NATURAL GAS MARKETING, TRANSPORTATION AND
PROCESSING AGENCY AGREEMENT
UPSTREAM ENERGY SERVICES COMPANY
(AS AGENT)
AND
MICHAEL PETROLEUM CORPORATION
(AS CLIENT)
This agreement is made and entered into by and between Los Miquelitos, L.L.C.
a Texas Limited Liability Company, d/b/a Upstream Energy Services Company
("UES"), as agent, and Michael Petroleum Corporation ("MPC"), as client,
herein referred to collectively as "the Parties" and individually as "Party",
as of November 1, 1998.
WHEREAS, MPC owns and or controls an interest in certain oil, gas and mineral
lease production in the State of Texas; and
WHEREAS, UES is engaged in the marketing, processing and transportation of
natural gas and the provision of risk management services on behalf of owners
of natural gas producing interests; and
WHEREAS, MPC desires to employ the services of UES as a business agent to
market, manage and administrate its natural gas interests.
NOW THEREFORE, in consideration for remuneration described herein and the
mutual covenants and agreements herein set forth, the parties hereto have
agreed that UES will provide natural gas marketing, transportation,
processing, risk management, and business management services on behalf of
MPC under the terms and conditions set forth hereunder:
1. TERM OF AGREEMENT
1.1 This agreement shall be in force for an initial term of one (1) year from
the effective date hereof (the "Initial Term") and shall automatically
extend quarterly thereafter subject to termination by either party under
the provisions of Section 1.2 below.
1.2 This agreement may be terminated by either Party delivering written
notice to the other party (herein "Termination Notice"). Termination
shall become effective as of the last day of the Transition Period as
defined in Article 1.3 below.
1.3 Beginning on the date of any such Termination Notice, this Agreement shall
remain in full force and effect for a transition period of twelve (12)
months from the end of the month when such Termination Notice is given
(the "Transition Period"). If a Termination Notice is given during the
Initial Term and MPC does not exercise its buyout option pursuant to
Article 3 herein, then the Transition Period shall run through October 31,
2000. On the conclusion of the Transition Period, this Agreement shall
terminate and be of no further force or effect.
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2. DEDICATION
2.1 MPC dedicates to this Agreement one hundred percent (100%) of the natural
gas production operated by MPC, less and excepting gas taken in-kind by
other interest owners, as identified and described on Exhibit "A" attached
hereto.
3. AGENT'S COMPENSATION
3.1 UES shall be paid a volumetrically tiered agency fee as measured at
the pipeline sales flowmeters where MPC delivers gas to a third party
pipeline (the "Agency Fee"). The Agency Fee shall be netted-out from the
revenues of natural gas sales proceeds. The agency fees hereunder shall be
calculated as follows:
Volumetric Tier (MMBtu/day) Agency Fee
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1. First 20,000 $0.03 /MMBtu
2. 20,001 to 40,000 $0.02 /MMBtu
3. all volumes over 40,000 $0.01 /MMBtu
3.2 In the event UES operates and manages a natural gas processing agreement
on behalf of MPC, UES shall charge a monthly flat fee of $1,500 for each
such processing agreement utilized to generate revenues from the sale of
Natural Gas Liquids Products, either directly or through a third party.
No fee shall be charged by UES in the months where gas is not processed
under such processing agreements.
3.3 UES shall charge MPC an agency fee of one half cent (1/2 CENTS) per gas
equivalent MMBtu for all futures contracts, options contracts, or
structured derivative instruments traded on behalf of MPC on any
commodities exchange or over-the-counter (OTC) market.
4. PREMATURE TERMINATION
4.1 During the Initial Term, MPC may elect to terminate this agreement and
forego the Transition Period upon sixty (60) days written notice. By
exercising this right, MPC will then be liable to pay UES a premature
termination buy-out fee ("PTBO Fee"). When such premature termination
notice has been made, premature termination of this agreement shall become
effective on the last day of the month of the sixtieth (60th) day following
the notice of premature termination. At such time, the PTBO Fee will be
due in full.
4.2 The PTBO Fee to be paid by MPC shall be the product of the following
calculation:
PTBO FEE = REMAINING EFFECTIVE TERM x EXPECTED DAILY PRODUCTION x $0.015
Where: "REMAINING EFFECTIVE TERM" is equal to the minimum number of days
from the effective date of premature termination, including the
Transition Period, in which UES would continue to market production
on behalf of MPC under this Agreement were the premature
termination notice not served by MPC.
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"EXPECTED DAILY PRODUCTION" is equal to the daily average of MPC's
operated production for the sixty (60) day period immediately
following the issuance of the premature termination notice by MPC.
"$0.015 " is equal to one and one-half cents per MMBtu.
5. SPOT MARKETING
5.1 Until and unless otherwise instructed, UES shall market MPC's natural gas
production which is not committed under long-term sales contracts on a
month-to-month spot basis with the objective of selling only to
creditworthy customers and maximizing the net price received by MPC from
such creditworthy customers. Upon instructions from MPC, UES agrees to
market such spot volumes on a daily basis.
6. CONTRACTS
6.1 UES shall not enter into any gas sale, risk management, transportation or
processing contract, on behalf of or for the benefit of MPC, with a term
greater than thirty (30) days without MPC's express written consent. For
any such contract with a term greater than 30 days, every effort will be
made to have MPC the counterparty with UES named as MPC's agent in the
contract.
7. THIRD PARTY SERVICE AGREEMENTS
7.1 Where requested by MPC, UES shall enter into sales, and transportation
agreements on behalf of and for the benefit of MPC. Whereas in some cases
UES may utilize such agreements for the benefit of other agency clients,
the costs and burdens associated with such use shall always and in every
way be proportionately assigned to the clients by UES and MPC shall never
bear an disproportionate burden by virtue of shared utilization of any such
agreement with another party.
7.2 Notwithstanding the terms of Article 4 herein, in the event MPC consents to
and requests that UES enter into a third party service agreement on behalf
of or for the benefit of MPC which term survives the Term of this
Agreement, such third party service agreement shall extend this Agreement
to the term and volume necessary to fulfill any and all commitments
undertaken by UES therein.
8. NOMINATIONS
8.1 All pipeline volume and sales nominations shall be UES's responsibility.
All pipeline or storage imbalances shall be monitored and managed by UES on
behalf of MPC with the intent to keep imbalances near zero by balancing
volumes each month.
8.2 MPC hereby grants UES all reasonable and available analytical support
information in the preparation of the nomination(s). MPC authorizes UES to
use and rely on such information support and agrees that the ultimate
responsibility for the nominations and the ultimate effect that such
nominations may have on gas balancing or gas prices shall in all ways
reside with MPC.
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9. REPORTING
9.1 In the first week of each month under this Agreement, UES shall report to
MPC regarding expected gas sales prices, transportation and marketing costs
and netbacks in the current production month.
9.2 UES shall deliver projections to MPC regarding expected processing yields
for all gas processing agreements managed by UES on behalf of MPC. Such
reports shall provide a recommended course of action by UES and shall be
delivered to MPC's designated representative at least twenty four (24)
hours prior to any processing elections falling due to third party
processing companies.
9.3 UES shall provide timely reports to MPC regarding all details incidental to
the marketing of MPC's production.
10. ROYALTIES AND TAXES
10.1 Except in the cases where UES markets royalty owners or other working
interest owners natural gas, UES shall not be responsible to pay, report or
handle any share of royalty payments, gross production, severance or other
taxes attributable to production from the lands described on Exhibit A
hereto.
11. INVOICING, ESCROW AGREEMENT AND PAYMENT
11.1 UES shall, on or before the fifteenth (15th) day of every month following a
production month hereunder, invoice all customers for gas sales made
hereunder on behalf of MPC. UES shall use its commercially reasonable best
efforts to cause all funds be paid by the customers no later than the 25th
day of the month into an escrow account similar in form to the one attached
hereto as Exhibit B. ("the Escrow").
11.2 MPC and UES shall provide joint and uniform instructions to the Escrow
Agent directing the prompt distribution of funds according to the
instructions contained therein. All disbursements of funds from the Escrow
shall be made in conformance with the procedures detailed in the Escrow.
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12. NOTICES
12.1 All notices, invoices, statements, payments and other communications made
pursuant to this Agreement ("Notices") shall be made to the addresses
following or to other such addresses as specified in writing by the
respective parties from time to time.
UES AS AGENT: MPC NOTICES
Upstream Energy Services Co. Michael Petroleum Corp.
13101 Northwest Freeway 13101 Northwest Freeway
Suite 325 Suite 320
Houston, TX 77040 Houston, TX 77040
Attention: Contract Admin. Attention: Mr. Michael Farmar
MPC for Payments, Invoices, Statements:
Same as above, except:
Attn: Scott Sampsell
12.2 Notice shall be given when received by the addressee on a business day,
meaning any day except Saturday, Sunday or Federal Reserve Bank holidays.
12.3 All Notices required hereunder may be sent by facsimile or mutually
acceptable electronic means, a nationally recognized overnight courier
service, first class mail or hand delivered.
13. MANAGEMENT OF UES
13.1 Should Mr. Petrick be away from UES for a period of ninety (90) consecutive
days or longer, then MPC shall have the right at any time thereafter to
deliver a Termination Notice. Notwithstanding the provisions of Articles
1&3, a Termination Notice given under this Article 12 shall cause this
Agreement to terminate and be of no further force or effect ninety (90)
days after such notice is given.
14. ARBITRATION
14.1 All controversies and claims arising out of or relating to this agreement,
or the breach thereof, shall be settled by arbitration in accordance with
the commercial arbitration rules ("AAA Rules") of the American Arbitration
Association, excepting where the AAA Rules conflict with specific
provisions of this agreement, in which case this agreement shall control.
Judgment on any award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The arbitration hearing shall be held
at the office of the American Arbitration Association in Houston, Texas.
Any demand for arbitration must
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be filed within two years after the date of which dispute arises or the
alleged breach occurs.
15. YEAR 2000 COMPLIANCE
15.1 Both Parties are in the process of ensuring that all of their critical
systems will be able to correctly process date information before, during
and after midnight, December 31, 1999. MPC and UES are each in the process
of ensuring that all of their critical suppliers are also compliant, both
in regards to their products and services and also in their internal
business processes. Each Party agrees to promptly provide the other with
information requested regarding Year 2000 Compliance.
16. MISCELLANEOUS
16.1 This contract shall be governed by and interpreted in accordance with the
laws of the State of Texas and all financial transactions referenced herein
shall be made in US currency.
16.2 Each party shall have the right, at its own cost and expense, to examine
the records of the other party to the extent necessary to verify the
accuracy of any statement or payment made hereunder. Any error discovered
in any payment made shall be promptly corrected, except for errors
discovered more than two years subsequent to the statement or payment in
question.
16.3 Each Party reserves to itself all rights, set-offs, counterclaims, and
other defenses which it is or may be entitled to arising from this
Agreement.
16.4 MPC warrants that it has title to gas UES sells hereunder and agrees herein
that MPC shall at all times be deemed to be in exclusive control and
possession thereof and responsible for any damage, claim, liability or
injury caused thereby.
16.5 This contract may not be assigned, in whole or in part, by either party,
except to an entity controlled by or under common control with the
assigning party without the express written consent of the other party,
which shall not be unreasonably withheld.
16.6 This Agreement shall be binding upon MPC and UES and their subsidiaries and
their respective executors, administrators, trustees, successors and
assigns.
16.7 The headings used for the Sections herein are for convenience and reference
purposes only and shall in no way affect the meaning or interpretation of
the provisions of the Agreement.
16.8 Both Parties hereto acknowledge that each Party was actively involved in
the negotiation and drafting of this Agreement and that no law or rule of
construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against either Party hereto
because one is deemed to be the author thereof.
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This Agreement evidences the full and complete agreement between the Parties
and supersedes any prior agreements, whether written or oral, and may not be
modified or amended unless evidenced in writing by both Parties hereto.
Accepted and agreed to on this Accepted and agreed to on this
_____ day of November, 1998. _____ day of November, 1998.
LOS MIGUELITOS, L.L.P. D/B/A MICHAEL PETROLEUM CORPORATION
UPSTREAM ENERGY SERVICES
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Brad L. Petrick, Michael Farmar,
President President
WITNESS: WITNESS:
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EXHIBIT "A"
DESCRIPTION OF PRODUCING LANDS
Pursuant to the Natural Gas Marketing, Transportation and Processing Agency
Agreement dated November ___, 1998 by and between Los Miguelitos, Inc. a
Texas Limited Liability Company, d/b/a Upstream Energy Services Company
("UES"), as agent, and Michael Petroleum Corporation ("MPC"), as client, the
parties hereby confirm that the gas production to be marketed by UES under
the terms of said agreement shall be defined as natural gas and entrained
hydrocarbons, not taken-in-kind by other interest owners, produced from gas
wells operated by MPC and its subsidiaries and their respective executors,
administrators, trustees, successors and assigns.
Accepted and agreed to on this Accepted and agreed to on this
_____ day of November, 1998. _____ day of November, 1998.
LOS MIGUELITOS, L.L.P. D/B/A MICHAEL PETROLEUM CORPORATION
UPSTREAM ENERGY SERVICES
- ---------------------------------- --------------------------------------
Brad L. Petrick, Michael Farmar,
President President
WITNESS: WITNESS:
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