Form Of Chesapeake Drilling Agreement

NOTE: This form contract is a suggested guide only and use of this form or any variation thereof shall be at the sole discretion and risk of the user parties. Users of the form contract or any portion or variation thereof are encouraged to seek the advice of counsel to ensure that the contract reflects the complete agreement of the parties and applicable law. The International Association of Drilling Contractors disclaims any liability whatsoever for loss or damages which may result from use of the form contract or portions or variations thereof.


Revised June, 1994
[LOGO] INTERNATIONAL ASSOCIATION OF DRILLING CONTRACTORS
DRILLING BID PROPOSAL
AND
DAYWORK DRILLING CONTRACT - U.S.


TO:
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Please submit bid on this drilling contract form for performing the work outlined below, upon the terms and for the consideration set forth, with the understanding that if the bid is accepted by
----------------------------------- - -------------------------------------------------------------------------------- this instrument will constitute a contract between us. Your bid should be mailed or delivered not later than _______________ P.M. on _______________, 19_____ to the following address: - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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THIS AGREEMENT CONTAINS PROVISIONS RELATING TO INDEMNITY,
RELEASE OF LIABILITY, AND ALLOCATION OF RISK


THIS AGREEMENT (The "Contract") is made and entered into on the date hereinafter set forth by and between the parties herein designated as "Operator" and "Contractor".
OPERATOR: Chesapeake Operating, Inc.
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ADDRESS: P.O. Box 18496
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Oklahoma City, Oklahoma 73154-0496
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CONTRACTOR Bayard Drilling Technologies, Inc.
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ADDRESS: 4005 N.W. Expressway, Suite 400E
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Oklahoma City, Oklahoma 73116
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IN CONSIDERATION of the mutual promises, conditions and agreements herein contained and the specifications and special provisions set forth in Exhibit "A" and Exhibit "B" attached hereto and made a part hereof. Operator engages Contractor as an independent Contractor to drill the hereinafter designated well or wells in search of oil or gas on a daywork basis.


For purposes hereof, the term "daywork basis" means Contractor shall furnish equipment, labor and perform services as herein provided, for a specified sum per day under the direction, supervision and control of Operator (inclusive of any employee, agent, consultant or subcontractor engaged by Operator to direct drilling operations). When operating on a daywork basis, Contractor shall be fully paid at the applicable rates of payment and assumes only the obligations and liabilities stated herein. Except for such obligations and liabilities specifically assumed by Contractor, Operator shall be solely responsible and assumes liability for all consequences of operations by both parties while on a daywork basis, including results and all other risks or liabilities incurred in or incident to such operations.


1. LOCATION OF WELL:


Well Name
and Number: To be determined.
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Parish/ Field
County: State: Name:
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Well location and
land description: Initial well shall be the first well spudded
after December 10, 1996 (Bayard closing date.)


1.1 ADDITIONAL WELL LOCATIONS OR AREAS: Additional wells that fall under the jurisdiction of this contract are to be identified by letter agreement between Operator and Contractor.


Locations described above are for well and Contract identification only and Contractor assumes no liability whatsoever for a proper survey or location stake on Operator's lease.
2. COMMENCEMENT DATE:


Contractor agrees to use reasonable efforts to commence operations for the drilling of the well by the N/A day of N/A , 19____, or This is a term contract as described in Paragraph 6 below beginning on the spud date of the initial well described in Paragraph 1 above.


3. DEPTH:


3.1 WELL DEPTH: The well(s) shall be drilled to a depth of approximately _______ feet, or to the Per Operator's Specification formation, whichever is deeper, but the Contractor shall not be required hereunder to drill said well(s) below a maximum depth of ___________ feet, unless Contractor and Operator mutually agree to drill to a greater depth.


4. DAYWORK RATES:


Contractor shall be paid at the following rates for the work performed hereunder.


4.1 MOBILIZATION: Operator shall pay Contractor a mobilization fee of $ N/A or a mobilization day rate of $ See 4.3 per day. This sum shall be due and payable in full at the time the rig is rigged up or positioned at the well site ready to spud. Mobilization shall include: Trucks and cranes provided by Operator to move and rig up Contractor's equipment between wells covered by this contract.


4.2 DEMOBILIZATION: Operator shall pay Contractor a demobilization fee of $ 10,000 or a demobilization day rate during tear down of $ N/A per day, provided however that no demobilization fee shall be payable if the Contract is terminated due to the total loss or destruction of the rig. Demobilization shall include: Lump sum demobilization for rig down and move out after last well at end of the contract.


4.3 MOVING RATE: During the time the rig is in transit to or from a drill site, or between drill sites, commencing on ______________, Operator shall pay Contractor a sum of $ 2,500 per twenty-four (24) hour day.


4.4 OPERATING DAY RATE: For work performed per twenty-four (24) hour day with 5 man crew the operating day rate shall be:


DEPTH INTERVALS See 23.2 FROM TO WITHOUT DRILL PIPE WITH DRILL PIPE
$ per day per day - ---------- ---------- --------------- ---------------
$ per day per day - ---------- ---------- --------------- ---------------
$ per day per day - ---------- ---------- --------------- --------------- Using Operator's drill pipe $ per day
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(U.S. Daywork Contract - Page 1) 2
Revised June, 1994


If under the above column "With Drill Pipe" no day rates are specified, the daywork rate per twenty-four hour day when drill pipe is in use shall be the applicable daywork rate specified in the column "Without Drill Pipe" plus compensation for any drill pipe actually used at the rates specified below, computed on the basis of the maximum drill pipe in use at any time during each twenty-four hour day.


DRILL PIPE RATES PER 24-HOUR DAY
DIRECTIONAL OR
STRAIGHT HOLE SIZE GRADE UNCONTROLLABLE DEVIATED HOLE SIZE GRADE $ per ft. $ per ft. ------------------------- ---------- --------- ------------------------- ---------- ---------- $ per ft. $ per ft. ------------------------- ---------- --------- ------------------------- ---------- ---------- $ per ft. $ per ft. ------------------------- ---------- --------- ------------------------- ---------- ----------


Directional or uncontrolled deviated hole will be deemed to exist when deviation exceeds __________ degrees or when the change of angle exceeds __________ degrees per one hundred feet.


Drill pipe shall be considered in use not only when in actual use but also while it is being picked up or laid down. When drill pipe is standing in the derrick, it shall not be considered in use, provided, however, that if Contractor furnishes special strings of drill pipe, drill collars, and handling tools as provided for in Exhibit "A", the same shall be considered in use at all times when on location or until released by Operator. In no event shall fractions of an hour be considered in computing the amount of time drill pipe is in use but such time shall be computed to the nearest hour, with thirty minutes or more being considered a full hour and less than thirty minutes not to be counted.
Operating rate will begin when the drilling unit is rigged up at the drilling location, or positioned over the location during marine work, and ready to commence operations; and will cease when the rig is ready to be moved off the location.


4.5 REPAIR RATE: In the event it is necessary to shut down Contractor's rig for repairs, excluding routine rig servicing, while Contractor is performing daywork hereunder, Contractor shall be allowed compensation at the applicable daywork rate for each period of shutdown time up to a maximum of 4** hours for any one repair job and a total of 18** hours for each thirty (30) day period. Thereafter, Contractor shall be compensated at a rate of $ 0 per twenty-four (24) hour day. Rig lubrication, cutting drilling line and replacing mud pump expendables shall not be included in computing the number of hours of shutdown time.


4.6 See Paragraph 7.15 in Exhibit A


4.7 FORCE MAJEURE RATE: $ 3,000 per twenty-four (24) hour day for any continuous period that normal operations are suspended or cannot be carried on due to conditions of force majeure as defined in Paragraph 17 hereof. It is, however, understood that subject to Paragraph 6.3 below, Operator can release the rig in accordance with Operator's right to direct stoppage of the work, effective when conditions will permit the rig to be moved from the location.


4.8 REIMBURSABLE COSTS: Operator shall reimburse Contractor for the costs of material, equipment, work or services which are to be furnished by Operator as provided for herein but which for convenience are actually furnished by Contractor at Operator's request, plus 10 percent for such cost of handling.


4.9 REVISION IN RATES: The rates and/or payments herein set forth due to Contractor from Operator shall be revised to reflect the change in costs if the costs of any of the items hereinafter listed shall vary by more than 5 percent from the costs thereof on the date of this Contract or by the same percent after the date of any revision pursuant to this paragraph:
(a) Labor costs, including all benefits, of Contractor's personnel;
(b) Contractor's cost of insurance premiums;
(c) Contractor's cost of fuel, including all taxes and fees; the cost per
gallon/MCF being $ N/A ;
(d) Contractor's cost of catering, when applicable;
(e) If Operator requires Contractor to increase or decrease the number of
Contractor's personnel;
(f) Contractor's cost of spare parts and supplies with the understanding
that such spare parts and supplies constitute 35 percent of the
Operating Rate and that the parties shall use the U.S. Bureau of Labor
Statistics Oilfield Drilling Machinery and Equipment Wholesale Price
Index (Code No. 1191-02) to determine to what extent a price variance
has occurred in said spare parts and supplies; Calculated after each
well
(g) If there is any change in legislation or regulations in the area in
which Contractor is working or other unforeseen, unusual event that
alters Contractor's financial burden.


5. TIME OF PAYMENT:


Payment is due by Operator to Contractor as follows:


5.1 Payment for mobilization, drilling and other work performed at applicable day rates, and all other applicable charges shall be due, upon presentation of invoice therefor, upon completion of mobilization, completion of the well, or at the end of the month in which such work was performed or other charges are incurred, whichever shall first occur. All invoices may be mailed to Operator at the address hereinabove shown, unless Operator does hereby designate that such invoices shall be mailed as follows:


P.O. Box 14880, Oklahoma City, Oklahoma 73113 - --------------------------------------------------------------------------------


5.2 DISPUTED INVOICES AND LATE PAYMENT: Operator shall pay all invoices within 60 days after receipt except that if Operator disputes an invoice or any part thereof, Operator shall, within sixty days after receipt of the invoice, notify Contractor of the item disputed, specifying the reason therefor, and payment of the disputed item may be withheld until settlement of the dispute, but timely payment shall be made of any undisputed portion. Any sums (including amounts ultimately paid with respect to a disputed invoice) not paid within the above specified days shall bear interest at the rate of _______ percent or the maximum legal rate, whichever is less, per month from the due date until paid. If Operator does not pay undisputed items within the above stated time, Contractor may terminate this Contract as specified under Subparagraph 6.3. See attached Operator's Addendum.


5.3 ATTORNEY'S FEES: If this Contract is placed in the hands of an attorney for collection lf any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then Operator agrees that there shall be added to the amount due reasonable attorney's fees and costs.


6. TERM:


6.1 DURATION OF CONTRACT: This Contract shall remain in full force and effect until drilling operations are completed on the well or wells specified in Paragraph 1 above, or for a term of 730 calendar days, commencing on the date specified in Paragraph 2 above.*


6.2 EXTENSION OF TERM: Operator may extend the term of this Contract for additional well(s) or for a period of 2 additional years by giving notice to Contractor at least 45 days prior to completion of the well then being drilled Contractor to provide written notice to operator approximately 60 days prior to the end of the 2 year term.


6.3 EARLY TERMINATION:


(a) BY EITHER PARTY: Upon giving of written notice, either party may terminate this Contract when total loss or destruction of the rig, or a major breakdown with indefinite repair time necessitate stopping operations hereunder.


(c) BY CONTRACTOR: Notwithstanding the provisions of Paragraph 3 with respect to the depth to be drilled, in the event Operator shall become insolvent, or be adjudicated as bankrupt, or file, by way of petition or answer, a debtor's petition or other pleading seeking adjustment of Operator's debts, under any bankruptcy or debtor's relief laws now or hereafter prevailing, or if any such be filed against Operator, or in case a receiver be appointed of Operator or Operator's property, or any part thereof, or Operator's affairs be placed in the hands of a Creditor's Committee, or, following ten days prior written notice to Operator if Operator does not pay Contractor within the time specified in Subparagraph 5.2 all undisputed items due and owing, Contractor may, at its option, elect to terminate further performance of any work under this Contract and Contractor's right to compensation shall be as set forth in Subparagraph 6.4 hereof. In addition to Contractor's right to terminate performance hereunder. Operator hereby expressly agrees to protect, defend and indemnify Contractor from and against any claims, demands and causes of action, including all costs of defense, in favor of Operator. Operator's joint venturers, or other parties arising out of any drilling commitments or obligations contained in any lease, farmout agreement or other agreement, which may be affected by such termination of performance hereunder. *however commencement shall be no later than January 1, 1997, regardless of actual start date so that the original term shall not extend beyond December 31, 1998 **See Paragraph 7.11 in Exhibit A


(U.S. Daywork Contract - Page 2) 3
Revised June, 1994


7. CASING PROGRAM:


Operator shall have the right to designate the points at which casing will be set and the manner of setting, cementing and testing. Operator may modify the casing program, however, any such modification which materially increases Contractor's hazards or costs can only be made by mutual consent of Operator and Contractor and upon agreement as to the additional compensation to be paid Contractor as a result thereof.


8. DRILLING METHODS AND PRACTICES:


8.1 Contractor shall maintain well control equipment in good condition at all times and shall use all reasonable means to prevent and control fires and blowouts and to protect the hole.


8.2 Subject to the terms hereof, and at Operator's cost, at all times during the drilling of the well, Operator shall have the right to control the mud program, and the drilling fluid must be of a type and have characteristics and be maintained by Contractor in accordance with the specifications shown in Exhibit "A".


8.3 Each party hereto agrees to comply with all laws, rules, and regulations of any federal, state or local governmental authority which are now or may become applicable to that party's operations covered by or arising out of the performance of this Contract. When required by law, the terms of Exhibit "B" shall apply to this Contract. In the event any provision of this Contract is inconsistent with or contrary to any applicable federal, state or local law, rule or regulation said provision shall be deemed to be modified to the extent required to comply with said law, rule or regulation, and as so modified said provision and this Contract shall continue in full force and effect.


8.4 Contractor shall keep and furnish to Operator an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report Form or other form acceptable to Operator. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to Operator.


8.5 If requested by Operator, Contractor shall furnish Operator with a copy of delivery tickets covering any material or supplies provided by Operator and received by Contractor.


9. INGRESS, EGRESS, AND LOCATION:


Operator hereby assigns to Contractor all necessary rights of ingress and egress with respect to the tract on which the well is to be located for the performance by Contractor of all work contemplated by this Contract. Should Contractor be denied free access to the location for any reason not reasonably within Contractor's control, any time lost by Contractor as a result of such denial shall be paid for at the applicable rate. Operator agrees at all times to maintain the road and location in such condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. If Contractor is required to use bulldozers, tractors, four- wheel drive vehicles, or any other specialized transportation equipment for the movement of necessary personnel, machinery, or equipment over access roads or on the drilling location, Operator shall furnish the same at its expense and without cost to Contractor. The actual cost of repairs to any transportation equipment furnished by Contractor or its personnel damaged as a result of improperly maintained access roads or location will be charged to Operator. Operator shall reimburse Contractor for all amounts reasonably expended by Contractor for repairs and/or reinforcement of roads, bridges and related or similar facilities (public and private) required as direct result of a rig move pursuant to performance hereunder.


10. SOUND LOCATION:


Operator shall prepare a sound location adequate in size and capable of properly supporting the drilling rig, and shall be responsible for a conductor pipe program adequate to prevent soil and subsoil wash out. It is recognized that Operator has superior knowledge of the location and access routes to the location, and must advise Contractor of any subsurface conditions, or obstructions (including, but not limited to, mines, caverns, sink holes, streams, pipelines, power lines and telephone lines) which Contractor might encounter while en route to the location or during operations hereunder. In the event subsurface conditions cause a cratering or shifting of the location surface, or if seabed conditions prove unsatisfactory to properly support the rig during marine operations hereunder, and loss or damage to the rig or its associated equipment results therefrom, Operator shall, without regard to other provisions of this Contract, including Paragraph 14.1 hereof, reimburse Contractor to the extent not covered by Contractor's insurance, for all such loss or damage including payment of force majeure rate during repair and/or demobilization if applicable.


11. EQUIPMENT CAPACITY:


If applicable hereunder, operations shall not be attempted where canal or water depths are in excess of N/A feet, or under any other conditions which exceed the capacity of the equipment specified to be used hereunder. Contractor shall make final decision as to when an operation or attempted operation would exceed the capacity of specified equipment.


12. TERMINATION OF LOCATION LIABILITY:


When Contractor has complied with all obligations of the Contract regarding restoration of Operator's location, Operator shall thereafter be liable for damage to property, personal injury or death of any person which occurs as a result of conditions of the location and Contractor shall be relieved of such liability; provided, however, if Contractor shall subsequently reenter upon the location for any reason, including removal of the rig, any term of the Contract relating to such reentry activity shall become applicable during such period.


13. INSURANCE:


During the life of this Contract, Contractor shall at Contractor's expense maintain, with an insurance company or companies authorized to do business in the state where the work is to be performed or through a self-insurance program, insurance coverages of the kind and in the amounts set forth in Exhibit "A", insuring the liabilities specifically assumed by Contractor in Paragraph 14 of this Contract. Contractor shall, if requested to do so by Operator, procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the same shall not be canceled or materially changed without ten (10) days prior written notice to Operator. For liabilities assumed hereunder by Contractor, its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes and shall maintain, at Operator's expense, or shall self insure, insurance coverage of the same kind and in the same amount as is required of Contractor, insuring the liabilities specifically assumed by Operator in Paragraph 14 of this Contract.


(U.S. Daywork Contract - Page 3) 4 14. RESPONSIBILITY FOR LOSS OR DAMAGE, INDEMNITY, RELEASE OF LIABILITY AND
ALLOCATION OF RISK:


14.1 CONTRACTOR'S SURFACE EQUIPMENT: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, regardless of when or how such damage or destruction occurs, and Contractor shall release Operator of any liability for any such loss, except loss or damage under the provisions of Paragraphs 19 or 14.3.


14.2 CONTRACTOR'S IN-HOLE EQUIPMENT: Operator shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including, but not limited to, drill pipe, drill collars, and tool joints, and Operator shall reimburse Contractor for the value of any such loss or damage; the value to be determined by agreement between Contractor and Operator as current repair costs or replacement in kind and condition.


14.3 CONTRACTOR'S EQUIPMENT - ENVIRONMENTAL LOSS OR DAMAGE: Notwithstanding the provisions of Paragraph 14.1 above, Operator shall assume liability at all times for damage to or destruction of Contractor's equipment caused by exposure to highly corrosive or otherwise destructive elements, including those introduced into the drilling fluid.


14.4 OPERATOR'S EQUIPMENT: Operator shall assume liability at all times for damage to or destruction of Operator's equipment, including, but not limited to, casing, tubing, well head equipment, and platform if applicable, regardless of when or how such damage or destruction occurs, and Operator shall release Contractor of any liability for any such loss or damage.


14.5 THE HOLE: In the event the hole should be lost or damaged, Operator shall be solely responsible for such damage to or loss of the hole, including the casing therein. Operator shall release Contractor of any liability for damage to or loss of the hole, and shall protect, defend and indemnify Contractor from and against any and all claims, liability, and expense relating to such damage to or loss of the hole.


14.6 UNDERGROUND DAMAGE: Operator shall release Contractor of any liability for, and shall protect, defend and indemnify Contractor from and against any and all claims, liability, and expense resulting from operations under this Contract on account of injury to, destruction of, or loss or impairment of any property right in or to oil, gas, or other mineral substance or water, if at the time of the act or omission causing such injury, destruction, loss, or impairment, said substance had not been reduced to physical possession above the surface of the earth, and for any loss or damage to any formation, strata, or reservoir beneath the surface of the earth.


14.7 INSPECTION OF MATERIALS FURNISHED BY OPERATOR: Contractor agrees to visually inspect all materials furnished by Operator before using same and to notify Operator of any apparent defects therein. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, and Operator shall release Contractor from, and shall protect, defend and indemnify Contractor from and against, ...