<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1999
REGISTRATION NO. 333-68317
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
PENNACO ENERGY, INC.
(Exact Name of Small Business Issuer As Specified In Its Charter)
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NEVADA 1311 88-0384598
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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1050 17TH STREET, SUITE 700
DENVER, COLORADO 80265
(303) 629-6700
(Address, including zip code, and telephone number, including area code,
of Registration's principal executive offices)
PAUL M. RADY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PENNACO ENERGY, INC.
1050 17TH STREET, SUITE 700
DENVER, COLORADO 80265
(303) 629-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
DAVID P. OELMAN
ANDREWS & KURTH L.L.P.
600 TRAVIS, SUITE 4200
HOUSTON, TEXAS 77002
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada Revised Statutes and certain provisions of the Company's Bylaws
under certain circumstances provide for indemnification of the Company's
officers, directors and controlling persons against liabilities that they may
incur in such capacities. A summary of the circumstances in which such
indemnification is provided for is contained herein, but this description is
qualified in its entirety by reference to the Company's Bylaws and to the
statutory provisions.
In general, any officer, director, employee or agent may be indemnified
against expenses, fines, settlements or judgments arising in connection with a
legal proceeding to which such person is a party, if that person's actions were
in good faith, were believed to be in the Company's best interest, and were not
unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent
decision of the Board of Directors, by legal counsel, or by a vote of the
stockholders, that the applicable standard of conduct was met by the person to
be indemnified.
The circumstances under which indemnification is granted in connection with
an action brought on behalf of the Company is generally the same as those set
forth above; however, with respect to such actions, indemnification is granted
only with respect to expenses actually incurred in connection with the defense
or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith and in a manner believed to have been in the Company's
best interest, and must not have been adjudged liable for negligence or
misconduct.
Indemnification may also be granted pursuant to the terms of agreements that
may be entered in the future or pursuant to a vote of stockholders or directors.
The statutory provision cited above also grants the power to the Company to
purchase and maintain insurance which protects its officers and directors
against any liabilities incurred in connection with their service in such a
position, and such a policy may be obtained by the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering are estimated to be as follows:
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SEC Registration Fee............................................... $ 6,925
Printing Expenses.................................................. 9,500
Legal Fees and Expenses............................................ 25,000
Accounting Fees and Expenses....................................... 7,500
Transfer Agent Fees................................................ 500
Miscellaneous...................................................... 1,337
---------
TOTAL............................................................ $ 50,762
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---------
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities by
the Company during the past three years that were not registered under the
Securities Act.
(a) The Company issued 995,000 shares in January 1998 pursuant to a
share-for-share exchange with the stockholders of International Metal
Protection, Inc. in a transaction conducted solely to reincorporate the Company
in a new jurisdiction. This transaction was exempt from the registration
requirements of the
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<PAGE>
Securities Act pursuant to Section 4(2) of the Securities Act. There was no
change in ownership and the stockholders made no significant investment
decision.
(b) The Company issued 500,000 shares in February 1998 for the purchase
price of $.10 per share pursuant to a private placement exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) of the
Securities Act. At that time, the Company had only a business plan and no
assets. There were eleven offerees in this offering, all of whom made purchases
and all of whom were sophisticated investors. The Company fully apprised each of
the offerees of the Company's start-up nature and gave them full details
regarding the Company's business plan. There was no general solicitation or
advertising used in connection with the offer to sell or sale of these
securities. The purchasers were advised that the securities, once purchased,
could not be resold or otherwise transferred without subsequent registration
under the Securities Act. Each purchaser represented to the Company that they
were purchasing the securities for their own account for investment purposes
only.
(c) The Company issued 4,530,000 shares in February 1998 for a purchase
price of $.22 per share pursuant to a Regulation D, Rule 504 offering. Offerees
were provided with a private placement memorandum containing detailed
information about the Company and its plan. The Company required each
prospective investor to represent in writing that (i) they had adequate means of
providing for their current needs and personal contingencies and had no need to
sell the securities in the foreseeable future and (ii) they, either alone or
with their duly designated purchaser representative, had such knowledge and
experience in business and financial matters that they were capable of
evaluating the risks and merits of an investment in the securities.
(d) The Company issued 5,000,000 shares in April 1998 for a purchase price
of $1.25 per share pursuant to a Regulation D, Rule 506 offering. The Company
accepted subscriptions only from accredited investors. Offerees were provided
with a private placement memorandum containing detailed information about the
Company and its plan. The Company required each prospective investor to
represent in writing that (i) they had received and reviewed the private
placement memorandum and understood the risks of an investment in the Company;
(ii) they had the experience and knowledge with respect to similar investments
which enabled them to evaluate the merits and risks of such investment, or they
had obtained and relied upon an experienced independent adviser with respect to
such evaluation; (iii) they had adequate means to bear the economic risk of such
investment, including the loss of the entire investment; (iv) they had adequate
means to provide for their current needs and possible personal contingencies;
(v) they had no need for liquidity of their investment in the Company; (vi) they
understood that the securities had not been registered under the Securities Act
and may have not been registered or qualified under applicable state securities
laws and, therefore, that they could not sell or transfer the securities unless
the securities were subsequently registered or an exemption therefrom was
available to them; (vii) they were acquiring the securities for investment
solely for their own account and without any intention of reselling or
distributing them; and (viii) they understood that the securities would bear a
restrictive legend prohibiting transfers except in compliance with the
provisions of the securities, the subscription agreement executed by the
purchaser and the applicable federal and state securities laws.
(e) The Company issued 128,000 share purchase warrants with an exercise
price of $1.25 per share, exercisable after April 15, 1999, to Yorkton in April
1998 pursuant to a private placement exemption from the registration
requirements of the Securities Act under Section 4(2) of the Securities Act.
These warrants were issued pursuant to a negotiated transaction between the
Company and Yorkton, whereby Yorkton agreed to provide corporate finance
services to the Company for one year in return for these warrants.
(f) The Company issued 2,000,000 shares in June 1998 to RIS pursuant to a
Regulation D, Rule 506 offering for a purchase price of $1.75 per share. The
Company accepted subscriptions only from accredited investors. Offerees were
provided with a private placement memorandum containing detailed information
about the Company and its plan. The Company required each prospective investor
to represent in writing that (i) they had received and reviewed the private
placement memorandum and understood the risks of an
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investment in the Company; (ii) they had the experience and knowledge with
respect to similar investments which enabled them to evaluate the merits and
risks of such investment, or they had obtained and relied upon an experienced
independent adviser with respect to such evaluation; (iii) they had adequate
means to bear the economic risk of such investment, including the loss of the
entire investment; (iv) they had adequate means to provide for their current
needs and possible personal contingencies; (v) they had no need for liquidity of
their investment in the Company; (vi) they understood that the securities had
not been registered under the Securities Act and may have not been registered or
qualified under applicable state securities laws and, therefore, that they could
not sell or transfer the securities unless the securities were subsequently
registered or an exemption therefrom was available to them; (vii) they were
acquiring the securities for investment solely for their own account and without
any intention of reselling or distributing them; and (viii) they understood that
the securities would bear a restrictive legend prohibiting transfers except in
compliance with the provisions of the securities, the subscription agreement
executed by the purchaser and the applicable federal and state securities laws.
(g) The Company issued 796,429 units in June, July and September 1998
pursuant to a Regulation D, Rule 506 offering to three members of the management
team of the Company, for a purchase price of $1.75 per unit, each unit
consisting of one share and a one share purchase warrant for every two shares
purchased. All units were purchased by three members of the management team of
the Company. Offerees were provided with a private placement memorandum
containing detailed information about the Company and its plan. The Company
required each prospective investor to represent in writing that (i) they had
received and reviewed the private placement memorandum and understood the risks
of an investment in the Company; (ii) they had the experience and knowledge with
respect to similar investments which enabled them to evaluate the merits and
risks of such investment, or they had obtained and relied upon an experienced
independent adviser with respect to such evaluation; (iii) they had adequate
means to bear the economic risk of such investment, including the loss of the
entire investment; (iv) they had adequate means to provide for their current
needs and possible personal contingencies; (v) they had no need for liquidity of
their investment in the Company; (vi) they understood that the securities had
not been registered under the Securities Act and may have not been registered or
qualified under applicable state securities laws and, therefore, that they could
not sell or transfer the securities unless the securities were subsequently
registered or an exemption therefrom was available to them; (vii) they were
acquiring the securities for investment solely for their own account and without
any intention of reselling or distributing them; and (viii) they understood that
the securities would bear a restrictive legend prohibiting transfers except in
compliance with the provisions of the securities, the subscription agreement
executed by the purchaser and the applicable federal and state securities laws.
(h) The Company issued 1,215,000 units on September 4, 1998 pursuant to a
Regulation D, Rule 506 offering for a purchase price of $3.25 per unit, each
unit consisting of one share and a one share purchase warrant for every two
shares purchased. The Company accepted subscriptions only from accredited
investors. Offerees were provided with a private placement memorandum containing
detailed information about the Company and its plan. The Company required each
prospective investor to represent in writing that (i) they had received and
reviewed the private placement memorandum and understood the risks of an
investment in the Company; (ii) they had the experience and knowledge with
respect to similar investments which enabled them to evaluate the merits and
risks of such investment, or they had obtained and relied upon an experienced
independent adviser with respect to such evaluation; (iii) they had adequate
means to bear the economic risk of such investment, including the loss of the
entire investment; (iv) they had adequate means to provide for their current
needs and possible personal contingencies; (v) they had no need for liquidity of
their investment in the Company; (vi) they understood that the securities had
not been registered under the Securities Act and may have not been registered or
qualified under applicable state securities laws and, therefore, that they could
not sell or transfer the securities unless the securities were subsequently
registered or an exemption therefrom was available to them; (vii) they were
acquiring the securities for investment solely for their own account and without
any intention of reselling or distributing them; and (viii) they understood that
the securities would bear a restrictive legend prohibiting transfers
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<PAGE>
except in compliance with the provisions of the securities, the subscription
agreement executed by the purchaser and the applicable federal and state
securities laws. Yorkton served as placement agent for this private placement.
As compensation, Yorkton received share purchase warrants to purchase 75,200
shares at an exercise price of $3.58. These share purchase warrants were issued
pursuant to the same Regulation D, Rule 506 offering.
ITEM 27. EXHIBITS.
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EXHIBIT
NO. TITLE
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3.1 Articles of Incorporation (filed as Exhibit 3.1 to the Company's Form
10-SB File No. 00-24881, filed September 15, 1998 and included herein by
reference).
3.2 Bylaws (filed as Exhibit 3.2 to the Company's Form 10-SB, File No.
00-24881, filed September 15, 1998 and included herein by reference).
+4.1 Form of Warrant
+5.1 Opinion of Gibson, Haglund & Johnson
10.1 Mineral Lease Purchase Agreement dated February 23, 1998 between High
Plains Associates, Inc. and Pennaco Energy, Inc. (filed as Exhibit 10.1
to the Company's Form 10-SB/A File No. 00-24881, filed September 15,
1998 and included herein by reference).
10.2 Letter Agreement dated January 23, 1998 between High Plains Associates,
Inc. and Taylor Oil Properties (filed as Exhibit 10.2 to the Company's
Form 10-SB/A File No. 00-24881, filed September 15, 1998 and included
herein by reference).
10.3 Assignment of Option and Exercise of Option dated March 6, 1998 between
High Plains Associates, Inc. and Pennaco Energy, Inc. (filed as Exhibit
10.3 to the Company's Form 10-SB/A File No. 00-24881, filed September
15, 1998 and included herein by reference).
10.4 Agreement dated March 6, 1998 between High Plains Associates, Inc. and
Pennaco Energy, Inc. (filed as Exhinbit 10.4 to the Company's Form
10-SB/A File No. 00-24881, filed September 15, 1998 and included herein
by reference).
10.5 Pennaco Energy, Inc. 1998 Stock Option and Incentive Plan (filed as
Exhibit 10.5 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.6 Form of Pennaco Energy, Inc. Incentive Stock Option Agreement (filed as
Exhibit 10.6 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.7 Form of Pennaco Energy, Inc. Non-Statutory Stock Option Agreement (filed
as Exhibit 10.7 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.8 Employment Agreement dated June 10, 1998 between Pennaco Energy, Inc. and
Paul M. Rady (filed as Exhibit 10.8 to the Company's Form 10-SB, File
No. 00-24881, filed September 15, 1998 and included herein by
reference).
10.9 Employment Agreement dated July 2, 1998 between Pennaco Energy, Inc. and
Glen C. Warren, Jr. (filed as Exhibit 10.9 to the Company's Form 10-SB,
File No. 00-24881, filed September 15, 1998 and included herein by
reference).
10.10 Secured Promissory Note dated August 13, 1998 from Pennaco Energy, Inc. to
Venture Capital Sourcing, SA (filed as Exhibit 10.10 to the Company's
Form 10-SB/A File No. 00-24881, filed September 15, 1998 and included
herein by reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
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10.11 Second Amendment to Security Agreement dated August 13, 1998 between
Pennaco Energy, Inc. and Venture Capital Sourcing, SA (filed as Exhibit
10.11 to the Company's Form 10-SB/A File No. 00-24881, filed September
15, 1998 and included herein by reference).
10.12 Purchase and Sale Agreement between Pennaco Energy, Inc., as Seller and
CMS Oil and Gas Company, as Buyer, dated October 23, 1998 (filed as
Exhibit 10.12 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.13 Secured Promissory Note dated October 23, 1998 from Pennaco Energy, Inc.
to CMS Oil and Gas Company (filed as Exhibit 10.13 to the Company's Form
10-SB, File No. 00-24881, filed November 24, 1998 and included herein by
reference).
10.14 Sublease Agreement dated October 23, 1998 between Pennaco Energy, Inc. and
Evansgroup, Inc. (filed as Exhibit 10.14 to the Company's Form 10-SB/A
File No. 00-24881 filed December 22, 1998 and included here by
reference).
10.15 Agreement Regarding the Drilling of Coal Bed Methane Wells (filed as
Exhibit 10.15 to the Company's Form 10-SB/A File No. 00-24881, filed
December 22, 1998 and included herein by reference).
10.16 First Amendment to Purchase and Sale Agreement dated November 20, 1998
(filed as Exhibit 10.16 to the Company's Form 10-SB/A File No. 00-24881,
filed January 28, 1999 and included herein by reference).
10.17 Second Amendment to Purchase and Sale Agreement dated January 15, 1999
(filed as Exhibit 10.17 to the Company's Form 10-SB/A File No. 00-24881,
filed January 28, 1999 and included herein by reference).
*10.18 Gas Gathering Agreement between Bear Paw Energy, Inc. and Pennaco Energy,
Inc. dated February 1, 1999. (Portions of this Gas Gathering Agreement
have been omitted based upon a request for confidential treatment.
Additionally, the omitted portions have been filed with the SEC.)
*10.19 Gas Gathering Agreement between CMS Continental Natural Gas, Inc. and
Pennaco Energy, Inc. dated March 1, 1999. (Portions of this Gas
Gathering Agreement have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*10.20 Gas Purchase Agreement between Western Gas Resources, Inc. and Pennaco
Energy, Inc. dated April 1, 1999. (Portions of this Gas Purchase
Agreement have been omitted based upon a request for confidential
treatment. Additionally, the omitted portions have been filed with the
SEC.)
*10.21 Base Contract for Short-Term Sale and Purchase of Natural Gas between
Pennaco Energy, Inc. and Interenergy Resources Corporation dated April
1, 1999. (Portions of this Base Contract for Short-Term Sale and
Purchase of Natural Gas have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*10.22 Gas Sales and Purchase Agreement between Montana--Dakota Utilities Co. and
Pennaco Energy, Inc. dated March 1, 1999. (Portions of this Gas Sales
and Purchase Agreement have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*23.1 Consent of KPMG LLP
+23.2 Consent of Gibson, Haglund & Johnson (included in Exhibit 5.1)
+23.3 Consent of Hanifen Imhoff, Inc.
+23.4 Consent of Ryder Scott Company
</TABLE>
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EXHIBIT
NO. TITLE
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+24.1 Power of Attorney
</TABLE>
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+ Previously Filed
* Filed Herewith
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and (iii) to include any additional or changed material
information on the plan of distribution.
(2) that, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) that, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereto.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS AMENDMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, TO THE
CITY OF DENVER, STATE OF COLORADO, ON THE 11TH DAY OF AUGUST, 1999.
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PENNACO ENERGY, INC.
By: /s/ PAUL M. RADY
-----------------------------------------
Paul M. Rady
CHIEF EXECUTIVE OFFICER,
PRESIDENT, AND DIRECTOR
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON AUGUST 11,
1999 IN THE CAPACITIES INDICATED.
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<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Chairman of the Board of
Jeffrey L. Taylor Directors
/s/ PAUL M. RADY
- ------------------------------ President, Chief Executive
Paul M. Rady Officer, and Director
Chief Financial Officer,
* Executive Vice
- ------------------------------ President, and Director
Glen C. Warren, Jr. (Principal Financial and
Accounting Officer)
*
- ------------------------------ Vice President, Legal,
Gregory V. Gibson Secretary, and Director
*
- ------------------------------ Director
David W. Lanza
</TABLE>
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*By: /s/ PAUL M. RADY
-------------------------
Paul M. Rady
Pursuant to a
power-of-attorney filed
with the Registration
Statement on Form SB-2
(333-68317) on
December 3, 1998.
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
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<C> <S>
3.1 Articles of Incorporation (filed as Exhibit 3.1 to the Company's Form
10-SB File No. 00-24881, filed September 15, 1998 and included herein by
reference).
3.2 Bylaws (filed as Exhibit 3.2 to the Company's Form 10-SB, File No.
00-24881, filed September 15, 1998 and included herein by reference).
+4.1 Form of Warrant
+5.1 Opinion of Gibson, Haglund & Johnson
10.1 Mineral Lease Purchase Agreement dated February 23, 1998 between High
Plains Associates, Inc. and Pennaco Energy, Inc. (filed as Exhibit 10.1
to the Company's Form 10-SB/A File No. 00-24881, filed September 15,
1998 and included herein by reference).
10.2 Letter Agreement dated January 23, 1998 between High Plains Associates,
Inc. and Taylor Oil Properties (filed as Exhibit 10.2 to the Company's
Form 10-SB/A File No. 00-24881, filed September 15, 1998 and included
herein by reference).
10.3 Assignment of Option and Exercise of Option dated March 6, 1998 between
High Plains Associates, Inc. and Pennaco Energy, Inc. (filed as Exhibit
10.3 to the Company's Form 10-SB/A File No. 00-24881, filed September
15, 1998 and included herein by reference).
10.4 Agreement dated March 6, 1998 between High Plains Associates, Inc. and
Pennaco Energy, Inc. (filed as Exhinbit 10.4 to the Company's Form
10-SB/A File No. 00-24881, filed September 15, 1998 and included herein
by reference).
10.5 Pennaco Energy, Inc. 1998 Stock Option and Incentive Plan (filed as
Exhibit 10.5 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.6 Form of Pennaco Energy, Inc. Incentive Stock Option Agreement (filed as
Exhibit 10.6 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.7 Form of Pennaco Energy, Inc. Non-Statutory Stock Option Agreement (filed
as Exhibit 10.7 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.8 Employment Agreement dated June 10, 1998 between Pennaco Energy, Inc. and
Paul M. Rady (filed as Exhibit 10.8 to the Company's Form 10-SB, File
No. 00-24881, filed September 15, 1998 and included herein by
reference).
10.9 Employment Agreement dated July 2, 1998 between Pennaco Energy, Inc. and
Glen C. Warren, Jr. (filed as Exhibit 10.9 to the Company's Form 10-SB,
File No. 00-24881, filed September 15, 1998 and included herein by
reference).
10.10 Secured Promissory Note dated August 13, 1998 from Pennaco Energy, Inc. to
Venture Capital Sourcing, SA (filed as Exhibit 10.10 to the Company's
Form 10-SB/A File No. 00-24881, filed September 15, 1998 and included
herein by reference).
10.11 Second Amendment to Security Agreement dated August 13, 1998 between
Pennaco Energy, Inc. and Venture Capital Sourcing, SA (filed as Exhibit
10.11 to the Company's Form 10-SB/A File No. 00-24881, filed September
15, 1998 and included herein by reference).
10.12 Purchase and Sale Agreement between Pennaco Energy, Inc., as Seller and
CMS Oil and Gas Company, as Buyer, dated October 23, 1998 (filed as
Exhibit 10.12 to the Company's Form 10-SB, File No. 00-24881, filed
September 15, 1998 and included herein by reference).
10.13 Secured Promissory Note dated October 23, 1998 from Pennaco Energy, Inc.
to CMS Oil and Gas Company (filed as Exhibit 10.13 to the Company's Form
10-SB, File No. 00-24881, filed November 24, 1998 and included herein by
reference).
</TABLE>
<PAGE>
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<CAPTION>
EXHIBIT
NO. TITLE
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<C> <S>
10.14 Sublease Agreement dated October 23, 1998 between Pennaco Energy, Inc. and
Evansgroup, Inc. (filed as Exhibit 10.14 to the Company's Form 10-SB/A
File No. 00-24881 filed December 22, 1998 and included here by
reference).
10.15 Agreement Regarding the Drilling of Coal Bed Methane Wells (filed as
Exhibit 10.15 to the Company's Form 10-SB/A File No. 00-24881, filed
December 22, 1998 and included herein by reference).
10.16 First Amendment to Purchase and Sale Agreement dated November 20, 1998
(filed as Exhibit 10.16 to the Company's Form 10-SB/A File No. 00-24881,
filed January 28, 1999 and included herein by reference).
10.17 Second Amendment to Purchase and Sale Agreement dated January 15, 1999
(filed as Exhibit 10.17 to the Company's Form 10-SB/A File No. 00-24881,
filed January 28, 1999 and included herein by reference).
*10.18 Gas Gathering Agreement between Bear Paw Energy, Inc. and Pennaco Energy,
Inc. dated February 1, 1999. (Portions of this Gas Gathering Agreement
have been omitted based upon a request for confidential treatment.
Additionally, the omitted portions have been filed with the SEC.)
*10.19 Gas Gathering Agreement between CMS Continental Natural Gas, Inc. and
Pennaco Energy, Inc. dated March 1, 1999. (Portions of this Gas
Gathering Agreement have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*10.20 Gas Purchase Agreement between Western Gas Resources, Inc. and Pennaco
Energy, Inc. dated April 1, 1999. (Portions of this Gas Purchase
Agreement have been omitted based upon a request for confidential
treatment. Additionally, the omitted portions have been filed with the
SEC.)
*10.21 Base Contract for Short-Term Sale and Purchase of Natural Gas between
Pennaco Energy, Inc. and Interenergy Resources Corporation dated April
1, 1999. (Portions of this Base Contract for Short-Term Sale and
Purchase of Natural Gas have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*10.22 Gas Sales and Purchase Agreement between Montana--Dakota Utilities Co. and
Pennaco Energy, Inc. dated March 1, 1999. (Portions of this Gas Sales
and Purchase Agreement have been omitted based upon a request for
confidential treatment. Additionally, the omitted portions have been
filed with the SEC.)
*23.1 Consent of KPMG LLP
+23.2 Consent of Gibson, Haglund & Johnson (included in Exhibit 5.1)
+23.3 Consent of Hanifen Imhoff, Inc.
+23.4 Consent of Ryder Scott Company
+24.1 Power of Attorney
</TABLE>
- ------------------------
+ Previously Filed
* Filed Herewith
<PAGE>
EXHIBIT 10.18
GAS GATHERING AGREEMENT
BETWEEN
BEAR PAW ENERGY INC., A COLORADO CORPORATION
AND
PENNACO ENERGY, INC., A NEVADA CORPORATION
<PAGE>
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
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
</TABLE>
<PAGE>
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.
<PAGE>
"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
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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
<PAGE>
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.
7
<PAGE>
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
<PAGE>
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.
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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
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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.
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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
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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
<PAGE>
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
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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
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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
<PAGE>
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
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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
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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
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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
10.A
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EXHIBIT 10.19
GAS GATHERING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March
1999, by and between CMS CONTINENTAL NATURAL GAS, INC. ("Gatherer") and PENNACO
ENERGY, INC. ("Owner").
W I T N E S S E T H:
WHEREAS, Owner owns or controls certain natural Gas produced or to be
produced from the lands, leases and wells located in the Dedicated Area
("Dedicated Area") as more fully described on Exhibit "A" attached hereto; and
WHEREAS, Gatherer intends to construct a gathering system in the
Dedicated Area.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Gatherer and Owner covenant and agree
as follows:
I.
DEFINITIONS
As used herein, the following terms shall have the meanings set forth
below:
1.1 "Btu" - British Thermal Unit, or the quantity of heat required to
raise the temperature of one (1) pound of water one degree Fahrenheit (1DEGF) at
a starting temperature of 59.5 degrees Fahrenheit (59.5DEGF). "MMBtu" - one
million Btu's. Btu's at the Point(s) of Delivery and Receipt hereunder shall be
determined on an as delivered basis.
1.2 "Contract Year" shall mean a period of twelve (12) consecutive
Months beginning on the first day of the Month next following the Month in which
initial delivery of Gas hereunder commences, and each succeeding twelve (12)
Month period thereafter; provided, however, that the period commencing on the
Day in which initial delivery commences hereunder and ending on the first Day of
the next Month shall be deemed part of the first "Contract Year".
1.3 "Dedicated Area" shall mean the area of dedication described on
Exhibit "A" in which Owner owns or controls certain natural gas produced or to
be produced from various lands, leases and wells which are dedicated to this
Agreement. For determining the fees due hereunder the Dedicated Area is divided
into the West Dedicated Area and East Dedicated Area. Such designation of West
Dedicated Area and East Dedicated Area is as shown on Exhibit "A".
1.4 "Day" shall mean a period of twenty-four (24) consecutive hours
commencing at 9:00 a.m., Central Clock Time on one calendar day and ending at
9:00 a.m., Central Clock Time on the following calendar day.
<PAGE>
1.5 "Fuel" or "fuel" shall mean Owner's share of the fuel that is
consumed, gas lost and unaccounted for and shrinkage on Gatherer's System
between the Point(s) of Receipt and the Point of Delivery. Owner's share of Fuel
shall be the sum of the following: (i) the total volume of fuel
consumed on each segment of the System during such Month times a fraction, the
numerator of which is the volume of Owner's gas which utilizes such segment and
the denominator of which is the total volume of all Gas which utilizes such
segment during such Month, and (ii) the total volume of gas lost and unaccounted
for (as adjusted for line pack) collected on the System during such Month times
a fraction, the numerator of which is the volume (as measured at the Point(s) of
Receipt) of Owner's gas delivered to Gatherer's System during the Month and the
denominator of which is the total volume of Gas delivered by all parties to
Gatherer's System during such Month.
1.6 "Gas" or "gas" - all natural gas, including but not limited to Gas
produced from conventional gas formations, coalsearn methane or other coal
related methane producing formations which arrives at the surface in the gaseous
phase, including all hydrocarbon and non-hydrocarbon components, casinghead gas
and helium, produced from oil wells, gas well gas, stock tank vapors, and other
sources of production, unless specifically excluded herein.
1.7 "Gross Heating Value" shall mean the total calorific value
expressed in Btu's obtained by the complete combustion, at constant pressure, of
the amount of Gas which would occupy a volume of one cubic foot at a temperature
of sixty degrees (60DEG) Fahrenheit, if saturated with water vapor and under a
pressure equivalent to fourteen and seventy-three hundredths (14.73) Psia and
under standard gravitational force (980.665 cm per second per second) 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.
1.8 "Month" shall mean the period commencing on the first Day of a
calendar month and ending on the first Day of the next calendar month.
1.9 "Mcf 'shall mean one thousand (1,000) cubic feet.
1.10 "Pod" shall mean a point at which Owner physically aggregates the
Gas production from a group of wells for delivery to Gatherer.
1.11 "Point(s) of Receipt" shall mean the inlet or suction side of the
first facility installed by Gatherer to receive Owner's gas at each Pod or such
other downstream point as mutually agreed to by the Parties. Measurement for the
Point(s) of Receipt shall be made at a master meter at the discharge side of the
compressor immediately downstream of each Point of Receipt.
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1.12 "Point of Delivery" shall mean the point of interconnection
between Gatherer's System and the Northern terminus of the facilities owned and
operated by Fort Union Gas Gathering, L.L.C. ("FUGG") in Campbell County,
Wyoming.
1.13 "Price Index" shall mean, for each Month, the weighted average
sales price per MMBtu, received by Gatherer for all of its sales of Gas at
interconnections at the outlet of the Wyoming Interstate Company Ltd.'s
Medicine Bow Lateral during such Month, less all charges incurred by Gatherer
(including fees, fuel, surcharges and other additives) to move such Gas from
the Point of Delivery to such interconnections.
1.14 "Psia" shall mean pounds per square inch, absolute.
1.15 "Psig" shall mean pounds per square inch, gauge.
1.16 "System" or "Gatherer's System" shall mean all facilities
necessary to receive Owner's gas at the Point(s) of Receipt and to deliver
Owner's gas at the Point of Delivery pursuant to the terms and conditions of
this Agreement.
1.17 "Nominations" shall mean Owner's notification to Gatherer of the
relevant details of Owner's gathering and transportation service requests and
gas sales, including but not limited to Point(s) of Receipt, Point of Delivery,
receipt and redelivery quantities, downstream transportation contract numbers,
and all other information requested by Gatherer for proper and timely
nominations and confirmations.
1.18 "Thermally Equivalent Volume" shall mean that the, volume of gas
delivered hereunder at the Point(s) of Receipt multiplied by the Gross Heating
Value (expressed in MMBtu's on an as delivered basis) of such gas at the
Point(s) of Receipt which, after taking account of adjustments for Fuel, equals
the volumes of gas received at the Point of Delivery multiplied by the Gross
Heating Value (expressed in MMBtu's on an as delivered basis) of the gas at the
Point of Delivery.
II.
SCOPE OF AGREEMENT AND OWNER'S RESERVATIONS
2.1 Subject to the remaining terms and conditions of this Agreement,
Gatherer shall construct, install, make available and operate, during the term
hereof, the necessary facilities to enable Gatherer to receive Owner's Gas
produced from the Dedicated Area at the Point(s) of Receipt and to gather and
deliver such Gas to the Point of Delivery for Owner hereunder.
2.2 Owner agrees that, during the term hereof, Gas which Owner owns or
controls which is produced from the Dedicated Area is dedicated to this
Agreement and will be delivered exclusively into Gatherer's System.
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<PAGE>
2.3 Gatherer shall not be obligated to accept any Gas for gathering
hereunder before the later to occur of (A) or (B), as follows: (A)(i) with
respect to Gas to be delivered at a Point of Receipt in the West Dedicated
Area, completion of Gatherer's high pressure gathering header which is to be
constructed in the West Dedicated Area, and (ii) with respect to Gas to be
delivered at a Point of Receipt in the East Dedicated Area, completion of
Gatherer's high pressure gathering header which is to be constructed in the
East Dedicated Area; or (B) completion by third parties of all necessary
facilities downstream of the Point of Delivery, including but not limited to
the facilities of FUGG and Wyoming Interstate Company, Ltd.'s Medicine Bow
Lateral, for interconnections to interstate pipelines in the area of
Cheyenne, Wyoming; and, further provided, that Gatherer shall not, in any
event, be liable in damages of any kind, whether direct, indirect, incidental
or consequential, to Owner because of Gatherer's failure, inability or delay,
for any reason, to have constructed, installed and made available the
necessary facilities by any particular date to take delivery of Gas from the
Dedicated Area.
2.4 Subject to the remaining terms and conditions of this Agreement,
Gatherer shall achieve each of the following: (i) commence purchase of right of
way for Gatherer's high pressure header in the East Dedicated Area on or before
April 15, 1999, (ii) order pipe for construction of Gatherer's high pressure
header in the East Dedicated Area on or before April 1 0, 1999, and (iii)
release of Gatherer's contractor to begin construction of Gatherer's high
pressure header or related appurtenances in the East Dedicated Area on or before
September 1, 1999, each of which is subject to delay due to the occurrence of an
event of force majeure. In the event Gatherer does not achieve one of the
foregoing objectives (as extended by an event of force majeure), Owner shall
have the option, upon sixty (60) days prior written notice to Gatherer, to
terminate this Agreement; provided, however, such notice shall be of no force or
effect if, within such sixty (60) day period, Gatherer is able to achieve such
objective.
2.5 Owner reserves the following rights with respect to its interests
in the oil and gas properties committed by Owner to Gatherer under this
Agreement together with sufficient gas to satisfy such rights:
a. To operate Owner's oil and gas properties free from control by
Gatherer in such manner as Owner, in Owner's sole discretion, may deem
advisable, including without limitation, the right, but never the obligation, to
drill new wells, to repair and rework old wells, renew or extend, in whole or in
part, any oil and gas lease covering any of the oil and gas properties, and to
abandon any well or surrender any such oil and gas lease, in whole or in part,
when no longer deemed by Owner to be capable of producing gas in paying
quantities under normal methods of operation.
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<PAGE>
b. To use gas for developing and operating Owner's oil and gas
properties committed under this Agreement and to fulfill obligations to Owner's
lessors under those properties.
c. To pool, combine and unitize any of Owner's oil and gas properties
with other properties in the same field, and to alter such pooling, combination,
or units, in which event this Agreement will cover Owner's allocated interest in
unitized production insofar as that interest is attributable to the oil and gas
properties committed under this Agreement, and the description of property
covered hereby shall be considered to have been amended accordingly.
III.
POD CONNECT CRITERIA
3.1 From and after completion of Gatherer's high pressure gathering
headers in (1) the East Dedicated Area (for gas delivered at a Point of Receipt
in the East Dedicated Area), and (ii) the West Dedicated Area (for gas delivered
at a Point of Receipt in the West Dedicated Area), at the request of Owner,
Gatherer will (in accordance with the procedures and criteria set forth in
Section 3.2 and 3.3 below) extend its System and install necessary facilities to
connect a Pod, in the event such Pod has, as reasonably determined by Gatherer,
Gas reserves dedicated to this Agreement equal to one (1) Bcf for each mile of
pipe to be laid by Gatherer from its existing System to the Point of Receipt for
such Pod.
3.2 In order for Gatherer to determine the reserves for each Pod,
Owner will notify Gatherer in writing of Owner's desire to connect a Pod and
will furnish Gatherer with any pertinent well data (i.e.- completion reports,
logs, etc.). Within fifteen (15) days of receipt of such request (with all
supporting well data), Gatherer will notify Owner, in writing of its election
to extend its System or not to extend its System. If Gatherer elects to
extend its System and connect such Pod, Gatherer will begin the activities
necessary for such connection within ten (10) days of such election and shall
proceed with due diligence to complete such connection. If Gatherer elects
not to extend its System, Owner may lay the pipe necessary, at its sole cost
and expense, to connect such Pod to Gatherer's System and Gatherer's charges
to Owner under this Agreement shall be adjusted as set forth in Section 3.4
hereof
3.3 If Owner does not wish to lay the pipe necessary to connect such
Pod to Gatherer's System, Owner may: (i) cause Gatherer to install the necessary
pipe by paying Gatherer, in advance, for any and all costs (as determined by
Gatherer) to connect such Pod, or (ii) request in writing that up to 1600 acres
(comprised of up to ten wells in 160-acre spacing or twenty wells in 80-acre
spacing, as the case may be) actually connected to such Pod be released from
dedication under this Agreement. Gatherer will provide such release within
thirty (30) days of Owner's written request and will have no further obligations
hereunder relative to such wells and leases so released.
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3.4 In the event Gatherer has declined to make an interconnection into
its System as set forth in Section 3.2 and Owner has elected to make any such
interconnection, the fees payable under this Agreement with respect to such Gas
flowing through such interconnection shall be adjusted based on the following:
a. For an interconnection into Gatherer's System at any existing
Point(s) of Receipt - no change;
b. For an interconnection into Gatherer's System at a location
having a normal operating pressure above 25 psig but below 200 psig - the
gathering fee for such gas shall be reduced by ****** per Mcf; and
c. For an interconnection into Gatherer's System at a location
having a normal operating pressure at or above 200 psig - the gathering fee
for such Gas shall be reduced by ******** per Mcf.
3.5 All interconnections made by Owner into Gatherer's System pursuant
to Section 3.2 shall be made at Owner's sole cost and expense at locations which
Gatherer reasonably determines will not adversely affect or impair operation of
Gatherer's System. In addition, Owner, at its sole cost and expense, shall cause
any such Gas connected by Owner to be delivered as follows: (i) against the
operating pressure of Gatherer's System at such location as such pressure may
exist from time to time, and (ii) with respect to Gas delivered into any segment
of Gatherer's System having a normal operating pressure at or above 200 psig, to
be dehydrated to not more than 5 pounds of water per million standard cubic feet
IV.
CONTRACT QUANTITY, NOMINATIONS AND IMBALANCES
4.1 Commencing with the completion of facilities for the initial
Point(s) of Receipt within the Dedicated Area and subject to the terms and
conditions of this Agreement, Gatherer shall receive from Owner all of Owner's
Gas tendered at the Point(s) of Receipt and shall redeliver Thermally Equivalent
Volumes at the Point of Delivery, less the applicable in kind Fuel reduction.
a. Although Gatherer agrees to employ accepted industry practices and
act as a prudent operator in the handling of Owner's Gas, the parties understand
and agree that certain volumetric gains and losses in the Gas will occur and
shall be shared by and among Owner and other third parties whose gas is gathered
on Gatherer's System, in the proportion that each party delivers Gas into
Gatherer's System at their respective Point(s) of Receipt. Gatherer will use
commercially reasonable efforts to minimize gains or losses on the System.
b. Gatherer shall not be obligated to receive, gather and deliver any
quantity of Gas which, when taken in addition to all other volumes of Gas which
Gatherer is obligated to gather
****** 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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<PAGE>
under any and all then existing gathering commitments, is in excess of the
design capacity or operating pressure of Gatherer's System.
c. Once Gatherer's System or a segment thereof is at capacity and
Owner has notified Gatherer of such constraint in writing, Gatherer shall not
enter into any new agreements which require utilization of capacity on such
segment(s) unless and until Gatherer expands its System or such segment can
accommodate additional volumes; provided, however, the parties expressly
acknowledge that this Section 4.1(c) shall not prevent Gatherer from
receiving Gas which is contracted for delivery to Gatherer's System
(including Gas produced from the drilling of additional wells) prior to such
notice.
d. If at any time and from time to time Gatherer is unable to gather
all of Owner's Gas from the Point(s) of Receipt for reasons other than a
violation of subparagraph (c) above, Gatherer will take Owner's Gas based on the
following priority: (i) Gatherer will take all volumes of gas on its System as
to which it has firm gathering commitments (including firm commitments to gather
Owner's Gas and gas from Gatherer's affiliates, if applicable) as a first
priority; (ii) in the event Gatherer has insufficient capacity on its System due
to an event of force majeure to satisfy all existing firm gathering commitments,
Gatherer will take all gas as to which it has such firm commitments on a
volumetrically prorated basis; and (iii) following satisfaction of all firm
gathering commitments, Gatherer will take all other gas (including Owner's Gas
and gas from Gatherer's affiliates for which no firm commitment exists) on a
volumetrically prorated basis. Prorations under the preceding sentence shall be
based on the daily nominated quantity of each source of gas up to the lower of
(A) the historical or calculated production capacity accepted by Gatherer for
such owners' interest in the wells that such owners have provided to support
their nominations, or (B) the quantity nominated for receipt under a purchase or
transportation agreement by the receiving party at the Point of Delivery, after
adjustment for Fuel. During such times Gatherer is unable to gather all of
Owner's Gas from the Point(s) of Receipt, Owner may deliver such Gas Gatherer is
unable to gather to systems other than Gatherer's System and may commit such Gas
to such other systems on a month to month basis; provided, however, once
Gatherer's System is again able to receive and deliver such volumes Gatherer
shall give written notice to Owner, whereupon Owner shall recommence deliveries
of such Gas to the System beginning on the first day of the Month immediately
following the end of thirty (30) days after Gatherer's notice. In the event
Gatherer's failure to take Owner's gas continues for sixty (60) consecutive days
(excluding the period following Gatherer's notice that it is again able to
receive and deliver volumes of Gas), except for conditions of quality or force
majeure, Owner may request (which request must be delivered, if at all, during
the continuation of such inability by Gatherer) that the volume from the
producing formations in the
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existing wells which is in excess of the average quantity Gatherer was able
to gather during such sixty-day period be released from the dedication set
forth in Section 2.2. For example, if the average quantity of Owner's Gas
Gatherer was able to gather during such sixty-day period was 45,000 Mcfd,
then all production from the producing formations in the existing wells in
excess of 45,000 Mcfd shall be released. Upon request of Owner, Gatherer
shall release specific existing wells and the spacing units attributable
thereto which are impacted by the capacity constraint and which have a
combined production capacity (as determined at the time of Owner's request)
up to, but not to exceed, the volume released. A release under this
provision shall not apply to future wells (and the spacing units attributable
thereto) from which Gatherer is able to receive Gas at the time of drilling
and completion. Such release shall be Owner's sole and exclusive remedy for
Gatherer's failure to receive and gather any Gas dedicated hereunder for any
reason.
4.2 Owner or Owner's designee shall provide Nominations to Gatherer as
required by Gatherer and will be responsible for all nominations and other
transportation arrangements beyond the Point of Delivery. Owner shall make or
cause its designee to make all arrangements with the downstream pipelines and
shall ensure that its desired Nominations for downstream pipeline transportation
are properly and timely placed with the downstream pipeline in accordance with
that pipeline's nomination and confirmation procedures.
a. For each Month during the term of this Agreement, Owner or Owner's
representatives will provide Gatherer written notice of Owner's Gas quantity
nominated for delivery at the Point(s) of Receipt and the Point of Delivery.
Owner's notice shall be based in good faith upon the producing ability of
Owner's well(s) for the upcoming Month, adjusted as necessary during the Month,
to bring cumulative receipts into line with cumulative redeliveries, and
adjusted to cover Fuel. To enable Owner to make its Nominations hereunder, prior
to initial deliveries and from time to time thereafter as reasonably deemed
necessary by Gatherer, Gatherer shall make a good faith estimate of the Fuel
(expressed as a percentage) to be consumed in operation of Gatherer's System.
Gatherer may at any time or from time to time during each Month adjust Owner's
Nomination quantity as necessary to conform to the above requirements and to
maintain balance. Except in the case of an emergency, Gatherer will notify Owner
prior to any such adjustments and shall give Owner a reasonable opportunity to
adjust its Nominations or flows and in the event Owner does not adjust its
Nominations or flows then and, in such event, Gatherer shall make such
adjustments. Gatherer shall have no obligation to accommodate any imbalances
caused by Owner's inability or failure to match Nominations with actual
performance. Complete Nomination information for the first of the Month
Nominations and the Nomination changes during the Month, including but not
limited to
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<PAGE>
downstream contract number, is due to Gatherer, on a normal business day,
twenty-four (24) hours prior to the downstream pipeline's nomination deadline.
b. Gatherer reserves the right to adjust these deadlines
reasonably in response to changes in the practices of pipelines downstream of
the Point of Delivery.
c. Gatherer is not obligated to assist Owner in resolving payment or
transportation disputes with pipelines downstream of the Point of Delivery or
Owner's customers other than to confirm the volumes delivered at the Point of
Delivery for Owner's account.
d. Owner shall have agents or employees available at all reasonable
times to receive from Gatherer's dispatchers advice and requests for changes in
the rates of delivery of Gas as required by Gatherer due to events of force
majeure, maintenance or repair of the System or other causes affecting the
operation or integrity of the System from time to time, and Owner will modify
its deliveries accordingly.
4.3 It is recognized that because of dispatching and other variations,
certain imbalances may occur between volumes of Gas received by Gatherer
hereunder and the volumes of Gas delivered hereunder by Gatherer. However,
Gatherer shall use reasonable efforts to deliver to or for the account of Owner
each Day at the Point of Delivery a volume of Gas equal to Owner's Nomination
quantity for such Point of Delivery. Owner shall use reasonable efforts to keep
daily and monthly deliveries of Gas into Gatherer's System equal to Owner's then
current daily and monthly Nomination quantity for the Point(s) of Receipt.
a. The parties agree that during the term hereof Gatherer shall have
the right and obligation to operate its Gathering System and to receive and
deliver Gas hereunder in such a way as to maintain balance on its Gathering
System as between receipt and deliveries (after adjustment for Fuel) of Gas
subject to this Agreement as closely as possible. Gatherer will have the right
to refuse to accept volumes if Owner's production exceeds its Nominations, or to
refuse Nominations if such Nominations exceed production. The parties shall
cooperate to balance Thermally Equivalent Volumes of gas as nearly as feasible
on a daily basis.
b. Gatherer shall keep accurate records of the quantities of gas
nominated and scheduled for gathering, which records shall be reported to Owner
on a monthly basis. If Owner's gas is commingled with other gas at the Point(s)
of Receipt or at the Point of Delivery, the scheduling arrangements and
Gatherer's records shall include the allocations made at such Point(s) of
Receipt or Point of Delivery. Allocation of volumes between producers at the
Point(s) of Receipt shall be made as requested by the operator of the wells
connected to each Pod. Allocations at the Point of Delivery shall be made as
required by the downstream transporter at the Point of Delivery, or if
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<PAGE>
none, by Gatherer consistent with this Agreement. In no event shall Owner be
designated the swing party for any variances at the Point of Delivery.
c. For each Month, in its invoice to Owner for gathering services,
Gatherer shall include a statement of actual metered volumes at the Point(s)
of Receipt and Point of Delivery, Owner's allocation of such volumes, and the
difference between the quantity of Gas allocated to Owner at the Point(s) of
Receipt, less Fuel for such Month, and the quantity of Gas credited to Owner
at the Point of Delivery (the "Imbalance Quantity"). If the quantity of gas
received by Gatherer from Owner during a Month at the Point(s) of Receipt, as
adjusted for Fuel, exceeds the quantity of gas credited to Owner at the Point
of Delivery, the imbalance shall be cashed out by the payment by Gatherer to
Owner of an amount equal to the Imbalance Quantity times the Price Index. If
the quantity of gas credited to Owner during a Month at the point of Delivery
exceeds the quantity of gas received by Gatherer from Owner during a Month,
as adjusted for Fuel, the imbalance shall be cashed out by the payment by
Owner to Gatherer of an amount equal to the Imbalance Quantity times the
Price Index.
d. Gatherer will attempt to enter an operational balance agreement
with respect to deliveries into FUGG, on such terms and conditions as are
reasonable, customary, and acceptable to Gatherer.
V.
DELIVERY PRESSURE AND REDELIVERY PRESSURE
5.1 Owner shall deliver Gas to Gatherer hereunder at pressures
sufficient to effect delivery into Gatherer's System but not to exceed the
allowable operating pressure as determined solely by Gatherer. Owner shall
install pressure limiting devices of a design satisfactory to Gatherer to insure
over pressurization shall not occur on Gatherer's System. However, Owner shall
be solely responsible for pressure protection on any facilities operated by
Owner.
5.2 Gatherer shall install equipment that is designed to maintain a
suction pressure at the inlet flange of the first compressor at or downstream of
each Point of Receipt of 5 psig and such equipment shall have the capability to
provide a suction inlet pressure of 2 psig under certain field operating
conditions. In addition, Gatherer will endeavor (without any additional cost or
expense to Gatherer) to maintain a suction pressure of 2 psig at the inlet
flange of the first compressor at or downstream of each Point of Receipt;
provided, however, that Gatherer shall have no liability for failure to maintain
a suction pressure of 2 psig. Except for circumstances constituting an event of
force majeure, during any Month where the average daily suction pressure at the
inlet flange of any such compressor exceeds 5 psig for a period in excess of two
(2) days during such Month, the fees payable during such Month with respect to
the Pod affected by such event shall be reduced
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<PAGE>
by******** per Mcf for every one (1) psig that the average monthly suction
pressure exceeds 5 psig, not to exceed a maximum of ******** per Mcf.
5.3 Except as provided in Sections 3.5 and 5.2 above, neither Owner
nor Gatherer shall be obligated to install additional equipment (or continue
operation of such equipment once installed) to effect delivery of Gas to
Gatherer hereunder, but either Gatherer or Owner shall have the right to
install and operate equipment, if required. Any equipment installed and
operated by Owner shall be at its sole cost, risk and expense and shall (i)
be prior to delivery of Gas to Gatherer's System, and (ii) not interfere with
the operation (including gas measurement) of Gatherer's System.
VI.
MEASUREMENT AND TESTING
6.1 The volume of Gas received by Gatherer shall be measured at the
master meters immediately downstream of each Point of Receipt. The facilities to
measure the volume and quality of Gas delivered at the Point(s) of Receipt will
be owned, maintained and operated by Gatherer.
6.2 The volume of Gas delivered by Gatherer at the Point of Delivery
shall be metered through a meter caused to be located by Gatherer at the Point
of Delivery.
6.3 In the event that at any time, or from time to time, Gatherer
commingles Gas from Point(s) of Receipt with Gas from other than the Point(s) of
Receipt hereunder, Gatherer agrees to measure such other gas prior to its
entering Gatherer's System.
6.4 The unit of measurement for Gas hereunder shall be one (1) cubic
foot of gas, and the term "cubic foot of gas" wherever used herein shall mean a
cubic foot of Gas at a temperature of sixty degrees Fahrenheit (60DEGF) and at a
pressure of fourteen and seventy-three hundredths (14.73) Psia.
6.5 The Gas shall be metered downstream of the Point(s) of Receipt by
orifice meters which shall be constructed and installed in accordance with the
applicable provisions of the then current American Gas Association's Gas
Measurement Committee Report No. 3, as amended. Subject to the receipt of any
necessary governmental or regulatory approvals and authorizations, electronic
flow measurement recording devices (EFM) shall be installed at each of
Gatherer's master meters at the Points of Receipt. The volumes of Gas received
and delivered by Gatherer as measured at pipeline pressures and temperatures
shall be computed from the meter records and converted into the unit of
measurement specified above in accordance with the methods prescribed in the
then current Gas Measurement Committee Report No. 3 of the American Gas
Association, including the appendix thereto. Correction shall be made for
deviation from the Ideal Gas Laws at the pressure and temperature at which the
Gas is metered. To determine the factors for such correction a quantitative
analysis of the Gas shall be made at reasonable intervals, and such factors
shall be
****** 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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<PAGE>
obtained from data contained in the then current "Super-Compressibility
Factors for Natural Gas", Volumes 1 through 6, inclusive, or in "Tables for
the Determination of Super-Compressibility Factors for Natural Gas Containing
Nitrogen and/or Carbon Dioxide", Volume 7, as published by the American Gas
Association, or any subsequent revision thereof For the purposes of
measurement and meter calibration, the atmospheric pressure shall be assumed
to be twelve and seven-tenths (12.7) pounds per square inch, without regard
to variations in natural atmospheric pressure from time to time. Each EFM
unit will be equipped with communication equipment and Gatherer shall allow
Owner (or Owner's designee) remote electronic access to Gatherer's EFM data
for each master meter measuring gas from Owner hereunder. In the event
Gatherer has access to EFM data for deliveries into FUGG, Gatherer shall,
upon Owner's request, provide such EFM data with respect to Owner's volumes
of gas delivered into FUGG.
6.6 The specific gravity of the Gas flowing through meters downstream
of the Point(s) of Receipt shall be determined by Gatherer at such intervals as
may be practicable under the circumstances, but at least semi-annually. All such
determinations of specific gravity shall be made by a standard gravity balance
in accordance with the provisions of the Natural Gas Processors Association
Publication No. 3130, entitled "Standard Method for Determining the Specific
Gravity of Gas", or by a gravitometer employing the "Momentum Method" of
specific gravity determinations as described in Chapter VII, "Determination of
Specific Gravity", of the then current American Gas Association Gas Measurement
Manual; or by standard calculation method using aforementioned Gas sample. The
specific gravity of the Gas flowing through each meter determined by either of
the above-mentioned methods shall be used in computing the volume of Gas
delivered through such meter. The specific gravity determined by any test shall
apply from the date the test was taken until the date of the next test.
6.7 Temperature of the Gas gathered hereunder shall be determined by a
recording thermometer to record the temperature of the Gas flowing through each
meter, and the arithmetic average of the hourly temperatures recorded shall be
used in correcting the volumes delivered hereunder to the unit of measurement
specified above.
6.8 The accuracy of Gatherer's measuring equipment shall be
verified by test, using means and methods generally acceptable in the gas
industry, at least semi-annually. Notice of the time and nature of each test
shall be given by Gatherer to Owner sufficiently in advance to pen-nit
convenient arrangement for Owner s representative to be present. Measuring
equipment found to be registering inaccurately shall be adjusted to read as
accurately as possible. If, after notice, Owner fails to have a
representative present, the results of the test shall nevertheless be
considered accurate until the next test. Gatherer shall, upon written request
by Owner, conduct a test of Gatherer's
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<PAGE>
measuring equipment, provided that in no event shall Gatherer be required to
test its equipment more frequently than once a month. All tests of such
measuring equipment shall be made at Gatherer's expense, except that Owner
shall bear the expense of tests made at its request if the inaccuracy is
found to be two percent (2%) or less.
6.9 If for any reason any measuring equipment is inoperative or
inaccurate so that the volume of Gas delivered is not correctly indicated by
the reading thereof and, if such reading is in error by more than two percent
(2%) in the measurement of Gas, then the volume of Gas delivered, during the
period such measuring equipment is inoperative or inaccurate, shall be
determined by the parties hereto on the basis of the best data available
using the first of the following methods which is feasible:
(i) By using the registration of any check measuring equipment
installed and accurately registering;
(ii) By correcting the error if the percentage of error is
ascertainable by calibration, test or mathematical
calculations; or
(iii) By comparing deliveries made during preceding periods
under similar delivery conditions when the meter was
registering accurately.
An adjustment based on such determination shall be made for such period
of inaccuracy as may be definitely known, or if not known, then for the lesser
of (i) one-half the period since the date of the last meter test or (ii) three
Months.
6.10 Gatherer and Owner shall have the right to inspect equipment
installed or furnished by the other party, and the charts and other measurement
or test data of the other party, at all times during business hours; but the
reading, calibration and adjustment of such equipment and changing of charts
shall be done by the party installing and furnishing same. Unless the parties
otherwise agree, each party shall preserve all original test data, charts and
other similar records in such party's possession for a period of at least two
(2) years.
6.11 In the event new technologies are developed and adopted by the
natural gas industry with respect to the measurement of volumes or determination
of gross heating value, Gatherer shall employ such technologies in connection
with operation of the System to the extent such technologies are economically
justified for the System, as determined by Gatherer acting in its reasonable
judgment.
VII.
QUALITY SPECIFICATIONS
Gas delivered by Owner hereunder shall be merchantable Gas conforming
to the following specifications:
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<PAGE>
7.1 HEATING QUALITY, SULPHUR, CARBON DIOXIDE, OXYGEN, AND NITROGEN.
Gatherer may refuse to receive Gas with a Gross Heating Value of less than nine
hundred and fifty (950) Btu's. The Gas shall not contain any of the following in
excess of: one quarter (1/4) grain of hydrogen sulphide per hundred (100) cubic
feet; twenty (20) grains of total sulphur per hundred (100) cubic feet; four
percent (4.0%) by volume of carbon dioxide; ten parts per million (10 ppm) by
volume of oxygen; or three percent (3.0%) by volume of Nitrogen. Owner shall
make reasonable efforts to keep the Gas entirely free of oxygen.
7.2 TEMPERATURE. The temperature of the Gas at the Point(s) of Receipt
shall not be in excess of one hundred twenty degrees (120DEG) Fahrenheit.
7.3 WATER AND HYDROCARBON DEW POINT. Owner agrees that at the
temperature and pressure Gas is delivered hereunder it shall not contain any
hydrocarbon or non-hydrocarbon fractions which would condense to free liquids in
the pipeline at the operating pressure of Gatherer's System. The Gas shall not
contain any free H2O in the liquid state. Gatherer shall be responsible for any
additional dehydration required to meet any differing quality specifications of
downstream pipelines.
7.4 MISCELLANEOUS. The Gas shall be commercially free of solids, sand,
dust, gums, crude oil, water and hydrocarbons in the liquid phase, and other
objectionable substances which may be injurious to pipelines or which may
interfere with the transmission or commercial utilization of said Gas.
7.5 QUALITY GUIDELINES. Notwithstanding the above all Gas delivered
hereunder shall conform to the then current quality specifications, standards
and/or tariff requirements of any downstream pipeline for heating quality,
sulphur, carbon dioxide, oxygen and nitrogen (or any other quality
specifications not covered in this Agreement that are specified in such
downstream pipeline's then current tariff), subject, however, to the following
exceptions: Gatherer will accept gas for delivery on its System (A) with Gross
Heating Value less than the specification contained in this Agreement or the
specification of any applicable downstream pipeline or (B) a nitrogen content in
excess of the specification contained in this Agreement or the specification of
any downstream pipeline to the extent, and only to the extent, with respect to
either event in clause (A) and (B) such downstream pipeline accepts such gas. In
the event any downstream pipeline refuses to accept Owner's gas for failure to
meet the specifications in clause (ii) above, then Gatherer may, at its option,
reject such gas under this Agreement. In addition, should Owner's gas have a
carbon dioxide content (as measured at any Point of Receipt) in excess of four
percent (4%), Gatherer shall accept such gas to the extent, and only to the
extent, (i) such gas, when commingled with other streams of gas, is in
compliance with such specification, and (ii) Gatherer determines, acting in its
sole
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<PAGE>
discretion, that a carbon dioxide content in excess of four percent (4%) is
not detrimental to its System (or any part thereof).
7.6 TESTS. Tests to determine the total sulphur, hydrogen sulphide,
carbon dioxide, oxygen and water vapor content of the Gas at the Point(s) of
Receipt shall be made by Gatherer by approved standard methods in general use in
the gas industry. Such tests shall be scheduled and made at the same time as are
the meter tests provided for in Article VI hereof, or as frequently as deemed
necessary by Gatherer.
7.7 SUB-QUALITY GAS. Whenever the quality of the Gas delivered by
Owner hereunder does not conform to the quality specifications contained
herein, Gatherer shall have the night, upon notice to Owner, to: (i)
discontinue or cur-tail Gatherer's receipt of Owner's Gas hereunder, or (ii)
condition such off specification Gas and charge Owner a competitive rate for
such conditioning; provided, however, that Gatherer shall not unduly
discriminate against Owner with respect to curtailment or conditioning as
compared to other parties on Gatherer's System which are similarly situated
on the same segment of Gatherer's System. In the event Gatherer elects not to
condition Owner's Gas or in the event the rate at which Gatherer proposes to
condition such Gas is not competitive then, and in either such event, Owner
shall have the option to condition such Gas to make it conform to the quality
specifications of this Agreement; provided, however, if Owner elects to
condition its Gas, nothing contained in this Agreement shall obligate
Gatherer to pay for any such conditioning.
If neither Gatherer nor Owner treats Gas produced from a well(s) which
does not conform to the quality specifications of this Agreement and Gatherer
chooses not to accept such Gas, then at the written request of Owner, Gatherer
shall release from the provisions of this Agreement up to 1600 acres (comprised
of up to ten wells on 160-acre spacing or twenty wells on 80-acre spacing, as
the case may be) actually connected to the Pod which is producing off
specification Gas.
VIII.
CHARGES
8.1 Subject to the provisions hereof, for each Point of Receipt
hereunder Owner shall pay Gatherer as follows:
(i) For Gas delivered by Owner to Gatherer at
Point(s) of Receipt located in the East Dedicated Area, Owner
shall pay Gatherer ******** per Mcf of Owner's Gas received.
(ii) For Gas delivered by Owner to Gatherer at Point(s) of
Receipt located in the West Dedicated Area, Owner shall pay
Gatherer ******** per Mcf of Owner's Gas received.
****** 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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<PAGE>
8.2 The rates set forth in Section 8.1 (as adjusted for reductions,
if any, pursuant to Section 3.4) above shall be adjusted commencing on the
first day of the Month following the first anniversary of the date of first
deliveries of Owner's Gas into Gatherer's System, and annually thereafter, by
multiplying the applicable gathering fee then in effect by a fraction, the
numerator of which is the CPI Index for January of the year in which such
calculation is made, and the denominator of which is the CPI Index for
January of the immediately preceding year. "CPI Index" shall mean the
Consumer Price Index for All Urban Consumers ("CPl-U") as published for such
Month by the U.S. Department of Labor. In no event shall the gathering fees
due hereunder ever be less than the rate(s) set forth in Section 8. 1.
8.3 Notwithstanding the terms of Section 8.1 above, in the event
Gatherer provides gathering service on the System to a third party pursuant to
an agreement with a primary term exceeding fifteen (1 5) years at rates for
"Comparable Service" (as hereafter defined), lower than those set forth in this
Agreement, then Owner's rates herein shall automatically be adjusted as follows:
all rates otherwise payable by Owner under this Agreement for service in the
applicable portion of the Dedicated Area (i.e. the East Dedicated Area or the
West Dedicated Area, as applicable) shall be multiplied times a fraction, the
numerator of which is the rate charged to such third party for Comparable
Service and the denominator of which is the rate charged to Owner under this
Agreement for such service. For purposes of this Section 8.3, "Comparable
Service" shall mean gathering service provided to third parties in the same
portion of the Dedicated Area (i.e. the East Dedicated Area or the West
Dedicated Area) and at interconnections into Gatherer's System within the same
parameters set forth in Section 3.4. For example, in the event Gatherer extends
gathering service for receipt into Gatherer's System in the East Dedicated Area
under the parameters set forth in Section 3.4(a) at a rate of *********, then
all rates payable by Owner for service in the East Dedicated Area shall be multi
lied by the fraction ******** and rates in the West Dedicated Area would not be
reduced. As a second example, in the event Gatherer extends gathering service
for receipt into Gatherer's System in the East Dedicated Area under the
parameters set forth in Section 3.4(b) at a rate of ********, then all rates
payable by Owner for service in the East Dedicated Area shall be multiplied by
the fraction ******** and rates in the West Dedicated Area would not be reduced.
Rates payable by Owner for service in the East Dedicated Area or the West
Dedicated Area, as applicable, shall not be reduced unless Gatherer has given a
lower rate to the third party for service in such area.
8.4 Owner shall have the option, to be exercised in writing no later
than thirty (30) days prior to the end of each Contract Year to convert to firm
service a portion of the gathering service to be rendered under this Agreement
(such election to be effective on the first day of a Month
****** 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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<PAGE>
specified in Owner's notice during the immediately succeeding Contract Year).
For such firm service, Owner shall pay Gatherer, in lieu of the charges per
Mcf set forth in Section 8.1, an advance monthly demand charge equal to the
applicable per unit charge in Section 8.1 multiplied by a quantity determined
in this Section 8.4. Owner may exercise its option to convert to firm service
for a quantity of up to fifty percent (50%) of Owner's average monthly usage
of gathering services hereunder for the Contract Year during which Owner's
notice is delivered; provided, however, that Owner's election to convert to
firm service shall not be cumulative from one Contract Year to the next and
Owner may not reduce its commitment for firm service from one Contract Year
to the next; and, further provided, in no event shall Owner ever be entitled
to firm gathering service during any given Month or on any given Day, as
applicable, for a quantity in excess of 900,000 Mcf/Month or 30,000 Mcf/Day.
Notwithstanding the other terms of this Section 8.4, Owner shall not be
entitled to (and Gatherer shall not be obligated to provide) firm gathering
service at any time from and after January 1, 2010. Gatherer's receipts from
Owner shall be allocated first to Owner's firm gathering service and then to
its pro rata service under this Agreement.
IX.
BILLING, PAYMENT AND REPORTING
9.1 On or before the twentieth (20th) day of each Month after
deliveries of Gas commence hereunder, Gatherer shall render to Owner or Owner's
representative a statement for the preceding Month identified as to the Point(s)
of Receipt and Point of Delivery, showing the daily and total volumes of Gas
allocated to delivery hereunder, the amount due therefore and information
sufficient to explain and support any adjustments in volumes or amounts made by
Gatherer in determining the amount billed. The Owner or Owner's representative
shall pay Gatherer at the address shown hereunder on or before the last day of
each Month, or if the statement is rendered by Gatherer after the twentieth
(20th) day, within ten (10) days after receipt of such statement. If the correct
amount is not paid when due, interest on any unpaid portion of the correct
amount shall accrue at the lesser of: (i) the highest rate of interest permitted
by applicable law, or (ii) fifteen percent (15%) per annum. If any default
continues after thirty (30) days' written notice from Gatherer to Owner,
Gatherer may suspend receipt of Gas hereunder without prejudice to any other
available remedies at law or in equity.
9.2 If any overcharge or undercharge in any form whatsoever shall at
any time be found and the bill therefore has been paid, Gatherer shall refund
any amount of overcharge, and Owner shall pay any amount of undercharge within
thirty (30) days after final determination thereof, provided that no retroactive
adjustment will be made beyond a period of two (2) years from the date a
discrepancy occurs.
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9.3 Both parties hereto shall have the night at any and all reasonable
times to examine the books and records of the other party to the extent
necessary to verify the accuracy of any statement or charge, computation, or
demand made pursuant to this Agreement.
X.
TAXES
Owner agrees to reimburse Gatherer upon invoice for the full amount
of any taxes or charges (of every kind and character except corporate
franchise and excess profits taxes and taxes measured by net income) levied,
assessed or fixed by any municipal or governmental authority against Gatherer
or its business in connection with or attributable to the volumes, value or
gross receipts from the gathering of the Gas received from Owner hereunder or
against such Gas itself or the act, right or privilege of ownership,
production, severance, handling, transmission, compression, treating,
distribution, sale delivery or redelivery of such Gas, whether such tax or
charge is based upon the volume, value or gross receipts from the gathering
of such Gas or upon some other basis.
XI.
CONTROL, POSSESSION AND TITLE
11.1 Gatherer shall have no responsibility with respect to the Gas or
on account of anything which may be done, happen or arise, with respect thereto,
until the Gas is delivered into Gatherer's System at the Point(s) of Receipt
provided herein. Owner shall have no responsibility with respect to the Gas or
on account of anything which may be done, happen or arise, with respect thereto
after receipt thereof by Gatherer and prior to delivery thereof at the Point of
Delivery. After the delivery of Gas at the Point of Delivery, Gatherer shall
have no responsibility with respect to such Gas or on account of anything which
may be done, happen or arise with respect thereto.
11.2 Owner represents and warrants to Gatherer that all Gas which Owner
causes to be delivered to Gatherer shall not have previously been transported in
interstate commerce or otherwise cause Gatherer's facilities to be subject to
jurisdiction of any regulatory authority.
11.3 Owner warrants title to or the right to deliver all Gas delivered
hereunder, that it has the right to deliver same hereunder and that such Gas is
free from liens and adverse claims of every kind, and each agrees to indemnify
Gatherer from all suits, actions, debts, accounts, damages, costs, losses and
expenses arising from or out of adverse claims of any or all persons, including
governmental entities, as to said Gas or as to royalties or charges thereon or
as to the construction and/or operation of any facilities related to service
hereunder. Title to the Gas delivered or caused to be delivered by Owner to
Gatherer hereunder at the Point(s) of Receipt shall remain with Owner and shall
not pass to, nor vest in, Gatherer. The foregoing indemnity shall apply as to
any adverse claims concerning the ownership of coalbed methane as between the
coal estate and the oil and gas
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estate but any such adverse claim shall not constitute a breach by Owner of
the warranty of title except to the extent of any deliveries by Owner
following an adverse and final, nonappealable court order.
11.4 Each party agrees to indemnify and hold the other party harmless
from and against any and all suits, actions, damages, costs, losses and expenses
sustained by such other party relative to any breach by either party of the
covenants herein expressed.
11.5 Gatherer will endeavor to keep its System clear of hydrocarbon
liquids and other obstructions. In consideration of such obligation, Owner
hereby conveys to Gatherer all right, title and interest in and to any
condensate attributable to Owner's gas which Gatherer may collect from the
System. Owner's initial production into the System shall consist solely of
natural gas produced from coalbed methane formations - for such production,
Owner and Gatherer believe that all liquid hydrocarbons, if any, shall remain
entrained in the natural gas stream and redelivered to Owner at the Point of
Delivery. It is possible that conventional natural gas production will be
delivered by Owner into the System the future - in such event (and to the extent
Gatherer collects condensate on its System which is attributable to Owner's
gas), Gatherer shall distribute to Owner a portion of the proceeds from any
sales of such condensate, calculated as follows: (i) the royalty percentage for
owner's Leases, times (ii) the total proceeds from such condensate sales
(propane and heavier only), times (iii) a fraction, the numerator of which is
the total theoretical hydrocarbon content (propane and heavier) attributable to
Owner's gas for the Month immediately prior to such sales and the denominator of
which is the total theoretical hydrocarbon content (propane and heavier)
attributable to all gas delivered to the System for such Month
XII.
FORCE MAJEURE
12.1 In the event of either party hereto being rendered unable, wholly
or in part, by force majeure, to carry out its obligations under this Agreement,
then the obligations of the party experiencing such event of force majeure,
except for payment due, so far as they are affected by such force majeure, shall
be suspended during the continuance of any inability so caused, but for no
longer period, and such cause shall, to the extent possible, be remedied with
all reasonable dispatch. The party claiming force majeure shall give notice and
reasonable particulars thereof to the other party as soon as is reasonably
practicable and shall remedy the force majeure with reasonable diligence.
12.2 The term "force majeure" as employed herein shall mean acts of
God, strikes, lockouts or other industrial disturbances, acts of the public
enemy, wars, blockades, military action, insurrections, riots, epidemics,
landslides, lightning, earthquakes, fires, storms or storm warnings,
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crevasses, floods, washouts, arrests and restraints of government and people,
civil disturbances, explosions, breakage or accident to machinery or lines of
pipe, the necessity for testing or making repairs or alterations to machinery
or lines of pipe, freezing of well(s) or lines of pipe, failure of third
party transporters, inability to obtain easements and/or rights-of-way,
inability of any party hereto to obtain necessary materials, supplies or
pen-nits due to existing or future rules, regulations, orders, laws or
proclamations of governmental authorities (both Federal and State), including
both civil and military, and any other causes, whether of the kind herein
enumerated or otherwise, and whether caused or occasioned by or happening on
account of the act or omission of one of the parties hereto or some persons
or concern not a party hereto, not within the control of the party claiming
suspension, and which by the exercise of due diligence such party is unable
to prevent or overcome.
12.3 It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty, and that the above requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of the opposing party when such
course is inadvisable in the discretion of the party having the difficulty.
XIII.
TERM
This Agreement shall become effective on the date hereof and shall
continue in full force and effect for twenty (20) Contract Years from the date
of the Agreement and continue year to year thereafter until canceled by either
party upon not less than ninety (90) days prior written notice.
XIV.
ASSIGNMENTS
14.1 This Agreement shall extend to and be binding upon the parties
hereto, their successors, assigns, heirs, personal representatives and
representatives in bankruptcy and shall constitute a real night and covenant
running with the land and shall be binding upon any successor-in-interest to the
lands, leases and wells of Owner within the Dedicated Area or to Gatherer's
System including the easements and rights-of-way therefor. The interest of
either party may be assigned or conveyed in whole or in part from time to time.
No assignment or conveyance shall relieve the assigning party of any obligations
hereunder unless, and until, the assignee has delivered a ratification of this
Agreement as to the interest assigned. No transfer of, or succession to the
interest of any party hereto, wholly or partially, shall affect or bind any
other party until the other party shall have received written notice of such
transfer.
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14.2 Gatherer and Owner agree to execute a Memorandum of Contract (the
form of which is attached as Exhibit "B") for filing in the land records for the
Dedicated Area setting forth the dedication and other relevant terms and
conditions of this Agreement.
XV.
MISCELLANEOUS
15.1 To the extent it is legally able to do so by virtue of its
lease, purchase contract or otherwise, Owner hereby grants to Gatherer an
easement and servitude on the leaseholds, properties and premises described
herein for the purpose of installing, operating and maintaining its System
with the right to remove same before or after the expiration of this
Agreement, and the right to free access to any part of said leaseholds,
properties and premises for any purpose connected with this Agreement.
Gatherer shall indemnify, defend and hold harmless Owner from any claims,
suits, actions, debts, accounts, damages, costs, losses and expenses arising
from or out of Gatherer's use of such easements and servitudes.
15.2 The captions in this Agreement are for the convenience of the
parties in identification of the provisions hereof and shall not constitute a
part of the Agreement nor be considered in the interpretation of this Agreement.
15.3 Failure to exercise any right or rights hereunder shall not be
considered a waiver of such right or rights at the time or in the future for
like failure to assert rights.
15.4 The language of this Agreement shall not be construed in favor of
or against either Gatherer or Owner, but shall be construed as if the language
were mutually drafted by both parties. This Agreement constitutes the entire
understanding of the parties relating to the gathering of Gas and is intended to
be the final, exclusive and complete expression of their agreement and its
terms. No other representations, understandings, or agreements have been made or
relied upon in the making of this Agreement other than those specifically set
forth herein. There may be no modification or amendment hereof except by
writing, signed by both Gatherer and Owner.
15.5 The parties agree and confirm that this Agreement shall be
governed by and construed in accordance with the laws of the State of Colorado,
excluding any conflicts-of-law rule or principle which might refer a matter to
the laws of another state, and that this Agreement was prepared by both parties
and not by either party to the exclusion of the other.
15.6 Upon request, Owner shall furnish to Gatherer each month, copies
of any and all forms filed by Owner and/or the operator of any wells delivering
Gas hereunder which are reasonably requested by Gatherer in connection with
Gatherer's obligations to make filings with any regulatory body exercising
jurisdiction over production from the lands and leases described herein.
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15.7 This Agreement may be executed in any number of counterparts, no
one of which need be executed by all parties, or may be ratified, adopted, or
consented to by separate instrument in writing specifically referring hereto,
and it shall be binding upon all parties who execute a counterpart,
ratification, adoption, or consent with the same force and effect, and to the
same extent as if all such parties had executed and signed the same document,
with each separate counterpart, ratification, adoption, or consent deemed to be
an original.
15.8 If any of the terms and conditions of this Agreement are held
by order, rule or regulation, as appropriate, of any court or governmental
authority of competent jurisdiction, to contravene, or to be invalid under,
the laws of any political body having jurisdiction over the subject matter
hereof, then such contravention or invalidity shall not invalidate the entire
Agreement. Instead this Agreement shall be construed as if it did not contain
the particular provision or provisions, or portion thereof, held to be
invalid, and the rights and obligations of the parties shall be construed and
enforced accordingly, and thereupon this Agreement shall remain in full force
and effect.
15.9 NEITHER PARTY SHALL BE LIABLE OR OTHERWISE RESPONSIBLE TO THE
OTHER FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PROFITS OR PRODUCTION,
OR FOR PUNITIVE DAMAGES AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS
AN AGREEMENT BREACH OR TORT, WHICH ARISES OUT OF OR RELATES TO THIS AGREEMENT OR
ITS PERFORMANCE OR NONPERFORMANCE.
15.10 This Agreement is subject to and shall not be binding upon
Gatherer unless this Agreement has been approved by Gatherer's Board of
Directors, if at all, on or before April 2, 1999.
15.11 CONFIDENTIALITY. Each party agrees it shall maintain the terms of
the Agreement in strict confidence, and that it shall not cause or permit
disclosure thereof to any third party without the express written consent of the
other party; provided, however, that disclosure is permitted in the event and to
the extent such party: (i) is required to disclose same by a court or agency
exercising jurisdiction over the subject matter hereof, by order or regulation;
(ii) is required to disclose same pursuant to applicable law, including without
limitation, filings with applicable securities regulators; (iii) is required to
disclose same to royalty interest owners or Gatherer's or Owner's successor(s)
under this Agreement; provided, however, with respect to successors, such
successors agree in writing to be bound by the provisions of this paragraph; and
(iv) working interest owners for whom Owner is marketing Gas under a joint
operating agreement, provided such working interest owners agree in writing to
be bound by the provisions of this paragraph.
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15.12 PUBLIC ANNOUNCEMENTS. Owner and Gatherer agree that prior to
making any public announcement or statement with respect to the transactions
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto and obtain
prior approval of the other party hereto of the text of a public announcement or
statement, which approval shall not be unreasonably withheld; provided, however,
if any such announcement is required by law or the rules of any exchange upon
which shares of Owner, Gatherer or their affiliates may be listed then, and in
the event Owner and Gatherer are not able to agree on the substance of such
disclosure, the disclosing party shall be entitled to make any disclosure which
is required in the written opinion of such party's legal counsel.
XVI.
NOTICES
Either party may give notice to the other party or parties by first
class mail (postage prepaid), by overnight delivery service, or by facsimile
(promptly confirmed by first class mail) at the following addresses or other
addresses furnished by a party by written notice and such notice(s) shall be
deemed delivered upon receipt.
OWNER: Pennaco Energy, Inc.
1050 17th Street, Suite 700
Denver, Colorado 80265
Telephone: (303) 629-6700
Fax: (303) 629-6800
GATHERER: CMS Continental Natural Gas, Inc.
1437 S. Boulder, Suite 1250
Tulsa, OK 74119
Telephone: (918) 582-4700
Fax: (918) 560-4900
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in several counterparts, each of which is an original, as of the
date first hereinabove written.
GATHERER:
CMS CONTINENTAL NATURAL GAS, INC.
By: /s/ DAVID PRESLEY
-----------------------------------
Title: President
Date: March 25, 1999
OWNER:
PENNACO ENERGY, INC.
By: /s/ TERRELL A. DOBKINS
-----------------------------------
Title: VICE PRESIDENT PRODUCTION
---------------------------------
Date: MARCH 25, 1999
----------------------------------
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EXHIBIT "A"
To that certain Gas Gathering Agreement dated March 1,
1999, by and between CMS Continental Natural Gas, Inc. (Gatherer) and Pennaco
Energy, Inc. (Owner):
WEST DEDICATED AREA
STATE OF MONTANA:
T6S, R40E, 41E, 42E, 43E, 44E, 45E, 46E, 47E, 48E
T7S, R39E ,40E, 41E, 42E, 43E, 44E, 45E, 46E, 47E, 48E
T8S, R38E, 39E, 40E, 41 E, 42E, 43E
T9S, R38E, 39E, 40E, 41E, 42E, 43E
STATE OF WYOMING:
T58N, R85W, 84W, 83W, 82W, 81W, 8OW, 79W
T57N, R85W, 84W, 83W, 82W, 81W, 8OW, 79W
T56N, R84W, 83W, 82W, 81W, 8OW, 79W
T55N, R83W, 82W, 81W, 8OW, 79W
T54N, R83W, 82W, 81W, 8OW, 79W
T53N, R81W, 8OW, 79W
T52N, R81W, 8OW, 79W
EAST DEDICATED AREA
STATE OF MONTANA:
T8S, 44E, 45E, 46E, 47E, 48E
T9S, 44E, 45E, 46E, 47E, 48E
STATE OF WYOMING:
T58N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T57N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T56N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T55N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T54N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T53N, R78W, 77W, 76W, 75W, 74W, 73W, 72W
T52N, R78W, 77W, 76W, 75W, 74W, 71W
T51N, R78W, 77W, 76W, 75W, 74W, 73W, 72W, 71W
T50N, R78W, 72W, 71W
EXCLUDED LANDS:
T52N, R73W: Sections 20,21,22,23,24,25,26,27,28,29,31,32,33,34,35,36
T52N, R76W: Sections 22,23,24,25,26,27,34,35,36
T51N, R72W: Sections 2,3,4,5,6,7,18,19,29,30,31,32
Continued
<PAGE>
Exhibit "A" Continued
T51N, R73W: Sections 1,2,3,4,5,8,9,10,11,12,13,14,15,16,21,
22,23,24,25,26,27,28,31,32,33,34,35,36
T51N, R75W: Sections 7,8,9,10,11,14,15,16,17,18,19,20,21,22,
23,26,27,28,29,30,31,32,33,34,35
T51N, R76W: Sections 1,2,3,7,8,9,10,11,12,13,14,15,16,17,18,
19,20,21,22,23,24,25,26,27,28,29,30,31,32,33,34,35,36
T51N, R77W: Sections 7,8,9,10,11,12,13,14,15,16,17,18,19,20,
21,22,23,24,25,26,27,28,29,30,31,32,33,34,35,36
T50N, R71W: Sections 13,14,20,21,22,23,24,25,26,27,28,29,3 1,
32,33,34,35,36
T50N, R72W: Sections 4,5,6,7,8,9,10,11,14,15,16,17,18,19,20,2 1,
22,23,26,27,28,29,30,31,32,33,34,35,36
<PAGE>
EXHIBIT 10.20
GAS PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of this 16th day of March,
1999, to be effective on the 1st day of April, 1999 (the "Effective Date"), by
and between WESTERN GAS RESOURCES, INC. a Delaware corporation (Buyer), and
PENNACO ENERGY INC. (Seller). Buyer and Seller shall also be hereinafter
referred to individually as the "Party" and jointly as the "Parties".
In consideration of the Agreement and of the mutual covenants contained
herein, the Seller- agrees to sell and deliver to Buyer, gas undertoe terms
specified in this Agreement.
1 . Definitions. The following terms have the following meanings:
ACCOUNTING PERIOD. The period commencing at 7:00 a.m.,
Mountain Time, on the first day of a calendar month and ending at 7:00
a.m., Mountain Time, on the first day of the next succeeding month.
BTU. The amount of heat required to raise the temperature of
one pound of water from 59DEG Fahrenheit to 60DEG Fahrenheit.
CONTRACT CAPACITY. The capacity that Buyer makes available to
Seller for the purchase and receipt of Seller's gas at the Delivery
Point. Initially, the Contract Capacity shall be 11,000 Mcf per day,
subject to subsequent adjustments under the terms of Section 2.1 and
Section 2.2, below.
CUBIC FOOT. The volume of gas contained in one cubic foot of
space at a standard pressure base of 14.73 pounds per square inch
absolute (psia) and a standard temperature base of 60DEG Fahrenheit.
DELIVERY POINT. The inlet flange of the custody transfer
meter(s) into Buyer's gathering trunkline located in the NE/4 of
section 26, Township 49 North, Range 72 West, Campbell County, Wyoming.
EXCESS GAS. Gas from the Lands, deliverable to a Delivery
Point in excess of the capacity made available hereunder to Seller at
that Delivery Point.
FORCE MAJEURE. Any cause or condition not reasonably within
the control of the Party claiming suspension and which by the exercise
of due diligence, that Party is unable to prevent or overcome.
GAS. All hydrocarbon and non-hydrocarbon substances produced
from gas and/oroil wells in a gaseous state at the outlet of Seller's
production facilities.
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<PAGE>
GROSS HEATING VALUE. The number of BTU's produced by the
combustion, on a dry basis and at a constant pressure, of the amount of
the gas which would occupy a volume of one Cubic Foot at a temperature
of 60DEG Fahrenheit and at 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.
LOSSES. Any loss, cost, expense, liability, damage, demand,
suit, claim, sanction, settlement, judgment, lien, fine, penalty, and
interest of every kind and character (including reasonable fees and
expenses of attorneys).
PURCHASING FACILITIES. Any facility, including but not limited
to dehydration, pigging equipment, pipelines and compressors, acquired
hereby or contemplated hereunder. to be installed, operated and/or
maintained by Buyer regardless of whether Buyer owns, operates, leases
or contracts for any such facilities, including facilities installed,
owned and operated by MIGC, Inc.
LANDS. The lands described on Exhibit A in which Seller owns
leasehold interests, described on Exhibit A, attached hereto and made a
part hereof, together with any wells in which Seller owns interests
which are now or hereafter drilled on the lands.
2. TERMS OF PURCHASE AND SALE.
2.1 DELIVERY.
a. Seller shall deliver gas to Buyer at the Delivery Point(s)
against the operating pressures at the Delivery Point(s) as they from
time to time exist; provided, Buyer agrees that it shall not cause the
Delivery Point to be operated at an average pressure exceeding 100
psig. If the average pressure at the Delivery Point exceeds 100 psig in
any Accounting Period, then upon written notice by Seller of such
noncompliance, Buyer shall have sixty (60) days to remedy that
non-compliance. If Buyer fails to remedy the non-compliance within
sixty (60) days of such notice, then upon written request from Seller,
the capacity commitment in 2.2(b) below shall be reduced to that
quantity of gas that Buyer can accept within compliance and Seller's
interest in all additional. production from the Lands committed
pursuant to 2.2(a), below, shall automatically be permanently released
from this Agreement. Furthermore, upon written request of Seller, Buyer
shall reduce the acreage commitment under 2.2(a), below, to those wells
and leases attributable thereto that are sufficient to meet the
capacity commitment on the date of that release.
b. The Buyer and Seller are also parties to the Gas Sales
Agreement, referred to below. In order to provide for coordinated
nominations and balancing procedures under both this Agreement and
under the Gas Sales Agreement, the parties are entering into the
Nomination and Balancing Agreement of even date herewith; which shall
be applicable to deliveries and receipts under this Agreement as well
as under the Gas Sales Agreement.
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<PAGE>
2.2 COMMITMENT AND QUANTITY.
a. Seller hereby commits, sells, and agrees to deliver to Buyer;
and Buyer agrees to purchase and receive, or cause to be received for
Buyer's account, from Seller, all gas attributable to the leasehold
interests of Seller and produced from formations from the surface of
the earth to the base of the Tertiary Age Coal Formations from wells
now or hereafter located on the Lands, up to the lesser of (i) the then
applicable Contract Capacity, or (ii) a quantity of gas equal to the
quantity repurchased by Seller under the Gas Sales Agreement between
the Pates of even date herewith (the "Gas Sales Agreement") plus
Retained Fuel, as defined in the Gas Sales Agreement. Seller agrees
that the foregoing dedication shall be a covenant running with the land
and that any assignment, sale or other transfer of all or a portion of
Seller's interests in the Lands shall include and be subject to the
dedication under this Agreement. It is recognized that because of
dispatching and other variations, certain differences may occur between
the quantity of gas delivered to Buyer under this Agreement (net of
Retained Fuel) and the quantity of gas delivered by Buyer to Seller
under the Gas Sales Agreement. The provisions of Paragraph 6 of that
certain Gas Nominations and Balancing Agreement entered into between
the parties of even date herewith shall apply to the resolution of such
differences.
b. Buyer agrees to initially provide a Contract Capacity of
11,000 Mcf per Day. Buyer will use reasonable efforts to make that
Contract Capacity available on or before April 1, 1999, but shall not
have any liability to Seller for any failure to provide that Contract
Capacity before that date.
c. From and after April 1, 1999, if Buyer, for reasons other than
force majeure conditions, during any 3 consecutive Accounting Periods,
fails to receive an average daily quantity of Seller's gas of at least
95% of the lesser of (i) the then applicable Contract Capacity or (ii)
the average quantity of gas actually made available for delivery by
Seller (such amount being referred to as the "Required Volume), then
Buyer shall be deemed deficient in its receipts by an amount equal to
the difference between the Required Volume and the actual average
receipts during those 3 consecutive Accounting Periods ("Deficient
Quantity"). Seller shall have the right to request a permanent release
of the Deficient Quantity by requesting such in writing to Buyer within
15 days following the end of the applicable 3 Accounting Periods.
Following that timely request, Buyer shall have 30 days ("Cure Period")
in which to begin receiving the Required Volume, or if such cannot be
remedied within the Cure Period, to nevertheless provide a reasonable
plan to Seller specifying the actions that will be undertaken by Buyer
to remedy the failure to purchase and receive the Required Volume. If
Buyer does neither, then at the end of the Cure Period, the Deficient
Quantity shall be automatically and permanently released from the terms
of this Agreement. Upon that release the Contract Capacity shall be
reduced by an amount equal to the Deficient Quantity and the Minimum
Quantity under Section 2.3, b., shall also be reduced by an amount
equal to the Deficient Quantity.
d. If Seller has Excess Gas at any Delivery Point, Seller may
request Buyer, in writing, to cause the expansion of the Purchasing
Facilities to increase the Contract Capacity to
3
<PAGE>
accommodate the delivery of that Excess Gas. Buyer will then have
thirty (30) days after such request to determine whether it is economic
for Buyer, in Buyer's sole judgment, to cause the expansion of the
Purchasing Facilities under the terms of this Agreement, considering
the amount of additional gas available from Seller and all other
physical and economic conditions then existing. In the event that Buyer
determines that it is economic for Buyer to cause the expansion of the
Purchasing Facilities under the terms of this Agreement, Buyer shall
cause the expansion of the Purchasing Facilities under the terms of
this Agreement in a timely and diligent fashion, provided however,
Buyer shall not be obligated to cause any expansion prior to date that
Fort Union Gas Gathering L.L.C.'s header system is fully operational.
Upon that expansion, the Contract Capacity shall be deemed increased by
the amount of additional capacity provided by the expansion that is
necessary to accommodate the Excess Gas; and, upon that expansion, the
Excess Gas shall not be considered Excess Gas but shall be gas
comprising the Required Volume under c., above.
e. In the event that Buyer determines that the additional
capacity requested under paragraph d., above is uneconomic in Buyer's
sole judgement, then the Excess Gas shall be permanently released from
the terms of this Agreement upon the request of Seller.
f. During periods when gas production from all wells (including
the wells on the Lands hereunder and wells of third party sellers)
delivering to a Delivery Point exceeds the capacity available at that
Delivery Point, Buyer shall curtail receipts of all Excess Gas, on a
ratable basis pursuant to the-capacity committed to all sellers
connected to the Delivery Point. Buyer shall not enter into commitments
to provide service to producers, including Seller, in excess of the
total capacity of the Purchasing Facilities, as it from time to time
exists.
g. During periods when gas production from all wells connected to
all Purchasing Facilities (including the Wells hereunder and wells of
third party sellers) exceeds the capacity available to Buyer from third
parties to receive, transport, redeliver and/or sell gas, then Buyer
shall take gas ratably from all sources upstream of the capacity
restriction. Gas shall be curtailed ratably from wells producing gas
not in association with oil first and then, if capacity is still
restricted, gas shall be curtailed ratably from wells producing gas
together with oil ("Associated Gas"). With respect to Seller's gas that
Buyer transports in the facilities of MIGC, Inc., Buyer agrees that
receipts of Seller's gas shall not be curtailed due to curtailments by
MIGC unless MIGC is then curtailing all firm transportation service.
2.3 Price and Fees.
a. Buyer shall pay Seller for Seller's gas delivered to the
Delivery Point(s) hereunder, less Retained Fuel, as defined in the Gas
Sales Agreement. It is understood that no compensation is due from
Buyer, or any other party, for Retained Fuel. Buyer use reasonable
efforts to minimize fuel use and shall cause its transporters to do the
same. Further, the gas to be resold to Seller under the Gas Sales
Agreement, shall include any gain or loss from the Delivery Point
through the discharge of all Purchasing Facilities where Seller's gas
is compressed.
4
<PAGE>
b. The Purchase Price for Seller's gas, less Retained Fuel, shall
be equal to (i) the quantity of Seller's gas delivered to Buyer, at the
Delivery Point, less Retained Fuel, in MMBtu, multiplied by the Index,
less (ii) the Contract Volume (as defined below) of Seller's gas, in
MCF, multiplied by a Fee. The Fee shall be ********* per MCF. "Index"
shall be equal to the "INSIDE FERCs GAS MARKET REPORT, Prices of Spot
Gas Delivered to Pipelines" index for Colorado Interstate Gas Company,
Rocky Mountains, in the first publication of the applicable month.
Should the above index not be published, the parties shall mutually
agree as to an alternative publication with a price representative of
the foregoing. "Contract Volume" shall be the greater of (i) the actual
quantity of gas delivered; or, (ii) 95% of the Minimum Quantity; in
MCF. During the first two Accounting Periods following the date of
initial deliveries, the Minimum Quantity shall be five thousand (5,000)
MCF per day. For the next thirty six (36) Accounting Periods, the
Minimum Quantity shall be eleven thousand (11,000) MCF per day.
Thereafter, the Minimum Quantity shall be zero. If Buyer fails to
accept the Minimum Quantity for any reason other than due to Seller's
inability or failure to deliver same, the Minimum Quantity for the
Accounting Period in which the failure occurred shall be adjusted
downward by the quantity that Buyer failed to accept. If Seller is
unable or fails to deliver the Minimum Quantity, then, if Buyer
purchases and receives third party gas to replace Seller's unused
capacity, the Minimum Quantity shall be adjusted downward by the
quantity of such third party gas.
c. The applicable Fee specified in 2.3, b. (ii)., above, shall be
adjusted on an annual basis (beginning on the first day of the second
year of the Primary Term) in proportion to the percentage change, from
the preceding year, in the Producer Price Index for oil and gas field
services (SIC 138) as published by the Department of Labor. The
adjustment of the applicable portion of the fees shall be made
effective upon each anniversary of initial deliveries hereunder and
shall reflect the percentage change in the foregoing index as it
existed for the immediately preceding January from the index for the
second immediately preceding January.
3. TERM.
3.1 The term of this Agreement shall extend, subject to 3.2,
below, for a period of ten (10) years from the Effective Date, ("the Primary
Term") and month-to-month thereafter until canceled by either Party upon 30
days prior written notice in advance of the expiration of the Primary Term or
of any monthly extension thereof.
3.2 If Buyer determines, in good faith, that it is uneconomic
for Buyer to continue to receive and purchase Seller's Gas, at any Delivery
Point(s), then Buyer shall have the right to give Seller written notice of
that condition ("Uneconomic Notice"). Upon that notice:
a. The parties shall then attempt in good faith to negotiate
mutually acceptable terms to provide for continued delivery of gas at
the affected Delivery 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.
5
<PAGE>
b. If the parties cannot agree on those terms within 60 days
following the date of the Uneconomic Notice, then Buyer shall have the
right to terminate this Agreement upon 10 days' written notice.
c. As used herein, "uneconomic" means circumstances under which
the Fee attributable to the gas delivered at affected Delivery Point(s)
is insufficient to offset Buyer's actual costs of performing under this
Agreement and under the Gas Sales Agreement with respect to that gas.
4. MEASUREMENT. Measurement and determination of gas delivered,
including quantity and Gross Heating Value, shall be calculated by Buyer from
the measurements taken at the meter installed, operated and maintained by Buyer
at the Delivery Point, and from the Gross Heating Value determined by gas
chromatography, all in accordance with the recommendations set forth in the AGA
Measurement Committee Report Number 3, including any amendments or superseding
standards agreeable to the parties. The unit of measurement shall be one million
British Thermal Units (MMBtu). The measurement provisions in Exhibit C shall be
applicable to this Agreement.
5. QUALITY. In the event that any gas delivered by Seller
fails to meet any of the quality specifications set forth on Exhibit B, then
Buyer shall have the right to cease receiving that gas as long as that
condition exists; provided, Buyer shall also curtail all receipts of gas of
similar quality to the same extent as receipts of Seller's gas are curtailed.
Notwithstanding the foregoing, if after commingling that gas with other gas
then in the control of Buyer, the commingled stream is acceptable to all
downstream transporters receiving the commingled stream from Buyer, and as
long as the receipt of that nonconforming gas from Seller does not adversely
affect the economics of Buyer, then Buyer shall continue to receive that gas.
ln the event that Buyer ceases to receive gas as herein provided and if
Seller does not treat the gas prior to delivery hereunder to conform to the
quality specifications, then so long as that gas fails to conform to the
quality specifications Seller shall have the right to deliver the
non-conforming gas to any other party.
6. TAXES AND ROYALTY. Buyer shall have no responsibility for
any taxes applicable to the gas delivered hereunder, prior to its delivery to
Buyer, including all production, severance, excise, ad valorem and other
taxes of what ever nature. Buyer shall have no responsibility for any royalty
applicable to the gas delivered hereunder and Seller shall remain fully
responsible for the timely and proper payment of all royalties due on gas
delivered hereunder.
7. TITLE AND INDEMNIFY.
7.1 Seller hereby warrants title to all gas sold hereunder and
that Seller has the right and full authority to sell the same to Buyer,
receive all of the proceeds from that sale, and that all gas is free from any
and all liens and adverse claims. Seller will indemnify Buyer against and
hold Buyer harmless from any and all Losses arising out of or related to
Seller s breach of the foregoing warranty. The foregoing indemnity shall
apply as to any uncertainty, dispute or claim concerning the ownership of
coalbed methane as between the coal estate and the oil and gas estate, but
any such uncertainty, dispute or claim shall not constitute -a breach of the
foregoing warranty by Seller except to the extent of any deliveries by Seller
following an adverse and final, non-appealable court order.
6
<PAGE>
Buyer shall have no obligation to make payments for gas delivered hereunder
until Seller has furnished Buyer with an executed division order or title
opinion (addressed to Buyer) in form and content acceptable to Buyer indicating
that payments for all gas delivered hereunder are to be made to Seller.
7.2 Seller shall indemnify, defend and hold Buyer harmless from
and against all Losses arising out of Seller's operation hereunder or arising
while the gas is in Seller's exclusive control and possession. Buyer shall
indemnify, defend and hold Seller harmless from and against all Losses
arising out of Buyer's operation hereunder or arising while the gas is in
Buyer's exclusive control and possession. For the purposes of this Agreement,
the gas shall be deemed to be in Seller's exclusive control and possession
until it is delivered to Buyer at the Delivery Point hereunder and after it
is delivered to the Delivery Point under the Gas Sales Agreement; and, the
gas shall be deemed to be in Buyer's exclusive control and possession after
it is delivered to Buyer at the Delivery Point hereunder and until it is
delivered to the Delivery Point under the Gas Sales Agreement.
8. Payment.
8.1 Buyer shall calculate a statement showing the amount of
payment due Seller by Buyer each Accounting Period, and provide Seller with a
copy of the same, on or before the twentieth (20th) day of the month after
deliveries are made. If the actual total quantity of gas delivered and
received hereunder is not available from third party transporter(s) by the
twentieth (20th) day of the month, then Buyer shall provide the statement
based on Buyer's good-faith estimate of deliveries hereunder, which estimates
shall be corrected to reflect actual quantities on the following month's
billing or as soon thereafter as is available.
8.2 Buyer shall pay for gas delivered and purchased hereunder
by Wire Transfer or ACH as instructed on the invoice, on or before the last
day of the month following the Accounting Period in which deliveries are made.
8.3 In the event Buyer shall fail to pay any amount due Seller,
when the amount is due, then the overdue amount shall accrue a late payment
penalty at a rate equal to the lesser of (i) one and one half percent (1.5%)
per month, or (ii) the maximum rate permitted by applicable law. In addition
to any other rights provided under this Agreement, including those under
Section 8.4 below, and in addition to any other rights or remedies Seller may
have at law or at equity, if Buyer fails to pay amounts due Seller when due,
then Seller may suspend further delivery of gas until that amount is paid.
8.4 Prior to the commencement of deliveries and sales of
natural gas under this Agreement, and from time to time thereafter as
requested by Seller, Buyer shall furnish Seller with credit information as
may be reasonably required to determine Buyer's creditworthiness. If during
the term of this Agreement the financial responsibility of Buyer, based upon
credit information supplied to Seller, or based upon Buyer's performance or
lack of performance hereunder, or based upon any other reasonable grounds
which would give rise to insecurity with respect to the performance of Buyer,
then Seller may demand adequate assurance of due performance from Buyer in
form and content reasonably acceptable to Seller, and until Seller receives
that assurance may, as
7
<PAGE>
a non-exclusive remedy, suspend Seller's deliveries of gas hereunder. If
adequate assurance of due performance is not received by Seller within five (5)
days of its demand, then Seller may, in addition to any other rights, claim
repudiation of this Agreement by Buyer. The parties expressly waive any longer
time periods in which to provide adequate assurances as may be contained in
applicable laws or statutes.
9. SUCCESSION AND ASSIGNMENT. This Agreement may not be
assigned by either party without the consent of the other party, which
consent shall not be unreasonably withheld. This Agreement, and each of its
terms and conditions, shall bind and inure to the benefit of the Parties
hereto and to their respective successors and assignees. However, any such
assignment must be in writing and shall not be binding on the other Party
unless and until a copy is provided to the other party, and further, shall
not be binding upon Buyer until Buyer has been furnished with appropriate
transfer orders or letters-in-lieu of transfer or division orders.
10. FORCE MAJEURE
10.1 Except for payment due hereunder, neither Party shall be
liable to the other for failure or delay in making or accepting deliveries or
performing other obligations hereunder to the extent that the failure or
delay may be due to Force Majeure conditions.
10.2 The party claiming Force Majeure must give notice thereof
to the other Party as soon as is reasonably practicable, and shall remedy the
Force Majeure with reasonable diligence.
10.3 If either party is prevented from performing hereunder to
the full extent of its obligations by Force Majeure conditions for more than
30 consecutive days or more than 90 days in any 12-month period, the other
party shall have the right to terminate this Agreement by providing written
notice to the other party.
10.4 During any period of Force Majeure, Buyer shall be
authorized to purchase and receive third party gas to replace Seller's unused
Contract Capacity and Seller shall be authorized to sell and deliver its gas
subject to Force Majeure to any third party purchaser.
11. REGULATORY BODIES. In the event any regulatory body asserts
jurisdiction over the sale of natural gas hereunder, either party may
terminate this Agreement upon 10 days advance written notice unless, before
that time, the parties are able to agree upon modifications to this Agreement
that restore the economic benefit to the party deprived by the assertion of
that jurisdiction.
12. CONFIDENTIALITY. The terms of this Agreement, including,
but not limited to, the price paid for gas, the volumes of gas purchased or
sold, and all other material terms of this Agreement shall be kept
confidential by the Parties hereto, except to the extent that information (i)
is disclosed to the direct consultants (attorneys, accountants, bankers)
working interest and royalty owners whose pro rata share of production is
marketed by a Party, or to prospective purchasers after they have agreed to
be bound by this confidentiality provision, (ii) is disclosed to a downstream
transporter under such transporter's tariff requirements for the purpose of
arranging transportation, or (iii) is disclosed as required by applicable
law, regulation, court order or subpoena.
8
<PAGE>
13. MISCELLANEOUS.
13.1 This Agreement shall be governed in accordance with the
laws of the State of Colorado, without regard to choice of law principles. To
the extent any provisions of this Agreement contradict, vary or are
inconsistent with the provisions of the Uniform Commercial Code, or other
applicable laws, then to the extent permitted by law, and to the extent
provided in this Agreement, this Agreement shall constitute a waiver of those
provisions of the Law.
13.2 This Agreement, including all exhibits and appendices, and
the Gas Sales Agreement, the Netting Agreement, and the Nominations and
Balancing Agreement, all between the Parties and of even date herewith,
contain the entire agreement between the Parties, and except as stated
herein, there are no oral promises, agreements, warranties, obligations,
assurances, or conditions precedent, affecting it.
13.3 Any change, modification or alteration of this Agreement
shall be in writing, signed by the parties, and no course of dealing between
the Parties shall be construed to alter the terms hereof, except as expressly
stated herein.
13.4 A waiver by either Party of any one or more defaults by the
other in the performance of any provisions of this Agreement shall not
operate as a waiver of any future default, whether of a like or different
character.
13.5 IN NO EVENT WILL EITHER PARTY BE LIABLE HEREUNDER FOR
INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.
14. NOTICES. Any notice, request, demand, statement or bill
provided for in this Agreement, or any notice which a party may desire to
give to the other, shall be in writing and shall be considered as duly
delivered as of the date of receipt if mailed by ordinary mail, telecopied,
wired or courier expressed to the other Party at the following address:
NOTICES TO BUYER: NOTICES TO SELLER:
Western Gas Resources, Inc. Pennaco Energy, Inc.
12200 N. Pecos Street 1050 17th Street, Suite 700
Denver, Colorado 80234 Denver, CO 80265
ATTN: Contract Administration ATTN: Marketing Department
Telephone No. (303) 452-5603 Telephone No: (303) 629-6700
Telecopy No. (303) 452-0186 Telecopy No. (303) 629-6800
9
<PAGE>
Either Party may change its address for purposes of notice by giving notice to
the other Party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
SELLER BUYER:
PENNACO ENERGY INC. WESTERN GAS RESOURCES, INC.
By: /s/ TERRELL A. DOBKINS By: /s/ J. BERT JONES
------------------------------ -------------------------
Title: VICE PRESIDENT PRODUCTION Title: VICE PRESIDENT
--------------------------- ----------------------
10
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
The Lands committed to this agreement shall include all of Seller's interests in the following:
SECTIONS TOWNSHIP RANGE COUNTY
- -------- -------- ----- ------
<S> <C> <C> <C>
1, 2, 11, 12, 13, 14, 15, 23, 24 25,26 T49N R72W Campbell, Wyoming
8, 17, 18, N/2 N/2 19, and N/2 N/2 20 T49N R71W Campbell, Wyoming
</TABLE>
limited to formations from the surface of the earth to the base of the Tertiary
Age Coal Formations.
11
<PAGE>
EXHIBIT B
QUALITY SPECIFICATIONS
Gas delivered by Seller hereunder to Buyer shall:
(a) be reasonably free from dust, gum, gum-forming
constituents, condensate, free water, diluents, and other
liquids and solids which may become separated from the
gas;
(b) contain not more than ten (10) ppm (parts per million)
oxygen by volume (and Seller shall make every effort to
keep gas free from oxygen);
contain not more than one-fourth (1/4) grain of hydrogen sulfide
per one hundred (100) Cubic Feet of Gas;
(d) contain not more than twenty (20) grains of total sulphur,
including sulphur in hydrogen sulfide and mercaptan, per one
hundred (100) Cubic Feet of Gas;
(e) contain not more than three percent (3%) carbon dioxide, by
volume;
(f) have a temperature less than or equal to one hundred (100)
degrees Fahrenheit;
(g) have a heating value not less than nine hundred
sixty-eight (968) BTU's per Cubic Foot of Gas, dry basis.
12
<PAGE>
EXHIBIT C
MEASUREMENT
Seller, or Seller's authorized agent, may, at its option and
expense, install and operate measuring equipment to check Buyer's measuring
equipment provided the installation of the check measuring equipment in no way
interferes with the operation of Buyer's measuring equipment. Any check
measuring equipment installed by Seller shall be located upstream of Buyer's
measuring equipment.
All gas volume measurements shall be based on an assumed
atmospheric pressure of twelve-and-seven-tenths (12.7) psia, regardless of
actual atmospheric pressure at which the gas is measured. Gas volume
calculations will be made in accordance with ANSI/API 2530, as amended from time
to time.
Buyer shall test the accuracy of its measuring equipment at
least semiannually, or as required by regulatory agencies having jurisdiction.
Buyer shall give Seller, and regulatory agencies having jurisdiction and
entitled to notice, reasonable prior notice of any test or adjustment of any
measuring equipment. Additional test(s) shall be promptly performed upon
notification by either party to the other and the cost of any such additional
tests shall be borne by the requesting party.
Upon test, any measuring equipment found to be in error shall
be immediately corrected. If, upon test, the error does not exceed two percent
(2%), the equipment shall be considered correct in computing deliveries
hereunder. If, upon test, the error exceeds two percent (2%), then any preceding
recordings of such equipment shall be corrected to zero error for any period
which is known definitely or agreed upon. If the period is not known definitely
or agreed upon, such correction shall be for a period extending back one-half
(1/2) of the time elapsed since the last test. Correction of deliveries shall be
calculated by the first of the following methods which is feasible: (i) by
correcting the error if the percentage of error is ascertainable by calibration,
test, or mathematical calculations; or (ii) by using the registration of any
check meter or meters installed and accurately registering; or (iii) by
estimating the quantity of delivery by deliveries during periods of similar
conditions when the meter was registering accurately.
The composition and BTU content of any gas stream required to
be measured hereunder shall be determined by Buyer semi-annually, or more often
if deemed necessary by Buyer, at the point where the measurement equipment is
located, by chromatographic analysis, or by other industry standard method
mutually acceptable to the parties.
Buyer shall at its expense install, operate, and maintain
mutually acceptable "ELECTRONIC FLOW MEASUREMENT" (EFM) and communication
equipment required for data acquisition, at each Delivery Point, in compliance
with API Chapter 21, Section 1, as amended from time to time. Seller and Buyer
shall be jointly responsible for obtaining any necessary approvals and giving
any required notices to the appropriate governmental agencies, including the
Bureau of Land Management, that EFM equipment will be utilized for custody
transfer measurement from Seller to Buyer. Should Seller and Buyer be unable to
obtain any of those requisite approvals, Buyer shall
13
<PAGE>
remove any EFM equipment for which the approval was not obtained and replace
that EFM equipment with acceptable custody transfer measurement equipment. Buyer
shall provide Seller, and its agents, direct access to EFM data through Buyer's
communication equipment.
Each party hereto shall have access at all reasonable hours to
all facilities which are related to gas measurement and sampling. Each party
shall have the right to be present for any installing, reading, cleaning,
changing, repairing, testing, calibrating and/or adjusting of either party's
measuring equipment.
14
<PAGE>
EXHIBIT 10.21
BASE CONTRACT FOR SHORT-TERM
SALE AND PURCHASE OF NATURAL GAS
This Base Contract is entered into as of the following date: April 1, 1999 The
parties to this Base Contract are the following:
<TABLE>
<CAPTION>
<S> <C>
Pennaco Energy and Interenergy Resources Corporation
1050 17th Street, Suite 700, Denver, Colorado 80285 500 Dallas, Suite 500, Houston, Texas 77002
Duns #01-963-5270 Duns #87-653-4918
Contract #_______________________________________ Contract #37-001128
Attn: Brian Day, Mercator Energy, 600 17th St., #600S, Denver, CO 80202 Attn: Contract Administration
Phone: 303-825-1100 Fax: 303-825-2300 Phone: 713-369-9000 Fax: 713-369-8824
Federal Tax ID Number: 88-0384598 Federal Tax ID Number: 84-1213770
Invoices and Payments:
Pennaco Energy Interenergy Resources Corporation
1050 17th Street, Suite 700, Denver, Colorado 80285 500 Dallas, Suite 500, Houston, Texas 77002
Attn: Glen C. Warren, Jr. Attn: Interenergy Gas Accounting
Phone: 303-629-6700 Fax: 303-629-0915 Phone: 713-369-9000 Fax: 713-369-8965
Wire Transfer or ACH Nos. (if applicable) Wells Fargo Bank,
Denver, CO Wire Transfer or ACH Nos.: Chase Manhattan Bank NY, NY
12100-0248, Acct# ********* Acct of KN Energy, Inc., ABA #021000021 A/C#********
This Base Contract incorporates by reference for all purposes the General Terms
and Conditions for Short-Term Sale and Purchase of Natural Gas published by the
Gas Industry Standards Board. The parties hereby agree to the following
provisions offered in said General Terms and Conditions (SELECT ONLY ONE FROM
EACH BOX, BUT SEE "NOTE" RELATING TO SECTION 2.24):
SECTION 1.2 |X| Oral SECTION 6. |X| Buyer Pays At and After Delivery Point
Transaction Procedure |_| Written Taxes |_| Seller Pays Before and At Delivery Point
- ----------------------------------------------------------------------------------------------------------------------------------
SECTION 2.4 |X| 2 Business Days after receipt (default) SECTION 7.2 25th date of Month following Month of Delivery
Confirm Deadline |_| Business Days after receipt Payment Date
- ----------------------------------------------------------------------------------------------------------------------------------
SECTION 2.5 |_| Seller SECTION 7.2 |X| Wire Transfer (WT) or
Confirming Party |_| Buyer Method of |X| Automated Clearinghouse (ACH)
|X| Interenergy Resources Corp. Payment |_| Check
- ----------------------------------------------------------------------------------------------------------------------------------
SECTION 3.2 |X| Cover Standard
Performance Obl. |_| Spot Price Standard
NOTE: THE FOLLOWING SPOT PRICE PUBLICATION APPLIES TO BOTH OF THE
IMMEDIATELY PRECEDING STANDARDS AND MUST BE FILLED IN
AFTER A STANDARD IS SELECTED.
SECTION 2.24 SECTION 13.5
Spot Price Publication: Gas Daily CHOICE OF LAW: Texas
- ---------------------------------------------------------------------------------------------------------------------------------
|X| SPECIAL PROVISIONS: (1) Payment in Section 7.2 will be by electronic funds transfer (EFT), which includes either payment by
wire transfer or by Automated Clearinghouse (ACH). (2) In lieu of the references to Imbalance Charges responsibility in Sections
11.1 and 11.3, any Imbalance Charges incurred as a result of a Force Majeure event shall be resolved and payment responsibility
agreed to by the parties at the time of the event. (3) The parties hereby consent to the tape recording of telephone
conversations in which agreement to a Transaction is reached. Any such tape recording will be deemed a "writing" and "signed" by
the parties for purposes of Section 2-201(1) of the Uniform Commercial Code and may be introduced into a legal proceeding as
evidence to prove the fact or terms of a Transaction.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Base Contract in
duplicate.
<TABLE>
<CAPTION>
<S> <C>
PENNACO ENERGY: /s/ PAUL M. RADY INTERENERGY RESOURCES CORPORATION
---------------------------------
By: PAUL M. RADY By: ROBERT COX
--------------------------------------------- --------------------------------
Title: PRESIDENT/CEO Title: REGIONAL VICE PRESIDENT
------------------------------------------ --------------------------------
- ---------------------
</TABLE>
****** This portion of the agreement has been omitted pursuant to a
confidential treatment request that has been filed with the Securities and
Exchange Commission.
-1-
<PAGE>
- ------------------------------------------------------------------------------
DISCLAIMER: The purposes of this Contract are to facilitate trade, avoid
misunderstandings and make more definite the terms of contracts of purchase
and sale of natural gas. This Contract is intended for Interruptible
transactions or Firm transactions of one month or less and may not be
suitable for Firm transactions of longer than one month. Further, GISB does
not mandate the use of this Contract by any party. GISB DISCLAIMS AND
EXCLUDES, AND ANY USER OF THIS CONTRACT ACKNOWLEDGES AND AGREES TO GISB'S
DISCLAIMER OF, ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS
OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS CONTRACT OR ANY PART
THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE,
NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR ANY
PARTICULAR PURPOSE (WHETHER OR NOT GISB KNOWS, HAS REASON TO KNOW, HAS BEEN
ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED
TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF
DEALING. EACH USER OF THIS CONTRACT ALSO AGREES THAT UNDER NO CIRCUMSTANCES
WILL GISB BE LIABLE FOR ANY DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE
OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF THIS CONTRACT.
- ------------------------------------------------------------------------------
GENERAL TERMS AND CONDITIONS
BASE CONTRACT FOR SHORT-TERM
SALE AND PURCHASE OF NATURAL GAS
SECTION 1. PURPOSE AND PROCEDURES
1.1 These General Terms and Conditions are intended to facilitate purchase and
sale transactions of Gas on a Firm or Interruptible basis. "Buyer" refers to the
party receiving Gas and "Seller" refers to the party delivering Gas.
THE PARTIES HAVE SELECTED EITHER THE "ORAL" VERSION OR THE "WRITTEN" VERSION OF
TRANSACTION PROCEDURES AS INDICATED ON THE BASE CONTRACT.
- -------------------------------------------------------------------------------
ORAL TRANSACTION PROCEDURE:
- -------------------------------------------------------------------------------
1.2 The parties will use the following Transaction Confirmation procedure. Any
Gas purchase and sale transaction may be effectuated in an EDI transmission or
telephone conversation with the offer and acceptance constituting the agreement
of the parties. The parties shall be legally bound from the time they so agree
to transaction terms and may each rely thereon. Any such transaction shall be
considered a "writing" and to have been "signed". Notwithstanding the foregoing
sentence, the parties agree that Confirming Party shall, and the other party
may, confirm a telephonic transaction by sending the other party a Transaction
Confirmation by facsimile, EDI or mutually agreeable electronic means.
Confirming Party adopts its confirming letterhead, or the like, as its signature
on any Transaction Confirmation as the identification and authentication of
Confirming Party.
- -------------------------------------------------------------------------------
WRITTEN TRANSACTION PROCEDURE:
- -------------------------------------------------------------------------------
1.2 The parties will use the following Transaction Confirmation procedure.
Should the parties come to an agreement regarding a Gas purchase and sale
transaction for a particular Delivery Period, the Confirming Party shall, and
the other party may, record that agreement on a Transaction Confirmation and
communicate such Transaction Confirmation by facsimile, EDI or mutually
agreeable electronic means, to the other party by the close of the Business
Day following the date of agreement. The parties acknowledge that their
agreement will not be binding until the exchange of non-conflicting
Transaction Confirmation or the passage of the Confirm Deadline without
objection from the receiving party, as provided in Section 1.3.
1.3 If a sending party's Transaction Confirmation is materially different
from the receiving party's understanding of the agreement referred to in
Section 1.2, such receiving party shall notify the sending party via
facsimile by the Confirm Deadline, unless such receiving party has previously
sent a Transaction Confirmation to the sending party. The failure of the
receiving party to so notify the sending party in writing by the Confirm
Deadline constitutes the receiving party's agreement to the terms of the
transaction described in the sending party's Transaction Confirmation. If
there are any material differences between timely sent Transaction
Confirmations governing the same transaction, then neither Transaction
Confirmation shall be binding until or unless such differences are resolved
including the use of any evidence that clearly resolves the differences in
the Transaction Confirmations. The entire agreement between the parties shall
be those provisions contained in both the Base Contract and any effective
Transaction Confirmation. In the event of a conflict among the terms of (i) a
Transaction Confirmation, (ii) the Base Contract, and (iii) these General
Terms and Conditions, the terms of the documents shall govern in the priority
listed in this sentence.
-2-
<PAGE>
SECTION 2. DEFINITIONS
2.1 "Base Contract" shall mean a contract executed by the parties that
incorporates these General Terms and Conditions by reference; that specifies
the agreed selections of provisions contained herein; and that sets forth
other information required herein.
2.2 "British thermal unit" or "Btu" shall have the meaning ascribed to it
by the Receiving Transporter.
2.3 "Business Day" shall mean any day except Saturday, Sunday or Federal
Reserve Bank holidays.
2.4 "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time
zone on the second Business Day following the Day a Transaction Confirmation
is received, or if applicable, on the Business Day agreed to by the parties
in the Base Contract; provided, if the Transaction Confirmation is time
stamped after 5:00 p.m. in the receiving party's time zone, it shall be
deemed received at the opening of the next Business Day.
2.5 "Confirming Party" shall mean the party designated in the Base
Contract to prepare and forward Transaction Confirmations to the other party.
2.6 "Contract" shall mean the legally-binding relationship established by
(i) the Base Contract and (ii) the provisions contained in any effective
Transaction Confirmation.
2.7 "Contract Price" shall mean the amount expressed in U.S. Dollars per
MMBtu, as evidenced by the Contract Price on the Transaction Confirmation.
2.8 "Contract Quantity" shall mean the quantity of Gas to be delivered and
taken as set forth in the Transaction Confirmation.
2.9 "Cover Standard", if applicable, shall mean that if there is an
unexcused failure to take or deliver any quantity of Gas pursuant to this
Contract, then the non-defaulting party shall use commercially reasonable
efforts to obtain Gas or alternate fuels, or sell Gas, at a price reasonable
for the delivery or production area, as applicable, consistent with: the
amount of notice provided by the defaulting party; the immediacy of the
Buyer's Gas consumption needs or Seller's Gas sales requirements, as
applicable; the quantities involved; and the anticipated length of failure by
the defaulting party.
2.10 "Day" shall mean a period of 24 consecutive hours, coextensive with a
"day" as defined by the Receiving Transporter in a particular transaction.
2.11 "Delivery Period" shall be the period during which deliveries are to
be made as set forth in the Transaction Confirmation.
2.12 "Delivery Point(s)" shall mean such point(s) as are mutually agreed
upon between Seller and Buyer as set forth in the Transaction Confirmation.
2.13 "EDI" shall mean an electronic data interchange pursuant to an
agreement entered into by the parties, specifically relating to the
communication of Transaction Confirmations under this Contract.
2.14 "EFP" shall mean the purchase, sale or exchange of natural Gas as the
"physical" side of an exchange for physical transaction involving gas futures
contracts. EFP shall incorporate the meaning and remedies of "Firm".
2.15 "Firm" shall mean that either party may interrupt its performance
without liability only to the extent that such performance is prevented for
reasons of Force Majeure; provided, however, that during Force Majeure
interruptions, the party invoking Force Majeure may be responsible for any
Imbalance Charges as set forth in Section 4.3 related to
-3-
<PAGE>
its interruption after the nomination is made to the Transporter and until
the change in deliveries and/or receipts is confirmed by the Transporter.
2.16 "Gas" shall mean any mixture of hydrocarbons and non-combustible gases
in a gaseous state consisting primarily of methane.
2.17 "Imbalance Charges" shall mean any fees, penalties, costs or charges
(in cash or in kind) assessed by a Transporter for failure to satisfy the
Transporter's balance and/or nomination requirements.
2.18 "Interruptible" shall mean that either party may interrupt its
performance at any time for any reason, whether or not caused by an event of
Force Majeure, with no liability, except such interrupting party may be
responsible for any Imbalance Charges as set forth in Section 4.3 related to
its interruption after the nomination is made to the Transporter and until
the change in deliveries and/or receipts is confirmed by Transporter.
2.19 "MMBtu" shall mean one million British thermal units which is
equivalent to one dekatherm.
2.20 "Month" shall mean the period beginning on the first Day of the
calendar month and ending immediately prior to the commencement of the first
Day of the next calendar month.
2.21 "Payment Date" shall mean a date, selected by the parties in the Base
Contract, on or before which payment is due Seller for Gas received by Buyer
in the previous Month.
2.22 "Receiving Transporter" shall mean the Transporter receiving Gas at a
Delivery Point, or absent such receiving Transporter, the Transporter
delivering Gas at a Delivery Point.
2.23 "Scheduled Gas" shall mean the quantity of Gas confirmed by
Transporter(s) for movement, transportation or management.
2.24 "Spot Price" as referred in Section 3.2 shall mean the price listed in
the publication specified by the parties in the Base Contract, under the
listing applicable to the geographic location closest in proximity to the
Delivery Point(s) for the relevant Day; provided, if there is no single price
published for such location for such Day, but there is published a range of
prices, then the Spot Price shall be the average of such high and low prices.
If no price or range of prices is published for such Day, then the Spot Price
shall be the average of the following: (i) the price (determined as stated
above) for the first Day for which a price or range of prices is published
that next precedes the relevant Day; and (ii) the price (determined as stated
above) for the first Day for which a price or range of prices is published
that next follows the relevant Day.
2.25 "Transaction Confirmation" shall mean the document, substantially in
the form of Exhibit A, setting forth the terms of a purchase and sale
transaction formed pursuant to Section 1 for a particular Delivery Period.
2.26 "Transporter(s)" shall mean all Gas gathering or pipeline companies,
or local distribution companies, acting in the capacity of a transporter,
transporting Gas for Seller or Buyer upstream or downstream, respectively, of
the Delivery Point pursuant to a particular Transaction Confirmation.
SECTION 3. PERFORMANCE OBLIGATION
3.1 Seller agrees to sell and deliver, and Buyer agrees to receive and
purchase, the Contract Quantity for a particular transaction in accordance
with the terms of the Contract. Sales and purchases will be on a Firm or
Interruptible basis, as specified in the Transaction Confirmation.
-4-
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- ------------------------------------------------------------------------------
THE PARTIES HAVE SELECTED THE "COVER STANDARD" VERSION OR THE "SPOT PRICE
STANDARD" VERSION AS INDICATED ON THE BASE CONTRACT.
- ------------------------------------------------------------------------------
COVER STANDARD:
- ------------------------------------------------------------------------------
3.2 In addition to any liability for Imbalance Charges, which shall not be
recovered twice by the following remedy, the exclusive and sole remedy of the
parties in the event of a breach of a Firm obligation shall be recovery of
the following: (i) in the event of a breach by Seller on any Day(s), payment
by Seller to Buyer in an amount equal to the positive difference, if any,
between the purchase price paid by Buyer utilizing the Cover Standard for
replacement Gas or alternative fuels and the Contract Price, adjusted for
commercially reasonable differences in transportation costs to or from the
Delivery Point(s), multiplied by the difference between the Contract Quantity
and the quantity actually delivered by Seller for such Day(s); or (ii) in the
event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the
amount equal to the positive difference, if any, between the Contract Price
and the price received by Seller utilizing the Cover Standard for the resale
of such Gas, adjusted for commercially reasonable differences in
transportation costs to or from the Delivery Point(s), multiplied by the
difference between the Contract Quantity and the quantity actually taken by
Buyer for such Day(s); or (iii) in the event that Buyer has used commercially
reasonable efforts to replace the Gas or Seller has used commercially
reasonable efforts to sell the Gas to a third party, and no such replacement
or sale is available, then the exclusive and sole remedy of the non-breaching
party shall be any unfavorable difference between the Contract Price and the
Spot Price, adjusted for such transportation to the applicable Delivery
Point, multiplied by the difference between the Contract Quantity and the
quantity actually delivered by Seller and received by Buyer for such Day(s).
- ------------------------------------------------------------------------------
SPOT PRICE STANDARD:
- ------------------------------------------------------------------------------
3.2 In addition to any liability for Imbalance Charges, which shall not be
recovered twice by the following remedy, the exclusive and sole remedy of the
parties in the event of a breach of a Firm obligation shall be recovery of
the following: (i) in the event of a breach by Seller on any Day(s), payment
by Seller to Buyer in an amount equal to the difference between the Contract
Quantity and the actual quantity delivered by Seller and received by Buyer
for such Day(s), multiplied by the positive difference, if any, obtained by
subtracting the Contract Price from the Spot Price; (ii) in the event of a
breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal
to the difference between the Contract Quantity and the actual quantity
delivered by Seller and received by Buyer for such Day(s), multiplied by the
positive difference, if any, obtained by subtracting the applicable Spot
Price from the Contract Price.
- ------------------------------------------------------------------------------
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, IN NO EVENT WILL
EITHER PARTY BE LIABLE UNDER THIS CONTRACT, WHETHER IN CONTRACT, IN TORT
(INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR OTHERWISE, FOR INCIDENTAL,
CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES.
SECTION 4. TRANSPORTATION, NOMINATIONS AND IMBALANCES
4.1 Seller shall have the sole responsibility for transporting the Gas to
the Delivery Point(s) and for delivering such Gas at a pressure sufficient to
effect such delivery but not to exceed the maximum operating pressure of the
Receiving Transporter. Buyer shall have the sole responsibility for
transporting the Gas from the Delivery Point(s).
4.2 The parties shall coordinate their nomination activities giving
sufficient time to meet the deadlines of the affected Transporter(s). Each
party shall give the other party timely prior notice, sufficient to meet the
requirements of all Transporter(s) involved in the transaction, of the
quantities of Gas to be delivered and purchased each Day. Should either party
become aware that actual deliveries at the Delivery Point(s) are greater or
lesser than the Scheduled Gas, such party shall promptly notify the other
party.
4.3 The parties shall use commercially reasonable efforts to avoid
imposition of any Imbalance Charges. If Buyer or Seller receives an invoice
from a Transporter that includes Imbalance Charges, the parties shall
determine the validity as well as the cause of such Imbalance Charges. If the
Imbalance Charges were incurred as a result of Buyer's actions
-5-
<PAGE>
or inactions (which shall include, but shall not be limited to, Buyer's
failure to accept quantities of Gas equal to the Scheduled Gas), then Buyer
shall pay for such Imbalance Charges, or reimburse Seller for such Imbalance
Charges paid by Seller to the Transporter. If the Imbalance Charges were
incurred as a result of Seller's actions or inactions (which shall include,
but not be limited to, Seller's failure to deliver quantities of Gas equal to
the Scheduled Gas), then Seller shall pay for such Imbalance Charges, or
reimburse Buyer for such Imbalance Charges paid by Buyer to the Transporter.
SECTION 5. QUALITY AND MEASUREMENT
All Gas delivered by Seller shall meet the quality and heat content
requirements of the Receiving Transporter. The unit of quantity measurement
for purposes of this Contract shall be one MMBtu dry. Measure of Gas
quantities hereunder shall be in accordance with the established procedures
of the Receiving Transporter.
SECTION 6. TAXES
- ------------------------------------------------------------------------------
THE PARTIES HAVE SELECTED EITHER THE "BUYER PAYS AT AND AFTER DELIVERY POINT"
VERSION OR THE "SELLER PAYS BEFORE AND AT DELIVERY POINT" VERSION AS INDICATED
ON THE BASE CONTRACT.
- ------------------------------------------------------------------------------
BUYER PAYS AT AND AFTER DELIVERY POINT:
- ------------------------------------------------------------------------------
Seller shall pay or cause to be paid all taxes, fees, levies, penalties,
licenses or charges imposed by any government authority ("Taxes") on or with
respect to the Gas prior to the Delivery Point(s). Buyer shall pay or cause
to be paid all Taxes on or with respect to the Gas at the Delivery Point(s)
and all Taxes after the Delivery Point(s). If a party is required to remit or
pay Taxes that are the other party's responsibility hereunder, the party
responsible for such Taxes shall promptly reimburse the other party for such
Taxes. Any party entitled to an exemption from any such Taxes or charges
shall furnish the other party any necessary documentation thereof.
- ------------------------------------------------------------------------------
SELLER PAYS BEFORE AND AT DELIVERY POINT:
- ------------------------------------------------------------------------------
Seller shall pay or cause to be paid all taxes, fees, levies, penalties,
licenses or charges imposed by any government authority ("Taxes") on or with
respect to the Gas prior to the Delivery Point(s) and all Taxes at the
Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with
respect to the Gas after the Delivery Point(s). If a party is required to
remit or pay Taxes which are the other party's responsibility hereunder, the
party responsible for such Taxes shall promptly reimburse the other party for
such Taxes. Any party entitled to an exemption from any such Taxes or charges
shall furnish the other party any necessary documentation thereof.
- ------------------------------------------------------------------------------
SECTION 7. BILLING, PAYMENT AND AUDIT
7.1 Seller shall invoice Buyer for Gas delivered and received in the
preceding Month and for any other applicable charges, providing supporting
documentation acceptable in industry practice to support the amount charged.
If the actual quantity delivered is not known by the billing date, billing
will be prepared based on the quantity of Scheduled Gas. The invoiced
quantity will then be adjusted to the actual quantity on the following
Month's billing or as soon thereafter as actual delivery information is
available.
7.2 Buyer shall remit the amount due in the manner specified in the Base
Contract, in immediately available funds, on or before the later of the
Payment Date or 10 days after receipt of the invoice by Buyer; provided that
if the Payment Date is not a Business Day, payment is due on the next
Business Day following that date. If Buyer fails to remit the full amount
payable by it when due, interest on the unpaid portion shall accrue at a rate
equal to the lower of (i) the then-effective prime rate of interest
published under "Money Rates" by The Wall Street Journal, plus two percent
per annum from the date due until the date of payment; or (ii) the maximum
applicable lawful interest rate. If Buyer, in good faith, disputes the amount
of any such statement or any part thereof, Buyer will pay to Seller such
amount as it concedes to be correct; provided, however, if Buyer disputes the
amount due, Buyer must provide supporting documentation acceptable in
industry practice to support the amount paid or disputed.
-6-
<PAGE>
7.3 In the event any payments are due Buyer hereunder, payment to Buyer
shall be made in accordance with Section 7.2 above.
7.4 A party shall have the right, at its own expense, upon reasonable
notice and at reasonable times, to examine the books and records of the other
party only to the extent reasonably necessary to verify the accuracy of any
statement, charge, payment, or computation made under the Contract. This
examination right shall not be available with respect to proprietary
information not directly relevant to transactions under this Contract. All
invoices and billings shall be conclusively presumed final and accurate
unless objected to in writing, with adequate explanation and/or
documentation, within two years after the Month of Gas delivery. All
retroactive adjustments under Section 7 shall be paid in full by the party
owing payment within 30 days of notice and substantiation of such inaccuracy.
SECTION 8. TITLE, WARRANTY AND INDEMNITY
8.1 Unless otherwise specifically agreed, title to the Gas shall pass from
Seller to Buyer at the Delivery Point(s). Seller shall have responsibility
for and assume any liability with respect to the Gas prior to its delivery to
Buyer at the specified Delivery Point(s). Buyer shall have responsibility for
and assume any liability with respect to said Gas after its delivery to Buyer
at the Delivery Point(s).
8.2 Seller warrants that it will have the right to convey and will
transfer good and merchantable title to all Gas sold hereunder and delivered
by it to Buyer, free and clear of all liens, encumbrances, and claims.
8.3 Seller agrees to indemnify Buyer and save it harmless from all losses,
liabilities or claims including attorneys' fees and costs of court
("Claims"), from any and all persons, arising from or out of claims of title,
personal injury or property damage from said Gas or other charges thereon
which attach before title passes to Buyer. Buyer agrees to indemnify Seller
and save it harmless from all Claims, from any and all persons, arising from
or out of claims regarding payment, personal injury or property damage from
said Gas or other charges thereon which attach after title passes to Buyer.
8.4 Notwithstanding the other provisions of this Section 8, as between
Seller and Buyer, Seller will be liable for all Claims to the extent that
such arise from the failure of Gas delivered by Seller to meet the quality
requirements of Section 5.
SECTION 9. NOTICES
9.1 All Transaction Confirmations, invoices, payments and other
communications made pursuant to the Base Contract ("Notices") shall be made
to the addresses specified in writing by the respective parties from time to
time.
9.2 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.
9.3 Notice shall be given when received on a Business Day by the
addressee. In the absence of proof of the actual receipt date, the following
presumptions will apply. Notices sent by facsimile shall be deemed to have
been received upon the sending party's receipt of its facsimile machine's
confirmation of successful transmission, if the day on which such facsimile
is received is not a Business Day or is after five p.m. on a Business Day,
then such facsimile shall be deemed to have been received on the next
following Business Day. Notice by overnight mail or courier shall be deemed
to have been received on the next Business Day after it was sent or such
earlier time as is confirmed by the receiving party. Notice via first class
mail shall be considered delivered two Business Days after mailing.
SECTION 10. FINANCIAL RESPONSIBILITY
10.1 When reasonable grounds for insecurity of payment or title to the Gas
arise, either party may demand adequate assurance of performance. Adequate
assurance shall mean sufficient security in the form and for the term
reasonably specified by the party demanding assurance, including, but not
limited to, a standby irrevocable letter of credit, a
-7-
<PAGE>
prepayment, a security interest in an asset acceptable to the demanding party
or a performance bond or guarantee by a creditworthy entity. In the event
either party shall (i) make an assignment or any general arrangement for the
benefit of creditors; (ii) default in the payment obligation to the other
party; (iii) file a petition or otherwise commence, authorize, or acquiesce
in the commencement of a proceeding or cause under any bankruptcy or similar
law for the protection of creditors or have such petition filed or proceeding
commenced against it; (iv) otherwise become bankrupt or insolvent (however
evidenced); or (v) be unable to pay its debts as they fall due; then the
other party shall have the right to either withhold and/or suspend deliveries
or payment, or terminate the Contract without prior notice, in addition to
any and all other remedies available hereunder. Seller may immediately
suspend deliveries to Buyer hereunder in the event Buyer has not paid any
amount due Seller hereunder on or before the second day following the date
such payment is due.
10.2 Each party reserves to itself all rights, set-offs, counterclaims, and
other defenses which it is or may be entitled to arising from the Contract.
SECTION 11. FORCE MAJEURE
11.1 Except with regard to a party's obligation to make payment due under
Section 7 and Imbalance Charges under Section 4, neither party shall be
liable to the other for failure to perform a Firm obligation, to the extent
such failure was caused by Force Majeure. The term "Force Majeure" as
employed herein means any cause not reasonably within the control of the
party claiming suspension, as further defined in Section 11.2.
11.2 Force Majeure shall include but not be limited to the following: (i)
physical events such as acts of God, landslides, lightning, earthquakes,
fires, storms or storm warnings, such as hurricanes, which result in
evacuation of the affected area, floods, washouts, explosions, breakage or
accident or necessity of repairs to machinery or equipment or lines of pipe;
(ii) weather-related events affecting an entire geographic region, such as
low temperatures which cause freezing or failure of wells or lines of pipe;
(iii) interruption of firm transportation and/or storage by Transporters;
(iv) acts of others such as strikes, lockouts or other industrial
disturbances, riots, sabotage, insurrections or wars; and (v) governmental
actions such as necessity for compliance with any court order, law, statute,
ordinance, or regulation promulgated by a governmental authority having
jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the
adverse impacts of a Force Majeure and to resolve the event or occurrence
once it has occurred in order to resume performance.
11.3 Neither party shall be entitled to the benefit of the provisions of
Force Majeure to the extent performance is affected by any or all of the
following circumstances: (i) the curtailment of interruptible or secondary
firm transportation unless primary, in-path, firm transportation is also
curtailed; (ii) the party claiming excuse failed to remedy the condition and
to resume the performance of such covenants or obligations with reasonable
dispatch; or (iii) economic hardship. The party claiming Force Majeure shall
not be excused from its responsibility for Imbalance Charges.
11.4 Notwithstanding anything to the contrary herein, the parties agree
that the settlement of strikes, lockouts or other industrial disturbances
shall be entirely within the sole discretion of the party experiencing such
disturbance.
11.5 The party whose performance is prevented by Force Majeure must provide
notice to the other party. Initial notice may be given orally; however,
written notification with reasonably full particulars of the event or
occurrence is required as soon as reasonably possible. Upon providing written
notification of Force Majeure to the other party, the affected party will be
relieved of its obligation to make or accept delivery of Gas as applicable to
the extent and for the duration of Force Majeure, and neither party shall be
deemed to have failed in such obligations to the other during such occurrence
or event.
SECTION 12. TERM
This Contract may be terminated on 30 days' written notice, but shall remain
in effect until the expiration of the latest Delivery Period of any
Transaction Confirmation(s). The rights of either party pursuant to Section
7.4, the obligations
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<PAGE>
to make payment hereunder, and the obligation of either party to indemnify
the other, pursuant hereto shall survive the termination of the Base Contract
or any Transaction Confirmation.
SECTION 13. MISCELLANEOUS
13.1 This Contract shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, and heirs of the respective
parties hereto, and the covenants, conditions, rights and obligations of this
Contract shall run for the full term of this Contract. No assignment of this
Contract, in whole or in part, will be made without the prior written consent
of the non-assigning party, which consent will not be unreasonably withheld
or delayed; provided, either party may transfer its interest to any parent or
affiliate by assignment, merger or otherwise without the prior approval of
the other party. Upon any transfer and assumption, the transferor shall not
be relieved of or discharged from any obligations hereunder.
13.2 If any provision in this Contract is determined to be invalid, void or
unenforceable by any court having jurisdiction, such determination shall not
invalidate, void, or make unenforceable any other provision, agreement or
covenant of this Contract.
13.3 No waiver of any breach of this Contract shall be held to be a waiver
of any other or subsequent breach.
13.4 This Contract sets forth all understandings between the parties
respecting each transaction subject hereto, and any prior contracts,
understandings and representations, whether oral or written, relating to such
transactions are merged into and superseded by this Contract and any
effective Transaction Confirmation(s). This Contract may be amended only by a
writing executed by both parties.
13.5 The interpretation and performance of this Contract shall be governed
by the laws of the state specified by the parties in the Base Contract,
excluding, however, any conflict of laws rule which would apply the law of
another jurisdiction.
13.6 This Contract and all provisions herein will be subject to all
applicable and valid statutes, rules, orders and regulations of any Federal,
State or local governmental authority having jurisdiction over the parties,
their facilities, or Gas supply, this Contract or Transaction Confirmation or
any provisions thereof.
13.7 There is no third party beneficiary to this Contract.
13.8 Each party to this Contract represents and warrants that it has full
and complete authority to enter into and perform this Contract. Each person
who executes this Contract on behalf of either party represents and warrants
that it has full and complete authority to do so and that such party will be
bound thereby.
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<PAGE>
TRANSACTION CONFIRMATION EXHIBIT A
FOR IMMEDIATE DELIVERY
<TABLE>
<CAPTION>
<S> <C>
[Letterhead/Logo] Date: , 199
---------------------------- ---
Transaction Confirmation #:
---------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
This Transaction Confirmation is subject to the Base Contract between Seller
and Buyer dated ______________________. The terms of this Transaction
Confirmation are binding unless disputed in writing within 2 Business Days of
receipt unless otherwise specified in the Base Contract.
- ---------------------------------------------------------------------------------------
SELLER: BUYER:
- ----------------------------------------- ------------------------------------------
- ----------------------------------------- ------------------------------------------
- ----------------------------------------- ------------------------------------------
Attn: Attn:
------------------------------------ -------------------------------------
Phone: Phone:
------------------------------------ -------------------------------------
Fax: Fax:
------------------------------------ -------------------------------------
Base Contract No. Base Contract No.
------------------------ -------------------------
Transporter: Transporter:
----------------------------- ------------------------------
Transporter Contract Number: Transporter Contract Number:
------------- --------------
- ---------------------------------------------------------------------------------------
Contract Price: $_______________ /MMBtu or _________________________________________
- ---------------------------------------------------------------------------------------
Delivery Period: Begin: _______________, 199_ End: ___________, 199_
- ---------------------------------------------------------------------------------------
PERFORMANCE OBLIGATION AND CONTRACT QUANTITY: (Select One)
- ---------------------------------------------------------------------------------------
FIRM (FIXED QUANTITY): FIRM (VARIABLE QUANTITY): INTERRUPTIBLE:
________ MMBtus/day ________ MMBtus/day Minimum Up to ___ MMBtus/day
|_| EFP ________ MMBtus/day Maximum
subject to Section 4.2 at election of
|_| Buyer or |_| Seller
- -----------------------------------------------------------------------------------------------
DELIVERY POINT(S):
-----------------------------------------------------------------------------
(If a pooling point is used, list a specific geographic and pipeline location):
----------------
- -----------------------------------------------------------------------------------------------
SPECIAL CONDITIONS:
- -----------------------------------------------------------------------------------------------
Seller: Seller:
--------------------------- ---------------------------------
By: By:
------------------------------- -------------------------------------
Title: Title:
---------------------------- ----------------------------------
Date: Date:
----------------------------- -----------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT 10.22
GAS SALES AND PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of March,
1999 by and between MONTANA-DAKOTA UTILITIES CO., a division of MDU Resources
Group, Inc., a Delaware corporation, hereinafter referred to as "Buyer," and
PENNACO ENERGY, INC., a Nevada corporation, hereinafter referred to as
"Seller."
WITNESSETH:
WHEREAS, Buyer has certain gas requirements for the customers served by
its local distribution system which demand a reliable and Firm source of
natural gas;
WHEREAS, Seller has such a supply of gas available for sale which may be
delivered to Buyer or its designee; and
WHEREAS, Buyer desires to purchase such gas from Seller, and Seller
desires to sell such gas to Buyer pursuant to the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions herein contained, Seller and Buyer hereby agree as follows:
ARTICLE 1 - DEFINITIONS
1. When used in this Agreement, whether in the singular or in the plural,
the following words and terms hall have the following meanings:
(a) BTU: British Thermal Unit
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<PAGE>
(b) DAY: A period of twenty-four consecutive hours, beginning and
ending at 9 a.m. Central Clock Time.
(c) FIRM: The uninterrupted flow of gas required to be delivered by
Seller and required to be taken by Buyer pursuant to the terms
and conditions of this Agreement.
(d) INITIAL DELIVERY DAY: The day of Initial Deliveries of natural
gas under this Agreement from Seller to Buyer shall be April 1,
1999.
(e) MMBTU: One million (1,000,000) Btu.
(f) MCF: One thousand (1,000) cubic feet.
(g) MONTH: The period beginning ht 9 a.m. Central Clock Time on the
first day of a calendar month and ending at 9 a.m. Central Clock
Time on the first day of the next succeeding calendar Month.
(h) POINT OF RECEIPT: The point on the pipeline of Transporter
where gas will be delivered by Seller for the account of
Buyer. Unless otherwise mutually agreed upon, the Point of
Receipt shall be the Interconnect between Williston Basin
Interstate Pipeline (Williston Basin) and MIGC, Inc. at
Recluse Area, Campbell County, Williston Basin Receipt Point
I.D. #C5069, as specified in its FERC Gas Tariff - Secona
Revised Volume No. 1.
(i) PRIME INTEREST RATE: The rate of interest announced publicly
by Chase Manhattan Bank N.A. in New York, New York from time
to time as its prime, or its equivalent, lending rate.
(j) TRANSPORTER: The party or parties designated by Buyer to
receive and handle gas deliverable under this Agreement. If
not otherwise designated by Buyer, the Transporter is hereby
specified as Williston Basin Interstate Pipeline Company.
-2-
<PAGE>
(k) TRANSPORTATION CONTRACTS: Those agreements between Buyer and
Transporter to be used to transport gas sold under this
Agreement.
ARTICLE 2 - QUANTITY
1. Subject to the terms and conditions of this Agreement, Buyer and
Seller, on a Firm basis, agree to purchase and sell 5,000 MMBtu's per day for
the term and at the Point of Receipt noted herein, unless otherwise mutually
agreed to.
2. In the event that Buyer fails to take the contracted quantity for
reasons other than Force Majeure, Buyer shall reimburse Seller for the deficient
dollar amount, if any, between the price at which Seller would have sold the
deficient quantity to Buyer and the lesser price at which Seller sees the
deficient quantity to third parties. Seller shall utilize commercially
reasonable efforts to minimize Buyer's damages by reselling the gas at the
highest price available to Seller for the deficient quantity during the month in
question.
3. In the event that Seller fails to deliver the contracted quantity
for reasons other than Force Majeure, Seller shall reimburse Buyer for the
increased dollar amount, if any, between the price per MMBtu which Buyer would
have paid Seller for the deficient quantity and any increased price per MMBtu
for the same quantity which Buyer may acquire in replacement thereof. Buyer
shall utilize commercially reasonable efforts to minimize Seller's damages by
acquiring gas at the lowest cost available to Buyer for the deficient quantity
during the month in question.
4. Seller recognizes that Buyer may be liable for charges and penalties
imposed by Transporter for imbalances in deliveries at the Point of Receipt and
at Point(s) of Delivery of Transporter's Facilities. Seller agrees to reimburse
Buyer for any charges and penalties imposed by
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Transporter resulting from Seller delivering quantities of gas at Transporter's
Point of Receipt differing from Buyer's contracted quantity for the Point of
Receipt. If the imbalance is created at the Points of Delivery of Transporter's
Facilities, Buyer will be responsible for the charges and penalties imposed
by Transporter. The foregoing notwithstanding, Buyer and Seller agree, to
cooperate to eliminate transportation imbalances by utilizing methods
acceptable to Transporter.
5. For purposes of nominating deliveries of natural gas pursuant to
this Article, Buyer shall provide instructions by telephone to Seller, provided
that such telephone nominations shall be confirmed by Buyer in writing or
facsimile.
ARTICLES 3 - PRICING
1. The price for each MMBtu (dry) of gas nominated by Buyer and
delivered by Seller during any billing month in the Contract Year shall be the
price determined by the first issue published during the month of delivery of
INSIDE FERC'S GAS MARKET REPORT under "Prices of Spot Gas delivered to Pipeline
- - under the heading - Northern Natural Gas Co. - Ventura, Iowa - aka "Ventura
Index" less ******** per MMBtu.
2. The price for each MMBtu (dry) during the term of this Agreement
shall be inclusive of all production, processing, treatment, odorization,
gathering, royalty, transportation, and similar costs and all production,
severance, ad valorem and other taxes levied on the gas prior to its delivery to
Transporter for the account of Buyer.
ARTICLE 4 - MEASUREMENT AND QUALITY
1. All gas delivered hereunder shall be measured by Transporter at the
Point of Receipt into Transporter's facilities in accordance with Transporter's
FERC Gas Tariff.
****** 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. The natural gas delivered hereunder shall be of pipeline quality and
shall conform to the quality and pressure specifications of Transporter's FERC
Gas Tariff. Seller shall make deliveries of gas hereunder at the Point cf
Receipt at the pressure prevailing in Transporter's facilities from time to
time.
ARTICLE 5 - EFFECTIVE DATE AND TERM
1. Subject to the other provisions of this Agreement, this Agreement
shall be effective as of the date first above written and the term of this
Agreement shall commence on the Initial Delivery Day, which shall be April 1,
1999 and shall continue in full force and effect for a term ending March 31,
2000.
ARTICLE 6 - TRANSPORTATION
1. Both parties are excused from performance under this Agreement if
the Transporter shall cease to provide the transportation service, or interrupt
the actual transportation for the period during which transportation is
unavailable. If receipt of gas by Buyer is curtailed or interrupted by
Transporter for more than thirty (30) days pursuant to this Article, Seller has
the right to cancel this Agreement with no further obligation on the part of
either Buyer or Seller.
ARTICLE 7 - BILLING AND PAYMENT
1. On or before the fifteenth (15th) day of each calendar month during
the term of this Agreement or as soon thereafter as practical, Seller or
Seller's designee shall deliver a statement to Buyer for the total quantity of
gas sold to Buyer during the preceding calendar month. Buyer will pay
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to Seller on or before the thirtieth (30th) day of each month, the amount due
for total quantity sold to Buyer during the preceding calendar month, except
when such day is a Saturday, Sunday, or bank holiday, in which case payment
is due the following business day. All such payments shall be made by wire
transfer of immediately available FED funds directed to a bank account
designated by Seller. Buy will provide a statement detailing gas purchases at
the same payment is made.
2. Buyer shall have the right at all reasonable times to examine the
books, records and charts of Seller to the extent necessary to verify the
accuracy of any statement, charge of computation made under or pursuant to any
provisions of this Agreement.
3. Should Buyer fall to pay the amount of any statement rendered by
Seller or Seller's designee as herein provided when such amount is due, interest
thereon shall accrue from the due date until the date of payment, at the then
effective Prime Interest Rate (Chase Manhattan Bank). If such failure to pay
shall continue for fifteen (15) days after is due, Seller may suspend further
service to Buyer until such amount is paid.
4. If presentation of a statement by Seller or Seller's designee is
delayed after the fifteenth (15th) day of the month then the time for payment
shall be extended correspondingly.
5. If Buyer shall find at any time within twenty-four (24) months after
the date of any statement rendered that it has been overcharged on the amount
billed in such statement, and if said overcharge shall have been paid, and Buyer
shall have made a claim therefore, the overcharge, if verified, shall be
refunded within thirty (30) days. If Seller shall find at any time within
twenty-four (24) months after the date of any statement rendered by it that
there has been an undercharge in the amount billed in such statement, it may
submit a statement for such undercharge and Buyer, upon verifying same, shall
pay such amount within thirty (30) days.
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ARTICLE 8 - INDEMNIFICATION
1. Seller shall defend, indemnify, and save Buyer harmless from all
suits, actions, debts, accounts, damages, costs, losses, liabilities, and
expenses arising from or out of claims of any persons to natural gas sold
hereunder and other charges thereon which attach before title passes to Buyer.
2. Buyer shall defend, indemnify, and save Seller harmless from all
suits, actions, debts, accounts, damages, costs, losses, liabilities, and
expenses arising from or out of claims of any persons to natural gas sold
hereunder and or other charges thereon which attach after title passes to Buyer.
ARTICLE 9 - REPRESENTATIONS AND WARRANTIES OF SELLER
1. Seller warrants that it has good title to all of the gas delivered
to Buyer hereunder free and clear of any all liens, encumbrances, and claims
whatsoever, except royalties and current production tax obligations which are to
be paid by Seller, and that Seller has good right and lawful authority to sell
the same. Seller shall indemnity and save Buyer harmless from any and all suits,
claims, liens, and encumbrances of whatever nature relating to such gas,
payments for such gas, or the title thereto and shall reimburse Buyer for any
and all costs incurred by Buyer (including, without limitation, all attorney's
fees) in defense of suit or claim.
2. Title to, and risk of loss for, all natural gas delivered hereunder
shall pass from Seller to Buyer at the Point of Receipt.
ARTICLE 10 - FORCE MAJEURE
1. Neither Seller nor Buyer shall be liable in damages to the other for
any act, omission or circumstances occasioned by or in consequence of, any acts
of God, strikes, lockouts or other
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industrial disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, fires, arrests and restraints of rulers and
peoples, civil disturbances, explosions, breakage or accident to machinery,
vessels or lines of pipe, repair or alterations of machinery, vessels or lines
of pipe, acts of third party transporters including Williston Basin, freezing or
failure of wells or lines of pipe, the binding of any court or governmental
authority, and any other cause, whether of the kind herein enumerated or
otherwise, not within the control of the one claiming suspension and which, by
the exercise of due diligence, it is unable to prevent or overcome.
2. Such causes or contingencies affecting performance shall not relieve
Seller or Buyer of liability in the event of its concurring negligence or in the
event of failure of either to use due diligence to remedy the situation and
remove the cause in an adequate manner and with all reasonable dispatch, nor
shall such causes or contingencies relieve either from its obligations to make
payments of amounts then due hereunder.
3. In order to suspend by reason of Force Majeure, the party claiming
must give notice in writing or by telecopy, or orally and confirmed in writing
or by telecopy to the other party as soon as possible after the occurrence of
the cause relied on, and such cause shall be remedied with all reasonable
dispatch. No party shall be required against its will to adjust or settle any
labor disputes.
4. In the event of a Force Majeure incident which would only allow a
partial delivery of Seller's total deliveries, Seller shall deliver to Buyer a
quantity of gas which represents Buyer's pro-ratable share of Seller's total
available delivery quantity which is proportionate to Seller's obligation to
Buyer compared to the quantity obligation to Seller's other firm gas purchase
customers.
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5. In the event of Force Majeure preventing total delivery by Seller of
the Nominated Quantity at Transporter's Point of Receipt, Buyer and Seller shall
be relieved of their obligations under this Agreement until such cause of Force
Majeure is remedied.
6. In the event of Force Majeure, both parties agree to exort their
best efforts to effectuate performance of this Agreement.
ARTICLE 11 - MISCELLANEOUS
1. This Agreement represents the entire agreement between the parties
relative to the matters contained herein. This Agreement may not be amended
without the execution of a written document by both parties.
2. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Agreement may not be assigned by either party, without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, either party may pledge or mortgage its interests
hereunder for financing purposes. In the event of the sale or other transfer of
the business assets of either party to this Agreement, the Agreement shall be
assigned to the new entity. The nonassigning party, in its sole judgment, may
terminate this Agreement if the new entity through its performance cannot
demonstrate its ability to perform under the terms and conditions of this
Agreement.
3. The rights and remedies of each party enumerated in this Agreement
are not exclusive but shall be in addition to all the rights and remedies at law
and in equity to which that party is or may be entitled against the other party.
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4. The terms, covenants, representations, warranties, and conditions of
this Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later date to enforce the same. No waiver by any party of any
condition or of the breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
5. Any notice, request, demand, or statement provided in this Agreement
shall be in writing and will be deemed properly given if hand delivered,
telegraphed, telecopied, or mailed, registered or certified mail, return receipt
requested, prepaid to the other at the following address:
BUYER SELLER
- ----- ------
Montana-Dakota Utilities Co. Mercator Energy, Inc.
400 North Fourth Street 600 17th Street, Suite 600 So.
Bismarck, ND 58501 Denver, CO 80202-54C-2
Attn. Gas Supply Dept. Tel (303) 825-1100
Tel (701) 222-7870 Fax (303) 825-2300
FAX (701) 222-7853
6. Either Seller or Buyer may change addresses by giving the other
party notice of such change. Scheduling and dispatching by telephone may be
accomplished, provided written confirmation of the same is given to the other
party within five (5) days.
7. If any provision in this Agreement shall be held invalid, illegal,
or unenforceable, the validity, legality, and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby.
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8. The terms of this Agreement, including, but not limited to, the
price paid for gas, the identified transporting pipelines and cost of
transportation, the volumes of gas purchased or sold and all other material
terms of this Agreement shall he kept confidential by the parties hereto, except
to the extent that any information must be disclosed to a third party for the
purpose of effectuating transportation of the subject gas pursuant to this
Agreement, to auditors, counsel, and lenders or potential lenders of either
Party; and, further provided, that disclosure is permitted in the event and to
the extent such Party is required by court, or agency exercising jurisdiction
over the subject matter hereof, by order or by regulation, to make such
disclosure; and further provided in the event that either Party becomes aware of
judicial or administrative proceedings that has resulted or may result in such
an order requiring disclosure, it shall so notify the other Party immediately.
9. The descriptive headings used in this Agreement are for convenience
only and shall not be deemed to affect the meaning or construction of any
provisions of the Agreement.
10. This Agreement and the respective obligations of the parties
hereunder are subject to all valid laws, orders, rules and regulations of duly
constituted authorities having jurisdiction over either party.
11. Seller and Buyer expressly agree that the Laws of the State of
Wyoming govern the validity, construction interpretation, and effect of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
"BUYER" MONTANA-DAKOTA UTILITIES CO., A
Division of MDU Resources Group, Inc.
By: Bruce Imsdahl
-----------------------------------
Title:
--------------------------------
"SELLER" PENNACO ENERGY, INC.
By: Paul M. Rady
-----------------------------------
Title: President/CEO
--------------------------------
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EXHIBIT 23.1
The Board of Directors and Stockholders
Pennaco Energy, Inc:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
August 9, 1999
