Exhibit 10.5
AMENDED AND RESTATED GAS DEDICATION AND GATHERING AGREEMENT
BETWEEN
DAKOTA MIDSTREAM, LLC
AND
EMERALD OIL, INC. & EMERALD WB LLC
AMENDEDANDRESTATEDGASDEDICATION
AND GATHERING AGREEMENT
THISAMENDEDAND RESTATED GAS DEDICATIONANDGATHERING AGREEMENT("Agreement')is entered intoon May 26,2015, buteffective as ofthe 1st dayofJuly,2014(the"Effective Date" )by and between DAKOTA MIDSTREAM, LLC( "Gatherer"),andEMERALDOIL, INC. andEMERALDWB LLC (collectively"Producer").The term"Producer"shall also include anyotherAffiliates ofEmeraldOil, Inc.or EmeraldWB LLC that ownorcontrol leasehold interestsorGasfromleasehold interests locatedwithinthe AreaofDedication atanytime while this Agreement remains in effect. Producer andGathereraresometimesreferred to herein individually as a"Party"and collectively as the"Parties".
RECITALS
A. Producer is aworkinginterestownerincertain oilandgasleases,wells,and/orlandswithintheareadescribed inExhibit "A"attached heretoandbyreferencemadeapart hereof (the"Areaof Dedication"),and may acquire additional interests inoilandgasleases and/or lands within the Area of Dedication during the termofthisAgreement (suchcurrent and future interests are referred toasthe"Leases").
B. Producer desires to have Gatherer receive, gatherandredeliverall ofthe Gas owned by Producer which is produced fromtheWells(asdefined herein) andLeaseswithin the AreaofDedication.
C. Gathererdesires to receive Producer'sGasat the ReceiptPoints andredeliver Producer's Gas at the Delivery Points (assuchterms are defined herein),utilizingthefacilitiesconstructed, owned and operated by Gatherer.
D. The Parties enteredintothatcertainGas Dedicationand Gathering AgreementdatedeffectiveJuly I ,2014,as amended by thatcertainAmendmentNo.1 dated effective November 19,2014(the"Original Agreement"),and desire nowtoamendandrestate the Original Agreement in itsentirety,effective as of July 1, 2014, to address and incorporate additional facilities to be constructed and operated byGathererat therequest of Producerto receive Producer's Gas,fromthesameInitial System DSUs as identifiedin ExhibitB-1 herein at certain new"InfillReceipt Points" in exchange for additional considerationtoGatherer.
E. TheParties also desire nowtoname and includeEmerald WBLLCas a ProducerParty to thisAgreementand to haveEmeraldWB LLC ratify the Original Agreement.
Nowtherefore, in consideration of themutual covenants andagreementscontainedin this Agreement, the Parties agree as follows:
ARTICLE I
REPRESENTATIONS &COMMITMENTSOF PRODUCER
1.1 Producer's Representations. Producer represents and warrantstoGatherer, its successorsandassigns, that Producer has the right tooperatethe Wells listedon ExhibitB-2andowns and has the right to dedicate and commit for physical delivery to andgatheringbyGatherer,Producer'sGasas defined in Section 1.2 below, and that Producer has constructed, intends to construct,or shallcause to be constructed, the facilities necessary, if any, to enable Producer to deliver toGathererat the Receipt Pointsallof Producer's Gas, in accordance with the terms and provisionsofthis Agreement,aswellas anyotherfacilitiescommitted to by Producer under this Agreement.
1.2 Dedication. Producer hereby dedicates and commits to the performanceofthis Agreementandall of the terms and conditions herein for the Primary Term,asdefined herein,as a covenant running with the land thefollowing: (i) allof Producer's working interest shareofGas producedfromthe Wellsoperatedby Producer; and(ii)all of Producer'sworkinginterestshareof Gas from wells operated by partiesotherthan Producer in which Producer takes its share of production in kind, if applicable (collectively"Producer'sGas").Notwithstanding the foregoing, Producer'sGas shallnot include:(i) Gas subjecttoaprior Gas dedication as of theEffectiveDate of this Agreement for the minimum durationofthat prior Gas dedication;(ii)Gas produced from any lands or Leases that Producerinthe futureacquiresin the Area of Dedication that aresubjecttoaprior Gas dedication entered into by Producer's predecessor-in-interest for the minimum duration of the priorGasdedication;(iii)Gasfrom Leasesthat are subject toaTemporary Release (forsolongas suchTemporary Releaseremainsineffect) or aPermanent Release,allinaccordancewith the terms of thisAgreement;and (iv)GasproducedfromanyLeasesotherwisesubjectto thisAgreementthatareno longer held by production or upon their termination,expiration orrelease ifsuchLeasesarenot cured,renewed, top leased, re-acquired or newlyacquiredin whole or in part byProducer,itssuccessor-in-interest, theirrespectiveAffiliates,oranyoftheir respectiveofficers,directors,employees,agents orrepresentatives. Subject to the remaining termsof thisAgreement,including the rightsofProducer in theeventofaTemporary Release or Permanent Release,as defined herein,eitherexclusionapplies only forthe remaining minimum durationofthe priorGasdedication,Producer willtake all actionnecessary not toextendthe durationof suchpriorGasdedication,anduponthe expirationof thatpriorGas dedication,suchinterestwill automaticallybe dedicated and committed hereunder. Producershallpromptly furnishGatherer withnotices of thetermination of allpriorGasdedication arrangementsandthe anticipated dateof firstdeliveryofthose volumes toGatherer's GasSystem. Producer covenants to deliver allof Producer's GastoGatherer atthe Receipt Pointswithoutother disposition exceptasotherwise provided inthisAgreement.
1.3 Producer's Reservations.
i. Producer,as areasonable andprudent operator,herebyexpresslyreserves the following rightswith respectto Producer's Gasand theLeasessubject hereto:
a. The right to use and consume the Gasproduced from the Leases priortodeliveryto Gathererfor thefollowingpurposes:
(i) For consumption as fuel in the development and operation of theLeasesfrom which the Gas is produced.
(ii) Fordelivery to the lessors andowners of overridingroyalties orother interests in theLeases,if such lessors and owners areentitledto use suchGasor take such Gas in kind under the terms of the Leases andotherdefinitive instruments creating their interests entered into (1) prior to theEffectiveDate,withrespect to Leases owned by Producer attheEffective Date,or (2)prior to the datesuchLeases are acquired by Producer, with respect toLeasesacquired byProduceraftertheEffectiveDate.
(iii) For consumption as fuel in theoperation ofthe facilities which Producer may install in order to deliverGashereunder in accordancewiththe termshereof.
(iv) Reasonable and customary amountsofGasforits operational needs includinggaslift(estimatednot to exceed 500 Mcfdas of the EffectiveDate)andsecondaryortertiary recovery projects to theextentcommunicated to Gatherer pursuant toSection2.7.
b. The right topoolorunitizethe Leases(or anyportionthereof)with other lands and leases. In the event of any such poolingorunitization, the Agreement will cover Producer's interest in the pool or unit and the Gas attributable thereto to the extent thatsuchinterest is derived from Producer's interestin the Leases.
ii. Producer reserves the right tooperateits Leases and Wells free of any control by Gatherer and insucha manner as Producer,in its solediscretion, may deemadvisable,including without limitation, the right toenterintofarmouts ofany Leasesubject tothis Agreement,to abandon any Well andsurrender anyLease. Producer reserves the right to determine the maximum efficient rateofflowforany Well(includingthe right to curtail production due to low market demandforGas) and shall not be required to produce any Well or Wells in any manner which in its solejudgmentand discretion would not constitute good operating practice, nor shall Producer be obligatedtodrill additional Wells ortodeepen, repairorrework any existing Wells.
1.4 Release Rights.
i. Temporary Release. Notwithstanding anyotherprovision herein,during any period after the Initial System In-Service Date,asdefined in Section2.4,whenGathererisunableorfailstoacceptdeliveryofany ofProducer'sGasin accordance withtheterms ofthis Agreement foranyreasonwhatsoever,including,withoutlimitation,curtailment,Force Majeure or maintenance affecting Gatherer'sGasSystem or any downstream pipeline or processing plant, andthereexists no uncured material breach of this Agreementonthe partofProducer,then Producer mtemporarily elect todeliverthequantitiesofProducer'sGaswhich Gathererhasfailedto oris unableto accept toalternative gathering facilities, upon delivering written noticeto Gathererofitsintent to do so (a"TemporaryRelease").FailureofGatherer to respond (oracceptdelivery of theExcess Volumesof Producer's Gas)withintwenty-four (24) hours to awaiverrequest from Producershallbe deemed to beaconfirmation by Gatherer of a lackofcapacityonGatherer's Gas System. TheTemporaryRelease of Producer's Gasshall only applyto those certain volumes of Producer's Gas which Gatherer is unable tosoaccept (the"Released Volumes").Furthermore, during anyAccounting Periodin whichaTemporary Releaseoccurs,theapplicable Minimum Volumeforsuch Accounting Period shallbe reducedbyan amountequaltothetotal of Released VolumesforsuchAccountingPeriod. Within thirty (30)daysafter Gatherer's deliveryofwrittennoticeto Producer ofitsability toagain acceptdelivery of theReleasedVolumes in wholeorin part, theTemporaryRelease will terminateasto the quantity Gatherer has specified in its written notice thatit is ableto receive and Producershall resumedelivery ofsuchReleased Volumes to Gatherer.
ii. Permanent Release.Except forthesix(6)monthperiod commencing asoftheInitialSystem In-Service Date,and subjectto Section2.5in thecontextof future expansion beyondthe InitialSystem,asapplicable,in theeventGatherer has not accepted deliveryofthe entirequantityof Producer's Gasmade available by Produceratthe Receipt Pointsforany reasonwhatsoever,including, without limitation,curtailment, ForceMajeureormaintenance affectingGatherer's Gas System orany downstream pipelineorprocessing plant, fora continuousperiodofninety (90)consecutivedays,or onehundredandtwenty(120)dayswithin a onehundredeighty (180)dayperiod,Producershallhave the righttohave theLeases and Wellsaffectedtherebypermanentlyreleasedfrom this Agreement(a"Permanent Release ")bydeliveringwritten notice thereof to Gathererwithin thirty (30)daysafter the expiration of any suchninety (90) consecutive day periodor onehundredeighty (180) dayperiod,as applicable. Furthermore,the applicable Minimum Volumefor each Accounting Period remainingduring theCommitment Period shall be reducedbythe estimated averagedailyvolumes subject toPermanent Releasefor each suchAccounting Period, inaccordance withestimates ofanticipated volumespreviously provided byProducer pursuant to Section 2.7 that wouldhave been deliveredto Gatherer's Gas Systemhad thePermanent Releasenotoccurred (the"PermanentlyReleasedVolumes").
1.5 Allocations. Producer shallprovideto Gatherer allinformation reasonably requested byGatherertoassist Gatherer inmakingReceiptPointallocations called forhereinor required by Gatherer'snormal andcustomaryaccountingor contract administrationpractices.The Parties shall cooperatein providing allocationinformationtooperators of facilitiesdownstreamof the DeliveryPointto assist such operatorsinmaking allocationsconcerning Producer's Gas.
1.6 Memorandum of Agreement. Upon execution of this Agreement, the Parties shall concurrently execute a new Memorandum of this Agreement, in substantially the same form attached as Exhibit "D" including a legal description of the Area of Dedication that corrects and replaces the Memorandum of the Original Agreement by expressly including Emerald WB LLC as a dedicating party, together with any of Producer's other Affiliates which own or control leasehold interests or Gas from leasehold interests located within the Area of Dedication, during the Primary Term or Extended Term of this Agreement. Such Memorandum shall be placed of record in each county in which the Leases are located with Producer to bear all costs. In the event of any Permanent Release or termination of this Agreement, in whole or in part, the Parties shall execute appropriate instruments to be placed of record in each county in which the Leases are located, providing notice of the amended Area of Dedication or termination of this Agreement.
1.7 Gas Purchaser. It is understood that Producer may enter into arrangements with purchasers ofGasunder which Producer's Gas may besoldto the purchaser("Gas Purchaser"whether one or more) at or near the well pads and prior to delivery toGatherer, ordownstream of the Delivery Points. Ifsucharrangements are entered into by Producer, Producer will require the Gas Purchaser to deliver allofProducer's Gas to Gatherer under the terms of this Agreement and, subject to the terms and provisions hereof, all of Producer's Gas shall remain dedicated and committed to thisAgreementand subject toallprovisionscontainedin this Agreement and Producershallcause theGasPurchaser toexecuteanadoptionand ratificationofthis Agreement ina formandsubstancereasonably acceptable to Gatherer.
1.8 Further Arrangements. Producercommitsthat, during the term of this Agreement, it will maintain,orcauseitsGas Purchasers, if applicable,to maintainallnecessaryarrangementsto provideforthe further transportation and disposition of Producer’sGasat theDelivery Points. Gathererwill use reasonable efforts toenterinto interconnectagreementsat the Delivery Points with third party pipelines to facilitate the further transport and disposition of Producer's Gas.Further,Producer agrees that any connection fees, throughputfeesorsimilar chargesto flow Producer's Gas into a downstream interconnecting pipeline at the Delivery Pointsshallbe borne by Producer.
1.9 OtherOwnerGas. It isexpressly agreedby thePartiesthat,exceptasspecificallyprovided herein, Producer does not dedicate tothe performance ofthisAgreement any Gasattributable to the interests ofothernon-Affiliate working interest owners, non-Affiliateoverriding royalty ownersor royaltyowners("Other Owners")in the Wells orLeases operatedby Producer within the AreaofDedication. However,in the event Other Owners fail to take theirsharesof production in kind from time to time andsuchshares of production are not subjecttoprior dedications to third partygatherers, andProducer elects to arrangeforthe temporarydisposition of the sharesof productionof suchOtherOwners, thenthe Gas attributable tosuchshares ofOtherOwners("Other OwnerGas")shall be deemed to be"Producer's Gas";provided, however, that suchOtherOwner Gasshallnot thereby become dedicated to thisAgreementand shall not be entitled to receive the highest priorityof service affordedProducer'sGaspursuant to Section3.5 withoutratification orother formalagreement by the Other Owners, andsuchOther Ownersshallretain their right and obligation to take theirshareof production in kind.Tothe extent Producer tenders Other OwnerGas,Producer represents and warrants to Gatherer, its successors andassigns, thatProducerbas therightto deliverfor gatheringtoGatherer, theallocatedshareofOtherOwner Gas tendered by ProducerandindemnifiesGatherer accordingly.
ARTICLE II
FACILITIES
2.1 Gatherer'sGas System. Gathererwill construct,operate andmaintaina Gasgatheringsystem comprised ofthe Initial System,and anyFutureReceiptPoints, Future DeliveryPoints,additionalFieldCompressionandexpansionsofGatherer'sGas System constructed pursuant to Section 2.5 (collectively"Gatherer'sGas System" )located as necessaryto enableGatherer toreceive and gather Producer's Gas from the Area of Dedication at the Receipt Points and redeliver an equivalent Thermal Content of Producer's Gas,less Fuel, Field Condensate, and Lost and Unaccounted for Gas as defined herein, to ProducerorProducer's designee at the Delivery Points. Gatherer shall construct and operate Gatherer's Gas System in a workman-like manner and in accordance with good oilfield practices and in compliance with any applicable permits and licenses and all applicable rules,laws and regulations. Gatherer's Gas System willconsistof:
L"Gathering Lines"means various pipeline gathering facilities from the Receipt Points to the Delivery Points, together with appurtenances thereto, with sufficient capacity across Gatherer's GasSystemto receive, gather and deliver Producer's Capacity,as defined in Section 3.1,attributable to such Receipt Point (as defined immediately below).
ii."Receipt Points"shallbe at the inlet ofGatherer'smetering facilities locatedatthe locations described onExhibit "B" asRP1 through RP8 (the"Initial Receipt Points")and as RP10 through RP14 and RP16 (the"InfillReceipt Points"),together with any additional locations installed as part of any expansion of Gatherer's Gas System beyond the Initial System (the"FutureReceipt Points"),and shall mean the facilities needed toconnectProducer's Wells or Producer's facilities described below in Section 2.3 to the Gathering Lines,including metering and telemetry equipment,asmay be further depictedonExhibit"B"andExhibit"B-2". Gatherer shallfurnish, own and operate all Receipt Point meters.
iii."DeliveryPoints"include thefacilitiesrequired to redeliver an equivalentThermal ContentofProducer'sGas to Producerorits designeeatlocations describedon Exhibit "B"(the"Initial Delivery Points"),together with anyadditionallocations installed as part of any expansion of Gatherer's Gas System beyond the Initial System (the"Future DeliveryPoints").Gathererwilluseits commercially reasonableeffortsand Producer willsupportand assist Gatherer to obtain physical Delivery Pointinterconnectionswith downstream third party facilities.Producer shallbear its pro ratashare ofallActual Construct Costsof interconnectionofGatherer'sGasSystem with third partyfacilities withthe interconnection to be owned and operated by Gatherer.Gatherer shallfurnish, own and operate all Delivery Point meters ifsuchmetersarenot furnished, ownedandoperated by third party operatorsofdownstream interconnecting third partyfacilities.
iv."Field Compression"includes compression facilitiesappurtenanttoGatherer's Gathering Lines,asneeded to provide the Nominal AveragePressure, asdefined herein, at the InitialandInfill Receipt Points,and apressure withrespectto the transport ofGas ontheGatheringLinesorthe redeliveryof Gasat the Initial Delivery Pointsatthe pressures prevailingatthe known interconnectingfacilities asidentifiedon Exhibit"B" (the"Initial CompressionFacilities "),together with anyadditionalcompression installed as part of anyexpansion ofGatherer's GasSystem beyond the Initial System pursuant to this Agreement. As partoftheField Compression facilities, Gatherermay install,atitssole costandexpense,whichcostsshall beexpresslyexcluded from the ActualConstruct Costs,adehydration systemsuchasa TEGor EG dehydrationsystem operatingupto740 Psig with stabilizervessel andreboilers toeliminateexcess waterfromtheGas streamand minimize the hazards presented by hydrate formation.Field Compression shall beownedandoperatedby Gatherer and Gatherershallassessa"CompressionFee”"asfurther described in this Agreement andExhibit "E".
v. The portion of Gatherer's Gas System that consists of the Initial Systemasdescribed below, will be designed and constructed to: (a) be capableofhandling the Gas volumesexistingand anticipatedfromthe drillingspacingunits describedon Exhibit "B-1"(the"InitialSystemDSUs");(b) provide a nominal average operating pressure at the individual Initial Receipt Points, RP 1 through RP8 as described morespecificallyonExhibit"B", of approximately55Psig (the"NominalAverage Pressure" )based oneightthousand (8000) Mcfd in the aggregate across the Initial System; and (c) provide theNominal Average Pressureat the individual Receipt Points, RP10 through RP14 and RP16 as described more specificallyon Exhibit "B"so long as nosingleReceipt Pointexceedsone thousand (1000) Mcfd. In theeventthe nominal average operating pressure atanyReceipt Point is inexcessof theNominal AveragePressure during anyAccountingPeriod in which Producer'sGasvolumesare8000 Mcfd or less,Producermay provide written notice(a"Compression Notice ")to Gathererrequesting thatGathererdecreasethenominalaverage operatingpressureat suchReceipt Point. If the nominalaverageoperating pressure at such Receipt Point isnotbrought within the range of the Nominal Average Pressure withinforty-five(45)daysfollowing receiptof theCompression Notice,Producershallhave the right toinstall compressionfacilities upstream ofsuchReceipt Point,atProducer's solecostand expense, whereupon Producer shall not owe any Compression Fees for Producer'sGasdelivered to such Receipt Point, untilsuchtime as the amount ofCompression Fees otherwise attributabletosuch Gas,but retained byProducer,is equal to thetotal ofActualConstruct Costsincurred by Producer to installsuchcompressionfacilities.In theeventthe nominalaverage operating pressure at any ReceiptPointisinexcess oftheNominal AveragePressure during anyAccountingPeriod inwhichProducer'sGas volumesare more than 8000 Mcfd, Gatherershallpropose a plan to modify or expand itsGas Gathering System asnecessary toachieve andmaintain theNominalAveragePressure attheaffectedReceiptPoints,andshallmodifyor expanditsGas GatheringSystemasnecessary toachieveand maintain the NominalAveragePressureattheaffectedReceipt Pointswithinforty-five (45) daysfollowing receipt oftheCompressionNotice. Subjectto ForceMajeure, in the eventGatherer failsor elects not to modifyorexpandits Gas GatheringSystem as necessaryto achieve andmaintain theNominal Average Pressure attheaffectedReceipt Pointswithin forty-five(45)daysfollowing receiptoftheCompressionNotice, Producershallhave the right to install compression facilities upstreamof suchReceiptPoint, atProducer's sole cost and expense, whereupon ProducershallnotoweanyCompression Fees forProducer'sGasdelivered tosuchReceipt Point,untilsuchtimeasthe amountof Compression Fees otherwiseattributable tosuch Gas, but retainedby Producer, isequalto the totalof Actual Construct Costsincurred byProducerto installsuchcompression facilities.
2.2 Rights-of-Way.At thetime ofexecutingthis Agreement,Producerhas completedits acquisition ofrights-of-way(the"ROW"or"ROWs")fromcertain landownerswithintheArea ofDedication("Landowners")authorizingtheconstruction,installation and operation of multiple pipelineswithinthesame right-of-way corridor.Producershallbeableto assign theROWsin part toGatherer, so astogrant Gatherertherightto installa single gas gatheringline and relatedfacilitiesin the corridor of the ROW in connectionwiththe construction, installationandoperation of the Initial System. Due to Producer'sexistingrelationship with theLandownersand in an effort to maximize efficiency, Producer willcontinueto interface directlywiththe Landowners until such time as the ROWs have been partially assigned to Gatherer, except as described below. Producer has tendered compensation to the respective Landowner and has recorded the respective ROW with the McKenzie County Clerk and Recorder. With respect to each ROW, until such time as Producerassignsthe ROWs to Gatherer, Producer shall indemnify and hold harmless Gatherer,its Affiliates, and their respective employees, officers, directors, contractors andsubcontractors(collectively,"GathererIndemnified Parties")from and against any and all trespass claims or claims arising out of theinvalidity of anyROW brought by third party landowners arising fromGatherer'singress to,egressfrom,entry upon,and use of such ROWs for survey, construction, installation andoperationof the Gas Gathering Systemexceptto theextentarisingfromthegrossnegligenceorwillful misconduct of Gatherer Indemnified Parties.
Producershalluse commercially reasonable efforts toobtainany third party consents required toassignits ROWs to Gatherer (each a"Consent to Assign ").In theeventProducer,despitecommerciallyreasonable efforts is unable to obtain any Consent to Assign Producer shall continue to hold such ROW for the benefit of Gatherer untilsuchtime as theConsentto Assign is obtained.Concurrentlywith the execution of this Agreement,Producershall partially assign the ROWs to Gatherer, pursuant to theform ofassignment attached hereto asExhibit"G",andwithinthirty (30) days of receiptofdetailed invoiceandreasonably requested supporting documentation, Gatherershallpay Producer twenty percent (20%)ofthe actual and direct costs incurred in obtaining the ROWs (based on five (5) pipelines allowed within a ROW and adjusted up or down for fewerormore pipelinesproperlylocated withina singleROW).
However, ifGathererdetermines thatanyROW is unnecessaryforthe InitialSystem orisinsufficient,lacking, orotherwisedefective,suchthatGathererin its reasonable discretion mustacquirea newright-of-way inlieu thereof,suchROW shall not be assigned toGathererandGatherer shallnot pay any portion of the costsassociatedwithsuchROW.
Gatherermay proceedtointerface with andacquirethe real property interests it requires, includingadditionalrights-of-wayoramendments to ROWs toservethe Infill Receipt Points directlyfromthe Landowners or otherownersof such interests("Gatherer ROWs").In theeventthat Gatherer, despite commercially reasonableefforts,is unableto obtainany right-of-way deemed necessary forGatherer inits reasonable discretion to construct and install the portions of theInitialSystemservingtheInfillReceipt Points prior to May31, 2015 (an"OutstandingROW''),Gatherermay proceed withre-routingthe course of theaffectedportion of the Initial System andacquire additionalGatherer ROWs to circumvent any uncooperative third party landowners withGathererto bearsuch OutstandingROW costsand re-routing costsin theaggregateup toEighty-Three Thousand ThreeHundredand Thirty-Threedollars($83,333), which costs shall not be included in the ActualConstructCosts. In the event the OutstandingROWcostsareanticipated to exceed $83,333 the Parties shall promptly meet to developamutuallyagreeableplan to completeacquisition ofOutstanding ROW. The Initial SystemTargetIn-Service Dateshallbeextended,asan ExcusedDelay as defined in Section2.4below,by the number of days, if any,thattheconstructionand installationofthe Initial System is delayed in order to acquire Outstanding ROWor agreeonacourse ofaction,or otherwise due directly to the Outstanding ROW.
2.3 Producer's Facilities andConstruction.Producer, at itsownexpense,shall construct,equip, maintain and operate all facilities upstream of the Receipt Points necessary to enable Producertodeliver all of Producer's GastoGatherer at the Receipt Points, including without limitation, flowlines and pipelines to moveProducer's GasfromitsWells totheReceipt Pointsasidentified inExhibits"B" and"B-2"and mechanical separation equipment and all necessary facilities or equipment arising from any dual, split oradditional connectsif Producer's Wells aresubject,in whole or in part,to existing dedications andconnections tothird party gatherers priortotheEffectiveDate. Producer shall be responsible for the deliveryofProducer's Gasatpressuressufficientto enter the respective Receipt Point at the Nominal Average Pressure.
2.4 Initial System. The"Initial System"will consist oftheinitialfacilitiesofGatherer,described generally aboveandon Exhibit "B", as necessary to connect the Initial Receipt Points and Infill Receipt Points with the Initial Delivery Points, also described onExhibit "B". TheParties have agreed upon theconfiguration,design and constructionofGatherer'sGas Systemand have deemed the Initial System as sufficient to serve allof Producer'sMinimum Volume commitmentstatedin Exhibit "E", and that the Initial System issufficienttoserveallofProducer's anticipatedvolumesof Producer'sGasfrom the Wells identifiedon Exhibit "B-2" (collectively,the"InitialSystem Wells")at the Initial Receipt PointorInfillReceiptPoint listed inthe column "GathererReceiptPoint ConstructionResponsibilities" next toeach suchWell.
Subjectto eventsofForce Majeure,severewinter weather, frost laws, roadrestrictions andother requirements or delays imposedby governmentagencies including without limitation delays in issuingROWs on federallands needed for the portionofGatherer's Gas System serving theInfillReceipt Points, whetherornot within the scope of Force Majeure thatwouldmake the diligent pursuitofsimilar construction or installation operations unreasonablefor areasonably prudent McKenzie County North Dakota gatherer faced withsimilar conditions (whether oneor more,"ExcusedDelays "),Gatherer shall diligently construct,install and complete(y) theportion of Gatherer's Gas Systemservingthe Initial Receipt Points as described onExhibit "B" and Exhibit "B-2"on or before May 1, 2015(the"Start-Up Target Date "),and (z) allofthe Initial System including the Initial and Infill Receipt Points,onor before August 31,2015,as extended by the numberofDaysequalto anyExcusedDelayevent (the"Initial SystemTarget In-Service Date").The Parties eachagree thattheir respectiveobligations tomeet the Start-UpTarget Dateareon areasonable commercialeffortsbasis with nocreditsor penaltiesapplicable toeither Partyfornon-achievement. Producer acknowledges and agrees that any receipt, gatheringanddeliveryofGas byProducerprior to the Initial System In-Service Dateshallincur the applicable Gas Gathering Fees and shall be provided on aninterruptiblebasisat Gatherer'ssole discretionasGatherer may be completing the installation and construction of its Gas System and may also need to undertake calibration and other activities to achieve the InitialSystemIn-Service Date duringthatperiod,provided however,that Gatherer shall notify Producer 24 hoursor assoonaspracticable prior to anyactivities ofGatherer that may reasonably beexpectedto cause an interruption orotherwisepreventGathererfrom receiving Gasfromany Receipt Point fromwhichGatherer has previouslyacceptedGas, and Gatherer shallkeep Producer fully informedoftheprogress of suchactivitiesand any anticipated resumption ofservicefromsuchReceipt Point(s). The dateonwhich Gatherer hascompletedthe construction and installationofthe Initial System, in itsentirety so asto becapableof receiving Producer's Gas fromallof the Initial Receipt Points and Infill Receipt Pointsidentified on Exhibits"B" and"B-2'', shallbe the"InitialSystem In-Service Date" .For avoidance of doubt, such completion byGatherershall beadeemedachievement oftheInitial System In-ServiceDatenotwithstanding theInitialSystem'spartialor completeinability toaccept and flow Gas on the Initial System when such inability arises solely fromProducer's delayor failure to completeits responsibilitiesandobligationsunder this Agreement, as extendedbyForceMajeureor inthecase ofdelayor failuretocomplete re-run piping if caused by frost laws imposed by government agencies.
i. Intheevent,subject to Force Majeure or ExcusedDelay,Gatherer fails to complete its construction of the Initial System, in itsentiretyper Section 2.4, Exhibit "B"andExhibit"B-2",on orbefore the Initial SystemTarget In-ServiceDate,and Producerhascompleted all facilities upstream ofthe InitialandInfillReceipt Points per Section 2.3, Exhibit"B"andExhibit"B-2", and is otherwise ready, willing and abletodeliver Producer's Gas to thatportionof theInitialSystem that is not completed, the following shall occur:
a. theapplicable Minimum Volume for each Accounting Period, or portion thereof,betweenthe Initial System TargetIn-ServiceDate and the Initial System In-Service Date, shall be reduced by the estimated average daily volumes ofProducer'sGas fromtheInitial System In-Service DateWellsforeachsuch Accounting Periodthatwould have been otherwise delivered to Gatherer'suncompletedportion oftheInitial System during such Accounting Periods,inaccordance with estimates of anticipated volumes previously provided by Producer to Gathererpursuant toSection
2.7 (the"Gatherer'sInitialSystem Delay Pre-ln service Volumes");and
b. Producershallreceive a credit against the Gas Gathering Fees owed byProducerinthat Accounting Period (or if none are owed in that Accounting Period, beginning in the next occurring Accounting Period in which Gas Gathering Feesareowed by Producer and continuing for each successive Accounting Perioduntilthe credit isusedin full,with the credit amount equal toTwodollars andFiftycents ($2.50) per Mcf for theGatherer'sInitial System Delay Pre-In service Volumes, up to a maximum total credit ofTwoMillion dollars ($2,000,000) for all Gatherer's Initial System Delay Pre-In service Volumes under this Agreement together with all "Gatherer's Initial System Delay Pre-In service Barrels" as definedunderthe Related Dedication Agreements described in Section 8.3herein("Initial System Pre-ln serviceCredit'').
ii. In the event Gatherer has completeditsconstruction oftheInitialSystem,in its entirety per Section 2.4, Exhibit"B"and Exhibit "B-2",onor before the Initial SystemTargetIn-Service Date,but,subjectto Force Majeure orinthe case of delay or failure to completere-runpiping if causedbyfrostlawsimposed by government agencies, Producer has failed to complete all facilities upstream of the Initial and Infill Receipt Points per Section 2.3, Exhibit"B"andExhibit"B-2'', and Gatherer is otherwiseready,willing andable toreceive andgatherProducer's Gas onthatportion of the Initial System, then the following shall occur:
a. the applicable Minimum Volume for each Accounting Period, or portionthereof,betweenthe Initial System TargetIn-ServiceDate and the Initial System In-Service Date,shallbe reduced by the estimated average daily volumes ofProducer'sGas fromthe Initial SystemIn-Service Date Wells for each such Accounting Period that wouldhavebeenotherwisedelivered tothe InitialSystemduringsuch Accounting PeriodsifProducerhad completed allfacilitiesupstreamofthe InitialandInfill ReceiptPoints inaccordance withestimatesofanticipated volumespreviously provided byProducer to Gathererpursuantto Section 2.7(the"Producer'sInitialSystem Delay Pre-In service Volumes").
b. ProducershallpayGatherer an amount equaltoTwodollarsand Fifty cents ($2.50)perMcf fortheProducer's Initial System DelayPre-In service Volumes beginninginthefirst AccountingPeriodfollowingtheInitialSystemIn-ServiceDateand continuing for each successiveAccountingPeriod untilthe paymentis satisfiedinfull, up to amaximum totalpayment of Two Milliondollars($2,000,000) for all Producer'sInitialSystemDelayPre-In serviceVolumes under thisAgreementtogetherwith all"Producer'sInitial SystemDelayPre-In service Barrels" as definedunderthe Related Dedication Agreements described in Section 8.3herein("Initial System Pre-In service Fee").
111. Inaddition to Producer's remedies under Section 2.4(i),in theeventGathererfailsto completeits construction of the Initial System,in itsentiretyperSection 2.4, Exhibit"B"andExhibit"B-2'',on orbeforethedate thatis sixty (60)Daysafter theInitialSystem Target In-Service Date, and Producerhascompleted all facilities upstream oftheInitialand InfillReceipt Points per Section2.3,Exhibit "B"andExhibit "B-2" and is otherwise ready, willing and able todeliverProducer's Gas to that portion oftheInitial System thatisnot completed, Producer shallhavethe option, exercisableinits sole discretion,to elect by written notice to Gatherer to construct and install the remainder of theInitialSystem, at Producer's sole cost and expense, whereupon Producershall notowe any Gas Gathering Fees for any Gasdelivered tothe Initial and InfillReceiptPoints or flowing throughthat portionof the Initial System constructed and installedbyProducer,untilsuchtimeastheamount of Gas GatheringFeesotherwise attributable to such Gas,butretainedbyProducer, is equal to one hundred and ten percent (110%) of the totalofActual Construct Costs incurred by Producer to complete the construction and installation of the remainder oftheInitial System.
iv. Gatherer shall keep Producer reasonably informed of the progress on the construction and installation of the Initial System, and anyExcusedDelays in connection therewith. Producer shall have therighttohave itsrepresentativepresent duringany onsite construction orinstallationoperations oftheInitial System.
2.5 FutureExpansionBeyond the Initial System. After installation of the Initial System, Gatherer willinstalland connectsuchFutureReceipt Points, Future Delivery Points, additional Field Compression and expansions of Gatherer's Gas System, including butnotlimited to,installing additional or "looped" gatheringlinesor alarger diameterpipe that Gathererinitssolejudgment determines arenecessaryor desirable togatherProducer's Gas dedicatedunder thisAgreement fromsubsequentcompleted Wellsdrilledor acquired by Producer within the Area ofDedicationassetforth inthisSection 2.5. For avoidance of doubt, any expansion of Gatherer's Gas System to serve Producer's Wellslocatedoutside of the AreaofDedicationisnotcontemplated byorcovered under thescopeofthis Agreement.The PartiesagreethatGatherer will ownandoperate anyand all futureexpansionstoGatherer'sGas System including anyProducer BuiltGatheringFacility,asdefined in Section 2.6 herein.
i. Inadditionto providingGathererwithannualdrilling plans and quarterly updates to those plans under Section 2.7 below, Producershallgive Gathererwrittennotice(a"Connection Notice")onehundredtwenty (120) toninety(90)Days priorto thecompletion of any new Well located within the Area of Dedication but outside of the InitialSystemDSUs, or within ten (l0) days afteracquiringanysuchcompleted Well, specifying:the Well name; Well location; the location of the nearest Receipt PointorproposedFutureReceipt Point, as applicable,for such Well; drilling,completionsandanticipated recompletion details; the minimum anticipated initialandannualvolumes ofProducer'sGasfromsuchWell togetherwiththeanticipated available volumesofProducer'sGas and Other OwnerGasfrom the drilling spacing unit("DSU' )in which the Well is located as may berequestedbyGatherer;and ifaDistantExpansionundersubsection (iv)below applies,also specifyingup to four(4)DSUs that are each directlyadjacent to or corneringthe DSU(the"Contiguous DSUs ")of the Distant Well(definedbelow)forpossible Permanent ReleaseatProducer's solediscretion undersubsection(iv)(a) below if(iv)(a)appliesandtheanticipated available volumes ofProducer'sGas fromthefour (4) ContiguousDSUs as may be requested by Gatherer (the anticipatedvolumes from theDSUofthe Distant Well and the four(4)Contiguous DSU volumes if requested,are collectivelythe "ConnectionVolumes").Concurrentlywith itsConnection Noticeunder this Agreement,ProducershallprovideGatherer with"ConnectionNotices" concerningthe Wellas requiredundertheRelatedDedicationAgreementsdescribed inSection 8.3 of this Agreement. IfaWellthatis thesubject of a Connection Noticeis notcompleted within onehundred twenty (120) days of theConnectionNotice,following goodfaithdiscussions withProducer,Gatherer shallthenhave theoption to deem the ConnectionNoticeasinvalid and of no further effect.
ii. Inthe eventtheWell,ortheFuture ReceiptPoint,ifapplicable, asidentified in theConnectionNotice requires less thanor equaltoathree (3) mile expansionof Gatherer'sGasSystem fromanexistingReceiptPoint or Delivery Point, as Gatherer's Gas System exists as ofthe date of theConnection Notice (a"Nearby Well"),Gatherershallhave the firstoptiontoconstruct,installandplace into operation anexpansion of Gatherer's Gas System to connectto theNearby Well at Gatherer's sole cost and expense,inexchange for Gatherer's abilitytochargeProduceran additional feeperMcf for any Gas from suchNearby WelloranyotherWellProducerflows throughsuch expansion constructedbyGathererbasedonthesamplecalculation set forth inExhibit"H,"such that Gathererhas recouped its ActualConstruct Costsincurred byGatherer to constructtheexpansion plusincremental operating expensesandcapital expenditures,includingcapital expendituresneeded tomodifyor upsizethe InitialSystemorapriorexpansion of theInitial Systemto accommodatethe Connection Volumes,over afive(5)yearperiod andreceive aseven and ahalf percent(7.5%)internal rate of return("IRR"as calculated bytheMicrosoftExcel IRR function :financialformula)and trued up quarterly( "ExpansionFee'').Fortheavoidance ofdoubt theExpansion Fee shallbe inaddition to all other Gas Gathering Fees due fortheConnection Volumes and suchExpansion Fee shallbe reducedequitablyif Gatherer,in itssolediscretion,electstoconstruct andinstallanexpansion oflargersizeorgreater capacity than requestedbyProducer initsConnection Notice orrequired toserveProducer'sConnectionVolumes.
m. Subject to Force Majeureandthe condition that Producer hasin fact completedsuch a Nearby Well,in the eventGathererfailstotimelyconstruct,install and makeavailablefor operationon orbefore the later of ninety(90)days from receiptoftheConnectionNoticeorthe datetheWell identified in the respectiveConnectionNotice is completed, an expansion of Gatherer's Gas System to connect theConnectionVolumes from theNearbyWell,following goodfaith discussions with Gatherer, Producershallthen havetheoption either to:
a. Construct andinstall anexpansion ofGatherer'sGasSystem to connect Gatherer'sGasSystem existingatthat time to the Nearby Well,atProducer'ssole costand expense,inexchangefor Producer receivingacreditagainstany BaseFee component oftheGasGatheringFees otherwiseowedGathererforany Gasfromsuch NearbyWellor any otherWell flowing throughsuchexpansionconstructedby Producer, untilsuchtimeasthe amountofthe Base Fee component of theGasGathering Feesotherwiseattributable tosuch Gas,but retained by Producer, is equal to the total ofActual Construct Costsincurred by Producer to construct theexpansionbased on thesamplecalculation setforthinExhibit"H,"such that Producer has recouped itsActual Construct Costsincurred by Producer to construct the expansion plus incrementaloperating expenses andcapitalexpenditures,includingcapital expendituresneeded to modifyorupsize the Initial Systemor aprior expansion of theInitial SystemtoaccommodatetheConnection Volumes, over afive(5) yearperiodand receive a seven and ahalf percent(7.5%)IRRand truedup quarterly( "Expansion Credit");or
b. SubjecttoSection1.4(ii),obtain a PermanentReleasefromthisAgreement oftheNearby Welland anyof the Leaseslocatedwithin the same DSUas theNearbyWell but not located within an InitialSystemDSU.
iv. In theeventthe Well, or theFutureReceiptPointor Delivery Point, ifapplicable,asidentified intheConnection Noticerequiresmorethanathree (3)mileexpansionofGatherer's GasSystem,as Gatherer'sGasSystem exists asofthe dateoftheConnection Notice("Distant Well"),or involvesaconnection ofGatherer's GasSystem withfacilitiesof third parties notconnectedtoGatherer's GasSystemas ofthe dateoftheConnection Notice (oneor bothsituations,a"Distant Expansion "),theParties shallpromptly pursuegoodfaith negotiationsofmutuallyagreeabletermsand conditions of such an expansionandstrivetoenter into a definitive separate agreementorwritten amendment setting forth adefinitiveagreement astosuchDistantExpansion.In theeventthePartieshave not reachedagreement,on orbefore the laterofninety (90) daysfromreceiptoftheConnection Notice orthe datetheWell identifiedinthe respectiveConnection Notice is completed, fortheterms of such aDistantExpansion ofGatherer'sGas System,following good faithdiscussions withGatherer,Producershallhave the optionto:
a. Subjectto Section l.4(ii), obtainaPermanent Releasefrom this Agreementofany of theLeaseslocated withintheDSU of the Distant Well,and thefour(4)ContiguousDSUs but onlyifsuchLeasesare not locatedwithinan Initial System DSU.
v. Gatherer shall keep Producer reasonably informedofthe progress on the construction and installationofanyexpansionof Gatherer's GasSystem.Producer shall have the right to have its representative present during anyonsiteconstructionor installationoperations of any expansionofGatherer's GasSystem.
2.6 ConstructionorExpansionby Producer.Inthe eventProducerelectsto construct,installorexpand any portion of Gatherer's Gas System pursuant to anexpressright provided under this Agreement,whichexpressright does not extend to a gas processingfacility orcompressionabovewhat is requiredfora similar gasgathering facility(a"Producer Built Gathering Facility"),the following shallapply:
i. EachProducer BuiltGathering Facility shallbeconstructedand installed by Produceraccordingto thereasonabledesign andconstruction specifications of Gatherer.In constructing and installing the Producer Built GatheringFacility,Producer shall have the right to utilize any available gas pipeline right-of-wayor easementrightsofGatherer and any materialsofGatherer,atcost.
ii. Upon completion of any Producer Built Gathering Facility,Producershall assign such ProducerBuiltGathering-Facilityto Gatherer,atnochargetoGatherer,butexpresslysubject to the terms of this Agreement, whereupon itshallbecome partofGatherer's Gas System.
iii. If Producer has incurredActual ConstructCostspursuant toSection 2.5(iii)(a), once Producer has recoupedallofsuchCosts pursuant toSection 2.5,Gatherer may begin to assess the applicable Base Feecomponent of GasGathering FeesforallGasdelivered by Producer into or flowing throughsuchProducer BuiltGathering Facility. Gatherermay begin to assess all othercomponents oftheGasGatheringFees forallGasdelivered by Producer beginning upon the commencementofreceipt into or flow throughsuchProducer Built Gathering Facility.
iv. For the avoidance of doubt, for purposesofdeterminingwhetherProducer has delivered the Minimum Volume inanyAccountingPeriodpursuant totheterms andconditions setforth onExhibit "E", any Gasdelivered duringsuch AccountingPeriodforwhich Producer does not owe any Base Fee componentoftheGas Gathering Feespursuant to its incurrence of ActualConstruct Costspursuant to Article 2ofthis Agreementshallbe included in the Delivered Volume.
2.7 Producer's Anticipated Volumes.Uponthe executionofthis Agreement, and thereafter by October first (1st) of eachcalendaryear,Producer shallcommunicateits drilling,completionand recompletion plans to Gatherer inwriting, includinglocations,anticipated spud dates, togetherwithanticipatedvolumes to be delivered toGatherer,forthe next calendaryear.Additionally,duringGatherer's construction of facilitiesto servetheInfillReceipt Points, Producer shallpromptly notifyGatherer ofany delay initsdrillingandcompletionschedules forthe Wellsidentified inExhibit"B-2",including without limitation delaysin completionofanyWellson Exhibit"B-2" later than May1, 2015.Atallother times duringthePrimary Termor ExtendedTerm,no later than the last day of each calendar quarter,Producershall notify Gatherer in writing with reasonable detailofany changes or additions to its drilling plansfor the succeedingtwelve (12)Accounting Periods.Inadditionto providingConnection Notices,pursuant toSection 2.5(i),Producershallprovide updates toGatherer, asneeded,of specific drilling andcompletion plans, actual initial production dates,andadditionalvolumes fromOtherOwner Gas orfrom priordedications.
2.8 Ownershipof Facilities.Producer expressly does not by the termsofthis Agreement,sell, transferorassign unto Gatherer any title orinterest whatsoeverinthe Leases oranypipelines or otherequipment ofany natureownedorused by Producer in theoperation ofProducer'sWellsand theLeases. Gatherer expresslydoesnotbythe termsof thisAgreement,sell,transfer orassign unto Produceranytitleorinterest whatsoeverinGatherer's GasSystem, or anypipelinesorotherequipmentofanynatureownedand used byGathererin the operation ofGatherer's Gas System orits performanceof servicesunder thisAgreement.
ARTICLE III
GATHERING SERVICE
3.1 Producer'sCapacity.Commencingonthe Initial System In-Service Date,Gatherer shallmakeavailable Capacity equalto Producer's anticipatedvolumesof Producer'sGasto be deliveredpursuantto Sections 2.4and 2.7("Producer'sCapacity")inthe aggregate, forthe benefit ofProducer'sGas, subject toForceMajeure.Onadaily basis, anycapacityavailable in the Gatherer'sGasSysteminexcess ofthe lesserofProducer'sCapacity orthe actual amountofProducer'sGasnominated by Producer to GatherereachDay hereunder, shallbe available toGatherer forThirdPartyGasvolumes onsuchDays. Producer's Capacityshallbe adjusted upward by additionalConnectionVolumesservedby expansionsof Gatherer's GasSystem pursuant to Section2.5 ofthisAgreement, anddownwardbyPermanentlyReleased Volumes pursuant to Section l .4(ii) of this Agreement.
3.2 Gathering.Subject to the terms andconditions ofthis Agreement,Gatherer shallreceiveatthe ReceiptPointsandgather Producer's GasutilizingGatherer's Gas System, up to Producer'sCapacity, andredeliver anequivalentThermal Contentquantityof Gas,lessFuel, FieldCondensate, and Lost andUnaccounted for Gas, toProducer or its designeeatthe Delivery Points inconsideration ofProducer'spayment of theGasGatheringFees provided onExhibit"E". Totheextent ofavailable capacity,Gathereralso agrees to receiveand gather any ofProducer's Gas inexcessofProducer's Capacity and Other Owner Gason aninterruptible basisandto redeliverto Producer or its designee the equivalentThermalContent quantityof such Gas,lessFuel, Field Condensate,andLostandUnaccounted for Gas toProducer or its designeeatthe DeliveryPoints inconsideration ofProducer's payment of theGas Gathering Feesprovided onExhibit"E"forsuch Producer's Gas and Other OwnerGas.For purposesofThermalContentdetermination under this Agreement,Gas willbe measured byGatherer usinganABB Flow Totalizer with volumesadjusted for gas composition and reported in Btus. Gas sample analysis will be made at least quarterly and analysis results will be the composition basis for the period.
3.3 No Processing. Gatherer shall not process Producer's Gas for the removal of liquefiable hydrocarbons after receipt of Producer's Gas at the Receipt Points and prior to its delivery to the Delivery Points, other than by the use of conventional mechanical type Gas liquid separatorscommonlyused in the industry toseparateliquid hydrocarbons and free water from Gas which shall include without limitation the dehydration system identified in Section 2.1(iv).TheParties acknowledge and agree that Field Condensate may separate from Producer's Gas as a result of Gatherer's normal gathering and compression operations and that Gatherer shall be allowed to remove and retain for its own accountsuchField Condensate.
3.4 Third Party Gas. Producer acknowledges and understandsthatGathererwillreceive Producer's Gas utilizing Gatherer'sGas System which may also receive and commingleProducer's Gas with Third Party Gas delivered to Gatherer byotherparties,atall timessubjectto Producer's Capacity and such Third Party Gas meeting the Gas Quality Specificationssetforth in the attached Exhibit"F."Accordingly,theGas delivered to the Producer or Producer' s designee atthe Delivery Points may not be thesameGas, or have thesamecharacteristics, as Producer's Gas delivered to the Receipt Points.
3.5 Priority of Service. Exceptforany Other Owner Gas that has not been dedicated to this Agreement by ratification or other formal agreement entered into by such Other Owner, Producer's Gas, up to Producer's Capacity, shall be accorded highest priorityonGatherer's Gas System with respect tocapacity allocations, interruptions, or curtailments. On a ReceiptPointor DeliveryPointbasisasapplicable, Producer's Gas will be the last Gas curtailed from Gatherer's Gas System in the event of an interruption or curtailment affecting specific Receipt Points or Delivery Points rather than Gatherer's Gas Systemasa whole, and all of Producer's Gasaffectedby a particular Receipt PointorDelivery Point will be treated in thesamemanner in theeventan allocation is necessary. Gatherer agrees not to contract to provide, at any time, gatheringserviceon Gatherer's Gas System on a basis that has a priority higher than what Producer's Gas isentitledto pursuant to this Section 3.5 and under this Agreement.
ARTICLE IV
EXHIBITS
4.1 Exhibits. All Exhibits attached to this Agreement are incorporated into and made an integral part of this Agreement by reference including the General Terms and Conditions set forth in the attachedExhibit"C" (the"GT&C').
4.2 Order of Precedence. In theeventof any conflict between the terms assetout in the body of thisAgreementand those set out in the GT&C, the terms in the body of this Agreement shallcontrol.
ARTICLE V
CON SIDERATION & FEES
5.1 Fees. GatherershallchargeandProducer shall pay the applicable"GasGathering Fees"and any"ShortfallPayment"described onExhibit"E" based on the total McfofGas delivered by Producer and receivedatthe Receipt Points. If andas applicableunder Section2.4(ii)(b),Gatherershallcharge and Producershallpay the Initial SystemPre-In service Fee. Ifandasapplicable under Section2.5,Gatherer shall charge and Producershall paytheExpansionFee.
5.2 AnnualFee Adjustments.The BaseFee,MeterFee, Compression Fee,andExpansion Feecomponentsofthe Gas Gathering Fees may be adjustedannually duringtheterm of thisAgreement, for the prospective calendar year, the first prospective calendaryearbeing 2020, based on the percentagechangein the annual average in the"ConsumerPriceIndex forAllUrban Consumers(CPI-U) :U.S. cityaverage - Allitems" which occurred inthepreceding calendar yearas published by the UnitedStatesDepartmentofLabor, BureauofLabor Statistics for the previous calendaryear,but shall never be less than the BaseFee,MeterFee or CompressionFee, as applicable,setforthinExhibit "E''.
5.3 Utilities.Producershallfurnish utilities needed for Gatherer'sGas System atthe Receipt Points. In addition to the Gas Gathering Fees and utilities furnished by Producer,Gatherer shall chargeand Producershallpay its pro ratashare oftheactualutilitycostsincurred byGatherer inconnection with operatingGatherer'sGas System including any necessary power costs incurredinconnection with FieldCompression orwith the Delivery Points.Theactual utility costsshallbe allocatedon apro-rata basisto each shipper of Gas on Gatherer's Gas SystemeachAccountingPeriod based upon throughput of all Gas through Gatherer's GasSystemduringsuch AccountingPeriod.
5.4 LostandUnaccountedforGas.The difference betweenthe volume ofProducer'sGas,asmeasured in MMBtus at the Receipt Points and the measurementsprovidedby the interconnectingparties in MMBtus at the DeliveryPoints,lessFieldCondensateandFuel,shallbe considered asLostand UnaccountedforGassustained onGatherer'sGasSystemdueto evaporation,measurementandother losses in transit. The Lost andUnaccounted for Gas shallbe allocated onapro-rata basis to eachshipperofGason Gatherer'sGasSystemeachAccounting Period based upon throughputofallGasthrough Gatherer's GasSystem during suchAccounting Period. Gatherershallnot be responsible to Producerforthe Lost andUnaccounted for Gas.
5.5 Fuel. Gatherermay retain foritsownaccountso much Gas as reasonablynecessary for Gathererto use and consumeasfuel to operateGatherer's Gas System("Fuel").TheFuelshallbeallocatedon a pro-rata basis to eachshipperof GasonGatherer's Gas System each Accounting Period based upon throughput of all Gas through Gatherer'sGas SystemduringsuchAccounting Period.
5.6 Limitation.Notwithstanding anything to the contrary herein, theequivalentThermal Content quantityofProducer'sprorata shareof thesum of (i) all Lost and UnaccountedforGas, and (ii) Fuel,for anyAccountingPeriod,shall notexceed fourpercent(4.0%)of theequivalentThermal Content quantity of Producer'sGastransported onGatherer'sGas System forsuchAccounting Period.
ARTICLE VI
NOTICES
6.1 Notice Process. Allnoticesand communicationsrequiredor permitted under this Agreementshallbein writing and shall be considered as having been given ifdeliveredpersonally,or when receivedbymail,by electronicmeans(confirmed as received before 5 p.m.atthe place ofreceipt),or byexpresscourier, postage prepaid, by either Party to the other at the addresses givenbelow. Routinecommunications, including monthly statements,shallbeconsideredas duly delivered when mailed by ordinary mail or by electronicmeans.
6.2 Addresses for Notice. Unless changed upon written notice by either Party, the addresses for notice purposes are as follows:
| TO: | Emerald Oil, Inc. |
| | 1600 Broadway, Suite 1360 |
| | Denver, CO 80202 |
| | Phone: 303-595-5629 |
| | Contact: James Muchmore |
| | |
| TO: | Dakota Midstream, LLC |
| | 1600 Broadway, Suite 1330 |
| | Denver, CO 80202 |
| | Phone: 202-213-5998 |
| | Contact: Tim Reynolds |
ARTICLE VII
TERM
7.1 Primary and Extended Terms. ThisAgreementshall commence as of the Effective Dateandshallremaininfullforce andeffectfor a primary term of fifteen(15) years (the"PrimaryTerm")andshall continue year to yearthereafteruntil terminated by either Party(the"ExtendedTerm")by providing writtennoticeof terminationto theother Party atleastsixty(60) days priortothe expiration of the Primary Term or any subsequent annualexpirationdate.
7.2 Capacity Adjustment. During any Extended Term, Producer's Capacity will be the averagedailyvolumeof Producer's Gas delivered to Gatherer's Gas System during the prior twelve(12)month period.
7.3 Uneconomic Operations. Subject to any Force Majeure event affecting Producer's obligations to deliver Gas hereunder, inadditionto all other rightsofGatherer under this Agreement, in the event thesum ofactual direct costs (for theavoidanceof doubt,excludingoverhead, depreciation, amortization and capital expenditures) incurred by Gatherer to operate any portion of Gatherer's Gas System (the"Uneconomic Segment'')during any ninety (90) day period are inexcessof thetotalnet revenue attributabletothe Uneconomic Segment(includingallGasGatheringFeespaid by Producer or anythirdpartyattributableto theUneconomicSegment) during such ninety (90) dayperiod,Gatherer shall havetheright to send written notice (an"Uneconomic Notice" )to Producerofits intent to terminate receiptsof Gas into the UneconomicSegment unless the GasGathering Fees owedbyProducer for Producer'sGas delivered totheUneconomic Segmentare increased such that Gatherer'stotalanticipated netrevenueattributable to the Uneconomic Segment isprojected toequal onehundredtenpercent(110%) of Gatherer'sactual directcosts (fortheavoidance ofdoubt,excluding overhead, depreciation, amortization and capital expenditures)incurred byGatherer to operatetheUneconomic Segment. Any increased Gas Gathering Fee shall bebornepro-rataby Producer andany third party shipper on theUneconomic Segment according totheanticipatedvolumesof ProducersGas and Third Party Gasto be delivered toorflowed through the Uneconomic Segment.Withinten(10)days ofProducer's receiptofnotice fromGatherer, Producer shall elect by writtennoticesenttoGatherer either to:
i. Accept the increasedGas Gathering Fees, orportionthereof,effectiveasofthe beginningto thenextAccountingPeriod,owed byProducer forProducer's GasdeliveredtotheUneconomic Segment, whereupon Gatherer shall not send another Uneconomic Noticepursuant to thisSection 7.3 for atleastninety (90)days;or
ii. Obtain a Temporary Release ofthe Leasesand Wells directly affectedbythe Uneconomic Segment, with Producer able to elect, by delivery ofwritten notice to Gatherer,to obtain aPermanent Release and terminate theAgreement,insofar as itpertainstotheUneconomic Segmentafteronehundredeighty (180)daysof Producer's receipt oftheUneconomic Noticeunderthis Section 7.3.
ARTICLE VIII
MISCELLANEOUS
8.1 Assignment.This Agreement,including,without limitation, anyandallrenewals,extensions, amendments and/or supplementsheretoshall extend to and inure to the benefit of andbe binding upon the Parties,andtheirrespective successors and assigns, including any purchaser ofProducer'sGas orProducer'sinterests inthe Leasesthat are dedicated underthis Agreement or subsequent operator oftheWells, and anypurchaserof Gatherer's Gas System, or any part orinterest thereinwhich are subjectto this Agreement; provided,however, (i) this Agreement shallnot be assigned byaPartywithout thepriorwritten consentof theotherParty,such consentnottobeunreasonably withheld, conditioned or delayed, and (ii) no sale, assignment,conveyanceor other transfer (collectively, a"Transfer")of Producer's Leases or Wells,or anypartthereof orinterest therein,oranypart ofGatherer'sGas System, shallbe made unlessthetransferee thereofshall assume and agree tobe boundbythisAgreementinsofaras the sameshallaffect andrelate to theLeases,Wells,Gatherer's GasSystemorinterestsso Transferred. Notwithstanding the conditions andrestrictionsset forth on assignmentinthis Section 8.1, each Party retains the right tofreelyassign this AgreementtoanAffiliatewithinthe firstyear following the EffectiveDate. Interestsownedin theArea ofDedication bya transferee ofanyof Producer's Leases orWells thatwere ownedpriortotheeffective date of such Transfer shallnot becomesubjecttothis Agreementby virtue ofsuch Transfer. Itisfurther agreed,however,thatnothingherein contained shallin anywaypreventa Partyfrompledging ormortgaging, allorany partof suchProducer'sLeases ifProducer,or Gatherer's GasSystemif Gatherer, as securityunderanymortgage,deed of trust,or other similarlien,or from pledgingthisAgreement or anybenefitsaccruinghereundertothePartymaking the pledge without the assumptionof obligationshereunder by the mortgagee, pledgeeorothergranteeunder such instrument.
8.2 No Third Party Beneficiaries.Nothingin thisAgreement, expressed orimplied,confersany rights or remedies on any person or entity not a party heretootherthan successors andassigns ofthe Parties.
8.3 Cooperation Under Related DedicationAgreements. ThePartiesexpresslyacknowledgethat this Agreement is one ofseveralagreementsexecutedcontemporaneously herewith byProducer,Gatherer, oranAffiliate of Gatherer pertaining to thegathering ortransportationofCrudeand water,andthe disposal of waterfromthesameLeasesand Wells.and coveringthesameArea of Dedication (the"Related DedicationAgreements "),withcertain facilitiesto be located,and services to be provided,under thisAgreementinproximitytothose covered under the Related DedicationAgreements.Thecooperationand performance bytheParties andtheirrespective Affiliates ofallof the obligations under thisAgreement andeachoftheRelated Dedication Agreements isessentialfor thePartiesto receive the full benefitoftheir bargain under thisAgreementand the Related Dedication Agreements. SubjecttoForce Majeure andanyother applicableprovisions under thisAgreement orany Related DedicationAgreement, Gathererand each Affiliate of Gatherer whichis aparty toaRelated Dedication Agreement, shall construct,install and putintoservice the InitialSystem,pursuant to this Agreement,and thecorrespondingInitialSystems forCrudetransportationand water gathering as described in the Related Dedication Agreements, ineachcase, in their entirety, as to all of the InitialandInfill Receipt Points together with any futureexpansionsbeyond the InitialSystemundertaken pursuant to this Agreementandunder the corresponding provisionsofthe Related DedicationAgreements.
8.4 Entirety;Amendment. Subject to Section 8.3, this Agreement, together withthe Exhibitsattached hereto, constitutes the entire agreement and understanding between the Parties heretoandsupersedesand renders null andvoidandofno further force and effectanyprior proposals,understandings,negotiations or agreements between the Partiesrelatingtothesubjectmatter hereof, andallamendments and letteragreementsin any way relating thereto.Noprovision ofthis Agreement may bechanged,modified,waived or discharged orally,and nochange, modification,waiveroramendment of any provision will be effectiveexceptbywritten instrument executedby theParties.
8.5 Severability. Should any partofthis Agreement be found to bevoid,unenforceableor berequired to be modified byacourt or governmental authority, thenonlythat part of thisAgreementshall be voided,unenforceable, ormodified accordingly.The remainderofthisAgreement shallremain inforceand unmodified,subjectto Section7 ofthe GT&C.
8.6 Additional Gas Services; Area ofInterest.In the eventProducer desirestoconstruct,install,operateor perform gas delivery,gasqualityenhancement, gas lift orre-injection,compression orotherfield services or Producer desiresgas gathering servicesin areasofMcKenzie Countysouth ofTownship 150, Billings County,or StarkCounty, NorthDakota("Area of Interest")(suchadditional typesoflocations or desiredservicescollectively"Additional Gas Services"),Producershallgive notice to Gatherer regardingsuch Additional GasServicesbeforesoliciting such AdditionalGas Services orenteringinto any bindingagreements withany thirdpartiestoperformsuchAdditionalGas Services.TheselectionofGathereror any thirdparty to performsuchAdditionalGasServicesshallbeinthesolediscretionofProducer, and the performanceofsuchAdditional GasServices shall be governedby a separate agreementcontaining mutuallyagreeable terms and conditions.
8.7 Audit Rights.
i. ExceptforActual Construct Costsforwhicha processof disclosureandagreementis provided within Section 1(b) of theGT&C and InitialSystem Costswhich are further addressed inExhibit "E",upon ten(10)days priorwritten notice, eitherParty shall have the right, atreasonabletimes duringnormalbusinesshours,but nomorefrequentlythan once each calendar year,atits own expense, toexaminethe booksand recordsoftheotherParty to the extent necessary toauditand verifytheaccuracyofanystatement,charge, or computationmade underorpursuant tothis Agreement. Allstatements,allocations,measurement,andpayments made in anyAccountingPeriodpriorto thetwenty-four (24) Month period preceding the Month in which noticeofaudit is given bythe auditingPartyshallbeconclusivelydeemed to be trueand correct andthe scopeof such audit shallbe limitedto statements, allocations,measurementsandpayments madeduring such twenty-four(24)Month period.
ii. The auditingParty shallhaveninety (90) days aftercommencementof the auditin whichto submitawrittenclaim,withsupportingdetail,forproposedadjustments.IftheauditingParty fails tosubmitawrittenreport tothe auditedParty within theninety(90) day period,thenall statements,chargesandcomputationsmade underor pursuanttothis Agreement that werewithinthe audit periodshallbedeemed to be appropriate and accurate. Uponreceipt of anauditreport, the audited Partyshallhave ninety(90)days to make allrecommendedadjustments,or to notify the auditing Party that it does notagree and itsbasis for disagreement.Anyunresolved disagreementsshallberesolvedpursuant to Section 11of theGT&C.
8.8 Amendment and RestatementofOriginal Agreement.Upon executionof thisAgreementbyGathererandProducer,this Agreementshall amend, restate, supersede and replace theOriginal Agreement, including anyamendmentsthereto,in its entirety andforall purposes,effective as oftheEffectiveDate.
8.9 GoverningLaw: Venue.TIDSAGREEMENT SHALL BECONSTRUED INACCORDANCEWITH AND GOVERNED BYTHE LAWS OF THESTATEOFNORTH DAKOTA WITHOUT REGARDTOPRINCIPLESOF CONFLICTS OF LAWS. EXCLUSIVEVENUEFOR ANYSUIT,ACTIONORPROCEEDINGBROUGHT BYEITHERPARTY INCONNECTION WITHTHISAGREEMENT OR ARISINGOUT OF THEEFFECTIVE TERMS ORCONDITIONSHEREOF SHALL BE IN THECITY AND COUNTY OFDENVER,COLORADO.
8.10 Counterparts.This Agreement may beexecutedin multiplecounterparts,eachofwhichshall constitute anoriginaland all of which, whenconstrued together,shall constitute oneandthe sameinstrument.
8.11 Ratification.Emerald WB LLC hereby ratifies, confirms andapprovesthe Agreement in all respects and adopts it as Emerald WB LLC's act and deed to thesame ex.tentas if the Agreement had been executed by Emerald WB LLC on the date of its originalexecution,effectiveas ofthe Effective Date.
THEPARTIES HERETO haveexecutedthis Agreement effective as of the Day and yearfirst abovewritten.
| GATHERER | |
| DAKOTA MIDSTREAM, LLC | |
| | | |
| By: | /s/ Tim Reynolds | |
| Name: Tim Reynolds | |
| Title: Founding Partner | |
| Date: May 26, 2015 | |
| | | |
| PRODUCER | |
| EMERALD OIL, INC. | |
| | | |
| By: | /s/ McAndrew Rudisill | |
| Name: McAndrew Rudisill | |
| Title: Chief Executive Officer and President | |
| Date: May 26, 2015 | |
| | | |
| EMERALD WB LLC | |
| | | |
| By: | /s/ McAndrew Rudisill | |
| Name: McAndrew Rudisill | |
| Title: President | |
| Date: May 26, 2015 | |
