided that the Unit or Person so named shall not be liable, the amount of such liability as finally determined shall thereupon be treated, regarded and paid as an item of Unit Expense. 1 7 CHANGE OF INTERES T 1 7. 1 Chang e of Interest. Al l t ransfers (by operation of la w or otherwi se ), ase ig nm ents and c onvey a nces o f any interest in, or with respect to, any of the Sep a rately Owned Tracts within the Unit Area shall be subject to th e terms, p rovisi ons a nd conditions of this Plan of Un itization, but shall not b e binding on th e Unit o r the Unit Operator unless and until a photostatic or certifi ed c opy of the r e cor ded instrument or final judicial decree evi dencing such change of owner ship has b een de livere d to the Unit Operator. Each su ch tra nsfer, assignment or conveyance, whether so stating or not, shall operate to impose upon the Person or Persons acquiring such interest the obligation of the p redeces s or in interest with respect to the interest so transferred and shall likewi s e operate to give and grant to the Person or Persons a cquiring such int e res t a ll benefi t attributable her eunder t o suc h interes t. 1 8 A UDITS 18. 1 Audit s. T he Oper ating Committe e by vote, excluding the vo te of Unit Operator, shall cause an audi t to be made of the books, a cco unts and records of the Unit Operator regar ding matters perta ining to the Uni t and the op e r ati on of the Unit Area not more often than onc e ea ch year and sha ll furnis h a copy thereof to eac h of the Less e es within the Unit A rea. Each such audit s hall cover the pe riod intervening since the las t au dit. T he audit s hall be made by an audi t o r or auditing commi ttee from the Accounting Staff of one or mo re of the Le s s ee s within the Uni t Area. The co st of all such a udi t s sha ll be borne by al l Le s s ees, excluding th e Unit Op e r ato r, in proportion to the Tra ct Participa tion a s set out in Exhibit " B " he r eto atta ched. 1 9 RIGHTS- OF - WA Y 19. 1 Ri ghts -of - Way. The Unit and Unit Ope rator s hall have an ea s ement 24.
an d right-of-way on, over and across all of the lands i n the Uni t Ar ea for the purpose of laying, const r ucting, building, using, main taining, ope r a t i n g, changi n g, repairing and r emo ving pipe li n es, tanks, telegraph and telephone li n es, water lin es, and other facilities for the developme nt and ope ration of the Unit Area for Oil a n d Gas and fo r the gathering, handling and disposa l of the Unit Production ; pr ovided, the Unit shatl pay al l damages t o g r owing crops, fences, im p roveme nts an d structu r es on the land resul ting from the e xercise of the rights and privileges granted by this paragraph. 1 9.2 Water Rights. The Unit and Unit Operator shal l have free use of water from the lands within the geographical limits of the U n it Area for operations hereunder except water from p r ivate wells, lakes, ponds, or irrigation ditches of the landowners (bu t such exceptions shal l not apply to Lessees). 20 CLAIMS, SUITS AND J UD GEMENTS AGAINST IN DIVIDUAL LESSEES 2 0. 1 Method of Handling. In the event claim is made against any of the Lessees or any such Lessees are sued on account of any matter or thing growin g out of the development and operation of the Unit Area by the Unit and over which such Lessee or Lessees have no control because of the rights, powers and duties herein granted to the Unit or Unit Operator, said Lessee or Lessees shall immediately notify the Operating Committee in writing of such claim or suit. The Operating Committee sha11 assume and take over the further handling of such claim o, r suit and in pursuance thereof may select an attorney or attorneys for that purpose, who subject to the directions of the Operating Committee shall have the exclusive right to direct and control the settiementor defense thereof. Should such claim be settled or final judgement be entered against any such defendant or defendants upon said cause of action and any such defendant is required to pay or satisfy such judgement or expense of litigation in whole o r in part, the amount of such settlement or judgement shall be treated, regarded and paid as any other item of Unit Expense. Nothing herein contained shall apply to or relieve any such Lessee or Lessees of liability which may have accrued prior to the Effective Date of this Plan of Unitization or liability which may arise in consequence of the failure of title of any such Lessee to any Oil and Gas Rights in and to the Unit Area. 2 1 TITLE INFORMATIO N 21.1 Tit l e Information. Upon re q uest of either t he Ope r ating Committ ee o r the Unit Ope r ator, the Lessees of the several Sepa r a tely Owned T r ac t s sha ll furnish and make available to the Unit or the Uni t Opera tor, as the case may be, 2 5.
SECTION PAGE. ' 6 EFFECT OF UNITIZATIO N 6.1 6.2 6. 3 6. 4 6.5 Pooling of Leases R elationship of Lessees N o Transfer of Title Production from U nit A rea Fulfillment of Lease Provision s 4-5 5 5 5 5 7 ALLOCA T ION OF UNIT PRODUCTIO N 7. 1 7.2 7.3 7. 4 7.5 7.6 7. 7 7. 8 Allocation to Tract s D istribution Among Tract Owners Delivery in Kin d Failure to Take in Kind Payme nt of Royalty and Taxes Title in Dispute U se of Production in Ope r ations A ccou nting for Outside Substance s 6 6 6 7 7 6 8 8 8 OPERATING COMMITTE E 8.1 8.2 8. 3 8. 4 8. 5 8. 6 Creation and Representatives Power s Voting Interest Vote Required Poll Vote Notice s 8-9 9-10 1 1 11 11 1 1 9 ORGANIZATION OF UNIT AND EFFECTIVE DAT E 9.1 9.2 9.3 9.4 9.5 9.6 9. 7 Organization Meeting Officer s Effective Dat e Fai lure to Take Over O pe rations Dura ti on Commission Or d e r Final Fil ing of Plan 1 1-1 2 1 2 12 1 2-1 3 1 3 13 1 3 1 0 UNIT OPERA TOR 10.1 10.2 10.3 10.4 Co nduct of O perati ons Ini tia l Unit O perator Dutie s Employees 13-14 1 4 14-15 1 5 ii.
an abstract brought to the date of the request, together with all other title inin the possession and files of such Lessees, original or true copies formatio n of all leases, assignments, contracts, curative matter and all other data and information pertaining to or otherwise affecting titles to the Oil and Gas Rights in and to the Unit Area, 2 2 OTHER FORMATION S 22. 1 Right s. Although there may be other common sources of supply of Oil and Gas overlying or underlying the said Springer Sand common source of supply, this Plan of Unitization shall relate only to the said Springe r Sand common source of supply. Except as specifically provided in this Plan of Unitization, all rights of any and all Persons in and to such other reservoirs or common sources of supply of oil and gas and the production therefrom, togethe r with the right of ingress and egress and the use of the surface of the Unit Area for the exploration, development and operation of such other rese rvoirs or common sources of supply of oil and gas, are expressly reserved un to the separate owners thereof, and shal l, except as provided hereafter remain unaffec t ed by the creation of the Uni t and the adoption of this Plan of Uni tiza tion, all to the same extent as if this Plan of Unitization had not been adopted excepting further that in the exe rcise of such rights the owne r s thereof shall have due r e- ga r d fo r t he rights granted the Unit wi t h respect t o its operations h ereunde r. 22.2 Completion in Zones other than Springer Sand. Except for those - wells taken over by the Unit which are dually completed on the Effective Da te of this Plan of Uni tization, no othe r Unit wells may subsequently be duall y compl eted unless and un til the approval of the Operating Committee is obtai n ed and such completion is made in accordance with the methods prescribed by the O perating Committee. 22.3 Commingled Wells. A Lessee who contributes a well producing from more than one zone shall be obligated to segregate such zones prior to the well being taken over by the Unit in a manner satisfactory to the Operating Committee, the cost of such work to be borne by the Lessees contributing such well. If such zones are not segregated prior to the Effective Date, then such work shall be done by the Unit at the expense of the Lessees contributing such well. 22, 4 R emedial Work by Hart Sand Uni t or Person. The Hart Sand Uni t o r an y Person having the right to search for and p r oduce oil and gas f r om any zones other than the Springer Sand and wishing to recondition, red rill or work over a ny w ell t aken over by the U nit unde r t his Plan of U nitization for t he 26.
production of oil or gas from any formation other than the Springer Sand, shall submit its plan to the Operating Committee for approval, and upon such approva l said work shall be pe rfor med under the supe rvision of the Unit Op e r ator at th e risk, cost an d expense of the Ha r t Sand Unit or Person doing the work. The pro - ductive capaci ty of the Springer Sand in any such well prior to suc h r econdition - ing, r ed r illing or r ewo rking shall be ascertained by the Unit Op e rato r prior to the comme n cement of such wo rk, and the Ha r t Sand Unit or Person so advise d in writing. The Hart Sand Unit or Person shall use al l reasonable, practicabl e and customa ry methods in order to so restore the pro ductivity of the uni tized Springe r San d t o t he satisfaction of the Opera ting Committee. ZZ.5 Remedial Work by Unit. Should the Uni t Operato r at the direction of the Op e r ating Committee do remedial work on the Springe r Sand in any dually comple t e d well, and the cost of such work in the opinion of the Ope rating Committ ee is in excess of what it would have been had the formation other than the S p ringe r Sand n o t been p r oducing in such well, the additional cost of such wor k shall be cha rgeable to the Hart Sand Unit or Person owning such other zone or formation in such well and the Hart Sand Unit or Person shall be liable for such additional cost upon notification of the amount thereof by the Unit Operator. The word s "additional cost" as used above shall mean the difference between the costs in cur red in wo r king ove r, reconditioning or redri l ling a dua l ly comple t ed wel l and the costs for doing the same wo rk on a well which is comple t ed" in the S pr inger San d only. 2 2.6 Remedial Work Required by Operating Committee. When and if the Operating Committee determines that the operation of a well that has bee n dually completed is interfering with the efficiency of the Unit Plan of Operat ion, Unit Operator shall advise the Hart Sand Unit or Person operating such zone o r formation other than the Springer Sand that such formation must be squeeze d off o r r eworked by the Hart Sand Unit or Person under the di r ection of the Uni t Ope r a t o r an d to the satisfaction of the Operating Committee. The work sha l l be done at the so l e risk, cost and expense of said Hart Sand Unit or Perso n. If s ai d Ha r t Sand Unit or Person shal l fail or r efuse to perform said wo rk a s d i rected by Unit Opera t or, then said work shall be performed by Unit Operato r at the sole risk, cost and expense of sai d Hart Sand Unit or Person. S aid Ha rt Sand Unit or Person and Unit Operator may agree upon the amoun t of such costs, but if they fail to agree then the work shall be done on a co mpet - i tive basis, Z 3 ABANDONMENT OF WELLS 23, 1 Abandonment of We l is. If the Operating Committee at any time 27.
desires to abandon any well completed in the Springer Sa nd and salvag e the casand other equipment that is part of the well, the Lessee or Lessees of the ing Separately Owne d T ra ct on which such we ll is loca ted shall be notifie d in w riting of such d e cision and s hall have and be g r anted thirty ( 30 ) days f r om r eceipt of such notice within which to elect to take over such well for the pu rpose of completing the same in so me other forma tion not a pa rt of the Unit Area. Provided that if the well is lccated within the Hart Sand Uni t such Uni t will have a preferential righ t to take ove r such well. T he Hart Sand Unit or any s u c h L essee electing to ta ke ove r such a well shall pay the net sa l vage value of the casing and other equipment in and on the we ll, determined in a ccor dance with Section V of th e Accounti ng Pr ocedure hereto a t tached m ark e d Exh ib it "C", and shall agree to assume fu ll res p onsibilit y for the prope r pluggi n g an d a ban d onment thereof at such time as the well is ultima tely abandoned. No such well shal l be ope rated or used fo r the production of Oil and Gas from the Unit A r ea and to tha t end the Hart Sand Uni t or L essee ta king ove r such well s hall immediately cause the Sp r inge r Sand in suc h well to be sealed off in a mann er satisfac to ry to th e Ope rating Committee, i t being unde r stood that such Separ ately Owned T ra ct shall continue t o pa rt icipa te in Unit Pr oduc t ion despi t e t h e cessatio n of production fr om suc h well. In the even t the Ha rt San d Unit o r Lessee of such a Se pa ra t ely O wne d Tract does no t elect to take ove r such well, the Uni t Ope ra to r shall proceed to p r o perly plug and aband on the same and salvage as muc h of the casing. - and o t her e q uipment therefrom as can economicall y and r easonabl y be sa l vaged. ABANDONMENT OF OPERATIONS AND DISSOLUTION OF UNIT 2 4 24. 1 Time of Abandonmen t. At such tim e as it is de t ermine d by the Operating Committee that Unit Produc tion can no longer be p rodu ced f rom the Unit Ar ea i n paying quan titi es the further development and ope ra tion of the Unit A rea b y the Uni t shall be abandoned, the Unit dissolve d and i t s affa i r s terminated. 2 4. 2 Effec t. Upon aban donmen t of Unit operations : 2 4, 2, 1 If an y well is in the Hart Sand Unit and i s pr oducing from the Hart Sand the well may be acquired by the Hart Sand Unit and the Sp ringe r San d p rope r ly se a led off by s aid Unit. 24. Z, 2 If the well is not producing fro m the Hart Sand the Hart Sand Unit shall have a prefe rential right to acquire suc h well for recompletion in the Hart Sand. 28.