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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
Commission File Number 1-12204
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TRANSTEXAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0401023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 310
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip Code)
(281) 987-8600
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock of the registrant outstanding on
September 15, 1997 was 57,515,566.
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TRANSTEXAS GAS CORPORATION
TABLE OF CONTENTS
<TABLE>
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants 2
Condensed Consolidated Balance Sheet as of July 31, 1997 and January 31, 1997 3
Condensed Consolidated Statement of Operations for the three and six months ended
July 31, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows for the six months ended
July 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 27
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of TransTexas Gas Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
TransTexas Gas Corporation as of July 31, 1997 and the related condensed
consolidated statements of operations for the three and six months ended July
31, 1997 and 1996 and cash flows for the six months ended July 31, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1997, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the year then ended (not presented herein); and in our report dated
May 1, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January 31, 1997, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 15, 1997
2
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TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 38,279 $ 23,561
Cash restricted for interest . . . . . . . . . . . . . . . . . . . -- 46,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 31,277 78,660
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . 4,162 3,248
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,105 12,481
Other current assets (Note 3) . . . . . . . . . . . . . . . . . . 15,357 24,984
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 104,180 188,934
----------- -----------
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . 1,221,755 2,280,880
Less accumulated depreciation, depletion and amortization . . . . . 682,062 1,434,487
----------- -----------
Net property and equipment -- based on the full cost method of
accounting for gas and oil properties of which $147,080 and
$158,973 are excluded from amortization at July 31, 1997
and January 31, 1997, respectively . . . . . . . . . . . . . . . 539,693 846,393
----------- -----------
Cash restricted for share repurchases (Note 2) . . . . . . . . . . . 349,685 --
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 18,254 17,825
----------- -----------
$ 1,011,812 $ 1,053,152
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . $ 9,542 $ 5,787
Revolving credit agreement . . . . . . . . . . . . . . . . . . . 6,249 --
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 45,307 28,150
Accrued interest payable to affiliate . . . . . . . . . . . . . . 6,510 --
Accrued liabilities (Note 4) . . . . . . . . . . . . . . . . . . . 34,169 83,411
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . 101,777 117,348
----------- -----------
Long-term debt, less current maturities . . . . . . . . . . . . . . . 14,538 8,775
Production payments, less current portion . . . . . . . . . . . . . . 11,218 11,931
Note payable to affiliate . . . . . . . . . . . . . . . . . . . . . . 450,000 --
Senior secured notes . . . . . . . . . . . . . . . . . . . . . . . . -- 800,000
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . 115,815 101,092
Revolving credit agreement . . . . . . . . . . . . . . . . . . . . . -- 26,268
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . -- 54,554
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 53,909 31,367
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . -- 19,621
Other liabilities (Note 5) . . . . . . . . . . . . . . . . . . . . . 11,120 32,991
Commitments and contingencies (Note 2) . . . . . . . . . . . . . . . -- --
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 shares authorized,
70,899,352 shares issued and outstanding, 3,100,648 shares held
as treasury shares . . . . . . . . . . . . . . . . . . . . . . . 740 740
Additional paid-in capital (capital deficit) . . . . . . . . . . . 22,820 (123,524)
Retained earnings (accumulated deficit) . . . . . . . . . . . . . 279,474 31,267
----------- -----------
303,034 (91,517)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (49,599) --
Less advances to affiliates . . . . . . . . . . . . . . . . . . . -- (59,278)
----------- -----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . 253,435 (150,795)
----------- -----------
$ 1,011,812 $ 1,053,152
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Gas, condensate and natural gas liquids ............. $ 39,288 $ 77,899 $ 112,170 $ 157,701
Transportation ...................................... 2,764 8,675 12,055 16,870
Gains on the sale of assets ......................... 532,929 -- 532,929 7,762
Other ............................................... 439 158 617 357
------------ ------------ ------------ ------------
Total revenues .................................... 575,420 86,732 657,771 182,690
------------ ------------ ------------ ------------
Costs and expenses:
Operating ........................................... 11,683 25,048 38,825 52,486
Depreciation, depletion and amortization ............ 20,415 31,446 53,972 61,545
General and administrative .......................... 9,383 12,350 24,523 19,789
Taxes other than income taxes ....................... 2,514 7,192 7,728 12,376
Litigation settlement ............................... -- (96,000) -- (96,000)
------------ ------------ ------------ ------------
Total costs and expenses .......................... 43,995 (19,964) 125,048 50,196
------------ ------------ ------------ ------------
Operating income .................................. 531,425 106,696 532,723 132,494
------------ ------------ ------------ ------------
Other income (expense):
Interest income ..................................... 5,593 790 7,287 1,924
Interest expense, net ............................... (21,845) (29,763) (47,203) (52,049)
------------ ------------ ------------ ------------
Total other income (expense) ...................... (16,252) (28,973) (39,916) (50,125)
------------ ------------ ------------ ------------
Income before income taxes ........................ 515,173 77,723 492,807 82,369
Income taxes .......................................... 180,311 6,162 172,483 7,788
------------ ------------ ------------ ------------
Net income before extraordinary item .............. 334,862 71,561 320,324 74,581
Extraordinary item - early extinguishment
of debt (net of income tax benefit of $38,833) .... (72,117) -- (72,117) --
------------ ------------ ------------ ------------
Net income ........................................ $ 262,745 $ 71,561 $ 248,207 $ 74,581
============ ============ ============ ============
Net income per common share:
Income before extraordinary item .................. $ 4.60 $ 0.97 $ 4.36 $ 1.01
Extraordinary item ................................ (0.99) -- (0.98) --
------------ ------------ ------------ ------------
Net income per common share ............... $ 3.61 $ 0.97 $ 3.38 $ 1.01
============ ============ ============ ============
Weighted average number of shares outstanding ......... 72,832,632 74,000,000 73,406,642 74,000,000
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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TRANSTEXAS GAS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
--------------------------
1997 1996
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Operating activities:
Net income .......................................................... $ 248,207 $ 74,581
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Extraordinary item ................................................ 72,117 --
Depreciation, depletion and amortization .......................... 53,972 61,545
Amortization of debt issue costs .................................. 1,348 6,999
Accretion on subordinated notes ................................... 4,941 --
Gains on the sale of assets ....................................... (532,929) (7,762)
Deferred income taxes ............................................. 172,483 (11,244)
Proceeds from volumetric production payment ....................... -- 58,621
Repayment of volumetric production payments ....................... (45,134) --
Amortization of deferred revenue .................................. (9,420) (16,087)
Changes in assets and liabilities:
Accounts receivable .............................................. 47,383 (2,961)
Receivable from affiliates ....................................... (914) (736)
Inventories ...................................................... (2,621) (5,578)
Other current assets ............................................. 5,627 19,039
Accounts payable ................................................. 16,640 (1,260)
Accrued liabilities .............................................. (44,603) (3,637)
Transactions with affiliates, net ................................ (1,898) (11,519)
Other assets ..................................................... 54 (2,221)
Other liabilities ................................................ 1,867 (16,452)
----------- -----------
Net cash provided (used) by operating activities .............. (12,880) 141,328
----------- -----------
Investing activities:
Capital expenditures ................................................ (235,996) (129,767)
Proceeds from the sale of assets .................................... 1,030,032 69,971
Advances to affiliates .............................................. (13,304) (9,500)
Payment of advances by affiliate .................................... 56,354 --
Increase in cash restricted for interest ............................ -- (46,000)
Withdrawals from cash restricted for interest ....................... 46,000 46,000
Increase in cash restricted for share repurchases ................... (399,284) --
Withdrawals from cash restricted for share repurchases .............. 49,599 --
----------- -----------
Net cash provided (used) by investing activities .............. 533,401 (69,296)
----------- -----------
Financing activities:
Issuance of production payments ..................................... 20,977 --
Principal payments on production payments ........................... (23,909) (32,800)
Issuance of note payable to TEC ..................................... 450,000 --
Issuance of long-term debt .......................................... 14,946 25,000
Principal payments on long-term debt ................................ (5,428) (17,044)
Revolving credit agreement, net ..................................... (20,019) (12,417)
Debt issue costs .................................................... (771) (4,256)
Retirement of senior secured notes .................................. (892,000) --
Purchases of treasury stock ......................................... (49,599) --
----------- -----------
Net cash provided (used) by financing activities .............. (505,803) (41,517)
----------- -----------
Increase in cash and cash equivalents ......................... 14,718 30,515
Beginning cash and cash equivalents ................................... 23,561 11,248
----------- -----------
Ending cash and cash equivalents ...................................... $ 38,279 $ 41,763
=========== ===========
Noncash operating and investing activities:
Accounts payable for property and equipment ......................... $ 27,709 $ 13,969
Exchange of Subordinated Notes....................................... 115,815 --
Deferred financing costs from affiliate.............................. 12,228 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made that are necessary to fairly state the
financial position of TransTexas Gas Corporation ("TransTexas") as of July 31,
1997 and the results of its operations and cash flows for the interim periods
ended July 31, 1997 and 1996. The results of operations for interim periods
should not be regarded as necessarily indicative of results that may be
expected for the entire year. The financial information presented herein
should be read in conjunction with the consolidated financial statements and
notes included in TransTexas' annual report on Form 10-K for the period ended
January 31, 1997. Unless otherwise noted, the term "TransTexas" refers to
TransTexas Gas Corporation and its subsidiaries as of July 31, 1997,
TransTexas Exploration Corporation ("TTEX"), TransTexas Drilling Services, Inc.
("TTXD") and TransTexas Energia de Mexico, S.A. de C.V. TransTexas is a
subsidiary of TransAmerican Energy Corporation ("TEC") and indirectly a
subsidiary of TransAmerican Natural Gas Corporation ("TransAmerican").
TransAmerican Refining Corporation ("TARC") is a subsidiary of TEC.
LIQUIDITY
TransTexas is required to make substantial capital expenditures for
the exploration and development of natural gas reserves in order to increase and
maintain production at levels sufficient to service its debt and fund future
capital requirements. TransTexas historically has financed its capital
expenditures, debt service and working capital requirements with public and
private offerings of debt and equity securities, the sale of production
payments, asset sales, its accounts receivable revolving credit facility and
other financings in addition to cash from operations. Cash flow from operations
is sensitive to the prices TransTexas receives for its natural gas. TransTexas'
leverage and debt covenants may limit its ability to obtain additional
financing, and there is no assurance that cash flow from operations will be
sufficient to fund capital and debt service requirements.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, ("SFAS
130"), which establishes standards for reporting and display of comprehensive
income and its components in financial statements. This statement will be
adopted by TransTexas effective February 1, 1998. TransTexas does not believe
the effect of adoption of this statement will have a material effect on its
financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). These
statements will be adopted by TransTexas effective January 31, 1998. SFAS 128
simplifies the computation of earnings per share by replacing primary and fully
diluted presentations with the new basic and diluted disclosures. SFAS 129
establishes standards for disclosing information about an entity's capital
structure. TransTexas does not believe the effects of adoption of these
statements will have a material impact on its financial statements.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities"
("SOP 96-1"), which establishes new accounting and reporting standards for the
recognition and disclosure of environmental remediation liabilities. SOP 96-1
was adopted by TransTexas effective February 1, 1997. The adoption of SOP 96-1
did not have a material impact on TransTexas' financial position, results of
operations or cash flows.
2. RECENT EVENTS
LOBO SALE. On May 29, 1997, TransTexas entered into and consummated a
stock purchase agreement with an unaffiliated buyer (the "Lobo Sale
Agreement"), with an effective date of March 1, 1997, to effect the sale (the
"Lobo Sale") of the stock of TransTexas Transmission Corporation ("TTC"), its
subsidiary that owned substantially all of TransTexas' Lobo Trend producing
properties and related pipeline transmission system, for a sales price of
approximately $1.1 billion, subject to adjustments as provided for in the Lobo
Sale Agreement. Purchase price adjustments were made for, among other things:
the value of certain NGLs and stored hydrocarbons; the value of gas in TTC's
pipeline; prepaid expenses relating to post-effective date operations;
post-closing expenses related to pre-
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TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
closing operations; the value of oil and gas produced and sold between the
effective date of the Lobo Sale Agreement and closing (approximately $44
million); property defects; and estimated costs associated with liabilities
incurred before closing. Purchase price adjustments made at the closing of the
Lobo Sale are subject to a review, reconciliation and resolution process. With
proceeds from the Lobo Sale, TransTexas repaid certain indebtedness and other
obligations, including production payments, in an aggregate amount of
approximately $84 million. The remaining net proceeds have been or will be used
for the repurchase or redemption of the Senior Secured Notes and for general
corporate purposes.
Pursuant to the Lobo Sale, TransTexas is required to indemnify the buyer
for certain liabilities related to the assets owned by TTC. Although
TransTexas does not anticipate that it will incur any material indemnity
liability, no assurance can be given that TransTexas will have sufficient funds
to satisfy any such indemnity obligation or that any payment thereof will not
have a material adverse effect on its ability to fund its debt service, capital
expenditure and working capital requirements.
TEC NOTES OFFERING. On June 13, 1997, TEC completed a private offering
(the "TEC Notes Offering") of $475 million aggregate principal amount of 11
1/2% Senior Secured Notes due 2002 (the "TEC Senior Secured Notes") and $1.13
billion aggregate principal amount of 13% Senior Secured Discount Notes due
2002 (the "TEC Senior Secured Discount Notes" and, together with the TEC Senior
Secured Notes, the "TEC Notes") for net proceeds of approximately $1.3 billion.
The TEC Notes are senior obligations of TEC, secured by a lien on substantially
all its existing and future assets, including the intercompany loans described
below. In conjunction with the TEC Notes Offering, TransTexas completed the
following transactions (collectively, the "Transactions"): (a) borrowing $450
million pursuant to an intercompany loan from TEC; (b) a tender offer and
consent solicitation (the "Tender Offer") for TransTexas' $800 million
aggregate principal amount of 11 1/2% Senior Secured Notes due 2002 (the
"Senior Secured Notes"); (c) an offer (the "Subordinated Notes Exchange Offer")
to exchange approximately $115.8 million aggregate principal amount of new
notes that pay interest in cash at the rate of 13 3/4% per annum for
TransTexas' $189 million aggregate principal amount of 13 1/4% Senior
Subordinated Notes due 2003 (the "Subordinated Notes"); and (d) a share
repurchase program for shares of TransTexas' common stock (the Share Repurchase
Program") in an aggregate amount of approximately $399 million.
INTERCOMPANY LOANS TO TRANSTEXAS AND TARC. With the proceeds of the TEC
Notes Offering, TEC made intercompany loans to TransTexas (the "TransTexas
Intercompany Loan") and TARC (the "TARC Intercompany Loan" and, together with
the TransTexas Intercompany Loan, the "Intercompany Loans"). The TransTexas
Intercompany Loan (i) is in the principal amount of $450 million, (ii) bears
interest at a rate of 10 7/8% per annum, payable semi-annually in cash in
arrears and (iii) is secured initially by a security interest in substantially
all of the assets of TransTexas including the TransTexas Disbursement Account
(described below), but excluding inventory, receivables and equipment. The TARC
Intercompany Loan (i) is in the original amount of $676 million, (ii) accretes
principal at 16% per annum, compounded semi-annually, until June 15, 1999, to a
final accreted value of $920 million, and thereafter pays interest semi-
annually in cash in arrears on the accreted value thereof, at a rate of 16% per
annum, and (iii) is secured initially by a security interest in substantially
all of TARC's assets other than inventory, receivables and equipment. The
Intercompany Loans will mature on June 1, 2002. The Intercompany Loan
Agreements contain certain restrictive covenants including, among others,
limitations on incurring additional debt, asset sales, dividends and
transactions with affiliates. TEC allocated $24.9 million of debt issuance
costs to TARC and $12.2 million to TransTexas which are reflected as a
contribution of capital. Such costs are being amortized over the term of the
Intercompany Loans using the interest method. Upon the occurrence of a Change of
Control (as defined), TEC will be required to make an offer to purchase all of
the outstanding TEC Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, or, in the case of
any such offer to purchase the TEC Senior Secured Discount Notes prior to June
15, 1999, at a price equal to 101% of the accreted value thereof, in each case,
to and including the date of purchase. Pursuant to the terms of the
Intercompany Loans, TEC may require TransTexas and TARC to pay a pro rata share
of the purchase price paid by TEC. See "Potential Effects of a Change of
Control" in Note 3 to the condensed consolidated financial statements.
SENIOR SECURED NOTES TENDER OFFER. On June 13, 1997, TransTexas completed
the Tender Offer for its Senior Secured Notes for 111 1/2% of their principal
amount (plus accrued and unpaid interest). Approximately $785.4 million
principal amount of Senior Secured Notes were tendered and accepted by
TransTexas. The Senior Secured Notes remaining outstanding were called for
redemption on June 30, 1997 pursuant to the terms of the Senior Secured Notes
Indenture.
7
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TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
SUBORDINATED NOTES EXCHANGE OFFER. On June 19, 1997, TransTexas completed
an exchange offer, pursuant to which it exchanged approximately $115.8 million
aggregate principal amount of its 13 3/4% Senior Subordinated Notes due 2001
(the "Subordinated Exchange Notes") for all of the Subordinated Notes. The
indenture governing the Subordinated Exchange Notes includes certain
restrictive covenants, including, among others, limitations on incurring
additional debt, asset sales, dividends and transactions with affiliates.
As a result of the Lobo Sale, the Tender Offer and the Exchange Offer,
TransTexas recorded a $533 million pretax gain and a $72 million after tax
extraordinary charge during the quarter ended July 31, 1997.
SHARE REPURCHASE PROGRAM. TransTexas has implemented the Share Repurchase
Program pursuant to which it plans to repurchase common stock from its public
stockholders and from its affiliates, including TEC and TARC, in an aggregate
amount of approximately $399 million in value of stock purchased. It is
anticipated that TransTexas will acquire four times the number of shares from
its affiliated stockholders than it acquires from its public stockholders.
Shares may be purchased through open market purchases, negotiated transactions
or tender offers, or combination of the above. It is anticipated that the price
paid to affiliated stockholders will equal the weighted average price paid to
purchase shares from the public stockholders. As of July 31, 1997,
approximately 3.1 million shares had been repurchased from public stockholders
for an aggregate purchase price of approximately $49.6 million. As of September
15, 1997, approximately 0.8 million additional shares had been repurchased from
public stockholders for an aggregate purchase price of approximately $11.8
million, and approximately 12.6 million shares had been repurchased from TARC
and TEC for an aggregate purchase price of $201 million.
TRANSTEXAS DISBURSEMENT ACCOUNT. Pursuant to a disbursement agreement
(the "Disbursement Agreement") among TransTexas, TEC, the TEC Indenture Trustee,
and Firstar Bank of Minnesota, N.A. as disbursement agent, approximately $399
million of the proceeds of the TransTexas Intercompany Loan was placed in an
account (the "Disbursement Account") to be held and invested by the disbursement
agent until disbursed. Funds in the Disbursement Account will be disbursed to
TransTexas as needed to fund the Share Repurchase Program. TransTexas may at
any time request disbursement of interest earned on the funds in the
Disbursement Account. The Disbursement Account is classified as "cash
restricted for share repurchase" in the accompanying condensed consolidated
balance sheet. As of July 31, 1997, approximately $49.6 million had been
disbursed for use in the Share Repurchase Program.
3. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
ALAMEDA. On May 22, 1993, Alameda Corporation ("Alameda") sued
TransAmerican in the 234th Judicial District Court, Harris County, Texas,
claiming that TransAmerican failed to account to Alameda for a share of the
proceeds TransAmerican received in a 1990 settlement of litigation with El Paso
Natural Gas Company ("El Paso"), and that TransAmerican has been unjustly
enriched by its failure to share such proceeds with Alameda. On September 20,
1995, the jury rendered a verdict in favor of TransAmerican. Alameda appealed
to the Fourteenth Court of Appeals, which affirmed the trial court judgment in
favor of TransAmerican. Alameda filed a motion for rehearing on April 10, 1997
and TransAmerican responded. The court denied Alameda's motion, and Alameda
has appealed to the Texas Supreme Court.
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TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
ASPEN. TransAmerican brought suit on September 29, 1993 against Aspen
Services, Inc. ("Aspen"), seeking an audit and accounting of drilling costs
that Aspen had charged while providing drilling services to TransAmerican.
This suit is pending in the 215th Judicial District Court, Harris County,
Texas. The parties' drilling agreement provided, among other things, that
Aspen would receive payment for its drilling-related costs from the production
and sale of gas from the wells that were drilled, and that the revenues that
TransAmerican would otherwise receive from the wells would be reduced by the
amounts received by Aspen. On July 19, 1995, Aspen filed a counterclaim and
third party claim against TransAmerican, TransTexas, and affiliated entities,
asserting, among other things, that these entities failed to make certain
payments and properly market the gas from these wells. Aspen sought damages
in an unspecified amount, as well as certain equitable claims. In April 1997,
the trial court ruled against Aspen on all of its claims and counterclaims.
BRIONES. In an arbitration proceeding, Jesus Briones, a lessor,
claimed that one of TransTexas' wells on adjacent lands had been draining
natural gas from a portion of his acreage leased to TransTexas on which no well
had been drilled. On October 31, 1995, the arbitrator decided that drainage
had occurred. On June 3, 1996, the arbitrator issued a letter indicating that
drainage damages would be awarded to Briones in the amount of approximately
$1.4 million. The arbitrator entered his award of damages on June 27, 1996.
On July 3, 1996, TransTexas filed a petition in the 49th Judicial District
Court, Zapata County, Texas, to vacate the arbitrator's award. Briones also
filed a petition to confirm the arbitrator's award. In April 1997, the court
granted Briones' motion for summary judgment. In August 1997, the court
entered a final judgment for Briones in the amount of approximately $1.6
million. TransTexas intends to file a motion for new trial.
FINKELSTEIN. On April 15, 1990, H.S. Finkelstein filed suit
against TransAmerican in the 49th Judicial District Court, Zapata County,
Texas, alleging that TransAmerican failed to pay royalties and improperly
marketed oil and gas produced from certain leases. On September 27, 1994, the
plaintiff added TransTexas as an additional defendant. On January 6, 1995, a
judgment against TransAmerican and TransTexas was entered for approximately $18
million in damages, interest and attorneys' fees. TransTexas and TransAmerican
appealed the judgment to the Fourth Court of Appeals, San Antonio, Texas, which
affirmed the judgment on April 3, 1996. TransTexas and TransAmerican filed a
motion for rehearing. On August 14, 1996, the Fourth Court of Appeals reversed
the trial court judgment and rendered judgment in favor of TransAmerican and
TransTexas. On August 29, 1996, Finkelstein filed a motion for stay and a
motion for rehearing with the court. On October 9, 1996, the court denied
Finkelstein's rehearing request. In November 1996, Finkelstein filed an
application for writ of error with the Supreme Court of Texas.
On April 22, 1991, Finkelstein filed a separate suit against
TransAmerican and various affiliates in the 49th Judicial District Court, Zapata
County, Texas, alleging an improper calculation of overriding royalties
allegedly owed to the plaintiff and seeking damages and attorneys' fees in
excess of $33.7 million. On November 18, 1993, the plaintiff added TransTexas
as an additional defendant. The parties arbitrated this matter in January 1997.
A partial decision from the arbitration panel has been rendered in favor of
Finkelstein. Although the amount of damages has yet to be determined under the
panel's decision, such amount will be substantially less than that sought by
plaintiff.
ARABIAN OFFSHORE PARTNERS. On June 27, 1997, Arabian Offshore
Partners filed a lawsuit against TransTexas in the 14th Judicial District
Court, Dallas County, Texas, seeking $20 million in damages in connection with
TransTexas' refusal to proceed with the acquisition of two jack-up drilling
rigs. TransTexas has filed its answer and is preparing a motion for summary
judgment.
GENERAL. TransTexas is also a named defendant in other ordinary
course, routine litigation incidental to its business. Although the outcome of
these other lawsuits cannot be predicted with certainty, TransTexas does not
expect these matters to have a material adverse effect on its financial
position. At July 31, 1997, the possible range of estimated losses related to
all of the aforementioned claims, in addition to the estimates accrued by
TransTexas is $0 to $36 million. The resolution in any reporting period of
one or more of these matters in a manner adverse to
9
<PAGE> 11
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
TransTexas could have a material impact on TransTexas' results of operations
and cash flows for that period. Litigation expense, including legal fees,
totaled approximately $4.3 million and $5.9 million for the three months ended
July 31, 1997 and 1996, respectively, and approximately $9.4 million and $7.3
million for the six months ended July 31, 1997 and 1996.
ENVIRONMENTAL MATTERS
TransTexas' operations and properties are subject to extensive
federal, state, and local laws and regulations relating to the generation,
storage, handling, emission, transportation, and discharge of materials into
the environment. Permits are required for various of TransTexas' operations,
and these permits are subject to revocation, modification, and renewal by
issuing authorities. TransTexas also is subject to federal, state, and local
laws and regulations that impose liability for the cleanup or remediation of
property that has been contaminated by the discharge or release of hazardous
materials or wastes into the environment. Governmental authorities have the
power to enforce compliance with their regulations, and violations are subject
to fines or injunctions, or both. It is not anticipated that TransTexas will
be required in the near future to expend amounts that are material to the
financial condition or operations of TransTexas by reason of environmental laws
and regulations, but because such laws and regulations are frequently
changed and, as a result, may impose increasingly strict requirements,
TransTexas is unable to predict the ultimate cost of complying with such laws
and regulations.
PRODUCTION PAYMENTS
In April 1997, TransTexas sold to an unaffiliated third party a term
overriding royalty in the form of a dollar-denominated production payment in
certain of TransTexas' producing properties for net proceeds of $20 million.
The production payment calls for the repayment of the primary sum plus an
amount equivalent to a 16% annual interest rate on the unpaid portion of such
primary sum.
LETTER OF CREDIT
In January 1996, TransTexas entered into a reimbursement agreement
with an unaffiliated third party pursuant to which the third party caused a $20
million letter of credit to be issued to collateralize a supersedeas bond on
behalf of TransTexas. If there is a draw under the letter of credit,
TransTexas is required to reimburse the third party within 60 days. TransTexas
has agreed to issue up to 8.6 million shares of its common stock to the third
party if this contingent obligation to such third party becomes fixed and
remains unpaid for 60 days. TransTexas does not believe that this contingency
will occur. If the obligation becomes fixed, and alternative sources of
capital are not available, TransTexas could elect to sell shares of TransTexas'
common stock prior to the maturity of the obligation and use the proceeds of
such sale to repay the third party. Based on TransTexas' current
capitalization, the issuance of shares of TransTexas' common stock to satisfy
this obligation would result in deconsolidation of TransTexas for federal
income tax purposes.
POTENTIAL TAX LIABILITY
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended, and has reduced its tax attributes (including its net
operating loss and credit carryforwards) as a consequence of the COD Exclusion.
No federal tax opinion was rendered with respect to this transaction, however,
and TransAmerican has not obtained a ruling from the Internal Revenue Service
(the "IRS") regarding this transaction. TransTexas believes that there is
substantial legal authority to support the position that the COD Exclusion
applies to the cancellation of TransAmerican's indebtedness. However, due to
factual and legal uncertainties, there can be no
10
<PAGE> 12
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
assurance that the IRS will not challenge this position, or that such challenge
would not be upheld. Under an agreement between TransTexas, TransAmerican and
certain of TransAmerican's subsidiaries (the "Tax Allocation Agreement"),
TransTexas has agreed to pay an amount equal to any federal tax liability
(which would be approximately $25.4 million) attributable to the
inapplicability of the COD Exclusion. Any such tax would be offset in future
years by alternative minimum tax credits and retained loss and credit
carryforwards to the extent recoverable from TransAmerican. As a member of the
TNGC Consolidated Group (defined below), each of TransTexas, TEC and TARC will
be severally liable for any tax liability resulting from the above-described
transactions. The IRS has commenced an audit of the consolidated federal
income tax returns of the TNGC Consolidated Group for its taxable years ended
July 31, 1994 and 1995. Because the audit is in its initial stages, it is not
possible to predict the scope of the IRS' review or whether any tax
deficiencies will be proposed by the IRS as a result of its review.
Based upon independent legal advice, TransTexas has determined that it
will not report any significant federal income tax liability as a result of the
Lobo Sale. There are, however, significant uncertainties regarding TransTexas'
tax position and no assurance can be given that TransTexas' position will be
sustained if challenged by the IRS. TransTexas is part of an affiliated group
for tax purposes (the "TNGC Consolidated Group"), which includes TNGC Holdings
Corporation, the sole stockholder of TransAmerican. No letter ruling has been
or will be obtained from the IRS regarding the Lobo Sale by any member of the
TNGC Consolidated Group. If the IRS were to successfully challenge TransTexas'
position, each member of the TNGC Consolidated Group would be severally liable
under the consolidated tax return regulations for the resulting taxes, in the
estimated amount of up to $230 million (assuming the use of existing tax
attributes of the TNGC Consolidated Group), possible penalties equal to 20% of
the amount of the tax, and interest at the statutory rate (currently 9%) on the
tax and penalties (if any). The Tax Allocation Agreement has been amended so
that TransAmerican will become obligated to fund the entire tax deficiency (if
any) resulting from the Lobo Sale. There can be no assurance that TransAmerican
would be able to fund any such payment at the time due and the other members of
the TNGC Consolidated Group, thus, may be required to pay the tax. TransTexas
has reserved approximately $75 million with respect to the potential tax
liability for financial reporting purposes to reflect a portion of the federal
tax liability that TransAmerican might not be able to pay. If TransTexas were
required to pay this tax deficiency, it is likely that it would be required to
sell significant assets or raise additional debt or equity capital to fund the
payment.
Under certain circumstances, TransAmerican or TEC may sell or
otherwise dispose of shares of common stock of the Company. If, as a
result of any sale or other disposition of the Company's common stock, the
aggregate ownership of TransTexas by members of the TNGC Consolidated Group
(excluding TransTexas) is less than 80% (measured by voting power and value),
TransTexas will no longer be a member of the TNGC Consolidated Group for
federal tax purposes ("Deconsolidation") and, with certain exceptions, will no
longer be obligated under the terms and conditions of, or entitled to the
benefits of, the Tax Allocation Agreement. Further, if TEC or TARC sells or
otherwise transfers any stock of TARC, or issues any options, warrants or
other similar rights relating to such stock, outside of the TNGC Consolidated
Group, which represents more than 20% of the voting power or equity value of
TARC, then a Deconsolidation of TARC would occur. A Deconsolidation of TARC
would result in a Deconsolidation of TransTexas if the TNGC Consolidated Group,
excluding TARC, does not then own at least 80% of the voting power and equity
value of TransTexas. Upon a Deconsolidation of TransTexas, members of the TNGC
Consolidated Group that own TransTexas' common stock could incur a substantial
amount of federal income tax liability. If such Deconsolidation occurred
during the fiscal year ending January 31, 1998, the aggregate amount of this
tax liability is estimated to be between $175 million and $200 million,
assuming no reduction for tax attributes of the TNGC Consolidated Group.
However, such tax liability generally would be substantially reduced or
eliminated in the event that the IRS successfully challenged TransTexas'
position on the Lobo Sale. Each member of a consolidated group filing a
consolidated federal income tax return is severally liable to the IRS for the
consolidated federal income tax liability of the consolidated group. There can
be no assurance that each TNGC Consolidated Group member will have the ability
to satisfy any tax obligation attributable to the Transactions at the time due
and, therefore, other members of the group, including TEC, TransTexas or TARC,
may be required to pay the tax.
11
<PAGE> 13
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Generally, under the Tax Allocation Agreement, if net operating losses
of TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable)
of such losses in later years to the extent TransTexas has taxable income,
remains a member of the TNGC Consolidated Group and the other group members
have the ability to pay such taxes. If TransAmerican, TARC or TEC transfers
shares of common stock of TransTexas (or transfers options or other rights to
acquire such shares) and, as a result of such transfer, Deconsolidation of
TransTexas occurs, TransTexas would not thereafter receive any benefit
pursuant to the Tax Allocation Agreement for net operating losses of TransTexas
used by other members of the TNGC Consolidated Group prior to the
Deconsolidation of TransTexas.
TransTexas is required, under the Tax Allocation Agreement, to pay
any Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to prior year transactions. TransTexas paid approximately $5.4
million of such tax as of the closing of the Lobo Sale and will pay a
substantial amount of the remaining tax within the ensuing 12-month period
POTENTIAL EFFECTS OF A CHANGE OF CONTROL
The Subordinated Notes Indenture provides that, upon the occurrence of a
Change of Control, each holder of the Subordinated Exchange Notes will have the
right to require TransTexas to repurchase such holder's Notes at 101% of the
principal amount thereof plus accrued and unpaid interest. Pursuant to the
terms of the TransTexas Intercompany Loan, upon the occurrence of a Change of
Control, TEC would have the right to require TransTexas to repay the principal
of the TransTexas Intercompany Loan in an amount equal to a pro rata share of
the amount TEC is required to pay under the TEC Notes Indenture. Such pro rata
share would be calculated using the ratio of the outstanding principal amount
of the TransTexas Intercompany Loan to the sum of (i) the outstanding principal
amount of the TransTexas Intercompany Loan plus (ii) the accreted value of the
outstanding principal amount of the TARC Intercompany Loan. A Change of
Control would be deemed to occur under the Subordinated Notes Indenture in the
case of certain changes or other events in respect of the ownership of
TransTexas, including any circumstances pursuant to which any person or group
other than John R. Stanley and his wholly owned subsidiaries or the TEC
Indenture Trustee is or become the beneficial owner of more than 50% of the
total voting power of TransTexas' then outstanding voting stock, and during the
90 days thereafter, the rating of the notes is downgraded or withdrawn. A
Change of Control would be deemed to occur under the TransTexas Intercompany
Loan in the case of certain changes or other events in respect of the ownership
or control of TEC, TransTexas, or TARC including any circumstance pursuant to
which (i) any person or group, other than John R. Stanley and his
wholly-owned subsidiaries or the TEC Indenture Trustee is or becomes the
beneficial owner of more than 50% of the total voting power of TEC's then
outstanding voting stock, or (ii) TEC or any of its subsidiaries own some of
TransTexas' or TARC's capital stock, respectively, but less than 50% of the
total voting stock or economic value of TransTexas or TARC, respectively,
unless the TEC Notes have an investment grade rating for the period of 120 days
thereafter. The term "person," as used in the definition of Change of Control,
means a natural person, company, government or political subdivision, agency or
instrumentality of a government and also includes a "group," which is defined
as two or more persons acting as a partnership, limited partnership or other
group. In addition, certain changes or other events in respect of the
ownership or control of TransTexas that do not constitute a Change of Control
under the TEC Notes Indenture may result in a "change of control" of TransTexas
under the terms of TransTexas' credit facility (the "BNY Facility") and certain
equipment financing. Such an occurrence could create an obligation for
TransTexas to repay such other indebtedness. At July 31, 1997, TransTexas had
approximately $26.6 million of indebtedness (excluding the Senior Secured
Notes and the Subordinated Notes) subject to such right of repayment or
repurchase. In the event of a Change of Control under the Subordinated Notes
Indenture or the TEC Notes Indenture or a "change of control" under the terms
of other outstanding indebtedness, there can be no assurance that TransTexas
will have sufficient funds to satisfy any such payment obligations.
A change of control or other event that results in deconsolidation of
TransTexas and TransAmerican for federal income tax purposes could result in
acceleration of a substantial amount of federal income taxes. These matters,
12
<PAGE> 14
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
individually and in the aggregate, amount to significant potential liability
which, if adjudicated in a manner adverse to TransTexas in one reporting
period, could have a material adverse effect on TransTexas' cash flow or
operations for that period. Although the outcome of these contingencies or the
probability of the occurrence of these contingencies cannot be predicted with
certainty, TransTexas does not expect these matters to have a material adverse
effect on its financial position.
4. OTHER CURRENT ASSETS
The major components of other current assets are as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
<S> <C> <C>
Prepayments:
Trade $ 10,566 $ 9,580
Insurance 2,698 2,310
Deferred loss on commodity price swap agreements -- 8,276
Other 2,093 4,818
--------- ---------
$ 15,357 $ 24,984
========= =========
</TABLE>
5. ACCRUED LIABILITIES
The major components of accrued liabilities are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
<S> <C> <C>
Royalties $ 11,326 $ 27,607
Taxes other than income taxes 5,284 10,136
Accrued interest 4,356 13,370
Payroll 5,366 5,413
Litigation settlements and other -- 1,263
Settlement values of commodity price swap agreements -- 13,276
Insurance 5,030 6,618
Other 2,807 5,728
--------- ---------
$ 34,169 $ 83,411
========= =========
</TABLE>
Included in litigation settlements and other at January 31, 1997 are
certain non-recurring costs associated with the Lobo Sale.
13
<PAGE> 15
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
6. OTHER LIABILITIES
The major components of other liabilities are as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
<S> <C> <C>
Litigation accrual $ 10,008 $ 8,008
Litigation settlement -- 1,633
Short-term obligations expected to be refinanced:
Litigation settlement -- 2,500
Accrued capital expenditures -- 19,738
Other 1,112 1,112
--------- ---------
$ 11,120 $ 32,991
========= =========
</TABLE>
During the months of April and May 1997, TransTexas obtained additional
financing in the aggregate amount of approximately $45.8 million, of which
approximately $21.0 million remains outstanding as of July 31, 1997. Proceeds
from these transactions, net of current maturities, were used to pay the
obligations listed above under the caption "Short-term obligations expected to
be refinanced" at January 31, 1997 and for general corporate purposes.
7. HEDGING AGREEMENTS
From time to time, TransTexas enters into commodity price swap
agreements (the "Hedge Agreements") to reduce its exposure to price risk in the
spot market for natural gas. The Hedge Agreements are accounted for as
hedges if the pricing of the hedge agreement correlates with the pricing
of the natural gas production hedged. Accordingly, gains or losses are
deferred and recorded as assets or liabilities and recognized as an increase or
decrease in revenues in the respective month the physical volumes are sold.
For the three and six months ended July 31, 1997, TransTexas incurred net
settlement losses pursuant to the Hedge Agreements of approximately $2.8
million and $7.4 million, respectively. As of July 31, 1997, TransTexas had no
Hedge Agreements outstanding.
14
<PAGE> 16
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
8. LITIGATION SETTLEMENTS
BENTSEN. On August 13, 1990, Calvin R. Bentsen, et al. filed suit against
TransAmerican and Mr. Stanley in the 139th Judicial District Court, Hidalgo
County, Texas, seeking a portion of the El Paso settlement proceeds, and an
accounting of monies allegedly owed to them, claiming that TransAmerican
produced gas that belonged to them without their knowledge and that
TransAmerican entered into an oral agreement with them which entitled them to
receive a portion of the El Paso settlement proceeds. This case was settled in
April 1997.
COASTAL. On October 28, 1991, The Coastal Corporation ("Coastal") filed
an action against TransAmerican that was consolidated in the 49th Judicial
District Court, Webb County, Texas, alleging breach of contract and tortious
interference related to two gas sales contracts and a transportation agreement,
seeking unspecified actual and punitive damages and injunctive relief. On
April 22, 1994, the court entered a judgment adverse to TransAmerican and
TransTexas requiring them to pay $1.3 million plus $0.7 million in attorneys'
fees to Coastal. On May 29, 1996, the Court of Appeals affirmed the judgment.
In December 1996, the Supreme Court of Texas declined to hear the appeal. The
judgment was paid on May 27, 1997. Coastal executed a Release of Judgment and
Judgment Lien which has been recorded in Webb and Zapata Counties.
FROST. On November 10, 1994, Frost National Bank filed suit against
TransTexas in the 111th Judicial District Court, Webb County, Texas, seeking a
declaratory judgment determination that TransTexas failed to properly and
accurately calculate royalties under a lease. The plaintiff had demanded $10
million plus interest. This case was settled in May 1997.
FARIAS. On February 15, 1996, Celita Suzana Farias filed a wrongful
death action in the 93rd District Court, Hidalgo County, Texas, against
TransTexas and one of its contractors for fatal injuries suffered by the
plaintiff's husband at the Yzaguirre Heirs #3 Well on February 13, 1996. The
plaintiff alleges the defendants operated a crane in such a manner that they
were negligent and grossly negligent. The plaintiff seeks unspecified damages.
On March 7, 1996, the mother of the deceased TransTexas employee filed a
petition in intervention also alleging negligence, gross negligence and malice
and seeking unspecified damages. This litigation was settled in August 1997.
9. CREDIT AGREEMENTS
TransTexas and BNY Financial Corporation are parties to an Amended
and Restated Accounts Receivable Management and Security Agreement (the "BNY
Facility"), dated as of October 31, 1995 and amended in December 1996. In
connection with the Lobo Sale, the TEC Notes Offering and the Transactions
described in Note 2, TransTexas and BNY entered into a waiver of the BNY
Facility, pursuant to which advances under the BNY Facility are made at the
sole discretion of the lender and the lender may require repayment of principal
and interest at any time. As of July 31, 1997, outstanding advances under the
BNY Facility totaled approximately $6.2 million. Interest accrues on advances
at the rate of (i) the higher of (a) the prime rate of The Bank of New York or
(b) the Federal Funds Rate plus 1/2 of 1% plus (ii) 1/2 of 1%.
Obligations under the BNY Facility are secured by liens on TransTexas'
receivables and inventory. TransTexas is currently negotiating an amendment
and restatement of the BNY Facility.
10. TRANSACTIONS WITH AFFILIATES
In June 1997, certain affiliates repaid approximately $65 million owed to
TransTexas.
TransTexas sells natural gas to TARC under an interruptible long-term
sales contract. Revenues from TARC under this contract totaled approximately
$0.3 million and $1.5 million for the six months ended July 31, 1997
15
<PAGE> 17
TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
and 1996, respectively. The receivable from TARC for natural gas sales totaled
approximately $3.0 million at July 31, 1997.
On June 13, 1997, the Transfer Agreement was amended to eliminate
TransAmerican's indemnity obligations to TransTexas other than for tax
liabilities.
On June 13, 1997, a new services agreement was entered into among
TransAmerican, TEC, TARC and TransTexas. Under the new services agreement,
TransTexas will provide accounting, legal, administrative and other services to
TARC, TEC and TransAmerican and its affiliates. TransAmerican will provide
advisory services to TransTexas, TARC and TEC. TARC will pay to TransTexas
approximately $300,000 per month for services rendered to, and for allocated
expenses paid by TransTexas on behalf of TARC and TEC. TransAmerican will pay
to TransTexas approximately $20,000 per month for such services. TEC and its
subsidiaries will pay $2.5 million in the aggregate per year to TransAmerican
for advisory services and benefits provided by TransAmerican.
16
<PAGE> 18
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto of TransTexas
included elsewhere in this report.
RESULTS OF OPERATIONS
GENERAL
TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate, and
NGLs. The profitability of TransTexas also depends on the volume of natural
gas it gathers and transports, its ability to minimize finding and lifting
costs and maintaining its reserve base while maximizing production. On May
29, 1997, TransTexas entered into and consummated a stock purchase agreement
with an unaffiliated buyer (the "Lobo Sale Agreement"), with an effective date
of March 1, 1997, to effect the sale (the "Lobo Sale") of the stock of
TransTexas Transmission Corporation ("TTC"), its subsidiary that owned
substantially all of TransTexas' Lobo Trend producing properties and related
pipeline transmission system, for a sales price of approximately $1.1 billion,
subject to adjustments as provided for in the Lobo Sale Agreement.
Accordingly, the Company's reported results for the three and six months ended
July 31, 1997 include the effect of reduced volumes attributable to the
producing properties sold as part of the Lobo Sale.
TransTexas' operating data for the three months and six months ended
July 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales volumes:
Gas (Bcf) (1) 17.8 38.1 53.2 74.3
NGLs (MMgal) 14.3 41.1 61.7 89.3
Condensate (MBbls) 151 116 426 280
Average prices:
Gas (dry) (per Mcf) (2) $ 2.06 $ 1.95 $ 1.80 $ 1.99
NGLs (per gallon) .26 .31 .29 .31
Condensate (per Bbl) 18.33 19.62 19.46 19.86
Number of gross wells drilled 26 13 55 58
Percentage of wells completed 54% 38% 58% 74%
</TABLE>
- ----------------------
(1) Sales volumes for six months ended July 31, 1997 include 7.3 Bcf
delivered pursuant to volumetric production payments.
(2) Average prices for the three and six months ended July 31, 1997 includes
amounts delivered under volumetric production payments. The average gas
price for TransTexas' undedicated production for these periods was $2.06
per Mcf and $1.91 per Mcf, respectively. Gas prices do not include the
effect of hedging agreements.
17
<PAGE> 19
A summary of TransTexas' operating expenses is set forth below (in millions
of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating costs and expenses:
Lease $ 4.9 $ 6.2 $ 12.9 $ 13.0
Pipeline 3.2 8.1 11.4 16.3
Natural gas liquids 3.6 10.7 14.5 23.2
-------- -------- -------- --------
11.7 25.0 38.8 52.5
Taxes other than income taxes (1) 2.5 7.2 7.7 12.4
-------- -------- -------- --------
Total $ 14.2 $ 32.2 $ 46.5 $ 64.9
======== ======== ======== ========
</TABLE>
- ----------
(1) Taxes other than income taxes include severance, property, and other
taxes.
TransTexas' average depletion rates have been as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------------- ----------------------
1997 1996 1997 1996
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Depletion rates (per Mcfe) $ 1.02 $ 0 .94 $ 1.04 $ 0.92
=========== ========== ======== =========
</TABLE>
TransTexas' Consolidated EBITDA, as defined in the Indenture, which
consists of TransTexas' earnings before consolidated fixed charges (excluding
capitalized interest), income taxes, depreciation, depletion, and amortization
is set forth below (in millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------------- ----------------------
1997 1996 1997 1996
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Consolidated EBITDA $ 557.4 $ 143.1 $ 594.3 $ 204.0
=========== ========== ======== =========
</TABLE>
THREE MONTHS ENDED JULY 31, 1997, COMPARED WITH THE THREE MONTHS ENDED JULY 31,
1996
Gas, condensate and NGLs revenues for the three months ended July 31,
1997 decreased $38.6 million from the comparable prior year quarter, due
primarily to lower prices for and decreased volumes of natural gas and NGLs,
primarily in the second quarter. The average monthly prices received per Mcf
of gas, excluding amounts dedicated to volumetric production payments, ranged
from $2.02 to $2.17 in the three months ended July 31, 1997, compared to a
range of $2.04 to $2.37 in the same period in the prior year. The decrease in
natural gas sales volumes resulted primarily from the sale of approximately 207
Bcfe of TransTexas' reserves in the Lobo Trend. As of July 31, 1997,
TransTexas had a total of 105 producing wells compared to 861 at July 31,
1996. NGL sales volumes decreased as a result of decreases in the volumes of
natural gas processed. Transportation revenues decreased $5.9 million over the
prior year quarter due to the sale of the pipeline system.
As a result of the Lobo Sale, the Tender Offer and the Exchange Offer,
TransTexas recorded a $533 million pretax gain and a $72 million after tax
extraordinary charge during the quarter ended July 31, 1997.
Primarily as a result of the Lobo Sale, lease operating expenses,
pipeline operating expenses and NGLs cost for the quarter ended July 31, 1997
decreased $1.3 million, $4.9 million and $7.1 million, respectively, over the
comparable prior year period. Depreciation, depletion and amortization expense
for the three months ended July 31, 1997 decreased $11.0 million due to a
decrease in TransTexas' undedicated natural gas production as a result of the
Lobo sale, offset by a $0.08 increase in the depletion rate. General and
administrative expenses decreased approximately $3.0 million in the three months
ended July 31, 1997, due primarily to lower professional fees and litigation
expenses.
Interest income for the three months ended July 31, 1997 increased
approximately $4.8 million over the comparable prior year period due to
increased cash balances in the current quarter. Interest expense decreased
$7.9 million over the same period of the prior year primarily as a
result of the retirement of the Senior Secured Notes, offset in part by an
increase in the amount of interest capitalized in connection with the
acquisition of undeveloped leasehold acreage.
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SIX MONTHS ENDED JULY 31, 1997, COMPARED WITH THE SIX MONTHS ENDED JULY 31,
1996
Gas, condensate and NGL revenues for the six months ended July 31, 1997
decreased by $45.5 million from the comparable period of the prior year, due
primarily by decreases in gas, condensate and NGLs sales prices and gas sales
volumes, offset in part by increases in condensate sales volumes. The average
monthly prices received per Mcf of gas, excluding amounts dedicated to
volumetric production payments, ranged from $2.29 to $1.49 in the six months
ended July 31, 1997, compared to a range of $2.02 to $2.45 in the same period
in the prior year. The increase in condensate sales volumes is due primarily
to increased production from Trans Texas' new development areas, offset in part
by the normal decline in natural gas production from the TransTexas Lobo Trend
wells and the sale of the TransTexas producing properties in the Lobo Trend.
NGLs sales volumes decreased as a result of decreases in the volumes of natural
gas processed. Transportation revenues decreased by $4.8 million for the six
months ended July 31, 1997, due primarily to decreases in volumes transported
and the sale of the pipeline system.
Lease operating expenses in the six months ended July 31, 1997 decreased by
$0.1 million from the prior year period due primarily to decreases in the number
of producing wells during the second quarter offset partially by an increase in
salt water disposal and the initiation of a program to increase flow rates on
certain TransTexas' wells through increased workovers and the installation of
leased wellhead compressors. Pipeline operating expenses decreased by $4.9 due
primarily to the sale of the pipeline system as part of the Lobo sale. NGLs
cost decreased by $8.7 million from the comparable period in the prior year due
to increases in the cost of natural gas used in NGL processing, offset by a
decrease in volumes of natural gas processed. Depreciation, depletion and
amortization expense for the six months ended July 31, 1997 decreased by $7.9
million due to the decrease in TransTexas' undedicated natural gas production
partially offset by a $0.12 increase in the depletion rate. General and
administrative expenses increased by $4.7 million due primarily to increases in
wages and benefits and litigation expense. Taxes other than income taxes
decreased by $4.6 million over the comparable prior year period due primarily to
a decrease in ad valorem and excise taxes.
Interest income for the six months ended July 31, 1997 increased by
approximately $5.4 million over the comparable period of the prior year due to
increased average cash balances. Interest expense decreased by $4.8 million
primarily as a result of the retirement of the Senior Secured Notes offset in
part by the accretion on subordinated notes.
Cash flow from operating activities for the six months ended July 31, 1997
decreased by approximately $154.2 million from the prior-year period due
primarily to lower net income from gas and oil production activities and
repayment of production payments in connection with the Lobo Sale.
Cash used in investing activities increased by $602.7 million due to
proceeds from the sale of certain TransTexas producing properties offset in
part by the increase in cash restricted for share repurchases.
Cash flow from financing activities decreased by approximately $464.3
million due primarily to the retirement of the Senior Secured Notes offset in
part by the TransTexas Intercompany Loan of $450 million.
LIQUIDITY AND CAPITAL RESOURCES
TransTexas makes substantial capital expenditures for the exploration,
development and production of natural gas. TransTexas historically has financed
its capital expenditures, debt service and working capital requirements from
cash from operations, public and private offerings of debt and equity
securities, the sale of production payments, asset sales, its accounts
receivable revolving credit facility and other financings. Cash flow from
operations is sensitive to the prices TransTexas receives for its natural gas.
TransTexas from time to time enters into commodity price swap agreements to
reduce its exposure to price risk in the spot market for natural gas. Proceeds
from natural gas sales are received at approximately the same time that
production related burdens, such as royalties, production taxes and drilling
program obligations are payable. TransTexas' leverage and debt covenants may
limit its ability to obtain additional financings.
For the six months ended July 31, 1997, total capital expenditures
were $206 million, including $41 million for lease acquisitions, $129 million
for drilling and development and $36 million for TransTexas' gas
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gathering and pipeline system and other equipment and seismic acquisitions.
During this period, TransTexas accelerated its exploration and development
drilling program which included the successful exploration efforts in Galveston
Bay, Goliad County and Brazoria County and, as a result, its capital
expenditures for fiscal 1998 will significantly exceed its original anticipated
amount of $220 million. Anticipated capital expenditures in fiscal 1998,
including the development of the successful exploration areas will require
supplementing cash flow from operations with asset sales or financings.
On May 29, 1997, TransTexas entered into and consummated a stock
purchase agreement with an unaffiliated buyer (the "Lobo Sale Agreement"), with
an effective date of March 1, 1997, to effect the sale (the "Lobo Sale") of
the stock of TTC, its subsidiary that owned substantially all of TransTexas'
Lobo Trend producing properties and related pipeline transmission system, for a
sales price of approximately $1.1 billion, subject to adjustments as provided
for in the Lobo Sale Agreement. Purchase price adjustments were made for,
among other things: the value of certain NGLs and stored hydrocarbons; the
value of gas in TTC's pipeline; prepaid expenses relating to post-effective
date operations; post- closing expenses related to pre-closing operations; the
value of oil and gas produced and sold between the effective date of the Lobo
Sale Agreement and closing (approximately $44 million); property defects; and
estimated costs associated with liabilities discovered before closing.
Purchase price adjustments made at the closing of the Lobo Sale are subject to
a review, reconciliation and resolution process. With proceeds from the Lobo
Sale, TransTexas repaid certain indebtedness and other obligations, including
production payments, in an aggregate amount of approximately $84 million. The
remaining net proceeds have been or will be used for the redemption or
repurchase of the Senior Secured Notes and for general corporate purposes.
On June 13, 1997, TEC completed a private offering (the "TEC Notes
Offering") of $475 million aggregate principal amount of 11 1/2% Senior Secured
Notes due 2002 (the "TEC Senior Secured Notes") and $1.13 billion aggregate
principal amount of 13% Senior Secured Discount Notes due 2002 (the "TEC Senior
Secured Discount Notes" and, together with the TEC Senior Secured Notes, the
"TEC Notes") for net proceeds of approximately $1.3 billion.
With the proceeds of the TEC Notes Offering, TEC made intercompany
loans to TransTexas in the principal amount of $450 million (the "TransTexas
Intercompany Loan") and to TARC in the original amount of $676 million (the
"TARC Intercompany Loan" and, together with the TransTexas Intercompany Loan,
the "Intercompany Loans"). The promissory note evidencing the TransTexas
Intercompany Loan (i) bears interest at a rate of 10 7/8% per annum, payable
semi-annually in cash in arrears and (ii) is secured initially by a security
interest in substantially all of the assets of TransTexas other than
inventory, receivables and equipment. The promissory note evidencing the TARC
Intercompany Loan (i) accretes principal at the rate of 16% per annum,
compounded semi-annually, until June 15, 1999 to a final accreted value of $920
million, and thereafter pays interest semi-annually in cash in arrears on the
accreted value thereof, at a rate of 16% per annum and (ii) is secured
initially by a security interest in substantially all of TARC's assets other
than inventory, receivables and equipment. The Intercompany Loans will mature
on June 1, 2002. The Intercompany Loan Agreements contain certain restrictive
covenants including, among others, limitations on incurring additional debt,
asset sales, dividends and transactions with affiliates. Upon the occurrence
of a Change of Control (as defined), TEC will be required to make an offer to
purchase all of the outstanding TEC Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any,
or, in the case of any such offer to purchase the TEC Senior Secured Discount
Notes prior to June 15, 1999, at a price equal to 101% of the accreted value
thereof, in each case, to and including the date of purchase. Pursuant to the
terms of the Intercompany Loans, TEC may require TransTexas and TARC to pay a
pro rata share of the purchase price paid by TEC. See " Potential Effects of a
Change of Control."
On June 13, 1997, TransTexas completed a tender offer for its Senior
Secured Notes for 111 1/2% of their principal amount (plus accrued and unpaid
interest). Approximately $785.4 million principal amount of Senior Secured
Notes were tendered and accepted by TransTexas. The Senior Secured Notes
remaining outstanding were called for redemption on June 30, 1997 pursuant to
the terms of the Senior Secured Notes Indenture.
On June 19, 1997, TransTexas completed an exchange offer, pursuant to
which it exchanged approximately $115.8 million aggregate principal amount of
its 13 3/4% Senior Subordinated Notes due 2001 (the "Subordinated Exchange
Notes") for all of the Subordinated Notes. The Subordinated Exchange Notes pay
interest in cash semi-annually in arrears on each June 30 and December 31
commencing December 31, 1997. The indenture governing
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the Subordinated Exchange Notes includes certain restrictive covenants,
including, among others, limitations on incurring additional debt, asset sales,
dividends and transactions with affiliates.
TransTexas has implemented a stock repurchase program pursuant to
which it plans to repurchase common stock from its public stockholders and from
its affiliates, including TEC and TARC, in an aggregate amount of approximately
$399 million in value of stock purchased. It is anticipated that TransTexas
will acquire four times the number of shares from its affiliated stockholders
than it acquires from its public stockholders. Shares may be purchased through
open market purchases, negotiated transactions or tender offers, or a
combination of the above. It is anticipated that the price paid to affiliated
stockholders will equal the weighted average price paid to purchase shares from
the public stockholders. As of July 31, 1997, approximately 3.1 million shares
had been repurchased from public stockholders for an aggregate purchase price of
approximately $49.6 million. As of September 15, 1997, approximately 0.8
million additional shares had been repurchased from public stockholders for an
aggregate purchase price of approximately $11.8 million, and approximately 12.6
million shares had been repurchased from TARC and TEC for an aggregate purchase
price of approximately $201 million.
TransTexas and BNY Financial Corporation are parties to an Amended
and Restated Accounts Receivable Management and Security Agreement (the "BNY
Facility"), dated as of October 31, 1995 and amended in December 1996. In
connection with the Lobo Sale, the TEC Notes Offering and the Transactions
described in Note 2 of Notes to Condensed Consolidated Financial Statements,
TransTexas and BNY entered into a waiver of the BNY Facility, pursuant to which
advances under the BNY Facility are made at the sole discretion of the lender
and the lender may require repayment of principal and interest at any time. As
of July 31, 1997, outstanding advances under the BNY Facility totaled
approximately $6.2 million. Interest accrues on advances at the rate of (i)
the higher of (a) the prime rate of The Bank of New York or (b) the Federal
Funds Rate plus 1/2 of 1% plus (ii) 1/2 of 1%. Obligations under the BNY
Facility are secured by liens on TransTexas' receivables and inventory.
TransTexas is currently negotiating an amendment and restatement of the BNY
Facility.
During the months of April and May 1997, TransTexas obtained
additional financing in the aggregate amount of approximately $45.8 million, of
which approximately $21.0 million remains outstanding. Proceeds from these
transactions, net of current maturities, were used to pay certain short-term
obligations outstanding at January 31, 1997.
CONTINGENT LIABILITIES
TransTexas has significant contingent liabilities, including
liabilities with respect to litigation matters as described above. These
matters, individually and in the aggregate, amount to significant potential
liability which, if adjudicated in a manner adverse to TransTexas in one
reporting period, could have a material adverse effect on TransTexas' cash
flow or operations for that period. Although the outcome of these
contingencies or the probability of the occurrence of these contingencies
cannot be predicted with certainty, TransTexas does not expect these matters to
have a material adverse effect on its financial position. TransTexas has
caused delivery of a letter of credit to secure potential liabilities totaling
approximately $20 million in connection with certain litigation described
above.
In January 1996, TransTexas entered into a reimbursement agreement
with an unaffiliated third party pursuant to which the third party caused a $20
million letter of credit to be issued to collateralize a supersedeas bond on
behalf of TransTexas. If there is a draw under the letter of credit,
TransTexas is required to reimburse the third party within 60 days. TransTexas
has agreed to issue up to 8.6 million shares of common stock of TransTexas to
the third party if this contingent obligation to such third party becomes fixed
and remains unpaid for 60 days. TransTexas does not believe that this
contingency will occur. If the obligation becomes fixed, and alternative
sources of capital are not available, TransTexas could elect to sell shares of
TransTexas' common stock prior to the maturity of the obligation and use the
proceeds of such sale to repay the third party. Based on TransTexas' current
capitalization, the issuance of shares of TransTexas' common stock to satisfy
this obligation would result in deconsolidation of TransTexas for federal
income tax purposes.
Pursuant to the Lobo Sale Agreement, TransTexas is required to
indemnify the buyer for certain liabilities related to the assets owned by TTC.
Although TransTexas does not anticipate that it will incur any material
indemnity liability, no assurance can be given that TransTexas will have
sufficient funds to satisfy any such indemnity obligation or that any payment
thereof will not have a material adverse effect on its ability to fund its debt
service, capital expenditure and working capital requirements.
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POTENTIAL TAX LIABILITY
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended, and has reduced its tax attributes (including its net
operating loss and credit carryforwards) as a consequence of the COD Exclusion.
No federal tax opinion was rendered with respect to this transaction, however,
and TransAmerican has not obtained a ruling from the Internal Revenue Service
(the "IRS") regarding this transaction. TransTexas believes that there is
substantial legal authority to support the position that the COD Exclusion
applies to the cancellation of TransAmerican's indebtedness. However, due to
factual and legal uncertainties, there can be no assurance that the IRS will
not challenge this position, or that such challenge would not be upheld. Under
an agreement between TransTexas, TransAmerican and certain of TransAmerican's
subsidiaries (the "Tax Allocation Agreement"), TransTexas has agreed to pay an
amount equal to any federal tax liability (which would be approximately $25.4
million) attributable to the inapplicability of the COD Exclusion. Any such
tax would be offset in future years by alternative minimum tax credits and
retained loss and credit carryforwards to the extent recoverable from
TransAmerican. As a member of the TNGC Consolidated Group (defined below),
each of TransTexas, TEC and TARC will be severally liable for any tax liability
resulting from the above-described transactions. The IRS has commenced an
audit of the consolidated federal income tax returns of the TNGC Consolidated
Group for its taxable years ended July 31, 1994 and 1995. Because the audit is
in its initial stages, it is not possible to predict the scope of the IRS'
review or whether any tax deficiencies will be proposed by the IRS as a result
of its review.
Based upon independent legal advice, TransTexas has determined that it
will not report any significant federal income tax liability as a result of the
Lobo Sale. There are, however, significant uncertainties regarding TransTexas'
tax position and no assurance can be given that TransTexas' position will be
sustained if challenged by the IRS. TransTexas is part of an affiliated group
for tax purposes (the "TNGC Consolidated Group"), which includes TNGC Holdings
Corporation, the sole stockholder of TransAmerican. No letter ruling has been
or will be obtained from the IRS regarding the Lobo Sale by any member of the
TNGC Consolidated Group. If the IRS were to successfully challenge TransTexas'
position, each member of the TNGC Consolidated Group would be severally liable
under the consolidated tax return regulations for the resulting taxes, in the
estimated amount of up to $230 million (assuming the use of existing tax
attributes of the TNGC Consolidated Group), possible penalties equal to 20% of
the amount of the tax, and interest at the statutory rate (currently 9%) on the
tax and penalties (if any). The Tax Allocation Agreement has been amended so
that TransAmerican will become obligated to fund the entire tax deficiency (if
any) resulting from the Lobo Sale. There can be no assurance that
TransAmerican would be able to fund any such payment at the time due and the
other members of the TNGC Consolidated Group, thus, may be required to pay the
tax. TransTexas has reserved approximately $75 million with respect to
the potential tax liability for financial reporting purposes to reflect a
portion of the federal tax liability that TransAmerican might not be able to
pay. If TransTexas were required to pay this tax deficiency, it is likely
that it would be required to sell significant assets or raise additional debt
or equity capital to fund the payment.
Under certain circumstances, TransAmerican or TEC may sell or
otherwise dispose of shares of common stock of the Company. If, as a
result of any sale or other disposition of the Company's common stock, the
aggregate ownership of TransTexas by members of the TNGC Consolidated Group
(excluding TransTexas) is less than 80% (measured by voting power and value),
TransTexas will no longer be a member of the TNGC Consolidated Group for
federal tax purposes ("Deconsolidation") and, with certain exceptions, will no
longer be obligated under the terms and conditions of, or entitled to the
benefits of, the Tax Allocation Agreement. Further, if TEC or TARC sells or
otherwise transfers any stock of TARC, or issues any options, warrants or
other similar rights relating to such stock, outside of the TNGC Consolidated
Group, which represents more than 20% of the voting power or equity value of
TARC, then a Deconsolidation of TARC would occur. A Deconsolidation of TARC
would result in a Deconsolidation of TransTexas if the TNGC Consolidated Group,
excluding TARC, does not then own at least 80% of the voting power and equity
value of TransTexas. Upon a Deconsolidation of TransTexas, members of the TNGC
Consolidated Group that own TransTexas' common stock could incur a substantial
amount of federal income tax liability. If such Deconsolidation occurred
during the fiscal year ending January 31, 1998, the aggregate amount of this
tax liability is estimated to be between $175 million and $200 million,
assuming no reduction for tax attributes of the TNGC Consolidated Group.
However, such tax liability generally would be substantially reduced or
eliminated in the event that the IRS successfully challenged TransTexas'
position on the Lobo Sale. Each member of a
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consolidated group filing a consolidated federal income tax return is severally
liable to the IRS for the consolidated federal income tax liability of the
consolidated group. There can be no assurance that each TNGC Consolidated
Group member will have the ability to satisfy any tax obligation attributable
to the Transactions at the time due and, therefore, other members of the group,
including TEC, TransTexas or TARC, may be required to pay the tax.
Generally, under the Tax Allocation Agreement, if net operating losses
of TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable)
of such losses in later years to the extent TransTexas has taxable income,
remains a member of the TNGC Consolidated Group and the other group members
have the ability to pay such taxes. If TransAmerican, TEC, or TARC transfers
shares of common stock of TransTexas (or transfers options or other rights to
acquire such shares) and, as a result of such transfer, Deconsolidation of
TransTexas occurs, TransTexas would not thereafter receive any benefit
pursuant to the Tax Allocation Agreement for net operating losses of TransTexas
used by other members of the TNGC Consolidated Group prior to the
Deconsolidation of TransTexas.
TransTexas is required, under the Tax Allocation Agreement, to pay
any Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to prior year transactions. TransTexas paid approximately $5.4
million of such tax as of the closing of the Lobo Sale and will pay a
substantial amount of the remaining tax within the ensuing 12-month period
POTENTIAL EFFECTS OF A CHANGE OF CONTROL
The Subordinated Notes Indenture provides that, upon the occurrence of a
Change of Control, each holder of the Subordinated Exchange Notes will have the
right to require TransTexas to repurchase such holder's Notes at 101% of the
principal amount thereof plus accrued and unpaid interest. Pursuant to the
terms of the TransTexas Intercompany Loan, upon the occurrence of a Change of
Control, TEC would have the right to require TransTexas to repay the principal
of the TransTexas Intercompany Loan in an amount equal to a pro rata share of
the amount TEC is required to pay under the TEC Notes Indenture. Such pro rata
share would be calculated using the ratio of the outstanding principal amount of
the TransTexas Intercompany Loan to the sum of (i) the outstanding principal
amount of the TransTexas Intercompany Loan plus (ii) the accreted value of the
outstanding principal amount of the TARC Intercompany Loan. A Change of Control
would be deemed to occur under the Subordinated Notes Indenture in the case of
certain changes or other events in respect of the ownership of TransTexas,
including any circumstances pursuant to which any person or group other than
John R. Stanley and his wholly owned subsidiaries or the TEC Indenture Trustee
is or become the beneficial owner of more than 50% of the total voting power of
TransTexas' then outstanding voting stock, and during the 90 days thereafter,
the rating of the notes is downgraded or withdrawn. A Change of Control would be
deemed to occur under the TransTexas Intercompany Loan in the case of certain
changes or other events in respect of the ownership or control of TEC,
TransTexas, or TARC including any circumstance pursuant to which (i) any person
or group, other than John R. Stanley and his wholly-owned subsidiaries or the
TEC Indenture Trustee is or becomes the beneficial owner of more than 50% of
the total voting power of TEC's then outstanding voting stock, or (ii) TEC or
any of its subsidiaries own some of TransTexas' or TARC's capital stock,
respectively, but less than 50% of the total voting stock or economic value of
TransTexas or TARC, respectively, unless the TEC Notes have an investment grade
rating for the period of 120 days thereafter. The term "person," as used in the
definition of Change of Control, means a natural person, company, government or
political subdivision, agency or instrumentality of a government and also
includes a "group," which is defined as two or more persons acting as a
partnership, limited partnership or other group. In addition, certain changes
or other events in respect of the ownership or control of TransTexas that do not
constitute a Change of Control under the TEC Notes Indenture may result in a
"change of control" of TransTexas under the terms of TransTexas' credit facility
(the "BNY Facility") and certain equipment financing. Such an occurrence could
create an obligation for TransTexas to repay such other indebtedness. At July
31, 1997, TransTexas had approximately $26.6 million of indebtedness (excluding
the Senior Secured Notes and the Subordinated Notes) subject to such right of
repayment or repurchase. In the event of a Change of Control under the
Subordinated Notes Indenture or the TEC Notes Indenture or a "change of control"
under the terms of other outstanding indebtedness, there can be no assurance
that TransTexas will have sufficient funds to satisfy any such payment
obligations.
A change of control or other event that results in deconsolidation of
TransTexas and TransAmerican for federal income tax purposes could result in
acceleration of a substantial amount of federal income taxes. These matters,
individually and in the aggregate, amount to significant potential liability
which, if adjudicated in a manner adverse
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to TransTexas in one reporting period, could have a material adverse effect on
TransTexas' cash flow or operations for that period. Although the outcome of
these contingencies or the probability of the occurrence of these contingencies
cannot be predicted with certainty, TransTexas does not expect these matters to
have a material adverse effect on its financial position.
FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this report regarding TransTexas' financial
position, business strategy, and plans and objectives of management for future
operations, including, but not limited to words such as "anticipates,"
"expects," "estimates," "believes" and "likely" indicate forward-looking
statements. TransTexas' management believes its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include fluctuations in the commodity prices for
natural gas, crude oil, condensate and natural gas liquids, the extent of
TransTexas' success in discovering, developing and producing reserves,
conditions in the equity and capital markets, the ultimate resolution of
litigation, and competition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 3 and 8 to the condensed consolidated financial statements
for a discussion of TransTexas' legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Senior Secured Notes Tender Offer, TransTexas
obtained consents from holders of the Senior Secured Notes to certain waivers
under, and amendments to the Senior Secured Notes Indenture, which eliminate or
modify certain restrictive covenants and other provisions contained in the
Senior Secured Notes Indenture.
On June 19, 1997, TransTexas completed an exchange offer, pursuant to
which it exchanged approximately $115.8 million aggregate principal amount of
its 13 3/4% Senior Subordinated Notes due 2001 ("Subordinated Exchange Notes")
for all of its Series A Senior Subordinated Notes due 2003 (the "Subordinated
Notes"). Jefferies & Company, Inc. acted as Dealer Manager for the exchange
offer which was made solely to holders of the Subordinated Notes, in reliance
on the exemption from registration in Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
The TransTexas Intercompany Loan Agreement and the indenture governing
the Subordinated Exchange Notes contain certain restrictive covenants,
including, among others, limitations on incurring additional debt, asset sales,
the payment of dividends and transactions with affiliates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
4.1 Second Supplemental Indenture dated June 13, 1997 between
TransTexas, as issuer, and Firstar Bank of Minnesota, N.A., as
trustee (filed as Exhibit 4.1 to TransTexas' current report on
Form 8-K dated June 13, 1997, and incorporated herein by
reference thereto).
4.2 Indenture dated June 13, 1997 governing TransTexas' Senior
Subordinated Notes due 2001 between TransTexas, as issuer, and
Bank One, N.A., as trustee (filed as Exhibit 4.1 to TransTexas'
registration statement on Form S-4 (333-33803), and incorporated
herein by reference thereto).
4.3 Registration Rights Agreement dated June 13, 1997 between
TransTexas and the holders of TransTexas' Senior Subordinated
Notes due 2001 (filed as Exhibit 4.2 to TransTexas' registration
statement on Form S-4 (333- 33803), and incorporated herein by
reference thereto).
4.4 Loan Agreement dated June 13, 1997 between the Company and TEC
(filed as Exhibit 4.4 to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference
thereto).
4.5 Security and Pledge Agreement dated June 13, 1997 by the Company
in favor of TEC (filed as Exhibit 4.5 to TransTexas' current
report on Form 8-K dated June 13, 1997, and incorporated herein
by reference thereto).
4.6 Disbursement Agreement dated June 13, 1997 among the Company, TEC
and Firstar Bank of Minnesota, as disbursement agent and Trustee
(filed as Exhibit 4.6 to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference
thereto).
4.7 Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as Exhibit 4.6 to
TransTexas' registration statement on Form S-4 (333-33803), and
incorporated herein by reference thereto).
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4.8 First Supplemental Indenture dated as of September 2, 1997,
between TransTexas, as issuer, and Bank One, N.A., as trustee
(filed as Exhibit 4.7 to TransTexas' registration statement on
Form S-4 (333-33803), and incorporated herein by reference
thereto).
10.1 Interruptible Gas Transportation Agreement dated effective March
1, 1997 between TransTexas, as shipper, and Lobo Pipeline
Company, as transporter.
10.2 Intrastate Firm Gas Transportation Agreement dated effective
March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline
Company, as transporter.
10.3 Master Services Contract dated May 30, 1997 between Conoco Inc.
and TransTexas.
10.4 Agreement for Services dated effective March 1, 1997 between
Conoco Inc. and TransTexas.
10.5 Services Agreement dated June 13, 1997 among TNGC Holdings
Corporation, TransAmerican, TEC, TARC, TransTexas and TTXD.
10.6 Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997.
10.7 Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997.
10.8 Amendment No. 2 to Transfer Agreement dated May 29, 1997.
10.9 Amendment No. 3 to Transfer Agreement dated June 13, 1997.
15.1 Letter of Independent Accountants regarding awareness of
incorporation by reference.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On May 15, 1997, the Company filed a current report on Form 8-K dated May
14, 1997 to report under Item 5 the announcement of the Senior Secured Notes
Tender Offer.
On June 13, 1997, the Company filed a current report on Form 8-K dated
May 29, 1997 to report under Item 2 the Lobo Sale. Pro forma financial
statements were filed as a part of the report.
On August 18, 1997, the Company filed a current report on Form 8-K dated
June 13, 1997 to report under Item 5 the completion of the TEC Notes Offering
and related transactions. Pro forma financial statements were filed as an
exhibit to this report.
26
<PAGE> 28
SIGNATURE
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 duly authorized officer and principal financial and accounting
officer.
TRANSTEXAS GAS CORPORATION
(Registrant)
By: /s/ Edwin B. Donahue
--------------------------------
Edwin B. Donahue, Vice President
and Chief Financial Officer
September 15, 1997
27
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
4.1 Second Supplemental Indenture dated June 13, 1997 between
TransTexas, as issuer, and Firstar Bank of Minnesota, N.A., as
trustee (filed as Exhibit 4.1 to TransTexas' current report on
Form 8-K dated June 13, 1997, and incorporated herein by reference
thereto).
4.2 Indenture dated June 13, 1997 governing TransTexas' Senior
Subordinated Notes due 2001 between TransTexas, as issuer, and
Bank One, N.A., as trustee (filed as Exhibit 4.1 to TransTexas'
registration statement on Form S-4 (333-33803), and incorporated
herein by reference thereto).
4.3 Registration Rights Agreement dated June 13, 1997 between
TransTexas and the holders of TransTexas' Senior Subordinated
Notes due 2001 (filed as Exhibit 4.2 to TransTexas' registration
statement on Form S-4 (333- 33803), and incorporated herein by
reference thereto).
4.4 Loan Agreement dated June 13, 1997 between the Company and TEC
(filed as Exhibit 4.4 to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference
thereto).
4.5 Security and Pledge Agreement dated June 13, 1997 by the Company
in favor of TEC (filed as Exhibit 4.5 to TransTexas' current
report on Form 8-K dated June 13, 1997, and incorporated herein by
reference thereto).
4.6 Disbursement Agreement dated June 13, 1997 among the Company, TEC
and Firstar Bank of Minnesota, as disbursement agent and Trustee
(filed as Exhibit 4.6 to TransTexas' current report on Form 8-K
dated June 13, 1997, and incorporated herein by reference
thereto).
4.7 Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as Exhibit 4.6 to
TransTexas' registration statement on Form S-4 (333-33803), and
incorporated herein by reference thereto).
4.8 First Supplemental Indenture dated as of September 2, 1997,
between TransTexas, as issuer, and Bank One, N.A., as trustee
(filed as Exhibit 4.7 to TransTexas' registration statement on
Form S-4 (333-33803), and incorporated herein by reference
thereto).
10.1 Interruptible Gas Transportation Agreement dated effective March
1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company,
as transporter.
10.2 Intrastate Firm Gas Transportation Agreement dated effective March
1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company,
as transporter.
10.3 Master Services Contract dated May 30, 1997 between Conoco Inc.
and TransTexas.
10.4 Agreement for Services dated effective March 1, 1997 between
Conoco Inc. and TransTexas.
10.5 Services Agreement dated June 13, 1997 among TNGC Holdings
Corporation, TransAmerican, TEC, TARC, TransTexas and TTXD.
10.6 Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997.
10.7 Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997.
10.8 Amendment No. 2 to Transfer Agreement dated May 29, 1997.
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
10.9 Amendment No. 3 to Transfer Agreement dated June 13, 1997.
15.1 Letter of Independent Accountants regarding awareness of
incorporation by reference.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
INTERRUPTIBLE
GAS TRANSPORTATION AGREEMENT
Effective Date: March 1, 1997
between
TRANSTEXAS GAS CORPORATION
"Shipper"
and
LOBO PIPELINE COMPANY
"Transporter"
Certain portions of this document have been omitted and filed separately with
the Commission pursuant to an Application for Confidential Treatment pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SUBJECT PAGE
- ------- ------- ----
<S> <C> <C>
I. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Quantity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV. Receipt Point(s) and Delivery Point(s) . . . . . . . . . . . . . . . . . . . . . . . . . .
V. Scope and Character of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI. Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VII. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VIII. Nominations, Scheduling and Rates of Flow . . . . . . . . . . . . . . . . . . . . . . . .
IX. Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
X. Balancing of Receipts and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . .
XI. Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XII. Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XIII. Metering Facilities, Measurement and Testing . . . . . . . . . . . . . . . . . . . . . . .
XIV. Measurement Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XV.. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XVI. Billing and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XVII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XVIII. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XIX. Governmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
XX.. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBITS: Exhibit "A-1" - Receipt Point(s) - Upstream
Exhibit "A-2" - Receipt Point(s) - Downstream
Exhibit "B-1" - Delivery Point(s) - Agua Dulce
Exhibit "B-2" - Delivery Point(s) - King Ranch
Exhibit "C" - Nomination Form
Exhibit "D" - Bob West North Field
Exhibit "E" - Gas Allocation - Approximation of Composition Example
Exhibit "F" - Other Properties
Exhibit "G" - Cuba Libre
</TABLE>
<PAGE> 3
INTERRUPTIBLE GAS TRANSPORTATION AGREEMENT
THIS AGREEMENT entered on this first day of March 1997, (Effective Date)
between LOBO PIPELINE COMPANY, a Delaware corporation, hereinafter referred to
as "TRANSPORTER", and TRANSTEXAS GAS CORPORATION, a Delaware corporation,
hereinafter referred to as "SHIPPER".
W I T N E S S E T H:
WHEREAS, Shipper has requested that Transporter transport, from the
Receipt Point(s) identified and described herein, certain quantities of Gas;
and
WHEREAS, Transporter operates certain facilities in the State of Texas
for the gathering and transportation of natural gas, and is an "intrastate
pipeline" within the meaning of Section 2(16) of the Natural Gas Policy Act of
1978 ("NGPA") and is subject to the regulatory jurisdiction of the Railroad
Commission of Texas ("RRC"); and
WHEREAS, Transporter is agreeable to providing transportation of that
Gas in accordance with the terms hereof and subject to i) Subpart C of Part 284
of the Regulations of the Federal Energy Regulatory Commission ("FERC")
implementing Section 311(a)(2) of the NGPA and ii) in accordance with the
regulations of the RRC for intrastate transportation.
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the Parties agree as follows:
<PAGE> 4
ARTICLE I
DEFINITIONS
1.1 "GAS" means natural gas and includes casinghead gas produced
with crude oil, gas well gas produced from gas wells, and residue gas resulting
from processing both casinghead gas and gas well gas, which natural gas is both
owned by Shipper (or is Shipper's royalty gas) and produced from the Bob West
North Field located in Zapata County, Texas, from leases in which Shipper is an
equity owner. This definition of "Gas" shall also include natural gas produced
from specific properties as identified on Exhibit "F" and on Exhibit "G".
1.2 "DAY" or "DAILY" mean the period of time beginning at 9:00
a.m., local time, on any calendar Day and ending at 9:00 a.m., local time, on
the calendar Day immediately following.
1.3 "MONTH" or "MONTHLY" means a period beginning at 9:00 a.m.,
local time, on the first Day of a calendar month, and ending at 9:00 a.m.,
local time, on the first Day of the calendar month immediately following.
1.4 "YEAR" means a period consisting of three-hundred-sixty-five
(365) consecutive Days, commencing on the Effective Date at 9:00 a.m., local
time and ending at 9:00 a.m., local time; provided, that any Year which
contains the date of February 29 will consist of three-hundred-sixty-six (366)
consecutive Days.
1.5 For payment and measurement purposes, the quantity of Gas
delivered and received, stated in MMBtu, is derived by taking the measured
volumes of Gas in Cubic feet multiplied by their Gross Heating Value divided by
one million (1,000,000). The pertinent terms are as follows:
(a) "CUBIC FEET", "CUBIC FOOT" or "CF" mean the volume of gas
which occupies one (1) cubic foot of space at a temperature of sixty
degrees (60o) Fahrenheit and an absolute pressure of fourteen and
sixty-five hundredths (14.65) pounds per square inch absolute (psia).
(b) "MCF" means one thousand (1,000) Cubic feet of gas and "MMCF"
means one million (1,000,000) Cubic feet of gas.
(c) "BTU" means the amount of heat required to raise the
temperature of one avoirdupois pound of pure water from fifty-eight and
five tenths degrees (58.5o) Fahrenheit to fifty-nine and five tenths
degrees (59.5o) Fahrenheit at a constant pressure of fourteen and
sixty-five hundredths (14.65).
(d) "MMBTU" means one million (1,000,000) Btu.
(e) "GROSS HEATING VALUE" means the number of Btu's liberated by
the complete combustion, at a constant pressure, of one (1) Cubic foot
of gas, at a base temperature of sixty degrees (60o) Fahrenheit and a
base pressure of fourteen and sixty-five hundredths (14.65) psia, with
air of the same temperature and pressure of the gas, after the products
of combustion are cooled to the initial temperature of the gas, and
after the water resulting from combustion is condensed to the liquid
state. The Gross Heating Value of the gas shall be corrected for the
water vapor content of the gas being delivered; provided, that if the
water vapor content of the gas is seven (7) pounds or less per one
million (1,000,000) Cubic feet, the gas shall be assumed to be dry and
no correction will be made.
(f) "PSIA" means per square inch absolute.
1.6 "STANDARD TEMPERATURE" means sixty degrees (60o) Fahrenheit.
1.7 "STANDARD PRESSURE" means fourteen and sixty-five hundredths
(14.65) pounds per square inch absolute.
<PAGE> 5
1.8 "PARTY" means either Transporter or Shipper and the term
"PARTIES" shall mean both Transporter and Shipper.
1.9 "TAXES" means any tax (other than ad valorem, income or excess
profit taxes), license, fee or charge now or hereafter levied, assessed or made
by a governmental authority on any natural gas transportation, or any
occupation, production, severance or sales tax, first use tax, gross receipt
tax, or taxes similar in nature or equivalent in effect which are now or
hereafter imposed or assessed against Transporter by any lawful authority as a
result of the transportation of Gas pursuant to this Agreement or on the act,
right or privilege of transporting, handling or delivering Gas which is
measured by the volume, value, carbon content or sales price of the Gas or the
gross receipts from providing transportation service.
1.10 "EQUIVALENT QUANTITIES" means that volume of gas which is
thermally equivalent to the volume of Gas received by Transporter at the
Receipt Point(s), less applicable deductions for fuel adjustments as provided
for in this Agreement on any one Day.
1.11 "PRIME INTEREST RATE" means the "prime commercial rate" of
interest published by Citibank, N.A., New York, New York.
1.12 "RECEIPT POINT(S)" means such point(s) specifically identified
in Exhibit "A" (whether Exhibit "A-1" or "A-2"), a copy of which is hereby
incorporated into this Agreement and made a part hereof for all purposes.
1.13 "DELIVERY POINT(S)" means such point(s) specifically
identified in Exhibit "B"(whether Exhibit "B-1" or "B-2"), a copy of which is
hereby incorporated into this Agreement and made a part hereof for all
purposes.
1.14 "KING RANCH" means the Delivery Point located at the
interconnection between Transporter's facilities and the Exxon Co. USA operated
King Ranch Plant located in Kleberg County, Texas ("Exxon King Ranch Plant"),
and which is specifically set forth and identified in Exhibit "B".
<PAGE> 6
1.15 "MDCQ" and "MAXIMUM DAILY CONTRACT QUANTITY" have the meaning
set forth at Section 3.1.
1.16 "PRODUCTS" or "LIQUIDS" shall mean those natural gas liquids,
including ethane, propane, isobutane, normal butane, and natural gasoline, and
mixtures thereof, which may be present in the gas stream and removable in a
liquid extraction process.
1.17 "BOB WEST NORTH FIELD" shall mean the area currently known as
the Bob West North Field located in Zapata County, Texas, as shown on Exhibit
"D", a copy of which is hereby incorporated into this Agreement and made a part
hereof for all purposes.
1.18 OTHER TERMS - Each of the following terms is defined in the
Section set forth opposite such term:
<TABLE>
<CAPTION>
Term: Section:
---- -------
<S> <C>
Transporter Preamble
Shipper Preamble
NGPA 2d Whereas
RRC 2d Whereas
FERC 3d Whereas
Exxon King Ranch Plant 1.14
MDCQ 3.1
Firm Agreement 3.1
Primary Term 7.1
Imbalance 10.1
Basket Price 10.2
MAOP 11.1
Operator 13.1
API 13.2
force majeure 15.1
Payment Due Date 16.1
Statement 20.8
good faith 20.13
</TABLE>
<PAGE> 7
ARTICLE II
GENERAL
2.1 WARRANTY OF TITLE - Shipper warrants that it will at the time
of delivery of Gas to Transporter under this Agreement have good title to all
Gas (excepting only its royalty gas), and the right to deliver its royalty gas,
so made available, and that the Gas is free and clear of all liens,
encumbrances, or adverse claims of any kind.
2.2 INDEMNIFICATION - Shipper shall indemnify Transporter and save
Transporter harmless from and against any and all suits, actions, losses,
damages, costs, and expenses (including reasonable attorneys' fees and court
costs), arising from or in connection with any title-related liens,
encumbrances, or adverse claims of any persons regarding the Gas.
2.3 POSSESSION AND RESPONSIBILITY - Prior to the Gas being
received by Transporter at the Receipt Point(s) and upon delivery of the Gas to
the Shipper at the Delivery Point(s), Shipper is deemed to be in control and in
possession of the Gas, and Shipper is responsible for any damages, losses or
injuries caused by the Gas while in Shipper's control and/or possession, except
for injuries or damages which have been caused by the negligence of
Transporter. Transporter is in control and in possession of the Gas subsequent
to receipt at the Receipt Point(s) and until such Gas is redelivered to Shipper
at the Delivery Point(s), and is responsible for any damages, losses or
injuries caused by the Gas while in Transporter's control and/or possession,
except for injuries or damages which have been caused by the negligence of
Shipper. Notwithstanding the immediately preceding sentences, the Parties
hereto understand and acknowledge that title to, or the right to deliver, all
Gas transported hereunder shall at all times remain with Shipper or Shipper's
designee and not the Transporter.
2.4 CREDITWORTHINESS OF SHIPPER - Transporter's obligation to
perform hereunder is contingent upon Shipper's reciprocal obligation to pay for
the services contemplated hereunder in a timely fashion. Prior to commencement
of service, or at any time thereafter, Transporter may require Shipper to
supply Transporter with credit information including, but not limited to, bank
references, financial statements and/or names of persons with whom Shipper has
recently transacted business in order that Transporter may make reasonable
inquiry into Shipper's creditworthiness and obtain adequate assurance of
Shipper's solvency and ability to perform.
Only if, during the Primary Term or any other term of this Agreement,
Shipper fails to pay all monies due under this Agreement within the time frame
and in the manner set forth at Article XVI, then Transporter may take any, or a
combination, of the following actions: suspend performance of future service
pending assurance of payments, demand security for payment, require payment in
cash or on a more frequent basis than a Monthly billing cycle, terminate this
Agreement pursuant to Section 16.2, or take such other action as is reasonable
under the circumstances to protect Transporter's interests, all in
Transporter's sole opinion, including requiring Shipper to immediately provide
Transporter with an irrevocable standby letter of credit in an amount and in a
form acceptable to Transporter and from an institution acceptable to
Transporter.
2.5 GAS PROCESSING - Shipper has the right to process, cause to be
processed, or allow the processing of Gas delivered to Transporter. To the
extent Shipper does not nominate Gas to the Delivery Point(s) in Exhibit "B-2",
Transporter may in its sole discretion elect to process Shipper's Gas for
Transporter's own account but at no cost or expense to Shipper.
<PAGE> 8
ARTICLE III
QUANTITY
3.1 MAXIMUM DAILY CONTRACT QUANTITY - The total volume of Gas
transported under this Agreement on any Day shall not exceed the total Maximum
Daily Contract Quantity which is initially agreed to be 400 MMcf per Day
("MDCQ"). Subject to the conditions and limitations hereinafter set forth,
Transporter agrees to receive up to the MDCQ of Gas tendered by Shipper at the
Receipt Point(s), and to transport and redeliver subject to Article V, on an
interruptible basis, Equivalent Quantities on behalf of Shipper to the Delivery
Point(s). Transporter shall not be obligated to accept for transportation
hereunder Gas on any Day in excess of the MDCQ at the Receipt Point(s).
The Parties agree that for each Day volumes of Gas are nominated and
confirmed under that certain Intrastate Firm Gas Transportation Agreement dated
March 1, 1997 ("FIRM AGREEMENT") between Transporter and Shipper, the MDCQ
hereunder shall be reduced by each Mcf nominated and confirmed under the Firm
Agreement for such Day.
3.2 SHIPPER'S DEDICATION - Shipper dedicates to its performance
under this Agreement all Gas, with the exception being the specific properties
as identified on Exhibit "F" and on Exhibit "G".
3.3 MINIMUM DAILY CONTRACT QUANTITY - If volumes transported by
Shipper during any thirty (30) day period average less than, cumulatively, 100
MMcf per Day to i) the Exhibit "B-2" Delivery Point(s) under this Agreement and
ii) under the Firm Agreement, then Transporter shall not be required to
transport Gas hereunder for the succeeding six (6) month period to King Ranch
or to any other Exhibit "B-2" Delivery Point(s).
3.4 REDETERMINATION OF MAXIMUM DAILY CONTRACT QUANTITY - (a)
Beginning on the first Day of the sixth contract Year, should the average
quantity of Gas transported by Transporter during:
i) the last six (6) Months of the fifth Year be equal to or less
than 80 percent (80%) of the initial MDCQ of 400 MMcf per Day, or
ii) any six (6) consecutive Month period thereafter during the
term of this Agreement be less than 80 percent (80%) of the MDCQ for the
immediately preceding six (6) consecutive Month period,
then Transporter shall have the unilateral right to reduce the MDCQ for the
next succeeding six (6) consecutive Month period to no lower than the average
of the quantities of Gas actually delivered by Shipper to Transporter during
the immediately prior six (6) consecutive Month period. Transporter shall
exercise such right by written notice to Shipper no later than thirty (30) Days
prior to beginning of any such period. The last Month of each six (6)
consecutive Month period will be estimated, based upon the previous five (5)
Months' Gas deliveries hereunder.
(b) Beginning on the first Day of the sixth contract Year and continuing
throughout the term of this Agreement, should the average quantity of Gas made
available to Transporter during:
i) the last six (6) Months of the fifth Year be more than
one-hundred and twenty percent (120%) of the initial MDCQ set forth in
Section 3.1, above; or
ii) any six (6) consecutive Month period thereafter during the
term of this Agreement be more than one hundred and twenty percent
(120%) of the MDCQ for the immediately preceding six (6) consecutive
Month period,
then Shipper shall have the right to request in writing an increase to the MDCQ
for the next succeeding six (6) consecutive Month period to no higher than the
average of the quantities of Gas actually available during the immediately
prior six (6) consecutive Month period. Shipper shall exercise the right set
forth in the immediately preceding sentence by written notice to Transporter no
later than thirty (30) Days prior to the beginning of any such period. The
last Month of each six (6) Month period will be estimated, based upon the
previous five (5) Months' Gas deliveries hereunder. If sufficient
transportation capacity is available, Transporter shall grant Shipper's request
to increase the MDCQ. However, Transporter shall not be under any obligation
to increase the MDCQ above 400 MMcf per Day.
<PAGE> 9
3.5 AVAILABLE RECEIPTS IN EXCESS OF MDCQ - In the event the
quantity of Gas which Shipper makes available on any Day to Transporter for
transportation at the Receipt Point(s) exceeds the MDCQ, then Transporter may,
at its option, (i) transport all or any portion of such excess quantities
pursuant to this Agreement, or (ii) refuse to accept all or any portion of such
excess quantities for transportation. Transporter shall grant Shipper, upon
request from Shipper, a temporary release from Shipper's dedication at Section
3.2, only for those quantities of Gas made available to Transporter but unable
to be taken by Transporter; PROVIDED, HOWEVER, such temporary release shall
only be until Transporter can take all Gas tendered by Shipper or upon the
occurrence of the increase in capacity as set forth in Section 3.6 below.
However, in the event that the quantity of Gas which Shipper makes available on
any Day to Transporter exceeds 400 MMcf per Day, then the Transporter may, at
its option, transport all or any portion of such excess quantities pursuant to
this Agreement and charge under Section 6.1.
3.6 MODIFICATION OF OR ADDITIONS TO FACILITIES - In the event
Shipper has available for transportation hereunder a quantity of Gas which i)
is in excess of the then-existing MDCQ and such quantity of Gas has
consistently exceeded the MDCQ during a six (6) consecutive Month period; ii)
in order to accommodate such excess quantity of Gas, it is necessary to add
capacity to Transporter's transportation assets; and iii) Shipper has exhausted
its good faith efforts to maximize deliveries to alternative delivery points
available to Shipper, then, upon Shipper's written request sent to Transporter
at the addresses set forth in Article XVII, Transporter and Shipper shall in
good faith determine and implement an increase in the capacity of Transporter's
facilities then being utilized to provide additional transportation under this
Agreement. The Parties understand that any increase in the capacity of
Transporter's transportation assets in order to accommodate Shipper's excess
quantity of Gas will require, among other things to be negotiated at that time,
an increase in the then-existing transportation rate to account for the capital
investment associated with such an expansion. Such new transportation rate
shall be computed using a payout of the required capital investment over a
period of seven (7) Years and a return on investment equivalent to five (5)
percentage points over the then existing Prime Interest Rate; PROVIDED,
HOWEVER, in the event the remaining period in the Primary Term is less than
seven (7) Years then such rate shall be calculated to reflect the shortened
time period or the Parties may agree to some other method of payment which will
result in Transporter's full recoupment of the required capital investment
within the foreshortened period of time at the same return on investment of
five (5) percentage points over the then existing Prime Interest Rate.
ARTICLE IV
RECEIPT POINT(S) AND DELIVERY POINT(S)
4.1 RECEIPT POINT(S) - Gas delivered to Transporter by Shipper
hereunder shall be delivered to Transporter at the Receipt Point(s). Prior to
adding any additional Receipt Point(s) to this Agreement, the Parties must
first agree to such point(s), in writing.
4.2 DELIVERY POINT(S) - Gas redelivered to Shipper by Transporter
hereunder shall be redelivered to Shipper at the Delivery Point(s). Prior to
adding any additional Delivery Point(s) to this Agreement, the Parties must
first agree to such point(s), in writing.
ARTICLE V
SCOPE AND CHARACTER OF SERVICE
5.1 SCOPE AND CHARACTER OF SERVICE - Shipper shall have the right
on any Day to deliver to Transporter at the Receipt Point(s) quantities of Gas
up to and including Shipper's MDCQ. Transporter shall receive such Gas and
shall deliver Equivalent Quantities at the Delivery Point(s) for Shipper's
account subject to the requirements set forth in Article III and elsewhere in
this Agreement, and:
i) Transporter's obligation to deliver Gas at the Delivery
Point(s) exists only so long and only in such quantity as Shipper
continues to make deliveries of Gas into Transporter's facilities at the
Receipt Point(s); and
<PAGE> 10
ii) Transporter's obligation to accept Gas at the Receipt Point(s)
exists only so long and only in such quantity as Shipper, or its
designee, continues to take delivery of Gas made available at the
Delivery Point(s).
Shipper recognizes that, unless otherwise specified herein, the services
hereunder are to be performed by Transporter on an interruptible basis but may
be interrupted in accordance with Section 5.2 below. The Parties agree that in
no event shall an interruption of service as set forth in Section 5.2
constitute a breach of this Agreement and that Transporter shall not be liable
to Shipper in damages, or otherwise, due to any such interruption of service.
5.2 PRIORITIES OF INTERRUPTION - If, for whatever reason,
Transporter is unable to transport all quantities of gas nominated by various
shippers under their gas transportation agreements with Transporter (including
Shipper's Gas hereunder), Transporter shall interrupt service thereunder in
whole or in part on all or such portions of Transporter's system as may be
necessary in Transporter's sole discretion; PROVIDED, HOWEVER, that Transporter
will act as a reasonably prudent pipeline, subject to operating necessities, to
interrupt service (on that portion or portions of its system where such
interruption is required) in accordance with the following schedule of
priorities, beginning with the first service to be interrupted and continuing
in order as necessary to the last service to be interrupted:
1. Interruptible intrastate transportation service and
interruptible transportation service rendered pursuant to the
NGPA.
2. Firm intrastate transportation service.
Within priority 1, interruption shall be administered on the basis of
the date of the contract, i.e., later contracts will be interrupted before
earlier contracts. For contracts of the same date service under the lowest
priced contract will be interrupted first and service under the highest priced
contract will be interrupted last. Within priority 2, interruption shall be
administered pro rata according to all other shipper's pre-interruption
percentage of capacity utilization during the prior Month; PROVIDED, HOWEVER, in
the event Shipper did not ship Gas during the prior Month, then the last Month
in which Shipper delivered Gas to Transporter hereunder, if any, during the
immediately prior six (6) Month period shall be used to calculate the
prorationing.
5.3 INTERRUPTIBLE BLENDING - Transporter shall make reasonable
efforts, at its sole discretion, from time- to-time, on a fully interruptible
basis to allow Shipper to deliver Gas which does not meet the quality
specifications in Article XII. In such cases, Transporter may provide blending
which may involve Transporter commingling Gas with gas having different quality
specifications from that of the Shipper's Gas. The rate for such blending is
set forth at Section 6.4. To the extent the volume of Shipper's Gas falls
below the minimum daily contract quantity provided pursuant to Section 3.3,
Minimum Daily Contract Quantity, then Transporter may elect, at its sole
discretion, to either: i) not transport Shipper's Gas or ii) transport
Shipper's Gas and commingle it with any Gas belonging to Transporter or others'
gas even if such commingling would render Shipper's Gas unable to be processed
at King Ranch or other Delivery Point(s).
ARTICLE VI
RATE
6.1 RATE - Transporter agrees to charge and Shipper agrees to pay
Transporter each Month for the service provided herein the maximum fair and
equitable rate determined pursuant to 18 CFR Section 284.123 or such lower rate
which Transporter may agree to charge. This rate will apply to each Mcf
delivered at the Receipt Point(s) and is hereby discounted pursuant to Section
6.2, with the exceptions of Sections 3.5, 3.6, 6.4 and 19.1.
Shipper recognizes that Transporter shall have sole discretion to select
the manner in which to have fair and equitable rates determined pursuant to 18
C.F.R. Section 284.123, or such other rules and regulations of entities having
jurisdiction over Transporter and/or the rates to be charged by Transporter.
6.2 DISCOUNTED RATE - For transportation of quantities of Gas up
to the MDCQ between the Receipt Point(s) and the Delivery Point(s), Transporter
shall charge Shipper a discounted rate equal to:
(a) [omitted - confidential]
(b) [omitted - confidential]
<PAGE> 11
(c) [omitted - confidential]
(d) [omitted - confidential]
6.3 FUEL ADJUSTMENT - Unless the Shipper is paying the maximum
fair and equitable rate set forth in Section 6.1, in addition to any other
amounts payable under this Agreement, Shipper shall furnish to Transporter an
[omitted - confidential] of Gas received at the Receipt Point(s) for fuel use
for transportation.
6.4 ANCILLARY SERVICES -
(a) CO2 BLENDING FEE - In addition to any other amounts
payable under this Agreement and as payment for Transporter's CO2 blending
under Section 5.3 herein, Transporter will assess and Shipper will pay a
[omitted - confidential] blending fee for Gas received at the
Receipt Point(s) by Transporter which contains an amount of CO2 (on a Monthly
average basis) greater than the maximum CO2 requirements described in Section
12.1 plus .5%. An example calculation of this fee is as follows:
For example, if Shipper delivers Gas to Transporter, on a Month average
basis, containing 3.6 Mole percent (3.6 Mole %) CO2 and the maximum CO2
percent provided for in this Agreement is 2%, then Transporter shall
assess a blending fee equal to [omitted - confidential] multiplied by
the difference between the maximum CO2 percentage in Section 12.1 plus
.5% and the actual CO2 Mole percent delivered by Shipper. This
calculation would be [omitted - confidential] which equals [omitted -
confidential] multiplied times each Mcf of Gas received at the Receipt
Point(s) throughout the Month.
(b) BTU BLENDING FEE - In addition to any other amounts
payable under this Agreement and as payment for Transporter's Btu blending
under Section 5.3 herein, Transporter will assess and Shipper will pay a
[omitted - confidential] blending fee for each Mcf of Gas received at the
Receipt Point(s) by Transporter which on a Monthly average basis is below the
minimum Btu/CF requirements described in Section 12.1. An example calculation
of this fee is as follows:
For example, if the minimum required Btu/CF is 1050 Btu/CF and Shipper
delivers Gas to Transporter, on a Monthly average basis, which is 1040
Btu/CF, Transporter shall assess a Btu blending fee equal to [omitted -
confidential] multiplied by the difference between the actual Btu/CF
quality of Shipper's Gas (1040 Btu/CF, for example) and the required
minimum Btu/CF specification of 1050 Btu/CF. This calculation would be
[omitted - confidential] multiplied by each Mcf of Gas received at the
Receipt Point(s) throughout the Month.
ARTICLE VII
TERM
7.1 TERM - This Agreement is effective, regardless of when
executed, on the Effective Date, and will continue for a primary term ending on
December 31, 2006 ("PRIMARY TERM"), and will remain in effect on a
Month-to-Month basis unless terminated by either Party by giving ninety (90)
Days written notice to the other Party prior to the end of the Primary Term or
any subsequent Month.
<PAGE> 12
ARTICLE VIII
NOMINATIONS, SCHEDULING, AND RATES OF FLOW
8.1 NOMINATION - All quantities of Gas which are to be transported
during any Month shall be scheduled for transportation prior to that Month by
Shipper providing written notice no later than ten (10:00) a.m. Central Time
(whether Standard or Daylight Savings Time) five (5) business Days prior to the
Month of delivery. For all quantities that are to be scheduled or changed any
Day after the first Day of any Month, Shipper will provide written notice by
ten (10:00) a.m. Central Time (whether Standard or Daylight Savings Time) on
the Day prior to the Day of the proposed change. Shipper's Receipt Point(s)
and Delivery Point(s) nomination(s) shall remain in effect until the sooner of
i) Shipper's revision of said nomination(s) pursuant to the terms of this
Agreement, or ii) the end of the Month. Following nominations, Transporter
shall subsequently notify Shipper of the quantity that it can actually receive
and deliver at each Receipt and Delivery Point. Transporter may waive any part
of the notice requirement upon request if, in Transporter's sole judgment,
operating conditions permit such waiver. Transporter and Shipper shall
immediately inform each other of any other changes of deliveries. For both
first of Month and intra-Month nominations, Shipper shall provide Transporter
with such nominations, in writing, through the use of a Nomination Form
attached hereto as Exhibit "C", hereby incorporated into this Agreement and
made a part hereof for all purposes, or such other form as may be required by
Transporter.
8.2 RIGHT OF TRANSPORTER TO CONFIRM QUANTITY LOWER THAN NOMINATED -
Through the process of confirming Shipper's nomination(s), Transporter shall
have the right to void or reduce Shipper nomination(s) at any time in
accordance with customary industry practices on a non-discriminatory basis and
according to Transporter's role as operator of the Receipt Point(s) and/or the
Delivery Point(s) for any reasons, including, but not limited to, the
following:
(a) Shipper does not tender Gas for transportation as nominated;
(b) Transporter cannot confirm Shipper's nomination at the Receipt
Point(s) and/or Delivery Point(s); and/or
(c) Shipper's delivery or redelivery nomination is curtailed due
to a lack of i) pipeline capacity, or ii) available gas to effect a
delivery by displacement for the purpose of transporting all quantities
of gas nominated by various shippers under gas transportation agreements
with Transporter (including Shipper's Gas hereunder), and, as a result,
Transporter interrupts service in accordance with Section 5.2.
On any Day, all nominated and confirmed Gas which has been returned to Shipper
by a third party pipeline downstream of the Delivery Point(s) shall be
remarketed by Shipper with transportation provided, as available, hereunder.
Failing the availability of transportation, such returned Gas shall be
temporarily released from Shipper's dedication at Section 3.2 for the greater
of: i) such period of time as transportation is not available on Transporter's
system; or ii) a period of time mutually agreed, but not to exceed the
remainder of the Month of such unavailability of transportation.
8.3 RATE OF FLOW - The Gas to be received by Transporter hereunder
shall be delivered by Shipper at uniform hourly and Daily rates of flow as
nearly as practicable, but it is recognized that due to operating conditions
the quantities of Gas received and delivered may not be in balance on any
particular Day. In the event there is an imbalance (in terms of MMBtu) caused
by differences in receipts and deliveries of Gas hereunder, Transporter shall
notify Shipper of such imbalance and such imbalance shall be corrected in the
manner set forth in Article X.
8.4 UPSTREAM AND DOWNSTREAM PARTIES - Shipper shall make, or cause
to be made, all necessary arrangements with other pipelines, processors, or
other parties upstream of the Receipt Point(s) or downstream of any Delivery
Point(s) in order to effectuate Transporter's receipt or delivery of Shipper's
Gas. Transporter's obligations under this Agreement are subject to Shipper
making such necessary arrangements as are set forth in the immediately
preceding sentence, and such arrangements must be coordinated with
Transporter's Gas Control and Scheduling Department.
<PAGE> 13
ARTICLE IX
ALLOCATIONS
9.1 ALLOCATIONS AT THE RECEIPT POINT(S) AND DELIVERY POINT(S) -
Except for allocation of Liquids which will be allocated according to Section
9.2 below, Transporter shall use all reasonable efforts to ensure that the
quantities actually redelivered by Transporter at the Delivery Point(s) on
behalf of Shipper are equal to the Equivalent Quantities as may have been
adjusted pursuant to Section 8.2, above. Unless prohibited by applicable law
or regulation, all receipts and deliveries and any Imbalance shall be
determined and allocated each Day based upon such nominated and confirmed
quantities and actual receipts and deliveries.
In such instances when Transporter is receiving or delivering quantities
of gas to any Receipt Point(s) or Delivery Point(s) on behalf of others and in
addition to Shipper's Gas, then the difference on any Day between the total
nominated and confirmed quantities at such point(s) and the total actual
quantities received or delivered at such point(s) shall be allocated by
Transporter among all shippers (including Shipper). When performing an
allocation at any Receipt Point(s) or Delivery Point(s) the Transporter shall
first make a reasonable effort to identify material differences by specific
shipper(s) (including Shipper) and allocate the difference to such shipper(s).
Such allocations shall be the sole responsibility of Transporter, and once the
amounts are determined by Transporter and allocated to each shipper (including
Shipper) such amount allocated shall be deemed accurate.
9.2 ALLOCATIONS OF LIQUIDS AT EXHIBIT "B-2" DELIVERY POINT(S) -
Shipper's Gas will be commingled with other gas which may enter Transporter's
system at various points downstream of the Receipt Point(s). As a result, the
commingled stream may not have the same natural gas liquid constituent
composition or Btu content as the Gas received by Transporter at the Receipt
Point(s). Because gas re-delivered at the Exhibit "B-2" Delivery Point(s) will
have a different composition than Gas received at the Receipt Point(s), and
because Transporter may re-deliver gas at the Exhibit "B-2" Delivery Point(s)
for the account of others, including for the account of Shipper, an allocation
by Transporter of delivered quantities (MMcf), MMBtu/CF, and Gas components
back to each Receipt Point(s) is required.
Transporter will allocate deliveries at the Delivery Point(s) for the
account of Shipper as follows. However, it is understood by both Parties that
for the first Year, the Btu/CF and the composition of Gas may be estimated as
agreed between the Parties until Transporter installs sampling for allocation
of Gas. If Transporter receives Gas dedicated pursuant to Section 3.2 from
multiple Receipt Points, then the allocation will be based upon the blended
Btu/CF and composition of all Gas from Shipper. The Btu/CF and composition of
Gas dedicated pursuant to Section 3.2 received from the Receipt Point(s), will
be determined through sampling and chromatographic analysis where practical or
may be determined as shown in Exhibit "E". Likewise, the Btu and composition
of all gas (including Gas received from the Receipt Point(s) under this
Agreement) delivered at King Ranch will be determined through sampling and
chromatographic analysis at King Ranch. Transporter's determinations of
quantity and composition shall be provided to the Exxon King Ranch Plant and to
Shipper by the fifth (5th) business Day of each Month for the prior Month's
deliveries.
ARTICLE X
BALANCING OF RECEIPTS AND DELIVERIES
10.1 BALANCING - It is recognized that because of dispatching and
other operational variations, from time to time it may be physically impossible
or operationally impractical for an exact daily balancing of Gas receipts. For
each Day, Transporter will determine any Imbalance calculated as the difference
between Equivalent Quantities and total Transporter's
<PAGE> 14
actual MMBtu's delivered for Shipper's account at Delivery Point(s)
("IMBALANCE"). Such Imbalance(s) shall be eliminated as soon thereafter as
practical through adjustments in nominations, confirmations, and/or physical
deliveries and receipts of Gas or through the cash-out mechanism described in
Section 10.2, below. Notwithstanding the above, Transporter can take any
reasonable action necessary to prevent Shipper from intentionally creating or
maintaining an Imbalance.
10.2 RESOLUTION OF IMBALANCES - To the extent operationally
practical for Transporter, both Parties shall cooperate and eliminate any Daily
Imbalance(s), which include unresolved prior Days'('s) Imbalances by a
subsequent Daily adjustment(s) in Gas nominations, confirmations and/or
physical receipts and deliveries. Any such Imbalances remaining at the end of
each Month which are less than or equal to five percent (#5%) of the Daily
average of Gas transported hereunder for such Month shall be eliminated by a
subsequent Daily adjustment(s) in Gas nominations, as soon as practical during
the following Month. Month-end Imbalances which are greater than five percent
()5%) of the Daily average of Gas transported hereunder for such Month shall be
eliminated by monetizing the entire amount of the Imbalance by multiplying the
Imbalance by the simple average of each Day's gas price for such Month as found
in Gas Daily (Pasha Publication, Inc.) or successor publication, in the section
entitled "Daily Price Survey", the column entitled "Daily Midpoint", and under
the listings applicable to a Basket Price (as described herein) i) multiplied
by one-hundred and ten percent (110%) if Shipper owes Transporter Gas, and ii)
multiplied by ninety percent (90%) if Transporter owes Shipper Gas. "BASKET
PRICE" shall mean the simple average of each Day's price quote, as described
above, for the geographic location closest in proximity to the Delivery
Point(s) for the relevant Day for Houston Pipe Line, Midcon Texas Pipeline, the
Agua Dulce hub, Koch Gateway, Tennessee Gas Pipeline-South Texas, and NGPL -
South Texas. Should any element used in calculating the Basket Price no longer
be available, the Parties shall, by mutual agreement, determine whether a
substitute element is necessary. The monetary amounts owed by Shipper or by
Transporter for that Month's cash-out will be debited or credited to the
monetary amounts owed by Shipper to Transporter for that Month's
transportation.
ARTICLE XI
PRESSURES
11.1 PRESSURE AT RECEIPT POINT(S) - All Gas delivered at a Receipt
Point(s) shall be delivered at pressures sufficient to enter Transporter's
system at the working pressures maintained by Transporter at the Receipt
Point(s) from time to time. Transporter shall not be obligated to receive Gas
at pressures exceeding the Maximum Allowable Operating Pressures ("MAOP")
prescribed under any applicable governmental regulations and in no event will
such pressure exceed the MAOP of the system. Transporter's MAOP at the Conoco
Fandango Receipt Point is 945 psig (959.65 psia).
11.2 OVERPRESSURE PROTECTION - Both Shipper and Transporter are
individually, not jointly, responsible for the installation and maintenance of
overpressure protection equipment when necessary on their own, or their
designee's, pipeline(s), valve(s) and any other interconnection equipment.
11.3 ADDITIONAL COMPRESSION AND CO2 FACILITIES - Notwithstanding
anything herein to the contrary, and not as a breach of the requirements for
delivery pressures set forth at Section 11.1, if Shipper cannot make deliveries
of Gas to Transporter hereunder at pressures required by Section 11.1 or at
CO2 levels required by Section 12.1, then Shipper shall arrange with
Transporter, or one of Transporter's affiliates, to install such facilities on
Transporter's pipeline for the purpose of bringing Shipper's Gas into
compliance with the requirements of Sections 11.1 and 12.1. No facilities
shall be installed unless economically justifiable to Shipper as determined in
good faith by Shipper. Any agreement between Shipper and
<PAGE> 15
Transporter, or one of Transporter's affiliates, will provide that the cost of
such facilities will be recovered using a payout of capital investment over
seven (7) years and a return on investment equivalent to the Prime Interest
Rate plus five (5) percentage points; PROVIDED, HOWEVER, in the event the
remaining period in the Primary Term is less than seven (7) Years then such
rate shall be calculated to reflect the shortened time period or the Parties
may agree to some other method of payment which will result in Transporter's
full recoupment of the required capital investment within the foreshortened
period of time at the same return on investment of five (5) percentage points
over the then existing Prime Interest Rate.
ARTICLE XII
QUALITY
12.1 SPECIFICATIONS - The Gas delivered each Day by Shipper to
Transporter at the Receipt Point(s) is to comply with the following
requirements:
(a) HYDROGEN SULFIDE - contain not more than one quarter (.25) grain
per one hundred Cubic feet;
(b) TOTAL SULFUR - contain not more than two (2) grain(s) per one
hundred (100) Cubic feet;
(c) CARBON DIOXIDE - contain not more than two percent (2%) by volume
(d) GROSS HEATING VALUE - For (i) Delivery Point(s) in Exhibit "B-1"
have a Gross Heating Value of not less than 950 BTU/CF, or (ii) Delivery
Point(s) in Exhibit "B-2" have a Gross Heating Value of not less than
1050 BTU/CF
(e) FREE WATER - contain no free water;
(f) OXYGEN - contain not more than five (5) parts per million (ppm) by
volume;
(g) WATER VAPOR - contain not more than seven (7) pounds per one
million (1,000,000) Cubic feet;
(h) SOLIDS - be commercially free of dust, gums, dirt, impurities and
other solids;
(i) MERCAPTANS - contain not more than five (5) ppm by volume;
(j) TEMPERATURE - not have a temperature of less than forty degrees
(40o) Fahrenheit nor more than one hundred twenty-five degrees (125o)
Fahrenheit;
(k) NITROGEN - contain not more than two percent (2%) by volume;
(l) NON-HYDROCARBONS - contain not more than four percent (4%) by
volume. Typical non-hydrocarbons are, but are not limited to, helium, carbon
dioxide, nitrogen, hydrogen sulfide and hydrogen.
Notwithstanding the specifications set forth in this Article, neither
Party nor its/their designee(s) shall dilute or inject any media, including but
not limited to air or nitrogen into the Gas stream, or treat the Gas in any
manner which will introduce or form any diluents, hazardous, toxic or other
undesirable compounds in the gas system. Transporter has the right to either
(i) accept Gas that does not conform to the specifications above, or (ii)
refuse delivery of the Gas that does not conform to the specifications above.
Transporter's acceptance of Gas that does not conform to the quality
specifications will not constitute a waiver of the specifications by
Transporter in regard to Gas delivered in the future, nor will acceptance of
the Gas without an express written waiver, constitute a waiver of any claims
for damages resulting from delivery of Gas not meeting the specifications.
ARTICLE XIII
METERING FACILITIES, MEASUREMENT, AND TESTING
13.1 MEASURING EQUIPMENT - Transporter, or Transporter's designee,
will designate the type of measuring equipment that will be utilized, and be
the operator of the measurement facilities ("Operator"). Shipper may install,
maintain and operate, at its sole cost and expense, check measuring equipment;
provided, that the equipment is to be installed in a manner that will not
interfere with the operation of any other party's measuring equipment.
13.2 ORIFICE METERS - Orifice meters installed in the measuring
stations are to be constructed and operated in accordance with the American
Petroleum Institute ("API") 14.3, Orifice Metering of Natural Gas and Other
Related Hydrocarbon Fluids, dated 1992, and will include the use of flange
connections and, where necessary, straightening vanes.
<PAGE> 16
13.3 ELECTRONIC DEVICES - When and where electronic measurement and
flow computers are utilized, the Gas received may have its volume, mass,
gravity, composition or energy content determined and computed in accordance
with applicable AGA standards including, but not limited to: API 14.3, 1992
edition; AGA Report No. 5, 1983 edition; AGA Report No. 6, 1971 edition; and
AGA Report No. 7, 1984 edition. The Parties will use and accept the electronic
derivations, measurements and calculations in lieu of mechanical recordings,
chart integration and subsequent calculations.
13.4 NOTICE - Operator will give reasonable notice for Shipper to
have representatives present to observe the installation, changing, repairing,
testing, calibration, or adjustment of Operator's measuring equipment used in
measuring, of receipts or deliveries of Gas. If after proper notice, Shipper
fails to have a representative present, the results of the tests shall
nevertheless be considered accurate. The official charts or recordings or both
from the measuring equipment will remain the property of Operator, but upon
request by Shipper, Operator will submit its records and charts, together with
calculations to Shipper for inspection and verification, subject to their
return to Operator within thirty (30) Days after their receipt.
13.5 TESTING AND CALIBRATION -
(a) Operator will verify the accuracy, adjust and calibrate all
recording devices used in the measurement of the receipt and delivery of Gas on
at least a Monthly basis or will witness such calibration. Operator is not
required to, but may elect to, adjust or calibrate the equipment more
frequently, unless non-operator desires a special test to be performed as
described in the Section 13.6 entitled Special Test.
(b) If, during any test of the measuring equipment, an adjustment
or calibration error is found which results in an incremental adjustment to the
calculated hourly flow rate through each meter in excess of one percent (1%)
of the correct flow rate (whether positive or negative and using the correct
flow rate as the percent error equation denominator), then any previous
recording of such equipment will be corrected to zero (0) error for any period
in which the error existed (and which is either known definitely, or agreed to
by both Parties), and the total flow for the period redetermined in accordance
with the provisions of Section 13.7 entitled Measurement Adjustment. If the
period of error cannot be determined, or agreed upon, between the Parties, the
correction will be made over a period extending over the last one-half ( 1/2)
of the time elapsed since the date of the latest test, such correction period
not to exceed fifteen (15) Days.
(c) If, during any test of the measuring equipment, an adjustment
or calibration error is found which results in an incremental adjustment to the
calculated hourly flow rate which does not exceed one percent (1%) of the
adjusted flow rate (as described in part (b) of this Section), all prior
recording will be considered to be accurate for quantity determination
purposes.
13.6 SPECIAL TEST - If Shipper desires a special test (a test not
scheduled by Operator under Section 13.5 entitled Testing and Calibration) of
any measuring equipment, seventy-two (72) hours advance written notice will be
given to Operator, and both Parties will cooperate to secure a prompt test of
the accuracy of the equipment. If the measuring equipment tested is found to
meet the requirements of Section 13.5(c), or if an inspection of the primary
measurement equipment indicates no problems, Operator has the right to bill and
Shipper is to pay those costs.
<PAGE> 17
13.7 MEASUREMENT ADJUSTMENT - If, for any reason, any measurement
equipment is (i) out of adjustment as defined in Section 13.5, (ii) out of
service, or (iii) out of repair and the total calculated hourly flow rate
through each meter is found to be in error by an amount described in Section
13.5(b), the total quantity of Gas delivered will be redetermined in accordance
with the first of the following methods which is feasible:
(a) by using the registration of any mutually agreeable check
metering facility, if installed and accurately registering (subject to testing
as described in Section 13.5);
(b) where parallel multiple meters exist, by calculation using the
registration of such parallel meters; provided, that they are measuring Gas
from upstream and downstream headers in common with the faulty metering
equipment, are not controlled by separate regulators, and are accurately
registering;
(c) by correcting the error by re-reading of the official charts,
or by straightforward application of a correction factor to the quantities
recorded for the period (if the net percentage of error is ascertainable by
calibration, tests or mathematical calculation);
(d) by estimating the quantity, based upon deliveries made during
periods of similar conditions when the meter was registering accurately.
ARTICLE XIV
MEASUREMENT SPECIFICATIONS
The measurements of the quantity and quality of all Gas received and
delivered hereunder shall be conducted in accordance with the following:
14.1 UNIT OF VOLUME - The unit of volume for measurement is to be
one (1) Cubic Foot of gas.
14.2 VOLUME COMPUTATIONS - Computations of Gas volumes from
measurement data shall be made in accordance with API 14.3, Orifice Metering of
Natural Gas and Other Related Hydrocarbon Fluids, dated 1992, and any
subsequent amendments as mutually agreed upon. If electronic devices and flow
computers are utilized, volumes will be determined in accordance with AGA
Committee Report No(s). 5, 6, and 7, as specified in the Section titled
Electronic Devices, and any subsequent amendments or revisions, as mutually
agreed upon.
14.3 TEMPERATURE MEASUREMENT - The temperature of the Gas is to be
determined electronically, or by a recording thermometer, so installed that it
may record the temperature of the Gas flowing through the meters. If the
Parties do not consider the installation of such a recording thermometer to be
necessary, other agreeable means of recording temperature may be used. The
average temperature to the nearest one degree (1 degree) Fahrenheit, obtained
while Gas is being delivered, will be the applicable flowing Gas temperature for
the period under consideration.
14.4 SPECIFIC GRAVITY MEASUREMENT - At least Monthly, the specific
gravity of the Gas will be determined by the chromatographic analysis of, at
Operator's option, either a spot Gas sample or a continuous composite Gas
sample. The specific gravity will be determined and calculated to the nearest
one-thousandth (0.001). At least annually, however, an extended
chromatographic test will be used to verify the heavier hydrocarbon content of
the Gas and the affect on specific gravity.
14.5 ADJUSTMENT FOR SUPERCOMPRESSIBILITY - Adjustments to measured
Gas volumes for the effects of supercompressibility are to be made in
accordance with accepted AGA standards. At least Monthly, Operator is to
obtain representative carbon dioxide (CO2) and nitrogen (N2) mole fraction
values for the Gas delivered, or received, as may be required to compute such
adjustments in accordance with standard testing procedures. The calculation of
supercompressibility will be taken from the AGA Report No. 8, dated December
1992, Compressibility and Supercompressibility for Natural Gas and Other
Hydrocarbon Gases, or at Operator's option, any subsequent revision to AGA
Report No. 8.
<PAGE> 18
14.6 ASSUMED ATMOSPHERIC PRESSURE - An assumed atmospheric pressure
of fourteen and four-tenths (14.4) psia will be utilized for measurement and
calculation purposes, irrespective of any variation of the actual atmospheric
pressure from the assumed atmospheric pressure.
14.7 GROSS HEATING VALUE - At least Monthly, the Gross Heating
Value of the Gas will be determined by a chromatographic analysis of, at
Transporter's option, either a spot Gas sample or a continuous composite Gas
sample.
14.8 SAMPLES, ANALYSIS AND CALCULATION - One Gas sample will be
physically taken at a suitable point to be representative of the flowing Gas
stream to be used to provide the sampling requirements in the Sections titled
Specific Gravity Measurement, Adjustment for Supercompressibility, and Gross
Heating Value. The sample will be taken, handled and analyzed in accordance
with the latest revision of Gas Processors Association (GPA Standards and
Procedures GPA 1161, GPA 2166 and GPA 2174, as applicable. The specific
gravity and Gross Heating Value are to be calculated and determined in
accordance with GPA Standards - GPA 2172, GPA 2145, as applicable.
14.9 OTHER TESTS - Other tests to determine water content, sulfur,
and other impurities in the Gas will be conducted by Operator as necessary and
will be conducted in accordance with standard industry testing procedures. The
Party requested to perform such test(s) will bear the cost of test(s) only if
the Gas tested is determined not to be within the applicable specification(s),
otherwise the requesting Party will bear the cost of such test(s).
14.10 NEW TEST METHODS - If at any time during the term of this
Agreement a new method or technique is developed with respect to Gas
measurement, the new method or technique may be substituted for the method or
technique identified in this Article, when the method or technique meets the
currently accepted standards of the American Gas Association, and if mutually
agreed to by the Parties.
ARTICLE XV
FORCE MAJEURE
15.1 FORCE MAJEURE - If either Transporter or Shipper is rendered
unable, wholly or in part, by force majeure to perform or comply with any
obligation or condition of this Agreement, such obligation or condition shall be
suspended during the continuance of the inability so caused and such Party shall
be relieved of liability and shall suffer no prejudice for failure to perform
the same during such period; provided, the obligation to make payments then due
for Gas received shall not be suspended and the cause for suspension (other than
strikes or lockouts) shall be remedied so far as possible with reasonable
dispatch. The Party suffering any such force majeure shall give notice and
reasonably full particulars to the other Party as soon as reasonably possible
upon the occurrence of such event. Settlement of strikes and lockouts shall be
wholly within the discretion of the Party having the difficulty. The term
"FORCE MAJEURE" shall include, without limitation by the following enumeration:
acts of God; the public enemy; the elements; fire; accidents; breakdowns; the
need to repair, maintain or alter machinery, lines of pipe, or plants and
equipment; strikes and any other industrial, civil, or public disturbance, the
inability to obtain materials, supplies, permits or labor; and any laws, orders,
rules, regulations, acts or restraints of any government or governmental body or
authority, civil or military; and any other cause, whether of the kind herein
enumerated or otherwise, not reasonably within the control of the Party claiming
force majeure, and which, by the exercise of due diligence, such Party is unable
to overcome.
<PAGE> 19
ARTICLE XVI
BILLING AND PAYMENT
16.1 ACCOUNTING STATEMENTS - Transporter shall render to Shipper,
on or before the fifteenth (15th) Day of each Month i) a statement setting
forth, with respect to all Gas received by Transporter during the preceding
Month at the Receipt Point(s), the total quantity and the Gross Heating Value
of said Gas, ii) a statement setting forth, with respect to all Gas redelivered
to Shipper during the preceding Month at the Delivery Point(s), the total
quantity and the Gross Heating Value of said Gas, iii) the transportation
charge therefor Transporter may initially bill on estimates if all actual
information is not available at the time the statement is to be sent. On or
before the last Day of such Month, the Shipper shall make payment by wire
transfer, in accordance with wire transfer instructions on the invoice, to
Transporter for all Gas received by Transporter for Shipper at the Receipt
Point(s) during the preceding Month ("PAYMENT DUE DATE").
16.2 LATE PAYMENT - In the event Shipper fails to pay any amount
due Transporter when the same is due, the unpaid balance shall bear interest
from the due date until the date when same is paid at the Prime Interest Rate,
plus one percent (1%), each change in the Prime Interest Rate to be effective
without notice on the effective date of each change; PROVIDED, HOWEVER, the
Prime Interest Rate chargeable hereunder shall never exceed the maximum
non-usurious rate of interest allowed by applicable law. In the event such
failure to pay continues for a period of forty-five (45) Days or more past the
Payment Due Date, Transporter may, in addition to its other remedies, terminate
this Agreement (Shipper's obligations to pay any amounts then due and owing to
Transporter shall survive such termination).
16.3 ERRORS AND DISPUTES IN STATEMENTS - In the event an error is
discovered in the amount billed in any statement rendered by Transporter, such
error shall be adjusted within thirty (30) Days of the discovery of the error.
In the event a dispute arises as to the amount payable in any statement
rendered, Shipper shall nevertheless pay the undisputed amount to Transporter
under the statement rendered pending resolution of the dispute. Acceptance of
such payment shall not be deemed to be a waiver by Transporter to recoup any
underpayment, which shall be paid by Shipper. The subsequent payment of a
disputed amount shall bear interest as provided in this Article, from its
original due date until paid.
16.4 EXAMINATION OF BOOKS AND RECORDS - Each Party shall have the
right at reasonable hours on business Days to examine the books and records of
the other to assure compliance with the terms of this Agreement. If any such
examination reveals an error in billing, the necessary adjustments and payment
shall be made within thirty (30) days of a final determination.
16.5 AUDIT RIGHTS - The Parties agree the right to audit the books
and records hereunder shall be limited and Parties right to audit records will
be limited to a period of two (2) years following the date of any invoice or
payment.
<PAGE> 20
ARTICLE XVII
NOTICES
17.1 NOTICES - All notices required hereunder shall be sent to the
following addresses:
TRANSPORTER: FOR PAYMENTS ONLY:
----------- -----------------
Lobo Pipeline Company
P.O. Box 1267
Ponca City, OK 74603
Attn: Gas Revenue, 300-9-NT
FOR ALL OTHER MATTERS:
---------------------
Lobo Pipeline Company
Attn: Texas Transportation Coord.
P.O. Box 2197
Houston, TX 77252-2197
SHIPPER: FOR STATEMENTS:
------- --------------
TransTexas Gas Corp.
1300 North Sam Houston Parkway East
Houston, TX 77032
Attn: Natural Gas Accounting
FOR NOTICES AND CORRESPONDENCE:
------------------------------
TransTexas Gas Corp.
Attn: Transportation Coordinator
1300 North Sam Houston Parkway East
Houston, TX 77032
ARTICLE XVIII
TAXES
In addition to paying the transportation rate and other fees and
adjustments provided in the Agreement, Shipper shall also reimburse Transporter
for Taxes and certain other fees as follows:
18.1 TAX REIMBURSEMENT - Shipper shall reimburse Transporter for
Taxes, except income taxes, which are levied upon and/or paid by Transporter
with respect to the transportation services performed for the Gas hereunder
and under the terms of this Agreement.
18.2 REIMBURSEMENT OF FEES - Shipper shall reimburse Transporter
for any and all filing fees in connection with transportation services rendered
to Shipper hereunder that Transporter is required to pay by any governmental
authority having or asserting jurisdiction.
ARTICLE XIX
GOVERNMENTAL REGULATIONS
19.1 GENERAL -
(a) This Agreement and all rates, terms, services and operations
hereunder are subject to all present and future applicable federal and state
laws and the applicable ordinances, orders, rules and regulations of any local,
state or federal governmental authority having or asserting jurisdiction; but
nothing contained herein shall be construed as a waiver of any right to
question or contest any such law, ordinance, order, rule, or regulation, or
operating statement in any forum having jurisdiction in the premises except
that Shipper.
<PAGE> 21
(b) If at any time during the term of the Agreement any
governmental authority shall take any action as to Transporter whereby: i) the
receipt, transportation or other services and delivery of gas throughout its
Lobo Pipeline Company system shall be proscribed or subjected to terms,
conditions, regulations, restraints or rate or price controls that are unduly
burdensome to Transporter, Transporter may suspend affected activities, seek
regulatory approval or waivers to continue such action, or Transporter may
cancel and terminate this Agreement and the Firm Agreement; or ii) the effect of
i) above is to increase Shipper's 6.2 discounted rate or reduce Gas
transportation volumes, and either is unduly burdensome to Shipper, Shipper may
seek regulatory waiver or Shipper may cancel and terminate this Agreement and
the Firm Agreement.
19.2 FILINGS - Transporter shall file all necessary reports and/or
notices required by the Railroad Commission of Texas or the FERC, and Shipper
shall provide Transporter with any necessary compliance information requested
by Transporter in connection with preparing such reports as they pertain to
Shipper.
ARTICLE XX
MISCELLANEOUS
20.1 HEADINGS AND SUBHEADINGS - The headings contained in this
Agreement are used solely for convenience and do not constitute a part of the
agreement between the Parties hereto and shall not be used to aid in any manner
in construing this Agreement.
20.2 WAIVER - No waiver by either Party of any one or more defaults
by the other Party in the performance of this Agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
20.3 THIRD PARTY COMPLIANCE - In the event it becomes necessary for
any designee(s) of Shipper or Transporter to perform so that the obligations of
Shipper or Transporter may be fulfilled hereunder, Shipper and Transporter
agree to use reasonable efforts to cause their respective designee(s), under
the terms of a separate agreement if necessary, to perform so that such
obligations under the terms of this Agreement may be fulfilled.
20.4 ASSIGNMENT - This Agreement shall extend to and be binding
upon the successors and assigns of the Parties hereto, but may only be assigned
in whole by Shipper; provided, further, that no assignment can be made without
the prior written consent of the Transporter, which consent may not be
unreasonably withheld.
20.5 FACILITIES - The measurement and appurtenant facilities
required at the Receipt Point(s) shall be installed, owned, operated and
maintained by Transporter.
20.6 GOVERNING LAW - AS TO ALL MATTERS OF CONSTRUCTION AND
INTERPRETATION, THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.
20.7 NO THIRD PARTY BENEFICIARY - It is expressly understood that
there is no third party beneficiary to this Agreement, and that the provisions
of this Agreement do not impart enforceable rights in anyone who is not a
Party, successor or assignee of a Party hereto.
20.8 OPERATING STATEMENT - This Agreement is subject to
Transporter's Operating Statement for NGPA Section 311 Gas Transportation
Service, as such may change from time to time ("STATEMENT"), which is
incorporated by reference and made a part hereof. Transporter waives any
conflicts between this Agreement and its currently effective Statement on file
with the FERC. A copy of any future changes to the Statement will be promptly
furnished to Shipper. Transporter and Shipper recognize and agree that
Transporter's Statement is hereby incorporated by reference for the
transportation service provided hereunder. Any reference in the Statement to
gas transportation service under NGPA Section 311 shall be deemed to include
gas transportation service under Subpart C of Part 284 of the Regulations of
the FERC implementing Section 311(a)(2) of the NGPA.
<PAGE> 22
20.9 AGREED DISPUTE RESOLUTION - It is agreed, as a severable and
independent arbitration agreement separately enforceable from the remainder of
this Agreement that if the Parties hereto of their respective successors,
assigns, heirs, or legal representatives of any of the foregoing are unable to
amicably resolve any dispute or difference arising under or out of, in relation
to or in any way connected with this Agreement (whether contractual, tortious,
equitable, statutory or otherwise), such matter shall be finally and
exclusively referred to and settled by arbitration in accordance with that
certain Dispute Resolution Agreement made effective as of July 1, 1996, between
the Parties hereto, and others, the terms and provisions of which are
incorporated by reference herein.
20.10 DAMAGE LIMITATIONS - Notwithstanding anything to the contrary
herein, neither Party shall be liable for or otherwise responsible to the other
Party for punitive, consequential, or incidental damages or for lost profits
which arise out of or relate to this Agreement or the performance or breach
thereof.
20.11 JOINT EFFORT - The Parties stipulate and agree that this
Agreement shall be deemed and considered for all purposes, as prepared through
the joint efforts of the Parties, and shall not be construed against one Party
or the other as a result of the preparation, submittal or other event of
negotiation, drafting or execution hereof.
20.12 FACSIMILE - Facsimile copies of all notices and correspondence
hereunder, including signatures thereon, shall constitute original copies
thereof and shall be as binding on the Parties hereto as the original. The
sending Party shall, within five (5) business Days of the date of any facsimile
transmission, send to the receiving Party an original of any notice or
correspondence transmitted by facsimile, other than nominations.
20.13 CONDUCT OF THE PARTIES - The Parties shall use good faith in
all matters relating to this Agreement. The phrase "GOOD FAITH" whenever used
in this Agreement shall have the meaning set forth in the Tex. Bus. & Com. Code
Ann. Section 1.201(19) (Tex. UCC) (Vernon 1994).
20.14 ENTIRETY OF AGREEMENT - This Agreement including the Exhibits
contains the entire agreement of the Parties with respect to the matters
covered hereby. No other agreement, statement, or promise made by any Party,
or to any employee, officer, or agent of any Party, which is not contained in
this Agreement shall be binding or valid.
<PAGE> 23
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on
this the 30th day of May, 1997, to be effective as of the Effective Date.
LOBO PIPELINE COMPANY TRANSTEXAS GAS CORPORATION
By: /s/ BARRY L. OAKES By: /s/ ARNOLD BRACKENRIDGE
----------------------------- -------------------------------
Name: BARRY L. OAKES Name: ARNOLD BRACKENRIDGE
--------------------------- -----------------------------
Title: Vice President Title: President
-------------------------- ----------------------------
<PAGE> 24
INTERRUPTIBLE GAS TRANSPORTATION AGREEMENT
EXHIBIT "A-1"
POINT(S) OF RECEIPT - UPSTREAM1
POINT DESCRIPTION TRANSPORTER METER NUMBER
1) CONOCO FANDANGO -The interconnection Meter #11032
between Midcon North Bob West Pipeline
and Transporter
2) CUBA LIBRE To Be Determined
3) Various "TOP LEASES" To Be Determined
<PAGE> 25
INTERRUPTIBLE GAS TRANSPORTATION AGREEMENT
EXHIBIT "A-2"
POINT(S) OF RECEIPT - DOWNSTREAM1
POINT DESCRIPTION TRANSPORTER METER NUMBER
- ----------------- ------------------------
CONOCO/TEJAS INTERCONNECT @ Agua Dulce Station #62
<PAGE> 26
INTERRUPTIBLE GAS TRANSPORTATION AGREEMENT
EXHIBIT "B-1"
DELIVERY POINT(S)
<TABLE>
<S> <C> <C> <C> <C>
Pipeline Meter No. Interconnect Location Max. Delivery Quantity
- -------- --------- ------------ -------- ----------------------
Channel 1-6244 Agua Dulce Nueces See below ***
Corpus Christi 344001 Agua Dulce Nueces See below ***
Pan Energy** 61499 Bishop Neuces See below ***
H.P.L. 7038 Agua Dulce Nueces See below ***
H.P.L.* 9648 Thompsonville Jim Hogg
Koch 8075 Agua Dulce Nueces See below ***
Midcon 7738 Agua Dulce Nueces See below ***
NGPL 1022 Agua Dulce Nueces See below ***
NGPL* 1041 Thompsonville Jim Hogg
Tejas 1-276 Agua Dulce Nueces See below ***
Tennessee 12270 Agua Dulce Nueces See below ***
Tx Eastern** 72592 Agua Dulce Nueces See below ***
Transco 791 Agua Dulce Nueces See below ***
Trunkline** 81524 Alice #1 Jim Wells See below ***
Valero 444042 Agua Dulce Nueces See below ***
</TABLE>
* Shipper agrees that redelivery to these Delivery Points requires
Transporter's approval prior to nomination.
** Deliveries to these points may be accomplished by displacement and will be
subject to Article VIII and, as such, may be curtailed due to a lack of
available gas to effect a delivery by displacement. Furthermore, Shipper
recognizes that physical redeliveries of Gas at these locations may be limited,
in Transporter's sole discretion, until such time as Transporter is able to
install additional compression and/or facilities necessary to enhance
operational flexibility/deliverability at these Delivery Point(s).
*** MDCQ: Shipper's nominations will be limited to a percentage of the
operational capacity of each meter/delivery point based upon Shipper's
currently effective MDCQ and calculated as follows:
Total Contract MDCQ = Percentage of operational
Operational System Capacity capacity at each Delivery Point
The Percentage calculated above will apply to operational capacity at
each Delivery Point referenced above and the resulting percentage
multiplied by the redelivery point operational capacity equals the
maximum delivery quantity for that Delivery Point for any Day.
Transporter and Shipper agree to coordinate Daily to effect
redeliveries in excess of the maximum delivery quantity.
<PAGE> 27
INTERRUPTIBLE GAS TRANSPORTATION AGREEMENT
EXHIBIT "B-2"
DELIVERY POINT(S)
<TABLE>
<S> <C> <C> <C> <C>
Pipeline Meter No. Interconnect Location Max. Delivery
- -------- --------- ------------ -------- -------------
Exxon 1070 & 1071 KING RANCH Kleberg MDCQ defined in
Article III.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
INTRASTATE FIRM
GAS TRANSPORTATION AGREEMENT
Effective Date: March 1, 1997
between
TRANSTEXAS GAS CORPORATION
"Shipper"
and
LOBO PIPELINE COMPANY
"Transporter"
Certain portions of this document have been omitted and filed separately with
the Commission pursuant to an Application for Confidential Treatment pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE SUBJECT PAGE
- ------- ------- ----
<S> <C> <C>
I. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III. Quantity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
IV. Receipt Point(s) and Delivery Point(s) . . . . . . . . . . . . . . . . . . . . . . . . . 9
V. Scope and Character of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VI. Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VII. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
VIII. Nominations, Scheduling and Rates of Flow . . . . . . . . . . . . . . . . . . . . . . 13
IX. Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
X. Balancing of Receipts and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . 16
XI. Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
XII. Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
XIII. Metering Facilities, Measurement and Testing . . . . . . . . . . . . . . . . . . . . . 19
XIV. Measurement Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
XV.. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
XVI. Billing and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
XVII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
XVIII. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
XIX. Governmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
XX.. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBITS: Exhibit "A" - Receipt Point(s)
Exhibit "B" - Delivery Point(s)
Exhibit "C" - Nomination Form
Exhibit "D" - Bob West North Field
Exhibit "E" - Gas Allocation - Approximation of Composition Example
Exhibit "F" - Other Properties
</TABLE>
i
<PAGE> 3
INTRASTATE FIRM GAS TRANSPORTATION AGREEMENT
THIS AGREEMENT entered on this first day of March 1997, (Effective Date)
between LOBO PIPELINE COMPANY, a Delaware corporation, hereinafter referred to
as "TRANSPORTER", and TRANSTEXAS GAS CORPORATION, a Delaware corporation,
hereinafter referred to as "SHIPPER".
W I T N E S S E T H:
WHEREAS, Shipper has requested that Transporter transport, from the
Receipt Point(s) identified and described herein, certain quantities of Gas;
and
WHEREAS, Transporter operates certain facilities in the State of Texas
for the gathering and transportation of natural gas, and is an "intrastate
pipeline" within the meaning of Section 2(16) of the Natural Gas Policy Act of
1978 ("NGPA") and is subject to the regulatory jurisdiction of the Railroad
Commission of Texas ("RRC").
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "GAS" means natural gas and includes casinghead gas produced with crude
oil, gas well gas produced from gas wells, and residue gas resulting from
processing both casinghead gas and gas well gas, which natural gas is both
owned by Shipper (or is Shipper's royalty gas) and produced from the Bob West
North Field located in Zapata County, Texas, from leases in which Shipper is an
equity owner. This definition of "Gas" shall also include natural gas produced
from specific properties as identified on Exhibit "F".
1.2 "DAY" or "DAILY" mean the period of time beginning at 9:00 a.m., local
time, on any calendar Day and ending at 9:00 a.m., local time, on the calendar
Day immediately following.
1.3 "MONTH" or "MONTHLY" means a period beginning at 9:00 a.m., local time,
on the first Day of a calendar month, and ending at 9:00 a.m., local time, on
the first Day of the calendar month immediately following.
1.4 "YEAR" means a period consisting of three-hundred-sixty-five (365)
consecutive Days, commencing on the Effective Date at 9:00 a.m., local time and
ending at 9:00 a.m., local time; provided, that any Year which contains the
date of February 29 will consist of three-hundred-sixty-six (366) consecutive
Days.
1.5 For payment and measurement purposes, the quantity of Gas delivered and
received, stated in MMBtu, is derived by taking the measured volumes of Gas in
Cubic feet multiplied by their Gross Heating Value divided by one million
(1,000,000). The pertinent terms are as follows:
(a) "CUBIC FEET", "CUBIC FOOT" or "CF" mean the volume of gas
which occupies one (1) cubic foot of space at a temperature of sixty
degrees (60 degrees) Fahrenheit and an absolute pressure of fourteen and
sixty-five hundredths (14.65) pounds per square inch absolute (psia).
(b) "MCF" means one thousand (1,000) Cubic feet of gas and "MMCF"
means one million (1,000,000) Cubic feet of gas.
(c) "BTU" means the amount of heat required to raise the
temperature of one avoirdupois pound of pure water from fifty-eight and
five tenths degrees (58.5 degrees) Fahrenheit to fifty-nine and five
tenths degrees (59.5 degrees) Fahrenheit at a constant pressure of
fourteen and sixty-five hundredths (14.65).
(d) "MMBTU" means one million (1,000,000) Btu.
(e) "GROSS HEATING VALUE" means the number of Btu's liberated by
the complete combustion, at a constant pressure, of one (1) Cubic foot of
gas, at a base temperature of sixty degrees (60 degrees) Fahrenheit and
a base pressure of fourteen and sixty-five hundredths (14.65)
1
<PAGE> 4
psia, with air of the same temperature and pressure of the gas, after
the products of combustion are cooled to the initial temperature of the
gas, and after the water resulting from combustion is condensed to the
liquid state. The Gross Heating Value of the gas shall be corrected for
the water vapor content of the gas being delivered; provided, that if
the water vapor content of the gas is seven (7) pounds or less per one
million (1,000,000) Cubic feet, the gas shall be assumed to be dry and
no correction will be made.
(f) "PSIA" means per square inch absolute.
1.6 "STANDARD TEMPERATURE" means sixty degrees (60 degrees) Fahrenheit.
1.7 "STANDARD PRESSURE" means fourteen and sixty-five hundredths (14.65)
pounds per square inch absolute.
1.8 "PARTY" means either Transporter or Shipper and the term "PARTIES" shall
mean both Transporter and Shipper.
1.9 "TAXES" means any tax (other than ad valorem, income or excess profit
taxes), license, fee or charge now or hereafter levied, assessed or made by a
governmental authority on any natural gas transportation, or any occupation,
production, severance or sales tax, first use tax, gross receipt tax, or taxes
similar in nature or equivalent in effect which are now or hereafter imposed or
assessed against Transporter by any lawful authority as a result of the
transportation of Gas pursuant to this Agreement or on the act, right or
privilege of transporting, handling or delivering Gas which is measured by the
volume, value, carbon content or sales price of the Gas or the gross receipts
from providing transportation service.
1.10 "EQUIVALENT QUANTITIES" means that volume of gas which is thermally
equivalent to the volume of Gas received by Transporter at the Receipt
Point(s), less applicable deductions for fuel adjustments as provided for in
this Agreement on any one Day.
1.11 "PRIME INTEREST RATE" means the "prime commercial rate" of interest
published by Citibank, N.A., New York, New York.
1.12 "RECEIPT POINT(S)" means such point(s) specifically identified in
Exhibit "A", a copy of which is hereby incorporated into this Agreement and
made a part hereof for all purposes.
1.13 "DELIVERY POINT(S)" means such point(s) specifically identified in
Exhibit "B", a copy of which is hereby incorporated into this Agreement and
made a part hereof for all purposes.
1.14 "KING RANCH" means the Delivery Point located at the interconnection
between Transporter's facilities and the Exxon Co. USA operated King Ranch
Plant located in Kleberg County, Texas ("EXXON KING RANCH PLANT"), and which is
specifically set forth and identified in Exhibit "B".
1.15 "MDCQ" and "MAXIMUM DAILY CONTRACT QUANTITY" have the meaning set forth
at Section 3.1.
1.16 "PRODUCTS" or "LIQUIDS" shall mean those natural gas liquids, including
ethane, propane, isobutane, normal butane, and natural gasoline, and mixtures
thereof, which may be present in the gas stream and removable in a liquid
extraction process.
1.17 "BOB WEST NORTH FIELD" shall mean the area currently known as the Bob
West North Field located in Zapata County, Texas, as shown on Exhibit "D", a
copy of which is hereby incorporated into this Agreement and made a part hereof
for all purposes.
1.18 OTHER TERMS - Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
Term: Section:
---- -------
<S> <C>
Transporter Preamble
Shipper Preamble
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
NGPA 2d Whereas
RRC 2d Whereas
Exxon King Ranch Plant 1.14
MDCQ 3.1
Interruptible Agreement 3.1
Deficiency 3.6
Overage 3.6
Primary Term 7.1
Imbalance 10.1
Basket Price 10.2
MAOP 11.1
Operator 13.1
API 13.2
force majeure 15.1
Payment Due Date 16.1
good faith 20.12
</TABLE>
3
<PAGE> 6
ARTICLE II
GENERAL
2.1 WARRANTY OF TITLE - Shipper warrants that it will at the time
of delivery of Gas to Transporter under this Agreement have good title to all
Gas (excepting only its royalty gas), and the right to deliver its royalty gas,
so made available, and that the Gas is free and clear of all liens,
encumbrances, or adverse claims of any kind.
2.2 INDEMNIFICATION - Shipper shall indemnify Transporter and save
Transporter harmless from and against any and all suits, actions, losses,
damages, costs, and expenses (including reasonable attorneys' fees and court
costs), arising from or in connection with any title-related liens,
encumbrances, or adverse claims of any persons regarding the Gas.
2.3 POSSESSION AND RESPONSIBILITY - Prior to the Gas being
received by Transporter at the Receipt Point(s) and upon delivery of the Gas to
the Shipper at the Delivery Point(s), Shipper is deemed to be in control and in
possession of the Gas, and Shipper is responsible for any damages, losses or
injuries caused by the Gas while in Shipper's control and/or possession, except
for injuries or damages which have been caused by the negligence of
Transporter. Transporter is in control and in possession of the Gas subsequent
to receipt at the Receipt Point(s) and until such Gas is redelivered to Shipper
at the Delivery Point(s), and is responsible for any damages, losses or
injuries caused by the Gas while in Transporter's control and/or possession,
except for injuries or damages which have been caused by the negligence of
Shipper. Notwithstanding the immediately preceding sentences, the Parties
hereto understand and acknowledge that title to, or the right to deliver, all
Gas transported hereunder shall at all times remain with Shipper or Shipper's
designee and not the Transporter.
2.4 CREDITWORTHINESS OF SHIPPER - Transporter's obligation to
perform hereunder is contingent upon Shipper's reciprocal obligation to pay for
the services contemplated hereunder in a timely fashion. Prior to commencement
of service, or at any time thereafter, Transporter may require Shipper to
supply Transporter with credit information including, but not limited to, bank
references, financial statements and/or names of persons with whom Shipper has
recently transacted business in order that Transporter may make reasonable
inquiry into Shipper's creditworthiness and obtain adequate assurance of
Shipper's solvency and ability to perform.
Only if, during the Primary Term or any other term of this Agreement,
Shipper fails to pay all monies due under this Agreement within the time frame
and in the manner set forth at Article XVI, then Transporter may take any, or a
combination, of the following actions: suspend performance of future service
pending assurance of payments, demand security for payment, require payment in
cash or on a more frequent basis than a Monthly billing cycle, terminate this
Agreement pursuant to Section 16.2, or take such other action as is reasonable
under the circumstances to protect Transporter's interests, all in
Transporter's sole opinion, including requiring Shipper to immediately provide
Transporter with an irrevocable standby letter of credit in an amount and in a
form acceptable to Transporter and from an institution acceptable to
Transporter.
2.5 GAS PROCESSING - Shipper has the right to process, cause to be
processed, or allow the processing of Gas delivered to Transporter. To the
extent Shipper does not nominate Gas to the Delivery Point(s), Transporter may
in its sole discretion elect to process Shipper's Gas for Transporter's own
account but at no cost or expense to Shipper.
ARTICLE III
QUANTITY
3.1 MAXIMUM DAILY CONTRACT QUANTITY - The total volume of Gas
transported under this Agreement on any Day shall not exceed the total Maximum
Daily Contract Quantity which is initially agreed to be 400 MMcf per Day
("MDCQ"). Subject to the conditions and limitations hereinafter set forth,
Transporter agrees to receive up to the MDCQ of Gas tendered by Shipper at the
Receipt Point(s), and to transport and redeliver subject to Article V, on a
firm basis, Equivalent Quantities on behalf of Shipper to the Delivery
Point(s). Transporter shall not be obligated to accept for transportation
hereunder Gas on any Day in excess of the lesser of the following: i) the MDCQ
at the Receipt Point(s), or ii) the amounts of Shipper's Gas the Exxon King
Ranch Plant will accept from
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time to time.
The Parties agree that for each Day volumes of Gas are nominated and
confirmed under that certain Interruptible Gas Transportation Agreement dated
March 1, 1997 ("INTERRUPTIBLE AGREEMENT") between Transporter and Shipper, the
MDCQ hereunder shall be reduced by each Mcf nominated and confirmed under the
Interruptible Agreement for such Day.
3.2 SHIPPER'S DEDICATION - Shipper dedicates to its performance
under this Agreement all Gas, with the exception being the specific properties
as identified on Exhibit "F".
3.3 MINIMUM DAILY CONTRACT QUANTITY - If volumes transported by
Shipper during any thirty (30) day period average less than, cumulatively, 100
MMcf per Day under i) this Agreement and ii) to the Exhibit "B-2" Delivery
Point(s) under the Interruptible Agreement, then Transporter shall not be
required to transport Gas hereunder for the succeeding six (6) month period.
3.4 REDETERMINATION OF MAXIMUM DAILY CONTRACT QUANTITY - (a)
Beginning on the first Day of the sixth contract Year, should the average
quantity of Gas transported by Transporter during:
i) the last six (6) Months of the fifth Year be equal to or less
than 80 percent (80%) of the initial MDCQ of 400 MMcf per Day, or
ii) any six (6) consecutive Month period thereafter during the
term of this Agreement be less than 80 percent (80%) of the MDCQ for the
immediately preceding six (6) consecutive Month period,
then Transporter shall have the unilateral right to reduce the MDCQ for the next
succeeding six (6) consecutive Month period to no lower than the average of the
quantities of Gas actually delivered by Shipper to Transporter during the
immediately prior six (6) consecutive Month period. Transporter shall exercise
such right by written notice to Shipper no later than thirty (30) Days prior to
beginning of any such period. The last Month of each six (6) consecutive Month
period will be estimated, based upon the previous five (5) Months' Gas
deliveries hereunder.
(b) Beginning on the first Day of the sixth contract Year and continuing
throughout the term of this Agreement, should the average quantity of Gas made
available to Transporter during:
i) the last six (6) Months of the fifth Year be more than
one-hundred and twenty percent (120%) of the initial MDCQ set forth in
Section 3.1, above; or
ii) any six (6) consecutive Month period thereafter during the
term of this Agreement be more than one hundred and twenty percent (120%)
of the MDCQ for the immediately preceding six (6) consecutive Month
period,
then Shipper shall have the right to request in writing an increase to the MDCQ
for the next succeeding six (6) consecutive Month period to no higher than the
average of the quantities of Gas actually available during the immediately
prior six (6) consecutive Month period. Shipper shall exercise the right set
forth in the immediately preceding sentence by written notice to Transporter no
later than thirty (30) Days prior to the beginning of any such period. The
last Month of each six (6) Month period will be estimated, based upon the
previous five (5) Months' Gas deliveries hereunder. If sufficient
transportation capacity is available, Transporter shall grant Shipper's request
to increase the MDCQ. However, Transporter shall not be under any obligation
to increase the MDCQ above 400 MMcf per Day.
3.5 AVAILABLE RECEIPTS IN EXCESS OF MDCQ - In the event the
quantity of Gas which Shipper makes available on any Day to Transporter for
transportation at the Receipt Point(s) exceeds the MDCQ, then Transporter may,
at its option, (i) transport all or any portion of such excess quantities
pursuant to this Agreement, or (ii) refuse to accept all or any portion of such
excess quantities for transportation. Transporter shall grant Shipper, upon
request from Shipper, a temporary release from Shipper's dedication at Section
3.2, only for those quantities of Gas made available to Transporter but unable
to be taken by Transporter; PROVIDED, HOWEVER, such temporary release shall
only be until Transporter can take all Gas tendered by Shipper or upon the
occurrence of the increase in capacity as set forth in Section 3.7 below.
However, in the event that the quantity of Gas which Shipper makes available on
any Day to Transporter exceeds 400 MMcf per Day, then the Transporter may, at
its option, transport all or any portion of such excess quantities pursuant to
this Agreement and charge under Section 6.1.
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3.6 MINIMUM YEARLY CONTRACT QUANTITY - During each of the first
five (5) Years of this Agreement, Shipper agrees to deliver to Transporter in
accordance with the terms herein and/or in accordance with that certain
Interruptible Gas Transportation Agreement between the Parties made effective
March 1, 1997, a Minimum Yearly Contract Quantity of Gas of 127,650 MMcf (350
MMcf/Day x 365 Days). At the end of each Year, Transporter shall calculate any
Shipper deficiency or overage in meeting the Minimum Yearly Contract Quantity
obligations (hereinafter "DEFICIENCY" or "OVERAGE", as appropriate) based upon
actual transported volumes. Any Deficiency or Overage shall be settled between
the Parties at the rate specified in Article VI, Section 6.4 with an invoice or
credit within thirty (30) days of the end of such Year; Shipper's payment will
be subject to the terms of Article XVI. Any Overage shall be credited against
i) the prior Year's Deficiency payment applied by Transporter against Shipper's
first invoice of the next succeeding Year; and ii) the next succeeding
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Year's Deficiency payment (if any). For each full Day during a period of Force
Majeure, the Minimum Yearly Contract Quantity of Gas of 127,650 MMcf shall be
reduced by 175 MMcf.
3.7 MODIFICATION OF OR ADDITIONS TO FACILITIES - In the event
Shipper has available for transportation hereunder a quantity of Gas which i)
is in excess of the then-existing MDCQ and such quantity of Gas has
consistently exceeded the MDCQ during a six (6) consecutive Month period; ii)
in order to accommodate such excess quantity of Gas, it is necessary to add
capacity to Transporter's transportation assets; and iii) Shipper has exhausted
its good faith efforts to maximize deliveries to alternative delivery points
available to Shipper, then, upon Shipper's written request sent to Transporter
at the addresses set forth in Article XVII, Transporter and Shipper shall in
good faith determine and implement an increase in the capacity of Transporter's
facilities then being utilized to provide additional transportation under this
Agreement. The Parties understand that any increase in the capacity of
Transporter's transportation assets in order to accommodate Shipper's excess
quantity of Gas will require, among other things to be negotiated at that time,
an increase in the then-existing transportation rate to account for the capital
investment associated with such an expansion. Such new transportation rate
shall be computed using a payout of the required capital investment over a
period of seven (7) Years and a return on investment equivalent to five (5)
percentage points over the then existing Prime Interest Rate; PROVIDED,
HOWEVER, in the event the remaining period in the Primary Term is less than
seven (7) Years then such rate shall be calculated to reflect the shortened
time period or the Parties may agree to some other method of payment which will
result in Transporter's full recoupment of the required capital investment
within the foreshortened period of time at the same return on investment of
five (5) percentage points over the then existing Prime Interest Rate.
ARTICLE IV
RECEIPT POINT(S) AND DELIVERY POINT(S)
4.1 RECEIPT POINT(S) - Gas delivered to Transporter by Shipper
hereunder shall be delivered to Transporter at the Receipt Point(s). Prior to
adding any additional Receipt Point(s) to this Agreement, the Parties must
first agree to such point(s), in writing.
4.2 DELIVERY POINT(S) - Gas redelivered to Shipper by Transporter
hereunder shall be redelivered to Shipper at the Delivery Point(s). Prior to
adding any additional Delivery Point(s) to this Agreement, the Parties must
first agree to such point(s), in writing.
ARTICLE V
SCOPE AND CHARACTER OF SERVICE
5.1 SCOPE AND CHARACTER OF SERVICE - Shipper shall have the right
on any Day to deliver to Transporter at the Receipt Point(s) quantities of Gas
up to and including Shipper's MDCQ. Transporter shall receive such Gas and
shall deliver Equivalent Quantities at the Delivery Point(s) for Shipper's
account subject to the requirements set forth in Article III and elsewhere in
this Agreement, and:
i) Transporter's obligation to deliver Gas at the Delivery
Point(s) exists only so long and only in such quantity as Shipper
continues to make deliveries of Gas into Transporter's facilities at the
Receipt Point(s); and
ii) Transporter's obligation to accept Gas at the Receipt Point(s)
exists only so long and only in such quantity as Shipper, or its
designee, continues to take delivery of Gas made available at the
Delivery Point(s).
Shipper recognizes that, unless otherwise specified herein, the services
hereunder are to be performed by Transporter on a firm basis but may be
interrupted in accordance with Section 5.2 below. The Parties agree that in no
event shall an interruption of service as set forth in Section 5.2 constitute a
breach of this Agreement and that Transporter shall not be liable to Shipper in
damages, or otherwise, due to any such interruption of service.
5.2 PRIORITIES OF INTERRUPTION - If, for whatever reason,
Transporter is unable to transport all quantities of gas nominated by various
shippers under their gas transportation agreements with Transporter (including
Shipper's Gas hereunder), Transporter shall interrupt service thereunder in
whole or in part on all or such portions of Transporter's system as may be
necessary in Transporter's sole discretion; PROVIDED, HOWEVER, that Transporter
will act as a reasonably prudent pipeline,
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subject to operating necessities, to interrupt service (on that portion or
portions of its system where such interruption is required) in accordance with
the following schedule of priorities, beginning with the first service to be
interrupted and continuing in order as necessary to the last service to be
interrupted:
1. Interruptible intrastate transportation service and
interruptible transportation service rendered pursuant to the
NGPA.
2. Firm intrastate transportation service.
Within priority 1, interruption shall be administered on the basis of
the date of the contract, i.e., later contracts will be interrupted before
earlier contracts. For contracts of the same date, service under the lowest
priced contract will be interrupted first and service under the highest priced
contract will be interrupted last. Within priority 2, interruption shall be
administered pro rata according to all other shipper's pre-interruption
percentage of capacity utilization during the prior Month; PROVIDED, HOWEVER,
in the event Shipper did not ship Gas during the prior Month, then the last
Month in which Shipper delivered Gas to Transporter hereunder, if any, during
the immediately prior six (6) Month period shall be used to calculate the
prorationing.
5.3 INTERRUPTIBLE BLENDING - Transporter shall make reasonable
efforts, at its sole discretion, from time-to-time, on a fully interruptible
basis to allow Shipper to deliver Gas which does not meet the quality
specifications in Article XII. In such cases, Transporter may provide blending
which may involve Transporter commingling Gas with gas having different quality
specifications from that of the Shipper's Gas. The rate for such blending is
set forth at Section 6.3. To the extent the volume of Shipper's Gas falls
below the minimum daily contract quantity provided pursuant to Section 3.3,
Minimum Daily Contract Quantity, then Transporter may elect, at its sole
discretion, to either: i) not transport Shipper's Gas or ii) transport
Shipper's Gas and commingle it with any Gas belonging to Transporter or others'
gas even if such commingling would render Shipper's Gas unable to be processed
at King Ranch or other Delivery Point(s).
ARTICLE VI
RATE
6.1 RATE - Transporter agrees to charge and Shipper agrees to pay
Transporter each Month for the transportation service provided herein a rate
equal to [omitted - confidential] for all Gas delivered to Transporter at the
Receipt Point(s).
6.2 FUEL ADJUSTMENT - In addition to any other amounts payable
under this Agreement, Shipper shall furnish to Transporter an amount equal to
[omitted - confidential] of Gas received at the Receipt Point(s) for
fuel use for transportation.
6.3 BLENDING FEES -
(a) CO(2) BLENDING FEE - In addition to any other amounts
payable under this Agreement and as payment for Transporter's CO(2) blending
under Section 5.3 herein, Transporter will assess and Shipper will pay a
[omitted - confidential] blending fee for Gas received at the Receipt Point(s)
by Transporter which contains an amount of CO(2) (on a Monthly average basis)
greater than the maximum CO2 requirements described in Section 12.1 plus .5%.
An example calculation of this fee is as follows:
For example, if Shipper delivers Gas to Transporter, on a Month average
basis, containing 3.6 Mole percent (3.6 Mole %) CO(2) and the maximum
CO(2) percent provided for in this Agreement is 2%, then Transporter
shall assess a blending fee equal to [omitted - confidential] multiplied
by the difference between the maximum CO(2) percentage in Section 12.1
plus .5% and the actual CO(2) Mole percent delivered by Shipper. This
calculation would be [omitted - confidential] multiplied times each Mcf
of Gas received at the Receipt Point(s) throughout the Month.
(b) BTU BLENDING FEE - In addition to any other amounts payable
under this Agreement and as payment for Transporter's Btu blending under Section
5.3 herein, Transporter will assess and Shipper will pay a [omitted -
confidential] blending fee for each Mcf of Gas received at the Receipt Point(s)
by Transporter which on a Monthly average basis is below the minimum Btu/CF
requirements described in Section
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12.1. An example calculation of this fee is as follows:
For example, if the minimum required Btu/CF is 1050 Btu/CF and Shipper
delivers Gas to Transporter, on a Monthly average basis, which is 1040
Btu/CF, Transporter shall assess a Btu blending fee equal to [omitted -
confidential] multiplied by the difference between the actual Btu/CF
quality of Shipper's Gas (1040 Btu/CF, for example) and the required
minimum Btu/CF specification of 1050 Btu/CF. This calculation would be
[omitted - confidential] multiplied by each Mcf of Gas received at the
Receipt Point(s) throughout the Month.
6.4 DEFICIENCY PAYMENT OR OVERAGE CREDIT - For any Deficiency or
Overage calculated pursuant to Section 3.6, such Deficiency or Overage shall be
multiplied by [omitted - confidential].
ARTICLE VII
TERM
7.1 TERM - This Agreement is effective, regardless of when
executed, on the Effective Date, and will continue for a primary term ending on
December 31, 2006 ("PRIMARY TERM"), and will remain in effect on a
Month-to-Month basis unless terminated by either Party by giving ninety (90)
Days written notice to the other Party prior to the end of the Primary Term or
any subsequent Month.
ARTICLE VIII
NOMINATIONS, SCHEDULING, AND RATES OF FLOW
8.1 NOMINATION - All quantities of Gas which are to be transported
during any Month shall be scheduled for transportation prior to that Month by
Shipper providing written notice no later than ten (10:00) a.m. Central Time
(whether Standard or Daylight Savings Time) five (5) business Days prior to the
Month of delivery. For all quantities that are to be scheduled or changed any
Day after the first Day of any Month, Shipper will provide written notice by
ten (10:00) a.m. Central Time (whether Standard or Daylight Savings Time) on
the Day prior to the Day of the proposed change. Shipper's Receipt Point(s)
and Delivery Point(s) nomination(s) shall remain in effect until the sooner of
i) Shipper's revision of said nomination(s) pursuant to the terms of this
Agreement, or ii) the end of the Month. Following nominations, Transporter
shall subsequently notify Shipper of the quantity that it can actually receive
and deliver at each Receipt and Delivery Point. Transporter may waive any part
of the notice requirement upon request if, in Transporter's sole judgment,
operating conditions permit such waiver. Transporter and Shipper shall
immediately inform each other of any other changes of deliveries. For both
first of Month and intra-Month nominations, Shipper shall provide Transporter
with such nominations, in writing, through the use of a Nomination Form
attached hereto as Exhibit "C", hereby incorporated into this Agreement and
made a part hereof for all purposes, or such other form as may be required by
Transporter.
8.2 RIGHT OF TRANSPORTER TO CONFIRM QUANTITY LOWER THAN NOMINATED
- - Through the process of confirming Shipper's nomination(s), Transporter shall
have the right to void or reduce Shipper nomination(s) at any time in
accordance with customary industry practices on a non-discriminatory basis and
according to Transporter's role as operator of the Receipt Point(s) and/or the
Delivery Point(s) for any reasons, including, but not limited to, the
following:
(a) Shipper does not tender Gas for transportation as nominated;
(b) Transporter cannot confirm Shipper's nomination at the Receipt
Point(s) and/or Delivery Point(s); and/or
(c) Shipper's delivery or redelivery nomination is curtailed due
to a lack of i) pipeline capacity, or ii) available gas to effect a
delivery by displacement for the purpose of transporting all quantities
of gas nominated by various shippers under gas transportation agreements
with Transporter (including Shipper's Gas hereunder), and, as a result,
Transporter interrupts service in accordance with Section 5.2. On any
Day, all nominated and confirmed Gas which has been returned to Shipper
by a third party pipeline downstream of the Delivery Point(s) shall be
remarketed by Shipper with transportation provided, as available,
hereunder. Failing the availability of transportation, such returned Gas
shall be temporarily released from Shipper's dedication at Section 3.2
for the greater of: i) such period of time as transportation is not
available on Transporter's system; or ii) a period of time mutually
agreed, but not to exceed the remainder of the Month of such
unavailability of transportation.
8.3 RATE OF FLOW - The Gas to be received by Transporter hereunder
shall be delivered
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by Shipper at uniform hourly and Daily rates of flow as nearly as practicable,
but it is recognized that due to operating conditions the quantities of Gas
received and delivered may not be in balance on any particular Day. In the
event there is an imbalance (in terms of MMBtu) caused by differences in
receipts and deliveries of Gas hereunder, Transporter shall notify Shipper of
such imbalance and such imbalance shall be corrected in the manner set forth in
Article X.
8.4 UPSTREAM AND DOWNSTREAM PARTIES - Shipper shall make, or cause
to be made, all necessary arrangements with other pipelines, processors, or
other parties upstream of the Receipt Point(s) or downstream of any Delivery
Point(s) in order to effectuate Transporter's receipt or delivery of Shipper's
Gas. Transporter's obligations under this Agreement are subject to Shipper
making such necessary arrangements as are set forth in the immediately
preceding sentence, and such arrangements must be coordinated with
Transporter's Gas Control and Scheduling Department.
ARTICLE IX
ALLOCATIONS
9.1 ALLOCATIONS AT THE RECEIPT POINT(S) AND DELIVERY POINT(S) -
Except for allocation of Liquids which will be allocated according to Section
9.2 below, Transporter shall use all reasonable efforts to ensure that the
quantities actually redelivered by Transporter at the Delivery Point(s) on
behalf of Shipper are equal to the Equivalent Quantities as may have been
adjusted pursuant to Section 8.2, above. Unless prohibited by applicable law
or regulation, all receipts and deliveries and any Imbalance shall be
determined and allocated each Day based upon such nominated and confirmed
quantities and actual receipts and deliveries.
In such instances when Transporter is receiving or delivering quantities
of gas to any Receipt Point(s) or Delivery Point(s) on behalf of others and in
addition to Shipper's Gas, then the difference on any Day between the total
nominated and confirmed quantities at such point(s) and the total actual
quantities received or delivered at such point(s) shall be allocated by
Transporter among all shippers (including Shipper). When performing an
allocation at any Receipt Point(s) or Delivery Point(s) the Transporter shall
first make a reasonable effort to identify material differences by specific
shipper(s) (including Shipper) and allocate the difference to such shipper(s).
Such allocations shall be the sole responsibility of Transporter, and once the
amounts are determined by Transporter and allocated to each shipper (including
Shipper) such amount allocated shall be deemed accurate.
9.2 ALLOCATIONS OF LIQUIDS AT THE DELIVERY POINT(S) - Shipper's
Gas will be commingled with other gas which may enter Transporter's system at
various points downstream of the Receipt Point(s). As a result, the commingled
stream may not have the same natural gas liquid constituent composition or Btu
content as the Gas received by Transporter at the Receipt Point(s). Because
gas re-delivered at the Delivery Point(s) will have a different composition
than Gas received at the Receipt Point(s), and because Transporter may
re-deliver gas at the Delivery Point(s) for the account of others, including
for the account of Shipper, an allocation by Transporter of delivered
quantities (MMcf), MMBtu/CF, and Gas components back to each Receipt Point(s)
is required.
Transporter will allocate deliveries at the Delivery Point(s) for the
account of Shipper as follows. However, it is understood by both Parties that
for the first Year, the Btu/CF and the composition of Gas may be estimated as
agreed between the Parties until Transporter installs sampling for allocation
of Gas. If Transporter receives Gas from multiple Receipt Points, then the
allocation will be based upon the blended Btu/CF and composition of all Gas
from Shipper. The Btu/CF and composition of Gas received from the Receipt
Point(s), will be determined through sampling and chromatographic analysis
where practical or may be determined as shown in Exhibit "E". Likewise, the
Btu and composition of all gas (including Gas received from the Receipt
Point(s) under this Agreement) delivered at King Ranch will be determined
through sampling and chromatographic analysis at King Ranch. Transporter's
determinations of quantity and composition shall be provided to the Exxon King
Ranch Plant and to Shipper by the fifth (5th) business Day of each Month for
the prior Month's deliveries.
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ARTICLE X
BALANCING OF RECEIPTS AND DELIVERIES
10.1 BALANCING - It is recognized that because of dispatching and
other operational variations, from time to time it may be physically impossible
or operationally impractical for an exact daily balancing of Gas receipts. For
each Day, Transporter will determine any Imbalance calculated as the difference
between Equivalent Quantities and total Transporter's actual MMBtu's delivered
for Shipper's account at Delivery Point(s) ("IMBALANCE"). Such Imbalance(s)
shall be eliminated as soon thereafter as practical through adjustments in
nominations, confirmations, and/or physical deliveries and receipts of Gas or
through the cash-out mechanism described in Section 10.2, below.
Notwithstanding the above, Transporter can take any reasonable action necessary
to prevent Shipper from intentionally creating or maintaining an Imbalance.
10.2 RESOLUTION OF IMBALANCES - To the extent operationally
practical for Transporter, both Parties shall cooperate and eliminate any Daily
Imbalance(s), which include unresolved prior Days'('s) Imbalances by a
subsequent Daily adjustment(s) in Gas nominations, confirmations and/or
physical receipts and deliveries. Any such Imbalances remaining at the end of
each Month which are less than or equal to five percent (#5%) of the Daily
average for such Month shall be eliminated by a subsequent Daily adjustment(s)
in Gas nominations, as soon as practical during the following Month. Month-end
Imbalances which are greater than five percent ()5%) of the Daily average for
such Month shall be eliminated by monetizing the entire amount of the Imbalance
by multiplying the Imbalance by the simple average of each Day's gas price for
such Month as found in Gas Daily (Pasha Publication, Inc.) or successor
publication, in the section entitled "Daily Price Survey", the column entitled
"Daily Midpoint", and under the listings applicable to a Basket Price (as
described herein) i) multiplied by one-hundred and ten percent (110%) if
Shipper owes Transporter Gas, and ii) multiplied by ninety percent (90%) if
Transporter owes Shipper Gas. "BASKET PRICE" shall mean the simple average of
each Day's price quote, as described above, for the geographic location closest
in proximity to the Delivery Point(s) for the relevant Day for Houston Pipe
Line, Midcon Texas Pipeline, the Agua Dulce hub, Koch Gateway, Tennessee Gas
Pipeline - South Texas, and NGPL - South Texas. Should any element used in
calculating the Basket Price no longer be available, the Parties shall, by
mutual agreement, determine whether a substitute element is necessary. The
monetary amounts owed by Shipper or by Transporter for that Month's cash-out
will be debited or credited to the monetary amounts owed by Shipper to
Transporter for that Month's transportation.
ARTICLE XI
PRESSURES
11.1 PRESSURE AT RECEIPT POINT(S) - All Gas delivered at a Receipt
Point(s) shall be delivered at pressures sufficient to enter Transporter's
system at the working pressures maintained by Transporter at the Receipt
Point(s) from time to time. Transporter shall not be obligated to receive Gas
at pressures exceeding the Maximum Allowable Operating Pressures ("MAOP")
prescribed under any applicable governmental regulations and in no event will
such pressure exceed the MAOP of the system. Transporter's MAOP at the Conoco
Fandango Receipt Point is 945 psig (959.65 psia).
11.2 OVERPRESSURE PROTECTION - Both Shipper and Transporter are
individually, not jointly, responsible for the installation and maintenance of
overpressure protection equipment when necessary on their own, or their
designee's, pipeline(s), valve(s) and any other interconnection equipment.
11.3 ADDITIONAL COMPRESSION AND CO(2) FACILITIES - Notwithstanding
anything herein to the contrary, and not as a breach of the requirements for
delivery pressures set forth at Section 11.1, if Shipper cannot make deliveries
of Gas to Transporter hereunder at pressures required by Section 11.1 or at
CO(2) levels required by Section 12.1, then Shipper shall arrange with
Transporter, or one of Transporter's affiliates, to install such facilities on
Transporter's pipeline for the purpose of bringing Shipper's Gas into compliance
with the requirements of Sections 11.1 and 12.1. No facilities shall be
installed unless economically justifiable to Shipper as determined in good faith
by Shipper. Any agreement between Shipper and Transporter, or one of
Transporter's affiliates, will provide that the cost of such facilities will be
recovered using a payout of capital investment over seven (7) years and a return
on investment equivalent to the Prime Interest Rate plus five (5) percentage
points; PROVIDED, HOWEVER, in the event the remaining period in the Primary Term
is less than seven
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(7) years then such rate shall be calculated to reflect the shortened time
period or the Parties may agree to some other method of payment which will
result in Transporter's full recoupment of the required capital investment
within the foreshortened period of time at the same return on investment of five
(5) percentage points over the then existing Prime Interest Rate.
ARTICLE XII
QUALITY
12.1 SPECIFICATIONS - The Gas delivered each Day by Shipper to
Transporter at the Receipt Point(s) is to comply with the following
requirements:
(a) HYDROGEN SULFIDE - contain not more than one quarter (.25)
grain per one hundred Cubic feet;
(b) TOTAL SULFUR - contain not more than two (2) grain(s) per one
hundred (100) Cubic feet;
(c) CARBON DIOXIDE - contain not more than two percent (2%) by
volume
(d) GROSS HEATING VALUE - have a Gross Heating Value of not less
than 1050 Btu/CF at the Receipt Point(s),
(e) FREE WATER - contain no free water;
(f) OXYGEN - contain not more than five (5) parts per million
(ppm) by volume;
(g) WATER VAPOR - contain not more than seven (7) pounds per one
million (1,000,000) Cubic feet;
(h) SOLIDS - be commercially free of dust, gums, dirt, impurities
and other solids;
(i) MERCAPTANS - contain not more than five (5) ppm by
volume;
(j) TEMPERATURE - not have a temperature of less than
forty degrees (40 degrees) Fahrenheit nor more than one
hundred twenty-five degrees (125 degrees) Fahrenheit;
(k) NITROGEN - contain not more than two percent (2%) by volume;
(l) NON-HYDROCARBONS - contain not more than four percent (4%) by
volume. Typical non-hydrocarbons are, but are not limited to,
helium, carbon dioxide, nitrogen, hydrogen sulfide and
hydrogen.
Notwithstanding the specifications set forth in this Article, neither
Party nor its/their designee(s) shall dilute or inject any media, including but
not limited to air or nitrogen into the Gas stream, or treat the Gas in any
manner which will introduce or form any diluents, hazardous, toxic or other
undesirable compounds in the gas system. Transporter has the right to either
(i) accept Gas that does not conform to the specifications above, or (ii)
refuse delivery of the Gas that does not conform to the specifications above.
Transporter's acceptance of Gas that does not conform to the quality
specifications will not constitute a waiver of the specifications by
Transporter in regard to Gas delivered in the future, nor will acceptance of
the Gas without an express written waiver, constitute a waiver of any claims
for damages resulting from delivery of Gas not meeting the specifications.
ARTICLE XIII
METERING FACILITIES, MEASUREMENT, AND TESTING
13.1 MEASURING EQUIPMENT - Transporter, or Transporter's designee,
will designate the type of measuring equipment that will be utilized, and be
the operator of the measurement facilities ("OPERATOR"). Shipper may install,
maintain and operate, at its sole cost and expense, check measuring equipment;
provided, that the equipment is to be installed in a manner that will not
interfere with the operation of any other party's measuring equipment.
13.2 ORIFICE METERS - Orifice meters installed in the measuring
stations are to be constructed and operated in accordance with the American
Petroleum Institute ("API") 14.3, Orifice Metering of Natural Gas and Other
Related Hydrocarbon Fluids, dated 1992, and will include the use of flange
connections and, where necessary, straightening vanes.
13.3 ELECTRONIC DEVICES - When and where electronic measurement and
flow computers are utilized, the Gas received may have its volume, mass,
gravity, composition or energy content determined and computed in accordance
with applicable AGA standards including, but not limited to: API 14.3, 1992
edition; AGA Report No. 5, 1983 edition; AGA Report No. 6, 1971 edition; and
AGA Report No. 7, 1984 edition. The Parties will use and accept the electronic
derivations, measurements and calculations in lieu of mechanical recordings,
chart integration and subsequent calculations.
12
<PAGE> 15
13.4 NOTICE - Operator will give reasonable notice for Shipper to
have representatives present to observe the installation, changing, repairing,
testing, calibration, or adjustment of Operator's measuring equipment used in
measuring, of receipts or deliveries of Gas. If after proper notice, Shipper
fails to have a representative present, the results of the tests shall
nevertheless be considered accurate. The official charts or recordings or both
from the measuring equipment will remain the property of Operator, but upon
request by Shipper, Operator will submit its records and charts, together with
calculations to Shipper for inspection and verification, subject to their
return to Operator within thirty (30) Days after their receipt.
13
<PAGE> 16
13.5 TESTING AND CALIBRATION -
(a) Operator will verify the accuracy, adjust and calibrate all
recording devices used in the measurement of the receipt and delivery of Gas on
at least a Monthly basis or will witness such calibration. Operator is not
required to, but may elect to, adjust or calibrate the equipment more
frequently, unless non-operator desires a special test to be performed as
described in the Section 13.6 entitled Special Test.
(b) If, during any test of the measuring equipment, an adjustment
or calibration error is found which results in an incremental adjustment to the
calculated hourly flow rate through each meter in excess of one percent (1%)
of the correct flow rate (whether positive or negative and using the correct
flow rate as the percent error equation denominator), then any previous
recording of such equipment will be corrected to zero (0) error for any period
in which the error existed (and which is either known definitely, or agreed to
by both Parties), and the total flow for the period redetermined in accordance
with the provisions of Section 13.7 entitled Measurement Adjustment. If the
period of error cannot be determined, or agreed upon, between the Parties, the
correction will be made over a period extending over the last one-half (1/2) of
the time elapsed since the date of the latest test, such correction period not
to exceed fifteen (15) Days.
(c) If, during any test of the measuring equipment, an adjustment
or calibration error is found which results in an incremental adjustment to the
calculated hourly flow rate which does not exceed one percent (1%) of the
adjusted flow rate (as described in part (b) of this Section), all prior
recording will be considered to be accurate for quantity determination
purposes.
13.6 SPECIAL TEST - If Shipper desires a special test (a test not
scheduled by Operator under Section 13.5 entitled Testing and Calibration) of
any measuring equipment, seventy-two (72) hours advance written notice will be
given to Operator, and both Parties will cooperate to secure a prompt test of
the accuracy of the equipment. If the measuring equipment tested is found to
meet the requirements of Section 13.5(c), or if an inspection of the primary
measurement equipment indicates no problems, Operator has the right to bill and
Shipper is to pay those costs.
13.7 MEASUREMENT ADJUSTMENT - If, for any reason, any measurement
equipment is (i) out of adjustment as defined in Section 13.5, (ii) out of
service, or (iii) out of repair and the total calculated hourly flow rate
through each meter is found to be in error by an amount described in
14
<PAGE> 17
Section 13.5(b), the total quantity of Gas delivered will be redetermined in
accordance with the first of the following methods which is feasible:
(a) by using the registration of any mutually agreeable check
metering facility, if installed and accurately registering (subject to testing
as described in Section 13.5);
(b) where parallel multiple meters exist, by calculation using the
registration of such parallel meters; provided, that they are measuring Gas
from upstream and downstream headers in common with the faulty metering
equipment, are not controlled by separate regulators, and are accurately
registering;
(c) by correcting the error by re-reading of the official charts,
or by straightforward application of a correction factor to the quantities
recorded for the period (if the net percentage of error is ascertainable by
calibration, tests or mathematical calculation);
(d) by estimating the quantity, based upon deliveries made during
periods of similar conditions when the meter was registering accurately.
ARTICLE XIV
MEASUREMENT SPECIFICATIONS
The measurements of the quantity and quality of all Gas received and
delivered hereunder shall be conducted in accordance with the following:
14.1 UNIT OF VOLUME - The unit of volume for measurement is to be
one (1) Cubic Foot of gas.
14.2 VOLUME COMPUTATIONS - Computations of Gas volumes from
measurement data shall be made in accordance with API 14.3, Orifice Metering of
Natural Gas and Other Related Hydrocarbon Fluids, dated 1992, and any
subsequent amendments as mutually agreed upon. If electronic devices and flow
computers are utilized, volumes will be determined in accordance with AGA
Committee Report No(s). 5, 6, and 7, as specified in the Section titled
Electronic Devices, and any subsequent amendments or revisions, as mutually
agreed upon.
14.3 TEMPERATURE MEASUREMENT - The temperature of the Gas is to be
determined electronically, or by a recording thermometer, so installed that it
may record the temperature of the Gas flowing through the meters. If the
Parties do not consider the installation of such a recording thermometer to be
necessary, other agreeable means of recording temperature may be used. The
average temperature to the nearest one degree (1 degrees) Fahrenheit, obtained
while Gas is being delivered, will be the applicable flowing Gas temperature
for the period under consideration.
14.4 SPECIFIC GRAVITY MEASUREMENT - At least Monthly, the specific
gravity of the Gas will be determined by the chromatographic analysis of, at
Operator's option, either a spot Gas sample or a continuous composite Gas
sample. The specific gravity will be determined and calculated to the nearest
one-thousandth (0.001). At least annually, however, an extended
chromatographic test will be used to verify the heavier hydrocarbon content of
the Gas and the affect on specific gravity.
14.5 ADJUSTMENT FOR SUPERCOMPRESSIBILITY - Adjustments to measured
Gas volumes for the effects of supercompressibility are to be made in
accordance with accepted AGA standards. At least Monthly, Operator is to
obtain representative carbon dioxide (CO(2)) and nitrogen (N(2)) mole fraction
values for the Gas delivered, or received, as may be required to compute such
adjustments in accordance with standard testing procedures. The calculation of
supercompressibility will be taken from the AGA Report No. 8, dated December
1992, Compressibility and Supercompressibility for Natural Gas and Other
Hydrocarbon Gases, or at Operator's option, any subsequent revision to AGA
Report No. 8.
14.6 ASSUMED ATMOSPHERIC PRESSURE - An assumed atmospheric pressure
of fourteen and four-tenths (14.4) psia will be utilized for measurement and
calculation purposes, irrespective of any variation of the actual atmospheric
pressure from the assumed atmospheric pressure.
14.7 GROSS HEATING VALUE - At least Monthly, the Gross Heating
Value of the Gas will be determined by a chromatographic analysis of, at
Transporter's option, either a spot Gas sample or a
15
<PAGE> 18
continuous composite Gas sample.
14.8 SAMPLES, ANALYSIS AND CALCULATION - One Gas sample will be
physically taken at a suitable point to be representative of the flowing Gas
stream to be used to provide the sampling requirements in the Sections titled
Specific Gravity Measurement, Adjustment for Supercompressibility, and Gross
Heating Value. The sample will be taken, handled and analyzed in accordance
with the latest revision of Gas Processors Association (GPA Standards and
Procedures GPA 1161, GPA 2166 and GPA 2174, as applicable. The specific
gravity and Gross Heating Value are to be calculated and determined in
accordance with GPA Standards - GPA 2172, GPA 2145, as applicable.
14.9 OTHER TESTS - Other tests to determine water content, sulfur,
and other impurities in the Gas will be conducted by Operator as necessary and
will be conducted in accordance with standard industry testing procedures. The
Party requested to perform such test(s) will bear the cost of test(s) only if
the Gas tested is determined not to be within the applicable specification(s),
otherwise the requesting Party will bear the cost of such test(s).
14.10 NEW TEST METHODS - If at any time during the term of this
Agreement a new method or technique is developed with respect to Gas
measurement, the new method or technique may be substituted for the method or
technique identified in this Article, when the method or technique meets the
currently accepted standards of the American Gas Association, and if mutually
agreed to by the Parties.
ARTICLE XV
FORCE MAJEURE
15.1 FORCE MAJEURE - If either Transporter or Shipper is rendered
unable, wholly or in part, by force majeure to perform or comply with any
obligation or condition of this Agreement, such obligation or condition shall
be suspended during the continuance of the inability so caused and such Party
shall be relieved of liability and shall suffer no prejudice for failure to
perform the same during such period; provided, the obligation to make payments
then due for Gas received shall not be suspended and the cause for suspension
(other than strikes or lockouts) shall be remedied so far as possible with
reasonable dispatch. The Party suffering any such force majeure shall give
notice and reasonably full particulars to the other Party as soon as reasonably
possible upon the occurrence of such event. Settlement of strikes and lockouts
shall be wholly within the discretion of the Party having the difficulty. The
term "FORCE MAJEURE" shall include, without limitation by the following
enumeration: acts of God; the public enemy; the elements; fire; accidents;
breakdowns; the need to repair, maintain or alter machinery, lines of pipe, or
plants and equipment; strikes and any other industrial, civil, or public
disturbance, the inability to obtain materials, supplies, permits or labor; and
any laws, orders, rules, regulations, acts or restraints of any government or
governmental body or authority, civil or military; and any other cause, whether
of the kind herein enumerated or otherwise, not reasonably within the control
of the Party claiming force majeure, and which, by the exercise of due
diligence, such Party is unable to overcome.
ARTICLE XVI
BILLING AND PAYMENT
16.1 ACCOUNTING STATEMENTS - Transporter shall render to Shipper,
on or before the fifteenth (15th) Day of each Month i) a statement setting
forth, with respect to all Gas received by Transporter during the preceding
Month at the Receipt Point(s), the total quantity and the Gross Heating Value
of said Gas, ii) a statement setting forth, with respect to all Gas redelivered
to Shipper during the preceding Month at the Delivery Point(s), the total
quantity and the Gross Heating Value of said Gas, iii) the transportation
charge therefor Transporter may initially bill on estimates if all actual
information is not available at the time the statement is to be sent. On or
before the last Day of such Month, the Shipper shall make payment by wire
transfer, in accordance with wire transfer instructions on the invoice, to
Transporter for all Gas received by Transporter for Shipper at the Receipt
Point(s) during the preceding Month ("PAYMENT DUE DATE").
16.2 LATE PAYMENT - In the event Shipper fails to pay any amount
due Transporter when the same is due, the unpaid balance shall bear interest
from the due date until the date when same is
16
<PAGE> 19
paid at the Prime Interest Rate, plus one percent (1%), each change in the
Prime Interest Rate to be effective without notice on the effective date of
each change; PROVIDED, HOWEVER, the Prime Interest Rate chargeable hereunder
shall never exceed the maximum non-usurious rate of interest allowed by
applicable law. In the event such failure to pay continues for a period of
forty-five (45) Days or more past the Payment Due Date, Transporter may, in
addition to its other remedies, terminate this Agreement (Shipper's obligations
to pay any amounts then due and owing to Transporter shall survive such
termination).
16.3 ERRORS AND DISPUTES IN STATEMENTS - In the event an error is
discovered in the amount billed in any statement rendered by Transporter, such
error shall be adjusted within thirty (30) Days of the discovery of the error.
In the event a dispute arises as to the amount payable in any statement
rendered, Shipper shall nevertheless pay the undisputed amount to Transporter
under the statement rendered pending resolution of the dispute. Acceptance of
such payment shall not be deemed to be a waiver by Transporter to recoup any
underpayment, which shall be paid by Shipper. The subsequent payment of a
disputed amount shall bear interest as provided in this Article, from its
original due date until paid.
16.4 EXAMINATION OF BOOKS AND RECORDS - Each Party shall have the
right at reasonable hours on business Days to examine the books and records of
the other to assure compliance with the terms of this Agreement. If any such
examination reveals an error in billing, the necessary adjustments and payment
shall be made within thirty (30) days of a final determination.
16.5 AUDIT RIGHTS - The Parties agree the right to audit the books
and records hereunder shall be limited and Parties right to audit records will
be limited to a period of two (2) years following the date of any invoice or
payment.
ARTICLE XVII
NOTICES
17.1 NOTICES - All notices required hereunder shall be sent to the
following addresses:
TRANSPORTER: FOR PAYMENTS ONLY:
----------- -----------------
Lobo Pipeline Company
P.O. Box 1267
Ponca City, OK 74603
Attn: Gas Revenue, 300-9 NT
FOR ALL OTHER MATTERS:
---------------------
Lobo Pipeline Company
Attn: Texas Transportation Coord.
P.O. Box 2197
Houston, TX 77252-2197
SHIPPER: FOR STATEMENTS:
------- --------------
TransTexas Gas Corp.
1300 North Sam Houston Parkway East
Houston, TX 77032
Attn: Natural Gas Accounting
FOR NOTICES AND CORRESPONDENCE:
------------------------------
TransTexas Gas Corp.
Attn: Transportation Coordinator
1300 North Sam Houston Parkway East
Houston, TX 77032
ARTICLE XVIII
TAXES
In addition to paying the transportation rate and other fees and
adjustments provided in the Agreement, Shipper shall also reimburse Transporter
for Taxes and certain other fees as follows:
17
<PAGE> 20
18.1 TAX REIMBURSEMENT - Shipper shall reimburse Transporter for
Taxes, except income taxes, which are levied upon and/or paid by Transporter
with respect to the transportation services performed for the Gas hereunder
and under the terms of this Agreement.
18.2 REIMBURSEMENT OF FEES - Shipper shall reimburse Transporter
for any and all filing fees in connection with transportation services rendered
to Shipper hereunder that Transporter is required to pay by any governmental
authority having or asserting jurisdiction.
ARTICLE XIX
GOVERNMENTAL REGULATIONS
19.1 GENERAL -
(a) This Agreement and all rates, terms, services and operations
hereunder are subject to all present and future applicable federal and state
laws and the applicable ordinances, orders, rules and regulations of any local,
state or federal governmental authority having or asserting jurisdiction; but
nothing contained herein shall be construed as a waiver of any right to
question or contest any such law, ordinance, order, rule, or regulation, or
operating statement in any forum having jurisdiction in the premises except
that Shipper agrees not to oppose any filing related to this Agreement which
would not adversely affect Shipper's rights hereunder.
(b) If at any time during the term of the Agreement any
governmental authority shall take any action as to Transporter whereby: i) the
receipt, transportation or other services and delivery of gas throughout its
Lobo Pipeline Company system shall be proscribed or subjected to terms,
conditions, regulations, restraints or rate or price controls that are unduly
burdensome to Transporter, Transporter may suspend affected activities, seek
regulatory approval or waivers to continue such action, or Transporter may
cancel and terminate this Agreement and the Interruptible Agreement; or ii) the
effect of i) above is to increase Shipper's Section 6.1 rate or reduce Gas
transportation volumes, and either is unduly burdensome to Shipper, Shipper may
seek regulatory waiver or Shipper may cancel and terminate this Agreement and
the Interruptible Agreement.
19.2 FILINGS - Transporter shall file all necessary reports and/or
notices required by the Railroad Commission of Texas or any other entity having
jurisdiction over the matters set forth in this Agreement, and Shipper shall
provide Transporter with any necessary compliance information requested by
Transporter in connection with preparing such reports as they pertain to
Shipper.
ARTICLE XX
MISCELLANEOUS
20.1 HEADINGS AND SUBHEADINGS - The headings contained in this
Agreement are used solely for convenience and do not constitute a part of the
agreement between the Parties hereto and shall not be used to aid in any manner
in construing this Agreement.
20.2 WAIVER - No waiver by either Party of any one or more defaults
by the other Party in the performance of this Agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
20.3 THIRD PARTY COMPLIANCE - In the event it becomes necessary for
any designee(s) of Shipper or Transporter to perform so that the obligations of
Shipper or Transporter may be fulfilled hereunder, Shipper and Transporter
agree to use reasonable efforts to cause their respective designee(s), under
the terms of a separate agreement if necessary, to perform so that such
obligations under the terms of this Agreement may be fulfilled.
20.4 ASSIGNMENT - This Agreement shall extend to and be binding
upon the successors and assigns of the Parties hereto, but may only be assigned
in whole by Shipper; provided, further, that no assignment can be made without
the prior written consent of the Transporter, which consent may not be
unreasonably withheld.
20.5 FACILITIES - The measurement and appurtenant facilities
required at the Receipt Point(s) and Delivery Point(s) shall be installed,
owned, operated and maintained by Transporter.
20.6 GOVERNING LAW - AS TO ALL MATTERS OF CONSTRUCTION AND
18
<PAGE> 21
INTERPRETATION, THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.
20.7 NO THIRD PARTY BENEFICIARY - It is expressly understood that
there is no third party beneficiary to this Agreement, and that the provisions
of this Agreement do not impart enforceable rights in anyone who is not a
Party, successor or assignee of a Party hereto.
20.8 AGREED DISPUTE RESOLUTION - It is agreed, as a severable and
independent arbitration agreement separately enforceable from the remainder of
this Agreement that if the Parties hereto or their respective successors,
assigns, heirs, or legal representatives of any of the foregoing are unable to
amicably resolve any dispute or difference arising under or out of, in relation
to or in any way connected with this Agreement (whether contractual, tortious,
equitable, statutory or otherwise), such matter shall be finally and
exclusively referred to and settled by arbitration in accordance with that
certain Dispute Resolution Agreement made effective as of July 1, 1996, between
the Parties hereto, and others, the terms and provisions of which are
incorporated by reference herein.
20.9 DAMAGE LIMITATIONS - Notwithstanding anything to the contrary
herein, neither Party shall be liable for or otherwise responsible to the other
Party for punitive, consequential, or incidental damages or for lost profits
which arise out of or relate to this Agreement or the performance or breach
thereof.
20.10 JOINT EFFORT - The Parties stipulate and agree that this
Agreement shall be deemed and considered for all purposes, as prepared through
the joint efforts of the Parties, and shall not be construed against one Party
or the other as a result of the preparation, submittal or other event of
negotiation, drafting or execution hereof.
20.11 FACSIMILE - Facsimile copies of all notices and correspondence
hereunder, including signatures thereon, shall constitute original copies
thereof and shall be as binding on the Parties hereto as the original. The
sending Party shall, within five (5) business Days of the date of any facsimile
transmission, send to the receiving Party an original of any notice or
correspondence transmitted by facsimile, other than nominations.
20.12 CONDUCT OF THE PARTIES - The Parties shall use good faith in
all matters relating to this Agreement. The phrase "GOOD FAITH" whenever used
in this Agreement shall have the meaning set forth in the Tex. Bus. & Com. Code
Ann. Section 1.201(19) (Tex. UCC) (Vernon 1994).
20.13 ENTIRETY OF AGREEMENT - This Agreement including the Exhibits
contains the entire agreement of the Parties with respect to the matters
covered hereby. No other agreement, statement, or promise made by any Party,
or to any employee, officer, or agent of any Party, which is not contained in
this Agreement shall be binding or valid.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on
this the 30th day of May, 1997, to be effective as of the Effective Date.
LOBO PIPELINE COMPANY TRANSTEXAS GAS CORPORATION
By: /s/ BARRY L. OAKES By: /s/ ARNOLD BRACKENRIDGE
------------------------------- ---------------------------------
Name: BARRY L. OAKES Name: ARNOLD BRACKENRIDGE
----------------------------- -------------------------------
Title: Vice President Title: President
---------------------------- ------------------------------
19
<PAGE> 22
INTRASTATE FIRM GAS TRANSPORTATION AGREEMENT
EXHIBIT "A"
RECEIPT POINT(S)*
<TABLE>
<CAPTION>
POINT DESCRIPTION TRANSPORTER METER NUMBER
<S> <C>
1) CONOCO FANDANGO -The interconnection Meter #11032
between Midcon North Bob West Pipeline
and Transporter
</TABLE>
* Shipper warrants that all Gas received at the Receipt Point(s) has
not previously flowed in "interstate commerce", as that phrase is defined in
the Natural Gas Act of 1938, Sec. 2.(7).
A-1
<PAGE> 23
INTRASTATE FIRM GAS TRANSPORTATION AGREEMENT
EXHIBIT "B"
DELIVERY POINT(S)
<TABLE>
<CAPTION>
POINT DESCRIPTION TRANSPORTER METER NUMBER
<S> <C>
EXXON KING RANCH PLANT inlet Meter #'s 1070 & 1071
located in Kleberg Co.
</TABLE>
B-1
<PAGE> 1
EXHIBIT 10.3
MASTER SERVICES CONTRACT
BY AND BETWEEN
CONOCO INC.
(COMPANY)
AND
TRANSTEXAS GAS CORPORATION
(CONTRACTOR)
DATED AND EFFECTIVE MAY 30, 1997
THIS CONTRACT CONTAINS ARBITRATION AND INDEMNIFICATION PROVISIONS.
Certain portions of this document have been omitted and filed separately with
the Commission pursuant to an Application for Confidential Treatment pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934.
<PAGE> 2
MASTER SERVICES CONTRACT
TABLE OF CONTENTS
<TABLE>
<S> <C>
MASTER SERVICES CONTRACT
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
Person . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------
1.2 Arbitration Procedures . . . . . . . . . . . . . . . . . . 1
----------------------
1.3 CMB . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---
1.4 Company . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------
1.5 Company Representative . . . . . . . . . . . . . . . . . . 1
----------------------
1.6 Completion Date . . . . . . . . . . . . . . . . . . . . . 1
---------------
1.7 Contractor . . . . . . . . . . . . . . . . . . . . . . . . 1
----------
1.8 Contractor Representative . . . . . . . . . . . . . . . . 2
-------------------------
1.9 Depreciated Value . . . . . . . . . . . . . . . . . . . . 2
-----------------
1.10 Designee . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------
1.11 Effective Date . . . . . . . . . . . . . . . . . . . . . . 2
--------------
1.12 Master Contract . . . . . . . . . . . . . . . . . . . . . 2
---------------
1.13 Offshore . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------
1.14 Party . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----
Parties . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------
1.15 Price List(s) . . . . . . . . . . . . . . . . . . . . . . 2
-------------
1.16 Primary Term . . . . . . . . . . . . . . . . . . . . . . . 2
------------
1.17 Rate Revision Date . . . . . . . . . . . . . . . . . . . . 2
------------------
1.18 Services . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------
ARTICLE 2. THE MASTER CONTRACT . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Application to All Services . . . . . . . . . . . . . . . 2
---------------------------
2.2 Exhibits and Conflicts . . . . . . . . . . . . . . . . . . 4
----------------------
ARTICLE 3. REQUESTS FOR SERVICES . . . . . . . . . . . . . . . . . . . . . 4
3.1 Requested and Approved Services . . . . . . . . . . . . . 4
-------------------------------
3.2 Contractor's Warranty and Scope . . . . . . . . . . . . . 5
-------------------------------
ARTICLE 4. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----
4.2 Early Termination . . . . . . . . . . . . . . . . . . . . 5
-----------------
4.3 Termination for Convenience . . . . . . . . . . . . . . . 5
---------------------------
4.4 Termination for Cause . . . . . . . . . . . . . . . . . . 5
---------------------
4.5 Termination by Either Party . . . . . . . . . . . . . . . 6
---------------------------
</TABLE>
Master Services Contract Page i
Table of Contents CONFIDENTIAL
<PAGE> 3
<TABLE>
<S> <C>
4.6 Surviving Obligations . . . . . . . . . . . . . . . . . . 6
---------------------
ARTICLE 5. NOTICES AND COMPANY REPRESENTATIVE . . . . . . . . . . . . . . 6
5.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------
5.2 Company Representative and Work Site Designee . . . . . . 6
---------------------------------------------
5.3 Contractor Representative . . . . . . . . . . . . . . . . 6
-------------------------
5.4 Addresses . . . . . . . . . . . . . . . . . . . . . . . . 6
---------
ARTICLE 6. GOVERNING LAW AND ARBITRATION . . . . . . . . . . . . . . . . . 7
6.1 Governing Law and Arbitration . . . . . . . . . . . . . . 7
-----------------------------
ARTICLE 7. ASSIGNMENT OF MASTER CONTRACT . . . . . . . . . . . . . . . . . 7
7.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 7
----------
ARTICLE 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 8
-------------
EXHIBIT A - - GENERAL TERMS AND CONDITIONS
ARTICLE 1. THE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . A-1
1.1 The Services . . . . . . . . . . . . . . . . . . . . . . A-1
------------
1.2 Standards of Workmanship . . . . . . . . . . . . . . . . A-2
------------------------
1.3 Recommendations and Interpretations . . . . . . . . . . A-2
-----------------------------------
1.4 Control of the Services . . . . . . . . . . . . . . . . A-2
-----------------------
ARTICLE 2. COMPANY PRODUCTS . . . . . . . . . . . . . . . . . . . . . . A-2
2.1 Company Products . . . . . . . . . . . . . . . . . . . . A-2
----------------
ARTICLE 3. COMPENSATION; INVOICES AND PAYMENT . . . . . . . . . . . . . A-2
3.1 Pricing for Services . . . . . . . . . . . . . . . . . . A-2
--------------------
(a) Compensation For Lump Sum Or Fixed Rate Quoted
----------------------------------------------
Services . . . . . . . . . . . . . . . . . . . A-2
--------
(b) General Pricing For Services . . . . . . . . . A-2
----------------------------
3.2 Invoices . . . . . . . . . . . . . . . . . . . . . . . . A-3
--------
3.3 Assignment of Invoices . . . . . . . . . . . . . . . . . A-3
----------------------
3.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . A-3
-------
3.5 Disputes . . . . . . . . . . . . . . . . . . . . . . . . A-3
--------
3.6 Competitive Prices . . . . . . . . . . . . . . . . . . . A-4
------------------
3.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . A-4
-----
3.8 Retainage and Offset . . . . . . . . . . . . . . . . . . A-4
--------------------
3.9 Electronic Commerce . . . . . . . . . . . . . . . . . . A-5
-------------------
3.10 Interest . . . . . . . . . . . . . . . . . . . . . . . . A-5
--------
ARTICLE 4. COMMENCEMENT AND COMPLETION OF SERVICES . . . . . . . . . . . A-5
4.1 Commencement and Completion . . . . . . . . . . . . . . A-5
---------------------------
</TABLE>
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Table of Contents CONFIDENTIAL
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 5. SUSPENSION AND TERMINATION OF SERVICES . . . . . . . . . . . A-5
5.1 Suspension and Termination . . . . . . . . . . . . . . . A-5
--------------------------
ARTICLE 6. TEMPORARY SUSPENSION OF THE SERVICES . . . . . . . . . . . . A-6
6.1 Suspension at Company's Option . . . . . . . . . . . . . A-6
------------------------------
6.2 Suspension for Cause . . . . . . . . . . . . . . . . . . A-6
--------------------
6.3 Extent of Suspension . . . . . . . . . . . . . . . . . . A-6
--------------------
6.4 Resumption of the Services . . . . . . . . . . . . . . . A-6
--------------------------
6.5 Maintenance During Suspension . . . . . . . . . . . . . A-6
-----------------------------
ARTICLE 7. CONTRACTOR REGISTRATION NUMBERS . . . . . . . . . . . . . . . A-6
7.1 Contractor Registration . . . . . . . . . . . . . . . . A-6
-----------------------
ARTICLE 8. CONTRACTOR'S RESPONSIBILITIES . . . . . . . . . . . . . . . . A-6
8.1 Operations . . . . . . . . . . . . . . . . . . . . . . . A-6
----------
8.2 Contractor Employees - Security . . . . . . . . . . . . A-7
-------------------------------
8.3 Contractor Employees - Experience and Training . . . . . A-7
----------------------------------------------
8.4 Protection of Material and Work . . . . . . . . . . . . A-7
-------------------------------
8.5 Incident Reporting . . . . . . . . . . . . . . . . . . . A-7
------------------
8.6 Changes and Extra Work . . . . . . . . . . . . . . . . . A-7
----------------------
8.7 Permits and Licenses . . . . . . . . . . . . . . . . . . A-8
--------------------
8.8 Disposal of Company Property . . . . . . . . . . . . . . A-8
----------------------------
8.9 Work Hours . . . . . . . . . . . . . . . . . . . . . . . A-8
----------
8.10 Restocking Charges . . . . . . . . . . . . . . . . . . . A-8
------------------
8.11 Transportation and Handling of Equipment/Material . . . A-8
-------------------------------------------------
8.12 Third Party Purchases, Rentals, Equipment Inspection
----------------------------------------------------
and Equipment Repairs . . . . . . . . . . . . . . . . . A-8
---------------------
ARTICLE 9. WARRANTY/INSPECTION . . . . . . . . . . . . . . . . . . . . . A-9
9.1 Warranty . . . . . . . . . . . . . . . . . . . . . . . . A-9
--------
9.2 Inspection . . . . . . . . . . . . . . . . . . . . . . . A-9
----------
ARTICLE 10. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . A-9
10.1 Contractor's Insurance . . . . . . . . . . . . . . . . . A-9
----------------------
(a) Worker's Compensation . . . . . . . . . . . . . A-9
---------------------
(b) Employer's Liability . . . . . . . . . . . . . A-10
--------------------
(c) Commercial General Liability . . . . . . . . . A-10
----------------------------
(d) Automobile Liability . . . . . . . . . . . . . A-10
--------------------
(e) Aircraft . . . . . . . . . . . . . . . . . . . A-10
--------
(f) Marine . . . . . . . . . . . . . . . . . . . . A-10
------
10.2 Asbestos Abatement . . . . . . . . . . . . . . . . . . . A-10
------------------
10.3 Contractor's Obligations . . . . . . . . . . . . . . . . A-10
------------------------
10.4 Certificates of Insurance and Premiums . . . . . . . . . A-10
--------------------------------------
10.5 Waiver of Subrogation/Additional Insured . . . . . . . . A-11
----------------------------------------
10.6 Subcontractor Insurance Requirements . . . . . . . . . . A-11
------------------------------------
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
10.7 Texas Oilfield Anti-Indemnity Statute . . . . . . . . . A-11
-------------------------------------
ARTICLE 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . A-11
11.1 Application of Indemnities . . . . . . . . . . . . . . . A-11
--------------------------
11.2 Indemnified Party . . . . . . . . . . . . . . . . . . . A-12
-----------------
11.3 General Indemnification . . . . . . . . . . . . . . . . A-12
-----------------------
11.4 Employees of Company . . . . . . . . . . . . . . . . . . A-12
--------------------
11.5 Employees of Contractor . . . . . . . . . . . . . . . . A-12
-----------------------
11.6 Property of Company . . . . . . . . . . . . . . . . . . A-12
-------------------
11.7 Property of Contractor . . . . . . . . . . . . . . . . . A-13
----------------------
11.8 Pollution . . . . . . . . . . . . . . . . . . . . . . . A-13
---------
11.9 Uninsured Subsurface Equipment of Contractor . . . . . . A-13
--------------------------------------------
11.10 Formation or Reservoir Damage . . . . . . . . . . . . . A-13
-----------------------------
11.11 Loss of Hole . . . . . . . . . . . . . . . . . . . . . . A-13
------------
11.12 Blowout . . . . . . . . . . . . . . . . . . . . . . . . A-14
-------
11.13 Defense . . . . . . . . . . . . . . . . . . . . . . . . A-14
-------
11.14 Subcontractors . . . . . . . . . . . . . . . . . . . . . A-14
--------------
11.15 Proprietary Rights and Intellectual Property . . . . . . A-14
--------------------------------------------
11.16 No Consequential or Punitive Damages . . . . . . . . . . A-14
------------------------------------
11.17 Legal Fees and Expenses . . . . . . . . . . . . . . . . A-15
-----------------------
11.18 Liability Limitations . . . . . . . . . . . . . . . . . A-15
---------------------
ARTICLE 12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
12.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . A-15
-----
ARTICLE 13. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . A-15
13.1 Laws and Regulations . . . . . . . . . . . . . . . . . . A-15
--------------------
ARTICLE 14. ETHICS AND CONFLICTS OF INTEREST/AUDITS . . . . . . . . . . A-16
14.1 Ethics and Conflicts of Interest . . . . . . . . . . . . A-16
--------------------------------
14.2 Audits . . . . . . . . . . . . . . . . . . . . . . . . . A-16
------
ARTICLE 15. GOVERNING LAW, MEDIATION, AND ARBITRATION . . . . . . . . . A-17
15.1 Governing Law . . . . . . . . . . . . . . . . . . . . . A-17
-------------
15.2 Mediation and Arbitration . . . . . . . . . . . . . . . A-17
-------------------------
ARTICLE 16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . A-17
16.1 Independent Contractor . . . . . . . . . . . . . . . . . A-17
----------------------
16.2 Subcontracting . . . . . . . . . . . . . . . . . . . . . A-18
--------------
16.3 Confidentiality . . . . . . . . . . . . . . . . . . . . A-18
---------------
16.4 Inventions . . . . . . . . . . . . . . . . . . . . . . . A-18
----------
16.5 Nondisclosure and Publicity . . . . . . . . . . . . . . A-18
---------------------------
16.6 Force Majeure . . . . . . . . . . . . . . . . . . . . . A-19
-------------
16.7 Subcontractor Obligations . . . . . . . . . . . . . . . A-19
-------------------------
16.8 Minority Business Utilization . . . . . . . . . . . . . A-19
-----------------------------
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
16.9 Severability . . . . . . . . . . . . . . . . . . . . . . A-19
------------
16.10 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . A-19
------
16.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . A-19
--------
16.12 Entire Contract and Contract Modification . . . . . . . A-20
-----------------------------------------
16.13 Relationship . . . . . . . . . . . . . . . . . . . . . . A-20
------------
16.14 No Rights Given to Third Parties . . . . . . . . . . . . A-20
--------------------------------
16.15 Other Third Party Services . . . . . . . . . . . . . . . A-20
--------------------------
16.16 Execution in Counterparts . . . . . . . . . . . . . . . A-20
-------------------------
EXHIBIT B - - SCOPE OF SERVICES
ARTICLE 1. SCOPE OF SERVICES . . . . . . . . . . . . . . . . . . . . . . B-1
ARTICLE 2. THE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . B-1
ARTICLE 3. CALL OUT . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
3.0 Contractor's Response to Company's Request for
----------------------------------------------
Services . . . . . . . . . . . . . . . . . . . . . . . . B-3
--------
3.02 Scheduling . . . . . . . . . . . . . . . . . . . . . . . B-3
----------
3.03 Request for Services - Call Out . . . . . . . . . . . . B-3
-------------------------------
ARTICLE 4. CONTRACT MANAGEMENT BOARD . . . . . . . . . . . . . . . . . . B-3
4.01 Contract Management Board Purpose . . . . . . . . . . . B-3
---------------------------------
4.02 CMB Membership . . . . . . . . . . . . . . . . . . . . . B-4
--------------
4.03 Conflict Resolution Process . . . . . . . . . . . . . . B-4
---------------------------
ARTICLE 5. CONTRACTOR'S 1997 CAPACITY . . . . . . . . . . . . . . . . . B-4
5.01 Available Equipment and Crews . . . . . . . . . . . . . B-4
-----------------------------
Exhibits: B-2.01 -- BOP & Nipple Up
B-2.02 -- Casing & Laydown
B-2.03 -- Coiled Tubing
B-2.04 -- Contract Drilling
B-2.05 -- Contract Personnel
B-2.06 -- Directional Drilling
B-2.07 -- Equipment Rental
B-2.08 -- Fast Line
B-2.09 -- Fishing Equipment
B-2.10 -- Mud / Fluids
B-2.11 -- Pipeline Construction
B-2.12 -- Pumping
B-2.13 -- Site Construction
B-2.14 -- Snubbing
B-2.15 -- Trucking
B-2.16 -- Tubular Inspection
B-2.17 -- Welding
</TABLE>
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<TABLE>
<S> <C>
B-2.18 -- Well Test / Flowback
B-2.19 -- Wireline-Electric
B-2.20 -- Wireline-Slick
B-2.21 -- Workover
</TABLE>
Master Services Contract Page vi
Table of Contents CONFIDENTIAL
<PAGE> 8
<TABLE>
<S> <C>
EXHIBIT C - - PRICING AND COMPENSATION
ARTICLE 1. PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
ARTICLE 2. PROCEDURE FOR REVIEW OF PRICE LIST . . . . . . . . . . . . . C-4
ARTICLE 3. COMPETITIVE PRICING OR VALUE ADDED SERVICE . . . . . . . . . C-4
3.01 Competitive Bid Tender . . . . . . . . . . . . . . . . . C-4
----------------------
3.02 Historical Costs . . . . . . . . . . . . . . . . . . . . C-4
----------------
3.03 Agreed Price . . . . . . . . . . . . . . . . . . . . . . C-5
------------
3.04 Mediation and Arbitration . . . . . . . . . . . . . . . C-5
-------------------------
ARTICLE 4. THIRD PARTY ITEMS PURCHASED BY CONTRACTOR . . . . . . . . . . C-5
4.01 Third Party Items . . . . . . . . . . . . . . . . . . . C-5
-----------------
Exhibits: C-1.01 -- Price List for BOP & Nipple Up
C-1.02 -- Price List for Casing & Laydown
C-1.03 -- Price List for Coiled Tubing
C-1.04 -- Price List for Contract Drilling
C-1.05 -- Price List for Contract Personnel
C-1.06 -- Price List for Directional Drilling
C-1.07 -- Price List for Equipment Rental
C-1.08 -- Price List for Fast Line
C-1.09 -- Price List for Fishing Equipment
C-1.10 -- Price List for Mud / Fluids
C-1.11 -- Price List for Pipeline Construction
C-1.12 -- Price List for Pumping
C-1.13 -- Price List for Site Construction
C-1.14 -- Price List for Snubbing
C-1.15 -- Price List for Trucking
C-1.16 -- Price List for Tubular Inspection
C-1.17 -- Price List for Welding
C-1.18 -- Price List for Well Test / Flowback
C-1.19 -- Price List for Wireline-Electric
C-1.20 -- Price List for Wireline-Slick
C-1.21 -- Price List for Workover
EXHIBIT D - - FORM OF REQUEST FOR SERVICES
EXHIBIT E - - SAFETY, OCCUPATIONAL HEALTH AND ENVIRONMENTAL STANDARDS AND
SPECIFICATIONS
ARTICLE 1. SAFETY, HEALTH, AND ENVIRONMENTAL . . . . . . . . . . . . . . E-1
1.1 Laws, Regulations and Procedures . . . . . . . . . . . . E-1
--------------------------------
1.2 Prohibited Items, Substances, and Substance Abuse . . . E-1
-------------------------------------------------
</TABLE>
Master Services Contract Page vii
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<PAGE> 9
<TABLE>
<S> <C>
1.3 Environmental . . . . . . . . . . . . . . . . . . . . . E-2
-------------
1.4 Noncompliance . . . . . . . . . . . . . . . . . . . . . E-3
-------------
ARTICLE 2. COMPANY'S SAFETY MANUAL . . . . . . . . . . . . . . . . . . . E-4
2.01 Safety . . . . . . . . . . . . . . . . . . . . . . . . . E-4
------
2.02 Protective Clothing . . . . . . . . . . . . . . . . . . E-4
-------------------
2.03 Company's Safety Manual . . . . . . . . . . . . . . . . E-4
-----------------------
Exhibit: E-2.03 -- EPNA Safety Manual
EXHIBIT F - - ELECTRONIC DATA INTERCHANGE AGREEMENT
Appendices: F-1 -- Standards and Guidelines
F-2 -- Electronic Funds Transfers
EXHIBIT G - - ARBITRATION PROCEDURES
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . G-1
ARTICLE 2. AGREEMENT TO ARBITRATE . . . . . . . . . . . . . . . . . . . G-2
2.1 Arbitrable Disputes . . . . . . . . . . . . . . . . . . G-2
-------------------
2.2 Non-Arbitrable Disputes . . . . . . . . . . . . . . . . G-2
-----------------------
2.3 Governing Rules . . . . . . . . . . . . . . . . . . . . G-2
---------------
2.4 Location of Arbitration Proceedings . . . . . . . . . . G-2
-----------------------------------
2.5 Arbitration Binding . . . . . . . . . . . . . . . . . . G-2
-------------------
2.6 Violation . . . . . . . . . . . . . . . . . . . . . . . G-2
---------
2.7 Interim Measures . . . . . . . . . . . . . . . . . . . . G-3
----------------
ARTICLE 3. LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . G-3
3.1 Tolling of Limitations . . . . . . . . . . . . . . . . . G-3
----------------------
ARTICLE 4. ARBITRATION PROCESS . . . . . . . . . . . . . . . . . . . . . G-3
4.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . G-3
-----------
4.2 Selection of Arbitrator(s) . . . . . . . . . . . . . . . G-3
--------------------------
4.3 Qualification of Arbitrators . . . . . . . . . . . . . . G-4
----------------------------
ARTICLE 5. PROCEEDINGS INVOLVING RELATED PARTIES . . . . . . . . . . . . G-4
5.1 Joint Action . . . . . . . . . . . . . . . . . . . . . . G-4
------------
ARTICLE 6. POWERS OF ARBITRATORS . . . . . . . . . . . . . . . . . . . . G-4
6.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . G-4
------
6.2 Limitation on Powers . . . . . . . . . . . . . . . . . . G-5
--------------------
ARTICLE 7. AWARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-5
7.1 Findings . . . . . . . . . . . . . . . . . . . . . . . . G-5
--------
</TABLE>
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Table of Contents CONFIDENTIAL
<PAGE> 10
<TABLE>
<S> <C>
7.2 Applicable Law . . . . . . . . . . . . . . . . . . . . . G-5
--------------
7.3 Binding . . . . . . . . . . . . . . . . . . . . . . . . G-5
-------
7.4 Enforcement . . . . . . . . . . . . . . . . . . . . . . G-5
-----------
ARTICLE 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . G-6
8.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . G-6
------
8.2 Confidentiality . . . . . . . . . . . . . . . . . . . . G-6
---------------
Exhibit: G-1 -- CPR Non-Administered Arbitration Rules & Commentary
</TABLE>
Master Services Contract Page ix
Table of Contents CONFIDENTIAL
<PAGE> 11
MASTER SERVICES CONTRACT
THIS MASTER SERVICES CONTRACT ("Master Contract"), dated and effective the 30th
day of May, 1997 ("Effective Date"), is between CONOCO INC., a Delaware
corporation whose address is 600 N. Dairy Ashford, Houston, Texas 77079
("Company"), on one hand, and TRANSTEXAS GAS CORPORATION, a Delaware corporation
whose address is 1300 North Sam Houston Parkway E., Suite 310, Houston, Texas
77032-2949 ("Contractor"), on the other.
In consideration of the mutual covenants and agreements hereinafter set forth,
Company and Contractor hereby agree as follows:
ARTICLE 1. DEFINITIONS
In this Master Contract, the following terms shall have the following meanings:
1.1 "Affiliate" means a Person which owns a Party, is owned by a
Party, or is owned by a Person which owns a Party. A Person which owns a Party
is a "Parent" of that Party, and a Person which is owned by a Party is a
"Subsidiary" of that Party. Ownership means the ownership directly or
indirectly, through one or more intermediaries, of fifty percent (50%) or more
of the shares or voting rights in a company, partnership or legal entity.
"Person" means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, excluding a government or political
subdivision or an agency thereof.
1.2 "Arbitration Procedures" shall be as defined in Section 15.2
of Exhibit A.
1.3 "CMB" shall be as defined in Section 4.01 of Exhibit B.
1.4 "Company" means Conoco Inc., a Delaware corporation, its
Affiliates, and any successor or assignee of Company of its and their rights
and obligations under this Master Contract. In those instances where Services
are requested of Contractor by an Affiliate of Conoco Inc., then the reference
to Company in this Master Contract and its exhibits shall mean such Affiliate
requesting the Services. The obligations and liabilities of each entity of the
Company under this Master Contract and all requested Services hereunder shall
be several and not joint. Each entity of the Company may separately enforce
this Master Contract solely with respect to its rights and benefits accruing
hereunder without the consent or joinder of any other entity of Company. No
entity of Company shall have or be entitled to any of the rights or benefits,
or shall bear or be liable for the obligations or liabilities, of any other
entity of Company under this Master Contract.
1.5 "Company Representative" shall be as defined in Section 5.2
hereof.
1.6 "Completion Date" shall be as defined in Section 4.1 of
Exhibit A.
1.7 "Contractor" means TransTexas Gas Corporation, a Delaware
corporation, and TransTexas Drilling Services, Inc., a Delaware corporation, as
assignee of TransTexas Gas Corporation under Section 7.1 hereof, together with
any of their Subsidiaries providing Services to Company under this Master
Contract and any permitted successor or assignee of Contractor of its rights
and obligations under this Master Contract. In those instances where Services
are performed for Company by a Subsidiary of Contractor, then the reference to
Contractor in this Master Contract and its exhibits shall mean such Subsidiary
performing the Services. The
Page 1 CONFIDENTIAL
<PAGE> 12
obligations and liabilities of each entity of Contractor under this Master
Contract shall be joint and several.
1.8 "Contractor Representative" shall be as defined in Section 5.3
hereof.
1.9 "Depreciated Value" shall be as defined in Section 11.9 of
Exhibit A.
1.10 "Designee" shall be as defined in Section 5.2 hereof.
1.11 "Effective Date" means May 30, 1997, the date this Master
Contract s come into effect.
1.12 "Master Contract" means this Master Services Contract between
Contractor and Company, including Exhibits A through G hereto (or any successor
agreement covering those Services).
1.13 "Offshore" shall be as defined in Section 15.1 of Exhibit A.
1.14 "Party" means Company or Contractor individually, as indicated
by the context. Company and Contractor are sometimes together referred to herein
as the "Parties".
1.15 "Price List(s)" shall be as defined in Article 1 of Exhibit C.
1.16 "Primary Term" shall be as defined in Section 4.1 hereof.
1.17 "Rate Revision Date" shall be as defined in Section 2.03 of
Exhibit C.
1.18 "Services" shall be as defined in Section 1.1 of Exhibit A.
ARTICLE 2. THE MASTER CONTRACT
2.1 Application to All Services. Commencing with the Effective Date
until termination, this Master Contract shall apply to all Services performed,
and goods, material and equipment supplied, which Contractor may provide for
Company or any of its Affiliates as may be requested by them hereunder. The
Services to be performed by Contractor shall be in its usual lines of business
and services. All Services performed under this Master Contract shall be within
the United States, including offshore waters within the jurisdiction of the
United States or any state thereof. The following Exhibits, together with their
associated schedules, are attached to and incorporated in this Master Contract:
Page 2
CONFIDENTIAL
<PAGE> 13
Exhibit A - - General Terms and Conditions
Exhibit B - - Scope of Services
B-2.01 -- BOP & Nipple Up
B-2.02 -- Casing & Laydown
B-2.03 -- Coiled Tubing
B-2.04 -- Contract Drilling
B-2.05 -- Contract Personnel
B-2.06 -- Directional Drilling
B-2.07 -- Equipment Rental
B-2.08 -- Fast Line
B-2.09 -- Fishing Equipment
B-2.10 -- Mud / Fluids
B-2.11 -- Pipeline Construction
B-2.12 -- Pumping
B-2.13 -- Site Construction
B-2.14 -- Snubbing
B-2.15 -- Trucking
B-2.16 -- Tubular Inspection
B-2.17 -- Welding
B-2.18 -- Well Test / Flowback
B-2.19 -- Wireline-Electric
B-2.20 -- Wireline-Slick
B-2.21 -- Workover
Exhibit C - - Pricing and Compensation
C-1.01 -- Price List for BOP & Nipple Up
C-1.02 -- Price List for Casing & Laydown
C-1.03 -- Price List for Coiled Tubing
C-1.04 -- Price List for Contract Drilling
C-1.05 -- Price List for Contract Personnel
C-1.06 -- Price List for Directional Drilling
C-1.07 -- Price List for Equipment Rental
C-1.08 -- Price List for Fast Line
C-1.09 -- Price List for Fishing Equipment
C-1.10 -- Price List for Mud / Fluids
C-1.11 -- Price List for Pipeline Construction
C-1.12 -- Price List for Pumping
C-1.13 -- Price List for Site Construction
C-1.14 -- Price List for Snubbing
C-1.15 -- Price List for Trucking
C-1.16 -- Price List for Tubular Inspection
C-1.17 -- Price List for Welding
C-1.18 -- Price List for Well Test / Flowback
C-1.19 -- Price List for Wireline-Electric
C-1.20 -- Price List for Wireline-Slick
C-1.21 -- Price List for Workover
Page 3
CONFIDENTIAL
<PAGE> 14
Exhibit D - - Form of Request for Services
Exhibit E - - Safety, Occupational Health and Environmental Standards and
Specifications
E-2.03 -- EPNA Safety Manual
Exhibit F - - Electronic Data Interchange Agreement
F-1 -- Standards and Guidelines
F-2 -- Electronic Funds Transfer
2.2 Exhibits and Conflicts. The General Terms and Conditions attached
as Exhibit A shall apply to and cover all Services performed, and goods,
material and equipment supplied, by Contractor to Company during the term of
this Master Contract. In the performance of its Services, and the supply of
goods, material, and equipment, Contractor shall comply with Exhibit B, Scope
of Services, to the extent applicable. Contractor shall be compensated for its
Services, goods, materials and equipment performed and supplied, in accordance
with Exhibit C, Pricing and Compensation. Company may request Services, goods,
materials, and equipment using the form of Request for Services attached as
Exhibit D. In the performance of its Services, Contractor shall comply with the
Safety, Occupational Health and Environmental Standards and Specifications, as
set forth in Exhibit E. In the event of a conflict between any provision of
this Master Contract and any of the Exhibits, the provisions of this Master
Contract shall control; provided, however, the terms of any specific written
Request for Services executed by the Parties hereunder shall control over this
Master Contract and the attached Exhibits. This Master Contract shall govern to
the extent of any conflict between this Master Contract and (i) documents
prepared by Contractor (e.g., Price Lists, bids, work, job or invoice terms,
etc.), (ii) correspondence or other agreements, oral, implied or otherwise,
between the Parties relative to the subject matter hereof, and (iii) the
provisions of other documents prepared by Company (e.g., purchase or service
orders, payments, etc.), whether internal or submitted to Contractor, other
than an executed written Request for Services. The only documents which may
vary the terms of this Master Contract and its Exhibits are an executed Request
for Services executed by both Parties or a formal amendment of the Master
Contract.
ARTICLE 3. REQUESTS FOR SERVICES
3.1 Requested and Approved Services. The terms of this Master
Contract may not be varied by the Parties except in accordance with a written
Request for Services which has been executed by both Company and Contractor.
Contractor will begin each particular job at such time as is agreed between
Contractor and Company. Contractor shall furnish work/delivery tickets and
receipts for all Services for the review and approval of Company. All Services
authorized by Company shall be performed subject to all of the terms and
conditions of this Master Contract. Any printed language on Contractor's forms,
including, but not limited to, limitations on warranties or indemnification,
shall not control in determining the rights or obligations of the Parties.
Except as mutually agreed otherwise, time hereunder shall be considered to be
of the essence.
3.2 Contractor's Warranty and Scope. Contractor warrants and
represents that it is or will be ready, willing, and able to perform the
Services described in Exhibit B at least within Texas Railroad Commission
District 4 for the entire term of this Master Contract. While it is Company's
intention that Contractor shall undertake as much of the Services as may be
requested by Company, this Master Contract has no commitment value with respect
to the
Page 4
CONFIDENTIAL
<PAGE> 15
amount of the Services which Company may request or require Contractor
to perform, or goods, material and equipment to be supplied, and Company
reserves the right to request the Contractor to provide as much or as little of
the Services, goods, material, and equipment as Company may decide from time to
time is necessary. While it is intended that the scope of the Services to be
provided by Contractor will generally be in accordance with the Listing of
Services as detailed in Exhibit B -Scope of Services, the exact scope of
Services and in particular job specifications will be determined by Company
pursuant to its request. Where Contractor is requested to undertake Services
not detailed in Exhibit B - Scope of Services, then these will be the subject
of an amendment to this Master Contract.
ARTICLE 4. TERM
4.1 Term. The term of this Master Contract shall commence on the date
set forth above and shall continue for a term of nine (9) years ("Primary
Term"), at which time it will automatically renew for successive one year
increments until terminated as provided below.
4.2 Early Termination. This Master Contract may be terminated earlier
by Company upon thirty (30) days' written notice to Contractor at its address
set out below. Such termination shall not be effective as to any Services in
progress and shall not relieve either Party of its obligations and liabilities
arising from or incident to Services performed prior to such termination, or
the indemnity and warranty provisions hereof; provided, however, Company shall
have the right to terminate or suspend Services in progress pursuant to
Articles 5 and 6 of Exhibit A.
4.3 Termination for Convenience. Notwithstanding any other provision
herein, Company shall have the right to terminate any Services in progress in
whole or in part, at any time upon verbal notice by Company followed by written
notice to Contractor, in which event Contractor shall be entitled to payment
for the Services satisfactorily performed up to the time of said termination,
including profit, if any, but not anticipated profit for Services not so
performed.
4.4 Termination for Cause. Notwithstanding Section 4.2, if (i)
Contractor fails without good cause to perform the Services or any part thereof
or to perform any of its obligations hereunder or (ii) Contractor (a) goes into
liquidation (other than voluntarily for the purpose of re-organization or
reconstruction), (b) makes an arrangement, composition or compromise with its
creditors, (c) has a receiver appointed in respect of the whole or any part of
its assets, then Company may at any time thereafter immediately terminate this
Master Contract without any liability to compensate Contractor for such
termination. Such termination shall be without prejudice to Company's rights
under this Master Contract or its rights under the law to claim damages against
Contractor for its failure to perform the Services or any part thereof.
4.5 Termination by Either Party. Following the Primary Term set forth
in 4.1, this Master Contract may be terminated by either Party upon ninety (90)
days' written notice to the addresses set out in Section 5.4. Such termination
shall not be effective to any of the Services in progress and shall not relieve
either Party of its obligations and liabilities arising from or incident to the
Services performed prior to such termination.
4.6 Surviving Obligations. Termination of this Master Contract
shall not relieve any Party of its accrued obligations hereunder, including the
warranty and indemnity provisions.
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CONFIDENTIAL
<PAGE> 16
ARTICLE 5. NOTICES AND COMPANY REPRESENTATIVE
5.1 Notices. All notices required under this Master Contract will be
properly made when delivered in person, mailed or sent by telex, courier
services or facsimile to the addresses set forth in Section 5.4.
5.2 Company Representative and Work Site Designee. Company may from
time to time appoint a "Company Representative" for the day-to-day
administration of this Master Contract. The initial Company Representative is
named in Section 5.4 hereof. The Company Representative will be responsible for
the review and approval of the Services to be performed under this Master
Contract, issuing notices of termination or suspension of Services as provided
in Article 4 hereof and Articles 5 and 6 of Exhibit A, and approving any
subcontracting by Contractor or the use by it of third party services under
Section 16.2 of Exhibit A. In addition, Company or the Company Representative
may designate one or more Persons ("Designee") to interface with Contractor at
the work site. The Company Representative shall advise Contractor in writing or
verbally of the Designees, and shall retain the right to substitute those named
personnel at any time. All references to Company Representative in Exhibit A or
a Request for Services shall mean the Company Representative or work site
Designee. All directions, instructions or requests given or made by the Company
Representative or Designee shall be deemed to be the directions, instructions
or requests of Company. If the Company Representative or Designee is not an
employee of Company or its Affiliates, he or she shall not be considered an
agent or other fiduciary for Company and its Affiliates.
5.3 Contractor Representative. Contractor shall appoint a
"Contractor Representative" for the day-to-day administration of this Master
Contract. The initial Contractor Representative is named in Section 5.4 hereof.
5.4 Addresses. The notice addresses of Company, Company
Representative, and Contractor are as follows, unless changed by written
notice:
CONTRACTOR: TransTexas Gas Corporation
1300 North Sam Houston Parkway E.,
Suite 310
Houston, TX 77032-2949
Telephone No.: (281) 987-8600
Facsimile No.: (281) 986-8865
Attention: Arnold Brackenridge
CONTRACTOR REPRESENTATIVE: TransTexas Gas Corporation
1300 North Sam Houston Parkway E.,
Suite 310
Houston, TX 77032-2949
Telephone No.: (281) 987-8600
Facsimile No.: (281) 986-8865
Attention: Arnold Brackenridge
COMPANY: Conoco Inc.
600 N. Dairy Ashford
Houston, TX 77079
Telephone No.: (281) 293-5526
Facsimile No.: (281) 293-4424
Attention: MLS Leader
Page 6
CONFIDENTIAL
<PAGE> 17
COMPANY REPRESENTATIVE: Conoco Inc.
600 N. Dairy Ashford
Houston, TX 77079
Telephone No.: (281) 293-5526
Facsimile No.: (281) 293-4424
Attention: MLS Leader
ARTICLE 6. GOVERNING LAW AND ARBITRATION
6.1 Governing Law and Arbitration. The governing law, mediation, and
arbitration provisions of Article 15 of Exhibit A and Exhibit G are hereby
incorporated into this Master Contract.
ARTICLE 7. ASSIGNMENT OF MASTER CONTRACT
7.1 Assignment. Upon thirty (30) days' prior written notice to
Contractor, Company may assign this Master Contract to any Affiliate or third
party and, unless such assignee is approved in writing by Contractor, which may
be withheld for any reason including convenience, Company will not be relieved
of any obligations and liabilities accruing hereunder after the assignment is
effective. Except as otherwise provided in this Section 7.1, Contractor may not
assign this Master Contract, or any right to receive payments hereunder (other
than as permitted under Section 3.3 of Exhibit A), without Company's prior
written consent, which may be withheld for any reason including convenience.
Upon thirty (30) days' prior written notice to Company, Contractor may assign
this Master Contract in its entirety to TransTexas Drilling Services, Inc., a
Delaware corporation; provided, however, that TransTexas Drilling Services,
Inc. shall agree in writing with Company (i) to assume all of Contractor's
liabilities and obligations under and to be bound by all express and implied
covenants, conditions, and obligations of Contractor in and under this Master
Contract, and (ii) expressly to adopt, ratify and confirm this Master Contract.
In the event of such assignment as herein provided, TransTexas Gas Corporation
will be relieved of all obligations and liabilities accruing hereunder after
the assignment of this Master Contract is effective. Company shall not have any
obligation to make any payment under this Master Contract to TransTexas
Drilling Services, Inc. prior to receipt of notice of said assignment and the
express assumption of obligations hereunder by TransTexas Drilling Services,
Inc. as herein provided.
ARTICLE 8. MISCELLANEOUS
8.1 Miscellaneous. All exhibits referred to in this Master Contract
shall be attached hereto and made a part hereof for all purposes except for any
outstanding confidentiality agreements. This Master Contract is the entire
agreement between the Parties as to the Services and shall replace all written
or oral statements, representations and warranties that may have been made by
or on behalf of any of the Parties prior to the date hereof. This Master
Contract may only be amended in writing signed by a duly authorized
representative of each of the Parties.
IN WITNESS WHEREOF, the Parties have caused this Master Contract to be executed
by their duly authorized representatives effective as of the Effective Date.
CONTRACTOR: COMPANY:
TRANSTEXAS GAS CORPORATION CONOCO INC.
By: /s/ Arnold Brackenridge By: /s/ K. L. Vogel
Name: Arnold Brackenridge Name: K. L. Vogel
--------------------------- --------------------
Title: President Title: Attorney-in-Fact
--------------------------- --------------------
Page 7
CONFIDENTIAL
<PAGE> 18
EXHIBIT A
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
MASTER SERVICES CONTRACT
GENERAL TERMS AND CONDITIONS
ARTICLE 1. THE SERVICES
1.1 The Services. When Company desires Contractor to perform
Services for it, Company shall request same of Contractor, orally or in
writing, and may send to Contractor a Request for Services in the form of
Exhibit D to the Master Contract. An oral request under the Master Contract
shall be deemed to incorporate all the terms of the Master Contract, including
the specifications of Exhibit B for the Services. Oral or verbal requests for
Services will be followed by written confirmation (which may include Company's
written confirmation or Contractor's original work and delivery tickets signed
by an authorized Company employee) within a reasonable time. A Request for
Services shall name the contracting entity or entities, describe in detail the
Services to be performed and goods, material and equipment to be supplied, if
the specifications vary from Exhibit B to the Master Contract, and shall
specify the area in which the Services are to be performed. If Contractor is
willing to perform the Services under the terms requested or as set forth in
the Request for Services, it shall signify its acceptance verbally and the
Contractor Representative shall sign the Request for Services, if any, and
return it to Company. Contractor shall perform the Services in accordance with
the Request for Services, written confirmation or verbal order, and the terms
of this Master Contract. In the event of any conflict between the executed
written Request for Services and this Exhibit A, the terms of the executed
Request for Services shall prevail. Contractor shall arrange for its
personnel, material and equipment as defined in the Request for Services,
verbal order or written confirmation to be available and ready for the
commencement of work at the designated location. "Services", as the term is
used throughout the Master Contract and its Exhibits, shall mean those items
specified in Exhibits B 2.01 through B 2.21 and all work and Services performed
and goods, material and equipment supplied in response to Company's oral
request or a written Request for Services. Contractor shall perform the
Services in accordance with the Request for Services, written confirmation or
verbal order, and the terms of this Master Contract. It is recognized by the
Parties that prior to or upon commencement of Services requested under a
Request for Services, modifications and adjustments may be required in the
field at the work site. In such events, the Company Representative and the
Contractor Representative or their Designees shall agree upon such change
orders and Company and Contractor shall revise or amend its Request for
Services or field tickets as the case may be. In the event of any conflict
between the executed written Request for Services and this Exhibit A, the terms
of the executed Request for Services shall prevail.
Master Services Contract Page A-1
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 19
1.2 Standards of Workmanship. Contractor shall perform the
Services and supply related equipment and materials in accordance with
standards in the industry by reputable contractors performing Services of a
similar nature and geographical location. Contractor represents that it has
specific expertise that it will utilize in performing the Services and
acknowledges that Company is relying upon such representations in entering into
this Master Contract.
1.3 Recommendations and Interpretations. Contractor shall furnish
Company with accurate information and, when requested by Company, Contractor's
best judgment, recommendations and interpretations which will be based on the
information at hand to Contractor and Contractor's expertise. Interpretations
or recommendations provided by Contractor, if any, may be rejected by Company.
In making Interpretations, Contractor cannot and does not guarantee the
accuracy or correctness of such Interpretations or any operations or activities
by Company based thereon.
1.4 Control of the Services. Contractor shall control, manage and
direct the conduct of the Services. The presence of a Company Representative
or inspector to ensure that Contractor's Services meet the standards set by
Company does not relieve Contractor from any of its responsibilities or
obligations hereunder. Company's execution of Contractor's original work or
delivery tickets shall constitute Company's agreement with quantities delivered
and concurrent time of performance.
ARTICLE 2. COMPANY PRODUCTS
2.1 Company Products. In the course of performing Services under
this Master Contract, Contractor shall, where reasonably possible, purchase and
use products manufactured or sold by Company, its Parents and Affiliates,
giving due consideration to price, quality and other factors.
ARTICLE 3. COMPENSATION; INVOICES AND PAYMENT
3.1 Pricing for Services. Contractor's Services shall be priced
in accordance with either (a) or (b) as follows:
(a) Compensation For Lump Sum Or Fixed Rate Quoted
Services. For the Services provided on a lump sum or fixed rate
basis, Contractor shall be compensated as provided in each Request for
Services (or written confirmation of a verbal order).
(b) General Pricing For Services. For Services provided
on a basis other than as described in 3.1(a), Contractor shall be
compensated for the Services rendered by Contractor pursuant to the
rates set forth in Exhibit C. The respective equipment and personnel
rates set forth in Exhibit C shall be in effect from the time the
equipment and personnel are in place at location ready for performance
of the Services and ending on the day the equipment is rigged down and
released.
Master Services Contract Page A-2
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 20
3.2 Invoices. Unless the electronic data interchange invoicing
procedures are being followed as provided in Exhibit F, Contractor shall submit
an invoice in U.S. Dollars on or before the tenth day of each calendar month
for amounts payable pursuant to Section 3.1(a) and 3.1(b) for Services
performed during the previous month. Contractor shall send all invoices to
Company's address set forth in the Request for Services or in absence thereof,
to Company's address set forth below, along with original documents including
time sheets showing the applicable rates, all third party invoices and other
supporting documentation of costs incurred by Contractor and chargeable under
the Request for Services. Contractor will indicate the contract number
assigned to this Master Contract and to the Request for Services on the front
of the invoice. All invoices shall include information sufficient to identify
the Services performed (e.g., rig name, location, well number, facility, lease,
or tank battery, a charge code (AFE number, feature number), contract number,
requestor's name and number of and which days personnel and equipment were
utilized). Invoices shall be sent to the following address, unless changed by
written notice to Contractor:
<TABLE>
<S> <C> <C>
Conoco Inc. or Lobo Pipeline Company (For Services to this
Attn: Accounts Payable Attn: Accounts Payable Affiliate of Conoco Inc.)
P.O. Box 1700 5810 San Bernando, Suite 330
Freer, Texas 78357 Laredo, Texas 78041
</TABLE>
If Contractor fails to invoice Company within 180 days from the termination or
completion date of the Services, Company shall have no liability to Contractor
for payment of the Services, or any portion of it, and CONTRACTOR RELEASES
COMPANY FROM ANY LIABILITY FOR SAME; provided, however, the foregoing release
shall not apply to amounts in dispute under Section 3.5 hereof if such amounts
have been previously invoiced within said 180 days.
3.3 Assignment of Invoices. Except with Company's written
consent, which may be withheld for any reason including convenience (but
subject to Section 7.1 of the Master Contract), Contractor shall not assign its
invoices or any right to receive payment from Company under this Master
Contract to any third party, and any attempt to do so shall be absolutely void
and shall relieve Company from liability for payment of same. Contractor may
pledge its receivables under this Master Contract, provided that the same shall
be expressly subordinate to Company's claims and rights under this Master
Contract, including the right of offset set forth in Section 3.8.
3.4 Payment. Contractor's invoices shall be paid under the terms
of Exhibit C and payment made by Company check or electronic funds transfer in
U.S. Dollars and submitted via U.S. mail in accordance with Contractor's
instructions set forth in its invoice.
3.5 Disputes. If Company disputes an item billed, Company shall,
within thirty (30) days of receiving Contractor's invoice, notify Contractor of
the item in dispute, specifying its complaint. In the event Company disputes
an invoice item, Company shall not delay payment of the undisputed part of the
invoice; provided that before Company is required to make any payment,
Contractor shall credit Company for the amount of such invoice which Company
disputes and provided further that the 30-day period referred to above shall
cease to run at the time Company notifies Contractor of such dispute and shall
recommence on the date that Company
Master Services Contract Page A-3
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 21
receives Contractor's credit. In addition, Company will pay simple interest on
the undisputed amount at the rate provided in Section 3.10, calculated from the
due date as herein provided until paid. The issuance of a credit by Contractor
shall not itself in any way be evidence of acceptance by Contractor that
Company is correct in disputing that part of the invoice to which the credit
relates. Payment of items in dispute shall be withheld without interest until
the dispute is resolved, at which point payment in full of that agreed amount
plus simple interest thereon at the rate provided in Section 3.10 calculated
from the due date of the original invoice, shall be paid without delay.
Payment of an invoice shall not prejudice the right of Company to subsequently
dispute any part of such invoice. Payment of undisputed amounts by Company
shall not waive any claims of Company which may arise under an audit or
otherwise under this Master Contract.
3.6 Competitive Prices. Contractor represents that the prices
charged to Company for the Services as provided in the Price List(s) shall be
the lowest prices charged by Contractor at that time to any third party under
Contractor's published price lists, less discounts applicable to such third
party, for Services substantially similar in quality and quantity to the
Services performed for Company. Contractor further assures Company that its
rates will be price competitive with other similar Services being provided
within the same geographic area at that time. Examples of ways such
competitive prices may be determined are set forth in Article 3 of Exhibit C.
3.7 Liens. Company shall pay only that compensation mutually
agreed upon in writing by each Party's authorized representatives. Such
compensation shall not be changed without the prior written agreement of the
Parties. All payments to Contractor shall first be used to satisfy accounts
directly related to the Services. Contractor shall pay all costs incurred by
Contractor in performing the Services to the extent not otherwise disputed by
Company or Contractor. Contractor shall take all action reasonably necessary
to avoid the attachment of a lien on Company property and to remove any lien on
Company property arising from the Services. CONTRACTOR SHALL DEFEND, INDEMNIFY
AND HOLD COMPANY HARMLESS from all costs (including reasonable legal fees and
expenses), damages, losses, or liabilities arising from liens, claims, or
causes of action for failure of Contractor, its subcontractors, suppliers and
lessors to pay for Services, labor, materials or equipment. The foregoing
shall not preclude Contractor from filing such liens as in its opinion may be
necessary to protect its rights. Contractor shall clear its own liens at its
expense when the matter is settled or upon completion of arbitration
proceedings. The exercise of any such remedy shall not waive the right of
either Party to compel arbitration hereunder.
3.8 Retainage and Offset. For any particular Services or job,
Company may withhold amounts reasonably necessary to protect Company from loss
due to any failure of Contractor to perform and meet its obligations under this
Master Contract. At Company's election, 90% of the amounts not disputed shall
be paid within thirty (30) days of receipt of invoices, until 90% of the
compensation due for such Services has been paid on 100% of the Requested
Services. A final payment (including retainage) shall be made upon completion
and acceptance of the Services, and after Contractor furnishes satisfactory
proof to Company that (i) all subcontractor's bills for expense, material and
labor related to the Services have been fully paid, (ii) the premises upon
which Services is performed are not subject to any material or labor liens or
claims of liens
Master Services Contract Page A-4
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 22
created by, through or under Contractor or its Affiliates, and (iii) material
operating instructions, warranty documentation, and drawings have been provided
to Company. Satisfactory proof may include waivers and releases of claims from
Contractor's subcontractors and lessors. If Contractor fails to provide
satisfactory proof of the above then to the extent any such amounts are not
otherwise disputed by Contractor, Company has the right but not the obligation
to settle such liens or claims for the account of Contractor without waiving
other legal remedies. From compensation payable to Contractor for Services,
Company may deduct the amount necessary to discharge such liens or claims and
may recover all related costs, including administrative costs, reasonable legal
fees and expenses. Company and its Affiliates shall have the right to offset
respective amounts owed by them to Contractor under this Master Contract only
against respective amounts owed by Contractor to Company or its Affiliates
under this Master Contract. Except as expressly provided in the foregoing,
there shall be no right of offset between or among the Parties, or their
Affiliates and Subsidiaries, with respect to this Master Contract. No interest
will be due on any retainage or offset amounts retained or withheld by Company
under this Section 3.8.
3.9 Electronic Commerce. Company and Contractor will work
together to conduct business electronically rather than by other more
traditional means such as by paper. Contractor will implement such electronic
commerce methods, including but not limited to electronic data interchange, as
may be requested by Company in accordance with Exhibit F, subject to
Contractor's ability to do so. In the event Contractor does not possess the
specific electronic commerce capability requested by Company, Contractor shall
have a reasonable amount of time to obtain such capability. If electronic
commerce is commenced between the Parties hereunder, the provisions of Exhibit
F will apply.
3.10 Interest. Should Company or Contractor fail to pay one to the
other any part of the monies herein agreed to be paid from one to the other on
or before the due date thereof, simple interest shall accrue on the amounts
unpaid at the lesser of six percent (6%) per annum or the maximum rate from
time to time permitted by law. Such accrual of interest shall not mitigate or
cure the defaulting Party's failure to make payment of amounts due and owing.
ARTICLE 4. COMMENCEMENT AND COMPLETION OF SERVICES
4.1 Commencement and Completion. Subject to Article 3 of Exhibit
B, the Services shall be commenced not later than the date orally requested or
as specified in the Request for Services, and completed not later than
specified ("Completion Date"). Changes to Completion Date or Services schedule
must be authorized in writing by Company.
ARTICLE 5. SUSPENSION AND TERMINATION OF SERVICES
5.1 Suspension and Termination. Company shall have the right to
suspend or terminate in whole or in part any Services in progress, a specific
work order, or a Request for Services at any time upon verbal notice to
Contractor followed by written notice, as set forth in Article 4 of the Master
Contract and Article 6 of this Exhibit A.
Master Services Contract Page A-5
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 23
ARTICLE 6. TEMPORARY SUSPENSION OF THE SERVICES
6.1 Suspension at Company's Option. Company may, by giving
written notice to Contractor, suspend all or any part of the Services
temporarily at any time for any reason. If Company suspends the Services other
than as provided in Section 6.2 hereof, it shall compensate Contractor for any
extra expenses necessarily incurred by Contractor as a direct result of such
suspension and any Standby Rates as agreed in Exhibit C; provided, however,
that Contractor shall provide such supporting documentation as Company may
require. The Services shall only be suspended to the extent specified in the
notice.
6.2 Suspension for Cause. Company may also, by giving written
notice to Contractor, suspend the Services if Contractor materially breaches
this Master Contract. In such event, Company shall not be obligated to pay any
amount to Contractor as a result of such suspension unless it is subsequently
determined that Company's suspension was without reasonable cause.
6.3 Extent of Suspension. If the Services are suspended under
Sections 6.1 or 6.2 hereof, they shall be suspended only to the extent
specified in the notice.
6.4 Resumption of the Services. Company may at any time after
giving a suspension notice as provided in Sections 6.1 or 6.2 require that
Contractor resume any part of the Services by so notifying Contractor in
writing. Contractor shall resume the Services within three days of the date
Company issues such notice or, as reasonably practicable thereafter, Contractor
shall be compensated for any additional out-of-pocket expense incurred in
connection with such resumption unless the suspension was for cause.
6.5 Maintenance During Suspension. Contractor shall, during
suspension of the Services, properly protect and secure any of Contractor's or
Company's materials and equipment used in performing the Services in
Contractor's possession or control.
ARTICLE 7. CONTRACTOR REGISTRATION NUMBERS
7.1 Contractor Registration. Contractor shall be registered as an
employer under applicable laws. Contractor's registration numbers are:
Federal: 76-0401023 State: 1-76-0401023-5
ARTICLE 8. CONTRACTOR'S RESPONSIBILITIES
8.1 Operations. Company shall use its best efforts to keep
Contractor appraised of Company's forecast work plans and schedules.
Contractor shall assign a coordinator to Company's account who shall coordinate
the Services and be the single point of contact for Company. The coordinator
shall remain assigned to Company's account unless otherwise agreed. If Company
desires the coordinator to be in Company's offices full-time, Company will
provide an office and secretarial support for the coordinator at Company's
expense. Contractor shall make all reasonable efforts to maintain goodwill
among landowners, tenants, lessees, and members of the general public, and
shall not knowingly violate any rights of such Persons in the performance
Master Services Contract Page A-6
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 24
of the Services. Contractor shall notify Company promptly of communications or
requests from any state, federal or local governmental entity or official, or
any individual concerning matters related to the Services or Services site.
Company reserves the right to let contracts for other work and Contractor and
Company agree to coordinate the Services hereunder and cooperate with Company's
other contractors and with Company employees.
8.2 Contractor Employees - Security. Contractor shall not permit
its employees, agents, invitees or licensees to enter any area of Company's
property other than the areas clearly designated by Company. Contractor shall
remove individuals from the Services site who, in Company's sole discretion,
are objectionable or unacceptable. Contractor agrees that entry onto Company's
property is a revocable privilege.
8.3 Contractor Employees - Experience and Training. Contractor
shall supply a sufficient number of trained personnel to perform the Services.
Contractor shall notify the Company Representative or Designee prior to
allowing a trainee onto Company property. Unless otherwise agreed, employees
of Contractor and its subcontractors performing Services shall have at least
one (1) year of experience performing tasks similar to the Services.
8.4 Protection of Material and Work. Notwithstanding Article 11
of this Exhibit A, but subject to Article 9 of this Exhibit A, Company shall
DEFEND, INDEMNIFY AND HOLD CONTRACTOR HARMLESS for loss or damage above $10,000
per occurrence to equipment, materials, and machinery which will become or are
part of the Services and become Company property after delivery to the Services
site. Contractor shall not charge Company for builder's "all-risk" type
insurance for said loss or damage.
8.5 Incident Reporting. Contractor shall furnish Company, and
require its subcontractors to furnish Company, with immediate notification of
any injury to an individual or damage to public, private or Company property or
any safety, health, and environmental incidents at Company sites. Contractor
shall provide Company with (i) a detailed written incident report within
twenty-four (24) hours after the occurrence of the incident; (ii) a copy of
Contractor's investigation report, if any, other than any such reports that are
protected by the attorney/client privilege; and (iii) a copy of all requested
or required documentation (other than attorney/client privileged documents).
8.6 Changes and Extra Work. Company may order extra Services or
may make changes to the Services, the Master Contract sum and timing, if
applicable, being adjusted accordingly in writing and signed by Company and
Contractor prior to any commencement of such Services. Failure of either Party
to execute the written change will render Company not liable for any increased
cost as a result of the change. In the case of explosion, fire, flood, blow-
out or other sudden emergency, whether of a same or different nature,
Contractor may take such steps and incur such expenses as in its opinion are
required to deal with the emergency to safeguard life and property. Provided
Contractor reports the emergency to Company as promptly as possible,
Contractor's right to compensation for such Services shall not be affected by
this Section 8.6.
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Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 25
8.7 Permits and Licenses. Prior to beginning Services, Contractor
shall obtain and maintain thereafter all material, licenses, permits,
certificates, and other forms of documentation reasonably necessary and
required by law of the Contractor to perform the Services. At Company's
request, Contractor shall furnish copies of such documentation. Performance of
the obligations in this Section 8.7 shall be at Contractor's sole expense.
8.8 Disposal of Company Property. Without the prior written
consent of Company, Contractor shall not dispose of, sell, remove, destroy, or
allow any other disposition of Company's property in Contractor's possession,
custody, or control except to the extent such disposition is reasonably
expected to occur pursuant to the scope of Services requested.
8.9 Work Hours. For Services on Company property, Company and
Contractor shall agree on Contractor's work hours. Work hours shall not be
changed unless approved by Company.
8.10 Restocking Charges. Company shall not be responsible for
restocking charges unless expressly agreed upon in writing prior to
commencement of Services hereunder.
8.11 Transportation and Handling of Equipment/Material. Unless
otherwise agreed, all material shipments shall be coordinated through the
Company Representative. If Contractor- supplied transportation is used,
Company shall only pay for transportation costs from the Contractor's closest
stock point to Company's appropriate shore base or field location. Company
reserves the right to arrange alternate transportation, including Company
transportation, for all material to be used in performing Services hereunder.
All delivery tickets shall include information sufficient to identify the
Services performed (e.g. rig name, location, well number, facility, lease, or
tank battery, a charge code (AFE number, feature number), contract number, and
requestor's name). Contractor shall receive, unload, move, store, and protect
its materials and equipment delivered to Company's site where Services are to
be performed and shall perform these functions with Contractor's personnel.
Upon request made prior to shipment, Company may agree, at its option, to do a
portion of the aforementioned work in accordance with Company's authorization
and billing procedures. In the event Contractor is requested by Company to
relocate, unload, move or store and protect Company equipment or materials, it
will do so only at Company approved and designated sites.
8.12 Third Party Purchases, Rentals, Equipment Inspection and
Equipment Repairs. Company may establish, and shall so properly notify
Contractor, limitations and procedures under which compensable items of
materials, supplies, machinery, equipment, or subcontractors, if any, shall be
purchased or rented, to the extent that such Company limitations and procedures
do not conflict with applicable federal, state, or local laws. Contractor
shall, to the extent practicable, minimize the rental of material and equipment
from third parties. Third party rentals by Contractor shall be at competitive
industry prices, after considering price and other relevant factors, and to the
knowledge of Contractor the equipment/material shall be fit for their intended
purpose. Company reserves the right, but not the obligation, to inspect the
equipment/material (either Contractor's or third party's) prior to its use in
the Services hereunder and to review inspection procedures and
equipment/material certification papers.
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Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 26
ARTICLE 9. WARRANTY/INSPECTION
9.1 Warranty. Contractor warrants and represents that it shall
(i) perform the Services in a good and workmanlike manner consistent with
applicable industry standards and practices in the geographic area; (ii) use
sound engineering and/or technical principles where applicable; (iii) perform
the Services in compliance with specifications provided or approved by Company;
and (iv) unless mutually agreed otherwise, use or furnish merchantable, fit,
and new equipment, materials, and machinery which will become or are part of
the Services and become Company property after delivery to the Services site.
To the extent assignable, all warranty rights and remedies available to
Contractor or its subcontractors, manufacturers, or suppliers with respect to
the Services shall be passed directly to Company. Company shall also have the
rights and remedies provided by the Uniform Commercial Code with respect to all
goods supplied hereunder. At no cost to Company, Contractor shall remedy
Contractor's nonconforming workmanship or replace nonconforming material and
equipment, including removal and replacement of facilities to (i) reveal and
(ii) repair or replace nonconforming Services. If Contractor does not remedy
nonconforming Services on demand, Company may do so at Contractor's expense.
If Contractor fails to pay this expense, Company may deduct all such expenses
from any proceeds due to Contractor, together with simple interest thereon at
the rate provided in Section 3.10, calculated from the due date of Company's
invoice for same until paid. At no cost to Company, Contractor shall
diligently and promptly remedy nonconforming workmanship, material and
equipment appearing (i) within one (1) year from the date of final acceptance
of Services (except downhole Services), (ii) within 120 days of final
acceptance of downhole Services, and (iii) within such longer period of time as
provided by any Contractor's, subcontractor's, manufacturer's, or supplier's
warranty available to Company hereunder. The foregoing express remedies of
this Section 9.1 shall be Company's sole remedies for any breach of this
Section 9.1 or any other warranty of Contractor under this Master Contract.
9.2 Inspection. Company shall have the right to inspect the
Services regardless of location. Company's inspection of or failure to inspect
any portion of the Services shall not constitute approval by Company.
Inspection or approval by Company shall not relieve Contractor of its
obligations under this Master Contract.
ARTICLE 10. INSURANCE
10.1 Contractor's Insurance. Contractor shall procure and maintain
insurance coverages with minimum limits as described below. These coverages
are not to be considered indicative of the ultimate amounts or types needed by,
or required by law of, Contractor. If the monetary limits of the required
insurance do not conform with applicable law, the insurance policies shall
automatically be amended to conform to the monetary limits and other provisions
in such law.
(a) Worker's Compensation. Insurance which complies with
applicable workers' compensation and occupational disease laws and
covers all of Contractor's employees performing Services. Such
insurance must also be endorsed, if applicable, to cover claims under
the United States Longshore and Harbor Worker's Compensation Act
Master Services Contract Page A-9
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 27
extended to include the Outer Continental Shelf, the Jones Act, and
other applicable maritime law.
(b) Employer's Liability. Employer's Liability Insurance
with a limit of not less than $1,000,000 per occurrence.
(c) Commercial General Liability. Commercial General
Liability Insurance (Occurrence Form), including broad form
Contractual Liability, with a combined single limit for bodily injury
and property damage of not less than $ 1,000,000 per occurrence and an
annual aggregate of $ 2,000,000.
(d) Automobile Liability. Automobile Liability Insurance
which Contractor is obliged to carry under applicable laws with a
combined single limit for bodily injury and property damage of not
less than $1,000,000 per occurrence covering owned, non-owned, or
hired vehicles.
(e) Aircraft. If aircraft are used in connection with
the Services, Aircraft Liability Insurance with a combined single
limit for bodily injury and property damage of not less than
$10,000,000 per occurrence.
(f) Marine. If marine vessels are used in connection
with the Services, Protection and Indemnity Insurance including
collision liability, removal of debris, towing liability, and coverage
for admiralty benefits and damages under the Jones Act in an amount
not less than $1,000,000 per occurrence or the full value of each
vessel owned or chartered by Contractor, whichever is greater.
10.2 Asbestos Abatement. Contractor is not required to carry
Asbestos Abatement Insurance. However, if Contractor elects to carry Asbestos
Abatement Insurance, it shall obtain such insurance at its sole expense and
shall not directly or indirectly recoup the cost of such insurance from
Company.
10.3 Contractor's Obligations. Contractor's obligations and
liabilities under this Master Contract, including its indemnification
obligations, shall not be limited or relieved by Contractor's compliance or
noncompliance with these insurance-related provisions.
10.4 Certificates of Insurance and Premiums. At Company's request,
Contractor shall furnish Company with certificates of insurance demonstrating
that Contractor has obtained the required insurance coverages. Such
certificates shall contain a statement that the insurance coverage shall not be
changed or canceled without at least thirty (30) days prior written notice to
Company. Certificates of insurance shall be signed by an authorized
representative of each insurer and all coverage shall be written on policy
forms and by insurers reasonably acceptable to Company. Company may require
Contractor to include in its invoices a line item for Contractor's insurance
premiums allocable to the Services, or to arrange for Company to pay such
premiums directly to insurers, for Services performed in or Offshore the state
of Louisiana. If
Master Services Contract Page A-10
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 28
requested, Contractor shall assist Company in providing documentation proving
that insurance premiums are paid by Company.
10.5 Waiver of Subrogation/Additional Insured. With respect to all
obligations and liabilities of Contractor under this Master Contract, including
its indemnification obligations, Contractor's insurance policies related to
Commercial General Liability, Automobile Liability, Aircraft Liability, and
Protection and Indemnity (marine vessels) shall be endorsed to show Company, to
the extent necessary to cover Contractor's obligations and indemnities herein
and not for the purpose of insuring against Company's sole, gross, or simple
negligence as accepted by Company herein, as: (i) an additional insured, and
(ii) Contractor's insurance policies as being primary. Except for Company's
sole, gross, or simple negligence as accepted by Company herein, all
Contractor's insurance policies, whether or not listed in Section 10.1, shall
provide that Contractor's insurers waive all rights of subrogation against
Company, its co-lessees or co-venturers and their Parents, Subsidiaries,
Affiliates, insurers, agents (excluding Company's other third party
contractors), directors, officers, employees, or servants. Contractor shall
ensure that its subcontractors secure the same waiver of subrogation against
Company from their respective insurers.
10.6 Subcontractor Insurance Requirements. Contractor shall
require each of its subcontractors, if any, to carry and pay for workers'
compensation, occupational disease, employer's liability and such other
insurance required by law or as Contractor deems necessary.
10.7 Texas Oilfield Anti-Indemnity Statute. If the Texas Oilfield
Anti-indemnity Statute, V.T.C.A., Civil Practice & Remedies Code Sections
127.001 et seq., and its amendments apply to this Master Contract, the mutual
indemnification contained in this Master Contract shall be fully supported by
the available insurance or qualified self-insurance carried by the indemnifying
Party having the lower limit. With respect to unilateral indemnities,
Contractor's liability insurance shall support its indemnities hereunder to the
extent of $500,000 of insurance or self insurance, or the maximum amount
permitted by Section 127.005 of said Statute (or any successor legislation),
whichever is greater.
ARTICLE 11. INDEMNIFICATION
11.1 Application of Indemnities. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS MASTER CONTRACT, ANY INDEMNIFICATION AND DEFENSE OBLIGATION IN
THIS MASTER CONTRACT APPLIES REGARDLESS OF (1) THE CAUSE OF OR REASON FOR ANY
COVERED LOSS OR LIABILITY; (2) THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OR
OTHER FAULT, WHETHER ACTIVE OR PASSIVE, OF THE INDEMNIFIED PARTY; AND (3)
WHETHER THE LOSS OR LIABILITY RESULTS FROM ACTIONS OF THE INDEMNIFIED PARTY,
ITS AGENTS OR EMPLOYEES. THE LIABILITIES COVERED SHALL ALSO INCLUDE (1) THE
UNSEAWORTHINESS OR UNAIRWORTHINESS OF VESSELS OR CRAFTS; (2) DEFECTS IN ANY
BUILDING, STRUCTURE, OR EQUIPMENT; AND (3) CONDITIONS, ACTS, OR OMISSIONS WHICH
IMPOSE STRICT LIABILITY. THE INDEMNIFICATION AND DEFENSE OBLIGATIONS SHALL
APPLY EVEN IF CLAIMS
Master Services Contract Page A-11
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 29
RELATED TO GROSS NEGLIGENCE AND WILLFUL MISCONDUCT ARE ALLEGED AGAINST THE
PARTY OWED INDEMNIFICATION AND DEFENSE. IF SUCH ALLEGATIONS OF GROSS
NEGLIGENCE AND/OR WILLFUL MISCONDUCT RESULT IN A JUDGMENT OF GROSS NEGLIGENCE
AND/OR WILLFUL MISCONDUCT AGAINST THE INDEMNIFIED PARTY, THEN, TO THE EXTENT OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY, THE
INDEMNIFYING PARTY SHALL BE (1) ENTITLED TO REIMBURSEMENT OF COSTS IN PROVIDING
SUCH DEFENSE AND (2) RELEASED FROM THE INDEMNIFICATION OBLIGATIONS IN THIS
MASTER CONTRACT.
11.2 Indemnified Party. FOR THE PURPOSES OF INDEMNIFICATION
PROVIDED IN THIS ARTICLE 11, THE INDEMNIFIED PARTY SHALL BE DEFINED TO INCLUDE
ITS PARENTS, SUBSIDIARIES, AFFILIATES, CO-VENTURERS, CO-LESSEES, TOGETHER WITH
ALL OF ITS AND THEIR DIRECTORS, OFFICERS, EMPLOYEES, SHAREHOLDERS, UNDERWRITERS
AND INSURERS.
11.3 General Indemnification. Except as otherwise provided in
Sections 3.7, 8.4, 11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 11.10, 11.11, 11.12,
11.15, and 13.1 of this Exhibit A, Contractor shall DEFEND, INDEMNIFY AND HOLD
COMPANY HARMLESS from loss or liability (including reasonable legal fees and
expenses) arising from any claim or cause of action for loss of or damage to
property, violation of governmental laws, regulations or orders, or injury to
or death of individuals, caused by, arising from, or incidental to the
Services. However, such indemnification shall not apply to claims for loss,
damage, injury or death caused by Company's sole negligence. Contractor's
indemnity obligations under this provision shall be limited to $1,000,000 per
occurrence, and the amount of any loss or liability above $1,000,000 per
occurrence shall be allocated on the basis of applicable law.
11.4 Employees of Company. Notwithstanding anything to the
contrary in this Master Contract, Company shall DEFEND, INDEMNIFY AND HOLD
CONTRACTOR HARMLESS from any loss or liability (including reasonable legal fees
and expenses) arising from any claim or cause of action for injury to or death
of Company's employees.
11.5 Employees of Contractor. Notwithstanding anything to the
contrary in this Master Contract, Contractor shall DEFEND, INDEMNIFY AND HOLD
COMPANY HARMLESS from any loss or liability (including reasonable legal fees
and expenses) arising from any claim or cause of action for injury to or death
of Contractor's employees.
11.6 Property of Company. Notwithstanding anything to the contrary
in this Master Contract (but subject to Section 8.4 of this Exhibit A with
respect to equipment, materials, and machinery which will become or are part of
the Services and become Company property after delivery to the Services site),
Contractor shall be liable for physical damage to or physical loss of Company's
tangible property (including reasonable legal fees and expenses) arising from
or incidental to the Services up to $1,000,000 per occurrence. Contractor
shall not be liable to the extent such physical damage or physical loss is
caused by Company's negligence. Company shall DEFEND, INDEMNIFY AND HOLD
CONTRACTOR HARMLESS from any loss or liability
Master Services Contract Page A-12
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 30
(including reasonable legal fees and expenses) arising from any claim or cause
of action for physical damage to or physical loss of Company's tangible
property above $1,000,000 per occurrence.
11.7 Property of Contractor. Any physical damage to or physical
loss of Contractor's tangible property shall be the loss of Contractor. Except
as otherwise provided in this Master Contract, Contractor shall DEFEND,
INDEMNIFY AND HOLD COMPANY HARMLESS from any loss or liability (including
reasonable legal fees and expenses) arising from any claim or cause of action
for such physical damage or physical loss. Contractor and its insurers waive
any right of recovery against Company for such physical damage or physical
loss.
11.8 Pollution. Contractor shall DEFEND, INDEMNIFY AND HOLD
COMPANY HARMLESS from any loss or liability (including reasonable legal fees
and expenses) arising from any claim or cause of action for loss or damage due
to pollution or contamination caused by substances in Contractor's possession
and control (e.g., fuels, lubricants, motor oils, pipe dope, paints, solvents
or garbage). Company shall DEFEND, INDEMNIFY AND HOLD CONTRACTOR HARMLESS from
any loss or liability (including reasonable legal fees and expenses) arising
from any claim or cause of action for loss or damage arising from pollution or
contamination (including products from a well) which emanated from subsurface
property or pipelines owned or operated by Company; however, Contractor shall
reimburse Company up to $1,000,000 per occurrence to the extent such loss or
damage results from Contractor's negligence.
11.9 Uninsured Subsurface Equipment of Contractor. (FOR DOWNHOLE
SERVICES ONLY) Company shall reimburse Contractor for the Depreciated Value of
Contractor's uninsured subsurface equipment lost or damaged in the hole below
the rotary table by reason of in-hole difficulties unless such in-hole
difficulties result from Contractor's negligence. As used in this provision,
"Depreciated Value" shall be the agreed replacement value specified in the
current Price List(s) on the date of loss (or if there is no such agreed
replacement value, then the original purchase price) for such lost or damaged
subsurface equipment, less accumulated depreciation at two percent (2%) per
month from the date of first usage. When Contractor submits its invoice for
loss of equipment, it shall also submit documentary evidence of purchase price
(if applicable) and date of first usage. If the equipment can be repaired,
Company shall either reimburse Contractor for all reasonable repair costs or
pay the Depreciated Value of the equipment, whichever is less. Company shall
also reimburse Contractor for all reasonable costs related to shipment of the
replacement equipment to the Services site.
11.10 Formation or Reservoir Damage. (FOR DOWNHOLE SERVICES ONLY)
Company shall DEFEND, INDEMNIFY AND HOLD CONTRACTOR HARMLESS from any loss,
damage, or liability (including reasonable legal fees and expenses) arising
from any claim or cause of action for damage to any geological formation,
strata, or reservoir beneath the wellhead or loss of or damage to underground
freshwater reservoirs.
11.11 Loss of Hole. (FOR DOWNHOLE SERVICES ONLY) Notwithstanding
anything to the contrary in this Master Contract, Company shall bear all risk
and responsibility
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Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 31
for loss of the hole. However, if such loss or damage results from the
negligence or other fault of Contractor, then Contractor shall re-perform the
Services at zero percent (0%) of the compensation set forth in Exhibit C to the
point of such loss or damage.
11.12 Blowout. (FOR DOWNHOLE SERVICES ONLY) If a well should
blowout or crater, Company shall be liable for the cost of killing the well or
otherwise bringing it under control. This provision applies only to the direct
cost of bringing such well under control and not to the loss of property,
injuries, or damages caused by such blowout or crater.
11.13 Defense. At Company's option and at Contractor's sole
expense, Contractor shall defend any litigation, administrative, or adversarial
proceeding against Company relating to any loss, damage, or liability for which
Contractor has agreed to DEFEND, INDEMNIFY AND HOLD COMPANY HARMLESS. At
Contractor's option and at Company's sole expense, Company shall defend any
litigation, administrative, or adversarial proceeding against Contractor
relating to any loss, damage, or liability for which Company has agreed to
DEFEND, INDEMNIFY AND HOLD CONTRACTOR HARMLESS. If a Party declines to accept
a defense, such Party may provide its own defense and it shall be entitled to a
contribution from the other Party that is equal to fifty percent of the legal
fees and expenses incurred in conducting its defense. Each Party shall notify
the other immediately of any claim, demand, or suit relevant to this Master
Contract affording such other Party full opportunity to defend itself.
11.14 Subcontractors. Subcontracts, if any, shall contain waivers
of subrogation and indemnification provisions equivalent to those in this
Master Contract such that Contractor's subcontractors shall undertake the same
indemnification obligations and duties for Company's benefit as does
Contractor. If subcontracts contain waivers of subrogation and indemnification
provisions which extend to Company, then the indemnification provisions
favoring Contractor in this Master Contract shall extend to such
subcontractors. If subcontracts do not contain such waivers of subrogation and
equivalent indemnification provisions, then subcontractor personnel and
property associated with the Services shall be deemed employees and property of
Contractor for the limited purposes of these indemnification provisions.
11.15 Proprietary Rights and Intellectual Property. Except as
Company shall deprive Contractor of freedom of choice, Contractor warrants that
Company's possession, use or disclosure of information furnished by Contractor
to Company, as well as the Services performed for Company by Contractor, shall
not violate the proprietary or intellectual property rights of any third party,
including copyrights, patents, trade secrets or trademarks. CONTRACTOR WILL
UNDERTAKE AT ITS OWN EXPENSE THE DEFENSE of any suit or action based on the
alleged violation of the intellectual property rights of any third party, AND
WILL HOLD COMPANY FREE AND HARMLESS FROM any damages or other sums that may be
assessed in or become payable under any decree or judgment by any Court
resulting from such suit or action. Contractor will be fully responsible for
and will have sole charge of the defense of any such suit or action. Company
will render Contractor reasonable assistance that may be required in the
defense of such suit or action at Contractor's expense, and Company shall have
the right to be represented therein by advisory counsel of its own selection
and at its own expense. Contractor shall not settle or compromise
Master Services Contract Page A-14
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 32
any such suit or action without the written consent of Company if the
settlement or compromise obligates Company to make any payment or part with any
property or assume any obligation or grant any licenses or other rights by
reason of such settlement or compromise.
11.16 No Consequential or Punitive Damages. Except (i) for the
remedies, indemnification and hold harmless provisions expressly provided in
this Master Contract, and (ii) to the extent caused by gross negligence, fraud
or willful misconduct, neither Party shall be liable to the other for special,
consequential, or punitive damages for lost revenues or profits, cost of
capital, lost production or products, liability to third parties for failure to
deliver products, loss of opportunity for business with third parties, or
punitive or exemplary damages.
11.17 Legal Fees and Expenses. Except as may otherwise be expressly
provided in the Arbitration Procedures, all costs, legal fees, and other
expenses incurred by each Party in connection with the preparation,
negotiation, execution, delivery, administration and enforcement of this Master
Contract, including those incurred in any mediation, arbitration, or court
proceeding, shall be for the account of, and borne and paid solely by, such
Party.
11.18 Liability Limitations. ANY LIMITATION ON OR EXCULPATION FROM
LIABILITY AFFORDED EACH PARTY BY THIS MASTER CONTRACT SHALL BE APPLICABLE
REGARDLESS OF WHETHER THE ACTION OR CLAIM IS BASED IN CONTRACT, TORT, STATUTE,
STRICT LIABILITY OR OTHERWISE AND SHALL LIKEWISE LIMIT THE LIABILITY OF EACH
PARTY'S AFFILIATES, AND THEIR OFFICERS, AND EMPLOYEES.
ARTICLE 12. TAXES
12.1 Taxes. Lump-sum compensation shall include sales, use, and
other excise taxes arising from performance of the Services. Contractor shall
pay applicable taxes directly to its suppliers or to the appropriate tax
authorities. If compensation to Contractor is other than lump-sum,
Contractor's invoices shall display the total amount of applicable sales, use,
and other excise taxes paid or billed by Contractor. Contractor shall not bill
Company for sales and use taxes for Services performed in jurisdictions where
Company has authority to accrue and pay taxes directly to the appropriate tax
authorities. Company will furnish appropriate tax exemption certificates to
Contractor.
ARTICLE 13. COMPLIANCE WITH LAWS
13.1 Laws and Regulations. Contractor and Company shall comply
with, and shall require all others engaged by them to comply with, federal,
state, and local laws, rules, and regulations pertaining to the Services.
Contractor shall be liable for and shall DEFEND, INDEMNIFY AND HOLD COMPANY
HARMLESS against the payment of any fines or penalties levied against Company
for Contractor's or its subcontractors' violation of such laws, rules, or
regulations. Company shall be liable for and shall DEFEND, INDEMNIFY AND HOLD
CONTRACTOR HARMLESS Contractor against the payment of any fines or penalties
levied against Contractor for Company's or its other contractors' violation of
such laws, rules and
Master Services Contract Page A-15
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<PAGE> 33
regulations. Notwithstanding any provision to the contrary, Company shall not
be responsible for downtime or other charges incurred by Contractor due to such
violations caused by Contractor or its subcontractors. Contractor accepts
exclusive liability for, and shall DEFEND, INDEMNIFY AND HOLD COMPANY HARMLESS
against, payment of contributions, taxes, and penalties for unemployment
insurance or compensation, pensions, annuities, benefits, or other amounts
related to compensation of personnel engaged by Contractor or its
subcontractors, including amounts Company must collect, deduct or pay. To the
extent required by law, rule or regulation Contractor and Company shall comply,
and require their subcontractors to comply, with the following: The
Immigration Reform and Control Act of 1986 and related regulations; The Equal
Opportunity Clause prescribed in 41 CFR 60-1.4 (race, color, religion, sex,
national origin); the Affirmative Action Clause prescribed in 41 CFR 60-250.4
(veterans); and the Affirmative Action Clause prescribed in 41 CFR 60-741.4
(handicapped workers); 48 CFR Chapter 1, Subpart 19.7 (Small Business and Small
Disadvantaged Business Concerns) and 48 CFR Chapter 1 Subpart 20.3 (utilization
of Labor Surplus Area Concerns); Executive Order 12138 (women-owned
businesses); 41 CFR 60-1.40 (establishment of a written affirmative action
program within 120 days from the Effective Date of this Master Contract); 41
CFR 60-1.7 (filing the Employer Information Report annually); 41 CFR 60-1.8
(non-segregated facilities); The Fair Labor Standards Act of 1938 as amended,
and related regulations; 46 CFR Parts 4, 5 and 16, and 49 CFR Parts 40 and 199
(the Anti-Drug Plan and Drug Testing requirements of the U.S. Coast Guard, the
U.S. Department of Transportation, and the U.S. Research and Special Programs
Administration); and The Clean Air Act, the Occupational Safety and Health Act
(regulating the handling and use of asbestos or asbestos-containing material),
40 CFR Part 61 Subparts A and M, 29 CFR 1926.58 (Construction, Industrial
Standards for Asbestos), 29 CFR 1910.1001 and 1101 (Asbestos), 29 CFR 1910.134
(Respiratory Protection), 29 CFR 1910.20 (Medical), and all other applicable
state rules and regulations for the abatement of asbestos materials.
ARTICLE 14. ETHICS AND CONFLICTS OF INTEREST/AUDITS
14.1 Ethics and Conflicts of Interest. Contractor shall not,
directly or indirectly, pay salaries, commissions or fees, or make payments or
rebates to employees or officers of Company. Contractor shall not favor
employees or officers of Company, or designees of such employees or officers,
with gifts or entertainment of significant cost or value, or with services or
goods sold at less than full market value. Contractor shall not enter into
business arrangements with employees or officers of Company, unless such
employees or officers are acting as representatives of Company.
14.2 Audits. Contractor shall maintain, in accordance with
generally accepted accounting principles and practices, records reflecting the
accuracy of Contractor's charges, including invoices for compensation, and
other information as Company may reasonably require in connection with this
Master Contract. Contractor shall preserve such documents, without receipt of
additional compensation, for at least two (2) years after the date of final
payment. Upon reasonable notice and during normal business hours, Company may
audit such documents to verify compliance with this Master Contract and may
inspect Contractor's facilities used to perform the Services. Contractor shall
cooperate fully with Company during audits performed under this Section 14.2,
including furnishing to Company copies of all requested documents (other than
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Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 34
attorney/client privileged documents), except for information with respect to
Contractor's prices for services and work provided to third parties, which
Company may audit only by way of an independent auditing firm which shall not
disclose the identity of the third party associated with such information to
Company. Company may also obtain statements from Contractor's personnel to
conduct audits.
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Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 35
ARTICLE 15. GOVERNING LAW, MEDIATION, AND ARBITRATION
15.1 Governing Law. EXCEPT FOR SERVICES PERFORMED OFFSHORE, THIS
MASTER CONTRACT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCLUDING
THE TEXAS RULES ON CONFLICTS OF LAWS. TO THE EXTENT PERMITTED BY LAW, THE
PARTIES HERETO MUTUALLY WAIVE THE PROVISIONS OF TEX. BUS. COM. CODE ANN. CH.
17, AS AMENDED. FOR SERVICES PERFORMED OFFSHORE, THE PROVISIONS OF THIS MASTER
CONTRACT SHALL BE CONSTRUED IN ACCORDANCE WITH THE GENERAL MARITIME LAW OF THE
UNITED STATES OR, IF IMPERMISSIBLE, WITH THE LAWS OF THE STATE APPLICABLE TO
THE SERVICES. "Offshore" shall be defined as all areas in, on, above, or under
the navigable or territorial waters of the United States or its Outer
Continental Shelf, including all streams, tributaries, rivers, bayous, bays,
oceans, and the Gulf of Mexico, whether or not within the boundaries of any
state, and including (i) all Services of Contractor immediately adjacent to
said waters, such as Services involving operations on docks, wharves, piers, or
terminals, or vessel loading, (ii) all Services of Contractor directly
connected with a job site in, on, above, or under said waters, such as the
transport of personnel and equipment to or from the job site, and (iii) all
Services on, above, or under artificial islands, fixed structures, floating
structures, or vessels located in said waters.
15.2 Mediation and Arbitration. Compliance with this Section 15.2
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Master Contract. Any dispute concerning
this Master Contract shall be resolved under the mediation and binding
arbitration procedures of this Section 15.2 and Exhibit G to the Master
Contract. Company and Contractor will first attempt in good faith to resolve
all disputes by negotiations between management level individuals who have
authority to settle the controversy. If either Party believes further
negotiations are futile, such Party may initiate the mediation process by so
notifying the other Party in writing. Both Parties shall then attempt in good
faith to resolve the dispute by mediation in Houston, Texas, employing
management level individuals with authority to settle the dispute, in
accordance with the Center for Public Resources Model Procedure for Mediation
of Business Disputes, as such procedure may be modified by mutual agreement of
the Parties. If the dispute has not been resolved pursuant to mediation within
sixty (60) days after initiating the mediation process, the dispute shall be
finally resolved through binding arbitration under the terms and provisions of
the arbitration procedures hereby adopted by the Parties that are attached as
Exhibit G to the Master Contract ("Arbitration Procedures").
ARTICLE 16. MISCELLANEOUS
16.1 Independent Contractor. Contractor is an independent
contractor. The employees, methods and equipment supplied or used by
Contractor, its subcontractors, or lessors shall at all times be under
Contractor's exclusive direction and control. Contractor, its employees, and
subcontractors shall not be employees, agents, partners, or joint venturers of
Company. Company shall not direct or control the method or manner in which
Contractor performs the Services, but shall be interested only in securing the
desired results.
Master Services Contract Page A-18
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 36
16.2 Subcontracting. Without the prior written consent of Company,
which may be withheld for any reason including convenience (but subject to
Section 7.1 of the Master Contract), Contractor shall not assign or transfer
the performance of the Services, in whole or in part, nor contract any of the
Services to a subcontractor or other third party. The terms of this Master
Contract shall be incorporated into all tier subcontracts.
16.3 Confidentiality. Contractor agrees that information (e.g.,
drawings, designs, software, and business plans) owned or licensed and
furnished by Company to Contractor or information developed under this Master
Contract is the personal property of Company. Contractor shall (i) hold such
information in confidence, (ii) use such information solely for purposes of
implementing this Master Contract, and (iii) impose the same obligation upon
its subcontractors. Termination or expiration of this Master Contract shall
not relieve Contractor of its obligations under this Section 16.3. Contractor
shall provide Company with originals and all copies of information used or
developed under this Master Contract, which shall become Company's property;
however, Contractor may retain one copy for its files. Any confidential
information of third parties which Contractor has been authorized to receive
under this Master Contract shall be governed by the terms of such separate
agreements authorizing such disclosures including the obligations of
confidentiality and restrictions on use.
16.4 Inventions. Contractor shall disclose to Company any
inventions or improvements, patentable or unpatentable, made by Contractor, its
employees, consultants and subcontractors, either made alone or jointly with
others, as a result of the Services performed hereunder. Contractor, to the
extent it has the lawful right to do so, hereby grants to Company and to their
assignees a worldwide, irrevocable immunity from suit for the use in all
countries of any discovery, invention or improvement, patentable or
unpatentable, patented or unpatented, made by Contractor, its employees,
consultants and subcontractors, in or as a result of the performance of the
Services hereunder. Such immunity from suit shall extend to operations where
Company has a bona fide commercial interest, including operating arrangements
and joint ventures where Company has a minority or non-controlling interest and
includes situations where Company is not an operator.
16.5 Nondisclosure and Publicity. Contractor shall not, without
Company's prior written consent, disclose to others (i) the terms and
conditions under which Company has purchased or plans to purchase Services or
materials from Contractor, or (ii) the structure or composition of articles or
materials, information, or methods which are provided by Company, except when
such disclosure is necessary to provide the Services required under this Master
Contract or as required by law. Contractor shall not, without the prior
written consent of Company, use Company's name in connection with any
publicity, release, advertisement, or other publication. Notwithstanding the
foregoing, Contractor shall have no obligation of confidentiality under this
Master Contract with respect to information that (i) is already in the
possession of Contractor at the time of disclosure without previous binder of
secrecy to Company, (ii) is acquired independently from a third party that has
the right to disseminate said information at the time acquired by Contractor,
(iii) is already in possession of the public or becomes available to the public
other than through the act or omission of Contractor, or (iv) is required to be
disclosed under applicable law or by a governmental order, decree, regulation
or rule (provided that
Master Services Contract Page A-19
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 37
Contractor shall give written notice to Company prior to such disclosure).
Contractor may disclose such confidential information to its attorneys,
accountants, financial advisors, and lenders as may be necessary or convenient,
who shall be advised of the confidential nature of the information and who have
agreed in writing not to disclose and to use the same only for the specific
purposes for which they have been engaged by Contractor and only for the
benefit of Contractor or Company.
16.6 Force Majeure. Except for the obligation to make payment for
Services performed or goods delivered or other financial obligations due under
this Master Contract, neither Party shall be liable for nonperformance under
this Master Contract to the extent caused by circumstances beyond the control
of the non-performing Party including, but not limited to, governmental
decrees, laws, acts of God, strikes or other concerted acts of workers, bomb
threats, fires, floods, explosions, riots, war, and sabotage. The non-
performing Party shall diligently attempt to remove the cause(s) of the force
majeure. If Contractor is affected by an event of force majeure, it shall
notify Company as soon as practicable in writing of the occurrence and the
extent to which the occurrence will impact Contractor's performance under this
Master Contract. If Contractor does not give such notice, it may not claim
force majeure as a defense. If, in Company's opinion, an event of force
majeure will delay Contractor's performance of any Services then requested and
in progress for a period of more than seven (7) days, Company may terminate
such Services without giving rise to any claim for compensation from Contractor
other than for Services completed up to the time of termination.
16.7 Subcontractor Obligations. Contractor's obligations to
Company under this Master Contract shall be binding upon all of its
subcontractors and lessors contributing to the Services. Contractor shall
incorporate the provisions of this Master Contract into such subcontracts and
leases.
16.8 Minority Business Utilization. Contractor shall provide
maximum practicable use of minority subcontractors and suppliers in performance
of the Services. Minorities include, but are not limited to, Black Americans,
Hispanic Americans, Native Americans, Asian-Pacific Americans, and Asian-Indian
Americans. A minority business is at least 51% owned by a minority or group of
minorities and has its management and daily business controlled by one or more
such individuals. At Company's request, to the extent available Contractor
shall report the dollar amounts paid by Contractor to minority subcontractors
and suppliers for goods and Services used in performance of the Services.
16.9 Severability. If a provision of this Master Contract is
determined to be void or unenforceable, this finding shall not render other
provisions void or unenforceable.
16.10 Waiver. The waiver on the part of any Party to this Master
Contract of one or more of its rights under this Master Contract shall not
represent a continuing waiver of such rights or prohibit such Party from
demanding the full performance of the other Party's obligations under this
Master Contract.
Master Services Contract Page A-20
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 38
16.11 Headings. The headings and captions used in this Master
Contract are for convenience only and shall not be deemed to be of a
substantive nature in construing this Master Contract.
16.12 Entire Contract and Contract Modification. This Master
Contract reflects the entire agreement between the Parties with respect to the
provision of Services. Except for any confidentiality agreements between the
Parties, all other oral or written agreements, contracts, understandings,
conditions, or representations with respect to the provision of Services are
superseded by or merged into this Master Contract. No modification of this
Master Contract shall be of any force or effect unless it (i) is in writing,
(ii) reflects the effective date of the modification, (iii) is signed by both
Parties, and (iv) expressly indicates that it modifies this Master Contract.
16.13 Relationship. Neither Company nor Contractor intend to create
a partnership, joint venture, agency, association, trust or other legal entity
between the Parties, or to constitute either Party as a partner or agent of the
other Party, and neither this Master Contract nor any of the operations or
activities hereunder or pursuant hereto shall be construed or considered as
creating such a relationship or constituting either Party as a partner or agent
of the other Party or to impose a partnership, principal-agent or fiduciary,
duty, obligation, or liability between or with respect to the Parties hereto.
16.14 No Rights Given to Third Parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any Person
or entity (other than the Parties, their Affiliates and the Persons indemnified
under Article 11 hereof) any rights or remedies under or by reason of this
Master Contract.
16.15 Other Third Party Services. Contractor is providing Services
to Company under this Master Contract on a non-exclusive basis. Company shall
have the right to enter into contracts or other arrangements with its
Affiliates or third parties for services equivalent to those offered by
Contractor hereunder as may be necessary or convenient, and Company is not
restricted by this Master Contract from contracting for the same from other
providers.
16.16 Execution in Counterparts. Each text of this Master Contract
may be executed in any number of counterparts, each of which shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.
Master Services Contract Page A-21
Exhibit A -- General Terms and Conditions CONFIDENTIAL
<PAGE> 39
EXHIBIT B
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
SCOPE OF SERVICES
ARTICLE 1. SCOPE OF SERVICES
The scope of Services to be provided by Contractor on a non-exclusive basis
will include, but not be limited to, those listed as the Services in Article 2
below all in accordance with the respective standards and technical
specifications detailed in the referenced Exhibits. The exact scope of
Services and in particular the manner in which they are provided may be revised
or further determined by the authorized representatives of Company. Where
Contractor is requested to undertake Services not detailed in this Exhibit B -
Scope of Services, then such Services will be the subject of an executed
Request for Services or an amendment to this Master Contract.
However, notwithstanding anything to the contrary herein provided, Company
reserves the right, at its sole discretion, to amend its standards and
technical specifications, or its safety, environmental and ethics policies and
procedures at any time upon issuing notice to Contractor. Contractor shall,
within a reasonable amount of time bring the Services into compliance with such
changes. Should such changes impact pricing, Contractor shall issue notice of
the impact, together with documentation, as a direct result of the change in
price, which Company will approve by amendment to Exhibit C prior to the
commencement of Services to be performed under the new prices.
ARTICLE 2. THE SERVICES
Company and Contractor herein define their intentions, understandings and
agreement that the basis of Services provided shall be as set forth in this
Exhibit B, Exhibits B 2.01 through B 2.21 or such other Exhibits as may be
mutually agreed to be included by amendment hereto. These Exhibits B 2.01
through B 2.21 reflect Company's minimum requirements and are general in
nature. Company reserves the right, at its sole election at any time, to issue
its more specific plans for particular wells or requested Services and
Contractor agrees to undertake the provision of its Services in accordance with
such specific requirements. Contractor shall arrange for its personnel,
material and equipment to be available, willing, ready, and able to perform the
below listed Services for Company:
2.01 BOP & Nipple Up. Refer to the attached Exhibit B 2.01 for
Company's general scope of work.
Master Services Contract Page B-1
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 40
2.02 Casing & Laydown. Refer to the attached Exhibit B 2.02 for
Company's general scope of work.
2.03 Coiled Tubing. Refer to the attached Exhibit B 2.03 for
Company's general scope of work.
2.04 Contract Drilling. Refer to the attached Exhibit B 2.04 for
Company's general scope of work.
2.05 Contract Personnel. Refer to the attached Exhibit B 2.05 for
Company's general scope of work.
2.06 Directional Drilling. Refer to the attached Exhibit B 2.06
for Company's general scope of work.
2.07 Equipment Rental. Refer to the attached Exhibit B 2.07 for
Company's general scope of work.
2.08 Fast Line. Refer to the attached Exhibit B 2.08 for Company's
general scope of work.
2.09 Fishing Equipment. Refer to the attached Exhibit B 2.09 for
Company's general scope of work.
2.10 Mud / Fluids. Refer to the attached Exhibit B 2.10 for
Company's general scope of work.
2.11 Pipeline Construction. Refer to the attached Exhibit B 2.11
for Company's general scope of work.
2.12 Pumping. Refer to the attached Exhibit B 2.12 for Company's
general scope of work.
2.13 Site Construction. Refer to the attached Exhibit B 2.13 for
Company's general scope of work.
2.14 Snubbing. Refer to the attached Exhibit B 2.14 for Company's
general scope of work.
2.15 Trucking. Refer to the attached Exhibit B 2.15 for Company's
general scope of work.
2.16 Tubular Inspection. Refer to the attached Exhibit B 2.16 for
Company's general scope of work.
Master Services Contract Page B-2
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 41
2.17 Welding. Refer to the attached Exhibit B 2.17 for Company's
general scope of work.
2.18 Well Test / Flowback. Refer to the attached Exhibit B 2.18
for Company's general scope of work.
2.19 Wireline-Electric. Refer to the attached Exhibit B 2.19 for
Company's general scope of work.
2.20 Wireline-Slick. Refer to the attached Exhibit B 2.20 for
Company's general scope of work.
2.21 Workover. Refer to the attached Exhibit B 2.21 for Company's
general scope of work.
ARTICLE 3. CALL OUT
3.01 Contractor's Response to Company's Request for Services. Upon
Company's issuance of a Request for Services, Contractor shall provide within a
reasonable time frame (consistent with Company's requirements), its
confirmation or not of its acceptance of the Request for Services.
3.02 Scheduling. Company shall use its best efforts to keep
Contractor appraised of Company's forecast work plans and schedules.
3.03 Request for Services - Call Out. Whether Company requests
Services from Contractor through a Request for Services, oral request, or
competitive bid, Contractor shall have a minimum of seventy-two (72) hours
prior notice that it has been awarded the Services. After the award of
Services, Company shall endeavor to give a minimum of twelve (12) hours advance
notice of when Contractor's crews and equipment are required to be on site to
perform the Services. In the event Contractor cannot respond within the time
required by Company's request and notices, then Contractor shall notify the
Company accordingly and it will be considered that the Services request is
withdrawn and of no further effect. Contractor may refuse to perform any
Company Services request, howsoever made, which does not provide Contractor
with the minimum notice periods herein provided, and it will be considered that
the Services request is withdrawn and of no further effect. In addition to the
foregoing but only for the calendar year 1997, Company shall not request, in
any manner, the contemporaneous performance of Services for Company which would
exceed Contractor's capacity limitations of equipment or qualified manpower, as
such capacity and quantities are described in Article 5 of this Exhibit B.
ARTICLE 4. CONTRACT MANAGEMENT BOARD
4.01 Contract Management Board Purpose. Each Party shall
participate in a Master Contract management board ("CMB"). The purpose of this
board is to provide the forum for the Parties to express and resolve issues
arising. A CMB meeting may be called by either Party upon
Master Services Contract Page B-3
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 42
its issuance of notice to the other of: a listing of the particular issues
needing to be addressed, a brief history of the reason for conducting the
meeting in terms of describing the steps taken to resolve the issues prior to
meeting, as well as the proposed meeting date, time and venue.
4.02 CMB Membership. The CMB shall be comprised of the appointed
representatives from each Party, the Company's Operations Manager, Contractor's
appointed Manager serving as its Single Point of Contact for all Services, and
either Party may invite upon mutual agreement such additional staff as are
necessary to serve as experts in the specific areas of work to be discussed.
4.03 Conflict Resolution Process. The process for resolving issues
or conflicts arising shall in all instances first start with the on-site field
representatives. Secondly, the respective Company discipline manager and
Contractor's service manager shall be apprised and seek to resolve issues
arising. Issues not resolved after the second step may be submitted to the
CMB. Should the CMB fail to resolve the conflict the CMB may submit the issue
for resolution in accordance with the agreed Master Contract terms for required
mediation and binding Arbitration Procedures as provided in Section 15.2 of
Exhibit A and Exhibit G to the Master Contract.
ARTICLE 5. CONTRACTOR'S 1997 CAPACITY
5.01 Available Equipment and Crews. Following is Contractor's
capacity limitation of equipment and qualified manpower for each type of
Services described in this Exhibit B for calendar year 1997, all of which will
be available to Company for its requested Services in 1997, subject to the
terms of this Master Contract:
<TABLE>
<CAPTION>
Service Personnel Equipment
- ------- --------- ---------
<S> <C> <C>
BOP & Nipple Up 27 9 units
Casing & Laydown 40 (5 crews) 5 machines
Coiled Tubing 6 1 unit
Contract Drilling
Auger Rig 2-4 (1 crew) 1 unit
Surface Casing Rig 2-4 (1 crew) 1 unit
Contract Personnel 35 (7 crews) Rigwasher
Sandblaster
Clean
Drifting
Directional Drilling 6 Operators Steering Tools
Equipment Rental Stabilizers
</TABLE>
Master Services Contract Page B-4
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 43
<TABLE>
<S> <C> <C>
Drilling Jars
Fast Line 15 3" Fastline (69 miles)
4 Submersibles
35 3 x 4 Skid Pumps
Fishing Equipment 4 Supervisors All fishing tools and equipment
necessary for open and cased
hole.
Mud / Fluids 28 20 Mud Cleaners
12 Engineers Service up to 30 drilling rigs
and waterbase for P&A's.
Pipeline Construction 60 3 Pipeline spreads at once
15 Sidebooms
9 Dozers
6 Maintainers
5 Trenders
8 Backhoes
Pumping 107 (Frac) 2 15,000 HP Fleets
6 100 bbl/min. Blenders
30 (Cement) 6 Twin Cementers
6 Bulk Cement Field Bins
Site Construction 60 4 Locations per week
10 Dozers
4 Rollers
2 Trackhoes
5 Maintainers
Snubbing 6 1 Unit (150,000#)
Trucking 168 20 Pole Trucks
5 Tandems
10 Winch Trucks
11 Haul Trucks
2 Cranes
3 Forklifts
63 Vacuum Trucks
10 Mud & Chemical Flatbeds
Tubular Inspection 16 (4 crews) 2 Casing Units
</TABLE>
Master Services Contract Page B-5
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 44
<TABLE>
<S> <C> <C>
2 Drill Pipe Units
Welding 108 40 Welding Rigs
Well Test / Flowback 61 (15 crews) 30 Manifolds
5 Test Separators
Wireline-Electric 15 (5 crews) 5 Cased Hole Trucks
Wireline-Slick 11 (5 crews) 5 Units
Workover 54 9 Rigs (550 - 350 HP)
12 Toolpushers 8 Power Swivels
2 Foremen 10 Triplex Pumps
</TABLE>
Master Services Contract Page B-6
Exhibit B -- Scope of Services CONFIDENTIAL
<PAGE> 45
EXHIBIT C
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
PRICING AND COMPENSATION
ARTICLE 1. PRICES
Contractor shall invoice Company and receive as compensation for its Services
the net result of the prices below less applicable discounts. Except in those
instances when requested Services are covered by a specific bid price or a
mutual written agreement (or Request for Services or written confirmation) on
the cost to perform a particular job, Contractor shall receive payment for
those Services provided as set forth in this Exhibit C in the following
Sections C 1.01 through C 1.21, in Contractor's price book dated May 1, 1997,
or such other pricing as may be mutually agreed to be included by amendment
hereto (hereinafter referred to as Contractor's "Price List(s)" as the case may
be). Additionally, subject to Article 2 below, the Parties hereby set forth in
Sections C 1.01 through C 1.21 hereof the agreed discount rates to be applied
to each respective invoice for Services until such discount rate or list price
is replaced by new rates or discounts. Contractor shall not receive any
compensation if, for any reason after Services are requested, Contractor is
unable to carry out requested Services because its personnel, material and
equipment were not available, willing, ready, or able to perform the below
listed Services for Company.
Contractor's Price Lists follow:
Contractor shall commence the application of the respective following charges,
when pricing as per Contractor's Price List and this Exhibit C are in effect,
from the time Contractor's personnel, equipment, and supplies are on site and
rig up has commenced; until that time Contractor's equipment and personnel are
rigged down and released (transportation charges to be added as per services
and rates detailed in Contractor's Price Lists and calculated from Contractor's
Laredo base to Company's job site). However, provided in the event Contractor
has not been permitted by Company to commence its Services within eight (8)
hours from arriving at the job site, then Contractor may commence charges
regardless whether or not work has commenced.
1.01 BOP & Nipple Up: Refer to the attached Exhibit C 1.01 for
Price List information. Contractor agrees to apply [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.02 Casing & Laydown: Refer to the attached Exhibit C 1.02 for
Price List information. Contractor agrees to apply [omitted - confidential]
discount as a reduction from this
Master Services Contract Page C-1
Exhibit C -- Pricing and Compensation CONFIDENTIAL
<PAGE> 46
Price List and show such discount on every invoice issued by Contractor to
Company for this particular service.
1.03 Coiled Tubing: Refer to the attached Exhibit C 1.03 for Price
List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.04 Contract Drilling: Refer to the attached Exhibit C 1.04 for
Price List information for Services performed with the "Auger Rig" and "Surface
Casing Rig". Contractor agrees to apply a [omitted - confidential] discount on
the Surface Casing Rig operations - Surface Pipe Drilling "Turn Key" rates, and
a [omitted - confidential] discount on the Auger Rig operations - Rathole
Drilling and Setting Conductor rates as reductions from this Price List and show
such discount on every invoice issued by Contractor to Company for these
particular services. Other Contract Drilling Services will be performed at
prices which are periodically bid or mutually agreed upon.
1.05 Contract Personnel: Refer to the attached Exhibit C 1.05 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount on equipment rentals and a [omitted - confidential] discount on
Contract Personnel as reductions from this Price List and show such discount on
every invoice issued by Contractor to Company for this particular service.
1.06 Directional Drilling: Refer to the attached Exhibit C 1.06
for Price List information. Contractor agrees to apply a [omitted -
confidential] discount as a reduction from this Price List and show such
discount on every invoice issued by Contractor to Company for this particular
service.
1.07 Equipment Rental: Refer to the attached Exhibit C 1.07 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.08 Fast Line: Refer to the attached Exhibit C 1.08 for Price
List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.09 Fishing Equipment: Refer to the attached Exhibit C 1.09 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List, regarding tool rentals, and show
such discount on every invoice issued by Contractor to Company for this
particular service.
1.10 Mud / Fluids: Refer to the attached Exhibit C 1.10 for Price
List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
Master Services Contract Page C-2
Exhibit C -- Pricing and Compensation CONFIDENTIAL
<PAGE> 47
1.11 Pipeline Construction: Refer to the attached Exhibit C 1.11
for Price List information. Contractor agrees to apply a [omitted -
confidential] discount on equipment rentals and a [omitted - confidential]
discount on personnel as reductions from this Price List and show such discount
on every invoice issued by Contractor to Company for this particular service.
1.12 Pumping: Refer to the attached Exhibit C 1.12 for Price List
information. Contractor agrees to apply a [omitted - confidential] discount as
a reduction from this Price List and show such discount on every invoice issued
by Contractor to Company for this particular service.
1.13 Site Construction: Refer to the attached Exhibit C 1.13 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount on equipment rentals and a [omitted - confidential] discount on
personnel as reductions from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.14 Snubbing: Refer to the attached Exhibit C 1.14 for Price List
information. Contractor agrees to apply a [omitted - confidential] discount on
the snubbing unit with its personnel and a [omitted - confidential] discount
on equipment rentals as a reduction from this Price List and show such discount
on every invoice issued by Contractor to Company for this particular service.
1.15 Trucking: Refer to the attached Exhibit C 1.15 for Price List
information. Contractor agrees to apply a [omitted - confidential] discount
as a reduction from this Price List and show such discount on every invoice
issued by Contractor to Company for this particular service.
1.16 Tubular Inspection: Refer to the attached Exhibit C 1.16 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.17 Welding: Refer to the attached Exhibit C 1.17 for Price List
information. Contractor agrees to apply a [omitted - confidential] discount as
a reduction from this Price List and show such discount on every invoice issued
by Contractor to Company for this particular service.
1.18 Well Test / Flowback: Refer to the attached Exhibit C 1.18
for Price List information. Contractor agrees to apply a [omitted -
confidential] discount on equipment rental and a [omitted - confidential]
discount on personnel as a reduction from this Price List and show such discount
on every invoice issued by Contractor to Company for this particular service.
1.19 Wireline-Electric: Refer to the attached Exhibit C 1.19 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
Master Services Contract Page C-3
Exhibit C -- Pricing and Compensation CONFIDENTIAL
<PAGE> 48
1.20 Wireline-Slick: Refer to the attached Exhibit C 1.20 for
Price List information. Contractor agrees to apply a [omitted - confidential]
discount as a reduction from this Price List and show such discount on every
invoice issued by Contractor to Company for this particular service.
1.21 Workover: Refer to the attached Exhibit C 1.21 for Price List
information. Contractor agrees to apply a [omitted - confidential] discount
as a reduction from this Price List and show such discount on every invoice
issued by Contractor to Company for this particular service.
ARTICLE 2. PROCEDURE FOR REVIEW OF PRICE LIST
2.01 Within 30 days of the receipt of an election by Contractor or
Company, the Parties shall conduct a review of the prices and discounts offered
herein and determine whether or not said prices and discounts adequately
reflect current market conditions for similar Services in the geographic area.
2.02 Either Party may elect, at any time and at its sole option, to
request said review; provided, however, no Party may request a review until at
least 180 days have passed from the previous review.
2.03 The Parties will present the basis for their requested
adjustment and mutually agree on both the Price List(s) and the respective
discount rates applicable to the elected and reviewed Services or Services for
the succeeding period. Once agreed (hereinafter referred to as the "Rate
Revision Date"), the former rates shall apply to the end of the applicable
Services then in progress, the respective revised rates shall become effective
for each of the next requested Services following the Rate Revision Date.
ARTICLE 3. COMPETITIVE PRICING OR VALUE ADDED SERVICE
In the event it becomes necessary to establish that Contractor's rates are
competitive with similar Services being provided within the industry then, the
following includes, but is not limited to, the types of examples whereby
Competitive Pricing may be determined by the Parties. In absence of a mutually
agreed alternative, the Parties will choose one or a combination of the
approaches from those set forth below, and Contractor shall, if necessary,
amend its rates accordingly:
3.01 Competitive Bid Tender. Company may request and Contractor
agrees to compete by means of a competitive bid for the award of work required
by Company.
3.02 Historical Costs. A good indicator of the expected
competitive value added by Contractor is a comparison of Contractor's total
cost of Services compared to Company's historical cost to have similar work
provided (the two Services compared shall be chosen from those conducted within
similar locations and within 180 days prior to the request for a price review
hereunder). For instance, if Contractor's unit rates are determined to be 10%
below market average, but the total cost of Services inclusive of all the time
required to perform and successfully complete Company's planned work to its
standards and technical specifications
Master Services Contract Page C-4
Exhibit C -- Pricing and Compensation CONFIDENTIAL
<PAGE> 49
exceeds Company's typical average cost, then Contractor has not provided a
competitive service. Contractor will amend its rates to be competitive on the
basis of its total cost of Services on a historical cost basis.
3.03 Agreed Price. Another method to establish expected
competitive value added Services provided by Contractor is for Company and
Contractor to work together in advance of the commencement of work and mutually
agree what the anticipated value of the work is. This could be conducted
during the budget process or subsequent AFE development stage and may establish
both a cost cap and a reward opportunity for Contractor.
3.04 Mediation and Arbitration. If Contractor refuses to amend its
rates or otherwise is considered by Company not to be competitive, Company may
initiate mediation and arbitration under the provisions of Section 15.2 of
Exhibit A and Exhibit G to the Master Contract in order for competitive rates
to be established for Contractor by such procedures. If Company refuses to
consent to Contractor's amendment of its rates, Contractor may initiate
mediation and arbitration under the provisions of Section 15.2 of Exhibit A and
Exhibit G to the Master Contract in order for competitive rates to be
established for Contractor by such procedures.
ARTICLE 4. THIRD PARTY ITEMS PURCHASED BY CONTRACTOR
4.01 Third Party Items. For third party items described in this
Section 4.01 which are procured by Contractor in the performance of Services,
Company shall be billed at Contractor's actual cost including discounts, if
any, and only for the items actually used in performance of the Services, plus
any applicable handling charges as provided in this Section 4.01. Should
special tools, materials, goods, apparatus, equipment, or services, other than
those (i) designated by Company to be provided directly by Contractor or (ii)
for which there is a price stated in Price List(s), be necessary for the
performance of the Services hereunder, Company and Contractor shall agree upon
the cost and the manner in which they are to be furnished beforehand. Such
agreement shall be in writing for any handling fee anticipated to exceed $ 500
for a particular Services request. Company shall not be responsible or charged
for any handling fees for third party rentals, unless said charges are approved
in writing by Company. If any of the above items are supplied by Contractor,
invoices for the same will be submitted at Contractor's cost plus an agreed
handling charge based on the following scale:
<TABLE>
<CAPTION>
Invoice Cost US $ Handling Fee % of Cost
----------------- ----------------------
<S> <C>
0 - 1,999 [omitted - confidential]
2000 - 19,999
20,000 - 199,999
200,000 - and higher
</TABLE>
The foregoing handling charge shall apply regardless and in lieu of any
administration or handling fee or charge which may be set forth in any Price
List(s) or other published prices of Contractor in effect from time to time.
Master Services Contract Page C-5
Exhibit C -- Pricing and Compensation CONFIDENTIAL
<PAGE> 50
EXHIBIT D
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
FORM OF REQUEST FOR SERVICES
ARTICLE 1. REQUEST FOR SERVICES
Company's Request for Services may be submitted to Contractor by an authorized
Company Representative or Designee in various formats. The contents of such
documentation shall contain information which may include, but not be limited
to the following:
EXAMPLE (To be issued by Company on its Company letterhead to Contractor
Representative.)
Date:_______________ (hereinafter "RFS Effective Date")
Contract No.: __________________ AFE No.: ____________________
Contractor's Address:
____________________
____________________
To the Attention of: ____________________
Subject: Request for Services number ____________________, to provide
(describe type of Services)
Company requests that Contractor, in accordance with the Master Services
Contract dated _____________, 1997, provide the following:
1.0 Scope of Services
1.1 General. Contractor shall provide _______________ Services
comprised of equipment, personnel and materials as required on or for the
[insert description of Company facilities to be served] located approximately
_____________________.
1.2 Company's Specifications. The Services shall be performed in
accordance with the specifications provided in the Master Contract, modified as
follows. Company's modified specifications for performing said Services are:
[list modifications]
Master Services Contract Page D-1
Exhibit D -- RFS Form CONFIDENTIAL
<PAGE> 51
1.3 Equipment. Contractor's equipment to be provided shall
include that listed in the Master Contract for the Services specified, and
shall in addition include:
1.3.1 [list equipment]
1.3.2 Mobilization/Demobilization shall be as follows:
[specify]
1.4 Personnel. Contractor shall provide fully trained personnel
of the types and kinds to fill the positions listed below to conduct the above
described Services. Contractor's personnel positions include those listed in
the Master Contract for the type of Services being provided, and in addition:
Quantity Type
[list number] [list positions]
Point of Origin. Contractor's Personnel Point of Origin shall be:
[Specify, if required]
1.5 Materials. Contractor shall provide materials that comply
with the Master Contract and Company's specifications in sufficient quantities
to perform said Services. Company reserves the right to return to Contractor
all unused, unopened containers and packages for full credit as provided in the
Master Contract.
ARTICLE 2. PRICE
2.1 General. Contractor shall charge for its Services and goods
in accordance with those prices specifically listed in Exhibit C of the Master
Contract, as the same may be amended by the Parties in writing from time to
time in accordance therewith. For other charges not described therein,
Contractor's charges shall be based on (i) its published Price List(s), (ii) as
specified in its bid, if any, or (iii) as provided below, whichever is less:
If Bid or quoted, then insert the agreed prices:
2.2 Equipment Charges:
[Specify]
2.3 Personnel Charges:
[Specify]
2.4 Materials and Goods:
[Specify]
2.5 Other Charges:
[Specify]
ARTICLE 3. WORK SCHEDULE
Master Services Contract Page D-2
Exhibit D -- RFS Form CONFIDENTIAL
<PAGE> 52
3.1 The Services shall be conducted on a work schedule in
accordance with the specifications in the Master Contract, or modified as
follows: [Specify work basis].
ARTICLE 4. TERM
4.1 This Request for Services shall commence on the RFS Effective
Date first written above and, unless earlier terminated or extended, continue
for the duration of _______________ until Contractor's satisfactory completion
of the Scope of Services set forth in Article 1 above. Company and Contractor
may, upon mutual agreement, elect to extend this Request for Services for
additional time periods.
ARTICLE 5. INSTRUCTIONS
5.1 In order to expedite invoice processing and payment, all field
tickets shall include actual prices with any applicable discounts noted and
also include any applicable Company service or purchase order numbers. When
submitting the invoice to Company, the original field ticket, signed by t he
Company Representative, Designee, or other authorized individual, must
accompany the invoice. Any additional charges not referenced on the signed
field ticket shall be sent on a separate invoice.
5.2 All invoices shall include information sufficient to identify
the Services performed: (e.g., rig name, location, well number, facility,
lease, or tank battery, a charge code (AFE number, feature number), contract
number, and requestor's name and number of and which days personnel and
equipment were utilized).
ARTICLE 6. ACCEPTANCE
6.1 Contractor is to signify its acceptance of this request for
Services by signing in the space provided below and returning an original
agreement to the undersigned at the letterhead address.
<TABLE>
<S> <C>
By Company:_________________________ Accepted and agreed to this ______day of
________, ____, on behalf of Contractor
Name: _________________________
By____________________________
Title: _________________________
Name: _________________________
Date: _________________________
Title: _________________________
</TABLE>
Master Services Contract Page D-3
Exhibit D -- RFS Form CONFIDENTIAL
<PAGE> 53
EXHIBIT E
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
SAFETY, OCCUPATIONAL HEALTH
AND ENVIRONMENTAL STANDARDS AND SPECIFICATIONS
ARTICLE 1. SAFETY, HEALTH, AND ENVIRONMENTAL
1.1 Laws, Regulations and Procedures. Contractor shall require
its employees, agents, invitees, licensees, and others engaged by it to comply
with applicable federal, state, local and Company safety, health, environmental
and substance abuse laws, regulations and procedures while Contractor is
performing the Services. Contractor is responsible for notifying and training
these individuals about such laws, regulations, rules, and procedures.
Contractor shall designate an on-site representative to supervise safety,
health, and environmental matters. Unless stated otherwise, others engaged by
Contractor shall include, but not be limited to, Contractor's subcontractors
and suppliers along with their employees, agents, invitees, and licensees.
Contractor shall acquire a copy of Company's safety rules and procedures and
shall require its employees and others engaged by Contractor to attend safety
meetings offered by Company. Company's rules and procedures are not
determinative of all safety requirements applicable to Contractor and others
engaged by it. Unless otherwise agreed in writing, Contractor shall supply all
safety and health equipment and materials used in or required by Company in the
performance of the Services. Contractor shall have an ongoing safety program
and shall maintain related documentation that meets regulatory requirements, if
any. Company may inspect and audit Contractor's safety, health, and
environmental compliance programs. Contractor shall make available to Company
any documentation required to conduct audits. Prior to performing Services,
Contractor shall provide a safety, health, and environmental orientation that
is satisfactory to Company for the benefit of its employees and others engaged
by it. Persons who perform the Services must show evidence of completing this
orientation. Contractor shall be responsible for training and alerting its
employees and others engaged by it concerning safety, health, and environmental
hazards pertaining to the Services. Contractor shall ensure that the Services
site is kept free of waste and is left clean and orderly. If Contractor fails
in these responsibilities, Company may remove the waste at Contractor's sole
risk and expense. Tools, equipment, and materials associated with the Services
shall be placed and maintained as to permit unobstructed access to the
Services. Equipment placement and material storage shall be at locations
satisfactory to Company.
1.2 Prohibited Items, Substances, and Substance Abuse.
"Substance" shall include alcohol, controlled substances (i.e., illegal drugs
and prescribed drugs), over-the-counter medication, and any other substance
that may be inhaled, injected, absorbed, or taken by mouth that may, in
Company's opinion, impair an individual. The use, sale, or possession of
controlled
Master Services Contract Page E-1
Exhibit E -- SHE Standards CONFIDENTIAL
<PAGE> 54
substances, or drug paraphernalia, alcoholic beverages, firearms, weapons,
explosives, or ammunition on a Company site, or the performance of Services by
personnel while under the influence of a Substance, is strictly prohibited.
Company shall act to eliminate any prohibited items and Substance use which
increases the potential for accidents, absenteeism, poor performance, poor
morale, and damage to Company property or reputation. Contractor shall remove
from a Company site any employee, agent, invitee, licensee, or other individual
engaged by it who violates this provision, and shall notify Company of actions
taken. Company may notify law enforcement authorities as appropriate.
a. Company may cause searches to be made of personnel,
personal effects, and vehicles. Prohibited items and Substances may
be confiscated and transferred to appropriate law enforcement
authorities. Any individual who refuses to consent to a search shall
be required to leave the Company site immediately and will not be
allowed to return.
b. Contractor shall inform its employees and others
engaged by it that compliance with these Prohibited Items, Substances,
and Substance abuse provisions is a condition for access to Company
sites. Company may require Contractor to test its employees and
others engaged by it whenever their behavior creates a reasonable
concern that Substance abuse has occurred. In this event, Contractor
shall perform the following: (i) carry out, at its expense, an
adequate test(s) to determine if Substance abuse by an individual
employee has occurred; (ii) immediately remove from the Company site
any individual who has been tested until the test results are
received; or (iii) immediately remove from the Company site any
individual who refuses to submit to a Substance abuse test.
c. To the extent permitted by law, Contractor agrees to
obtain written consent of individuals tested under this Section 1.2 to
allow the test results to be released to Company.
d. At Company's request, Contractor shall develop and
implement procedures satisfactory to Company for (i) testing
Contractor employees for Substance use when Company or Contractor
suspects that a performance deviation, an incident, or unusual
behavior is related to Substance use, and (ii) randomly selecting and
testing for Substance use Contractor's employees who perform critical
tasks (as defined by Company) in connection with the Services.
1.3 Environmental. Contractor shall take all reasonable and
necessary precautions in the processing, handling, transportation and disposal
of material, product, and waste generated by its operations and equipment.
Contractor shall submit Material Safety Data Sheets complying with the Federal
Hazard Communication Standard (OSHA 1910.200) and obtain Company approval
before introducing hazardous materials onto a Company site. Personal
protective equipment for handling hazardous materials, as well as storage,
labeling, control, use, and disposal of hazardous materials shall comply with
the instructions on the appropriate Material Safety Data Sheets.
Master Services Contract Page E-2
Exhibit E -- SHE Standards CONFIDENTIAL
<PAGE> 55
Contractor shall observe and abide by all applicable pollution prevention and
abatement rules and regulations, federal, state, or local, including by way of
illustration but not as a limitation, those of the Coast Guard, State
Department of Conservation, Department of the Interior, Department of the Army,
Environmental Protection Agency, as well as those which may be prescribed by
Company. Contractor agrees that, before commencing the Services herein
undertaken, it will familiarize itself and its employees with all such rules,
as well as others that may be made a condition on the permit of Company for the
Services, and that Contractor shall comply with same during the period of time
it is performing the Services under this Master Contract.
To the extent practicable equipment shall be designed to help protect the
environment. Contractor shall be solely responsible for proper disposal of
waste generated by its operations and equipment. Contractor shall insure that
its subcontractors comply with the provisions of this Section 1.3.
Contractor acknowledges that hazards may be involved in providing the Services
described under this Master Contract. Accordingly, Contractor agrees to take
all necessary precautions in the processing, handling, transportation and
disposal of material and product involved in this Master Contract, to avoid an
unhealthy or unsafe work environment, injuries to individuals, damage to
property or pollution. Company may provide Contractor with certain information
regarding the material involved under this Master Contract, including
procedures for processing, handling, transporting and disposal, as well as
toxicological data. Any information supplied by Company shall be the latest
information known to Company and relevant to the Services to be provided
hereunder. Such information is provided without warranty or representation as
to its completeness or suitability in providing the Services herein. The
methods employed and the precautions taken to handle Company-owned equipment,
if any, material and product shall be determined by and rest solely with
Contractor. Contractor agrees to provide its employees with a safe and healthy
workplace using, but not limited to, such information as is or may be provided
by Company.
Company shall have the right to immediately suspend operations under this
Master Contract, without liability to Contractor, if at any time Company in its
sole judgment determines that Contractor has violated any of the provisions of
this Section 1.3. Further, if Contractor fails to correct any such violation
within seven (7) days immediately following Company's notice to Contractor of
the violation, Company has the right to terminate this Master Contract.
1.4 Noncompliance. If Company notifies Contractor of any
noncompliance with this Article 1, Contractor shall immediately make all
reasonable efforts to correct the noncomplying condition. If Contractor fails
to do so, Company may stop all or any part of the Services. This Services
stoppage shall not be a basis for a claim by Contractor for extension of the
Services schedule, additional compensation, or other damages. Company may
terminate this Master Contract immediately if Contractor fails to correct any
noncompliance within seven (7) days following notice to Contractor.
ARTICLE 2. COMPANY'S SAFETY MANUAL
2.01 Safety. Contractor shall familiarize itself with the
locations where the Services will be performed and the hazards that might be
encountered and take all appropriate precautions to
Master Services Contract Page E-3
Exhibit E -- SHE Standards CONFIDENTIAL
<PAGE> 56
protect Contractor's personnel and any other persons who are at any time
directly or indirectly affected by the Services.
2.02 Protective Clothing. Contractor shall, at its expense,
provide Contractor's personnel with all necessary protective clothing required
at each location where the Services are being performed. Such protective
clothing shall include, at a minimum, hard hat, nonslip safety boots, overalls,
gloves, hearing protection, breathing apparatus as required, and industrial
safety eye protection.
2.03 Company's Safety Manual. A copy of Company's Safety manual
containing its safety rules and procedures is attached hereto as Exhibit E
2.03.
Master Services Contract Page E-4
Exhibit E -- SHE Standards CONFIDENTIAL
<PAGE> 57
EXHIBIT E 2.03
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
EPNA SAFETY MANUAL
<PAGE> 58
EXHIBIT F
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
ELECTRONIC DATA INTERCHANGE AGREEMENT
The following provisions, together with Appendices F-1 and F-2 hereto, shall
govern electronic data interchange between Company and Contractor:
Contractor and Company desire to (i) facilitate business activities under the
Master Contract ("Activities") by electronically sending and receiving data in
agreed formats in substitution for conventional paper-based documents, and (ii)
assure that such Activities are not invalid or unenforceable in any legal
respect as a result of the use of available technologies for the mutual benefit
of the Parties, under the following terms and provisions:
Section 1. Prerequisites
1.1 Transaction Sets and Standards.
1.1.1 Each Party may electronically send to or receive from
the other any business documents ("Transaction Sets") listed in
Appendix F-1 and any Transaction Sets which the Parties by written
agreement add to Appendix F-1. Any transmission of data which is not
a Transaction Set shall have no force or effect between the Parties.
All Transaction Sets shall be sent in accordance with the standards
set forth in Appendix F-1.
1.2 Third Party Service Providers.
1.2.1 Transaction Sets will be sent electronically to each
Party through the third party provider ("Provider") specified for that
Party in Appendix F-1 or otherwise in writing. Either Party may
change a Provider upon 30 days prior written notice.
1.2.2 Each Party shall be responsible for the costs of its
specified Provider, unless otherwise set forth in Appendix F-1.
1.2.3 Each Party shall be liable for the acts or omissions
of its specified Provider while sending, receiving, storing or
processing Transaction Sets, or performing related actions for such
Party. In the event the Parties at any time use the same Provider in
connection with the transmission and receipt of a Transaction Set, the
sending Party shall be liable for the acts or omissions of such
Provider as to such Transaction Set.
Master Services Contract Page F-1
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 59
1.3 System Operations.
1.3.1 Each Party shall provide and maintain at its own
expense the equipment, software, services, and testing necessary to
effectively send and receive Transaction Sets.
1.3.2 A Party will upgrade to another version of a
Transaction Set within 180 days after receiving a written request from
the other Party to make such upgrade, provided the requesting Party
demonstrates in such written request its business need for such
upgrade.
1.4 Security Procedures.
1.4.1 Each Party shall properly use those security
procedures specified in Appendix F-1 or, if none are specified,
security procedures reasonably sufficient to ensure that all
transmission of Transaction Sets are authorized and to protect its
business records and data from improper access.
1.5 Signatures.
1.5.1 Each Party shall adopt as its signature an electronic
identification consisting of symbol(s) or code(s) which are to be
affixed to or contained in any Transaction Set by such Party
("Signatures"). Each Party agrees that any Signature of such Party
affixed or contained in any sent Transaction Set shall be sufficient
to verify such Party as the sender. Each Party shall use the security
procedures required by the provisions of this Master Contract to
protect the confidentiality of the Parties' Signatures, and neither
Party shall disclose to any unauthorized Person the Signature of the
other Party.
Section 2. Receipt of Transmissions.
2.1 Proper Receipt.
2.1.1 Transactions Sets shall not be deemed to have been
properly received until accessible to the receiving Party at the
Receipt Computer of such Party designated in Appendix F-1. No
Transaction Set shall give rise to any obligation unless and until (i)
it is properly received, and (ii) a Functional Acknowledgment, if
specified in Appendix F-1, is properly received by the sending Party.
In addition, a Transaction Set specified in Appendix F-1 as requiring
a transaction acknowledgment shall not be binding on either Party
unless and until the sending Party properly receives an affirmative
transaction acknowledgment. An affirmative transaction acknowledgment
is an acceptance of the acknowledged Transaction Set for all legal
purposes. Transmission of a Functional Acknowledgement confirming
receipt of an affirmative transaction acknowledgement with
modifications to the original Transaction Set does not necessarily
constitute acceptance of the modifications set forth in the
transaction acknowledgement.
Master Services Contract Page F-2
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 60
2.2 Garbled Transmissions.
2.2.1 In the event any Transaction Set is received in an
unintelligible or garbled form, the receiving Party shall notify the
sending Party within 48 hours of receipt (if the sending Party is
identifiable from the transmission). In the absence of such a notice,
the sending Party's records of the contents of such Transaction Set
shall govern.
Section 3. Commercial Terms.
3.1 Terms and Conditions.
3.1.1 This electronic data interchange agreement shall be
considered part of any other written agreement referencing it or
referenced in Appendix F-1. In the absence of any other written
agreement applicable to an Activity effected pursuant to Transaction
Sets under this electronic data interchange agreement, such Activity
(and any related communication) shall also be subject to those terms
and conditions, including any terms for payment, included in Appendix
F-2. The terms of this electronic data interchange agreement shall
prevail in the event of any conflict with any other terms and
conditions applicable to any Activity.
3.2 Confidentiality.
3.2.1 Information contained in any Transaction Set or
otherwise exchanged between the Parties shall not be considered
confidential except as provided in writing between the Parties, or by
applicable law.
3.3 Validity and Enforceability.
3.3.1 This electronic data interchange agreement has been
adopted by the Parties to effect Activities pursuant to the electronic
transmission and receipt of Transaction Sets.
3.3.2 Any Transaction Set properly sent pursuant to this
electronic data interchange agreement containing, or to which is
affixed, a Signature ("Signed Documents") shall be deemed for all
purposes (i) to be a writing or in writing, (ii) to have been signed,
and (iii) to constitute an original when printed from electronic files
or records established and maintained in the normal course of
business.
3.3.3 Independent of their status as signed writings, any
Signed Documents properly sent pursuant to this electronic data
interchange agreement shall, for all legal purposes, be considered to
be a part of this electronic data interchange agreement and any other
written agreement described in Section 3.1. The conduct of the
Parties pursuant to this electronic data interchange agreement,
including the use of Signed Documents properly transmitted pursuant to
this electronic data interchange agreement, shall, for all legal
purposes, evidence a course of performance accepted by the Parties in
furtherance of this electronic data interchange agreement.
Master Services Contract Page F-3
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 61
3.3.4 The Parties agree not to contest the validity or
enforceability of Signed Documents under the provisions of applicable
law requiring that agreements be in writing and signed by the Party to
be bound thereby. Signed Documents, if introduced on paper as
evidence in any judicial, arbitration, mediation or administrative
proceedings, will be admissible as between the Parties to the same
extent and under the same conditions as other business records
originated and maintained in documentary form. Neither Party shall
contest the admissibility of copies of Signed Documents under either
business records exception to the hearsay rule or the best evidence
rule on the basis that the Signed Documents were not originated or
maintained in documentary form.
3.4 Electronic Payments.
3.4.1 Company may, at its option, make payments for
Services hereunder by utilizing electronic funds transfer. Contractor
agrees to accept payment by such method, and the terms for electronic
funds transfers as set forth in Appendix F-2 hereto shall apply to all
such payments.
Master Services Contract Page F-4
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 62
APPENDIX F-1
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997 Between Conoco Inc.
and TransTexas Gas Corporation
STANDARDS AND GUIDELINES
The standards applicable to this electronic data interchange agreement shall be
the most current standards prepared by the Legal and Business Controls Task
Group, Accredited Standards Committee X12; provided, however, that only the
Transaction Sets specified below, as identified in that standard, shall be
transmitted pursuant to this electronic data interchange agreement. All data
dictionaries and transmission controls referenced in that standard shall be
applicable to this agreement. The Transaction Sets will be covered by ANSI ASC
X12 Standards, Version/Release 3030.
<TABLE>
<CAPTION>
TRANSACTION TRANSACTION TRANSACTION SET TRANSACTION FUNCTIONAL
----------- ----------- --------------- ----------- ----------
SET NUMBER SET NAME PURPOSE ACKNMT. ACKNMT.
---------- -------- ------- ------- -------
REQUIRED REQUIRED
-------- --------
<S> <C> <C> <C> <C> <C>
o 820 Payment Order Company sends to Yes Yes
/ Remittance transfer funds and
Advise communicate related
remittance information
to Contractor.
o 850 Request for Company sends to Yes Yes
Services communicate purchase
requirements.
o 855 Request for Contractor needs to No Yes
Services communicate Contractor
Acknow- -recommended changes
ledgement to purchase orders
received from Company.
Contractor may
optionally send to
indicate acceptance of
purchase order without
change.
o 810 Invoice Contractor sends to Yes Yes
communicate invoice
information.
o 997 Functional Company and Contractor No No
Acknowledge- sent to confirm
ment receipt and
syntactical
acceptability of
primary transaction
documents.
</TABLE>
Master Services Contract Page F-5
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 63
GUIDELINES
The guidelines applicable to this electronic data interchange agreement shall
be: (i) the guidelines of the Data Interchange Standards Association, (ii) the
Petroleum Industry Data Exchange Committee Implementation Guidelines, and (iii)
with respect to the electronic transfer of funds, the Rules of the National
Automated Clearing House Association and the Southwest Automated Clearing House
Association. In the event of a conflict between these guidelines (and any
guidelines which may be hereafter designated by the Parties) and the Master
Contract, the Master Contract shall control.
THIRD PARTY SERVICE PROVIDERS
<TABLE>
<CAPTION>
Name Address Telephone Number
---- ------- ----------------
<S> <C> <C>
Contractor
Company
MCI 2560 N. FIRST ST. (800) 872-7654
PO BOX 49019, MS=F25
SAN JOSE, CA 95161-9019
or ADVANTIS 3405 W. BUFFALO (813) 878-3000
BOX 30104
TAMPA, FL 33630
RECEIPT COMPUTER
- ----------------
Contractor -
Company - DUPONT CORPORATE DATA CENTER
655 Paper Mill Rd.
Newark, DE 19711
</TABLE>
Allocation of Provider Costs :
Each Party shall be responsible for the costs of its specified Provider.
Security Procedures : NONE
Master Services Contract Page F-6
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 64
APPENDIX F-2
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
ELECTRONIC FUNDS TRANSFERS
Company will initiate payment in electronic funds to Contractor based on the
following:
1. The electronic funds transfer will be made to the financial
institution and account number on an appropriate enrollment form.
2. Company will make payments in accordance with and be governed
by the National Automated Clearinghouse Associations's Corporation Trade
Payment Rules.
3. The information Contractor provided on the form is very
important. Contractor understands that any change in the information must be
communicated to Company by an authorized representative of Contractor in
writing to Company in time to allow Company to respond to the change. Company
will be considered harmless for any loss which may arise solely by reason of
error, mistake or fraud regarding this information.
4. Payment is initiated within the normal terms of the Master
Contract. EFT terms and conditions neither enlarge or diminish the Parties'
respective rights and obligations within the Master Contract. Company will
consider payment made when Contractor's financial institution has received or
has control of the payment transaction. This will occur no later than three
(3) days after the payment obligation is due. If Company initiates payment on
a non-banking day at Company's originating bank, the funds transfer will occur
the following banking day. In all cases, Banking Day is defined as the day on
which both trading partner's banks will be available to transmit and receive
these funds transfers.
5. Company has the right to adjust future payments if payments
previously made are found to be duplicate, in excess of requirements,
fraudulent or in error.
6. Company is responsible for its payments due under this Master
Contract up to the point where Contractor's financial institution receives or
has control over the transaction. Any loss of data at that point will be borne
by Contractor unless the loss is due to sole negligence of Company or its
originating bank. Contractor should notify Company immediately if payment is
not received as described in item 4 (above). Company shall have a reasonable
time (not to exceed ten (10) business days) to make said payment.
Master Services Contract Page F-7
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 65
7. Electronic funds transfers may be terminated by either Party
providing that notification is in writing, and that both Parties agree on the
termination date. Otherwise, Company will continue to make electronic payments
to Contractor as specified.
Master Services Contract Page F-8
Exhibit F -- Electronic Data Interchange Agreement CONFIDENTIAL
<PAGE> 66
EXHIBIT G
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
ARBITRATION PROCEDURES
Compliance with Section 15.2 of Exhibit A to the Master Contract and these
Arbitration Procedures shall constitute a condition precedent to either Party
seeking judicial enforcement of any provisions of this Master Contract. If a
Dispute concerning this Master Contract has not been resolved pursuant to
mediation as provided in said Section 15.2 within sixty (60) days after
initiating the mediation process, the Dispute shall be finally resolved through
binding arbitration under the following Arbitration Procedures hereby adopted
by the Parties:
ARTICLE 1. DEFINITIONS
Except as set forth below or otherwise defined herein, all capitalized
terms used in this Exhibit G shall have the meaning assigned to those terms in
this Master Contract or the Rules (as hereafter defined), as applicable.
1.1 The term "Arbitration Act" means the United States Arbitration
Act, 9 U.S.C. Sections 1-16, as amended from time to time.
1.2 The term "CPR" means Center for Public Resources, Inc.
1.3 The term "Disputes" has the meaning assigned in Section 2.1 of
this Exhibit G.
1.4 The term "Notice of Intent to Arbitrate" has the meaning
assigned in Section 4.1 of this Exhibit G.
1.5 The term "Rules" means the CPR Non-Administered Arbitration
Rules & Commentary, as revised by CPR in 1995, a copy of which is attached to
this Exhibit G as Appendix G-1. Any reference in this Agreement to a "Rule"
shall be a reference to the relevant section or provision of the Rules.
1.6 The term "Single Arbitrator" means, with respect to an
arbitration proceeding under this Agreement, the single arbitrator selected
pursuant to Section 4.2 of this Exhibit G by CPR or by the agreement of the
Parties to that arbitration proceeding.
1.7 As used in this Exhibit G, the term "Tribunal" means, with
respect to an arbitration proceeding under this Agreement, the panel of three
arbitrators selected pursuant to Rule 4.2 by CPR or by the agreement of the
Parties to that arbitration proceeding. As used in the Rules, the
Master Services Contract Page G-1
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 67
term "Tribunal" also includes any Single Arbitrator selected to preside over an
arbitration proceeding under this Agreement.
ARTICLE 2. AGREEMENT TO ARBITRATE
2.1 Arbitrable Disputes. Subject to the other terms and
provisions of this Exhibit G, any and all controversies, claims, counterclaims,
cross-claims, defenses to claims, demands, disputes, and other matters in
question (collectively, "Disputes") arising directly or indirectly from, out
of, with respect to, or in connection with the Master Contract will be resolved
and decided by final and binding arbitration between the Parties to the Dispute
in accordance with this Exhibit G, if not resolved by negotiations or mediation
between the Parties as provided in Section 15.2 of Exhibit A to the Master
Contract; together with all aspects of this Exhibit G, including the validity
and enforceability of this Exhibit G, the construction and interpretation of
this Exhibit G or the Rules, and the scope of the arbitrable issues or defenses
to arbitrability.
2.2 Non-Arbitrable Disputes. Notwithstanding anything in this
Exhibit G to the contrary, the following matters are not subject to arbitration
under this Exhibit G unless the Parties otherwise agree in writing: any
Dispute between the Parties that is subject to adjudication or determination by
a government regulatory agency, including the Federal Energy Regulatory
Commission, the Environmental Protection Agency, the Railroad Commission of
Texas or the Texas Natural Resources Conservation Commission.
2.3 Governing Rules. Any arbitration proceeding conducted under
this Exhibit G shall be governed by the Arbitration Act. All Disputes shall be
arbitrated in accordance with this Exhibit G, the Arbitration Act, and the
Rules; provided, that in the event of any conflict or inconsistency between the
terms of this Exhibit G and the Arbitration Act or Rules, the terms of this
Exhibit G shall control.
2.4 Location of Arbitration Proceedings. Unless otherwise agreed
by all of the Parties involved in a Dispute to be resolved under this Exhibit
G, all arbitration proceedings under this Exhibit G shall be conducted in
Houston, Harris County, Texas at a location reasonably acceptable to all of the
Parties to that Dispute.
2.5 Arbitration Binding. The arbitration process under this
Exhibit G is binding upon the Parties and any arbitration proceeding conducted
under this Exhibit G, subject to Section 7.4 of this Exhibit G, shall
constitute the final resolution of any Dispute to the same extent as a final
judgment of a court of competent jurisdiction. The Parties agree that they
will not take any action inconsistent with the provisions of this Exhibit G
including: (i) challenging the validity or enforceability of this Exhibit G,
(ii) suing in any forum except to enforce the provisions of this Exhibit G or
any award in an arbitration proceeding under this Exhibit G, and/or (iii)
asserting or otherwise attempting to revive the claims and liabilities relating
to any Dispute resolved and extinguished as contemplated by this Exhibit G.
2.6 Violation. Subject to Section 2.1 of this Exhibit G, if any
Party fails to perform its obligations under this Exhibit G or under any award
rendered pursuant to this Exhibit G, and
Master Services Contract Page G-2
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 68
another Party shall bring a suit, an action, or other proceeding to enforce the
performance of this Exhibit G or the payment or performance of any award, the
Party so failing to perform or to make payment shall pay all costs and expenses
of whatever kind or nature, including attorneys' fees and court costs, incurred
by the other Party in connection with the successful enforcement of such
obligations.
2.7 Interim Measures. Notwithstanding any provision in this
Exhibit G to the contrary, any Party may seek temporary injunctive relief or
other interim measures from a court of law necessary to preserve the status quo
or prevent irreparable harm or injury to a Party pending the resolution of any
Dispute subject to this Exhibit G. However, nothing in this Section 2.7 shall
limit the power of any Single Arbitrator or Tribunal appointed pursuant to this
Exhibit G to take interim measures under the Rules with respect to any such
Dispute.
ARTICLE 3. LIMITATIONS
3.1 Tolling of Limitations. All statutes of limitations
applicable to any Dispute shall apply to any arbitration proceeding under this
Exhibit G in accordance with applicable law. However, the giving of a notice
for mediation under Section 15.2 of Exhibit A to the Master Contract (with
respect to the period during which the mediation is proceeding) and the giving
of a Notice of Intent to Arbitrate (as to periods thereafter) shall serve to
toll any applicable statute of limitations with respect to the Disputes
identified in any such notices.
ARTICLE 4. ARBITRATION PROCESS
4.1 Arbitration. If the Parties are unable to resolve any Dispute
set forth in the mediation notice within sixty (60) days after initiating the
mediation process, or such later date as may be agreed by the Parties, any
Party may submit the Dispute, and any other matters reasonably related or
ancillary to a Dispute, to binding arbitration in accordance with the
procedures set forth in this Exhibit G. An arbitration proceeding under this
Exhibit G shall be initiated by a Party by delivering to the other Party or
Parties a notice stating that such Party intends to arbitrate the Dispute (a
"Notice of Intent to Arbitrate").
4.2 Selection of Arbitrator(s). Except as further provided in
this Section 4.2, all arbitration proceedings under this Exhibit G shall be
before a single arbitrator selected by the Parties to such proceedings as
provided in Rule 5.3; provided, that (notwithstanding the provisions of Rule
5.3) if the Parties are unable to agree upon a single arbitrator within fifteen
(15) calendar days following the earlier of (i) receipt of the notice of
defense provided in Section 3.4 of the Rules or (ii) the expiration of the
period under the Rules in which the notice of defense must be submitted, the
arbitrator shall be selected by CPR in accordance with Rule 6.4.
Notwithstanding the foregoing, prior to the selection of an arbitrator any
Party may request that the arbitration be before a Tribunal of three (3)
arbitrators. If a Tribunal is requested, the panel of arbitrators shall be
selected by CPR as provided in Rule 6.4. The arbitrators for the Tribunal
shall be selected from a list of candidates supplied by CPR. Notwithstanding
Rule 6.4(b), CPR shall submit to the Parties to the arbitration proceeding two
(2) lists of arbitrators; one such list shall be a list of candidates for
chairman of the Tribunal and the second list for the remaining two (2)
arbitrators.
Master Services Contract Page G-3
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 69
The candidates for chairman and the other arbitrators shall have the
qualifications set forth in Section 4.3 of this Exhibit G. Candidates on one
list may also be identified on the other list. CPR shall first select the
chairman of the Tribunal and then the remaining two (2) arbitrators. If the
person selected as the chairman is identified on both lists, such person shall
be removed from the second list of candidates.
4.3 Qualification of Arbitrators. All arbitrators in any
arbitration proceeding under this Exhibit G must be independent, impartial, and
experienced in arbitration proceedings. Each arbitrator must have at least ten
(10) years experience as a practicing attorney or as a member of the judiciary
and be knowledgeable as to the subject matter and substantive law involved or
relevant to the Dispute. If the arbitration proceeding is before a Tribunal,
in addition to the other qualifications of an arbitrator set forth above, the
chairman of the Tribunal must also have at least fifteen (15) years experience
as a practicing attorney or as a member of the judiciary and be knowledgeable
as to the subject matter and substantive law involved or relevant to the
Dispute. In no event may any arbitrator have previously been an employee,
attorney, agent, representative, consultant, or contractor of any Party, or any
of their respective officers, directors, shareholders, or Affiliates.
ARTICLE 5. PROCEEDINGS INVOLVING RELATED PARTIES
5.1 Joint Action. Notwithstanding anything in this Exhibit G to
the contrary, (i) with respect to any Dispute involving more than one entity of
Company, Company and its Affiliates requesting Services must act together in
concert in the selection of a Single Arbitrator or Tribunal under Section 4.2
of this Exhibit G (and collectively must submit a single preference list for
arbitrator candidates under Rule 6.4), and must jointly submit a single joint
Notice of Intent to Arbitrate, and/or notice of defense, and (ii) with respect
to any Dispute involving more than one entity of Contractor, TransTexas Gas
Corporation, TransTexas Drilling Services, Inc., and their Subsidiaries
providing Services must act together in concert in the selection of a Single
Arbitrator or Tribunal under Section 4.2 of this Exhibit G (and collectively
must submit a single preference list for arbitrator candidates under Rule 6.4),
and must jointly submit a single joint Notice of Intent to Arbitrate, and/or
notice of defense.
ARTICLE 6. POWERS OF ARBITRATORS
6.1 Powers. Subject to Section 6.2 of this Exhibit G, the Single
Arbitrator or Tribunal, as the case may be, shall have all of the rights,
powers, and authority provided generally under the Rules and, without limiting
the powers conferred under the Rules, the Single Arbitrator and Tribunal:
(i) are empowered to resolve any Disputes by summary
rulings substantially similar to judicial summary judgments and
motions to dismiss; and
(ii) subject to the terms of the Transaction Documents,
may grant any remedy or relief, at law or in equity, deemed just and
equitable and within the scope of the provisions of this Exhibit G and
applicable law, and may also grant such ancillary relief as is
necessary to make effective any award.
Master Services Contract Page G-4
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 70
6.2 Limitation on Powers.
(i) The Single Arbitrator's or Tribunal's powers will be
limited to resolution of the issues submitted to the Single Arbitrator
or Tribunal by the Parties to the Dispute, and the Single Arbitrator
or Tribunal will not have the authority to alter, amend, or modify any
of the terms and conditions of this Exhibit G or any other part of the
Master Contract.
(ii) The award shall not provide or create any rights or
benefits in any person or entity which is not a Party to this Exhibit
G, and this Exhibit G and any arbitration award rendered pursuant to
this Exhibit G shall not be construed as a third party beneficiary
contract.
(iii) In no event may any Single Arbitrator or Tribunal
grant or award punitive, exemplary, consequential or special damages,
or treble damages under state or federal antitrust laws, and EACH
PARTY TO THIS MASTER CONTRACT HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE WITH RESPECT TO ANY DISPUTE ARBITRABLE UNDER THIS EXHIBIT G
TO RECOVER PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR SPECIAL DAMAGES, OR
TREBLE DAMAGES UNDER STATE OR FEDERAL ANTITRUST LAWS.
(iv) Neither a Single Arbitrator nor a Tribunal may
appoint experts under Rule 11.3 or fix as a cost of arbitration under
Rule 15.2(b) the cost of such expert advice, unless expressly
authorized to do so by the Parties to the arbitration proceeding.
ARTICLE 7. AWARD
7.1 Findings. With respect to any arbitration proceeding under
this Exhibit G, the Single Arbitrator or Tribunal, as the case may be, must
make specific, written findings of fact and conclusions of law with respect to
each issue submitted by the Parties to the proceeding to the Single Arbitrator
or Tribunal for resolution, unless the Parties to that proceeding otherwise
agree in writing.
7.2 Applicable Law. Single Arbitrators and Tribunals shall
resolve all Disputes in accordance with the governing law specified in Section
15.1 of Exhibit A to the Master Contract.
7.3 Binding. Any award of a Single Arbitrator or Tribunal, and
the resolution and extinguishment of claims and liabilities relating to any
Dispute brought under this Exhibit G, will be final, irrevocable, and binding
on the Parties to such proceeding. No award of any Single Arbitrator or
Tribunal shall be subject to review or appeal, except to the extent provided in
the Rules and/or Arbitration Act.
7.4 Enforcement. Judgment upon the award rendered by a Single
Arbitrator or Tribunal pursuant to this Exhibit G shall be entered and
enforced, if necessary, in federal or state district court in Harris County,
Texas. If the federal and state district courts in Harris County,
Master Services Contract Page G-5
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 71
Texas have concurrent jurisdiction with respect to the entry and enforcement of
an award rendered pursuant to this Exhibit G, the award shall be entered and
enforced in the United States District Court for the Southern District of
Texas.
ARTICLE 8. MISCELLANEOUS
8.1 Notice. Any notice required to be given under this Exhibit G
must be in writing, addressed to the relevant Parties as indicated in Section
5.4 of the Master Contract, or to such other address as may hereafter be
designated by a Party to the other Parties by notice in writing. Any such
notice must be given personally, or by certified or registered mail postage
fully prepaid, return receipt requested. Any notice will be deemed given and
effective as of the date and time of delivery to the address set forth below,
if given personally, or if given by mail, then on the date and time on which
the return receipt is post marked, evidencing delivery or any inability to
deliver for any reason; provided, that if the receipt is not so postmarked,
then such notice will be deemed to have been given and effective five (5) days
after the date of posting by the sender. Any time periods specified in this
Exhibit G for any action in response to a notice shall commence running
starting on the day following the day the notice triggering such time period is
given and effective. For all purposes under this Exhibit G, a single notice
given to the Company Representative or Contractor Representative designated in
Section 5.4 of the Master Contract shall be deemed to be notice to each entity
comprising Company or Contractor, as the case may be.
8.2 Confidentiality. The Parties agree to keep confidential all
documents, briefs, testimony, transcripts, and Single Arbitrator or Tribunal
decisions and awards and agree not to disclose any of the foregoing to third
parties, except (i) in connection with a suit for enforcement of the award,
(ii) as required by law, court order or regulation, or (iii) when reasonably
necessary to explain the terms and conditions of the award to outside
attorneys, auditors, and insurers. The Parties further agree to keep
confidential all offers, promises, conduct, statements, and evidence, whether
oral or written, made in the course of any arbitration proceedings under this
Exhibit G by any of the Parties, their agents, employees, experts, or
attorneys. Such offers, promises, conduct, statements, and evidence shall be
considered inadmissible under Rule 408 of the Federal Rules of Evidence and any
similar state provisions, and shall be inadmissible for any purpose, including
impeachment. However, evidence that is otherwise admissible shall not be
rendered inadmissible as a result of its use in the arbitration.
Master Services Contract Page G-6
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 72
APPENDIX G-1
Attached to and Made a Part of The
Master Services Contract
Dated May 30, 1997
Between Conoco Inc. and TransTexas Gas Corporation
CPR NON-ADMINISTERED ARBITRATION RULES & COMMENTARY
Master Services Contract Page G-7
Exhibit G -- Arbitration Procedures CONFIDENTIAL
<PAGE> 1
EXHIBIT 10.4
AGREEMENT FOR SERVICES
BY AND BETWEEN
CONOCO INC.
(COMPANY)
AND
TRANSTEXAS GAS CORPORATION
(CONTRACTOR)
------------------------------------------
DATED AND EFFECTIVE MARCH 1, 1997
THIS AGREEMENT CONTAINS ARBITRATION AND INDEMNIFICATION PROVISIONS.
<PAGE> 2
AGREEMENT FOR SERVICES
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Arbitration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Available Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Banked Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 Cure Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Master Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Minimum Aggregate Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Minimum Annual Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Requested Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2. CONDITIONS AND SUSPENSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Failure of Conditions and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Suspension and Resumption of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Early Termination for Lengthy Suspension(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Reduction of Available Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3. MINIMUM REQUEST OF SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Company Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Minimum Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Requested Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Calculation of Minimum Amount and Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Sole Remedy of Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Banked Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5. ACCOUNTING AND INVOICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Company's Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Assignment of Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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CONFIDENTIAL
<PAGE> 3
<TABLE>
<S> <C> <C>
5.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 6. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Early Termination by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Early Termination upon Satisfaction of Minimum Amount . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Early Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 Surviving Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5 No Consequential or Punitive Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.6 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.8 Mediation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.10 Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.11 No Rights Given to Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.13 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.15 Entire Agreement and Agreement Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.16 Controlling Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.17 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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CONFIDENTIAL
<PAGE> 4
AGREEMENT FOR SERVICES
THIS AGREEMENT FOR SERVICES ("Agreement"), dated and effective the 1st day of
March, 1997 ("Effective Date"), is between CONOCO INC., a Delaware corporation
whose address is 600 North Dairy Ashford, Houston, Texas 77079 ("Company"), on
one hand, and TRANSTEXAS GAS CORPORATION, a Delaware corporation whose address
is 1300 North Sam Houston Parkway E., Suite 310, Houston, Texas 77032-2949
("Contractor"), on the other.
In consideration of the mutual covenants and agreements hereinafter set forth,
Company and Contractor hereby agree as follows:
ARTICLE 1. DEFINITIONS
In this Agreement, the following terms shall have the following meanings:
1.1 "Affiliate" means a Person which owns a Party, is owned by a
Party, or is owned by a Person which owns a Party. A Person which is owned by
a Party is a "Subsidiary" of that Party. Ownership means the ownership
directly or indirectly, through one or more intermediaries, of fifty percent
(50%) or more of the shares or voting rights in a company, partnership or legal
entity. "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, excluding a
government or political subdivision or an agency thereof.
1.2 "Agreement" means this Agreement for Services between Company
and Contractor.
1.3 "Arbitration Agreement" shall be as defined in Section 7.8
hereof.
1.4 "Available Services" means the twenty-one (21) types of
Services being provided to Company within Texas Railroad Commission District 4
by Contractor and available to Company under the Master Contract, as specified
in Exhibit B thereof, as such types of Services may be reduced under Section
2.5 hereof.
1.5 "Banked Credits" shall be as defined in Section 4.2 hereof.
1.6 "Company" means Conoco Inc., a Delaware corporation, and any
successor or assignee of Company of its rights and obligations under this
Agreement.
1.7 "Contractor" means TransTexas Gas Corporation, a Delaware
corporation, and TransTexas Drilling Services, Inc., a Delaware corporation, as
assignee of TransTexas Gas Corporation under Section 7.4, together with any of
their Subsidiaries providing Services to Company under the Master Contract and
any permitted successor or assignee of Contractor of its rights and obligations
under this Agreement.
1.8 "Cure Period" shall be as defined in Section 2.2 hereof.
1.9 "Effective Date" means March 1, 1997, the date this Agreement
has come into effect.
1.10 "Master Contract" means the Master Services Contract between
Company and
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<PAGE> 5
Contractor dated effective May 30, 1997, as the same may be amended from time
to time (or any successor agreement covering the Services).
1.11 "Minimum Aggregate Amount" and "Minimum Annual Amount" shall
be as defined in Section 3.2 hereof, calculated and credited in accordance with
Sections 3.3 and 3.4 hereof.
1.12 "Party" means Company or Contractor individually, as indicated
by the context. Company and Contractor are sometimes together referred to
herein as the "Parties".
1.13 "Requested Services" shall be as defined in Section 3.3
hereof.
1.14 "Services" shall be as defined in Section 1.1 of Exhibit A to
the Master Contract.
ARTICLE 2. CONDITIONS AND SUSPENSION
2.1 Conditions. Company's obligations under this Agreement are
conditioned on:
(a) Any necessary upgrade by Contractor to its equipment,
services, quality, and performance capabilities in order to meet
Company's standards for the Services, including without limitation
those standards for quality of materials and equipment, safety and
environmental performance, conformity with job specifications,
timeliness of delivery of Services, downtime, and timely payment of
its subcontractors, all as provided in the Master Contract;
(b) Continuing compliance by Contractor with the
standards referred to in Section 2.1(a); and
(c) The prices for the Services of Contractor being in
conformance with the pricing provisions of the Master Contract.
2.2 Failure of Conditions and Notices. If at any time Company
reasonably determines that, with respect to any of the types of Available
Services, Contractor (i) has not been meeting the conditions described in
Section 2.1 hereof, or (ii) has been unable, unwilling, or not ready to provide
Services when called within the call-out standards provided in Article 3 of
Exhibit B to the Master Contract (provided however, Contractor, without
penalty, may refuse to perform any Company Services request, howsoever made,
which does not provide Contractor with the minimum notice periods provided in
said Article 3), then Company may provide Contractor with a written notice of
noncompliance describing in sufficient detail the failure with respect to that
type of the Available Services. Contractor shall then have sixty (60) days to
cure its noncompliance with the condition(s) described in Section 2.1 hereof,
or such longer period as may be mutually agreed in writing by the Parties
("Cure Period"). If Contractor fails to cure during the Cure Period and
remains out of compliance with respect to at least the number of types of
Available Services as specified in the first column of the table in Section 2.3
hereof, requested within Texas Railroad Commission District 4, then Company may
suspend this Agreement as provided in Section 2.3 upon further written notice
to Contractor. As Contractor returns to compliance with respect to each type
of the Available Services, it will promptly provide written notice of its
compliance to Company. If Company disagrees, it will promptly provide written
notice to Contractor specifying the area of disagreement. Notwithstanding the
foregoing, Company may not issue a notice of noncompliance, and no suspension
of this Agreement may result, with respect to any type of Available Services
during calendar year 1997
Agreement for Services Page 2 CONFIDENTIAL
<PAGE> 6
for Contractor's failure to provide Services when called within the call-out
standards provided in Article 3 of Exhibit B to the Master Contract if such
type of Available Services has been requested by Company in a quantity that
would require the contemporaneous performance of Services for Company which
would exceed Contractor's capacity limitations of equipment or qualified
manpower, as such capacity and quantities are described (effective with the
Master Contract) in Exhibit B to the Master Contract.
2.3 Suspension and Resumption of Agreement. This Agreement and
Company's obligations and liability hereunder will be suspended during any
period after the Cure Period that Contractor may be out of compliance with the
conditions of this Agreement as provided in Sections 2.1 and 2.2 hereof,
commencing at the end of the Cure Period until resumption of the Agreement as
herein provided. When Contractor returns to compliance and all the conditions
described in Section 2.1 hereof have been met with respect to at least the
minimum number of types of Available Services being offered under the Master
Contract within Texas Railroad Commission District 4, as specified in the
second column of the following table, then the Agreement will be deemed to have
resumed.
<TABLE>
<CAPTION>
Number of Types of Non-complying Minimum Number of Types of Available
Available Services for Agreement Services Required Number of Types of
Suspension to be in Compliance Available Services
<S> <C> <C>
5 17 21
4 17 20
4 16 19
4 15 18
4 14 17
3 14 16
3 13 15
</TABLE>
2.4 Early Termination for Lengthy Suspension(s). If this
Agreement is suspended for more than one hundred eighty (180) consecutive days
for any single suspension of this Agreement, or more than three hundred
sixty-five (365) days in the aggregate for all suspensions of this Agreement
during the term of this Agreement, Company may upon thirty (30) days' written
notice to Contractor terminate this Agreement. Such termination notice may be
given in advance of the anticipated termination date, to be effective if the
conditions of this Section 2.4 are met.
2.5 Reduction of Available Services. At any time after 1997,
Contractor shall notify Company in writing at least thirty (30) days in advance
of Contractor's intent to withdraw a particular type of Services from the
Available Services; provided, however, if Company objects in writing, within
fifteen (15) days of receipt of Contractor's notice, then Contractor shall
continue to provide that type of Available Services for a further period of
ninety (90) days from the date of Company's objection. If during such ninety
(90) day period Company requests at least $ 50,000 of that type of the
Available Services from Contractor, then Contractor will continue to provide
said Services under the Master Contract and the number of types of Available
Services shall not be reduced. Contractor may reissue a new notice of intent
subject to the same process described above for Company's approval on the next
Price List review period as described in Section 2.02 of Exhibit C of the
Master Contract. If Company does not object, it will be considered that (i)
said type of the Available Services is withdrawn by
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<PAGE> 7
Contractor, (ii) the number of types of Available Services will be reduced by
that type, and (iii) Company may issue no further notices of noncompliance to
Contractor hereunder with respect to the withdrawn type; provided, however in
no event shall the number of types of Available Services be reduced to less
than fifteen (15) types without express written approval from Company, which
may be withheld for any reason including convenience, and Contractor shall be
obligated hereunder to offer and provide to Company as Available Services at
least fifteen (15) types of the Services listed in Exhibit B of the Master
Contract at all times while this Agreement is in effect.
ARTICLE 3. MINIMUM REQUEST OF SERVICES
3.1 Company Obligation. Subject to the conditions and any
suspension or early termination provided in Article 2 hereof, and the early
termination and termination provisions of Article 6 hereof, Company and its
Affiliates will request Services from Contractor at least in the Minimum
Aggregate Amount and Minimum Annual Amount as defined and determined in
accordance with this Article 3.
3.2 Minimum Amount. Subject to the valuation, calculation, and
credits provided in Section 3.4 hereof, Contractor's sole remedy provided in
Section 4.1 hereof, and the early termination and termination provisions of
Articles 2 and 6 hereof, the minimum amount of Services to be requested of
Contractor by Company and its Affiliates is as follows:
Minimum Aggregate Amount: $ 130,000,000 in the aggregate for the term
of this Agreement
Minimum Annual Amount: $ 10,000,000 in each calendar year while this
Agreement is in effect for the entire
calendar year and not suspended as provided
in Section 2.3 hereof. For (i) calendar year
1997, (ii) the calendar year in which this
Agreement terminates (or terminates early),
and (iii) any calendar year during which this
Agreement may be suspended under Section 2.3,
the Minimum Annual Amount shall be $
10,000,000 multiplied by a fraction, the
numerator of which is the number of days in
that particular calendar year during which
this Agreement is in effect and not
terminated or suspended, and the denominator
of which is 365.
3.3 Requested Services. Services will be considered "requested"
under Sections 2.5 and 3.2 hereof when Company or its Affiliates request
Services under the Master Contract, in accordance with Section 1.1 of Exhibit A
or Section 3.01 of Exhibit C thereof, and, in either instance, Article 3 of
Exhibit B of the Master Contract ("Requested Services"). This Agreement does
not require Company or its Affiliates to request any Services, or Contractor to
perform any Services for Company or its Affiliates in response to a request.
To the extent Company or its Affiliates elect (for any reason including
convenience) not to request Services from Contractor, Contractor will have the
sole remedy, if any, provided in Section 4.1 hereof.
3.4 Calculation of Minimum Amount and Credits. The Minimum
Aggregate Amount and Minimum Annual Amount will be calculated and credited as
follows, whether or not the events or items provided below occur during any
periods of suspension of this Agreement:
(a) The amounts invoiced by Contractor to Company and its
Affiliates for
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<PAGE> 8
Services provided under the Master Contract, whether or not performed
within Texas Railroad Commission District 4, less any of such invoiced
amounts which have been disputed by Company to the extent the dispute
is unresolved, will be credited against both the Minimum Aggregate
Amount and Minimum Annual Amount as of the date of the invoice.
(b) For the types of Services described in Exhibit B to
the Master Contract which are Requested Services of Contractor to be
performed within Texas Railroad Commission District 4, but not
performed by it for any reason other than:
(i) an event of force majeure, as defined in
Section 16.6 of Exhibit A to the Master Contract, occurring at
the site of the Requested Services, or
(ii) those Requested Services were not awarded to
Contractor when Contractor had been requested by Company, and
Contractor agreed, to compete to supply such Services by means
of a competitive bid, as provided in Section 3.01 of Exhibit C
to the Master Contract,
the amount invoiced by any provider other than Contractor for the
performance of the Requested Services (provided such performance meets
all material terms, conditions, and specifications of the original
request to Contractor) will be credited against both the Minimum
Aggregate Amount and Minimum Annual Amount as of the date of the third
party invoice.
(c) For any Services which Contractor has an obligation
to correct or re-perform under the Master Contract, the actual
out-of-pocket expense to Company or its Affiliates resulting from the
required remedial Services (other than those expenses for which
Contractor is indemnified by Company under the Master Contract),
including any third party charges resulting therefrom, will be
credited against both the Minimum Aggregate Amount and Minimum Annual
Amount as of the date of the invoice for the Services which are
corrected or re- performed, whether by Contractor or a third party.
(d) All valid claims of Company and its Affiliates
against Contractor under the Master Contract will be credited against
both the Minimum Aggregate Amount and Minimum Annual Amount as of the
date the valid claims become due and payable, to the extent such valid
claims remain unpaid.
(e) Any amounts paid by Company to, or credited to,
Contractor and its Affiliates under that certain Interim Operating
Agreement among Company, TransTexas Gas Corporation, and TransTexas
Transmission Corporation, dated effective March 1, 1997, as amended,
together with all valid claims of Company under said Interim Operating
Agreement, to the extent the valid claims become due and payable and
remain unpaid, will be credited against both the Minimum Aggregate
Amount and Minimum Annual Amount as of the date of payment, crediting,
or such valid claims becoming due and payable, as the case may be;
provided, however, such amounts credited shall only include amounts
that are allocable to matters or work performed arising out of
activities of the types described in Exhibit B to the Master Contract.
(f) Any payments made by Company to Contractor under
Section 4.1(a) hereof will be credited against the Minimum Aggregate
Amount.
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<PAGE> 9
(g) Any Banked Credits, as provided under Section 4.2
hereof, will be credited against both the Minimum Aggregate Amount and
Minimum Annual Amount as they are used.
The above amounts to be credited will be determined on a gross basis, and not
on a net basis, in the event such amounts apply or are allocable to facilities
and properties which Company and its Affiliates do not own one hundred percent
(100%). Each amount to be calculated and credited as set forth for any single
item as described in Section 3.4(a) through (e) and (g) above will be credited
only one time against both the Minimum Annual Amount and the Minimum Aggregate
Amount. Each amount to be calculated and credited as set forth for any single
item as described in Section 3.4(f) above will be credited only one time
against the Minimum Aggregate Amount.
ARTICLE 4. REMEDIES
4.1 Sole Remedy of Contractor. Company will pay Contractor the
following amounts, if any, as Contractor's sole remedy for any failure of
Company to comply with the provisions of Article 3 hereof:
(a) After each calendar year, the Minimum Annual Amount
less (i) the sum of all the credits allocable to that calendar year
determined in accordance with Section 3.4 hereof and less (ii) any
Banked Credits as provided in Section 4.2 hereof; and
(b) After termination of this Agreement (other than early
termination under Section 2.4, 6.2, 6.3, and 6.4 hereof), the Minimum
Aggregate Amount less (i) the sum of all the credits accrued under
this Agreement determined in accordance with Section 3.4 hereof and
less (ii) any remaining Banked Credits as provided in Section 4.2
hereof. No amount will be owed Contractor by Company under this
Section 4.1(b) for any reason if this Agreement terminates early as
provided in Section 2.4, 6.2, 6.3, or 6.4.
No damages or other amounts are owed by Company to Contractor under this
Agreement except as expressly provided in this Section 4.1, together with any
interest thereon as provided in Section 5.2. Company will account for, and
Contractor will invoice Company for, any amounts owed under this Section 4.1,
as provided in Article 5.
4.2 Banked Credits. Any credits allocable to a calendar year
under Section 3.4 which exceed the Minimum Annual Amount for that calendar year
("Banked Credits") will carry over from year to year and be credited against
the Minimum Annual Amount for subsequent calendar years and against the Minimum
Aggregate Amount. Banked Credits may be used only one time against a Minimum
Annual Amount, and will also be a credit against the Minimum Aggregate Amount.
ARTICLE 5. ACCOUNTING AND INVOICING
5.1 Company's Quarterly Reports.
(a) Company will keep an accounting of the Minimum Annual
Amounts by calendar year, the applicable credits and Banked Credits,
and will furnish Contractor with quarterly reports, together with
sufficient detail and backup information concerning same, within sixty
(60) days after the end of the applicable quarter. Company will also
keep an accounting of the Minimum Aggregate Amount and the applicable
credits and Banked
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<PAGE> 10
Credits, and will furnish Contractor with a final report, together
with sufficient detail and backup information concerning same, within
sixty (60) days after the termination of this Agreement. Contractor
will have thirty (30) days after receipt of a quarterly or final
report within which to review and object to same, and, subject to
Section 5.1(c), any failure to object within such time period will be
deemed a waiver AND RELEASE of Contractor's claims under this
Agreement for any amounts or items at variance with such reports.
After thirty (30) days from Contractor's receipt of a quarterly or
final report, if Contractor has not disputed an item, the report will
be deemed correct for all purposes, notwithstanding any statutes of
limitations or audit rights hereunder, subject, however, to Section
5.1(c).
(b) During the same thirty (30) day period after
Contractor's receipt of a quarterly or final report, Company will have
the right to submit any corrections to the report to Contractor, and
Contractor will have thirty (30) days after receipt of any corrected
quarterly or final report within which to object to same, and, subject
to Section 5.1(c), any failure to object within such time period will
be deemed a waiver AND RELEASE of Contractor's claims under this
Agreement for any amounts or items at variance with such reports.
After thirty (30) days from Contractor's receipt of a corrected
quarterly or final report, if Contractor has not disputed an item, the
report will be deemed correct for all purposes, notwithstanding any
statutes of limitations or audit rights hereunder, subject, however,
to Section 5.1(c).
(c) If Contractor has disputed an item, it will have the
audit rights provided in Section 7.6 with respect to the disputed
item, and Company will have the right to recalculate or correct any
disputed item while Contractor's audit period with respect to the
disputed item is open. If the disputed item is the result of a
disputed claim which Company has credited in its reports under Section
3.4(d) or (e), then upon final determination and payment, if any, of
the claim, Company will account for the claim in accordance with the
final determination and payment, if any, of the claim and will issue
any corrected reports as may be necessary from and after the date that
Company began including the claim in its reports, and any necessary
adjustments will be made between the Parties as a result of the final
determination of whether the claim was valid and when it became due
and payable.
5.2 Invoices. Contractor shall submit an invoice in U.S. Dollars
after the end of a calendar year and receipt of Company's fourth quarter report
for that calendar year for and only for, and Company shall pay Contractor, any
amounts owed under Section 4.1(a) of this Agreement for that calendar year.
Contractor shall submit an invoice in U.S. Dollars after termination of this
Agreement and receipt of Company's final report for and only for, and Company
shall pay Contractor, any amounts owed under Section 4.1(b) of this Agreement
upon termination. Contractor may not submit invoices for, or include in its
invoices under this Agreement, amounts which may become owed by Company or its
Affiliates to Contractor or its Affiliates under other contracts or
arrangements as may exist between or among them. Payment of Contractor's
invoice is due thirty (30) days from receipt of the invoice. Contractor shall
send all invoices to Company's address set forth below, along with supporting
documentation. Contractor will indicate the contract number assigned to this
Agreement on the front of the invoice. Invoices shall be sent to the following
address, unless changed by written notice to Contractor:
Conoco Inc.
Attn: Accounts Payable
P.O. Box 1700
Freer, Texas 78357
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If Contractor fails to invoice Company within 180 days from the end of a
calendar year or termination of the Agreement, as the case may be, Company
shall have no liability to Contractor for payment of same, or any portion of
it, and CONTRACTOR RELEASES COMPANY FROM ANY LIABILITY FOR SAME. Except as
expressly provided in Section 3.4, there shall be no right of offset between or
among the Parties, or their Affiliates and Subsidiaries, with respect to this
Agreement.
5.3 Assignment of Invoices. Except with Company's written
consent, which may be withheld for any reason including convenience (but
subject to Section 7.4), Contractor shall not assign its invoices or any right
to receive payment from Company under this Agreement to any third party, and
any attempt to do so shall be absolutely void and shall relieve Company from
liability for payment of same. Contractor may pledge its receivables under
this Agreement, provided that the same shall be expressly subordinate to
Company's claims and rights under this Agreement.
5.4 Payment. Contractor's invoices shall be paid and payment made
by Company check in U.S. Dollars and submitted via U.S. mail in accordance with
Contractor's instructions set forth in its invoice; provided, however, if
electronic data interchange has been implemented between the Parties under the
Master Contract, then Company's payment shall be made by wire transfer to
Contractor's account if Contractor has included wiring instructions on its
invoice or subsequently informed Company in writing of the same.
5.5 Disputes. If Company disputes an item billed, Company shall,
within thirty (30) days of receiving Contractor's invoice, notify Contractor of
the item in dispute, specifying its complaint. In the event Company disputes
an invoice item, Company shall not delay payment of the undisputed part of the
invoice; provided that before Company is required to make any payment,
Contractor shall credit Company for the amount of such invoice which Company
disputes and provided further that the 30-day period referred to above shall
cease to run at the time Company notifies Contractor of such dispute and shall
recommence on the date that Company receives Contractor's credit. In addition,
Company will pay simple interest on the undisputed amount at the rate provided
in Section 5.6, calculated from the due date as provided in Section 5.2. The
issuance of a credit by Contractor shall not itself in any way be evidence of
acceptance by Contractor that Company is correct in disputing that part of the
invoice to which the credit relates. Payment of items in dispute shall be
withheld without interest until the dispute is resolved, at which point payment
in full of that agreed amount plus simple interest thereon at the rate provided
in Section 5.6 calculated from the due date of the original invoice, shall be
paid without delay. Payment of an invoice shall not prejudice the right of
Company to subsequently dispute any part of such invoice, subject, however, to
Section 5.1. Payment of undisputed amounts by Company shall not waive any
claims of Company which may arise under Section 5.1.
5.6 Interest. Should Company or Contractor fail to pay one to the
other any part of the monies herein agreed to be paid from one to the other on
or before the due date thereof, simple interest shall accrue on the amounts
unpaid at the lesser of six percent (6%) per annum or the maximum rate from
time to time permitted by law. Such accrual of interest shall not mitigate or
cure the defaulting Party's failure to make payment of amounts due and owing.
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ARTICLE 6. TERM
6.1 Term. The term of this Agreement shall commence on the
Effective Date set forth above and shall continue for a term of nine (9) years
plus any period of suspension as provided in Section 2.3 hereof, unless
terminated earlier as herein provided, at which time this Agreement will
terminate.
6.2 Early Termination by Company. This Agreement may be
terminated earlier by Company upon thirty (30) days' written notice to
Contractor as set forth in Section 2.4.
6.3 Early Termination upon Satisfaction of Minimum Amount. This
Agreement shall terminate at such time as the sum of the credits described in
Section 3.4 equals or exceeds the Minimum Aggregate Amount of $ 130,000,000.
6.4 Early Termination. Notwithstanding Section 6.1, if Contractor
(i) goes into liquidation (other than voluntarily for the purpose of
re-organization or reconstruction), (ii) makes an arrangement, composition or
compromise with its creditors, (iii) has a receiver appointed in respect of the
whole or any part of its assets, Company may at any time thereafter immediately
terminate this Agreement without any liability to compensate Contractor for
such termination or to make any further payments hereunder.
6.5 Surviving Obligations. Early termination of this Agreement
under Section 2.4, 6.2, 6.3, or 6.4 shall relieve Company of all liabilities
and obligations hereunder, including any obligations with respect to the
Minimum Aggregate Amount as set forth in Section 4.1(b), but shall not relieve
Company of any obligations with respect to amounts due and unpaid with respect
to the Minimum Annual Amount under Section 4.1(a) which may have accrued up to
the date of termination.
ARTICLE 7. MISCELLANEOUS
7.1 Notices. All notices required under this Agreement will be
properly made when delivered in person, mailed or sent by telex, courier
services or facsimile to the addresses set forth in Section 7.2.
7.2 Addresses. The notice addresses of Company and Contractor are
as follows, unless changed by written notice:
CONTRACTOR: TransTexas Gas Corporation
1300 North Sam Houston Parkway E., Suite 310
Houston, TX 77032-2949
Telephone No.: (281) 987-8600
Facsimile No.: (281) 986-8865
Attention: Arnold Brackenridge
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<PAGE> 13
COMPANY: Conoco Inc.
600 N. Dairy Ashford
Houston, TX 77079
Telephone No.: (281) 293-5526
Facsimile No.: (281) 293-4424
Attention: MLS Leader
7.3 Publicity. No public statements shall be issued by any Party
relating to this Agreement without prior coordination with the other Party;
provided that nothing herein shall prevent a Party from supplying such
information or making such statements relating to such transactions as may be
required by any governmental authority or as such Party may consider necessary
in order to satisfy its legal obligations, but such Party shall furnish prior
notice thereof to the other Party. A Party may release information concerning
this Agreement to its attorneys, accountants, financial advisors, and potential
or current lenders as may be necessary or convenient, without prior notice to
the other Party.
7.4 Assignment. Upon thirty (30) days' prior written notice to
Contractor, Company may assign this Agreement to any Affiliate or third party
and, unless such assignee is approved in writing by Contractor, which may be
withheld for any reason including convenience, Company will not be relieved of
any obligations and liabilities accruing hereunder after the assignment is
effective. Except as otherwise provided in this Section 7.4, Contractor may
not assign this Agreement, or any right to receive payments hereunder (other
than as permitted under Section 5.3), without Company's prior written consent,
which may be withheld for any reason including convenience. Upon thirty (30)
days' prior written notice to Company, Contractor may assign this Agreement in
its entirety to TransTexas Drilling Services, Inc., a Delaware corporation;
provided, however, that the Master Contract shall be also assigned in its
entirety concurrently to TransTexas Drilling Services, Inc. and it shall agree
in writing with Company (i) to assume all of Contractor's liabilities and
obligations under and to be bound by all express and implied covenants,
conditions, and obligations of Contractor in and under this Agreement, and (ii)
expressly to adopt, ratify and confirm this Agreement. In the event of such
concurrent assignments as herein provided, TransTexas Gas Corporation will be
relieved of all obligations and liabilities accruing hereunder after the
concurrent assignments of this Agreement and the Master Contract are effective.
Company shall not have any obligation to make any payment under this Agreement
to TransTexas Drilling Services, Inc. prior to receipt of notice of said
assignments and the express assumption of obligations hereunder by TransTexas
Drilling Services, Inc. as herein provided.
7.5 No Consequential or Punitive Damages. Except for the remedies
expressly provided in this Agreement, each Party hereby waives and RELEASES the
other Party from, all actual, special, indirect, incidental, consequential, or
punitive or exemplary damages arising out of or resulting from this Agreement
OR ANY BREACH THEREOF, whether such damages are claimed under breach of
warranty, breach of contract, tort or any other theory or cause of action at
law or in equity, including all damages for loss of revenue, loss of profit,
loss of use of capital, lost opportunity, construction or production delays,
reduction or cessation of production or system throughput, loss of product,
reservoir loss or damage, losses resulting from failure to meet other
contractual commitments or deadlines, and losses resulting from downtime of
facilities or vessels, however and whenever arising under this Agreement,
WHETHER OR NOT BASED ON (AND INCLUDING) NEGLIGENCE, FAULT, OR STRICT LIABILITY
OF THE RELEASED PARTY (WHETHER SOLE OR CONCURRENT, OR ACTIVE OR PASSIVE).
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<PAGE> 14
7.6 Audits. For a period of two years after providing Company
with notice of a disputed item in a Company quarterly or corrected quarterly
report provided to Contractor under Section 5.1, Contractor may audit Company's
records with respect to the disputed item. Such audits shall be conducted upon
reasonable notice and during normal business hours. Company shall cooperate
fully with Contractor during audits performed under this Section 7.6, including
furnishing to Contractor copies of all requested documents within the scope of
the audit, except for the invoices and other information with respect to a
provider of Services other than Contractor, which Contractor may audit only by
way of an independent auditing firm which shall not disclose the identity of
the third party associated with such information to Contractor.
7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS, EXCLUDING THE TEXAS RULES ON CONFLICTS OF LAWS.
7.8 Mediation and Arbitration. Compliance with this Section 7.8
shall constitute a condition precedent to either Party seeking judicial
enforcement of any provisions of this Agreement. Any dispute concerning this
Agreement shall be resolved under the mediation and binding arbitration
procedures of this Section 7.8 and that certain Dispute Resolution Agreement
among the Parties and others dated May 21, 1997 ("Arbitration Agreement"), all
the terms and provisions of which are hereby incorporated and adopted by the
Parties as though such Arbitration Agreement were set forth in full in this
Section 7.8. Company and Contractor will first attempt in good faith to
resolve all disputes by negotiations between management level individuals who
have authority to settle the controversy, pursuant to the procedures of Section
3.1 of the Arbitration Agreement. If either Party believes further
negotiations are futile, such Party may initiate the mediation process by so
notifying the other Party in writing. Both Parties shall then attempt in good
faith to resolve the dispute by mediation in Houston, Texas, employing
management level individuals with authority to settle the dispute, in
accordance with the Center for Public Resources Model Procedure for Mediation
of Business Disputes, as such procedure may be modified by mutual agreement of
the Parties. If the dispute has not been resolved pursuant to mediation within
sixty (60) days after initiating the mediation process, the dispute shall be
finally resolved through binding arbitration under the terms and provisions of
the Arbitration Agreement. The foregoing shall not preclude Contractor from
filing such liens as in its opinion may be necessary to protect its rights.
Contractor shall clear its own liens at its expense when the matter is settled
or upon completion of arbitration proceedings. The exercise of any such remedy
shall not waive the right of either Party to compel arbitration hereunder.
7.9 Expenses. Except as may otherwise be expressly provided in
the Arbitration Agreement, all costs, legal fees, and other expenses incurred
by each Party in connection with the preparation, negotiation, execution,
delivery, administration and enforcement of this Agreement, including those
incurred in any mediation, arbitration, or court proceeding, shall be for the
account of, and borne and paid solely by, such Party.
7.10 Relationship. Neither Company nor Contractor intend to create
a partnership, joint venture, agency, association, trust or other legal entity
between the Parties, or to constitute either Party as a partner or agent of the
other Party, and neither this Agreement nor any of the operations or activities
hereunder or pursuant hereto shall be construed or considered as creating such
a relationship or constituting either Party as a partner or agent of the other
Party or to impose a partnership, principal-agent or fiduciary, duty,
obligation, or liability between or with respect to the Parties hereto.
Agreement for Services Page 11
CONFIDENTIAL
<PAGE> 15
7.11 No Rights Given to Third Parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any Person
or entity other than the Parties any rights or remedies under or by reason of
this Agreement.
7.12 Severability. If a provision of this Agreement is determined
to be void or unenforceable, this finding shall not render other provisions
void or unenforceable.
7.13 Waiver. The waiver on the part of any Party to this Agreement
of one or more of its rights under this Agreement shall not represent a
continuing waiver of such rights or prohibit such Party from demanding the full
performance of the other Party's obligations under this Agreement.
7.14 Headings. The headings and captions used in this Agreement
are for convenience only and shall not be deemed to be of a substantive nature
in construing this Agreement.
7.15 Entire Agreement and Agreement Modification. This Agreement
reflects the entire agreement between the Parties with respect to the subject
matter hereof. Except for any confidentiality agreements between the Parties,
all other oral, written or implied agreements, contracts, understandings,
conditions, or representations with respect to the subject matter hereof are
superseded by or merged into this Agreement. No modification of this Agreement
shall be of any force or effect unless it (i) is in writing, (ii) reflects the
effective date of the modification, (iii) is signed by both Parties, and (iv)
expressly indicates that it modifies this Agreement.
7.16 Controlling Document. In the event of any conflict under this
Agreement with the Master Contract, the terms and provisions of this Agreement
shall control and prevail.
7.17 Execution in Counterparts. Each text of this Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives effective as of the Effective Date.
CONOCO INC. TRANSTEXAS GAS CORPORATION
By: /s/ K. L. Vogel By: /s/ Arnold Brackenridge
------------------------------- -----------------------------
Name: K. L. Vogel Name: Arnold Brackenridge
----------------------------- ---------------------------
Title: Attorney-in-Fact Title: President
---------------------------- --------------------------
Agreement for Services Page 12
CONFIDENTIAL
<PAGE> 1
EXHIBIT 10.5
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), dated as of June 13, 1997,
is entered into by and among TNGC Holdings Corporation, a Delaware corporation
("TNGC"), and its subsidiaries listed on the signature pages.
TNGC currently has, among others, the following direct or indirect
subsidiaries: TransAmerican Natural Gas Corporation, a Texas corporation
("TransAmerican"); TransAmerican Energy Corporation, a Delaware corporation
("TEC"); TransAmerican Refining Corporation, a Texas corporation ("TARC");
TransTexas Gas Corporation, a Delaware corporation ("TransTexas"); and
TransTexas Drilling Services, Inc., a Delaware corporation ("TTXD"). TTXD is
currently a wholly owned subsidiary of TransTexas, which is anticipated to be
spun off to the stockholders of TransTexas. TNGC, TransAmerican, and the
subsidiaries of TransAmerican, other than TEC and its subsidiaries, TransTexas
and its subsidiaries, and, after it is spun off, TTXD and its subsidiaries, are
referred to in this Agreement as the "Parent Group." TEC and its subsidiaries,
including TARC, are referred to in this Agreement as the "TEC Group." The
Parent Group, TEC Group, and, after it is spun off, TTXD and its subsidiaries
(the "TTXD Group"), are referred to in this Agreement as the "Services Buyers."
The Services Buyers wish to retain TransTexas to render the services
described in Section 1.1 hereof (the "Services").
TEC, TARC, TransTexas, and TTXD wish to retain the services of John R.
Stanley ("Stanley") as chief executive officer of each company and to
compensate TransAmerican for various activities conducted and services provided
for their benefit.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:
I
SERVICES
1.1 Services. Subject to the terms and provisions set forth
in this Agreement (collectively, the "Services"):
(a) TransTexas shall, at TransAmerican's request, provide
to the Parent Group, administrative, legal, accounting, including
accounts payable, accounts receivable, and purchasing services,
treasury, tax, human resources, and employee benefits services (the
"Parent Group Services").
<PAGE> 2
(b) TransTexas shall, at TEC's or TARC's request, provide
to the TEC Group administrative, legal, accounting, including accounts
payable, accounts receivable, and purchasing services, financial and
SEC reporting, investor relations, treasury, tax, human resources, and
employee benefits services (the "TEC Services").
(c) TransTexas shall, at TTXD's request after it is spun
off, provide to the TTXD Group administrative, legal, accounting,
including accounts payable and accounts receivable services, financial
and SEC reporting, investor relations, treasury, tax, and employee
benefits services (the "TTXD Services").
1.2 Personnel Matters. Without limiting the generality of
Section 1.1 of this Agreement, TransTexas shall provide all labor and
administrative, supervisory and other persons necessary to perform the
Services; provided that TransTexas shall have the right at its own expense to
use independent contractors in performing the Services as it shall deem
advisable in its reasonable judgment.
1.3 Performance of Services. TransTexas shall perform or cause to
be performed its duties under this Agreement in a manner consistent in all
material respects with then current applicable industry standards. TransTexas
shall, in connection with the performance of the Services hereunder, apply for,
and use its best efforts to obtain, all permits, licenses, certificates or
other administrative or regulatory authorizations as may be required by any
governmental authority from time to time as may be necessary or appropriate for
TransTexas' performance of its obligations under this Agreement, except for
such permits, licenses, certificates or other authorizations as the Services
Buyers are specifically required to procure by reason of applicable law.
1.4 Independent Contractor Status. TransTexas shall perform the
Services as an independent contractor. The number of employees, the selection
and retention of such employees, the hours of labor and the compensation for
services to be paid to any and all such employees of TransTexas shall be
determined by TransTexas. TransTexas or a supervisor, manager or officer of
TransTexas with whom the Services Buyers may consult concerning the Services
shall be available to the Services Buyers at all reasonable times. All
employees, agents, contractors and subcontractors hired by TransTexas to
perform services hereunder shall not be deemed to be the employees, agents,
contractors and subcontractors of the Services Buyers, and all salaries and
compensation payable to them shall be the exclusive responsibility of
TransTexas.
1.5 Necessary Information. The Services Buyers shall furnish
TransTexas with all information, programs, know-how, methods or methodology
within the Services Buyers' control as may be necessary or appropriate for the
performance of the Services by TransTexas.
- 2 -
<PAGE> 3
II
COMPENSATION
2.1 Compensation for Services.
(a) As compensation for the Services provided by
TransTexas pursuant to this Agreement, the Services Buyers shall pay
to TransTexas the following amounts (the "Services Fees"), in cash:
(i) As compensation for the Parent Group Services
performed hereunder, the Parent Group shall pay TransTexas
$20,000 per month, subject to an annual adjustment on each
anniversary date of this Agreement as calculated by the CPI
Formula (defined below).
(ii) As compensation for the TEC Services, the TEC
Group shall pay TransTexas $300,000 per month, subject to an
annual adjustment on each anniversary date of this Agreement
as calculated by the CPI Formula.
(iii) In connection with a spin-off of TTXD,
TransTexas and TTXD shall agree to the Services Fee to be paid
to TransTexas by the TTXD Group following the spin-off, which
will be approved by the boards of directors of both TransTexas
and TTXD.
(b) In addition to the Services Fees provided for in
Section 3.1(a) above, TransTexas shall be entitled to be reimbursed by
each Services Buyer for expense items paid by TransTexas to third
parties and directly attributable to Services provided to that
Services Buyer ("Reimbursable Expenses").
(c) The CPI Formula is equal to (i) the current rate per
month multiplied by (ii) the Consumer Price Index (all urban
consumers, all items) ("CPI") for April of the adjustment year divided
by (iii) CPI for April of the previous year.
(d) The members of each of the Parent Group, TEC Group,
and TTXD Group may allocate the obligation for payments under this
Agreement at their discretion, provided no such allocation shall
relieve any member of a group from liability to TransTexas to pay
TransTexas for services provided to such member.
III
PAYMENTS TO TRANSAMERICAN
3.1 TransAmerican Actions and Services. Contemporaneously
with the execution of this Agreement, TransAmerican is agreeing to contribute
to the capital of TEC 3.7 million shares of common stock of TransTexas. In
addition, TransAmerican is assuming primary responsibility for
- 3 -
<PAGE> 4
federal income and Texas franchise taxes attributable to the sale by TransTexas
of its subsidiary, TransTexas Transmission Corporation, and the costs, if any,
of prosecuting and defending the reporting position to be taken with respect to
that sale. TransAmerican incurs costs both for its employees and directors and
for consultants and other service providers that benefit, directly or
indirectly, the TEC Group and TransTexas. TransAmerican expects to continue
those activities and benefits. TransAmerican shall, during the term hereof,
provide the services of Stanley as chief executive officer of each of TEC,
TARC, TransTexas, and TTXD. Stanley shall devote substantially all of his
business time to the performance of these services and the responsibilities of
these offices and shall allocate time among such offices at his reasonable
discretion.
3.2 Payments to TransAmerican. In recognition of the acts
of TransAmerican described herein and of the benefits accrued and anticipated
to be received as a consequence of those acts and as compensation for the
advisory and other services and benefits provided by TransAmerican through
Stanley and, from time to time, employees or outside consultants, TEC and its
subsidiaries shall pay TransAmerican $2,500,000 in the aggregate per year. TEC,
TARC, TransTexas, and TTXD shall allocate this payment obligation on an
equitable basis taking into account the benefits and services provided to each.
IV
MISCELLANEOUS
4.1 Term. This Agreement shall become effective upon the date
first noted above and shall continue in effect until (i) terminated, with
respect to such party's rights and obligations hereunder, by any party hereto
upon 30 days written notice to the other parties or (ii) terminated, if an
Event of Default (as defined therein) occurs under that certain indenture dated
June 13, 1997, between TEC and Firstar Bank of Minnesota, N.A., as trustee,
pursuant to which TEC is issuing 11 1/2% Senior Secured Notes due 2002 and 13%
Senior Secured Discount Notes due 2002 (the "Indenture"), upon 30 days' notice
by the trustee under the Indenture to the parties hereto.
4.2 Amendments. This Agreement may be amended by an agreement
in writing signed by each of the parties affected by such amendment.
4.3 Notice. All notices and other communications required or
permitted hereunder shall be in writing and, unless otherwise provided in this
Agreement, shall be deemed to have been duly given when delivered in person or
my mail or when dispatched by telegram or electronic facsimile transfer
(confirmed in writing by mail simultaneously dispatched) to the addressee at
the address specified below:
If to any member of the Parent Group:
c/o TransAmerican Natural Gas Corporation
1300 North Sam Houston Parkway East
Suite 300
Houston, Texas 77032
- 4 -
<PAGE> 5
If to TransTexas:
TransTexas Gas Corporation
1300 North Sam Houston Parkway East
Suite 310
Houston, Texas 77032
If to any member of the TEC Group:
c/o TransAmerican Energy Corporation
1300 North Sam Houston Parkway East
Suite 200
Houston, Texas 77032
If to TTXD:
TransTexas Drilling Services, Inc.
1300 North Sam Houston Parkway East
Suite 310
Houston, Texas 77032
or such other address as either party may from time to time designate
by like notice.
4.4 Limitations on Assignment. No party to this Agreement
shall assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the other parties. Notwithstanding the
foregoing, nothing herein shall prohibit TransTexas from hiring any
subcontractors or agents to provide the Services; provided that such hiring
shall not relieve TransTexas of any of its obligations hereunder.
4.5 Governing Law. This Agreement shall be governed by the
internal laws of the State of Texas without regard to principles of conflicts
of law.
4.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed an original,
but all of such counterparts together shall constitute one and the same
instrument.
4.7 Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof.
4.8 Headings. The section headings of this Agreement are
only for the purpose of reference and shall not affect the meaning hereof.
- 5 -
<PAGE> 6
4.9 Termination of Existing Services Agreement. Upon execution
and delivery of this Agreement, the Services Agreement dated August 24, 1993,
as amended, among TransAmerican and certain of its subsidiaries is hereby
terminated.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TNGC HOLDINGS CORPORATION
By:
------------------------------------------
TRANSAMERICAN NATURAL GAS CORPORATION
By:
------------------------------------------
TRANSTEXAS GAS CORPORATION
By:
------------------------------------------
TRANSAMERICAN ENERGY CORPORATION
By:
------------------------------------------
TRANSAMERICAN REFINING CORPORATION
By:
------------------------------------------
TRANSTEXAS DRILLING SERVICES, INC.
By:
------------------------------------------
- 6 -
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO TAX ALLOCATION AGREEMENT
THIS THIRD AMENDMENT to the TAX ALLOCATION AGREEMENT of the affiliated
group of which TransAmerican Natural Gas Corporation, a Texas corporation
("TANG"), is a member (the "Affiliated Group") is made and entered into as of
May 29, 1997 by and among each of the corporations identified on the signature
page of this amendment.
WHEREAS, a TAX ALLOCATION AGREEMENT dated as of August 24, 1993 was
entered into by TANG, as common parent of the Affiliated Group, and other
identified corporations (collectively with TANG, the "Members");
WHEREAS, the TAX ALLOCATION AGREEMENT dated as of August 24, 1993 was
amended by the FIRST AMENDMENT TO THE TAX ALLOCATION AGREEMENT dated as of
March 9, 1994 and by the SECOND AMENDMENT TO THE TAX ALLOCATION AGREEMENT dated
as of February 23, 1995 (as amended, the "AGREEMENT");
WHEREAS, the Affiliated Group desires to add various corporations as
Members to, and delete various corporations as Members from, the AGREEMENT;
NOW, THEREFORE, the corporations listed on the execution pages of this
THIRD AMENDMENT TO TAX ALLOCATION AGREEMENT hereto agree to amend the AGREEMENT
as follows:
1. The following corporations shall be added as Members of the
AGREEMENT: (a) Southeast Marine, Inc., a Louisiana corporation, effective
August 24, 1993; (b) TNGC Holdings Corporation, a Delaware corporation
("TNGC"), effective as of August 30, 1995; and (c) Signal Capital Holdings
Corporation, a Delaware corporation ("SCHC"), effective as of January 28, 1997;
2. Effective August 30, 1995, TNGC shall replace TANG each place
in the AGREEMENT where TANG is referred to in its capacity as common parent of
the Affiliated Group with respect to actions and other matters occurring after
August 30, 1995;
3. TransTexas Transmission Corporation, a Delaware corporation,
and SCHC shall be deleted as Members of the AGREEMENT, and shall have no
further rights, obligations, or liabilities
<PAGE> 2
thereunder, effective as of the "Closing Time" on May 29, 1997 as defined in
section 1.02(c)(i) of that certain STOCK PURCHASE AGREEMENT dated May 29, 1997
by and between TransTexas Gas Corporation, as Seller, and First Union Bank of
Connecticut, as trust, as Buyer.
* * * * * * * * * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officer as of the date first set forth above.
TNGC HOLDINGS CORPORATION
By:
---------------------------------
TRANSAMERICAN NATURAL GAS
CORPORATION
By:
---------------------------------
TRANSAMERICAN REFINING
CORPORATION
By:
---------------------------------
TRANSTEXAS GAS CORPORATION
By:
---------------------------------
2
<PAGE> 3
TRANSTEXAS TRANSMISSION
CORPORATION
By:
---------------------------------
TRANSAMERICAN PIPELINE
CORPORATION
By:
---------------------------------
SOUTHERN STATES, INC.
By:
---------------------------------
SOUTHERN STATES EXPLORATION,
INC.
By:
---------------------------------
LAREDO EXPLORATION, INC.
By:
---------------------------------
SOUTHERN PETROLEUM TRADING
COMPANY, LTD.
By:
---------------------------------
3
<PAGE> 4
TRANSAMERICAN GAS TRANSMISSION
CORPORATION
By:
---------------------------------
JRS REALTY INC.
By:
---------------------------------
JRS PROPERTIES, INC.
By:
---------------------------------
GOOD HOPE CHEMICAL CORP.
By:
---------------------------------
SOUTHEAST MARINE, INC.
By:
---------------------------------
TRANSAMERICAN ENERGY CORPORATION
By:
---------------------------------
SIGNAL CAPITAL HOLDINGS CORPORATION
By:
---------------------------------
4
<PAGE> 1
EXHIBIT 10.7
FOURTH AMENDMENT TO TAX ALLOCATION AGREEMENT
THIS FOURTH AMENDMENT to the TAX ALLOCATION AGREEMENT of the
affiliated group of which TransAmerican Natural Gas Corporation, a Texas
corporation ("TANG"), is a member (the "Affiliated Group") is made and entered
into as of June 12, 1997 by and among each of the corporations identified on
the signature page of this amendment.
WHEREAS, a TAX ALLOCATION AGREEMENT dated as of August 24, 1993 was
entered into by TANG, as the then common parent of the Affiliated Group, and
other identified corporations (collectively with TANG, the "Members");
WHEREAS, the TAX ALLOCATION AGREEMENT dated as of August 24, 1993 was
amended by the FIRST AMENDMENT TO THE TAX ALLOCATION AGREEMENT dated as of
March 9, 1994, by the SECOND AMENDMENT TO THE TAX ALLOCATION AGREEMENT dated as
of February 23, 1995 and by the THIRD AMENDMENT TO THE TAX ALLOCATION AGREEMENT
dated as of May 29, 1997 (as amended, the "AGREEMENT");
WHEREAS, the Affiliated Group desires to allocate potential tax
liability in connection with various recent transactions described below and to
add a corporate signatory to the AGREEMENT;
WHEREAS, the parties hereto desire to confirm and continue all other
provisions of the Agreement in all respects.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the corporations listed on the execution pages of this FOURTH
AMENDMENT TO TAX ALLOCATION AGREEMENT hereto agree to amend the AGREEMENT as
follows:
1. The following paragraph shall be added at the end of Section 6
of the AGREEMENT, effective as of May 29, 1997:
Notwithstanding anything in this TAX ALLOCATION AGREEMENT to the
contrary, TANG (or its successors) shall assume primary liability with respect
to the payment of any Federal income or alternative minimum tax and Texas
franchise tax, together with any interest or penalty thereon (collectively, the
"Lobo Trend Tax Liability"), which might become due and payable with respect to
(i) the transfer of certain oil and gas producing properties in Webb
<PAGE> 2
and Zapata Counties, Texas and related assets by TransTexas Gas Corporation
("TransTexas Gas") to TransTexas Transmission Corporation ("Transmission")
pursuant to the Asset Contribution Agreement between TransTexas Gas and
Transmission dated February 1, 1997 and effective January 31, 1997 and the
transfer of any other assets from TransTexas Gas to Transmission subsequent to
January 31, 1997 and (ii) the sale of the stock of Transmission to First Union
Bank of Connecticut, as trustee under the First Intercontinental Leasing Trust,
a Connecticut trust ("First Union"), pursuant to the Stock Purchase Agreement
between TransTexas Gas and First Union dated May 29, 1997 (collectively,
clauses (i) and (ii) are referred to as the "Lobo Trend Transfers"). Any
refund of all or a portion of the Lobo Trend Tax Liability assumed by TANG
shall belong to TANG.
2. The following sentence shall be added at the end of Section 10
effective May 29, 1997:
Further, notwithstanding the previous sentence, the payment
obligations of TANG under Section 6 as amended by this FOURTH AMENDMENT TO TAX
ALLOCATION AGREEMENT shall in all events apply with respect to the Lobo Trend
Tax Liability.
3. TransTexas Drilling Services, Inc., a Delaware corporation,
shall be added as Member of the AGREEMENT effective January 31, 1997.
* * * * * * * * * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officer effective as of the date first set
forth above.
TNGC HOLDINGS CORPORATION
By:
---------------------------------
TRANSAMERICAN NATURAL GAS
CORPORATION
By:
---------------------------------
TRANSAMERICAN REFINING
CORPORATION
By:
---------------------------------
2
<PAGE> 3
TRANSTEXAS GAS CORPORATION
By:
---------------------------------
TRANSAMERICAN PIPELINE
CORPORATION
By:
---------------------------------
SOUTHERN STATES, INC.
By:
---------------------------------
SOUTHERN STATES EXPLORATION, INC.
By:
---------------------------------
LAREDO EXPLORATION, INC.
By:
---------------------------------
SOUTHERN PETROLEUM TRADING
COMPANY, LTD.
By:
---------------------------------
TRANSAMERICAN GAS TRANSMISSION
CORPORATION
By:
---------------------------------
JRS REALTY INC.
By:
---------------------------------
3
<PAGE> 4
JRS PROPERTIES, INC.
By:
---------------------------------
GOOD HOPE CHEMICAL CORP.
By:
---------------------------------
SOUTHEAST MARINE, INC.
By:
---------------------------------
TRANSAMERICAN ENERGY CORPORATION
By:
---------------------------------
TRANSTEXAS DRILLING SERVICES, INC.
By:
---------------------------------
TRANSAMERICAN EXPLORATION CORPORATION
By:
---------------------------------
TRANSTEXAS EXPLORATION CORPORATION
By:
---------------------------------
4
<PAGE> 5
TRANSLOUISIANA PIPELINE CORPORATION
By:
---------------------------------
SOUTHEAST LOUISIANA CONTRACTORS OF
NORCO, INC.
By:
---------------------------------
5
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 2
TO
TRANSFER AGREEMENT
This Amendment dated as of May 29, 1997, is by and among TransAmerican
Natural Gas Corporation, a Texas corporation ("TransAmerican"), TransTexas Gas
Corporation, a Delaware corporation ("TransTexas"), TransTexas Transmission
Corporation, a Delaware corporation ("TTC"), and John R. Stanley, and amends
the Transfer Agreement dated as of August 24, 1993, as previously amended (the
"Agreement").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. TTC is released from and discharged of all obligations and
liabilities under, and ceases to be a party to, the Agreement.
2. Except as set forth in this Amendment, the Agreement shall
remain in effect.
3. This Amendment may be executed in multiple original
counterparts, each of which shall be deemed an original, but
all of which together shall constitute the same instrument.
In witness whereof, this Amendment has been executed and delivered
effective as of the date first written above.
-------------------------------------
John R. Stanley
Transamerican Natural Gas Corporation
By:
----------------------------------
TransTexas Gas Corporation
By:
----------------------------------
TransTexas Transmission Corporation
By:
----------------------------------
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 3
TO
TRANSFER AGREEMENT
This Amendment dated as of June 13, 1997, is by and among TransAmerican
Natural Gas Corporation, a Texas corporation ("TransAmerican"), TransTexas Gas
Corporation, a Delaware corporation ("TransTexas"), and John R. Stanley, and
amends the Transfer Agreement dated as of August 24, 1993, as previously
amended (the "Agreement").
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. TransAmerican is released from and discharged of all
obligations and liabilities under section 11(a) of the
Agreement.
2. Except as set forth in this Amendment, the Agreement shall
remain in effect.
3. This Amendment may be executed in multiple original
counterparts, each of which shall be deemed an original, but
all of which together shall constitute the same instrument.
In witness whereof, this Amendment has been executed and delivered
effective as of the date first written above.
-------------------------------------
John R. Stanley
Transamerican Natural Gas Corporation
By:
----------------------------------
TransTexas Gas Corporation
By:
----------------------------------
<PAGE> 1
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: TransTexas Gas Corporation
Statements on Form S-3 and Form S-4
We are aware that our report dated September 15, 1997 on our review of
interim condensed consolidated financial information of TransTexas Gas
Corporation for the three and six months ended July 31, 1997 and 1996 included
in this Form 10-Q for the quarter then ended is incorporated by reference in
the Company's registration statements on Form S-3 (Registration No. 33-91494)
and Form S-4 (333-33803), each as filed with the Securities and Exchange
Commission. Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be a part of the registration statement prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT JULY 31, 1997 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 38,279
<SECURITIES> 0
<RECEIVABLES> 35,439
<ALLOWANCES> 0
<INVENTORY> 15,105
<CURRENT-ASSETS> 104,180
<PP&E> 1,221,755
<DEPRECIATION> 682,062
<TOTAL-ASSETS> 1,011,812
<CURRENT-LIABILITIES> 101,777
<BONDS> 580,353
0
0
<COMMON> 740
<OTHER-SE> 252,695
<TOTAL-LIABILITY-AND-EQUITY> 1,011,812
<SALES> 124,225
<TOTAL-REVENUES> 657,771
<CGS> 38,825
<TOTAL-COSTS> 125,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,203
<INCOME-PRETAX> 492,807
<INCOME-TAX> 172,483
<INCOME-CONTINUING> 320,324
<DISCONTINUED> 0
<EXTRAORDINARY> (72,117)
<CHANGES> 0
<NET-INCOME> 248,207
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 0
</TABLE>
