Exploration And Participation Agreement

EXHIBIT 10.10


EXPLORATION AND PARTICIPATION AGREEMENT


BY AND BETWEEN


ENSERCH EXPLORATION, INC.


AND


ENTERPRISE OIL GULF OF MEXICO INC.


Dated June 30, 1997


EXPLORATION AND PARTICIPATION AGREEMENT


This Exploration and Participation Agreement (this "Agreement") dated as of June 30, 1997, by and between ENSERCH EXPLORATION, INC., a Texas corporation and ENTERPRISE OIL GULF OF MEXICO INC., a Delaware corporation ("Enterprise"). Enserch and Enterprise are sometimes hereinafter referred to individually as a "Party" and collectively as the "Parties".


WHEREAS, Enserch owns the Leases (as defined below) and related rights and interests; and


WHEREAS, Enserch desires to convey to Enterprise, and Enterprise desires to acquire from Ensercb, an undivided fifty percent (50%) of Enserch's entire interests in and to such Leases and related rights and interests on the terms and conditions set forth herein; and


WHEREAS, Enterprise desires to participate with Enserch in the drilling of certain wells on the Leases on the terms and conditions set forth herein.


NOW, THEREFORE, in consideration of the mutual covenants and agreements made herein, the Parties, intending to be legally bound, hereby agree as follows:


ARTICLE I


DEFINED TERMS


Section 1.1 DEFINITIONS. The defined terms used in this Agreement shall, unless the context otherwise requires, have the meanings specified in this Article I, with each such definition being equally applicable both to the singular and the plural forms of the terms so defined.


(a) "Acquisition Costs" means, with respect to any Lease, all costs
associated with the acquisition of such Lease, including costs of title
examination associated with such acquisition.


(b) "Action" means any action, claim, suit, arbitration, inquiry,
proceeding, investigation or audit by or before any court or any
Governmental Authority.


(c) "Affiliate" means, when used with respect to any party, any other
Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such party,
or (1)) which beneficially owns or holds more than 50% of any class of
voting stock (or in the case of a Person which is not a corporation, more
than 50% of any class of equity interest) of such party, or (c) more than
50% of any class of whose voting stock (or in the case of a Person which is
not a corporation, more than 50% of any class of whose equity interest) is
beneficially owned or held by such party and its Affiliates. The term
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a


Person, whether through the ownership of voting stock or any equity
interest, by contract or otherwise.


(d) "Agreed Rate" means a per annum interest rate equal to the lesser
of (i) the U.S. Treasury three month discount rate plus 2% in effect on the
first day of the month for each month during which interest is accruing or
(il) the maximum rate of interest allowed by applicable Law.


(e) "Agreement" means this Exploration and Participation Agreement,
as the same may from time to time be amended in writing by Enserch and
Enterprise.


(f) "Appraisal Drilling" means the drilling of one or more wells
whose purpose at the time of commencement of drilling such well or wells is
the determination of the extent or the volume of Hydrocarbon reserves
contained in an existing Discovery. For the avoidance of doubt, the term
"Appraisal Drilling" shall not include the drilling of Development Wells.


(g) "Appraisal Drilling Costs" means Drilling Costs associated with
Appraisal Drilling.


(h) "Assignments" shall be as defined in Section 6.3.


(i) "Business Day" means any day which is not a Saturday, Sunday or
legal holiday recognized by the United States of America or England.


(j) "Casing Point" means that point in time at which a well has
reached its objective depth, all originally planned and authorized open
hole evaluations have been performed, and the next course of action is
decided pursuant to the priority of operations provisions contained in the
applicable Operating Agreement.


(k) "Closing" means the consummation of the transactions contemplated
by Article VIII.


(l) "Closing Date" means August 11, 1997, or such other date as may
be mutually agreed to by Enserch and Enterprise.


(m) "Code" shall be as defined in Section 4.1(b).


(n) "Covered Liabilities" means any and all debts, losses,
liabilities, duties, claims, damages, obligations, payments (including,
without limitation, those arising out of any demand, assessment,
settlement, judgment or compromise relating to any actual or threatened
Action), taxes, costs and expenses (including, without limitation, any
attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending any Action), matured or unmatured,
absolute or contingent3 accrued or unaccrued, liquidated or unliquidated,
known or unknown, including, without limitation, any of the foregoing
arising under, out of or in connection with any Action, any order or
consent decree of any Governmental Authority, any award of any arbitrator,
or any Law, contract, commitment or undertaking.


(o) "Development" means the development of a Discovery for the
production of Hydrocarbons pursuant to an applicable Operating Agreement.


(p) "Development Costs" means, when used with respect to any
Development, all costs associated with such Development, including the
costs associated with the drilling, testing, completing and equipping of
one or more Development Wells and constructing and installing production
systems and facilities for the production of Hydrocarbons from the relevant
Discovery. "Development Costs" shall not include (i) the costs of drilling
Exploratory Wells or any Appraisal Drilling, (ii) any Acquisition Costs,
G&G Costs or Lease Maintenance Costs or (iii) any claims or liabilities
attributable to any casualty, injury, death or other damage arising from or
attributable to any drilling or other activities giving rise to Development
Costs. Liability for any claims or liabilities referred to in clause (jii)
of the preceding sentence shall be shared by the Parties in accordance with
their interests in such wells and governed by the provisions of the
applicable Operating Agreement, except in the case of sole risk wells which
shall be borne by the Party and any third parties who participate in such
well as provided in the applicable Operating Agreement.


(q) "Development Well" means a well drilled pursuant to an applicable
Operating Agreement to develop an existing Discovery for the production of
Hydrocarbons. For the avoidance of doubt, the term "Development Well" shall
not include an Exploratory Well or a well drilled for the purpose (at the
time of commencement of drilling) of determining the extent or the volume
of Hydrocarbon reserves contained in an existing Discovery.


(r) "Discovery" means the discovery after Closing of an accumulation
of Hydrocarbons in the Subject Lands, which is separated from and not in
oil or gas pressure communication with any other such accumulation, whose
existence until that moment was unknown and into which a well capable of
producing Hydrocarbons in paying quantities (as determined by applicable
order issued by appropriate Governmental Authority) has been drilled.


(s) "Drilling Costs" means all costs associated with the examination
of title to any drillsite or any proration unit formed in connection
therewith, settlement of surface damages, construction of location,
platform slot rental fees, permitting a well, drilling and logging such
well prior to Casing Point and the plugging and abandonment costs in the
event of a dry hole. "Drilling Costs" shall not include (i) the costs of
testing any well or attempting to complete any well as a producer or
equipping any well, (ii) any Acquisition Costs, G&G Costs or Lease
Maintenance Costs, or (iii) any claims or liabilities attributable to any
casualty, injury, death or other damage arising from or attributable to any
drilling or other operations or activities giving rise to Drilling Costs.
Liability for any claims or liabilities referred to in clause (iii) of the
preceding sentence shall be shared by the Parties in accordance with their
interests in such wells and governed by the provisions of the applicable
Operating Agreement, except in the case of sole risk wells which shall be
borne by the Party and any third parties who participate in such well as
provided in the applicable Operating Agreement.


(t) "Drilling Rig Contracts" means (i) that certain Domestic Daywork
Drilling Contract-Offshore dated December 12, 1994, by and between EP
Operating Limited Partnership and Diamond Offshore Company, as amended by
agreements dated May23, 1996, December 6, 1998, March 17, 1997 and March27,
1996, and (ii) that certain Offshore Drilling Contract dated February 13
1998, by and between Enserch and Reading & Bates Drilling Co., as amended
by agreements dated July 16, 1995, January 31, 1996, August 14, 1996, and
August 26, 1996.


(u) "Drilling Rigs" means the Diamond Ocean Voyager and the Reading &
Bates Rig 41, as more particularly described in the Drilling Rig Contracts.


(v) "Enserch's Interest" means, when used with respect to any Lease
or Unit Area, the following:


(i) A Working Interest and a Net Revenue Interest in such Lease
or Unit Area which are equal to the respective Working Interest and
Net Revenue Interest in such Lease or Unit Area as set forth in
Exhibit "A" hereto; and


(ii) the above stipulated Working Interest and Net Revenue
Interest in such Lease or Unit Area, free and clear of all Liens other
than the Liens disclosed in Exhibit "A" hereto and any Permitted
Defects.


(w) "Enserch's Participating Interest" means, when used with respect
to any Lease or Unit Area, the undivided fifty percent (50%) interest in
Enserch's Interest in such Lease or Unit Area that is retained by Enserch
and is not included in the conveyance provided for in Article II of this
Agreement. For the avoidance of doubt, the term "Enserch's Participating
Interest" as used in this Agreement shall not include any interest in such
Lease or Unit Area acquired by Enserch as a result of a non-consent
election by a non-participating party in respect of a non-consent operation
on such Lease or Unit Area under an applicable Operating Agreement.


(x) "Exploratory Well" means a well drilled pursuant to an applicable
Operating Agreement for the purpose (at the time of commencement of
drilling) of making a Discovery. For the avoidance of doubt, the term
"Exploratory Well" shall not include a Development Well or a well drilled
for the purpose (at the time of commencement of drilling) of determining
the extent or the volume of Hydrocarbon reserves contained in an existing
Discovery.


(y) "First Development" means the Development of the first Discovery
following the Closing Date.


(z) "G&G Costs" means all costs of licensing or acquiring (including
seismic permitting) and processing and modelling of geological and
geophysical data and information.


(aa) "Governmental Authority" means:


(i) the United States of America,


(ii) any state, county, municipality or other governmental
subdivision within the United States of America, and


(iii) any court or any governmental department, commission,
board, bureau, agency or other instrumentality of the United States of
America or of any state, county, parish, municipality or other
governmental subdivision within the United States of America.


(bb) "Hydrocarbons" means (a) crude oil, natural gas and other liquid
or gaseous hydrocarbons and (b) all minerals and substances produced with
or extracted, separated, processed or produced from crude oil, natural gas
or other liquid or gaseous hydrocarbons.


(cc) "Hydrocarbon Interest" means any right, title or interest in, to
or under any oil, gas and/or Hydrocarbon lease, leasehold interest, mineral
fee interest, mineral servitude, royalty interest, overriding royalty
interest, production payment, net profits interest and any other right,
title or interest evidencing or creating a right or interest in, or any
right to produce or receive the proceeds of production of; any Hydrocarbons
in place and located in the Outer Continental Shelf; Gulf of Mexico,
including interests therein pursuant to any participation, joint venture,
farm-in, farm-out, operating or other agreement and all rights and
interests attributable or allocable thereto by virtue of any pooling,
unitization, communitization, production sharing or similar agreement,
order or declaration.


(dd) "Indemnified Parties" shall be as defined in Section 11.5.


(ee) "Law" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, decrees or other official acts of any
Governmental Authority.


(ff) "Lease Maintenance Costs" means royalties, minimum royalties,
lease rental payments, shut-in payments or other similar payments necessary
to maintain any Lease in full force and effect.


(gg) "Leases" means the oil and gas leases described in Exhibit "A"
attached hereto and made a part hereof, insofar and only insofar as such
leases cover areas and depths which are not expressly excluded in Exhibit
"A".


(hh) "Lien" means any lien, mortgage, charge, penalty, restriction,
security interest, collateral assignment, pledge, sale or purchase
contract, option, call or dedication, right of first refusal or other
preferential purchase right, reservation, condition, sublease, license,
area of mutual interest agreement, operating agreement, processing
contract, farmout or development agreement, drilling or service contract,
easement or right-of-way, pooling or unitization order or agreement, or
other encumbrance or agreement.


(ii) "MMS" means the United States Minerals Management Service.


(jj) "Net Revenue Interest" means, with respect to any Lease or Unit
Area, an interest (expressed as a percentage or decimal fraction) in and to
all Hydrocarbons


produced and saved from or attributable to the Subject Lands covered by
such Lease or including in such Unit Area, after giving effect to all
royalties, overriding royalties and other burdens upon, measured by, or
payable out of production therefrom.


(kk) "Operating Agreement" means either (i) an Offshore Joint
Operating Agreement between Enserch and Enterprise covering Subject Lands
situated in the Outer Continental Shelf, Gulf of Mexico, substantially in
the form attached hereto as Exhibit "C", covering, as may be agreed to by
the Parties, an individual block or multiple blocks, or (ii) an existing
third party operating agreement as provided in Section 9.1.


(ll) "Party" shall be as defined in the preamble of this Agreement.


(mm) "Payment Amount" shall be as defined in Section 3.1.


(nn) "Permits" means all permits, licenses, consents, approvals and
filings which the lessee under the Leases is required to obtain, have or
make pursuant to any Law or with or from any Governmental Authority to
permit or allow such lessee to conduct any exploration, development,
production, processing, abandonment or other operations or activities with
respect to the Leases or the Subject Lands.


(oo) "Permitted Defect" means, when used with respect to any Lease, a
Lien or title defect (i) which was not created by, through or under Enserch
or an Affiliate of Enserch, (ii) which does not inure to the benefit of
Enserch or an Affiliate of Enserch, and (iii) the existence of which does
not impair the value of Enterprise's interest in such Lease in any material
respect, or interfere materially or have a material adverse economic effect
on the exploration, development, operation or use thereof, or otherwise
have any material adverse effect thereon.


(pp) "Person" means any individual, firm, corporation, partnership,
joint venture, trust, unincorporated organization, Governmental Authority,
or other entity or organization.


(qq) "Preference Property" shall be as defined in Section 5.1(a).


(rr) "Preference Right" shall mean any right or agreement that enables
or may enable any Person to purchase or acquire any Subject Interest or any
interest therein or portion thereof as a result of or in connection with
(i) the sale, assignment, encumbrance or other transfer of any Subject
Interest or any interest therein or portion thereof or (ii) the execution
or delivery of this Agreement or any Assignment or the consummation or
performance of the terms and conditions contemplated by this Agreement or
any Assignment.


(ss) "Second Development" means the Development of the second
Discovery following the Closing Date.


(tt) "Subject Interests" means an undivided fifty percent (50%)
interest in and to (i) Enserch's Interest in the Leases and (ii) Enserch's
right, title and interest in and to those certain easements, rights-of-way,
licenses, permits and other contracts and agreements described in Exhibit
"A" hereto.


(uu) "Subject Lands" means (i) the lands covered by the Leases to the
extent such lands (or portion thereof) are not expressly excluded in
Exhibit "A" attached hereto and (ii) all lands now or hereafter pooled or
unitized with the lands described in clause (i) above or with portions
thereof.


(vv) "Third Party Liabilities" means any Covered Liabilities to the
extent the same arise out of or result from any claim, demand or cause of
action (or threatened cause of action) which is at any time made, asserted
or threatened against an Indemnified Party by a Person which is not
Enterprise or an Affiliate of Enterprise.


(ww) "Unit Areas" means the unit areas known as Cooper (Garden Banks
388), Allegheny (Green Canyon 254) and Mississippi Canyon 441, and being
the unit areas covered, respectively, by (i) Offshore Unit Operating
Agreement (Garden Banks 388 Unit) dated effective April 12, 1995, by and
between Enserch, as Operator, and Mobil Producing Texas & New Mexico Inc.,
as Non-Operator, as amended, (ii) Operating Agreement (Allegheny Area,
Green Canyon 254 et al) dated effective May 1, 1995, by and among Enserch,
Reading and Bates Development Co., Mobil Oil Corporation and Mobil Oil
Exploration & Producing Southeast Inc., as amended, and (iii) Offshore Unit
Operating Agreement (Lentic Reservoir Unit - Mississippi Canyon 441, 485)
dated October 1, 1989, by and among EP Operating Limited Partnership,
Petrofina Delaware, Incorporated and Agip Petroleum Co. Inc., as such
Agreements are more particularly described in Exhibit "A" hereto.


(xx) "Working Interest" means, with respect to any Lease or Unit Area,
an interest (expressed as a percentage or decimal fraction) in and to such
Lease or Unit Area and all rights and obligations of every kind and
character appurtenant thereto, or arising therefrom, without regard to any
royalties, overriding royalties or other encumbrances or charges against
production therefrom, insofar as such interest is burdened with the
obligations to bear and pay costs and expenses attributable to the
maintenance, development and operation of the Subject Lands covered by such
Lease or included in such Unit Area.


Section 1.2 REFERENCES, GENDER, NUMBER. All references in this Agreement to an "Article," "Section," or "subsection" shall be to an Article, Section or subsection of this Agreement, unless the context requires otherwise. Unless the context otherwise requires, the words "this Agreement," "hereof," "hereunder," "herein," "hereby," or words of similar import shall refer to this Agreement as a whole and not to a particular Article, Section, subsection, clause or other subdivision hereof. Whenever the context requires, the words used herein shall include the masculine, feminine and neuter gender, and the singular and the plural. The word "including" means "including without limitation.


ARTICLE II

AGREEMENT TO CONVEY


Subject to the terms and conditions of this Agreement, Enserch agrees to assign and convey to Enterprise3 and Enterprise agrees to acquire from Enserch, the Subject Interests.


ARTICLE III

CONSIDERATION AND PAYMENT


Section 3.1 CONSIDERATION. The consideration for the assignment and conveyance of the Subject Interests is $65,000,000.00 (the "Payment Amount"), which shall be satisfied by Enterprise paying for certain Drilling Costs attributable to Enserch's Participating Interest in Leases and Unit Areas as provided in Section 3.2.


Section 3.2 PAYMENT. If the Closing occurs, Enterprise shall pay the Payment Amount to Enserch in installments, without any interest thereon, as follows:


(a) Following each billing by the operator to the participating
parties under each applicable Operating Agreement for such parties'
respective shares of the aggregate Drilling Costs associated with drilling
any Exploratory Well thereunder in which Enserch elects to participate,
Enserch shall deliver to Enterprise an invoice for a portion of the Payment
Amount equal to the lesser of (i) the product obtained by multiplying (x)
Ensercli's Participating Interest in the Lease3 Unit Area or portion
thereof on which such Exploratory Well is drilled or to be drilled times &)
such aggregate Drilling Costs, and (ji) the balance of the Payment Amount
then remaining unpaid. Enterprise shall pay such invoiced amount to Enserch
within thirty (30) days following Enterprise's receipt of such invoice with
reasonable supporting documentation.


(b) On December 31, 2000, the balance of the Payment Amount, if any,
then remaining unpaid shall be due and payable, and shall be used
exclusively for the exploration and development of the Subject Lands.


ARTICLE IV

REPRESENTATIONS AND WARRANTIES


Section 4.1 REPRESENTATIONS AND WARRANTIES OF ENSERCH. Enserch represents and warrants to Enterprise as of the date hereof and as of the Closing Date as follows:


(a) ORGANIZATION AND QUALIFICATION. Enserch is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite corporate power to carry on its
business as it is now being conducted. Enserch is duly qualified or
licensed to do business3 and is in good standing, in each jurisdiction in
which the character of the property or assets owned, leased or operated by
it, or the nature of the business conducted by it, makes such qualification
or licensing necessary and the failure so to qualify or be licensed would
have a material adverse effect on the transactions or performance
contemplated under this Agreement. Without limiting the foregoing, Enserch
is duly qualified with the MMS and other Governmental Authorities with
jurisdiction over the Subject Lands to carry on its business in the Outer
Continental Shelf, Gulf of Mexico.


(b) NON-FOREIGN STATUS. Enserch is not a "foreign person" within the


meaning of the Internal Revenue Code of 1986, as amended (the "Code"),
Sections 1445 and 7701 (i.e., Enserch is not a nonresident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as those
terms are defined in the Code and any regulations promulgated thereunder).


(c) MMS. Enserch has no knowledge of any matter or circumstance which
would preclude or inhibit unconditional MMS approval of the assignment of
any interest in the Subject Lands from Enserch to Enterprise, including,
without limitation, any unsatisfied bond or supplemental bond obligations
owed to the MMS.


(d) AUTHORITY. Enserch has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby have been duly
and validly authorized by all requisite corporate action on the part of
Enserch.


(e) ENFORCEABILITY. This Agreement constitutes a valid and binding
agreement of Enserch enforceable against it in accordance with its terms3
subject to:


(i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect
to creditors,


(ii) general principles of equity, and


(iii) the power of a court to deny enforcement of remedies
generally based upon public policy.


(f) NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement nor the consummation of the transactions and performance of
the terms and conditions contemplated hereby by Enserch will:


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