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Cooperative Plan Of Development & Operations

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Sectors: Energy
Governing Law: Utah, View Utah State Laws
Effective Date: February 17, 1994
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Exhibit 10.12


COOPERATIVE PLAN OF DEVELOPMENT AND OPERATION
FOR THE ANTELOPE CREEK ENHANCED RECOVERY PROJECT
DUCHESNE COUNTY, UTAH


THIS AGREEMENT, entered into as of the 17 day of February, 1994, by and between the parties subscribing, ratifying or consenting hereto, and herein referred to as the "parties",


W I T N E S S E T H:


WHEREAS, the parties are the owners of working, royalty or other oil and gas interests in the Project Area subject to this Agreement;


WHEREAS, the term "Working Interest" as used herein shall mean the interest held in Project Substances or in land containing Project Substances by virtue of a lease, operating agreement, fee title or otherwise, which is chargeable with and obligated to pay or bear all or a portion of the costs of drilling, developing, producing and operating the land under this Agreement. "Royalty Interest" as used herein shall mean a right to, or interest in, any portion of the Project Substances or proceeds thereof other than a Working Interest;


WHEREAS, the Indian Mineral Development Act of 1982, 25 U.S.C. (S)2101, et seq. authorizes, among other things, the lessors and lessees of lands owned by an Indian tribe, and their representatives to unite with each other, or jointly or separately with others, in collectively adopting and operating a cooperative plan of development or operation of any oil or gas pool, field or like area, or any part thereof for the purposes of more properly conserving the natural resources thereof whenever determined and certified by the Secretary of the Interior to be necessary or advisable in the best interest of the Indian tribe owning such lands; and


WHEREAS, the Ute Indian Tribe, the Ute Distribution Corporation, and all of their lessees under the affected leases, the parties hereto, have negotiated and agreed to a plan to conserve natural resources, prevent waste and secure other benefits obtainable through


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development and operation of the area subject to this Agreement under the terms, conditions, and limitations herein set forth.


WHEREAS, the Secretary of Interior or his authorized representative is charged with the power and responsibility to approve and oversee activities under this Agreement. This responsibility is carried out by representatives of the Secretary of Interior including the Bureau of Indian Affairs for the administration of this Agreement and the leases affected hereby, the Bureau of Land Management regarding well operations and reclamation of the affected lands, and the Minerals Management Service for royalty administration and valuation, all of which entities are hereinafter either collectively or individually, as appropriate, referred to as the "Secretary".


NOW, THEREFORE, in consideration of the premises and the promises herein contained, the parties commit to this Agreement their respective interests in the below-defined Project Area, and agree severally among themselves as follows:


1. ENABLING ACT AND REGULATIONS. This Agreement is entered into pursuant to the Indian Mineral Development Act of 1982, as amended. Activities conducted pursuant to this Agreement shall also be subject to all valid, pertinent regulations including, but not limited to, operating and cooperative plan regulations set forth in 43 C.F.R. 3160, et seq. lease administration
-- --- regulations at 25 C.F.R. 211, et seq., and royalty valuation regulations at 30
-- --- C.F.R. 206, et seq., together with all valid, pertinent and reasonable
-- --- regulations issued hereafter. These regulations are accepted and made a part of this Agreement as to the Project Area.


Further, prior to the Secretary taking any approval actions required by this Agreement or the applicable statutes and regulations, the Secretary shall consult with and acquire the concurrence in such approval by the Ute Indian Tribe and the Ute Distribution Corporation.


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2. PROJECT AREA. The area specified on the plat attached hereto marked Exhibit "A" is hereby designated and recognized as constituting the Project Area containing 11576.35 acres, more or less.


Exhibit "A" shows in addition to the boundary of the Project Area, the boundaries and identity of tracts and leases in said area to the extent known to the Project Operator. Exhibit "B" attached hereto is a schedule showing to the extent known to the Project Operator the acreage, percentage and kind of ownership of oil and gas interests in all land in the Project Area. (Tract means each parcel of land described as such and given a Tract Number in Exhibit "B".) However, nothing herein or in said schedule or map shall be construed as a representation by any party as to the ownership of any interest other than such interest or interests as are shown in said map or schedule as owned by such party. Exhibits "A" and "B" shall be revised by the Project Operator whenever changes in the Project Area render such revision necessary, or when requested by the Secretary. In such case not less than six (6) copies of the revised exhibits shall be filed with the Secretary.


3. EXPANSION OF PROJECT AREA. Any enlargement of the Project Area shall require approval by the Secretary of the Interior or his authorized representative, hereinafter referred to as the "Secretary". The Project Area may, with the approval of the Secretary, be expanded to include therein any additional lands whenever such expansion is necessary or advisable to conform with the purposes of this Agreement. Such approval by the Secretary of any such expansion may be accomplished pursuant to an agreement fixing the royalty interest share in production for production from the Project Area and providing for the commitment of the interests of the owners thereof to this Agreement, and if applicable, to the Project Operating Agreement. The Project Operator acting on behalf of the Working Interest Owners collectively shall negotiate with such new owners after it has been duly authorized as provided in the Project


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Operating Agreement. Whenever the Project Area is enlarged so as to admit additional land qualified for participation, the royalty interest share of production shall be revised as set forth in Section 12, Participation and Allocation of Production. Any such expansion shall be effected in the following manner:


(a) Project Operator, on its own motion, after preliminary concurrence
by the Secretary, shall prepare a notice of proposed expansion describing
the contemplated changes in the boundaries of the Project Area, the reasons
therefore, and the proposed effective date thereof, preferably the first
day of the month subsequent to the date of notice.


(b) Said notice shall be delivered to the Secretary and copies thereof
mailed to the last known address of each Working Interest Owner, lessee,
and lessor whose interests are affected, advising that thirty (30) days
will be allowed for submission to the Project Operator of any objections.


(c) Upon expiration of the thirty (30) day period provided in the
preceding item (b) hereof, Project Operator shall file with the Secretary
evidence of mailing of the notice of expansion and a copy of any objections
thereto which have been filed with the Project Operator, together with an
application and appropriate joinder in sufficient number for approval of
such expansion.


(d) After due consideration of all pertinent information, the
expansion shall, upon approval by the Secretary, become effective as of the
date prescribed in the notice thereof.


4. PROJECT LAND AND PROJECT SUBSTANCES. All lands committed to this Agreement as provided in Section 5, Tracts Qualified for Participation, as to the Project Formations defined immediately below, shall constitute land referred to herein as "Project Land"


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or land subject to this Agreement. All oil and gas in and produced from the Project Formations are combined under the terms of this Agreement and are called "Project Substances."


The Project Formations shall mean all formations lying under the lands committed to this Agreement.


5. TRACTS QUALIFIED FOR PARTICIPATION. Inasmuch as the objective of this Agreement is to have lands in the Project Area operated and entitled to participation under the terms hereof, no joinder shall be considered a commitment to this Agreement unless the Tract involved is qualified under this section. On or after the effective date hereof, the Tracts within the Project Area which are entitled to participation in the production of Project Substances therefrom shall be those Tracts within the Project Area, more particularly described in Exhibit "B", that are qualified by the commitment to this Agreement of one hundred percent (100%) of both the Working Interest and Royalty Interest in the affected lease.


6. PROJECT OPERATOR. Petroglyph Operating Company, Inc. is hereby designated as Project Operator, and by its signature hereto agrees and consents to accept the duties and obligations of Project Operator for the development and production of Project Substances as herein provided. Whenever reference is made herein to the Project Operator, such reference means the Project Operator acting in that capacity and not as an owner of interest in Project Substances, and the term "Working Interest Owner" when used herein shall include or refer to Project Operator as the owner of a Working Interest when such an interest is owned by it.


7. RESIGNATION OR REMOVAL OF PROJECT OPERATOR. Project Operator shall have the right to resign at any time, but such resignation shall not become effective so as to release Project Operator from the duties and obligations of Project Operator and terminate the Project Operator's rights as such for a period of six (6) months after notice


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of intention to resign has been served by Project Operator on all Working Interest Owners and the Secretary, and until all wells are placed in a satisfactory condition for suspension or abandonment, whichever is required by the Secretary in accordance with the applicable provisions of 43 C.F.R. and Onshore Order requirements, unless a new Project Operator shall have been selected and accepted and shall have taken over and assumed the duties and obligations of Project Operator prior to the expiration of said period.


The resignation of Project Operator shall not release the Project Operator from any liability for default by it hereunder occurring prior to the effective date of its resignation.


The Project Operator may, upon default or failure in the performance of its duties or obligations hereunder, be subject to removal by an affirmative vote of the Working Interest Owners of at least ninety percent (90%) of the voting interest remaining after excluding the voting interest of the Project Operator. Such removal shall be effective upon notice thereof to the Secretary. In all such instances of resignation or removal, until a successor Project Operator is selected and accepted as hereinafter provided, the Working Interest Owners shall be jointly responsible for performance of the duties of Project Operator, and shall, not later than thirty (30) days before such resignation or removal becomes effective, appoint a common agent to represent them in any action to be taken hereunder.


The resignation or removal of Project Operator under this Agreement shall not terminate its right, title, or interest as the owner of a Working Interest or other interest in Project Substances, but upon the resignation or removal of Project Operator becoming effective, such Project Operator shall deliver possession of all wells, equipment, materials, and appurtenances used in conducting the project operations and owned by the Working Interest Owners to the new duly qualified successor Project Operator or other owners thereof if no such new Project Operator is elected, to be used for the purposes of conducting operations hereunder. Nothing


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herein shall be construed as authorizing removal of any material, equipment or appurtenances needed for the preservation of any wells.


8. SUCCESSOR PROJECT OPERATOR. Whenever the Project Operator shall tender his or its resignation as Project Operator, or shall be removed as hereinabove provided, or a change of Project Operator is negotiated by the Working Interest Owners, a successor Project Operator shall be selected by the Working Interest Owners voting according to their share of the Working Interest in the Project Area by a majority vote; provided, that if a majority but less than 75 percent of the Working Interest Owners qualified to vote are owned by one party to this Agreement, a concurring vote of one more additional Working Interest Owners shall be required to select a new Operator. Such selection shall not become effective until:


(a) a Project Operator so selected shall accept in writing the duties
and responsibilities of Project Operator; and


(b) The selection shall have been approved by the Secretary.


9. ACCOUNTING PROVISIONS AND PROJECT OPERATING AGREEMENT. If the Project Operator is not the sole owner of the Working Interest, costs and expenses incurred by Project Operator in conducting project operations hereunder shall be paid and apportioned among and borne by all owners of the Working Interests, all in accordance with the agreement or agreements, whether one or more, separately or collectively, entered into by and between the Project Operator and all Working Interests Owners. Any agreement or agreements, whether one or more, entered into between the Working Interest Owners and the Project Operator as provided in this section are herein referred to as the "Project Operating Agreement."


Such Project Operating Agreement shall also set forth such other rights and obligations as between Project Operator and the Working Interest Owners as may be agreed upon by Project


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Operator and the Working Interest Owners, however no such Project Operating Agreement shall be deemed either to modify any of the terms and conditions of this Agreement or the leases committed hereto or to relieve the Project Operator of any right or obligation established under this Agreement, and in case of any inconsistency or conflict between this Agreement and the Project Operating Agreement, this Agreement shall prevail. Three (3) true copies of any Project Operating Agreement executed pursuant to this section shall be filed with the Secretary prior to approval of this Agreement, and thereafter promptly after any revision or amendment.


10. RIGHTS AND OBLIGATIONS OF PROJECT OPERATOR. Except as otherwise specifically provided herein, the exclusive right, privilege and duty of exercising any and all rights of the parties, including surface rights, which are necessary or convenient for prospecting for, producing, storing, allocating, and distributing the Project Substances are hereby delegated to and shall be exercised by the Project Operator as herein provided. Acceptable evidence of title to said rights shall be deposited with said Project Operator and, together with this Agreement, shall constitute and define the rights, privileges, and obligations of Project Operator. Nothing herein, however, shall be construed to transfer title to any land or to any lease or operating agreement, it being understood that under this Agreement the Project Operator, in its capacity as Project Operator, shall exercise the rights of possession and use vested in the parties hereto only for the purposes herein specified.


11. PLAN OF OPERATION. It is recognized and agreed by the parties hereto that the Project Area has been partially developed and is productive. It is contemplated that the Project Operator will drill numerous additional wells within the Project Area. These wells shall include exploratory wells, development wells, and injection wells, all of which are necessary in the opinion of the Project Operator for obtaining the greatest ultimate yield of Project Substances from the Project Area. It is recognized and understood by the parties that it may be necessary


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to recomplete existing wells in additional or other zones than those currently producing, convert existing wells from a producing status to injection wells, or deepen existing wells to include additional members of the Project Formations.


Inasmuch as the primary purpose of this Agreement is to permit the institution and consummation of a secondary recovery or pressure maintenance program for the maximum economic production of Project Substances consistent with good engineering and conservation practices, Project Operator, concurrently with the filing of this Agreement, shall submit to the Secretary for approval a plan of operations for the Project Lands for operations to be conducted during the first year of this Project, and upon approval thereof by the Secretary, such plan shall constitute the future operating objectives of the Project Operator under this Agreement for the period specified therein. Thereafter, from time to time, but at least once each year during the term of this Agreement, and before the expiration of any existing plan, the Project Operator shall submit a plan for an additional specified period of operations. Said plan or plans shall be modified or supplemented when necessary to meet changed conditions, or to protect the interests of all parties to this Agreement. Reasonable diligence shall be exercised in complying with any approved plan of operation.


Project Operator shall have the right to drill and maintain water supply
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