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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 18, 1998
APACHE CORPORATION
(Exact name of registrant as specified in Charter)
Delaware 1-4300 41-0747868
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
2000 Post Oak Boulevard
Suite 100
Houston, Texas 77056-4400
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (713) 296-6000
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ITEM 5. OTHER EVENTS
On June 18, 1998, Apache Corporation ("Apache") announced the
formation of a strategic alliance with CINergy Corporation ("CINergy") to
market Apache's natural gas production from North America, and Apache and Oryx
Energy Company ("Oryx") sold Producers Energy Marketing LLC ("ProEnergy") to
CINergy for $42.5 million (subject to adjustments), of which 57 percent relates
to Apache's interest.
ProEnergy will continue to market Apache's North American natural gas
production for ten years, with an option to terminate after six years, under an
amended and restated gas purchase agreement effective July 1, 1998.
The amended and restated gas purchase agreement, dated effective July
1, 1998, and Apache's press release relating to this matter are listed under
Item 7 as Exhibits 10.1 and 99.1, respectively, and are incorporated herein by
reference.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10.1 Amended and Restated Gas Purchase Agreement, dated
effective July 1, 1998, by and among Apache
Corporation and MW Petroleum Corporation, as Seller,
and Producers Energy Marketing, LLC, as Buyer.
*99.1 Press Release, dated June 18, 1998, "Apache Announces
Marketing Alliance with CINergy".
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*filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this current report on Form 8-K to be signed on its
behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Date: June 23,1998 /s/ Z. S. Kobiashvili
----------------------------------------
Z. S. Kobiashvili
Vice President and General Counsel
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
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*10.1 Amended and Restated Gas Purchase Agreement, dated
effective July 1, 1998, by and among Apache
Corporation and MW Petroleum Corporation, as Seller,
and Producers Energy Marketing, LLC, as Buyer.
*99.1 Press Release, dated June 18, 1998, "Apache Announces
Marketing Alliance with CINergy".
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*filed herewith
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EXHIBIT 10.1
AMENDED AND RESTATED GAS PURCHASE AGREEMENT
DATED EFFECTIVE
JULY 1, 1998
BY AND AMONG
APACHE CORPORATION AND
MW PETROLEUM CORPORATION,
AS SELLER
AND
PRODUCERS ENERGY MARKETING, LLC
AS BUYER
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TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SUBJECT MATTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Covenant to Cooperate on Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Covenant to Cooperate on Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. COMMITMENT OF GAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Committed Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Excluded Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Disposition Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Affiliates and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Seller's Estimate; Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Operational Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Lien Gas and Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV. QUANTITY; SCHEDULING AND TRANSPORTATION OF
DAILY VOLUMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Purchase and Sale Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Certain Events Related to the Delivery and Taking of Committed Gas . . . . . . . . . . . . . . 12
4.3 Provision Regarding Output Contract Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V. DELIVERY POINT(S) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI. QUALITY, PRESSURE AND MEASUREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Nonconforming Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII. PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Initial Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Alternate Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Payment for Delivery Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Redetermination of Index(es) and Index Price Adjustments . . . . . . . . . . . . . . . . . . . 17
7.5 Status of Exhibit A; Procedures for Change of Exhibit . . . . . . . . . . . . . . . . . . . . . 17
7.6 Fixed Price Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII. BILLING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.1 Seller's Invoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.2 Monthly Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<TABLE>
<S> <C> <C>
8.3 Disputed Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4 Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5 Overdue Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.7 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX. EFFECTIVE DATE AND TERM; RELEASE OF GAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Restricted Gas; Release of Committed Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.3 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.4 Marketing of Force Majeure Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI. IMBALANCE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.2 Cooperation of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.3 Liability for Imbalance Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.4 Operational Flow Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII. CERTAIN EVENTS AFFECTING PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.1 Buyer and Seller Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.2 Offset Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIII. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.1 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Seller's Title Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 No Continuing Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.3 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.4 Exclusion of Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.6 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.8 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
14.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.12 Construction of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.13 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<TABLE>
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14.4 Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.15 Representations and Warranties of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.16 Seller's Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.17 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.18 Further Assurances; Transition Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.19 Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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AMENDED AND RESTATED GAS PURCHASE AGREEMENT
THIS AMENDED AND RESTATED GAS PURCHASE AGREEMENT ("Agreement"), by and
among APACHE CORPORATION, a Delaware corporation and MW PETROLEUM CORPORATION,
a Colorado corporation, (together with all Affiliates (as hereinafter defined),
collectively herein referred to as "Seller") and PRODUCERS ENERGY MARKETING,
LLC ("Buyer"), a Delaware limited liability company, is effective as of the
Effective Date (hereinafter defined).
R E C I T A L S:
WHEREAS, Seller and Buyer entered into that certain Gas Purchase
Agreement effective as of April 1, 1996; and
WHEREAS, Seller and Buyer desire to amend and restate their Gas
Purchase Agreement due to a change in ownership of Buyer; and
WHEREAS, Buyer acknowledges that Seller's intention in entering into
this Agreement is to have a market for its Committed Gas (as hereinafter
defined) at market prices;
WHEREAS, Seller acknowledges that Buyer's intention in entering into
this Agreement is to have a secure source of gas supply in order to meet its
commitments to its Gas customers and otherwise conduct its business in the
physical and financial marketing and trading of Gas;
WHEREAS, Seller desires to sell and Buyer desires to purchase
Committed Gas in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, Seller and Buyer do hereby contract and agree as follows:
ARTICLE I.
DEFINITIONS
For the purposes hereof, the following words, phrases and terms shall
have meanings as defined below. Other words, phrases and terms are defined
elsewhere in this Agreement.
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1.1 "Affected Party" shall mean a party whose ability to
perform its obligations under this Agreement has been affected by an Event.
1.2 "Affiliate" shall mean any individual, partnership,
corporation, limited liability company, trust or other Entity or association,
directly or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with a person or Entity. The term
"control," as used in the immediately preceding sentence, means, with respect to
a corporation, the right to exercise, directly or indirectly, more than fifty
(50%) percent of the voting rights attributable to the controlled corporation,
and, with respect to any individual, partnership, trust, other Entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled Entity. For
purposes of this Agreement, field-wide and individual well units created
pursuant to 52 O.S. [Section] 287.8 (and like statutes in jurisdictions other
than Oklahoma) shall not be deemed Affiliates of Buyer or Seller.
1.3 "Aggregation Area" shall mean zones, pooling points or
other marketing aggregation areas established by the Tariff of a Transporter.
The Aggregation Area(s), subject to revision in accordance with Section 5.1,
are listed in Exhibit A.
1.4 "Alternate Price" shall have the meaning set forth in
Section 7.2.
1.5 "BTU" shall mean British Thermal Unit.
1.6 "Business Day" means a day other than a Saturday, Sunday
or a legal holiday or a day on which banking institutions are authorized by law
to close in Houston, Texas.
1.7 "Committed Gas" shall have the meaning set forth in
Section 3.1.
1.8 "Contract Price" shall mean the Initial Price or the
Alternate Price.
1.9 "Costs of Delivery" means all reasonable transportation
expenses, fuel charges, costs, deductions or other charges actually paid by or
on behalf of Buyer or, where notional, representative of such charges which
would have been reasonably incurred to deliver Gas from a Delivery Point to (a)
a location directly on a mainline pipeline system or (b) an Aggregation Area,
either of which is covered by an Index and subject to any applicable Index
Price Adjustment. If the Delivery Point is at the mainline pipeline system or
Aggregation Area, then the Costs of Delivery as defined herein shall be zero.
Where the Costs of Delivery are notional, the Buyer shall, on or accompanying
the statement provided pursuant to Section 8.2 hereof, so indicate and shall
disclose the basis on which such Costs of Delivery are determined.
1.10 "C.T." shall mean Central Time.
1.11 "Day" shall mean a period of twenty-four (24) consecutive
hours commencing at 9:00 a.m. C.T. on one calendar day and ending at 9:00 a.m.
C.T. on the following calendar day.
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1.12 "Delivery Point(s)" means the measuring station or other
measurement facilities at the point of interconnection between the facilities
of Seller (or Seller's Transporter, as the case may be) and the facilities of
Buyer (or Buyer's Transporter, as the case may be) where Committed Gas is
transferred by Seller to Buyer. The Delivery Point(s), subject to revision in
accordance with Section 5.1, are described in Exhibit A.
1.13 "Effective Date" shall mean 9:00 a.m. C.T. on July 1,
1998.
1.14 "Event" shall mean a Buyer Event, as defined in Section
12.1(a), a Seller Event, as defined in Section 12.1(b), a Material Buyer Take
Event, as defined in Section 4.2(c), or a Material Seller Delivery Event, as
defined in Section 4.2(d).
1.15 "Entity" shall mean any association, corporation, general
partnership, limited partnership, limited liability company, joint stock
association, joint venture, firm, trust, business trust, cooperative, and
foreign associations of like structure.
1.16 "Excluded Gas" shall have the meaning set forth in Section
3.2.
1.17 "FERC" means the Federal Energy Regulatory Commission or
any successor thereto having jurisdiction.
1.18 "Gas" or "gas" shall mean natural gas produced from gas
wells, casinghead gas produced from oil wells, and residue gas resulting from
the processing of such gas well gas or casinghead gas.
1.19 "Imbalance Charges" means, for Committed Gas delivered to
each Delivery Point(s), any imbalance charges (including but not limited to
imbalance penalties and cash-out costs) assessed against Buyer or Seller by a
Transporter.
1.20 "Index" for a particular source of supply in the area
where the applicable Delivery Point(s) is/are located shall be that published
index(es) which has been determined by mutual agreement (or if there is no
published index for the relevant Delivery Point(s), then such other index(es)
as may be selected by mutual agreement), to best represent the market price for
Gas of like quantities and quality at the Delivery Point(s), after Index Price
Adjustments. The initial Index(es) applicable to each Delivery Point(s) is
(are) set forth on Exhibit A.
1.21 "Index Price" for any Delivery Point(s) shall be the price
for Gas determined by the applicable Index on the first Day of the applicable
Month.
1.22 "Index Price Adjustments" shall mean, with respect to an
Index Price for any Delivery Point(s), differentials reasonably necessary to
adjust the Index Price for Gas to accurately reflect the market price for Gas
(after taking into account Costs of Delivery) of like quantities and quality at
the Delivery Point(s). The initial Index Price Adjustments applicable to each
Delivery Point(s) are listed on Exhibit A.
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1.23 "Initial Price" shall have the meaning set forth in
Section 7.1.
1.24 "Material Buyer Take Event" shall have the meaning set
forth in Section 4.2(c).
1.25 "Material Seller Delivery Event" shall have the meaning
set forth in Section 4.2(d).
1.26 "Month," as applicable, shall mean (i) the period
beginning on the first Day of each calendar month and ending at the beginning
of the first Day of the next succeeding calendar month or (ii) if the
above-referenced definition of "Month" differs from the meaning of such term in
the Tariff of the applicable Transporter in a context where such difference is
applicable to the provision in question, then the term "Month" shall have the
meaning set forth in such Tariff.
1.27 "MMBtu" shall mean one million (1,000,000) British Thermal
Units.
1.28 "Operational Flow Order" or "OFO" shall have the meaning
set forth in Section 11.4.
1.29 "Reasonable," "reasonably," or words of like import means
any practice, method or act generally accepted in the natural gas production
and marketing industry at the time the decision was made.
1.30 "Reference Rate" shall mean the lesser of (i) two percent
(2%) above the per annum rate of interest announced from time to time as the
"prime rate" for commercial loans by Chase Manhattan Bank of New York (or its
successor), as such "prime rate" may change from time to time, or (ii) the
maximum applicable nonusurious rate of interest.
1.31 "Restricted Gas" shall have the meaning set forth in
Section 9.2.
1.32 "Seller's Estimate" means, with respect to each Delivery
Point(s), Seller's good faith estimate under Section 3.5 of the quantity of
Committed Gas that Seller expects to deliver at each such Delivery Point(s) for
the relevant Month.
1.33 "Seller's Wells" means the wells described on Exhibit A,
as such Exhibit may be revised from time to time in accordance with this
Agreement.
1.34 "Tariff" means (i) the currently effective tariff of a
Transporter, as filed from time to time with the FERC or any other governmental
authority, or (ii) if a Transporter does not have a tariff on file with the
FERC or any other governmental authority, such Transporter's currently
effective operating policies and procedures, as such policies and procedures
may change from time to time.
1.35 "Transporter" shall mean an interstate or intrastate
pipeline, including, without limitation, a gathering pipeline, that transports
Committed Gas.
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1.36 "Unaffected Party" shall mean a party whose ability to
perform its obligations under this Agreement has not been affected by an Event.
1.37 "Year" shall be a period of twelve (12) consecutive
Months.
ARTICLE II.
SUBJECT MATTER
2.1 Generally. Subject to the other terms and conditions of
this Agreement (including, without limitation, Article IV), Seller hereby
agrees to sell to Buyer and Buyer hereby agrees to purchase from Seller
Committed Gas.
2.2 Covenant to Cooperate on Transportation. Subject to the
other terms and provisions of this Agreement, the parties understand and agree
that Buyer shall nominate to third parties, dispatch and make all other
arrangements for the resale and the transportation of Committed Gas sold
hereunder from the Delivery Point(s) in a manner consistent with Seller's
Estimate and any reforecasts thereof in accordance with Sections 3.5(b) and
3.5(c), and Seller agrees to provide reasonable cooperation as may be necessary
to effectuate such resale and transportation. Notwithstanding the foregoing,
however, neither party shall be obligated to build pipelines or other
transportation facilities to effect the delivery or receipt of Committed Gas
hereunder.
2.3 Covenant to Cooperate on Production. Subject to the other
terms and conditions of this Agreement, Buyer will use commercially reasonable
efforts to take Gas from Seller in a manner consistent with past practices,
with the goal of taking the Committed Gas in the manner that is least
disruptive to Seller's operations. Without limiting the generality of the
foregoing, Buyer shall give priority, to the fullest extent practicable, to
accepting deliveries of Committed Gas (a) that is casinghead Gas and/or Gas
that is produced from oil wells, (b) the production of which is necessary to
maintain Seller's leases in full force and effect, or (c) the production of
which is necessary to avoid injury to Seller's reservoirs or material
diminution in the aggregate production therefrom. Seller will notify Buyer of
anticipated operational considerations at the time Seller's Estimate is
provided to Buyer in accordance with Section 3.5. Seller will notify Buyer of
unanticipated operational considerations within 24 hours after Seller becomes
aware of such considerations, and Buyer will respond to such notice as soon as
it is commercially reasonable for Buyer to do so.
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ARTICLE III.
COMMITMENT OF GAS
3.1 Committed Gas. During the term hereof and subject to any
limitations herein set forth, Seller shall sell to Buyer and Buyer shall
purchase from Seller all deliverable Gas owned or controlled (as defined in
Article XIII) by Seller during the term of this Agreement in North America
(onshore and offshore), excluding, however, Gas defined as Excluded Gas. All
Gas described in the preceding sentence shall be hereinafter referred to as
"Committed Gas." Buyer and Seller shall agree on the arrangements for delivery
by Seller and taking by Buyer of Committed Gas presently being produced in
Canada not later than the last to occur of (a) 90 days after the Effective Date
or (b) 90 days after a Seller's initial acquisition of Gas production in
Canada. Until such arrangements are in place, Canadian Gas shall not be
considered "Committed Gas." If Buyer and Seller cannot reach agreement on the
foregoing matters before such date, then the differences between Buyer and
Seller shall be submitted to arbitration in accordance with Section 14.10.
3.2 Excluded Gas. "Excluded Gas" shall mean and include (a)
Gas owned or controlled by Seller that is being sold, on the date of this
Agreement, on behalf of Seller under a joint operating agreement, unit
operating agreement or similar agreement to which Seller is a party, (b) Gas
production commencing or acquired from a new source after the date of this
Agreement which is owned or controlled by Seller and which Seller elects to
have sold on its behalf under a joint operating agreement, unit operating
agreement or similar agreement to which Seller is a party at any time after the
date of this Agreement, provided that the quantity of such Gas, when available
for initial delivery by Seller, does not exceed 150,000 cubic feet per Day per
well, (c) Gas sold under (i) Gas sales contracts with third parties existing on
the date of this Agreement which contracts are listed on Schedule 3.2, and (ii)
any binding and enforceable contracts burdening or affecting properties
acquired by Seller after the Effective Date (insofar as the same existed as of
the date of acquisition) during the primary term thereof, and any extensions or
renewals of contracts described in (i) or (ii) above, (iii) applicable calls on
production, rights of first refusal or similar rights in favor of third parties
with respect to Gas of the sort customarily found in joint operating
agreements, unit agreements or other agreements typically entered into in
connection with Gas exploration and production activities, to which agreements
Seller is a party on the date of this Agreement, and (iv) applicable calls on
production or reversionary rights to convert retained overriding royalties into
working interests in favor of third parties with respect to Gas production
commencing or acquired after the date of this Agreement, provided that such
rights are of the sort customarily found in farm-ins or other drill-to-earn
agreements, (d) Gas subject to the reservations set forth in Sections 3.6 and
3.7, (e) Disposition Gas (as defined in Section 3.3, but only if released in
accordance with Sections 3.3 and 9.2), (f) Lien Gas (as defined in Section 3.7,
but only if released in accordance with such Section 3.7), (g) other Committed
Gas released from this Agreement pursuant to the other terms hereof, or (h)
such other Gas as Buyer and Seller may mutually agree.
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3.3 Disposition Gas.
(a) Definition of Disposition Gas. "Disposition Gas"
shall mean Committed Gas no longer owned or controlled by Seller as the result
of a Disposition, which Gas is not Restricted Gas under Section 9.2. For
purposes hereof, the term "Disposition" means, with regard to Committed Gas, a
sale, trade, exchange or other transaction (other than transactions governed by
Section 3.7) whereby title and benefits of ownership of Committed Gas are
directly or indirectly transferred to one or more third parties, including,
without limitation, (i) a sale or transfer of properties from which Committed
Gas is produced except to the extent the same is sold or transferred to another
Affiliate of such Seller (excluding, however, any Sold Company (as hereinafter
defined)), (ii) a sale or transfer of a production payment in and from (or any
other interest in or to the production from) properties from which Committed
Gas is produced, except to the extent the same is sold or transferred to
another Affiliate of such Seller, (iii) a sale or transfer of all of the stock
owned, legally or beneficially, of an Affiliate of such Seller, except to the
extent the same is sold or transferred to another Affiliate of such Seller,
(iv) a sale or transfer of all or so much of the equity ownership, legally or
beneficially owned or held, in and to an Affiliate ("Sold Company") of such
Seller that, following the consummation of the sale or transfer, the Sold
Company would no longer be an Affiliate of such Seller. For purposes of this
Section 3.3, the term "third party" shall not include any Affiliate of any
Seller. Notwithstanding the foregoing, Committed Gas from properties sold,
traded, exchanged or otherwise transferred in a Disposition (whether such
Disposition is consummated in a single or in multiple related transactions) in
which Seller receives cash or other consideration having an aggregate value of
less than $1,000,000, shall not be subject to the provisions of Section 3.3 or
9.2, shall not be deemed Restricted Gas under any circumstances, and shall be
sold, traded, exchanged or otherwise transferred free and clear of the
requirements of this Agreement, without Buyer's consent.
(b) Notice and Determination. Seller shall provide Buyer
with written notice of any intended Disposition as soon as practicable, but not
less than thirty (30) Days before closing a Disposition. In its notice to
Buyer, Seller shall provide Buyer with a listing of the affected Delivery
Point(s) and the quantities of such Committed Gas estimated in good faith to be
producible from the properties to be subject to the Disposition. Seller will
endeavor to introduce Buyer to the proposed acquirer regarding the marketing of
Disposition Gas after the execution and delivery of a definitive agreement
between the acquirer and the Seller. Seller shall also provide Buyer with such
additional information regarding such Disposition as Buyer may reasonably
request under the circumstances, but only if such information is material to
determining the existence of Restricted Gas pursuant to Section 9.2. Upon
receipt of the information necessary to make its determination pursuant to
Section 9.2, Buyer shall immediately begin considering whether any of the
Committed Gas subject to such contemplated Disposition shall be Restricted Gas
(as defined in Section 9.2), the existence of which shall be determined in
accordance with Section 9.2. Disposition Gas that is not Restricted Gas shall
be sold, traded, exchanged or otherwise transferred free and clear of the
requirements of this Agreement, as more particularly set forth in Section
9.2(f).
3.4 Affiliates and Subsidiaries. Each party included in the
term "Seller" shall cause any and all of their current and future Affiliates
(including subsidiaries) which own or control Gas
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production in North America, onshore or offshore (but excluding any Gas defined
as Excluded Gas), to the extent not already parties to the Agreement and to the
extent this Agreement is still in full force and effect, to ratify, approve,
assume and agree to be bound by all of the terms, obligations, and provisions
of this Agreement.
3.5 Seller's Estimate; Scheduling.
(a) Seller's Estimate Generally. For each Month during
the term of this Agreement, Seller shall provide Buyer with Seller's Estimate
on or before 12 noon C.T. on the fourth Business Day preceding the close of the
New York Mercantile Exchange gas futures contract for the applicable Month.
Buyer shall make nominations to Transporters, and generally make all
arrangements in a manner consistent with Seller's Estimate and any reforecasts
thereof in accordance with Sections 3.5(b) and 3.5(c) that are necessary for
the receipt, transportation and delivery to market of the Committed Gas for
the applicable Month, all in accordance with Seller's Estimate (it being
understood that Buyer shall have no obligation to make arrangements for firm
transportation of the Committed Gas unless specifically agreed to in writing by
Buyer and Seller). If Seller fails to update Seller's Estimate for any
Delivery Point(s) for the applicable Month, the Seller's Estimate for such
Delivery Point(s) during the previous Month will serve as Seller's Estimate for
the Month in question.
(b) Reforecasts by Seller. The parties shall confer at
either party's initiative during each Month to reforecast the quantities of
Committed Gas scheduled to be delivered or taken pursuant to Seller's Estimate.
Without limiting the generality of the foregoing, Seller shall advise Buyer of
its intention to exercise its rights under Section 3.6(e) by the deadline set
forth therein. Seller shall promptly notify Buyer of any material changes in
the quantities of Committed Gas scheduled to be delivered or taken pursuant to
Seller's Estimate, as well as any condition or event that is reasonably likely
to change such quantities in Seller's Estimate.
(c) Estimates of Additional Quantities of Committed Gas.
Seller and Buyer are aware that additional quantities of Committed Gas from new
sources of supply not included in Seller's Estimate will become available for
delivery to Buyer at various times after the first Day of an applicable Month.
At least two Business Days before the Day that Seller wishes to begin
deliveries of such additional quantities of Committed Gas, Seller shall provide
Buyer with a written notice setting forth (i) the Delivery Point(s) at which
Seller shall make such deliveries, (ii) the quantities of Committed Gas that
Seller estimates will be delivered to each such Delivery Point during the Month
in which initial deliveries occur, (iii) the Index(es) proposed to be
applicable to such Delivery Point(s), (iv) any Index Price Adjustments proposed
to be applicable to the price determined in accordance with such Index(es) and
(v) any other information set forth on Exhibit A. The Contract Price for such
additional quantities shall be determined in accordance with the foregoing
information, subject to the provisions of Article VII, including without
limitation the rights of Buyer to propose other Index(es) or Index Price
Adjustments in accordance with Section 7.4. Buyer shall take such additional
quantities of Committed Gas in accordance with, and subject to the terms of,
Section 4.1.
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3.6 Operational Reservations. Seller reserves unto itself,
its successors, assigns and Affiliates the following rights and quantities of
Gas sufficient to satisfy such rights:
(a) To operate Seller's leaseholds, lands and/or
interests therein, free from any control by Buyer, in such manner as Seller
deems advisable for the development and operation of Seller's leases (or on any
unit, including, without limitation, field-wide units), including the right
(but never the obligation) to drill new wells, enhance production, to repair
and rework Seller's Wells, to renew and extend (in whole or in part) any lease,
to abandon any well or surrender any lease (in whole or in part) for any
reason, to abandon, modify, extend or dispose of any production facilities
owned or installed (in whole or in part) by Seller, to treat Gas, to use Gas as
compressor fuel, to use Gas to generate power in connection with leasehold
operations, to lift oil by repressuring, recycling or pressure maintenance
operations, and to otherwise operate such leases and fields free from any
control by Buyer.
(b) To deliver Gas in quantities sufficient to fulfill
Seller's royalty or lease obligations from time to time, Seller's agreements
for easements, unit agreements, unit operating agreements, operating agreements
or any similar agreements affecting Seller's Wells.
(c) To remove from its Gas all liquids, liquefiable
hydrocarbons, oil and/or condensate by (i) lease separation and/or processing
in a plant prior to delivery at the Delivery Point(s), (ii) lease separation
and/or processing in a plant after the Delivery Point, but prior to delivery of
the residue Gas to Buyer, if the leases from which Committed Gas is being
produced, as of the Effective Date, are committed, dedicated or otherwise
burdened by obligations to deliver such Gas for processing (a list of contracts
evidencing such obligations being attached hereto as Schedule 3.6), and (iii)
lease separation and/or processing of Gas downstream of the Delivery Point from
sources of supply that have been acquired by Seller after the Effective Date,
provided that (A) any available residue Gas is delivered to Buyer at the
tailgate of the relevant plant and (B) (x) at the time of the closing of the
acquisition, the acquired source of supply or any part thereof to the extent
that such source of supply or part thereof was committed, dedicated or
otherwise burdened by obligations to deliver such Gas for processing, or (y)
negotiations for a contract evidencing obligations of the type described in
clause (B)(x) that Seller can demonstrate were initiated at the initiative of
the prior owner, are continuous, are underway at the time of the closing of the
acquisition, and such contract is executed and delivered after the date of
closing of the acquisition. The liquids, liquefiable hydrocarbons, oil and/or
condensate removed (or the propanes, butanes, motor fuel or other products
obtained) therefrom (collectively "Removed Products") shall not be deemed
Committed Gas, nor shall such Removed Products otherwise be subject to this
Agreement. Wherever Seller is causing the Gas to be processed for its own
account prior to delivery at the Delivery Point(s), Seller shall use
commercially reasonable efforts to reserve the right to take residue Gas in
kind, and any residue Gas taken in kind shall be deemed Committed Gas subject
to this Agreement with the Delivery Point for same being at the tailgate of the
plant. With respect to the processing of all Committed Gas other than the
categories described in the foregoing clauses (i), (ii) and (iii), Buyer shall
retain all rights to separate and/or process Committed Gas downstream of the
Delivery Point; provided, however, should Buyer request and Seller agree to
commit, dedicate or otherwise burden its leases in support of processing
downstream of the Delivery Point, Seller and
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Buyer shall share the proceeds of sale of the Removed Products attributable to
such processed Committed Gas on a mutually satisfactory basis.
(d) To produce Gas without waste and in accordance with
prudent oil and gas field practices. Seller shall not be required to produce
any well at a rate in excess of the rate fixed by law or regulation or in
excess of the rate of flow which Seller determines, in its discretion,
exercised in good faith as a prudent operator, should be produced from such
well.
(e) To curtail or shut-in Gas due to operational
circumstances that require such actions in accordance with prudent oil and gas
field practices. Seller shall give Buyer notice of any curtailment or shut-in
of Committed Gas before delivery of Seller's Estimate in Section 3.5. Each
curtailment notice shall be in writing and shall identify the quantities of
Committed Gas that Seller intends to curtail or shut-in, the Delivery Point(s)
affected, and the expected duration of such curtailment or shut-in period.
Seller shall not, however, shut-in or curtail any quantities of Committed Gas
hereunder during any Month in which such quantities have been included in
Seller's Estimate. Seller shall notify Buyer at least two (2) Business Days
prior to any applicable deadline in Transporter(s)' Tariffs for nominations (or
nomination changes) of Seller's intent to resume sales of Committed Gas for
which Seller has previously given Buyer notice of Seller's intention to shut-in
or curtail deliveries during the current applicable Month under this Section
3.6(e). Committed Gas reserved pursuant to this Section 3.6(e) shall not be
sold to a third party.
(f) The right to pool or unitize Seller's leases with
other leases of Seller or others located in the field in which Seller's Wells
are located (it being understood that the Gas attributable or allocated to
Seller's interest in the pool or unit so created will remain Committed Gas).
(g) Gas required to be delivered to third parties under
the common law governing relationships between cotenants, or under gas
balancing agreements or similar arrangements affecting any of Seller's Wells.
3.7 Lien Gas and Other Transactions.
(a) Generally. Notwithstanding anything stated herein to
the contrary, Seller shall in no way be prohibited or precluded from assigning
or granting a security interest, lien or other encumbrance (collectively,
referred to as "Liens") to secure the repayment of obligations that Seller owes
to commercial banks, insurance companies or other financial or trade creditors
(collectively, "Lenders") on any of the properties owned by Seller from which
Committed Gas is produced.
(b) Certain Rights. Seller shall use commercially
reasonable efforts to obtain from its Lenders an agreement that their Liens
shall be subordinate or otherwise subject to Buyer's rights and obligations
under this Agreement. If Seller notifies Buyer in writing that Seller has been
unsuccessful in obtaining such an agreement from its Lenders, Buyer hereby
agrees to subordinate its rights and interests hereunder and shall execute and
deliver to such Lenders such instruments or agreements in form and substance
reasonably satisfactory to Lenders and Buyer, as may be necessary to evidence
Buyer's subordination of its rights and interests in such Committed Gas. The
Committed
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Gas in which Buyer's rights are so subordinated shall be herein referred to as
"Lien Gas." Notwithstanding anything stated herein to the contrary, Lien Gas
shall remain Committed Gas hereunder so long as Lenders permit such Committed
Gas to be sold to Buyer, notwithstanding any provisions in the documents
creating or evidencing the Liens that assign or purport to assign the Committed
Gas to Lenders Seller shall use commercially reasonable efforts to include a
provision in the financing documents that if Lenders foreclose their Lien, or
exercise any other remedy that would result in the transfer of the title and
benefits of ownership of the Lien Gas to such Lenders, such Gas will remain
Committed Gas under this Agreement as long as Buyer continues to make payments
therefor and to otherwise perform under this Agreement. If Seller is not
successful in obtaining such a provision, Lien Gas shall be released from the
terms of this Agreement if Lenders foreclose their Lien, or exercise any other
remedy under the documents creating the Lien that would result in the transfer
of the title and the benefits of ownership of the Lien Gas to such Lenders.
(c) Other Transactions. Seller's sale of Committed Gas
to a third party in connection with a prepayment, financing transaction, or
conveyance of a production payment or similar transaction in which Committed
Gas is sold in place prior to production, shall not be subject to the
requirements of Section 9.2, so long as either (i) the contracts pursuant to
which such Committed Gas is sold are administered by Buyer in accordance with
the Contract Administration Agreement or (ii) any Committed Gas burdened by
such a transaction continues to be sold to Buyer under the terms and conditions
of this Agreement. Solely for purposes of facilitating Buyer's performance of
its obligations under the Contract Administration Agreement, Seller shall give
Buyer thirty (30) Days' written notice before the consummation of a transaction
of the type described in this Section 3.7(c).
ARTICLE IV.
QUANTITY; SCHEDULING AND TRANSPORTATION OF DAILY VOLUMES
4.1 Purchase and Sale Obligation.
(a) Seller's Delivery Obligation. Commencing on the
Effective Date and continuing through the term hereof, Seller agrees to sell
and deliver, or cause to be delivered and sold (excepting an event of Force
Majeure or any other reason excusing the performance of Seller's obligation to
sell and deliver Committed Gas hereunder, and subject in all respects to the
provisions of Sections 4.2(a) and 4.2(e)) to Buyer at the Delivery Point(s) one
hundred percent (100%) of Committed Gas, including, without limitation, (i) one
hundred percent (100%) of the quantities of Gas equal to Seller's Estimate as
set forth in Section 3.5(a) and adjusted in accordance with Section 3.5(b), and
(ii) one hundred percent (100%) of additional Committed Gas as set forth in
Section 3.5(c). It is specifically understood and agreed that Seller shall
have no obligation to deliver quantities of Committed Gas for which Seller has
given notice of its intention to curtail or shut-in pursuant to Section 3.6(e).
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(b) Buyer's Take Obligation. Commencing on the Effective
Date and continuing through the term hereof, Buyer agrees to take and purchase
(excepting an event of Force Majeure or any other reason excusing the
performance of Buyer's obligation to purchase and take Committed Gas hereunder,
and subject in all respects to the provisions of Sections 4.2(b) and 4.2(e))
from Seller at the Delivery Point(s) one hundred percent (100%) of Committed
Gas, including, without limitation (i) one hundred percent (100%) of Committed
Gas delivered in accordance with Seller's Estimate as set forth in Section
3.5(a) and adjusted in accordance with Section 3.5(b), (ii) one hundred percent
(100%) of additional Committed Gas for which Seller has given written notice as
set forth in Section 3.5(c), and (iii) one hundred percent (100%) of Committed
Gas previously shut-in, for which Seller has notified Buyer of Seller's intent
to resume sales as provided in Section 3.6(e) It is specifically understood
and agreed that Buyer shall have no obligation to take quantities of Committed
Gas for which Seller has given notice of its intention to curtail or shut-in
pursuant to Section 3.6(e).
4.2 Certain Events Related to the Delivery and Taking of
Committed Gas.
(a) Seller Delivery Event. If, during any Month, (i)
Seller fails for any reason (other than Force Majeure or any other reason
excusing performance of Seller's obligation to deliver Committed Gas hereunder)
to deliver ninety-five percent (95%) of the quantities set forth in Seller's
Estimate at each Aggregation Area (defined as a "Seller Delivery Event"), and
(ii) Buyer, acting in a commercially reasonable manner to mitigate any damages,
purchases Gas to replace such quantities in order to satisfy Buyer's
Contractual Obligations (as defined in Section 9.2) to third parties for the
Month in question existing prior to Buyer's knowledge of any shortfalls, then
Seller shall pay Buyer, in accordance with the provisions of Article VIII, an
amount equal to the product of (x) the positive difference between (A) the
price per MMBtu actually paid by Buyer for the replacement quantities and (B)
the Contract Price that Buyer would have paid Seller for the quantities of
Committed Gas not delivered by Seller and (y) the quantities of such
replacement Gas purchased by Buyer. Seller shall also pay Buyer, in accordance
with the provisions of Article VIII, the amount of any incidental out-of-pocket
costs reasonably incurred by Buyer (including, by way of example rather than
enumeration, brokers' fees and any incremental transportation costs), less any
expenses saved by Buyer, as a result of such Seller Delivery Event. Nothing
herein shall be construed as relieving Seller from liability for an Imbalance
Charge arising under Section 11.3.
(b) Buyer Take Event. If, during any Month, Buyer fails
for any reason (other than Force Majeure or any other reason excusing
performance of Buyer's obligation to take Committed Gas hereunder) to take one
hundred percent (100%) of the quantities set forth in Seller's Estimate as
adjusted in accordance with Sections 3.5(b) and 3.5(c) (defined as a "Buyer
Take Event") and made available for delivery by Seller, then Buyer shall give
Seller such notice as may be reasonably practicable under the circumstances to
facilitate Seller's ability to sell such untaken Committed Gas, and, for the
remainder of such Month, such untaken Committed Gas shall be released to Seller
and made available for sale to third parties. In addition, Buyer shall pay
Seller an amount (the "Buyer Payment") equal to the product of (i) the
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positive difference between (x) the Contract Price that Buyer would have paid
Seller for the quantities of Committed Gas not taken by Buyer and (y) the price
per MMBtu received by Seller from the sale of such quantities and (ii) the
positive difference between (x) the quantities of Committed Gas included in
Seller's Estimate for such Month, as adjusted pursuant to Sections 3.5(b) and
3.5(c), and (y) the quantities of Committed Gas taken by Buyer during such
Month. It is agreed that no standard of "commercial reasonableness" (whether
express or implied at common law or by statute) shall be required of Seller in
making any sale of untaken Committed Gas. Seller's only commitment is to seek
to contact by telephone or other means three unaffiliated marketers or
potential purchasers of gas, time permitting, in an endeavor to achieve the
highest prices reasonably obtainable under the circumstances, including without
limitation, proposed sales volumes and location of Delivery Points(s). If
Seller is unable to sell any part of the untaken Committed Gas to a third
party, Seller shall receive no Buyer Payment for the quantities of untaken
Committed Gas not sold. All Buyer Payments shall be payable as provided in
Article VIII. Nothing herein shall be construed as relieving Buyer from
liability for an Imbalance Charge arising under Section 11.3.
(c) Material Buyer Take Event. Seller may, in its
discretion, terminate this Agreement if a Material Buyer Take Event occurs and
Seller gives Buyer written notice of Seller's intention to terminate this
Agreement within 90 Days after the last Day of the twelve Month period or three
Month period (as the case may be) in which a Material Buyer Take Event occurs.
Such termination shall be effective on the date set forth in Seller's notice,
which effective date shall be within 180 Days of the date of such notice, but
not earlier than 90 Days after the date of such notice. Seller's right to
terminate this Agreement for a Material Buyer Take Event shall be waived if
Seller fails to deliver to Buyer the notice described in the preceding
grammatical sentence of this Section 4.2(c) within the 90-Day period set forth
therein. After the occurrence of a Material Buyer Take Event, Seller's sole
and exclusive remedies for a Material Buyer Take Event shall be (i) recovery of
any accrued and unpaid Buyer Payment through the date of such Material Buyer
Take Event, plus interest accrued thereon in accordance with Section 8.5, (ii)
recovery of any unpaid amounts in respect of Committed Gas delivered to Buyer
prior to termination of this Agreement, and (iii) termination of this Agreement
pursuant to this Section 4.2(c). Such termination shall not be subject to the
provisions of Section 9.2. "Material Buyer Take Event" shall mean Buyer's
failure for any reason (other than Force Majeure or any other reason excusing
performance of Buyer's obligation to take Committed Gas hereunder) to take (i)
95% of Committed Gas as set forth in Seller's Estimate during any rolling
twelve Month period or (ii) 90% of Committed Gas as set forth in Seller's
Estimate during any rolling 3 Month period.
(d) Material Seller Delivery Event. Buyer may, in its
discretion, seek specific performance of this Agreement on an expedited basis
or terminate this Agreement, if a Material Seller Delivery Event occurs and
Buyer gives Seller written notice of Buyer's intention within 60 Days after the
last Day of the twelve Month period or three Month period (as the case may be)
in which a Material Seller Delivery Event occurs. Buyer's rights to seek
specific performance and to terminate this Agreement shall be waived if Buyer
fails to deliver to Seller the notice described herein within the 60 Day
period set forth herein. After the occurrence of a Material Seller Delivery
Event, Buyer's sole and exclusive remedies shall be (i) recovery of any accrued
and unpaid payments under Section 4.2(a), plus interest accrued thereon in
accordance with Section 8.5, (ii) the right to seek specific performance
pursuant to this Section 4.2(d) and (iii) termination of this Agreement
pursuant to this Section 4.2(d). "Material Seller Delivery Event" shall mean
Seller's failure for any
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reason (other than Force Majeure or any other reason excusing performance of
Seller's obligation to deliver Committed Gas hereunder) to deliver (i) 92% of
Committed Gas as set forth in Seller's Estimate, as adjusted in accordance with
Sections 3.5(b) and 3.5(c), during any rolling twelve Month period, or (ii) 90%
of Committed Gas, as adjusted in accordance with Sections 3.5(b) and 3.5(c),
during any rolling three Month period.
(e) Exclusive Consequences of Seller Delivery Event,
Buyer Take Event, Material Buyer Take Event and Material Seller Delivery Event;
Other Remedies Cumulative. The sole consequences of a Seller Delivery Event
under this Agreement are set forth in Section 4.2(a). The sole consequences of
a Buyer Take Event under this Agreement are set forth in Section 4.2(b);
provided, however, that if Buyer shall fail to make any Buyer Payment when due,
such failure shall constitute a Buyer Payment Event as provided in Section
12.1. The sole consequences of a Material Buyer Take Event under this
Agreement are set forth in Section 4.2(c). The sole consequences of a Material
Seller Delivery Event are set forth in Section 4.2(d). ALL OTHER REMEDIES OR
DAMAGES AT LAW OR IN EQUITY RELATING TO A SELLER DELIVERY EVENT, BUYER TAKE
EVENT, MATERIAL BUYER TAKE EVENT, AND MATERIAL SELLER DELIVERY EVENT ARE WAIVED
IN RESPECT OF SUCH EVENTS. THE PARTIES ACKNOWLEDGE THAT THE CONSEQUENCES OF
THE EVENTS DESCRIBED IN THE FIRST THREE SENTENCES OF THIS SECTION 4.2(e) ARE
DIFFICULT OR IMPOSSIBLE TO DETERMINE AND THAT THE CONSEQUENCES SET FORTH HEREIN
RESPECTING SUCH EVENTS CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR
LOSS THAT WOULD BE SUFFERED BY EITHER PARTY AS A RESULT OF SUCH EVENT.
Remedies for other Events under this Agreement shall be cumulative, as more
particularly set forth in Article XII.
4.3 Provision Regarding Output Contract Laws. The parties
acknowledge that deliveries of Committed Gas hereunder may increase or decrease
significantly from Month to Month as a consequence of the routine conduct of
the parties' operations and a variety of factors affecting the market for Gas
generally. Accordingly, the parties agree that (a) the obligations (i) of
Seller to sell and deliver Committed Gas and (ii) of Buyer to purchase and
receive Committed Gas, and (b) the methods used by Buyer and Seller pursuant to
Section 3.5 to estimate the quantities of Committed Gas to be sold by Buyer and
purchased by Seller from Month to Month hereunder, are all commercially
reasonable means, arrived at by both parties, acting in good faith, to minimize
the severity of such increases and decreases in deliveries, consistent with the
commercial realities of producing and marketing the Committed Gas and the
realities of Gas markets generally. The parties agree that Section 2.306 of
the Texas Business and Commerce Code, or any provision of any law with similar
provisions (collectively, "Output Contract Laws"), is inapplicable to this
Agreement and the transactions hereby contemplated. To the extent that any
Output Contract Laws are held to apply to this Agreement and the transactions
hereby contemplated, the parties hereby WAIVE AND RELINQUISH any defenses to
the enforcement of this Agreement arising from such Output Contract Laws, and
any claims that may be asserted by either party arising from such Output
Contract Laws.
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ARTICLE V.
DELIVERY POINT(S)
5.1 Generally. Committed Gas shall be delivered at the
Delivery Point(s) set forth on Exhibit A hereto (the "Delivery Point(s)"), as
such Exhibit A shall be updated from time to time by agreement of the parties,
consistent with their obligations under this Agreement. Title to the Committed
Gas shall pass to Buyer at the Delivery Point(s). As between the parties
hereto, Seller shall be responsible for any damage or injury caused by the
Committed Gas until it has been delivered to Buyer at the Delivery Point(s),
after which Buyer shall be responsible for any damage or injury caused thereby.
Either party may request in writing that the other party change any Delivery
Point(s) set forth in Exhibit A. The other party shall not unreasonably
withhold its consent to the proposed change (it being specifically understood
and agreed, however, that the withholding of such consent shall be reasonable
if such other party would suffer economic detriment as a result of the proposed
change). Changes in Aggregation Area(s) pursuant to changes in the Tariff of a
Transporter shall also be reflected on Exhibit A within 30 Days after either
Buyer or Seller has learned of such change.
ARTICLE VI.
QUALITY, PRESSURE AND MEASUREMENT
6.1 Generally. Unless otherwise provided elsewhere in this
Agreement, all Committed Gas sold and purchased hereunder shall be of the same
quality, delivered at the same pressure and measured in the same manner as
provided from time to time in the then effective filed Tariff of the applicable
Buyer's Transporter receiving and transporting the Gas for the Buyer at the
applicable Delivery Point(s) (or such Transporter's other rules, guidelines,
and policies to the extent applicable and in effect). EXCEPT AS MADE IN THIS
SECTION 6.1 AND IN SECTION 14.1 (REGARDING SELLER'S TITLE), SELLER MAKES NO
OTHER WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO GAS
SOLD HEREUNDER, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
6.2 Nonconforming Gas. As to Committed Gas which fails to
meet the quality or pressure or other specifications above set forth, Buyer at
its option may refuse to accept any or all such Committed Gas (to be
hereinafter referred to as "Nonconforming Gas"). Acceptance of any or all
Nonconforming Gas shall not be deemed a waiver of Seller's obligations
hereunder with respect to such Gas or Buyer's rights with respect to any future
deliveries of Nonconforming Gas. Seller shall bring such Nonconforming Gas
into conformity with the requirements of Section 6.1 and, if such efforts are
successful, such Nonconforming Gas shall once again be Committed Gas and
subject in all respects to the terms and conditions of this Agreement. If it
would be uneconomical for Seller to bring such Nonconforming Gas into
conformity with the requirements of Section 6.1, however, Seller shall notify
Buyer in writing of that fact (providing, in such notice, Seller's reasons for
such
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conclusion and the facts in support thereof), whereupon Buyer may, in its
discretion (a) accept such Nonconforming Gas for delivery at a price mutually
acceptable to Buyer and Seller, (b) have such Gas brought into conformity with
Section 6.1 at its sole cost and expense or (c) release such Nonconforming Gas
from this Agreement. Where Buyer may ship or redeliver Committed Gas to more
than one Transporter, it will, if available, select a Transporter under whose
standards such Committed Gas would not be Nonconforming Gas. Where Seller
delivers Gas to Buyer that would be Nonconforming Gas on Buyer's Transporter,
and Buyer selects a different Transporter and takes the Gas, any increase in
Buyer's transportation costs or decrease in Buyer's resale price on such Gas
resulting therefrom shall be taken into account in determining or redetermining
the Index Price Adjustments with respect to such Gas. Nonconforming Gas that
is accepted by Buyer shall be considered Committed Gas under this Agreement,
and Nonconforming Gas that is not accepted by Buyer shall be considered in
determining the occurrence of a Seller Delivery Event and a Material Seller
Delivery Event if such Nonconforming Gas is not released as hereinafter
provided; but not a Buyer Take Event or a Material Buyer Take Event. Without
limiting the generality of the foregoing provision, however, it is expressly
agreed and understood that either party may, but neither shall be obligated to,
install and operate facilities to bring the Gas into conformity with such
specifications. Any such facilities shall be installed, operated and
maintained at the sole cost, risk and expense of the party which elected to
install such facilities. Either party may discontinue the operation of such
facilities if, in the sole judgment of the party installing same, such
operation is uneconomical. If neither party elects to install or continue the
operation of such facilities, Nonconforming Gas shall be released from the
terms hereof within thirty (30) Days of Buyer's or Seller's written request for
such a release. The provisions of this Section 6.2 set forth the sole remedies
for the delivery or non-acceptance, as applicable, of Nonconforming Gas.
ARTICLE VII.
PRICE
7.1 Initial Price. Except as otherwise provided in Section
7.2, Buyer shall pay Seller one hundred percent (100%) of the Initial Price for
all Committed Gas delivered hereunder during any Month. "Initial Price" shall
mean the Index Price, after any Index Price Adjustments and deduction of Costs
of Delivery that reflects a market price for Gas of like quantities and quality
at the Delivery Point. In the event more than one published index is listed on
Exhibit A for use in determining the Index Price for Gas at a Delivery Point,
then the Index Price will be calculated using an average of the published
indices with appropriate Index Price Adjustments (hereinafter referred to as a
"Basket Price").
7.2 Alternate Price.
(a) Generally. Notwithstanding the provisions of Section
7.1, Buyer shall pay Seller 100% of the Alternate Price (hereinafter defined)
for the quantities of Committed Gas delivered for such Month at each
Aggregation Area that exceed, for any reason (including, without limitation,
the delivery of additional quantities of Committed Gas in accordance with
Section 3.5(c))
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105% of Seller's Estimate for each such Aggregation Area for such Month. Such
quantities of Committed Gas delivered in excess of 105% of Seller's Estimate
for such Month shall be hereinafter referred to as the "Excess Quantities" for
each Aggregation Area. The Alternate Price, however, shall be paid for an
Aggregation Area only if, with respect to such Aggregation Area, the difference
between (i) the product of (a) the Initial Price and (b) the Excess Quantities
for such Aggregation Area, and (ii) the product of (a) the Alternate Price and
(b) the Excess Quantities for such Aggregation Area, exceeds $5,000.
(b) Definition of Alternate Price. "Alternate Price"
means (i) the arithmetical average of Daily prices (to be computed from the Day
on which initial deliveries of Excess Quantities first take place, until the
final Day of the applicable Month) determined by the Gas Daily Index (Daily
Midpoint column) applicable to the Delivery Point(s) included in each
Aggregation Area where such Excess Quantities are delivered, after (ii) Index
Price Adjustments and deductions of Costs of Delivery. The delivery of Excess
Quantities shall be deemed to have first taken place on the first Day of the
relevant Month when the cumulative Daily quantities of Committed Gas delivered
in an Aggregation Area for such Month exceed the cumulative Daily Seller's
Estimate for such Aggregation Area by at least five (5) percent, and continue
to do so for the remainder of the Month (it being understood and agreed that,
whenever actual Daily deliveries are unavailable, Daily deliveries will be
determined by allocating the actual Monthly deliveries based on actual
nominations).
7.3 Payment for Delivery Arrangements. Subject to the other
provisions of this Agreement, Seller shall be responsible for, and shall pay
all costs and expenses of, all arrangements necessary to deliver Committed Gas
to the Delivery Point(s) and Buyer shall be responsible for, and shall pay all
costs and expenses of, all arrangements necessary for the receipt,
transportation and delivery to market of the Committed Gas downstream of the
Delivery Point(s), provided, however, as to any Delivery Point (other than a
Delivery Point at a wellhead, platform or plant tailgate), Seller shall have no
responsibility for, nor pay any costs or expenses associated with, gas control
activities (including but not limited to communicating with pipelines or
gatherers for the purpose of nominating, dispatching or confirming the flow of
Gas) necessary to move gas to such Delivery Point.
7.4 Redetermination of Index(es) and Index Price Adjustments.
If, during the term of this Agreement, (a) an Index used to determine the Index
Price for any Delivery Point ceases to be available, (b) either party believes
that another Index more accurately reflects existing market conditions with
respect to any Delivery Point(s) than the Index currently being used with
respect to such Delivery Point(s), or (c) either party believes that the Index
Price Adjustments with respect to any Index Price for any Delivery Point(s) no
longer accurately reflects all differentials reasonably necessary to adjust the
Index Price for Gas to accurately reflect the market price for Gas of like
quantities and quality at such Delivery Point(s), then either party may request
the other to reconsider the currently-applicable Index or Index Price
Adjustment, in accordance with Section 7.5. The parties shall review the
appropriateness of all Index(es) and Index Price Adjustments used hereunder not
less than annually.
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7.5 Status of Exhibit A; Procedures for Change of Exhibit.
The attached Exhibit A accurately sets forth the parties' agreement regarding
the Indexes, Index Price Adjustments and Delivery Points applicable to
Committed Gas for the Month in which this Agreement has been executed and
delivered, and such Indexes, Index Price Adjustments and Delivery Points shall
not change for a period of 60 Days after the Effective Date except for (a) the
deletion of Delivery Points no longer needed for the delivery of Committed Gas,
(b) the addition of Indexes, Index Price Adjustments and Delivery Points for
new sources of supply added during such period, and (c) the replacement of any
Index that ceases to be available during such period. Either party may propose
a change in Exhibit A after the end of such 60 Day period (including but not
limited to changes in Indexes and Index Price Adjustments) by giving the other
party not less than 30 Days written notice before the first Day of the Month
such change is proposed to be effective (the "Price Effective Date"). If the
other party agrees in writing to the proposed change, the change shall be
effective on the Price Effective Date. If the other party does not agree in
writing to the proposed change by the 10th Day prior to the proposed Price
Effective Date, then the proposed change shall not be effective, and either
party may seek to arbitrate, at any time, the parties' disagreement pursuant to
Section 14.10, and the decision of the arbitrators thereunder shall become
effective retroactively on the Price Effective Date.
7.6 Fixed Price Gas. If Seller or any of its Affiliates
desires to receive a Fixed Price (as defined below) for a portion of the
Committed Gas (such Committed Gas being herein called the "Fixed Price Gas"),
then Seller will contact Buyer's Vice President of Marketing regarding such
request. The request must include the proposed quantities, Delivery Point(s)
and effective period of the Fixed Price, which must be at least three (3)
months in duration (such period being called the "Effective Period"). Buyer
will use commercially reasonable efforts to give Seller a Fixed Price quote in
response to Seller's request, together with an assessment of the range of Fixed
Prices and other relevant terms available in the market for packages of Fixed
Price Gas similar to those being offered by Seller. If Seller accepts the
Fixed Price quote, this Agreement will be amended to reflect the agreement of
Buyer and Seller regarding the sale of Fixed Price Gas to Buyer. If Seller
declines the Fixed Price quote, then the Fixed Price Gas will remain Committed
Gas, and will continue to be sold to Buyer under the terms of this Agreement.
ARTICLE VIII.
BILLING AND PAYMENT
8.1 Seller's Invoice. Seller may, at its option, provide an
invoice to Buyer hereunder by the fifteenth (15th) Day of each Month, in which
event Seller shall provide Buyer with a written or an electronically
transmitted statement in respect of the preceding Month setting forth (a) the
quantities of Committed Gas delivered at each Delivery Point(s), (b) the
Contract Price applicable to such Committed Gas at each such Delivery Point(s),
(c) any Buyer Payment due Seller under Section 4.2(b) (including reasonably
satisfactory evidence of the amount of such Buyer Payment), and (d) any amounts
due Seller in respect of an Imbalance Charge or violation of an OFO for which
Buyer is responsible (including reasonably satisfactory evidence of such
amounts), together with an
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invoice for payment based thereon. If actual quantities delivered at each of
such Delivery Point(s) are not available by the fifteenth (15th) Day of the
Month, Seller may furnish statements and invoices based on Seller's Estimate,
which statements and invoices shall be adjusted to reflect actual deliveries as
soon as practicable after such actual deliveries become known. Within five (5)
Business Days of the request of either party, the other party shall provide, to
the extent it has a legal right of access thereto and/or such statement is then
available, a copy of the Transporter's allocation or imbalance statement
applicable to the Committed Gas for the requested period. Buyer will cooperate
with Seller in helping Seller obtain all information necessary or desirable to
prepare Seller's statements and invoice in accordance with this Section 8.1.
8.2 Monthly Payment.
(a) If Seller has elected to provide Buyer with a written
invoice in accordance with Section 8.1, then by no later than the twenty-fifth
(25th) Day of the Month following the Month in which Committed Gas was
delivered, Buyer shall pay, in immediately available funds via wire transfer
and otherwise in accordance with Section 14.5, the amount stated in Seller's
invoice, net of any amounts due Buyer in accordance with the terms of this
Agreement. Buyer's obligation to make payment to Seller on or before the
twenty-fifth (25th) Day of the Month and the date for payment set forth in
Section 12.1(a)(i) shall be postponed by one Day for each Day beyond the 15th
Day of the Month that Seller delays in forwarding an invoice to Buyer. Buyer
agrees to use its best efforts to cooperate with Seller in reconciling its
monthly payment to Seller's invoice.
(b) If Seller has elected, in accordance with Section 8.1, not
to provide Buyer with a statement and accompanying invoice hereunder, then
Buyer's payments hereunder (including but not limited to any Buyer Payment)
shall be payable on or before the 25th Day of each Month, and shall be based on
(i) applicable Transporter statements or, (ii) Seller's Estimate (it being
understood that such Seller's Estimate shall be adjusted to reflect actual
deliveries as soon as practicable after such actual deliveries become known).
Buyer shall submit to Seller with each Monthly payment a written or
electronically transmitted schedule showing, for each Delivery Point(s) for
such Month, (A) the quantities of Committed Gas delivered to such Delivery
Point(s) and any reductions thereto due to downstream processing pursuant to
Section 3.6(c), (B) the Contract Price applicable to such Committed Gas,
indicating where appropriate the applicability of the Initial Price or the
Alternate Price, (C) the Index Price, (D) any Index Price Adjustments, and (E)
any Costs of Delivery. In addition, separate statements shall be provided by
not later than the 25th Day of the Month to reflect (x) any amounts due Buyer
or Seller in respect of an Imbalance Charge for which either party is
responsible (including reasonably satisfactory evidence of such amounts) and
(y) the quantity of any shortfall in deliveries or takes due to a Seller
Delivery Event or a Buyer Take Event, as applicable. Any amounts due in
accordance with the preceding sentence shall be paid not later than 25 days
after receipt of such statement. If the Day on which payment is due under this
Section 8.2 does not fall on a Business Day, then Buyer's payment shall be due
on the following Business Day. Seller shall cooperate with Buyer in helping
Seller obtain all information necessary or desirable to prepare Buyer's payment
statements in accordance with this Section 8.2.
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8.3 Disputed Statements. Should a statement be disputed by a
party in good faith, the disputing party will pay any undisputed amount and
will notify the other party in writing of the disputed amount and the basis for
the dispute. Payment of the undisputed portion of a statement will not be
deemed a waiver of the paying party's right to recoup any overpayment, and
acceptance of such payment will not be deemed a waiver of the accepting party's
right to recover any underpayment. The party that rendered the disputed
statement will promptly investigate the dispute and will submit a corrected
statement, if necessary, within thirty (30) Days after receiving notice of the
dispute. If the parties cannot agree on the disputed amount within such 30-Day
period, then, if upon resolution of the dispute, a party is determined to have
underpaid the amount actually due, the party will remit the amount due, plus
interest thereon from the date such amount should have been paid until such
amount has been received by the underpaid party, calculated at the rate stated
in Section 8.5 herein. If upon resolution of the dispute, a party is
determined to have overpaid the amount actually due, the party to whom such
overpayment was made will refund the excess paid, plus interest thereon
calculated at the rate stated in Section 8.5 herein.
8.4 Errors. If an error is discovered in any statement
rendered hereunder, such error shall be adjusted within thirty (30) Days after
notice of the discovery of the error. Any dispute which is not timely resolved
shall be subject to arbitration in accordance with Section 14.10.
8.5 Overdue Payments. Subject in all respects to Section 8.3,
if either party fails to pay the amount due the other party when due hereunder
as set forth in Section 8.2, then interest on any such unpaid and overdue
amount shall accrue until paid at the Reference Rate.
8.6 Audits. Each party shall keep and maintain true and
correct books, records, files and accounts of all information reasonably
related to the transactions contemplated by this Agreement, including all
measurement records, all information used to determine prices and calculate
invoices, all invoices, statements, and payment records, and all third-party
invoices or other records reflecting Costs of Delivery deducted in making
payments to Seller (collectively, the "Records"). All such Records shall be
maintained for at least thirty-six (36) Months after the Month to which they
pertain. Either party may, at its own expense, audit the other party's Records
at any time during normal business hours upon at least fifteen (15) Days
written notice. Any statement, charge or payment under this Agreement will be
deemed final unless disputed in accordance with Section 8.3 within twenty-four
(24) Months from the final Business Day of the calendar Year in which such
statement, charge or payment is made or rendered, except for any adjustments to
such statement, charge or payment due to volume adjustments of Committed Gas
delivered at the Delivery Point(s) and other adjustments caused by
Transporters' statements affecting payments for Committed Gas or Imbalance
Charges. All claims made or raised in accordance with the preceding
grammatical sentence shall survive such 24-month period for the maximum period
prescribed by applicable law.
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8.7 Indemnities.
(a) Seller's Indemnities. Seller shall, in accordance
with this Section 8.7, indemnify, defend and hold Buyer harmless from and
against any and all claims (including, without limitation, personal injury
claims), costs, losses, causes of action, judgments, penalties, fines, damages,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees and costs of court) of any kind whatsoever (all of the foregoing being
hereinafter called "Losses") arising from or associated with (i) Gas prior to
the delivery of the same to Buyer at the Delivery Point, (ii) any liabilities
for which Seller is responsible and arising under Sections 11.3 or 11.4 hereof,
(iii) a breach of Seller's warranties in Section 14.1, or (iv) Gas delivered by
Seller hereunder, in respect of which claims of any type whatsoever are
asserted by or on behalf of owners of landowners' royalties, overriding
royalties, production payments, net profits interests, working interests, joint
operating interests or other types of interests in oil and gas leases.
Notwithstanding anything stated in this Agreement to the contrary, the
respective liability (under this Section 8.7 and under any other provision of
this Agreement) of each of the undersigned parties executing this Agreement as
a Seller shall be several, not joint, and shall be limited solely to those
Losses (or the pro rata portion of such Losses) arising from or attributable to
Gas delivered by such Seller hereunder (and each such Seller shall in no way be
liable under this Section 8.7 for any Losses arising from or attributable to
any Losses relating to Gas delivered hereunder by another Seller).
(b) Buyer's Indemnities. Buyer shall, in accordance with
this Section 8.7, indemnify, defend and hold each Seller harmless from and
against any and all Losses arising from or associated with (i) Committed Gas
after the delivery and receipt of the same to Buyer at the Delivery Point, (ii)
any liabilities for which Buyer is responsible and arising under Section 11.3
or 11.4 or (iii) any third-party claims that Buyer, either by itself or in
concert with others (excluding Seller), has manipulated indexes or other
factors that may materially determine or influence prices for Gas.
(c) Claims for Indemnification. If either party seeks
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall give the party from whom indemnity is sought (the "Indemnifying
Party") prompt written notice of any matters which may give rise to a claim for
indemnification under this Section 8.7; provided, however, that failure or
delay in notification shall not relieve the Indemnifying Party from liability
hereunder unless (and only to the extent) that delay in notifying the
Indemnifying Party of such claim hinders or prevents the Indemnifying Party's
defense of such claim or hinders or prevents the Indemnifying Party from
obtaining the benefits of existing insurance coverage for some or all liability
attributable to a Loss which would otherwise have been available to the
Indemnifying Party but for said delay), in which case (and only to such limited
extent), the Indemnified Party hereby WAIVES AND RELEASES THE INDEMNIFYING
PARTY FROM ANY LIABILITY ATTRIBUTABLE TO OR ARISING FROM SUCH CLAIMS,
REGARDLESS OF WHETHER SUCH CLAIMS WERE ATTRIBUTABLE TO THE NEGLIGENCE OR STRICT
LIABILITY OF THE INDEMNIFYING PARTY. The Indemnifying Party shall have the
right, in its own name or otherwise, to contest and defend by all appropriate
legal or other proceedings any claim, provided, however, that:
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(i) Notice of the Indemnifying Party's intention
to so contest shall be delivered to the Indemnified Party within fifteen (15)
Days from the date of the Indemnifying Party's receipt of the Indemnified
Party's notice;
(ii) The Indemnifying Party shall pay all costs
and expenses which it incurs in connection with such contest, including but not
limited to all attorneys', accountants' and expert witnesses' fees and the cost
of any bond which the Indemnifying Party is required by law to post in
connection with such contest; and
(iii) The Indemnifying Party shall conduct such
contest with attorneys approved by the Indemnified Party (which approval shall
not be unreasonably withheld), but the Indemnified Party shall have the right
to participate in such proceedings and to be represented by attorneys of its
own choosing, at its own cost and expense. If the Indemnified Party does not
elect to participate in any such proceedings, it shall be bound by the results
obtained by the Indemnifying Party, but the Indemnifying Party shall not enter
into any settlement or compromise of the claims being contested in such
proceeding without the consent of the Indemnified Party, which consent shall
not be unreasonably withheld.
(d) Payment and Consent. Amounts which the Indemnifying
Party must pay the Indemnified Party hereunder shall be due within thirty (30)
Days after (i) the Indemnified Party has paid any Losses subject to the
Indemnifying Party's indemnity hereunder and (ii) the Indemnified Party has
presented the Indemnifying Party with reasonably satisfactory evidence that the
amount of such Losses has been paid; provided, however, that notwithstanding
anything stated herein to the contrary with regard to amounts paid in
settlement of such Losses, the Indemnifying Party shall only be liable for
Losses attributable to amounts paid in settlement of any claims to the extent
that the Indemnifying Party has consented thereto in writing, and in the event
the Indemnified Party settles or otherwise consents to liability on any claims
without the prior written consent of the Indemnifying Party thereto, the
Indemnified Party hereby WAIVES AND RELEASES THE INDEMNIFYING PARTY FROM ANY
LIABILITY FOR SUCH CLAIMS (AND ANY LOSSES ATTRIBUTABLE TO AMOUNTS PAID IN
SETTLEMENT THEREOF, REGARDLESS OF WHETHER SUCH LOSSES ARE ATTRIBUTABLE (IN
WHOLE OR PART) TO THE NEGLIGENCE OR STRICT LIABILITY OF THE INDEMNIFYING
PARTY). Any amounts which the Indemnifying Party owes but does not pay when
due under this Section 8.7 shall bear interest until paid at the Reference
Rate.
ARTICLE IX.
EFFECTIVE DATE AND TERM; RELEASE OF GAS
9.1 Generally. This Agreement shall be effective as of the
Effective Date and shall continue and remain in full force and effect until the
first to occur of the following: (a) the tenth (10th) anniversary of the
Effective Date (it being understood that subject to the other terms and
conditions of this Section 9.1, this Agreement shall be automatically extended
for one Year,
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beginning with the tenth (10th) anniversary of the Effective Date, and
continuing on each subsequent anniversary of the Effective Date thereafter,
unless one party gives the other party written notice of its intention to
terminate this Agreement at least 180 Days prior to the end of the then current
term, (b) termination of this Agreement by Seller for a Material Buyer Take
Event in accordance with Section 4.2(c), (c) termination of this Agreement upon
occurrence of a Buyer Bankruptcy Event or a Seller Bankruptcy Event in
accordance with Section 12.1(c)(i), (d) termination of this Agreement by Seller
for a Buyer Payment Event in accordance with Section 12.1(c)(i), (e)
dissolution of the parent company in Seller's corporate structure, (f) Buyer's
dissolution, or (g) termination of this Agreement, effective upon twelve (12)
Months' advance written notice (with such 12-Month period beginning on the
first Day of the Month following the Month in which such notice is sent),
delivered by either party to the other at any time after the fifth (5th)
anniversary, but before the sixth (6th) anniversary, of the Effective Date,
which notice shall convey such party's election to terminate this Agreement and
shall state the reason for such termination, which reason may include any of
the following: (i) changed economic conditions; (ii) changes in applicable
laws or regulations; (iii) changes in gas market conditions; or (iv) other
changes not expected by such terminating party as of the Effective Date (a
termination by either party under this clause (g) to be referred to as a
"Permitted Termination").
9.2 Restricted Gas; Release of Committed Gas.
(a) Generally.
(i) Conditions for Restricted Gas.
(A) Tier One Restricted Gas. If the Pro
Forma Throughput equals or exceeds .6555 TBtu/d during any applicable Test
Period, Committed Gas may be determined to be Restricted Gas under this Section
9.2 ("Tier One Restricted Gas"). Tier One Restricted Gas shall be sold under a
Restricted Gas Purchase Agreement in respect of Sole Source Gas or Restricted
Disposition Gas, as applicable. Such Restricted Gas Purchase Agreement shall
have a term of one year (with respect to Restricted Disposition Gas) or two
years (with respect to Sole Source Gas) from the applicable Restricted Gas
Purchase Agreement Effective Date, in accordance with the terms of Section
9.2(b)(ii) or 9.2(c)(ii). If Seller pays Buyer the Tier One Restricted Gas
Buyout Amount, Seller may Dispose of the specified properties and the Gas
producible therefrom without restriction pursuant to this Agreement. The
quantities bought out with Tier One Restricted Gas Buyout Amounts shall be
deemed Creditable Gas (as defined in the Purchase and Sale Agreement).
(B) Tier Two Restricted Gas. If the Pro
Forma Throughput equals or exceeds .4560 TBtu/d, but is less than .6555 TBtu/d
during any applicable Test Period, Committed Gas may be determined to be
Restricted Gas under this Section 9.2 ("Tier Two Restricted Gas"). Tier Two
Restricted Gas shall be sold under a Restricted Gas Purchase Agreement in
respect of Sole Source Gas or Restricted Disposition Gas, as applicable. Such
Restricted Gas Purchase Agreement shall have a term of one year (with respect
to Restricted Disposition Gas) or two years (with respect to Sole Source
Gas) from the applicable Restricted Gas Purchase Agreement Effective Date,
in accordance with the terms of Section 9.2(b)(ii) or Section 9.2(c)(ii). If
Seller pays
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Buyer the Tier Two Restricted Gas Buyout Amount, Seller may Dispose of the
specified properties and the Gas producible therefrom without restriction
pursuant to this Agreement. Tier Two Restricted Gas Buyout Amounts shall be
creditable in dollars against Clawback Payments for the year in which the Tier
Two Restricted Buyout Amount is paid or, if not utilized in full in such year,
carried forward and credited against future Clawback Payments until utilized in
full. From the Effective Date until the second anniversary thereof, Seller's
Dispositions in excess of the Permitted Annual Disposition Quantities shall be
deemed Restricted Disposition Gas, without need for a determination of a Loss
of Margin under Section 9.2(b), and shall continue to be sold to Buyer under a
Restricted Gas Purchase Agreement pursuant to Section 9.2(c)(ii) with a
termination date of the second anniversary of the Effective Date.
(C) Burdened Gas. If the Pro Forma
Throughput is less than .4560 TBtu/d during any applicable Test Period,
Committed Gas shall be Burdened Gas under this Section 9.2. Burdened Gas shall
be sold under a Restricted Gas Purchase Agreement having a term from the
Burdened Gas Purchase Agreement Effective Date until the sixth anniversary of
the Effective Date of this Agreement. If Seller pays Buyer the Burdened Gas
Buyout Amount, Seller may Dispose of the specified properties and the Gas
producible therefrom without restriction pursuant to this Agreement.
Restricted Burdened Gas Buyout Amounts shall be creditable in dollars against
Clawback Payments for the year in which the Restricted Burdened Gas Buyout
Amount is paid or, if not utilized in full in such year, carried forward and
credited against future Clawback Payments until utilized in full.
(D) Sole Source Gas. Buyer may restrict
Sole Source Gas pursuant to Section 9.2(b). Sole Source Gas shall be sold to
Buyer under a Restricted Gas Purchase Agreement having a term of two years from
the Restricted Sole Source Gas Purchase Agreement Effective Date, in accordance
with the terms of Section 9.2(b)(ii).
(E) Cumulative Restricted Gas Payment
Ceiling. Notwithstanding any other provision of this Agreement to the
contrary, if the sum of (1) all Cumulative Restricted Gas Buyout Amounts and
(2) all Clawback Payments equals or exceeds $24,225,000, Seller may dispose of
any properties and the Gas producible therefrom without restriction pursuant to
this Agreement, and without further obligation to pay Clawback Payments.
(ii) General Definitions. The following terms
used in this Section 9.2 shall have the meanings set forth below. Other terms
are defined elsewhere in this Section 9.2.
(A) "Throughput" means the arithmetical
average, expressed in MMBtus/d, determined by dividing the quantity of
Creditable Gas by the number of Days in the relevant period.
(B) "Burdened Gas" shall have the
meaning set forth in Section 9.2(d).
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(C) "Burdened Gas Buyout Amount" shall
mean an amount mutually satisfactory to Buyer and Seller, paid by Seller to
Buyer for the purpose of buying out Seller's obligations to enter into a
Restricted Gas Purchase Agreement with Buyer for the sale of Burdened Gas.
(D) "Clawback Payments" shall mean
certain payments that could be made by Seller in accordance with Section 2.3(a)
of the Purchase and Sale Agreement.
(E) "Contractual Obligations" shall mean
Buyer's obligations under one or more identified contracts, each of which (1)
existed at the time Buyer became aware of Seller's intent through written
communication to make a Disposition and is not renewed or extended thereafter,
and (2) cannot be terminated without penalty within 30 Days, or performance of
which cannot be interrupted without penalty.
(F) "Cumulative Restricted Gas Buyout
Amounts" shall mean the cumulative sum of all Tier One Buyout Amounts, Tier Two
Buyout Amounts and Burdened Gas Buyout Amounts.
(G) "Loss of Margin" means the
elimination of Buyer's margin (or an increase in a negative margin) that would
result from the loss of Committed Gas, if Buyer's cost of replacing such Gas
(including, without limitation, increases or decreases in transportation costs)
exceeds the cost of such Gas at the Contract Price (as of the date of a
relevant Restricted Gas determination) in effect under this Agreement on such
date. If the subject Committed Gas is being processed by Buyer at the time
Buyer became aware of Seller's intent through written communication to make a
Disposition, the determination of Buyer's margin shall include the net revenue
allocated to the subject Committed Gas over the preceding 12 months from the
processing thereof converted to a dollars per MMBtu basis, but only if Buyer
cannot replace such Committed Gas with Gas of equal thermal value with no
restriction on processing rights. For purposes hereof, the phrase "net
revenue" shall mean the remainder of (a) the revenues received from the sale of
the Removed Products by Buyer or from the plant, as applicable, minus (b) the
sum of all costs of processing including but not limited to (1) the total
transportation costs incurred by Buyer for upstream transportation of the PVR
or condensate, (2) all fees and charges paid to the plant for the processing
services, and (3) all taxes and other charges due on the Removed Products. The
term "PVR" (Plant Volume Reduction) shall mean, with respect to each Month, the
difference in (i) the quantity of Gas delivered by Seller to Buyer and tendered
to the plant for processing, as measured at the plant inlet, and (ii) the
quantity of residue Gas redelivered to Buyer after processing in the plant,
which difference will represent the fuel, shrinkage and lost and unaccounted
for quantities allocated to the quantity of the Gas tendered for processing.
(H) "Permitted Annual Disposition
Quantities" means 150 BBtu/d, plus (1) quantities attributable to Committed Gas
produced from new wellbores and newly-acquired sources of supply of Committed
Gas minus (2) quantities attributable to Dispositions, net of the sum of (x)
Restricted Gas quantities from such Dispositions which continue to be sold to
Buyer and (y) quantities of Disposition Gas released due to the payment of
Tier One
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Buyout Amounts, Tier Two Buyout Amounts or Burdened Gas Buyout Amounts.
Quantities attributable to Dispositions shall never be less than zero. All
quantities will be computed on the last full Month of uncurtailed production.
(I) "Pro Forma Throughput" shall mean
the Throughput less the Proposed Disposition Quantities.
(J) "Proposed Disposition Quantities"
means the Throughput expressed in MMBtus/d, in the most recent full Month of
uncurtailed production from properties subject to a proposed Disposition.
(K) "Purchase and Sale Agreement" shall
mean the Purchase and Sale Agreement dated as of June 18, 1998, by and among
Apache Gathering Company, Oryx Gas Marketing Limited Partnership and Cinergy
Corp.
(L) "Restricted Disposition Gas" shall
have the meaning set forth in Section 9.2(c)(i).
(M) "Restricted Gas" shall mean Sole
Source Gas, Restricted Disposition Gas and Burdened Gas.
(N) "Restricted Gas Purchase Agreement"
means an agreement in substantially the form of Exhibit B, carrying forward the
Delivery Points, Indexes, Index Price Adjustments and processing rights and
reservations of Buyer and Seller from this Agreement, but with the effective
dates and terms set forth in Sections 9.2(b)(ii), 9.2(c)(ii) or 9.2(d)(ii), as
applicable.
(O) "Sole Source Gas" shall have the
meaning set forth in Section 9.2(b)(i).
(P) "Test Period" shall mean (1) before
the first anniversary of the Effective Date, the period from the Effective Date
through the last Day of the Month before the Month in which a Restricted Gas
determination is made and (2) on and after the first anniversary of the
Effective Date, the rolling retrospective twelve-month period through the last
Day of the Month before the Month in which a Restricted Gas determination is
made.
(Q) "Tier One Restricted Gas" shall have
the meaning set forth in Section 9.2(a)(i)(A).
(R) "Tier One Restricted Gas Buyout
Amount" shall mean an amount equal to Buyer's Loss of Margin (expressed in
cents per MMBtu/d), multiplied by the Proposed Disposition Quantities from the
effective date of the relevant Disposition to the first anniversary thereof.
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(S) "Tier Two Restricted Gas" shall have
the meaning set forth in Section 9.2(a)(i)(B).
(T) "Tier Two Restricted Gas Buyout
Amount" shall mean an amount equal to $0.024 per MMBtu/d, multiplied by the
Proposed Disposition Quantities from the effective date of the relevant
Disposition to the first anniversary thereof.
(b) Sole Source Gas.
(i) Sole Source Gas Defined; Determination of
Sole Source Gas. "Sole Source Gas" shall mean Committed Gas needed to satisfy
Contractual Obligations (A) that, after the exercise of reasonable efforts by
Buyer, cannot be released and (B) no other Gas can be physically delivered.
The existence of Sole Source Gas shall be determined by Buyer as soon as
practicable, and notice of such determination shall be in writing and delivered
to Seller not later than 10 Business Days following receipt of Seller's
Disposition notice pursuant to Section 3.3(b). The notice of determination
shall also indicate that (i) such Gas shall be sold, traded, exchanged or
otherwise transferred free and clear of the requirements of this Agreement, or
(ii) a portion or all of such Gas shall be Restricted Gas, shall indicate the
Delivery Point(s) and quantities of Gas affected, and shall otherwise comply
with the applicable provisions of Section 9.2. In evidencing that the loss of
Committed Gas meets the requirements set forth for Sole Source Gas, Buyer's
notice must set forth Buyer's reasons for concluding that Sole Source Gas
exists, and identify all specific Contractual Obligations in force and effect
with its customers evidencing the existence of Sole Source Gas (providing
Seller with copies of such contracts, redacted only to the extent necessary to
comply with applicable confidentiality agreements, if any, with the pricing and
the identity of the purchaser to be redacted in all cases), together with any
other written or electronic information and analysis supporting the conclusion
that such Gas is Sole Source Gas.
(ii) Terms of Sole Source Gas Contract. Committed
Gas determined to be Sole Source Gas under Section 9.2(b)(i) shall continue to
be sold to Buyer under the terms of a Restricted Gas Purchase Agreement, which
shall be executed and delivered by Buyer and Seller on or before the closing of
a Disposition with respect to which it has been determined that there is Sole
Source Gas. The effective date of the Restricted Gas Purchase Agreement with
respect to Sole Source Gas shall be the closing date of the relevant
Disposition (the "Sole Source Restricted Gas Purchase Agreement Effective
Date"). The termination of the Restricted Gas Purchase Agreement with respect
to Sole Source Gas shall be the first to occur of (1) the termination of the
Contractual Obligations that evidenced the existence of Sole Source Gas or (2)
two years from the Sole Source Restricted Gas Purchase Agreement Effective
Date. Seller shall make as an express condition to the consummation of the
relevant Disposition the assumption by the transferee of the Gas producing
properties of Seller's obligations under the Restricted Gas Purchase Agreement
with respect to Sole Source Gas. Notwithstanding anything stated herein to the
contrary, to the extent that Seller fails to consummate the proposed
Disposition within one hundred eighty (180) Days following Buyer's receipt of
Seller's notice provided in accordance with Section 3.3(b), Seller shall be
required to notify Buyer in writing of the status of such Disposition, and
shall continue to provide such notification to Buyer at thirty (30) Day
intervals thereafter until the Disposition is either consummated or abandoned
(it being understood and agreed that Seller shall notify Buyer in writing
within thirty (30) Days of the date on which such Disposition is consummated or
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abandoned). If the contemplated Disposition is abandoned, or if Seller fails
to give the notices required by the preceding grammatical sentence in a timely
manner, then Buyer's determination under Section 9.2 of the amounts of the
Committed Gas covered by such Disposition that are Restricted Gas and
Disposition Gas, respectively, shall automatically terminate, and Seller shall
once again be obligated to comply with all notice obligations under Section
3.3, and will be subject to a new determination by Buyer under Section 9.2, in
connection with any future proposed Disposition of all or any part of such
Committed Gas.
(c) Restricted Disposition Gas.
(i) Restricted Disposition Gas Defined;
Determination of Restricted Disposition Gas. "Restricted Disposition Gas"
shall mean Committed Gas needed to satisfy Buyer's Contractual Obligations
that, unless restricted under this Section 9.2(c)(i), cannot be replaced after
the exercise of reasonable efforts by Buyer without a Loss of Margin for Buyer.
The existence of Restricted Disposition Gas shall be determined as follows:
(A) not later than 10 Business Days after receipt of Seller's
Disposition notice pursuant to Section 3.3(b), Buyer shall provide Seller with
written notice (1) identifying all specific Contractual Obligations in force
and effect with Buyer's customers that, as a result of the loss of the relevant
Disposition Gas, might result in a Loss of Margin (providing Seller with copies
of such contracts, redacted only to the extent necessary to comply with
applicable confidentiality requirements, if any, with the identity of the
purchaser to be redacted in all cases), (2) identifying the Delivery Point(s)
and quantities required to source the Gas required to meet the Contractual
Obligations and (3) providing any other written or electronic information and
analysis indicating that the loss of the relevant Disposition Gas might result
in a Loss of Margin;
(B) Buyer shall exercise all reasonable diligence, for twenty
(20) Business Days after receipt of Seller's Disposition notice, to locate
alternative sources of Gas that could replace the relevant Disposition Gas
without Loss of Margin. At the end of such twenty (20) Business Day period,
Buyer shall provide Seller with written notice that (1) Buyer has located
alternative sources of Gas that could replace the relevant Disposition Gas
without Loss of Margin (in which event such relevant Disposition Gas shall be
released from this Agreement upon closing of the relevant Disposition) or (2)
Buyer has been unable to locate such alternative sources of Gas, and shall
indicate the Delivery Point(s) and quantities of Committed Gas affected, in
which event the relevant Disposition Gas shall become Restricted Disposition
Gas, subject to Seller's rights under Section 9.2(c)(i)(C).
(C) Seller shall have the right, exercisable only once with
respect to any proposed Disposition, to request in writing that Buyer
reconsider a determination under Section 9.2(c)(i)(B) that Restricted
Disposition Gas exists. Buyer shall comply with the provisions of subsection
(B) above, except that the period of time for such determination shall be
reduced to ten (10) Business Days.
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(ii) Terms of Restricted Disposition Gas Contract.
Committed Gas determined to be Restricted Disposition Gas under Section
9.2(c)(i) shall continue to be sold to Buyer under the terms of a Restricted
Gas Purchase Agreement, modified in accordance with the terms of this Section
9.2(c), which Restricted Gas Purchase Agreement shall be executed and delivered
by Buyer and Seller on or before the closing of a Disposition with respect to
which Buyer has determined that there is Restricted Disposition Gas. The
effective date of the Restricted Gas Purchase Agreement with respect to
Restricted Disposition Gas shall be the closing date of the relevant
Disposition (the "Restricted Disposition Gas Purchase Agreement Effective
Date"). The termination of the Restricted Gas Purchase Agreement with respect
to Restricted Disposition Gas shall be the first to occur of (1) the
termination of the Contractual Obligations that evidenced the existence of
Restricted Disposition Gas, or (2) one year from the Restricted Disposition Gas
Purchase Agreement Effective Date. Seller shall make as an express condition
to the consummation of the Disposition the assumption by the transferee of the
Gas producing properties of Seller's obligations pursuant to such Restricted
Disposition Gas Purchase Agreement. Notwithstanding anything stated herein to
the contrary, to the extent that Seller fails to consummate the proposed
Disposition within one hundred eighty (180) Days following Buyer's receipt of
Seller's notice provided in accordance with Section 3.3(b), Seller shall be
required to notify Buyer in writing of the status of such Disposition, and
shall continue to provide such notification to Buyer at thirty (30) Day
intervals thereafter until the Disposition is either consummated or abandoned
(it being understood and agreed that Seller shall notify Buyer in writing
within thirty (30) Days of the date on which such Disposition is consummated or
abandoned). If the contemplated Disposition is abandoned, or if Seller fails
to give the notices required by the preceding grammatical sentence in a timely
manner, then Buyer's determination under Section 9.2 of the amounts of the
Committed Gas covered by such Disposition that are Restricted Gas and
Disposition Gas, respectively, shall automatically terminate, and Seller shall
once again be obligated to comply with all notice obligations under Section
3.3, and will be subject to a new determination by Buyer under Section 9.2, in
connection with any future proposed Disposition of all or any part of such
Committed Gas. Seller may buy out its obligations under a Restricted Gas
Purchase Agreement in respect of Restricted Disposition Gas by paying a Tier
One Restricted Gas Buyout Amount or a Tier Two Restricted Gas Buyout Amount, as
applicable.
(d) Burdened Gas.
(i) Burdened Gas Defined; Determination of
Burdened Gas. "Burdened Gas" shall mean all Disposition Gas to the extent that
such Disposition Gas causes the Pro Forma Throughput to fall below .4560
TBtu/d. The existence of Burdened Gas shall be determined as soon as
practicable, but not later than 10 Business Days following receipt of Seller's
Disposition notice pursuant to Section 3.3(b).
(ii) Burdened Gas Purchase Agreement. Committed
Gas determined to be Burdened Gas under this Section 9.2(d)(i) shall continue
to be sold as Committed Gas under the terms of a Restricted Gas Purchase
Agreement (the "Burdened Gas Purchase Agreement"), modified in accordance with
the terms of this Section 9.2(d) which Restricted Gas Purchase Agreement shall
be executed and delivered by Buyer and Seller on or before the closing of a
Disposition with respect
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to which it has been determined that Burdened Gas exists. The effective date
of the Restricted Gas Purchase Agreement with respect to Burdened Gas shall be
the closing date of the relevant Disposition (the "Burdened Gas Purchase
Agreement Effective Date"). The term of the Restricted Gas Purchase Agreement
with respect to Burdened Gas shall expire on the sixth anniversary of the
Effective Date. Seller shall make as an express condition to the consummation
of the relevant Disposition the assumption by the transferee of Seller's
obligations pursuant to such Burdened Gas Purchase Agreement. Notwithstanding
anything stated herein to the contrary, to the extent that Seller fails to
consummate the proposed Disposition within one hundred eighty (180) Days
following Buyer's receipt of Seller's notice provided in accordance with
Section 3.3(b), Seller shall be required to notify Buyer in writing of the
status of such Disposition, and shall continue to provide such notification to
Buyer at thirty (30) Day intervals thereafter until the Disposition is either
consummated or abandoned (it being understood and agreed that Seller shall
notify Buyer in writing within thirty (30) Days of the date on which such
Disposition is consummated or abandoned). If the contemplated Disposition is
abandoned, or if Seller fails to give the notices required by the preceding
grammatical sentence in a timely manner, then Buyer's determination under
Section 9.2 of the amounts of the Committed Gas covered by such Disposition
that are Restricted Gas and Disposition Gas, respectively, shall automatically
terminate, and Seller shall once again be obligated to comply with all notice
obligations under Section 3.3, and will be subject to a new determination by
Buyer under Section 9.2, in connection with any future proposed Disposition of
all or any part of such Committed Gas. Seller may buy out its obligations
under a Restricted Gas Purchase Agreement by paying a Burdened Gas Buyout
Amount.
(e) Arbitration of Differences Over Sale of
Restricted Gas. It is specifically understood and agreed that if Buyer and
Seller cannot agree that Gas should be Restricted Gas, such disagreement shall
be subject to arbitration in accordance with the terms of Section 14.10.
(f) Release of Gas Other than Restricted Gas. If
Buyer does not notify Seller of Buyer's determination of the existence of
Restricted Gas within the period prescribed in this Section 9.2, then all
Committed Gas described in the relevant Disposition notice shall be released
from this Agreement, subject to the provisions of Section 9.3, effective on the
effective date of the relevant Disposition. If part, but not all, of the
Committed Gas described in the relevant notice is determined to be Restricted
Gas, then the portion of such Committed Gas not determined to be Restricted Gas
shall be released from this Agreement.
9.3 Survival. Notwithstanding anything stated in this
Agreement to the contrary, termination of this Agreement shall in no way
relieve any party from any obligations or liabilities accrued as of the date of
termination, and any imbalances in receipts or deliveries shall be corrected to
zero within 60 Days after such date. All indemnity obligations of the parties
shall survive the termination of this Agreement. In addition, the parties
acknowledge and agree that the termination of this Agreement, whether as a
result of a Permitted Termination Event or otherwise, may require a transition
period to ensure that the marketing and transportation of the Committed Gas are
not disrupted. Accordingly, each party further agrees to use commercially
reasonable efforts to cooperate in the winding up of the relationship
described herein and to avoid disrupting Seller's marketing of its Gas;
provided, however, that nothing herein will require (i) Buyer to assign or
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otherwise provide access to its software licenses, computer hardware, contract
rights, or other assets used in its Gas marketing and transportation activities
or (ii) Seller to assign or otherwise provide access to rights that had been
used to transport Committed Gas under Seller's own contracts during the term of
this Agreement.
ARTICLE X.
FORCE MAJEURE
10.1 Generally. In the event of either party hereto being
rendered unable, wholly or in part, by Force Majeure (hereinafter defined) to
carry out its obligations under this Agreement, other than the obligation to
make payments due hereunder, such party shall notify the other party by
telephone as soon as possible of the Force Majeure event and thereafter, as
soon as practicable, provide full particulars of such Force Majeure in writing,
by facsimile or other commercially reasonable means, to the other party within
ten (10) Days after the occurrence of the cause relied on. The obligations of
the parties, so far as they are affected by such Force Majeure, shall be
suspended from the inception of such Force Majeure during the continuance of
any inability so caused but for no longer period, and such cause shall be
remedied with all reasonable dispatch. Upon termination of the event of Force
Majeure, the party who had been affected by such event shall notify the other
party by telephone of such termination, and thereafter, as soon as practicable,
provide such other party with written notification of such termination by
facsimile or other commercially reasonable means, and the parties shall resume
performance under this Agreement as soon as practicable (it being understood,
however, that Seller's obligation to resume performance hereunder is subject in
all respects to the provisions of Section 10.4). 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, insurrection, riots,
epidemics, landslides, lightning, earthquakes, fires, hurricanes, tropical
storms, floods, washouts, arrests and restraints of the government (federal,
state or local), inability of any party hereto to obtain necessary materials,
supplies or permits due to existing or future rules, orders and laws of
governmental authorities (federal, state or local), interruptions by government
or court orders, present and future orders of any regulatory body having proper
jurisdiction, civil disturbances, explosions, sabotage, breakage or accident to
machinery or lines of pipe, the necessity for making repairs or alterations to
machinery or lines of pipe, freezing of wells or lines of pipe, partial or
entire failure of wells (including, without limitation, well blowouts and well
craterings), the inability or refusal of any Transporter of Gas to receive,
transport or deliver Gas sold or purchased hereunder (but only if (x) such
inability or refusal results from an event that is interrupting such
Transporter's service to its firm customers and (y) no commercially reasonable
alternative for the transportation of the affected Committed Gas exists), and
any other causes, whether of the kind herein enumerated or otherwise, not
within the control of the party claiming suspension and which by the exercise
of due diligence such party is unable to overcome. Force Majeure shall also
include the inability to acquire, or delays in acquiring any servitudes,
right-of-way grants, permits or licenses required to be obtained to enable a
party hereto to fulfill its obligations hereunder.
10.2 Exclusions. The term "Force Majeure" does not include
loss of markets or a change in market prices for Gas.
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10.3 Labor Disputes. The settlement of strikes or lockouts
shall be entirely within the discretion of the party having the difficulty and
the above requirement of the use of diligence in restoring normal operating
conditions shall not require the settlement of strikes or lockouts by acceding
to the terms of the opposing party when such course is inadvisable in the
discretion of the party having the difficulty.
10.4 Marketing of Force Majeure Gas. If Buyer is unable to
take Committed Gas from any Delivery Point(s) due to the occurrence of Force
Majeure, Seller, acting in a commercially reasonable manner, may market and
sell such Committed Gas from the affected Delivery Point(s) to any third
parties free from this Agreement and without any obligation to Buyer during the
continuance of the Force Majeure. As soon as the Force Majeure that rendered
Buyer unable to take Committed Gas is remedied or terminated, Seller's
obligation to thereafter commence selling the Committed Gas to Buyer shall
commence following the expiration of any agreement between Seller and third
parties for the purchase of Committed Gas that Buyer was unable to take and
that Seller subsequently marketed and sold to such parties as permitted by this
Section 10.4. It is specifically understood and agreed that any such agreement
between Seller and third parties shall be terminable without penalty to Seller
on not more than thirty (30) Days notice, and Seller shall use commercially
reasonable efforts to terminate any such agreement within a shorter period so
that the Committed Gas being sold thereunder will be available for inclusion in
the Seller's Estimate that follows the date on which Seller receives notice
from Buyer pursuant to this Section 10.4 that such Force Majeure has been
remedied or terminated.
ARTICLE XI.
IMBALANCE RESOLUTION
11.1 Generally. Seller agrees that Gas will be delivered as
nearly as practicable at a relatively constant daily rate over the Month.
11.2 Cooperation of Parties. The parties recognize that
imbalances may occur on Transporters. Accordingly, Buyer and Seller agree to
make every reasonable effort to promptly eliminate or minimize such imbalances.
The Buyer shall have the primary responsibility for eliminating or minimizing
imbalances downstream of the Delivery Point(s), it being understood, however,
that Seller shall cooperate with Buyer's efforts in all reasonable respects.
11.3 Liability for Imbalance Charges. If any of the
Transporter(s) of Committed Gas sold and purchased hereunder elects to enforce
the general terms and conditions of its then applicable Tariff which allow the
Transporter(s) to impose Imbalance Charges, Buyer and Seller shall be obligated
to take such commercially reasonable action as may be necessary in order to
avoid imposition of such Imbalance Charges. If, during any Month, Seller or
Buyer receives an invoice from a Transporter which includes an Imbalance
Charge, the validity as well as the cause of such Imbalance Charge shall be
determined. If it is determined that the Imbalance Charge was imposed as a
result of acts or omissions of Buyer or Buyer's resale customer, then Buyer
shall pay such
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Imbalance Charge and/or shall indemnify Seller for any such Imbalance Charge as
may be incurred by Seller. If it is determined that the Imbalance Charge was
imposed as a result of acts or omissions of Seller (including, without
limitation, errors made in Seller's Estimate which are not corrected in time to
reasonably permit Buyer to adjust nominations within any deadline established
by the Tariff of a Transporter), then Seller shall pay such Imbalance Charge
and/or shall indemnify Buyer for any such Imbalance Charge as may be incurred
by Buyer. With respect to the indemnification against Imbalance Charges that
are cash-outs, the responsible party will bear only the portion of such Charges
constituting a loss to the other party.
11.4 Operational Flow Orders. Should either party receive an
operational flow order or other order or notice from a Transporter requiring
action to be taken in connection with this Agreement or Gas flowing under this
Agreement (an "Operational Flow Order" or "OFO"), such party shall notify the
other party of the OFO as soon as practicable and simultaneously provide the
other party a copy of such OFO by facsimile or other commercially reasonable
means. The parties shall take all actions required by the OFO within the
period(s) prescribed therein.
ARTICLE XII.
CERTAIN EVENTS AFFECTING PERFORMANCE
12.1 Buyer and Seller Events.
(a) Buyer Event Defined. Each of the following shall be
deemed a "Buyer Event": (i) Buyer's failure to pay or cause to be paid any
undisputed amount owing under this Agreement when due (including, without
limitation, Buyer Payment in accordance with Section 4.2(b) and interest accrued
on any amounts payable hereunder in accordance with Section 8.5) by the Final
Business Day of the Month following the Month in which Committed Gas was
delivered, subject in all respects to Buyer's rights under Sections 8.2 and 8.3
(a "Buyer Payment Event"); (ii) the occurrence of one or more of the following
events with respect to Buyer: (A) the entry of a decree or order for relief
against any entity controlling Buyer by a court of competent jurisdiction in any
involuntary case brought against any such entity under any bankruptcy insolvency
or other similar law (collectively, "Debtor Relief Laws") generally affecting
the rights of creditors and relief of debtors now or hereafter in effect, (B)
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar agent under applicable Debtor Relief Laws for
any such entity or for any substantial part of its assets or property, (C)
the ordering of the winding up or liquidation of any such entity's affairs,
(D) the filing of a petition against any such entity in any such
involuntary bankruptcy case, which petition remains undismissed for a
period of 180 Days or which is not dismissed or suspended pursuant to
Section 305 of the Federal Bankruptcy Code (or any corresponding provision of
any future United States bankruptcy law), (E) the commencement by any such
entity of a voluntary case under any applicable Debtor Relief Law now or
hereafter in effect, (F) the consent by any such entity to the entry of
an order for relief in an involuntary case under any such law or to the
appointment of or the taking of possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar agent under any
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applicable Debtor Relief Laws for any such entity or for any substantial part
of its assets or property, or (G) the making by any such entity of any general
assignment for the benefit of its creditors (the events referred to in clauses
(A) through (G) being collectively referred to as a "Buyer Bankruptcy Event");
(iii) the inaccuracy, in any material respect, of any representation or
warranty made by Buyer in Section 14.15 (a "Buyer Representation Event"); or
(iv) Buyer's failure to perform any covenant or other obligation in this
Agreement (other than those specified in clauses (i) through (iii) of this
Section 12.1(a)), and if such failure is susceptible of cure before Seller
suffers any costs or losses as a result thereof, such failure is not remedied
within thirty (30) Days of Buyer's receipt of a written notice describing the
particulars of such failure in reasonable detail (such failure being herein
called "Buyer Covenant Event").
(b) Seller Event Defined. Each of the following shall be
deemed a "Seller Event": (i) the failure of any Seller to pay or cause to be
paid any undisputed amount owing under this Agreement when due (including,
without limitation, interest accrued thereon in accordance with Section 8.5) for
a period of fifteen (15) Days after the due date, subject in all respects to
Seller's rights under Section 8.3 (a "Seller Payment Event"); (ii) a Seller
Delivery Event, as defined in Section 4.2(a); (iii) the occurrence of one or
more of the following events with respect to Seller: (A) the entry of a decree
or order for relief against any entity controlling Seller by a court of
competent jurisdiction in any involuntary case brought against any such entity
under any bankruptcy, insolvency or other similar law (collectively, "Debtor
Relief Laws") generally affecting the rights of creditors and relief of debtors
now or hereafter in effect, (B) the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar agent under
applicable Debtor Relief Laws for any such entity or for any substantial part of
its assets or property, (C) the ordering of the winding up or liquidation of any
such entity's affairs, (D) the filing of a petition against any such entity in
any such involuntary bankruptcy case, which petition remains undismissed for a
period of 180 Days or which is not dismissed or suspended pursuant to Section
305 of the Federal Bankruptcy Code (or any corresponding provision of any future
United States bankruptcy law), (E) the commencement by any such entity of a
voluntary case under any applicable Debtor Relief Law now or hereafter in
effect, (F) the consent by any such entity to the entry of an order for relief
in an involuntary case under any such law or to the appointment of or the taking
of possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar agent under any applicable Debtor Relief Laws for
any such entity or for any substantial part of its assets or property, or (G)
the making by any such entity of any general assignment for the benefit of its
creditors (the events referred to in clauses (A) through (G) being collectively
referred to as a "Seller Bankruptcy Event"); (iv) the inaccuracy, in any
material respect, of any representation or warranty made by Seller in Section
14.14 (a "Seller Representation Event"); or (v) Seller's failure to perform any
covenant or other obligation in this Agreement (other than those specified in
clauses (i) through (iv) of this Section 12.1(b)), and if such failure is
susceptible of cure before Buyer suffers any costs or losses as a result
thereof, such failure is not remedied within thirty (30) Days of Seller's
receipt of a written notice describing the particulars of such failure in
reasonable detail (such failure being herein called a "Seller Covenant Event").
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(c) Consequences of Events.
(i) Except as explicitly provided in this
Agreement, and subject in all respects to the other terms and conditions hereof
(including, without limitation, Sections 4.2, 4.3 and 14.4), an Unaffected
Party may take such actions as it may be permitted to take under applicable law
in consequence of an Event, including, without limitation, the exercise of
offset rights under Section 12.2, the right to suspend further performance
under this Agreement and the right to terminate this Agreement; provided,
however, that the right to terminate shall only be applicable (A) upon
occurrence of a Buyer Bankruptcy Event or a Seller Bankruptcy Event (whereupon
this Agreement shall terminate automatically and immediately), (B) upon
occurrence of at least three (3) Buyer Payment Events within any 12 Month
period, or five (5) Buyer Payment Events during the term of this Agreement
(whereupon this Agreement shall terminate, at Seller's election if Seller had
previously given at least ten (10) Days' prior written notice to Buyer of
Seller's intent to terminate this Agreement), (C) upon occurrence of at least
three (3) Seller's Payment Events within any 12 Month period (whereupon this
Agreement shall terminate, at Buyer's election if Buyer had previously given at
least ten (10) Days prior written notice to Seller of Buyer's intent to
terminate this Agreement), or (D) upon occurrence of a Material Buyer Take
Event, as provided in Section 4.2(c).
(ii) An Unaffected Party shall use commercially
reasonable efforts to mitigate costs or losses as a result of an Event,
including, without limitation, exercising commercially reasonable efforts to
find alternative markets for Committed Gas or alternative supplies of Gas, as
applicable.
(iii) Unless explicitly indicated to the contrary
in this Agreement, the remedies provided for in this Section 12.1 (including,
without limitation, termination of this Agreement) are cumulative of, and may
be exercised without prejudice to, any other remedies, whether at law or in
equity to which an Unaffected Party may be entitled under this Agreement for
any Event.
12.2 Offset Rights. No party hereto shall have the right to
offset, against any amounts owed to any other party pursuant to this Agreement,
any payments owed to or claims made by such paying party; provided, however,
that Buyer may offset, against payments made to Seller pursuant to Article VIII
hereof, any Costs of Delivery that are deductible from payments made to Seller
hereunder, and any amounts owing by Seller to Buyer pursuant to any
Administrator Gas Supply Agreement or Service Agreement entered into between
Seller and Buyer. Nothing in this Section 12.2 shall be construed as limited
or modifying the rights of either party under Section 8.3.
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ARTICLE XIII.
CERTAIN DEFINITIONS
13.1 Other Definitions. The phrases "Gas production owned or
controlled by Seller" and "Gas production acquired or obtained by Seller," or
similar phrases as used in this Agreement (including, but not limited to,
Section 3.1 hereof), shall mean produced or producible Gas that is either: (a)
owned by Seller as and when it is produced at the wellhead (including, without
limitation, residue Gas subject to Section 3.6(c)), (b) purchased by Seller and
resold by Seller to Buyer (such Gas being called "Third-Party Gas"), but only
if such Third-Party Gas is (i) being gathered and commingled with Gas owned or
controlled by Seller (within the meaning of clauses (a) or (c) of this Section
13.1) and all such Gas is subsequently gathered, processed or otherwise treated
in connection with the marketing of such Gas, or (ii) residue Gas subject to
Section 3.6(c), which has been commingled with and processed together with Gas
owned or controlled by Seller (within the meaning of clauses (a) or (c) of this
Section 13.1), or (c) Gas for which Seller has the written authority of the
third party owner(s) thereof to act as such owner(s)' representative, agent, or
attorney-in-fact in marketing such Gas (including, without limitation, under a
joint operating agreement pursuant to which Seller is the operator), but only
for the duration of such authorization.
ARTICLE XIV.
MISCELLANEOUS
14.1 Seller's Title Warranty. Seller warrants title to, or the
right to sell, all Gas delivered to Buyer under this Agreement. Seller also
warrants that all such Gas shall be free from all liens, encumbrances and
adverse claims, other than (a) Liens as permitted under Section 3.7, and (b)
liens mandated by Section 9-319 of the Texas Business and Commerce Code and the
statutes, if any, in other jurisdictions with like lien provisions of mandatory
application. Seller agrees that Section 8.7 of this Agreement is applicable to
any claims regarding title to the Gas delivered hereunder.
14.2 No Continuing Waiver. The waiver by either party of any
breach of any of the provisions of this Agreement shall not constitute a
continuing waiver of other breaches of the same or other provisions of this
Agreement.
14.3 Government Regulation. This Agreement is subject to all
present and future valid laws, orders, rules and regulations of any regulatory
body of the federal government or any state, county or local governmental body
having jurisdiction.
14.4 Exclusion of Consequential Damages. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER FOR ANY PUNITIVE, SPECIAL, CONSEQUENTIAL,
OR INDIRECT DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS.
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14.5 Notices. Unless otherwise explicitly provided herein, all
notices provided for in this Agreement shall be in writing and shall be (a)
delivered in person or by messenger, (b) mailed by Federal Express or similar
private courier service, (c) sent by United States certified mail (return
receipt requested), postage prepaid, (d) by facsimile, telex or telecopier, or
(e) by any other commercially reasonable means, to the addresses of the parties
set forth below or to such other addresses as either party may designate in
writing to the other party. All notices given hereunder shall be effective on
the date of actual receipt at the appropriate address. Notice given pursuant
to clause (d) shall be effective (i) upon actual receipt if received during
recipient's normal business hours, or (ii) at the beginning of the next
Business Day after receipt if received after the recipient's normal business
hours.
SELLER: Wire Transfer Payments:
- -------
First National Bank of Chicago
ABA # 071000013
Apache Corporation Master
Account No. 55-77446
For credit of (appropriate name of entity)
Notices, Statements and Correspondence:
Apache Corporation
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400
Attn: Manager, Gas Flow
Telephone: (713) 296-6000
Facsimile: (713) 296-6473
BUYER: Wire Transfer Payments:
- ------
Producers Energy Marketing, LLC
First National Bank of Chicago
ABA No.: 071000013
Account No.: 55-59340
Invoices:
Producers Energy Marketing, LLC
616 F.M. 1960 West, Suite 800
Houston, Texas 77090
Attn: Manager Gas Accounting
Telephone: (713) 582-6477
Facsimile: (713) 583-5272
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Notices and Correspondence:
Producers Energy Marketing, LLC
616 F.M. 1960 West, Suite 800
Houston, Texas 77090
Attn: Manager Producer Services
Telephone: (713) 583-6252
Facsimile: (713) 583-5252
and to:
Cinergy Capital & Trading Inc..
221 East Fourth Street
Cincinnati, Ohio 45201
Attn: President
Telephone: (513) 287-2382
Facsimile: (513) 287-3046
14.6 Assignability. This Agreement shall not be assigned by
either party without the prior written consent of the other party; provided,
however, that either party may assign this Agreement to a company that is an
Affiliate or a successor to its business without the consent of the other
party, so long as the assigning party remains liable hereunder.
14.7 Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
ITS PRINCIPLES OF CONFLICTS OF LAWS. Any dispute concerning the rights and
obligations of Buyer and Seller hereunder, or the interpretation of any
provision of this Agreement, shall be resolved in accordance with Section
14.10.
14.8 Integration. This Agreement sets forth all understandings
of Buyer and Seller with respect to the purchase and sale of Committed Gas.
All other agreements, oral or written, concerning such purchase and sale are
merged into and superseded by this Agreement. No modification or amendment
hereof shall be effective unless in writing and signed by both parties.
14.9 Confidentiality.
(a) Parties' Obligations. The terms of this Agreement,
including, but not limited to, the Contract Price and all other information
exchanged by the parties hereunder, will be kept confidential by the parties
unless (i) such information becomes known to the public at large without breach
of this Agreement, (ii) a party is obligated to disclose such information to a
Transporter or other third party for the purpose of effectuating the sale and
transportation of the Gas pursuant to this Agreement, (iii) to meet applicable
securities or commodity exchange requirements, (iv) to meet regulatory filing
requirements, (v) to comply with mandatory document production requirements
under federal or state Rules of Civil Procedure, a subpoena or other order of
judicial or
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administrative tribunal, (vi) to comply with contractual requirements with
third parties, (vii) to comply with a request made by a Lender, or (viii) to
disclose such information to advisors, potential investors and financial
institutions retained by such party for the purpose of effectuating a
transaction, but only if (x) the recipients of such information agree in
writing (A) to maintain such information in confidence, subject only to the
exceptions set forth in this Section 14.9 and (B) to use such information for
the sole purpose of (1) advising such party in connection with the relevant
transaction or (2) evaluating the relevant transaction and (y) after the
consummation or abandonment of the relevant transaction, the party disclosing
information notifies the other party of the identity of the person to whom such
information was disclosed.
(b) Handling of Request for Disclosure. If either party
believes that it may be required to disclose information concerning this
Agreement that is to be kept confidential pursuant to Section 14.9(a)(v), the
disclosing party will notify the other party in writing as soon as practicable
in advance of disclosure, specifying the nature of the request and the
information to be disclosed. To the extent permitted under statutes, rules,
regulations or contractual provisions applicable to the disclosure request, the
party required to make disclosure will assert any available privilege permitting
non-disclosure of the information that is to be kept confidential hereunder, or
request confidential treatment of the disclosed information, including exemption
from public disclosure under applicable "open records" and "freedom of
information" statutes. The party disclosing information required to be kept
confidential under Section 14.9 shall use commercially reasonable efforts to
obtain from the person to whom disclosure of such information is made an
agreement, to be signed by such person and any employee, agent, officer,
director or independent contractor of such person to whom disclosure shall be
made, such agreement to have terms and conditions substantially the same as
those set forth in this Section 14.9.
(c) Responsibility for Confidentiality. Each party will
be deemed solely responsible and liable for the actions of its employees,
independent contractors, officers, and agents for maintaining the
confidentiality commitments of this Article, but will be required in that regard
only to exercise such care in maintaining the confidentiality of this Agreement
as it normally exercises in preserving the confidentiality of its other
commercially sensitive documents.
14.10 Arbitration.
(a) Generally. Subject to the provisions of this Section
14.10, all claims, controversies, disputes and other matters in question
arising out of, or relating to, this Agreement or the breach hereof shall be
decided by arbitration proceedings before three (3) arbitrators in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then existing unless the parties mutually agree otherwise. This agreement to
arbitrate shall be specifically enforceable under the prevailing arbitration
law. The demand for arbitration shall be made within a reasonable time after
the claim, dispute or other matter in question has arisen, and in no event
shall it be made when the institution of a legal or equitable proceeding based
upon such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The parties shall continue performing their
obligations under this Agreement while any arbitration proceeding hereunder is
pending. The proceeding shall be held in Houston, Texas or another location
mutually
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agreeable to Buyer and Seller. Within 30 Days of the delivery of a demand for
arbitration hereunder, each Party shall designate one arbitrator. The two
arbitrators so selected shall agree upon a third arbitrator. If the two
arbitrators so selected shall have failed for any reason to have agreed upon a
third arbitrator within 45 Days of the delivery of a demand for arbitration
hereunder, either Party may request the Texas Chapter of the American
Arbitration Association to select the third arbitrator. All arbitrators
appointed hereunder shall be qualified by education, training and actual work
experience as experts on the disputed issue, and shall have had at least five
years' experience in the natural gas marketing industry. No arbitrator so
selected shall be, nor shall ever have been, an officer, director, employee or
consultant of either party or any Affiliate of either party. Within 30 Days
after the arbitrators have been appointed in accordance with the provisions of
this Section 14.10(a), the arbitrators shall meet with the parties in Houston,
Texas to hear and determine the questions in dispute. Each party shall be
required to make full disclosure of all relevant material factual and legal
issues to the arbitrators, to the extent each party has knowledge of such
issues. The arbitrators' decision shall be rendered in writing 15 Days after
their initial meeting with the parties. The award rendered by a majority of
the arbitrators shall be final and non-appealable, and judgment may be entered
upon it in accordance with applicable law in any court having jurisdiction
thereof, the parties hereto consenting to the jurisdiction of such courts for
such purpose. The party prevailing in the arbitration shall also be awarded
all reasonable attorneys' fees, costs and expenses of arbitration, including,
without limitation, all arbitrators' fees, costs and expenses.
(b) Special Provisions Applicable to Price Disputes. The
provisions of this Section 14.10(b) shall apply to disputes relating to the
determination of the Contract Price, including, without limitation, issues
relating to the choice of an applicable Index, Index Price or the determination
of Index Price Adjustments or Costs of Delivery (all such disputes being
hereinafter called "Price Disputes"). Each party shall deliver to the other
party and to the arbitrators, within ten (10) Business Days of the appointment
of all the arbitrators, a written proposal stating such party's proposed
outcome, together with supporting materials and documentation. Each party
shall submit its response to the other party's proposal within ten (10)
Business Days after the arbitrators' and other party's receipt of such
proposal. The arbitrators, in their discretion, may request the submission of
additional information, and may conduct a hearing on the subject matter of the
dispute. Within forty-five (45) Days after the selection and appointment of
the arbitrators, a majority of the arbitrators shall select and adopt either
Seller's proposal or Buyer's proposal, without modification or compromise. The
arbitrators shall make their decision as follows: (i) in any Price Dispute over
an Index, the arbitrators shall decide which of the proposed Indexes presented
to the arbitrators, after Index Price Adjustments and deductions for Costs of
Delivery, best represents the market price for Gas of like quantities and
quality at the applicable Delivery Point(s), (ii) in any Price Dispute over
Index Price Adjustments, the arbitrators shall decide which proposed Index
Price Adjustment presented to the arbitrators best represents the differentials
reasonably necessary to adjust the Index Price for Gas to accurately reflect
the market price for Gas of like quantities and quality at the Delivery
Point(s) in question, and (iii) in all other Price Disputes (including, but not
limited to, Price Disputes regarding Costs of Delivery), the arbitrators shall
consider the terms and conditions of this Agreement and the requirements of
applicable Texas law, including, without limitation, the Texas version of the
Uniform Commercial Code in effect at the period relevant to the Price Dispute
under consideration. The applicable Contract Price during the arbitration
shall be the Contract Price being
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paid on the day before the Price Effective Date. Upon the conclusion of the
arbitration, such Contract Price, if it has changed as a result of the
arbitrators' decision, shall be adjusted retroactive to the Price Effective
Date. Unless explicitly provided otherwise in this Section 14.10(b), the
provisions of Section 14.10(a) shall be applicable to all arbitrations with
respect to Price Disputes.
14.11 Taxes. The Contract Price to be paid by Buyer to Seller
for Committed Gas purchased and sold hereunder is inclusive of the
reimbursement of one hundred percent (100%) of all state severance tax
reimbursement. Production, severance, ad valorem, and/or similar taxes levied
on the Committed Gas at or prior to the Delivery Point(s), and all such taxes,
if due, shall be paid by Seller; provided, however, that where Buyer is
required by law to be responsible for the payment of production, severance or
similar taxes, Buyer shall make such payment and the Contract Price payable to
Seller shall be correspondingly decreased by a like amount. If state law
requires Buyer to remit such taxes to the collecting authority, then Buyer
shall do so and deduct the taxes so paid on Seller's behalf from payments
otherwise due to Seller hereunder.
14.12 Construction of Agreement.
(a) General Principles. In construing this Agreement,
the following principles shall be followed:
(i) no consideration shall be given to the fact
or presumption that one party had a greater or lesser hand in drafting this
Agreement;
(ii) examples shall not be construed to limit,
expressly or by implication, the matter they illustrate;
(iii) the word "includes" and its syntactical
variants mean "includes, but is not limited to" and corresponding syntactical
variant expressions;
(iv) the plural shall be deemed to include the
singular and vice versa, as applicable;
(v) the term "party" shall refer to all
Affiliates of such party unless the context specifically indicates to the
contrary; and
(vi) each exhibit, attachment, and schedule to
this Agreement is a part of this Agreement, but if there is any conflict or
inconsistency between the main body of this Agreement and any exhibit,
attachment, or schedule, the provisions of the main body of this Agreement
shall prevail.
(b) Severability. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under the present or future laws
effective during the term of this Agreement, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement, and
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(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision, there will be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible to reflect
the parties' original intentions and may be legal, valid and enforceable.
14.13 Relationship of Parties. This Agreement does not create a
partnership, joint venture, or relationship of trust or agency between the
parties.
14.14 Representations and Warranties of the Seller. Each party
executing this Agreement as a Seller hereby represents and warrants to Buyer
that as to such Seller on and as of the date hereof (and no party executing
this Agreement as a Seller shall be liable to Buyer or another for any
inaccuracy of any representation or warranty made hereunder by another party
executing this Agreement as a Seller):
(a) It is duly formed and validly existing and, to the
extent it is a corporation, in good standing under the laws of the state or
jurisdiction of formation, with all requisite corporate, partnership or limited
liability company, as the case may be, power and authority to carry on the
business in which it is engaged and to perform its respective obligations under
this Agreement;
(b) The execution and delivery of this Agreement have
been duly authorized and approved by all requisite corporate, partnership,
limited liability company, or similar action;
(c) It has all the requisite corporate, limited liability
company, partnership or similar power and authority to enter into this
Agreement and perform its obligations hereunder;
(d) The execution and delivery of this Agreement do not,
and consummation of the transactions contemplated herein will not, violate any
of the material provisions of organizational documents, any material agreement
pursuant to which such party or its properties are bound or, to its knowledge,
any material applicable laws; and
(e) This Agreement is valid, binding, and enforceable
against it in accordance with its terms, subject to bankruptcy, moratorium,
insolvency and other laws generally affecting creditor's rights and general
principles of equity (whether applied in a proceeding in a court of law or
equity).
14.15 Representations and Warranties of Buyer. Buyer hereby
represents and warrants to each party executing this Agreement as a Seller that
on and as of the date hereof:
(a) It is duly formed and validly existing and in good
standing under the laws of the state or jurisdiction of formation, with all
requisite corporate power and authority to carry on the business in which it is
engaged and to perform its respective obligations under this Agreement;
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(b) The execution and delivery of this Agreement have
been duly authorized and approved by all requisite corporate action;
(c) It has all the requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder;
(d) The execution and delivery of this Agreement do not,
and consummation of the transactions contemplated herein will not, violate any
of the material provisions of organizational documents, any material agreement
pursuant to which such party or its properties are bound or, to its knowledge,
any material applicable laws; and
(e) This Agreement is valid, binding, and enforceable
against it in accordance with its terms, subject to bankruptcy, moratorium,
insolvency and other laws generally affecting creditor's rights and general
principles of equity (whether applied in a proceeding in a court of law or
equity).
14.16 Seller's Agent. Each party executing this Agreement as a
Seller hereby appoints Apache Corporation as its agent, attorney-in-fact and
representative ("Seller's Agent") for the purpose of (a) providing or receiving
any other notices required or permitted hereunder, (b) receiving any amounts or
payments due any such Seller hereunder and (c) making any elections or taking
any actions required or permitted hereunder by Seller, including, without
limitation, making any amendments to this Agreement or any Exhibit thereto.
Buyer is entitled to assume that Seller's Agent is authorized to act on behalf
of each Seller hereunder to avoid liability should any dispute as to the
matters set forth in the preceding sentence arise. It is specifically
understood and agreed, however, that (i) Buyer reserves the right to deal
directly with any party upon Buyer's actual awareness of any dispute between a
party and its Seller's Agent and (ii) Buyer may interplead any amounts in
dispute between a party and its Seller's Agent in accordance with and subject
to the terms of Section 8.7 and Section 14.17.
14.17 No Third Party Beneficiaries. Any agreement herein
contained, expressed or implied, shall be only for the benefit of the parties
and their respective legal representatives, successors, and assigns, and such
agreements or assumptions shall not inure to the benefit of any other person
whomsoever, it being the intention of the parties that no person shall be
deemed a third party beneficiary of this Agreement. It is specifically
understood and agreed that, in the performance of its duties hereunder, Buyer
may interplead funds in its possession with respect to this Agreement if there
is a dispute regarding the disposition of such funds between the Seller and a
third person, or any party and its Seller's Agent, and Buyer shall be
indemnified for all Losses in consequence of such interpleader in accordance
with Section 8.7.
14.18 Further Assurances; Transition Matters. Each party shall
take such acts and execute and deliver such documents in form and substance
reasonably satisfactory to each of them, in order to effectuate the purposes of
this Agreement.
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14.19 Ancillary Agreements. Simultaneously with the execution
and delivery of this Agreement, Buyer and Seller have also executed and
delivered the following Agreements: (i) the Service Agreement; (ii) the
Contract Administration Agreement; and (iii) the Administrator Gas Supply
Agreement (such Agreements being collectively called the "Ancillary
Agreements"). With respect to such Ancillary Agreements, (x) each party's
execution and delivery of the Ancillary Agreements is a material inducement to
the other party in executing and delivering this Agreement and (y) each party's
performance of its obligations under such Ancillary Agreements is an integral
part of its performance of its obligations hereunder.
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IN WITNESS WHEREOF, this Agreement has been executed in duplicate
originals by the parties hereto effective as of the Effective Date.
APACHE CORPORATION
By: /s/ Thomas L. Mitchell
----------------------------------------
Name: Thomas L. Mitchell
Title: Vice President and Controller
MW PETROLEUM CORPORATION
By: /s/ Thomas L. Mitchell
------------------------------------------
Name: Thomas L. Mitchell
Title: Vice President and Controller
PRODUCERS ENERGY MARKETING, LLC
By: /s/ R. Kent Samuel
-------------------------------------------
Name: R. Kent Samuel
Title: Vice President and Chief Financial
Officer
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[EXHIBITS AND SCHEDULED
INTENTIONALLY OMITTED]
<PAGE> 1
EXHIBIT 99.1
[Apache Corporation Letterhead]
APACHE ANNOUNCES MARKETING ALLIANCE WITH CINERGY
CONTACTS:
(Media): Tony Lentini (713) 296-6227
Bill Mintz (713/296-7276)
(Investor): Robert Dye (713) 296-6662
Houston (June 18, 1998) - Apache Corporation (NYSE: APA) today announced a new
strategic alliance with Cinergy Corporation (NYSE: CIN) to market Apache's
North American natural gas production.
Cinergy is acquiring Producers Energy Marketing LLC (ProEnergy) from Apache and
Oryx Energy Company (NYSE: ORX), its current owners, and will continue to
market the two companies' North American gas production for 10 years with an
option to terminate the agreement after six years.
Cinergy is paying $42.5 million, subject to adjustments, for ProEnergy. Apache
will take its 57 percent stake primarily in shares of Cinergy's common stock.
Cinergy will integrate its power marketing operations in Houston with
ProEnergy's gas marketing operations. ProEnergy ranks among the top 30 gas
marketers nationally, with sales of about 1.7 billion cubic feet (Bcf) of gas
per day during 1997.
"ProEnergy has established itself as a significant player in its marketplace;
this alliance represents the evolution of the organization," said G. Steven
Farris, Apache president and chief operating officer.
"Cinergy is one of the nation's leading diversified energy companies," he said.
"While our relationship with Cinergy is new, we have developed great respect
for its integrity and credibility.
"We believe this long-term alliance will strengthen the ability of all parties
to excel in their respective areas of competence," Farris said. "The combined
marketing unit will have the size and resources to grow and compete in rapidly
expanding markets."
Cinergy serves more than 14 million electric customers and 455,000 gas
customers in Indiana, Ohio and Kentucky through its operating companies,
Cincinnati Gas & Electric and PSI Energy. Cinergy's international investments
include Midlands Electricity, which serves 2.2 million electric customers in
the United Kingdom. It is an active power marketer, trading 56.6 million
megawatt hours in 1997.
Apache Corporation is a large oil and gas independent with operations in North
America, Egypt, Western Australia, Poland, People's Republic of China, Cote
d'Ivoire and Indonesia. Its shares are traded on the New York and Chicago stock
exchanges.
-end-
