Fill and Sign the Gas Balancing Agreement Form

Form 3 EXHIBIT “E” TO OPERATING AGREEMENT GAS BALANCING AGREEMENT This Gas Balancing Agreement is between ____ (the "Operator") and the other signatory parties to the Agreement (the "Non-Operators"). Operator and Non-Operators are parties to a Joint Operating Agreement dated _____ (the “Operating Agreement”), and sometimes collectively referred to as the "Parties", or individually as a "Party". 1. Ownership of Gas Production. a.It is the intent of the Parties that each Party shall have the right to take in kind and separately dispose of its proportionate share of gas (including casinghead gas) produced from each formation in each well located on the acreage (the "Contract Area") covered by the Operating Agreement. b.Operator shall control the gas production and be responsible for administering the provisions of this Agreement and shall make reasonable efforts to deliver or cause to be delivered gas to the Parties' gas purchasers as may be required in order to balance t he accounts of the Parties in accordance with the provisions of this Agreement. For purposes of this Agreement, Operator shall maintain production accounts of the Parties based on the numbe r of MMBtu's actually contained in the gas produced from a particular formation in a well and delivered at the outlet of lease equipment for each Party's account, regardless of whet her sales of the gas are made on a wet or dry basis. All references in this Agreement to quantity or volume shall refer to the number of MMBtu's contained in the gas stream. Toward this end, Ope rator shall periodically determine or cause to be determined the Btu content of gas produce d from each formation in each well on a consistent basis and under standard conditions pursuant to any method customarily used in the industry. 2. Balancing of Production Accounts. a.Any time a Party, or a Party's purchaser, is not taking or marketing its full share of gas produced from a particular formation in a well (a "Non-Marketing Party"), the remaining Parties (the "Marketing Parties") shall have the right, but not the obligation, to produce, t ake, sell, and deliver for the Marketing Parties' accounts, in addition to the full share of gas to which the Marketing Parties are otherwise entitled, all or any portion of the gas attribut able to a Non- Marketing Party. (Gas attributable to a Non-Marketing Party, taken by a Marketing Party, is referred to in this Agreement as "Overproduction"). If there is more than one Marketing Party taking gas attributable to a Non-Marketing Party, each Marketing Party shall be ent itled to take a Non-Marketing Party's gas in the ratio that the Marketing Party's interest in production bears to the total interest in production of all Marketing Parties. b.A Party that has not taken its proportionate share of gas produced from any formation in a well (an "Underproduced Party") shall be credited with gas in storage equal to its share of gas produced but not taken, less its share of gas used in lease operations, vented or lost (the "Underproduction"). The Underproduced Party, on giving timely written notice to Operator, shall be entitled, on a monthly basis beginning the month following receipt of notice, to produce, take, sell, and deliver, in addition to the full share of gas to which that Party i s otherwise entitled, a quantity of gas ("Make-up Gas") equal to _____ percent (_____%) of the total share of gas attributable to all Parties having cumulative Overproduction (individually called a n "Overproduced Party"). The Make-up Gas shall be credited against the Underproduced Party's accrued Underproduction in order of accrual. Notwithstanding the foregoing and subject to subsection (e) below: (i) an Overproduced Party shall never be obligated to reduce its ta kes to less than _____ percent (_____%) of the quantity to which the Party is otherwise entitled; a nd, (ii) an Underproduced Party shall never be allowed to make up Underproduction during the months of ________. c.If there is more than one Underproduced Party desiring Make-up Gas, each Underproduced Party shall be entitled to Make-up Gas in the ratio that the Party's inte rest in production bears to the total interest in production of all Parties then desiring Make-up Gas. Any portion of the Make-up Gas to which an Underproduced Party is entitled and which is not taken by the Underproduced Party may be taken by any other Underproduced Parties. d.If there is more than one Overproduced Party required to furnish Make-up Gas, each Overproduced Party shall furnish Make-up Gas in the ratio that the Party's interest in production bears to the total interest in production of all Parties then required to furni sh Make-up Gas. Except as provided in (e) below, each Overproduced Party in any formation in a we ll shall be entitled, on a monthly basis, to take its full share of current production less its share of the Make-up Gas then being produced from the particular formation in the well in which it is overproduced. e.If Operator, in good faith, believes an Overproduced Party has recovered one hundred percent (100%) of that Overproduced Party's share of the recoverable reserves from a particular formation in a well, that Overproduced Party, on being notified in writing of that fact by Operator, shall cease taking gas from the formation in the well and the remaining Pa rties shall be entitled to take one hundred percent (100%) of the production until the accounts of the Parties are balanced. Thereafter, the Overproduced Party shall again have the right to take i ts share of the remaining production, if any, in accordance with the provisions in this Agreement. Notwithstanding anything to the contrary, after an Overproduced Party has recovered one hundred percent (100%) of its full share of the recoverable reserves, as determined by Operator from a particular formation in a well, the Overproduced Party may continue to produce if t he continued production is: (i) necessary for lease maintenance purposes; or, (ii) permitted by Parties owing at least a majority in interest who have not produced one hundred percent (100%) of their recoverable reserves from the formation in the well after written ballot conducted by Operator. 3. In Kind or Cash Balancing Upon Depletion. a.If gas production from a particular formation in a well ceases and no attempt i s made to restore production within ____ (____) days, Operator shall distribute, within ____ (____) days of the date the well last produced gas from that formation, a statement of net unrecouped Underproduction and Overproduction and the months and years in which the unrecouped production accrued (the "Final Accounting"). b.Each Overproduced Party shall have the option to either furnish each Underproduced Party Make-up Gas of like vintage from other sources or remit to Operator for disbursement to the Underproduced Parties, a sum of money (which sum shall not include interest) equal to the amount actually received or constructively received, unde r subparagraph (e) below, by Overproduced Party for sales during the month(s) of Overproduction, calculated in order of accrual, less applicable taxes, royalties, and reasonable costs of marketing and transporting the gas for which the Overproduced Party was actually paid. The remittance shall be based on the number of MMBtu's of Overproduction and shall be accompanied by a statement showing the volumes and prices for each month with accrued unrecouped Overproduction. If Make-up Gas is delivered it shall be supplied from sources determined solely by the Overproduced Party. c.Within ____ (____) days of receipt of any remittance by Operator from an Overproduced Party, Operator shall disburse those funds to the Underproduced Party(ies) in accordance with the Final Accounting. Operator assumes no liability with respect to any payment unless the payment is attributable to Operator's overproduction; it being the inte nt of the parties that each Overproduced Party shall be solely responsible for reimbursing each Underproduced Party in accordance with the provisions of this Agreement. If any Party fails to pay any sum due under the terms of this Agreement after demand by the Operator, the Operat or may turn responsibility for the collection of that sum to the Party or Parties to whom it is owed, and Operator shall have no further responsibility for collection. d.In determining the amount of Overproduction for which settlement is due, production taken during any month by an Underproduced Party in excess of the Underproduced Party's share shall be treated as Make-up and shall be applied to reduce prior defic its in the order of accrual of those deficits. e.An Overproduced Party that took gas in kind for its own use, sold gas to an affiliate, or otherwise disposed of gas in other than a cash sale shall pay for that gas at market value at the time it was produced, even if the Overproduced Party sold the gas to an affiliate at a price greater or lesser than market value. f.If any refunds are later required by any governmental authority, each Party shall be accountable for its respective share of any refunds, as finally balanced. 4. Risk of Loss on Underproduced Party. If a producing or producible zone prematurely ceases producing or is not producible prior to the complete and normal depletion of the zone due to mechanical or other problem s, the Underproduced Party bears the loss of its Underproduction to the extent that the Underproduced Party can not prove by clear and convincing evidence that the relevant zone could not ha ve produced adequate gas to settle the imbalances; in which case, an Overproduced Party shall not be obligated to make any kind of settlement (in kind or otherwise) with the Underproduced Party. 5. Deliverability Tests. At the request of any Party, Operator may produce the entire well stream for a deliverability test not to exceed ____ (____) hours in duration (or such longer period of time as may be mutually agreed upon by the Parties) if required under the requesting Party's gas sales or transportation contract. 6. Nominations. Each Party shall, on a monthly basis, give Operator sufficient time and data eithe r to nominate the Party's respective share of gas to the transporting pipeline(s) or, if Operator i s not nominating the Party's gas, to inform Operator of the manner in which to dispatch the Part y's gas. Except as, and to the extent caused by Operator's gross negligence or willful misconduct, Operator shall not be responsible for any fees and/or penalties associated with imbalanc es charged by any pipeline to any Underproduced or Overproduced Parties. 7. Statements. On or before the ____ day of the calendar month following the calendar month of production, each Party taking gas shall furnish or cause to be furnished to Operator a statem ent of gas taken, expressed in terms of MMBtu's. If actual volume information sufficient to prepare the statement is not made available to the taking Party in sufficient time to prepare it, the taking Party shall nevertheless furnish a statement of its good faith estimate of the volumes taken. Within ____ (____) days of the receipt of all statements, Operator shall furnish each Party a statement of the gas balance among the Parties, including the total quantity of gas produced from each formation in each well, the portion used in operations, vented or lost, and the tot al quantity delivered for each Party's account. Any error or discrepancy in Operator's monthly statement shall be promptly reported to Operator and Operator shall make a proper adjustment withi n ____ (____) days after final determination of the correct quantities involved; provided, however, if no errors or discrepancies are reported to Operator within ____ (____) days from the date of any statement, the statement shall be conclusively deemed to be correct. Additi onally, within ____ (____) days from the end of each calendar year, Non-operators shall furnish Operator, for the sole purpose of establishing records sufficient to verify cash balancing values, a statement reflecting amounts actually received or constructively received under paragraph 3.(e), on a monthly basis, for the calendar year preceding the immediately concluded calenda r year. Operator may prohibit a Party from producing gas for its account during any month when the Party is delinquent in furnishing the monthly or annual statements. 8. Payment of Taxes. Each Party taking gas shall pay or cause to be paid any and all production, severance, utility, sales, excise, or other taxes due on that gas. 9. Operating Expenses.The operating expenses are to be borne in the manner provided in the Operating Agreement, regardless of whether all Parties are selling or using gas or whether the sale and use of each are in proportion to their respective interests in the gas. 10. Overproducing Allowable. Each Party shall give Operator sufficient time and data to enable Operator to m ake appropriate nominations, forecasts and/or filings with the regulatory bodies having jurisdiction t o establish allowables. Each Party shall at all times regulate its takes and deliveries from the Contract Area so that the well(s) subject to this Agreement shall not curtailed and/or shut-in for overproducing the assigned allowable production by the regulatory body having jurisdiction. 11. Payment of Leasehold Burdens. At all times while gas is produced from the Contract Area covered by the Operating Agreement, each Party agrees to make appropriate settlement of all royalties, ove rriding royalties and other payments out of or in lieu of production for which a Party is responsible, just as if t he Party were taking or delivering to a purchaser the Party's full share, and the Party's full sha re only, of the gas production, exclusive of gas used in operations, vented, or lost. Each Party agrees to indemnify and hold each other Party harmless from any and all claims relating to the payment of leasehold burdens. 12. Application of Agreement. The provisions of this Agreement shall be separately applicable and shall constitute a separate agreement with respect to gas produced from each formation in each well l ocated on the Contract Area. 13. Term. This Agreement shall terminate when gas production under the Operating Agreement permanently ceases and the accounts of the parties are finally settled in acc ordance with its provisions. 14. Operator's Liability. Except as otherwise provided in this Agreement, Operator is authorized to administer the provisions of this Agreement, but shall have no liability to the other Parties for losses sustained or liability incurred which arise out of or in connection with the performance of Operator's duti es (including Operator's negligence) except as may result from Operator's gross negligence or willful misconduct. 15. Audits. Any Underproduced Party shall have the right for a period of ____ (____) after receipt of payment pursuant to a Final Accounting and after giving written notice to all Partie s, to audit an Overproduced Party's accounts and receipts relating to a payment. Any Overproduced Party shall have the right for a period of ____ (____) after tender of payment for unrecouped volumes and on giving written notice to all Parties, to audit an Underproduced Party's records as to volumes. The Party conducting the audit shall bear the costs of the audit. Additionally, Ope rator shall have the right for a period of ____ (____) after receipt of an annual statement from a Non- operator, under paragraph 6. after giving written notice, to audit the affected Non-operator's accounts and records relating to a payment. The costs of the audit shall be borne by t he joint accounts. 16. Operator's Fees. Operator shall charge the joint account of the Parties $____ per formation in each well, per month, for each month during which Operator maintains balancing accounts for a well. 17. Liquefiable Hydrocarbons Not Covered Under Agreement.The Parties shall share proportionately in and own all liquid hydrocarbons recovered with the gas by lease equipment, in accordance with their respective interests. Nothing in this Gas Balancing Agreement shall cause the Operator to produce a well or reservoir at higher than maximum allowable rates which might have been establishe d by a regulatory authority. 18. Conflict. If there is a conflict between the terms of this Agreement and the terms of any ga s sales contract entered into by any Party covering the Contract Area subject to the Operati ng Agreement, the terms of this Agreement shall govern. This Agreement is executed by Operator and Non-Operators and shall be deemed effective for all purposes as of _____. Operator Non-Operators