99.1 DCP Mainstream LP Gas Contract dated October 1, 2007
GAS PURCHASE CONTRACT
This Gas Purchase Contract (the "Contract") is entered as of October 1,
2007, between SOUTH TEXAS OIL COMPANY ("Seller") and DCP MIDSTREAM, LP
("Buyer").
For and in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. COMMITMENT. Seller will sell and deliver and Buyer will purchase and
receive gas produced from all wells now or later located on all oil and gas
interests now or later owned or controlled by Seller on or allocated to the
lands outlined in Exhibit B, attached hereto in Bastrop County, Texas.
Definitions and General Terms and Conditions included in this Contract are
attached as Exhibit A. All Exhibits mentioned herein are incorporated by
reference.
2. DELIVERY POINTS. The Delivery Points for gas to be delivered by
Seller to Buyer for existing sources of production will be at the inlets of
Buyer's Facilities at a mutually agreeable site on Buyer's 10" pipeline. Seller
agrees to lay a pipeline from the Graeco No. 1 Well, located in the T.
Highsmith Survey, A-194, Bastrop County, Texas, to Buyer's Affiliate's 10"
pipeline located near the South Line of the R. H. Grimes Survey, A-173, Bastrop
County, Texas, a distance of approximately three miles. This line is to be
constructed within 100 days from the date of execution of this Contract, and be
at least 6 inches in diameter, or the hydraulic equivalent of a 6" pipeline.
The Delivery Points for future sources of production committed under this
Contract will be established under Section B.2 of Exhibit A, except Buyer
agrees to install measurement stations for all future wells, such measurement
stations to be on Buyer's Affiliate's 10" pipeline or at other mutually
agreeable locations, so long as Seller can demonstrate continuous flow of at
least 50 Mcf per Day and Seller installs the necessary pipeline to each new
Delivery Point. Title to the gas and all its components shall pass to and vest
in Buyer at the Delivery Points without regard to the purposes for which Buyer
may later use or sell the gas or its components.
3. DELIVERY PRESSURE. Seller will deliver the gas at the Delivery Points
at a pressure sufficient to enable it to enter Buyer's Facilities against the
working pressure at reasonably uniform rates of delivery, not to exceed the
maximum allowable operating pressure established by Buyer or pressures that
prevent others from producing ratably. Buyer shall cause its Affiliate to
endeavor to operate its gathering system in the area of the Delivery Points at
a pressure not to exceed forty (40) psig. Buyer in its discretion may require
that Seller install and operate a pressure relief or reduction device upstream
of any Delivery Point set at the pressure designated by Buyer to limit the
pressure at which Seller delivers gas, where Seller's deliveries might
interfere with ratable deliveries from others or to enhance safety.
4. QUANTITY. (a) Seller shall deliver and Buyer shall purchase and take
Seller's gas subject to the operating conditions and capacity of Buyer's
Facilities and resale markets. Although there is no specific purchase
quantity, Buyer will use commercially reasonable efforts to market gas for
resale and operate its facilities in an effort to maintain consistent takes of
all available quantities. If Buyer takes less than the full quantities
available, Buyer will use commercially reasonable efforts to purchase gas from
the lands covered by this Contract ratably with its purchases of similar gas
in each common gathering system or area within its capabilities using existing
facilities, in compliance with Buyer's existing contracts and with applicable
laws and regulations, including ratable purchases from Buyer's affiliates.
(a) Seller may dispose of any gas not taken by Buyer for any
reason, including events of Force Majeure, subject to Buyer's right to
resume purchases at any subsequent time. If Buyer does not take gas for
15 consecutive Days and Seller secures a different temporary market,
Buyer may resume purchases only upon 15 Days' advance written notice as
of the beginning of a Month unless otherwise agreed.
(b) Seller will use commercially reasonable efforts to deliver
gas meeting the quality requirements of Section F of Exhibit A and to
avoid delivery of Inferior Liquids as defined in Section A(i) of Exhibit
A. If the gas at any Delivery Point becomes insufficient in volume,
quality, or pressure, Buyer may cease gas takes such Delivery Point for
so long as the condition exists. If Buyer ceases taking gas under this
Section for 30 consecutive Days for reasons other than quality [Section
F of Exhibit A] or Force Majeure [Section H of Exhibit A], Seller may
terminate this Contract with respect to the affected Delivery Points as
to the then productive zones upon 30 Days' advance written notice to
Buyer; provided that during the notice period Buyer may resume
consistent takes and purchases, and thereby avoid Contract termination
under Seller's notice.
5. PRICE.
5.1 CONSIDERATION. As full consideration for the gas and all its
components deliveredto Buyer each month, Buyer shall pay Seller (i) **% of the
net value determined under Section 5.2 below for Residue Gas attributable to
Seller's gas, and (ii) **% of the net value determined under Section 5.3 below
for any recovered NGLs attributable to Seller's gas. If Seller's deliveries
exceed an average of 1,000 Mcf per Day during any month, Buyer shall pay
Seller (i) **% of the net value determined under Section 5.2 below for Residue
Gas attributed to Seller's gas, and (ii) **% of the net value determined under
Section 5.3 below for any recovered NGLs attributed to Seller's gas. No
separate payment or value calculation is to be made under this Contract for
helium, sulfur, CO2, other non-hydrocarbons, or for Inferior Liquids.
5.2 RESIDUE GAS VALUE. The net residue gas value will be determined by
multiplying the MMBtus of residue gas allocable to Seller times the index price
per MMBtu published in INSIDE F.E.R.C.'S GAS MARKET REPORT in its first
publication of the month in which the gas is delivered for "PRICES OF SPOT GAS
DELIVERED TO PIPELINES" for HOUSTON SHIP CHANNEL (LARGE PACKAGES ONLY)("INDEX
PRICE") less 15{cent} per MMBtu for Seller's residue gas. If this Index Price
quotation is discontinued or materially modified, its successor will be used,
or in the absence of a successor, Buyer and Seller will promptly select another
publication that enables calculation of an Index Price closely comparable to
that previously used. If a change in the Index Price becomes necessary, Buyer
will so inform Seller by written notice, setting forth Buyer's proposed
changes.
5.3 NGL VALUE. The net value of any recovered NGLs attributable to
Seller will be determined by multiplying the quantity of each NGL component
attributable to Seller's gas by the average price per gallon for each NGL
component f.o.b. Buyer's Facilities. "Average price" as to each NGL component
means the simple average of the midpoint of the daily high/low spot price for
(i) ethane in E-P mix, (ii) Non-TET propane, (iii) Non-TET isobutane, (iv) Non-
TET normal butane, and (v) NonTET natural gasoline (pentanes and heavier)
during the month as reported for Mont Belvieu, Texas by the Oil Price
Information Service (or in its absence, a comparable successor publication
designated by Buyer) less a transportation, fractionation, and storage ("TF&S")
fee of $0.0*** per gallon. As of January 1 of each calendar year beginning with
2007, Buyer will adjust the TF&S fee upward or downward as follows, but it will
never be less than the initial fee. Buyer will adjust (i) 50% of the TF&S fee
by an amount equal to the annual percentage of change in the preliminary
estimate of the implicit price deflator, seasonally adjusted, for the gross
domestic product ("GDP") as computed and most recently published by the U.S.
Department of Commerce, rounded to the nearest 100th cent, or in its absence, a
similar successor adjustment factor designated by Buyer, and (ii) 50% of the
TF&S fee by the percentage difference between the yearly average of the
previous year's monthly Index Prices defined in Section 5.2 above and those for
the second previous year.
5.4 LOW VOLUME DELIVERY POINTS. For gas delivered at any metered
Delivery Points at which the volume delivered to Buyer has a volume of 300 Mcf
per month or less ("Low Volume"),- Seller shall pay Buyer its pro rata share of
a fee of $**.00 per month per meter to cover Buyer's administration and
maintenance costs. However, Buyer shall not charge Seller a low volume fee
during the first three months days following initial deliveries at each
Delivery Point hereunder. A low volume fee will be assessed, if applicable, for
all production months beginning the first Day of the month following the
initial three month period at each Delivery Point.
5.5 ALLOCATION OF RESIDUE GAS AND NGLS. Buyer will determine the residue
gas and NGLs attributable to Seller using the following definitions and
procedures. Additional definitions are in Section A of Exhibit A. From time to
time Buyer may make changes and adjustments in its allocation methods to
improve accuracy or efficiency to the extent changes do not have a material
financial impact on Seller.
(A) NGLS ALLOCABLE TO SELLER.
(i) The quantity of each NGL component allocable to Seller's
gas will be determined by multiplying the total quantity of each NGL
component saved and sold at the plant or plants by a fraction. The
numerator will be the gallons of that NGL component contained in the
gas delivered by Seller as determined by chromatographic analysis or
other accepted method in the industry, and the denominator will be
the total gallons of that component contained in all gas delivered to
Buyer from sources connected to Buyer's Facilities. Sub-area
breakdowns or allocation of field fuel to wells receiving low
pressure service may be used as stated in (b)(ii) below
(B) RESIDUE GAS ALLOCABLE TO SELLER.
(i) The MMBtus of "residue gas allocable to Seller" will be
determined by multiplying the MMBtus of "residue gas available for
sale" from Buyer's Facilities by a fraction. The numerator will be
the "theoretical MMBtus of residue gas remaining from Seller's gas"
delivered by Seller, and the denominator will be the total of the
theoretical MMBtus of residue gas remaining from all gas delivered to
Buyer from the common sources connected to Buyer's Facilities.
"Residue gas available for sale" means all residue gas available from
Buyer's Facilities, net of residue gas required for the operation of
Buyer's Facilities. The "theoretical MMBtus of residue gas remaining
from Seller's gas" means the sum of the MMBtus of methane and heavier
hydrocarbons contained in Seller's gas as determined by
chromatographic analysis or other accepted method in the industry,
less the MMBtus of NGLs saved and sold attributable to Seller's gas.
(ii)Buyer may apply the allocation principles of this Section
5.6 repeatedly to sub areas or separately measured systems in order
to improve accuracy. For example, Buyer may allocate plant NGL and
residue gas volumes to field gathering system boosters, then use the
same principles to allocate those results further to sources behind
those boosters, or Buyer may allocate all field fuel to all wells
receiving low pressure service and thus benefiting from compression.
6. TERM. This Contract shall be in force for a primary term through
September 30, 2012, and from month to month thereafter until canceled by
either party as of the end of the primary term or any anniversary thereafter
by giving the other party at least 60 Days' but no more than 120 Days' advance
written notice of termination.
7. ADDRESSES AND NOTICES. Either party may give notices to the other party
by firstclass mail postage prepaid, by overnight delivery service, or by
facsimile with receipt confirmed at the-following addresses or other addresses
furnished by a party by written notice. Unless Seller objects in writing, Buyer
may also use Seller's current address for payments. Any telephone numbers below
are solely for information and are not for Contract notices. The parties opt
out of electronic delivery of notices and amendments under this Contract,
except that notices and hand-signed amendments may be delivered by facsimile
with receipt confirmed as stated above.
Notices to Seller - Correspondence South Texas Oil Company
Attn: Mr. Mr. J. Scott Zimmerman
769 Hwy 95 North
Bastrop, Texas 78602
Phone: (303) 981-3314
Fax: (512) 321-4737
Notices to Buyer - General: DCP Midstream, LP
(Gas Acquisitions and Accounting) 5718 Westheimer Road, Suite 2000
Houston, Texas 77057
Phone: (713) 735-3600
Fax: (713) 735-3101
Ownership changes, Division DCP Midstream, LP
Orders: Division Orders
Two Warren Place
6120 South Yale, Suite 1100
Tulsa, OK 74136
Fax: (918) 499-4286
The parties have signed this Contract by their duly authorized
representatives as of the date first set forth above.
SOUTH TEXAS OIL COMPANY DCP MIDSTREAM, LP
By ___________________________ By ___________________________________
Chief Operating Officer Managing Director, South and Central
Texas
Signed on: October 31, 2007
Buyer Seller