Exhibit 10.2

 

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED AND ARE THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934.  REDACTED PORTIONS ARE MARKED WITH [*****] AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

GAS GATHERING AGREEMENT

 

DATED MAY 31, 2011

 

BETWEEN

 

REGENCY FIELD SERVICES  LLC

(GATHERER)

 

AND

 

SM ENERGY COMPANY

(PRODUCER)

 

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GAS GATHERING AGREEMENT

 

THIS AGREEMENT (Agreement) is entered and effective on this 31st day of May,
2011, (Effective Date) between Regency Field Services  LLC (Gatherer), and SM
Energy Company (Producer).  Gatherer and Producer may be referred to herein
individually as “Party” or collectively as “Parties.”

 

RECITALS

 

WHEREAS Producer desires to dedicate Lease(s) and/or its interests in
Well(s) completed for production within the Dedicated Area to Gatherer hereunder
and to have Gas gathered from the Receipt Point(s) to the Delivery Point(s) as
set forth in this Agreement and Gatherer desires to gather such Gas; and

 

WHEREAS Producer desires that Gatherer construct for Producer’s benefit certain
facilities to enable Gatherer to gather such Gas and related Condensate and
Gatherer desires to construct such facilities; and

 

WHEREAS Producer and Gatherer’s affiliate, Regency Texas Pipeline LLC (“RTP”)
shall enter into, contemporaneously herewith, an agreement governed by tariffs
setting forth the terms and conditions for the gathering of Condensate (such
agreement and tariffs, collectively, the “Condensate Agreement”), but the
facilities necessary to enable RTP to gather such Condensate in accordance with
the Condensate Agreement will be constructed by Gatherer on behalf of RTP in
accordance with this Agreement; and

 

WHEREAS Producer is conveying to Gatherer pursuant to that certain Purchase and
Sale Agreement of even date herewith, certain of Producer’s existing Gas
pipeline assets, which shall become a part of the Facilities as defined below.

 

NOW THEREFORE, for the consideration set forth herein, the Parties agree as
follows:

 

ARTICLE I

DEFINITIONS

 

1.                                                              Anchor Shipper
shall mean a shipper that dedicates no less than one hundred fifty thousand
(150,000) acres to Gatherer for gathering and related services on the Facilities
under an agreement with a minimum term of twenty (20) years on or before the
later of the Effective Date or the date that Gatherer commences construction of
the New Facilities.

 

2.                                                              Annual
Throughput Commitment means for each Commitment Year the quantities of Gas set
forth on Exhibit “E” hereto for such Commitment Year.

 

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3.                                                              Affiliate means,
with respect to Gatherer, any entity controlled by or under common control with
Regency Energy Partners LP and, with respect to Producer, means any entity
controlling, controlled by, or under common control with Producer.  For purposes
of this definition, the term “control” (including its derivatives and similar
terms) means ownership of more than fifty percent (50%) of the voting interest
of the entity with the authority to direct or cause the direction of the
management and policies of the relevant Person.

 

4.                                                              Briscoe/Catarina
System means the portion of the System located within the portion of the
Dedicated Area identified as “Briscoe/Catarina” on Exhibit “A-1” hereto.

 

5.                                                              Briscoe/Galvan
System means the portion of the System located within the portion of the
Dedicated Area identified as “Briscoe/Galvan” on Exhibit “A-1” hereto.

 

6.                                                              British thermal
unit or 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°)
Fahrenheit to fifty-nine and five-tenths degrees (59.5°) Fahrenheit.

 

7.                                                              Central Backbone
shall have the meaning ascribed to it in Section 2 of Article III hereof.

 

8.                                                              Commitment Year
shall mean a period of twelve (12) consecutive Months commencing on the first
Day of the Month following the Effective Date and each subsequent period of
twelve (12) consecutive Months thereafter up to a maximum of ten (10) Commitment
Years, except that the period from the Effective Date until the first Day of the
following Month shall be part of the first Commitment Year.

 

9.                                                              Condensate means
liquid hydrocarbons produced from a well that are delivered into the Facilities
at a Receipt Point as part of Producer’s Gas (including but not limited to
liquid hydrocarbons delivered to a Receipt Point) that, during movement in the
Facilities, experiences a phase change to a liquid state and/or is subsequently
recovered as a liquid from the Facilities in oil and Gas separators, pipeline
drips, compressor discharges, suction scrubbers, pigging/slug catchers and other
similar equipment.

 

10.                                                       Condensate Agreement
shall have the meaning ascribed to it in the Recitals above.

 

11.                                                       Condensate Delivery
Point(s) shall have the meaning ascribed to the term “Delivery Point(s)” in the
Condensate Agreement.

 

12.                                                       Condensate Facilities
shall have the meaning ascribed to the term “Facilities” in the Condensate
Agreement.

 

13.                                                       Condensate MDQ shall
have the meaning ascribed to the term “MDQ” in the Condensate Agreement.

 

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14.                                                       Condensate Receipt
Point(s) shall have the meaning ascribed to the term “Receipt Point(s)” in the
Condensate Agreement.

 

15.                                                       Connection Deadline
shall have the meaning ascribed to it in Sections 4 and 5 of Article III hereof.

 

16.                                                       Connection Delay shall
have the meaning ascribed to it in Section 6 of Article III hereof.

 

17.                                                       DA Offset Well shall
have the meaning ascribed to it in Section 5 of Article III hereof.

 

18.                                                       Day, day or Daily
means a period of twenty-four (24) consecutive hours, beginning and ending at
9:00 a.m. Central Time; provided, that on the Day on which Daylight Saving Time
becomes effective, the period will be twenty-three (23) consecutive hours; and
on the Day on which Standard Time becomes effective, the period will be
twenty-five (25) consecutive hours.

 

19.                                                       Dedicated Area means
the lands described and depicted by plat on Exhibit “A-1”, strictly limited to
the formations between the surface of such lands and the base of the Eagle Ford
Formation underlying such lands and shall include the Lease(s) and
Well(s) within the Dedicated Area.

 

20.                                                       Development Area means
a discrete geographic portion of the Dedicated Area designated by Producer that
will be developed by Producer in accordance with the Drilling Plan.

 

21.                                                       Drilling Plan shall
mean Producer’s plan and schedule for developing the Dedicated Area as further
described in, and updated by Producer as set forth in, Article III hereof.  The
current Drilling Plan as of the Effective Date is set forth on Exhibit “F”
hereto.

 

22.                                                       Eagle Ford Formation
shall mean the Cenomanian-aged geological formation known as the Eagle Ford
formation. The base of the Eagle Ford formation is defined by the gamma ray tool
as a change from a high radioactive response at the base of the Eagle Ford
formation to a very low radioactive response from the underlying limestones of
the Buda formation as defined in Producer’s Briscoe G 1H well at a measured
depth of 7,704 feet.

 

23.                                                       Excess Pressure shall
have the meaning ascribed to it in Section 2 of Article VI hereof.

 

24.                                                       Excess Pressure Event
shall have the meaning ascribed to it in Section 2 of Article VI hereof.

 

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25.                                                       Facilities means all
pipeline and associated equipment to be purchased, constructed, owned, operated
and/or maintained by Gatherer as necessary to receive, separate, gather,
dehydrate and treat, as applicable, Producer’s Gas hereunder from the Receipt
Point(s) and to redeliver the Residue Gas to the Delivery Point(s) in accordance
with this Agreement.

 

26.                                                       Fees means all of the
fees set forth on Exhibit “B” hereto.

 

27.                                                       Fixed Location Lateral
shall have the meaning ascribed to it in Section 3(c) of Article III hereof.

 

28.                                                       Force Majeure shall
have the meaning ascribed to it in Article XIV hereof.

 

29.                                                       Fuel means (a) Gas
used by Gatherer as fuel in the operation of the Facilities and (b) Gas lost and
unaccounted for on the Facilities through normal operations of the Facilities.

 

30.                                                       Gas or gas means
natural gas as produced in its natural state, including all of the hydrocarbon
constituents thereof.

 

31.                                                       Gathering Fee means
the gathering fee specified in Exhibit “B” attached hereto.

 

32.                                                       Gathering Segment
means, collectively: (a) a Tank Battery; (b) one or more lateral pipelines of at
least ten (10) inches diameter connecting with such Tank Battery, running
through the central zone of a Development Area and connecting directly or
indirectly to (i) the Central Backbone on the Briscoe/Galvan System or (ii) one
or more Delivery Point(s) and Condensate Delivery Point(s) on the LaSalle System
or the Briscoe/Catarina System, as applicable; and (c) one or more pipelines
connecting the Receipt Point(s) to such laterals.

 

33.                                                       Gross Heating Value
means the number of Btu produced by the complete combustion of a cubic foot of
Gas (excluding hydrogen sulfide) at a temperature base of sixty degrees (60o)
Fahrenheit and a pressure base of fourteen and seventy-three one hundredths
(14.73) Psia. Heating values shall be expressed in Btu per cubic foot and may be
determined by calorimeter, calculation from compositional analysis or other
acceptable industry practices. For the purpose of making Btu calculations at
each Delivery Point(s), the downstream pipeline’s determination of Gross Heating
Value shall apply.

 

34.                                                       GSB Plan means the
Gathering Segment Build-out Plan that addresses each Development Area consistent
with the Drilling Plan and in accordance with the procedures set forth in
Section 3 of Article III.  The initial GSB Plan is set forth on Exhibit “D”
hereto.

 

35.                                                       L&U shall have the
meaning ascribed to it in the Condensate Agreement.

 

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36.                                                       LaSalle System means
the portion of the System located within the portion of the Dedicated Area
identified as “LaSalle” on Exhibit “A-1” hereto.

 

37.                                                       Lateral means a
lateral pipeline of a Gathering Segment, excluding, however, pipelines
connecting the Receipt Point(s) to such laterals.

 

38.                                                       Lease(s) means all
interests of every kind and character now owned or hereafter acquired during the
term of this Agreement by Producer, or any Affiliate of Producer, in, to, or
under any oil and gas lease, mineral interest, royalty interest, overriding
royalty interest, production payment, and profits interest, mineral servitude,
or other right with respect to Gas and related hydrocarbons covering the lands
and formations within the Dedicated Area.  The term “Lease” includes all
interests of every kind and character now owned or hereafter acquired by
Producer, or any Affiliate of Producer, in, to, and under any unit declaration,
unit agreement, unit order, the units created pursuant thereto, and all Gas and
other hydrocarbons produced therefrom as the result of the inclusion in such
units of all or any portion of any Lease.  The term “Lease” also includes any
renewal or extension of the relevant Lease (as to all or any portion of the
lands and formations covered thereby) and any wholly new oil and gas lease
(including any top lease) covering all or a portion of the same lands and
formations as the relevant existing Lease that is executed and delivered during
the term of, or within one (1) year after the expiration of the term of, such
predecessor Lease, to the extent of the interests therein owned by Producer, or
any Affiliate of Producer, during the term of this Agreement.  Notwithstanding
the foregoing or anything else herein to the contrary, the term “Lease” shall
not include any interests with respect to formations below the base of the Eagle
Ford Formation.

 

39.                                                       Maximum Daily Quantity
or MDQ shall mean, as measured at the applicable Delivery Point(s): (a) 600,000
Mcf of Gas per Day for the Briscoe/Galvan System; (b) 80,000 Mcf of Gas per Day
for the LaSalle System; and (c) 20,000 Mcf of Gas per Day for the
Briscoe/Catarina System.

 

40.                                                       Maximum Pressure shall
mean the maximum allowable operating pressure of the pipe, which shall be 1,440
psig at each Receipt Point(s), unless Producer has altered the Maximum Pressure
applicable to the Gathering Segment to which such Receipt Point(s) is connected,
as provided in Article VI, Section 2 hereof.

 

41.                                                       Mcf means one thousand
(1,000) cubic feet of Gas at a base temperature of sixty degrees (60°)
Fahrenheit, and at a pressure base of fourteen and seventy-three one hundredths
(14.73) Psia and containing the amount of water vapor present at actual
production pressure and temperature.

 

42.                                                       Minimum Production
means actual deliveries of Gas measured from a Receipt Point that are at least
seventy-five (75) Mcf per day, when averaged over three (3) consecutive Months.

 

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43.                                                       MMBtu means one
million (1,000,000) British thermal units.

 

44.                                                       Month means the period
beginning at 9:00 a.m. Central Time on the first Day of each calendar Month and
ending at 9:00 a.m. Central Time on the first Day of the next succeeding
calendar Month.

 

45.                                                       New Facilities means,
collectively, the new Receipt Point and the other new portions of the System
necessary (a) to receive, separate, gather, dehydrate and treat, as applicable,
Producer’s Gas from a new Well Pad and to redeliver the Residue Gas to the
Delivery Point(s) in accordance with this Agreement, (b) to deliver the
Condensate to RTP in accordance with this Agreement and the Condensate Agreement
and (c) to gather and redeliver the Condensate to the Condensate Delivery
Point(s) in accordance with the Condensate Agreement.  For the avoidance of
doubt, if such New Facilities include a new Tank Battery, such New Facilities
shall also include a new Condensate Receipt Point at such Tank Battery.

 

46.                                                       Non-conforming
Delivery Gas/Condensate shall have the meaning ascribed to it in Section 6 of
Article IX hereof.

 

47.                                                       Non-conforming Receipt
Gas/Condensate shall have the meaning ascribed to it in Section 5 of Article IX
hereof.

 

48.                                                       Operational Date, as
it applies to a specific portion of New Facilities, means the date on which such
New Facilities are complete, operational and ready to receive Gas from the
applicable new Well Pad for provision of the gathering and related services
under this Agreement and the Condensate Agreement.

 

49.                                                       Person means any
individual or entity, including, without limitation, any corporation, limited
liability company, joint stock company, general or limited partnership, or
government authority (including any agency or administrative group thereof).

 

50.                                                       Producer’s Dedicated
Gas means all Gas owned or controlled by Producer or its Affiliates and produced
during the term of this Agreement from or allocable to all current and future
Wells located on lands within the Dedicated Area.  As used in this definition:
(a) the word “owned” refers to Gas to which Producer has title by virtue of its
ownership of a Lease or its purchase thereof from another Person; and (b)  the
phrase “controlled by” refers to Gas owned by Persons other than Producer or its
Affiliates and produced from Wells in the Dedicated Area during the period that
Producer or its Affiliates have the contractual right (pursuant to a marketing,
agency, operating, unit or similar agreement) to market such Gas; and if for any
reason the contractual right of Producer or its Affiliates to market any such
Gas (the “subject Gas”) terminates or expires, then the subject Gas shall cease
to constitute Producer’s Dedicated Gas upon such termination or expiration.  The
phrase “controlled by” does not refer to, and Producer’s Dedicated Gas does not
include, Gas owned by Persons other than Producer or its Affiliates and produced
from Well(s) not operated by Producer or any of its Affiliates.

 

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51.                                                       Producer’s Gas means
all Gas tendered under this Agreement by Producer to the Receipt Point(s) for
gathering and related services hereunder.

 

52.                                                       Psia means pounds per
square inch absolute.

 

53.                                                       Purchased Assets means
those assets purchased by Gatherer from Producer pursuant to that certain
Purchase and Sale Agreement of even date herewith.

 

54.                                                       Qualifying Pipe shall
mean electrostatic resistance welded (“ERW”), coated and wrapped pipe that is:
(i) to be used in construction of the New Facilities; (ii) delivered FOB
Gardendale, Texas; (iii) from a steel mill that is on Gatherer’s list of
approved mills; and (iv) deliverable in a timely manner so as not to cause
Gatherer to miss any deadlines set forth herein.

 

55.                                                       Residue Gas shall mean
the hydrocarbons attributable to Producer’s Gas that remain in a gaseous state
after treating and removal of water and Condensate from Producer’s Gas at each
Tank Battery.

 

56.                                                       ROW Allocation means
[*****] dollars ($[*****]).

 

57.                                                       ROW Costs means the
total of all amounts paid by Gatherer to landowners for rights-of-way for System
facilities constructed during the ROW Window, excluding any rights-of-way needed
due to System design or construction errors not caused by Producer, errors in
the modeling calculations and/or formulae used to determine the System
facilities necessary to meet Gatherer’s obligations under this Agreement and
RTP’s obligations under the Condensate Agreement, and/or topography impediments
encountered by Gatherer requiring additional rights-of-way to route around such
impediments.

 

58.                                                       ROW Window shall have
the meaning ascribed to it in Section 8 of Article III hereof.

 

59.                                                       Scheduled Lateral
means any Lateral scheduled on the GSB Plan for which the anticipated well
completion date for the first Well to be completed in the Development Area in
which such Lateral is to be constructed is more than one hundred twenty (120)
days after the date of Gatherer’s receipt of a request by Producer to connect a
Well in such Development Area pursuant to Section 5 of Article III hereof.

 

60.                                                       Selected Segment shall
have the meaning ascribed to it in Section 2 of Article VI hereof.

 

61.                                                       Shipper’s Condensate
shall have the meaning ascribed to it in the Condensate Agreement.

 

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62.                                                       System means,
collectively, the Facilities and the Condensate Facilities.

 

63.                                                       Tank Battery means any
tank battery/compressor station of the Facilities installed at various
centralized locations between the Receipt Point(s) and the Delivery Point(s) to
provide separation of the combined Gas stream into Residue Gas, Condensate and
water and at which applicable compression facilities will be installed and at
which separated Condensate will be delivered by Gatherer on behalf of Producer
under the Condensate Agreement.

 

64.                                                       Taxes means any or all
severance, production, extraction, first use, conservation, Btu or energy,
gathering, transport, pipeline, utility, gross receipts, Gas or oil revenue, Gas
or oil import, privilege, sales, use, consumption, excise, lease, transaction,
and other or new taxes or increases therein, other than taxes based on or
assessed against net income or net worth.

 

65.                                                       Tcf shall mean one
trillion cubic feet of Gas at a base temperature of sixty degrees (60°)
Fahrenheit, and at a pressure base of fourteen and seventy-three one hundredths
(14.73) Psia and containing the amount of water vapor present at actual
production pressure and temperature.

 

66.                                                       Total Throughput
Commitment shall mean [*****], subject to adjustment in accordance with 
Sections 5 and 8 of Article III hereof.

 

67.                                                       Well(s) means any well
that is now completed or may be hereafter completed under the Lease(s). 
Notwithstanding the foregoing or anything else herein to the contrary, the term
“Well(s)” shall not include any well(s) completed in and/or producing from any
formation below the base of the Eagle Ford Formation.

 

68.                                                       Well Pad means each
drilling pad at which one or more Well(s) are drilled and completed for
production of Producer’s Dedicated Gas.

 

69.                                                       Year or year means a
period of three hundred sixty-five (365) consecutive Days; provided, that any
year that contains a date of February 29 will consist of three hundred sixty-six
(366) consecutive Days.

 

ARTICLE II

DEDICATION AND QUANTITY

 

1.                        Dedication.

 

(a)                                  Subject to the reservations contained in
Section 3 of this Article II, Producer hereby commits and dedicates to the
performance of this Agreement, during the term of this Agreement, all of
Producer’s Dedicated Gas.  Notwithstanding anything to the contrary set forth in
this Agreement, all Gas produced from existing or future wells that deliver Gas
to Producer’s gathering system commonly known as the Olmos System, in Webb
County, Texas, for redelivery out of such system at the Huber Sales Meter #6000

 

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up to 10,000 Mcf per day (as measured at such meter) (“Olmos Gas”), is dedicated
by Producer to Gatherer under that certain Gas Gathering Agreement dated
September 1, 2010 bearing Gatherer’s Contract No. PF-028 and is excluded from
the commitment and dedication under this Agreement.   Any Gas delivered from the
Olmos System in excess of 10,000 Mcf per day shall be dedicated under this
Agreement.

 

(b)                                 The dedication by Producer of Producer’s
Dedicated Gas to the performance of this Agreement shall be a covenant running
with the land with respect to the Lease(s) and shall be binding on all
successors and assigns of Producer thereunder.  To that end, counterparts of a
recording memorandum for this Agreement, a form of which is attached hereto as
Exhibit “G”, shall be filed of record by Gatherer in all counties in which the
Dedicated Area is located.  If, at any time during the term of this Agreement,
Producer sells, transfers, conveys, assigns, grants, or otherwise disposes of
all or any interests in the Lease(s), any such sale, transfer, conveyance,
assignment, or other disposition shall be expressly made subject to the terms of
this Agreement.

 

(c)                                  Producer represents and warrants that,
prior to the Effective Date, it has not dedicated any of the Lease(s) currently
in effect for the Dedicated Area, any Gas produced therefrom, or any other
interest in or portion of the Dedicated Area to a third Person under another Gas
gathering, transportation or similar agreement which would conflict with
Producer’s dedication hereunder.  Notwithstanding the foregoing, if, after the
Effective Date, Producer or its Affiliates acquire additional Lease(s) covering
lands and formations in the Dedicated Area that, at the time of Producer’s or
its Affiliates’ acquisition thereof, are subject to existing purchase,
gathering, transportation, or similar agreements executed by Producer’s
predecessors in interest with third Persons that contain acreage or production
dedications, such Lease(s) and the lands and formations covered thereby shall
not be deemed to be committed or dedicated to the performance of this Agreement
until such existing acreage or production dedications expire or are terminated
or released pursuant to the terms of any such agreements.

 

2.                                      Gathering Quantity.  Except as otherwise
allowed under Section 3 of this Article III of this Agreement, Producer will
deliver each Day to Gatherer at the Receipt Point(s) all of Producer’s Dedicated
Gas produced from the Lease(s) and Well(s).  Additionally, Producer shall have
the right, but not any obligation, to deliver to the Facilities Gas
(collectively, “Non-Dedicated Gas”) (a) owned or controlled by non-Affiliated
third Persons and/or (b) produced from lands and/or formations outside of the
Dedicated Area; provided that any Receipt Point for such Non-Dedicated Gas shall
be located at a mutually acceptable point on the Facilities and installed at
Producer’s sole cost and expense. Producer shall also be responsible for
installing, at its sole cost and expense, such lines and other facilities as are
necessary to deliver such Gas to the Facilities at such additional Receipt
Point(s).  Gatherer agrees to receive Producer’s Gas and to redeliver thermally
equivalent quantities, less Fuel, to the Delivery Point(s) set forth on
Exhibit “C” designated by Producer from time to time for the redelivery of
Residue Gas, not to exceed the maximum daily quantity for each Delivery
Point(s) as set forth on Exhibit “C.”  Notwithstanding anything in this
Article II, Section 2 to the contrary, Gatherer shall not be obligated to
receive Non-Dedicated Gas from a Receipt Point if such Receipt Point is on a
Selected Segment and receipt of such Non-Dedicated Gas would, in Gatherer’s good
faith

 

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opinion, cause Excess Pressure at any existing Receipt Point(s) on such Selected
Segment.  Producer shall use commercially reasonable efforts to deliver
Producer’s Dedicated Gas to Gatherer at uniform rates of flow; provided,
however, the Parties acknowledge that such commercially reasonable efforts shall
not require Producer to alter the flow of actual production of Producer’s
Dedicated Gas.

 

3.                                      Reservations of Producer.  Producer
reserves the following rights under this Agreement:

 

(a)                                  to pool or unitize the Leases with other
leases in the same field, provided that all Gas attributable to Producer’s or
its Affiliates’ interest in any unit so formed shall, to the extent of
Producer’s or its Affiliates’ interest in the Leases, be deemed subject to this
Agreement;

(b)                                 to use Gas in developing and operating the
Wells and the Leases and delivering Producer’s Gas to the Receipt Point(s).

(c)                                  to retain and/or be provided (for the
Condensate that Gatherer recovers) all Condensate separated from Producer’s Gas
prior to redelivery of the Residue Gas to Producer at the Delivery Point(s),
including liquid hydrocarbons collected by Gatherer as a result of pigging,
compression and other operations in the Facilities.

 

Gatherer shall recover such Condensate from the Facilities in oil and Gas
separators, pipeline drips, compressor discharges, suction scrubbers,
pigging/slug catchers and other locations at various collection points along the
Facilities and shall inject all such Condensate (except as otherwise provided in
the following sentence) into the lines of RTP at the Condensate Receipt
Point(s) for gathering and redelivery for Gatherer in compliance with the
Condensate Agreement.  Condensate pigged from the Central Backbone will be
stored in a vessel (provided by Gatherer at its sole cost and expense) located
at or near each Delivery Point and trucked out as needed at the sole cost and
expense of Producer.

 

4.                                      Reservations of Gatherer.
Notwithstanding anything herein to the contrary, Gatherer reserves the right to
cease taking deliveries of Gas at any Receipt Point(s) for so long as Gatherer,
in its reasonable judgment, believes that continuing to take Gas from such
Receipt Point(s) poses a threat of imminent danger to persons or property.

 

5.                                      Status of Producer.  Gatherer and
Producer acknowledge that Producer’s status on the Facilities shall be that of
an Anchor Shipper and that, as an Anchor Shipper, Producer’s Gas shall have the
highest priority for scheduling and all other purposes on the Facilities, and
Gatherer shall not curtail Producer’s Gas for any reason, including Force
Majeure, until all non-Anchor Shippers have been curtailed to zero.

 

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ARTICLE III

 

SYSTEM FACILITIES

 

1.             System Facilities.  Upon execution of this Agreement by the
Parties hereto, Gatherer shall proceed with the final planning, design,
acquisition of rights of way, and the construction of the New Facilities in
accordance with this Article III.  The Parties agree and acknowledge that:

 

a.               the Purchased Assets constitute a portion of the System and are
existing and operating, and are being purchased by Gatherer from Producer
concurrently with execution of this Agreement;

 

b.              Gatherer shall construct the New Facilities for itself (with
respect to the Facilities) and on behalf of RTP (with respect to the Condensate
Facilities) as set forth herein, and Gatherer and RTP shall operate and maintain
the Purchased Assets and the New Facilities as a single integrated System as set
forth herein;

 

c.               the Facilities, when fully constructed, will be capable of
receiving, separating, gathering, dehydrating and treating, as applicable,
Producer’s Gas from each Receipt Point(s) and redelivering the Residue Gas to
the Delivery Point(s) in accordance with this Agreement, at least up to the MDQ;

 

d.              the Condensate Facilities, when fully constructed, will be
capable of receiving and transporting Shipper’s Condensate from each Condensate
Receipt Point(s) and redelivering such Shipper’s Condensate, less L&U, to the
Condensate Delivery Point(s) in accordance with the Condensate Agreement, at
least up to the Condensate MDQ;

 

e.               except as required by applicable laws, the Facilities shall be
dedicated exclusively to this Agreement and shall be used solely for the
provision of the gathering and related services hereunder for Producer’s Gas;
and

 

f.                 the dedication by Gatherer of the Facilities exclusively to
the performance of this Agreement shall be a covenant running with the land with
respect to the Facilities and shall be binding on all successors and assigns of
Gatherer thereto.  If, at any time during the term of this Agreement, Gatherer
sells, transfers, conveys, assigns, grants, or otherwise disposes of all or any
interest in the Facilities, any such sale, transfer, conveyance, assignment, or
other disposition shall be expressly made subject to the terms of this
Agreement.

 

2.             Central Backbone.  Gatherer shall construct and place into
service approximately forty-two (42) miles of 16” main gathering pipeline as
depicted on Exhibit “H” (the “Central Backbone”) hereto no later than one
hundred eighty (180) Days after the Effective Date, and the System facilities
necessary for redelivery of Residue Gas at each Delivery Point(s) and for
redelivery of Shipper’s Condensate, less L&U, at each Condensate Delivery
Point(s) shall be completed and operational: (i) by May 31, 2011 for the
Delivery Point(s) and the Condensate Delivery Point(s) on the Briscoe/Galvan
System; (ii) by one hundred twenty (120) days from the Effective Date hereof for
the Delivery Point(s) and the Condensate Delivery Point(s) on the
Briscoe/Catarina System; and (iii) upon one hundred eighty (180) days prior
notice from Producer to Gatherer for the Delivery Point(s) and the Condensate
Delivery Point(s) on the

 

12

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LaSalle System.  The Parties acknowledge that certain portions of the lands of
the Dedicated Area are subject to hunting seasons that in some cases commence in
October of each year.  Gatherer shall use commercially reasonable efforts to
construct the Central Backbone on such lands, prior to such hunting seasons, to
avoid any delays that might be caused by such hunting seasons.

 

3.             GSB Plan. Except as provided in Section 5 below of this
Article III, Producer intends to initially drill in multiple Development Areas
at the same time and to drill as many Wells as is commercially and geologically
feasible in each Development Area and to fully develop each Development Area in
accordance with the Drilling Plan.  However, for drilling and operational
reasons, in order to maximize production from a Development Area, Producer does
not intend to drill all Well(s) to be drilled in a Development Area at once,
before moving its drilling rigs and operations from such Development Area to
another Development Area, and Producer may move its rigs and operations to other
Development Areas and later return to the original area for further drilling
operations. The Parties acknowledge the importance of having New Facilities
complete and ready to receive Producer’s Gas upon completion of the Well(s) to
be serviced by such New Facilities, and, in furtherance thereof, the Parties
shall reasonably cooperate and coordinate with each other and shall attend and
conduct joint planning meetings on a regular basis in a collaborative effort to
assist Gatherer in planning for timely construction of New Facilities and to
avoid delays to such construction, including working together in an effort to
obtain permission to drill Well(s) and construct New Facilities during
applicable hunting season(s) where Lease(s) and/or rights-of-way would otherwise
restrict such activities during such hunting season(s).  Through such meetings,
the GSB Plan will be periodically updated consistent with the Drilling Plan, and
the GSB Plan will address each Development Area in accordance with the
procedures set forth below; provided, however, the initial GSB Plan attached
hereto as Exhibit “D” sets forth the Gathering Segment build-out plan for
calendar years 2011 and 2012 and will not be modified for such years except as
otherwise mutually agreed by the Parties.

 

a.               The GSB Plan shall reflect plans for at least one full year of
anticipated production.

 

b.              The GSB Plan shall include the location for each Lateral
anticipated as being needed for such production.

 

c.               Producer shall, from time to time, revise the GSB Plan,
provided, however, that Producer may not, without incurring additional charges
in accordance with Section 5(b) hereof, alter the location of a Lateral within
one hundred and eighty (180) days prior to the projected completion date in the
Drilling Plan for the first Well to be completed in the Development Area in
which such Lateral is to be constructed (each such Lateral, for which the
location cannot be changed, being hereinafter a “Fixed Location Lateral”).

 

d.              When Producer alters the GSB Plan, Producer shall promptly
provide Gatherer with an updated GSB Plan.

 

4.             Drilling Plan.  The GSB Plan shall include a schedule for each
Gathering Segment, consistent with the Drilling Plan, for connection of Well
Pads to such Gathering Segment.  The

 

13

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Drilling Plan shall reflect Producer’s plans for at least one full year of
Producer’s anticipated drilling in the Dedicated Area and shall include the
following information:

 

a.               the number of drilling rigs to be operated in each Development
Area and the anticipated dates of operation; and

 

b.              the anticipated timing for completion of each Well identified in
the Drilling Plan and the location of each Well Pad identified in the Drilling
Plan; and

 

c.               the estimated quantity of Gas, Condensate and free water
anticipated from each Well identified in the Drilling Plan.

 

Producer shall periodically update and amend the Drilling Plan as needed,
provided, however, that no changes will be made to the anticipated timing for
completion of any individual Well identified in the Drilling Plan within one
hundred and twenty (120) days prior to the projected completion date for such
Well as set forth in the Drilling Plan without incurring additional charges in
accordance with Section 5(b) hereof.  Producer shall issue Gatherer a notice to
connect a Well Pad identified in the Drilling Plan  (each a “Connection Notice”
which will contain the information set forth on Exhibit “I” hereto) no sooner
than one hundred twenty (120) days prior to the anticipated completion date for
the first Well to be drilled on such Well Pad, and Gatherer shall connect each
such Well Pad on or before the later of (as applicable, the “Connection
Deadline”) (a) one hundred twenty (120) days after the date of the Connection
Notice for such Well Pad or (b) the date on which Producer is ready to deliver
Gas from such Well Pad; provided, however, the Connection Deadline for Offset
Wells shall be determined as described in Section 5 of this Article III. 
Notwithstanding the foregoing, with respect to Receipt Point(s) for new Well
Pads to be connected after the second anniversary of the Effective Date, for
which Gatherer has timely completed all New Facilities required to accept Gas
from such Receipt Point(s), if Producer has not tendered any Gas at ten  (10) or
more such Receipt Point(s) for reasons other than well failure or Force Majeure
(each an “Idle Receipt Point”) by the end of the second (2nd) day after the date
Gatherer is ready to accept Gas at such Idle Receipt Points, but no sooner than
one hundred twenty (120) days after the date of the latest Connection Notice
applicable to such Idle Receipt Points, then, during the period commencing on
the day immediately following such second (2nd) day or such one hundred twenty
(120) day period, as applicable, and ending thereafter once Producer has fewer
than ten (10) Idle Receipt Points (“Alternative Deadline Period”), the
Connection Deadline applicable to each Connection Notice issued to Gatherer
under this Section 4 during such Alternative Deadline Period shall be one
hundred twenty (120) days after the date that the first Well is spud on the
applicable Well Pad to which such Connection Notice pertains.  The normal
Connection Deadline shall apply for Connection Notices issued after the
Alternative Deadline Period.

 

5.             Exceptions.

 

a.               Offset Wells. In the event that Producer requires that a single
Well be drilled that is two (2) miles or more from (i) any existing Gathering
Segment, (ii) the Central Backbone and (iii) any Scheduled Lateral, such single
Well shall be referred to herein as an “Offset Well.”  Upon receipt of a request
to connect

 

14

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an Offset Well, Producer shall provide Gatherer with the optimal route to secure
rights-of-way and Gatherer shall promptly provide Producer with a reasonably
detailed estimate of costs to connect the Offset Well.  If Producer elects to
have the Offset Well connected, Gatherer shall connect the Offset Well to the
System and the Total Throughput Commitment shall be adjusted by a quantity equal
to the total actual direct costs incurred by Gatherer to connect such Offset
Well to the System (excluding rights-of-way acquisition costs) divided by the
then-current Gathering Fee (converted to a fee per Mcf based on the average Btu
content of Residue Gas delivered at all of the Delivery Point(s) during the
three (3) Months immediately preceding the date of completion of the Offset
Well).  Gatherer shall use commercially reasonable efforts to connect such
Offset Well to the System by the date specified by Producer in its Connection
Notice for such Offset Well (the “Offset Connection Date”), but such date shall
not be earlier than one hundred eighty (180) days after the date of such
Connection Notice.  If such Offset Well will be located within a Development
Area in which (1) a Gathering Segment has been constructed or (2) a Fixed
Location Lateral is scheduled for construction under the GSB Plan as of the date
of the Connection Notice for such Offset Well (each a “DA Offset Well”), the
Connection Deadline for such DA Offset Well shall be the later of (a) the Offset
Connection Date for such DA Offset Well or (b) the date on which Producer is
ready to deliver Gas from such DA Offset Well.  No Connection Deadline will
apply with respect to an Offset Well that is not a DA Offset Well, and the
provisions of and credit under Section 6 below, of this Article III, shall not
apply with respect to such Offset Well.

 

b.              Untimely Changes.  In the event that Producer requires a change
in the location of a Fixed Location Lateral and notifies Gatherer of such change
less than one hundred eighty (180) days prior to the projected completion date
for the first Well to be completed on such Fixed Location Lateral, Producer
shall bear all actual direct incremental costs incurred by Gatherer as a result
of such change in the Fixed Location Lateral, in addition to all Fees applicable
hereunder.   In the event that Producer requires that a change be made to the
anticipated timing for completion of an individual Well less than one hundred
twenty (120) days prior to the anticipated completion date for the first Well to
be drilled on the Well Pad for such Well, Producer shall bear all actual direct
incremental costs incurred by Gatherer as a result of such change of timing, in
addition to all Fees applicable hereunder.

 

6.             Failure to Complete Construction.  For each new Well Pad and the
corresponding New Facilities, if the Operational Date does not occur on or
before the Connection Deadline for such Well Pad (including the Well Pad for a
DA Offset Well) Producer shall be entitled to the following exclusive remedies
for such failure, provided that, if the initial GSB Plan attached

 

15

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hereto as Exhibit “D” is modified by Producer for calendar years 2011 and 2012,
without Gatherer’s written consent, Producer shall not be entitled to such
remedies for such failure for Connection Deadlines occurring in 2011 or 2012:

 

a.               The number of days between the Connection Deadline and the
Operational Date shall be referred to herein as the “Connection Delay”;
provided, however, if Gatherer’s failure to cause the Operational Date to occur
on or before the Connection Deadline is caused, in whole or in part, by an event
of Force Majeure or by the negligence, gross negligence or willful misconduct of
Producer or any Affiliate of Producer, then such Connection Deadline shall be
extended by a number of days equal to the number of days the Operational Date
was so delayed by reason of Force Majeure or the negligence, gross negligence or
willful misconduct of Producer or any of its Affiliates.

 

b.              Upon completion of the subject New Facilities, Producer shall be
exempt from Gathering Fees for the affected Well Pad for a number of days equal
to the Connection Delay.  In addition, Producer shall be entitled to a credit
towards Producer’s Annual Throughput Commitment for the year in which the
Connection Delay occurs equal to the volumes of Producer’s Gas delivered through
the Receipt Point(s) for such Well Pad for a time period equal to the Connection
Delay and measured from the first day of deliveries through such Receipt
Point(s).

 

7.             Annual Throughput Commitment.  As consideration for construction
of the System, Producer agrees to tender quantities of Producer’s Gas each
Commitment Year that at least equal the Annual Throughput Commitments set forth
on Exhibit “E”, and to make a payment to Gatherer after each Commitment Year
(the “Annual Shortfall Payment”) as set forth below if the Annual Throughput
Commitment is not met for such Commitment Year.

 

The Annual Shortfall Payment shall be calculated as follows:

 

[((A — B) — C) — D]) x $[*****]   = Annual Shortfall Payment (expressed in
Dollars)

 

Where:

 

A= the Annual Throughput Commitment (in Mcf); and

 

B= the actual quantity (in Mcf) of Producer’s Gas measured at the Delivery
Point(s) during the Commitment Year, if such amount was less than the Annual
Throughput Commitment; and

 

C = the quantity (in Mcf) by which the previous Commitment Years’ actual
deliveries (including credits) of Producer’s Gas exceeded the Annual Throughput
Commitment(s) applicable to such Commitment Year(s), if any.  For the avoidance
of doubt, any quantities of Gas delivered and/or credited under this
Section during a Commitment Year

 

16

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in excess of the Annual Throughput Commitment for such Commitment Year will be
credited against the Annual Throughput Commitment for the succeeding Commitment
Year(s).

 

D = the quantity of credits applied to the Annual Throughput Commitment pursuant
to Section 6 of this Article III and the last paragraph of this Section 7.

 

For purposes of example only, if (A) the Annual Throughput Commitment for the
third Commitment Year is 65,750,000 Mcf (i.e., 65.75 Bcf) and (B) the actual
quantity of Producer’s Gas redelivered to the Delivery Point(s) during such
third Commitment Year (including credits) is 50,000,000 Mcf and (C) the
cumulative excess quantities of Producer’s Gas redelivered to the Delivery
Point(s) during the first and second Commitment Years (including credits) are
10,000,000 Mcf, the Annual Shortfall Payment for the third Commitment Year would
be $[*****] (i.e., (65,750,000 - 50,000,000 - 10,000,000 = 5,750,000) x
$[*****]).  Gatherer shall invoice Producer for any Annual Shortfall Payment no
later than the end of the second full Month after the completion of the
Commitment Year to which the Annual Throughput Commitment applies.  Payment
shall be due in accordance with the payment terms hereof.  The Parties agree
that Producer’s obligation to tender the Annual Throughput Commitment or to make
any Annual Shortfall Payment when due will not be excused for any reason,
including, but not limited to, Force Majeure affecting any Well(s)  or the
failure or rescission of any Lease(s).  When total deliveries of Producer’s Gas
to Gatherer hereunder (including credits) exceed [*****] Bcf, Producer shall
have no further liability to make Annual Shortfall Payments.

 

In determining whether any Annual Throughput Commitment has been met, Producer
shall receive a one (1) Mcf credit against such Annual Throughput Commitment for
each one (1) Mcf of Gas which Producer was ready and able to deliver hereunder
in accordance with this Agreement during the applicable Commitment Year
(determined as provided below) but which Gatherer failed to receive for any
reason other than Force Majeure; provided, however, such credit shall not
exceed, for any Day, a quantity of Gas equal to the applicable MDQ(s) less the
quantity of Gas (in Mcf) which was delivered hereunder during such Day to the
applicable Facilities system(s) (e.g., Briscoe/Catarina System, Briscoe/Galvan
System and/or LaSalle System).  For purposes of this paragraph, determination of
the quantity of Gas which Producer was ready and able to deliver hereunder shall
be made by reference to the weighted average daily quantity of Producer’s Gas
delivered (in Mcf) to the applicable Receipt Point(s) during the five (5) Days
immediately preceding Gatherer’s failure to receive such Gas.  Notwithstanding
anything to the contrary, the credit under this paragraph shall not apply to
Connection Delays,  delays in connection of an Offset Well that is not a DA
Offset Well, or Gas not taken as a result of an Excess Pressure Event.

 

8.             Gatherer’s Right-of way.  Gatherer shall be responsible for
acquisition of all rights-of-way for the System, subject, however, to the
provisions of this Section 8.  During the first sixty (60) months after the
Effective Date (the “ROW Window”), Gatherer shall purchase rights-of-way for the
System consistent with the GSB Plan.  On or before the date that is eighteen
(18)

 

17

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months after the Effective Date, Producer may give Gatherer written notice of
the location of any portion of the rights-of-way to be acquired by Gatherer
during the ROW Window, in which event Gatherer shall acquire such rights-of-way
(the “Required ROW”) pursuant to the fixed pricing in effect as of the Effective
Date with landowners located in the Dedicated Area.  The ROW Costs incurred for
acquisition of rights-of-way (including the Required ROW) shall be applied
towards the ROW Allocation.  However, to the extent Producer changes the
location of (a) the Required ROW after the foregoing notice by Producer, (b) a
Well within 120 days of the projected completion date set forth for such Well in
the Drilling Plan, (c) a Lateral within 180 days of the projected completion
date of the first Well to be completed in the Development Area in which such
Lateral is to be constructed or (d) any other right-of-way which Producer
specifically designates, in writing, that Gatherer acquire, the additional
amounts paid by Gatherer to landowners for the additional rights-of-way needed
as a result of such changes shall not be applied to the ROW Allocation but shall
instead be reimbursed by Producer to Gatherer within thirty (30) days after
receipt of Gatherer’s invoice therefor, including reasonable supporting
documentation.  If, at the end of the ROW Window, the ROW Costs exceed the ROW
Allocation, the Total Throughput Commitment shall be adjusted in accordance with
the following formula:

 

E/F = quantity added to the Total Throughput Commitment expressed in Mcf

 

Where

 

E = the amount by which the ROW Costs exceed the ROW Allocation; and

 

F = the then-current Gathering Fee (converted to a fee per Mcf based on the
average Btu content of Producer’s Gas at all of the Delivery Point(s) during the
three (3) Months immediately preceding the last day of the ROW Window).

 

Except as otherwise provided above with respect to additional rights-of-way
acquired due to Producer’s changes to the location of Required ROW, all costs of
rights-of-way acquired for System facilities constructed after the ROW Window
shall be borne solely by Gatherer.

 

9.             Steel Prices.  If Gatherer notifies Producer in writing at least
one hundred eighty (180) days prior to the first applicable Connection Deadline
for a specific Gathering Segment that the price for Qualifying Pipe for such
Gathering Segment exceeds $[*****] per ton, Gatherer shall use a competitive
bidding process mutually agreeable to the Parties to obtain the best possible
price for such Qualifying Pipe.  To the extent the best price obtained through
such bidding process exceeds $[*****] per ton, Producer shall bear [*****]
percent ([*****] %) of such excess costs actually incurred by Gatherer for
Qualifying Pipe, and Producer shall pay such share of such excess within thirty
(30) days after receipt of Gatherer’s invoice therefor, including reasonable
supporting documentation.  Notwithstanding the foregoing or anything else to the
contrary, Producer shall not be obligated to pay for any such excess steel costs
with respect to: (a) any price above $[*****] per ton that is not obtained
through the foregoing bidding process

 

18

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after prior written notice to Producer; or (b) any pipeline needed due to
(i) System design or construction errors not caused by Producer, (ii) errors in
the modeling calculations and/or formulae used to determine the System
facilities necessary to meet Gatherer’s obligations under this Agreement and
RTP’s obligations under the Condensate Agreement, and/or (iii) topography
impediments encountered by Gatherer requiring additional pipeline to route
around such impediments.

 

ARTICLE IV

RECEIPT POINT(S),  DELIVERY POINT(S) AND FACILITIES

 

1.             Receipt Point(s).  The point(s) at which Producer shall tender
and Gatherer shall receive Producer’s Gas in accordance with this Agreement
(“Receipt Point(s)”) shall be at the inlet of Gatherer’s Facilities at the edge
of the Well Pads, and at such other locations as are mutually agreed by the
Parties.  The initial Receipt Point(s) hereunder are listed on Exhibit “A,” and
when a new point of receipt is installed at a Well Pad as provided in this
Agreement, such point shall automatically become a Receipt Point(s) hereunder. 
Upon request by either Party, given no more frequently that once per calendar
quarter, the Parties shall add such new Receipt Point(s) to Exhibit “A” hereto
by amendment.  Producer shall maintain and operate accurate, real-time
measurement equipment immediately upstream of each Receipt Point to separately
measure the Gas, Condensate and water which is then combined into Producer’s Gas
and delivered to such Receipt Point, and Producer shall provide such data to
Gatherer.

 

2.             Tank Batteries. At each Tank Battery, Gatherer shall separate the
Gas tendered at the Receipt Point(s) upstream of such Tank Battery into Residue
Gas, Condensate and water.  Gatherer shall redeliver the Residue Gas at the
Delivery Point(s).  Gatherer shall deliver the Condensate in accordance with the
Condensate Agreement.  At each Tank Battery, Gatherer shall install and maintain
facilities to store no less than one thousand eight hundred (1800) barrels of 
water separated at the Tank Battery.  Producer shall be responsible for
disposing of such water in the storage tanks so as not to impair Gatherer’s
operations.  Notwithstanding anything herein to the contrary, Gatherer shall
have no liability hereunder for suspension of service when such suspension is
due to Producer’s failure to timely empty the water tanks as provided in this
Section 2 of Article IV.  In addition, the Parties understand and acknowledge
that RTP’s facilities for transporting Condensate from the Condensate Receipt
Point(s) initially listed on Exhibit “A” to the Condensate Agreement will not be
operational on the Effective Date, and Producer agrees to arrange and bear all
costs of trucking Condensate from such initial Condensate Receipt Point(s) until
such facilities are in-service.  During such period, Gatherer shall have no
liability for failure to perform services hereunder due to Producer’s failure to
truck Condensate from such initial Condensate Receipt Point(s).  However,
Gatherer shall, within one hundred eighty (180) Days after the Effective Date,
construct and place into service such RTP facilities as are necessary for
receiving and transporting Shipper’s Condensate from such initial Condensate
Receipt Point(s) and redelivering such Shipper’s Condensate, less L&U, to the
applicable Condensate Delivery Point(s) in accordance with the Condensate
Agreement, at least up to the applicable Condensate MDQ.

 

19

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3.             Delivery Point(s).  The point(s) at which Gatherer shall
redeliver the Residue Gas to Producer or its designee in accordance with this
Agreement (“Delivery Point(s)”) shall be at the point(s) of interconnection
listed on Exhibit “C.”  As additional delivery point(s) are installed on the
Facilities for deliveries of Gas out of the Facilities, the Parties shall add
the same to Exhibit “C” hereto by amendment.

 

4.             Maintenance of Facilities.  Gatherer agrees to construct, operate
and maintain the Facilities necessary to receive, separate, gather, dehydrate
and treat, as applicable, Producer’s Gas from each Receipt Point(s) and to
redeliver the Residue Gas to the Delivery Point(s) in accordance with this
Agreement, at least up to the MDQ.  The Condensate Facilities shall be
constructed in accordance with Article III of this Agreement but shall be
operated and maintained by RTP in accordance with the Condensate Agreement.  If
the deliveries at a Receipt Point total less than the Minimum Production,
Gatherer shall continue to maintain its Facilities used to provide gathering and
related services hereunder for Producer’s Gas from such Receipt Point and charge
Producer a fee of $250.00 per Month (which shall be adjusted pursuant to
Article V, Section 2 hereof) in addition to all other applicable fees hereunder
for such Receipt Point commencing at the end of the three (3) consecutive Months
period over which the Minimum Production was first calculated and ending at the
end of the Month in which the Minimum Production is exceeded at such Receipt
Point.

 

ARTICLE V

COMPENSATION AND DISPOSITION

 

1.             Fees.  For each Mcf or MMBtu (as applicable) of Residue Gas
delivered hereunder by Gatherer at the Delivery Point(s), Producer will pay
Gatherer the applicable fee(s) set forth on Exhibit “B.”

 

2.             Adjustments to Fee(s). The Fees set out on Exhibit “B,” the
$[*****] credit rate set forth in Article VI, Section 2, and the fee for Minimum
Production set forth in Article IV, Section 4 shall each be adjusted beginning
on January 1st of the second calendar year following the Effective Date and each
January 1st thereafter (the “Fee Escalation Date”) in accordance with the
following formula:

 

{[(A/B — 1) * [*****]] * C} + C = adjusted fee

 

Where

 

A = the Consumer Price Index, All Urban Consumers, U. S. City Average, All
Items, as published by the U. S. Department of Labor, Bureau of Labor
Statistics  (CPI-U) or its most comparable successor  for the Month of
December of the year immediately preceding the Fee Escalation Date

 

20

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B =  the CPI-U for the month of January of the year immediately preceding the
Fee Escalation Date

 

C = then-current rate that is subject to adjustment hereunder.

 

Notwithstanding anything herein to the contrary, such adjustment shall not
reduce such Fees and credit rate below the amounts originally set forth herein
for the same.

 

3.             Fee Reduction. Upon the later of (a) ten (10) Years from the
first day of the Month following the Month in which Producer’s Gas first flows
under this Agreement or (b) Producer’s tender of the Total Throughput Commitment
to Gatherer (as adjusted herein) under this Agreement, the then-existing
Gathering Fee, and the then-existing $[*****] credit rate under Article VI,
Section 2 hereof, as adjusted under Article V, Section 2, shall be reduced by
[*****] percent ([*****] %), but such reduced Gathering Fee and credit rate
shall be thereafter subject to annual adjustment as provided in Article V,
Section 2.

 

4.             Fuel.  In addition to the amounts payable under this Agreement,
Producer shall provide in-kind, at Producer’s sole cost and expense, all Fuel;
provided, however, if any of the Facilities are utilized to move Gas for any
Person other than Producer, Fuel will be allocated among Producer and such other
Person(s) on a pro rata basis as mutually agreed by the Parties.  Each Party
agrees to provide to the other Party data in its possession reasonably required
to calculate Fuel.  In the event that (a) Producer desires to and can secure
access to an alternative fuel source(s) and (b) Gatherer can accommodate such
alternative fuel source(s) without compromising Gatherer’s ability to meet its
commitments hereunder, and without additional cost to Gatherer (unless Producer
agrees to reimburse Gatherer for such additional cost, which additional cost
shall be determined by Gatherer based on Gatherer’s actual direct costs), the
Parties shall make the changes required to accommodate the alternative fuel
source(s), and Producer shall bear the full cost of such alternative fuel;
provided, however if any of the Facilities utilizing such alternative fuel are
utilized to move Gas for any Person other than Producer, the cost of such
alternative fuel will be allocated among Producer and such other Person(s) on a
pro rata basis as mutually agreed by the Parties.

 

ARTICLE VI

RECEIPT AND DELIVERY PRESSURES AND RATE OF FLOW

 

1.             Pressure — Producer’s Obligation.  Producer shall deliver, or
cause to be delivered, Producer’s Gas to Gatherer at the Receipt Point(s) at the
line pressures existing in the Facilities at such Receipt Point(s), as such
pressure may exist from time to time, not to exceed the Maximum Pressure. 
Producer shall promptly provide Gatherer data regarding the pressures in effect
from time to time at the Receipt Point(s).  Producer shall install, operate and
maintain, at its sole expense, such pressure-regulating devices as may be
necessary to regulate the pressure of Producer’s Gas prior to delivery to
Gatherer at the Receipt Point(s) so as not to exceed the Maximum Pressure.  If
Producer fails to regulate such pressure at any Receipt Point(s) as

 

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required by this Article, Gatherer may provide Producer written notice of such
fact specifying the grounds for such requirement and the Receipt Point(s) at
which pressure-regulating devices are required by this Article.  If Producer
fails to regulate such pressure at such Receipt Point(s) as required by this
Article within five (5) business Days after receipt of such notice, then
Gatherer may install such pressure-regulating devices on the Facilities at or
downstream of such Receipt Point(s) and Producer shall reimburse Gatherer for
all costs of such installation and equipment.  Notwithstanding anything in this
Agreement to the contrary, if Gatherer installs such pressure-regulating devices
and they are operating properly and are triggered due to Producer’s failure to
regulate the pressure at the Receipt Point(s) as required by this Article, then
Producer is responsible for any loss of Producer’s Gas or any emissions of the
Producer’s Gas stream from such pressure-regulating devices, and any damage to
persons, property or the environment, and the violation of any applicable laws,
rules or regulations, caused by such release on the Facilities and will
indemnify, defend and hold harmless Gatherer from all claims, losses, costs and
expenses incurred by Gatherer as a result thereof, notwithstanding any
indemnification by Gatherer set forth in Article XII, Section 4 to the
contrary.  As each new Well(s) is connected to the System and commences its
first flow of Gas to the System, Producer shall bring on such new Well(s) in a
manner consistent with the practices of a prudent operator (i.e., gradually
stepping up flow of Gas from such Well(s) as necessary to a stabilized rate of
flow).

 

2.             Pressure — Gatherer’s Obligation.  On a Gathering
Segment-by-Gathering Segment basis, Producer shall have the right to require
that the Maximum Pressure for any Gathering Segment be set at 80 psig upon no
less than thirty (30) Days prior written notice to Gatherer, provided that
deliveries of water at each Receipt Point(s) on such Gathering Segment do not
exceed two thousand four hundred (2,400) barrels per day per Receipt Point(s). 
Upon such notice, such Gathering Segment shall become a “Selected Segment”;
provided, however, all Gathering Segments within the portion of the
Briscoe/Galvan System identified on Exhibit “J” are hereby each deemed a
Selected Segment.  Thereafter, Gatherer shall maintain the pressure on such
Selected Segment at 80 psig or less, and Producer shall not be obligated to
deliver Producer’s Gas to the Receipt Point(s) on such Selected Segment at
pressures in excess of 80 psig.  If the actual operating pressure on the
Facilities at any Receipt Point on a Selected Segment, as measured by Producer’s
Gas measurement equipment located on the Well Pad directly upstream from such
Receipt Point, exceeds 80 psig (“Excess Pressure”), and Producer gives Gatherer
notice of same, then Gatherer shall promptly use reasonable efforts to reduce
such pressure at such Receipt Point to a pressure at or below 80 psig within
forty-eight (48) hours after delivery of such notice.  If there is Excess
Pressure at any Receipt Point on a Selected Segment as averaged over a period of
fourteen (14) or more consecutive Days, excluding any days during such fourteen
day period on which an event of Force Majeure caused, in whole or in part, such
Excess Pressure, and excluding the first two days of Excess Pressure caused in
whole or in part by the completion and connection of a Well on the affected
Gathering Segment (an “Excess Pressure Event”), then Producer shall provide
Gatherer with written notice containing the applicable dates of the Excess
Pressure Event, and Gatherer shall issue Producer an “Excess Pressure Credit”
calculated as follows:

 

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(G x H)  = Excess Pressure Credit

 

Where:

 

G = $[*****]; and

H = the quantity of Gas (in MMBtus) delivered at the Receipt Point during all
days of the Excess Pressure Event plus the quantity of Gas (in MMBtus) delivered
at the Receipt Point during a period immediately following the Excess Pressure
Event equal to the number of days of the Excess Pressure Event.

 

For purposes of example only, if an Excess Pressure Event exists for twenty (20)
days, and Producer delivers 500 Mcf per day during the Excess Pressure Event and
1,000 Mcf per day during the 20 days following the Excess Pressure Event, the
Excess Pressure Credit will be as follows:

 

($[*****] x 30,000) = $[*****].

 

The foregoing $[*****] credit rate will be annually adjusted as provided in
Article V, Section 2.

 

On a Gathering Segment-by-Gathering Segment basis, prior to any period when
Producer requires, as provided above, that the Maximum Pressure for a given
Gathering Segment be set at 80 psig, Producer may request, on one or more
occasions, but not more than four (4) times per year, upon no less than thirty
(30) days prior written notice to Gatherer, to have the Maximum Pressure for
such Gathering Segment set at the pressure specified by Producer in such notice
between 1,440 psig and 80 psig (the “Requested Pressure”).  Thereafter, Gatherer
shall use commercially reasonable efforts to maintain the pressure at the
Receipt Point(s) on such Gathering Segment at or below the Requested Pressure.

 

Gatherer shall use commercially reasonable efforts to operate the Facilities as
efficiently as it can while still meeting its pressure obligations under this
Section.

 

3.             Third-Party Gatherers and Pipelines.  Producer shall make, or
cause to be made, all necessary arrangements with other pipelines or parties at
or upstream of the Receipt Point(s) and at or downstream of the Delivery
Point(s) in order to effect Gatherer’s receipt of Producer’s Gas and redelivery
of the Residue Gas in accordance with this Agreement.  Producer represents and
warrants that the downstream pipelines receiving the Residue Gas at the Delivery
Point(s) have contractual commitments to Producer to maintain the pressure at
the Delivery Point(s) at or below the pressures set forth on Exhibit “C”, and
Gatherer shall not be obligated to deliver the Residue Gas to the Delivery
Point(s) at pressures in excess of the applicable pressures set forth on
Exhibit “C”.   Arrangements for deliveries of the Residue Gas out of the
Facilities to the Delivery Point(s) must be coordinated with Gatherer’s Gas
control or Gas scheduling department.  Upon Gatherer’s request, Producer will
provide Gatherer with any quality specifications of any downstream
pipeline(s) applicable at the Delivery Point(s).

 

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ARTICLE VII

NOMINATIONS

 

1.           Nominations.  Gatherer shall not require nominations from Producer
for Producer’s Gas under this Agreement.

 

ARTICLE VIII

MEASUREMENT

 

1.             General.  For billing and payment purposes, Producer’s Gas
delivered hereunder shall be measured by the downstream pipeline(s) at the
Delivery Point(s), and the measurement by such downstream pipeline(s) at the
applicable Delivery Point(s) shall be used for all purposes hereunder in
determining the Mcfs and MMBtus of Producer’s Gas delivered at such Delivery
Point(s).

 

2.          Meters Owned by Gatherer.  Gatherer may install meters on the
Facilities for measurement of Fuel and Gas compressed and/or treated and for
other operational purposes, and Gatherer shall design, install, maintain and
operate such meters in a prudent manner and in accordance with the then-most
current industry accepted standards.

 

ARTICLE IX

QUALITY

 

1.         Receipt Point Specifications.  The Gas received at each Receipt Point
shall meet the following quality specifications:

 

(a)                                  Oxygen - not to exceed ten (10) parts per
million (PPM) of uncombined oxygen, and Producer shall make reasonable efforts
to maintain the Gas free from oxygen;

 

(b)                                 Sulfur — not to exceed five (5) grains per
one hundred (100) cubic feet;

 

(c)                                  Liquids - the Gas shall be free of
objectionable liquids at the temperature and pressure at which the Gas is
received, except that water shall not constitute an objectionable liquid;

 

(d)                                 Dust, Gums and Solid Matter — the Gas shall
be commercially free of dust, gums, gum forming constituents, and other media or
solid matter, except that the Gas may include dust due to fracing for a period
after frac work on any Well(s) delivering Gas to such Receipt Point;

 

(e)                                  Temperature - have a temperature of not
less than forty degrees (40o) Fahrenheit and not more than one hundred twenty
degrees (120o) Fahrenheit;

 

(f)                                    Hazardous Waste - not contain hazardous
waste as defined in the Resources Conservation and Recovery Act of 1976;

 

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(g)                                 Downstream Specs - if the quality
specifications of the downstream pipeline receiving such Gas at the applicable
Delivery Point(s) for the items in clauses (a) through (f) above are more
stringent than the quality specifications set forth above in such clauses, then
the Gas shall meet such more stringent quality specifications (excluding the
exceptions in clauses (c) and (d) above); and

 

(h)                                 Hydrogen Sulfide — not to exceed 90 parts
per million.

 

2.         Tank Battery Specifications.  Gatherer shall have the unqualified
right to reject receipt of any Gas tendered at any Receipt Point hereunder to
the extent that such Gas causes the Gas measured at each Tank Battery to fail to
meet the following specifications, provided however, Gatherer shall waive the
requirements below if, in Gatherer’s sole good faith discretion, it can do so
and still meet all specifications of all downstream pipelines at the Delivery
Point(s) to which Producer’s Gas is being delivered:

 

(a)                                  Carbon Dioxide - not to exceed two percent
(2%) by volume;

 

(b)                                 Nitrogen - not to exceed two percent (2%) by
volume;

 

(c)                                  Heating Value - contain a Gross Heating
Value of at least nine hundred fifty (950) Btu per cubic foot; and

 

(d)                                 Other - not to exceed four percent (4%) by
volume of total non-hydrocarbon Gases.

 

Additionally, Gatherer shall have the unqualified right to reject receipt of any
Condensate tendered at any Receipt Point hereunder as part of Producer’s Gas to
the extent that such Condensate causes the Condensate measured at each Tank
Battery to fail to meet the quality specifications of the downstream pipeline
receiving Shipper’s Condensate at the applicable Condensate Delivery Point(s),
excluding the quality specifications of such downstream pipelines with respect
to basic sediment and water ; provided, however, Gatherer shall waive such
requirement if RTP determines in accordance with the Condensate Agreement that
it can do so and still meet all specifications of all downstream pipelines at
the Condensate Delivery Point(s) to which Shipper’s Condensate is being
delivered.  For the avoidance of doubt, Gatherer shall be responsible for
causing the Condensate to meet the quality specifications of such downstream
pipelines with respect to basic sediment and water .

 

3.         Tank Battery Treating.  If the Hydrogen Sulfide concentration of
Producer’s Gas exceeds 4 PPM at a Tank Battery, Regency will use commercially
reasonable efforts to implement treating service at such Tank Battery to remove
Hydrogen Sulfide as soon as possible and, upon implementation of such treating
service, Producer’s Gas that is treated shall be subject to additional treating
fees in accordance with Exhibit “B” hereto.

 

4.         Delivery Point Specifications.  Provided Producer is in compliance
with the quality specifications set forth above in this Article IX, (a) the
Residue Gas delivered by Gatherer at the Delivery Point(s) shall meet the
minimum quality specifications of the downstream pipeline(s) at the Delivery
Point(s) to which the Residue Gas is being delivered, and (b) the Condensate
delivered by Gatherer to RTP at the Condensate Receipt Point(s) shall meet the
minimum quality

 

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specifications of the downstream pipeline(s) at the Condensate Delivery
Point(s) to which Shipper’s Condensate is being delivered under the Condensate
Agreement.

 

5.         Non-conforming Receipt Gas/Condensate.  If any Gas (including
Condensate) delivered by Producer to a Receipt Point or to the applicable Tank
Battery fails to conform to the applicable quality specifications set forth
above in this Article IX (as applicable, “Non-conforming Receipt
Gas/Condensate”), Gatherer may, subject to Section 2 of this Article IX, refuse
to accept delivery of such Non-conforming Receipt Gas/Condensate until Producer
has corrected the quality deficiency.  Gatherer’s option to refuse delivery of
Non-conforming Receipt Gas/Condensate is in addition to other remedies available
to Gatherer.  If Gatherer at any time accepts delivery of Non-conforming Receipt
Gas/Condensate, such acceptance will not constitute a waiver of this provision
with respect to any future delivery of Gas/Condensate, and Producer will
indemnify Gatherer for any costs, expenses, losses, damages and liabilities
arising out of such accepted Non-conforming Receipt Gas/Condensate. 
Notwithstanding any provisions herein to the contrary, if Non-conforming Receipt
Gas/Condensate is delivered into Gatherer’s pipeline without the prior knowledge
or approval of Gatherer and the quality deficiency of that Gas/Condensate
damages Gatherer’s or any other Person’s facilities, Producer will indemnify,
hold harmless and/or reimburse Gatherer for all damages caused, or to the extent
contributed to, by such Non-conforming Receipt Gas/Condensate, including but not
limited to, without limitation, physical damage to any pipeline or appurtenant
facilities.

 

6.             Non-conforming Delivery Gas/Condensate.  Provided Producer is in
compliance with the applicable quality specifications set forth above in this
Article IX, if any Residue Gas delivered by Gatherer to a Delivery Point fails
to conform to the quality specifications of the downstream pipeline at such
Delivery Point or if any Condensate delivered by Gatherer to a Condensate
Receipt Point fails to conform to the minimum quality specifications of the
downstream pipeline(s) at the Condensate Delivery Point(s) to which Shipper’s
Condensate is being delivered under the Condensate Agreement (as applicable,
“Non-conforming Delivery Gas/Condensate”), Producer (or its designee) may refuse
to accept delivery of such Non-conforming Delivery Gas/Condensate until Gatherer
has corrected the quality deficiency.  Producer’s (or its designee’s) option to
refuse delivery of Non-conforming Delivery Gas/Condensate is in addition to
other remedies available to Producer.  If Producer (or its designee) at any time
accepts delivery of Non-conforming Delivery Gas/Condensate, such acceptance will
not constitute a waiver of this provision with respect to any future delivery of
Gas/Condensate, and Gatherer will indemnify Producer for any costs, expenses,
losses, damages and liabilities arising out of such accepted Non-conforming
Delivery Gas/Condensate.  Notwithstanding any provisions herein to the contrary,
if Non-conforming Delivery Gas/Condensate is delivered into a downstream
pipeline without the prior knowledge or approval of Producer or its designee and
the quality deficiency of that Gas/Condensate damages any Person’s facilities,
Gatherer will indemnify, hold harmless and/or reimburse Producer for all damages
caused, or to the extent contributed to by, such Non-conforming Delivery
Gas/Condensate, including but not limited to, without limitation, physical
damage to any pipeline or appurtenant facilities.

 

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ARTICLE X

STATEMENTS, BILLINGS AND PAYMENTS

 

1.             Statements.  On or before the twenty-fifth (25th) Day of each
Month, Gatherer shall deliver to Producer a statement or invoice for the
Producer’s Gas delivered during the preceding Month that includes any fees,
charges and/or credits due under this Agreement for the gathering and related
services performed hereunder by Gatherer with respect to such Gas, including
reasonable details regarding calculation of such fees, charges and credits.   
If the actual quantity of Producer’s Gas delivered is not available, the
statement will be prepared based upon estimates.  Gatherer shall make
appropriate adjustments to reflect the actual quantity delivered on the
following Month’s statement or as soon thereafter as actual delivery information
is available.

 

2.             Payment Method.  Producer will pay by wire transfer or ACH
transfer to the account or remittance address set forth herein or according to
the instructions set forth in the applicable statement or invoice, the full
amount payable according to such statement or invoice, on the later of:  (a) the
last Day (or the next business Day if the last day is on a weekend or bank
holiday) of the Month following the Month of delivery of Producer’s Gas, or
(b) on or before ten (10) Days following receipt of such invoice by Producer. 
However, if Producer in good faith disputes any part of any statement or invoice
issued pursuant to this Agreement, it shall timely pay the undisputed portion of
such statement or invoice and give Gatherer written notice explaining the
dispute on or before the due date for such statement or invoice.   The Parties
shall promptly confer to resolve the disputed portion, and, upon resolution of
such dispute, Producer shall pay the applicable remaining amount, if any. 
However, any failure by Producer to dispute any statement or invoice on or
before the applicable due date shall not constitute or be deemed as waiver of
any right of Producer to later dispute such statement or invoice.  Gatherer may
net or aggregate, as appropriate, all undisputed amounts due and owing between
the Parties under this Agreement so that all such amounts are netted or
aggregated monthly to a single liquidated amount payable by the Party owing such
amount to the other Party.  Gatherer shall include information regarding any
such netting in its monthly statement or invoice to Producer.

 

3.             Taxes and Royalties.  Producer shall be responsible for all
royalties due with respect to the production of Producer’s Gas delivered
hereunder at the Receipt Point(s).  Producer agrees to reimburse Gatherer within
thirty (30) days after receipt of invoice for the full amount of any new Taxes
(i.e., Taxes enacted after the Effective Date) levied, assessed or fixed by any
municipal or governmental authority against Gatherer or its business
attributable to the volumes, value or gross receipts from the gathering of
Producer’s Gas received from Producer hereunder or against such Gas itself,
whether such new Tax is based upon the volume, value or gross receipts from the
gathering of such Gas, excluding, however, ad valorem or other property taxes
based upon the value of Gatherer’s facilities.  Producer shall indemnify,
reimburse, defend and hold harmless Gatherer from and against any and all
claims, losses, costs and expenses attributable to such Taxes and royalties for
which Producer is responsible under this Section.  Except as provided above,
Gatherer shall be responsible for and pay all Taxes levied on or in respect to
Producer’s

 

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Gas and the handling thereof from and after the delivery of such Gas to Gatherer
at the Receipt Point(s) and prior to the redelivery of such Gas to Producer or
its designee at the Delivery Point(s).  Gatherer shall indemnify, reimburse,
defend and hold harmless Producer from and against any and all claims, losses,
costs and expenses attributable to such Taxes for which Gatherer is responsible
under this Section.

 

4.             Delinquent Payments.  If Producer is delinquent in any undisputed
payments hereunder and fails to cure the same within ten (10) Days after
Producer receives written notice from Gatherer of such delinquency, Gatherer may
suspend service hereunder and/or discontinue the construction of any New
Facilities without liability to Producer until all such undisputed amounts are
paid in full. Any suspension of construction in accordance with this
Section shall lengthen the time that Gatherer otherwise would have had under
this Agreement to complete any portion of the New Facilities by an equivalent
number of Days.

 

5.             Examination of Books and Records.  Each Party hereto, or its
representative, has the right at all reasonable times to examine the books and
records of the other Party to the extent necessary to verify the accuracy of any
statement, charge, computation or demand made hereunder.  Any statement or
invoice hereunder is final as to both Parties unless questioned within two
(2) years after receipt of such statement or invoice by Producer.

 

ARTICLE XI

TERM

 

1.             Term.  This Agreement is effective on the Effective Date and
shall continue in effect for a period of twenty (20) years beginning with the
first day of the Month following the Month in which Producer’s Gas first flows
under this Agreement (the “Primary Term”); provided, however, that Gatherer
shall have the right to terminate this Agreement upon one hundred eighty (180)
days prior written notice (“Economic-Out Notice”) at any time during the last
five (5) years of the Primary Term in the event Gatherer establishes, with
reasonable supporting documentation included as part of the Economic-Out Notice,
that the Fees generated by services performed hereunder and the fees generated
by services performed under the Condensate Agreement, as averaged over a three
(3) consecutive Month period within such 5-year period, do not cover Gatherer’s
and RTP’s actual, direct operating costs incurred to provide such services
during such three-Month period; provided further, however, that Producer shall
have the right to prevent such termination for so long as Producer agrees to pay
Gatherer and RTP, as applicable, for each Month after receipt of the
Economic-Out Notice, the additional amount necessary, if any, to cover the
deficiency for such Month.  Gatherer agrees that it will operate and maintain
the Facilities at all times as a prudent operator of gathering and condensate
pipelines would.  Following the Primary Term, this Agreement shall continue in
effect on a year-to-year basis thereafter unless terminated by either Party
providing at least sixty (60) days written notice prior to the expiration of the
Primary Term or any subsequent year thereafter.

 

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2.             Effect of Governmental Action.  It is understood that performance
hereunder shall be subject to all valid rules and regulations of duly
constituted governmental authorities having jurisdiction or control over the
matters related hereto.  Neither Party will be in default of this Agreement as a
result of compliance with laws and regulations; provided, however, to the
maximum extent possible a Party’s compliance with laws and regulations shall
occur in such a manner that does not result in a breach of any provision of this
Agreement.

 

ARTICLE XII

WARRANTIES AND INDEMNIFICATION

 

1.             Warranty of Title.  Producer warrants that it will at the time of
delivery of Producer’s Gas to Gatherer under this Agreement have good title to
or good right to deliver all Producer’s Gas so made available and that such Gas
will be free and clear of all liens, encumbrances, and adverse claims of any
kind. Producer further warrants that all Gas delivered to Gatherer for gathering
hereunder will not cause Gatherer to lose its gathering exemption under
Section 1(b) of the Natural Gas Act.

 

2.             Gatherer’s Warranty.  Gatherer warrants that it has the full
legal right and authority to gather and provide the related services hereunder
for Producer with respect to all Producer’s Gas and to redeliver Producer’s Gas
and Condensate in accordance with this Agreement.  Gatherer warrants that such
Producer’s Gas and Condensate shall be free and clear of all liens, encumbrances
and claims whatsoever created by, through or under Gatherer.

 

3.             Indemnification by Producer.  PRODUCER SHALL RELEASE,
DEFEND, INDEMNIFY AND SAVE GATHERER HARMLESS FROM AND AGAINST ANY AND ALL SUITS,
ACTIONS, CAUSES OF ACTION, CLAIMS, AND DEMANDS ARISING FROM OR OUT OF ANY
ADVERSE CLAIMS MADE BY ANY THIRD PARTY OR BY PRODUCER FOR ANY LOSS, DAMAGE, COST
OR EXPENSE RELATING TO, CAUSED BY, OR ARISING OUT OF: (i) PRODUCER’S OPERATION
OF ITS FACILITIES, (ii) THE BREACH BY PRODUCER OF ANY REPRESENTATION OR WARRANTY
MADE BY PRODUCER IN THIS AGREEMENT AND (iii) THE FAILURE BY PRODUCER TO COMPLY
WITH ALL APPLICABLE LAWS, RULES AND REGULATIONS TO THE EXTENT SUCH FAILURE
AFFECTS PERFORMANCE HEREUNDER AND (iv) THE LOSS OF OR DAMAGE TO PRODUCER’S GAS
BEFORE GATHERER’S RECEIPT OF PRODUCER’S GAS AND AFTER GATHERER’S REDELIVERY OF
PRODUCER’S GAS FOR REASONS OTHER THAN THE NEGLIGENCE, GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF GATHERER OR ITS AFFILIATES.

 

4.             Indemnification by Gatherer.  GATHERER SHALL RELEASE,
DEFEND, INDEMNIFY, AND SAVE PRODUCER HARMLESS FROM AND AGAINST ANY AND ALL
SUITS, ACTIONS, CAUSES OF ACTION, CLAIMS, AND DEMANDS ARISING FROM OR OUT OF ANY
ADVERSE CLAIMS MADE BY ANY THIRD PARTY OR BY GATHERER FOR ANY LOSS, DAMAGE,
COST, OR EXPENSE RELATING TO, CAUSED

 

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BY, OR ARISING OUT OF (i) GATHERER’S OPERATION OF ITS FACILITIES, (ii) THE
BREACH BY GATHERER OF ANY REPRESENTATION OR WARRANTY MADE BY GATHERER IN THIS
AGREEMENT AND (iii) THE FAILURE BY GATHERER TO COMPLY WITH ALL APPLICABLE LAWS,
RULES AND REGULATIONS TO THE EXTENT SUCH FAILURE AFFECTS PERFORMANCE HEREUNDER
AND (iv) EXCEPT LOSSES INCLUDED AS FUEL, THE LOSS OF OR DAMAGE TO PRODUCER’S GAS
(INCLUDING CONDENSATE) AFTER GATHERER’S RECEIPT OF PRODUCER’S GAS (INCLUDING
CONDENSATE) AND BEFORE GATHERER’S REDELIVERY OF PRODUCER’S GAS (INCLUDING
CONDENSATE) TO PRODUCER OR ITS DESIGNEE FOR REASONS OTHER THAN THE NEGLIGENCE,
GROSS NEGLIGENCE OR WILLFUL OF PRODUCER OR ITS AFFILIATES.

 

5.             LIMITATION OF LIABILITY.  EXCEPT AS PROVIDED IN THE
NON-CONFORMING GAS/CONDENSATE SECTIONS OF ARTICLE IX, QUALITY, HEREOF, IN NO
EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR EXEMPLARY OR PUNITIVE
DAMAGES OR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR OTHER BUSINESS INTERRUPTION
DAMAGES, COST OF CAPITAL, CANCELLATION OF PERMITS OR LEASES, TERMINATION OF
CONTRACTS, TORT CLAIMS, OR LOST PRODUCTION PRIOR TO DELIVERY TO
GATHERER, IRRESPECTIVE OF WHETHER CLAIMS FOR SUCH DAMAGES ARE BASED UPON TORT,
CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE; PROVIDED,
HOWEVER, THIS WAIVER SHALL NOT BE CONSTRUED TO LIMIT ANY INDEMNIFIED PARTY’S
ABILITY TO RECOVER UNDER THE INDEMNIFICATIONS SET FORTH IN THIS AGREEMENT WITH
RESPECT TO CLAIMS OF NON-AFFILIATED THIRD PERSONS BROUGHT AGAINST SUCH
INDEMNIFIED PARTY.

 

ARTICLE XIII

POSSESSION AND CONTROL

 

Producer shall be deemed to be in control and in possession of Producer’s Gas
prior to such Gas being received by Gatherer at the Receipt Point(s) and shall
be responsible for any damages, losses or injuries caused thereby until the same
shall have been received by Gatherer at the Receipt Point(s), except for
injuries and damages which have been occasioned solely and proximately by the
willful misconduct or negligence of Gatherer or its designee.  Gatherer shall be
in control and in possession of Producer’s Gas (including Condensate) subsequent
to such Gas (including Condensate) being received by Gatherer at the Receipt
Point(s) and shall be responsible for any damages, losses or injuries caused
thereby until the same shall have been redelivered to Producer or its designee
at the Delivery Point(s) (or, in the case of Condensate, until such Condensate
shall have been delivered by Gatherer to RTP at the Condensate Receipt
Point(s) as provided herein), except for injuries and damages that have been
occasioned solely and proximately by the willful misconduct or negligence of
Producer or its designee.

 

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ARTICLE XIV

FORCE MAJEURE

 

If either Gatherer or Producer is rendered unable, wholly or in part, by any of
the events or occurrences listed below (each of which shall constitute an event
of “Force Majeure”), individually or in the aggregate, to perform or comply with
any obligation or condition of this Agreement, such obligation or condition will
be suspended during the continuance of the inability so caused and such Party
will be relieved of liability for damages and losses, direct or indirect,
immediate or remote, by reason of, caused by, arising out of, or in any way
attributable to the suspension of performance of such obligation or condition
during such period:

 

(a)          Any cause not reasonably within the control of the affected Party;

(b)         Any act or omission by parties not Affiliated with the Party having
the difficulty;

(c)           Any act or omission by parties Affiliated with the Party having
the difficulty, if the same is not reasonably within the control of such
Affiliate(s);

(d)         Acts of God and the public enemy;

(e)          Civil disorder or criminal activity;

(f)           The elements (including but not limited to rain, hurricanes,
floods, earthquakes, tornados, and freezing of wells or lines of pipe), or
threats thereof;

(g)         Fire, accidents, or breakdowns;

(h)         Strikes and any other industrial, civil, or public disturbance;

(i)             Failure of non-Affiliated downstream pipelines to install
facilities or to take or transport Gas or Condensate;

(j)            Failure of an Affiliated downstream pipeline to install
facilities or take or transport Gas or Condensate, if the same is not reasonably
within the control of such Affiliate;

(k)          Accidents, repairs, maintenance or alteration to lines of pipe or
equipment;

(l)            Inability to obtain or acquire, or seasonal restrictions on,
grants, servitudes, rights-of-way, easements or property rights required for the
construction or operation of any facilities required hereunder on terms and
conditions that are commercially reasonable to the Party seeking such property
rights;

(m)      Inability to obtain, acquire, install or erect equipment, materials,
supplies, permits or labor or other goods or services required for the
construction or operation of any facilities required hereunder;

(n)          Any laws, order, rules, regulations, acts or restraints of any
government or governmental body or authority, civil or military;

(o)          Any other unplanned for or non-scheduled occurrence, condition,
situation, or threat thereof, not covered by subparagraphs (a) through
(n) above, which renders either Party unable to perform its obligations under
this Agreement; provided that such occurrence, condition, situation, or threat
thereof, is beyond the reasonable control of the Party claiming such inability.

 

31

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Notwithstanding anything herein to the contrary, (i) the obligation to make
payments then due hereunder will not be suspended by an event of Force Majeure,
and (ii) the Party suffering an event of Force Majeure shall give notice and
reasonably full particulars to the other Party as soon as reasonably possible
upon the occurrence of such event and shall diligently take all commercially
reasonable steps to mitigate the effects of the event of Force Majeure as soon
as reasonably possible.  Nothing herein shall obligate Gatherer or Producer to
settle strikes or lockouts under terms that are unacceptable to the affected
Party.

 

ARTICLE XV

NOTICES & PAYMENTS

 

Any notice, request, statement, or other correspondence provided for in this
Agreement shall be given in writing to the Parties hereto at the addresses shown
below or at such other addresses as may be hereafter furnished by one Party to
the other Party in writing:

 

Gatherer:

Notices:

 

Regency Field Services LLC

 

2001 Bryan Street, Suite 3700

 

Dallas, TX 75201

 

Attn: Contract Administration

 

Phone: (214) 750-1771

 

Fax: (214) 750-1749

 

 

 

Payments: Wire Transfer:

 

JPMorgan Chase Bank

 

New York, NY

 

ABA# [*****]

 

Account # [*****]

 

Account name: Regency Gas Services LP

 

 

 

Payments: Check

 

Regency Gas Services LP

 

P.O. Box 730588

 

Dallas, TX 75373-0588

 

Producer:

Notices:

 

SM Energy Company

 

1775 Sherman Street, Suite 1200

 

Attn: Dave Whitcomb

 

Denver, CO 80203

 

Phone: (303) 861-8140

 

Fax: (303) 830-2216

 

 

 

Payments: Wire Transfer:

 

32

--------------------------------------------------------------------------------

 

 

Wells Fargo Bank West N.A.

 

ABA #: [*****]

 

Account#: [*****]

 

Acct: SM Energy Company

 

 

 

TAX ID #:

 

41-0518430

 

Any such notice, request, statement, or other correspondence given hereunder
shall be deemed delivered when, if sent via facsimile, the sender receives
confirmation that the facsimile has been delivered (provided a hard copy of the
facsimile is delivered to the recipient within five (5) business Days
thereafter); or, if sent by certified mail, the return receipt is signed or
refusal to accept the notice is noted thereon (or the first attempt date of
delivery if unclaimed); or, if sent by reputable national overnight courier, the
notice is actually delivered or refused, as reflected in the courier company’s
delivery records.

 

ARTICLE XVI

MISCELLANEOUS

 

1.            Regulatory Bodies.  This Agreement shall be subject to all valid
applicable federal, state and local laws, rules and regulations of any
governmental body or official having jurisdiction.  The Parties hereto shall be
entitled to treat all laws, orders, rules and regulations issued by any federal
or state regulatory body as valid and may act in accordance therewith until such
time as the same may be invalidated by final judgment in a court of competent
jurisdiction.

 

2.            Modification.  Any modification of terms or amendment of
provisions of this Agreement shall become effective only by supplemental written
agreement between the Parties.

 

3.            Waiver.  If a Party fails to enforce its rights under this
Agreement, such failure shall not constitute a waiver of such Party’s rights to
enforce this Agreement strictly in accordance with its terms in the future.

 

4.            Default and Dispute Resolution.  If either Party fails to comply
with any material term hereof, the non-breaching Party shall not be entitled to
terminate this Agreement or discontinue performance of its own obligations
hereunder until final resolution of such dispute by agreement of the Parties or
final court order, and then only in accordance with such agreement or order.  If
a dispute arises under this Agreement (a “Dispute”), either Party may invoke the
following dispute resolution procedure by delivering written notice thereof
(“Dispute Notice”) to the other Party:

 

(a)           The Parties shall first attempt in good faith to promptly resolve
such Dispute by negotiation between officers who have authority to settle the
Dispute.  The officers shall be at a higher level of management in their
respective organizations than the persons with direct responsibility for the
administration of this Agreement.

 

33

--------------------------------------------------------------------------------

 

(b)           If such negotiations do not resolve the Dispute, or if either
Party fails to participate in such negotiations, within fifteen (15) days of a
Party’s Dispute Notice, then either Party may demand that the Dispute be finally
resolved by arbitration in accordance with the International Institute for
Conflict Prevention & Resolution Global Rules for Accelerated Commercial
Arbitration (“CPR Rules”), by providing the other Party with written notice of
such demand (“Arbitration Notice”).  The arbitration shall be conducted by a
single arbitrator having no less than ten (10) years of upstream Gas production
experience and agreed to by both Parties within fifteen (15) days of the
Arbitration Notice.  If the Parties cannot agree on a single arbitrator within
such 15-day period, an arbitrator meeting the qualifications set forth above
shall be selected by the International Institute for Conflict Prevention and
Resolution.  Any arbitration shall occur at a mutually agreeable location within
the state of Texas.  The Party invoking arbitration shall serve its Statement of
Claim (as defined in the CPR Rules) within ten (10) days of the final
appointment of the arbitrator.  The arbitrator’s decision shall be due no later
than ninety (90) days from the date the arbitrator is selected.  In all other
respects, the arbitration shall proceed in accordance with the CPR Rules.

 

5.             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, DISREGARDING ANY CONFLICTS OF LAWS PRINCIPLES
THAT WOULD REQUIRE REFERENCE TO THE LAWS OF A DIFFERENT JURISDICTION.  ANY SUIT
BROUGHT RELATING TO THIS AGREEMENT IN ANY WAY SHALL BE BROUGHT IN EITHER THE
FEDERAL OR STATE COURTS OF TEXAS.  THE PARTIES AGREE THAT IF EITHER PARTY
INSTITUTES SUIT TO ENFORCE ANY RIGHT OR OBLIGATION AGAINST THE OTHER PARTY
ARISING OUT OF OR INCIDENTAL TO THIS AGREEMENT THEN THE PREVAILING PARTY SHALL
BE ENTITLED TO RECOVER REASONABLE ATTORNEY’S FEES, COURT COSTS, AND EXPENSES
RELATED THERETO.

 

6.             Assignment.  This Agreement may not be assigned by either Party,
in whole or in part, without the prior written consent of the other Party, which
shall not be unreasonably withheld and any assignment in contravention of this
provision shall be null and void; provided, however, that either Party may
assign this Agreement to a credit-worthy Affiliate without the other Party’s
written consent.

 

7.             Disconnect.  If this Agreement lawfully terminates for any reason
whatsoever, or all Well(s) behind a Receipt Point(s) are permanently released
from this Agreement, Producer hereby consents to and agrees that Gatherer can
disconnect from the Well(s), the Lease(s), or any of the facilities utilized by
Producer that delivers Producer’s Gas at such Receipt Point(s) hereunder. 
Disconnect for the purposes of this Section means to remove metering facilities,
pipelines and any other interconnection facilities through which Producer’s Gas
was delivered under this Agreement and that are either owned by Gatherer or
owned by the pipeline with which Gatherer contracted for the gathering or
transportation services at the Receipt Point(s).  This consent and agreement by

 

34

--------------------------------------------------------------------------------

 

Producer in this paragraph applies to both Gatherer and Gatherer’s transporter
or gatherer, without distinction, and is intended in all respects to satisfy the
requirements of any local, state or federal governmental agency having
jurisdiction over such matters.  Notwithstanding anything to the contrary,
nothing in this Section shall be construed to waive either Party’s rights,
remedies or obligations under applicable laws, rules or regulations.

 

8.             Controlling Agreement.  This Agreement and the Condensate
Agreement replace and supersede all prior agreements between Gatherer and its
Affiliates, and Producer and its Affiliates, relating to the subject matter
hereof (including, but not necessarily limited to, that certain Confidentiality
Agreement dated December 21, 2010, by and between Producer and Regency Energy
Partners LP, and that certain Memorandum of Understanding dated as of January 3,
2011, between Producer and Gatherer, and that certain Cost Reimbursement Letter
Agreement dated as of January 3, 2011, as amended, between Producer and
Gatherer), which prior agreements are terminated effective as of the Effective
Date.

 

9.             Confidentiality.  The Parties will keep confidential all of the
terms, conditions and obligations of this Agreement; provided, however, each
Party may disclose such terms, conditions and obligations (a) to the extent as
may be required to effectuate the transportation or gathering of Producer’s Gas,
or to meet the requirements of any applicable law and/or any court or regulatory
agency having jurisdiction over the matter for which information is sought;
(b) in conjunction with any proposed sale, disposition or other transfer
(directly or indirectly, including, but not limited to any proposal of a joint
venture) of all or any portion of such Party’s rights and interests in and to
this Agreement and/or any Lease(s), Well(s) and/or Facilities; (c) to lenders,
accountants, consultants and other representatives of such Party, and royalty,
working and other interest owners, with a need to know such information; and/or
(d) in conjunction with a merger, consolidation, share exchange or other form of
statutory reorganization involving such Party.

 

[Signature page follows.]

 

35

--------------------------------------------------------------------------------

 

This Agreement is executed by the duly authorized representatives of the Parties
as of the Effective Date shown above.

 

 

 

GATHERER:

 

 

REGENCY FIELD SERVICES LLC

 

 

By: Regency Gas Services LP, its sole member

 

 

By: Regency OLP GP LLC, its general partner

 

 

 

 

 

 

 

 

 

 

By:

/s/ Jim Holotik

 

 

Name:

Jim Holotik

 

 

Title:

Vice President

 

 

 

 

 

 

 

 

 

 

PRODUCER:

 

 

SM ENERGY COMPANY

 

 

 

 

 

 

 

 

 

 

By:

/s/ Dave Whitcomb

 

 

Name:

Dave Whitcomb

 

 

Title:

Vice President - Marketing

 

36

--------------------------------------------------------------------------------

 

EXHIBIT “A”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Receipt Point(s)

 

Receipt Point or Well
Name

 

Longitude (DMS)

 

Latitude (DMS)

 

 

 

 

 

BRIGGS RANCH 1H

 

99° 20’ 8.247” W

 

28° 18’ 9.415” N

BRIGGS RANCH 2H

 

99° 18’ 40.973” W

 

28° 18’ 7.917” N

BRISCOE B 11H

 

99° 57’ 34.613” W

 

28° 5’ 3.548” N

BRISCOE B 1H

 

99° 56’ 40.56” W

 

28° 4’ 16.32” N

BRISCOE B 2H

 

99° 57’ 45.72” W

 

28° 4’ 15.528” N

BRISCOE B 3H

 

99° 57’ 33.12” W

 

28° 5’ 10.32” N

BRISCOE B 4H

 

99° 59’ 34.581” W

 

28° 4’ 6.206” N

BRISCOE B GU1 5H

 

99° 59’ 15.808” W

 

28° 4’ 32.708” N

BRISCOE B GU1 6H

 

99° 59’ 3.008” W

 

28° 4’ 43.92” N

BRISCOE B GU1 7H

 

99° 58’ 55.01” W

 

28° 4’ 49.879” N

BRISCOE B GU2 13H

 

99° 59’ 21.488” W

 

28° 5’ 39.292” N

BRISCOE B GU3 12H

 

99° 57’ 31.346” W

 

28° 5’ 17.312” N

BRISCOE C 1H

 

100° 0’ 27.036” W

 

28° 6’ 14.616” N

BRISCOE C 2H

 

99° 58’ 17.214” W

 

28° 6’ 37.524” N

BRISCOE C 3H

 

99° 56’ 11.746” W

 

28° 6’ 35.996” N

BRISCOE C 4H

 

99° 59’ 20.9” W

 

28° 6’ 29.3” N

BRISCOE C 5H

 

99° 57’ 2.38” W

 

28° 6’ 8.789” N

BRISCOE C 9H

 

99° 56’ 50.239” W

 

28° 6’ 48.813” N

BRISCOE C GU1 10H

 

99° 57’ 24.84” W

 

28° 7’ 10.668” N

BRISCOE G 12H

 

99° 54’ 55.44” W

 

28° 7’ 1.344” N

BRISCOE G 13H

 

99° 54’ 36.284” W

 

28° 8’ 21.205” N

BRISCOE G 2H

 

99° 54’ 35.928” W

 

28° 4’ 20.892” N

BRISCOE G 4H

 

99° 54’ 26.316” W

 

28° 5’ 2.112” N

BRISCOE G 8H

 

99° 54’ 18.953” W

 

28° 9’ 43.767” N

BRISCOE G GU1 3H

 

99° 55’ 28.128” W

 

28° 5’ 4.488” N

BRISCOE G GU2 5H

 

99° 56’ 4.272” W

 

28° 4’ 38.82” N

BRISCOE G GU3 1H

 

99° 55’ 26.148” W

 

28° 4’ 9.912” N

BRISCOE R 1H

 

99° 55’ 36.413” W

 

28° 3’ 32.908” N

BRISCOE R 3H

 

99° 57’ 47.984” W

 

28° 3’ 30.931” N

BRISCOE R GU1 2H

 

99° 57’ 3.995” W

 

28° 3’ 43.504” N

BRISCOE STATE AR 1H

 

99° 53’ 42.144” W

 

27° 59’ 55.032” N

GALVAN RANCH 10H

 

99° 42’ 6.084” W

 

28° 3’ 4.104” N

 

37

--------------------------------------------------------------------------------

 

GALVAN RANCH 12H

 

99° 45’ 26.577” W

 

28° 1’ 2.421” N

GALVAN RANCH 14H

 

99° 42’ 45.735” W

 

28° 3’ 50.529” N

GALVAN RANCH 15H

 

99° 39’ 8.001” W

 

28° 4’ 52.03” N

GALVAN RANCH 16H

 

99° 36’ 49.462” W

 

28° 7’ 25.665” N

GALVAN RANCH 17H

 

99° 48’ 29.592” W

 

27° 59’ 31.668” N

GALVAN RANCH 18H

 

99° 45’ 44.013” W

 

28° 2’ 1.549” N

GALVAN RANCH 19H

 

99° 40’ 24.019” W

 

28° 4’ 9.333” N

GALVAN RANCH 1H

 

99° 51’ 39.312” W

 

27° 55’ 8.544” N

GALVAN RANCH 20H

 

99° 39’ 58.32” W

 

28° 4’ 30.576” N

GALVAN RANCH 21H

 

99° 39’ 49.721” W

 

28° 4’ 33.323” N

GALVAN RANCH 22H

 

99° 39’ 47.34” W

 

28° 4’ 37.524” N

GALVAN RANCH 23H

 

99° 43’ 5.808” W

 

28° 2’ 32.136” N

GALVAN RANCH 24H

 

99° 35’ 46.14” W

 

28° 4’ 44.797” N

GALVAN RANCH 26H

 

99° 36’ 11.517” W

 

28° 6’ 53.242” N

GALVAN RANCH 27H

 

99° 36’ 11.669” W

 

28° 6’ 42.296” N

GALVAN RANCH 28H

 

99° 36’ 10.663” W

 

28° 6’ 41.145” N

GALVAN RANCH 2H

 

99° 51’ 40.536” W

 

27° 56’ 48.768” N

GALVAN RANCH 3H

 

99° 49’ 55.596” W

 

27° 55’ 27.264” N

GALVAN RANCH 4H

 

99° 47’ 4.452” W

 

27° 57’ 5.076” N

GALVAN RANCH 7H

 

99° 50’ 37.788” W

 

27° 58’ 58.656” N

GALVAN RANCH A527H

 

99° 37’ 45.871” W

 

28° 5’ 44.02” N

GALVAN RANCH A528H

 

99° 37’ 46.056” W

 

28° 5’ 43.909” N

GALVAN RANCH A529H

 

99° 37’ 46.241” W

 

28° 5’ 43.797” N

HUBBARD RANCH 1H

 

99° 21’ 58.997” W

 

28° 15’ 53.025” N

SAN AMBROSIA B 1H PILOT

 

100° 0’ 43.848” W

 

28° 4’ 38.64” N

SAN AMBROSIA C 1H

 

100° 0’ 6.12” W

 

28° 7’ 49.656” N

SAN AMBROSIA C 2H

 

99° 59’ 34.08” W

 

28° 8’ 13.92” N

SAN AMBROSIA D 1H

 

99° 57’ 57.168” W

 

28° 7’ 51.42” N

SAN AMBROSIA D 2H

 

99° 56’ 51.72” W

 

28° 8’ 9.384” N

SAN AMBROSIA D 4H

 

99° 57’ 31.069” W

 

28° 8’ 38.459” N

SAN AMBROSIA D GU1 5H

 

99° 58’ 50.47” W

 

28° 7’ 45.612” N

 

For each Well, Gatherer’s Facilities shall interconnect with Producer’s
facilities at the edge of Producer’s Well Pad serving such Well, and Gatherer
shall receive the combined well-stream Gas (i.e., Gas, Condensate and water)
downstream of the Producer-provided manifold located on the edge of the
Producer’s Well Pad.

 

New Receipt Point(s) shall be added hereto as provided in Article IV, Section 1
of this Agreement.

 

38

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EXHIBIT “A-1”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Dedicated Area Plat

 

[g141051kf09i001.jpg]

 

39

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EXHIBIT “B”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Fees

 

Gathering Fee ($/MMBtu measured at the Delivery Point(s))

 

$[*****]

 

Compression Fee ($/MMBtu measured at the compression inlet)

 

Applicable as a single fee for all compression, regardless of the number of
stages of compression.

 

$[*****]

 

Optional Fuel Gas Treating Fee       ($/MMBtu actually treated)

 

Applicable at field compression stations in the event that Producer elects to
have Gas treated for use as fuel in Producer’s compression stations, as
applicable.

 

$[*****]

 

Dehydration Fee ($/MMBtu actually treated)

 

Applicable only on the portion of the Residue Gas delivered at Delivery Point(s)
into downstream pipelines that require dehydration of such Gas before delivery.

 

$[*****]

 

Schedule of Additional Fees for High Hydrogen Sulfide Concentration ($/Mcf
actually treated based on the Hydrogen Sulfide levels set forth below)

 

H2S
ppm

 

fee

 

4-12

 

$

[*****]

 

13-24

 

$

[*****]

 

25-32

 

$

[*****]

 

33-44

 

$

[*****]

 

45-56

 

$

[*****]

 

57-64

 

$

[*****]

 

65-76

 

$

[*****]

 

77-90

 

$

[*****]

 

 

40

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EXHIBIT “C”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Delivery Point(s)

 

Delivery Point

 

Meter
Number

 

Pressure
(psig)

 

Maximum
Daily
Quantity
(MMSCFD)

 

Exhibit C-1
Location

 

Lat. / Long.

 

County /
State

Briscoe A-1(1)

 

TBD

 

1200

 

250

 

1

 

28.182037

-99.873273

 

Webb, Texas

Boldt Ranch(2)

 

TBD

 

1200

 

350

 

2

 

28.064314

-99.604006

 

Webb, Texas

LaSalle(3)

 

TBD

 

1200

 

80

 

3

 

28.282275

-99.306699

 

LaSalle, Texas

Briscoe – Catarina(4)

 

TBD

 

1200

 

20

 

4

 

28.236729

-99.791703

 

Dimmit, Texas

Briscoe A

 

6021

 

450

 

21

 

1

 

28.182037

-99.873273

 

Webb, Texas

Briscoe AR-1H

 

6030

 

450

 

22

 

5

 

28.027124

-99.960781

 

Webb, Texas

Huber Sales II

 

6035

 

450

 

23

 

6

 

28.047408

-99.926973

 

Webb, Texas

Brask CRP

 

6036

 

450

 

21

 

7

 

28.026701

-99.863584

 

Webb, Texas

Huber Sales III

 

6038

 

450

 

7.5

 

6

 

28.047408

-99.926973

 

Webb, Texas

Gates Lateral CRP

 

6033

 

1200

 

65

 

8

 

28.049946

-99.736603

 

Webb, Texas

Bella Vista CRP

 

6040

 

1200

 

36

 

9

 

28.138037

-99.594894

 

Webb, Texas

 

--------------------------------------------------------------------------------

(1) Briscoe A-1 Delivery Point(s) shall include interconnects with Eagle Ford
Gathering LLC, Regency Field Services LLC, and ETC Texas Pipeline Ltd.

(2) Boldt Ranch Delivery Point(s) shall include interconnects with Eagle Ford
Gathering LLC, Regency Field Services LLC, and Energy Transfer.

(3) LaSalle Delivery Point(s) shall include interconnects with Eagle Ford
Gathering LLC and Enterprise Texas Pipeline LLC.

(4) Briscoe – Catarina Delivery Point(s) shall include an interconnect with
Eagle Ford Gathering LLC.

 

As additional delivery point(s) are installed on the Facilities for delivery of
Gas from the Facilities, the Parties shall add the same to this Exhibit by
amendment.

 

41

--------------------------------------------------------------------------------

 

EXHIBIT “C-1”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Delivery Point(s) Map

 

[g141051kf09i002.jpg]

 

42

--------------------------------------------------------------------------------

 

EXHIBIT “D”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Initial GSB Plan

 

[g141051kf09i003.jpg]

 

43

--------------------------------------------------------------------------------

 

 

EXHIBIT “E”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

ANNUAL THROUGHPUT COMMITMENTS

 

Commitment Year

 

Annual Throughput Commitment

1

 

[*****]

2

 

[*****]

3

 

[*****]

4

 

[*****]

5

 

[*****]

6

 

[*****]

7

 

[*****]

8

 

[*****]

9

 

[*****]

10

 

[*****]

 

44

--------------------------------------------------------------------------------

 

EXHIBIT “F”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Initial Drilling Plan

 

Well

 

Spud

 

Release

 

Projected Completion Date

 

Latitude

 

Longitude

Galvan Ranch 26H (Pad)

 

17-Mar

 

2-Apr

 

24-Jun-11

 

28.110471

 

-99.603547

Galvan Ranch 27H (Pad)

 

6-Apr

 

21-Apr

 

24-Jun-11

 

28.11043

 

-99.603588

Galvan Ranch 28H (Pad)

 

24-Apr

 

10-May

 

24-Jun-11

 

28.11039

 

-99.60363

Light Ranch 346H (offset to Matador well)

 

29-May

 

15-Jun

 

30-Jun-11

 

 

 

 

Galvan Ranch Al25H (Pilot Hole)

 

30-May

 

20-Jun

 

5-Jul-11

 

 

 

 

Galvan State 1H (CHK Offset)

 

6-Jun

 

23-Jun

 

8-Jul-11

 

 

 

 

Galvan Ranch A527H (Pad)

 

 

 

 

 

8-Jul-11

 

28.095562

 

-99.629408

Galvan Ranch A528H (Pad)

 

 

 

 

 

8-Jul-11

 

28.095531

 

-99.62946

Galvan Ranch A529H (Pad)

 

 

 

24-May

 

8-Jul-11

 

28.0955

 

-99.629513

Briscoe R 4H (CHK Offset)

 

27-Jun

 

11-Jul

 

26-Jul-11

 

 

 

 

Briscoe R 14H Pilot

 

24-Jun

 

12-Jul

 

27-Jul-11

 

 

 

 

Briscoe G GU4 State 9H (10/29/11)

 

15-Jul

 

27-Jul

 

11-Aug-11

 

 

 

 

Galvan Ranch A501H

 

16-Jul

 

1-Aug

 

16-Aug-11

 

28.120615

 

-99.588545

Briscoe G GU5 State 11H (10/29/11)

 

31-Jul

 

12-Aug

 

27-Aug-11

 

 

 

 

Galvan Ranch B152H

 

29-Jul

 

14-Aug

 

29-Aug-11

 

27.991254

 

-99.75995

Galvan Ranch A401H

 

5-Aug

 

21-Aug

 

5-Sep-11

 

28.124415

 

-99.59081

Galvan Ranch A444H (Pad)

 

30-May

 

15-Jun

 

8-Sep-11

 

 

 

 

Galvan Ranch A443H (Pad)

 

19-Jun

 

5-Jul

 

8-Sep-11

 

 

 

 

Galvan Ranch A442H (Pad)

 

9-Jul

 

25-Jul

 

8-Sep-11

 

28.072289

 

-99.641687

Galvan Ranch B412H

 

18-Aug

 

3-Sep

 

18-Sep-11

 

28.043207

 

-99.715169

Galvan Ranch A301H

 

25-Aug

 

10-Sep

 

25-Sep-11

 

28.093406

 

-99.586317

Galvan Ranch A539H

 

20-Jun

 

 

 

27-Sep-11

 

 

 

 

Galvan Ranch A540H

 

 

 

 

 

27-Sep-11

 

 

 

 

Galvan Ranch A541H

 

 

 

13-Aug

 

27-Sep-11

 

 

 

 

Watson GU1 State 1H

 

7-Sep

 

23-Sep

 

8-Oct-11

 

 

 

 

Briscoe R 6H (Pad)

 

1-Jul

 

 

 

9-Oct-11

 

 

 

 

Briscoe R 7H (Pad)

 

 

 

 

 

9-Oct-11

 

 

 

 

Briscoe R 8H (Pad)

 

 

 

25-Aug

 

9-Oct-11

 

 

 

 

Galvan Ranch A201H

 

14-Sep

 

30-Sep

 

15-Oct-11

 

28.074677

 

-99.586317

Briscoe AR GU1 State 2H

 

27-Sep

 

13-Oct

 

28-Oct-11

 

 

 

 

Briscoe G 7H

 

3-Oct

 

15-Oct

 

30-Oct-11

 

 

 

 

 

[Remainder of Chart Redacted]

45

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EXHIBIT “G”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Memorandum

 

MEMORANDUM OF GAS GATHERING AGREEMENT

 

STATE OF TEXAS

§

 

 

§

KNOW ALL BY THESE PRESENTS:

COUNTIES OF WEBB. DIMMIT

§

 

 AND LASALLE

§

 

 

This Memorandum of Gas Gathering Agreement (this “Memorandum”) is entered into
by and between Regency Field Services LLC, a Delaware limited liability company
(“Gatherer”) and SM Energy Company, a Delaware corporation (“Producer”) pursuant
to Article II, Section 1 (b) of that certain Gas Gathering Agreement (the
“Gathering Agreement”) by and between the Gatherer and Producer (hereinafter
sometimes referred to individually as “Party” or collectively as “Parties”)
dated as of         , 2011 (the “Effective Date”).

 

1.            The Parties have entered into the Gathering Agreement effective as
of the Effective Date, which provides, inter alia, the terms and conditions
under which: (a) Producer has dedicated certain oil, gas and other mineral
leases now or hereafter acquired, being defined therein and referred to herein
as the “Leases” and/or Producer’s interests in oil, gas and other hydrocarbon
wells now or hereafter completed on the Leases, being defined therein and
referred to herein as the “Wells” to Gatherer thereunder; and (b) the Parties
have agreed to have Gatherer gather and take delivery of Gas now or hereafter
produced from the Wells at certain Receipt Point(s) and transport and redeliver
such natural gas to certain Delivery Point(s) as set forth therein.

 

2.            Producer has committed and dedicated to Gatherer for the
performance of the Gathering Agreement, and during the term of the Gathering
Agreement, all of “Producer’s Dedicated Gas.” Article II, Section 1 (Dedication)
of the Gathering Agreement provides, in pertinent part, as follows:

 

(a)           Subject to the reservations contained in Section 3 of this
Article II, Producer hereby commits and dedicates to the performance of this
Agreement [the Gathering Agreement], during the term of this Agreement, all of
Producer’s Dedicated Gas.  Notwithstanding anything to the contrary set forth in
this Agreement all Gas produced from existing or future wells that deliver Gas
to Producer’s gathering system commonly known as the Olmos System, in Webb
County, Texas, for redelivery out of such system at the Huber Sales Meter #6000
up to 10,000 Mcf per day (as measured at such meter) (“Olmos Gas”), is dedicated
by Producer to Gatherer under that certain Gas Gathering

 

46

--------------------------------------------------------------------------------

 

Agreement dated September 1, 2010 bearing Gatherer’s Contract No. PF-028 and is
excluded from the commitment and dedication under this Agreement. Any Gas
delivered from the Olmos System in excess of 10,000 Mcf per day shall be
dedicated under this Agreement.

 

(b)          The dedication by Producer of Producer’s Dedicated Gas to the
performance of this Agreement shall be a covenant running with the land with
respect to the Lease(s) and shall be binding on all successors and assigns of
Producer thereunder…. If, at any time during the term this Agreement, Producer
sells, transfers, conveys, assigns, grants or otherwise disposes of all or any
interests in the Lease(s), any such sale, transfer, conveyance, assignment, or
other disposition shall be expressly made subject to the terms of this
Agreement.

 

(c)           Producer represents and warrants that, prior to the Effective
Date, it has not dedicated any of the Lease(s) currently in effect for the
Dedicated Area, any Gas produced therefrom, or any other interest in or portion
of the Dedicated Area to a third Person under another Gas gathering,
transportation or similar agreement which would conflict with Producer’s
dedication hereunder.  Notwithstanding the foregoing, if, after the Effective
Date, Producer or its Affiliates acquire additional Lease(s) covering lands and
formations in the Dedicated Area that, at the time of Producer’s or its
Affiliates’ acquisition thereof, are subject to existing purchase, gathering,
transportation, or similar agreements executed by Producer’s predecessors in
interest with third Persons that contain acreage or production dedications, such
Lease(s) and the lands and formations covered thereby shall not be deemed to be
committed or dedicated to the performance of this Agreement until such existing
acreage or production dedications expire or are terminated or released pursuant
to the terms of any such agreements.

 

3.            Producer’s commitment and dedication of “Producer’s Dedicated Gas”
and Gatherer’s obligation to take deliveries under Article II, Section 2 of the
Gathering Agreement are subject to the provisions of Article II, Section 3
(Reservations of Producer) and Section 4 (Reservations of Gatherer), which
provide, in pertinent part, as follows:

 

3.           Reservations of Producer.  Producer reserves the following rights
under this Agreement:

 

(a)          to pool or unitize the Leases with other leases in the same field,
provided that all Gas attributable to Producer’s or its Affiliates’ interest in
any unit so formed shall, to the extent of Producer’s or its Affiliates’
interest in the Leases, be deemed subject to this Agreement;

 

(b)          to use Gas in developing and operating the Wells and the Leases and
delivering Producer’s Gas to the Receipt Point(s).

 

(c)          to retain and/or be provided (for the Condensate that Gatherer
recovers) all Condensate separated from Producer’s Gas prior to redelivery of
the Residue Gas to Producer at the Delivery Point(s), including liquid
hydrocarbons collected by Gatherer as a result of pigging, compression and other
operations in the Facilities.

 

47

--------------------------------------------------------------------------------

 

….

 

4.           Reservations of Gatherer. Notwithstanding anything herein to the
contrary, Gatherer reserves the right to cease taking deliveries of Gas at any
Receipt Point(s) for so long as Gatherer, in its reasonable judgment, believes
that continuing to take Gas from such Receipt Point(s) poses a threat of
imminent danger to persons or property.

 

4.            The following terms are defined in the Gathering Agreement and in
this Memorandum as follows:

 

(a)          “Affiliate” means with respect to Gatherer, any entity controlled
by or under common control with Regency Energy Partners LP and, with respect to
Producer, means any entity controlling, controlled by, or under common control
with Producer.  For purposes of this definition, the term “control” (including
its derivatives and similar terms)  means ownership of more than fifty percent
(50%) of the voting interest of the entity with the authority to direct or cause
the direction of the management and policies of the relevant Person.

 

(b)          “Dedicated Area” means the lands described and depicted by plat on
Exhibit “A-1” to the Gathering Agreement (a copy of which is attached hereto as
Appendix 1), strictly limited to the formations between the surface of such
lands and the base of the Eagle Ford Formation underlying such lands and shall
include the Leas(s) and Well(s) within the Dedicated Area.

 

(c)          “Eagle Ford Formation” means the Cenomanian-aged geological
formation known as the Eagle Ford formation.  The base of the Eagle Ford
formation is defined by the gamma ray tool as a change from a high radioactive
response at the base of the Eagle Ford formation to a very low radioactive
response from the underlying limestones of the Buda formation as defined in
Producer’s Briscoe G1H well at a measured depth of 7,704 feet.

 

(d)          “Gas” means natural gas as produced in its natural state, including
all of the hydrocarbon constituents thereof.

 

(e)          “Lease(s)” means all interests of every kind and character now
owned or hereafter acquired during the term of the Gathering Agreement by
Producer, or any Affiliate of Producer, in, to, or under any oil and gas lease,
mineral interest, royalty interest, overriding royalty interest, production
payment, and profits interest, mineral servitude, or other right with respect to
Gas and related hydrocarbons covering the lands and formations within the
Dedicated Area.  The term “Lease” includes all interests of every kind and
character now owned or hereafter acquired by Producer, or any Affiliate of
Producer, in, to, and under any unit declaration, unit agreement, unit order,
the units created pursuant thereto, and all Gas and other hydrocarbons produced
therefrom as the result of the inclusion in such units of all or any portion of
any Lease.  The term “Lease” also includes any renewal or extension of the
relevant Lease (as to all or any portion of the lands and formations covered
thereby) and any wholly new oil

 

48

--------------------------------------------------------------------------------

 

and gas lease (including any top lease) covering all or a portion of the same
lands and formations as the relevant existing Lease that is executed and
delivered during the term of, or within one (1) year after the expiration of the
term of, such predecessor Lease, to the extent of the interests therein owned by
Producer, or any Affiliate of Producer, during the term of this Agreement. 
Notwithstanding the foregoing or anything else herein to the contrary, the term
“Lease” shall not include any interests with respect to formations below the
base of the Eagle Ford Formation.

 

(f)           “Person” means any individual or entity, including, without
limitation, any corporation, limited liability company, joint stock company,
general or limited partnership, or government authority (including any agency or
administrative group thereof).

 

(g)          “Producer’s Dedicated Gas” means all Gas owned or controlled by
Producer or its Affiliates and produced during the term of the Gathering
Agreement from or allocable to all current and future Wells located on lands
within the Dedicated Area.  As used in this definition: (a) the word “owned”
refers to Gas to which Producer has title by virtue of its ownership of a Lease
or its purchase thereof from another Person; and (b) the phrase “controlled by”
refers to Gas owned by a Person other than Producer or its Affiliates and
produced from Wells in the Dedicated Area during the period that Producer or its
Affiliates have the contractual right (pursuant to a marketing, agency,
operating, unit or similar agreement) to market any such Gas; and if for any
reason the contractual right of Producer or its Affiliates to market any such
Gas (the “subject Gas”) terminates or expires, then the subject Gas shall cease
to constitute Producer’s Dedicated Gas upon such termination or expiration.  The
phrase “controlled by” does not refer to, and Producer’s Dedicated Gas does not
include, Gas owned by Persons other than Producer or its Affiliates and produced
from Well(s) not operated by Producer or any of its Affiliates.

 

(h)          “Well(s)” means any well that is now completed or may be hereafter
completed under the Lease(s).  Notwithstanding the foregoing or anything else in
the Gathering Agreement to the contrary, the term “Well(s)” shall not include
any well(s) completed in and/or producing from any formation below the base of
the Eagle Ford Formation.

 

5.            The filing of this Memorandum shall serve notice of the execution
and existence of the Gathering Agreement, and the terms and conditions of the
Gathering Agreement are incorporated herein by reference.  In the event of any
conflict between the provisions of the Gathering Agreement and the provisions of
this Memorandum, the provisions of the Gathering Agreement shall prevail and
control.  The dedication by Producer of Producer’s Dedicated Gas to the
performance of the Gathering Agreement shall be a covenant running with the land
with respect to the Dedicated Area, and with respect to the Lease(s) insofar as
they cover all or any part of the Dedicated Area, and with respect to the
Well(s), in each case subject to the limitations set forth above in this
Memorandum.  The Gathering Agreement is binding upon and shall inure to the
benefit of Producer and Gatherer, and their respective representatives,
successors and assigns forever.

 

49

--------------------------------------------------------------------------------

 

IN WITNESS HEREOF, the undersigned Parties have executed this Memorandum
effective as of the Effective Date.

 

 

GATHERER:

 

 

 

REGENCY FIELD SERVICES LLC

 

By: Regency Gas Services LP, its sole member

 

By: Regency OLP GP LLC, its general partner

 

 

 

By:

 

 

 

Its:

 

 

 

 

 

PRODUCER:

 

 

 

SM ENERGY COMPANY

 

 

 

 

 

By:

 

 

 

Its:

 

 

 

 

 

STATE OF TEXAS

§

 

 

§

 

COUNTY OF

§

 

 

This instrument was acknowledged before me on the          day of
                              , 2011, by             ,          of Regency OLP
GP LLC, a Delaware limited liability company and general partner for Regency Gas
Services LP, a          limited partnership and sole member of Regency Field
Services LLC, a Delaware limited liability company, on behalf of Regency Field
Services LLC.

 

 

 

 

Notary Public, State of Texas

 

STATE OF TEXAS

§

 

§

COUNTY OF

§

 

This instrument was acknowledged before me on the          day of
                              , 2011, by             ,          of SM Energy
Company, a Delaware corporation, on behalf of said corporation.

 

 

 

 

 

 

Notary Public, State of Texas

 

50

--------------------------------------------------------------------------------

 

APPENDIX “1”

 

To the Memorandum of Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Dedicated Area Plat

 

[g141051kf13i001.jpg]

 

51

--------------------------------------------------------------------------------

 

EXHIBIT “H”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Central Backbone Map

 

[g141051kf13i002.jpg]

 

52

--------------------------------------------------------------------------------

 

EXHIBIT “I”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Connection Notice

 

·              Date of notice

 

·              Well Pad identifier [name of 1st Well on Well Pad]

 

·              Anticipated completion date of 1st Well on Well Pad

 

·              Expected number of Well(s) on Well Pad

 

·              Location of Well Pad [with survey plat attached]

 

53

--------------------------------------------------------------------------------

 

EXHIBIT “J”

 

To the Gas Gathering Agreement

Between Regency Field Services LLC and SM Energy Company

Dated May 31, 2011

 

Briscoe 80 psig Selected Segments

 

[g141051kf13i003.jpg]

 

54

--------------------------------------------------------------------------------