OUTER CONTINENTAL SHELF MODEL FORM SHELF PRODUCTION HANDLING AGREEMENT

1. OUTER CONTINENTAL SHELFMODEL FORM SHELF PRODUCTION HANDLING AGREEMENT January 23, 2014

4. MODEL FORM SHELF PHA General and Sundry • User Friendly • Table of Contents • Added Subheadings • Added Index for Definitions • Rearranged Provisions to Improve Flow • Major Commercial Term Structure Left Intact • Art 3.02 Monthly Operating Services Fee • Art 4.01 Per BBL/MCF Fees • Art 4.02 Minimum Monthly PH Fees • Art 5.02 Connection Fee • Art 5.03 Rental for Use of Riser and/or I-Tubes

7. MODEL FORM SHELF PHA Article 2.07 Installation of Receiving (Producer’s) Equipment • Who Has the Right/Obligation to Install Producer’s Facilities on the Platform? • Prior Approach: Producer Had the Right to Install After Operator Approved Plans and Timing • Current Approach: Operator’s Choice: Operator has the Right to Install on Producer’s Behalf. However, Producer Retains All Liability Associated with the Work. Operator Can Also Let Producer Install.

8. MODEL FORM SHELF PHA Article 2.07 Installation of Receiving (Producer’s) Equipment • Prior Approach: Producer shall, subject to Processor’s prior written consent and approval, construct and install or cause to be installed, at its sole cost, risk, liability and expense, all equipment necessary to process Satellite Well Production, hereinafter “Receiving Equipment”’ • Current Approach in Art 2.07: ‘Producer or Operator, whichever Operator prefers,  shall, subject to Processor’s prior written consent and approval, construct and install or cause to be installed on the Host Processing Facility, at Producer’ssole cost, risk, liability and expense, all equipment necessary to process Satellite Well Production (the “Receiving Equipment”)’

9. MODEL FORM SHELF PHA Article 3.1(f) Clarifying Responsibility for Operations of Satellite Well • Added a clear line of demarcation for responsibility for Satellite Well operations • Prior Approach: Was No Express Statement • Producer’s Responsibility Implicit Because was not Included in the Scope of Services to be Provided by Processor • Current Approach: Added Express Statement Clarifying Who is Responsible to Operate the Satellite Well • Assumes Processor is not operating Producer’s well, which is not always the case

10. MODEL FORM SHELF PHA Article 3.1(f) Clarifying Responsibility for Satellite Well • (f) No Other Upstream or Downstream Services.  Operating services for the Satellite Well and all portions of the associated pipeline and equipment which are upstream of the Receipt Point are not included in this Agreement, except to the extent expressly set forth in this Section 3.01. The fees paid by Producer to Processor under the terms of this Agreement are for the operating services expressly provided for above in this Section 3.01

11. MODEL FORM SHELF PHA Article 3.06 Emergency Response Rights of Processor • Prior Approach: No Express Statement Detailing Rights and Remedies of Processor When Responding to Emergency • Current Approach: Added Provisions Detailing • Right to Take Action • Cost Sharing • Reporting • Remediation

12. MODEL FORM SHELF PHA Emergency Response and Costs. • 3.06.1In the event of an emergency, including, but not limited to, a hydrocarbon leak, explosion, fire, storm or any other situation which threatens life, the environment, or property, the Operator, with no admission or presumption of liability, may promptly take such action as is deemed appropriate by the Operator under the circumstances to remedy or alleviate such emergency. Such action includes, but is not limited to, discontinuing the Services, shutting-in the Satellite Well Production and initiating emergency response operations. The Operator will promptly notify the Producer of such emergency by telephone, followed by written notification of the emergency and remedial actions taken.

13. MODEL FORM SHELF PHA • 3.06.2All emergency response costs incurred by the Operator which are attributable to the Satellite Production and Receiving Equipmentwill be reimbursed to the Operator by the Producer. Accordingly, the Operator will directly charge and invoice the Producer for such costs. • 3.06.3 The Producer is responsible for making any reports required by governmental agencies for emergencies attributable to the Satellite Well Production. The Operator is responsible for making any reports required by governmental agencies for emergencies attributable to the Host Processing Facility. The Parties will cooperate to the extent necessary in preparing such reports. All Parties will be provided a copy of any reports filed with governmental agencies in connection with emergency response operations.

14. MODEL FORM SHELF PHA • 3.06.4 Subsequent to the emergency, the Operator will have the option to conduct a root cause analysis of the event, activity or equipment from which the emergency arose. The cost of the root cause analysis, and any mitigation measures taken to address the cause of the emergency, shall be paid for by the Processor. To the extent the analysis concludes Satellite Production or Receiving Equipment contributed to the emergency, Producer will share in the cost of the analysis and mitigation measures in proportion to the Satellite Production’s or Receiving Equipment’s contribution to the emergency.

15. MODEL FORM SHELF PHA Article 6 Accounting/Payment Default • Focused on Remedy for Non-performance by Producer • Prior Approach: Remedies For Failure by Producer to Pay Fees, Costs • Charge Interest • Right to Shut In Production • Breach of Contract Claim • Notably: Was No Right to Terminate if Default For Failure to Pay

16. MODEL FORM SHELF PHA Article 6 Accounting/Payment Default • Did the Existing Form Have Adequate, Timely Recourse For Non Performance by Producer? • Retained Existing Rights & Remedies and Added ‘Meaty’ New Ones • Grant of Security Interest (Deepwater Concept), • Once Perfected the Security Interest Will Attach to: • Production and Proceeds from Production • Right to Terminate PHA if Uncured Default (See Termination, Art 22)

17. MODEL FORM SHELF PHA Article 6 Accounting/Payment Default New Art 6.06: Grant of Security Interest. To secure the prompt, unconditional and complete payment and performance of any and all amounts due under this Agreement, including, but not limited to, any unpaid amounts owed hereunder from time to time, each Producer grants to Processor a continuing security interest in (i) its allocated share of Satellite Well Production, and (ii) and all proceeds thereof (collectively, the “Collateral”).

18. MODEL FORM SHELF PHA Article 11 Production Priority • Historical Approach to Firm / Non Firm Capacity • Shelf vs. Deepwater • Why the difference? • Different scale of costs • Less deepwater infrastructure • Maintained Historical ‘Shelf’ Approach in Model Form.

19. MODEL FORM SHELF PHA Article 11 Production Priority • Prior Approach Hinged on the Definition of ‘Equity Production’ As Priority but Did Not Adequately Define ‘Equity Production’ • Prior Approach: “Processor shall retain the right to use all processing and handling capacity of the Host Processing Facility for its equity productionas it deems appropriate without any approval of Producer. For purposes hereinequity production is defined as production owned by Processor”

20. MODEL FORM SHELF PHA Article 11 Production Priority • What Is ‘Equity Production’? What Does Own Mean? • WI Production from the block where platform is located • WI Production from satellite blocks • Third Party Production Burdened by Processor’s Overriding Royalty Interest • Third Party Production Burdened by Processor’s Net Profit Interest • Reversionary Rights (Back-In) • Other • Why Potentially Leave it to Third Parties to Determine the Parties Intent

21. MODEL FORM SHELF PHA Article 11 Production Priority • Definition of ‘Equity Production’ Intentionally Left Blank • New Approach Allows the Negotiating Parties to Consider their Intent and Define ‘Equity Production’ • New Art 11.01 “Capacity for Production Handling Services. Processor shall retain the right to use all processing and handling capacity of the Host Processing Facility for Equity Production as it deems appropriate without any approval of Producer. For purposes herein, “Equity Production” is defined as _______(INSERT DEFINITION)_______________.”

22. MODEL FORM SHELF PHA Article 11.02 Compression • Prior Approach Adequately Addressed: • What if Producer Needs Compression and None is Available? • Does Producer have Right to Install Compressor? • Who Pays For the New Compressor? • NEW Question We Considered: Who Can Use It? • NEW Question We Considered : Who Owns It?

23. MODEL FORM SHELF PHA Article 11.02 Compression • New Art 11.02: Upon installation of a new or additional compressor on the Host Processing Facility, such compressor will be owned by Processor. Producer shall have priority use of that Producer funded compressor capacity. Processor shall have the right to use such Producer funded compressor capacity not used by Producer in any month, provided Processor bears a share of that month’s operating expenses and fuel for such compression based on the proportion of Processor gas volumes so compressed. • Producer Remains Liable for Abandonment of Receiving Equipment (inc. Compressor) (See Art 2.08)

24. MODEL FORM SHELF PHA Article 12 Measurement & Allocation • M&A Approach Unchanged. M&A Based on Frequent Well Tests • What Ifs: • What Happens When M&A Language Conflicts With BSEE Approved Comingling Permit • Comingling Permit supersedes? As Between Whom? • What Happens When M&A is the Heart of a Dispute Between Parties and M&A Process is not Consistent with Co-Mingling Permit

25. MODEL FORM SHELF PHA Article 12 Metering & Allocation New Language: Commingling. It is mutually understood that the gas, condensate, oil and water produced from the Satellite Well will be commingled with other gas, condensate, oil and water under conditions which will require the approval of the BSEE; therefore, before said gas, condensate, oil and water can be accepted by Processor, Processor will obtain, or have in place, appropriate commingling authority from the BSEE. Processor and Producer agree to assist each other by providing all information required in order to obtain such approval. In the event the surface commingling permit issued by the BSEE conflicts with this Agreement, the document with the stricter standard or language shall apply.

26. MODEL FORM SHELF PHA Article 16 Indemnity • Mutual v. Unilateral Indemnity • Historically, Mutual Indemnity Obligations for Harm to Each Party’s Respective Persons and Property but Unilateral Indemnity Obligation (With Producer as Indemnitor) for Damage to Environment • New Art 16.04: Added to Provide for Reciprocal Obligations for Harm to Environment Caused by the Other Party or its Equipment (Deepwater Concept) • Are Reciprocal Indemnities Appropriate in this Context?

27. MODEL FORM SHELF PHA Article 16 Indemnity • Art 16.04 Processor’s Environmental Indemnity. Processor shall indemnify, defend and hold harmless Producer Group from and against all Claims arising out of or related to pollution, blowout, pipeline rupture, uncontrolled flow of oil, gas, water or any other substance from the Host Processing Facility (excluding the Producer Assets), fire or explosion, costs of regaining control of the Host Processing Facility (excluding the Producer Assets) and any incident involving its associated pipelines, …” • Almost Identical to Art 16.03 “Producer’s Environmental Indemnity”

28. MODEL FORM SHELF PHA Article 16 Indemnity • LA Oilfield Indemnity Act (LOIA) and its Marcel Exception • If LA Law Applies, Public Policy Law Bars Indemnity for Death and Bodily Injury if Indemnified Party’s Negligence or Fault Contributed. Law Goes on to say Cannot Circumvent Act by Requiring Indemnitor To Carry Indemnitee as Additional Insured • Judicially Created ‘Marcel Exception’: Indemnitee Can Require Indemnitor to Carry Insurance Naming Indemnitee as Additional Insured so long as IndemniteePays for the Additional Coverage • PHA Negotiating Parties Should be Aware Their Risk Allocation May be Undermined by the LOIA Unless, Comply with the Marcel Exception • Optional Art 16.08: Optional Provision Inspiring the Parties to Consider the Impacts of LOIA and Comply with the “Marcel Exception”

29. MODEL FORM SHELF PHA Article 16 Indemnity • Texas Oilfield Indemnity Act (TOIA) • If TX Law Applies, Public Policy Law Bars Indemnity for Property Damage, Death and Bodily Injury if Indemnified Party’s Negligence or Fault Contributed • Unlike LA Law, TOIA Does Allow Insurance Obligations To Support Indemnity for Property Damage, Death, Bodily Injury • PHA Negotiating Parties Should be Aware Their Risk Allocation May be Undermined by the TOIA • Optional Art 16.07: Optional Provision Inspiring the Parties to Consider the Impacts of TOIA and Comply with the Mutual Insurance Obligation

30. MODEL FORM SHELF PHA Article 16 Indemnity Procedures • Prior Approach did not Expressly State Procedure for Asserting a Claim for Indemnity; • New Art 16.06: Added Detailed Procedure for Asserting a Claim for Indemnity; • Procedure: • Indemnified Party Provides Indemnifying Party with Notice of Claim for Indemnity; • Indemnifying Party, at its expense, will handle the claim for which indemnity is provided; • Indemnifying Party can choose to allow Indemnified Party to handle the claim, at Indemnifying Party’s expense. Final disposition subject to Indemnifying Party’s approval

31. MODEL FORM SHELF PHA Article 16 Indemnity Definitions • New Art 16.01: Defers Definitions of ‘Gross Negligence’ and ‘Willful Misconduct’ to Parties State Law of Choice • “Definitions. The Parties agree that the terms “gross negligence” and “willful misconduct” as used in this Article XVI shall be defined in accordance with the law of the State of (INSERT STATE)….”

32. MODEL FORM SHELF PHA Article 22 Termination • Flexibility (or Lack Thereof) is the Key Issue • Key Competing Interests – Platform Owner’s Flexibility vs. Producer’s Desire for Committed Host • Kept The Original Provision Largely Intact, With One Major Revision…Added Termination Event for Uncured Default by Either Party; • Added Optional Provision Consistent with Deepwater Approach

33. MODEL FORM SHELF PHA Article 22 Termination, Focusing on Default • Why Was Default Remedy in Deepwater and not Shelf? • Scope of the Obligations? • Materiality of the Obligations? • Better Drafted Agreement? • Added Art 22.01(d) as a Termination Event: ‘Uncured Default. By the non-defaulting party upon thirty (30) days prior written notice to the defaulting party in the event of a Default;’

34. MODEL FORM SHELF PHA Article 24 Dispute Resolution • Should a Form PHA Provide for Choice of Law or Alternative Dispute Resolution? • Pros and Cons of ADR? • Strong Convictions of GOM Companies on Both Sides of the Debate

36. MODEL FORM SHELF PHA Article 24.12 Choice of Law vs. ADR • OPTION 1 for Section 24.12 Choice of Venue. The Parties agree that all disputes in any way arising out of or resulting from this Agreement shall be litigated, if at all, exclusively in the state or federal courts venued in __________ County/Parish, ______ (INSERT STATE). The Parties accordingly hereby submit to the jurisdiction and venue of such courtsfor all purposes of the State of _______. The prevailing Party in any such suit shall be entitled to recover all of its legal expenses, expert witness costs, court costs and other costs incurred in connection with such action.

37. MODEL FORM SHELF PHA Article 24.12 Choice of Law vs. ADR • OPTION 2 for Section 24.12 24.12 Alternative Dispute Resolution: Any claim, controversy or dispute arising out of, relating to or in connection with the interpretation of this Agreement or any activity or operation conducted or to be conducted hereunder, shall be resolved in accordance with the mediation and binding arbitration procedures set forth in Exhibit “XX” (Dispute Resolution Procedures) to this Agreement. However, claims for indemnity between or among the Parties shall be excluded from this provision when they arise out of or are related to a lawsuit filed by a Third Party.

38. MODEL FORM SHELF PHA • Thanks to Key Contributors • Charlie Barnes Calypso • Dale Broussard Chevron (recently retired) • Dave Christian Consultant • Becky Harden Apache • Ron Wilson Walter • Randy King Porter Hedges • Collin Baker Porter Hedges

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