Exhibit 10.5 

 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

 

Execution Version

 

 

 

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

 

 

BETWEEN

 

 

LILIS ENERGY, INC

AS “SELLER”

 

 

and

 

 

LUCID ENERGY DELAWARE, LLC

AS “BUYER”

 

 

 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

 

This Gas Gathering, Processing and Purchase Agreement (this “Agreement”) is made
and entered into this 10th day of August, 2017 (the “Effective Date”), by and
between Lucid Energy Delaware, LLC, a Delaware limited liability company
(“Buyer”), and Lilis Energy, Inc., a Nevada corporation (“Seller”). Buyer and
Seller are sometimes referred to in this Agreement individually as a “Party” and
collectively as the “Parties.”

 

Background:

 

Seller owns, controls, or may acquire Interests (including oil and gas leases)
in certain lands in the Dedicated Acreage (as defined in Exhibit A).

 

Seller has or contemplates having a supply of Gas from present and future wells
located in the Dedicated Acreage and desires to deliver such Gas to Buyer.

 

Buyer owns and operates, or plans to own and operate, gathering and processing
facilities capable of receiving deliveries of Committed Gas (as defined below).

 

Seller desires that Buyer provide gathering, processing and other services as
set forth in this Agreement and to sell Gas to Buyer, and Buyer desires to
provide to Seller gathering, processing and other services and to purchase Gas
from Seller, all in accordance with the terms and conditions stated in this
Agreement.

 

Agreement:

 

In consideration of the premises and of the mutual covenants set forth in this
Agreement, the Parties agree as follows:

 

ARTICLE I
GENERAL TERMS AND CONDITIONS

 

Exhibit A, which is attached to and made a part of this Agreement, contains
general terms and conditions that apply to the Parties’ performance under this
Agreement. If there is any conflict between the terms and conditions contained
in this Agreement and the terms and conditions contained in Exhibit A, then the
body of this Agreement will prevail. Unless otherwise defined, capitalized terms
used this Agreement will have the meanings assigned to those terms in Exhibit A.

 

 1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

ARTICLE II
DEDICATION

 

Article 2.1              Dedication. Beginning on the Effective Date and
continuing through the term of this Agreement, subject to the express provisions
of this Agreement, Seller does hereby (the “Dedication”): (i) dedicate and
commit to deliver all of its Gas produced from, and which is attributable to,
well(s) operated by Seller or its Affiliates now or subsequently located on
Interests owned by Seller (and its successors and assigns) in the Dedicated
Acreage, and (ii) commits to deliver all Gas produced from such wells that is
attributable to the interests in such wells owned by working interest, royalty
and overriding royalty owners that is not taken “in-kind” by such owners and for
which Seller or is Affiliates has the right or obligation to market, for so long
as that Gas is not taken “in-kind” by the owners of that Gas (collectively, the
“Committed Gas”). If, after the Effective Date, Seller acquires additional
Interests located in the Dedicated Acreage, then such Interests shall
automatically be subject to this Agreement without any further actions by the
Parties; provided, however, if any such Interests or Gas produced from such
Interests is subject to a prior written dedication or commitment for gathering,
processing or purchase at the time of acquisition, then such Interests or Gas
will be excluded from the Dedication (and such Gas will not be subject to this
Agreement) until the prior dedication or commitment expires. Upon the expiration
or termination of that prior dedication or commitment, such Interests and Gas
will automatically be subject to this Agreement without any further actions by
the Parties. In addition, Seller shall be entitled to comply with the prior
written dedications or commitments for gathering, processing or purchase
existing as of the Effective Date and set forth on Exhibit E. If, at any time in
the future, Seller (or its successors or assigns) has the right or ability to
terminate any prior dedication or commitment covering Interests at no additional
cost to Seller, the prior dedication or commitment will be promptly terminated,
and upon termination, the Interests subject to the prior dedication or
commitment will automatically be subject to this Agreement without any further
action by the Parties; provided, however, Seller shall have no obligation to
terminate any such prior dedication or commitment to the extent that the Gas
subject to such prior dedication or commitment would not constitute Committed
Gas hereunder. Seller represents and warrants to Buyer that there are no prior
assignments, dedications or commitments covering such Interests assigned and
dedicated hereunder or Committed Gas produced therefrom except as set forth on
Exhibit E. For the avoidance of doubt, Seller shall not be required to deliver
Gas from any well now or subsequently located on the Dedicated Acreage if Seller
would be required to install split stream connection facilities or similar
facilities to take such Gas in kind from wells operated by an operator other
than Seller or its Affiliates, and such Gas shall not be Committed Gas subject
to Dedication hereunder. From time to time, and in Seller’s sole discretion,
Seller may elect to dedicate and commit hereunder additional Interests located
outside of the Dedicated Acreage. Such additional Interests shall only become
dedicated and committed hereunder and subject to this Agreement at such time as
Seller provides written notice to Buyer of such election; provided, however,
such dedication and commitment of the additional Interests shall be subject to
the available capacity on the Gathering System. For the avoidance of doubt, any
additional Interest dedicated and committed hereunder shall be entitled to the
services provided under this Agreement on a Firm basis.

 

Article 2.2              Sale of Committed Gas. From and after the In-Service
Date, subject to Article 4.5, Seller agrees to sell and deliver to Buyer at the
Receipt Points all Committed Gas.  From and after the In-Service Date, subject
to Article 4.5, Buyer will receive and purchase from Seller at the Receipt
Points each Day all Committed Gas delivered by Seller in accordance with this
Agreement, on a Firm basis.  If Buyer is unable to receive from Seller at the
Receipt Points each Day all Committed Gas delivered by Seller in accordance with
this Agreement, Seller shall have the right to find an alternative market and
such Committed Gas shall be released from the Dedication as provided in Articles
2.3 and 2.4 below.

 

 2 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Article 2.3              Temporary Release. Notwithstanding anything herein to
the contrary, and in addition to any other remedies that Seller may have under
this Agreement, at any time after the In-Service Date when Buyer curtails or is
otherwise unable to accept all of Seller’s deliveries of Committed Gas for any
reason, and there exists no uncured material breach of this Agreement on the
part of the Seller, the volumes affected will be, and are hereby, released from
this Agreement for a period of time corresponding with Buyer’s curtailment or
inability to otherwise accept Seller’s deliveries, and Seller will be free to
dispose of such affected volumes under other arrangements for such period. At
such time as receipts and deliveries of Committed Gas are no longer interrupted
or curtailed, Buyer may resume receipts of released volumes only upon thirty
(30) days’ advance written notice as of the beginning of a month unless
otherwise agreed.

 

Article 2.4              Permanent Release. Notwithstanding anything herein to
the contrary, and in addition to any other remedies that Seller may have under
this Agreement, at any time after the In-Service Date, Committed Gas dedicated
and committed to Buyer under this Agreement shall be permanently released from
the Dedication as follows:

 

(a)               in the event that the Gathering System has insufficient
capacity to receive and handle all of the Committed Gas dedicated and committed
to Buyer under this Agreement or Buyer is otherwise unable or fails to receive
such Committed Gas or fully perform the services under this Agreement and there
exists no uncured material breach of this Agreement on the part of the Seller,
for a period of at least [**] Days or [**] Days [**] Day period, and such
inability is not due to a Force Majeure declared by Buyer, then at Seller’s
option and upon written notice to Buyer, Seller shall be granted a permanent
release from Dedication to this Agreement of the affected Interests and wells,
from which Buyer cannot receive and handle such Committed Gas or perform the
services, and all of such Committed Gas produced and producible therefrom. In
the event that the Gathering System has insufficient capacity to receive and
handle all of the Committed Gas dedicated and committed to Buyer under this
Agreement or Buyer is otherwise unable or fails to receive such Committed Gas
and/or fully perform the services, and there exists no uncured material breach
of this Agreement on the part of the Seller, for a period of at least [**] Days
[**] Days [**] Day period and such inability is due to a Force Majeure declared
by Buyer, then at Seller’s option and upon written notice to Buyer, Seller shall
be granted a permanent release from Dedication to this Agreement of the affected
Interests and wells, from which Buyer cannot receive and handle such Committed
Gas or perform the services, and all of such Committed Gas produced and
producible therefrom;

 

(b)               at Seller’s option and upon written notice to Buyer, in the
event that Seller elects to exercise its rights to a permanent release as
provided in Article 6.4; and

 

(c)               at Seller’s option and upon written notice to Buyer, in the
event that Seller elects to exercise its rights to a permanent release as
provided in Section VI of Exhibit A.

 

At the request of Seller, the Parties shall execute a release reasonably
acceptable to Seller (which, in the case of a permanent release, shall be in
recordable form) reflecting the release of any Receipt Point(s), wells,
Interests or Committed Gas released from Dedication hereunder.

 

Article 2.5              Covenant. So long as this Agreement is in effect, this
Agreement will: (i) be a covenant running with the Interests now owned by Seller
or hereafter acquired (that become subject to this Agreement) by Seller within
the Dedicated Acreage, and (ii) be binding on and enforceable by Buyer and its
successors and assigns against Seller and all subsequent owners, successors and
assigns of all or any part of such Interests in the Dedicated Acreage. Seller
will cause any conveyance by it of all or any Interests (or Committed Gas) in
the Dedicated Acreage to be made expressly subject to this Agreement, and to
cause such transferee to execute a written instrument in a form reasonably
satisfactory to Buyer acknowledging such transferee’s obligations and rights
under this Agreement. Notwithstanding the foregoing, Seller shall be permitted
to sell, transfer, convey, assign, grant, or otherwise dispose of any Interest
in the Dedicated Acreage free of the dedication and commitment hereunder (i) in
a transaction in which undeveloped Interests within the Dedicated Acreage are
exchanged for other Interests located in the Dedicated Acreage that would become
subject to dedication and commitment hereunder, and (ii) in a sale (or a series
of sales) of undeveloped Interests within the Dedicated Acreage in which the
total net acres sold does not exceed [**] percent ([**]%) of the total net acres
dedicated and committed under this Agreement.

 

 3 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Article 2.6              Memorandum. Contemporaneously with the execution of
this Agreement and from time to time during the term of this Agreement, the
Parties will execute, acknowledge, deliver and record a “short form” memorandum
of this Agreement in the form of Exhibit F attached hereto identifying the
Dedicated Acreage and identifying the lands, leases and wells in which Seller
and its Affiliates own Interests, which will be placed of record in each county
within the Dedicated Acreage.

 

ARTICLE III
QUANTITY

 

Article 3.1              Nominations. Seller must provide Buyer written notice
that Seller is prepared to flow Committed Gas at least ten (10) Business Days
prior to Seller’s estimated date of initial flow, and will include in such
notice Seller’s good faith estimate of Daily quantities (stated in both MMBtu
and Mcf) of Committed Gas that will be available for sale to Buyer under this
Agreement during the initial Month of deliveries. Each Month thereafter, at
least ten (10) Business Days before the end of such Month, Seller must estimate
the quantities of Committed Gas that will be available for sale to Buyer each
Day during the next Month.

 

Article 3.2              Curtailment. Buyer will use reasonable efforts to
provide timely notification to Seller by telephone, with subsequent e-mail
notification, of the potential size and duration of any unscheduled capacity
disruption.

 

Article 3.3              Objectionable Material. In order to ensure that the
Gathering System is kept free of water, liquids and solids that could impede
free flow of Gas, Buyer may collect or remove from the Gas in the Gathering
System any water, liquids or solids which could accumulate in the Gathering
System, and in that event Buyer will be responsible for disposal of and liable
for the water, liquids and solids so collected and removed, and will own them.
The quantities of Gas attributable to the water, liquids and solids so collected
or removed from Gas will be retained by Buyer and are hereby conveyed and
transferred to Buyer by Seller free and clear of all liens, encumbrances and
Claims.

 

 4 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

  

ARTICLE IV
PRICE OF GAS; GAS PURCHASE PAYMENT

 

Article 4.1              Pricing. The purchase price for Seller’s Residue Gas
will be a price per MMBtu of Seller’s Residue Gas equal to that described in
Paragraph 1 of Exhibit B. The purchase price for Seller’s Plant Products will be
a price per gallon of Seller’s Plant Products equal to that described in
Paragraph 2(f) of Exhibit B.

 

Article 4.2              Gas Purchase Payment. Buyer’s monthly payment for the
purchase of Seller’s Residue Gas and Plant Products will equal the price per
MMBtu determined in accordance with Article 4.1 above, multiplied by Seller’s
Residue Gas (determined in accordance with Exhibit B) plus the price per gallon
determined in accordance with Article 4.1 above, multiplied by Seller’s Plant
Products for each component as determined in accordance with Paragraph 2(c) of
Exhibit B (the “Gas Purchase Payment”). The Gas Purchase Payment will be reduced
by the following, if applicable: (i) the H2S Treating Fee; (ii) the CO2 Treating
Fee; (iii) the Processing Fee; (iv) the Inlet Compression Fee; (v) the Electric
Power Fee; (vi) the Gathering Fee; (vii) the Maintenance and Meter Fee and
(viii) the Nitrogen Fee.

 

Article 4.3              Low Volume at Receipt Points. If the average Daily
quantity of Committed Gas delivered by Seller at a Receipt Point over any
calendar Month is less than [**] MMBtu per Day for any reason (other than Force
Majeure or Buyer’s unexcused failure to accept deliveries from Seller), then
Buyer will charge Seller a “Maintenance and Meter Fee” of $[**] per Month for
each such Receipt Point for administration, maintenance and meter servicing.

 

Article 4.4              Marketing of Gas. Notwithstanding any other provision
in this Agreement to the contrary, Buyer is obligated to sell Seller’s Residue
Gas and Seller’s Plant Products but is not obligated to sell Seller’s Residue
Gas and Seller’s Plant Products at any particular downstream point or at any
particular price, provided however, Buyer shall use commercially reasonable
efforts to obtain the best price and terms for the sale of Seller’s Residue Gas
and Seller’s Plant Products with unaffiliated third parties.

 

Article 4.5              Take-In-Kind.

 

(a)               Residue Gas. For any calendar [**] during the term of this
Agreement, Seller will have the right to elect, by providing Buyer written
notice thirty (30) Days’ prior to the beginning of the calendar [**], to take
Seller’s Residue Gas “in-kind” at the Delivery Point.  For any calendar [**]
that Seller elects to take Seller’s Residue Gas “in-kind”, Buyer will not be
required to pay the Gas Purchase Payment to Seller for such “in-kind” Residue
Gas, Buyer will list on its monthly statement the fees and other charges owed by
Seller pursuant to this Agreement for Buyer’s processing of the Gas related to
such “in-kind” Residue Gas, and Seller will pay Buyer for any such fees and
other charges pursuant to the terms of Section 8.01 of Exhibit A.  Additionally,
during any such calendar [**], the “Take In-Kind Terms” set forth in Exhibit G,
as well as the applicable Title, Possession and Responsibility provisions of
Section IX of Exhibit A, will apply.

 

 5 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

(b)               Plant Products. For any calendar [**] during the term of this
Agreement, Seller will have the right to elect, by providing Buyer written
notice thirty (30) Days’ prior to the beginning of the calendar [**], to take
Seller’s Plant Products “in-kind” at the Plant Products Delivery Point.  For any
calendar [**] that Seller elects to take Seller’s Plant Products “in-kind”,
Buyer will not be required to pay the Gas Purchase Payment to Seller for such
“in-kind” Plant Products, Buyer will list on its monthly statement the fees and
other charges owed by Seller pursuant to this Agreement relating to such
“in-kind” Plant Products, and Seller will pay Buyer for any such fees and other
charges pursuant to the terms of Section 8.01 of Exhibit A.  Additionally,
during any such calendar [**] that Seller takes Seller’s Plant Products
“in-kind”, the “Take In-Kind Terms” set forth in Exhibit G, as well as the
applicable Title, Possession and Responsibility provisions of Section IX of
Exhibit A, will apply.

 

ARTICLE V
FEES; FUEL AND ELECTRICITY

 

Article 5.1              Seller will pay to Buyer each of the fees and other
amounts, as applicable, set forth on Exhibit C, attached hereto, for the
gathering and processing of Committed Gas and other services provided under this
Agreement. Buyer shall provide dehydration and compression services with respect
to Gas delivered by Seller to the Crittendon Field Station HP and Crittendon
Field Station LP Receipt Points (the “Crittendon Receipt Points”), subject to
the payment of the Inlet Compression Fee. Initially, Gas delivered by Seller to
the Prizehog BWZ Receipt Point, Wildhog BWX Receipt Point and the Crittenden
North Receipt Point shall be at high pressure (the “PWC Receipt Points”) and
shall not require dehydration or compression services or be subject to the Inlet
Compression Fee. At any time prior to the beginning of the sixth (6th) Year of
the Agreement Seller may elect, by providing ninety (90) Days prior written
notice to have any of the PWC Receipt Points converted to a Low Pressure Receipt
Point and Exhibit D will be amended to reflect such election by Seller. To the
extent Seller elects such option, Buyer shall provide dehydration and
compression services with respect to the Gas delivered by Seller to any such Low
Pressure Receipt Point(s), subject to the payment of the Inlet Compression Fee.

 

Article 5.2              System Fuel, Lost and Unaccounted for Gas. Subject to
the terms and conditions set forth in this Article 5.2, Buyer will deduct from
the volumes of Committed Gas delivered by Seller hereunder, at no cost to Buyer,
[**] percent ([**]%) of such Gas in MMBtus delivered by Seller at the Receipt
Point(s), which will be attributed to Buyer’s use as (i) Plant Fuel, and (ii)
Field Fuel (collectively, “Seller’s Fixed FL&U”). Seller’s Fixed FL&U is
comprised of, (a) [**] percent ([**]%) Field Fuel (“Seller’s Fixed Field Fuel”)
and (b) [**] percent ([**]%) Plant Fuel (“Seller’s Fixed Plant Fuel”). To the
extent Buyer utilizes electric compression to compress Committed Gas, Seller
will be responsible, and pay Buyer for, its ratable share of Electrical Power
Charges. Notwithstanding anything to the contrary set forth herein, Seller shall
not be subject to a deduction for Seller’s Fixed Field Fuel at the High Pressure
Receipt Points, and shall only be subject to a deduction for Seller’s Fixed
Plant Fuel with respect to the Gas delivered by Seller at the High Pressure
Receipt Point(s).

 

Article 5.3              Adjustment of Fees. On the first anniversary of the
first Day of the Month following the Effective Date and on each anniversary date
thereafter, each fee set forth in this Agreement will be automatically adjusted,
by multiplying the current fee by a fraction, the numerator of which will be the
[**], and the denominator of which will be [**]; provided however, no such
adjustment to any such fee shall exceed [**] percent ([**]%) for any given
Year.  Notwithstanding the above, in no event will any fee set forth in this
Agreement be adjusted below the fees listed in Exhibit C.

 

 6 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

ARTICLE VI
RECEIPT AND DELIVERY POINTS

 

Article 6.1              Receipt Points. Each Receipt Point for Committed Gas
delivered by Seller under this Agreement will be at the inlet flange of the
measurement facilities located at a mutually agreed point of interconnection
between Seller’s facilities and Buyer’s, or its designee’s, Gathering System as
further described on Exhibit D attached hereto.

 

Article 6.2              Delivery Points. Each Delivery Point for Residue Gas
delivered by Buyer for its own account under this Agreement will be at the inlet
flange of the measurement facilities of each Delivery Point that is set forth on
Exhibit D. The foregoing notwithstanding, Buyer may, at its sole discretion, add
a Delivery Point to Exhibit D at any time; provided that, any such addition
shall not adversely affect the price and terms for the sale of Seller’s Residue
Gas and Seller’s Plant Products.

 

Article 6.3              Plant Products Delivery Points. Each Plant Products
Delivery Point for recovered Plant Products delivered by Buyer for its own
account under this Agreement will be at the inlet flange of the measurement
facilities of each Plant Products Delivery Point that is set forth on Exhibit D.
The foregoing notwithstanding, Buyer may, at its sole discretion, add a Plant
Products Delivery Point to Exhibit D at any time.

 

Article 6.4              Receipt Point Connections.

 

(a)               Completion Deadline. Buyer, at its sole risk, cost and
expense, shall construct and connect and shall cause the following Receipt
Points, each as more particularly described on Exhibit D, to be installed and
fully operational for the receipt of Committed Gas on or before the following
dates (each such date, a “Completion Deadline”):

 

Prizehog BWZ: November 1, 2017;

 

Wildhog BWX: November 1, 2017;

 

Crittendon Field Station LP: December 15, 2017;

 

Crittendon Field Station HP: December 15, 2017; and

 

Crittendon North: April 1, 2018.

 

The Prizehog BWZ and Wildhog BWX Receipt Point(s) shall be designed and
constructed for capacities ranging from 0 Mcf/day to 10,000 Mcf/Day, and the
Crittendon Field Station LP, Crittendon Field Station HP, and Crittendon North
Receipt Point(s) shall be designed and constructed for capacities ranging from 0
Mcf/Day to 50,000 Mcf/day. Such Receipt Point(s) shall be expanded from time to
time as necessary for Buyer to receive all of Committed Gas delivered by Seller.

 

 7 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

(b)               Force Majeure Delay. To the extent the delay in causing any
Receipt Point completion to occur by the respective Completion Deadline is due
to a properly noticed Force Majeure event, then for each Day of the Force
Majeure event, Buyer shall have one additional Day within which to cause any
such Receipt Point completion to occur, and such Completion Deadline shall be
extended accordingly.

 

(c)               Receipt Point Completion Delays.

 

(i)       If Buyer fails to cause any Receipt Point completion to occur on or
before the respective Completion Deadline, but Buyer causes such Receipt Point
completion to occur on or before the [**] Day after such Completion Deadline,
then for a period equal to [**] times the number of Days after such Completion
Deadline until Buyer causes such Receipt Point completion to occur, the fee(s)
payable by Seller set forth on Exhibit C shall be reduced by [**]% for such
Receipt Point.

 

(ii)       If Buyer fails to cause any Receipt Point completion to occur on or
before the [**] Day after the respective Completion Deadline, then for a period
equal to [**] times the number of Days after such Completion Deadline until
Buyer causes such Receipt Point completion to occur, the fee(s) payable by
Seller set forth on Exhibit C shall be reduced by [**]% for such Receipt Point.

 

(iii)       Without limiting Seller’s rights above, if Buyer fails to cause the
Receipt Point completion for any such Receipt Point to occur on or before the
[**] Day after the respective Completion Deadline, then Seller may elect to
permanently release from the Dedication any such Receipt Point, the affected
Interests and all existing and future wells that would have otherwise been
delivered to such Receipt Point, and all of such Committed Gas produced or
producible therefrom. Prior to Seller’s election to permanently release under
this Article 6.4(c)(iii), Seller must provide Buyer reasonable documentation
evidencing the Receipt Point, the affected Interests and all existing and future
wells that would have been delivered to such Receipt Point. Seller’s right to
permanent release pursuant to this Article 6.4(c)(iii) shall expire when the
Receipt Point completion for each such Receipt Point has occurred.

 

ARTICLE VII
TERM

 

This Agreement is effective as of the Effective Date, and, unless terminated
earlier in accordance with any express provision of this Agreement, will remain
in full force and effect for a primary term of ten (10) Years following the
Effective Date and, unless terminated by either Party upon at least ninety Days’
written notice prior to the end of such primary term, will continue year to year
until ninety (90) Days’ written notice is provided by a Party prior to the end
of any term extension. Termination will be effective on the last Day of the
primary term or yearly term extension, whichever is applicable. Upon final
termination under this Article VII, the Dedication hereunder shall terminate.

 

 8 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

 

ARTICLE VIII
NOTICES

 

Article 8.1              Notices. Any notice, request, demand, statement,
payment or bill provided for in this Agreement, or any notice which a Party may
desire to give to the other, must be in writing and will be deemed duly made
when (a) delivered personally, (b) three business days following deposit with
the U.S. Postal Service, certified mail with return receipt and prepaid postage,
(c) one business day following delivery to a recognized overnight courier
service with prepaid postage, or (d) the same day if emailed, telefaxed or wired
to the other Party at the following address:

 

BUYER: Notices & Correspondence:    Lucid Energy Delaware, LLC    3100 McKinnon
St., #800    Dallas, Texas 75201    Attention: Contract Administration  
Telephone: 214-420-4950   Facsimile: 214-420-4949   Email:
Contract.Admin@lucid-energy.com  

 

 

  Billing:    Lucid Energy Delaware, LLC    3100 McKinnon St., #800    Dallas,
Texas 75201    Attention:  Accounting    Telephone: 214-420-4950   Facsimile:  
214-420-4949   Email: ap@lucid-energy.com       Payments By Wire:   

[**]

 

  Account Name: [**]   Account Number: [**]   ABA: [**]     SELLER: Notices &
Correspondence:    Lilis Energy, Inc.    300 E. Sonterra Blvd, Suite 1220    San
Antonio, TX 78258    Attention: Accounting and Operations    Telephone:
210-999-5400    Facsimile   210-999-5401 

 

 9 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

  Billing:   Lilis Energy, Inc.   300 E. Sonterra Blvd, Suite 1220   San
Antonio, TX 78258   Attention: Patrick Tumer   Telephone: 817-502-1635     
Facsimile:  210-999-5401   Email: AP@Lilisenergy.com       Payments By Wire:  
Bank Name: [**]   Account Name: [**]   Account Number: [**]   ABA: [**]

 

Article 8.2              Change of Address. Either Party may change one or more
of its addresses or accounts by giving written notice to the other Party in any
manner provided above.

 

[End of Page. Signatures to Follow]

 

 10 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
duplicate originals by their duly authorized officers effective as of the
Effective Date.

 

SELLER:   BUYER:           LILIS ENERGY, INC.   LUCID ENERGY DELAWARE, LLC      
              By: /s/ Jim Linville   By: /s/ B. Scott Brown           Name: Jim
Linville   Name: B. Scott Brown           Title: Chief Executive Officer  
Title: Executive Vice President and CCO

 

 

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** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

EXHIBIT A

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August __, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

 

GENERAL TERMS AND CONDITIONS

 

Section I
Definitions

 

Section 1.01        Definitions. Unless another definition is expressly stated
or the context requires otherwise, the following terms, when used in this
Agreement to which this Exhibit A is attached and all other exhibits and
attachments to this Agreement, are intended to and will have the following
meanings:

 

(a)               “Agreement” is defined in the Preamble.

 

(b)               “Affiliate” means any Person that directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with another Person. The term “control” (including its
derivatives and similar terms) means possessing the power to direct or cause the
direction of the management and policies of a Person, whether through ownership,
by contract, or otherwise. Any Person will be deemed to be an Affiliate of any
specified Person if such Person owns fifty percent or more of the voting
securities of the specified Person, if the specified Person owns fifty percent
or more of the voting securities of such Person, or if fifty percent or more of
the voting securities of the specified Person and such Person are under common
control.

 

(c)               “Annual Prime Rate” shall mean the fluctuating per annum
lending rate of interest from time to time published in The Wall Street Journal
(New York edition) as the Prime Rate.

 

(d)               “Base Quantity” shall mean the average daily quantity of
Committed Gas for the twelve (12) months prior to Seller’s election in Section
2.06.

 

(e)               “Btu” means a “British Thermal Unit,” which is the amount of
heat required to raise the temperature of one avoirdupois pound of pure water
from 58.5° Fahrenheit to 59.5° Fahrenheit at a constant pressure of 14.65 pounds
per square inch absolute.

 

(f)                “Business Day” means a calendar day other than a Saturday,
Sunday or other Day that federal banks are authorized or required to close.

 

 A-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

(g)               “Buyer” means Lucid Energy Delaware, LLC, a Delaware limited
liability company.

 

(h)               “Claims” means any and all actions, claims, costs (including
costs of investigation, litigation, and court costs), damages, demands, fines,
interest, judgments, liabilities (INCLUDING STRICT LIABILITY), losses,
penalties, proceedings, suits (including appeal), and expenses (including
reasonable attorney’s fees and expert fees).

 

(i)                 “CO2 Treating Fee” is defined in Exhibit C.

 

(j)                 “Committed Gas” is defined in Article 2.1.

 

(k)               “Commitment Period” shall mean the period starting on the
first day of the Month following Seller’s election in Section 2.06 until the
termination of this Agreement.

 

(l)                 “Cubic Foot” means a volume of Gas occupying a space of one
cubic foot at a temperature of 60° Fahrenheit at 14.65 pounds per square inch
absolute.

 

(m)             “Day” (or “Daily”) means a period beginning at 9:00 a.m.,
Central time, on one calendar day and ending at 9:00 a.m., Central time, on the
following calendar day.

 

(n)               “Dedicated Acreage” means all lands described on Exhibit E.

 

(o)               “Dedication” is defined in Article 2.1.

 

(p)               “Delivery Points” is defined in Article 6.2.

 

(q)               “Effective Date” is defined in the Preamble.

 

(r)                “Electrical Power Charges” means the actual cost to Buyer for
the electrical power consumed in the operation of gathering, compression,
processing or treating equipment used to gather, compress, process or treat the
Committed Gas under this Agreement.

 

(s)                “Field Fuel” means the quantity of Gas or other hydrocarbons
used or consumed as gathering, compression, treating, dehydration or other fuel
on the Gathering System upstream of the Processing Plant(s) and at points
upstream of the Receipt Point(s) to the extent allocated to Seller by Buyer with
respect to the delivery by Seller of Gas at the Receipt Point(s), in order to
deliver Gas to the Processing Plant(s) or in the services performed hereunder,
or used or consumed as flared, lost, unaccounted for Gas or otherwise used or
consumed in the operation on such portions of the Gathering System.

 

(t)                 “Firm” means that level of service that has the highest
priority call for Similarly Situated Shippers on capacity of all or any relevant
portion of the Gathering System, which service shall not be subject to
interruption or curtailment except for a Permitted Curtailment.

 

(u)               “Force Majeure” is defined in Section 11.02 of this Exhibit A.

 

 

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(v)               “Gas” means natural gas or any mixture of hydrocarbon gases or
of hydrocarbon gases and noncombustible gases, consisting predominantly of
methane.

 

(w)             “Gas Purchase Payment” is defined in Article 4.2.

 

(x)               “Gathering Fee” is defined in Exhibit C.

 

(y)               “Gathering System” means Buyer’s gathering facilities, related
compression, dehydration, treating, processing and other facilities, acquired or
constructed by Buyer, that are utilized in conjunction with receiving,
gathering, processing and purchasing Seller’s Committed Gas from Receipt Points
on Buyer’s gathering facilities and delivering Residue Gas and Plant Products
out of Buyer’s gathering facilities to the Delivery Points and Plant Products
Delivery Points for sale, including the Processing Plant(s).

 

(z)               “GPM” is defined in Exhibit B.

 

(aa)            “Gross Heating Value” means the number of Btus produced by the
complete combustion, at constant pressure, of the amount of dry Gas which would
occupy a volume of one Cubic Foot at a temperature of 60° Fahrenheit and at a
pressure equivalent to 14.65 pounds per square inch absolute, under standard
gravitational force (acceleration 980.665 centimeters per second per second),
with air of the same temperature and pressure as the Gas when the products of
combustion are cooled to the initial temperature of the Gas and air and when the
water formed by combustion is condensed to the liquid state. The Gross Heating
Value so determined will be expressed on a real instead of ideal basis, and
corrected to adjust for the water vapor content at the pressure and temperature
of the Gas delivered, expressed in Btu per Cubic Foot and reported at a pressure
base of 14.65 pounds per square inch absolute; provided, however, if the water
vapor content of the Gas delivered is seven pounds or less per one million Cubic
Feet, the Gas will be deemed to be dry.

 

(bb)           “H2S Treating Fee” is defined in Exhibit C.

 

(cc)            “High Pressure Receipt Points” is defined in Exhibit D.

 

(dd)           “Impaired Party” is defined in Section 8.04 of this Exhibit A.

 

(ee)            “Inlet Compression Fee” is defined in Exhibit C.

 

(ff)              “Insecure Party” is defined in Section 8.04 of this Exhibit A.

 

(gg)           “In-Service Date” is the first day of the Month following the Day
of initial flow of Seller’s Committed Gas at the first Receipt Point to receive
Committed Gas.

 

(hh)           “Interests” means any right, title or interest in lands
(including pursuant to oil and gas leases) and any right to produce oil and/or
Gas therefrom whether arising from fee ownership, working interest ownership,
mineral ownership, leasehold ownership, or arising from any pooling,
unitization, or communitization of any of those rights.

 

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** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

(ii)              “Interruptible” means all obligations of Buyer to receive,
gather and process Gas, that are designated as such, as to which Buyer may
interrupt its performance for any or no reason.

 

(jj)              “Low Pressure Receipt Points” is defined in Exhibit D.

 

(kk)           “Maintenance” is defined in Section 2.02 of this Exhibit A.

 

(ll)              “Maintenance and Meter Fee” is defined in Article 4.3.

 

(mm)      “Mcf” means one thousand Cubic Feet.

 

(nn)           “MMBtu” means one million Btu.

 

(oo)           “Month” means the period beginning at 9:00 a.m., Central time, on
the first Day of a calendar month and ending at 9:00 a.m., Central time, on the
first Day of the succeeding calendar month.

 

(pp)           “Nitrogen Fee” is defined in Section 5.03 of this Exhibit A.

 

(qq)           “Non-Conforming Gas” is defined in Section 5.06 of this Exhibit
A.

 

(rr)              “Party” or “Parties” is defined in the Preamble.

 

(ss)             “Permitted Curtailment” means a curtailment and/or interruption
of services on the Gathering System attributable to a Force Majeure declared by
Buyer, Maintenance, or because such curtailment and/or interruption is necessary
to avoid injury or harm to Persons or property, to the environment, or to the
integrity of Buyer’s System for a reason outside of Buyer’s control.

 

(tt)              “Person” means any individual, firm, corporation, trust,
partnership, limited liability company, association, joint venture, other
business enterprise or governmental authority.

 

(uu)           “Plant Fuel” is defined in Exhibit B.

 

(vv)           “Plant Products” is defined in Exhibit B.

 

(ww)       “Plant Products Delivery Point” is defined in Article 6.3.

 

(xx)           “Processing Plant(s)” means the Red Hills I, Red Hills II, Palo
Duro or any other cryogenic or refrigeration plant and associated equipment that
Buyer may install on the Gathering System.

 

(yy)           “Receipt Points” is defined in Article 6.1.

 

(zz)            “Potential Gallons” is defined in Exhibit B.

 

(aaa)        “Qualified Institution” means (i) the U.S. office of a commercial
bank or trust company (that is not an Affiliate of either Party) organized under
the laws of the United States (or any state or a political subdivision thereof),
or (ii) the U.S. branch of a foreign bank (that is not an Affiliate of either
Party), in each case having assets of at least ten billion dollars
($10,000,000,000), and having credit ratings of at least "A-" by Standard &
Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc.
(or its successor) or at least "A3" by Moody's Investors Service, Inc.(or its
successor).

 

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** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

(bbb)       “Residue Gas” is defined in Exhibit B.

 

(ccc)        “Seller” means Lilis Energy, Inc., a Nevada corporation.

 

(ddd)       “Seller’s Fixed Field Fuel” is defined in Article 5.2.

 

(eee)        “Seller’s Fixed FL&U” is defined in Article 5.2.

 

(fff)           “Seller’s Fixed Plant Fuel is defined in Article 5.2.

 

(ggg)       “Shrinkage” is defined in Exhibit B.

 

(hhh)       “Similarly Situated Shipper” means any other shipper of Buyer that
has contracted for gathering and/or processing services with Buyer pursuant to
an acreage and/or lease dedication with financial commitments tied to minimum
volumes of Gas less than [**] Mcf/day.

 

(iii)            “Taxes” means all taxes, assessments, allowances, charges or
costs imposed by any law, rule, regulations or other government authority or
paid or incurred by Buyer in response to, or to comply with, any law, rule or
regulation or other government authority, including to comply with any emissions
limitations (which costs include the costs of any allowances that are required
to be purchased by or on behalf of Buyer to comply with such emissions
limitations).

 

(jjj)            “Weighted Average Sales Price” for Residue Gas means the price
obtained each Month by dividing the market sales proceeds obtained under
arms-length transactions with unaffiliated third parties without marketing fees
at the various Delivery Points by the total MMBtu quantities of Residue Gas
owned or controlled by Buyer and sold at the various Delivery Points.

 

(kkk)       “Year” means a period of 365 consecutive Days, provided that any
calendar year containing the date of February 29 will consist of 366 consecutive
Days.

 

Section 1.02          Interpretation.

 

(a)               All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.

 

(b)               Titles appearing at the beginning of any of such subdivisions
are for convenience only and will not constitute part of such subdivisions and
will be disregarded in construing the language contained in such subdivisions.

 

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C.F.R. §§ 80(b)(4) and 240.24b-2

 

(c)               The words “this Agreement,” “this instrument,” “herein,”
“hereof,” “hereby,” “hereunder” and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited.

 

(d)               Words in the singular form will be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders will be construed to include any other
gender.

 

(e)               Examples will not be construed to limit, expressly or by
implication, the matter they illustrate.

 

(f)                Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection will
be construed to authorize such renewal, extension, modification, amendment or
restatement.

 

(g)               The word “or” is not intended to be exclusive and the word
“includes” and its derivatives means “includes, but is not limited to” and
corresponding derivative expressions.

 

(h)               No consideration will be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.

 

Section II.
Field Equipment

 

Section 2.01        Seller’s Equipment; Gathering System.

 

(a)               Seller agrees to furnish, install and maintain all equipment
upstream of the Receipt Point(s) necessary for the proper, safe and efficient
operation and maintenance of Seller’s wells and to enable it to make delivery of
Committed Gas in accordance with this Agreement.  This equipment must include
valves and fittings necessary to permit Buyer to make its connections at the
Receipt Points that will permit Seller to regulate deliveries from its wells
according to Buyer’s requirements, including equipment that may be necessary to
prevent freezing during the varying deliveries from the wells.  Seller agrees to
install pressure control equipment at its wellhead or other appropriate
location. Seller must furnish any information reasonably requested by Buyer
regarding Seller’s well equipment or any of its delivery lines for the purpose
of Buyer providing the services hereunder. Seller will operate its wells in a
good and workmanlike manner.

 

(b)               Buyer shall, at its sole risk, cost and expense, design,
construct, maintain and operate the Gathering System, including any and all
facilities required to connect each Receipt Point to the Gathering System, as
necessary to perform the services and all its obligations under this Agreement
in a good and workmanlike manner in accordance with standards customary in the
industry. Buyer will design and shall expand, and may add or remove components
of the Gathering System, as it determines to be best in its capacity as a
prudent operator, provided that such design and structure are consistent with
the full performance of Buyer’s obligations and Services hereunder. Buyer shall
use best efforts (including, but not limited to, the exercise of any eminent
domain rights) to obtain all servitudes, right-of-way grants, permits,
permissions or licenses from any Person (other than a governmental authority,
whether federal, state, local, tribal or any other political subdivision) to
enable Buyer to perform the services and all of its obligations under this
Agreement. Except for the service fees set forth on Exhibit C or as otherwise
expressly provided in this Agreement, Seller shall have no responsibility for
the cost of the Buyer’s System or any facilities constructed or to be
constructed by Buyer.

 

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C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section 2.02        Operational Control. Buyer will be entitled to full and
complete operational control of its facilities and will be entitled to schedule
deliveries and to operate and reconfigure its facilities in a manner which, in
Buyer’s reasonable business judgment, is consistent with its obligations under
this Agreement. Buyer will be entitled, without liability, to interrupt its
performance under this Agreement to perform necessary or desirable inspections,
maintenance, testing, alterations, modifications, expansions, connections,
repairs or replacements to its facilities as Buyer deems necessary in its sole
good faith discretion (“Maintenance”), with reasonable notice provided to
Seller, except in cases of emergency where such notice is impracticable or in
cases where the operations of Seller are not expected to be affected. Buyer will
exercise reasonable diligence to schedule routine repairs and maintenance so as
to minimize disruption of service hereunder. Buyer will schedule and provide
reasonable prior notice (but, in any event, no less than 15 days’ prior notice)
to Seller in advance of any plant turnarounds, shut downs associated with
tie-ins of new processing or fractionation trains or other major maintenance. In
all cases, Buyer will provide reasonable prior notice (but, in any event, no
less than 15 days’ prior notice) to Seller prior to the commencement of any
planned maintenance or repairs that would cause an interruption or curtailment
of service hereunder. Written notice with reasonably full particulars of the
event or occurrence, as well as Buyer’s plans for addressing the reason for the
interruption or curtailment, is required within a reasonable time prior to the
commencement of the event or occurrence (but, in any event, no less than 15
days’ prior notice). In situations reasonably perceived by Buyer to be
emergencies, Buyer shall use commercially reasonable efforts to provide
reasonable prior notice to Seller of such repairs or maintenance.

 

Section 2.03        No Processing. Seller will not and will not permit others to
strip liquid hydrocarbons in the field or elsewhere from the Committed Gas to be
delivered under this Agreement other than by usual separation methods.

 

Section 2.04        Commingling. Buyer shall be entitled to commingle the
Committed Gas with other Gas delivered to the Gathering System from other
shippers; provided, however, any such commingling of the Committed Gas shall not
adversely affect the quality of such Committed Gas or merchantability of such
Committed Gas, or limit or reduce Buyer’s redelivery obligations hereunder with
respect to such Committed Gas. 

 

Section 2.05        [**]. If it becomes [**], then [**]and [**]provided,
however, [**].

 

Section 2.06        [**]. At any time within the [**]. If such [**]percent
([**]%) of the [**] or [**].

 

Section 2.07        Reduced Fees for Curtailment. Notwithstanding anything to
the contrary set forth herein, without limiting any other remedies available to
Seller, including temporary or permanent releases, in the event that receipts of
Committed Gas are curtailed in whole or part or services hereunder are curtailed
for any reason other than a Permitted Curtailment (including as a result of
Buyer’s failure to maintain pressures pursuant to Section VI of this Exhibit A),
for a period of at least [**] Days [**] Days [**] Day period, then for a period
equal to [**] times the number of Days of curtailment, the fee(s) payable by
Seller set forth on Exhibit C shall be reduced by [**]% at the affected Receipt
Point(s).

 

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Section 2.08        Excessive Downtime. Notwithstanding anything to the contrary
set forth herein, without limiting any other remedies available to Seller,
including temporary or permanent releases, commencing on the first day of the
In-Service Date, in the event that during any [**] Month period, the downtime
period (excluding any downtime attributable to Force Majeure or emergency
conditions existing on the Gathering System) for all or any portion of Gathering
System when receipts of Committed Gas are curtailed in whole or part or services
hereunder are curtailed during such [**] Month period is in excess of [**]
percent ([**]%), then the fee(s) payable by Seller set forth on Exhibit C shall
be reduced by [**]% for the [**] Month period immediately following.

 

Section III.
Measuring Equipment and Testing

 

Section 3.01        Measuring Equipment. Buyer, or its designee, will maintain
and operate at its own expense the measuring stations at the Receipt Points
through which Committed Gas delivered to Buyer will be measured. Seller may
install, maintain and operate, at its own expense, such check measuring
equipment as desired by Seller; provided, that such equipment must be installed
so as not to interfere with the operation of Buyer’s, or its designee’s,
measuring equipment. Further, Buyer shall provide Seller with real-time access
to all SCADA, measurement, pressure and other measurement data with respect to
Committed Gas delivered to Buyer and generated by equipment at the Receipt
Point(s) through which Committed Gas is measured.

 

Section 3.02        Measurement Standards. The measuring equipment will be
constructed, installed and operated, and have computations for Gas measurement
performed in accordance with the following standards, depending on the type of
meters used:

 

(a)               Orifice Meters - in accordance with ANSI/API 14.3.2 (American
Gas Association Report No. 3), Orifice Metering of Natural Gas and Other
Hydrocarbon Fluids, Fourth Edition, dated April 2000, and any subsequent
amendments, revisions or modifications thereof, and will include the use of
flange connections. Should Gas pulsation problems occur upstream of the Receipt
Point meter, Seller will promptly take all actions necessary to mitigate such
pulsation upstream of the Receipt Point meter.

 

(b)               Positive Displacement Meters - in accordance with the American
Gas Association Measurement Committee Report No. 6 (American Gas Association
Report No. 6) dated January 1971, and any subsequent amendments, revisions or
modifications thereof.

 

(c)               Turbine Meters - in accordance with the American Gas
Association Measurement Committee Report No. 7 (American Gas Association Report
No. 7), First Revision, dated November 1984, and any subsequent amendments,
revisions or modifications thereof.

 

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C.F.R. §§ 80(b)(4) and 240.24b-2

 

(d)               Electronic Transducers and Flow Computers (solar and
otherwise) - in accordance with the applicable American Gas Association
standards, including but not limited to American Gas Association Measurement
Committee Report Nos. 3, 5, 7 and any subsequent amendments, revisions, or
modifications thereof.

 

(e)               Ultrasonic Meters - in accordance with the American Gas
Association Measurement Committee Report No. 9 (American Gas Association Report
No. 9), dated June 1998, and any subsequent amendments, revisions or
modifications thereof.

 

Notwithstanding anything contained in this Section 3.02 to the contrary, Buyer,
or its designee, will not be required to replace or make any alterations to its
existing measuring equipment as a result of any subsequent amendments, revisions
or modifications of the American Gas Association Reports cited in Subparagraphs
(a) through (e) of this Section 3.02.

 

Section 3.03        Seller’s Representative and Right to Verify. Buyer will give
reasonable notice to Seller in order that Seller may have a representative
present to observe any cleaning, changing, repairing, inspecting, testing,
calibrating, or adjusting of Buyer’s measuring equipment at the Receipt Points.
The official recordings from the measuring equipment are the property of Buyer
or its designee. Within two weeks of a request from Seller, Buyer or its
designee will submit its meter records, together with calculations therefrom, to
Seller for inspection and verification.

 

Section 3.04        Meter Calibration and Adjustment. The accuracy of measuring
equipment will be verified by Buyer, or its designee, and, if requested, in the
presence of a representative of Seller.  Buyer will provide Seller reasonable
notice prior to any meter testing so that Seller may have a representative
present during such testing. Buyer or its designee will verify the accuracy of
such equipment once every three Months unless Seller requests a special test as
described below; provided, however, that when Daily deliveries average [**] Mcf
per day or less during any Month, then the accuracy will be verified once every
six Months and when daily deliveries of Gas at any Receipt Point average [**]
Mcf per Day or greater during any Month, the accuracy of the measuring equipment
at such Receipt Point will be verified once every Month.  If, upon any test, the
measuring equipment is found to be inaccurate by [**]% or less, previous
readings of such equipment will be considered correct in computing the
deliveries of Committed Gas, but such equipment will immediately be adjusted to
record accurately.  If, upon any test, the measuring equipment is found to be
inaccurate by more than [**]% of the average flow rate since the last test, then
any previous recordings of such equipment will be corrected for any period which
is known definitely or agreed upon in accordance with the procedure set forth in
Paragraph (e) of this Section III.  If such period is not known or agreed upon,
such correction will be made for a period covering one-half of the time elapsed
since the date of the latest test.  If Seller desires a special test of any
measuring equipment, at least 72 hours advance notice will be given to Buyer or
its designee by Seller, and both Parties will cooperate to secure a prompt test
of the accuracy of such equipment.  If the measuring equipment so tested is
found to be inaccurate by [**]% or less, Buyer or its designee will have the
right to bill Seller for the costs incurred due to such special test, including
any labor and transportation costs, and Seller will pay such costs promptly upon
invoice therefor.

 

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Section 3.05        Meter Out of Service or Repair. If, for any reason, any
measurement equipment is out of adjustment, out of service, or out of repair and
the total calculated hourly flow rate through each meter run is found to be in
error by an amount of the magnitude described in Section 3.04, the total
quantity of Gas delivered will be redetermined in accordance with the first of
the following methods which is feasible:

 

(a)               By using the registration of any check meters, if installed
and accurately registering (subject to testing as described in Section 3.04); or

 

(b)               Where parallel multiple meter runs exist, by calculation using
the registration of such parallel meter runs; provided that they are measuring
Gas from upstream headers in common with the faulty metering equipment, are not
controlled by separate regulators, and are accurately registering; or

 

(c)               By correcting the error by rereading of the official meter
data, or by straight forward application of a correcting factor to the
quantities recorded for the period (if the net percentage of error is
ascertainable by calibration, tests or mathematical calculation); or

 

(d)               By estimating the quantity, based upon deliveries made during
periods of similar conditions when the meter was registering accurately.

 

Section 3.06        Preservation of Records. Buyer or its designee will retain
and preserve for a period of at least two Years all test data and other similar
records.

 

Section 3.07        Right to Shut-Off. In the event of an emergency, or the
failure of Seller to regulate the deliveries of Gas at the times requested by
Buyer, Buyer will have the right to shut-off the flow of Seller’s Gas at the
Receipt Points, and Buyer will not be liable to Seller for any damage that may
result to Seller’s equipment, facilities or wells as a result. Buyer agrees to
notify Seller as soon as reasonably practicable if it becomes necessary to take
the foregoing action.

 

Section IV.
Measurement Specifications

 

The measurements of the quantity and quality of all Gas delivered at the Receipt
Points will be conducted in accordance with the following:

 

Section 4.01        The unit of volume for measurement will be one Cubic Foot.
Such measured volumes will be multiplied by their Gross Heating Value and
divided by 1,000,000 to determine MMBtu delivered hereunder.

 

Section 4.02        The temperature of the Gas will be determined by a recording
thermometer installed so that it may record the temperature of the Gas flowing
through the meters, or such other means of recording temperature as may be
mutually agreed upon by the Parties. The average of the record to the nearest 1°
Fahrenheit, obtained while Gas is being delivered, will be the applicable
flowing Gas temperature for the period under consideration.

 

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C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section 4.03        The specific gravity of the Gas will be determined by a
recording gravitometer or chromatographic device installed and located at a
suitable point to record representative specific gravity of the Gas being
metered or, at Buyer’s or its designee’s option, by continuous sampling using
standard type methods.  If a recording gravitometer or chromatographic device is
used, the gravity to the nearest one-thousandth obtained while Gas is being
delivered will be the specific gravity of the Gas used for the recording period.
The gravity to the nearest one-thousandth will be determined monthly from the
continuous Gas analysis.  The result should be applied during such Month for the
determination of Gas volumes delivered.

 

Section 4.04        Adjustments to measured Gas volumes for the effects of
supercompressibility will be made in accordance with accepted American Gas
Association standards. Buyer or its designee will obtain appropriate carbon
dioxide and nitrogen mole fraction values for the Gas delivered as may be
required to compute such adjustments in accordance with standard testing
procedures. At Buyer’s or its designee’s option, equations for the calculation
of supercompressibility may be taken from either the American Gas Association
Manual for the Determination of Supercompressibility Factors for Natural Gas,
dated December, 1962 (also known as the “NX-19 Manual”) or American Gas
Association Report No. 8, dated December 1985, Compressibility and
Supercompressibility for Natural Gas and Other Hydrocarbon Gases, latest
revision.

 

Section 4.05        For purposes of measurement and meter calibration, the
atmospheric pressure for each of the Receipt Points will be assumed to be the
pressure determined by Buyer and Seller, or their respective designee, for the
elevation at which such point is located pursuant to generally accepted industry
practices, irrespective of the actual atmospheric pressure at such points from
time to time.

 

Section 4.06        The Gross Heating Value of the Gas delivered at the Receipt
Points will be determined from the samples obtained in the continuous sampling
as provided in Section 4.03.

 

Section 4.07        Other tests to determine water content, sulfur, and other
impurities in the Gas will be conducted whenever requested by either Party and
will be conducted in accordance with standard industry testing procedures. When
requested by Seller to perform such tests, Buyer or its designee will bear the
cost of such tests only in the event the Gas tested is determined not to be
within the quality specification set forth below. If the Gas is within such
quality specification, then Seller will bear the cost of such tests.

 

Section 4.08        New Measurement Techniques. If, at any time during the term
of this Agreement a new method or technique is developed with respect to Gas
measurement or the determination of the factors used in such Gas measurement,
then such new method or technique may, at Buyer’s reasonable discretion, be
substituted for the method set forth in this Section 4 when such methods or
techniques are in accordance with the currently accepted standards of the
American Gas Association and are reasonably expected to provide no less accurate
and verifiable bases of measurement.

 

 A-11 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section V.
Quality

 

Section 5.01        Quality Specifications. All Committed Gas delivered by
Seller to Buyer at the Receipt Points must conform to the following
specifications:

 

(a)               Hydrogen Sulfide: Subject to the provisions of subparagraph
(g) below, the Committed Gas must not contain more than [**] of hydrogen sulfide
per 100 Cubic Feet of Gas as determined by quantitative tests.

 

(b)               Total Sulfur: Subject to the provisions of subparagraph (g)
below, the Committed Gas must not contain more than [**] of total sulfur per 100
Cubic Feet of Gas as determined by quantitative tests.

 

(c)               Temperature: The Committed Gas must not have a temperature
less than [**] Fahrenheit or more than [**] Fahrenheit.

 

(d)               Carbon Dioxide: Subject to the provisions of subparagraph (g)
below, the Committed Gas must not contain an amount of carbon dioxide in excess
of [**]% by volume of carbon dioxide at the Receipt Points.

 

(e)               Oxygen: The Committed Gas must contain no oxygen.

 

(f)                Nitrogen: Subject to the provisions of subparagraph (g)
below, the Committed Gas must not contain an amount of nitrogen in excess of
[**]% by volume of nitrogen at the Receipt Points.

 

(g)               Nonhydrocarbons: Notwithstanding the foregoing provisions of
this Section 5 to the contrary, the Committed Gas must not contain an amount of
non-hydrocarbons in excess of such amount that, after processing the Committed
Gas, results in Residue Gas attributable to Seller containing more than [**]
mole % total non-hydrocarbons. Non-hydrocarbons will include, but not be limited
to, hydrogen sulfide, sulfur, carbon dioxide, oxygen, helium and nitrogen.

 

(h)               Objectionable Liquids and Solids and Dilution: The Committed
Gas must be free of objectionable liquids and solids, and must be commercially
free from dust, gums, gum-forming constituents, and other liquids or solid
matter which might become separated from the Gas in the course of transportation
through pipelines.

 

(i)                 Gross Heating Value: The Committed Gas must not have a gross
heating value less than 950 Btu per Cubic Foot of Gas.

 

(j)                 Mercaptan Sulfur: Subject to the provisions of subparagraph
(g) above, the Committed Gas must not contain more than [**] of mercaptan sulfur
per 100 Cubic Feet of Gas as determined by quantitative tests.

 

(k)               Water Vapor: The Gas must not contain more than [**] pounds of
water vapor per MMcf.

 

 A-12 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

Section 5.02        Additional Quality Specifications. Buyer’s downstream
transporters may notify Buyer of different or additional quality specifications
required for the operation of transporter’s pipeline. Buyer will notify Seller
of any such different or additional specifications as soon as reasonably
practicable after being notified by any such downstream transporters. If the
Committed Gas delivered by Seller should fail to meet any of the quality
specifications specified in Section 5.01, then Buyer will notify Seller and
Seller will make a diligent effort to correct the situation. Buyer will have the
right to refuse to accept such Gas for so long as Seller does not deliver
Committed Gas conforming to such specifications, and such Committed Gas not
received by Buyer will be automatically released according to Article 2.3 of
this Agreement.

 

Section 5.03        Treating; Dehydration; Nitrogen Rejection. If Committed Gas
delivered contains carbon dioxide in excess of that specified in this Section V,
Seller agrees to pay Buyer the CO2 Treating Fee. If Committed Gas delivered
contains hydrogen sulfide in excess of that specified in this Section V, Seller
agrees to pay Buyer the H2S Treating Fee. If Committed Gas delivered contains
nitrogen in excess of that specified in this Section V, Seller agrees to pay
Buyer a nitrogen fee per Mcf of Committed Gas received by Buyer at the Receipt
Points specified in Exhibit C (the “Nitrogen Fee”). Dehydration for the Low
Pressure Receipt Points and the Crittendon Field Station HP Receipt Point will
be the responsibility of Buyer to insure all Gas complies with Section 5.01, (k)
above. Seller, at Seller’s cost and expense, will dehydrate all Committed Gas
delivered to the PWC Receipt Points. Seller will not be charged a dehydration
fee with respect to any dehydration services performed by Buyer.

 

Section 5.04        Processing. Buyer shall process or have processed the
Committed Gas delivered by Seller at the Receipt Points subject to the terms of
Exhibits B and C attached hereto and made a part hereof.

 

Section 5.05        Electrical Power Charges. In addition to any applicable
compression, processing and treating fees, if Buyer installs electrical
equipment for any reason, in lieu of installing equipment that can or
traditionally is operated through combustion of fuel, then Seller will pay the
Electrical Power Charges, prorated on an Mcf basis, incurred by Buyer associated
with respective gathering, compression, processing and/or treating of the
Committed Gas.

 

Section 5.06        Seller’s Liability For Delivery of Non-Conforming Gas. If,
prior to Buyer’s knowledge, the Committed Gas delivered by Seller or its
designee does not comply with the Gas quality specifications set forth in
Section 5.01 or Section 5.02 (“Non-Conforming Gas”), then Seller will be
responsible for, and will indemnify, defend and hold harmless Buyer against any
and all Claims arising from, related to or in any way connected with Seller’s
delivery of Non-Conforming Gas upon reasonable proof that damages were due to
Seller’s Non-Conforming Gas, except to the extent attributable to the gross
negligence or willful misconduct of Buyer, or to the extent such Claims have
been waived.  The provisions of this Section 5.06 will not apply if Buyer
knowingly accepts Seller’s Non-Conforming Gas, or if Buyer continues to accept
such Non-Conforming Gas after a thirty (30) day period following the
commencement of deliveries of such Non-Conforming Gas. Notwithstanding anything
to the contrary set forth herein, in the event that Buyer either knowingly
accepts such Non-Conforming Gas or continues to accept such Off-Specification
Receipts for thirty (30) days following the commencement of deliveries of such
Non-Conforming Gas, Seller shall not be liable for any Claims or other damages
caused by or resulting from such Non-Conforming Gas, and Buyer hereby waives its
claims against Seller with respect to any such Claims or damages.

 

 A-13 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section 5.07        Delivery Point Specifications. If Seller delivers Gas to
Buyer at the Receipt Points that meets the quality specifications of this
Agreement, or with respect to Non-Conforming Gas that Buyer knowingly accepts
following the commencement of deliveries of such Non-Conforming Gas, then Buyer
shall redeliver Gas and Plant Products that meets the most restrictive quality
specifications required from time to time at a Delivery Point or Plant Product
Delivery Point by Buyer’s downstream transporters, and Buyer shall be
responsible for, and will indemnify, defend and hold harmless Seller, its
Affiliates, and their respective subsidiaries, shareholders, members, partners,
officers, directors, employees, and agents against any and all Claims or damages
caused by or resulting from Buyer’s failure to meet such Delivery Point or Plant
Product Delivery Point quality specifications with respect to such Gas and Plant
Products re-delivered at any such Delivery Point or Plant Product Delivery
Point, except to the extent attributable to the negligence, gross negligence or
willful misconduct of any such indemnified party.

 

Section 5.08        Additives. Seller must notify Buyer in writing at least ten
Days in advance of the introduction or injection of any chemicals, corrosive
inhibitors, or other additives to well, pipelines or other equipment. Seller
must include the name of the manufacturer and trade name of the additive in the
notice. Buyer may refuse to accept any Gas containing additives that Buyer
believes may have adverse effects to its equipment or operations or to the value
of the Committed Gas. Seller must reimburse Buyer for all expenses incurred by
Buyer in connection with the introduction of any such additives.

 

Section VI.
Delivery Pressure

 

Buyer will endeavor to maintain, under normal operating conditions, all Low
Pressure Receipt Point pressures at approximately [**] psig, and all High
Pressure Receipt Points pressures at approximately [**] psig. Subject to Article
5.1 and Exhibit C of the Agreement, Seller will deliver Gas at the Receipt
Points hereunder at a pressure sufficient to enter the Gathering System at each
such point and not to exceed the maximum allowable operating pressure of the
Gathering System at such point. Notwithstanding the above, in no event shall
Seller be required to deliver Gas hereunder at a pressure exceeding [**] psig at
the Low Pressure Receipt Points and [**] psig at the High Pressure Receipt
Points, and if the average operating pressure of the Gathering System for any
month at any Low Pressure Receipt Point exceeds [**] psig or at High Pressure
Receipt Point exceeds [**] psig, then those volumes of the affected Committed
Gas shall be subject to Seller’s rights under Article 2.3. Additionally, if the
average operating pressure of the Gathering System at any Low Pressure Receipt
Point exceeds [**] psig or at High Pressure Receipt Point exceeds [**] psig for
a period of at least [**] consecutive Days or for [**] Days out of a consecutive
[**] Day period, then at Seller’s option and upon written notice to Buyer,
Seller shall be granted a permanent release from Dedication to this Agreement of
such Receipt Point(s), the affected Interests and all existing and future wells
behind such Receipt Point(s), and all of such Committed Gas produced or
producible therefrom. For purposes of this Section VI, the Parties acknowledge
and agree that any deviation in pressure levels that are of no fault of Seller
and that average in excess of the levels prescribed in the foregoing sentence
over a measurement day shall be deemed to be a deviation lasting for a period of
one (1) Day.

 

 A-14 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section VII.
Taxes

 

Buyer will be responsible for and will pay all Taxes assessed or levied on the
Committed Gas on or after its delivery to or for the account of Buyer at the
Receipt Points, and Seller will be responsible for and will pay all Taxes
assessed or levied on the Committed Gas prior to its delivery to or for the
account of Buyer at the Receipt Points. Buyer and Seller agree that the price
and payments tendered hereunder are inclusive of the reimbursement of 100% of
all Taxes (including all gross production, severance or any other Taxes required
by law, as of the Effective Date, to be paid to any applicable governmental
authority, by Seller, with respect to the production of Committed Gas delivered
under this Agreement), transportation charges, expenses and costs attributable
to the gas prior to its delivery to Buyer at the Receipt Points. Notwithstanding
anything herein to the contrary, Seller shall have no responsibility for any
income taxes, franchise taxes, ad valorem taxes, and property taxes of Buyer, or
other similar taxes, fees, or assessments imposed by any governmental authority
with respect to the Gathering System and ownership and operation thereof, the
payment of such taxes being the sole responsibility of Buyer.

 

Section VIII.
Billings and Payments

 

Section 8.01        Invoices and Payment. On or before the twenty-fifth (25th)
Day of each Month, Buyer will render to Seller a statement setting forth (i) the
total Mcf and MMBtu of Committed Gas accepted by Buyer at the Receipt Points
during the preceding Month, (ii) the amount of Seller’s Fixed FL&U, Shrinkage,
Plant Products and Residue Gas allocated to Seller in accordance with Exhibits B
and C, (iii) the Gas Purchase Payment amount due Seller (as reduced in
accordance with Article 4.2 of this Agreement), and (iv) the amount due to Buyer
from Seller for all fees and charges contemplated under this Agreement. Buyer
will pay to Seller the net amount due on or before the twenty-fifth (25th) Day
of the Month following the Month in which the applicable statement was delivered
to Seller. However, if an invoice and payment are due on a Day that is not a
Business Day, such invoice and payment will be due on the next Business Day. It
is Seller’s responsibility to provide to Buyer any information in Seller’s, or
its designee’s, possession that is necessary for Buyer’s calculation or payment
of the amounts due hereunder. If such information is not provided to Buyer on or
before the tenth Day of the Month in which the statement and payment are due,
then the time for payment by Buyer will be extended for a period of time equal
to the delay. Late payments shall accrue interest at the Annual Prime Rate plus
2.0% or the maximum allowed by law, whichever is less, exclusive of the date
such late payment is made.

 

Section 8.02        Audit. Each Party will have the right at all reasonable
times during the term of this Agreement to audit the records of the other Party
to the extent necessary to verify performance under any of the terms and
conditions of this Agreement, provided that an adjustment may be made under
Section 8.03 of this Exhibit A and to the extent that each Party will protect
the confidentiality of such records.

 

 A-15 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

Section 8.03        Billing Adjustments. Each Party must promptly notify the
other Party of any error that is discovered after payment has been made. Within
thirty Days of such notice, Seller will refund to Buyer the amount of any error
made in its favor, and Buyer will pay to Seller the amount of any error made in
its favor, as the case may be; provided, however, that (no retroactive
adjustments will be made for any error that is not submitted to the other Party
in writing within twenty-four Months from the end of the production month for
which the error was made. The provisions of this Section 8.03 will survive the
termination of this Agreement.

 

Section 8.04        Adequate Assurances. When reasonable grounds for insecurity
of payment or performance arise with respect to a Party (the “Impaired Party”),
including, without limitation, as a result of the occurrence of a material
change in the creditworthiness of the Impaired Party or the Impaired Party’s
failure to timely pay any amounts due hereunder), the other Party (the “Insecure
Party”) may demand adequate assurance of performance, and in the absence of the
provision of such assurance from the Impaired Party within two (2) Business Days
of request, suspend further performance and/or exercise its rights under Section
XII, including the right to terminate this Agreement. Adequate assurance shall
mean security in the form, amount and for the term reasonably specified by the
Insecure Party, including, but not limited to, a standby irrevocable letter of
credit issued by a Qualified Institution, a prepayment or a guarantee by an
entity deemed creditworthy at the sole discretion of the Insecure Party, advance
cash payment or other satisfactory security reasonably acceptable to the
Insecure Party.

 

Section IX.
Title, Possession and Responsibility

 

Subject to Seller’s take “in kind” rights pursuant to Article 4.5, title to all
Committed Gas (including Plant Products contained in Committed Gas) delivered to
Buyer under this Agreement will pass to Buyer at the Receipt Points, and Seller
hereby conveys the Gas (and Plant Products in the Gas) to Buyer, free and clear
of any adverse claims, liens or encumbrances of any nature. In the event that
Seller exercises its take “in kind” rights pursuant to Article 4.5, title to all
Committed Gas (including Plant Products contained therein) taken in-kind and
allocated to Seller hereunder as Seller’s Residue Gas or Seller’s Plant Products
(pursuant to Exhibit B) shall remain in Seller at all times; provided, however,
title to Seller’s Fixed FL&U and the portion of such Committed Gas not allocated
to Seller as Seller’s Residue Gas or Seller’s Plant Products (pursuant to
Exhibit B) shall transfer to Buyer at the Receipt Points.   Except as otherwise
provided in this Agreement, as between the Parties, Buyer will be deemed in
possession of and solely liable and responsible for Gas after its delivery at
the Receipt Points and Seller will be deemed in possession of and solely liable
and responsible for said Gas at all times prior to such delivery; provided,
however, in the event that Seller exercises its take “in kind” rights pursuant
to Article 4.5, Seller will be deemed in possession of and solely liable and
responsible for said Gas and Plant Products recovered therefrom at all times
after re-delivery by Buyer at the Delivery Points and Plant Product Delivery
Points.  Each Party will release, indemnify and defend the other Party, its
Affiliates, and their respective subsidiaries, shareholders, members, partners,
officers, directors, employees, and agents for and save such indemnified parties
harmless from, any and all Claims (including with respect to any lost Gas)
incurred by such indemnified parties caused by the Gas (and Plant Products) in
the indemnifying Party’s possession except to the extent contributed to by a
material breach of this Agreement, or the grossly negligent act or omission of
any such indemnified party; provided, however, each Party is responsible for any
injury or damage due solely to any defect in any equipment that it furnished or
installed, regardless of where it occurs.  If both Parties are at fault, each is
liable to the extent of its degree of fault.

 

 A-16 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section X.
Warranty of Title and Indemnity

 

Seller hereby warrants that it has good, merchantable title to all Committed Gas
delivered to Buyer hereunder, and that such Committed Gas is free and clear of
all liens, encumbrances and claims whatsoever. Seller agrees to indemnify and
defend Buyer and its partners, officers, employees and agents and save it and
its partners, officers, employees and agents harmless from all suits, actions,
debts, fines, penalties, accounts, damages, costs, losses and expenses
(including attorneys’ fees) arising from or out of: (i) any adverse claims of
any and all persons or entities to or against such Committed Gas (including
Plant Products contained in Committed Gas); (ii) any taxes, fees or charges
arising from or out of the receipt and purchase of such Committed Gas (including
Plant Products contained in Committed Gas) by Buyer; and (iii) the breach of any
representations made in this Agreement by Seller. Buyer may, at any time when in
Buyer’s opinion the ownership or title to all or part of said Committed Gas
(including Plant Products contained in Committed Gas), or of any lands or leases
from which such Committed Gas is produced, may be in a party or parties other
than Seller, or upon learning of any regulatory requirement or any other claim,
lien, taxes, royalties, fees, expenses or other adverse claims, retain as
security for the performance of Seller’s obligations with respect thereto, the
entire purchase price of Seller’s Residue Gas and Seller’s Plant Products,
without interest, until Buyer has been satisfied to the amount of such ownership
interest or the claim has been finally determined and satisfied or until Seller
will have furnished bond to Buyer in an amount and with sureties satisfactory to
Buyer, conditioned upon the protection of Buyer with respect to such ownership
or claims.

 

In the event that Seller exercises its take “in kind” rights pursuant to Article
4.5, Buyer represents and warrants to Seller that from the time Committed Gas is
received at the Receipt Points to the time of re-delivery of such Gas (including
Plant Products contained in Gas) shall be free and clear of all liens,
encumbrances and claims arising by, through, or from any action or failure to
act of Seller. Buyer agrees to indemnify and defend Seller, its Affiliates, and
their respective subsidiaries, shareholders, members, partners, officers,
directors, employees, and agents and save it and its directors, officers,
employees and agents harmless from all Claims to the extent arising from or out
of: (i) any adverse claims of any and all persons or entities arising by,
through, or from any action or failure to act of Seller to or against such Gas
(including Plant Products contained in Gas); (ii) any taxes, fees or charges
arising from or out of the receipt of such Gas (including Plant Products
contained in Gas) by Buyer pursuant to this Agreement allocated to Buyer
hereunder; and (iii) the breach of any representations made in this Agreement by
Buyer.

 

 

 A-17 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section XI.
Force Majeure

 

Section 11.01    Notice. If either Party is rendered unable, wholly or in part,
by an event of Force Majeure to carry out its obligations under this Agreement,
except with respect to the obligation to pay amounts owing hereunder, the Party
so affected must notify the other Party of the Force Majeure, describing it in
reasonable detail. Notice must be given orally as soon as practicable and
followed in writing within a reasonable time. The obligations of the Parties, so
far as they are affected by such Force Majeure, will be suspended during the
continuance of the event of Force Majeure, but for no longer period, and such
Force Majeure will be remedied with all reasonable dispatch.

 

Section 11.02    Definition. “Force Majeure” means occurrences not reasonably
within the control of a Party that prevents its performance under this
Agreement, and includes, without limitation: acts of God; strikes, lockouts or
other industrial disturbances; acts of the public enemy or terrorism, wars,
blockades, insurrections, civil disturbances and riots, and epidemics;
landslides, lightning, earthquakes, fires, storms, hurricanes and threats of
hurricanes, floods and washouts; arrests, orders, requests, directives,
restraints and requirements of the government and governmental agencies, either
federal, state or local, civil and military; any application of governmental
conservation or curtailment rules and regulations; failure of downstream
transportation; explosions, breakage or accident to machinery, equipment or
lines of pipe; freezing of wells or lines of pipe; premature, partial or entire
failure of natural Gas wells, Gas supply or depletion of Gas reserves; and other
causes of a similar nature not reasonably within the control of the Party
claiming suspension. It is understood and agreed that the settlement of strikes
or lockouts will be entirely within the discretion of the Party having the
difficulty, and that the requirement of a Party claiming Force Majeure to use
reasonable dispatch will not require the settlement of strikes or lockouts by
acceding to the demand of opposing party when such course is inadvisable or
inappropriate in the discretion of the Party having the difficulty. Force
Majeure will also include (a) in those instances where either Party is required
to obtain servitudes, right-of-way grants, permits or licenses from any
governmental authority, whether federal, state, local, tribal or any other
political subdivision to enable such Party to fulfill its obligations hereunder,
the inability of such Party to acquire, at reasonable cost and after the
exercise of reasonable diligence, such servitudes, right-of-way grants, permits
or licenses; and (b) in those instances where either Party is required to
furnish materials and supplies for the purpose of constructing or maintaining
facilities or is required to secure permits or permissions from any governmental
authority, whether federal, state, local, tribal or any other political
subdivision to enable such Party to fulfill its obligations hereunder, the
inability of such Party to acquire, at reasonable cost and after the exercise of
reasonable diligence, such materials, supplies, permits and permissions.

 

Section XII.
Remedy for Breach

 

Section 12.01    Right to Terminate. Unless another remedy is specified in this
Agreement in which case that remedy will be a Party’s sole and exclusive remedy,
if either Party fails to perform any of its material covenants or obligations in
this Agreement or breaches any of its representations or warranties contained in
this Agreement, then the other Party may terminate this Agreement by notifying
the breaching Party of the default in reasonable detail and its election to
terminate the Agreement.

 

 A-18 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section 12.02    Opportunity to Cure. The Party in default will have three (3)
Business Days with respect to the failure to post adequate assurances hereunder,
five (5) Business Days with respect to a payment default and thirty (30) Days
for other defaults, from receipt of such notice to remedy the default and to pay
or indemnify the other Party for all loss or damage incurred as a result
thereof, and upon failure to do so, this Agreement may be terminated from and
after the expiration of such three-Business Day, five-Business Day or thirty-Day
period, as applicable. Any such termination will be an additional remedy and
will not prejudice the right of the Party not in default to collect any amounts
due it hereunder and any damage or loss suffered by it and will not waive any
other legal or equitable remedy to which the Party not in default may be
entitled for breach of this Agreement.

 

Section 12.03    Anything to the contrary contained herein notwithstanding,
neither Party will be liable or otherwise responsible to the other Party for
punitive, special, consequential, or incidental damages or for lost profits
which arise out of or relate to this Agreement or the performance or breach
thereof except to the extent that a Party is required to indemnify the other
Party hereunder; provided, however, the foregoing must not be construed as
limiting the obligation of either Party under this Agreement to indemnify the
other Party against claims asserted by third parties, including, but not limited
to, consequential, incidental, indirect, punitive or exemplary damages.

 

Section XIII.
Assignment

 

This Agreement will be binding upon and inure to the benefit of the Parties and
their respective successors and assigns.  Either Party may assign its respective
rights and obligations in whole or in part under this Agreement; provided,
however, (i) this Agreement may not be transferred or assigned by either Party
without the prior written consent of the other Party, which consent will not be
unreasonably withheld or delayed, and (ii) such permitted assignee of either
Party must expressly assume in writing the obligations arising under this
Agreement so assigned. Notwithstanding the foregoing, either Party will have the
right to assign this Agreement, in whole or in part, upon notice to, but without
the consent of, the other Party (i) to an Affiliate and (ii) to an acquiring
party, upon the sale or other disposition of all or substantially all of the
assigning Party’s interests in the Gathering System or all or any portion of the
Interests dedicated hereunder. From and after any assignment permitted by this
Section XIII, the assigning Party shall have no further liability under this
Agreement with respect to the interest so assigned except for liabilities
accruing before the time of such assignment, provided, however, any assignment
to an Affiliate will not relieve the assigning Party of any of its liabilities,
obligations, or duties hereunder.

 

 A-19 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section XIV.
Laws and Regulations

 

Section 14.01    Seller represents and warrants that the Committed Gas sold
hereunder to Buyer is deregulated pursuant to the Natural Gas Wellhead Decontrol
Act of 1989 and that the sale of Committed Gas to Buyer, and all sales of such
Gas prior thereto, are each a “first sale” as such term is defined in Section
2(21) of the Natural Gas Policy Act of 1978.

 

Section 14.02    Each of Buyer and Seller represent and warrant to the other
that the Committed Gas delivered under this Agreement will not have been and
will not be sold or resold, transported, commingled, used or consumed in
interstate commerce in such a manner that would subject the Committed Gas, this
Agreement, either Party, their designees or the facilities of either Party or
their designees to jurisdiction and/or regulation under the Natural Gas Act of
1938, as amended. If either Party should breach this warranty, the other Party
will have the right, at its option, to terminate this Agreement immediately in
addition to any other remedy it may have under the provisions hereof or at law
or in equity.

 

Section 14.03   This Agreement will be governed by and construed in accordance
with the laws of the State of Texas, without regard to the principles of
conflicts of laws.

 

Section 14.04   The Parties hereby waive a trial by jury of any and all issues
arising in any action or proceeding between the Parties or their successors or
permitted assigns, arising under or related to this Agreement, or any of its
provisions.

 

Section XV.
Confidentiality

 

Except as provided below, (i) all terms of this Agreement, including but not
limited to the price paid for Seller’s Residue Gas, Seller’s Plant Products, the
fees charged by Buyer, the identity of any third-party transporting pipelines
and the cost of such transportation, and the quantities of Committed Gas
purchased or sold must be kept confidential by the Parties and may not be
disclosed to third parties and (ii) all information relating to Seller’s
exploration, production, operations, and related activities, plans and
projections that may be disclosed to Buyer in connection with the activities and
transactions contemplated by this Agreement must be kept confidential by Buyer
and may not be disclosed by Buyer to third parties. To the extent information
must be disclosed to a third party for the purpose of (i) transporting Seller’s
Residue Gas or Seller’s Plant Products purchased under this Agreement, (ii) to a
royalty owner, preferential right holder or working interest owner to fulfill a
written obligation, (iii) to a Party’s financial advisors, consultants,
attorneys, banks, institutional investors, equity providers or financing sources
or potential equity providers or financing sources, or prospective purchasers,
(iv) to comply with contractual obligations, or (v) as may be required by law,
regulation, securities and stock exchange rules, or order of any governmental
authority of competent jurisdiction , such information may be disclosed without
violating this Section XV; provided that, the Party disclosing the information
only discloses the information that is required to be disclosed pursuant to the
advice of outside legal counsel, and, in the case of (i) – (iv) of this Section
XV, such Party advises such third parties receiving the information of the
confidentiality obligations hereunder and such parties agree to keep such
information confidential.

 

 A-20 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

Section XVI.
Miscellaneous

  

Section 16.01    Entire Agreement. This Agreement constitutes the entire
Agreement between the Parties with respect to the subject matter hereof, and
there are no agreements, modifications, conditions or understanding, written or
oral, expressed or implied, pertaining to the subject matter hereof which are
not contained herein.

 

Section 16.02    Royalty Payments. Buyer and Seller hereby agree that, as
between Seller and Buyer, Seller is responsible for the payment of any and all
proceeds (including all royalty, overriding royalty and production rights)
derived from the sale of Gas to the any and all parties and/or persons legally
entitled thereto.

 

Section 16.03    Counterpart. This Agreement may be executed in several
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. This Agreement may be
executed by facsimile signatures.

 

Section 16.04    Modification. Modifications of this Agreement will be or become
effective only upon the due and mutual execution of appropriate supplemental
agreements or amendments hereto by duly authorized representatives of the
respective Parties.

 

Section 16.05    Easements and Rights-of-Way. Seller agrees to grant to Buyer,
upon Buyer’s written request, without warranty of title, either express or
implied, a license and right-of-use, insofar as Seller has the contractual right
to grant such license and right-of-use, to any Interests of Seller for the
construction of pipelines and/or facilities necessary for the performance of
this Agreement; provided, however, Seller shall have no obligation under this
Section 16.05 if doing so would violate any existing obligations of the
Interests owned by the Seller or require Seller to incur material expenses.

 

Section 16.06    Waiver. No waiver by either Party of any one or more defaults
by the other in the performance of any of the provisions of this Agreement will
operate or be construed as a waiver of any future default or defaults whether of
a like or different character.

 

Section 16.07    No Other Beneficiaries. The provisions of this Agreement will
not impart rights enforceable by any person, firm, or organization not a Party
or not a successor or assignee of a Party to this Agreement.

 

Section 16.08    Planning Meetings. In order to facilitate the performance of
each Party under this Agreement and to allow for the planning of expansions and
modifications to the Gathering System and Receipt Points, the Parties agree that
they will meet in person (unless mutually agreed otherwise) on a quarterly basis
to exchange information and develop plans for the delivery and receipt of
Seller’s Gas hereunder. Each Party will ensure the attendance of personnel with
appropriate technical capabilities and expertise to address the subjects to be
covered at the meetings. The meeting topics shall be developed by the
participants for each meeting, but shall contemplate at least the following:
Seller’s good faith volume forecasts by Receipt Point, nominations by Receipt
Point, anticipated quality by Receipt Point, Seller’s drilling plans, planned
outages, system constraints, Gathering System expansions and expected Gathering
System capacity related thereto, any operational issues on the Gathering System,
historic throughput volumes of Gathering System by level of service and priority
classification, Buyer's good faith forecasts of throughput volumes of Gathering
System by level of service and priority, Buyer's Gathering System capacity and
good faith forecasts of projected Gathering System capacity and any other issues
necessary to support Seller’s delivery and Buyer’s receipt or ability to receive
all of Seller’s Gas from the Receipt Points. Seller and Buyer acknowledge and
agree that the information provided by the Parties pursuant to this Section
16.08 with respect to any plans, forecasts, projections or other forward-looking
statements is only an estimate, and disclosing Party shall have no liability to
receiving Party for any differences between the estimates provided by disclosing
Party in good faith and the actual results. In addition, Seller and Buyer
acknowledge and agree that the information provided by the Parties under this
Section 16.08 is subject to confidentiality per Section XV of the Agreement.

 

 A-21 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

Section 16.09    Severability. If a court determines that any part or provision
of this Agreement is illegal or unenforceable, then the court must delete that
provision and enforce the remaining provisions.

 

Section 16.10    Maximum Volumes. In no event will the volumes of Committed Gas
that Seller is obligated to sell and deliver to Buyer or that Buyer is obligated
to purchase and receive from Seller under the terms of this Agreement ever
exceed the volumes of Gas that can be legally produced or purchased under the
applicable rules and regulations of the Railroad Commission of Texas.

 

Section 16.11    Reservations by Seller. Seller reserves the following rights
from its Dedication of the Committed Gas hereunder:

 

(a)                The right to use, but not to sell to others, sufficient
Committed Gas for Seller’s requirements in the development and operation of
Seller’s leases including, but not limited to, use of Committed Gas for
drilling, and workover operations and gas lift purposes, cycling, re-pressuring
and/or pressure maintenance, and well production enhancement;

 

(b)               The right to pool and unitize the Interests in the Dedicated
Acreage with other lands, leases and properties of Seller or others located in
the fields in which the Dedicated Acreage is located; provided, however, the
exercise of this right by Seller may not diminish Buyer’s right or increase its
obligations with respect to the Committed Gas produced from the Interests
subject to this Agreement;

 

(c)                The right to operate the Interests and wells subject to this
Agreement in a manner as Seller deems advisable in its sole discretion,
including the right to drill new wells, to repair or rework old wells, to renew
in whole or in part any of the Interests covered by this Agreement and to
abandon any well or surrender, release or terminate in whole or in part any of
the Interests or cease production from any well not deemed by Seller to be
capable under normal methods of operation of producing in commercial quantities;

 

 A-22 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

  

(d)               The right to deliver or furnish to Seller’s lessors and
holders of other existing burdens on production such Gas as is required to
satisfy the terms of the applicable Interests or other applicable instruments;

 

(e)               The right to temporarily use facilities of third parties to
gather Committed Gas from a well prior to the time that the Gathering System
facilities required to gather such Committed Gas have been completed or during
periods of temporary release;

 

(f)                The right to retain all oil, condensate and other liquid
hydrocarbons separated from Committed Gas prior to delivery to Buyer hereunder
by conventional mechanical field separators;

 

(g)               The right to construct, install, maintain, own and operate any
treating, dehydration and/or conditioning facilities upstream of the Gathering
System as reasonably necessary to (i) comply with any environmental, legal, or
Interest requirements, or (ii) meet the quality specifications of the Gathering
System and/or the quality specifications of any Buyer’s downstream transporters;

 

(h)               The right to retain Gas that any of Seller’s non-operators
elect to separately take and market; and

 

(i)                 The right to retain any and all Gas that is not Committed
Gas dedicated and committed to this Agreement.

 

 

END OF EXHIBIT A

 

 A-23 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

EXHIBIT B

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August __, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

 

PRICE OF GAS; ALLOCATION METHODOLOGIES

 

1.Residue Gas Purchase Price. The purchase price for Seller’s Residue Gas will
be a price per MMBtu equal to [**]% of the Weighted Average Sales Price. The
price stated above will be reduced by Seller’s pro-rata share of any
transportation fees, retention of fuel or other fees incurred by Buyer under
arms-length transactions with unaffiliated third parties to deliver Seller’s
Residue Gas to its ultimate sales point.

 

2.Plant Allocation Methodology. Buyer will process or have processed Seller’s
Gas according to the following methodology.

 

(a)Definitions. When used in this Exhibit B, the following terms have the
following meanings:

 

(i)“Plant Fuel” means the quantity of Gas or other hydrocarbons used or consumed
as fuel, or flared, lost, unaccounted for or otherwise used or consumed in the
operation of the Processing Plant.

 

(ii)“Plant Products” means the mixture of ethane, propane, isobutane, normal
butane, natural gasoline, and other substances (whether or not hydrocarbons), if
any, that are extracted at the processing plant.

 

(iii)“Residue Gas” means the volume and associated MMBtu of Gas remaining after
deductions for Plant Fuel, Field Fuel, and the thermal content of Shrinkage
attributable to Plant Products.

 

(iv)“Shrinkage” means the MMBtus attributable to the extraction of Plant
Products in the processing of Gas.

 

(b)Seller’s Residue Gas. Seller’s Residue Gas will be determined each Month by
the following equation:

 

[**] 

where:

 

[**] = [**]

[**] = [**]

[**] = [**]

[**] = [**]

[**] = [**]

* [**]

 

 B-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

(c)Seller’s Plant Products. The gallons of each component of Plant Products to
be allocated each Month to Seller will be designated as “Y” and determined by
the following equation:

 

[**]

where:

[**] = [**]

[**] = [**]

[**] = [**]

[**] = [**]

[**] = [**]

* [**]

 

If Buyer is operating its plants in recovery mode the following recovery
percentage for the applicable component of Plant Product, will be applied to the
equation above:

 

Ethane (C2) [**]% Propane (C3) [**]% Isobutane (iC4) [**]% Normal Butane (nC4)
[**]% Pentanes & Heavier (C5+) [**]%

 

Notwithstanding the foregoing, if Buyer is operating its plants in ethane
rejection mode then the following recovery percentage for the applicable
component of Plant Product, will be applied to the equation above:

 

Ethane (C2) [**]% Propane (C3) [**]% Isobutane (iC4) [**]% Normal Butane (nC4)
[**]% Pentanes & Heavier (C5+) [**]%

 

 B-2 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

(d)Allocation of Shrinkage. The quantity of Shrinkage to be allocated each Month
to Seller will be determined by converting the amount of each individual
component of Seller's Plant Products allocated to Seller’s Gas in (d) above to
its respective gaseous equivalent quantity in MMBtu by using the conversion
factors published in the Gas Processor's Association (GPA) Publication 2145-09,
fuel as ideal gas, or any subsequent revision thereof in effect at the time such
calculation is performed, and adjusted to a pressure base of 14.65 psia and a
temperature of 60° Fahrenheit. The hexanes plus factor will be calculated from
quarterly fractional analyses of the hexanes and heavier hydrocarbons contained
in a typical natural gasoline sample obtained at the plants.

 

  (f) Plant Product Purchase Price. The purchase price for Seller’s Plant
Products will be equal to [**]% of the Monthly average of the weighted actual
sales price for each component product sold from the Processing Plants. The
actual sales price shall be reduced by [**], all under arms-length transactions
to unaffiliated third parties.

 

 

 

END OF EXHIBIT B

 

 B-3 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

  

EXHIBIT C

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August __, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

 

SERVICE FEES

 

1.Gathering Fee. Seller will pay Buyer a gathering fee equal to $[**] per MMBtu
at the Receipt Points (“Gathering Fee”).

 

2.Processing Fee. Seller will pay Buyer a processing fee equal to $[**] per
MMBtu at the Receipt Points (“Processing Fee”).

 

3.Inlet Compression Fee. Seller will pay Buyer an inlet compression fee equal to
$[**] per Mcf at the Low Pressure Receipt Points per stage of compression
(“Inlet Compression Fee”).

 

4.CO2 Treating Fee. If Seller’s gas exceeds the CO2 quality specification set
forth in Section V of Exhibit A Seller will pay Buyer a CO2 Treating Fee per
Receipt Point Mcf. The CO2 Treating Fee shall equal $[**] per Receipt Point Mcf
for each [**] ([**]) mole % of CO2 that such Gas exceeds the CO2 specification;
provided, however, the CO2 Treating Fee Seller will pay Buyer in this Section 3
will not be less than $[**] per Receipt Point Mcf and no greater than $[**] per
Receipt Point Mcf. For example, if Seller’s CO2 Mole % at the Receipt Point was
[**]% and the CO2 specification was [**] mole %, the Committed Gas would exceed
the specification by [**]% and the fee would be $[**] per Receipt Point Mcf.

 

5.H2S Treating Fee. If Seller’s gas exceeds the H2S quality specification set
forth in Section V of Exhibit A Seller will pay Buyer an H2S Treating Fee per
Receipt Point Mcf. The H2S Treating Fee shall be based upon the applicable
Receipt Point H2S content from the following table:

 

Receipt Point H2S Content       $ Fee per Mcf at the Receipt Point

[**]

 

6.Nitrogen Fee. If Seller’s gas exceeds the nitrogen quality specification set
forth in Section V of Exhibit A for a Receipt Point, Seller will pay Buyer a
Nitrogen Fee equal to $[**] per Mcf at such Receipt Point.

 

7.Minimum Volume Deficit Payment. If Seller has made the election in Section
2.06 and Seller fails to deliver the quantity in Section 2.06(i), Seller will
pay Buyer a Minimum Volume Deficit Payment equal to $[**] times the difference
between the Base Quantity and the average daily quantity of Committed Gas
received at the Receipt Point.

 

END OF EXHIBIT C

 

 C-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

EXHIBIT D

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August __, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

LOW PRESSURE RECEIPT POINTS

 

 

Meter Number Points of Delivery Name County, State Lat/Long TBD Crittendon Field
Station LP Winkler, Texas TBD

 

HIGH PRESSURE RECEIPT POINTS

 

Meter Number Points of Delivery Name County, State Lat/Long TBD Wild Hog Lea,
New Mexico TBD TBD Prize Hog Lea, New Mexico TBD TBD Crittendon North Winkler,
Texas TBD TBD Crittendon Field Station HP Winkler, Texas TBD

 

 

DELIVERY POINTS

 

Meter Number Points of Delivery Name County, State Lat/Long 37914 El Paso/Kinder
Morgan Lea, New Mexico 32.2888°/-103.6478° 95720 Transwestern Lea, New Mexico
32.2111°/-103.5948°

 

PLANT PRODUCTS DELIVERY POINTS

 

Meter Number Points of Delivery Name County, State Lat/Long TBD Red Hills
Tailgate with redelivery to ONEOK West Texas Lea, New Mexico TBD TBD Enterprise
Pipeline Lea, New Mexico TBD TBD DCP Sand Hills Lea, New Mexico TBD

 

** Exhibit D will be amended to add meter numbers and locations of facilities
if/when Buyer establishes such Plant Products Delivery Points.

 

END OF EXHIBIT D

 

 D-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

EXHIBIT E

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August ___, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

INTERESTS IN THE DEDICATED ACREAGE

 

State County Description New Mexico Lea Section 21, Township 26 S, Range 35 E
New Mexico Lea Section 19, Township 26 S, Range 36 E New Mexico Lea Section 20,
Township 26 S, Range 36 E Texas Loving Block C24, Section 4, PSL, Cowden C C,
A-1401 Texas Winkler Block C24, Section 4, PSL, Cowden C C, A-1397 Texas Winkler
Block C23, Section 21, PSL, Cowden C C & L, A-1391 Texas Winkler Block C24,
Section 2, PSL, Cowden C C, A-1396 Texas Winkler Block C23, Section 25, PSL,
Cowden C C, A-1394 Texas Winkler Block C23, Section 22, PSL, Cowden C C, A-1414
Texas Winkler Block C24, Section 1, PSL, Cowden C C, A-1395 Texas Winkler Block
C23, Section 24, PSL, Cowden C C, A-1393 Texas Winkler Block C23, Section 23,
PSL, Cowden C C, A-1392 Texas Winkler Block C23, Section 16, PSL, Beckham W L,
A-1324 Texas Winkler Block C23, Section 15, PSL, Beckham W L, A-1323 Texas
Winkler Block 75, Section 1, PSL, Cowden C C, A-1381 Texas Winkler Block 74,
Section 9, PSL, Cowden C C, A-1377 Texas Winkler Block 74, Section 7, PSL,
Desmond J L, A-714 Texas Winkler Block 74, Section 6, PSL, Moreland R E, A-521
Texas Winkler Block 74, Section 5, PSL, Moreland R E, A-614 Texas Winkler Block
74, Section 5, PSL, Moreland R E, A-613

 

 

  

 E-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

DEDICATED ACREAGE MAP

 

[image_001.jpg]

 

CONFLICTING DEDICATION

 

The Parties acknowledge and agree that the Interests are, as of the Effective
Date, subject to prior written dedications and commitments for gathering,
processing and purchase of Gas pursuant to the certain agreements provided below
and that Seller shall be entitled to comply with such prior written dedications
or commitments in accordance with the provisions of this Agreement.

 

1)Gas Gathering Agreement dated July 2, 2012 by and between Regency Field
Services LLC (predecessor-in-interest to ETC Field Services LLC) and Permian
Atlantis LLC (predecessor-in-interest to Lilis Energy, Inc.) with an expiration
date of February 1, 2018.

 

2)Gas Gathering Agreement dated August 1, 2008 by and between Regency Field
Services LLC (predecessor-in-interest to ETC Field Services LLC) and Lakehills
Production, Inc. (predecessor-in-interest to Lilis Energy, Inc.) with an
expiration date of February 1, 2018.

 

3)Gas Gathering Agreement effective July 1, 2012 by and between Anadarko
Gathering Company LLC and SWEPI LP (predecessor-in-interest to Lilis Energy,
Inc.) with an expiration date of December 31, 2017.

 

 

END OF EXHIBIT E

 

 E-2 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

 

EXHIBIT F

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August __, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

THE STATE OF NEW MEXICO/TEXAS §   § THE COUNTY OF _____________ §

 

Lucid Energy Delaware, LLC (“Buyer”) and Lilis Energy, Inc. (“Seller”) are
parties to that certain Gas Gathering, Processing and Purchase Agreement (the
“Agreement”) dated effective August ___, 2017 (“Effective Date”).

 

Pursuant to the Agreement, Seller dedicated to Buyer, as a covenant running with
the interests owned by Seller, certain owned or controlled gas produced from
wells operated by Seller or its Affiliates within the dedicated area described
in the attached Schedule A for a period of ten (10) years from the Effective
Date of the Agreement, and then year to year thereafter until terminated
pursuant to the terms of the Agreement.

 

Buyer and Seller desire to enter into, and record in the applicable county land
records, this memorandum in order to place all third parties on notice of the
Agreement and the interests of Seller dedicated thereunder.

 

The terms and conditions referenced in this Memorandum are more particularly
described in the Agreement, and are incorporated herein by reference. The
Parties have agreed that this memorandum is executed solely for the purpose of
giving notice and shall not amend or modify the Agreement in any way. In the
event of a conflict between this Memorandum of Agreement and the Agreement, the
Agreement shall govern.

 

This memorandum may be executed in any number of counterparts, all of which will
be considered together as one instrument.

 

[Remainder of page left intentionally blank.]

 

 F-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

SELLER:

 

LILIS ENERGY, INC.

 

By:           Name:           Title:    

 

 

STATE OF _________ )   ) ss: COUNTY OF _______ )

 

 

The foregoing instrument was acknowledged before me this _____ day of
_______________, 2017, by ________________________________________________, as
_______________________________________________________ of LILIS ENERGY, INC.,
for and on behalf of such corporation.

 

        Notary Public     My commission expires: ________________________    
Commission # ________________________________   

 

 F-2 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

BUYER:

 

LUCID ENERGY DELAWARE, LLC

 

By:           Name:           Title:    

 

 

STATE OF TEXAS )   ) ss: COUNTY OF DALLAS )

 

 

This instrument was signed and acknowledged before me on this _____ day of
_______________, 2017, by _________________________________, as
__________________________________________ of LUCID ENERGY DELAWARE, LLC, for
and on behalf of such limited liability company.

 

 

        Notary Public     My commission expires: ________________________    
Commission # ________________________________   

  

 

 F-3 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

SCHEDULE A

to

MEMORANDUM OF AGREEMENT

 

DEDICATED AREA

 

[image_002.jpg]

 

 

 

END OF SCHEDULE A

 

 F-4 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

EXHIBIT G

to

GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT

dated as of August ___, 2017

between

LUCID ENERGY DELAWARE, LLC

(Buyer)

and

LILIS ENERGY, INC.

(Seller)

 

 

TAKE-IN KIND TERMS

 

For any calendar [**] during which Seller elects under Article 4.5 of the
Agreement to take its Residue Gas and/or Plant Products in-kind, the following
terms (“Take In-Kind Terms”) will apply:

 

I.                    Nominations. Buyer and Seller agree that scheduling and
commencement of service shall be consistent with the down-stream receiving
pipeline or transporter nomination requirements. Whenever Seller’s Residue Gas
or Plant Products are to be scheduled or nominated hereunder, each Party shall
provide to the other Party all information required for such nominations and
confirmations with upstream and downstream pipelines or transporters.

 

(a)               Receipt Point Nominations. Seller will not be required to
provide Buyer with nominations of the Gas at the Receipt Point(s), however,
Seller will provide volume forecast information, as updates are available, or
upon request by Buyer, for Buyer’s general capacity planning purposes by Receipt
Point.

 

(b)               Operational Information. Buyer will use reasonable efforts to
provide daily information related to Receipt Point volume, Gathering System
performance including, but not limited to, estimated Field Fuel, Plant Fuel,
Shrinkage, Plant Product composition and historical volume information in order
to assist with Seller’s nominations below. Seller will use reasonable efforts to
make nomination changes as necessary, based on the information provide by Buyer,
at the Delivery Points to minimize imbalances.

 

(c)                Delivery Point Nominations.

 

i.            Seller will make all necessary arrangements with pipelines or
other third parties downstream of the Delivery Points and Plant Products
Delivery Points in order to help manage Buyer’s delivery of Seller’s Residue Gas
and Seller’s Plant Products. Those arrangements must be coordinated with Buyer,
and Buyer will coordinate such arrangements with Seller and such downstream
pipelines or other third parties.

 

ii.            Residue Gas. No later than 12:00 PM on the fifth Business Day
prior to the beginning of each Month, but no later than one (1) Business Day
prior to the nomination deadline each Month for the applicable downstream
pipeline(s) receiving Residue Gas at the Delivery Points, Seller will notify
Buyer of the estimated quantity of Seller’s Residue Gas per Day for each
Delivery Point, and any other information relevant to Buyer’s operation of the
Gathering System, provided that nominations at the Delivery Points are subject
to confirmation by the downstream pipeline at the Delivery Points. Buyer
reserves the right, from time to time, to revise its nomination procedures,
subject to Seller’s consent which shall not be unreasonably withheld. At any
time, Seller may adjust its nomination prospectively for the remainder of such
Month by providing Buyer notice prior to the nomination deadline of the
applicable pipeline at the Delivery Points for making such changes.

 

G-1 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

iii.            Plant Products. No later than 12:00 PM on the fifth (5th)
Business Day prior to the beginning of each Month, but no later than one (1)
Business Day prior to the nomination deadline each Month for the applicable
downstream pipelines receiving Plant Products at the Plant Products Delivery
Points, Seller will notify Buyer of the estimated volumes of Seller’s Plant
Products per day (and the composition of such Plant Products) for each Plant
Products Delivery Point, and any other information relevant to Buyer’s operation
of the Gathering System, provided that nominations at the Plant Products
Delivery Points are subject to confirmation by the downstream pipeline at the
Plant Products Delivery Points. Buyer reserves the right, from time to time, to
revise its nomination procedures, subject to Seller’s consent which shall not be
unreasonably withheld. At any time, Seller may adjust its nomination
prospectively for the remainder of such Month by providing Buyer notice and
prior to the nomination deadline of the applicable pipeline at the Plant
Products Delivery Point for making such changes.

 

(d)               Buyer and Seller will immediately inform each other of any
discovered unanticipated changes in deliveries at either the Receipt Point(s),
Delivery Point(s), or Plant Products Delivery Point(s). Nominations may be made
by telephone, but will be confirmed in writing by e-mail, facsimile or other
electronic means to Buyer's Gas Control Department.

 

II.                 Balancing. Subject to all of the provisions of the
Agreement, Buyer will accept at the Receipt Point a Daily quantity of Gas at the
Receipt Points and redeliver Seller’s Residue Gas and Seller’s Plant Products
allocated to such Gas at the Delivery Points and Plant Products Delivery Point,
respectively. All quantities received in accordance with the Agreement at the
Receipt Points and all deliveries of Seller’s Residue Gas in accordance with
this Agreement at the Delivery Point will be balanced on a Btu basis, and all
such quantities referred to in the Agreement will be adjusted for the Gross
Heating Value thereof. Buyer will use its best efforts to enter into, and
maintain in good standing, operational balancing agreements with the downstream
receiving pipelines at each of the Delivery Points and Plant Products Delivery
Points. When operational balancing agreements are effective between Buyer and an
applicable downstream pipeline (and the applicable downstream pipeline keeps
Seller whole on its nominations each Month) and an imbalance is caused solely by
Seller and Buyer incurs a cash out, penalty or settlement due to said imbalance,
then Seller will reimburse Buyer for such cash out, penalty or settlement
incurred by Buyer pursuant to the terms of the applicable operational balancing
agreement, to the extent such cash out, penalty or settlement is caused by
Seller. Buyer shall provide an invoice to Seller for same, along with reasonable
documentation evidencing same, and Seller will reimburse Buyer for same in
accordance with the payment terms set forth in Section 8.01 of the Agreement.

 

G-2 

** Text Omitted and Filed Separately Confidential Treatment Requested Under 17
C.F.R. §§ 80(b)(4) and 240.24b-2

 

III.              Cash Outs. Because of dispatching and other causes outside of
Buyer’s reasonable control, imbalances may occur between the total heating value
of the Residue Gas delivered to downstream pipelines at the Delivery Points for
Seller’s account and the allocated quantity of Residue Gas attributable to
Seller’s Gas. Similarly, imbalances may occur between the allocated volumes of
Seller’s Plant Products that are delivered to downstream pipelines at the Plant
Products Delivery Points for Seller’s account and the allocated Plant Products
attributable to Seller’s Gas. For imbalance events at Delivery Points or Plant
Products Delivery Points where Buyer does not have an operational balancing
agreement in place, the Parties agree to settle cash outs and pay applicable
penalties for imbalance positions according to the respective cash out and
penalty policies of such downstream pipeline and the Party causing the imbalance
shall be assessed said penalty or cash out, and reimburse same to the other
Party if the other Party is required to pay same to the pipeline company. The
Party to whom payment is owed hereunder shall provide an invoice to the other
Party for same, along with reasonable documentation evidencing same, and the
other Party will reimburse the invoicing Party for same in accordance with the
payment terms set forth in Section 8.01 of the Agreement. Upon the expiration of
the term of the Agreement, the termination or cancellation of the Agreement, or
Seller’s assignment of all of its right, title, and interest in the Agreement,
the Parties agree to settle any remaining imbalance through a final cash out
settlement, and such imbalance settlement obligation shall survive any
expiration, termination or cancellation of the Agreement. The price for final
cash out settlement of Seller’s Residue Gas and Seller’s Plant Products will be
as follows:

 

(a)       Residue Gas. The arithmetic average of the daily average prices as
published in Platts Gas Daily, Daily Price Survey ($/MMBtu) for “Waha” under the
West Texas – Permian Basin Area heading for the last Month Seller’s Residue Gas
was delivered to the Delivery Points less $[**].

 

(b)       Plant Products. The OPIS average Monthly prices, using purity ethane,
NON-TET propane, normal butane, iso-butane and natural gasoline, as applicable,
less Seller’s T&F Fees. “Seller’s T&F Fees” shall be the weighted average price
paid by Seller over the previous three (3) month period for transportation and
fractionation of Seller’s Plant Products between the Plant Products Delivery
Points and a designated Mont Belvieu fractionation facility.

 

IV.              Curtailment. Buyer will use reasonable efforts to provide
timely notification to Seller by telephone, with subsequent e-mail notification,
of the potential size and duration of any unscheduled capacity disruption. If
Seller does not adjust its nomination within four (4) hours after receiving
notification from Buyer, then Buyer may adjust Seller’s nomination and/or not
confirm the nominations requested by Seller in the next nomination cycle. If
Seller does not adjust its nomination as reasonably requested by Buyer, and such
failure to adjust nominations could materially impact operations on the
Gathering System, Buyer may curtail or shut in Gas for a reasonable period of
time.

 

 

 

END OF EXHIBIT G

 

 

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