Exploration Participation Agreement

Exploration Participation Agreement


South Timbalier/West Delta Area


By and Between


Chevron U.S.A. Inc.


And


Ridgewood Energy Corporation


Effective


September 1, 2006


South Timbalier 135
Mussel beach


ChevronSTWDEPA


TABLE OF CONTENTS


ARTICLE PAGE


1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND CONSTRUCTION .................................2
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1.1 Subject Matter and Purpose ..........................................................2
1.2 Defined Terms .......................................................................2
1.3 Exhibits ............................................................................8
1.4 Rules of Construction ...............................................................8


2. CONTRACT ACREAGE .......................................................................9
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2.1 Contract Acreage ....................................................................9
2.2 Primary Prospect ....................................................................9
2.3 Additional Opportunities Prospects ..................................................9
2.4 Area of Mutual Interest ............................................................10
2.5 Subsequent Well Timing .............................................................11


3. ASSIGNMENT OF INTEREST ................................................................11
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3.1 Leasehold Earning and Assignment ...................................................11
3.2 Assignment Timing ..................................................................12
3.3 Additional Earning Option ..........................................................12


4. PROSPECT EVALUATION ...................................................................13
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4.1 Primary Prospect Well Cost Sharing .................................................13
4.2 Additional Opportunities Prospect Well Cost Sharing ................................15
4.3 Well Over-expenditure Limitation ...................................................16
4.4 Rights Limitation on Use of Existing Wells .........................................17
4.5 Well Takeover Provisions (Deleted) .................................................17
4.6 Protection from Drainage ...........................................................17


5. FARMOUT OPTION ........................................................................17
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5.1 Exhibits ...........................................................................17
5.2 Chevron's Participation Options and Overriding Royalties ...........................18
5.3 General Farmout Agreement Terms and Conditions .....................................19
5.4 Impenetrable Substances ............................................................22
5.5 Overriding Royalties ..............................................................22


6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS .........................................23
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6.1 Pressure Communication Restriction .................................................23


7. OPERATING AGREEMNT ....................................................................24
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7.1 Offshore Operating Agreement .......................................................24


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7.2 Designation of Operator ............................................................24


8. ADDITIONAL PARTNERS/CO-VENTURERS ......................................................25
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8.1 Chevron's Right to Transfer Its Interest ...........................................25


9. ACREAGE RELEASE .......................................................................25
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9.1 Option to Release Acreage ..........................................................25
9.2 Rights Termination .................................................................25
9.3 Automatic Release ..................................................................25


10. NOTICES ...............................................................................26
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10.1 Notices ............................................................................26
10.2 Change in Designated Representative ................................................27


11. EXISTING AGREEMENTS ...................................................................27
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11.1 Existing Agreements ................................................................27


12. RIGHTS RESERVED .......................................................................27
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12.1 Lease Rights Reservations ...........................................................27


13. PRODUCTION PROCESSING AND CONTRACT OPERATIONS .........................................28
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13.1 Production Processing ..............................................................28
13.2 Contract Operations ................................................................29
13.3 Use of Existing Facilities .........................................................29
13.4 No Duty to Replace Existing Facilities .............................................30


14. TAX MATTERS ...........................................................................30
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14.1 Tax Partnership Provision ..........................................................30
14.2 Internal Revenue Provision .........................................................30
14.3 Allocation of Tax Liabilities ......................................................31


15. GEOPHYSICAL DATA ......................................................................31
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15.1 Proprietary Seismic Data ...........................................................31
15.2 Speculative Seismic Data ...........................................................32


16. MINIMUM ROYALTY AND LEASE MAINTENANCE .................................................32
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16.1 Annual Rental and Minimum Royalty Payments .........................................32
16.2 Royalty Relief .....................................................................33
16.3 Net Profit Provision ...............................................................34
16.4 Take-in-Kind Election ..............................................................35


17. MEDIA RELEASES .... ...................................................................35
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17.1 Public Announcements ...............................................................35
17.2 Media Releases .....................................................................36


18. FILES .................................................................................36
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18.1 Access to Files ....................................................................36


19. ASSIGNMENTS AND TRANSFER OF INTEREST ..................................................37
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19.1 Assignment of this Agreement .......................................................37
19.2 Lease or Prospect Successors and Assigns ...........................................38


20. CONFIDENTIALITY .......................................................................38
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20.1 Confidentiality ....................................................................38
20.2 Speculative Seismic Data ...........................................................39
20.3 Disclosure of Confidential Data ....................................................39
20.4 Risk of Use of Confidential Data ...................................................40


21. GOVERNING LAW .........................................................................40
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21.1 Choice of Law.......................................................................40
21.2 Future Litigation and Claims .......................................................40


22. FORCE MAJEURE .........................................................................41
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22.1 Force Majeure .....................................................................41


23. DISPUTE RESOLUTION ....................................................................42
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23.1 Dispute Resolution .................................................................42 24. TERMINATION ...........................................................................42
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24.1 Termination ........................................................................42
24.2 Lease Expiration or Termination ....................................................42
24.3 Agreement Extension ................................................................43


25. INDEMNITY .............................................................................43
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25.1 Indemnity ..........................................................................43


26. BREACH ................................................................................44
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26.1 Breach .............................................................................44


27. DISCLAIMER OF WARRANTY ................................................................44
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27.1 Disclaimer of Warranty .............................................................44


28. GENERAL PROVISIONS ....................................................................45
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28.1 Prospects Treated Separately .......................................................45
28.2 Non-Interference ...................................................................45
28.3 Governmental Approvals .............................................................45
28.4 Amendments .........................................................................46
28.5 Declaration of Agreement ...........................................................46
28.6 Other Rights, Remedies Reserved ....................................................46
28.7 No Waiver ..........................................................................46
28.8 No New Lease Burdens ...............................................................46


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28.9 Permitting Cost Sharing ............................................................47
28.10 Audit Rights .......................................................................47
28.11 Severability .......................................................................47
28.12 Entire Agreement ...................................................................47
28.13 Further Assurances .................................................................48
28.14 Surviving Obligation................................................................48
28-15 Conflict of Terms ... ..............................................................48


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LIST OF EXHIBITS
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Exhibit "A" Primary Prospect(s)


Exhibit "B" Additional Opportunities Prospect(s)


Exhibit "C" List of Existing Agreements, Restrictions,
Exceptions and Obligations


Exhibit "D-1" Form of Operating Rights Assignment


Exhibit "D-2" Form of Assignment with Reservation of ORRI


Exhibit "E" Offshore Operating Agreement


Exhibit "F" Dispute Resolution Procedure


Exhibit "G" Declaration of Agreement


Exhibit "H" Processing Agreement


Exhibit "I" Area(s) of Mutual Interest


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EXPLORATION PARTICIPATION AGREEMENT


THIS EXPLORATION PARTICIPATION AGREEMENT ("Agreement") is made and entered into effective the 1st day of September, 2006, by and between Chevron U.S.A. Inc., a Pennsylvania corporation hereinafter sometimes referred to as "Chevron" and Ridgewood Energy Corporation, a Delaware corporation hereinafter sometimes referred to as "Ridgewood or "Company". Chevron and Company are sometimes hereinafter referred to individually as "Party" and/or collectively as "Parties."


WITNESSETH:


WHEREAS, Company has expressed a desire to secure the right to earn and subsequently own certain leasehold interests currently owned by Chevron in the Outer Continental Shelf, Offshore in the Gulf of Mexico; and


WHEREAS, Chevron is desirous of having an entity with proven expertise in oil and gas operations the United States to evaluate, through exploratory drilling, the hydrocarbon potential on a portion of 1 leasehold currently owned by Chevron in such area; and


WHEREAS, Company has demonstrated its ability to find commercial quantities of hydrocarbons various locations throughout the United States and is willing to commit financial and personnel resources now and in the future to explore and develop the acreage of Chevron as described herein; and


WHEREAS, Chevron is agreeable to grant Company the right and option to explore certain Chevy leasehold along with Chevron to earn an interest in such leasehold all as more particularly set forth below.


NOW THEREFORE, for and in consideration of the mutual advantages and benefits accruing to 1 Parties hereto, the sufficiency of which is hereby acknowledged, the Parties hereto agree that the following v constitute the agreement between Chevron and Company concerning the drilling of various wells hereinafter described on the "Contract Acreage" hereinafter identified and, upon the satisfaction of certain conditions contained herein, the acquisition of interests by Company from Chevron. This Agreement upon execution Chevron and Company will terminate, supersede and replace all prior agreements and oral conversations between Chevron and Company regarding the transaction set forth herein including, but not limited to, that certain Letter intent from Company to Chevron dated August 10, 2006.


Page 1


ARTICLE 1


1. SUBJECT MATTER, DEFINITIONS EXHIBITS AND CONSTRUCTION
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1.1 Subject Matter and Purpose.
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The subject matter of this Agreement is the exploration and development of the Contract Acreage, defined below, by Company and Chevron pursuant to the terms and conditions hereinafter provided together with the rights and obligations of Company and Chevron concerning such exploration and development of the Contract Acreage.


The purpose of this Agreement is to provide a means whereby Chevron is to make available I Company acreage for the drilling of Exploratory Wells by Chevron and Company and possible Third Parties in an attempt to find and develop economic reserves for the benefit of the Parties. It is contemplated that situations will arise during the term of this Agreement that is not specifically covered herein. In the event the, situations do arise the Parties agree, in the spirit of cooperation, to use all reasonable efforts to resolve such situations to the mutual benefit of all Parties.


1.2 Defined Terms.
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For purposes of this Agreement, including the Exhibits, except as otherwise expressly provided, the terms defined in this Section 1.2 have the meanings assigned to them herein and the capitalized terms defined elsewhere in the Agreement by inclusion in quotation marks and parentheses have the meanings so ascribed to them.


"AFE" means the formal Authority for Expenditure prepared by a Party to this Agreement, for the purpose of estimating and fixing the participation interests of the Parties for the Well Costs to be incurred in connection with a proposal to drill, deepen, or sidetrack a well hereunder.


"Additional Opportunities Prospects" mean the Prospects identified by the Parties listed on Exhibit "B".


"Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling c controlled by, or under common control with, such Person. For purposes of this definition, the term "control] (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control ( with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management of such Person, whether through ownership of voting securities, by contract or


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otherwise, and specifically with respect to a corporation, partnership or limited liability company means 1) ownership of fifty percent (50%) or more of the voting stock in such corporation or of the voting interest as partner in such partnership or as a member of such limited liability company, or 2) a limited liability company whereby a Party is its designated general manager having full, exclusive and complete discretion in the management and control of said entity.


"Agreement" means this Exploration Participation Agreement between Chevron and Company including the Exhibits attached hereto or referred to herein.


"Area of Mutual Interest" or "AMI" means the area(s) and block(s) listed on Exhibits "A", B" an "I" attached hereto.


"Available Acreage" means Chevron's interest in the acreage and those aliquots and depths describe on Exhibits "A" and "B" attached hereto and made a part hereof.


"Business Day" means a day on which the Minerals Management Service New Orleans Region, Office is open for business.


"Casing Point" means that point in time when a well has reached the Objective Depth, and all log cores and other tests have been completed, the results thereof have been furnished to all Parties, and operator has made its' recommendation for further operations at Objective Depth under the terms of the applicable Operating Agreement.


"Chevron ACP Interest" means the interest of Chevron and any Third Parties in the Prospect(s) an Lease(s) as listed on Exhibits "A" and "B" entitled "CHEVRON Interest AFTER Casing Point."


"Chevron BCP Interest" means the interest of Chevron and any Third Parties in the Prospect(s) an Lease(s) as listed on Exhibits "A" and "B" entitled "CHEVRON Interest BEFORE Casing Point."


"Company ACP Interest" means the interest of Company in the Prospect(s) and Lease(s) as listed o Exhibits "A" and "B" under the column titled "COMPANY Interest AFTER Casing Point" for any Prospect in which it participates and earns.


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"Company BCP Interest" means the interest of Company in the Prospect(s) and Lease(s) as listed on Exhibits "A" and "B" under the column titled "COMPANY Interest BEFORE Casing Point" for any Prospect in which it participates and earns.


"Contract Acreage" means collectively those aliquots and depths of the Lease(s) and lands described as Available Acreage on Exhibits "A" and "B" attached hereto and made a part hereof plus any acreage that becomes jointly owned pursuant to Section 2.4, LESS AND EXCEPT THE EXCLUDED PROPERTY as defined herein.


"Effective Date" means the effective date of this Agreement, being 7:00 a.m., Central Standard Time, September 1, 2006.


"Emma Beach Sand" means that certain geologic interval, the earning well for which will be drilled to a depth of 18,000 feet TVD SS, and being the primary objective and Objective Depth for the Initial Test Well for Emma Beach Prospect as shown in that Prospect's AFE.


"Excluded Property" means all of Chevron's right, title and interest in and to the following for each of the Primary and Additional Prospect Opportunities: (1) the oil and gas lease(s) issued by the United States of America and listed on Exhibits "A" and "B" as to all lands and depths covered thereby, which are not described as available for earning by Company for that particular Prospect on Exhibits "A" and "B" hereto, and those aliquots and depths of the Leases(s) which are described as available for earning by Company for that particular Prospect on Exhibits "A" and "B" hereto, but were not earned by Company prior to expiration of that particular Prospect's time period allowed for earning under the terms of this Agreement; (2) all Existing Facilities; and, (3) all production from or through the lease(s), Lease(s), lands, depths, wells and facilities described in (1) and (2) of this definition, produced and sold prior to and after the Effective Date; and, (4) all revenues received by Chevron from the sale of production or otherwise derived by Chevron therefrom, described in items (1), (2) and (3) of this definition. The Parties do hereby agree and acknowledge that it is the intent of this Agreement to expressly exclude any and all earning rights for Company to earn or have in any reservoir(s) strata or sands currently producing or producible from any existing wellbore(s) located on the lease(s) or Leases(s), and that such determination shall be made solely by Chevron, in good faith. Any reservoir(s), strata or sands currently producing or producible from any existing wellbore(s) located on the Leases(s) shall be deemed Excluded Property.


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"Existing Facilities" means all property located on or associated with the Contract Acreage as of the Effective Date used or held for use in connection with the production, treatment, gathering, storage and compression of oil and/or gas from, on, or attributable to the Lease(s) listed on Exhibits "A" or `B", including but not limited to, (1) platforms, wells, caissons, fixtures, tanks, pumps, pipelines, appurtenances and improvements, (2) all equipment or material permanently or temporarily located on the Contract Acreage; and, (3) other structures located on or used in connection with the Lease(s); together with any future items described in (1), (2) and/or (3) hereinabove installed for or used in connection with any rights reserved unto Chevron under this Agreement, including but not limited to, the drilling, reworking, recompleting, sidetracking or deepening of any wells, current or future, by or on the behalf of Chevron to depths comprising the Excluded Property and for the use or benefit of the Excluded Property.


"Exploratory Objective" means any zone, interval or horizon not in pressure communication with a zone, interval or horizon that is currently producing or is currently known to be capable of producing oil and/or gas from an existing wellbore located on a Lease.


"Exploratory Well" means a well proposed to be drilled to evaluate an Exploratory Objective. A well will be considered an Exploratory Well if any bona fide objective in a well is an Exploratory Objective, even if other objectives in the well do not qualify as Exploratory Objectives. Any substitute well for a previously drilled Exploratory Well will be considered an Exploratory Well if and only if the substitute well is proposed to be drilled to not less than the Objective Depth of the unsuccessful Exploratory Well it is replacing.


"Farmout Agreement" means a mutually acceptable form of agreement to be entered into by the Parties for a Prospect in the event Chevron elects not to participate in the Initial Test Well, and Company agrees to assume and bear, either solely or with any Third Parties, one hundred percent (100%) of the costs and risks of said operation.


"Holly Beach Sand" means that certain geologic interval, the earning well for which shall be drilled to a depth of 21,000 feet TVD SS, and being the primary objective and Objective Depth for the Initial Test Well for Holly Beach Prospect as shown in that Prospect's AFE.


"Initial Test Well" will be the Exploratory Well proposed by Chevron or Company and drilled after the Effective Date of this Agreement on each Prospect located on the Exhibit "A" or Exhibit "B" Lease(s).


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"Lease(s)" means the oil and gas Lease(s) issued by the United States of America as listed on Exhibits "A" and "B", but as may be depth, aliquot or interest limited thereby.


"Mussel Beach Sand" means that certain geologic interval, the earning well for which will be drill to a depth of 19,600 feet TVD SS or to a depth sufficient to adequately test the Tex-X Sand, as seen on the TGS Deep Resolve PSTM seismic data, in line 9770, cross line 9753, 4320 ms,, whichever is the lesser, and being the primary objective and Objective Depth for the Initial Test Well for Mussel Beach Prospect as shown in that Prospect's AFE.


"Objective Depth" means the total depth of an Initial Test Well or Substitute Well(s) as specified the formal drilling AFE for such well for each Prospect as shown on Exhibits "A" and "B".


"Operating Agreement" means the offshore operating agreement to be entered into or ratified by the Parties in accordance with the provisions of this Agreement to govern and bear upon notice requirements and well operations, but not the participation elections, for the Available Acreage until reaching Casing Point, of the Parties on wells drilled under this Agreement. No grant of any operating agreement interest is intended in or the Available Acreage until earned under this Agreement.


"Operating Rights" means all of the rights, obligations, liabilities and attributes of a working interest ownership covering less than all depths, and potentially less than the entire surface area, in and on a Lease.


"Person" means, and will be interpreted broadly to include, without limitation, any individual corporation, association, company, limited liability company, trust, estate, partnership, joint ven ...