<PAGE>
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): APRIL 24, 1998
CROSS TIMBERS OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-10662 75-2347769
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
810 HOUSTON STREET, SUITE 2000, FORT WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
(817) 870-2800
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 24, 1998, Cross Timbers Oil Company ("the Company") acquired from
EEX Corporation and EEX Operating L.P. certain producing properties and
undeveloped acreage in the East Texas Basin ("EEX Acquisition") for a purchase
price of $265 million. The purchase price is expected to be reduced to $245
million by estimated net revenues from the effective date of January 1, 1998
through the closing date. The acquisition is subject to third party consents
and other typical purchase price adjustments.
Also on April 24, 1998, the Company sold a production payment, payable from
future production from certain properties acquired in the EEX Acquisition, to
EEX Corporation for $30 million. There was no gain or loss on this sale. Under
the terms of the production payment conveyance and the related delivery
agreement, the Company must deliver to EEX Corporation a total of approximately
34.3 billion cubic feet (27.8 billion cubic feet net to the Company's interest)
of gas during the 10-year period beginning January 1, 2002, with scheduled
deliveries by year, subject to certain variables. EEX Corporation will reimburse
the Company for all royalty and production and property tax payments related to
such deliveries. EEX Corporation will also pay the Company an operating fee of
$0.257 per Mcf for deliveries in 2002, which fee will be escalated annually at a
rate of 5.5%. Each December, beginning in 1998, the Company has the option to
repurchase a portion of this production payment, based on a total cost of $30
million plus interest accrued from May 1, 1998 through the repurchase date.
Under the terms of a separate gas purchase agreement, also entered into
with EEX Corporation on April 24, 1998, the Company has committed to sell all
production from certain properties in the EEX Acquisition to EEX Corporation at
market prices through the earlier of December 31, 2001, or until a total of
approximately 34.3 billion cubic feet (27.8 billion cubic feet net to the
Company's interest) of gas has been delivered.
The EEX Acquisition, net of the sale of the production payment, was funded
by borrowings available under the Company's Revolving Credit Agreement with
commercial banks dated April 17, 1998. On April 27, 1998, such borrowings were
reduced by net proceeds of $133.3 million from the sale of 7,203,450 shares of
the Company's common stock in a public offering.
As of April 24, 1998, the Company's internal engineers estimate proved
reserves attributable to the EEX Acquisition, net of the production payment, to
be 222.2 billion cubic feet of natural gas and 1.6 million barrels of oil,
concentrated in approximately 88,000 gross (59,000 net) acres. Current net
daily production is approximately 80 million cubic feet equivalent from about
784 (600 net) active wells with a reserve-to-production index of almost nine
years, or eight years net of the production payment. Average daily production
attributable to the production payment ranges from 9.5 million cubic feet in
2002 to 5.3 million cubic feet in 2011. The Company will operate more than 97%
of the value of the properties. The acquisition also includes more than 12,800
net undeveloped acres located primarily in Anderson County, Texas.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Page
----
(a) Financial statements of businesses acquired.
EEX Acquisition:
Report of Independent Public Accountants ................... 4
Statements of Revenues and Direct Operating Expenses
for the Years Ended December 31, 1997 and 1996 ......... 5
Notes to Statements of Revenues and Direct Operating
Expenses ............................................... 6-7
-2-
<PAGE>
Statements of Revenues and Direct Operating Expenses
(Unaudited) and related Notes for the Three Months Ended
March 31, 1998 and 1997 are impracticable to file as of
the date of this report. Such financial statements will
be filed by amendment as soon as practicable, but no
later than July 7, 1998.
(b) Pro forma financial information.
Cross Timbers Oil Company:
Pro Forma Consolidated Financial Statements (Unaudited) .... 8
Pro Forma Consolidated Balance Sheet at December 31, 1997 .. 9
Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1997 ................... 10
Notes to Pro Forma Consolidated Financial Statements........ 11-13
The Pro Forma Consolidated Statement of Operations and
related Notes for the Three Months Ended March 31, 1998 are
impracticable to file as of the date of this report. Such
financial statements will be filed by amendment as soon as
practicable, but no later than July 7, 1998.
(c) Exhibits.
Exhibit Number and Description Page
------------------------------- ----
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Purchase and Sale Agreement between EEX Operating L.P. and
EEX Corporation as Seller and Cross Timbers Oil Company as
Buyer, dated February 12, 1998 (incorporated by reference
to Exhibit 2.1 of Form 8-K dated February 12, 1998)
2.2 Letter Amendment dated March 20, 1998 to Purchase and Sale
Agreement dated February 12, 1998, between EEX Operating
L.P., et al and Cross Timbers Oil Company (incorporated
by reference to Exhibit 2.2 of Form 8-K dated February 12,
1998)
(99) Additional Exhibits
99.1 Revolving Credit Agreement, dated April 17, 1998, among the
Company and certain commercial banks named therein
(incorporated by reference to Exhibit 99.1 of Form 8-K dated
February 12, 1998)
99.2 Conveyance of Production Payment between Cross Timbers Oil
Company as grantor and EEX Corporation as grantee, dated
April 24, 1998
99.3 Delivery Agreement between Cross Timbers Oil Company and EEX
Corporation, dated April 24, 1998
99.4 Gas Purchase Agreement between Cross Timbers Oil Company and
EEX Corporation, dated April 24, 1998
-3-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Cross Timbers Oil Company:
We have audited the accompanying statements of revenues and direct operating
expenses of the EEX Acquisition (see Note 1) for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
management of Cross Timbers Oil Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such statements present fairly, in all material respects, the
revenues and direct operating expenses of the EEX Acquisition described in Note
1 for the years ended December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
April 17, 1998
-4-
<PAGE>
EEX ACQUISITION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
REVENUES
Oil............................................. $ 5,298 $ 5,734
Gas............................................. 88,747 92,532
------- -------
Total......................................... 94,045 98,266
------- -------
DIRECT OPERATING EXPENSES
Production...................................... 6,933 8,055
Taxes on production and property................ 10,109 10,155
------- -------
Total......................................... 17,042 18,210
------- -------
EXCESS OF REVENUES OVER
DIRECT OPERATING EXPENSES....................... $77,003 $80,056
======= =======
</TABLE>
See Accompanying Notes to Statements of Revenues and Direct Operating Expenses.
-5-
<PAGE>
EEX ACQUISITION
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION
On April 24, 1998, Cross Timbers Oil Company ("the Company") acquired from
EEX Corporation and EEX Operating L.P. certain producing properties and
undeveloped acreage in the East Texas Basin ("EEX Acquisition") for a purchase
price of $265 million. The purchase price is expected to be reduced to $245
million by estimated net revenues from the effective date of January 1, 1998
through the closing date. The acquisition is subject to third party consents
and other typical purchase price adjustments.
Also on April 24, 1998, the Company sold a production payment, payable from
future production from certain properties acquired in the EEX Acquisition, to
EEX Corporation for $30 million. There was no gain or loss on this sale. Under
the terms of the production payment conveyance and the related delivery
agreement, the Company must deliver to EEX Corporation a total of approximately
34.3 billion cubic feet (27.8 billion cubic feet net to the Company's interest)
of gas during the 10-year period beginning January 1, 2002, with scheduled
deliveries by year, subject to certain variables. EEX Corporation will reimburse
the Company for all royalty and production and property tax payments related to
such deliveries. EEX Corporation will also pay the Company an operating fee of
$0.257 per Mcf for deliveries in 2002, which fee will be escalated annually at a
rate of 5.5%. Each December, beginning in 1998, the Company has the option to
repurchase a portion of this production payment, based on a total cost of $30
million plus interest accrued from May 1, 1998 through the repurchase date.
The EEX Acquisition, net of the sale of the production payment, was funded
by borrowings available under the Company's Revolving Credit Agreement with
commercial banks dated April 17, 1998. On April 27, 1998, such borrowings were
reduced by net proceeds of $133.3 million from the sale of 7,203,450 shares of
the Company's common stock in a public offering.
2. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
Estimated Quantities of Proved Oil and Gas Reserves
The proved reserve information presented below has been estimated by the
Company's internal engineers, and reviewed by independent petroleum engineers,
using December 31, 1997 prices and costs. Proved reserves are estimated
quantities of crude oil and natural gas which, based on geologic and engineering
data, are estimated to be reasonably recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are those which are expected to be recovered through existing wells
with existing equipment and operating methods. Because of inherent
uncertainties and the limited nature of reservoir data, such estimates are
subject to change as additional information becomes available.
Proved Oil and Gas Reserves at December 31, 1997
Oil (Bbls) Gas (Mcf)
---------- ---------
(in thousands)
Proved reserves ......................... 1,599 232,229
===== =======
Proved developed reserves ............... 1,365 191,293
===== =======
-6-
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of year-end prices for oil
and gas and year-end costs for estimated future development and production
expenditures to produce year-end estimated proved reserves. Discounted future
net cash flows are calculated using a 10% rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, year-end prices, used to determine the standardized
measure of discounted cash flows, are influenced by seasonal demand and other
factors and may not be the most representative in estimating future revenues or
reserve data.
Standardized Measure of Discounted Future Net Cash Flows at December 31,
1997
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Future cash inflows........................ $ 590,952
Future costs:
Production................................ (187,402)
Development............................... (36,754)
---------
Future net cash inflows.................... 366,796
10% annual discount........................ (142,534)
---------
Standardized measure of discounted future
net cash flows before income taxes $ 224,262
=========
</TABLE>
-7-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying Pro Forma Consolidated Financial Statements have been
prepared by recording pro forma adjustments to the historical consolidated
financial statements of Cross Timbers Oil Company ("the Company"). The Pro Forma
Consolidated Balance Sheet as of December 31, 1997 has been prepared as if the
EEX Acquisition, net of the production payment, and the Offering (as described
in Note 2) were consummated on December 31, 1997. The Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1997 has been prepared
as if the EEX Acquisition, net of the production payment, the 1997 Acquisitions
and the Offering (as described in Note 2) were consummated on January 1, 1997.
The Pro Forma Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations that would have
occurred had the transactions been effected on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Consolidated Statement of Operations due to normal production declines,
changes in prices, future transactions and other factors. These statements
should be read in conjunction with the Company's audited consolidated financial
statements and the related notes for the year ended December 31, 1997 included
in the Company's 1997 Form 10-K and the statements of revenues and direct
operating expenses of the EEX Acquisition for the year ended December 31, 1997.
-8-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 3)
-------------------------------------------------------
EEX
Historical Acquisition (a) Offering (b) Pro Forma
----------- --------------- ------------ -----------
ASSETS (in thousands)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................... $ 3,816 $ - $ - $ 3,816
Accounts receivable, net.................... 43,996 - - 43,996
Other current assets........................ 4,350 - - 4,350
---------- ---------- ---------- ----------
Total Current Assets.................... 52,162 - - 52,162
---------- ---------- ---------- ----------
Property and Equipment, at cost
- successful efforts method.............. 961,368 215,000 - 1,176,368
Accumulated depreciation, depletion
and amortization....................... (237,532) - - (237,532)
---------- ---------- ---------- ----------
Net Property and Equipment.............. 723,836 215,000 - 938,836
---------- ---------- ---------- ----------
Other Assets.................................. 12,457 - - 12,457
---------- ---------- ---------- ----------
TOTAL ASSETS.................................. $ 788,455 $ 215,000 $ - $1,003,455
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.... $ 54,339 $ - $ - $ 54,339
Accrued stock incentive compensation........ 554 - - 554
---------- ---------- ---------- ----------
Total Current Liabilities............... 54,893 - - 54,893
---------- ---------- ---------- ----------
Long-term Debt................................ 539,000 215,000 (133,304) 620,696
---------- ---------- ---------- ----------
Deferred Income Taxes Payable................. 21,320 - - 21,320
---------- ---------- ---------- ----------
Other Long-term Liabilities................... 2,999 - - 2,999
---------- ---------- ---------- ----------
Stockholders' Equity:
Series A convertible preferred stock
($.01 par value, 1,138,729 shares
issued, at liquidation value of $25)... 28,468 - - 28,468
Common stock ($.01 par value,
46,310,710 shares issued before the
Offering and 53,514,160 shares issued
after the Offering).................... 463 - 72 535
Additional paid-in capital.................. 210,954 - 133,232 344,186
Treasury stock (6,860,779 shares)........... (76,656) - - (76,656)
Retained earnings........................... 7,014 - - 7,014
---------- ---------- ---------- ----------
Total Stockholders' Equity.............. 170,243 - 133,304 303,547
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY....................... $ 788,455 $ 215,000 $ - $1,003,455
========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
-9-
<PAGE>
CROSS TIMBERS OIL COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments (Note 3)
-------------------------------------
EEX 1997
Acquisition Acquisitions
Historical (c) (d) Other Pro Forma
---------- ----------- ------------ -------- -------------
REVENUES (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Oil and condensate................... $ 75,223 $ 5,298 $ 1,623 $ - $ 82,144
Gas and natural gas liquids.......... 110,104 88,747 35,220 - 234,071
Gas gathering, processing
and marketing..................... 9,851 - - - 9,851
Other................................ 5,494 - - - 5,494
---------- ---------- ---------- ---------- ----------
Total Revenues.................... 200,672 94,045 36,843 - 331,560
---------- ---------- ---------- ---------- ----------
EXPENSES
Production........................... 43,580 6,933 5,049 6,718 (e) 62,280
Exploration.......................... 2,088 - - - 2,088
Taxes on production and property..... 16,405 10,109 3,574 - 30,088
Depreciation, depletion
and amortization.................. 47,721 - - 45,610 (f) 93,331
General and administrative........... 15,818 - - (4,737)(e) 11,081
Gas gathering and processing......... 8,517 - - - 8,517
Interest, net........................ 26,677 - - 17,360 (g) 44,037
Trust development costs.............. 665 - - - 665
---------- ---------- ---------- ---------- ----------
Total Expenses.................... 161,471 17,042 8,623 64,951 252,087
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX................. 39,201 77,003 28,220 (64,951) 79,473
Income Tax Expense....................... 13,517 - - 13,692 (h) 27,209
---------- ---------- ---------- ---------- ----------
NET INCOME............................... 25,684 77,003 28,220 (78,643) 52,264
Preferred Stock Dividends................ 1,779 - - - 1,779
---------- ---------- ---------- ---------- ----------
EARNINGS AVAILABLE TO
COMMON STOCK......................... $ 23,905 $ 77,003 $ 28,220 $ (78,643) $ 50,485
========== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE
Basic................................ $ 0.60 $ 1.07
========== ==========
Diluted.............................. $ 0.59 $ 1.05
========== ==========
Weighted Average
Common Shares Outstanding............ 39,773 46,976
========== ==========
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
-10-
<PAGE>
CROSS TIMBERS OIL COMPANY
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Pro Forma Consolidated Balance Sheet at December 31,
1997 has been prepared assuming Cross Timbers Oil Company ("the Company")
consummated the EEX Acquisition, net of the production payment, and the Offering
(Note 2) on December 31, 1997. The accompanying Pro Forma Consolidated Statement
of Operations for the year ended December 31, 1997 has been prepared assuming
that the Company consummated the EEX Acquisition, net of the production payment,
the 1997 Acquisitions and the Offering (Note 2) on January 1, 1997. The Pro
Forma Consolidated Statement of Operations is not necessarily indicative of the
results of operations had the above described transactions occurred on the
assumed dates.
2. ACQUISITIONS
EEX Acquisition
On April 24, 1998, Cross Timbers Oil Company ("the Company") acquired
from EEX Corporation and EEX Operating L.P. certain producing properties and
undeveloped acreage in the East Texas Basin ("EEX Acquisition") for a purchase
price of $265 million. The purchase price is expected to be reduced to $245
million by estimated net revenues from the effective date of January 1, 1998
through the closing date. The acquisition is subject to third party consents and
other typical purchase price adjustments.
Also on April 24, 1998, the Company sold a production payment, payable
from future production from certain properties acquired in the EEX Acquisition,
to EEX Corporation for $30 million. There was no gain or loss on this sale.
Under the terms of the production payment conveyance and the related delivery
agreement, the Company must deliver to EEX Corporation a total of approximately
34.3 billion cubic feet (27.8 billion cubic feet net to the Company's interest)
of gas during the 10-year period beginning January 1, 2002, with scheduled
deliveries by year, subject to certain variables. EEX Corporation will reimburse
the Company for all royalty and production and property tax payments related to
such deliveries. EEX Corporation will also pay the Company an operating fee of
$0.257 per Mcf for deliveries in 2002, which fee will be escalated annually at a
rate of 5.5%. Each December, beginning in 1998, the Company has the option to
repurchase a portion of this production payment, based on a total cost of $30
million plus interest accrued from May 1, 1998 through the repurchase date.
Under the terms of a separate gas purchase agreement, also entered into
with EEX Corporation on April 24, 1998, the Company has committed to sell all
production in certain properties in the EEX Acquisition to EEX Corporation at
market prices through the earlier of December 31, 2001, or until a total of
approximately 34.3 billion cubic feet (27.8 billion cubic feet net to the
Company's interest) of gas has been delivered.
The EEX Acquisition, net of the sale of the production payment, was
funded by borrowings available under the Company's Revolving Credit Agreement
with commercial banks dated April 17, 1998. On April 27, 1998, such borrowings
were reduced by net proceeds of $133.3 million from the sale of 7,203,450 shares
of the Company's common stock in a public offering.
1997 Acquisitions
The acquisitions described in the following three paragraphs are
collectively referred to as the "1997 Acquisitions."
On December 1, 1997, the Company acquired interests in certain
producing oil and gas properties in the San Juan Basin of New Mexico from a
subsidiary of Amoco Corporation ("Amoco") at an estimated purchase price of $195
million, including $5.7 million value for warrants issued to Amoco to purchase
937,500 shares of the
-11-
<PAGE>
Company's common stock at price of $15.31 per share for a period of five years.
Amoco elected to accept certain producing properties owned by the Company valued
at $15.7 million in lieu of cash, reducing cash consideration to $173.6 million,
which was primarily funded with bank debt.
On May 14, 1997, the Company acquired primarily gas-producing
properties in Oklahoma, Kansas and Texas for an estimated adjusted purchase
price of $39 million from a subsidiary of Burlington Resources Inc. The
properties are primarily operated interests. The Company funded the acquisition
with bank debt and cash flow from operations.
From January through May 1997, the Company purchased an additional
370,500 units of beneficial interest, or 6%, of the outstanding units of
beneficial interest in the Cross Timbers Royalty Trust at a cost of $5.4
million, funded primarily with bank debt.
3. PRO FORMA ADJUSTMENTS
Pro forma adjustments necessary to adjust the Consolidated Balance
Sheet and Statement of Operations are as follows:
(a) To record the EEX Acquisition ($245 million), net of the sale of
the production payment ($30 million).
(b) To record net proceeds of $133,304,000 received by the Company
upon consummation of the Offering, reflecting the sale of
7,203,450 shares of Common Stock by the Company to the public at
a price of $19.50 per share, less underwriters' discount and
estimated expenses, resulting in a $72,000 increase in Common
Stock (equal to the par value of the shares issued), and a
$133,232,000 increase in additional paid-in capital.
(c) To record revenue and direct operating expenses of the EEX
Acquisition.
(d) To record revenue and direct operating expenses of the 1997
Acquisitions.
(e) To record the estimated increase in general and administrative
expense ($2,735,000) and an allocation from general and
administrative expense to production expense ($7,472,000, less
billing to joint owners of $754,000) attributable to the EEX
Acquisition and the 1997 Acquisitions.
(f) To record estimated depreciation and depletion expense
attributable to the EEX Acquisition and the 1997 Acquisitions
using the unit-of-production method applied to the cost of the
properties acquired.
(g) To record the increase in interest expense ($26,558,000)
attributable to increased long-term debt to finance the purchase
of the EEX Acquisition and the 1997 Acquisitions, less the
reduction in interest expense ($9,198,000) attributable to
decreased long-term debt upon application of net proceeds from
the Offering. Interest expense was determined using the weighted
average interest rate incurred by the Company under its
revolving credit facilities, assuming the entire cost of the
acquisitions had been funded with bank borrowings at January 1,
1997.
(h) To record federal income tax at a corporate statutory rate of
34% related to net pro forma adjustments.
-12-
<PAGE>
4. PRO FORMA SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
Estimated Quantities of Pro Forma Proved Oil and Gas Reserves
Pro forma reserve estimates at December 31, 1997 are based on reports
prepared by independent petroleum engineers for proved reserves of the Company
and reports prepared by the Company's internal engineers and reviewed by
independent engineers for proved reserves of the EEX Acquisition, using December
31, 1997 prices and costs.
Proved reserves are estimated quantities of crude oil and natural gas
which, based on geologic and engineering data, are estimated to be reasonably
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods. Because of inherent uncertainties and the limited nature of reservoir
data, such estimates are subject to change as additional information becomes
available.
Pro Forma Proved Oil and Gas Reserves at December 31, 1997
<TABLE>
<CAPTION>
Natural Gas
Oil (Bbls) Gas (Mcf) Liquids (Bbls)
---------- --------- --------------
(in thousands)
<S> <C> <C> <C>
Proved reserves............... 49,453 1,048,004 13,810
====== ========= ======
Proved developed reserves..... 35,200 869,003 11,494
====== ========= ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Pro Forma
Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows
("Standardized Measure") is prepared using assumptions required by the Financial
Accounting Standards Board. Such assumptions include the use of year-end prices
for oil and gas and year-end costs for estimated future development and
production expenditures to produce year-end estimated proved reserves.
Discounted future net cash flows are calculated using a 10% rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, year-end prices, used to determine the standardized
measure of discounted cash flows, are influenced by seasonal demand and other
factors and may not be the most representative in estimating future revenues or
reserve data.
Pro Forma Standardized Measure of Discounted Future Net Cash Flows
at December 31, 1997
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Future cash inflows.............................................. $ 3,195,405
Future costs:
Production................................................... (1,166,719)
Development.................................................. (177,348)
--------------
Future net cash inflows before income tax........................ 1,851,338
Future income tax................................................ (342,985)
--------------
Future net cash flows............................................ 1,508,353
10% annual discount.............................................. (673,230)
--------------
Standardized measure of discounted future net cash flows......... $ 835,123
==============
</TABLE>
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROSS TIMBERS OIL COMPANY
Date: April 27, 1998 By: BENNIE G. KNIFFEN
-------------------------------------
Bennie G. Kniffen
Senior Vice President and Controller
-14-
<PAGE>
EXHIBIT 99.2
CONVEYANCE OF PRODUCTION PAYMENT
--------------------------------
STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS:
COUNTIES OF HENDERSON (S)
AND VAN VAN ZANDT (S)
THAT CROSS TIMBERS OIL COMPANY, whose address is 810 Houston, Suite 2000,
Fort Worth, Texas 76102 (herein called "Grantor") and EEX CORPORATION whose
address is 2500 CityWest Blvd., Suite 1400, Houston, Texas 77042 (herein called
"Grantee"), in consideration of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby agree as follows:
I. DEFINITIONS
Unless another definition is expressly stated herein, the following terms,
where used in this Conveyance of Production Payment ("Conveyance"), shall have
the following meaning:
1. "Btu" means British thermal unit.
2. "Conveyed Interest" shall have the meaning set forth in Article II
below.
3. "Oil and gas lease" or "lease" means any written instrument which
gives Grantor the rights to drill for, produce and dispose of gas in,
under, and from the lands described herein.
4. "MMBtu" means one million (1,000,000) Btu's.
5. "Natural gas" or "gas" means any mixture of hydrocarbons or of
hydrocarbons and noncombustible gases, in a gaseous state, including both
gas well gas and casinghead gas, consisting essentially of methane.
6. "Opelika Properties" means certain valid and subsisting oil and
gas leases and/or oil and gas rights in, on and under the lands within the
Opelika Field located in Henderson County, Texas, which are more
particularly described on Exhibit "A" attached hereto and made a part
hereof for all purposes, insofar, and only insofar, as said lands fall
within what is known as the Opelika Combined Unit Area of 11,478.308 acres,
more or less.
7. "Production Payment" means all right, title and interest in and to
all natural gas produced (if, as and when produced) from the Recoverable
Gas Reserves (defined below), free of any expense of exploration, drilling,
development, operating, marketing and all other costs and expenses of any
kind whatsoever, incidental to arising from or associated with the
production and sale of such natural gas.
8. "Recoverable Gas Reserves" means the volume of gas in place
attributable
<PAGE>
to Grantor's interests in the oil and gas leases and/or oil and gas rights
in the Opelika Properties as determined from time to time by CTOC's
independent petroleum consultant.
9. "Well" means a well that produces gas that is produced by Grantor
under this Conveyance.
II. Conveyance
Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET
OVER and DELIVER unto Grantee, and Grantee hereby accepts, as a Production
Payment, a volume of gas in the Recoverable Gas Reserves which contains
thirty-six million (36,000,000) MMBtu (hereinafter referred to as the "Conveyed
Interest"). The title to and ownership of the Conveyed Interest shall pass to
and absolutely vest in Grantee on the date hereof; provided, however, Grantee
shall not be entitled to take delivery of any gas attributable to the Conveyed
Interest before January 1, 2002.
TO HAVE AND TO HOLD said Conveyed Interest and all rights, titles,
interests, estates, powers, privileges and remedies pertaining thereto and
hereby granted, bargained, sold, conveyed, assigned, transferred, set over and
delivered, or intended so to be, unto Grantee, its successors and assigns
forever, subject to the terms and conditions set forth herein.
III. DELIVERY AGREEMENT
The terms, covenants and conditions of that certain Delivery Agreement of
even date herewith between Grantor and Grantee, are incorporated herein by this
reference and made a part hereof.
IV. WARRANTY
This Conveyance is made without warranties or representations of any kind,
all representations being expressly disclaimed, except that Grantor warrants and
agrees to defend title to the Conveyed Interest against the claims and demands
of all persons claiming the same or any part thereof by, through, or under
Grantor, but not otherwise.
V. RESERVATIONS
Grantor reserves and excepts from this Conveyance the following:
1. All gas which Grantor may require for fuel for operation and
development upon the Opelika Properties.
2. All liquid hydrocarbons, oil or condensate, removed by Grantor by means
of drips or conventional gas-liquid separators from the gas produced from the
Opelika Properties prior to delivery to Grantee or Grantee's agent at the
Delivery Point (as defined in Article II. of the Delivery Agreement).
3. The right to process, or to cause the processing of, all gas delivered
hereunder prior
2
<PAGE>
to delivery to Grantee at the Delivery Point, for the extraction of ethane,
propane, butane, pentane and heavier hydrocarbons (together with so much methane
as is necessarily removed in the employment of customary processes for the
extraction of all such component and such gas as is required for fuel or is
otherwise lost in such extraction process) reserving to Grantor all right,
title, and interest to all such components extracted and to all gas used or
otherwise lost in such extraction process. Grantor agrees, however, that gas
delivered hereunder shall not by reason of any such extraction process be
rendered incapable of meeting the quality specifications set forth in the
Delivery Agreement.
4. The right to operate Grantor's leases after the effective date hereof
in such manner as Grantor, in Grantor's sole discretion, may deem advisable and,
acting in good faith as a prudent operator, to drill new wells, repair or rework
old wells, renew or extend, in whole or in part, any lease or unit subject to
this Conveyance and abandon any well or surrender, release or terminate any
lease not deemed by Grantor capable of producing gas in commercial quantities.
In the event Grantor should elect to abandon any well or surrender, release, or
terminate any lease on the Opelika Properties, Grantor shall provide Grantee
with at least thirty (30) days prior written notice of such election, including
the reasons therefor.
5. The right, acting in good faith as a prudent operator, to pool, combine
and unitize leases with other properties and to alter such pooling, combination
or units, in which event this Conveyance will cover Grantor's allocated interest
in such unitized production insofar as such interest is attributable to the oil
and gas leases subject hereto.
IV. GOVERNMENT REGULATION
This Conveyance and all provisions herein shall be subject to all
applicable and valid statutes, rules, orders and regulations of any federal,
state, or local governmental authority having jurisdiction over the parties,
their facilities, or gas supply, this Conveyance or any provisions hereof.
VII. MISCELLANEOUS
1. The captions or headings preceding various parts of this Conveyance are
inserted and included solely for convenience and shall never be considered or
given any effect in construing this Conveyance or any part hereof in connection
with the intend, duties, obligations or liabilities of the respective parties
hereto.
2. All of the covenants and agreements of the Grantor herein contained
shall be deemed to be covenants running with Grantor's interest in the Conveyed
Interest and the lands affected thereby. The provisions hereof shall extend to
the parties hereto and their respective successors and assigns, but neither
party shall assign any of its rights or obligations hereunder without the
consent of the other party, which consent shall not be unreasonably withheld.
No assignment by a party shall relieve such party of its obligations hereunder
unless agreed to in writing by the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Conveyance of
Production Payment to be executed and delivered this 24th day of April, 1998,
but effective as of January 1, 1998.
3
<PAGE>
GRANTOR:
Cross Timbers Oil Company
By: /s/ VAUGHN O. VENNERBERG, II
---------------------------------
Name: Vaughn O. Vennerberg, II
Title: Senior Vice President - Land
GRANTEE:
EEX Corporation
By: /s/ LESLIE J. WYLIE
---------------------------------
Name: Leslie J. Wylie
Title: Attorney-In-Fact
4
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me, Notary Public, this 24th day of
April, 1998, by Vaughn O. Vennerberg, II, Senior Vice President - Land of Cross
Timbers Oil Company, a Delaware corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
My commission expires:
Notary seal MARK S. HOLT /s/ MARK S. HOLT
appears here NOTARY PUBLIC ----------------------------
STATE OF TEXAS Notary Public
MY COMMISSION EXPIRES 09-01-99
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me, Notary Public, this 24/th/ day
of April, 1998, by Leslie J. Wylie, Attorney-In-Fact for EEX Corporation., a
Texas corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
My commission expires
Notary seal MARK S. HOLT /s/ MARK S. HOLT
appears here NOTARY PUBLIC ----------------------------
STATE OF TEXAS Notary Public
MY COMMISSION EXPIRES 09-01-99
5
<PAGE>
EXHIBIT 99.3
DELIVERY AGREEMENT
------------------
This Delivery Agreement ("Agreement") is made and entered into this
24th day of April, 1998, by and between CROSS TIMBERS OIL COMPANY, whose address
is 810 Houston, Suite 2000, Fort Worth, Texas 76102 (herein called "CTOC") and
EEX CORPORATION., whose address is 2500 CityWest Blvd., Suite 1400, Houston,
Texas 77042 (herein called "EEX").
WITNESSETH:
THAT WHEREAS, CTOC has conveyed to EEX Operating L.P. a production
payment in gas to be produced from properties in Henderson County, Texas as
described in that certain Conveyance of Production Payment of even date
herewith; and
WHEREAS, CTOC and EEX desire to enter into an agreement for the
delivery of said gas and for the operation and maintenance of the properties
from which the gas is to be produced; and
WHEREAS, the parties desire to provide CTOC with an option to purchase
said production payment on certain terms and conditions;
NOW, THEREFORE, in consideration of the premises, the mutual
obligations of the parties hereto and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, CTOC and EEX hereby
agree as follows:
I. DEFINITIONS
Terms defined in the Conveyance and not defined herein shall have the
meaning given to such terms in the Conveyance. Unless another definition is
expressly stated, the following terms, where used in this Agreement, shall have
the following meaning:
1. "Btu" means British thermal unit.
2. "Conveyed Interest" shall have the meaning given in the
Conveyance.
3. "Conveyance" means that certain Conveyance of Production Payment
dated April 24, 1998 from CTOC, as Grantor, to EEX, as Grantee.
4. "CTOC's Delivery Capacity" means the maximum quantity of gas well
gas attributable to CTOC's and EEX's interest in the wells located on the
Opelika Properties averaged over a seventy-two (72) hour period which, in the
course of prudent operations as determined by CTOC in good faith and consistent
with the lawful rules and regulations of the Texas Railroad Commission or other
governmental regulatory agencies having jurisdiction), can be delivered at a
stabilized flow rate at the Delivery Point.
<PAGE>
5. "Day" means the 24-hour period commencing at 8:00 a.m. local time
on one calendar day and ending at 7:59 a.m. on the following calendar day.
6. "Effective Date" means January 1, 1998, the effective date of this
Agreement.
7. "Maximum Annual Quantity" shall have the meaning given in Article
III.
8. "Maximum Daily Quantity" shall have the meaning given in Article
III.
9. "MMBtu" means one million (1,000,000) Btu's.
10. "Month" means the period commencing at 8:00 a.m. on the first day
of a calendar month and ending at 7:59 a.m. on the first day of the next
calendar month.
11. "Natural gas" or "gas" means any mixture of hydrocarbons or of
hydrocarbons and noncombustible gases, in a gaseous state, including both gas
well gas and casinghead gas, consisting essentially of methane.
12. "Oil and gas lease" or "lease" means any written instrument which
gives CTOC the rights to drill for, produce and dispose of gas in, under, and
from the lands described herein.
13. "Opelika Properties" means certain valid and subsisting oil and
gas leases and/or oil and gas rights in, on and under the lands within the
Opelika Field located in Henderson County, Texas, which are more particularly
described on Exhibit "A" attached to the Conveyance.
14. "Production Payment" means all right, title and interest in and to
all natural gas produced (if, as and when produced) from the Recoverable Gas
Reserves (defined below), free of any expense of exploration, drilling,
development, operating, marketing and all other costs and expenses of any kind
whatsoever, incidental to, arising from or associated with the production and
sale of such natural gas.
15. "Recoverable Gas Reserves" means the volume of gas in place
attributable to CTOC's interests in the oil and gas leases and/or oil and gas
rights in the Opelika Properties as determined from time to time by CTOC's
independent petroleum consultant.
16. "Well" means a well that produces gas that is produced by CTOC
under this Agreement.
DELIVERY POINT(S)
For wells drilled on the Opelika Properties after the date hereof and for
all existing wells, the delivery point or points for gas delivered under this
Agreement shall be a the inlet to Lone
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<PAGE>
Star Gas Company's meter(s) located at the outlet of CTOC's compressor station,
or such other point as the parties may mutually agree by negotiating in good
faith, hereinafter referred to as the "Delivery Point."
As between the parties hereto, CTOC shall be deemed to be in exclusive
control and possession of the gas delivered hereunder and responsible for any
damage or injury caused thereby until the same shall have been delivered to EEX
at the Delivery Point, after which EEX shall be deemed to be in exclusive
control and possession of the gas and responsible for any damage or injury
caused thereby.
III. QUANTITY
Notwithstanding any other provision of the Conveyance or this Agreement to
the contrary, EEX shall not be entitled to take delivery of gas hereunder before
January 1, 2002. From and after January 1, 2002, CTOC must first offer for
delivery to EEX from the Opelika Properties a quantity of gas each day equal to
the lesser of 30,000 MMBtu per day or CTOC's Delivery Capacity, which lesser
amount is hereinafter referred to as the "Maximum Daily Quantity"; provided,
however, that in any year EEX shall be entitled to take not more than the
"Maximum Annual Quantity" as set forth under "EEX Gross" below:
<TABLE>
<CAPTION>
Maximum Annual Quantity
-----------------------
Year EEX Gross EEX Net
---- ---------- ----------
<S> <C> <C>
2002 4,500,000 3,600,000
2003 4,500,000 3,600,000
2004 4,000,000 3,200,000
2005 3,700,000 2,960,000
2006 3,600,000 2,880,000
2007 3,500,000 2,800,000
2008 3,400,000 2,720,000
2009 3,300,000 2,640,000
2010 3,000,000 2,400,000
2011 2,500,000 2,000,000
---------- ----------
Total 36,000,000 28,800,000
</TABLE>
In the event that CTOC's Delivery Capacity becomes less than the Maximum Daily
Quantity, CTOC shall make available for delivery to EEX at the Delivery Point,
or other mutually agreeable delivery point(s), a volume of gas from another
source sufficient to deliver to EEX the Maximum Daily Quantity each day.
If CTOC on any day in its sole discretion has gas available for delivery in
excess of the Maximum Daily Quantity, then CTOC shall have the right, but not
the obligation, to tender such
-3-
<PAGE>
gas to EEX, and EEX shall have the right but not the obligation to take such
gas, and the quantity of such gas taken by EEX shall be included in the quantity
of gas supplied by CTOC to fulfill its obligations to deliver the gas
attributable to the Conveyed Interest. If EEX on any day during the term hereof
does not take all of the gas made available to EEX by CTOC, including gas EEX
has agreed to take in excess of the Maximum Daily Quantity, then the quantity of
such gas not taken by EEX shall be credited toward the quantity of gas required
to be delivered by CTOC to fulfill its obligations to deliver the gas
attributable to the Conveyed Interest.
If at any time the Recoverable Gas Reserves as reflected in CTOC's
independent petroleum consultant's annual reserve report are less than the
quantity of gas then undelivered to EEX under this Agreement, then CTOC shall
discontinue all sales of gas to third parties from the Opelika Properties until
such time as the Recoverable Gas Reserves are again determined as herein
provided to be in excess of the quantity of gas then undelivered to EEX under
this Agreement. For purposes of this paragraph only, in determining "the
quantity of gas as yet undelivered to EEX under this Agreement," the volumes of
gas delivered by CTOC to EEX under that certain Gas Purchase Contract dated
April 24, 1998 shall be deemed to be gas delivered to EEX under this Agreement.
NOTWITHSTANDING ANYTHING CONTAINED IN THE CONVEYANCE OR THIS AGREEMENT TO
THE CONTRARY, CTOC WARRANTS AND AGREES TO DELIVER TO EEX AT THE DELIVERY POINT
36,000,000 MMBTU OF GAS, FROM WHATEVER SOURCE, AT NO ADDITIONAL COST TO EEX
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT.
IV. NOMINATIONS
During the term of this Agreement, at least twenty-five (25) days prior to
the beginning of each calendar quarter, EEX shall notify CTOC in writing of
(nominate) the total volume of gas it intends to take during such quarter,
consistent with the provisions of Article III. hereinabove. EEX shall have the
right to take not more than 120%, and shall be obligated to take at least 80%,
of the volumes nominated by EEX each quarter, at rates which are reasonably
constant. In addition to EEX's nominations to CTOC, the parties hereto will
file appropriate monthly nominations with the Railroad Commission of Texas
consistent with this Agreement.
V. COVENANTS OF CTOC
CTOC shall conduct and direct and have full control of all operations in
the Opelika Properties. CTOC covenants that during the term hereof, and at its
own cost, it will cause:
1. The Opelika Properties to be developed and continuously operated for
the lifting and delivery of gas in a good and workmanlike manner and in
accordance with sound field practice, all applicable operating agreements,
contracts and other instruments and all applicable laws, rules and
-4-
<PAGE>
regulations, and all to be done according to the most approved practices of
prudent operators in the industry;
2. All rentals and royalties, and all liabilities of every kind and nature
incurred in or arising from the administration, operation, maintenance or
development of the Opelika Properties, or the producing, gathering, treating,
processing, storing, marketing or transporting of the gas, to be paid punctually
when due;
3. All machinery, equipment and facilities of any kind now or hereafter
located upon or used in connection with the Opelika Properties and necessary or
useful in the operation thereof for the production of the gas therefrom, to be
provided and to be kept in good and efficient operating condition, and all
repairs, renewals, replacements, additions and improvements thereof needful to
such end, to be promptly made;
4. All production, severance, ad valorem, occupation, gathering, sales,
excise, windfall profit and other taxes which are imposed or assessed with
respect to or measured by or charged against the Opelika Properties, and the gas
in and under and produced and saved therefrom, to be rendered, reported and paid
punctually before the same become delinquent;
5. The Conveyed Interest to be kept free and clear of liens, charges or
encumbrances of every character, other than (a) taxes constituting a lien but
not yet delinquent, (b) mechanic's and materialman's liens arising by operation
of law to the extent that such liens secure current amounts payable for
production expenses which are not past due and (c) those being contested in good
faith for which adequate reserves are being maintained in accordance with
generally accepted accounting principles;
6. All proper safeguards to be used and maintained to prevent damage to
the ecology and pollution of the environment and all applicable laws, rules,
orders and regulations pertaining thereto to be observed and complied with;
7. Except to the extent that CTOC in the exercise of business judgment
decides to be a self-insurer, insurance to be carried with respect to the
Opelika Properties and all operations in connection therewith with responsible
insurance carriers in such amounts and against such hazards as are customarily
insured against by operators of similar properties under similar circumstances,
and all proceeds of such insurance to be used to replace, restore, repair or
otherwise remedy and rectify any loss, damage or liability so insured against;
8. Written notice to be given to EEX of any proceedings instituted with
respect to the Conveyed Interest in any manner whatsoever, and all necessary and
proper steps to be diligently taken to protect and defend the Conveyed Interest
against any such adverse proceedings, including, but not limited to, the
employment of counsel for the prosecution or defense of litigation; and
-5-
<PAGE>
9. Upon giving at least twenty-four (24) hours' notice to CTOC, any one or
more representatives designated by EEX at all reasonable times to have access to
the Opelika Properties and to inspect or observe all or any facilities or
operations thereof and any and all books and records of CTOC with respect
thereto and to the Opelika Properties.
Except as herein provided, EEX shall never be responsible for payment of any
part of the costs, expenses or liabilities incurred in connection with the
exploring, developing, operating (including compression costs) and maintaining
of the Opelika Properties. CTOC will save harmless and indemnify EEX from all
claims, demands and liabilities arising from the failure of CTOC to perform or
comply with any provisions of this paragraph or to carry any insurance normally
carried by other operators under similar circumstances.
VI. QUALITY AND PRESSURE
Subject to Article VII.4. below, all gas delivered to EEX hereunder shall
conform to the current following specifications, which are subject to change in
accordance with Article VII.4.:
1. The gas shall not contain more than five (5) grains of total sulfur,
and shall not contain more than one-fourth (1/4) grain of hydrogen sulfide and
one (1) grain of mercaptin sulfur per one hundred (100) cubic feet of gas.
2. The gas shall contain no oxygen, shall not contain more than three
percent (3%) by volume of carbon dioxide, shall not contain more than seven
pounds (7#) of water vapor per million cubic feet and shall be commercially free
from crude oil, mineral seal oil, distillate and other impurities, or
noncombustible gases. The gas shall be at temperatures not in excess of one
hundred twenty degrees (120 degrees) Fahrenheit.
3. The gas shall be at a pressure which is sufficient to enter the
transporting pipeline at the point of delivery to EEX; provided, however, that
CTOC's delivery pressure into the transporting pipeline shall not exceed the
transporting pipeline's maximum allowable operating pressure.
4. The gas shall have a heat content of not less than nine hundred fifty
(950) nor more than eleven hundred fifty (1150) Btu's per cubic foot under the
conditions of measurement contained in this Article VII. and specific gravity
with ranges that will permit efficient utilization thereof, and EEX shall not be
obligated to take any gas tendered to it hereunder which , in the judgment of
EEX, is not interchangeable with the gas in that portion of the pipeline system
to which CTOC's delivery line is connected.
VII. MEASUREMENT
1. Whenever the conditions of pressure and temperature differ from those
set out herein, the volume of gas delivered shall be converted to the pressure
base of 14.65 pounds per square inch absolute (psia) and temperature base of
sixty degrees (60 degrees) Fahrenheit and properly corrected
-6-
<PAGE>
for deviation from the Ideal Gas Laws. Gas measurement computations shall be
made in accordance with the American Gas Association Report No. 3 "Orifice
Metering of Natural Gas" and applicable state regulations. Flowing temperature
may be obtained by periodic tests conducted by EEX or EEX's Agent (provided,
however, either party may at its expense properly install and operate a
recording thermometer of standard make, and in this event the flowing
temperature as recorded shall be used). A specific gravity may be obtained by
periodic tests to be conducted by EEX or EEX's Agent with a specific gravity
instrument of standard type (provided, however, either party may at its expense
properly install and operate a recording gravitometer of standard make and in
this event the specific gravity as recorded shall be used). All of the gas
received hereunder shall be measured by means of a meter or meters of standard
type, which shall be installed operated and maintained by EEX or EEX's Agent and
placed at the aforesaid Delivery Point(s). The accuracy of EEX's or EEX's
Agent's measuring equipment shall be verified by test, using means and methods
generally acceptable by the gas industry, at least every sixty (60) days. When
any test shows an error of more than one percent (1%) in the measurement,
correction shall be made for the period during which the measurement instruments
were in error, first, by using the registration of CTOC's check meter, if
installed and registering accurately; if no check meter is installed and
registering accurately or if this period cannot be ascertained, correction shall
be made for one-half ( 1/2) of the period elapsed since the last date of test,
and this measurement instrument shall be adjusted immediately to measure
accurately; provided, however, no adjustment or corrections for meter inaccuracy
or failure shall be made for a period longer than ninety (90) days.
2. The Btu heat content shall be computed on the basis of a temperature of
sixty degrees (60 degrees) Fahrenheit and pressure equivalent to 14.65 psia and
adjusted for the actual water vapor content of the gas as delivered hereunder.
Such determination shall be made by EEX or EEX's Agent promptly following
initial deliveries and on each succeeding January 1 and July 1 thereafter, or at
such intervals as may be mutually agreed upon or found necessary in practice.
The determination shall be made by, at EEX's option, fractional analysis,
manually operated calorimeter of a type approved by the United States Bureau of
Standards and operated in accordance with the methods recommended by said
Bureau, or a recording calorimeter of a type acceptable to both parties
installed at the point of deliver, in which case the gross heating value of the
gas delivered each day shall be determined by the arithmetical average of the
daily records of such recording calorimeter.
3. CTOC may at its option and expense install and operate check meters to
check EEX's or EEX's Agent's meters. Such meters shall be for check purposes
only and shall not be used in the measurement of gas for the purposes of this
Agreement. Check meters shall be subject at all reasonable times to inspection
and examination by EEX. The installation and operation thereof shall, however,
be done entirely by CTOC.
4. Notwithstanding anything contained herein to the contrary, all gas
delivered by CTOC hereunder shall meet the quality, pressure and temperature
requirements of the transporting pipeline(s) and all gas delivered hereunder
shall be measured at the Delivery Point by the pipeline
-7-
<PAGE>
receiving the gas at that point. Such determinations shall be accepted and used
by EEX and CTOC for all purposes under this Agreement.
VIII. TAXES
CTOC shall pay all production, severance, gathering, and similar taxes
imposed by state or federal authority with respect to the gas delivered
hereunder and all ad valorem and similar taxes with respect to the Conveyed
Interest imposed by state or local authorities. EEX shall reimburse CTOC in the
amount of one hundred percent (100%) of any such existing or future taxes paid
by CTOC pursuant to the terms of the Conveyance and this Agreement. With
respect to ad valorem taxes, the total taxes due for the tax year shall be
allocated annually between EEX and CTOC based on a ratio of estimates of the
"fair market value" on January 1 of the future expected gas deliveries to each
party. The fair market value will be determined using (i) the product prices
and price escalations as offered by Enron Transport & Trading contemporaneously
with the evaluation, less an appropriate basis adjustment, (ii) severance tax
rate, ad valorem tax rate and operating costs assumed in a reserve report
prepared for CTOC's lenders by an independent licensed reservoir engineer, and
(iii) a discount rate of ten percent (10%). CTOC or CTOC's lenders shall
utilize an independent licensed reservoir engineer to estimate the total future
production stream on the basis of the Recoverable Gas Reserves, development
costs and rework costs. The term "taxes" as used herein does not include
capital stock, income, excess profits or franchise taxes.
IX. ROYALTIES
EEX shall notify CTOC on or before the fifteenth (15/th/) day of each month
as to the appropriate price for royalty payment purposes for gas produced and
delivered to EEX under this Agreement during the preceding month. Provided
further, EEX will reimburse CTOC for said royalty payments (for royalties and
overriding royalties in effect on January 1, 1998) by the 25/th/ day of such
month. CTOC shall at all times have the obligation to make settlement for all
royalties, overriding royalties and other payments due to the owners of the
mineral royalty and other interests under CTOC's leases as modified by such
assignments, unitization agreements and other documents as may appear of record
or otherwise be binding upon CTOC, and to make settlement with all other persons
having any interest in the lands and leases within the Opelika Properties. EEX
shall indemnify, save and hold harmless CTOC from any liability, damages, costs
or attorneys' fees CTOC may suffer as a result of any claims or lawsuits by
royalty owner or owners under leases owned by CTOC within the Opelika Properties
from which gas is produced and delivered hereunder, under applicable laws and
regulations, requiring CTOC to pay such royalties and overriding royalties
on the gas delivered to EEX under this Agreement based on a price other than the
price specified by EEX in the notice to CTOC provided for hereinabove.
-8-
<PAGE>
X. OPERATING FEE
As consideration for the operating services provided for herein, EEX shall
pay CTOC a fee of $0.257 per MMBtu payable monthly as the gas is delivered to
EEX from whatever source. After commencement of first deliveries hereunder,
said fee shall escalate at the rate of 5.5% per year compounded annually; so
that the fee shall escalate to $0.271 per MMBtu on the first anniversary of
initial deliveries, to $0.286 per MMBtu on the second anniversary, and in like
manner thereafter for the term hereof.
XI. PAYMENT
1. On or before the 15/th/ day following the end of each calendar month
during the terms hereof, CTOC agrees to furnish EEX with a statement setting out
the volume of gas produced from the Opelika Properties subject to the Conveyed
Interest during the preceding calendar month. EEX shall pay CTOC within fifteen
(15) days after receipt of CTOC's statement the fees and reimbursements
attributable to the Conveyed Interest and to the gas delivered to EEX hereunder
during the preceding calendar month in accordance with this Agreement.
2. If any information required to compute any payment provided for under
this Agreement is not available by the payment date, payment will be on the
paying party's estimate, with such estimate corrected to an actual total as soon
thereafter as available. Either party will bring any adjustments it deems
necessary to the immediate attention of the other party and neither party shall
have the right to question or contest any charge or credit if the matter is not
brought to the attention of the other Party in writing in any event no later
than twenty-four months after receipt of the statement in question. If a party
is entitled to a refund of amounts paid, such party shall also receive interest
at the rate set forth below. If there is a dispute as to the amount due, the
obligor shall pay the undisputed amount and notify the other party of the
disputed amount and the reasons for the dispute. If the obligee is ultimately
found to be entitled to the payment of disputed amounts, such party shall also
receive interest at the rate set forth below. If the Parties are unable to
resolve the dispute within sixty (60) days, then the matter will be submitted to
arbitration in accordance with Article XV. Should any party fail to remit the
undisputed amount when due, interest on the unpaid portion shall accrue at a
rate equal to the then effective "Prime Rate" plus 2% of interest for large
U.S. money center commercial banks published under "Money Rates" by the Wall
Street Journal from the date due until the date of payment.
XII. PURCHASE OPTION
1. CTOC will have the option to purchase portions of the Production
Payment, exercisable under the terms of this provision, which options will
include the entire Production Payment. On or before December 15 of each year,
EEX will provide written notice of the eligible volume for that year's purchase
option, being a volume equal to the lesser of (a) the amount of
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"imbalance" which EEX has made up to Encogen One Partners, Ltd. (which imbalance
presently stands at 36,000,000 MMBtu) during the current calendar year (or from
May 1 during the first year) -using the best available estimates for December
deliveries or (b) a scheduled percentage volume of twenty (20%) percent of the
original Production Payment amount for the production year 1998, and 26.66% (1/3
of 80%) for the production years 1999, 2000 and 2001. CTOC will thereafter
notify EEX, during the period from December 15 through January 3 of the
following year, if CTOC elects to exercise the purchase option for the given
year.
2. The cost paid for the exercise of each option will be made up of two
elements: (a) a price equal to 83 and 1/3 cents per MMBtu, and (b) interest
which will be calculated, as to the principal carried during the respective
periods identified below, on the basis of 8% per annum during the period from
May 1, 1998, to May 1, 1999, at 9% per annum, during the period from May 1,
1999, to May 1, 2000, and thereafter at the rate of 10% per annum. The cost for
the exercise of the option, if elected by CTOC, will be paid to EEX on or before
the 25/th/ of January following the option exercise.
3. Upon the exercise by CTOC of any option hereunder, the gas purchased
will be the first gas which would have been available under the Production
Payment. If in any year CTOC elects not to exercise its purchase option, then
the option on that portion of the Production Payment will terminate and will not
be applicable in future years. However, it is expressly provided that if the
option volume is limited under the terms of this Article, CTOC will nevertheless
have the right to exercise the option as to all remaining volumes on or before
January 3, 2002, subject only to the satisfaction by that date of the
"imbalance" obligations of EEX to Encogen. In the event such obligations are
not satisfied until after January 1, 2002, then within 30 days after the
satisfaction thereof EEX will notify CTOC and provide CTOC a period of 30 days
within which to elect to purchase any remaining volumes of the Production
Payment on the same basic terms as provided herein for the earlier options.
4. In addition to the calculation and obligation of CTOC to pay Ad Valorem
Tax pursuant to Article XII, if CTOC fails to purchase the portion of the
production payment equal to the volumes of gas delivered by EEX to Encogen above
the scheduled percentage volume ("Incremental Volume"), CTOC shall thereafter be
liable for the Ad Valorem Tax assessed against the Incremental Volume.
5. Should CTOC elect to exercise its purchase option, payment will be due
by wire transfer on or before the 25/th/ day of the month in which the purchase
option is exercised.
XIII. TERM
This Agreement shall become effective as of the Effective Date and shall
continue in effect until CTOC has delivered to EEX all of the gas required to be
delivered pursuant to the
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provisions hereof; provided, however, EEX shall not be entitled to take delivery
of gas hereunder before January 1, 2002.
XIV. FORCE MAJEURE
1. If either party, because of force majeure, is rendered wholly or partly
unable to perform any of its obligations under this agreement, that party shall
be excused from whatever performance is affected by the force majeure to the
extent so affected provided that: (i) the non-performing party, as soon as
possible and in any event not more than within two (2) weeks after the
occurrence of the force majeure, gives the other party written notice describing
the particulars of the occurrence, the date of its commencement, its estimated
duration, and its effect to date; provided, however, that verbal notice of any
such event is given to the performing party within three (3) business days of
the occurrence of such event; (ii) the suspension of performance is of no
greater scope and of no longer duration than is required by the force majeure;
and (iii) the non-performing party uses its best efforts to remedy its inability
to perform.
2. The term "force majeure," as used herein, means acts of God, including
sudden or unusually severe actions of the elements, such as floods, hurricanes,
windstorms, freezes, or tornadoes, strikes, lockouts or other industrial
disturbances, actions by federal, state, county, municipal or any other
government or quasi-government authority, entity or agency, sabotage, terrorist
action, fire, earthquake, exercise of eminent domain, explosion, radiation
contamination, toxic fumes, falling objects, train wrecks, war, or riots,
equipment malfunction(s), 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, loss,
interruption, or curtailment of firm transportation of gas hereunder on Lone
Star Gas Company's (or its successor) pipeline system, but only to the extent
such events do not result from the intentional or grossly negligent acts or
failures of the non-performing party; and all other sudden interferences or
causes beyond the reasonable control of and not attributable to gross negligence
or intentional breach of this Agreement by the party relying thereon as
justification for not performing an obligation hereunder. Such term shall also
include the inability to acquire, or the delays in acquiring, at reasonable cost
and after the exercise of reasonable diligence, any servitudes, right-of-way
grants, permits or licenses required to be obtained to enable a party hereto to
fulfill its obligation hereunder. Notwithstanding anything to the contrary
contained herein, "force majeure" does not include any changes in market
conditions or governmental action that affect the cost or price of gas, or
market conditions which affect availability of gas, but shall include domestic
governmental action which directly limits Seller's ability to deliver said gas.
Further, except as provided above, the term "force majeure" does not include the
loss, interruption or curtailment of firm or interruptible transportation. Any
excuse of performance by reason of a force majeure shall not extend for a time
period greater than six (6) months except upon the written consent of the
performing party, which consent will not be unreasonably withheld. Provided,
that the performing party may, in its sole unfettered discretion, agree to
further extend the period of excuse of performance by reason of a force majeure.
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XV. ARBITRATION
Pursuant to the Federal Arbitration Act, the parties hereby agree that any
controversy, claim, or alleged breach, including but not limited to torts and
statutory claims, arising out of or related to this Agreement shall be settled
by binding arbitration administered by the American Arbitration Association
("AAA") in accordance with its Commercial Arbitration Rules. Demand for
arbitration may be made no later than the time that such action would be
permitted under the applicable Texas statute of limitation. Any disputes
regarding the timeliness of the demand for arbitration shall be decided by the
arbitrator(s). Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof in order to obtain compliance
therewith. Any case in which any claim, or combination of claims, exceeds
$500,000 shall be subject to the AAA's Large, Complex Case Procedures and
decided by the majority of a panel of three (3) neutral arbitrators. In
rendering the award, the arbitrator(s) shall determine the rights and
obligations of the parties according to the laws of the State of Texas. The
arbitration proceedings and hearing shall be conducted at the Houston Regional
Office of the AAA or at such other place as may be selected by mutual agreement.
No party nor the arbitrator(s) may disclose the existence, content, or results
of any arbitration hereunder with the prior written consent of all parties.
XVI. GOVERNMENT REGULATION
1. This Agreement and all provisions herein shall be subject to all
applicable and valid statutes, rules, orders and regulations of any federal,
state, or local governmental authority having jurisdiction over the parties,
their facilities, or gas supply, this Agreement or any provisions thereof.
2. Neither party shall be held in default for failure to perform
thereunder if such failure is due to compliance with such rules, regulations,
laws, orders or directives of any state, federal or other governmental
regulatory authority.
3. Should either of the parties by law or regulation be ordered or
required to do any act inconsistent with the provisions of this Agreement, this
Agreement shall be deemed modified to conform with such law or regulations.
Nothing in this Agreement shall prevent either party from contesting the
validity of any such law, order, rule or regulation, nor shall anything in this
Agreement be construed to require either party to waive its right to assert the
lack of jurisdiction over such regulatory body, governmental entity, or agency
over this Agreement or any party thereto.
4. Each of the parties understands that should any governmental agency or
body with jurisdiction over the transaction require approval for the sale and
purchase of gas (or transportation, or receipt of supply) under this Agreement,
then each of the parties shall make any necessary applications or filings and
shall submit any records or data to the regulatory body so that requisite
regulatory authorization may be granted.
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XVII. NOTICES
8. Any notices (including invoices), communications or documents that may
be required to be delivered to a party hereto shall be in writing and sent via
facsimile, delivered in person or sent certified mail, postage prepaid, return
receipt requested, addressed to the parties at the following respective
addresses stated for each:
EEX Corporation
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention:
Telephone:
Facsimile:
Cross Timbers Oil company
810 Houston, Suite 2000
Fort Worth, Texas 76102
Attention:
Telephone:
Facsimile:
For purposes hereof, if facsimile or personal delivery is not possible, refusal
by any party hereto to accept correspondence sent by certified mail or two (2)
unsuccessful attempts by the U.S. Postal Service to serve any communication sent
by certified mail shall be deemed receipt of such correspondence. Any notice
delivered on Saturday, Sunday, a legal holiday or after 4:00 p.m. in the office
of recipient shall be deemed to have been delivered on the business day next
following the date of actual receipt. Either party may change its address for
notices by written notice to the other of them.
XVIII. MISCELLANEOUS
1. Reserve Report: Upon request EEX shall have the right at all reasonable
times to review the oil and gas reserves report with respect to the Opelika
Properties prepared by CTOC's independent petroleum consultant. EEX shall keep
such report strictly confidential.
2. Waiver of Breach: The waiver of 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.
3. Captions: The captions or headings preceding the various parts of this
agreement are inserted and included solely for convenience and shall never be
considered or given any effect in
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construing this Agreement or any part hereof in connection with the intent,
duties, obligations or liabilities of the respective parties hereto.
4. Assignments: The provisions of this Agreement shall extend to the
parties hereto and to their successors and assigns, but neither party shall
assign any of its rights or obligations hereunder without the consent of the
other party. No assignment by a party shall relieve such party of its
obligations hereunder unless agreed to in writing by the other party. Nothing
in this paragraph shall in any way prevent Buyer from mortgaging or assigning
its interest in this Agreement as security.
5. Complete Agreement: Except for the Assignment and Conveyance, this
Agreement supersedes any and all previous agreements, written or oral, between
the parties relating to the subject matter hereof and the terms and conditions
hereof contain the entire and complete agreement of the parties hereto, and no
other agreements, covenants, conditions, warranties or representations, either
written or oral, made prior to the date hereof, regarding the subject matter
hereof shall be binding on the parties hereto. Any amendments to this Agreement
shall be in writing and executed by the parties hereto of their successors and
assigns.
6. South Texas Properties: In consideration of the agreements made
herein, EEX agrees that in the event it decides to sell or dispose of all or any
part of its South Texas Properties, then CTOC will be promptly notified and
given the opportunity to review the properties and related financial data in
order to participate in the bidding for any such proposed sale.
7. Governing Law: THE INTERPRETATION AND PERFORMANCE OF THIS GAS PURCHASE
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCLUDING ANY CONFLICT OF LAWS RULES THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement effective
as of the Effective Date; provided, however, EEX shall not be entitled to take
delivery of gas hereunder before January 1, 2002.
CROSS TIMBERS OIL COMPANY
By: /s/ VAUGHN O. VENNERBERG, II
---------------------------------
Name: Vaughn O. Vennerberg, II
Title: Senior Vice President - Land
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EEX CORPORATION
By: /s/ LESLIE J. WYLIE
-------------------------------
Name: Leslie J. Wylie
Title: Attorney-In-Fact
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EXHIBIT 99.4
GAS PURCHASE AGREEMENT
THIS AGREEMENT, dated as of the 24th day of, April 1998 by and between
Cross Timbers Oil Company, a Delaware corporation, hereinafter referred to as
"Seller," and EEX Corporation, A Texas corporation, hereinafter referred to as
"Buyer,' each hereinafter referred to from time to time as "Party" or
collectively as "Parties."
WITNESSETH:
WHEREAS, Buyer is seeking to purchase supplies of natural gas for resale;
and
WHEREAS, Seller has available for sale supplies of natural gas;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Seller and Buyer mutually agree and covenant as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the words, phrases and terms used herein
shall be used in their ordinary meaning unless this Agreement clearly indicates
otherwise or unless same is hereinafter defined, in which instance, such word,
phrase or term shall have the meaning clearly attributable to it or as defined
below:
1.1 The term "Btu" shall mean British thermal unit, and shall be the
quantity of heat required to raise the temperature of one (1) pound of water one
degree Fahrenheit (1 degree F.) at sixty degrees Fahrenheit (60 degrees).
1.2. The term "Date of Initial Delivery" shall mean May 1, 1998.
1.3 The term "Day" shall mean a period of twenty-four (24) consecutive
hours beginning at 8:00 A.M., Central Time.
1.4 The term "Delivery Point(s)" shall have the meaning given it in
Article IV.
1.5 The term "gas" shall mean natural gas, including gas-well gas,
casinghead gas, and/or residue gas resulting from processing consisting
primarily of methane.
1.6 The term "MMBtu" shall mean one million (1,000,000) British thermal
units.
1.7 The term "Opelika Properties" shall mean Seller's interest in the
lands and wells located in Opelika Field, Henderson County, Texas described on
Exhibit "A" attached to that certain Conveyance of Production Payment dated
April 24, 1998 between Seller, as Grantor, and Buyer, as Grantee.
<PAGE>
ARTICLE II
DEDICATION AND TERM
All of the gas reserves produced attributable to Seller's interest in the
Opelika Properties are hereby dedicated to this Agreement for the term hereof,
which shall be until the earlier of (i) December 31, 2001 or (ii) until a total
of 36,000,000 MMBtu have been delivered to Buyer under the terms of this
Agreement.
ARTICLE III
QUANTITY
3.1 Subject to the terms and conditions of this Agreement, Seller agrees to
deliver at the Delivery Point(s), and Buyer agrees to purchase and receive or
cause to be received at the Delivery Point(s), all of the gas production
attributable to the Opelika Field each day during the term of this Agreement.
3.2 The parties shall coordinate their nomination activities and the
quantities of gas to be delivered and purchased each day by giving sufficient
time to meet the deadlines of the affected transporter(s), but in no event less
than one hour prior to such deadlines. Should either party become aware that
actual deliveries at the Delivery Point(s) are greater or less than the
scheduled gas, such party shall promptly notify the other party. For purposes
of nominating deliveries of natural gas pursuant to this Article III, Buyer
shall, until notified otherwise by Seller, provide instructions by telephonic
notice to Seller's designees; provided, that such telephonic notice shall be
promptly confirmed in writing. Notwithstanding anything contained in this
Agreement to the contrary, Buyer shall not be obligated to take any volumes in
excess of 46,500 MMBtu of gas per day.
ARTICLE IV
DELIVERY POINTS
The Delivery Point(s) for all gas sold and purchased hereunder shall be (1)
at the inlet to Lone Star Gas Company's Meter No. 17-4196-00 and/or Lone Star
Gas Company's Meter No. 17-5190-00, or (2) at any other point on Lone Star's Gas
Company's pipeline system, or (3) such other point as the parties may mutually
agree by negotiating in good faith, all such points being hereinafter referred
to as "Delivery Points." If Seller elects to deliver the gas at a point on Lone
Star's pipeline as set forth in (2), Seller shall reimburse Buyer for all
transportation expenses actually incurred by Buyer in excess of those that Buyer
would have otherwise incurred if Seller had delivered said gas to the Delivery
Points set forth in (1) above.
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ARTICLE V
PRICE
The price for all gas sold and purchased under this Agreement on a monthly
basis shall be the Houston Ship Channel Index Price (large packages only) per
"Inside FERC's Gas Market Report" less $0.08/MMBtu.
ARTICLE VI
BILLING AND PAYMENT
6.1 Seller shall submit a statement to Buyer on or before the fifteenth
(15th) day of each calendar month showing the quantity of gas delivered during
the preceding calendar month to Buyer hereunder and a calculation of charges for
such gas. If the actual total quantities are not available by the billing date,
billing will be on an estimated basis on the fifteenth (15/th/) day of the
month. The estimates will then be corrected to actual totals on the following
month's billing or as soon thereafter as available.
6.2 Payment by Buyer to Seller shall be due by wire transfer on or before
the twenty-fifth (25th) day of the month in which said bill is received by
Buyer. Payment shall be made by Buyer to Cross Timbers Energy Services Inc.,
NationsBank., Dallas, Texas ABA #111000012, Acct #5050623264. If any information
required to compute such payment is not available by the payment date, payment
will be on Seller's estimate, with such estimate corrected to an actual total on
the following month's payment or as soon thereafter as available. Either Party
will bring any adjustments it deems necessary to the immediate attention of the
other Party and neither Party shall have the right to question or contest any
charge or credit if the matter is not brought to the attention of the other
Party in writing in any event no later than twenty-four months after receipt of
the statement in question. If Buyer is entitled to a refund of amounts paid to
Seller, Buyer shall also receive interest at the rate set forth in Paragraph
6.3. If Buyer disputes any part of a statement billed above before paying same,
Buyer shall pay the undisputed amount and notify Seller of the disputed amount
and the reasons for the dispute. Seller shall not suspend further sale and
delivery under paragraph 6.3 below as a result of Buyer's failure to pay the
disputed amount. If Seller is ultimately found to be entitled to the payment of
disputed amounts, Seller shall also receive interest at the rate set forth in
Paragraph 6.3. If the Parties are unable to resolve the dispute within sixty
(60) days, then the matter will be submitted to arbitration in accordance with
Article VIII.
6.3 Should Buyer fail to remit the undisputed amount when due, interest on
the unpaid portion shall accrue at a rate equal to the then effective "Prime
Rate" plus 2% of interest for large U. S. money center commercial banks
published under "Money Rates" by the Wall Street Journal from the date due until
the date of payment.
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ARTICLE VII
QUALITY AND PRESSURE
Subject to Article 8.4 below, all gas delivered by Seller hereunder shall
conform to the following specifications:
a. The gas delivered hereunder shall not contain more than five (5)
grains of total sulfur, and shall not contain more than one-fourth (
1/4) grain of hydrogen sulfide and one (1) grain of mercaptan sulfur
per one hundred (100) cubic feet of gas.
b. The gas delivered hereunder shall contain no oxygen, shall not
contain more than three percent (3%) by volume of carbon dioxide,
shall not contain more than seven pounds (7#) of water vapor per
million cubic feet and shall be commercially free from crude oil,
mineral seal oil, distillate and other impurities, or noncombustible
gases. The gas delivered hereunder shall be at temperatures not in
excess of one hundred twenty degrees (120 degrees) Fahrenheit.
c. The gas delivered hereunder shall be at a pressure which is
sufficient to enter the transporting pipeline at the point of delivery
to Buyer; provided, however, that Seller's delivery pressure into the
transporting pipeline shall not exceed the transporting pipeline's
maximum allowable operating pressure.
d. The gas delivered hereunder shall have a heat content of not less
than nine hundred fifty (950) nor more than eleven hundred fifty
(1150) Btu's per cubic foot under the conditions of measurement
contained in Article IX. and specific gravity with ranges that will
permit efficient utilization thereof, and Buyer shall not be obligated
to take any gas tendered to it hereunder which , in the judgment of
Buyer, is not interchangeable with the gas in that portion of the
pipeline system to which Seller's delivery line is connected.
ARTICLE VIII
MEASUREMENT
8.1 Whenever the conditions of pressure and temperature differ from those
set out herein, the volume of gas delivered shall be converted to the pressure
base of 14.65 psia and temperature base of sixty degrees (60 degrees) Fahrenheit
and properly corrected for deviation from the Ideal Gas Laws. Gas measurement
computations shall be made in accordance with the American Gas Association
Report No. 3 "Orifice Metering of Natural Gas" and applicable state regulations.
Flowing temperature may be obtained by periodic tests conducted by Buyer or
Buyer's Agent
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(provided, however, either party may at its expense properly install and operate
a recording thermometer of standard make, and in this event the flowing
temperature as recorded shall be used). A specific gravity may be obtained by
periodic tests to be conducted by Buyer or Buyer's Agent with a specific gravity
instrument of standard type (provided, however, either party may at its expense
properly install and operate a recording gravitometer of standard make and in
this event the specific gravity as recorded shall be used). All of the gas
received hereunder shall be measured by means of a meter or meters of standard
type, which shall be installed operated and maintained by Buyer or Buyer's Agent
and placed at the aforesaid Delivery Point(s). The accuracy of Buyer's or
Buyer's Agent's measuring equipment shall be verified by test, using means and
methods generally acceptable by the gas industry, at least every sixty (60)
days. When any test shows an error of more than one percent (1%) in the
measurement, correction shall be made for the period during which the
measurement instruments were in error, first, by using the registration of
Seller's check meter, if installed and registering accurately; if no check meter
is installed and registering accurately or if this period cannot be ascertained,
correction shall be made for one-half ( 1/2) of the period elapsed since the
last date of test, and this measurement instrument shall be adjusted immediately
to measure accurately; provided, however, no adjustment or corrections for meter
inaccuracy or failure shall be made for a period longer than ninety (90) days.
8.2 The Btu heat content shall be computed on the basis of a temperature
of sixty degrees (60 degrees) Fahrenheit and pressure equivalent to 14.65 psia
and adjusted for the actual water vapor content of the gas as delivered
hereunder; provided, however, if actual water vapor content of the gas delivered
is not more than 7# per Mcf, the gas shall be assumed to be dry. Such
determination shall be made by Buyer or Buyer's Agent promptly following initial
deliveries and on each succeeding January 1 and July 1 thereafter, or at such
intervals as may be mutually agreed upon or found necessary in practice. The
determination shall be made by, at Buyer's option, fractional analysis, manually
operated calorimeter of a type approved by the United States Bureau of Standards
and operated in accordance with the methods recommended by said Bureau, or a
recording calorimeter of a type acceptable to both parties installed at the
point of deliver, in which case the gross heating value of the gas delivered
each day shall be determined by the arithmetical average of the daily records of
such recording calorimeter.
8.3 Seller may at its option and expense install and operate check meters
to check Buyer's or Buyer's Agent's meters. Such meters shall be for check
purposes only and shall not be used in the measurement of gas for the purposes
of this Agreement. Check meters shall be subject at all reasonable times to
inspection and examination by Buyer. The installation and operation thereof
shall, however, be done entirely by Seller.
8.4 Notwithstanding anything contained herein to the contrary, all gas
delivered by Seller hereunder shall meet the quality, pressure and temperature
requirements of the transporting pipeline(s) and all gas delivered hereunder
shall be measured at the Delivery Point by the pipeline receiving the gas at
that point. Such determinations shall be accepted and used by Buyer and Seller
for all purposes under this Agreement.
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ARTICLE IX
POSSESSION AND TITLE
9.1 As between the parties, hereto, Seller shall be deemed to be in
exclusive control and possession of the gas delivered hereunder and responsible
for any damage or injury caused thereby until the same shall have been delivered
to Buyer at the Delivery Point(s), after which Buyer shall be deemed to be in
exclusive control and possession of the gas and responsible for any damage or
injury caused thereby.
9.2 Seller warrants title to the gas delivered hereunder free and clear
of all liens, encumbrances and claims whatsoever arising by, through and under
Seller, but not otherwise. Seller will indemnify Buyer and hold it harmless from
any and all suits, actions, debts, accounts, damages, costs, losses, and
expenses arising from or out of adverse claims of any or all persons to said gas
arising by, through and under Seller, but not otherwise.
ARTICLE X
FORCE MAJEURE
10.1 If either party, because of force majeure, is rendered wholly or
partly unable to perform any of its obligations under this agreement, that party
shall be excused from whatever performance is affected by the force majeure to
the extent so affected provided that: (i) the non-performing party, as soon as
possible and in any event not more than within two (2) weeks after the
occurrence of the force majeure, gives the other party written notice describing
the particulars of the occurrence, the date of its commencement, its estimated
duration, and its effect to date; provided, however, that verbal notice of any
such event is given to the performing party within three (3) business days of
the occurrence of such event; (ii) the suspension of performance is of no
greater scope and of no longer duration than is required by the force majeure;
and (iii) the non-performing party uses its best efforts to remedy its inability
to perform.
10.2 The term "force majeure," as used herein, means acts of God,
including sudden or unusually severe actions of the elements, such as floods,
hurricanes, windstorms, freezes, or tornadoes, strikes, lockouts or other
industrial disturbances, actions by federal, state, county, municipal or any
other government or quasi-government authority, entity or agency, sabotage,
terrorist action, fire, earthquake, exercise of eminent domain, explosion,
radiation contamination, toxic fumes, falling objects, train wrecks, war, or
riots, equipment malfunction(s), 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,
loss, interruption, or curtailment of firm transportation of gas hereunder on
Lone Star Gas Company's (or its successor) pipeline system, but only to the
extent such events do not result from the intentional or grossly negligent acts
or failures of the non-performing party; and all other sudden interferences or
causes beyond the reasonable control of and not attributable to gross negligence
or intentional breach of this Agreement by the party relying thereon as
justification for not performing an obligation hereunder. Such term shall also
include the inability to acquire, or the delays in acquiring, at reasonable cost
and after the exercise of reasonable diligence, any servitudes, right-of-way
grants, permits or licenses required to be obtained to enable a party
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hereto to fulfill its obligation hereunder. Notwithstanding anything to the
contrary contained herein, "force majeure" does not include any changes in
market conditions or governmental action that affect the cost or price of gas,
or market conditions which affect availability of gas, but shall include
domestic governmental action which directly limits Seller's ability to deliver
said gas. Further, except as provided above, the term "force majeure" does not
include the loss, interruption or curtailment of firm or interruptible
transportation. Any excuse of performance by reason of a force majeure shall not
extend for a time period greater than six (6) months except upon the written
consent of the performing party, which consent will not be unreasonably
withheld; provided, however, that if the force majeure is not removed within
eighteen (18) months, then the force majeure shall cease to excuse the failure
to perform, and the performing party may terminate this Agreement. Provided,
that the performing party may, in its sole unfettered discretion, agree to
further extend the period of excuse of performance by reason of a force majeure.
Provided further, that if, because of an event of force majeure, Buyer is unable
to take delivery of gas under the terms of this Agreement, any such gas not
taken by Buyer shall be released from dedication under this Agreement and made
available for sale by Seller to third parties.
ARTICLE XI
COVENANTS OF SELLER
Seller shall conduct and direct and have full control of all operations in
the Opelika Properties. Seller covenants that during the term hereof, and at its
own cost, it will cause the Opelika Properties to be developed and continuously
operated for the lifting and delivery of gas in a good and workmanlike manner
and in accordance with sound field practice, all applicable operating
agreements, contracts and other instruments and all applicable laws, rules and
regulations, and all to be done according to the most approved practices of
prudent operators in the industry;
ARTICLE XII
ARBITRATION
Pursuant to the Federal Arbitration Act, the parties hereby agree that any
controversy, claim, or alleged breach, including but not limited to torts and
statutory claims, arising out of or related to this Agreement shall be settled
by binding arbitration administered by the American Arbitration Association
("AAA") in accordance with its Commercial Arbitration Rules. Demand for
arbitration may be made no later than the time that such action would be
permitted under the applicable Texas statute of limitation. Any disputes
regarding the timeliness of the demand for arbitration shall be decided by the
arbitrator(s). Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof in order to obtain compliance
therewith. Any case in which any claim, or combination of claims, exceeds
$500,000 shall be subject to the AAA's Large, Complex Case Procedures and
decided by the majority of a panel of three (3) neutral arbitrators. In
rendering the award, the arbitrator(s) shall determine the rights and
obligations of the parties according to the laws of the State of Texas. The
arbitration proceedings and hearing shall be conducted at the Houston Regional
Office of the AAA or at such
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other place as may be selected by mutual agreement. No party nor the
arbitrator(s) may disclose the existence, content, or results of any arbitration
hereunder with the prior written consent of all parties.
ARTICLE XIII
GOVERNMENT REGULATION
13.1 This Agreement and all provisions herein shall be subject to all
applicable and valid statutes, rules, orders and regulations of any federal,
state, or local governmental authority having jurisdiction over the parties,
their facilities, or gas supply, this Agreement or any provisions thereof.
13.2 Neither party shall be held in default for failure to perform
thereunder if such failure is due to compliance with such rules, regulations,
laws, orders or directives of any state, federal or other governmental
regulatory authority.
13.3 Should either of the parties by law or regulation be ordered or
required to do any act inconsistent with the provisions of this Agreement, this
Agreement shall be deemed modified to conform with such law or regulations.
Nothing in this Agreement shall prevent either party from contesting the
validity of any such law, order, rule or regulation, nor shall anything in this
Agreement be construed to require either party to waive its right to assert the
lack of jurisdiction over such regulatory body, governmental entity, or agency
over this Agreement or any party thereto.
34.4 Each of the parties understands that should any governmental agency
or body with jurisdiction over the transaction require approval for the sale and
purchase of gas (or transportation, or receipt of supply) under this Agreement,
then each of the parties shall make any necessary applications or filings and
shall submit any records or data to the regulatory body so that requisite
regulatory authorization may be granted.
ARTICLE XIV
MISCELLANEOUS
14.1 Waiver of Breach: The waiver of 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.
14.2 Notices: All notices provided for herein shall be in writing and
shall be deemed to be delivered to Buyer when addressed to EEX Corporation, 2500
CityWest Blvd., Suite 1400, Houston, Texas 77042, Attention: Marketing
Department, and deposited in the United States mail, postage prepaid, and shall
be deemed delivered to Seller when addressed to Cross Timbers Oil Company, 810
Houston Street, Suite 2000, Ft. Worth, Texas 76102-6298, Attention: Gas
Marketing, and deposited in the United States mail, postage prepaid.
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45.3 Captions: The captions or headings preceding the various parts of
this agreement are inserted and included solely for convenience and shall never
be considered or given any effect in construing this Agreement or any part
hereof in connection with the intent, duties, obligations or liabilities of the
respective parties hereto.
14.4 Assignments: The provisions of this Agreement shall extend to the
parties hereto and to their successors and assigns, but neither party shall
assign any of its rights or obligations hereunder without the consent of the
other party. No assignment by a party shall relieve such party of its
obligations hereunder unless agreed to in writing by the other party. Nothing
in this paragraph shall in any way prevent Buyer from mortgaging or assigning
its interest in this Agreement as security. Seller shall not assign its
interest in the Opelika Properties without Buyer's prior written consent, which
consent shall not be unreasonably withheld.
14.5 Complete Agreement: Except for the Assignment and Conveyance, this
Agreement supersedes any and all previous agreements, written or oral, between
the parties relating to the subject matter hereof and the terms and conditions
hereof contain the entire and complete agreement of the parties hereto, and no
other agreements, covenants, conditions, warranties or representations, either
written or oral, made prior to the date hereof, regarding the subject matter
hereof shall be binding on the parties hereto. Any amendments to this Agreement
shall be in writing and executed by the parties hereto of their successors and
assigns.
14.6 Governing Law: THE INTERPRETATION AND PERFORMANCE OF THIS GAS
PURCHASE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS, EXCLUDING ANY CONFLICT OF LAWS RULES THAT WOULD REQUIRE THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the
day and year first above written.
SELLER
CROSS TIMBERS OIL COMPANY
By: /s/ VAUGH O.VENEERBER, II
-------------------------------------
Name: Vaughn O. Vennerberg, II
Title: Senior Vice President - Land
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BUYER
EEX Corporation
By: /s/ LESLIE J. WYLIE
-------------------------------------
Name: Leslie J. Wylie
Title: Attorney-In-Fact
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