UNIT AGREEMENT_____ UNIT
_____ COUNTY, _____
(This Agreement provides for Phase I and II Tract Participation, based on Calculated Recoverable Reserves)
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Oil and Gas Rights
1.2 Outside Substances
1.3 Royalty Interest
1.4 Royalty Owner
1.5 Singular and Plural - Gender
1.6 Tract
1.7 Tract Participation
1.8 Unit Area
1.9 Unit Equipment
1.10 Unit Expense
1.11 Unit Operating Agreement
1.12 Unit Operations
1.13 Unit Operator
1.14 Unit Participation
1.15 Unitized Formation
1.16 Unitized Substances
1.17 Working Interest
1.18 Working Interest Owner ARTICLE 2EXHIBITS
2.1 Exhibits
2.2 Reference to Exhibits
2.3 Exhibits Considered Correct
2.4 Correcting Errors
2.5 Filing Revised Exhibits ARTICLE 3
CREATION AND EFFECT OF UNIT
3.1 Oil and Gas Rights Unitized
3.2 Personal Property Excepted
3.3 Amendment of Leases and Other Agreements
3.4 Continuation of Leases and Term Royalties
3.5 Titles Unaffected by Unitization
3.6 Injection Rights
3.7 Development Obligation
ARTICLE 4
PLAN OF OPERATIONS
4.1 Unit Operator
4.2 Operating Methods
4.3 Change of Operating Methods ARTICLE 5
TRACT PARTICIPATION
5.1 Tract Participation
5.2 Relative Tract Participations ARTICLE 6
ALLOCATION OF UNITIZED SUBSTANCES
6.1 Allocation to Tracts
6.2 Distribution Within Tracts
6.3 Taking Unitized Substances in Kind
6.4 Failure to Take in Kind
6.5 Responsibility for Royalty Settlements
6.6 Royalty on Outside Substances ARTICLE 7
PRODUCTION AS OF THE EFFECTIVE DATE
7.1 Oil in Lease Tanks
7.2 Overproduction ARTICLE 8
USE OR LOSS OF UNITIZED SUBSTANCES
8.1 Use of Unitized Substances
8.2 Royalty Payments ARTICLE 9
TRACTS TO BE INCLUDED IN UNIT
9.1 Qualification of Tracts
9.2 Subsequent Commitment of Interest to Unit
9.3 Revision of Exhibits
ARTICLE 10TITLES
10.1 Removal of Tract from Unit Area
10.2 Revision of Exhibits
10.3 Working Interest Titles
10.4 Royalty Owner Titles
10.5 Production Where Title is in Dispute
10.6 Payment of Taxes to Protect TitleARTICLE 11
EASEMENTS OR USE OF SURFACE
11.1 Grant of Easements
11.2 Use of Water
11.3 Surface Damages ARTICLE 12
ENLARGEMENTS OF UNIT AREA
12.1 Enlargements of Unit Area
12.2 Determination of Tract Participation
12.3 Effective Date ARTICLE 13
CHANGE OF TITLE
13.1 Covenant Running With the Land
13.2 Notice of Transfer
13.3 Waiver of Rights to Partition ARTICLE 14
RELATIONSHIP OF PARTIES
14.1 No Partnership
14.2 No Sharing of Market
14.3 Royalty Owners Free of Costs
14.4 Information to Royalty Owners ARTICLE 15
LAWS AND REGULATIONS
15.1 Laws and Regulations
ARTICLE 16
FORCE MAJEURE
16.1 Force Majeure
ARTICLE 17
EFFECTIVE DATE
17.1 Effective Date
17.2 Ipso Facto Termination ARTICLE 18TERM
18.1 Term
18.2 Termination by Working Interest Owners
18.3 Effect of Termination
18.4 Salvaging Equipment Upon Termination ARTICLE 19
EXECUTION
19.1 Original, Counterpart, or Other Instrument
19.2 Joinder in Dual Capacity ARTICLE 20
NEW INTEREST
20.1 New Interest ARTICLE 21GENERAL
21.1 Amendments Affecting Working Interest Owners
21.2 Action by Working Interest Owners
21.3 Lien of Unit Operator
Exhibit “A” – Schedule Describing each Tract and its Tract Participation
Exhibit “B” – Map of the Boundaries of the Unit and the Tracts in the Unit
Exhibit “B-1” – Map Designating Usable Wells
UNIT AGREEMENT_____ UNIT
_____ COUNTY, _____
This Unit Agreement (the “Agreement”) is entered into as of ___________, (the
“Effective Date”), by the parties that sign the original of this instrument, a c ounterpart of it or
other instrument agreeing to be bound by its provisions.
In the interest of the public welfare and to promote conversation and increase the
ultimate recovery of oil, gas, and associated minerals from the _____ Unit, in _____ County,
_____, and to protect the rights of the owners of interest in the lands included in the Unit , it is
deemed necessary and desirable to enter into this Agreement, in conformity with (Applic able
Statutory reference), to unitize the Oil and Gas Rights in and to the Unitized Formation in order
to conduct a secondary recovery, pressure maintenance, or other recovery program as provided
for in this Agreement.
In consideration of the premises and of the mutual benefits to be derived, it is agree d as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following meaning:
1.1 Oil and Gas Rights means the right to explore, develop, and operate lands within
the Unit Area for the production of Unitized Substances, or to share in the production so
obtained or the proceeds from the production.
1.2 Outside Substances means all substances obtained from any source other than
the Unitized Formation and which are injected into the Unitized Formation.
1.3 Royalty Interest means a right to or interest in any portion of the Unitized
Substances or proceeds from it other than a Working Interest.
1.4 Royalty Owner means a party who owns a Royalty Interest.
1.5 Singular and Plural – Gender means that unless the context otherwise clearly
indicates, words used in the singular include the plural, the plural include the singular, a nd the
neuter gender include the masculine and the feminine.
1.6 Tract means each parcel of land described as such and given a Tract number in
Exhibit “A.”
1.7 Tract Participation means the percentage shown on Exhibit “A” for allocation
Unitized Substances to a Tract under this Agreement.
1.8 Unit Area means the lands described by Tracts in Exhibit “A” and shown on
Exhibit “B” as to which this Agreement becomes effective or extended, as provided for in this
Agreement.
1.9 Unit Equipment means all personal property, leases and well equipment, plants,
and other facilities and equipment taken over or otherwise acquired for the joint a ccount for use
in Unit Operations.
1.10 Unit Expense means all cost, expense, or indebtedness incurred by Working
Interest Owners or Unit Operator pursuant to this Agreement and the Unit Operating Agreement
for or on account of Unit Operations.
1.11 Unit Operating Agreement means the agreement entitled “Unit Operating
Agreement, _____ Unit, _____ County, _____,” of the same effective date of this Agreement,
and which is entered into by Working Interest Owners.
1.12 Unit Operations means all operations conducted by Working Interest Owners or
Unit Operator pursuant to this Agreement and the Unit Operating Agreement for or on account
of the development and operation of the Unitized Formation for the production of Unitized
Substances.
1.13 Unit Operator means the Working Interest Owner designated by Working
Interest Owners under the Unit Operating Agreement to develop and operate the Unitized
Formation, acting as operator and not as a Working Interest Owner.
1.14 Unit Participation of each Working Interest Owner means the sum of the
percentages obtained by multiplying the Working Interest of the Working Interest Owner in ea ch
Tract by the Tract Participation of that Tract.
1.15 Unitized Formation means the subsurface portion of the Unit Area commonly
known or described as follows:
That stratigraphic interval between the top of the _____ and a depth _____ feet
below sea level. The top of the _____ is defined as that point located at a de pth of
_____ feet below the kelly bushing as shown on the _____ log, dated _____, in
the _____ Well located _____ feet from the north line and _____ feet from the
east line, _____, _____ County, _____.
1.16 Unitized Substances means all oil, gas, gaseous substances, sulphur contained in
gas, condensate, distillate, and all associated and constituent liquid or liquefiabl e hydrocarbons
within or produced from the Unitized Formation.
1.17 Working Interest means an interest in Unitized Substances by virtue of a lease,
operating agreement, fee title, or otherwise, including a carried interest, which i nterest is
chargeable with and obligated to pay or bear, either in cash or out of production or otherwi se, all
or a portion of the cost of drilling, developing, producing, and operating the Unitized Formation.
Any interest in Unitized Substances which is a Working Interest as of the date the owner
executes or ratifies this Agreement, or which at any later time becomes a Worki ng Interest, shall
then be treated as a Working Interest for all purposes of this Agreement.
1.18 Working Interest Owner means a party who owns a Working Interest. The
owner of Oil and Gas Rights that are free of lease or other instrument conveying the W orking
Interest to another shall be regarded as a Working Interest Owner to the extent of _____ of t hat
interest in Unitized Substances, and as a Royalty Owner with respect to the rema ining _____
interest.
ARTICLE 2EXHIBITS
2.1 Exhibits. Attached to this Agreement are the following Exhibits which are
incorporated by reference:
2.1.1 Exhibit “A,” which is a schedule that describes each Tract in the Unit
Area and shows its Tract Participation.
2.1.2 Exhibit “B,” which is a map that shows the boundary lines of the Unit
Area and the Tracts in the Unit.
2.1.3 Exhibit “B-1,” which is a map that shows the designated usable wells that
have been approved by the Working Interest Owners.
2.2 Reference to Exhibits. When reference is made to an Exhibit, the reference is to
the Exhibit as originally attached, or, if revised, to the latest revision.
2.3 Exhibits Considered Correct. An Exhibit shall be considered to be correct until
revised as provided for in this Agreement.
2.4 Correcting Errors. The shapes and descriptions of the respective Tracts have
been established by using the best information available. If it subsequently appears that any
Tract, because of diverse Royalty or Working Interest ownership on the effective date of thi s
Agreement, should be divided into more than one Tract, or that any mechanical miscal culation
has been made, Unit Operator, with the approval of Working Interest Owners, may correct the
mistake by revising the Exhibits to conform to the facts. The revision shall not include any re-
evaluation of engineering or geological interpretations used in determining Tract Pa rticipation.
Each revision of an Exhibit shall be effective at 7:00 a.m. on the first day of the calendar month
next following the filing for record of the revised Exhibit, or on any other date as may be
determined by Working Interest Owners and set forth in the revised Exhibit.
2.5 Filing Revised Exhibits. If an exhibit is revised pursuant to this Agreement, Unit
Operator shall certify and file the revised Exhibit for record in _____ County, _____.
ARTICLE 3
CREATION AND EFFECT OF UNIT
3.1 Oil and Gas Rights Unitized. Subject to the provisions of this Agreement, all
Oil and Gas Rights of Royalty Owners in and to the lands described in Exhibit “A,” and all Oil
and Gas Rights of Working Interest Owners in and to those lands, are hereby unitized insofar as
the respective Oil and Gas Rights pertain to the Unitized Formation, so that operations may be
conducted as if the Unitized Formation had been included in a single lease exe cuted by all
Royalty Owners, as lessors, in favor of all Working Interest Owners, as lessees, and as if the
lease had been subject to all of the provisions of this Agreement, provided that the terms and
conditions are not in conflict with any applicable statute of the State of _____.
3.2 Personal Property Excepted. All lease and well equipment, materials, and other
facilities previously or later placed by any of the Working Interest Owners on the lands covere d
by this Agreement shall be deemed to be and shall remain personal property belonging to and
may be removed by the Working Interest Owners. The rights and interests in the personal
property, as among Working Interest Owners, are covered by the Unit Operating Agreement.
3.3 Amendment of Leases and Other Agreements. The provisions of the various
leases, agreements, division and transfer orders, or other instruments covering the respective
Tracts or the production from them are amended to the extent necessary to make them conform
to the provisions of this Agreement, but otherwise shall remain in effect, provided that those
terms and conditions are not in conflict with any applicable statute of the State of _____.
3.4 Continuation of Leases and Term Royalties. Operations, including drilling
operations, conducted with respect to the Unitized Formation on any part of the Unit Are a, or
production from any part of the Unitized Formation, except for the purpose of determining
payments to Royalty Owners, shall be considered as operations on or production from each
Tract, and those operations or production shall continue in effect each lease or term roya lty
interest as to all lands covered by them just as if the operations had been conducte d and a well
had been drilled on and was produced from each Tract.
3.5 Titles Unaffected by Unitization. Nothing in this Agreement shall be construed
to result in the transfer of title to the Oil and Gas Rights by any party to this Agreement to any
other party or to Unit Operator. The intention is to provide for the cooperative development a nd
operation of the Tracts and for the sharing of Unitized Substances as provided in this Agreement.
3.6 Injection Rights. Royalty Owners grant to Working Interest Owners the right to
inject into the Unitized Formation any substances in whatever amounts Working Interest Owne rs
deem expedient for Unit Operations including the right to drill and maintain injecti on wells on
the Unit Area and to use producing wells completed in the Unitized Formation, or aba ndoned oil
or gas wells for those purposes.
3.7 Development Obligation. Nothing in this Agreement shall relieve Working
Interest Owners from the obligation to reasonably develop, as a whole, the lands and leases
committed to and included in the Unit.
ARTICLE 4
PLAN OF OPERATION
4.1 Unit Operator. Working Interest Owners are, as of the Effective Date of this
Agreement, entering into the Unit Operating Agreement, designating _____ as the initial Uni t
Operator. Unit Operator shall have, subject to the terms, provisions, and limitations expresse d in
the Unit Operating Agreement, the exclusive right to conduct operations. The operations sha ll
conform to the provisions of this Agreement and the Unit Operating Agreement. If there is any
conflict between these Agreements, this Agreement shall govern.
4.2 Operating Methods. To the end that the quantity of Unitized Substances
ultimately recoverable may be increased and waste prevented, Working Interest Owners sha ll,
with diligence and in accordance with good engineering and production practices, engage in a
pressure maintenance or secondary recovery project by means of the injection of gas, water, or
other substances, or any combination of two or more of them, into the Unitized Formation.
4.3 Change of Operating Methods. Nothing in this Agreement shall prevent
Working Interest Owners from discontinuing or changing in whole or in part any method of
operation which, in their opinion, is no longer in accord with good engineering or production
practices. Other methods of operation may be conducted or changes may be made by Working
Interest Owners from time to time if determined by them to be feasible, nece ssary, or desirable to
increase the ultimate recovery of Unitized Substances.
ARTICLE 5
TRACT PARTICIPATION
5.1 Tract Participation. The participation of each Tract is shown in Exhibit “A” and
is split into two periods as follows:
(1)Phase I shall be applicable from the Effective Date of this Agreement until
7:00 a.m. on the first day of the calendar month next following the month in
which the Unit Area Remaining Primary Reserves are produced. The Unit Area
Remaining Primary Reserves as agreed to by the Working Interest Owners are
(#) barrels to be produced after (date) , from the Tracts included in the original
Exhibit “B” dated _____. On the Effective Date, that ( # ) barrels shall be
reduced by the amount of oil produced between (date) , and the Effective Date
from those Tracts included in the original Exhibit “B” dated _____, and shall be
further revised to reflect only those primary reserves remaining at the Effective
Date on those Tracts effectively committed to the Unit. (2) Phase II shall be applicable after the termination of Phase I.
The Tract Participation of each Tract was determined as follows:
Phase I = _____% x Tract Remaining Primary Reserves plus
Unit Area Remaining Primary Reserves
_____% x Tract Current Production
Unit Area Current Production
Phase II = _____% x Tract Ultimate Primary plus
Unit Area Ultimate Primary
_____% x Tract Usable Wells
Unit Area Usable Wells
As used in this Article 5, the terms set forth above shall have the following meanings: (a) Tract Remaining Primary Reserves means the number of barrels of
primary oil for a Tract as agreed upon by the Working Interest Owners.
(b) Unit Area Remaining Primary Reserves means the summation of the
Tract Remaining Primary Reserves of those Tracts effectively committed
to this Agreement.
(c) Tract Current Production means the number of barrels of oil produced
from the Unitized Formation from the Tract during the period from
(Date) , through (Date) , and as agreed on by the Working Interest
Owners.
(d) Unit Area Current Production means the summation of the Tract
Current Production of those Tracts effectively committed to this
Agreement.
(e) Tract Ultimate Primary means the total cumulative amount of oil from a
Tract up to but not including (Date) , plus the Tracts Remaining
Primary Reserves and as agreed on by the Working Interest Owners.
(f) Unit Area Ultimate Primary means the summation of Tract Ultimate
Primary for those Tracts effectively committed to this Agreement.
(g) Tract Usable Wells means the number of wells designated by the
Working Interest Owners as usable and shown on Exhibit “B-1.”
(h) Unit Area Usable Wells means the summation of the Tract Usable Wells
for those Tracts effectively committed to this Agreement.
5.2 Relative Tract Participations. If the Unit Area is enlarged or reduced, the
revised Tract Participations of the Tracts remaining in the Unit Area and whic h were within the
Unit Area prior to the enlargement or reduction shall remain in the same ratio one to another.
ARTICLE 6
ALLOCATION OF UNITIZED SUBSTANCES
6.1 Allocation to Tracts. All Unitized Substances produced and saved shall be
allocated to the several Tracts in accordance with the respective Tract Pa rticipations effective
during the period that the Unitized Substances were produced. The amount of Unitized
Substances allocated to each Tract, regardless of whether it is more or less than t he actual
production of Unitized Substances from the well or wells, if any, on the Tract, shall be de emed
for all purposes to have been produced from the Tract.
6.2 Distribution Within Tracts. The Unitized Substances allocated to each Tract
shall be distributed among, or accounted for to, the parties entitled to a share in t he production
from the Tract in the same manner, in the same proportions, and on the same conditions as they
would have participated and shared in the production from the Tract, or in the proceeds from
production, had this Agreement not been entered into, and with the same legal effec t. If any Oil
and Gas Rights in a Tract later become divided and owned in severalty as to di fferent parts of the
Tract, the owners of the divided interests, in the absence of an agreement providing for a
different division, shall share in the Unitized Substances allocated to the Tract, or in the proceeds
from production, in proportion to the surface acreage of their respective parts of the Tract.
6.3 Taking Unitized Substances in Kind. The Unitized Substances allocated to
each Tract shall be delivered in kind to the respective parties entitled to them by virtue of the
ownership of Oil and Gas Rights in the Tract or by purchase from the owners. The parties shall
have the right to construct, maintain, and operate within the Unit Area all nece ssary facilities for
that purpose, provided that they are so constructed, maintained, and operated as not to interfe re
with Unit Operations. Any extra expenditures incurred by Unit Operator by reason of the
delivery in kind of any portion of the Unitized Substances shall be borne by the receiving part y.
If a Royalty Owner has the right to take in kind a share of Unitized Substances and fa ils to do so,
the Working Interest Owner whose Working Interest is subject to that Royalty Interest shall be
entitled to take in kind that share of the Unitized Substances.
6.4 Failure to Take in Kind. If any party fails to take in kind or separately dispose
of its share of Unitized Substances, Unit Operator shall have the right, but not the obligati on, for
the time being and subject to revocation at will by the party owning the share, to purchase for its
own account or sell to others that share at not less than the market price prevaili ng in the area
and not less than the price Unit Operator receives for its share of Unitized Substances; provi ded
that, all contracts of sale by Unit Operator of any other party’s share of Unitized Substance s shall
only be for a reasonable period of time as are consistent with the minimum needs of the industry
under the circumstances, but in no event shall any contract be for a period in exce ss of one year.
The proceeds of the Unitized Substances so disposed of by Unit Operator shall be paid to a payee
who shall distribute the proceeds to the parties entitled to them, the payee bei ng the Working
Interest Owner of each affected Tract or a party designated by the Working Interest Owners
under an agreement between the party and the Working Interest Owners.
6.5 Responsibility for Royalty Settlements. Any party receiving in kind or
separately disposing of all or part of the Unitized Substances allocated to any Tract or receiving
the proceeds from it shall be responsible for the payment of those proceeds to the persons
entitled to them, and shall indemnify all parties to this Agreement, including Unit Operator,
against any liability for all royalties, overriding royalties, production payments, and all other
payments chargeable against or payable out of those Unitized Substances or the proceeds from
them.
6.6 Royalty on Outside Substances. No payments shall be due or payable to
Royalty Owners on any Outside Substances.
6.6.1If gas is the Outside Substance injected, _____ percent (_____%) of any
gas subsequently produced from the Unitized Formation and sold, or used for
other that Unit Operators, shall be deemed to be the Outside Substance so injected
until that total volume equals the total volume of the Outside Substance so
injected. 6.6.2 If liquid hydrocarbons are the Outside Substances injected and the
Unitized Substances subsequently produced contain those liquid hydrocarbons, as
determined by the Working Interest Owners by applicable tests, then commencing
on the first day of the calendar month next following such a determination, _____
percent (_____%) of all oil produced from the Unitized Formation and sold
during any month shall be deemed to be the Outside Substances so injected until
the total value equals the total cost of the Outside Substances so injected.
ARTICLE 7
PRODUCTION AS OF THE EFFECTIVE DATE
7.1 Oil in Lease Tanks. Unit Operator shall gauge all lease and other tanks within
the Unit Area to ascertain the amount of merchantable oil produced from the Unitiz ed Formation
in the tanks, about the pipeline connections, as of 7:00 a.m. on the Effective Date of this
Agreement. The oil that is a part of the prior allowable of the wells from which it was produced
shall remain the property of the parties entitled to it, the same as if the Unit had not been formed.
Any of that oil not promptly removed may be sold by the Unit Operator for the account of the
parties entitled to it, subject to the payment of all royalties, overriding royal ties, production
payments, and all other payments under the provisions of the applicable lease or other cont racts.
The oil that is in excess of any prior allowable of the wells from which it was produc ed shall be
regarded as Unitized Substances produced after the Effective Date of this Agreement.
7.2 Overproduction. If, as of the Effective Date of this Agreement, any Tract is
overproduced with respect to the allowable of the wells on that Tract and the am ount of
overproduction has been sold or otherwise disposed of, the overproduction shall be regarded as a
part of the Unitized Substances produced after the Effective Date, and shall be charge d to the
Tract as having been delivered to the parties entitled to Unitized Substances a llocated to the
Tract.
ARTICLE 8
USE OR LOSS OF UNITIZED SUBSTANCES
8.1 Use of Unitized Substances. Working Interest Owners may use as much of the
Unitized Substances as they deem necessary for Unit Operations, including but not limite d to the
injection of them into the Unitized Formation.
8.2 Royalty Payments. No royalty, overriding royalty, production, or other
payments shall be payable on, or with respect to, Unitized Substances used or consumed in Unit
Operations, or which otherwise may be lost or consumed in the production, handling, treating,
transportation, or storing of Unitized Substances.
ARTICLE 9
TRACTS TO BE INCLUDED IN UNIT
9.1 Qualification of Tracts. On and after the Effective Date and until the
enlargement or reduction of this Unit, the Unit Area shall be composed of the Tracts l isted in
Exhibit “A” that have a usable well, and that corner or have a common boundary (Trac ts
separated only by a public highway or a railroad right of way shall be considered to have a
common boundary), and that otherwise qualify as follows:
9.1.1Each tract in which Working Interest Owners owning one hundred percent
(100%) of the Working Interest have become parties to this Agreement and in
which Royalty Owners owning seventy-five percent (75%) or more of the Royalty
Interest have become parties to this Agreement. 9.1.2 Each Tract in which Working Interest Owners owning one hundred
percent (100%) of the Working Interest have become parties to this Agreement,
and in which Royalty Owners owning less than seventy-five percent (75%) of the
Royalty Interest have become parties to this Agreement, and in which the
Working Interest Owners in the Tract have executed and delivered an indemnity
agreement indemnifying and agreeing to hold harmless the other Working Interest
Owners in the Unit Area, their successors and assigns, against a portion of all
claims and demands that may be made by non-subscribing owners of Royalty
Interest in the Tract on account of the inclusion of the Tract in the Unit Area. The
portion of the claims and demands covered by the indemnity shall, as to each
Tract, be the fraction in which the numerator is the difference between the
percentage of the Royalty Interest signed and seventy-five percent (75%) of the
Royalty Interest in the Tract; and the denominator is the difference between the
percentage of the Royalty Interest signed and one hundred percent (100%) of the
Royalty Interest in the Tract. 9.1.3 Each Tract as to which Working Interest Owners owning less than one
hundred percent (100%) of the Working Interest have become parties to this
Agreement; and Royalty Owners owning seventy-five percent (75%) or more of
the Royalty Interest have become parties to this Agreement, or the indemnity wi th
reference to the claims of non-subscribing owners of Royalty Interest on the Tract
is given under the provisions of Section 9.1.2; and as to which (a) the Working
Interest Owner who operates the Tract and all of the other Working Interest
Owners in the Tract who have become parties to this Agreement have joined in a
request for inclusion of the Tract in the Unit Area, and have executed and
delivered an indemnity agreement indemnifying and agreement to hold harmless
the other Working Interest Owners in the Unit Area, their successors and assigns,
against all claims and demands that may be made by the owners of Working
Interest in the Tract who are not parties to this Agreement and which arise out of
the inclusion of the Tract in the Unit Area; and as to which (b) eight-five percent
(85%) of the combined voting interest of the Working Interest Owners in all
Tracts that meet the requirements of Sections 9.1.1 and 9.1.2 have voted in favor
of the inclusion of the Tract and to accept the indemnity agreement. For the
purposes of this Section 9.1.3, the voting interest of each Working Interest Owner
shall be equal to the ratio that its Phase II Unit Participation attributable to Tracts
that qualify under Section 9.1.1 and 9.1.2 bears to the total Phase II Unit
Participation of all Working Interest Owners attributable to all Tracts that qualify
under Section 9.1.1 and 9.1.2. On the inclusion of such a Tract in the Unit Area,
the Unit Participation that would have been attributed to the non-subscribing
owners of the Working Interest in the Tract, had they become parties to this
Agreement and the Unit Operating Agreement, shall be attributed to the Working
Interest Owners in the Tract who have become parties to such agreements, in
proportion to their respective Working Interests in the Tract. 9.1.4 Each Tract, regardless of the percentage of Working Interest or Royalty
Interest in it that has been committed to this Agreement, as to which (a) the
Working Interest Owner who operates the Tract has become a party to this
Agreement, and (b) Working Interest Owners having eighty-five percent (85%) of
the combined voting interest of Working Interest Owners in all Tracts that meet
the requirements of Section 9.1.1, 9.1.2., or 9.1.3 vote in favor of the inclusion of
the Tract. For the purpose of this Section 9.1.4, the voting interest of a Working
Interest Owner shall be equal to the ratio that its Phase II Unit Participation
attributable to Tracts that qualify under Sections 9.1.1, 9.1.2., or 9.1.3 bears to the
total Phase II Unit Participation of all Working Interest Owners attributable to all
Tracts that qualify under Section 9.1.1., 9.1.2, or 9.1.3. In the case of the
inclusion of a Tract in the Unit Area under the provisions of Section 9.1.4 in
which Tract there are non-subscribing owners of Working Interest, the Unit
Participation which would have been assigned to the non-subscribing owners of
Working Interest, had they signed or ratified this Agreement, shall be allotted to
all Working Interest Owners in proportion to their then effective Unit
Participation; provided, that the Working Interest Owners shall be fully liable and
responsible in the same proportion to the non-subscribing owners of Working
Interest in the accounting for production from the Tract and all other matters
pertaining to the separate operation of the Tract insofar as the non-subscribing
owners are concerned. If a Tract is included in the Unit Area under the provisions
of this Section 9.1.4, all Working Interest Owners shall bear, in proportion to their
then effective participation, all claims and demands that may be made by the non-
subscribing owners of Working Interest or Royalty Interest on account of the
inclusion of the Tract in the Unit Area.
9.2 Subsequent Commitment of Interest to Unit. After the Effective Date of this
Agreement, the commitment of any interest in any Tract within the Unit Area shal l be on the
terms as may be negotiated by Working Interest Owners and the owner of the interest; provi ded,
however, any formerly committed interest as to which title has failed may be re committed by the
rightful owner on its former basis of participation, as provided in Section 10.1.
9.3 Revision of Exhibits. If any of the Tracts described in Exhibit “A” fail to qualify
for inclusion in the Unit Area, Unit Operator shall recomputed, using the original basis of
computation, the Tract Participation of each of the qualifying Tracts, and shall re vise Exhibits
“A” and “B” accordingly. The revised Exhibits shall be effective as of the Effect ive Date of this
Agreement.
ARTICLE 10TITLES
10.1 Removal of Tract from Unit Area. If a Tract ceases to have sufficient Working
Interest Owns or Royalty Owners committed to this Agreement to meet the conditions of Art icle
9 because of failure of title of any party, that Tract shall be removed from the Unit Area effective
as of the first day of the calendar month in which the failure of title is finally determined;
however, the Tract shall not be removed from the Unit Area if, within ninety (90) days of the
date of final determination of the failure of title, the Tract requalifies unde r a Section of Article
9.
10.2 Revision of Exhibits. If a Tract is removed from the Unit Area because of the
failure of title, Unit Operator, subject to Section 5.2, shall recomputed the Tract Pa rticipation of
each of the Tracts remaining in the Unit Area and shall revise Exhibits “A” and “B” accordingly.
The revised Exhibits shall be effective as of the first day of the calendar month in which the
failure of title is finally determined.
10.3 Working Interest Titles. If title to a Working Interest fails, the rights and
obligations of Working Interest Owners by reason of the failure of title shall be governed by the
Unit Operating Agreement.
10.4 Royalty Owner Titles. If title to a Royalty Interest fails, but the Tract to which it
relates is not removed from the Unit Area, the party whose title failed shall not be entitled to
share under the terms of this Agreement with respect to that interest.
10.5 Production Where Title is in Dispute. If the title or right of any party claiming
the right to receive in kind all or any portion of the Unitized Substances allocate d to a Tract is in
dispute, Unit Operator, at the discretion of Working Interest Owner, shall either:
(a)require that the party to whom the Unitized Substances are delivered or to
whom the proceeds of them are paid, furnish security for the proper
accounting to the rightful owner if the title or right of the party fails in
whole or in part; or,
(b) withhold and market the portion of Unitized Substances with respect to
which the title or right is in dispute, and impound the proceeds until the
time as the title or right to them is established by a final judgment of a
court of competent jurisdiction or otherwise to the satisfaction of Working
Interest Owners, at which time the proceeds so impounded shall be paid to
the party rightfully entitled to them.
10.6 Payment of Taxes to Protect Title. The owners of (1) the surface rights to lands
within the Unit Area, (2) the severed mineral or Royalty Interests in the lands, and (3) the
improvements located on the lands not utilized for Unit Operations, shall individuall y be
responsible for the rendition and assessment for ad valorem tax purposes of all that property, and
for the payment of the taxes, except as otherwise provided in any contract or agreement between
the owners and a Working Interest Owner. If any ad valorem taxes are not paid by the owner
responsible for them, when due, Unit Operator may, with approval of Working Interest Owners,
at any time prior to tax sale, or expiration of the period of redemption after ta x sale, pay the
same, redeem the property, and discharge the tax liens as my arise through nonpayment. Any
such payment shall be treated as an item of Unit Expense. Unit Operator shall, if possi ble,
withhold from any proceeds derived from the sale of Unitized Substances otherwise due to any
delinquent taxpayer or taxpayers an amount sufficient to defray the costs of the payment or
redemption, the withholding to be credited to the joint account. The withholding shall be
without prejudice to any other remedy, either at law or at equity, which may be available for
exercise by the Unit Operator or by the Working Interest Owners.
ARTICLE 11
EASEMENTS OR USE OF SURFACE
11.1 Grant of Easements. The parties to this Agreement, to the extent of their rights
and interests, grant to Working Interest Owners the right to use as much of the surface of the
land within the Unit Area as may reasonably be necessary for Unit Operations; provided that,
nothing in this Agreement shall be constnrued as leasing or otherwise conveying to Working
Interest Owners a site for a water or gas injection, processing or other plant, or camp site.
11.2 Uses of Water. Working Interest Owners shall have free use of water produced
from the Unitized Formation.
11.3 Surface Damages. Working Interest Owners shall pay the owner for damages to
growing crops, timber, fences, improvements, and structures on the Unit Area that result from
Unit Operations.
ARTICLE 12
ENLARGEMENTS OF UNIT AREA
12.1 Enlargements of Unit Area. The Unit Area may be enlarged to include acreage
reasonably proved to be productive, on the terms as may be determined by Working Interest
Owners, including but not limited to the following:
12.1.1The acreage shall qualify under a Section of Article 9.
12.1.2 The participation to be allocated to the acreage shall be reasonable, fair,
and based on all available information. 12.1.3 There shall be no retroactive allocation or adjustment of Unit Expense or
of interests in the Unitized Substances produced, or proceeds from them;
however, this limitation shall not prevent an adjustment of investment by reason
of the enlargement.
12.2 Determination of Tract Participation. Unit Operator, subject to Section 5.2,
shall determine the Tract Participation of each Tract within the Unit Area as enlarged, and shall
revise Exhibits “A” and “B” accordingly.
12.3 Effective Date. The effective date of any enlargement of the Unit Area shall be
7:00 a.m. on the first day of the calendar month following compliance with conditions for
enlargement as specified by Working Interest Owners, approval of the enlargement by the
appropriate governmental authority, if required, and the filing for record of revised Exhibits “A”
and “B” in the records of _____ County, _____.
ARTICLE 13
CHANGE OF TITLE
13.1 Covenant Running With the Land. This Agreement shall extend to, be binding
on, and inure to the benefit of, the respective heirs, devisees, legal representatives, succ essors,
and assigns of the parties to it, and shall constitute a covenant running with the lands, leases, and
interests covered by this Agreement.
13.2 Notice of Transfer. Any conveyance of all or any part of any interest owned by
any party with respect to any Tract shall be made expressly subject to this Agreem ent. No
change of title shall be binding on the Unit Operator, or on any party to this Agreement other
than the party so transferring, until the first day of the calendar month next succeeding the date
of receipt by Unit Operator of a photocopy or a certified copy of the recorded instrument
evidencing the change in ownership.
13.3 Waiver of Rights to Partition. Each party covenants that during the existence of
this Agreement, it will not resort to any action to partition the Unit Area or the Unit Equipment,
and to that extent waives the benefits of all laws authorizing a partition.
ARTICLE 14
RELATIONSHIP OF PARTIES
14.1 No Partnership. The duties, obligations, and liabilities of the parties to this
Agreement are intended to be several and not joint or collective. This Agreement is not intended
to create, and shall not be construed to create an association or trust, or to impose a partnership
duty, obligation, or liability with regard to any one or more of the parties to it. Each p arty to this
Agreement shall be individually responsible for its own obligations.
14.2 No Sharing of Market. This Agreement is not intended to provide, and shall not
be constnrued to provide, directly or indirectly, for any cooperative refining, joint sale, or
marketing of Unitized Substances.
14.3 Royalty Owners Free of Costs. The Agreement is not intended to impose, and
shall not be construed to impose, upon any Royalty Owner any obligation to pay for Unit
Expense unless the Royalty Owner is otherwise so obligated.
14.4 Information to Royalty Owners. Each Royalty Owner shall be entitled to all
information in the possession of Unit Operator to which the Royalty Owner is entitled by an
existing agreement or lease with any Working Interest Owner.
ARTICLE 15
LAWS AND REGULATIONS
15.1 Laws and Regulations. This Agreement shall be subject to the conservation
laws of the State of _____; to the valid rules, regulations, and orders of _____; and, to all ot her
applicable federal, state, and municipal laws, rules, regulations, and orders.
ARTICLE 16
FORCE MAJEURE
16.1 Force Majeure. All obligations imposed by this Agreement on each party,
except for the payment of money, shall be suspended while compliance is prevented, in whole or
in part, by a strike, fire, war, civil disturbance, act of God; by federal, state, or munic ipal laws;
by any rule, regulation, or order of a governmental agency; by inability to secure materia ls, or by
any other cause or causes beyond the reasonable control of the party. No party shall be required
against its will to adjust or settle any labor dispute. Neither this Agreement nor any lease or
other instrument subject to it shall be terminated by reason of suspension of Unit Operati ons due
to any one or more of the causes set forth in this Article.
ARTICLE 17
EFFECTIVE DATE
17.1 Effective Date. This Agreement shall become binding on each party as of the
date the party signs the instrument by which it becomes a party to this Agreement , and, unless
sooner terminated as provided in Section 17.2, shall become effective as to qualified Tracts at the
time and date as determined by the Working Interest Owners in all the qualified Tracts, and set
forth in a certificate filed for record by the Unit Operator in _____ County, _____. The
certificate shall not be filed until after the following requirements have been met:
17.1.1Tracts comprising eighty-five percent (85%) or more of the Phase II Unit
Participation in the Unit Area as shown on the Exhibit “B” that have qualified
under the provisions of Article 9. 17.1.2 At least one counterpart of this Agreement has been filed for record in
_____ County, _____.17.1.3 This Agreement has been approved by (regulatory agency).
17.2 Ipso Facto Termination. If the requirements of Section 17.1 are not
accomplished on or before (Date) , this Agreement shall ipso facto terminate on that date (the
“termination date”) and then be of no further effect, unless prior to that time Working Interest
Owners owning a combined Unit Participation of at least _____ percent (_____%) have become
parties to this Agreement, and at least _____ percent (_____%) of the committed Working
Interest Owners have decided to extend the termination date for a period not to exceed one year.
If the termination date is extended and the requirements of Section 17.1 are not acc omplished on
or before the extended termination date, this Agreement shall ipso facto termina te on the
extended termination date and then be of no further effect. For the purpose of this Section, Unit
Participation shall be as shown on the original Exhibit _____ attached to the Unit Operat ing
Agreement.
ARTICLE 18TERM
18.1 Term. The term of this Agreement shall be for the time that Unitized Substances
are produced in paying quantities and so long thereafter as Unit Operations are conducted
without a cessation of more than ninety (90) consecutive days, unless sooner terminated by
Working Interest Owners in the manner provided in this Agreement.
18.2 Termination by Working Interest Owners. This Agreement may be terminated
by Working Interest Owners having a combined then effective Unit Participation of at lea st
_____ percent (_____%) whenever those Working Interest Owners determine that Unit
Operations are not longer profitable.
18.3 Effect of Termination. On termination of this Agreement, the further
development and operation of the Unitized Formation as a Unit shall be abandoned, Unit
Operations shall cease, and after that time, the parties shall be governed by the provisions of the
leases and other instruments affecting the separate Tracts, and Unit Operator shall file a
certificate stating that fact and the effective termination date thereof in _____ County, _____.
18.4 Salvaging Equipment On Termination. If not otherwise granted by the leases
or other instruments affecting each Tract unitized under this Agreement, Royalty Owne rs grant
Working Interest Owners a period of six (6) months after the date of termination of this
Agreement within which to salvage and remove Unit Equipment.ARTICLE 19
EXECUTION
19.1 Original, Counterpart, or Other Instrument. A person may become a party to
this Agreement by signing the original of this Agreement, a counterpart of it, or other instrum ent
agreeing to be bound by the provisions of this Agreement. The signing of any of these
instruments shall have the same effect as if all the parties had signed the same instrument.
19.2 Joinder in Dual Capacity. Execution by any party as either a Working Interest
Owner or a Royalty Owner shall commit all interests that may be owned or controlled by that
party.
ARTICLE 20
NEW INTEREST
20.1 New Interest. If any Working Interest Owner shall, after executing this
Agreement, create any overriding royalty, production payment, or other similar interest, refe rred
to as “new interest,” out of its interest subject to this Agreement, the new int erest shall be subject
to all the terms and provisions of this Agreement. In the event the Working Interest Owner
owning the interest from which the new interest was created withdraws from this Agreement
under the terms of Section 17.1 of the Unit Operating Agreement, or fails to pay any expenses
and costs chargeable to it under this Agreement, and the production of the Working Interest
Owner is insufficient for that purpose, the owner of the new interest will be liable for t he prorata
portion of all costs and expenses for which the original Working Interest Owner creating the new
interest would have been liable had the same not been transferred. In this event, the lien
provided in Section 21.3 may be enforced against the new interest. If the owner of the new
interest bears a portion of the costs and expenses or is enforced against the new interest , the
owner of the new interest will be subrogated to the rights of the Unit operator with re spect to the
interest primarily chargeable with those costs and expenses.
ARTICLE 21GENERAL
21.1 Amendments Affecting Working Interest Owners. Amendments to this
Agreement, relating wholly to Working Interest Owners, may be made if signed by all Working
Interest Owners.
21.2 Action by Working Interest Owners. Any action or approval required by
Working Interest Owners shall be in accordance with the provisions of the Unit Operating
Agreement.
21.3 Lien of Unit Operator. Unit Operator shall have a lien on the interests of
Working Interest Owners in the Unit Area to the extent provided in the Unit Operating
Agreement.
This Agreement is executed by each party as of the date of the acknowledgment of t heir
signature, to be effective as of the Effective Date.
PARTIES
(acknowledgments)
EXHIBIT “A”
TO UNIT AGREEMENT
TRACTS AND TRACT PARTICIPATION
Participation
Tract No. Tract Name Land Description Phase I Phase II
EXHIBIT “B”
TO UNIT AGREEMENT
(Map of the Boundaries of the Unit and the Tracts in the Unit)
EXHIBIT “B-1”
TO UNIT AGREEMENT
(Map Designating Useable Wells)
