Fill and Sign the Gas Balancing Agreement Agreement Secgov Form

Form 4 EXHIBIT “E” TO OPERATING AGREEMENT GAS BALANCING AGREEMENT 1. Gas Imbalances. Notwithstanding anything to the contrary in the Operating Agreement to which this Gas Balancing Agreement is attached, if any party takes and disposes of less than its percentage interest share of gas (including casinghead gas) produced and saved during any calendar month, then the volume not taken by that party may be taken by any other party or parties. If t he volume is taken by more than one party, then each taking party shall be entitled to t ake the proportion of the gas that its percentage interest bears to the sum of the percentage interest s of all taking parties, or in any other proportions as the taking parties may agree on among themselves. 2. Volumetric Balancing. 2.1 Balancing. Volumetric balancing shall apply to each separate well located on the properties covered by the Operating Agreement. 2.2 Definitions. The term “Cumulative Underproduction” means the amount by which the cumulative volume of gas taken by a party with a particular well is le ss than the cumulative volume that the party was entitled to take according to the part y’s percentage ownership interest in the well; the term “Cumulative Overproduction” means the am ount by which the cumulative volume of gas taken by a party within a particular well exc eeds the cumulative volume that party was entitled to take within the well according to the party’s percentage ownership interest in the well; the term “Underproducer” or “Underproduced Party” means a party credited with Cumulative Underproduction; the term “Overproducer” or “Overproduced Party” means a party charged with Cumulative Overproduction; and the term “Make-Up Gas” means the volume taken by an Underproducer to make up Cumulative Underproduction pursuant to Paragraph 2.4. 2.3 Operator’s Information Requirements and Statement Obligations. Each party taking gas shall notify Operator or cause Operator to be notified, at least two (2) busine ss days prior to the applicable pipeline’s nomination deadline, of the gas volumes the party wishes to take during the following month. No party may take more gas volumes than it is enti tled to pursuant to the terms of this Agreement. Each party shall also provide the information requi red for the Operator to properly allocate monthly gas production, including, but not limited to, the time period for which specific gas volumes are going to be taken, the transporting pipel ine, the transporting pipeline’s contract number, and the pipeline’s meter or station number. On or before the end of each calendar month Operator shall furnish the parties a written stat ement showing for each well for the preceding month: (1) the quantities of gas to which each part y was entitled; (2) the total quantity of gas taken by each party; and, (3) the Cumula tive Overproduction or Cumulative Underproduction of each party under this Agreement. The Non- Operators shall be responsible for providing all data and information specified herein to enable the Operator to perform the duties contemplated by this paragraph. 2.4 Volumetric Make-Up. An Underproducer may give written notice to Operator and all other parties at least fifteen (15) days before the beginning of a calendar month, stating its desire to take Make-Up Gas during that month. Each Overproducer shall promptly notify its purchaser so that the purchaser will adjust its takes to accommodate the Make-Up. The Underproducer shall then be entitled to take Make-Up Gas in accordance with the rat es set out below, but not in excess of its Cumulative Underproduction. To allow for an Underproduced Party to make up and to balance its gas account, an Underproduced Party shall be entit led to take and/or deliver to a purchaser its full entitled share of gas produced from such well (less any used in operations, vented or lost) plus an amount up to an additional _____ percent (_____%) of the monthly quantity of gas attributable to the Overproduced Party or Parties working interest during the Off-Peak period” defined as the months of __________ through __________. During the “Peak Period,” defined as the months of __________ through __________, the Underproduced Party shall only be entitled to take an additional _____ percent (_____%) over its entitl ed share. If more than one Underproduced Party is entitled to take additional gas, they shall divide the additional gas in proportion to their respective working interest ownership in the property covered by the Operating Agreement. The first gas made up shall be assumed to be the fi rst gas underproduced. 2.5 Oil and Other Minerals. Regardless of the volume of gas actually taken by any party, a party shall share, as otherwise provided in the Operating Agreement, in the Production of crude oil, condensate, and other minerals separated from the gas in facilities operated for the joint account. 2.6 Costs and Expenses. Regardless of the volume of gas actually taken by any party, the party shall bear costs and expenses as otherwise provided in the Operating Agreement. 3. Final Cash Balancing. 3.1 Procedure. On permanent cessation of all gas production from the well, the Operator shall submit notice of the cessation to all parties in the well. If a ll the parties in the well have not achieved volumetric gas balance in the well at the time of the notice, then within thirty (30) days of submitting the notice, the Operator shall furnish to all parties a st atement showing the final Cumulative Overproduction and Cumulative Underproduction of each party in the well, and the month and year in which it accrued. In determining the time of accruals, Make- Up Gas shall be applied against Cumulative Overproduction on a first-in-first-out basis. Within sixty (60) days after receipt of Operator’s statement, each Overproducer shall furnish to all other parties a statement showing the value of its Cumulative Overproduction based on the price the Overproducer actually received for the Cumulative Overproduction. Value of the overproduction shall be based on the net proceeds received for the overproduction at the tim e the overproduction occurred. Based on the statements furnished by Overproducers, the net amount owed by or to each party combined shall be calculated by Operator and furnished to all pa rties in a final cash balancing statement. 3.2 Settlements. Within thirty (30) days after receipt of Overproducers’ statement showing value, each Overproducer shall pay each Underproducer in accordance with the statement and without interest. After the thirty-day period, any unpaid amount shall bea r interest in accordance with the Accounting Procedure, Exhibit “C” to the Operating Agreement. T o the extent any value used to calculate a cash settlement is subject to refund by the Overproducer pursuant to law, regulation, or governmental order, the Underproducer entitled to the cash settlement shall, prior to payment, agree in writing to indemnify the Overproducer a gainst the Underproducer’s proportionate part of any refund (including interest) which the Overproducer shall be required to make. Any party may challenge any volumes or values or amounts specifi ed in any of the statements furnished under Paragraph 2.3 or 3.1 above, in the same manner and subject to the same limitations as an invoice from Operator may be challenge d under the Operating Agreement or the Accounting Procedure. The Operator shall not be liable for any misstatements or misrepresentations contained in statements received from others nor sha ll it be responsible for any collection efforts by any Underproduced party against any Overproduced Party. 4. Payments on Production. Each party shall pay all royalties, overriding royalties, production payments, and other such payments on production for which it is obligated by law, lease, or by contract (including the Operating Agreement), and nothing in this Agreement shall be construed as affecting those obligations. Each party agrees to indemnify and hold harmless the other parties to this Agreement against all claims, losses, or liabilities arising out of its failure t o fulfill those obligations. 5. Taxes. All parties shall report and pay income taxes, severance taxes, or other taxes on production based on what the parties actually produce and take. 6. Transfers of Interest. Prior to any transfer of an Overproduced Party’s interest in any well covered by this Agreement to a third party, not a party to this Agreement, the Overproduced Party shall give notice of the transfer to all Underproduced Parties in the well and commence proce dures to effect a cash settlement for its Cumulative Overproduction accrued through the last full month prior to the effective date of the transfer. The procedure and value for the cash settlement shall be the same as that set forth in Sec. 3.1 and 3.2, above, except that the timing will sta rt from the time the transferring Overproducer gives notice of its intent to transfer after which it shall have sixty (60) days to render its statement of value based on the latest month’s statement of Cumulative Overproduction rendered by the Operator. Liability for the cash settlement shall survive the transfer of the Overproduced Party’s interest.