This is an expanding play with potential especially good in the areas of Wayne County along the Ohio River & south to at least the area across from Fallsburg/Louisa Ky
The Participation agreement establishes a nice baseline for future deals.
"It Covers The Berea Interval Only"
From the Latest Carbon/Nytis Sec Filing
BEREA SANDSTONE PROGRAM
BOYD, CARTER, GREENUP AND LAWRENCE COUNTIES, KENTUCKY
This Participation Agreement (“Agreement”) is entered into as of September 17, 2012 (the “Effective Date”), by and among
NYTIS EXPLORATION COMPANY LLC, a Delaware limited liability company (“Nytis”), CARBON NATURAL GAS COMPANY,
Delaware corporation (“Carbon”) (for purposes of Article X only), and LIBERTY ENERGY, LLC, a Massachusetts limited
liability company (“Liberty”).
WHEREAS, Nytis has leased, or obtained leases of, certain oil and gas interests in the Contract Area (as defined below)
covering approximately 26,000 net mineral acres (the “Berea Sandstone Program”);
WHEREAS, Liberty desires to participate in the development of the Berea Sandstone Program by paying a portion of the
costs incurred by Nytis (subject to the provisions of Section 3.2 below) associated with the drilling, completion and equipping of oil and
gas wells in the Berea Sandstone Geologic Interval (collectively, the “Wells”) in exchange for forty percent (40%) of Nytis’ undivided
working interest in the leases underlying the oil and gas interests which constitute the Berea Sandstone Program (the “Liberty Working
Interest”), which leases are more particularly described on Exhibit A attached hereto and incorporated herein (the “Leases”); and
WHEREAS, Liberty, as consideration for the right to participate in the development of the Berea Sandstone Program and
other rights set forth herein, has agreed to carry a portion of Nytis’ costs in the Wells as set forth herein.
NOW, THEREFORE, for a good and valuable consideration, it is agreed between the parties as follows:
1.1 In addition to definitions set forth elsewhere herein, the following definitions shall apply in this Agreement:
“AFE” means an authorization for expenditure representing an estimate of work to be performed for a specific drilling,
completion or other operation.
“Approved Spacing Unit” means the unit described in the as-built plat that is used for division order purposes and submitted
to the Kentucky Division of Oil and Gas.
“Berea Sandstone Geologic Interval” means the geologic interval below the Sunbury Shale and above the Devonian Shale as
located in Brice Shepherd #1 from 1007 feet to 1162 feet.
“Contract Area” means the area extending one mile beyond the boundaries of the Leases in Boyd, Carter, Greenup and
Lawrence Counties, Kentucky, a general outline of which is attached for illustrative purposes only on Exhibit B attached hereto.
“Drilling and Completion Activities” means all activities and operations carried out by or on behalf of the parties related to
the Wells and under the terms and conditions of this Agreement, including, but not limited to, drilling, sidetracking, well control,
acquisition, transportation and installation of tubular goods, materials and equipment; surveying, constructing roads and surface
“Drilling and Completion Costs” means all costs incurred in connection with Drilling and Completion Activities, all of which
will be determined, and billed to the parties participating in such activities, pursuant to the Operating Agreement.
“Horizontal Well” means a well permitted and spudded with the intent to drill with at least 1500 feet of horizontal
displacement from the surface location. If at any time the parties mutually agree to drill a well not intended to have significant
horizontal displacement under this Agreement, that well shall be counted as 1/3 of a Horizontal Well for the purpose of this Agreement.
“Operating Agreement” means the Operating Agreement in substantially the form of that attached hereto as Exhibit C,
together with the COPAS Accounting Procedure annexed thereto, and together with all Exhibits thereto.
“Operator” means Nytis or its assigns.
“Proportionately Reduced” means the pro rata reduction of the amount to be paid by Liberty and/or Nytis, as the case may be,
with respect to any Well and/or Lease in which Liberty and Nytis do not collectively own a 100% working interest, based on the actual
working interest owned by Liberty and Nytis, collectively, in such Well and/or Lease.
1.2 The following Exhibits are attached to and made a part of this Agreement:
Exhibit “A” Description of Leases
Exhibit “B” General Outline of Contract Area
Exhibit “C” Operating Agreement
Exhibit “D” Form of Well AFEs
Exhibit “E” Form of Assignment
Exhibit “F” Existing Wells
PURCHASE OF WORKING INTEREST; ASSIGNMENT
3.1 Purchase of Working Interest.
(a) Upfront Payment.
(i) Upon execution of this Agreement, Liberty will pay to Nytis an amount equal to $350.00 per net
mineral acre for forty percent (40%) of Nytis’ undivided working interest in the Berea Sandstone Program, which
amount is $3,655,552.60 (the “Initial Payment”). The Initial Payment shall be made by wire transfer of immediately
available funds to an account designated by Nytis no later than two Business Days prior to Closing.
(ii) In exchange for the Initial Payment at the Closing, Nytis shall make at Closing the assignments to
Liberty set forth in Section 3.4 and grant Liberty the right to participate for a forty percent (40%) working interest in
the drilling, development and production of oil and gas from the Leases in accordance with the terms and conditions
of this Agreement.
(b) Subject to the limitation set forth in Section 3.2 below and in accordance with the payment terms of the
applicable Operating Agreement, unless otherwise set forth herein, Liberty agrees to be responsible for and pay the Drilling
and Completion Costs of the Wells as follows:
(i) With respect to the twenty (20) Carry Wells, Liberty shall bear eighty percent (80%), Proportionately
Reduced, of the Drilling and Completion Costs for such Wells (the “Carry Costs”).
(ii) In the event that Liberty elects to drill any Wells subsequent to the completion of the Carry Wells,
Liberty shall bear forty percent (40%), Proportionately Reduced, of the Drilling and Completion Costs for such
3.2 Well Costs Cap.
(a) Notwithstanding anything to the contrary in this Agreement, if the Drilling and Completion Costs (or plugging
and abandoning, if not completed):
(i) associated with any particular Carry Well to be drilled pursuant to Section 2.1 above exceed Six
Hundred Fifty Thousand Dollars ($650,000.00) (the “Single Well Cost Cap”), Liberty only shall be required to pay
forty percent (40%), Proportionately Reduced, of Drilling and Completion Costs in excess of the Single Well Cost
Cap for such Carry Well, and Nytis shall be required to pay sixty percent (60%), Proportionately Reduced, of Drilling
and Completion Costs in excess of the Single Well Cost Cap for such Carry Well; or
(ii) associated with all Carry Wells to be drilled pursuant to Section 2.1 above exceed Twelve Million
Dollars ($12,000,000.00) in the aggregate (the “Aggregate Well Cost Cap”), Liberty only shall be required to pay
forty percent (40%), Proportionately Reduced, of Drilling and Completion Costs in excess of the Aggregate Well
Cost Cap for the Carry Wells, and Nytis shall be required to pay sixty percent (60%), Proportionately Reduced, of
Drilling and Completion Costs in excess of the Aggregate Well Cost Cap for the Carry Wells.
(b) Nytis shall use its reasonable best efforts to obtain competitive, market standard rates and costs with respect to
the Drilling and Completion Costs.
3.3 Spud Fee. In addition to the amounts Liberty is required to pay pursuant to Section 3.1, Liberty shall pay to Nytis a
spud fee for each Well drilled pursuant to this Agreement equal to $10,000.00, proportionately reduced to Nytis’ initial working interest
in such Well (the “Spud Fee”). The Spud Fee shall be paid by wire transfer of immediately available funds in accordance with the
invoicing provisions set forth in Section 4.2.
3.4 Assignment. Simultaneously with Liberty’s payment of the Initial Payment, Nytis shall deliver to Liberty a
recordable assignment, in substantially the form attached hereto as Exhibit E (the “Assignment”), assigning Liberty forty percent (40%)
of all of Nytis’ undivided right, title and interest in and to the Leases. Each and every Assignment contemplated herein shall be made
with a warranty of title, by, through and under Nytis, but not otherwise, and such assignment(s) shall be subject to the terms contained
in this Agreement and the applicable operating agreements and/or pooling orders, if any. Liberty agrees that if it elects not to
participate in either the Initial Uncommitted Carry Wells or the Remaining Uncommitted Carry Wells as contemplated by Section
2.1(b), Liberty shall promptly re-assign to Nytis, without further consideration, the identical leasehold and net revenue interest assigned
to Liberty pursuant to Section 3.1 using the form of Assignment; provided, however, that Liberty shall retain its rights and interest in
any Approved Spacing Unit surrounding a Carry Well in which Liberty has previously participated.
3.5 Overriding Royalty. The parties acknowledge that all Assignments shall include a reservation by Nytis of a two
percent (2%) overriding royalty interest on all Leases.
3.6 Existing Wells. Nytis shall retain the wellbores and Approved Spacing Units of all existing Wells spudded prior to
the Effective Date in the Contract Area, all of which are identified on Exhibit F attached hereto (the “Existing Wells”), the production
therefrom, and all equipment and facilities exclusively associated therewith. Nytis will assume all liabilities associated therewith and
indemnify Liberty therefrom.
3.7 Accelerated Payment of Carry Costs. Liberty shall have the option, and Nytis hereby grants Liberty the option, to
accelerate its payment of the Carry Costs and secure its full Liberty Working Interest in the Berea Sandstone Program (the
“Acceleration Option”) if Nytis elects to sell the majority of its working interests in the Berea Sandstone Program to a third party at any
point before Liberty has paid Carry Costs equal to the Aggregate Wells Costs Cap. If Liberty elects to exercise the Acceleration
Option, then Liberty shall immediately pay to Nytis an amount equal to the Aggregate Well Costs Cap minus any Carry Costs actually
paid by Liberty as of the date of Liberty’s exercise of the Acceleration Option (the “Accelerated Amount”). Upon Liberty’s payment of
the Accelerated Amount, Liberty (i) shall have satisfied its obligation to pay the Carry Costs in its entirety, and shall have no further
obligation to Nytis or any third party that acquires an interest in the Berea Sandstone Program for any Carry Costs, (ii) shall own the
Liberty Working Interest in the Berea Sandstone Program and neither Nytis nor any third party shall not be entitled to any reassignment
of the same.
AREA OF MUTUAL INTEREST
7.1 Subsequent Acquisitions. If during the Term of this Agreement, either Liberty or Nytis, or any of their respective
affiliates, acquires any oil and gas leasehold interest, whether by purchase, farm-in, contribution, forced pooling or otherwise, covering
lands lying within the Contract Area, the acquiring party shall promptly notify the non-acquiring party of such acquisition, describing
the oil and gas leasehold interest acquired and detailing the actual, third-party out-of-pocket costs incurred and the value of any rights,
leases, oil and gas interests or other property exchanged in connection with the acquisition of the acquired interest. Such acquired
interest shall be offered to the non-acquiring party on a heads up basis: sixty percent (60%) to Nytis and forty percent (40%) to Liberty.
7.2 Election to Participate. The non-acquiring party shall have a period of twenty (20) days after receipt of such notice to
notify the acquiring party of the non-acquiring party’s election to participate or not in the ownership of the acquired oil and gas
leasehold interest, with the failure of the non-acquiring party to notify the acquiring party within such twenty (20) day period to
constitute an election not to participate.
7.3 Payment and Assignment of Interest. In the event the non-acquiring party timely elects to participate in the acquired
oil and gas leasehold interest, and unless any such working interests have previously been conveyed to such non-acquiring party, the
acquired oil and gas leasehold interest shall become subject to this Agreement and the acquiring party shall promptly assign to the nonacquiring
party its undivided percentage of the working interest acquired by the acquiring party in such oil and gas leasehold interest,
subject only to the burdens in effect at the time the subject oil and gas leasehold interest was acquired. Such assignment shall be
substantially in the same form as Exhibit E attached hereto. Upon receipt of such assignment, the non-acquiring party will pay to the
acquiring party, in immediately available funds, the non-acquiring party’s share of the costs incurred in acquiring the acquired oil and
gas leasehold interest (limited to actual, third-party out-of-pocket costs and the value of any rights, leases, oil and gas interests or other
property exchanged therefor), in accordance with such party’s undivided percentage working interest. For purposes of this Article VII,
Liberty’s undivided percentage working interest shall be forty percent (40%) and Nytis’ undivided percentage working interest shall be
sixty percent (60%).
7.4 Non-Participation. In the event a non-acquiring party fails to timely elect to participate in acquired leasehold interest
pursuant to Section 7.2, then such oil and gas leasehold interest shall not become subject to this Agreement, shall be held solely by the
acquiring party and shall not in any manner be subject to the terms of this Agreement.
CONFIDENTIAL DATA AND INFORMATION
8.1 Confidential Information. Nytis has provided Liberty with certain information, reports and data used in the evaluation
of the Berea Sandstone Program as contemplated by this Agreement. Subject to the terms of Section 8.2, any party hereto may at any
time utilize, and show and provide to third parties, copies of such information.
8.2 Limitations. Except to the extent that such data may legally become a part of the public domain, all data and
information acquired by the parties pursuant to this Agreement or supplied by one party to the other pursuant to this Agreement will be
kept confidential and will be for the sole and exclusive use and benefit of the parties hereto; provided, however, the parties may disclose
such data and information to their respective consultants and parties providing, or proposing to provide, financial accommodations to
the disclosing party where each such recipient has (a) been advised of the confidential nature of such data and information and the
obligations of the disclosing party with respect thereto hereunder, and (b) agreed to be bound by the terms of this Article VIII, it being
understood and agreed that the disclosing party shall remain liable for any breach by any such recipient of the obligations of the
disclosing party under this Article VIII. Notwithstanding anything to the contrary herein, any party may disclose Confidential
Information (i) to other working interest owners in the Berea Sandstone Program, if any, (ii) to third parties to the extent such
information is required to be disclosed under applicable law, rule, order or regulation of any governmental entity having jurisdiction
over such matters, (iii) to the extent requested by regulatory or self-regulatory authority, (iv) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, or (v) to an
equity owner, director, officer, employee or agent of such party, including legal counsel, accountants and other advisors where each
such recipient has (y) been advised of the confidential nature of such data and information and the obligations of the disclosing party
with respect thereto hereunder and (z) such recipient is subject to enforceable obligations to keep such data and information
DM, I know from living the O&G lease frenzy up here in Ohio, you only get one chance to sign an Oil & Gas Lease. You have to understand the lease, which should be written by someone you trust and then read and understand then have what you didn't understand explained to you in detail before signing.
The Participation Agreement above is similar to O&G leases I have seen. It's typical of leases they produce, full of doubletalk.
Trust no one who comes to your door and asks for a signature. My Wife chased off several landmen from 2007 until we signed a Landowners Group Lease in 2011 that had everything to protect us and a bonus and royalty to suit us.
Since we own land in WV we will have another chance to lease and do it right a 2nd time. Take a look at www.alov.us the 2012 Lease Agreement on their website. That's a good lease. I won't sign any lease that is produced by an Oil or Gas company since their leases are absent protection for the landowners, they are all about protecting the company, maximizing profits and having an escape plan to drop you on your butt when they want out of the agreement. I've never read an O&G Company lease that didn't make me feel sick to know someone signed it.
Landowners have always trusted that the O&G Companies would treat them fairly. Guess what, they don't.
Never put your signature on a document that has wording you don't understand. Like I've always been told: "You signed it, You're an adult, now you have to live with it". That event only needs to happen once in a lifetime before you learn to never sign a document until you are absolutely sure of the content. If someone pressures you, don't sign since pressure implies an attempt at deceit.
Ron, I get the feeling you looking at this like a lease but it is actually a deal between an oil company and an investor, just shows how the numbers work and how you turn 50 dollars per acre paid to the mineral owner for a lease into almost 1500 dollars an acre received from an investor for a minority slice of the play real quick. The Oil Company in this instance sold 40 percent of their 26000 acres for about 15.5 million in cash and drilling carry and this is just and only the Berea Formation. I think they did really well for their stockholders.
As for the investor buying in they have to have a really good opinion of the play.
I ran the numbers a while back based on the 45Kbbl EUR's and $90.00 oil and this play dollar for dollar is comparable to the best of the Marcellus as long as gas is low. mainly because you can drill a dozen of these for the cost of one of the expensive Marcellus wells.
Net Acre cost for this investor is $1,470.73 which equates to more than double the full price for their net 8 wells.
Image is of Approved Units Only as of 9:00AM 2-26-2013
Dm, Thanks for the explanation. The goal as a landowner is to prevent someone else from leasing your property for $50 an acre then turning it into a great investment for another investor and the stockholders. We paid the Real Estate taxes for coal and minerals where God left them, now its time to play it smart and lease to the Driller and eliminate all the middle men that take all the profit. There are too many middle men out in the countryside leasing from the unsuspecting landowner then reselling 2 or 3 times for a profit until the oil company finally buys the lease. Then the 12% or 1/8th Net Royalty which turns out to be 9% after paying for getting the product to market, is all the landowner sees.
We will need a good Landowners Association to produce the Lease Contract that will benefit us and ensure we get the Bonus, Royalty and protection worthy of the amount of Oil and Gas under the area. I won't sign a lease written by an oil or gas company. I've read too many of their leases and know the pitfalls that lie in wait for all those trusting souls who have and will sign away their fortune.
I have seen leases that landowners have signed thinking the document was a request to do siezmic testing which is what the cover sheet said, but the next page was a lease. This kind of behavior by the landmen, and O&G companies is theft by deception, which they can get away with since they are corporations trying to make a profit.
I've been very fortunate to have avoided these traps by joining a Landowners Association and have a good lease with Gross Royalties (not net) in Ohio. Now I want to see the same happen for the people of West Virginai, the state I am originally from.
Updated Berea Horizontal Well Locations Approved Units are Blue Unapproved Units are points for surface, kickoff, and end of horizontal leg. One approved unit to the west is a Wier horizontal with Berea horizontal below. Old Fields along Big Sandy River had Produced over 1.4 million barrels of oil back in 1949 many are still producing today.
DM, are these wells that are already drilled or to be drilled ? And are the ones up top in greenup and boyd co. ?if so are they Nytis wells . I'm new to this .just wondering Thinks
I will double check the wells, by the way where did you get the 20K acres in Lawrence for the gulfland bunch?
Ohio's interactive O&G maps use lines to represent wells that have been horizontally drilled and dots to represent permitted horizontal wells that have not been drilled yet.
You would think the states would all use the same nomenclature.
The Big Sandy region is full of pipelines which you can see on national pipeline maps of the area, and has been the source for natural gas as well as oil for some time.
I noticed a few faults on the previous maps you posted and forgot to comment that the faults can cause the oil in the area at the fault to be lost. This info came from a land man that had some of his land advertised for sale. When I called him to find out if he knew the price was too low, he told me about the faults near the property and how they could affect the oil. He was sure there was nothing under his property. Hopefully the buyer will get rich on it.
It's good to see some drilling activity in the area. That's probably why one land man is trying to get leases signed in Wayne County.
Most of the leases from 2005 to 2008 have probably expired without renewal since they are typically 5 year leases. With Cabot and Chesapeake Appalachia (from Chas WV not the bigger Chesapeake Energy from OK) occupied in PA they have abandoned their leases. I saw a few of these leases when I was looking at land for sale in Wayne & Cabell counties. Ron
DM , I was told thats how many acres they was trying to get, and that they got them, thanks for all the info on here.I wish I found it earlier.
KGS has been making a few changes in relation to these wells lately & I don't actually know for sure, the wells with wellbores drawn in are just listed as approved, I thought that final approval for the unit was only after the directional survey had been completed so that the well conformed to spacing rules. This would also cut down on repeat work for the guys at the survey who would have to relocate the wellbore for the final map.
Berea Sandstone Oil Play Developing Rapidly
KOGA Eastern KY Meeting
Wednesday, April 24, 2013
Jenny Wiley State Resort Park
75 Theatre Court
Prestonsburg, KY 41653
Technical Program at 4:30 p.m.:
David C. Harris Head, Energy & Minerals Section Kentucky Geological Survey
Ellen Montgomery, Business Development Manager ProDirectional
Derek Hina, Technical Services Engineer Universal Well Services
As a service to its members KOGA is presenting a special technical program at 4:30pm about the Berea Sandstone OIL PLAY that is currently underway in eastern Kentucky. A team of presenters that includes David Harris, Ellen Montgomery, and Derek Hina will provide an overview of the current activity, as well as a description of the geology of the play and thoughts and recommendations on drilling and completion practices. Brent McDaniel will moderate the program. This oil play is developing rapidly and is being aided by enhanced understanding of the geology of the Berea and technical advances in drilling and completion methods. The program should be valuable to operators who own held-by-production acreage in the play area, as well as those seeking to enter the play.