Master Drilling Agreement

MASTER DRILLING AGREEMENT 2
MASTER DRILLING AGREEMENT


THIS AGREEMENT, made and entered into the 19th day of September, 1996, by and between Tatham Offshore, Inc., a Delaware corporation, hereinafter called "TOFF", and Sedco Forex Division, Schlumberger Technology Corporation, hereinafter called "Contractor";


WITNESSETH, that:


WHEREAS, TOFF may from time to time desire to have a well or wells drilled and completed or abandoned in search of oil, or gas, or for other purposes;


AND, WHEREAS, Contractor is engaged in the business of drilling and completing or abandoning such wells and warrants and represents that it has or will have adequate equipment in good working order and fully trained personnel, properly certified, and capable of efficiently operating such equipment with which it desires to drill and/or complete or abandon such well or wells;


NOW, THEREFORE, it is agreed by and between TOFF and Contractor as follows:


I. MASTER AGREEMENT


1.1 USE OF DRILLING ORDER. If at any time during the term of this Master Agreement, hereinafter called "Agreement", TOFF desires to have a well or wells drilled and/or completed or abandoned by Contractor, TOFF shall prepare and submit to Contractor a "Bid Sheet and Drilling Order", hereinafter referred to as "Drilling Order", which shall set forth the specifications and other conditions under which such well or wells are to be drilled and/or completed or abandoned. If Contractor desires to drill and/or complete or abandon the well or wells set forth in Drilling Order under the terms and conditions thereof and of this Agreement, Contractor shall complete the Drilling Order, setting forth the prices it proposes to charge for its services and properly execute the Drilling Order in duplicate originals and return them to TOFF. If TOFF is satisfied with Contractor's proposals, TOFF will execute the Drilling Order and return one duplicate original to Contractor. When the Drilling Order has been so executed, it together with this Agreement shall become the "Contract" which shall control the relationship of the parties relative to the drilling and/or completing or abandoning of any well or wells covered therein. This Agreement and the accepted and executed Drilling Order may hereinafter be referred to as the "Contract." Execution of this Agreement alone shall not obligate either TOFF or Contractor to enter into any Drilling Order. TOFF is not obligated by this "Agreement" to solicit or submit bids to Contractor on any wells and may solicit and submit bids from and enter into contracts with other parties for drilling and/or completing or abandoning wells or may do same itself. 3
1.2 DRILLING ORDER TERMS INCLUDED. If and when the Drilling Order has been executed by the parties, Contractor shall commence operations for drilling of the well or wells at the time and date set forth in the Drilling Order and drill and/or complete or abandon the well or wells during the term, at the location, in the manner, to the depth, and in accordance with all provisions and specifications of both this Agreement and the Drilling Order.


II. FURNISHING OF MATERIALS, EQUIPMENT, SUPPLIES AND LABOR


2.1 FURNISHED BY WHOM. For the work to be performed by it, hereunder, Contractor shall furnish the minimum crew complement specified in the Drilling Order Section 13 and shall furnish the rig and drilling equipment referred to in the Drilling Order Section 4, and such other equipment, materials and services as specified in the Drilling Order Section 5 as are to be furnished by Contractor for TOFF. TOFF shall furnish such items as it is required to furnish by the Drilling Order Section 5. All other materials, equipment, tools, appliances, machinery, services and supplies for the proper drilling, completing, abandoning, working over, or deepening, and for protecting the rig or the well or wells involved, except that which TOFF herein expressly agrees either to furnish or reimburse Contractor for, shall be furnished and installed by and at the expense of Contractor. All labor necessary and proper in such operations shall be furnished by and at the expense of the Contractor.


2.2 PURCHASES FOR TOFF. If Contractor purchases at TOFF's request any materials, supplies or equipment which TOFF is obligated to furnish under the terms of this Agreement or under the Drilling Order, TOFF shall pay Contractor within thirty (30) days after date of receipt of Contractor's invoice the actual cost of such materials, supplies or equipment, less any cash discounts thereon to which Contractor may be entitled. Contractor shall furnish TOFF copies of suppliers', vendors' or third party invoices covering such materials, supplies or equipment. The use of machinery, tools and equipment which according to the Drilling Order are to be furnished by Contractor but which are nevertheless furnished by TOFF, will be charged to Contractor on mutually agreed commercial rental rates and terms.


2.3 MOVING ON LOCATION. TOFF will survey the location of the well and furnish such labor, equipment, materials, supplies and services as set out in the Drilling Order Section 5 so that Contractor may fulfill its obligation to position the rig on location.


III. BASIS OF PAYMENT


3.1 DAY WORK RATES. TOFF shall pay Contractor for work performed hereunder in accordance with the rates and basis of payment set forth in the applicable Drilling Order Section 13 (Day Work Bid).


3.2 SHUT-DOWN - TOFF. When Contractor's rig is shut down by Contractor waiting for orders from TOFF, or for materials, services or other items which TOFF is obligated to furnish, TOFF shall pay Contractor the applicable standby rates specified in the Drilling Order Section 13C. Before changing to or from standby rate without crew, TOFF shall: (a) give Contractor a minimum of eight (8) hours notice, and (b) provide for the rate change to take effect at the "tour-change-time" only.


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3.3 SHUT-DOWN - CONTRACTOR. When it is necessary to shut down Contractor's rig for repairs or due to lack of materials or labor to be furnished by Contractor, Contractor shall be allowed compensation in the manner set out in the applicable Drilling Order Section 13M.


IV. TIME OF PAYMENT


4.1 PAYMENT IN GENERAL. Subject to and conditioned upon the full and complete compliance by Contractor with all terms and conditions of this Agreement and of the Drilling Order, TOFF shall make payments to Contractor as stipulated herein.


4.2 DAY WORK PAYMENT. Contractor shall invoice TOFF at the close of each calendar month for the number of days work was performed during the month at day work rates set forth in the applicable Drilling Order Section 13 (Day Work). Upon completion of drilling operations, Contractor shall remove its rig from location (unless a delay is agreed to by TOFF) and clean up the well site as specified in the Drilling Order. If clean up at the well site is not accomplished to TOFF's satisfaction, TOFF may retain an amount sufficient to accomplish such clean up out of the last invoice submitted to TOFF. This shall not limit TOFF's right to recover the full amount of clean up costs.


4.3 TIME OF PAYMENT. TOFF shall pay all properly documented invoices within thirty (30) days after receipt thereof, except as provided in Paragraph 4.2 for cleanup.


V. STOPPAGE OF WORK


5.1 WELL-TO-WELL CONTRACTS. In well-to-well contracts, TOFF shall have the right to terminate the performance of the work covered by the Drilling Order for any reason at any point it may desire. This includes the right to delete as many wells as desired from a multiple-well Drilling Order.


5.2 TERM CONTRACTS. TOFF shall have the right to direct the stoppage of the work to be performed hereunder at any time, including during work on any well and prior to reaching the objective depth or to completion of other work being performed. In the event of such stoppage, TOFF shall be under no obligation to Contractor except to pay for all work done by Contractor and otherwise satisfy TOFF's obligations in accordance with the terms of this Agreement and the applicable Drilling Order as of the time of such stoppage, and to pay charges later incurred and perform later duties in accordance with the terms hereof for and in connection with any completion or abandoning operations or moving off location. However, the parties may agree to other work under provisions of Drilling Order Section 15 in which event such further work shall be conducted in accordance with the terms and conditions of this Agreement and the Drilling Order.


VI. TAKEOVER BY TOFF


Time is of the essence in performance of this "Contract". In the event of unreasonably slow progress, carelessness, inattention or incompetence on the part of Contractor or in the event Contractor for any reason shall fail to supply sufficient properly skilled workmen or


3 5 suitable tools, machinery and equipment for efficient performance of the work on any well hereunder or in the event Contractor neglects or willfully discontinues or delays commencement of work to be performed hereunder, then TOFF shall notify Contractor of its dissatisfaction. If such condition is not corrected to TOFF's satisfaction within five days of notice, TOFF shall have the option to terminate the "Contract" or take possession of the well, discontinue the drilling thereof, and dismantle or abandon same, being liable only for the work done by contractor prior to such termination or takeover. If TOFF so elects, it may take possession of the well and any or all of Contractor's tools, machinery and equipment at the well site and, through its own employees or some other contractor, drill such well to completion. TOFF shall also have such termination right after takeover of work on a well as provided below. If there should be imminent danger of a blowout or other well hazards, TOFF shall have the right to take over operations immediately and either discontinue, abandon, or continue drilling. Contractor shall continue to have custody of and be responsible for its rig and the positioning, locating and maintaining of it, and TOFF or its representative shall have supervision and control of such facilities only to the extent of the drilling or other operations involved. If TOFF takes over the well and operation of Contractor's tools, machinery and equipment and completes the well, TOFF's costs in completing the well, with no allowance for use of Contractor's tools, machinery and equipment shall be deducted from the contract price which otherwise would have been paid to Contractor, and the balance, if any, paid to Contractor. TOFF shall be responsible for the return of such drilling equipment and tools, machinery and equipment to Contractor in as good as condition as when received, natural wear and weathering, accidental loss or breakage excepted. If operations are taken over by TOFF as herein provided, all operations thereafter performed shall be at TOFF's risk and the indemnity provisions hereof shall not apply. Contractor shall continue to have custody, control and supervision of the vessel, its hull and all ballast control and related systems essential to maintaining the vessel in a safe condition. TOFF shall have supervision, custody and control over Contractor's drilling equipment and related drilling operations. If Contractor carries insurance on Contractor's tools, machinery and equipment, such insurance shall be continued in effect during the period of such takeover, and TOFF shall reimburse Contractor for the cost thereof. TOFF may elect to secure such insurance through some other source including assumption of all or part of the risk as a self-insurer.


VII. CASING PROGRAM


7.1 METHOD AND COMPENSATION. Contractor shall run and cement all strings of casing as provided in the applicable Drilling Order Section 6 and shall be compensated at the applicable day work rates as set out in that Drilling Order.


7.2 PROTECTORS AND LUBRICANTS. Contractor shall keep thread protectors on the casing until it is taken from the racks to be run into the hole and shall apply a suitable pipe thread lubricant as it is run. Contractor shall preserve all such protectors. After operations are completed, Contractor shall break down all surplus casing, put protectors on same as it is broken down, and return such casing to the pipe racks.


4 6 VIII. DRILLING METHODS AND PRACTICES


8.1 STANDARDS OF PERFORMANCE. Contractor agrees to perform all work under the terms of this Agreement and according to the specifications and conditions set forth in the Drilling Order with due diligence and care in a good, workmanlike manner in accordance with best drilling practices.


8.2 TOFF EQUIPMENT - FAILURE NOTIFICATION. Contractor agrees to notify TOFF promptly in case of any failure of TOFF provided equipment, materials, or supplies.


8.3 EQUIPMENT CONDITION. Contractor shall maintain all its equipment in good safe operating condition at all times. Well control equipment shall be checked by Contractor as prescribed in Section 4B of the Drilling Order and Contractor shall use all reasonable means to control and prevent fires and blowouts and to protect the hole and TOFF's equipment. Any equipment furnished by TOFF to Contractor shall be controlled and maintained by Contractor in good working condition. TOFF agrees to reimburse Contractor for any third party expense incurred and authorized by TOFF's on- the-job representative to repair TOFF furnished equipment.


8.4 MAXIMUM EQUIPMENT CAPACITY. Contractor shall utilize its equipment to its maximum capacity as rated by the manufacturer thereof, if TOFF so requests.


8.5 MUD PROGRAM. Contractor shall maintain the mud program in a manner satisfactory to TOFF. Drilling fluid shall be maintained in accordance with specifications set forth in the Drilling Order Section 7. The amounts of mud and mud conditioners to be furnished by either party shall be as specified in the Drilling Order. If TOFF furnishes mud and mud conditioners, TOFF shall have supervision over use of these materials.


8.6 FORMATION DATA. Contractor agrees to save and label samples of such formations and to keep drilling times of such formations as TOFF may request. Contractor agrees to notify TOFF promptly whenever any oil and/or gas bearing formation is found. TOFF shall be afforded sufficient time to examine such formation to determine whether or not the well should be completed, and for such time consumed, Contractor shall be paid the applicable rate provided in the Drilling Order.


8.7 EQUIPMENT, PERSONNEL AND DEVIATION SURVEYS. Contractor agrees to furnish equipment, personnel, and instruments acceptable to TOFF and in conformity with all governmental regulations and to make deviation surveys as provided in the Drilling Order Section 8 to maintain drill angle and direction of the hole within allowable limits specified in the Drilling Order. All such deviation surveys shall be made at TOFF's sole risk, cost, and expense. TOFF reserves the right to require drift angle and directional surveys additional to those specified in the Drilling Order. If the course of the hole is found to be within prescribed limits of the Drilling Order, the cost of such additional survey, including rig time, shall be borne by TOFF at the applicable day work rate.


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8.8 SAFE PRACTICES. Contractor shall locate boilers and other sources of ignition a safe distance from the well and shall prohibit use of open flames (except welding under controlled conditions) or smoking on the rig floor or other hazardous areas by its own personnel or other parties. If the well or equipment should catch fire from use of open flames (other than those covered by a mutually agreed work permit) or from smoking in hazardous areas, this will be considered as negligence on the part of the Contractor. Contractor shall observe recommendations contained in API RP 54 ("Recommended Practices for Occupational Safety & Health for Oil and Gas Well Drilling and Servicing Operations") and all revisions to same and shall obey all Federal, State, and local laws, rules, and regulations relative to safety and health. Contractor shall permit no employee, invitee or other party on the rig that is under the influence of alcohol or drugs. No alcohol, illegal drugs or firearms shall be allowed by Contractor on the job site. Contractor shall prohibit the presence on the rig of unauthorized personnel or visitors unless such visits are approved by TOFF. Contractor shall have a formal safety program and shall provide suitable equipment and personnel properly and adequately trained in the safe performance of their duties.


8.9 RIG EVACUATION. Contractor's supervisor at the location shall have sole and final responsibility to issue orders to Contractor's personnel to evacuate the rig for reasons of weather or emergency.


8.10 BLOWOUT PREVENTION. Blowout prevention equipment shall be furnished by Contractor as specified in Drilling Order Section 4B and installed and tested in accordance with TOFF's requirements. The control manifold shall be located near the driller's position with a second remote control located at a safe distance from the derrick floor at a point mutually satisfactory to Contractor and TOFF. It is essential that each member of the drilling crew understand the operation of the equipment and be capable of operating it when necessary. Regularly scheduled drills shall be conducted and noted on the Drilling Report.


8.11 INSPECTION OF TOFF EQUIPMENT. Contractor shall visually examine all casing, equipment, machinery, tools or other items furnished by TOFF and if any apparent defects are found therein sufficient to make the use of any such items unsuitable or unsafe, Contractor shall immediately notify TOFF of such defects, and TOFF shall promptly replace the item so found defective.


IX. CORING, TESTING, LOGGING AND COMPLETION


Contractor shall perform all coring, testing, logging and completion work on a day work basis as provided in Drilling Order.


X. REPORTS TO BE FURNISHED BY CONTRACTOR


10.1 DAILY DRILLING REPORT. Contractor shall complete and furnish TOFF with the Standard API-IADC Daily Drilling Report showing the depth of the hole, the formations penetrated, and such other data as required by TOFF.


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10.2 RIG TIME. TOFF's representative will consult with Contractor's representative at the rig on the proper breakdown of rig time, which shall be entered by Contractor in tile "Time Summary" section of the API-IADC Report. TOFF's representative will sign the tour sheets in receipt of such work. This breakdown should be reviewed by each party's authorized representatives and any desired changes shall be negotiated, prior to preparation of the invoice.


10.3 DELIVERY TICKETS. Delivery tickets covering any materials or supplies furnished by TOFF or furnished by vendors for which TOFF is obligated to reimburse Contractor, shall be submitted as received with the Daily Drilling Report. The quantity, description and condition of the materials and supplies so furnished shall be verified and checked by Contractor, and delivery tickets shall be properly certified as to receipt by Contractor's representative. Contractor must obtain approval of TOFF's representative on the job of delivery tickets for materials and supplies for which Contractor is to be reimbursed by TOFF.


10.4 DAMAGE OR INJURY. Contractor shall orally report to TOFF, as soon as practicable, followed by an appropriate written report, all accidents or occurrences resulting in death or injuries to Contractor's employees, invitees or third parties, or damage to property of TOFF or third parties arising out of or during the course of operation of Contractor or of any subcontractor of Contractor, and shall furnish TOFF with a copy of all reports made by Contractor to Contractor's insurer(s) or to others of such accidents and occurrences.


10.5 GOVERNMENTAL REPORTS. Contractor when requested by TOFF shall provide to government or state agencies further information on deaths or lost time injuries and shall provide TOFF with a copy of such further information.


XI. INSURANCE AND INDEMNITY


11.1 TYPES AND LIMITS. At all times during the term of the "Contract", Contractor shall maintain, at Contractor's expense, insurance satisfactory to TOFF of the minimum types and limits as follows:


a. Such insurance as may be required or available to cover any
risk exposures under the workers' compensation, social
security or other laws of any nation, state, or other
governmental entity and/or regulations of any authorities
having jurisdiction in the operations.


b. Employers' Liability Insurance, with dollar limits as
specified in Section 14 of the Drilling Order for each
occurrence for employment subject to state Workers'
Compensation Acts and with dollar limits as specified in
Section 14 of the Drilling Order for each occurrence for
employment where there is possible liability under the Jones
Act or Death on the High Seas Act. (This coverage may be
contained to some extent in other insurances listed elsewhere
herein).


c. Comprehensive General Liability Insurance, including
contractual liability coverage for Contractor's obligations
hereunder to defend and/or indemnify TOFF, with dollar limits
as specified in Section 14 of the Drilling Order for


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each occurrence for bodily/personal injury, death and property
damage combined.


d. Comprehensive Automobile Liability Insurance including owned,
non-owned, and hired vehicles, with dollar limits as specified
in Section 14 of the Drilling Order for each occurrence for
bodily injury, death and property damage combined.


e. Full Form Marine Protection and Indemnity Insurance (including
transportation, wages, maintenance and cure) covering the rig
with dollar limits as specified in Section 14 of the Drilling
Order for each occurrence or the actual cash value of the rig,
whichever is greater. (This coverage may be contained to some
extent in other insurances listed elsewhere herein).


f. Standard Marine Hull and Machinery, (including collision
liability coverage to the extent not provided in any insurance
listed elsewhere herein) and for International operations, War
and Political Risks Insurance in the amount of the actual cash
value of the rig.


This insurance shall provide that any action "in rem" against
the rig shall be treated as though it were an action against
Contractor.


g. Property Insurance on all other property of Contractor,
including drilling rig and machinery in the amount of actual
cash value.


h. If aircraft are owned, leased, or hired by Contractor:
Aircraft Liability Insurance covering any such aircraft
including passenger liability with dollar limits as specified
in Section 14 of the Drilling Order for each occurrence.


11.2 ADDITIONAL INSUREDS AND SUBROGATION WAIVER. To the fullest extent permitted by law and without in anyway limiting Contractor's liability or responsibility under the indemnity provision hereof, all insurance policies maintained by Contractor in accordance with Paragraph 11.1 above and any other insurance maintained applicable to Contractor's performance under the "Contract" shall include TOFF and any parties in joint operation with TOFF as additional insureds and/or shall contain a waiver of subrogation against TOFF and said other parties (each to the extent Contractor has assumed liability under this Contract) as appropriate to secure the maximum benefit to TOFF and its joint operations parties. To the extent Contractor has assumed liability hereunder, Contractor's insurance shall be regarded as primary insurance underlying any other applicable insurance. Any risks and liabilities not expressly assumed by TOFF or Contractor hereunder shall be governed by applicable law, and to the extent any such liabilities are imposed upon the Contractor by applicable law, and not expressly assumed by TOFF, the insurance carried by the Contractor shall be regarded as primary insurance underlying any other applicable insurance.


11.3 CANCELLATION NOTICE. All such insurance shall be carried by an insurance company acceptable to TOFF and shall not be cancelled nor materially changed without thirty


8 10 (30) days prior written notice having been furnished TOFF. Contractor agrees to furnish TOFF, upon request, evidence of such insurance satisfactory to TOFF.


11.4 SELF-INSURANCE. In the event Contractor self-insures in part or whole any risks for which insurance is herein required, notice of same must be in writing and approved by TOFF.


11.5 TOFF'S PROCUREMENT. TOFF has the right but not the duty, by giving Contractor timely notice, to procure any or all of the insurance specified herein with terms, conditions, and limits as mutually agreed and as further detailed in the Drilling Order Section 14 subject to annual review if requested.


11.6 INDEMNITY. Whenever "TOFF" or "Contractor" appears herein as an indemnitee, said term shall also include indemnitee's parent, subsidiary and affiliated companies, and directors, officers, employees and invitees of such parties.


11.6 a(1) Contractor shall release, defend, indemnify and hold harmless TOFF to the fullest extent permitted by law from and against any loss, damage, claim, suit, liability, judgment, and expense (including attorneys' fees and other costs of litigation) arising in connection herewith, resulting from or in any way related to the work to be performed hereunder for bodily/personal injury, disease or death of Contractor's employees or invitees, Contractor's subcontractors of any tier and their employees or invitees, without regard to the cause or causes thereof or the sole or concurrent negligence, fault or strict liability without fault of TOFF, TOFF's contractors, or of any party or parties.


11.6 a(2) Contractor shall release, defend, indemnify, and hold harmless TOFF to the fullest extent permitted by law from and against any loss, damage, claim, suit, liability, judgment and expense (including attorneys' fees and other costs of litigation), arising in connection herewith, resulting from or in any way related to the work to be performed hereunder for (except as provided otherwise elsewhere herein) loss of or damage to property owned or leased by Contractor, its employees and invitees, and Contractor's subcontractors of any tier and their employees and invitees without regard to the cause or causes thereof or sole or concurrent negligence, fault, or strict liability without fault of TOFF, TOFF's contractors, or of any party or parties.


11.6 b(l) TOFF shall release, defend, indemnify and hold harmless Contractor to the fullest extent permitted by law from and against any loss, damage, claim, suit, liability, judgment, and expense (including attorneys' fees and other costs of litigation) arising in connection herewith, resulting from or in any way related to the work to be performed hereunder for bodily injury, disease or death of TOFF's em ...