EX-10.2 6 ex10_2.txt EXHIBIT 10.2 PARTICIPATION AGREEMENT GARDEN BANKS BLOCKS 346 & 390 This Participation Agreement (the "Agreement") is made and entered into effective as of the 1st day of January, 2006, by and between Walter Oil & Gas Corporation ("Walter") and Ridgewood Energy Corporation, as manager of Ridgewood Energy S Fund LLC, ("Ridgewood") with all parties collectively referred to as "Parties", and individually referred to as "Party". RECITALS WHEREAS, Walter has entered into that certain farmout agreement dated effective November 7th 2005, ("Farmout Agreement") with Shell Offshore, Inc. ("Shell"), as Farmor, affecting all of Farmor's leasehold interest in Federal Leases OCS-G 23303 and OCS-G 23312 covering Garden Banks blocks 346 and 390, respectively, from the surface down to 22,350' TVD ("Leases"), WHEREAS, Walter desires to assign an undivided thirty percent interest in the Farmout Agreement to Ridgewood to jointly drill an "Initial Test Well" (as described in the Farmout Agreement), WHEREAS, Ridgewood desires to acquire an undivided thirty percent interest in the Farmout Agreement and participate in drilling the Initial Test Well, all in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Parties agree as follows: SECTION I --------- Definitions 1.01 In addition to those terms defined elsewhere in this Agreement, terms defined in the Farmout Agreement shall have the same meaning when used herein. SECTION II ---------- Assignment and Assumption of Rights 2.01 Upon obtaining Farmor's consent to assign if required under the Farmout Agreement, Walter shall be deemed to have assigned to Ridgewood an undivided thirty percent (30%) share of all of Walter's rights, benefits, duties, liabilities and obligations related to, arising out of, or in any way connected with the Farmout Agreement. Except as provided in Section 6.01, Walter represents that it has not transferred or encumbered the rights, interests or obligations transferred to Ridgewood hereunder. 2.02 Ridgewood does hereby accept the assignment described in the immediately preceding paragraph and agrees to assume and be liable for an undivided thirty percent (30%) share of all of Walter's rights, benefits, duties, liabilities, and obligations related to, arising under, or in any way connected with the Farmout Agreement, as fully and effectively as though Ridgewood was a signatory party thereto. SECTION III ----------- Operating Agreement 3.01 The parties agree that the controlling operating agreement shall be that certain operating agreement attached to the Farmout Agreement as Exhibit "D" ("JOA") covering the Leases and naming Walter as operator of the Leases. Contemporaneous with the execution of this Agreement, Ridgewood agrees to adopt -------------------------------------------------------------------------------- 1 and ratify the JOA and shall become a signatory party thereto. All operations on the Initial Test Well and any and all subsequent operations on the Leases shall be conducted in accordance with the terms and provisions of the JOA. With respect to Ridgewood and Walter, if there are any conflicts between this Agreement and the JOA, the terms and provisions of this Agreement shall prevail and govern. SECTION IV ---------- Initial Test Well 4.01 Subject to receipt of all necessary regulatory permits and approvals, the Parties agree to commence drilling operations for the Initial Test Well on the Leases on or before March 31St, 2006. The Initial Test Well shall be located and drilled to a proposed total depth as identified in the AFE attached hereto as Exhibit "A," which AFE shall be deemed ratified and approved by the parties hereto concurrent with their execution of this Agreement. As consideration for the opportunity to earn a Thirty Percent (30%) working interest in the Farmout Agreement and Leases, Ridgewood shall bear Sixty Percent (60%) of the costs to drill the Initial Test Well to casing point and through plugging and abandonment, if the Initial Test Well is not saved for production. This disproportionate cost sharing obligation shall be referred to as the "Promote." The Promote will be applicable to the dry hole costs of the Initial Test Well and will be limited to, 115% of the Initial Test Well's estimated dry hole cost as noted in the attached AFE, or reaching actual casing point, whichever is less. Notwithstanding anything to the contrary herein, the Promote will apply to the plugging and abandonment of the Initial Test Well or its substitute subject to the cap of 115% as noted herein. The Promote will also apply to any substitute well or sidetrack of the Initial Test Well until Walter has received 115% of the original AFE dry hole costs. After the Promote has, been satisfied, Ridgewood shall bear thirty percent (30%) of the costs and expenses associated with the Initial Test Well, or any substitute well. 4.02 Walter represents that it has contracted the Ocean Lexington drilling rig at a day rate of $60,000.00 to drill the Initial Test Well and acknowledges that Ridgewood's willingness to pay the Promote is based, in part, upon this representation. 4.03 Subject to reduction in accordance with Shell's reversionary rights, it is understood and agreed that Energy Resources Technology, Inc. will participate in the Initial Test Well to earn a 20% working interest in the Farmout Agreement, Leases and Initial Test Well. 4.04 For clarification purposes only, there shall be no penalty(ies) assessable to either party hereto for failure of the Initial Test Well to be spudded on or before March 31St, 2006. SECTION V --------- Assignment of Operating Rights 5.01 Upon the earning of interests under the Farmout Agreement, Walter shall request the Farmor assign the earned interest directly into Walter and Ridgewood in their respective working interest shares. However, if the Farmor assigns 100% of the earned interest directly into Walter where Ridgewood is entitled to its working interest share, then the parties shall within 10 business days of Farmor having assigned to Walter, execute an assignment evidencing Ridgewood's proportionate ownership share of the earned interest. SECTION VI ---------- Burdens 6.01 Walter and Ridgewood shall each bear their respective working interest share of (i) the lease royalty, (ii) the overriding royalty interest or the 25% back-in and $2,000,000.00 credit, whichever is applicable, retained by Farmor pursuant to the terms of the Farmout Agreement and (iii) an overriding royalty interest to be retained by Walter ("Staff ORR") equal to 1 % of 8/8ths. -------------------------------------------------------------------------------- 2 SECTION VII ----------- Notices 7.01 All notices, requests or demands to be given under this Agreement shall be in writing and governed and directed to the representatives as specified below: Ridgewood Energy Corporation Walter Oil & Gas Corporation 11700 Old Katy Rd., Suite 280 1100 Louisiana Street, Suite 200 Houston, Texas 77079 Houston, TX 77002 Attn: Mr. W. Greg Tabor Attn: Mr. Ron Wilson Phone: 281-293-8449 Phone: 713-659-1221 Fax: 281-293-7705 Fax: 713-756-1177 SECTION VIII ------------ Internal Revenue Provision 8.01 It is not the purpose or intention of this Agreement to create any partnership, mining partnership or association, and neither this Agreement nor the operations hereunder shall be construed as creating any such legal relationship; however, solely for income tax purposes only, the parties agree that this Agreement shall be governed in accordance with Article 20 ("Taxes") of the JOA. SECTION IX ---------- Term 9.01 This Agreement shall remain in effect for a term corresponding to the term of the JOA. SECTION X --------- Miscellaneous 10.01 This Agreement, together with all of its exhibits, is intended by the Parties to be a complete and final statement of the agreement of the Parties with respect to the subject matter hereof, and supersedes any prior oral or written statements or agreements. 10.02 Subject to all matters hereof, this Agreement shall be binding upon the Parties hereto and their respective successors and assigns. 10.03 This Agreement maybe executed in any number of counterparts, each of which shall be valid and binding with respect to the signatories thereto, but only upon the execution by all signatories of this Agreement or a counterpart hereof. 10.04 This Agreement shall be governed by the laws of the State of Texas except where the Maritime Laws of the United States of America are applicable. In the event that any dispute results in formal legal action, venue shall be appropriate in the federal or state courts of Harris County, Texas. -------------------------------------------------------------------------------- 3 10.05 In the event of a breach of this Agreement by any party hereto, the non-breaching party shall be entitled to all remedies available at law or equity, including but not limited to, specific performance, monetary damages and injunctive relief. 10.06 Walter shall provide Ridgewood with full and complete access to Walter's files, records and data, so that Ridgewood may perform its due diligence review of Walter's acquisition, ownership and obligations associated with the Leases. Additionally, Walter shall provide Ridgewood with access to its technical data associated with the Leases, including seismic, maps, well data and geological data, subject however, to all confidentiality and data licensing restrictions. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed effective as of the date first set forth above. WITNESSES: WALTER OIL & GAS CORPORATION /s/ Melissa Coronado By: /s/ Ron Wilson ------------------------- -------------------------- Melissa Coronado Ron Wilson Vice President WITNESSES: RIDGEWOOD ENERGY CORPORATION, as Manager of Ridgewood Energy S Fund LLC /s/ Donna Ermis ------------------------- By: /s/ W. Greg Tabor -------------------------- /s/ Randy Bennett W. Greg Tabor ------------------------- Executive Vice President -------------------------------------------------------------------------------- 4 [LOGO OMITTED] WALTER OIL & GAS CORPORATION 1100 LOUISIANA, SUITE 200 HOUSTON, TX 77002-5299 AUTHORITY FOR EXPENDITURE AFE NO PROPERTY NO TOTAL AFE AMOUNT TYPE OF AFB E0560 T022301001 $21,485,600 Drilling EXPLORATORY ________ DEVELOPMENT ________ OTHER (Describe)_________ PROSPECT/FIELD NAME Garden Banks 346 (390) LEASE/WELL NO. OCS-G23303 Well No.1 ------------------------ -------------------- PROPOSED T.V.D 22,000' M.D. 23,620' ------------------------ -------------------- COUNTY/PAR1SH Offshore STATE Texas ------------------------ -------------------- LOCATION ------------------------------------------------------------- DESCRIPTION OF WORK TO BE PERFORMED Cost to drill a 32 degree directional hole. -------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- WORKING INTEREST OWNER PERCENT WORKING INTEREST W.I.OWNER SHARE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TOTAL 0.00000% $0.00 -------------------------------------------------------------------------------- Prepared by: /s/ Randy Reese Randy Reese Date 26 January 2006 ---------------------------------- --------------- Review by: /s/ C. J. Locke C. J. Locke Date 26 January 2006 ---------------------------------- --------------- Approved by: J. C. Walter III President Date ---------------------------------- --------------- JOINT INTEREST APPROVAL This expenditure is approved including the well control insurance coverage provided by Walter Oil & Gas Corporation Company proved by Date ------------------------ ------------------- ------- This expenditure is approved excluding the well control insurance coverage offered by Walter Oil & Gas Corporation. Proof of insurance coverage for our company is attached. Company RIDGEWOOD ENERGY CORPORATION Approved by /s/ W G Tabor Date 2/16/06 ------------------------ --------------- ------- WALTER OIL AND GAS CORPORATION Drilling AFE Cost Estimate Field Name: Garden Banks 346 (390) OCS-G23303 Well No. I Prop. No. 7022301001 AFE No. E0560 Project Description: TVD 22,000' Cost to drill a 32 degree directional hole. MD 23,620' Exploratory: ______ Other: Development: ______
INTANGIBLE DRILLING COSTS - (BCP) $ ESTIMATED $ ACTUAL 101 Surveys & Permits 10,000 102 Legal Fees 0 103 Location & Road Construction 0 105 Surface Damages & Restoration 0 110 Drilling Rig - Mobilization 650,000 111 Drilling Rig - Demobilization 650,000 112 Rig Cost - Footage FT @ $/FT 0 113 Rig Cost - Daywork 92 Days @ $60,000 $/Day 5,520,000 114 Bits 170,000 115 Fuel, Power & Water 92 Days @ $12,000 $/Day 1,104,000 117 Fishing Tools & Services 0 118 Directional Tools & Services 800,000 120 Dock Services 92 Days @ $800 $/Day 73,600 121 Rental - Downhole 60,000 124 Rental - Surface Equipment 60,000 129 Inspection & Testing - Specify 0 131 Mud & Chemicals 2,500,000 138 Waste Water Disposal/Vacuum Trucks 60,000 139 Contract Labor 30,000 140 Transportation - Land 70,000 141 Transportation -Aircraft 45,000 142 Transportation - Boats 92 Days@ $25,000 /day 2,300,000 146 Cement & Services 250,000 148 Casing Crews & Equipment 65,000 151 Cores & Core Analysis 0 152 Logging 320,000 153 Mudlogging 0 154 Testing - DSTs & RFTs 0 155 Mud Consultant 150,000 158 Divers & Equipment 90,000 160 Geological Supervision 0 161 Drilling Supervision 180,000 162 Camp Expenses &I Supplies 35,000 163 Communications - Telephone & Radio 35,000 164 Insurance & Bonds 90,000 168 Drilling Overhead (COPAS) 90,000 169 Miscellaneous Expenses 135,000 170 P&A - Cement & Services 75,000 171 P&A - Other Costs 500,000 175 Dryhole Contributions 0 179 Contingency $2,431,000 194 Company Labor & Expenses 90,000 TOTAL INTANGIBLE DRILLING COSTS $18,638,600 TANGIBLE DRILLING COSTS - (BCP) $ ESTIMATED $ ACTUAL 235 Drive Pipe 250 of 36 "@ $275/ft 68,750 240 Conductor Casing 1,400 of 22 "@ $120/ft 168,000 241 Surface Casing 3,400 of 18 5/8 "@ $100/ft 340,000 242 Intermediate Csng 8,000 of 13 5/8 "@ $85/ft 680,000 243 Liner 14000 of 9 5/8 "@ 60/ft 840,000 246 Bradenhead & Casing Spools - 248 Mudline Suspension System + Subsea Wellheads 650,000 249 Other Equipment 100,000 TOTAL TANGIBLE DRILLING COST - (BCP) $2,847,000 TOTAL DRILLING TO CASING POINT $21,485,600 ----------------------------------------------------------------------------------------- Prepared by: /s/ Randy Reese Randy Reese Date 26-Jan-06 ----------------------------------------------------------------------------------- Reviewed by: /s/ C. J. Looke C. J. Looke Date 26-Jan-06
[LOGO OMITTED] Ridgewood Energy February 16, 2006 Walter Oil & Gas Corporation Attn: Mr. Chad Elias 1100 Louisiana, Suite 200 Houston, TX 77002 SUBJECT: Participation Agreement Garden Banks Blocks 346 & 390 Dear Mr. Elias: Attached please find one (1) original Participation Agreement effective January 1, 2006, by and between Walter Oil and Gas Corporation and Ridgewood Energy Corporation covering subject blocks. This document has been executed by W. Greg Tabor on behalf of Ridgewood Energy. Should you have any questions or need addition information, please contact me at 281.293.9464. Sincerely, /s/ Donna Ermis Donna Ermis Office Manager Ridgewood Energy 11700 Old Katy Road, Suite 280, Houston, TX 77079 (T) 281.293.9464 (F) 281.293.7391 www.ridgewoodenergy.com