PURCHASE, SALE AND SERVICE AGREEMENT
FOR PROPANE/BUTANE MIX
KING RANCH GAS PLANT
This Purchase, Sale and Service Agreement for Propane/Butane Mix ("AGREEMENT")
is entered into effective as of October 1, 1999 by and between Exxon Company,
U.S.A. (a division of Exxon Corporation), a New Jersey Corporation ("EXXON") and
Penn Octane Corporation, a Delaware corporation "(POC").
RECITALS
A. Exxon currently owns and operates the King Ranch Gas Plant which
processes gas for the extraction of certain products, including propane and
butane. Exxon desires to sell to POC a propane/butane mix produced at the Plant
and to arrange for or provide to POC certain transportation, pumping and
blending services. Exxon has agreed to install additional facilities and/or
equipment at the Plant to enable Exxon to provide such pumping and blending
services.
B. POC intends to enter into contracts with suppliers in the Corpus Christi
area to purchase additional propane to deliver to the King Ranch Gas Plant for
blending with Exxon's equity propane and butane.
C. Exxon Pipeline Company owns an idle twelve-inch (12") pipeline that runs
from Corpus Christi to the King Ranch Gas Plant and has agreed with Exxon, under
certain conditions set forth in this Agreement and in a separate agreement
between Exxon and Exxon Pipeline Company, to make necessary modifications to
this pipeline and to make this pipeline available for propane delivery service.
D. POC owns a terminal in Brownsville, Texas and holds a long term lease on
a six-inch (6") pipeline (which is defined as the Ella-Brownsville Pipeline in
Article 1) that runs from the King Ranch Gas Plant to its Brownsville terminal.
POC desires to purchase a propane/butane mix from Exxon and to use this six-inch
(6") pipeline to deliver such mix from the King Ranch Gas Plant to the
Brownsville terminal.
E. POC is currently constructing a pipeline from POC's Brownsville terminal
to a terminal that POC is also constructing in Matamoros, Mexico.
F. POC has entered into contracts to sell the propane/butane mix to Pemex
and/or a group of LPG resellers in Northeast Mexico.
G. Exxon and POC desire to enter into this Agreement to document their
agreements with respect to transportation, pumping and blending services to be
provided directly or indirectly by Exxon and the terms and conditions under
which Exxon will make capital investments in the Plant and contract with EPC to
make capital investments and long term volume commitments, and under which Exxon
will sell and POC will purchase the propane/butane mix.
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AGREEMENTS
Now, therefore, for and in consideration of the premises, mutual covenants, and
agreements contained in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Exxon and POC hereby agree as follows:
ARTICLE 1
Definitions
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1.1 Definitions. For the purposes of this Agreement, the following terms
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shall have the designated meanings set forth below:
"AFFILIATE" shall mean an affiliated or subsidiary corporation or other legal
entity that is owned or controlled by a Party or any affiliated or subsidiary
corporation or other legal entity that is owned or controlled by its parent or
related entity. As used in this definition, "owned or controlled by" means owns
or holds the right to vote fifty percent (50%) or more of the stock of the
entity. In the case of POC, the term "Affiliate" shall also include POC's
affiliated entity, Penn Octane Mexico; any reference in this Agreement to Penn
Octane Mexico shall include any successor entity.
"ALTERNATE DELIVERY POINT(S)" shall mean either the point of connection between
the Plant and the Ella-Seadrift Pipeline at Ella-Seadrift Propane Meter #5 or
the point of connection between the Plant and the Dean Pipeline at Dean Propane
Meter #6, or both, as elected by POC pursuant to Section 5.2.
"ASTM" shall mean the American Society for Testing and Materials.
"BARREL" shall mean a barrel of forty-two (42) United States gallons at sixty
degrees Fahrenheit (60 F) and at equilibrium vapor pressure of the liquid.
"BUSINESS DAY" shall mean a calendar day exclusive of Saturdays, Sundays and
legal holidays.
"BUTANE INDEX PRICE" shall mean the price determined monthly by calculating the
simple arithmetic average of the non-TET low normal butane price for Mt. Belvieu
for all days prices are published by OPIS during the applicable Delivery Month.
"CALENDAR YEAR" shall mean each twelve (12) month period beginning at 7:00 a.m.,
local time, on the first day of January and ending at 7:00 a.m., local time, on
the first day of January of the next succeeding year.
"CCPL PROPANE METER #2" shall mean the custody transfer meter located at the
point of connection from the CCPL to the Plant which is identified as Meter #2
on Exhibit "C". Such meter measures the POC Propane delivered to the Plant
through the CCPL.
"CORPUS CHRISTI PIPELINE" or "CCPL" shall mean the twelve-inch (12") pipeline
currently owned by EPC which generally runs from the Coastal Corporation meter
station in Nueces County, Texas near the city of Corpus Christi to the inlet of
the King Ranch Gas Plant.
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"DAY" shall mean a period of twenty-four (24) consecutive hours commencing at
7:00 a.m., local time.
"DEAN PIPELINE" shall mean the six-inch (6") pipeline currently owned by Duke
Energy NGL Services, Inc. which connects to the Plant and generally runs north
from the Plant to Mt. Belvieu.
"DEAN PROPANE METER #6" shall mean the meter located at the point of connection
from the Plant to the Dean Pipeline which is identified as Meter #6 on Exhibit
"C". Such meter measures the Exxon Equity Propane delivered to the Dean
Pipeline on an emergency basis.
"DELIVERY DEFICIENCY FEE" shall have the meaning set forth in Section 6.8.
"DELIVERY MONTH" shall mean a period of one (1) month commencing at 7:00 a.m.,
local time, on the first day of a calendar month and ending at 7:00 a.m., local
time, on the first day of the next succeeding month.
"DELIVERY POINT" shall mean the point of connection between the outlet of the
Plant shipping station and the Ella-Brownsville Pipeline.
"DELIVERY WEEK" shall mean a period of one (1) week commencing at 7:00 a.m.,
local time, on each Monday and ending at 7:00 a.m., local time, on Monday of the
next succeeding week.
"EFFECTIVE DATE" shall mean October 1, 1999.
"ELLA-BROWNSVILLE PIPELINE" shall mean the six-inch (6") pipeline currently
owned by Union Carbide Company and leased to POC which generally runs from the
Plant to the POC terminal located in Brownsville, Texas.
"ELLA-BROWNSVILLE PIPELINE CAPACITY" shall mean the maximum capacity from time
to time available in the Ella-Brownsville Pipeline. As of the Effective Date,
the maximum capacity is sixteen thousand Barrels per day (16kbd) at a pressure
of one thousand seven hundred fifty (1750) Psig.
"ELLA-SEADRIFT PIPELINE" shall mean the eight-inch (8") pipeline currently owned
by Union Carbide Company which generally runs from the Plant to the Markham Dome
storage facility.
"ELLA-SEADRIFT PROPANE METER #3" shall mean the meter located at the point of
connection from the Ella-Seadrift Pipeline to the Plant which is identified as
Meter #3 on Exhibit "C". Such meter measures the POC Propane delivered to the
Plant on an emergency basis.
"ELLA-SEADRIFT PROPANE METER #5" shall mean the meter located at the point of
connection from the Plant to the Ella-Seadrift Pipeline which is identified as
Meter #5 on Exhibit "C". Such meter measures the Exxon Equity Propane delivered
to the Ella-Seadrift Pipeline on an emergency basis.
"EPC" shall mean Exxon Pipeline Company, a wholly owned subsidiary of Exxon
Corporation.
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"EPC TARIFF" shall mean the Exxon Pipeline Company Texas RRC Tariff No. 494 for
the Corpus Christi Pipeline on file from time to time with the Texas Railroad
Commission or other regulatory body having jurisdiction over the Corpus Christi
Pipeline pursuant to which propane is transported for shippers.
"EXXON EQUITY BUTANE" shall mean the volume of butane produced at the Plant
which is owned or controlled by Exxon and which meets the specifications set
forth in Exhibit "A".
"EXXON EQUITY PRODUCT" shall mean the portion of the Mix produced at the Plant
consisting of (a) the volume of Exxon Equity Propane measured at Plant Propane
Meter #1, (b) the volume of Exxon Equity Propane measured at Ella-Seadrift
Propane Meter #5 or Dean Propane Meter #6, or both, if POC elects to receive
propane at the Alternate Delivery Points, and (c) the volume of Exxon Equity
Butane measured at Plant Butane Meter #4. The term "Exxon Equity Product" shall
specifically exclude POC Propane.
"EXXON EQUITY PROPANE" shall mean the volume of propane produced at the Plant
which is owned or controlled by Exxon and which meets the specifications set
forth in Exhibit "A".
"GALLON" shall mean a United States gallon of two hundred thirty one (231) cubic
inches of liquid at sixty degrees Fahrenheit (60 F) and at the equilibrium vapor
pressure of the liquid.
"KB" shall mean one thousand Barrels.
"KBD" shall mean thousand Barrels per day.
"LPG" shall mean liquefied petroleum gas.
"MATAMOROS AVERAGE MIX PRICE" shall mean the average of all Matamoros-into-truck
or tank-car wholesale prices (indexed to Mt. Belvieu and expressed in United
States dollars) included in term contracts of one (1) year or longer between POC
(or its Affiliate, Penn Octane Mexico) and its LPG resellers in Northeast Mexico
for deliveries of Mix FOB Matamoros. Contracts for delivery of Mix under terms
other than FOB Matamoros shall be included in the calculation of the Matamoros
Average Mix Price; provided, however, the actual transportation costs from
Matamoros to the delivery point and the actual costs of operating any terminal
at remote delivery points, if any, shall be deducted from such contract prices.
"MAXIMUM DELIVERY VOLUME" shall mean a volume for a particular time period equal
to the difference between the Ella-Brownsville Pipeline Capacity for such period
and the sum of the Exxon Equity Propane measured at Plant Propane Meter #1
during such period and the Exxon Equity Butane measured at Plant Butane Meter #4
during such period. Expressed as a formula: Maximum Delivery Volume =
Ella-Brownsville Pipeline Capacity - (Exxon Equity Propane + Exxon Equity
Butane).
"MB" shall mean one million Barrels.
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"METER" shall mean, as applicable, any one or a combination of the following
meters, each of which is more particularly defined in this Agreement and
identified on Exhibit "C" by the corresponding meter number:
Plant Propane Meter #1
CCPL Propane Meter #2
Ella-Seadrift Propane Meter #3
Plant Butane Meter #4
Ella-Seadrift Propane Meter #5
Dean Propane Meter #6
"MINIMUM DELIVERY VOLUME" shall have the meaning set forth in Section 4.5.
"MINIMUM PURCHASE VOLUME" shall have the meaning set forth in Section 5.2.
"MIX" shall mean a blend of approximately _________ propane and _________ butane
meeting the quality specifications set forth in Exhibit "A". The term "Mix"
includes Exxon Equity Propane, Exxon Equity Butane, and POC Propane.
"MT. BELVIEU" shall mean that industry natural gas liquids fractionation,
storage and distribution area located on the Barbers Hill salt dome in Chambers
County, Texas, and commonly referred to in the industry as "Mt. Belvieu".
"MT. BELVIEU PRICE DIFFERENTIAL" shall mean the amount by which (a) the
Matamoros Average Mix Price exceeds (b) the composite of the Propane Index Price
and the Butane Index Price included in a mix of ________% propane/butane.
Expressed as a formula: Mt. Belvieu Price Differential = Matamoros Average Mix
Price - [(Propane Index Price x ___) + (Butane Index Price x ___)].
"OPIS" shall mean Oil Price Information Service.
"PARTY" shall mean either Exxon or POC.
"PARTIES" shall mean collectively, Exxon and POC.
"PIPELINE DELIVERY FEE" shall mean the fee which POC shall pay to Exxon for the
transportation of POC Propane on the CCPL from the Receipt Point(s) to the
Plant. The Pipeline Delivery Fee shall be calculated pursuant to Section 6.5.
"PLANT" or "KING RANCH GAS PLANT" shall mean the King Ranch gas plant currently
owned by Exxon and located in Kleburg County, Texas.
"PLANT BUTANE METER #4" shall mean the meter identified as Meter #4 on Exhibit
"C" which measures the volume of Exxon Equity Butane included in the Exxon
Equity Product."
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PLANT PROPANE METER #1" shall mean the meter identified as Meter #1 on Exhibit
"C" which measures a portion of the volume of Exxon Equity Propane included in
the Exxon Equity Product.
"POC PROPANE" shall mean the total volume of propane delivered by POC and
received by Exxon at the Plant as measured at CCPL Propane Meter #2 and, on an
emergency basis, at Ella-Seadrift Meter #3.
"PRODUCT FEE" shall mean the fee which POC shall pay to Exxon for the Exxon
Equity Product delivered, as calculated pursuant to Section 6.2.
"PRODUCT PRICE" shall mean the price on which the Product Fee is calculated.
The "Product Price" shall be based on the Propane Index Price and the Butane
Index Price, subject to decreases for discounts pursuant to Section 6.2(a) and
increases for premiums pursuant to Section 6.2(b). The "Product Price" is
subject to a one-time redetermination pursuant to Section 6.3.
"PROPANE INDEX PRICE" shall mean the propane price determined monthly by
calculating the simple arithmetic average of the non-TET propane price for Mt.
Belvieu for all days prices are published by OPIS during the applicable Delivery
Month.
"PUMPING AND BLENDING FEE" shall mean the fee which POC shall pay to Exxon for
the pumping and blending services provided pursuant to this Agreement. The
Pumping and Blending Fee shall be calculated pursuant to Section 6.6.
"PUMPING AND BLENDING DEFICIENCY FEE" shall have the meaning set forth in
Section 6.7.
"PUMPING AND BLENDING MINIMUM VOLUME" shall have the meaning set forth in
Section 4.2.
"PURCHASE DEFICIENCY FEE" shall have the meaning set forth in Section 6.9.
"PSIG" shall mean pounds per square inch, gauge.
"RECEIPT POINT(S)" shall mean the custody transfer meter or meters generally
located near EPC's Viola Pump Station in Nueces County, Texas for each supplier
with which POC contracts to purchase propane for shipment in the CCPL, which
meters are owned or operated, or both, by POC or its suppliers.
"TERM" shall have the meaning set forth in Section 2.1.
ARTICLE 2
Term
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2.1 Term The initial term of this Agreement shall commence on the
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Effective Date and shall continue through September 30, 2009. This Agreement
shall thereafter automatically be renewed on a year-to-year basis until written
notice of termination is given by either Party at least twelve (12) months prior
to the end of the initial term or any subsequent renewal term. The initial term
of this Agreement, as renewed from time to time, shall be referred to as the
"TERM".
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2.2 Termination POC agrees that Exxon is not required to operate
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the Plant solely for the purpose of blending or delivering Mix. If at any time
during the Term Exxon elects not to continue operations of the Plant for any
reason, including without limitation a determination, in Exxon's sole
discretion, that operation of the Plant has become uneconomical, then Exxon may
terminate this Agreement effective on the date the Plant ceases operations by
providing written notice to POC at least six (6) months in advance. If, prior
to the time Exxon is required to give such notice, Exxon determines that it may
cease operations of the Plant, Exxon will make a good faith attempt to verbally
advise POC of such determination.
ARTICLE 3
Conditions Precedent
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3.1 Conditions Precedent to Exxon's Obligations The obligations of
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Exxon to provide or arrange for transportation, pumping and blending services
under this Agreement are expressly made subject to the following conditions
precedent:
(a) Corpus Christi Pipeline Exxon shall contract with EPC to
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recommission the idle CCPL for propane delivery service with a minimum operating
capacity of _____________________ Barrels per day (_____bd). Exxon's contract
with EPC shall include a provision that EPC will file a bi-directional tariff
between the Plant and Corpus Christi of ___________ ($_____) per Barrel. If for
any reason (i) the EPC Tariff is not approved for ______________ ($ ______) and
if the Parties are unable to agree upon another mutually acceptable amount for
the EPC Tarriff, (ii) EPC is unable to obtain rights-of-way or permits for the
CCPL, or (iii) the hydrotest of the CCPL indicates that EPC will not be able to
recommission such line at a total cost of ___________________ dollars
($______________) or less, Exxon shall have the right to terminate the
provisions of Article 4 of this Agreement upon giving POC written notice of
termination, in which event POC's corresponding obligations to pay the Pipeline
Delivery Fee under Section 6.5, the Pumping and Blending Fee under Section 6.6,
the Pumping and Blending Deficiency Fee under Section 6.7, and the Delivery
Deficiency Fee under Section 6.8 shall also be terminated. The remainder of the
Agreement shall continue in full force and effect.
(b) Plant Shipping Station Modifications Exxon shall, at its
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sole cost and expense, install additional facilities and/or equipment at the
Plant sufficient to give the Plant the capacity to (i) receive up to
______________Barrels per day (____bd) of propane from the CCPL, (ii) blend POC
Propane, Exxon Equity Propane, and Exxon Equity Butane into Mix, and (iii)
deliver a minimum of _________________Barrels per day (___bd) of Mix into the
Ella-Brownsville Pipeline at a pressure not to exceed one thousand seven hundred
fifty (1750) Psig.
(c) Extension of Time Timing for recommisioning the idle CCPL under
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Section 3.1(a) and for modifications of the Plant under Section 3.1(b) is
targeted for October 1, 1999, however, such date may be extended if any delay is
a result of delayed right-of-way acquisition or other matters which are not
reasonably within the control of Exxon or EPC or if otherwise mutually agreed by
the Parties. If the recommissioning of the CCPL and the Plant modifications
are not completed and operational by October 1, 1999, then the obligations of
the Parties under Article 4 (and POC's corresponding payment obligations under
Sections 6.5, 6.6, 6.7 and 6.8) shall be suspended until the Day on which the
CCPL and Plant modification work is completed and operational. No such
extension shall suspend or otherwise affect any obligations under Article 5 or
any other provision of this Agreement.
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ARTICLE 4
Pumping, Blending and Pipeline Delivery Services
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4.1 Pumping and Blending Services
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The Parties acknowledge that as part of its normal Plant operations, Exxon will
produce Exxon Equity Propane and Exxon Equity Butane, which products will be
used in the process of blending Mix. POC shall acquire and deliver to Exxon POC
Propane in accordance with Section 4.3 below. Exxon shall provide sufficient
Exxon Equity Butane at the Plant to convert the POC Propane received from the
CCPL and the Ella-Seadrift Pipeline to Mix specifications. Exxon shall blend
Exxon Equity Propane and POC Propane, as applicable, with Exxon Equity Butane at
the Plant into Mix in accordance with the specifications set forth in Exhibit
"A" and shall pump such Mix into the Ella-Brownsville Pipeline; provided,
however, Exxon shall not be obligated to deliver Mix at a rate or pressure which
would result in deliveries at either a pressure in excess of one thousand seven
hundred fifty (1750) Psig or at a rate in excess of _______________ Barrels per
day (____bd). It is understood and agreed that Exxon Equity Propane shall have
first priority over POC Propane for blending and that Exxon shall utilize all
Exxon Equity Propane before accepting POC Propane for blending.
4.2 Pumping and Blending Minimum Volume During each of the periods
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designated below, POC agrees to deliver for blending and pumping by Exxon, and
Exxon agrees to receive and to provide the blending and pumping services for,
the following minimum total volumes of POC Propane ("PUMPING AND BLENDING
MINIMUM VOLUME"):
(a) During the Calendar Year 2000, _________________ Barrels (______b);
and
(b) During the Calendar Year 2001 and during each Calendar Year through
the remainder of the Term, ________________ Barrels (____ Mb) per Calendar Year.
If the Term expires or is terminated on a Day other than the last Day of a
Calendar Year, the Pumping and Blending Minimum Volume shall be prorated on a
twelve (12) month basis. If POC fails to deliver the Pumping and Blending
Minimum Volume for any applicable period, then POC shall pay to Exxon the
Pumping and Blending Deficiency Fee in accordance with Section 6.7.
4.3 POC Propane Receipts POC shall contract with third party suppliers
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in the Corpus Christi area to purchase propane from time to time in sufficient
quantities to enable POC to meet its Minimum Delivery Volume obligations under
Section 4.5. The maximum volume of POC Propane which Exxon is obligated to
receive from time to time during the Term shall be ninety percent (90%) of the
Maximum Delivery Volume. The Parties acknowledge that the volume of POC Propane
accepted by Exxon will vary periodically based on the amount of Exxon Equity
Propane produced at the Plant. Exxon will provide to POC on or before the fifth
(5th) Business Day before each Delivery Month its monthly projections for
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production rates of Exxon Equity Propane and Exxon Equity Butane. The monthly
projections are only intended to reflect expected operations at the Plant and
shall not be construed as binding upon the Parties. The Parties will, from time
to time, agree upon mutually acceptable operating procedures for communicating
any routine or emergency changes in or variations from these projected monthly
propane and butane production rates.
4.4 Pipeline Delivery Services Exxon, under separate contract with EPC,
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shall arrange for receipt and transportation of up to _____________ Barrels per
day (___bd) of POC Propane into the CCPL. Exxon shall pay to EPC the applicable
EPC Tariff for the volumes of POC Propane transported on the CCPL, and POC shall
pay to Exxon the applicable Pipeline Delivery Fee. POC agrees to deliver to EPC
the POC Propane at the Receipt Point(s), and upon each delivery, POC represents
and warrants to Exxon and EPC that (a) POC owns or controls the propane so
delivered or otherwise has the right to deliver the propane for shipment and
blending, and (b) the propane so delivered is in compliance with the
specifications set forth in the EPC Tariff. Custody of the POC Propane shall
transfer to EPC at the Receipt Point(s); however, title and risk of loss and
damage to the POC Propane shall remain with POC. POC hereby agrees to comply
with all of the terms and provisions of any EPC Tariff in effect from time to
time during the Term.
4.5 Minimum Delivery Volume During each of the periods designated below,
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POC agrees to deliver for transport on the CCPL, and Exxon agrees to arrange for
the receipt and transport of, the following minimum total volumes of POC Propane
("MINIMUM DELIVERY VOLUME"):
(a) During the fourth quarter of 1999, `a total volume of
_______________ Barrels (____b);
(b) During the Calendar Year 2000, _____________________ Barrels (______b)
at the following quarterly rates: during the first quarter,
______________________ Barrels (____b); during the second quarter,
_____________________ Barrels (_____b); during the third quarter,
_________________ Barrels (_____b); and during the fourth quarter,
________________ Barrels (_____b); and
(c) During the Calendar Years 2001 through 2004, __________________ Barrels
(_____b) per Calendar Year.
If the Term expires or is terminated on a Day other than the last Day of a
Calendar Year, the Minimum Delivery Volume shall be prorated on a twelve (12)
month basis. If POC fails to deliver the Minimum Delivery Volume for any
applicable period, then POC shall pay to Exxon the Delivery Deficiency Fee in
accordance with Section 6.8.
4.6 Minimum Volume Credits
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(a) Minimum Delivery Volume Any volume of POC Propane delivered in
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excess of the Minimum Delivery Volume for a particular period shall be carried
forward as a credit towards the Minimum Delivery Volume for the next succeeding
period. If POC makes POC Propane available at the Receipt Point(s) and Exxon or
EPC limits propane receipts from POC in accordance with Section 4.8, then the
total volume so limited shall be credited to POC's Minimum Delivery Volume as if
the propane volume had actually been transported. In addition, if for any
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reason the Maximum Delivery Volume calculated for a particular period is less
than the Minimum Delivery Volume for the corresponding period, then a volume
equal to the positive difference, if any, between the Minimum Delivery Volume
and the Maximum Delivery Volume shall be credited to POC's Minimum Delivery
Volume for such period as if the propane volume had actually been transported.
(b) Pumping and Blending Minimum Volume Any volume of POC Propane
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delivered in excess of the Pumping and Blending Minimum Volume for a particular
period shall be carried forward as a credit towards the Pumping and Blending
Minimum Volume for the next succeeding period. If POC makes POC Propane
available at the Receipt Point(s) and Exxon or EPC limits propane receipts from
POC in accordance with Section 4.8, then the total volume so limited shall be
credited to POC's Pumping and Blending Minimum Volume as if the propane volume
had actually been transported. In addition, if for any reason ninety percent
(90%) of the Maximum Delivery Volume calculated for a particular period is less
than the Pumping and Blending Minimum Volume for the corresponding period, then
a volume equal to the positive difference, if any, between the Pumping and
Blending Minimum Volume and ninety percent (90%) of the Maximum Delivery Volume
shall be credited to POC's Pumping and Blending Minimum Volume for such period
as if the propane volume had actually been transported.
4.7 Third Party Suppliers Either POC or its third party suppliers,
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at no cost to Exxon or EPC, shall provide the necessary connections to the CCPL
in a manner acceptable to and approved by EPC, and shall provide metering and
delivery pressure necessary to deliver propane to the Plant at a pressure of
five hundred (500) Psig. Exxon or EPC shall provide CCPL Propane Meter #2,
which meter will be used for measurement and calculation of the Pipeline
Delivery Fee and the Pumping and Blending Fee (for the portion of the POC
Propane received from the CCPL). On an emergency basis, POC may deliver POC
Propane to Exxon on the Ella-Seadrift Pipeline. Any such emergency deliveries
shall be made at a minimum pressure of five hundred (500) Psig. POC shall
advise the Plant's foreman for product receipts by telephone prior to any
emergency deliveries. Exxon shall provide Ella-Seadrift Propane Meter #3, which
meter will be used for measurement and calculation of the Pumping and Blending
Fee for the portion of the POC Propane received from the Ella-Seadrift Pipeline.
Both CCPL Propane Meter #2 and Ella-Seadrift Propane Meter #3 may be used by POC
as check meters for its third party propane receipts. POC shall be responsible
for resolving any metering disputes and any product quality issues with its
third party suppliers on propane volumes delivered to the Plant on the CCPL and
the Ella-Seadrift Pipeline. Any allocations of receipts from such suppliers
shall be the sole responsibility of POC.
4.8 Exxon's Reservation Exxon expressly reserves the right to utilize
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its contracted capacity on the CCPL to transport Exxon Equity Propane on the
CCPL from the Plant to Corpus Christi to respond to emergency Plant operating
requirements which may result from the loss of other pipeline outlets for
propane, or from any other event which may limit Exxon's ability to deliver the
Plant's full Exxon Equity Propane or Exxon Equity Product production from the
Plant. Exxon shall advise POC as soon as reasonably possible of the occurrence
of any such events. Exxon shall have no liability whatsoever to POC or to any
third party for the exercise of the rights expressly reserved in this Section
4.8.
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ARTICLE 5
Purchase and Sale of Mix
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5.1 Product and Quantity Subject to the limitations and further
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obligations set forth in this Article 5, Exxon agrees to sell and deliver to POC
and POC agrees to purchase and receive from Exxon, ________ volume of Exxon
Equity Product produced at the Plant which Exxon has the right to sell at any
given time during the Term up to a maximum volume of ____________ Barrels per
day (____bd). Exxon will communicate to POC by telephone with as much advance
notice as is reasonably practical of any changes in projected Exxon Equity
Propane and Exxon Equity Butane production rates. Exxon is not obligated to
sell or deliver a volume of Exxon Equity Product that exceeds ____________
(____%) of its owned and/or controlled share of Exxon Equity Product produced at
the Plant; and POC is not obligated to purchase Exxon Equity Product in excess
of its Mix sales into Mexico, except as expressly provided in Section 5.2 below.
Under no circumstances shall Exxon's obligations under this Agreement be
construed as requiring Exxon to purchase or acquire any propane or butane from
any third party source.
5.2 POC Minimum Purchase Obligation For each Delivery Month during
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the Term, POC agrees to purchase and receive, or pay for, if available for
delivery to POC but not taken, a daily volume of Exxon Equity Product (the
"MINIMUM PURCHASE VOLUME") in an amount equal to the lesser of (a)
_______________ Barrels per day (___bd) or (b) ____________ (____%) of Exxon's
owned and/or controlled share of Exxon Equity Product (expressed in Barrels).
POC will communicate by telephone to the Plant's foreman for product shipments
each morning any routine or emergency variations from its normal receipt
schedules at the Delivery Point. If for any reason POC cannot accept delivery
of the Minimum Purchase Volume at the Delivery Point, POC may elect to make
alternate arrangements for receipt of the Exxon Equity Propane purchased by POC
at the Alternate Delivery Point(s). Any volume of Exxon Equity Propane
purchased by POC and received at the Alternate Delivery Point(s) shall be
credited towards the Minimum Purchase Volume. POC shall promptly advise the
Plant's foreman for product shipments by telephone and in writing (within 24
hours) as to its election for use of the Alternate Delivery Point(s). If POC
fails to so advise Exxon, Exxon shall have the right, but not the obligation, to
arrange for alternate disposition of the Exxon Equity Propane, and POC shall
reimburse Exxon for all costs of such disposition pursuant to Section 6.9.
Exxon will use good faith efforts to minimize such alternate disposition costs.
5.3 Mix Delivery; Title
---------------------
(a) Delivery Point Exxon, or Exxon's designee, shall deliver
---------------
the Mix by pipeline at the Delivery Point. Title to (other than POC Propane to
which POC retains title), and risk of all loss of or damage to, the Mix shall
pass to POC at the Delivery Point, at which time POC shall be deemed to be in
possession and control of such Mix. Deliveries of Mix shall be made at a
reasonably constant rate and at a pressure sufficient to enter the
Ella-Brownsville Pipeline against the working pressure in the pipeline, as such
pressure may vary from time to time; provided, however, Exxon shall not be
obligated to deliver Mix at a rate or pressure which would result in deliveries
at a pressure in excess of one thousand seven hundred fifty (1750) Psig or at a
rate in excess of twenty thousand Barrels per day (20kbd).
(b) Alternate Delivery Point(s) If POC elects to make alternative
-----------------------------
arrangements for disposition of Exxon Equity Propane pursuant to Section 5.2,
Exxon, or Exxon's designee, shall deliver the Exxon Equity Propane at the
applicable Alternate Delivery Point(s). Title to and risk of all loss of or
11
damage to the Exxon Equity Propane shall pass to POC at the applicable Meter, at
which time POC shall be deemed to be in possession and control of such Exxon
Equity Propane. Deliveries of Exxon Equity Propane shall be made at a
reasonably constant rate and at a pressure sufficient to enter the applicable
pipeline against the working pressure in the pipeline, as such pressure may vary
from time to time; provided, however, Exxon shall not be obligated to deliver
Exxon Equity Propane at a pressure in excess of one thousand one hundred (1100)
Psig.
5.4 Specifications The specifications of the Exxon Equity Propane,
--------------
Exxon Equity Butane and the Exxon Equity Product delivered and received shall
conform with the specifications set forth in Exhibit "A", as the same may be
amended from time to time by mutual agreement of the Parties or by change in Mix
specifications implemented by any applicable regulatory agency in Mexico.
Provided, however, with POC's prior written consent, Exxon Equity Butane may
exceed _________ (____%) (liquid volume) of the propane component of the Exxon
Equity Mix delivered.
5.5 Measurement and Sampling Measurement, testing, sampling, and
--------------------------
analysis of the Exxon Equity Propane and Exxon Equity Butane delivered to POC
shall be performed in accordance with Exhibit "B".
5.6 Exxon Warranty Exxon warrants that at the time of delivery, the
---------------
Exxon Equity Propane and Exxon Equity Butane included in the Mix will conform to
the specifications set forth in Exhibit "A" (as amended or varied pursuant to
Section 5.4). Exxon expressly disclaims any warranty as to whether the POC
Propane included in the Mix conforms to the specifications set forth in the EPC
Tariff or in Exhibit "A" (as amended or varied pursuant to Section 5.4). EXXON
MAKES NO OTHER WARRANTIES UNDER THIS AGREEMENT AND EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO
THE MIX DELIVERED UNDER THIS AGREEMENT.
ARTICLE 6
Fees and Compensation; Deficiency Fees
--------------------------------------
6.1 Compensation As full consideration for Exxon's pumping,
------------
blending and delivery services and the sale and delivery of Mix to POC pursuant
to this Agreement, POC shall pay to Exxon in accordance with the provisions of
this Agreement, the following: (a) the Product Fee; (b) the Pipeline Delivery
Fee; (c) the Pumping and Blending Fee; (d) the Pumping and Blending Deficiency
Fee, if applicable; (e) the Delivery Deficiency Fee, if applicable; and (f) the
Purchase Deficiency Fee, if applicable.
6.2 Product Fee For the Exxon Equity Product delivered to POC pursuant
------------
to this Agreement, POC shall pay to Exxon a Product Fee in an amount equal to
the sum of the following: (a) the product of the total volume of Exxon Equity
Propane (expressed in Gallons) delivered each Delivery Week (as measured at
Plant Propane Meter #1 or at Ella-Seadrift Propane Meter #5 or Dean Propane
Meter #6, or both, as applicable, if POC elects Alternate Delivery Point(s)) and
12
the Propane Index Price, adjusted for discounts or premiums, as appropriate, and
(b) the product of the total volume of Exxon Equity Butane (expressed in
Gallons) delivered each Delivery Week (as measured at Plant Butane Meter #4) and
the Butane Index Price, adjusted for discounts or premiums, as appropriate.
Expressed as a formula: Product Fee = (Exxon Equity Propane x adjusted Propane
Index Price) + (Exxon Equity Butane x adjusted Butane Index Price).
(a) Product Price Discount Price discounts shall be applied to the
-----------------------
Propane Index Price and the Butane Index Price on Exxon Equity Propane and Exxon
Equity Butane delivered to POC at the Delivery Point (and Exxon Equity Propane
delivered to the Alternate Delivery Point(s)) as follows: (i) During the period
commencing on the Effective Date and ending September 30, 2000, a discount of
_______ ($ _____) per Gallon shall apply, (ii) after September 30, 2000 and for
the remainder of the Term, ______discount shall apply.
(b) Product Price Premium POC has complete discretion with respect
----------------------
to the identity of its customers and the prices and terms under which it sells
Mix to Pemex or its LPG resellers. Provided, however, when the Mt. Belvieu
Price Differential equals or exceeds _________ ($_____) per Gallon, a price
premium shall be added to the Propane Index Price and the Butane Index Price for
Exxon Equity Propane and Exxon Equity Butane delivered to POC at the Delivery
Point (and to Exxon Equity Propane delivered to the Alternate Delivery
Point(s)). The amount of such price premium shall be the lesser of (i)
_________ ($_____) per Gallon, or (ii) the amount of the positive difference
between the Mt. Belvieu Price Differential and ____________ ($______) per
Gallon. The Product Price premium for each Calendar Year will be determined in
January of such Calendar Year and added to the weekly Product Fee for the
Calendar Year, commencing on the first day of January in which such premium is
determined.
(c) Calculation Adjustments For purposes of determining the volume
------------------------
of Exxon Equity Propane for calculating compensation, a volume of ethane not to
exceed two percent (2%) (liquid volume) of the propane shall be treated as
propane. For purposes of determining the volume of Exxon Equity Butane for
calculating compensation, heavier hydrocarbon components in the Exxon Equity
Butane shall be treated as normal butane. Any of the following components
included in either Exxon Equity Butane or Exxon Equity Propane shall be excluded
from the volumes for calculating compensation: (i) ethane in excess of two
percent (2%) (liquid volume) of the propane; (ii) carbon dioxide in excess of
one half percent (0.5%) of the ethane; (iii) methane; and (iv) other inert
contents.
(d) Provisional Pricing As provided in Section 7.1, Exxon shall
--------------------
invoice POC for Exxon Equity Product deliveries on a weekly basis. For purposes
of weekly invoicing, a provisional Butane Index Price and Propane Index Price
shall be developed for each Delivery Month by using the OPIS low non-TET price
for propane and normal butane on the first Business Day of each Delivery Month.
At the end of each Delivery Month, the actual pricing calculation provided in
the definitions of "Butane Index Price" and "Propane Index Price" shall be used
to adjust the Exxon Equity Product pricing for the Delivery Month, as
appropriate, and the adjustment will be reflected in the next weekly invoice.
(e) OPIS Changes If the reference prices set forth in the
-------------
definitions of "Butane Index Price" and "Propane Index Price" for any reason
cease to be published by OPIS or if OPIS is discontinued, then the successor
reference prices or publication accepted by industry shall be used. In the
13
absence of a successor, POC and Exxon shall develop a mutually agreeable pricing
mechanism for propane and butane that enables calculation of an index price that
is closely comparable to that price index previously used. If the Parties are
unable, after the use of reasonable efforts, to agree upon the pricing
mechanism, then the matter shall be submitted to binding arbitration pursuant to
Article 19.
6.3 Product Price Redetermination If, on or after January 1, 2005, the
-------------------------------
Mt. Belvieu Price Differential is greater than or less than ____________
($_____) per Gallon by more than ________ ($______) per Gallon, then either
Party may request a redetermination of the Product Price by delivering written
notice to the other Party at any time after January 1, 2005 but prior to July 1,
2005. Promptly after giving such notice, the Parties shall commence
negotiations in good faith towards agreement on a new Product Price. The term
"good faith" shall mean the honest statement of facts along with each Party's
bargaining position at that time, but in no event shall either Party be required
to act in the best interest of the other Party. The redetermined Product Price
shall become effective as of January 1, 2005 and shall continue in effect for
the balance of the Term. If the Parties are unable to reach agreement within
ninety (90) Days of the date of the requesting Party's notice requesting
redetermination, then the new Product Price will be submitted to binding
arbitration pursuant to Article 19. The maximum increase or decrease in the
Product Price resulting from the price redetermination shall be ______ ($____
per Gallon.
6.4 Delivery of Information POC shall provide to Exxon in writing, on or
-----------------------
before the fifteenth (15th) of January of each Calendar Year, documentation
evidencing the average of all Matamoros-into-truck or tank-car wholesale prices
included in term contracts in effect as of January 1 of such year, on which
contracts the Matamoros Average Mix Price will be calculated. Exxon shall have
the right pursuant to Section 7.2 to audit all books and records of POC (or its
Affiliate, Penn Octane Mexico) relating to reseller Mix sales in order to verify
the Mt. Belvieu Price Differential.
6.5 Pipeline Delivery Fee For the transportation services arranged for
-----------------------
or provided to POC by Exxon pursuant to this Agreement, POC shall pay to Exxon,
on a weekly basis, a Pipeline Delivery Fee in an amount equal to the product of
(a) the volume recorded on CCPL Propane Meter #2 each Delivery Week and (b) the
amount of the cents per Barrel charge included in the EPC Tariff in effect at
the applicable time. If at any time during the Term the amount of the EPC
Tariff is revised, then the cents per Barrel charge on which the Pipeline
Delivery Fee is calculated will be increased or decreased accordingly. If the
amount of the EPC Tariff exceeds _________ ($_____) per Barrel, then POC shall
have the right to terminate the provisions of Article 4 of this Agreement upon
giving Exxon written notice of termination, in which event POC's corresponding
obligations to pay the Pipeline Delivery Fee under Section 6.5, the Pumping and
Blending Fee under Section 6.6, the Pumping and Blending Deficiency Fee under
Section 6.7, and the Delivery Deficiency Fee under Section 6.8 shall also be
terminated. The remainder of the Agreement shall continue in full force and
effect. Provided, however, if Exxon agrees to absorb any amount of the EPC
Tariff in excess of ___________ ($_____) per Barrel, then POC shall not have the
right to terminate pursuant to this Section 6.5.
6.6 Pumping and Blending Fee For the pumping and blending services
---------------------------
provided pursuant to this Agreement, POC shall pay to Exxon, on a weekly basis,
a Pumping and Blending Fee in an amount equal to the product of _______________
($ ______) per Barrel and one hundred ten percent (110%) of the volume recorded
14
on CCPL Propane Meter #2 and Ella-Seadrift Propane Meter #3. Expressed as a
formula: Pumping and Blending Fee = $______ X ((CCPL Propane Meter #2 volume +
Ella-Seadrift Propane Meter #3 volume) x 1.1). The ______ per Barrel charge on
which the Pumping and Blending Fee is calculated may, by written notice, be
adjusted either upward or downward annually after Calendar Year 2000 by an
amount no greater than the amount by which the Gross Domestic Product Implicit
Price Deflator, as published by the Department of Commerce, Bureau of Economic
Analysis for the prior Calendar Year exceeds the Gross Domestic Product Implicit
Price Deflator for 2000.
6.7 Pumping and Blending Deficiency Fee Pursuant to Section 4.2, POC is
------------------------------------
obligated to deliver to Exxon for pumping and blending the Pumping and Blending
Minimum Volume. If POC fails to deliver to Exxon the Pumping and Blending
Minimum Volume of POC Propane for any period designated in Section 4.2, POC
shall pay to Exxon in a lump sum at the end of the Calendar Year in which the
designated period ends, a deficiency fee (the "PUMPING AND BLENDING DEFICIENCY
FEE") calculated as follows: the deficit volume shall be determined by
calculating the positive difference between (a) the Pumping and Blending Minimum
Volume for the designated period, and (b) the sum of the volume of POC Propane
recorded on CCPL Propane Meter #2 and Ella-Seadrift Propane Meter #3 (expressed
in Barrels) during the applicable period (plus any applicable volume credits
pursuant to Section 4.6(b)), which deficit volume amount shall be multiplied by
a factor of 1.1. Such product shall then be multiplied by the cents per Barrel
charge used in calculating the Pumping and Blending Fee in effect at the
applicable time. If at any time during an applicable period, Exxon determines,
in Exxon's sole opinion based on actual monthly delivery volumes, that POC will
be unable to meet its Pumping and Blending Minimum Volume and, as a result, will
exceed Exxon's approved credit limits, then Exxon shall have the right to
require POC to make weekly deficiency payments to stay within Exxon's approved
credit limits. At the end of each Calendar Year, an adjustment will be made to
reflect the actual Pumping and Blending Deficiency Fee, as appropriate.
6.8 Delivery Deficiency Fee Pursuant to Section 4.5, POC is obligated to
-----------------------
deliver for transport on the CCPL the Minimum Delivery Volume. If POC fails to
deliver for transport on the CCPL its Minimum Delivery Volume of POC Propane for
any period designated in Section 4.5, POC shall pay to Exxon in a lump sum at
the end of the Calendar Year in which the designated period ends, a deficiency
fee (the "DELIVERY DEFICIENCY FEE") calculated as follows: the deficit volume
shall be determined by calculating positive difference between (a) the Minimum
Delivery Volume for the designated period and (b) the volume recorded on CCPL
Propane Meter #2 (expressed in Barrels) during the applicable period (plus any
applicable volume credits pursuant to Section 4.6(a)); such amount shall be
multiplied by the cents per Barrel charge used in calculating the Pipeline
Delivery Fee. If at any time during an applicable period, Exxon determines, in
Exxon's sole opinion based on actual monthly delivery volumes, that POC will be
unable to meet its Minimum Delivery Volume and, as a result, will exceed Exxon's
approved credit limits, then Exxon shall have the right to require POC to make
weekly deficiency payments to stay within Exxon's approved credit limits. At
the end of each Calendar Year, an adjustment will be made to reflect the actual
Delivery Deficiency Fee, as appropriate.
6.9 Purchase Deficiency Fee
-------------------------
(a) Calculation Pursuant to Section 5.2, POC is obligated to
-----------
purchase and receive, or pay for, if available for delivery to POC at the
Delivery Point or the Alternate Delivery Point(s), as applicable, but not taken,
the Minimum Purchase Volume. If for any reason POC fails to purchase and
receive, if available for delivery to POC, the Minimum Purchase Volume required
for each Delivery Month, then, POC shall pay to Exxon at the end of each
Delivery Month a deficiency fee (the "PURCHASE DEFICIENCY FEE") calculated as
15
follows: the deficit volume shall be determined by calculating the positive
difference between (a) the Minimum Purchase Volume for the Delivery Month, and
(b) the sum of the volume of Exxon Equity Product (expressed in Barrels)
actually received by POC at the Delivery Point (as measured at Plant Propane
Meter #1 and Plant Butane Meter #4) and the volume of Exxon Equity Propane
(expressed in Barrels) actually received by POC at the Alternate Delivery
Point(s) (as measured at Ella-Seadrift Propane Meter #5 and Dean Propane Meter
#6) during the Delivery Month. Such deficit volume amount shall be multiplied
by the Product Price (including any applicable discount or premium).
(b) Alternate Disposition Costs Notwithstanding the preceding
-----------------------------
calculation, if Exxon sells or otherwise disposes of the Exxon Equity Propane
--
and Exxon Equity Butane which would have been included as part of the deficit
volume, then the Purchase Deficiency Fee shall be calculated as follows: the
deficit volume shall be determined as set forth in Section 6.9(a); such deficit
volume shall be multiplied by an amount equal to the positive difference, if
any, between the Product Price and the actual amount received by Exxon for the
sale of the Exxon Equity Propane and Exxon Equity Butane. In addition, POC
shall reimburse Exxon all costs of such disposition, including without
limitation, the cost of transporting the Exxon Equity Propane and Butane to an
equivalent market. Exxon will use good faith efforts to minimize such alternate
disposition costs.
Example:
During a given Delivery Month, Exxon produces _________________ Barrels (_____b)
of Exxon Equity Product, but POC receives only _______________ Barrels (____b).
As a result of POC's failure to accept delivery of the Exxon Equity Product,
Exxon transports ________________Barrels (____b) of Exxon Equity Propane and
Exxon Equity Butane to Corpus Christi at a cost of ______ ($____) per Gallon and
sells the Exxon Equity Propane and Exxon Equity Butane at _____ ($____) per
Gallon below the Product Price. POC would be required to pay Exxon a Purchase
Deficiency Fee in the amount of _________________ ($_________), calculated as
follows: (_______ Barrels x 42 (to convert to Gallons) x $____ (sum of
disposition cost and price difference) = $_________
ARTICLE 7
Billing, Payment and Audit
--------------------------
7.1 Billing and Payment Exxon shall render to POC the invoices set forth
-------------------
in this Section 7.1. The supporting data and calculations, including all
relevant analysis, computations, tickets and measurement data used by Exxon in
computing the amounts set forth in the invoices shall be submitted with each
invoice.
(a) Weekly Invoices At the end of each Delivery Week during the
----------------
Term, Exxon shall render to POC an invoice covering (i) the provisional Product
Price for Exxon Equity Propane and Exxon Equity Butane delivered during the
Delivery Week; (ii) the Pumping and Blending Fee for the Delivery Week, (iii)
the Pipeline Delivery Fee for the Delivery Week; (iii) the Pumping and Blending
16
Deficiency Fee, if Exxon has elected to invoice weekly pursuant to Section 6.7;
and (iv) the Delivery Deficiency Fee, if Exxon has elected to invoice weekly
pursuant to Section 6.8.
(b) Monthly Invoices At the beginning of each Delivery Month, Exxon
-----------------
shall render to POC an invoice covering (i) any applicable adjustments to the
Product Price for the preceding Delivery Month calculated in accordance with
Section 6.2(d); (ii) any applicable Purchase Deficiency Fee, (iii) any remaining
charges for the Pumping and Blending Deficiency Fee; and (iv) any remaining
charges for the Delivery Deficiency Fee.
(c) Annual Invoices If Exxon has not elected to invoice the Pumping
---------------
and Blending Deficiency Fee or the Delivery Deficiency Fee on a weekly basis, or
if an adjustment of either such fee is appropriate, Exxon shall render to POC at
the end of each Calendar Year an invoice covering the Pumping and Blending
Deficiency Fee, or the Delivery Deficiency Fee, or the adjustments, as
appropriate.
If payment is made pursuant to a documentary letter of credit, invoices shall be
sent to the issuing bank in accordance with the terms of such letter of credit.
Otherwise, invoices and supporting data shall be sent to the following address:
PENN OCTANE CORPORATION
12118 South Bloomfield
Santa Fe Springs, CA 90670
If payment is made pursuant to a documentary letter of credit, Exxon shall make
draws in accordance with the terms of such letter of credit. Otherwise, POC
shall pay each invoice in full within twelve (12) Days from receipt of such
invoice and supporting data POC by wire transfer to Exxon at:
Citibank, N.A., New York, NY
ABA 0210-0008-9
For credit to Exxon Co. U.S.A.
Account No. 00034219
If the payment due date falls on a Sunday or Monday banking holiday, payment
will be due on the next succeeding Business Day. If the payment due date falls
on a Saturday or bank holiday other than a Monday, payment will be due on the
first preceding Business Day.
7.2 Audit Each Party and its duly authorized representatives shall have
-----
the right to witness custody transfer measurement procedures in accordance with
Exhibit "B". In addition, each Party and its duly authorized representatives
shall have access to the accounting and measurement records and any other
documents maintained by the other Party or any of its Affiliates, subcontractors
or agents which are necessary to verify the accuracy of any billing or
transaction under this Agreement. Each Party shall have the right to audit, at
its own expense, such records at any reasonable time or times within twenty-four
(24) months after the end of each Calendar Year during which the transaction in
question occurred. Each Party shall preserve and shall cause all Affiliates,
subcontractors and agents to preserve all of the above referenced records and
17
documents for the same period specified above. Any costs (including but not
limited to, employee time, office space/overhead, photocopying, pulling records,
etc.) incurred by the audited Party during the audit shall be borne by the
audited Party. For purposes of auditing the margins associated with the Mt.
Belvieu Price Differential in Section 6.4, POC shall cause its Affiliate, Penn
Octane Mexico, to comply with the terms of this Section 7.2.
ARTICLE 8
Representations and Warranties
------------------------------
As a material inducement to entering into this Agreement, POC, with respect to
itself and its Affiliates, as applicable, hereby represents and warrants to
Exxon as of the Effective Date as follows:
(a) it is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation and is qualified to
conduct its business in those jurisdictions necessary to perform
this Agreement;
(b) it (or its Affiliate, Penn Octane Mexico) has all regulatory
authorizations, permits and licenses necessary for it to legally
perform its obligations under this Agreement;
(c) the execution, delivery and performance of this Agreement are
within its powers, have been duly authorized by all necessary
action and do not violate any of the terms or conditions in
its governing documents or any contract to which it is a party
or any law, rule, regulation, order, writ, judgment, decree or
other legal or regulatory determination applicable to it;
(d) there are no bankruptcy, insolvency, reorganization, receivership
or other arrangement proceedings pending or being contemplated by
it, or to its knowledge threatened against it;
(e) there are no suits, proceedings, judgments, rulings or orders by or
before any court or any governmental authority that materially
adversely affect its ability to perform this Agreement; and
(f) it (or its Affiliate, Penn Octane Mexico) has obtained written
purchase commitments to purchase the Minimum Purchase Volume
required to be purchased by POC under Section 5.2 either (i) from
Pemex for a minimum of twelve (12) months from the Effective Date,
or (ii) from an LPG reseller or a group of LPG resellers in
Northeast Mexico for a minimum of five (5) years from the
Effective Date.
18
ARTICLE 9
Credit and Financial Responsibility
-----------------------------------
9.1 Credit Provisions POC shall provide to Exxon a letter of credit in
------------------
accordance with the requirements set forth in Exhibit "D" to cover all of POC's
payment obligations set forth in Article 6 of this Agreement.
9.2 Financial Responsibility If, during the Term, the financial
-------------------------
responsibility of POC becomes impaired or unsatisfactory to Exxon, advance cash
payment or satisfactory security reasonably acceptable to Exxon shall be given
upon demand; and performance under this Agreement may be withheld until such
payment or security is received. If this Agreement is assigned during the Term,
the assignor will be required to provide sufficient financial information for
determination of financial responsibility of the assignee.
9.3 Setoff For the purpose of this Section 9.3 only, the terms "Exxon"
------
and "POC" shall each include their respective subsidiaries and Affiliates.
Exxon may setoff any amount owed to Exxon by POC against any amount owed to POC
by Exxon, whether under this Agreement or any other agreement or arrangement
between or among any of them. If any amount owed is unliquidated or
unascertainable, Exxon may setoff an amount estimated by it in good faith to be
the amount owed.
ARTICLE 10
Taxes
-----
Exxon shall pay and/or be responsible for all taxes levied or assessed upon the
production, severance and processing of the gas from which the Exxon Equity
Product delivered to POC is extracted and upon the transportation or storage of
the Exxon Equity Product and any other taxes payable on or with respect to the
Exxon Equity Product prior to its delivery to POC. POC shall pay and/or be
responsible for payment of all taxes that may be levied or assessed upon the
purchase, transportation, storage or use of the POC Propane or the Mix and any
other taxes payable on or with respect to the Mix after POC takes delivery at
the Delivery Point or the Alternate Delivery Point(s).
ARTICLE 11
Default and Remedies
--------------------
11.1 Event of Default An "Event of Default" means, with respect to a
------------------
Party alleged to have taken or failed to have taken any of the actions set forth
below in this Section 11.1 (the "DEFAULTING PARTY"):
(a) the failure by POC to make, when due, any payment required under
this Agreement if such failure is not remedied within fifteen
(15) Business Days after written notice from Exxon; or
19
(b) any representation or warranty made by the Defaulting Party in
this Agreement proves to have been false or misleading in any
material respect when made or ceases to remain true during the
Term; or
(c) the failure by the Defaulting Party to perform any covenant set
forth in this Agreement, and such failure is not excused by force
majeure or cured within fifteen (15) Business Days after written
notice thereof to the Defaulting Party; or
(d) the Defaulting Party:
(i) makes an assignment or any general arrangement for the
benefit of creditors (other than a collateral assignment
of this Agreement by POC as security);
(ii) files a petition or otherwise commences, authorizes or
acquiesces in the commencement of a proceeding or cause
of action under any bankruptcy or similar law for the
protection of creditors, or has such petition filed against
it and such petition is not withdrawn or dismissed for
thirty (30) days after such filing;
(iii) otherwise becomes bankrupt or insolvent (however evidenced);
or
(iv) is unable to pay its debts as they fall due; or
(e) the failure of POC to maintain the letter of credit required
pursuant to Section 9.1.
11.2 Remedies Upon an Event of Default If an Event of Default
--------------------------------------
occurs under this Agreement with respect to a Defaulting Party, the other Party
("NON-DEFAULTING PARTY") may terminate this Agreement by giving the Defaulting
Party written notice of termination. Upon the occurrence of any Event of
Default listed in Section 11.1(d) as it may apply to any Party, this Agreement
shall automatically terminate, without notice, and without any other action by
either Party. In addition to the Non-Defaulting Party's right to terminate, the
Non-Defaulting Party may exercise any remedy available at law or in equity, or
both, against the Defaulting Party, subject, however, to the limitations set
forth in Section 14.2. The Parties acknowledge that it is their intent that
payment of the Delivery Deficiency Fee, the Purchase Deficiency Fee, or the
Pumping and Blending Deficiency Fee is not intended to be the exclusive remedy
of Exxon for failure of POC to perform its POC Propane delivery obligations
under Article 4 nor its Exxon Equity Product purchase obligations under Article
5.
11.3. Payment Upon Termination Upon termination of this Agreement
--------------------------
pursuant to Section 11.2, each Party shall pay the other Party all amounts due
under this Agreement, as applicable, up to the date of termination.
11.4 Attorney's Fees If either Party engages in legal proceedings for
----------------
the purposes of enforcing this Agreement or recovering damages due to the breach
of this Agreement by the other Party, the enforcing Party shall be entitled to
reimbursement by the other Party for costs, reasonable attorneys' fees and any
other reasonable expenses incurred in connection with those legal proceedings.
20
ARTICLE 12
Force Majeure;
--------------
Repair and Maintenance
----------------------
12.1 Force Majeure
--------------
(a) Effect of Force Majeure If either Party is rendered unable, by
------------------------
reason of a force majeure event, to carry out, in whole or in part, its
obligations under this Agreement, the Party claiming inability shall give notice
to the other Party as soon as reasonably practical after the occurrence of that
event. Such notice shall be confirmed promptly in writing giving full
particulars, and effective upon the occurrence of the force majeure event, the
obligations of such Party (other than any obligation to make a payment then due
or becoming due under this Agreement with respect to performance prior to such
event) shall, insofar as they are affected by the force majeure event, be
suspended during the continuance of any inability so caused, but for no longer
period; and such cause shall, as far as possible, be remedied with all
reasonable diligence. Notice of termination of force majeure conditions shall
be given in writing to the other Party.
(b) Definition As used in this Agreement, the term "force majeure"
----------
shall mean an event which is beyond the reasonable control of the Party claiming
an event of force majeure which reasonably could not have been prevented by the
exercise of due diligence, including, without limitation: acts of God, acts of
the public enemy; wars; blockades; insurrections; strikes, lockouts, or
industrial disputes or disturbances; riots; disorders; epidemics; landslides;
lightning; earthquakes; hurricanes or threats of hurricanes; fires; storms,
floods, or washouts; arrests and restraints; civil disturbances; explosions,
breakage or accident to machinery or lines of pipe located within the United
States; freezing of wells or lines of pipe located within the United States;
acts of governmental authority; embargoes; failure of pipelines or other
carriers located within the United States to transport or furnish facilities for
transportation; changes of rules and regulations with regard to transportation
by common or jurisdictional carriers within the United States; failures,
disruptions, or breakdowns of machinery or of facilities of production,
manufacture, transportation, distribution and consumption located within the
United States; the necessity for making repairs, maintenance, alterations,
enlargements or connections to the Plant or any machinery, facilities or lines
of pipe located within the United States. It is understood and agreed that the
settlement of strikes or lockouts shall be entirely within the discretion of the
Party having the difficulty and that the above requirement that any force
majeure shall be remedied with all reasonable diligence shall not require the
settlement of strikes or lockouts by acceding to the demands of the opposing
Party when such course is not advisable in the discretion of the Party having
the difficulty. The term "force majeure" does not include (i) economic events,
such as lack of funds or changes in market conditions or prices, nor (ii) any
event which affects machinery, facilities or lines of pipe which are located
outside of the United States.
12.2 Repair and Maintenance If the need to affect major repairs,
------------------------
maintenance, or alteration work arising from the normal operation of the Plant
or any other facility utilized in connection with performing either Party's
obligations under this Agreement, whether or not as a result of force majeure,
makes it necessary for either Party (or the designated operator of any such
facility, as applicable) to shut down or seriously impede the operation of such
facility on a temporary basis, such Party shall, when reasonably possible, so
21
notify the other Party as soon as reasonably practicable, so that the other
Party shall have the opportunity to minimize disruption to its operations. With
respect to repairs, maintenance or alteration work to the Plant or any other
facility located within the United States, the obligations of the Parties (other
than any obligation to make a payment then due or becoming due under this
Agreement with respect to performance prior to such event) shall, to the extent
they are affected by the repairs, maintenance or alteration work, be suspended
during the continuance of such repairs, maintenance or alteration work.
ARTICLE 13
Assignment
----------
This Agreement shall be binding on and inure to the benefit of the successors
and assigns of the Parties; provided, however, that neither Party shall assign
this Agreement in whole or in part without the prior written consent of the
other Party, which consent shall not be unreasonably withheld. Either Party
shall have the right to assign this Agreement to an Affiliate without the
consent of the other Party. Any such assignment shall not relieve the assignor
from any past or future obligations under this Agreement. Nothing in this
Agreement shall in any way limit the right of Exxon to change or replace the
operator of the Plant or to sell its interest in the Plant; provided, however,
any such sale shall be expressly subject to this Agreement.
ARTICLE 14
Indemnity; Limitation of Liability
----------------------------------
14.1 Indemnity As between the Parties, Exxon shall be deemed to be in
---------
control and possession of the Mix deliverable hereunder and responsible for any
damages or injuries caused thereby until the Mix is delivered to POC at the
Delivery Point (or the Exxon Equity Propane is delivered at the Alternate
Delivery Point(s), as applicable); and POC shall be deemed to be in control and
possession of the Mix delivered hereunder and responsible for any damages or
injuries caused thereby from and after the Mix is delivered to POC at the
Delivery Point (or the Exxon Equity Propane is delivered at the Alternate
Delivery Point(s), as applicable). POC shall indemnify, defend and hold Exxon
harmless from and against all claims, suits, liability and expense on account of
injury to or death of persons, harm to the environment, or damage to property
caused by or resulting from negligence or acts of willful misconduct on the part
of POC, its employees, agents or contractors in the performance of this
Agreement except to the extent that such injury, death, harm or damage is caused
by negligence or acts of willful misconduct on the part of Exxon, its employees,
agents or contractors. Exxon shall indemnify and hold POC harmless from and
against all claims, suits, liability and expense on the account of injury to or
death of persons, harm to the environment, or damage to property caused by or
resulting from negligence or acts of willful misconduct on the part of Exxon,
its employees, agents or contractors in the performance of this Agreement except
to the extent that such injury, death, harm or damage is caused by negligence or
acts of willful misconduct on the part POC, its employees, agents or
contractors. Where personal injury, death, harm to the environment, or loss or
damage to property is the result of the joint acts or omissions of the Parties,
the Parties expressly agree to indemnify each other in proportion to their
respective share of such joint acts or omissions.
22
14.2 Limitation of Liability NOTWITHSTANDING ANYTHING TO THE
-------------------------
CONTRARY ELSEWHERE IN THIS AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS
6.7, 6.8, AND 6.9, NEITHER PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO THE
OTHER PARTY FOR ANY EXEMPLARY, INDIRECT, CONSEQUENTIAL, PUNITIVE, OR SPECIAL
DAMAGES OR LOST PROFITS WHICH IN ANY WAY ARISE OUT OF OR RELATE TO THIS
AGREEMENT OR THE PERFORMANCE OR BREACH THEREOF.
ARTICLE 15
Confidentiality
---------------
Each Party agrees not to disclose the terms of this Agreement to a third party
(other than the Party's or its Affiliates' employees, lenders, counselors or
accountants who have agreed to keep such terms confidential) except in order to
comply with any applicable law, order, regulation or exchange rule; provided,
each Party shall notify the other Party of any proceeding of which it is aware
which may result in disclosure. The Parties shall be entitled to all remedies
available at law or in equity to enforce, or seek relief in connection with,
this confidentiality obligation. This Article 15 shall survive the termination
of this Agreement for a period of two (2) years.
ARTICLE 16
Use Of Trademark; Publicity Releases
------------------------------------
POC shall not, without the prior written consent of Exxon, (a) use the name or
any trade name or registered trademark of Exxon Corporation or any of its
divisions or Affiliates in any advertising or communications to the public in
any format; or (b) make publicity releases or announcements regarding this
Agreement, or any activities related to this Agreement. As to publicity releases
or
announcements, Exxon's consent shall not be unreasonably withheld. POC has
advised Exxon that regulatory requirements for financial disclosure from the SEC
or other regulatory agencies may exist, and Exxon agrees to take into account
such requirements in determining its consent in a timely fashion.
ARTICLE 17
Notices
-------
17.1 Notices Notices required or permitted to be given under this
-------
Agreement shall be in writing and deemed to be properly given if (a) delivered
in person, (b) deposited in the United States mail, certified or registered,
return receipt requested with postage prepaid, or (c) delivered by private,
prepaid courier with record of receipt and addressed to the appropriate Party at
the addresses set forth below:
EXXON POC
----- ---
Exxon Company, U.S.A. Penn Octane Corporation
P. O. Box 2180 900 Veterans Blvd., Suite 240
Houston, Texas 77252 Redwood City, CA 94063
Attn: NGL Business Attn: Jerry Richter
Development Coordinator
Phone: 713-656-4064 Phone: 650-368-1501
Fax: 713-656-6210 Fax: 650-368-1505
23
17.2. Receipt of Notices Notice delivered in person shall be effective
--------------------
upon receipt. Notice by certified or registered mail or courier shall be deemed
to have been received upon signature of the receiving Party. A Party may change
its address by providing notice of same in accordance with this Article 17.
ARTICLE 18
Business Standards; Accuracy Of
-------------------------------
Records; and Legal Compliance
-----------------------------
18.1 Compliance With Laws and Regulations Each Party shall be
----------------------------------------
responsible and liable for and agrees to indemnify and hold harmless the other
-
Party against all costs, expenses, losses, claims, damages, assessments
(including without limitation professional fees, penalties, and interest),
causes of action, judgements, fines, settlements, penalties and liabilities
(joint and several), without regard to amount, arising out of, caused by, or
resulting from the indemnifying Party's failure to comply with all applicable
federal, state, and local laws, ordinances, orders, rules and regulations.
18.2 Exporter of Record POC, or its Affiliate Penn Octane Mexico, shall
-------------------
be the exporter of record for pipeline or other deliveries into Mexico of Mix
purchased under this Agreement and agrees to fulfill all requirements applicable
to the exporter of record, including but not limited to those of the United
States or Mexico customs and shall pay any applicable export duty or any other
applicable fees and fines, penalties or costs.
18.3 Business Practices Each Party agrees (a) to comply with all laws
-------------------
and lawful regulations applicable to any activities carried out in the name of
or on behalf of the other Party under the provisions of this Agreement and/or
amendments to it; (b) that all financial settlements, billings and reports
rendered to the other Party as provided for in this Agreement and/or any
amendments to it will, to the best of its knowledge and belief, reflect properly
the facts about all activities and transactions related to this Agreement, which
data may be relied upon as being complete and accurate in any further recording
and reporting made by such other Party for whatever purpose; and (c) to notify
the other Party promptly upon discovery of any instance where the notifying
Party fails to comply with provision (a) above, or where the notifying Party has
reason to believe data covered by (b) above is no longer accurate and complete.
18.4 Business Standards Each Party, in performing its obligations under
-------------------
this Agreement shall establish and maintain appropriate business standards,
procedures, and controls including those necessary to avoid any real or apparent
impropriety or adverse impact on the interests of the other Party or its
Affiliates. Each Party shall exercise all reasonable care and diligence to
prevent any actions or conditions which could result in a conflict with the
other Party's best interests. This obligation shall apply to the activities of
employees, agents and subcontractors of such Party and its Affiliates in
relations with the employees of the other Party and their families, or third
parties arising from this Agreement. Such efforts include, but are not limited
to, establishing precautions to prevent either party or its subcontractors from
making, receiving, providing, or offering any substantial gifts, extravagant
entertainment, payments, loans or other considerations.
24
ARTICLE 19
Arbitration
-----------
If arbitration is invoked to determine the pricing mechanism to be used in
calculating an index price under Section 6.2(e) or to determine the Product
Price redetermination under Section 6.3, the arbitration will be conducted as
follows. Prior to submission of the matter to arbitration, each Party shall
submit in writing to the other Party its final offer as to the issue in dispute:
(a) The question in dispute will be determined through binding
arbitration before one (1) arbitrator pursuant to the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") as modified by this
Agreement. The arbitration shall take place in Houston, Texas and shall follow
the expedited procedures set forth in the rules provided that such procedures
shall be completed within ninety (90) days from the date arbitration is invoked.
(b) A single arbitrator shall be appointed by mutual consent of both
Parties. If the Parties, however, cannot reach agreement on an arbitrator
within fifteen (15) days of submission of notice of arbitration, then the
Parties shall request AAA to select the arbitrator by administrative
appointment. The arbitrator shall be an individual who is not and never has
been an officer, director, or employee of either Party nor an employee of either
Party's competitors in the gas industry, and who is qualified by education,
knowledge, training, and experience to decide upon the particular question in
dispute. Consultants, contractors and expert witnesses previously used by
either Party shall not be used as an arbitrator without the consent of both
Parties.
(c) The Federal Arbitration Act shall apply to the arbitration and the
arbitrator shall apply the substantive law of the State of Texas to the merits
of the case. The arbitrator shall not resort to any conflict of law rule that
would call for the application of the law of another jurisdiction,
(d) Each Party may submit evidentiary documents to the arbitrator in support
of its position. The arbitrator may request, but neither Party shall be
compelled to provide, any further evidentiary documents or information from the
Parties. However, the arbitrator may ask questions of the Party submitting
documents as they relate to the matter in dispute.
(e) Each Party shall bear one half of the fees and expenses associated
with the arbitration. The arbitrator's decision is limited to selecting one or
the other of the final written offers submitted by the Parties. No other
pricing mechanism or redetermined price, as applicable, may or will be adopted
by the arbitrator. However, the Parties may mutually agree to a pricing
mechanism or redetermined price, as applicable, at any time prior to the
conclusion of the arbitration. Once the arbitration award is made, however, the
decision of the arbitrator made in writing shall be final and binding on both
the Parties, and the Parties will abide by and comply with such decision. The
decision shall be enforceable in a court of competent jurisdiction which shall,
if necessary, enter judgment on such award or decision. Neither Party may
contest, attack or appeal the arbitration award or decision to any court or
administrative agency.
25
ARTICLE 20
Miscellaneous
-------------
20.1 Conflict In the event of a conflict between the terms and
--------
provisions of this Agreement and any exhibit attached hereto, the terms and
provisions of the Agreement shall control. In the event of a conflict between
the language of a provision and either an example or a formulaic description,
the language of the provision shall control.
20.2 Entirety This Agreement and the Exhibits attached hereto constitute
--------
the entire agreement between the Parties. There are no prior or contemporaneous
agreements or representations affecting the same subject matter other than those
herein expressed. No amendment, modification or change herein shall be
enforceable unless reduced to writing and executed by both Parties.
20.3 Law Governing Agreement This Agreement and the rights and duties of
-----------------------
the Parties shall be governed by and construed, enforced and performed in
accordance with the laws of the State of Texas, without giving effect to
principles of conflicts of laws or choice of law rules. Notwithstanding anything
to the contrary, this Agreement shall not be interpreted or applied so as to
require either party to do or refrain from doing, anything which would
constitute a violation of any laws or regulations.
20.4 Non-Waiver No waiver by either Party of any one or more breaches or
----------
defaults by the other Party in the performance of any of the covenants or
conditions of this Agreement shall be construed as a waiver of any succeeding
default or defaults whether of a like kind or different nature.
20.5 Severability In case any one or more of the provisions contained in
------------
this Agreement shall for any reason be held invalid, illegal, or unenforceable
in any respect, such invalid, illegal or unenforceable provision or provisions
shall be fully severable and shall not affect any other provision of this
Agreement; and this Agreement shall be construed and enforced as if such
invalid, illegal, or unenforceable provision had never been contained herein.
20.6. Headings; Exhibits The headings used for the sections and articles
------------------
in this Agreement are for convenience and reference purposes only and will in no
way affect the meaning or interpretation of the provisions of this Agreement.
Any and all Exhibits referred to in this Agreement are, by such reference,
incorporated herein and made a part of this Agreement for all purposes.
20.7 Survival All indemnity and audit rights shall survive the
--------
termination of this Agreement. All obligations provided in this Agreement shall
remain in effect for the purpose of complying herewith.
20.8 No Third Party Beneficiaries Nothing in this Agreement will
-------------------------------
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the Parties
that this Agreement shall not be construed as a third party beneficiary
contract.
26
20.9 Status of the Parties Nothing in this Agreement, nor in the
------------------------
relationship between Exxon and POC and any Affiliate of either Exxon or POC, is
intended to create nor shall be deemed to constitute a partnership or joint
venture or any other similar relationship.
20.10 Counterparts This Agreement shall be executed in duplicate
------------
originals, with one original to be retained by POC and one original retained by
Exxon. This Agreement may be executed in several counterparts, each of which
shall be an original and all of which constitute one and the same instrument.
20.11 Time of the Essence Time is of the essence for all provisions of
---------------------
this Agreement.
20.12 Construction of Agreement Both Parties have contributed to the
---------------------------
drafting of this Agreement. Any ambiguities or uncertainties in the wording
shall not be construed for or against either Party.
IN WITNESS WHEREOF, the Parties, by their respective duly authorized
representatives, have executed this Agreement effective as of the Effective
Date. This Agreement shall not become effective as to either Party unless and
until executed by both Parties.
PENN OCTANE CORPORATION EXXON COMPANY, U.S.A.
a Delaware corporation (a division of Exxon Corporation)
By: __________________________ By: ___________________________
Title: _______________________ Title: ________________________
Date Signed: ________________ Date Signed __________________
SCHEDULE OF EXHIBITS:
- ----------------------
Exhibit "A" Specifications
Exhibit "B" Measurement and Sampling
Exhibit "C" Diagram of Meters
Exhibit "D" Letter of Credit Requirements
27
EXHIBIT "A"
TO PURCHASE, SALE AND SERVICE AGREEMENT
FOR PROPANE/BUTANE MIX
KING RANCH GAS PLANT
PRODUCT SPECIFICATIONS
ITEM LIMIT METHOD
- ------------------------------------------------------------------------------------
PROPANE BUTANE MIX(3)
------- ------ ------
Composition: %LV
- -----------------
Propane - Min 95 N.A. ___ ASTM D2163
Butane - Min N.A. 95 ___1 & 2) ASTM D2163
Butane & heavier - max 3 -- -- ASTM D2163
Pentane & heavier - max -- 5 5 ASTM D2163
CO2 0.1 0.1 0.1 ASTM D2163
Ethane - max < 2 N.A. N.A. ASTM D2163
Methane - max 1.5 % of ethane N.A. N.A. ASTM D2163
Corrosion - copper strip - max No.1 No.1 No.1 ASTM D1838
Total Sulfur - ppmw - max 123 140 140 ASTM D2784-89
Free water/moisture content none none none
Vapor pressure @ 100 F - psia 208 70 185 ASTM D1267-89
<FN>
Notes: 1 The maximum butane in the MIX may be revised as a result of a change in specifications
issued by a regulatory agency of the Mexican Government
2. Exxon may exceed ____ (___) volume % butane in the MIX with prior written consent of POC.
3. POC will be responsible for monitoring and correcting spec problems from off spec
propane delivered to the Plant from CCPL.
28
EXHIBIT "B"
TO PURCHASE, SALE AND SERVICE AGREEMENT
FOR PROPANE/BUTANE MIX
KING RANCH GAS PLANT
NATURAL GAS LIQUID MEASUREMENT PROCEDURES
SECTION I - METERING EQUIPMENT
Products delivered or received per this Agreement shall be measured by MASS
MEASUREMENT PROCEDURES using a turbine meter.
Each measuring station shall be equipped with: a flow computer capable of
totalizing gross volume, net volume and mass; pressure and temperature
transmitters; and a densitometer that measures density at flowing conditions in
gm/cc. Exxon monitors compliance of Exxon produced/delivered propane and butane
using on-line chromatographs.
The measuring station shall be installed in such a manner that a minimum
back-pressure of 50 psig above the product vapor pressure at maximum operating
temperature is maintained at all times. Measurement accuracy shall not be
impeded by the effects of pulsation created by pumps or other sources.
All equipment employed in metering and sampling shall be approved as to the
type, materials of` construction, method of installation, and maintenance by all
persons involved in the custody transfer of Products. Due consideration shall
be given to the operating pressure, temperature, and characteristics of the
product being measured.
TURBINE METERS shall be installed and operated in accordance with the API Manual
- -------------- ----------
of Petroleum Measurement Standards, Chapter 5, Sections 3 & 4. Each turbine
- -------------------------------------
meter shall be proved by a ball or piston-type prover in accordance with the API
---
Manual of Petroleum Measurement Standards, Chapter 4.
- ---------------------------------------------
DENSITOMETERS shall be installed and proved in accordance with the API Manual of
- ------------- -------------
Petroleum Measurement Standards, Chapter 14, Section 6. Proving is to be
- ---------------------------------
accomplished by entrapping a sample of the flowing stream at system conditions
in a high-pressure vessel known as a pycnometer.
FLOW COMPUTERS shall be installed capable of accepting turbine pulses and
- ---------------
signals from the pressure, temperature, and density densitometer transmitters.
The computer shall convert, as required, and totalize these signals into gross
volume, mass, and net volume. For net volume determinations, the computer shall
utilize the latest ASTM, API, and GPA tables for temperature, pressure and
specific gravity correction that are applicable to the product being measured.
COMPOSITE SAMPLING SYSTEM, if used, shall be operated to collect
- ---------------------------
flow-proportional samples only when there is flow through the meter. These
samples shall be accumulated in and removed from single-piston cylinders with
mixing capability.
Meters, instruments, and check meters shall be calibrated at least once each
Month. Sufficient notice shall be given to all parties to permit a
representative of each to be present.
Reference to any API, GPA, ASTM, GPA, or similar publication shall be deemed to
encompass the latest edition, revision, or amendments thereof.
29
SECTION II - ACCOUNTING AND MEASUREMENT PROCEDURES
I. GENERAL
A. Exxon shall operate and maintain custody/transfer measurement
facilities at the King Ranch Gas Plant for measurement of Products
hereunder.
B. Persons involved in the custody transfer of Products shall exchange
measurement data during the Month to facilitate detection and
resolution of measurement problems in a timely manner.
C. Persons involved in the custody transfer of Raw Make and Finished
Products shall notify each other of modifications to their
respective metering installations, maintain records of such changes,
and make such records available to each other upon request.
II. CUSTODY TRANSFER TICKETS
A. For streams which are measured on a MASS basis, custody tickets will
be furnished stating the total mass measured in pounds. The equivalent volume
in Barrels of liquid Products computed at standard conditions will also be
furnished. Custody transfer tickets for Products shall be generated on time
basis per the Agreement for a Month.
III. MEASUREMENT BASIS
MASS MEASUREMENT
Mass measurement procedures shall be employed on Products unless otherwise
provided in this Agreement.
Mass Measurement shall be accomplished utilizing a turbine meter,
densitometer, and flow computer to convert gross volumetrically measured Barrels
using density in gm/cc at flowing conditions to total pounds mass according to
the following formula:
(Gross Barrels)(Meter Factor)(Density at Operating Conditions in
gm/cc)(350.506987)=Total pounds Mass 350.506987 is the conversion factor to
convert gm/cc to lbs/barrel.
Total pounds mass shall be converted to equivalent Gallons of each Product
utilizing the calculation procedure outlined in GPA Standard 8173-83, and the
Product weights in a vacuum in accordance to GPA Standard 2145-94. Component
Gallons will be further reduced to Barrels.
IV. PROVINGS AND TOLERANCES
As flow passes through the turbine meter blades, this causes the blades to
turn. As each blade edge passes through the magnetic field of the pick-up coil,
a pulse is generated. The pulses then are converted to a square wave frequency
by the electronic module mounted on the turbine meter. This frequency signal is
then sent to the flow computer to establish flow rates. Once the signal is
showing flow, there are two ways to show correct gross barrel flow. Pulse per
barrel and a meter correction factor are used to do this. After a meter is
proved, one can choose to adjust the factory set pulses per barrel which will
then be referred to as a "K" Factor. If that choice is made, then meter
correction factor remains at 1.0000. If the adjustment is made at the meter
correction factor, then the pulses per barrel will remain set at standard pulses
per barrel for that particular meter.
30
The densitometer factor is entered into the flow computer to correct
flowing density in gm/cc as determined by results of a pychometer test. The
pycnometer shall be installed so that flow through the vessel will assure proper
purging thus allowing temperature and pressure equalization with the
densitometer being proved. Maximum allowable temperature differential between
the contents in the pycnometer and the densitometer shall be no greater than +/-
1.0 F. The pressure shall be equal to that of the densitometer at time of
removal.
A. GENERAL
1. Meter provings, calibration of instruments, and maintenance of
measurement equipment will normally be performed by Operator personnel, but
these functions may be delegated to responsible third-party contractors under
the direction of an Operator representative.
2. At least twenty-four notice shall be given to all Persons
involved in the custody transfer of Products to permit a representative of each
to be present at meter provings and instrument calibrations.
3. Persons involved in the custody transfer of Products shall
cooperate to ensure that calibration/provings are scheduled and performed to
allow lockout of the flow computer, not to exceed one hour for each computer, to
avoid metering discrepancies during proving.
4. A Person's witness signature does not constitute the approval
of the use of out-of-tolerance equipment, but said signature does attest to the
validity of the proving report.
B. PROVING INTERVALS
Each meter shall be proven when initially placed into service.
Subsequent provings shall be made on a monthly basis. The meter shall be proven
immediately after any meter maintenance is performed.
C. METER FACTOR
1. The average of five (5) consecutive prover runs shall be taken to
establish an initial or new meter factor, provided that the five (5) proving
runs are within 0.0005 of each other and the meter factor is within 0.0025 of
the previous meter factor under like operating conditions.
2. If the new meter factor deviates less than 0.0025 from the
previous meter factor, the effective date for accounting with the new factor
will be the date of the proving and the new meter factor will remain effective
until the next proving. A custody transfer ticket should be written.
3. If the new meter factor deviates from the previous meter factor
under like operating conditions by more than plus or minus 0.0025, then one half
(1/2) of the volume measured since the previous proving shall be corrected using
the new meter factor. If the time of malfunction can be determined by
historical data, then the volume measured since that point in time shall be
corrected using the new meter factor. The new meter factor shall not be used to
correct volumes measured more than 31 days prior to the new proving.
4. No work shall be performed on the measuring element of a
turbine meter without first proving the meter. If any work is performed, a new
meter factor shall be established.
31
5. If the new meter factor deviates more than 0.0025 but less than
0.0050 from the previous meter factor, the field representatives Persons
involved in the custody transfer of Products shall determine the corrective
action to be taken.
6. If the new meter factor deviates 0.0050 or more, the element
shall be removed and inspected. If there is build-up on the internals, then the
element shall be cleaned and the meter reproved. If excessive wear is found,
then the element shall be repaired or replaced and the meter reproved to
establish a new initial meter factor.
7. The measurement technician shall record all required
corrections to measured volumes and shall describe the findings, method of
repair, and calculations used in making the correction on the meter proving
report. A correction ticket for the amount of the correction shall be issued.
D. DENSITY FACTOR
The proving intervals, repairs, and methods of correction are the same
as outlined in paragraph B and paragraph C.2 to C.6. A single pycnometer
proving is sufficient.
V. CUSTODY MEASUREMENT STATION FAILURE
If a failure occurs on a custody measurement station or the station is out
of service while product is being delivered, then the quantity shall be
determined or estimated by one of the following methods in the order stated upon
mutual agreement of the Persons involved in the custody transfer:
1. By using data recorded by any check measuring equipment that was
accurately registering; or
2. By correcting the error if the percentage error can be ascertained
by calibrations, tests, or mathematical calculations; or
3. By comparison with deliveries made under similar conditions when the
measurement station was registering accurately.
VI. SAMPLING PROCEDURES
If used, flow proportional composite samples of Products shall be analyzed
in accordance with GPS Standard 2177-89.
A. If a malfunction of the sampling equipment occurs resulting in no
sample being taken or in an unrepresentative sample being obtained, the
following procedure shall be utilized in the order stated:
1. The sample collected by an on-steam back-up sampling device
that has extracted a sample in proportion to the volume delivered shall be used;
or
2. An average of the composite samples taken over the last three
(3) Months of properly sampled deliveries or a daily grab sample shall be used
for the time in question.
32
TECHNICAL PUBLICATIONS
1. Manual of Petroleum Measurement Standards, American Petroleum Institute,
Washington D. C., First Edition, July 1976:
(a) Chaper 1, "Definitions"
(b) Chapter 4, "Proving System"
(c) Chapter 5.3, "Turbine Meters"
(d) Chapter 5.4, "Instruments or Accessory Equipment of Liquid
Hydrocarbon Metering Systems"
(e) Chapter 9.2, "Pressure Hydrometer Test Method for Density or
Relative Density"
(f) Chapter 12.2, "Calculations of Petroleuym Quantities"
(g) Chapter 14.6, "Installation and Proving Density Meters Used to
Measure Hydrocarbon Liquids with Densities between 0.3 and 0.7
gm/cc at 15.56 C (60 F) and Saturation Vapor Pressure"
2. GPA Standard 2140-84 "Liquefied Petroleum Gas Specifications and Test
Methods"
3. GPA Standard 2145-94 "Table of Physical Constants of Paraffin
Hydrocarbons and Other Components of Natural Gas"
4. GPA Standard 2174-83 "Method of Obtaining Hydrocarbon Fluid Samples Using
a Floating Piston Cylinder"
5. GPA Standard 2177-89 "Method for the analysis of Demethanized Hydrocarbon
Mistures Containing Nitrogen and Carbon Dioxide by Gas Chromatography"
6. GPA Standard 8173-83 "Method for Converting Natural Gas Liquids and
Vapors to Equivalent Liquid Volumes"
7. GPA Standard 8182-82 "Tentative Standard for the Mass Measurement of
Natural Gas Liquids"
References to any API, GPA, or ASTM publication shall be deemed to encompass the
latest edition, revision or amendment, thereof.
33
EXHIBIT "C"
TO PURCHASE, SALE AND SERVICE AGREEMENT
FOR PROPANE/BUTANE MIX
KING RANCH GAS PLANT
See attached Diagram of Meter Locations
34
EXHIBIT "D"
TO PURCHASE, SALE AND SERVICE AGREEMENT
FOR PROPANE/BUTANE MIX
KING RANCH GAS PLANT
LETTER OF CREDIT REQUIREMENTS
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As required under Section 9.1, POC shall provide to Exxon a letter of credit
("LC") to cover all of POC's payment obligations set forth in Article 6 of this
Agreement. The LC shall be issued in a format, for an amount, by a bank and for
a time duration acceptable to Exxon. Credit balances shall be monitored by
Exxon, and amendments to the LC may be required from time to time when it
appears that the credit balances may exceed current security levels. Timely
receipt by Exxon of acceptable security and amendments is a condition precedent
to Exxon's performance under this Agreement throughout the Term.
LC Determination A calculation of the amount of the LC for any Calendar
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Month will be made on or before the fifth (5th) Business Day preceding such
Calendar Month using projected volumes and prices as follows:
PRICE Exxon will provide an estimate of the Propane Index Price and the
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Butane Index Price for the Calendar Month to be covered by the LC.
VOLUME POC will provide projections for Exxon Equity Product receipts
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at the Delivery Point, Exxon Equity Propane receipts at the Alternate Delivery
Point(s) and POC Propane deliveries across CCPL Propane Meter #2 and
Ella-Seadrift Propane Meter #3 for such Calendar Month. Exxon will provide
Exxon Equity Propane Plant production projections for delivery to POC across
Plant Propane Meter #1 for such Calendar Month.
LC CALCULATION Exxon will determine the amount of the LC requirements
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for the Calendar Month to be issued by calculating the sum of the following
items:
Item 1 - Exxon projected Exxon Equity Propane deliveries x estimated Propane
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Index Price (adjusted for discounts and/or premiums)
Item 2 - (POC projected POC Propane deliveries across CCPL Propane Meter #2 and
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Ella-Seadrift Propane Meter #3 plus Exxon projected Exxon Equity Propane
deliveries) x 0.1 x estimated Butane Index Price (adjusted for discounts and/or
premiums)
Item 3 - POC projected POC Propane deliveries across CCPL Propane Meter #2 x EPC
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Tariff
Item 4 - (POC projected POC Propane deliveries across CCPL Propane Meter #2 and
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Ella-Seadrift Propane Meter #3) x 1.1 x Blending and Pumping Fee
Item 5 - Projected Delivery Deficiency Fee based on Item 3 projections
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Item 6 - Projected Purchase Deficiency Fee based on POC projections of Exxon
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Equity Product receipts at the Delivery Point Exxon Equity Propane receipts at
the Alternate Delivery Point(s)
NOTE: Items 5 and 6 will be adjusted for prior month's credit.
Item 7 - Projected Pumping & Blending Deficiency Fee based on Item 3
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projections.
Item 8 - Any alternate disposition costs projected to be incurred by Exxon
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pursuant to 6.9.
Item 9 - Any residual payment obligations from the preceding Calendar
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Month.
Any balance remaining on the LC from the prior Calendar Month which remains
undrawn shall be credited towards the amount of the LC for the succeeding
Calendar Month.
Weekly Update Exxon Treasurers Credit representative will calculate credit
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exposure, based on actual activity and any adjustments to projections of volume
or the Propane Index Price and Butane Index Price, and will communicate any
required adjustments to the existing LC to POC either verbally or by facsimile.
Exxon will have the right to restrict or interrupt Exxon Equity Product and Mix
deliveries under this Agreement until an adequate LC is
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