EXHIBIT 10.18
GAS GATHERING AGREEMENT
BETWEEN
BEAR PAW ENERGY INC., A COLORADO CORPORATION
AND
PENNACO ENERGY, INC., A NEVADA CORPORATION
INDEX
I. DEFINITION AND DEDICATION 1
II. CONSTRUCTION OF PIPELINE GATHERING SYSTEM 2
III. QUANTITY AND DELIVERY OF GAS 4
IV. SERVICE RATES AND CHARGES 4
V. NOMINATIONS AND DELIVERY TERMS 6
VI. STATEMENTS AND PAYMENTS 9
VII. NOTICES 10
VIII. TERM 11
IX. SPECIAL PROVISIONS 11
X. MISCELLANEOUS 12
EXHIBIT A - APPENDIX - GENERAL TERMS AND CONDITIONS
1. DEFINITIONS 1.A
2. POINTS OF DELIVERY, PRESSURE AND OWNERSHIP 2.A
3. RESERVATIONS AND COVENANTS OF PRODUCER 3.A
4. PRODUCER'S WARRANTIES 4.A
5. EASEMENTS 4.A
6. PIPELINE LOSS 4.A
7. GAS MEASUREMENT AND QUALITY 4.A
8. ALLOCATION OF GAS 6.A
9. PRODUCER'S REPRESENTATIVE 7.A
10. REGULATORY BODIES 7.A
11. FORCE MAJEURE 7.A
12. DEFAULTS 8.A
13. UNECONOMIC WELL CONNECTIONS 9-A
14. UNECONOMIC OPERATION OF GATHERER'S FACILITIES 9.A
15. LITIGATION - ATTORNEY'S FEES 9.A
16. DAMAGES 9.A
17. GENERAL 9.A
EXHIBIT B - SUBJECT LANDS B.1
EXHIBIT C - AREA OF MUTUAL INTEREST C.1
EXHIBIT D - POINTS OF DELIVERY D.1
EXHIBIT E - REDELIVERY POINTS E.1
EXHIBIT F - CONFIDENTIALITY AGREEMENT
NOMINATION SCHEDULE
GAS GATHERING AGREEMENT
This Gas Gathering Agreement ("Agreement") is entered into and
effective as of this 1st day of February, 1999, ("the Effective Date"), by and
between PENNACO ENERGY, INC., a Nevada corporation ("Producer"), and BEAR PAW
ENERGY INC., a Colorado corporation, ("Gatherer").
RECITALS
A. Producer owns, controls or is agent for an undivided interest in
certain oil and gas leases, coal bed methane leases and agreements, wells and/or
lands which produce natural gas/methane from coal seams in Campbell County,
Wyoming, as set forth on Exhibit B attached hereto and incorporated herein by
reference (the "Subject Lands"), and wishes to drill natural gas wells to
further develop its coalbed methane gas reserves.
B. Producer desires to produce and deliver Gas from the Subject Lands
to Gatherer and Gatherer desires to receive and gather from Producer said Gas,
all on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the above recitals and the mutual
promises, covenants, commitments, and agreements herein contained, Producer and
Gatherer agree as follows:
ARTICLE I
DEFINITIONS AND DEDICATION
A. The definitions specified in the Appendix to this Agreement set
forth as Exhibit A (the "Appendix") are incorporated herein by reference, unless
the context of this Agreement shall require otherwise. In the event of any
conflict between the terms as set out in the body of this Agreement and those
set out in the Appendix, the terms in the body of this Agreement shall control.
The terms defined within this Agreement are, as follows:
"APPENDIX" shall have the meaning set forth in Article I.A.
"CONNECT" shall have the meaning set forth in Article II.F.
"DUE DATE" shall have the meaning set forth in Article VI.B.
"EFFECTIVE DATE" shall have the meaning set forth above.
"GISB" shall have the meaning, as set forth in Article V.A.
"INITIAL FACILITIES" shall have the meaning as set forth in
Article IV.B. I
"MASTER METER" shall have the meaning as set forth in Article II.F.
"POINTS OF DELIVERY" shall have the meaning set forth in
Article 2.A of the Appendix.
"REDELIVERY POINTS" shall have the meaning set forth in Exhibit E.
"SUBJECT LANDS" shall have the meaning set forth in Recital A.
"WELLHEAD METERING FACILITY" shall have the meaning set forth in
Article II.F.
B. Subject to the terms and conditions of this Agreement, Producer
hereby commits and dedicates to the performance of this Agreement all of its
interest in the Subject Lands, without limitation, as set forth on Exhibit B
hereto and all of Producer's Gas reserves thereunder, for the life of the
production from the Subject Lands, together with any extensions, renewals or
modifications of the Subject Lands, whether now owned or hereafter acquired
during the term of this Agreement.
C. The Parties hereto agree to establish an Area of Mutual Interest
("AMI") as depicted on Exhibit C, attached hereto and incorporated herein by
reference. Producer agrees to dedicate to Gatherer, under the terms contained in
this Agreement, all interest currently owned or subsequently acquired by
Producer in lands and/or leases in the AMI whether or not they are described on
Exhibit B hereto. Gatherer agrees to receive and gather all of Producer's Gas
produced from the AMI subject to the terms and conditions set forth in this
Agreement.
D. Gatherer shall gather Producer's Gas from the Point(s) of Delivery
and shall redeliver thermally equivalent volumes at the Redelivery Points, less
Fuel, water, and Pipeline Loss as provided in this Agreement. Gatherer shall
have the right but not the obligation to commingle Gas delivered hereunder with
Gas gathered by Gatherer for other producers provided that Producer's Gas is
gathered on a priority basis. However, in the event capacity on a downstream
pipeline is restricted, Producer's Gas will be redelivered as dictated by the
downstream pipeline.
ARTICLE II
CONSTRUCTION OF PIPELINE GATHERING SYSTEM
A. Gatherer agrees to complete the construction of and equip and
operate sufficient miles of pipeline gathering facilities to connect all of the
wells drilled and produced, or to be drilled and produced, on the Subject Lands
by Producer at the Point(s) of Delivery described on Exhibit D. The original
design of the pipeline gathering facilities to be completed by Gatherer is
intended to be as follows:
Anticipated production of 250 Mcf/d per well
Nineteen (19) wells from the Swanson Acreage x 250 mcfd = 4,750 mcfd
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Seventeen (17) wells from the Jim Wolff Acreage x 250 mcfd = 4,250
mcfd
Twenty (20) wells from the Harry Wolff Acreage x 250 mcfd =
5,000 mcfd
Twenty-eight (28) wells from the Hemela Acreage x 250 mcfd = 7,000
mcfd
Twenty-two (22) wells from the Rourke Acreage x 250 mcfd = 5,500
mcfd
Compression facilities downstream of the Wellhead Metering
Facilities to maintain a suction pressure between 0 to 2 psig
4" SDRI 7 poly pipe from wellhead to Wellhead Metering Facilities
B. Gatherer shall have the option to make connections on Gatherer's
Facilities for new Gas developed and produced and saved by Producer on the
Subject Lands described on Exhibit B. If such proposal is to gather such Gas
under the terms and conditions set forth in this Agreement, including, but not
limited to, the design specifications in Article ILA and the service rates and
charges as set forth in Article IV, then such proposal shall be deemed accepted
by Producer. Otherwise, throughout the term of this Agreement, within fifteen
(15) Days from receipt of notice of the completion of sufficient deliverable
quantities of Gas by Producer on the Subject Lands listed on Exhibit B, Gatherer
shall submit a written proposal to Producer to construct and install the
necessary facilities to gather said Gas. Producer shall have 30 Days from
receipt of such proposal to accept or reject Gatherer's proposal for gathering
service hereunder. Failure to respond within the said 30 Day-time period shall
be deemed an election by Producer to reject said proposal.
C. Upon receipt of written acceptance of said proposal by Producer or
if such proposal is deemed accepted as provided in Article II.B above, Gatherer
shall commence in a commercially reasonable manner construction and installation
of the gathering facilities necessary to gather Producer's Gas and redeliver
said Gas to the Redelivery Point(s) set forth on Exhibit E, as may be amended
from time to time.
D. Should Producer decline the proposal as set forth above, Gatherer
shall not be obligated to make any such connection, and Producer may require
Gatherer to release such well(s) from the Agreement, but only as to the
formation in which such well was originally completed at the time Gatherer
determined the connection to be uneconomic.
E. Except for the wells to be connected to the Initial Facilities, in
the event Producer desires Gatherer to connect a group or pod of wells to
Gatherer's Facilities which wells, in Gatherer's sole opinion, would not
constitute an economic connection, Gatherer shall be under no obligation to
connect any such wells, or to accept any Gas therefrom. In the event Gatherer
deems the connection of a group of wells to be uneconomic such that Gatherer
declines to connect such wells, Producer may construct its own field system
connecting such wells and may thereafter connect such facilities to Gatherer's
Facilities. In recognition of the fact that the services required by Gatherer
shall be reduced as a result of Producer's connection, Gatherer's fees for the
services to be provided by Gatherer to complete the gathering of such Gas shall
be appropriately reduced.. In setting these fees, the Parties shall take into
consideration the breakdown of fees set forth in Article IV.
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F. The term "connect" as used in this Agreement means that
Gatherer shall take custody of Producer's Gas at the Point(s) of Delivery of
each well to be connected to Gatherer's Facilities and shall install such
facilities as are necessary to gather the Gas produced from each such well to
a Wellhead Metering Facility ("WMF") at which the Gas from each well shall be
metered, and from each WMF to the Redelivery Points specified on Exhibit E.
Downstream of each WMF, Gatherer shall install an electronic flow meter to be
used for payment, nominations and imbalance calculations under this Agreement
("Master Meter").
ARTICLE III
QUANTITY AND DELIVERY OF GAS
A. The Parties agree that certain acreage as described on Exhibit
C is dedicated for redelivery to Western Gas Resources, Inc. ("WGR") under
separate agreement. Gatherer agrees to gather up to 11.0 MMcfd from the WGR
acreage dedication and redeliver said Gas to the interconnect with WGR as
described on Exhibit E. All Gas in excess of 11.0 MMcfd gathered from the WGR
acreage dedication may be gathered and redelivered to any of the proposed
Redelivery Points as described on Exhibit E or any redelivery points that may
be added to Exhibit E from time to time as mutually selected by the Parties
if such Gas is released from dedication by WGR. Gas from the remaining
Subject Lands may be gathered and delivered to any of the proposed redelivery
points as mutually selected by the Parties.
B. Producer represents that the Gas to be gathered and redelivered
shall be delivered to Gatherer in conformance with the specifications and
conditions set forth in the Appendix, including Gatherer's Gas quality
specifications.
ARTICLE IV
SERVICE RATES AND CHARGES
A. Gatherer shall gather and redeliver Producer's Gas and Producer
agrees to pay a gathering fee for redelivery to the interconnect with WGR as
described on Exhibit E. The total gathering fee shall be ******** per Mcf as
measured at each Master Meter until such time as additional redelivery points
other than WGR are available. This gathering fee is comprised of: (i) a fee of
******** per Mcf for gathering service from the wellheads to and through the WMF
as measured at the Master Meter; and (ii) a fee of ******** per Mcf for service
from the WMF to the WGR Redelivery Point as described on Exhibit E as measured
at the Master Meter.
1. Upon completion of an interconnect with a proposed redelivery
point described on Exhibit E, Producer agrees to pay a total gathering fee of
******** per Mcf as measured at each Master Meter other than the WGR acreage
dedication Points of Delivery which shall continue to be charged the********
gathering fee. This gathering fee is comprised of: (i) a fee of ******** per
Mcf for service from the wellheads to and through the WMF as measured at the
Master Meter; and (ii) a fee of ******** per Mcf for service from the WMF to
the proposed Redelivery Points as described on Exhibit E as measured at the
Master Meter.
****** This portion of the agreement has been omitted pursuant to a
confidential treatment request that has been filed with the Securities and
Exchange Commission.
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2. For any WGR acreage dedication Gas in excess of 11.0 MMcfd
requiring additional capital expenditure by Gatherer, the Parties shall
negotiate a mutually agreeable gathering fee.
3. For Gas in excess of 11.0 MMcfd that is released from
dedication by WGR and redelivered to any of the proposed Redelivery Points,
Producer agrees to pay a total gathering fee of ******** per Mcf as set forth
above.
B. After completion of the Initial Facilities, the total Monthly
gathering fee paid by Producer shall not be less than ******** for the first
Accounting Period, not less than ******** for the second Accounting Period and
not less than ******** for the next fifty-eight (58) Accounting Periods
("Minimum Payments") regardless of the volumes actually delivered to Gatherer.
Should the product of the. actual Monthly volumes as measured at the Master
Meter(s) multiplied by the appropriate gathering fees as set forth in Paragraph
A of this Article IV be less than the Minimum Payment, Gatherer shall invoice
Producer for the remaining balance, payment of which shall be due as provided in
Article VI. Should the product of the actual Monthly volumes as measured at the
Master Meter(s) multiplied by the appropriate gathering fees as set forth in
Paragraph A above be more than the Minimum Payment, Gatherer shall invoice
Producer for the actual Mcf's delivered multiplied by the appropriate gathering
fee set forth in Paragraph A above, payment of which shall be due as provided in
Article VI. The Minimum Payment shall be subject to reduction in the event
Gatherer refuses to accept Gas tendered from Producer which otherwise meets the
specifications of this Agreement, or in the event of a force majeure affecting
Gatherer's facilities which impairs Gatherer's ability to accept Producer's Gas.
No Minimum Payment shall apply during any such Month during which Gatherer's
refusal to accept Gas tendered or Gatherer's force majeure is the cause of
Producer's failure to meet the Minimum Payment.
1 . "Initial Facilities" shall be the facilities necessary for
Gatherer to gather Gas produced from the Points of Delivery in the Swanson,
Jim Wolff (should Producer finalize the purchase of such acreage), Harry
Wolff, Hemela and Rourke acreage as described on Exhibit D and redeliver said
Gas to the interconnect with WGR as described on Exhibit E. Gatherer shall
use commercially reasonable efforts to complete the Initial Facilities on or
before April 1, 1999.
C. In addition to the foregoing, and not in limitation thereof,
the following additional fees and charges shall be applicable:
1. Producer shall reimburse Gatherer for the actual tap fee,
measurement costs and any associated costs relating to the interconnect
between Gatherer's Facilities and the Redelivery Point(s). Said
reimbursement shall be based on Producer's maximum volume requirements
at each interconnect as provided to Gatherer by Producer in writing.
Gatherer shall use reasonable efforts to minimize all costs associated
with said interconnects.
2. An alternative power/fuel source fee, in the event any of
Producer's Gas flows through a compression facility or facilities
powered by electrical power, or any fuel or power source other than Gas
being delivered into Gatherer's Facilities, equal to Producer's
allocable
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portion of the power or alternative fuel costs necessary to operate
such facility or facilities. Such costs shall be allocated to each
Point of Delivery by multiplying the total power and fuel cost of each
compression facility for an Accounting Period by a fraction, the
numerator of which shall be the volume of Gas flowing through the
facility attributable to the particular Point(s) of Delivery and the
denominator of which shall be the total volume of Gas flowing through
such facilities. Gatherer shall charge Producer, on a Monthly basis,
the resultant product.
3. If treating of the Gas is required, Producer and Gatherer
shall negotiate a mutually agreeable treating fee.
4. Beginning April 1, 2004, the fees described in Paragraph A
of this Article IV shall be escalated pursuant to changes reflected by
the Producer Price Index, using as a base such Index as it exists on
January 1, 2004 as the basis for such adjustment. Escalation of the
fees set forth in Paragraph A above shall occur annually (on January 1
of each year) pursuant to adjustments reflected in the Producer Price
Index. In the event the Producer Price Index is discontinued or
modified, an index most similar to the Producer Price Index shall
thereafter be used. However, in no event shall the ******** fee
described in Paragraph A of this Article IV be greater than ********
per Mcf and the ******** fee described in Paragraph A above be greater
than ******** per Mcf.
ARTICLE V
NOMINATIONS AND DELIVERY TERMS
A. Gas to be delivered by Producer shall be nominated upon terms and
conditions to be agreed upon by the Parties consistent with the requirements of
downstream pipelines. Nominations shall be submitted in writing via facsimile
using the Nomination form attached hereto as the "Nomination Schedule". Producer
shall submit the total volume to be nominated from all Point(s) of Delivery at
least five (5) working Days prior to the first Day of each Month. Unless
required earlier to allow the Parties to meet downstream nomination
requirements, nominations of specified volumes to downstream pipeline(s) shall
be submitted at least one (1) Day prior to the nomination deadline of the
downstream pipeline(s) pursuant to Gas Industry Standards Board ("GISB")
standards. Producer shall give at least twenty-four (24) hours notice of
nomination changes. Producer's nominations shall be confirmed or rejected within
twenty-four (24) hours of receipts Nominations shall not be rejected without
cause. Producer shall use its best efforts to maintain uniform hourly rates of
delivery at all Points of Delivery hereunder to the extent practicable. Gas
shall be measured at the Master Meters and shall meet the specifications as set
forth on the Appendix or as provided by the downstream pipeline.
B. To aid Producer in preparation of its Nominations, Gatherer shall
from time to time as Producer may reasonably request, provide Producer with its
best, good faith estimate of the amount of Pipeline Loss and Fuel Gas
anticipated to occur from the Points of Delivery to the Redelivery Point(s).
****** This portion of the agreement has been omitted pursuant to a
confidential treatment request that has been filed with the Securities and
Exchange Commission.
6
C. In addition to its nominations for deliveries to Gatherer at
the Point(s) of Delivery, Producer shall also submit to Gatherer nominations
for delivery to the Redelivery Point(s) as set forth on the Nomination
Schedule based upon Gatherer's estimate of Fuel Gas and Pipeline Loss. Such
nominations at the Redelivery Point(s) shall be consistent with those issued
by Producer to. each pipeline company accepting Producer's Gas at each
respective Redelivery Point. Recognizing that operating conditions may from
time to time result in actual deliveries by Producer at the Point(s) of
Delivery or the Redelivery Point(s) in amounts greater or less than those so
nominated, the following procedures, rights and obligations shall apply:
1. Gatherer shall attempt to verify that the amounts nominated
by Producer to Gatherer hereunder as reflected on the Nomination
Schedule and nominated to the pipeline company accepting Producer's Gas
at the Redelivery Point(s) are consistent. Producer and Gatherer shall
communicate and cooperate to insure that any discrepancy in those
nominations shall be promptly reported to each other and the pipeline
company accepting Producer's Gas at the Redelivery Point(s).
2. Gatherer shall operate its Facilities in order to accept and
redeliver Gas hereunder in such a way as to maintain balance on its
Facilities as between receipts and redeliveries of Gas subject to the
Agreement as closely as possible. Gatherer shall have the right to
refuse to accept volumes if Producer's deliveries exceed its
nominations, or to refuse to confirm nominations if nominations exceed
deliveries. Nothing herein shall be construed to require Gatherer to
deliver Gas to any Redelivery Point(s) in excess of that actually
received by Gatherer from Producer at the applicable Point(s) of
Delivery.
3. Gatherer shall include in its Monthly statement of Producer's
metered volumes at each WMF, Producer's allocated share of the Gas
metered at each Master Meter, Fuel Gas, Pipeline Loss on Gatherer's
Facilities, and the Gas allocated to Producer at each Redelivery Point.
The difference between the sum of Producer's allocated share of Gas
metered at each Master Meter and the sum of the Gas allocated to
Producer at each Redelivery Point, less Pipeline Loss and Fuel Gas
shall constitute Producer's imbalance on Gatherer's Facilities. The
Parties shall endeavor to balance Thermally Equivalent volumes of Gas
received and redelivered for Producer as nearly as feasible. Gatherer
and Producer shall cooperate to eliminate any cumulative imbalance as
soon as is practicable after the Monthly accounting of the cumulative
imbalance. If Gatherer has received less Gas than it has credited to
Producer at the Redelivery Points, then Producer shall increase
deliveries to Gatherer or decrease nominations in order to eliminate
such imbalances. If Gatherer has received more Gas than has been
credited to Producer at the Redelivery Points, then Producer shall
decrease deliveries to Gatherer or nominate increased volumes in order
to eliminate such imbalance.
4. In recognition that Gas gathered under this Agreement is
purchased from, sold to, or transported by third parties, Producer and
Gatherer shall use reasonable efforts to cause each such third party to
cooperate fully with the Parties' efforts to maintain balance on
Gatherer's Facilities.
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5. If deemed necessary by the Parties, Gatherer shall use
reasonable efforts to enter into Operational Balancing Agreements with
downstream transporters at such Redelivery Point(s) so that Producer
may be credited at such Redelivery Point(s) with its confirmed
nominations for such point. Additionally, Gatherer represents that all
producers who are or may be connected to the Gatherer's Facilities are
or will, upon connection, be subject to provisions similar to those in
subparagraphs 1 through 4 above. Gatherer agrees to enforce such
provisions on a nondiscriminatory basis so as to minimize imbalances on
Gatherer's Facilities and the risk of downstream imbalances for all
parties whose gas is gathered by Gatherer.
6. Gatherer shall keep accurate records of the quantities of
Gas nominated and scheduled for gathering and any imbalances, which
records shall be reported to Producer on a Monthly basis. If Producer's
Gas is commingled with other gas at the Point(s) of Delivery, the
wellhead operator shall provide Gatherer with the allocation of the Gas
at such Point. If Producer's Gas is commingled with other gas at the
Redelivery Point(s), Gatherer shall provide the operator of the
downstream facilities at such Redelivery Point(s) with the allocation
of such Gas. Such allocation shall be based upon the methodology set
forth in Section 8 of the Appendix.
7. Gatherer and Producer recognize that the primary obligation
and burden of responsibility to monitor, control, adjust and maintain a
concurrent balance between nominations and deliveries of Gas shall rest
with Producer. Therefore, except to the extent otherwise set forth
above, Gatherer does not assume, by the provisions of this section, the
responsibility or obligation to monitor or adjust Producer's
nominations or deliveries.
8. Except as provided in subparagraph 9 below, Gatherer shall
not be liable for any penalties and charaes incurred by Producer with
any downstream pipeline to which Gatherer is delivering Producer's Gas.
Producer agrees to indemnify and hold harmless Gatherer, its parents,
members, subsidiaries and affiliate corporations or entities, and their
respective officers, directors, employees, members and agents, and
co-venturers (if any) in the performance of this Agreement, from and
against any and all claims, causes of action, penalties, liabilities,
damages and losses pertaining to such penalties and charges.
9. All penalties and charges incurred by Producer with any
downstream pipeline to which Gatherer is delivering Producer's Gas by
reason of Gatherers failure to deliver Producer's nominated volumes
which were properly delivered to Gatherer by Producer shall be the sole
responsibility of Gatherer. Gatherer agrees to indemnify and hold
harmless Producer, its parents, members, subsidiaries and affiliate
corporations or entities, and their respective officers, directors,
employees, members and agents, and co-venturers (if any) in the
performance of this Agreement, from and against any and all claims,
causes of action, penalties, liabilities, damages and losses pertaining
to such penalties and charges.
ARTICLE VI
8
STATEMENTS AND PAYMENTS
A. On or before the fifteenth (15th) Day of each Accounting Period,
Gatherer shall send to Producer a statement of charges for Gas gathering and
other services rendered hereunder in the previous Accounting Period along with
any Minimum Payment due Gatherer under this Agreement.
B. Producer shall pay Gatherer by Electronic Funds Transfer to a
designated bank account established by Gatherer. Payments shall be made by
Producer to Gatherer within ten (10) Days from the date on which the statement
is received ("Due Date") for all charges billed. Payments made by Electronic
Funds Transfer shall be considered to have been made on the date when such
payment of good funds is received by Gatherer. To avoid uncertainty respecting
date of receipt of statements, Gatherer may fax its statement and the fax
confirmation date shall be deemed the date of receipt.
C. Should Producer fail to pay part or all of the amount of any such
statement, interest thereon shall accrue on the unpaid balance at the prime rate
per annum. plus two percent (2%) compounded on a quarterly basis. For purpose
hereof, the prime rate shall be that rate established by BankBoston N.A. as the
most favorable rate available to business customers, such rate to change upon
each announced rate change; provided, that the interest rate to be applied to
unpaid balances hereunder shall not exceed the maximum rate permitted under
Colorado law. If such failure to pay continues thirty (30) Days after payment is
due, Gatherer, in addition to any other remedy it may have may suspend further
service to Producer until such amount is paid after Gatherer provides Producer
with ten (10) Days prior written notice; provided, however, that if Producer in
good faith disputes in writing the amount of any such statement or parts thereof
and pays to Gatherer such amounts as it concedes to be correct, and at any time
thereafter within thirty (30) Days of demand made by Gatherer shall furnish a
good and sufficient surety bond guaranteeing payment to Gatherer of the amount
ultimately found due upon such statements after a final determination, which may
be reached either by Agreement or judgment of the courts as may be the case,
then Gatherer shall not be entitled to suspend service on account of failure to
pay such charges unless and until default be made in the conditions of such
bond. If resolution of the dispute is in favor of Producer and Producer
furnished a surety bond instead of paying the disputed amount, then Gatherer
shall reimburse Producer for the cost of securing that surety bond. No payment
by Producer of the amount of a disputed bill shall prejudice the night of either
Party to claim an adjustment of the disputed statement.
D. In the event that an error is discovered in the amount billed or
paid hereunder, such error shall be adjusted within thirty (30) Days of the
determination thereof, provided that claim therefor shall have been made within
twenty-four (24) Months from the date of the applicable billing.
E. Each Party shall preserve for a period of at least two (2)
years on a rolling basis all test data, charts, and other similar records
relating to each Accounting Period for audit purposes. After twenty-four (24)
Months, all data, charts, and other similar records pertaining to a
particular Accounting Period shall be presumed to be correct, unless written
notice of contest is presented to Gatherer within said time period.
9
F. Either Party, upon thirty (30) Days prior written notice and upon
execution of a confidentiality agreement, a form of which is attached hereto as
Exhibit F, shall have the right, at reasonable times during business hours, but
no more frequently than once each calendar year, at its expense, to examine the
books and records of the other Party to the extent necessary to audit and verify
the accuracy of any statement, charge, or computation made under or pursuant to
this Agreement. The scope of such audit shall be limited to the twenty-four (24)
Month period prior to the Month in which such audit commences. All statements,
allocations, measurements, and payments made in any period prior to the
twenty-four (24) Months preceding such Month shall be conclusively deemed true
and correct. The Party conducting the audit shall have six (6) Months after
commencement of the audit in which to submit a written claim, with supporting
detail, for adjustments.
ARTICLE VII
NOTICES
A. All notices and communications required or permitted under this
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly made when delivered personally or upon receipt if
deposited in the United States mail, certified mail, return receipt requested,
or one (1) business Day following delivery to recognized overnight courier
service, or upon transmittal by facsimile, in each such case postage or charges
prepaid and addressed as follows:
TO: PRODUCER:
PENNACO ENERGY, INC.
1050 Seventeenth Street, Suite 700
Denver, CO 80265
ATTN: Marketing Department
(303) 629-6700
(303) 629-6800 - FAX
TO: GATHERER:
BEAR PAW ENERGY INC.
370 Seventeenth Street, Suite 2750
Denver, Colorado 80202
ATTN: Gas Supply
(303) 626-8282
(303) 626-8299 - FAX
ARTICLE VIII
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TERM
A. This Agreement shall be in full force and effect as of the
Effective Date and shall continue and remain in full force and effect
thereafter for the life of production from the Subject Lands.
ARTICLE IX
SPECIAL PROVISIONS
A. The Parties acknowledge that maximum online performance of
Gatherer's Facilities is important to Producer's ability to maximize production
from the Subjects Lands. In recognition thereof, Gatherer agrees to an online
performance of Gatherer's Facilities of ninetyeight percent (98%) of the hours
in each Month for which Producer delivers volumes of Gas to Gatherer in
quantity, quality and at a pressure which do not prevent Gatherer from
performing its responsibilities under the terms of this Agreement.
One hundred percent (100%) online performance for a single
compressor is considered to be seven hundred thirty (730)
hours per Month. The online performance of Gatherer's
Facilities shall be calculated by multiplying a fraction, the
numerator of which is the aggregate runtime hours of all
compressors on Gatherer's Facilities plus aggregate downtime
hours for reasons listed in subparagraph A.1 of this Article
IX and the denominator of which is the number of compressors
multiplied by seven hundred thirty (730) hours, by one hundred
(100) (conversion to percent).
EXAMPLE OF ONLINE PERFORMANCE PERCENTAGE CALCULATION:
(AGGREGATE RUNTIME HRS + EXCLUDED AGGREGATE DOWNTIME HRS) x 100
= Percent Runtime Number of Units x 730 hours
1. Online performance will be calculated EXCLUDING the following:
- Conditions of force majeure as defined in Section 11 of
the Appendix;
- Conditions in Producers facilities at the Leases having
the effect of substantially reducing the volumes of Gas
delivered to Gatherer, or having the direct effect of
disrupting the operations of Gatherer;
- Shutdown of Gatherer's Facilities for routine maintenance
(not to exceed four (4) hours per Month per unit) or
overhaul maintenance (not to exceed two (2) Days per
calendar year per unit), any other prudent and necessary
operation reason or for modification, expansion or
replacement.
Gatherer shall reduce Producer's gathering fee by two-tenths of
one cent ($.002) for every one percent (1%) of online performance
below ninety-eight percent (98%). The
11
reduction in fees shall be calculated down to an online
performance of ninety percent (90%).
B. If Gatherer is unable to maintain online performance of ninety
percent (90%) as described in Paragraph A of this Article IX for any three
(3) Months within a six (6) Month period, Producer may provide written notice
of such non-performance and Gatherer shall have thirty (30) Days to remedy
such non-performance. Should Gatherer fail to remedy the non-performance
Producer shall have the option to purchase Gatherer's Facilities based on
Gatherer's projected cash flow discounted at a fifteen percent (15%) present
value over twenty (20) years. In no event shall the amount paid by Producer
to Gatherer for Gatherer's Facilities be less than one hundred fifty percent
(150%) of Gatherer's original book value for Gatherer's Facilities.
ARTICLE X
MISCELLANEOUS
A. Respecting certain rights of the Parties hereto:
1. This Agreement shall be binding upon and inure to the benefit
of the Parties hereto, their successors, assigns, heirs, administrators
and/or executors and shall constitute a real right and covenant running
with Producer's interest in the Subject Lands covered hereby. Either
Party may assign his or its right, title, and interest in, to and under
this Agreement, including, without limitation, any and all renewals,
extensions, amendments, and/or supplements hereto; provided, however,
that no such assignment shall in any way operate to enlarge, alter, or
change any right or obligation of the other Party or Parties hereto.
No assignment shall be effective or binding until a copy of same has
been furnished to the other Party.
2. Further, this Agreement, including, without limitation, any
and all renewals, extensions, amendments and/or supplements hereto
shall be binding upon any purchaser of Gatherer's Facilities and upon
any purchaser of Producer's interest in the Subject Lands, or any part
thereof or interest therein. It is ageed that no sale of the Subject
Lands, or any part thereof or interest therein, or of all or
substantially all of Gatherer's Facilities, shall be made unless the
purchaser thereof shall assume and agree to be bound by this Agreement
insofar as the same shall affect and relate to the leases, facilities
or interests so sold or conveyed. It is further agreed, however, that
nothing herein contained shall in any way prevent either Party hereto
from pledging or mortgaging all or any part of such Party's leases or
facilities as security under any mortgage, deed of trust, or other
similar lien, or from pledging this Agreement or any benefits accruing
hereunder to the Party making the pledge, without the assumption of
obligations hereunder by the mortgagee, pledgee or other grantee under
such an instrument.
12
3. Nothing in this Agreement, expressed or implied, confers
any rights or remedies on any person or entity not a party hereto other
than successors and assigns, or heirs, administrators or executors of
the Parties hereto.
B. Producer expressly does not by the terms of this Agreement, sell,
transfer or assign unto Gatherer any title or interest whatsoever in the Subject
Lands or any pipe, meters, lines or other equipment of any nature owned or used
by Producer in the operation of the Subject Lands.
C. This Agreement constitutes the entire Agreement and understanding
between the Parties hereto and supersedes and renders null and void and of no
further force and effect any prior understandings, negotiations or agreements
between the Parties relating to the subject matter hereof, and all amendments
and letter agreements in any way relating thereto. Except as provided for
herein, no provision of this Agreement may be changed, modified, waived or
discharged orally, and no change, modification, waiver or amendment of any
provision will be effective except by written instrument to be executed and
approved by the Parties hereto.
D. GISB has and will continue to issue standards to which interstate
pipelines must comply. To the extent that a standard affects the operation of
this Agreement, Gatherer shall have the right, upon notice to Producer, to
modify the terms and conditions of this Agreement to conform this Agreement to
such GISB standard(s); provided, however, that no change to any commercial term
of this Agreement shall be effective without Producer's consent.
E. MEMORANDUM OF AGREEMENT: Upon execution of this Agreement,
Producer agrees to execute a Memorandum of this Agreement to which shall be
attached an exhibit containing a legal description of the Subject Lands,
recites that the Parties have entered into this Agreement and that this
Agreement provides for the dedication by Producer of the Gas produced and
saved from the Subject Lands and the obligation to gather such Gas by
Gatherer pursuant to the terms and conditions set forth in this Agreement,
which Memorandum shall be placed of record in each county in which the leases
are located.
F. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF COLORADO WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
In witness whereof the Parties have executed this Agreement the Day and year
first above written.
PRODUCER: GATHERER:
PENNACO ENERGY, INC. BEAR PAW ENERGY INC.
By: /s/ TERRELL A. DOBKINS By: /s/ MICHAEL R. HENDERSON
------------------------------- ------------------------------
Terrell A. Dobkins Michael R. Henderson
Vice President - Production Executive Vice President
13
EXHIBITS
EXHIBIT A Appendix - General Terms and Conditions
EXHIBIT B Subject Lands
EXHIBIT C Area of Mutual Interest
EXHIBIT D Point(s) of Delivery
EXHIBIT E Redelivery Point(s)
EXHIBIT F Confidentiality Agreement
NOMINATION SCHEDULE
EXHIBIT A
Attached to and made a part of that certain Gas Gathering Agreement
dated February 1, 1999 by and between
PENNACO ENERGY, INC. as Producer and
BEAR PAW ENERGY INC. as Gatherer
APPENDIX
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS
A. For the purposes of the Gas Gathering Agreement (the
"AGREEMENT") to which this Appendix is attached, unless the context of the
Agreement requires otherwise, the following terms and expressions used
therein and in this Appendix shall be defined as follows:
1) "ACCOUNTING PERIOD", except the initial "ACCOUNTING PERIOD", shall
mean a period of one calendar month, commencing at 9:00 a.m.
Central Clock Time on the first Days of each Month, and ending at
9:00 a.m. Central Clock Time on the first Days of the succeeding
calendar month. The initial "ACCOUNTING PERIOD" shall commence at
9:00 a.m. Central Clock time on the date of initial deliveries of
Gas hereunder, continuing for a period of consecutive calendar
Days until 9:00 a.m. Central Clock Time on the first Days of the
succeeding calendar month.
2) "BTU" (British Thermal Unit) shall mean the amount of heat
required to raise the temperature of one (1) avoirdupois pound of
pure water from fifty-eight and five-tenths degrees (58.5DEG)
Fahrenheit to fifty-nine and five-tenths degrees (59.5DEG)
Fahrenheit at 14.73 Psia.
3) "CONTRACT YEAR" shall mean with relation to the first Contract
Year, that period of time commencing on the date of Producer's
initial delivery of Gas hereunder, and extending for the next
twelve (12) consecutive calendar Months, to but not including,
the first of the following calendar Month, which date shall
constitute the anniversary date of this Agreement. Thereafter,
each subsequent Contract Year shall mean that period of time
commencing with an anniversary date of this Agreement and
extending for a period of twelve (12) consecutive calendar Months
to, but not including, the following anniversary date.
4) "CUBIC FOOT OF GAS" shall mean the amount of Gas required to fill
a cubic foot of space when the Gas is at a base pressure of 14.73
Psia and at a base temperature of sixty degrees (60DEG)
Fahrenheit.
5) "DAY" shall mean the 24-hour period beginning and ending at 9:00
a.m. Central Clock Time.
6) "FUEL GAS" shall mean the actual Gas consumed in Gatherer's
Facilities. Gatherer will use reasonable efforts to minimize Fuel
Gas consumption.
7) "GAS" shall mean the effluent vapor stream including all of the
constituents thereof, entrained liquids as produced from a well,
whether a gas well or an oil well, and including but not limited
to gas produced from coal seams, delivered into Gatherer's
Facilities by Producer and other producers at their respective
Point(s) of Delivery.
8) "GATHERER'S FACILITIES" shall mean the pipelines (including
compression) and appurtenances constructed or acquired by Gatherer
for the purpose of accepting delivery and transmitting Producer's
Gas from the wellhead valve to the Redelivery Point for Gas
produced from the Subject Lands.
9) "GROSS HEATING VALUE" shall mean the total or gross Btu's obtained
by the use of a recording calorimeter, chromatograph, or other
method mutually agreed upon between the Parties, produced by
1.A
the complete combustion, at constant pressure, of the amount of
Gas which would occupy a volume of one (1.0) cubic foot at a
temperature of sixty degrees (60DEG) Fahrenheit saturated with
water vapor and under a pressure of 14.73 Psia with air of the
same temperature and pressure as the Gas, when the products of
combustion are cooled to the initial temperature of the Gas and
air and when the water formed by combustion is condensed to the
liquid state.
10) "MCF" shall mean one thousand (1,000) cubic feet of Gas at a
temperature of sixty degrees (60DEG) Fahrenheit and under a
pressure of 14.73 Psia.
11) "MMBTU" shall mean one million (1,000,000) Btu's.
12) "MONTH" shall mean the period beginning at 9:00 a.m. Central Clock
Time on the first Days of a calendar month and ending at 9:00 a.m.
Central Clock Time on the first Days of the next succeeding
calendar month.
13) "PARTY" OR "PARTIES" shall mean one or both, respectively, of the
signatories to this Agreement.
14) "Point(s) of Delivery" shall have the meaning ascribed to it by
Section 2 of this Appendix.
15) "PRODUCER PRICE INDEX" shall mean the index for oil and gas field
services (SIC 138) as reported by the U.S. Department of Labor.
Any prices and fees provided for herein that are to be adjusted
pursuant to adjustments reflected by the Producer Price Index
shall only be increased, notwithstanding any decrease in Index.
16) "PSIA" shall mean pounds per square inch absolute.
17) "PSIG" shall mean pounds per square inch gauge.
18) "PIPELINE LOSS" shall mean the volume reduction in the Gas
resulting from unaccounted for losses.
2. POINT(S) OF DELIVERY, PRESSURE AND OWNERSHIP
A. The "Point(s) of Delivery" for all Gas delivered under the
Agreement shall be at the discharge of Producer's individual wellhead valves.
B. Producer, at its own expense, shall equip, maintain and operate
all facilities to deliver Producer's Gas to Gatherer at the Point(s) of
Delivery, including, but not limited to, installation and maintenance of
Producer's gathering facilities and mechanical separation equipment
C. Except as otherwise provided in the Agreement, Gatherer shall
construct, maintain, own and operate all necessary facilities to accept
Producer's Gas from Producer at the Point(s) of Delivery. Gatherer shall keep
Gatherer's Facilities reasonably clear of obstruction.
D. Gatherer has designed the original facilities to maintain
between 0 and 2 psig of pressure at the suction of the compressor described
in Article II.A of the Agreement and will similarly design facilities under
Article II.B. Provided Producer's production does not materially deviate from
such design specifications, if the Monthly average suction pressure when the
compressor is operating is greater than 2 psig, Gatherer shall take immediate
steps to reduce said pressures and shall inform Producer of the nature of
such steps. If Producer's production does materially deviate from the design
specifications, Gatherer may not be able to maintain the referenced suction
pressure; however, the Parties will work together to address any resulting
pressure issues. Furthermore, in the event Producer determines other
conditions on Gatherer's Facilities are excessively limiting production,
Producer shall provide written notice to Gatherer and Gatherer shall have
thirty (30) Days to provide in writing a suggested remedy to alleviate said
conditions. If Gatherer's suggested remedy is unacceptable to Producer,
Producer shall have the right to install the necessary facilities for remedy,
at Producer's sole cost and expense.
2.A
E. Producer shall deliver Gas at the Point(s) of Delivery at a
pressure sufficient to enter Gatherer's Facilities, but not to exceed the
maximum allowable operating pressure ("maop") of the pipe. Gatherer shall not
be obligated to redeliver the Gas at pressures which exceed 100 psig for Gas
that is redelivered to Redelivery Point(s) demanding the******** gathering
fee and 1,250 psig for Gas that is redelivered to Redelivery Point(s)
demanding the ******** gathering fee as set forth in Article IV.A and IV.A.1
of the Agreement. Should the Parties elect to utilize only the proposed
"Thunder Creek" Redelivery Point and should Gatherer's Facilities be designed
to redeliver Gas at approximately 500 psig, the Parties agree to discuss
reduction of the gathering fee to such Redelivery Point.
F. As between the Parties, Producer shall be in possession and
control of the Gas deliverable under the Agreement and responsible for any
injury or damage caused thereby until the same shall have been delivered to
Gatherer, after which delivery Gatherer shall be deemed to be in exclusive
possession and control thereof and responsible for any injury or damage
caused thereby.
3. RESERVATIONS AND COVENANTS OF PRODUCER
A. Producer, as a reasonable and prudent operator, hereby expressly
reserves the following rights with respect to Producer's interest in the Subject
Lands:
1) The right to use the Gas produced from the Leases prior to
delivery to Gatherer for the following purposes:
a) For fuel in the drilling, development and operation of
the Subject Lands from which the Gas is produced, or
within the boundaries of any unit plan or operation to
which any portion of the Leases may be committed,
excluding, however, the use of such Gas for secondary
or tertiary recovery projects;
b) For delivery to the lessors of the leases of the Gas
if such lessors are entitled to use or take such Gas
in kind under the terms of the leases and agreements
associated with the Subject Lands;
c) For fuel in the operation of the facilities which
Producer may install in order to deliver Gas hereunder
in accordance with the terms hereof.
2) The right to pool or unitize the Subject Lands (or any
portion thereof) with other lands and leases so long as such
action does not reduce Producer's interest in the Subject
Lands. In the event of any such pooling or unitization, the
Agreement will cover Producer's interest in the pool or unit
and the Gas attributable thereto to the extent that such
interest is derived from Producer's Subject Lands.
B. Producer shall provide to Gatherer all necessary information
whereby Gatherer can make the proper allocation herein called for or required
by Gatherer's normal and customary accounting practices or required by
Gatherer's normal and customary contract administration practices.
C. Producer shall operate the Subject Leases free of any control by
Gatherer, including without limitation, the right to make farmouts of any lease
subject to this Agreement, and to abandon any well and surrender any lease when
Producer deems the same no longer capable of producing Gas in commercial
quantities under normal methods of operation. Producer shall not be required to
produce any well or wells in any manner which in its sole judgment and
discretion would not constitute good operating practice, nor shall Producer be
obligated to drill additional wells or to deepen, repair or rework any existing
wells.
4. PRODUCER'S WARRANTIES
A. The Parties recognize that uncertainties may exist with respect to
ownership of coalbed methane gas. However, as between the Parties hereto,
Producer warrants that Producer has the right to deliver said Gas and that such
Gas is free from all liens and adverse claims, including liens to secure
payments of production taxes, severance taxes, and
****** This portion of the agreement has been omitted pursuant to a
confidential treatment request that has been filed with the Securities and
Exchange Commission.
3.A
other taxes. Producer agrees to indemnify Gatherer and save it harmless from all
suits, actions, debts, accounts, damages, costs, losses and expenses arising
from or out of adverse claims, whether meritorious or not, of any and all
persons, firms, or corporations to said Gas or to royalties, overriding
royalties, taxes, license fees, or charges thereon, resulting from actions of,
by, through or under Producer. Gatherer shall be entitled to recover all costs
and reasonable attorneys' fees incurred as a result of its involvement in any
action or claim described herein.
5. EASEMENTS
A. To the extent that it may contractually or lawfully do so under
its leasehold interest without impairing its own similar right, Producer
hereby assigns and transfers to Gatherer any easement across the Producer's
Subject Lands, and across any adjoining lands in which Producer may have an
interest, for the purposes of installing, using, inspecting, repairing,
operating, replacing, and/or removing Gatherer's pipe, meters, lines, and
other equipment used or useful in the performance of the Agreement It is
intended that any property of Gatherer placed in or upon any of such land
shall remain the personal property of Gatherer, subject to removal by it upon
the expiration or termination of the Agreement for any reason. Gatherer shall
have a reasonable time after the expiration or termination of the Agreement
to remove same. Gatherer shall indemnify and hold Producer harmless of and
from any and all claims and damages for all injuries to persons, including
death, or damage to property arising out of or incident to Gatherer's use of
the easement hereunder transferred to the extent said claim or damage shall
be the result of intentional acts of Gatherer, its employees, agents and
representatives or negligence legally imputable to Gatherer, its employees,
agents, and representatives.
6. PIPELINE LOSS
A. Gatherer agrees to use ordinary care in gathering Producer's Gas
from the Point(s) of Delivery to the Redelivery Point(s) nominated. However, the
Parties understand and agree that certain losses in the Gas will occur and shall
be shared by and among Producer and other third parties whose gas is gathered to
the Redelivery Point(s), in the proportion that each party delivers gas into
Gatherer's Facilities at their respective Master Meter(s). Pipeline Loss shall
be determined by subtracting the total Mcf's measured at the Redelivery Point(s)
from the total Mcf's measured at all Master Meter(s) less actual Fuel Gas
consumed in Gatherer's Facilities.
EXAMPLE OF PIPELINE LOSS CALCULATION:
(Master Meter Mcf - Actual Fuel Gas Consumed) - Redelivery Point(s)
Mcf's = Pipeline Loss(/Gain)
Pipeline Loss shall be calculated on a twelve (12) Month rolling
average beginning with the first Month following initial deliveries. The
twelve (12) Month rolling average Pipeline Loss for Gas shall not be greater
than three percent (3%) of the Gas measured at the Master Meter(s). In the
event Pipeline Loss is greater than three percent (3%), Gatherer shall pay
Producer a price equal to Producer's weighted average sales price at the
Redelivery Point for which Producees proportionate share of the Pipeline Loss
Mcf's is in excess of three percent (3%). Said price shall be paid only for
the volumes in excess of three percent (3%).
7. GAS MEASUREMENT AND QUALITY
A. Gatherer, at its expense, shall furnish, install, operate and
maintain suitable measurement at Gatherer's WMFs and separate Master Meters
downstream of the WMFs including electronic flow measurement recording devices.
Each meter installed by Gatherer shall be a meter acceptable in the industry and
each meter shall be installed and operated in accordance with the requirements
of applicable provisions in ANSI/API 2530, "ORIFICE METERING OF NATURAL GAS"
(American Gas Association Gas Measurement Committee Report No. 3) of the Natural
Gas Department of the American Gas Association, as amended from time to time, or
by any other method commonly used in the industry and mutually acceptable to the
Parties. Any meter installed hereunder shall be open to inspection by Producer
at all reasonable times. The charts and records pertaining to measurement
hereunder shall be kept on file by Gatherer for a period of two (2) years for
the mutual use of the Parties. In the event any question arises as to the
accuracy of the measurement, the meter or meters shall be tested upon the demand
of either Party. The expense of any such special test shall be borne by the
Party demanding same if the meter registration is found to be correct, and by
Gatherer if found to be incorrect.
4.A
B. Producer may, at its option and sole expense, install, maintain
and operate check meters and other equipment to check Gatherer's meters;
provided, however, that such check meters and other equipment shall be
installed by Producer so as not to interfere with the operation of any of the
Gatherees Facilities. Gatherer and Producer shall have access to each other's
measuring equipment at all times during business hours, but the reading,
calibrating and adjustment thereof and the changing of charts shall be done
only by the employees or agents of Gatherer and Producer, respectively, as to
meters or check meters so installed hereunder.
C. At least semi-annually, unless otherwise required by statute,
Gatherer shall verify the calibration of all meters installed hereunder and make
adjustments as necessary. Should Producer so desire, Gatherer shall give notice
to Producer of the time of such calibrations sufficiently in advance of holding
same in order that Producer may have its representative present. With respect to
any test made hereunder, a registration within two percent (2%) of correct shall
be considered correct. However, the meter or meters, when found to be incorrect,
shall be adjusted to one hundred percent (100%) accuracy as soon as possible.
Settlement for any period during which the meter registration deviates by more
than two percent (2%) of correct shall be corrected at the rate of inaccuracy
for any period of inaccuracy which is definitely known or agreed upon; but in
case the period is not definitely known or agreed upon, then either for a period
of fifteen (15) Days prior to the date of said test, or for a period calculated
from the beginning of the Accounting Period in which the test was conducted,
whichever is longer. The rate of the inaccuracy shall be estimated and agreed
upon by the Parties hereto on the basis of the best available data, using the
first of the following methods which is feasible:
1) By using the registration of any check meter or meters if
installed and accurately registering; or, in the absence
thereof,
2) By calibration, test, or mathematical calculation; or
3) By estimation based on comparison of the quantity of
deliveries with deliveries during preceding periods
under similar conditions when the meter was registering
accurately.
D. All fundamental constants, observations, records and procedures
involved in the determination and/or verification of the quantity and other
characteristics of Gas measured hereunder, unless otherwise specified herein,
shall be in accordance with the applicable provisions in ANSI/API 2530, "ORIFICE
METERING OF NATURAL GAS" (American Gas Association Gas Measurement Committee
Report No. 3) of the Natural Gas Department of the American Gas Association, as
amended from time to time, or by any other method commonly used in the industry
and mutually acceptable to the Parties. The average local atmospheric pressure
shall be assumed to be 12.7 Psia. The temperature of Gas flowing through each
meter shall be determined by a recording thermometer, installed by Gatherer at
its sole cost and expense to properly record the temperature of the flowing Gas,
and the arithmetical average of the temperature recorded while the Gas is
flowing during each meter chart interval shall be used in correcting amounts
delivered hereunder to a temperature base of sixty degrees Fahrenheit (60DEGF)
and to a pressure base of 12.7 pounds Psia. Should the recording thermometer
malfunction, Gatherer shall assume a reasonable temperature for the period in
question.
E. Producer agrees that Gas delivered to the Redelivery Point(s)
shall comply with the most stringent quality specifications of the downstream
pipelines. To the extent the downstream pipelines is willing to accept
non-conforming Gas, Gatherer will gather and redeliver such non-conforming
Gas. To the extent the downstream pipelines will only accept a certain
quantity of non-conforming Gas, Gatherer will gather and redeliver such
quantities of non-conforming Gas.
F. Gatherer may test Producer's Gas delivered hereunder for adherence
to the specifications referenced above, such testing to be in accordance with
generally accepted industry standards and procedures. If the Gas so delivered by
Producer does not meet the specifications set forth above, Gatherer, at its
option, may refuse to accept delivery of said Gas into its Facilities. If
Producer shall deliver Gas to Gatherer which exceeds the maximum pressure
specifications, or fails to meet the quality specifications above-referenced,
Producer shall be responsible for any damages caused to Gatherer's Facilities
and any other damages resulting from Producer's delivery of such non-conforming
Gas. In such event, Producer shall have the right to conform Producer's Gas to
the above specifications. Should Producer fail to do so, Gatherer, at its
option, may elect to accept such nonconforming Gas, condition the same to
conform to the above specifications and charge Producer a mutually acceptable
conditioning fee. If neither Party elects to condition the Gas to conform to the
above specifications, then Producer, at its option, and upon sixty (60) Days
prior written notice to
5.A
Gatherer, shall have the right to obtain the release of such non-conforming Gas
from the Agreement, but only as to the formation from which said Gas is
produced. Notwithstanding anything hereinabove to the contrary, should Gatherer
elect to accept and pay for nonconforming Gas, Gatherer shall not be deemed to
have waived any of its rights hereunder and shall nevertheless be entitled, at
any time and from time to time, to enforce the quality provisions hereof and
refuse to accept delivery of any volumes of non-conforming Gas from Producer.
G. At least semi-annually, unless otherwise required by statute,
Gatherer shall take samples from each of Producer's wells at the WMF's and have
such samples analyzed by chromatograph analysis to determine the liquids content
by component and the Gross Heating Value of such Gas. Gatherer shall have the
right to take and analyze a spot Gas sample prior to the regularly scheduled
sampling. Additionally, upon Producer's written request to Gatherer and at
Producer's sole cost, risk and expense, Gatherer shall take and analyze Gas
samples more frequently. All Gas samples taken hereunder shall be taken at such
times that are reasonably mutually agreeable so that the sample will be
representative of the Gas produced, shall be analyzed using the most current Gas
Processor's Association Publications and Producer shall be permitted to be
present for such sampling and permitted to take a split sample. The test samples
shall be analyzed through the use of a calorimeter (acceptable to both Parties)
that employs the Thomas Principle of Calorimetry described in Research Paper
#519, published by the U.S. Department of Commerce or by the use of gas
chromatography equipment The Gross Heating Value calculation will use the Btu
values assigned to the various hydrocarbon components as adjusted and updated
from time to time by Gatherer using as a base those values set forth in the most
current GPA Publication 2145 in effect at the time the Gross Heating Value
calculation is derived under the provisions of the Agreement Measurement shall
be determined as delivered on a saturated basis or consistent with the basis
applied to all producers delivering gas to Gatherer's Facilities. Gatherer shall
furnish Producer advance notice of the sampling and analysis of the Gas in order
that Producer may witness same. If Producer's representative is not present,
Gatherer shall proceed with the taking and analysis of samples. All gas which
may be delivered by third parties to Gatherer's Facilities shall be tested and
the hydrocarbon content thereof determined or caused to be determined by
Gatherer, using the same sampling and test methods.
H. Measurement of the redelivered Gas will be accomplished by
suitable meters installed, maintained and operated by the third party
receiving pipeline company(ies). Gatherer will perform periodic analysis and
joint meter tests semi-annually, unless otherwise required by statute, to
insure the third party receiving pipeline company's(ies') compliance with
standard industry practices. Should Gatherer be refused the right to install
a check recorder on third party receiving pipeline company(ies) meter
tube(s), the three percent (3%) Pipeline Loss as set forth in Section 6.A
above shall be waived.
8. ALLOCATION OF GAS
A. The volume received at each Point of Delivery shall be
allocated by multiplying the actual volumes measured at each Master Meter by
a fraction, the numerator of which is the volume attributable to each
particular Point of Delivery, and the denominator of which is the total
volume attributable to all Points of Delivery behind each Master Meter.
Further, the MMBtu's received at each Redelivery Point shall be allocated by
multiplying the actual MMBtu's received at the Redelivery Point(s) by a
fraction, the numerator of which is the MMBtu attributable to each particular
Master Meter, and the denominator of which is the total MMBtu attributable to
all Master Meters into Gatherer's Facilities.
9. PRODUCER'S REPRESENTATIVE
A. The Producer shall designate a representative with respect to all
matters under the Agreement, including but not limited to the following:
1) To give and receive all notices;
2) To make and witness any tests to be made of Producer's Gas
and measuring equipment and adjustments to such equipment;
3) To deliver the quantities of Producer's Gas deliverable
hereunder;
6.A
4) To comply with the requirements, rules and regulations of
any duly constituted authority having jurisdiction.
B. Gatherer may act, and shall be fully protected in acting, in
reliance upon any and all acts and things done and performed by or agreements
made with respect to all matters dealt with herein by said representative on
behalf of Producer as fully and with the same effect as though Producer had
done, performed, made or executed the same.
C. Producer may change its representative designated above, or
designate a new representative from time to time by delivery of written notice
of change and designation of representative to Gatherer. The representative so
designated shall have and may exercise all power and authority therein granted
with like effect as though named as such representative herein in the first
instance.
10. REGULATORY BODIES
A. The Agreement is subject to all present and future valid laws and
lawful orders of all regulatory bodies now or hereafter having jurisdiction of
the Parties, or either of them; and should either of the Parties, by force of
such law or regulation imposed at any time during the term of the Agreement, be
ordered or required to do any act inconsistent with the provisions of the
Agreement, the Agreement shall continue nevertheless and shall be deemed
modified to conform with the requirements of such law or regulation for that
period only during which the requirements of such law or regulation are
applicable. Nothing in the Agreement or this Appendix shall prohibit either
Party from obtaining or seeking to obtain modification or repeal of such law or
regulation or restrict either Party's right to legally contest the validity of
such law or regulation, and each Party reserves the right to file with such
regulatory bodies any material necessary to implement the terms of the Agreement
and this Appendix as they existed prior to the modification.
11. FORCE MAJEURE
A. Except for Gatherer's and Producees respective obligations to make
proper settlement, accounting and distribution of proceeds to all interest
owners as provided above for Gas delivered to and gathered by Gatherer under the
Agreement, in the event either Gatherer or Producer is rendered unable, by
reason of an event of force majeure, to perform, wholly or in part, any
obligation or commitment set forth in the Agreement, then upon such Party giving
notice and full particulars (including all supporting documentation) of such
event as soon as practicable after the occurrence thereof, the obligations of
both Parties shall be suspended to the extent and for the period of such force
majeure provided that the Party claiming an event of force majeure shall make
all reasonable attempts to remedy the same with all reasonable dispatch.
B. The term "FORCE MAJEURE", as used herein, shall mean acts of God,
strikes, lockouts or industrial disputes or disturbances, civil disturbances,
arrest and restraint of rulers or people, interruptions by government or court
orders, necessity for compliance with any present and future valid orders of
court, or any law, statute, ordinance or regulation promulgated by any
governmental or regulatory authority having proper jurisdiction, acts of the
public enemy, wars, riots, blockades, insurrections, including inability to
secure materials by reason of allocations promulgated by authorized governmental
agencies, epidemics, landslides, lightning, earthquakes, fires, storms, floods,
washouts, inclement weather which necessitates extraordinary measures and
expense to construct facilities and/or maintain operations, explosions, partial
or entire failure of Gas supply, breakage or accident to machinery or lines of
pipe, freezing of wells or pipelines, inability to obtain or delays in obtaining
easements or rights-of-way, the shutting in of facilities for the making of
repairs, alterations or maintenance to wells, pipelines or plants, the
interruption or suspension of the receipt of Gas deliveries hereunder by
Gatherer due to the declaration of force majeure by third-party transporters, or
any other cause whether of the kind herein enumerated or otherwise, not
reasonably within the control of the Party claiming force majeure.
C. Neither Party shall be entitled to the benefit of the
provisions of this Section 11 under either or both of the following
circumstances:
1) To the extent that the failure was caused by the Party
claiming suspension having failed to remedy the condition
by taking all reasonable acts, short of litigation, if
such remedy requires litigation, and having failed to
resume performance of such commitments or obligations
with reasonable dispatch; or,
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2) If the failure was caused by lack of funds, or with respect
to the payment of any amount or amounts then due hereunder.
D. Settlement of strikes and lockouts shall be entirely within the
discretion of the Party affected, and the duty that any event of force majeure
shall be remedied with all reasonable dispatch shall not require the settlement
of strikes and lockouts by acceding to the demands of the Parties directly or
indirectly involved in such strikes or lockouts when such course is inadvisable
in the discretion of the Party having such difficulty.
E. If volumes of Producer's Gas are destroyed by an event of force
majeure while in Gatherer's possession, the obligations of both Parties under
this Agreement shall terminate with respect to the volumes lost but Gatherer
shall make all reasonable efforts to minimize such lost volumes.
12. DEFAULTS
A. It is covenanted and agreed that if either Party shall fail to
perform any of the covenants or obligations imposed upon it under and by virtue
of the Agreement or this Appendix, in addition to its other rights and remedies,
the other Party may terminate the Agreement by proceeding as follows:
1) The Party not in default shall cause a written notice to
be served on the other Party in default, stating
specifically the cause for terminating the Agreement, and
declaring it to be the intention of the Party giving
notice to terminate the same; thereupon, the Party in
default shall have thirty (30) Days after the service of
the aforesaid notice in which to commence to remedy or
remove the cause or causes stated in the notice for
terminating the Agreement. If within said thirty (30)
Days the Party in default fails to commence the steps
necessary to remove and remedy said cause or causes, or
fully indemnifies the Party not in default for any and
all consequences of such breach, then such notice shall
be withdrawn and the Agreement shall continue in full
force and effect
2) In case the Party in default does not commence steps
necessary to remedy and remove the cause or causes, or
does not indemnify the Party giving the notice for any
and all consequences of such breach, within said period
of thirty (30) Days, then the Agreement shall become null
and void from and after the expiration of said period.
Termination of the Agreement shall not preclude the
non-defaulting Party from pursuing all of its rights,
claims and demands or other relief from the defaulting
Party.
B. No waiver by either Producer or Gatherer of any default of the
other under the Agreement shall operate as a waiver of any future default,
whether of like or different character or nature, nor shall any failure to
exercise any right hereunder be considered as a waiver of such right in the
future.
13. UNECONOMIC WELL CONNECTIONS
A. In the event Gas volumes available for delivery from any group or
pod of Producer's Wells hereunder become uneconomic to Gatherer in the exercise
of Gatherer's reasonable judgment, Gatherer agrees to release from dedication to
this Agreement the affected wells and the lease(s) to the extent of the drilling
and spacing unit(s) corresponding to such wells and/or lease(s). Alternatively,
Producer may nonetheless maintain the connection to Gatherer's facilities
provided the Parties agree upon the fees for the Gatherer's services to be
provided. In setting these fees, the Parties shall take into consideration the
breakdown of fees set forth in Article IV.
14. UNECONOMIC OPERATION OF GATHERER'S FACILITIES
A. If, in the opinion of Gatherer, any part of Gatherer's
Facilities is or becomes uneconomic to operate due to its volume, quality,
governmental regulation or any other cause, upon ninety (90) Days advance
written notice to Producer, Gatherer may either modify or suspend operations
thereof, in which case Gatherer shall not be obligated to take delivery of
all or any portion of the Gas from Producer's Wells, so long as such
condition exists. For the purposes hereof,
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"UNECONOMIC OPERATION" shall be defined as circumstances under which Gatherer's
revenues from any part of Gatherer's Facilities is insufficient to offset actual
operating costs thereof.
15. LITIGATION - ATTORNEYS' FEES
A. In the event litigation arising out of the Agreement should be
initiated by any Party hereto, the prevailing Party, after the entry of a final
non-appealable order, shall be entitled to recover from the other Party, as a
part of said judgment, all court costs, fees and expenses of such litigation,
including reasonable aftomeys' fees.
16. DAMAGES
A. Except as otherwise provided herein, whether or not occasioned
by a default or other breach of the Agreement, neither Party shall be liable
to the other for special, exemplary, or consequential damages, except as to
third-party claims, pursuant to the indemnification provisions of the
Agreement or this Appendix.
17. GENERAL
A. The Parties hereto assume full responsibility and liability for
the maintenance and operation of their respective properties and agree to
indemnify and save harmless the other Party from all liability and expense on
account of any damages, claims or actions arising from any act or accident in
connection with the installation, presence, maintenance or operation of the
property or equipment of the indemnifying Party.
B. Producer agrees that Gatherer, its successors and assigns, shall
have the right, but not the obligation, at any time to redeem for Producer, its
successors and assigns, or other interest owners by payment of any taxes, deeds
of trust, judgments or other liens on the Subject Leases described in Exhibit
"B" hereto, on Producer's Gas reserves or the production therefrom, in the event
of default of payment by Producer or other interest owners, and be subrogated to
the rights of the holder or holders thereof.
C. Upon consent of Gatherer, the Agreement may be ratified and
adopted by any owner of an interest in the Subject Lands, or any leases with
which the Subject Lands may be pooled or unitized, by execution and delivery
to Gatherer of a separate written instrument ratifying and adopting the
Agreement insofar as said owner's interest in any such lands or leases is
concemed, all the terms and provisions of the Agreement shall be binding upon
such interest owner. In addition, upon Gatherer's request, Producer shall use
reasonable efforts to encourage each interest owner in the Leases to execute
and deliver to Gatherer a ratification of the Agreement.
D. Each party executing or ratifying the Agreement makes and enters
into the Agreement severally and not jointly with other parties, and they are
not acting as partners, joint venturers, or otherwise jointly in this
transaction, and nothing herein contained or provided shall operate to create,
or be construed as creating, any such relationship. lt is expressly provided
that there shall never be any joint liability against the Parties designated
herein as Producer and that no single party shall be liable for the acts or
omissions of any other single party and any other gathering agreement entered
into with Gatherer shall be deemed to be a separate agreement.
E. The Parties agree that they will maintain the Agreement, and all
parts and contents thereof, in strict confidence, and that except for their
direct consultants (i.e., attorneys, accountants, bankers) or other working
interest owners for whom operator is marketing their pro rata share of
production or prospective purchasers of Producer's assets, all of whom agree to
be bound by this confidentiality provision, Producer and Gatherer will not cause
or permit disclosure of same to any third party without the express written
consent of the other Party; provided however, that disclosure by a Party is
permitted in the event and to the extent:
1) disclosing Party is required by a court or agency exercising
jurisdiction over the subject matter thereof, by order or by
regulation or law, to disclose; provided that in the event
either Party becomes aware of a judicial or administrative
proceeding that has resulted or may result in such an order
requiring disclosure, it shall (i) so notify the other Party
immediately (ii) utilize all reasonably available means to
limit the scope of the order or regulation requiring
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disclosure, and (iii) take all actions reasonably
necessary to prevent disclosure to the public as a
result of disclosure to the court or administrative body,
2) disclosure is necessary to obtain transportation of the
Gas covered by the Agreement, or
3) disclosure is required in the course of routine audit
procedures.
4) disclosure is made for a press release which is
required to advise the public of the existence of the
Agreement without reference to specific terms hereof
other than the location and potential Gas volumes.
Any such disclosure shall be made upon the condition that the recipient shall in
turn hold such information confidential from further disclosure.
F. The Equal Employment Opportunity Clause required under Executive
Order No. 11246, the affirmative action commitment for disabled veterans and
veterans of the Vietnam Era, set forth in 41 CFR 60-250.4, the affirmative
action clause for handicapped workers, set forth in CFR 650-741.4, and the
related regulations of the Secretary of Labor, 41 CFR Chapter 60, are
incorporated by reference in the Agreement. By accepting the Agreement, Producer
certifies that it complies with the authorities cited above and that it does not
maintain segregated facilities or permit its employees to perform services at
locations where segregated facilities are maintained, as required by 41 CFR
60.1.8.
END OF GENERAL TERMS AND CONDITIONS
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