Joint Development Agreement

EXHIBIT 10.11


MONTY PROSPECT AREA


PECOS AND TERRELL COUNTIES, TEXAS


JOINT DEVELOPMENT AGREEMENT


BY AND BETWEEN


PURE RESOURCES, L.P.
AND
CHAPARRAL ROYALTY COMPANY, DDDF COMPANY, INC.
J. DON LOONEY, and GEORGE G. STALEY


EFFECTIVE DATE: MARCH 10, 2000


JOINT DEVELOPMENT AGREEMENT


MONTY PROSPECT AREA


PECOS AND TERRELL COUNTIES, TEXAS


THIS AGREEMENT is dated effective as of March 10, 2000 by and between PURE RESOURCES, L.P., a Texas limited partnership, whose address is 500 West Texas, Suite 200, Midland, Texas 79701, hereinafter referred to as "PURE" and CHAPARRAL ROYALTY COMPANY, whose address is P.O. Box 1604 Midland, Texas, 79702; DDDF COMPANY, INC., whose address is P.O. Box 554, Midland, Texas, 79702; J. DON LOONEY, whose address is P.O. Box 3362, Midland, Texas, 79702; and GEORGE G. STALEY, whose address is 500 West Texas, Suite 200, Midland, Texas, 79702, hereinafter collectively referred to as "CHAPARRAL, ET AL".


RECITALS
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WHEREAS, CHAPARRAL, ET AL represents, but does not warrant, that it owns various Existing Properties in Pecos and Terrell Counties, Texas, which cover lands located within the blue boundary shown on the plat attached hereto and identified as Exhibit "A". Said Existing Properties owned by CHAPARRAL, ET AL are specifically described on Exhibit "A-1" attached hereto; and


WHEREAS, PURE represents, but does not warrant, that it owns various Existing Properties in Pecos and Terrell Counties, Texas, which cover lands located within said blue boundary shown on the plat attached hereto and identified as Exhibit "A". Said Existing Properties owned by PURE are specifically described on Exhibit "A-2" attached hereto; and


WHEREAS, PURE and CHAPARRAL, ET AL intend by this Agreement to provide a means to evaluate the lands subject to this Agreement and to determine the potential for oil and/or gas production whereby such Parties i) establish an Area of Mutual Interest ("AMI"), ii) jointly acquire oil and gas leases, and iii) provide a means for the drilling of exploration and development wells on


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the Existing Properties and such additional Properties as may be acquired under the terms and conditions hereinafter provided.


NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, it is hereby agreed as follows:


ARTICLE 1
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DEFINITIONS
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As used in this Agreement, the terms indicated below shall be construed as follows:


1.1 "Agreement" means this Agreement, including all amendments, schedules,
-----------
plats, maps, exhibits and annexes hereto, which are incorporated herein by
this reference.


1.2 "AMI" or "Area of Mutual Interest" means the lands lying in Pecos and
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Terrell Counties, Texas that are located within the blue outline indicated
on the plat attached hereto as Exhibit "A", and further described on
Exhibit "A-3" attached hereto.


1.3 "Development Well" means any well drilled on lands located within the
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AMI subsequent to the drilling of an Initial Exploratory Well and three (3)
Subsequent Exploratory Wells on lands located within the AMI, and in
accordance with the Operating Agreement therefor.


1.4 "Existing Properties" means PURE'S and/or CHAPARRAL, ET AL's Properties
---------------------
existing as of the date of this Agreement, which are located within the
AMI.


1.5 "Exploration Expenditures" means all costs attributable to operations,
--------------------------
accounted for in accordance with the terms and provisions of the Operating
Agreement, on or with respect to the Initial Exploratory Well and
Subsequent Exploratory Wells, including, without limitation, drillsite
preparation, roads, surface damages, water wells, drilling, coring and
drillstem testing, completion and equipping, and reworking until such wells
have been drilled, completed and equipped and are capable of production,
including gathering lines, pipelines and facilities necessary to deliver
pipeline quality gas, along with the costs of plugging and abandoning such
wells if no completion attempt is made thereon. Exploration Expenditures
shall not include Leasehold


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Costs as defined herein. In lieu thereof, PURE shall be entitled to include
the fixed sum of $92,000.00 as a fixed acreage cost.


1.6 "Initial Exploratory Well" means the first well drilled on lands located
--------------------------
within the AMI in accordance with this Agreement which well shall be
drilled free of cost to CHAPARRAL, ET AL.


1.7 "Leasehold Costs" means those direct charges incurred for acquisition
-----------------
of Properties, including, without limitation, records examination and title
costs, mineral and leasehold ownership reports, broker fees and expenses,
travel costs, the purchase price, option costs, rentals, recording costs
and any other costs associated with the acquisition of Properties.


1.8 "Operating Agreement" shall mean the Operating Agreement dated effective
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March 10, 2000, between the Parties hereto. In the event of a conflict
between this Agreement and the Operating Agreement, the provisions of this
Agreement shall prevail.


1.9 "Operating Costs" shall mean all costs incurred by PURE in operating the
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IEW or SEW pursuant to this Agreement and the Operating Agreement, and the
disposition of hydrocarbons produced therefrom, including but not limited
to:


(a) Labor and other services necessary for maintenance and operations of
such wells;


(b) Insurance, materials, supplies, transportation, repairs and
replacements used in the maintenance and operations of such wells,
including replacements for all parts of machinery, equipment tanks or
other equipment to replace and/or repair original well and/or lease
equipment;


(c) Reworking, deepening, sidetracking, recompleting or re-equipping such
wells plus plugging and abandonment costs applicable to previously
producing wells, less salvage;


(d) Gathering, treating, processing, transporting and marketing of
hydrocarbons produced from such wells, and all ad valorem, severance,
gathering, windfall profits or other applicable taxes; and


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(e) Overhead costs as defined in the Copas accounting procedure attached
as Exhibit "C" to the Operating Agreement.


1.10 "Operator" shall mean the Party designated as Operator pursuant to Article
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V of the Operating Agreement.


1.11 "Participate" means to agree to bear and pay a Party's proportionate
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share of the cost and expense of the operations and also to undertake the
obligations and be accorded the rights and privileges associated therewith
which are specified herein with respect to the particular activity.


1.12 "Party or Parties" means PURE and/or CHAPARRAL, ET AL, their assigns or
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successors, subject to the limitations set forth in Paragraph 6.9 hereof.


1.13 "Proceeds" means the sum of all payments realized by PURE, directly or
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indirectly, as prepayments, advances, payments in kind, and the revenue
realized from the sale of production from the three Subsequent Exploratory
Wells, after excluding the existing burdens attributable thereto; provided,
however, Proceeds shall not mean the sale of all or part of PURE's
undivided working interest in a leasehold estate.


1.14 "Project Payout" means that point in time when the cumulative Proceeds
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received by PURE from the three Subsequent Exploratory Wells and any
replacement or substitute wells therefore, shall equal the Exploration
Expenditures and Operating Costs for these wells. In calculating Project
Payout, as to the Exploration Expenditures expended for drilling and
completing, PURE shall be limited to the costs set out in the Authority for
Expenditures provided to the Parties prior to drilling the Subsequent
Exploratory Wells. Notwithstanding the foregoing, it is anticipated that
Project Payout could occur at some point in time before all three SEW have
been drilled. As an example, should Project Payout occur prior to PURE
drilling the third SEW, CHAPARRAL, ET AL would be vested with a working
interest in the two SEW that had been previously drilled to that point. If
and when the third SEW were later drilled, CHAPARRAL, ET AL would
relinquish their working interest in the SEW to PURE until Project Payout
is achieved after drilling the final SEW. All revenues earned or accrued
prior to relinquishing the working interest shall accrue to and remain the
property of CHAPARRAL, ET AL. At any


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time and at their option, CHAPARRAL ET AL may buy and discharge the pay out
obligation by paying PURE the accrued sum of the payout amount and
thereafter be subject to the terms and provisions hereof and of the
Operating Agreement in an after payout position.


1.15 "Property or Properties" means those certain existing oil and gas leases
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and mineral interests made subject to this Agreement and described on
Exhibits "A-1" and "A-2" attached hereto (Existing Properties) plus any
additional oil and gas leasehold interests hereafter acquired within the
AMI and made subject to the terms and conditions of this Agreement, or
rights to acquire such interests through option, purchase, extension,
pooling, unitization, top lease, renewal, farm-in, farm-in option, acreage
contribution or other agreement with third parties to earn an interest.


1.16 "Proposing Party" means the Party who proposes one or more of the proposals
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provided for herein.


1.17 "Proration and/or Spacing Unit" means the drilling or production unit
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prescribed or permitted for a particular well for full allowable purposes
by or in accordance with the regulation of the Texas Railroad Commission or
any governmental authority having jurisdiction thereof. As between the
Parties hereto, in the absence of Special Field Rules, and until Special
Field Rules are established, a Proration or Spacing Unit shall be
considered to contain 80 acres for an oil well and 160 acres for a gas well
of 10,000 feet or shallower, and 640 acres for a gas well of 10,001 feet or
deeper.


1.18 "Subsequent Exploratory Wells" means the second, third and fourth wells
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drilled on lands located within the AMI in accordance with this Agreement.


ARTICLE II
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AREA OF MUTUAL INTEREST (AMI)
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2.1 Lands. The Area of Mutual Interest (AMI) means the lands lying in Pecos
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and Terrell Counties, Texas that are located within the blue outline on the
plat attached hereto as Exhibit "A and further described on Exhibit "A-3"
attached hereto.


2.2 Acquisitions. PURE shall be the only Party responsible for the
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acquisition of Properties within the AMI from March 10, 2000 forward and
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