Fill and Sign the Reporting on Federal Units and Communitization Agreements Form

EXPLORATORY UNIT AGREEMENT EXPLORATORY UNIT AGREEMENT Index 1. ENABLING ACT AND REGULATIONS 2. UNIT AREA 3. UNITIZED LAND AND UNITIZED SUBSTANCES 4. UNIT OPERATOR 5. RESIGNATION OR REMOVAL OF UNIT OPERATOR 6. SUCCESSOR UNIT OPERATOR 7. ACCOUNTING PROVISIONS AND UNIT OPERATING AGREEMENT 8. RIGHTS AND OBLIGATIONS OF UNIT OPERATOR 9. DRILLING TO DISCOVERY 10. PLAN OF FURTHER DEVELOPMENT AND OPERATION 11. PARTICIPATION AFTER DISCOVERY 12. ALLOCATION OF PRODUCTION 13. DEVELOPMENT OR OPERATION OF NONPARTICIPATING LAND OR FORMATIONS 14. ROYALTY SETTLEMENT 15. RENTAL SETTLEMENT 16. CONSERVATION 17. DRAINAGE 18. LEASES AND CONTRACTS CONFORMED AND EXTENDED 19. COVENANTS RUN WITH LAND 20. EFFECTIVE DATE AND TERM 21. RATE OF PROSPECTING, DEVELOPMENT, AND PRODUCTION 22. APPEARANCES 23. NOTICES 24. NO WAIVER OF CERTAIN RIGHTS 25. UNAVOIDABLE DELAY 26. NONDISCRIMINATION 27. LOSS OF TITLE 28. NONJOINDER 29. COUNTERPARTS 30. SURRENDER 31. TAXES 32. NO PARTNERSHIP 33. WILDLIFE STIPULATION 34. FOREST LAND STIPULATIONS 35. RECLAMATION LANDS 36. POWERSITES EXPLORATORY UNIT AGREEMENT FOR THE DEVELOPMENT AND OPERATION OF THE __________________________ UNIT AREA COUNTY OF _________________________ STATE OF ___________________________ CONTRACT NO. _____________________ THIS AGREEMENT is entered into as of __________________________________, (the “Effective Date”) between the parties subscribing, ratifying, or consenting to it, a nd referred to as the “parties.” The Parties are the owners of working, royalty, or other oil and gas interests in the unit area subject to this Agreement. The Mineral Leasing Act of February 25, 1920, 41 Stat. 437, as amended, 30 U.S.C. Sec. 181 et seq., authorizes Federal lessees and their representatives to unite with eac h other, or jointly or separately with others, in collectively adopting and operating under a unit plan of development or operations of all or any part of any oil and gas pool, field, or like area, for the purpose of more properly conserving the natural resources whenever determined and certified by the Secretary of the Interior to be necessary or advisable in the public interest. The Parties hold sufficient interests in the ___________ Unit Area covering the land described in this Agreement to give reasonably effective control of operations. It is the purpose of the Parties to conserve natural resources, prevent waste, and secure other benefits obtainable through development and operation of the area subject to this Agreement under the terms, conditions, and limitations contained in this Agreement. In consideration of the premises and the promises contained in this Agreement, the Parties commit to this Agreement their respective interests in the unit area defined below, and agree among themselves as follows: 1. ENABLING ACT AND REGULATIONS. The Mineral Leasing Act of February 25, 1920, as amended, supra, and all valid pertinent regulations including operating and unit plan regulations, that have been issued under it or va lid, pertinent, and reasonable regulations later issued under it are accepted and made a part of this Agreement as to Federal lands, provided those regulations are not inconsistent with the t erms of this Agreement; and as to non-Federal lands, the oil and gas operating regulations in effect as of the Effective Date of this governing drilling and producing operations, not inconsistent with t he terms of this Agreement or the laws of the state in which the non-Federal land is located, are accepted and made a part of this Agreement. 2. UNIT AREA. The area specified on the map as Exhibit “A” is designated and recognized as const ituting the unit area, containing ___________ acres, more or less. Exhibit “A” shows, in addition to the boundary of the Unit Area, the boundaries and identity of tracts and leases in the area to the extent known to the unit operat or. Exhibit “B” is a schedule showing, to the extent known to the unit operator, the acreage, percentage, and kind of ownership of oil and gas interests in all lands in the unit area. However, nothing in this Agreement or in Exhibits “A” and “B” shall be construed as a representation by any Part y as to the ownership of any interest other than the interest or interests as are shown in the E xhibits as owned by a Party. Exhibits “A” and “B” shall be revised by the unit operator whenever change s in the unit area or in the ownership interests in the individual tracts render a revi sion necessary, or when requested by the Authorized Officer, referred to as “AO,” and not less than four copies of the revised Exhibits shall be filed with the proper Bureau of Land Management (BLM) office. The unit area shall, when practicable, be expanded to include any additional lands or shall be contracted to exclude lands whenever an expansion or contraction is deemed to be nec essary or advisable to conform with the purposes of this Agreement. An expansion or contraction shall be effected in the following manner: (a) The unit operator, on its own motion (after preliminary concurrence by the AO), or on demand of the AO, shall prepare a notice of proposed expansion or contraction describing the contemplated changes in the boundaries of the unit area, the reasons for it, any pl ans for additional drilling, and the proposed effective date of the expansion or contraction, preferably the first day of the month subsequent to the date of notice. (b) This notice shall be delivered to the proper BLM office, and copies of it mailed to the last known address of each working interest owner, lessee, and lessor whose interests are affected, advising that 30 days will be allowed for submitting any objections to the unit operator. (c) On expiration of the 30-day period provided in the preceding item (b), the unit operator shall file with the AO evidence of mailing of the notice of expansion or contraction and a copy of any objections which have been filed with the unit operator, together with an application, in quadruplicate, for approval of the expansion or contraction and with appropriate joinders. (d) After due consideration of all pertinent information, the expansion or contraction shall, on approval by the AO, become effective as of the date prescribed in the notice of it or any other appropriate date. (e) All legal subdivisions of lands (i.e., 40 acres by Government survey or its nearest lot or tract equivalent; in instances of irregular surveys, unusually large lots or tracts shall be considered in multiples of 40 acres or the nearest aliquot equivalent), no parts of which are in or entitled to be in a participating area on or before the fifth anniversary of the effective date of the first initial participating area established under this Agre ement, shall be eliminated automatically from this Agreement, effective as of the fifth (5t h) anniversary, and the lands shall no longer be a part of the unit area and shall no longer be subject to this Agreement, unless diligent drilling operations are in progress on unitiz ed lands not entitled to participation on the fifth (5th) anniversary, in which event all the lands shall remain subject to this Agreement for so long as drilling operations are continued diligently, with not more than 90-days time elapsing between the completi on of one well and the commencement of the next well. All legal subdivisions of lands not entitled to be in a participating area within 10 years after the effective da te of the first initial participating area approved under this Agreement shall be automaticall y eliminated from this Agreement as of the tenth (10th) anniversary. The unit operator shall, within 90 days after the effective date of any elimination, describe the area so elim inated to the satisfaction of the AO and promptly notify all parties in interest. All lands reasonabl y proved productive of unitized substances in paying quantities by diligent drilling operations after the described 5-year period shall become participating in the sa me manner as during the first 5-year period. However, when diligent drilling operations cease, all nonparticipating lands not then entitled to be in a participating area shall be automatically eliminated effective as of the 91st day of that event. Any expansion of the unit area pursuant to this Section which embraces lands previously eliminated pursuant to this Subsection 2(e) shall not be considered an automatic com mitment or recommitment of those lands. If conditions warrant extension of the ten (10) year period specified in this subsection, a single extension of not to exceed two (2) years may be accomplished by consent of the owners of ninety percent (90%) of the working interest in the current nonparticipating unitized lands and the owners of sixty percent (60%) of the basic royal ty interests (exclusive of the basic royalty interests of the United States) in nonparti cipating unitized lands with approval of the AO, provided the extension application is submitted not l ater than sixty (60) days prior to the expiration of the ten (10) year period. 3. UNITIZED LAND AND UNITIZED SUBSTANCES. All land now or later committed to this Agreement or unleased Federal land shal l constitute land referred to in this Agreement as “Unitized Land” or “land subject t o this Agreement.” All oil and gas in any and all formations of the Unitized Land are uni tized under the terms of this Agreement and herein are called “Unitized Substances.” 4. UNIT OPERATOR. __________ is designated as unit operator and by signature to this Agreement as unit operator agrees and consents to accept the duties and obligations of unit operator for the discovery, development, and production of unitized substances as provided for in this Agreement. Whenever reference is made to the unit operator, the reference means the unit operator acting in that capacity and not as an owner of interest in unitized substances, and the term “working interest owner” when used in this Agreement shall include or refer to the unit operator as the owner of a working interest only when an interest is owned by it. 5. RESIGNATION OR REMOVAL OF UNIT OPERATOR. The unit operator shall have the right to resign at any time prior to the establ ishment of a participating area or areas, but a resignation shall not become effective so as t o release the unit operator from the duties and obligations of unit operator and terminate the unit operator's right s for a period of six (6) months after notice of intention to resign has been served by the unit operator on all working interest owners and the AO and until all wells then drilled are placed in a satisfactory condition for suspension or abandonment, whichever is required by the AO, unless a new unit operator shall have been selected and approved and shall have taken over and assumed the duties and obligations of unit operator prior to the expiration of that period. The unit operator shall have the right to resign in like manner and subject to l ike limitations as provided above at any time after a participating area establi shed by this Agreement is in existence, but in all instances of resignation or removal, until a successor unit operator is selected and approved, the working interest owners shall be jointly responsible for performance of the duties of unit operator, and shall not later than thirty (30) days before the resignat ion or removal becomes effective appoint a common agent to represent them in any acti on to be taken under this Agreement. The resignation of the unit operator shall not release the unit operator from any li ability for any default by it occurring prior to the effective date of its resignation. The unit operator may, on default or failure in the performance of its duties or obligations, be subject to removal by the same percentage vote of the owners of working interests provided for the selection of a new unit operator. The removal shall be effecti ve on notice of it to the AO. The resignation or removal of the unit operator under this Agreement shall not terminate its right, title, or interest as the owner of working interest or other interest in uniti zed substances, but on the resignation or removal of the unit operator becoming effective, unit operator shall deliver possession of all wells, equipment, materials, and appurtenances used in conduct ing the unit operations to the new duly qualified successor unit operator, or to the common agent if no new unit operator is selected, to be used for the purpose of conducting unit operations. Nothing in this Agreement shall be construed as authorizing removal of any material, equipme nt, or appurtenances needed for the preservation of any wells. 6. SUCCESSOR UNIT OPERATOR. Whenever the unit operator shall tender its resignation as unit operator or shall be removed as provided above, or a change of unit operator is negotiated by the working interest owners, the owners of the working interests according to their respective acreage interests in all unitized land shall, pursuant to the approval of the Parties requirements of the Unit Operating Agreement, select a successor unit operator. This selection shall not become effective until: (a) A unit operator so selected shall accept in writing the duties and responsibiliti es of the unit operator; and, (b) The selection shall have been approved by the AO. If no successor unit operator is selected and qualified, the AO at his election may de clare this Unit Agreement terminated. 7. ACCOUNTING PROVISIONS AND UNIT OPERATING AGREEMENT. If the unit operator is not the sole owner of working interests, costs and expenses incurred by the unit operator in conducting unit operations shall be paid and apportioned among and borne by the owners of working interests, all in accordance with the agreement or agreement s entered into between the unit operator and the owners of working interests, whether one or more , separately or collectively. Any agreement or agreements entered into between the worki ng interest owners and the unit operator as provided in this Section, whether one or more, are referred to as the “Unit Operating Agreement.” The Unit Operating Agreement shall also provide the manner in which the working interest owners shall be entitled to receive t heir respective proportionate and allocated share of the benefits accruing in conformity wit h their underlying operating agreements, leases, or other independent contracts, and any other rights and obligations as between the unit operator and the working interest owners as may be agreed on by the unit operator and the working interest owners; however, no Unit Operating Agreement shall be deemed to either modify any of the terms and conditions of this Unit Agreement or t o relieve the unit operator of any right or obligation established under this Unit Agreement, and in t he case of any inconsistency or conflict between this Agreement and the Unit Operating Agreement, this Agreement shall govern. Two copies of any Unit Operating Agreement executed pursuant to this Section shall be filed in the proper BLM office prior to approval of this Unit Agreement. 8. RIGHTS AND OBLIGATIONS OF UNIT OPERATOR. Except as otherwise specifically provided in this Agreement, the exclusive right, privilege, and duty of exercising any and all rights of the Parties which are necessary or convenient for prospecting for, producing, storing, allocating, and distributing the Unitized Substances are delegated to and shall be exercised by the unit operator. Acceptable e vidence of title to those rights shall be deposited with the unit operator and, together with t his Agreement, shall constitute and define the rights, privileges, and obligations of unit operator. Nothi ng in this Agreement shall be construed to transfer title to any land or to any lease or operati ng agreement, it being understood that under this Agreement the unit operator, in its capacity as Uni t Operator, shall exercise the rights of possession and use vested in the Parties only for the purposes specified in this Agreement. 9. DRILLING TO DISCOVERY. Within six (6) months after the Effective Date, the unit operator shall commence to drill an adequate test well at a location approved by the AO, unless on the effective dat e a well is being drilled in conformity with the terms of this Agreement, and then continue the dril ling diligently until the _____ formation has been tested or until at a lesser depth Unit ized Substances shall be discovered which can be produced in paying quantities (that is, quantities sufficie nt to repay the costs of drilling, completing, and producing operations, with a reasonable profit) or t he unit operator shall at any time establish to the satisfaction of the AO that furthe r drilling of the well would be unwarranted or impracticable; provided, however, that the unit operator shall not in any event be required to drill the well to a depth in excess of ______ feet. Unti l the discovery of Unitized Substances capable of being produced in paying quantities, the unit operator shall continue drilling one well at a time, allowing not more than six (6) months between the completion of one well and the commencement of drilling operations for the next well , until a well capable of producing Unitized Substances in paying quantities is completed to t he satisfaction of the AO, or until it is reasonably proved that the Unitized Land is inc apable of producing Unitized Substances in paying quantities in the formations drilled. Nothing in this Section shall be deemed to limit the right of the unit operator to resign, as provide d in Section 5, or as requiring the unit operator to commence or continue any drilling during the period pendi ng a resignation becoming effective, in order to comply with the requirements of this Se ction. The AO may modify any of the drilling requirements of this Section by granting reasonable extensions of time when, in his opinion, that action is warranted. Until the establishment of a participating area, the failure to commence a well subsequent to the drilling of the initial obligation well, or in the case of multiple wel l requirements, if specified, subsequent to the drilling of those multiple wells, as provided for in this Sec tion, within the time allowed including any extension of time granted by the AO, shall ca use this Agreement to terminate automatically. On the failure to continue drilling dil igently any well other than the obligation well(s), the AO may, after fifteen (15) days notice to the unit operator, declare this Unit Agreement terminated. Failure to commence drilling the ini tial obligation well, or the first of multiple obligation wells, on time and to drill it diligently sha ll result in the Unit Agreement approval being declared invalid ab initio by the AO. In the case of multipl e well requirements, failure to commence drilling the required multiple wells beyond the first well, and to drill them diligently, may result in the unit approval being declared invalid ab initio by the AO. * Optional/Substitute Section 9. (Select One. An Agreement submitted for final approval should not identify a section or provision as "optional.") *9. DRILLING TO DISCOVERY. Within six (6) months after the effective date of this Agreement, the unit operator sha ll commence to drill an adequate test well at a location approved by the AO, unless on the effective date a well is being drilled in conformity with the terms of this Agreement, a nd then continue the drilling diligently until the _____________ formation has been tested or until at a lesser depth Unitized Substances shall be discovered which can be produced in paying quantities (that i s, quantities sufficient to repay the costs of drilling, completing, and producing operations, with a reasonable profit) or the unit operator shall at any time establish to the satisfa ction of the AO that further drilling of the well would be unwarranted or impracticable; provided, however, that unit operator shall not in any event be required to drill said well to a depth in exc ess of _______ feet. Notwithstanding anything in this Unit Agreement to the contrary, except Section 25., (UNAVOIDABLE DELAY), _____ wells shall be drilled with not more than six (6) months time elapsing between the completion of the first well and commencement of dri lling operations for the second well and with not more than six (6) months time elapsing between complet ion of the second well and the commencement of drilling operation for the third well, regardle ss of whether a discovery has been made in any well drilled under this provision. Both the ini tial well and the second well must be drilled in compliance with the specified formati on or depth requirements in order to meet the dictates of this Section; and, the second we ll must be located a minimum of _________ miles from the initial well in order to be accepted by the AO a s the second unit test well, within the meaning of this Section. The third test well sha ll be diligently drilled, at a location approved by the AO, to test the ___________ formation or to a depth of _______ feet, whichever is the lesser, and must be located a minimum of ______ miles from both the initial and the second test wells. Nevertheless, in the event of the discovery of Unitized Substances in paying quantities by any well, this Unit Agreement shall not terminate for failure to complete the ____ well program but the unit area shall be contracted automati cally, effective the first day of the month following the default, to eliminate by subdivisions (as defined in Section 2(e)) all lands not then entitled to be in a participating area. Until the discovery of Unitized Substances capable of being produced in paying quantities, the unit operator shall continue drilling one well at a time, allowing not more than six (6) months between the completion of one well and the commencement of drilling operations for the next well , until a well capable of producing Unitized Substances in paying quantities is completed to t he satisfaction of the AO or until it is reasonably proved that the Unitized Land is inc apable of producing Unitized Substances in paying quantities in the formations drilled. Nothing in this Section shall be deemed to limit the right of the unit operator to resign as provide d in Section 5., or requiring the unit operator to commence or continue any drilling during the period pending t he resignation becoming effective in order to comply with the requirements of this Sect ion. The AO may modify any of the drilling requirements of this Section by granting reasonable extensions of time when, in his opinion, that action is warranted. On the failure to commence any well as provided for in this Section within the t ime allowed, prior to the establishment of a participating area, including any extension of time granted by the AO, this Agreement will automatically terminate. On the failure to continue drilling diligently any well commenced, the AO may, after fifteen (15) days notic e to the unit operator, declare this Unit Agreement terminated. The Parties to this Agreement may not initiate a request to voluntarily terminate this Agreement during the first six (6) months of its t erm unless at least one obligation well has been drilled in accordance with the provisions of this Section. 10. PLAN OF FURTHER DEVELOPMENT AND OPERATION. Within six (6) months after completion of a well capable of producing Unitized Substances in paying quantities, the unit operator shall submit for the approval of the AO a n acceptable Plan of Development and Operation for the Unitized Land which, when approved by the AO, shall constitute the further drilling and development obligations of the unit operator under this Agreement for the period specified. After that time, from time to time before the expiration of any existing plan, the unit operator shall submit for the approval of the AO a plan for an additional specified period for the development and operation of the Unitized L and. Subsequent plans should normally be filed on a calendar year basis not later than March 1 each year. Any proposed modification or addition to the existing plan should be filed as a supplem ent to the plan. Any plan submitted pursuant to this Section shall provide for the timely exploration of the Unitized Area, and for the diligent drilling necessary for determination of the a rea or areas capable of producing Unitized Substances in paying quantities in each and every productive formation. This plan shall be as complete and adequate as the AO may determine t o be necessary for timely development and proper conservation of the oil and gas resources in the unitized area and shall: (a) Specify the number and locations of any wells to be drilled and the proposed order and time for such drilling; and, (b) Provide a summary of operations and production for the previous year. Plans shall be modified or supplemented when necessary to meet changed conditions or to protect the interests of all parties to this Agreement. Reasonable diligence shall be exercised in complying with the obligations of the approved Plan of Development and Operation. The AO is authorized to grant a reasonable extension of the six (6) month period prescribed for submission of an initial Plan of Development and Operation where that action is justified be cause of unusual conditions or circumstances. After completion of a well capable of producing Unitized Substances in paying quantities, no further wells, except those that may be necessary to afford protection against operations not under this Agreement and as may be specifically approved by the AO, shall be drilled except in accordance with an approved plan of development and operation. 11. PARTICIPATION AFTER DISCOVERY. On the completion of a well capable of producing Unitized Substances in paying quantities, or as soon after that time as required by the AO, the unit operator shall submi t for approval by the AO, a schedule, based on subdivisions of the public land survey or aliquot parts of it, of all land then regarded as reasonably proved to be productive of Unitized Substanc es in paying quantities. These lands shall constitute a participating area on approval of the AO, effective as of the date of completion of the well or the Effective Date of t his Unit Agreement, whichever is later. The acreages of both Federal and Non-Federal lands shall be based on appropriate computations from the courses and distances shown on the last approved public land survey as of the effective day of each initial participating area. The schedule shall also set forth the percentage of Unitized Substances to be allocated, as provided in Section 12. (ALLOCATION OF PRODUCTION), to each committed tract in the participating area established, and shall govern the allocation of production commencing with the effecti ve date of the Participating Area. A different participating area shall be established for each separate pool or deposit of Unitized Substances or for any group of them which is produced as a single pool or zone, and any two or more participating areas established may be combined into one, on approval of the AO. When production from two or more participating areas is subsequently found to be from a common pool or deposit, the participating areas shall be combined into one , effective as of the appropriate date as may be approved or prescribed by the AO. The participating area or areas established shall be revised from time to time, subj ect to the approval of the AO, to include additional lands then regarded as reasonably proved to be productive of Unitized Substances in paying quantities or which are necessary for unit operations, or to exclude lands then regarded as reasonably proved not to be productive of Unitized Substances in paying quantities, and the schedule of allocation percentages shall be revised accordingl y. The effective date of any revision shall be the first of the month in which the knowledge or information is obtained on which the revision is predicated; provided, however, that a more appropriate effective date may be used if justified by the unit operator and approved by the AO. No land shall be excluded from a participating area on account of depletion of its Unit ized Substances, except that any participating area established under the provisions of this Uni t Agreement shall terminate automatically whenever all completions in the formation on which the participating area is based are abandoned. It is the intent of this Section that a participating area shall represent t he area known or reasonably proved to be productive of Unitized Substances in paying quantities or which are necessary for unit operations; but, regardless of any revision of the participating area, nothing contained in this Agreement shall be construed as requiring any retroactive adjustment for production obtained prior to the effective date of the revision of the participating area. In the absence of agreement at any time between the unit operator and the AO as t o the proper definition or redefinition of a participating area, or until a participating a rea has, or areas have, been established, the portion of all payments affected shall, except royalty due the United States, be impounded in a manner mutually acceptable to the owners of committe d working interests. Royalties due the United States shall be determined by the AO and that amount shall be deposited, as directed by the AO, until a participating area is finally approved and then adjusted in accordance with a determination of the sum due as Federal royalty on the basis of t he approved participating area. Whenever it is determined, subject to the approval of the AO, that a well drille d under this Agreement is not capable of production of Unitized Substances in paying quantities and inclusion in a participating area of the land on which it is situated is unwarranted, production from the well shall, for the purposes of settlement among all parties other than working int erest owners, be allocated to the land on which the well is located, unless the land is already within the participating area established for the pool or deposit from which the production is obtained. Settlement for working interest benefits from a nonpaying unit well shall be made as provi ded in the Unit Operating Agreement. 12. ALLOCATION OF PRODUCTION. All Unitized Substances produced from each participating area established under this Agreement, except any part used in conformity with good operating practices within the unit ized area for drilling, operating, and other production or development purposes, for repressuring or recycling in accordance with a Plan of Development and Operations which has been approved by the AO, or unavoidably lost, shall be deemed to be produced equally on an acreage basis from the several tracts of Unitized Land of the participating area established for the production. For the purpose of determining any benefits accruing under this Agreement, each tract of Uniti zed Land shall have allocated to it the percentage of the production as the number of a cres of a tract included in the participating area bears to the total acres of Unitized Land in the participating area, except that allocation of production for purposes other than for settlement of the royal ty, overriding royalty, or payment out of production obligations of the respective working interest owner, shall be on the basis prescribed in the Unit Operating Agreement whether in conformity with the basis of allocation provided for in this Agreement or otherwise. It is agreed that production of Unitized Substances from a participating area shall be allocated as provide d regardless of whether any wells are drilled on any particular part or tract of the part icipating area. For unleased Federal acreage, the unit operator must set aside all funds attributabl e to unleased Federal acreage in an interest earning escrow or trust account. If any gas produced from one participating area is used for repressuring or recycling purposes in another participating area , the first gas withdrawn from the latter participating area for sale during the life of this Agreement, shall be considered to be the gas so transferred, until an amount equal to that transferred shall be produced for sale and that gas shall be allocated to the participating area from whi ch initially produced as that area was defined at the time the transferred gas was finally produced and sold. 13. DEVELOPMENT OR OPERATION OF NONPARTICIPATING LAND OR FORMATIONS. Any operator may, with the approval of the AO, at the party’s sole risk, costs, and expense, drill a well on the Unitized Land to test any formation provided the well is outside any participating area established for that formation, unless within ninety (90) days of receipt of notice from the party of its intention to drill the well, the unit operator elec ts and commences to drill the well in a like manner as other wells are drilled by the unit operat or under this Agreement. If any well drilled under this Section by a non-unit operator results in production of Unitized Substances in paying quantities that the land on which it is situated m ay properly be included in a participating area, a participating area shall be established or enlarged as provided in this Agreement and the well shall then be operated by the unit operator in acc ordance with the terms of this Agreement and the Unit Operating Agreement. If any well drilled under this Section by a non-unit operator obtains production in quantities insufficient to justify the inclusion of the land on which the well is situa ted in a participating area, that well may be operated and produced by the party drilling i t, subject to the conservation requirements of this Agreement. The royalties in amount or value of production from any such well shall be paid as specified in the underlying lease and agreements affected. 14. ROYALTY SETTLEMENT. The United States and any royalty owner who is entitled to take in kind a share of the substances now unitized by this Agreement shall be entitled to the right to take in kind its share of the Unitized Substances, and the unit operator, or the non-unit operator in the case of the operation of a well by a non-unit operator, shall make deliveries of the royalty share ta ken in kind in conformity with the applicable contracts, laws, and regulations. Settlement for royalty interest not taken in kind shall be made by an operator responsible for it under existing c ontracts, laws, and regulations, or by the unit operator on or before the last day of each month for Uniti zed Substances produced during the preceding calendar month; provided, however, that nothing in this Section shall operate to relieve the responsible Parties of any land from thei r respective lease obligations for the payment of any royalties due under their leases. If gas obtained from lands not subject to this Agreement is introduced into any participating area, for use in repressuring, stimulation of production, or increasing ultimate recovery, in conformity with a Plan of Development and Operation approved by the AO, a like amount of gas, after settlement as provided for any gas transferred from any other participati ng area and with appropriate deduction for loss from any cause, may be withdrawn from the formation into which the gas is introduced, royalty free as to dry gas, but not as to any produc ts which may be extracted from it; provided, that the withdrawal shall be at time s as may be provided in the approved Plan of Development and Operation or as may otherwise be consented to by the AO as conforming to good petroleum engineering practice; and, provided further, that this right of withdrawal shall terminate on the termination of this Unit Agreement. Royalty due the United States shall be computed as provided in 30 CFR Group 200 and paid in value or delivered in kind as to all Unitized Substances on the basis of the a mounts of it allocated to Unitized Federal Land as provided in Section 12. at the rates speci fied in the respective Federal leases, or at other rate or rates as may be authorized by law or regulation and approved by the AO; provided, that for leases on which the royalty rate depends on the daily average production per well, the average production shall be determined in accordance with the operating regulations as though each participating area were a single consolidated lease. 15. RENTAL SETTLEMENT. Rental or minimum royalties due on leases committed to this Agreement shall be paid by the appropriate Parties under existing contracts, laws, and regulations, provided that nothing contained in this Agreement shall operate to relieve the responsible Parties of any land from their respective obligations for the payment of any rental or minimum royalty due under their l eases. Rental or minimum royalty for lands of the United States subject to this Agreement shall be paid at the rate specified in the respective leases from the United States unless t he rental or minimum royalty is waived, suspended, or reduced by law or by approval of the Secretary or his duly authorized representative. With respect to any lease on non-Federal land containing provisions which would terminate the lease unless drilling operations are commenced on the land covered by it within the time it specifies or rentals are paid for the privilege of deferring drilling operations, the required rentals shall, notwithstanding any other provision of this Agreement, be deemed to accrue and become payable during the term of the Lease as extended by this Agreement and until the required drilling operations are commenced on the land covered by it, or until some port ion of that land is included within a participating area. 16. CONSERVATION. Operations under this Agreement and production of Unitized Substances shall be conducted to provide for the most economical and efficient recovery of those substances without waste, as defined by or pursuant to State or Federal law or regulation. 17. DRAINAGE. The unit operator shall take those measures as the AO deems appropriate and adequa te to prevent drainage of Unitized Substances from Unitized Land by wells on land not subject to t his Agreement, which shall include the drilling of protective wells and which may inc lude the payment of a fair and reasonable compensatory royalty as determined by the AO. 18. LEASES AND CONTRACTS CONFORMED AND EXTENDED. The terms, conditions, and provisions of all leases, subleases, and other contracts relating to exploration, drilling, development, or operation for oil or gas on lands committed to this Agreement are expressly modified and amended to the extent necessary to make them conform to the provisions of this Agreement, but otherwise to remain in full force and effect; a nd, the Parties consent that the Secretary shall and by his approval, or by the approval by his duly authorized representative, do establish, alter, change, or revoke the drilling, producing, rent al, minimum royalty, and royalty requirements of Federal leases committed to this Agree ment and the regulations in respect to it to conform those requirements to the provisions of this Agre ement, and, without limiting the generality of the foregoing, all leases, subleases, and contra cts are particularly modified in accordance with the following: (a) The development and operation of lands subject to this Agreement under its terms shall be deemed full performance of all obligations for development and operation with respect to each and every separately owned tract subject to this Agreement, regardl ess of whether there is any development of any particular tract of the unit area. (b) Drilling and producing operations performed on any tract of Unitized Lands will be accepted and deemed to be performed on and for the benefit of each and every trac t of Unitized Land, and no lease shall be deemed to expire by reason of failure to drill or produce wells situated on the land included in the lease. (c) Suspension of drilling or producing operations on all Unitized Lands pursuant to direction or consent of the AO shall be deemed to constitute the suspension pursuant to the direction or consent as to each and every tract of Unitized Land. A suspension of drilling or producing operations limited to specified lands shall be applicable only to those lands. (d) Each lease, sublease, or contract relating to the exploration, drilling, development, or operation for oil or gas of lands other than those of the United States committed to this Agreement which, by its terms might expire prior to the termination of this Agreement, i s extended beyond any term provided in them so that it shall be continued in full force a nd effect for and during the term of this Agreement. (e) Any Federal lease committed to this Agreement shall continue in force beyond the term provided in the Lease or by law as to the land committed so long as the lease remains subject to this Agreement, provided that production of Unitized Substance in paying quantities is established under this Unit Agreement prior to the expiration dat e of the term of the lease, or in the event actual drilling operations are commenc ed on Unitized Land, in accordance with provisions of this Agreement, prior to the end of the primary term of the lease and are being diligently prosecuted at that time, the lease shall be extended for two (2) years, and so long thereafter as oil or gas is produced in paying quantities in accordance with the provisions of the Mineral Leasing Act, as amended. (f) Each sublease or contract relating to the operation and development of Unitized Substances from lands of the United States committed to this Agreement, which by it s terms would expire prior to the time at which the underlying lease, as extended by t he immediately preceding paragraph would expire, is extended beyond any term so that it shall be continued in full force and effect for and during the term of the underlying lea se as that term is extended by this Agreement. (g) The segregation of any Federal lease committed to this Agreement is governed by the following provision in the fourth paragraph of Sec. 17(m) of the Mineral Leasing Act, as amended by the Act of September 2, 1960 (74 Stat. 781- 784) (30 U.S.C. 226(m): “Any (Federal) lease heretofore or hereafter committed to any such (unit) plan embracing l ands that are in part within and in part outside of the area covered by any such plan shall be segregated into separate leases as to the lands committed and the lands not committed as of the effective date of unitization: Provided, however, that any such lease as to the nonunitized portion shall continue in force and effect for the term thereof but for not less than two years from the date of such segregation and so long thereafter as oil or gas is produced in paying quantities.” If the public interest requirement is not satisfied, the segregation of a lease and/ or extension of a lease pursuant to 43 CFR 3107.3-2 and 43 CFR 3107.4, respectively, shall not be effective. *Optional/Substitute Sections. (An Agreement submitted for final approval should not identify a provision as “optional.”) *18(h). Any lease, other than a Federal lease, having only a portion of its lands committed to this Agreement shall be segregated as to the portion committed and the portion not committed, and the provisions of the lease shall apply separately to the segregated portions commencing as of the Effective Date of this Agreement. In the event any lease provides for a lump-sum rental payment, the payment shall be prorated between the portions so segregated in proportion to the acreage of the respective tracts. 19. COVENANTS RUN WITH LAND. The covenants of this Agreement shall be construed to be covenants running with the land with respect to the interests of the Parties and their successors in interest unti l this Agreement terminates, and any grant, transfer, or conveyance of interest in land or leases subject to it shall be and is conditioned on the assumption of all privileges and obligati ons under this Agreement by the grantee, transferee, or other successor in interest. No assignment or transfer of any working interest, royalty, or other interest subject to this Agreement shall be binding on unit operator until the first of the calendar month after the unit operator is furnished with t he original, photocopy, or certified copy of the instrument of transfer. 20. EFFECTIVE DATE AND TERM. This Agreement shall become effective on approval by the AO and shall automatical ly terminate five (5) years from that Effective Date unless: (a) On the application by the unit operator the date of expiration is extended by the AO; or, (b) It is reasonably determined prior to the expiration of the fixed term or any extension that the Unitized Land is incapable of production of Unitized Substances in paying quantities in the formations tested under this Agreement, and after notice of intenti on to terminate this Agreement on the grounds given by the unit operator to all Parties in interest at their last known addresses, this Agreement is terminated with the approval of the AO; or, (c) A valuable discovery of Unitized Substances in paying quantities has been made or accepted on Unitized Land during the initial term or any extension of it, in whic h event this Agreement shall remain in effect for that term and so long thereafter as Unit ized Substances can be produced in quantities sufficient to pay for the cost of producing it from wells on Unitized Land within any participating area established under this Agreement. Should production cease and diligent drilling or reworking operations to restore production or new production are not in progress within sixty (60) days and production is not restored or should new production not be obtained in paying quantities on committed lands within the unit area, this Agreement will automatically terminate effective the last day of the month in which the last unitized production occurred; or, (d) It is voluntarily terminated as provided in this Agreement. Except as noted, t his Agreement may be terminated at any time prior to the discovery of Unitized Substanc es which can be produced in paying quantities by not less than seventy-five percent (75%), on an acreage basis, of the working interest owners to this Agreement, with the approval of the AO. The unit operator shall give notice of an approval to all Parties. If the public interest requirement is not satisfied, the approval of this unit by the AO shall be invalid. 21. RATE OF PROSPECTING, DEVELOPMENT, AND PRODUCTION. The AO is vested with authority to alter or modify, from time to time, in his discre tion, the quantity and rate of production under this Agreement when the quantity and rate are not fixed pursuant to Federal or State law, or do not conform to any statewide voluntary conservation or allocation program which is established, recognized, and generally adhered to by the majority of operators in the state. This authority is limited to alteration or modifications which are in the public interest. The public interest to be served and the purpose of it, must be stated in the order of alteration or modification. Without regard to the foregoing, the AO is also vested wi th the authority to alter or modify, from time to time, in his discretion, the rate of prospec ting and development and the quantity and rate of production under this Agreement when the alterat ion or modification is in the interest of attaining the conservation objectives stat ed in this Agreement and is not in violation of any applicable Federal or State law. Powers in this Section vested in the AO shall only be exercised after notice to t he unit operator and opportunity for hearing to be held not less than fifteen (15) days from notice. 22. APPEARANCES. The unit operator shall, after notice to other affected Parties, have the right to appear for and on behalf of any and all affected interests before the Department of the Interior a nd to appeal from orders issued under the regulations of that Department, or to apply for relief from any of those regulations, or in proceedings relative to operations before the Department, or any other legally constituted authority; provided, however, that any other interested Party shall al so have the right, at its own expense, to be heard in any proceeding. 23. NOTICES. All notices, demands, or statements required under this Agreement to be given or rendered to the Parties shall be in writing and shall be personally delivered to t he Party or Parties, or sent by postpaid registered or certified mail, to the last known address of the Party or Parties. 24. NO WAIVER OF CERTAIN RIGHTS. Nothing contained in this Agreement shall be construed as a waiver by any Party of the right to assert any legal or constitutional right or defense as to the validity or invalidity of any law of the State where the Unitized Lands are located, or of the United States, or its regulations issued in any way affecting a Party, or as a waiver by any Party of any right beyond the Party’s authority to waive. 25. UNAVOIDABLE DELAY. All obligations under this Agreement requiring the unit operator to commence or continue drilling, or to operate on, or produce Unitized Substances from any of the lands covered by this Agreement, shall be suspended while the unit operator, despite the exercise of due c are and diligence, is prevented from complying with those obligations, in whole or in part, by strikes, acts of God, Federal, State, or municipal law or agencies, unavoidable accide nts, uncontrollable delays in transportation, inability to obtain necessary material or equipm ent in the open market, or other matters beyond the reasonable control of the unit operator, whether si milar to the matters enumerated or not. 26. NONDISCRIMINATION. In connection with the performance of work under this Agreement, the unit operator agrees to comply with all the provisions of Section 202 (1) to (7) inclusive, of Executive Order 11246 (30 FR 12319), as amended, which are incorporated by reference into this Agreement. 27. LOSS OF TITLE. In the event title to any tract of unitized land shall fail and the true owner cannot be induced to join in this Unit Agreement, the tract shall be automatically regarded as not committed to this Agreement, and there shall be a readjustment of future costs a nd benefits as may be required on account of the loss of title. In the event of a dispute as to ti tle to any royalty, working interest, or other interests subject to this Agreement, payment or delivery on account of it may be withheld without liability for interest until the dispute is finally settled; provided, that, as to Federal lands or leases, no payments of funds due the United States shall be withhel d, but those funds shall be deposited as directed by the AO, to be held as unearned money pending final settlement of the title dispute, and then applied as earned or returned in accorda nce with a final settlement. Unit Operator is relieved from any responsibility for any defect or failure of any title. 28. NONJOINDER AND SUBSEQUENT JOINDER. If the owner of any substantial interest in a tract within the unit area fails or re fuses to subscribe or consent to this Agreement, the owner of the working interest in that Tract ma y withdraw the Tract from this Agreement by written notice delivered to the proper BLM office and the unit operator prior to the approval of this Agreement by the AO. Any oil or gas interests in lands within the unit area not committed to it prior to final approval may later be committed to it by the owner or owners subscribing or consenting to this Agreement, and if the interest is a working interest, by the owner of interest also subscribing to the Unit Operating Agreement. After operations are commenced, the right of subsequent joinder, as provided in this Section, by a working interest owner is subject to the requirements or approval(s), if any, pertaining to the joinder, as may be provided for in the Unit Operating Agreement. After final approval, joi nder by a non-working interest owner must be consented to in writing by the working interest owner committed to it and responsible for the payment of any benefits that may accrue in behalf of the nonworking interest. A non-working interest may not be committed to this Unit Agreement unless the corresponding working interest is committed to it. Joinder to the Unit Agreement by a working interest owner, at any time, must be accompanied by appropriate joinder to the Unit Operating Agreement, in order for the interest to be regarded as committed to this Agreement. Except as may otherwise be provided in this Agreement, subsequent joinders to this Agreement shall be effective as of the date of the filing with the AO of duly executed c ounterparts of all or any papers necessary to establish effective commitment of any interest and/or Tract to this Agreement. 29. COUNTERPARTS. This Agreement may be executed in any number of counterparts, no one of which needs to be executed by all Parties, or may be ratified or consented to by separate instrum ent in writing specifically referring to it and shall be binding on all those parties who have execute d a counterpart, ratification, or consent, with the same force and effect as if all the Parties had signed the same document, and regardless of whether or not it is executed by all other part ies owning or claiming an interest in the lands within the described unit area. 30. SURRENDER. Nothing in this Agreement shall prohibit the exercise by any working interest owner of the right to surrender any interest vested in a Party by any lease, sublease, or operating agreement as to all or any part of the lands covered by this Agreement, provided that each Party who will or might acquire the working interest, by a surrender or by forfeiture, is bound by the terms of this Agreement. If as a result of a surrender, the working interest rights as to the lands become vested i n any Party other than the fee owner of the unitized substances, that Party may forfeit t he rights and further benefits from operations as to the land to the Party next in the chain of title who shall be and become the owner of the working interest. If as the result of any surrender or forfeiture, working interest rights become vested in the fee owner of the Unitized Substances, the owner may: (a) Accept those working interest rights subject to this Agreement and the Unit Operating Agreement; (b) Lease the portion of the land as is included in a participating area establi shed by and subject to this Agreement and the Unit Operating Agreement; or, (c) Provide for the independent operation of any part of the land that is not then included within a participating area. If the fee owner of the Unitized Substances does not accept the working interest rights subject to this Agreement and the Unit Operating Agreement or lease the lands as provide d above within six (6) months after the surrendered or forfeited working interest rights become vested in the fee owner; the benefits and obligations of operations accruing to the lands under this Agreement and the Unit Operating Agreement shall be shared by the remaining owners of Unitized Working Interests in accordance with their respective working interest ownerships, and the owners of working interests shall compensate the fee owner of Unitized Substances in t he lands by paying sums equal to the rentals, minimum royalties, and royalties applicable to the lands under the lease in effect when the lands were unitized. An appropriate accounting and settlement shall be made for all benefits accruing to or payments and expenditures made or incurred on behalf of the surrendered or forfeited working interests subsequent to the date of surrender or forfeiture, and payment of any moneys found to be owing by an accounting shall be made between the Parties within thirty (30) days. The exercise of any right vested in a working interest owner to reassign the working interest to the Party from whom it was obtained shall be subject to the same c onditions as set forth in this Section in regard to the exercise of a right to surrender. 31. TAXES. The working interest owners shall render and pay for their account and the account of the royalty owners all valid taxes on or measured by the Unitized Substances in and under or that may be produced, gathered, and sold from the land covered by this Agreement after its Effect ive Date, or on the proceeds derived from them. The working interest owners on each tract shall and may charge the proper proportion of those taxes to royalty owners having interests in the tract, and may currently retain and deduct a sufficient amount of the Unitized Substances or derivative products, or net proceeds, from the allocated share of each royalty owner to secure reimbursement for the taxes so paid. No taxes shall be charged to the United States, t he State of _______, or to any lessor who has a contract with its lessee which requires the lessee to pa y these taxes. 32. NO PARTNERSHIP. It is expressly agreed that the relation of the Parties to this Agreement is that of independent contractors and nothing contained in this Agreement, expressed or implied, nor any operations conducted under it, shall create or be deemed to have created a partnershi p or association between the Parties or any of them. 33. WILDLIFE STIPULATION. Nothing in this Unit Agreement shall modify the special Federal lease stipulations applicable to lands under the jurisdiction of the United States Fish and Wildlife Service. 34. FOREST LAND STIPULATIONS. Notwithstanding any other terms and conditions contained in this Agreement, all of the stipulations and conditions of the individual leases between the United States and i ts lessees or their successors or assigns embracing lands within the unit area included for the protection of lands within the unit area included for the protection of lands or functions under the jurisdiction of the Secretary of the Agriculture shall remain in full force and effect the same as though this Agreement had not been entered into, and no modification of them is authorized except with the prior consent in writing of the Regional Forester, United States Forest Service, ________________________, _________________________. 35. RECLAMATION LANDS. Nothing in this Agreement shall modify the special, Federal lease stipulations applic able to lands under the jurisdiction of the Bureau of Reclamation. 36. POWERSITES. Nothing in this Agreement shall modify the special, Federal lease stipulations applic able to lands under the jurisdiction of the Federal Energy Regulatory Commission. The Parties have caused this Agreement to be executed and have set opposite their respective names the date of execution. UNIT OPERATOR Date: WORKING INTEREST OWNERS Date: OTHER INTEREST OWNER Date: (Acknowledgment for each Party to this Agreement) EXH