Bwc Exploration Agreement

EXPLORATION AGREEMENT BWC Project Jackson County, Texas


This Exploration Agreement (the "Agreement") is entered into as of April 1, 1998, by and between Parallel Petroleum Corporation ("Parallel"), TAC Resources, Inc. ("TAC"), Beta Oil & Gas, Inc. ("Beta"), Meyer Financial Services, Inc. ("Meyer"), FGL, Inc. ("FGL"), Mert L. Cooper ("Cooper"), Mansefeldt Investment Corporation ("Mansefeldt"), Topaz Exploration Company ("Topaz"), Wes-Tex Drilling Corp. ("Wes-Tex") and CKC Investments, Inc. ("CKC") all hereinafter collectively referred to as (the "Parties").


WITNESSETH:


WHEREAS, Parallel and TAC have acquired seismic and lease options, oil and gas leases and seismic permits covering an area of approximately 40,000 acres located in Jackson County, Texas, as depicted on the plat attached hereto as Exhibit "A".


WHEREAS, Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC propose to acquire undivided interests in and to the rights granted by such agreements, and to participate in conducting a 3-D seismic program upon the lands covered thereby.


NOW, THEREFORE, in consideration of the premises, the mutual agreements and obligations set forth herein, and the mutual benefits to be received hereunder, the Parties agree as follows:


ARTICLE 1. DEFINITIONS


For the purpose of this Agreement, the following terms shall have the
meanings designated below:


1.1 Area of Mutual Interest "AMI" means the lands outlined on the plat
attached hereto as Exhibit "A".


1.2 "AMI Interests" means any interest in the oil, gas or other
minerals in and under the AMI, including leasehold interests under oil
and gas leases, oil and gas lease options, interests of the farmee
under farmout agreement, and other such interests or rights similar or
dissimilar to those mentioned, including, but not limited to, seismic
permits. AMI Interest does not, however, include nonpossessory
interests in the oil, gas and other minerals in and under the AMI, such
as royalty interests, overriding royalty interests, net profits
interests, or other such interests whether similar or dissimilar to
those mentioned.


1.3 "Existing AMI Interests" means the Seismic and Lease Options, Oil
and Gas Leases and Seismic Permits which have been acquired as of
August 1, 1998.


1.4 "Subsequently Acquired AMI Interests" means all AMI Interests
acquired after August 1, 1998.


1.5 "Contract Lands" means lands located within the AMI which are
covered by AMI Interests.


1.6 "Initial Interest" means a Party's ownership in Existing AMI
Interests, and the amount of interest a party is entitled to acquire in
Subsequently Acquired AMI Interests, subject to the provisions hereof.


1.7 "Jointly Owned AMI Interest" means an AMI Interest in which the
Parties own an interest pursuant to the terms of this Agreement.


1.8 "Lease Burden" means any royalty, overriding royalty interest, net
profits interest, production payment, carried interest, reversionary
working interest or other charges upon a leasehold interest or the
production therefrom.


1.9 "Losses" means any and all losses, liabilities, claims, demands,
penalties, fines, settlements, damages, actions, or suits of whatsoever
kind and nature (but expressly excluding consequential damages),
whether or not subject to litigation, including without limitation (i)
claims or penalties arising from products liability, negligence,
statutory liability or violation of any applicable law or in tort
(strict, absolute or otherwise) and (ii) loss of or damage to any
property, and all reasonable out-of-pocket costs, disbursements and
expenses (including, without limitation, legal, accounting, consulting
and investigation expenses and litigation costs) imposed on, incurred
by or asserted against an indemnified Party in connection therewith.


1.10 "Operator" shall mean Parallel Petroleum Corporation.


1.11 "Party" or "Parties" means Parallel, TAC, Beta, Meyer, FGL,
Cooper, Mansefeldt, Topaz, Wes-Tex and CKC and any other person or
entity, singularly or as a group, which hereafter becomes a party
hereto or is otherwise subject to the terms hereof.


1.12 "Pre-Existing Data" means such data which includes, but is not
limited to: seismic records and related seismic data, electronic and
mud logs, cores and core analyses, field studies (less and except any
proprietary methodology or process used by any Party in such studies),
production tests, engineering, geological, geophysical, paleontological
data, interpretive data and maps prepared by any Party in existence as
of the date of this Agreement.


1.13 "Proportionate Share" except as otherwise provided for herein,
shall be calculated by dividing a Party's Initial Interest by the
aggregate of the Initial Interests of all Parties who are to share an
interest or an obligation pursuant to the terms hereof.


1.14 "Prospect" means an area within the AMI which is designated as a
Prospect pursuant to Article 7.3 hereof and within which there is
expected to occur, based on information developed as a result of 3-D
Seismic Operations, a commercial accumulation of oil and/or gas in a
specific structural or stratigraphic trap.


1.15 "Subsequently Created Burden" means a lease burden which is
created by a party subsequent to its acquisition of the interest which
is subject to the burden, except the overriding royalty interest
provided for in Article 2.5 hereof.


1.16 "Costs Prior to Leasehold Acquisition" means all costs of any
type whatsoever which pertain to this project, covering lands located
within or outside the AMI, including, but not limited to costs of
seismic permits, seismic and lease options, oil and gas leases, and
renewals and/or extensions thereof, land brokerage, legal costs,
surface damages, surveying, seismic acquisition, processing and
interpretation, etc., which are incurred prior to Leasehold
Acquisition conducted under the provisions of Article 4 hereof.


1.17 "Seismic Operations" means all operations which are necessary to
produce a three-dimensional seismic data grid over the portion of the
Contract Lands on which the Parties conduct such operations, including
the processing and interpretation of such data.


1.18 Other terms are defined elsewhere in this Agreement.


ARTICLE 2. INTERESTS AND SHARE OF COSTS OF THE PARTIES


2.1 Area of Mutual Interest. The Parties hereby establish an Area of
Mutual Interest "AMI", same to be comprised of the area outlined on the
attached Exhibit "A", and which shall cover AMI Interests located
therein. This AMI shall continue for a term of seven (7) years, or the
expiration of the last Jointly Owned AMI Interest, whichever is
earlier.


2.2 Interests and Share of Costs of the Parties. The Parties hereby
agree to own, as their Initial Interest, and agree to bear the costs
set out below, as follows:


Party Initial Interest Share of Costs Share of Costs
Prior to Leasehold for Leasehold
Acquisition Acquisition and
Subsequent Operations

Parallel .4825000 .5600000 .4825000


TAC .1875000 .0000000 .1875000


Beta .1250000 .1666667 .1250000


Meyer .0200000 .0266667 .0200000


CKC .0300000 .0400000 .0300000


Cooper .0300000 .0400000 .0300000


FGL .0750000 .1000000 .0750000


Mansefeldt .0360000 .0480000 .0360000


Topaz .0040000 .0053333 .0040000


Wes-Tex .0100000 .0133333 .0100000


Parallel and TAC have acquired and presently own the Existing AMI
Interests. Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC
agree that their respective costs in the Existing AMI Interests shall
be based on $100.00 per net mineral acre on seismic and lease options,
and cost plus 33.33333% on oil and gas leases and seismic permits. The
Existing AMI Interests are presently comprised of approximately
28,454.496 net mineral acres covered by seismic and lease option, 2,288
acres covered by seismic permit where cost was $36,895.00, and 279.3065
net mineral acres covered by oil and gas lease where cost was
$41,895.98. Based on the foregoing, the current total cost of Existing
AMI Interests is Two million nine hundred fifty thousand five hundred
four and 24/100 Dollars ($2,950,504.24). Beta, Meyer, FGL, Cooper,
Mansefeldt, Topaz, Wes-Tex and CKC agree to pay Parallel their share of
such cost, as referenced above, in the Existing AMI Interests upon
execution of this Agreement. Beta, Meyer, FGL, Cooper, Mansefeldt,
Topaz, Wes-Tex and CKC hereby agree that Parallel shall have the
exclusive right to acquire AMI Interests through August 1, 1998, and
that same shall be treated in all respects as Existing AMI Interests.
Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC agree that
they shall be obligated to accept such interests in the same
percentages and pay Parallel for such interests at the same terms
stated herein. Payment for such interests shall be due within fifteen
(15) days after receipt of written notice as set out in Article 2.4.
Interests available to Parallel which costs exceed those stated above
shall be offered to the other Parties as per the procedure set forth in
Article 2.4 below.


2.3 Recording. Parallel agrees to file for record in the office of the
Jackson County Clerk, all Memorandums of Seismic and Lease Options
covering the Existing AMI Interests within fifteen (15) days of the
date this Agreement is executed by all Parties.


2.4 Subsequently Acquired AMI Interests. Any Party acquiring a
Subsequently Acquired AMI Interest, directly or indirectly, shall
notify the other Parties hereto. Such notice shall set forth (i) a
description of the interest acquired, (ii) the total cost of the
interest, including all land and legal costs associated with the
acquisition thereof, (iii) the Proportionate Share of the notified
Party and its cost therein, and (iv) any other pertinent terms of such
acquisition, including, but not limited to, copies of the instruments
of conveyance, copies of leases, assignments, subleases, farmout and
other contracts affecting the AMI Interests, copies of paid drafts or
checks, itemized invoices of actual costs incurred by the acquiring
Party. Parties shall have fifteen (15) days from the receipt of this
notice to acquire their Proportionate Share of the Subsequently
Acquired AMI Interest. A Party's election to acquire shall be given in
writing and accompanied by Party's payment of its total cost for such
interest. If a Party's election and payment are not received within
such fifteen (15) day period, it shall be conclusively presumed that
such Party has elected not to acquire its Proportionate Share of the
Subsequently Acquired AMI Interest and has forfeited its right thereto.
A Party's failure to exercise its option as to any particular notice
shall not constitute a waiver or release of its right to acquire any
interest described in any subsequent notice delivered hereunder.
Subsequently acquired AMI Interests shall not be construed to include
oil and gas leases acquired under Article 4 hereof.


2.5 Existing Burdens. Each Party's interest under this agreement in the
AMI Interests, and oil and gas leases which may be acquired thereunder,
shall be subject to and burdened by its proportionate share of all
existing operating agreements, existing and pending pooling and spacing
orders and all Lease Burdens other than Subsequently Created Burdens.
Parallel and TAC represent, except as hereinafter provided, that they
have not burdened the Existing AMI Interests acquired or to be acquired
with any liens or Subsequently Created Burdens. Each Party agrees to
perform its Proportionate Share of the obligations under the AMI
Interests acquired pursuant to this Agreement and the other obligations
described in this Article, but only to the extent that such obligations
arise after the acquisition of such AMI Interests by such Party.
Notwithstanding the foregoing, the Parties agree that they shall bear,
their Proportionate Share of an overriding royalty interest to be owned
by TAC on all oil and gas leases acquired pursuant to this Agreement
(including leases acquired by exercising lease options in which the
Parties own an interest, and in extensions and renewals thereof) equal
to the difference between Lease Burdens and twenty-five percent (25%)
on all such leases where Lease Burdens are less than twenty-five
percent (25%); and an overriding royalty interest equal to two percent
(2%) of eight-eighths (8/8th) in such leases where Lease Burdens are
twenty-five percent (25%) or greater. All such overriding royalty
interests shall be reduced in the proportion that the mineral interest
covered by any such lease or leases bears to the entire undivided fee
mineral estate.


2.6 Expiring Options. If any lease options covered hereby will expire
prior to completion of the Seismic Operations contemplated herein,
Operator shall use its best efforts to renew and/or extend such option
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