Exhibit 10.1
 
Sixth Amended and Restated
 
Gas Gathering and Processing Agreement
 
Between
 
QUICKSILVER RESOURCES INC.,
 
COWTOWN PIPELINE PARTNERS L.P.
 
and
 
COWTOWN GAS PROCESSING PARTNERS L.P.
 
Cowtown Gas Facilities
 
 
Effective Date September 1, 2008
 
 
 

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

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

 

 

TABLE OF CONTENTS

   
Page
ARTICLE I -
DEFINITIONS
1
ARTICLE II -
COMMITMENT OF PROCESSING RIGHTS
5
ARTICLE III -
RESERVATIONS OF PARTIES
6
ARTICLE IV -
GATHERING SYSTEM DELIVERY POINT(S), PLANT DELIVERY POINT(S) AND PRESSURE
7
ARTICLE V -
REGULATION OF PRODUCTION
7
ARTICLE VI -
QUANTITY
8
ARTICLE VII -
QUALITY
9
ARTICLE VIII -
TESTS
10
ARTICLE IX -
MEASUREMENT AND METER TESTING
11
ARTICLE X -
ALLOCATION PROCEDURE
14
ARTICLE XI -
DISPOSITION OF PRODUCER'S PORTION OF PLANT PRODUCTS
14
ARTICLE XII -
GATHERING AND PROCESSING FEES
15
ARTICLE XIII -
DISPOSITION OF PRODUCER'S PORTION OF RESIDUE GAS
15
ARTICLE XIV -
ACCOUNTING, PAYMENTS AND CREDIT ASSURANCES
15
ARTICLE XV -
WARRANTY
18
ARTICLE XVI -
TAXES
18
ARTICLE XVII -
INDEMNITY
19
ARTICLE XVIII -
FORCE MAJEURE
21
ARTICLE XIX -
UNPROFITABLE OPERATIONS AND RIGHTS OF TERMINATION
21
ARTICLE XX -
TERM
22
ARTICLE XXI -
REGULATORY BODIES
23
ARTICLE XXII -
ARBITRATION
23
ARTICLE XXIII -
DISPUTES
24
ARTICLE XXIV -
NOTICES AND PAYMENTS
24
ARTICLE XXV -
ASSIGNMENT
26
ARTICLE XXVI -
MISCELLANEOUS
27

 
EXHIBITS

EXHIBIT A
Contract Area
EXHIBIT B
Gathering System Delivery Point(s); Plant Delivery Point(s)
EXHIBIT C
Residue Gas Delivery Point(s); Plant Products Delivery Point(s)
EXHIBIT D
Compression Fee

 
i

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

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

 

 
 
Sixth Amended and Restated
 
Gas Gathering and Processing Agreement
 
 
THIS SIXTH AMENDED AND RESTATED GAS GATHERING AND PROCESSING AGREEMENT (the
“Agreement”) is  made and entered into as of the 1st day of September, 2008 (the
“Effective Date”), by and among COWTOWN PIPELINE PARTNERS L.P., a Texas limited
partnership (“Gatherer”), COWTOWN GAS PROCESSING PARTNERS L.P., a Texas limited
partnership, (“Processor”), and QUICKSILVER RESOURCES INC., a Delaware
corporation, (“Producer").  Gatherer, Processor and Producer are sometimes
referred to herein, individually, as a “Party” and, collectively, as the
“Parties”.
 
WITNESSETH, THAT:
 
WHEREAS, the Parties entered into that certain Fifth Amended and Restated Gas
Gathering and Processing Agreement dated effective August 10, 2007 (the “Fifth
Restatement”);
 
WHEREAS, the Parties desire to amend certain terms in the Fifth Restatement and
to provide for revised and supplemental Exhibits to be made a part of the
Agreement;
 
NOW, THEREFORE, in consideration of the representations, warranties and mutual
premises and benefits contained herein and for other good and valuable
consideration, the adequacy, receipt and sufficiency of which are hereby
acknowledged, Gatherer, Processor and Producer agree to amend and restate the
Fifth Restatement as follows:
 
ARTICLE I -
DEFINITIONS
 
1.1    For the purpose of this Agreement, the following terms and expressions
used herein are defined as follows:
 
 
a.
"Btu" shall mean one British thermal unit, which is the quantity of
heat  required to raise one pound avoirdupois of pure water from 58.5 degrees
Fahrenheit to 59.5 degrees Fahrenheit at a constant pressure of 14.73 pounds per
square inch absolute.

 
 
b.
"Component" shall mean those hydrocarbon and non-hydrocarbon molecular
constituents which are definable by industry standards and procedures.  Such
Components as used in this Agreement shall be:

 
N2  - Nitrogen
CO2 - Carbon Dioxide
H2S - Hydrogen Sulfide
 

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

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

 

 
C1  - Methane
C2  - Ethane
C3  - Propane
iC4 - Iso-butane
nC4 - Normal Butane
iC5 - Iso-pentane
nC5 - Normal Pentane
C6+ - Hexanes and Heavier Compounds
 
 
c.
“Compression Fee” shall have the meaning set forth in Section 12.3 of this
Agreement.

 
 
d.
"Contract Area" shall mean that area as described or outlined on Exhibit A which
is attached hereto and made a part hereof for all purposes.

 
 
e.
“CPI Adjustment” shall mean that percentage equal to the percentage increase
between:

 
 
(i)
the seasonally unadjusted Consumer Price Index for All Urban Consumers (all
items), U.S. city Average (1982-84 =100), as published by the U.S. Department of
Labor, Bureau of Labor Statistics (“CPI-U”) for the month of December of the
second year prior to the Escalation Date; and

 
 
(ii)
the seasonally unadjusted CPI-U for the month of December immediately preceding
the Escalation Date.

 
 
f.
"Day" shall mean a period of twenty-four (24) consecutive hours beginning and
ending at seven o'clock a.m. Central Time.

 
 
g.
“Escalation Date” shall mean the January 1st following the Effective Date and
each January 1st thereafter.

 
 
h.
"Facilities" shall mean the Plant and the Gathering System.

 
 
i.
"Gas" shall mean natural gas which is owned or controlled by Producer or its
successors and assigns and produced from wells drilled on lands within the
Contract Area, including casinghead gas produced with crude oil, gas from gas
wells produced in association with crude oil (associated gas), and gas from
condensate wells (non-associated gas), and shall include any inerts or
impurities contained therein.

 
 
j.
“Gathering Fee” shall have the meaning set forth in Section 12.1 of this
Agreement.

 
2

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

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

 

 
 
k.
"Gathering System" shall mean, but shall in no way be limited to, the gas
gathering pipelines, fuel gas pipelines, dehydration facilities, compression
facilities, junctions, heaters, meters, separators, electric power lines,
communications cables, roads, and other related facilities and equipment,
including all easements located thereon, from the inlet flange of the pipeline
metering facility installed up to the inlet flange of the separation facilities
installed upstream of the Plant inlet meter, necessary to gather and transport
gas from the Gathering System Delivery Point(s) to the Plant Delivery Point(s)
and shall include any expansion of the Gathering System as provided in Section
4.4.

 
 
l.
"Gathering System Delivery Point(s)" shall mean the inlet flange of Gatherer's
metering facilities located at or near each of Producer’s wells located within
the Contract Area or such other point as may be mutually agreed upon by the
Parties.  The Gathering System Delivery Point(s) are listed on Exhibit B to this
Agreement which is attached hereto and made a part hereof for all purposes and
which may be amended from time to time to reflect the addition or deletion of a
Gathering System Delivery Point.

 
 
m.
"Liquefiable Hydrocarbons" shall mean ethane, propane, iso-butanes, normal
butanes, iso-pentanes, normal pentanes, hexanes and heavier hydrocarbons, and
incidental methane, or any mixtures thereof, which can be recovered or extracted
in the Gathering System or the Plant and sold as Plant Products.

 
 
n.
"MCF" shall mean 1,000 standard cubic feet of gas.

 
 
o.
"MMBtu" shall mean 1,000,000 Btu’s.

 
 
p.
“MMCF” shall mean 1,000,000 standard cubic feet of gas.

 
 
q.
“MMCFD” shall mean 1,000,000 standard cubic feet of gas per day.

 
 
r.
"Month," "billing month," "period," and "accounting period" shall mean the
period beginning at seven o'clock a.m. on the first day of a calendar month and
ending at seven o'clock a.m. on the first day of the next succeeding calendar
month.

 
 
s.
"Plant" shall mean, but shall in no way be limited to, all tanks, machinery,
equipment, buildings, structures, fixtures, appliances, pipe, valves, fittings,
and materials of any nature or kind whatsoever located on the site at which the
processing, compression, and recompression facilities of Processor are currently
located in Hood County, Texas (generally known as the Cowtown Plant), or any
other site where such facilities may later be located, including by way of
additions to, expansion or new development of the Plant or such

 
3

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

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

 

 
 
 
related facilities, which shall include, without limitation, the Corvette Plant
constructed in 2008; including appropriate storage, compression, metering,
shipping, dehydration, and delivery facilities for Plant Products; all easements
pertaining to rights-of-way, the site or sites, and the operation of the Plant;
and any and all other facilities and appurtenances located, or to be located, on
or away from such site or sites deemed by Processor to be necessary for the
successful operation of the Plant, including inlet compression, if any, but not
including the Residue Gas Delivery Facility.

 
 
t.
“Plant Delivery Point(s)” shall mean the point(s) of interconnect between the
Gathering System and the Plant which point(s) are shown on Exhibit "B" which is
attached hereto and made a part hereof for all purposes.

 
 
u.
"Plant Fuel" shall mean the MMBtu's of Gas consumed at the Plant for fuel which
shall include, but shall in no way be limited to, fuel used for Gas compression,
conditioning and treating; recovery, extraction, and removal of Plant Products;
and the recompression of the Residue Gas.

 
 
v.
"Plant Products" shall mean all Liquefiable Hydrocarbons recovered, extracted,
or otherwise removed from the Gas after the Plant Delivery Point(s), including,
but not limited to, plant condensate (sometimes referred to as pentanes plus,
heavier than butanes, or natural gasoline), and all commercial non-hydrocarbon
substances recovered, extracted, or otherwise removed from the Gas in the
Gathering System or the Plant.

 
 
w.
“Plant Products Delivery Point” shall mean either (a) the point(s) of
interconnect between that certain liquids pipeline owned and operated by
Gatherer, and the facilities of third party pipeline(s) to which the Plant
Products are delivered and which point(s) are shown on Exhibit "C" which is
attached hereto and made a part hereof for all purposes or (b) the truck loading
facilities of the Plant.

 
 
x.
"Plant Tailgate" shall mean the point of interconnect between the Plant and the
Residue Gas Delivery Facility located at the downstream flange of the block
valve which is downstream of the Plant residue meter and emergency shutdown
valve.

 
 
v.
“Primary Term” shall have meaning set forth in ARTICLE XX.

 
 
z.
"Process Flare" shall mean any MMBtu's of Gas dispersed or lost at the Plant as
flare which shall include, but shall in no way be limited to, flare dispersed or
lost in the compression, conditioning and treating of

 
4

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

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

 

 
 
 
Gas; recovery, extraction, and removal of Plant Products; and the recompression
of Residue Gas.

 
 
aa.
“Processing Fee” shall have the meaning set forth in Section 12.2 of this
Agreement.

 
 
bb.
“psia” shall mean pounds per square inch absolute.

 
 
cc.
“psig” shall mean pounds per square inch gauge.

 
 
dd.
"Residue Gas" shall mean that hydrocarbon and non-hydrocarbon stream of Gas
remaining after the recovery, extraction, and removal of Plant Products, and
after reduction for Gas used for Plant Fuel, Process Flare, and other incidental
losses, including line loss.

 
 
ee.
"Residue Gas Delivery Facility" shall mean the residue gas pipeline and
associated equipment that are located at the Plant Tailgate and are used to
deliver residue gas to the Residue Gas Delivery Point(s).

 
 
ff.
"Residue Gas Delivery Point(s)" shall mean the point(s) of interconnect between
the Residue Gas Delivery Facility and the facilities of third party pipeline(s)
to which the Residue Gas is delivered and which point(s) are shown on Exhibit C
which is attached hereto and made a part hereof for all purposes.

 
 
gg.
SCF" or "standard cubic foot of gas" shall mean the amount of Gas necessary to
fill a cubic foot of space when the Gas is at a pressure of 14.65 pounds per
square inch absolute and a temperature of sixty (60) degrees Fahrenheit.

 
 
hh.
“Term” shall have the meaning set forth in ARTICLE XX of this Agreement.

 
 
ii.
“Treating Fee” shall have the meaning set forth in Section 12.4 of this
Agreement.

 
ARTICLE II -
COMMITMENT OF PROCESSING RIGHTS
 
2.1    Subject to the terms and provisions hereof, Producer dedicates and agrees
to deliver to Gatherer for gathering and to Processor for processing, at the
Gathering System Delivery Point(s), the total volume of Gas owned or controlled
by Producer or its successors and assigns, lawfully produced from wells now or
hereafter drilled on the lands within the Contract Area or lands pooled
therewith, excluding Gas reserved or utilized by Producer or its successors and
assigns in accordance with the terms of ARTICLE III.  Any transfer by Producer
of its right, title, or interest in the Gas to a third party, whether by
farmout, contract, or otherwise, shall be made specifically subject to this
Agreement.  Producer will notify any person to whom Producer transfers all or a
portion of its right, title,
 
5

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

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

 

or interest in the Gas that such Gas is dedicated pursuant to the terms of this
Agreement  to be gathered and processed in the Facilities, and Producer shall
obtain such third party's agreement to continue delivering such Gas to Gatherer
and Processor during the Term of and in accordance with this
Agreement.  Producer will notify Gatherer and Processor of any such transfer
within ten (10) days of the effective date.  Failure of Producer to so notify
Gatherer and Processor will not impair Gatherer’s and Processor's rights under
this Agreement.
 
2.2    Gas shall be delivered to the Gathering System Delivery Point(s) after
mechanical separation by Producer for the removal of free water and free liquid
hydrocarbons, but shall not otherwise be processed by Producer for the removal
of Liquefiable Hydrocarbons.
 
2.3    Gatherer agrees that subject to the provisions hereof, it will take and
gather Gas from the Gathering System Delivery Point(s) and will cause such Gas
to be delivered to the Plant Delivery Point(s) for processing.
 
2.4    Processor agrees that subject to the provisions hereof, it will receive
the Gas at the Plant Delivery Point(s) and will cause such Gas to be processed
in the Plant for the recovery and delivery of Plant Products.  Processor also
agrees to deliver at the Residue Gas Delivery Point(s) to Producer or Producer's
nominee the Residue Gas as determined under the provisions of Section 10.2.
 
ARTICLE III -
RESERVATIONS OF PARTIES
 
3.1    Producer reserves all liquid hydrocarbons, oil, or condensate removed by
Producer by means of mechanical gas-liquid separators (including
heater-treaters), drips, and/or lines from the Gas prior to delivery to
Gatherer.  If mechanical cooling is performed by Producer to meet the
temperature specifications of this Agreement, Producer shall not reduce the
temperature of the Gas below one hundred and twenty (120) degrees Fahrenheit.
 
3.2    Producer reserves all Gas that may be required for cycling, repressuring,
pressure maintenance, and gas lift operations with respect to gas reservoirs on
the premises committed hereunder; provided, however, that the Gas used in such
operations shall be subject to the terms of this Agreement (to the extent that
such Gas can be economically saved) and delivered to Processor following the
cessation of such operations.
 
3.3    Producer reserves that amount of Gas which is required for above ground
development and operation within the Contract Area.
 
3.4    Producer expressly reserves the right to deliver or furnish to Producer's
lessor Gas as required to satisfy the terms of Producer's oil and gas leases.
 
6

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

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

 

 
ARTICLE IV -
GATHERING SYSTEM DELIVERY POINT(S),
PLANT DELIVERY POINT(S) AND PRESSURE
 
4.1    Producer, at its own expense, shall construct, equip, maintain, and
operate all facilities (including, but not limited to, all necessary separation,
dehydration, and/or compression equipment) necessary to deliver the Gas to
Gatherer at the Gathering System Delivery Point(s) at such pressure as is
required and sufficient to enter the Gathering System, but not to exceed one
thousand two-hundred (1,200) psig.
 
4.2    Whether to facilitate the movement of the Gas on the Gathering System or
for other reasons, Gatherer may, but shall have no obligation to, provide
compression for the Gas (other than Plant recompression which shall be provided
by Processor), on such basis and for the Compression Fee as more particularly
provided and described in Section 12.3 below.  In such event, Producer will
provide its pro rata share of fuel required for operating such compression
equipment and any related facilities.
 
4.3    Gatherer, at Producer’s expense, shall install, construct and equip all
meters and facilities necessary to measure the Gas at the Gathering System
Delivery Point(s).  Gatherer, at its own expense, shall maintain and operate
such meters throughout the term of this Agreement.
 
4.4    Gatherer, in its sole and absolute discretion, may decline to construct a
Gathering System expansion if it determines that it would not be profitable to
do so.  In such event, Producer may construct a Gathering System expansion at
its sole cost and expense.  The Gathering System expansion must meet all of
Gatherer’s specifications, and Gatherer will be responsible for the meter
station and connection to the existing Gathering System.  Gatherer may, at its
election, but within two years (2) of the initial delivery of production from
the Gathering System expansion acquire the ownership of the Gathering System
expansion installed by the Producer by reimbursing Producer for the actual cost
of the Gathering System expansion with no allowance for inflation or
depreciation.  In such event, Producer agrees to execute all assignments or
contracts deemed necessary to accomplish the transfer to Gatherer of title to
the Gathering System expansion, including rights-of-way and easements.  In the
event neither Gatherer nor Producer elect to construct the necessary Gathering
System expansion to connect the Gathering System Delivery Point to the existing
Gathering System, then this Agreement shall terminate as to the Gas from the
well or wells to be connected to that Gathering System Delivery Point.
 
4.5    Gatherer hereby agrees to deliver the Gas to the Processor at the Plant
Delivery Point(s) at a pressure sufficient to enter the Plant, but in no way
greater than five hundred (500) psig unless Gatherer is providing compression
pursuant to Section 4.2.
 
ARTICLE V -
REGULATION OF PRODUCTION
 
It is understood and agreed by the Parties that in order for Gatherer and
Processor to maintain maximum efficiency in the Facilities, and in order to
prevent flaring and/or
 
7

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

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

 

bypassing of Gas, it will be necessary to maintain a uniform rate of flow of Gas
to the Facilities from all sources during each twenty-four (24) hour
period.  Therefore, Producer agrees that it will cooperate with Gatherer and
Processor in regulating the flow rate of the Gas and in establishing a producing
schedule to deliver on a best efforts basis the Gas at a uniform and continuous
flow rate.  In the event that Gatherer enters into an operational balancing
agreement with a third party pipeline, Producer hereby agrees to be bound by the
terms set forth therein.
 
ARTICLE VI -
QUANTITY
 
6.1    Subject to Gathering System and Plant capacity, Gatherer shall gather and
Processor shall process that volume of Gas legally allowed to be produced which
is attributable to the interest owned or controlled by Producer or its
successors and assigns in wells drilled on lands within the Contract Area or
lands pooled therewith; provided, after processing, Producer or Producer's
nominee will accept the Residue Gas.  Processor shall regulate the flow of gas
at the Plant in the quantities and at the times desired by Processor to
prudently operate the Plant and/or to meet the fluctuating condition of
Processor’s and Producer’s markets.  Gatherer or Processor may, from time to
time, find it necessary to shut off entirely or restrict the flow of gas to the
Gathering System or Plant, respectively; notwithstanding anything herein to the
contrary, in such event, neither Gatherer nor Processor shall be liable to
Producer for the resulting effect thereof.  Gatherer and Processor shall provide
Producer prior notice of any shut down due to routine maintenance and shall
prudently work to minimize the amount of such downtime.
 
6.2    Producer shall nominate to Gatherer in writing, not less than three (3)
business Days prior to the first day of each Month during the term of the
Agreement, the daily quantity of Gas (expressed in MCF’s and MMBtu’s) that
Producer shall deliver to Gatherer at the Gathering System Delivery Point(s) for
gathering during such Month.   Producer shall also nominate to Processor in
writing, not less than three (3) business Days prior to the first day of each
Month during the term of the Agreement, the daily quantity of Residue Gas
(expressed in MCF’s and MMBtu’s) that Producer or Producer’s nominee shall
receive at the Residue Gas Delivery Point(s) following processing at the Plant.
 
6.3    Gatherer, Processor, and Producer shall designate a dispatcher(s) who
shall be continuously on call for nomination purposes, and shall notify each
other in writing of such dispatcher(s) and their telephone number(s).
 
6.4    Producer’s dispatcher shall notify Gatherer’s and Processor’s dispatchers
in advance of any anticipated decrease in delivery rate below the daily
nominated quantity.  Producer’s dispatcher must obtain the prior written
approval from Gatherer’s and Processor’s dispatchers for any delivery rate in
excess of the daily quantity rate.  Gatherer’s and Processor’s dispatcher shall
notify Producer’s dispatcher of any anticipated inability to receive the Gas at
a delivery rate less than (a) the daily nominated quantity rate; or (b) a
previously orally authorized delivery rate in excess of the daily nominated
quantity rate.
 
8

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

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

 

 
6.5    If insufficient Plant or pipeline capacity exists to process all the Gas,
the  Plant processing capacity will be prorated for all gas dedicated to the
Plant, without undue discrimination, and the Gas unable to be processed will be
bypassed ratably, if allowed.
 
6.6    Processor shall have the right, but not the obligation, to expand the
Plant or build a new gas processing plant at a different location, and in such
event, the Gas, or a portion thereof, may be processed by Processor in the
expanded Plant or the new gas processing plant in accordance with the terms of
this Agreement.  The Parties acknowledge and agree that the Corvette Plant
located in Hood County, Texas (undergoing construction in 2008), is deemed part
of the Plant and the Facilities for purposes of this Agreement, and the terms of
this Agreement shall be applicable and effective with respect thereto.
 
ARTICLE VII -
QUALITY
 
7.1    Gatherer and Processor shall not be obligated to receive, gather and/or
process (as the case may be), Gas delivered hereunder that fails to meet (i) the
quality specifications of any transporter at any of the Residue Gas Delivery
Point(s) or Plant Products Delivery Point(s), or (ii) the following
specifications:
 
 
a.
The Gas must be commercial in quality and free from any foreign materials such
as dirt, dust, iron particles, crude oil, dark condensate, free water, and other
impurities; and substances which may be injurious to pipelines or which may
interfere with the gathering, processing, transmission, or commercial
utilization of said Gas;

 
 
b.
The Gas shall contain no free water;

 
 
c.
The Gas delivered hereunder shall not exceed a temperature of one hundred forty
(140) degrees Fahrenheit at the Gathering System Delivery Point(s), as well as
the Plant Delivery Point(s);

 
 
d.
The Gas delivered hereunder shall not contain more than:

 
 
(i)
One-fourth grain of hydrogen sulfide, or five grains of total sulfur, or one
grain mercaptan per one hundred (100) cubic feet;

 
 
(ii)
one part per million by volume of oxygen;
     

 
(iii)
that percent by volume of carbon dioxide which would result in the failure of
the Residue Gas or the Plant Products to meet the specifications of any
transporter at any of the Delivery Points, but in no event more than two percent
by volume;

 
 
(iv)
two percent by volume of nitrogen; or
     

 
(v)
three percent by volume of a combined total of inerts, including,

 
9

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

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

 

 
 
 
but not limited to, carbon dioxide and nitrogen Components;

 
 
e.
No diluents such as carbon dioxide, air, or nitrogen shall be added to the Gas;

 
 
f.
The Gas shall contain no carbon monoxide, halogens, or unsaturated hydrocarbons,
and no more than 0.1 parts per million of hydrogen; and

 
 
g.
The Gas shall contain no less than 1,100 Btu and 2 GPM ethane and heavier
hydrocarbons.

 
In the event of any conflict as between a transporter’s specifications and those
appearing above in this Section 7.1, the most stringent or restrictive
specifications shall be applicable to the Gas proffered under this Agreement.
 
7.2    If any of the Gas delivered by Producer hereunder should fail to meet the
quality specifications set forth in this ARTICLE VII, Gatherer and Processor may
elect to either (i) accept and process such Gas, (ii) accept, but treat and/or
condition such Gas prior to gathering or processing at an additional cost, or
(iii) refuse to accept such Gas.  The acceptance of Gas not meeting the quality
specifications set forth in ARTICLE VII shall not be deemed a waiver of
Gatherer’s and Processor's right to reject such Gas at any later time, and
Gatherer and Processor shall be entitled, at any time and from time to time, to
decline to accept proffered deliveries of Gas not meeting the quality
specifications set forth herein.
 
7.3    If Gatherer and Processor elect to accept but treat and/or condition the
non-conforming Gas prior to gathering and processing, Gatherer and Processor
shall advise the Producer of such election and associated fees.  Producer shall
then have a maximum of thirty (30) days to advise Gatherer and Processor if it
will treat and/or condition such non-conforming Gas and the cost associated with
such treatment.  If Producer does not elect to treat and/or condition such
non-conforming Gas or fails to make such election within the specified time
period, then the Gatherer and Processor shall have the right to (a) proceed with
gathering and processing such non-conforming Gas and Producer shall pay to
Gatherer and Processor all costs associated with such actions or (b) reject and
release such non-conforming Gas from the terms of the
Agreement.  Notwithstanding anything in this Section 7.3 to the contrary,
Producer agrees that to the extent non-conforming Gas at a Gathering System
Delivery Point is accepted and subsequently treated or conditioned with respect
to its CO2 Component, such treating shall be done for the Treating Fee described
and provided in Section 12.4 below.
 
ARTICLE VIII -
TESTS
 
8.1    Producer, Gatherer and Processor do hereby agree as follows:
 
 
a.
Gatherer shall procure or cause to be procured a sample of Gas at each Gathering
System Delivery Point and Plant Delivery Point,

 
10

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

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

 

 
 
 
respectively, and analyze the samples by chromatographic analysis to determine
the Component content (mole percent), specific gravity, the BTU content, and the
Plant Product content (expressed in gallons per MCF) thereof.

 
 
b.
The individual Plant Products contained in the commingled stream of plant
products delivered from the Plant each month shall be determined from a
chromatographic analysis of either (a) a spot sample or a sample taken from a
continuous sampling device or (b) from an online chromatograph.  The results of
the chromatographic analysis shall be applied to the commingled stream of plant
products to determine the volume of each individual Plant Product delivered from
the Plant.

 
 
c.
Tests provided for in Subparagraphs (a) and (b) of this Section 8.1 shall be
made by Gatherer and Processor using their own equipment or by an independent
testing service at least once in each six month period, or more frequently in
their sole discretion.  All such tests shall be made in accordance with approved
engineering practices.  Representatives of Producer shall be entitled to witness
such tests, and Producer shall give advance written notice to Gatherer and
Processor in the event that it exercises such right.

 
8.2    Physical constants required for making calculations hereunder shall be
taken from the Gas Processors Association Physical Constants Publication No.
2145-03 (as amended from time to time).  Physical constants for the hexanes and
heavier hydrocarbons portion of hydrocarbon mixtures shall be assumed to be the
same as the physical constants for hexane.  The heat content per gallon of each
liquid hydrocarbon Component shall be determined by multiplying the cubic feet
per gallon of such liquid hydrocarbon Component by the heat content per cubic
foot thereof.
 
ARTICLE IX -
MEASUREMENT AND METER TESTING
 
9.1    The unit of volume for measurement of Gas delivered hereunder shall be
one thousand (1,000) cubic feet of Gas at a base temperature of sixty (60)
degrees Fahrenheit and at an absolute pressure of 14.65 psia and saturated with
water vapor.  All fundamental constants, observations, records, and procedures
involved in determining the quantity of Gas delivered hereunder shall be in
accordance with the standards prescribed in Report Nos. 3 and 8, of the American
Gas Association, as amended or supplemented from time to time, respectively.  It
is agreed that for the purpose of measurement and computations hereunder, the
atmospheric pressure shall be assumed to be 14.7 psia regardless of the
atmospheric pressure at which the Gas is measured and that the Gas obeys the
Ideal Gas Laws as to variations of volume with pressure and specific gravity,
including the deviation from Boyle's law, shall all be made by Gatherer and
Processor in accordance with applicable rules, regulations, and orders.  It is
also agreed that the Gatherer and Processor
 
11

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

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

 

may apply a uniform correction factor for water vapor if they deem necessary in
their sole and absolute discretion.
 
9.2    Gatherer shall install, maintain, and operate, or cause to be maintained
and operated, a measuring station located at each Gathering System Delivery
Point, the Residue Gas Delivery Point(s) and the Plant Products Delivery Point.
Processor shall install, maintain, and operate a measuring station located
downstream of the separation facilities at each Plant Delivery Point.   Said
measuring station(s) shall be so equipped with orifice meters, recording gauges,
or other types of meter or meters of standard make and design commonly
acceptable in the industry, and of suitable size and design, as to accomplish
the accurate measurement of Gas delivered hereunder.  The changing and
integration of the charts (if utilized for measurement purposes hereunder) and
calibrating and adjusting of meters shall be done by Gatherer or Processor, as
appropriate.  Gatherer and Processor shall have the right to utilize electronic
gas measuring equipment should they so desire.
 
9.3    Processor shall measure or cause to be measured the volume of Plant
Products in gallons.
 
9.4    Producer may, at its option and expense, install check meters for
checking Gatherer’s metering equipment at each Gathering System Delivery Point;
and the same shall be so installed as not to interfere with the operation of the
Facilities.
 
9.5    The temperature of the Gas flowing through the meter shall be determined
by the continuous use of a recording thermometer or device installed by Gatherer
or Processor, as the case may be, so that it will properly record the
temperature of the Gas flowing through the meter.
 
9.6    The specific gravity of the Gas flowing through the meter shall be
determined by methods commonly accepted in the industry.  Specific gravities so
determined will be used in calculating Gas deliveries until the next specific
gravity test is made.
 
9.7    Each Party shall have the right to be present at the time of any
installing, reading, sampling, cleaning, changing, repairing, inspecting,
testing, calibrating, or adjusting done in connection with the other's measuring
equipment used in measuring deliveries hereunder.  The records from such
measuring equipment shall remain the property of their owner, but upon request,
each will submit to the other its records and charts, together with calculations
therefrom subject to return within thirty (30) days after receipt thereof.  If
meters utilizing charts are used to measure Gas hereunder, then the charts shall
be kept on file for a period of two (2) years, or such longer period as may be
required by law.  In addition, any other measurement data shall also be kept for
the same time period.  Each Party, during each of the first three production
months, and after that at least semi-annually, or more often if necessary, shall
calibrate the meters and instruments installed by it or cause the same to be
calibrated.  Gatherer shall give  Producer ten (10) days notice in advance of
such tests so that the latter may, at its election, be present in person or by
its representative to observe adjustments, if any are made.
 
12

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

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

 

 
9.8    If the metering equipment is found to be inaccurate by two percent (2%)
or more, registration thereof and any payment based upon such registration shall
be corrected at the rate of such inaccuracy for any period of inaccuracy which
is definitely known or agreed upon, or if not known or agreed upon, then for a
period extending back one-half of the time elapsed since the last day of the
calibration. Unless conclusively determined that either Gatherer’s or
Processor's measurement equipment is inaccurate by two percent (2%) or more,
Gatherer’s or Processor's, as the case may be, measurement shall be deemed to be
correct for all purposes hereunder, and no adjustment shall be made to the
previous volumes.  Following any test, any metering equipment found to be
inaccurate to any degree shall be adjusted immediately to measure
accurately.  If for any reason any meter is out of service or out of repair so
that the quantity of Gas delivered through such meter cannot be ascertained or
computed from the readings thereof, the quantity of Gas so delivered during such
period shall be estimated and agreed upon by the Parties hereto upon the basis
of the best available data using the first of the following methods which is
feasible:
 
 
a.
By using the registration of any check measuring equipment of Producer, if
installed and registering accurately;

 
 
b.
By correcting the error if the percentage of error is ascertainable by
calibration, test, or mathematical calculation; or

 
 
c.
By estimating the quantity of deliveries during preceding periods under similar
conditions when the meter was registering accurately.

 
9.9    If Producer shall notify Gatherer, or if Gatherer shall notify Producer,
at any time that a special test of any Gathering System Delivery Point meter is
desired, the Parties shall cooperate to secure an immediate verification of the
accuracy of such meter and joint observation of any adjustments.  All tests of
Gatherer’s measuring equipment at any Gathering System Delivery Point shall be
made at Gatherer’s expense, except that the Producer shall bear the expense of
tests made at its request if the inaccuracy found is less than two percent
(2%).  Expense as used in this Section 9.9 shall be limited to actual costs of
Gatherer as the result of testing and shall not include any costs incurred by
Producer as the result of witnessing said testing.
 
9.10       If during any month less than 1,000 MCF of Gas is delivered to a
Gathering System Delivery Point, (except for reasons of Force Majeure), then
Gatherer shall charge a meter fee applicable to any such Gathering System
Delivery Point equal to four hundred dollars ($400.00).  Such fee shall be
deducted from the compensation otherwise due Producer under this Agreement; or,
at Gatherer’s election, Producer may be invoiced for such amount payable thirty
(30) days after receipt.
 
9.11       The Parties hereto recognize and acknowledge that technological
advances may occur over the term of this Agreement which may render certain
measurement devices obsolete, or less accurate, or less efficient than that
which may be available.  In such event, Gatherer or Processor may, with
Producer's approval, substitute or utilize such
 
13

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

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

 

available measurement equipment in lieu of any measurement equipment described
above in this ARTICLE IX.
 
9.12       If for any reason the Gas is delivered to Gatherer at a Gathering
System Delivery Point with pulsations that affect the accuracy of the
measurement, Producer shall be responsible for installing necessary pulsation
dampeners, or other devices, to eliminate or reduce the pulsations to an
acceptable level determined by Gatherer.
 
ARTICLE X -
ALLOCATION PROCEDURE
 
10.1    With regard to the allocation of Plant Products, for each accounting
period, the actual Plant Products will be allocated to each Gathering System
Delivery Point in the ratio of the Theoretical Plant Product Content of each
Gathering System Delivery Point over the sum of the Theoretical Plant Product
Content for all Gathering System Delivery Points.  The Component amount will be
determined by analysis at the Plant Products Delivery Point.
 
The “Theoretical Plant Product Content of each Gathering System Delivery Point”
shall equal the product of the Gathering System Delivery Point’s share of plant
inlet MCF multiplied by the GPM (Gallons per MCF) as determined by the
chromatograph analysis of a sample of the Gathering System Delivery Point.
 
10.2    With regard to the allocation of Residue Gas, for each accounting
period, the actual metered residue gas at each Residue Gas Delivery Point shall
be allocated to each Gathering System Delivery Point in the ratio of the
calculated Theoretical Residue Remaining for the Gathering System Delivery Point
over the sum of Calculated Theoretical Residue Remaining for all Gathering
System Delivery Points.
 
The “Calculated Theoretical Residue Remaining” shall equal each Gathering System
Delivery Point’s share of plant inlet volume MCF\MMBtu, minus each Gathering
System Delivery Point Plant Product shrinkage (product shrinkage factors based
on GPA 2145-03 bulletin), minus the allocated Plant Fuel.
 
ARTICLE XI -
DISPOSITION OF PRODUCER'S PORTION OF PLANT PRODUCTS
 
On behalf of Producer, Processor shall have the right to sell all Plant Products
removed or extracted from the Facilities after Gas is delivered at the Plant
Delivery Point(s).  Processor shall sell the Plant Products at the Plant
Products Delivery Point(s), and Producer shall have no right to take the Plant
Products in kind at the Plant Products Delivery Point(s).  Processor shall remit
to Producer its share of the net proceeds received by Processor at the Plant
Product Delivery Point(s).
 
14

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

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

 

 
ARTICLE XII -
GATHERING AND PROCESSING FEES
 
12.1    Producer shall pay to Gatherer 41.63 cents ($0.4163) per MMBtu of Gas
gathered pursuant to this Agreement (the “Gathering Fee”).
 
12.2    Producer shall pay to Processor 52.04 cents ($0.5204) per MMBtu of Gas
processed pursuant to this Agreement (the “Processing Fee”).
 
12.3    Producer shall pay to Gatherer a compression fee or fees (the
“Compression Fee”) computed by multiplying the MMBtu’s of Producer’s Gas metered
at each Gathering System Delivery Point by the compression rate applicable to
such Gathering System Delivery Point, which shall be based upon the average
monthly operating pressure registered at such Gathering System Delivery Point as
more particularly provided and described in Exhibit D, attached hereto and
incorporated herein.  Notwithstanding anything herein to the contrary, Producer
agrees that the Compression Fee payable by Producer at a Gathering System
Delivery Point shall never be less than Gatherer’s actual cost to perform such
compression service.
 
12.4    In the event Gas is treated as provided by Section 7.3, Producer shall
pay a treating fee (the “Treating Fee”) computed by multiplying 3.5 cents
($0.035) per mole percent of CO2  (based on tests conducted pursuant to Section
8.1), per MMBtu of Gas metered at the applicable Gathering System Delivery Point
where such Gas was delivered.
 
12.5    On each Escalation Date, the Gathering Fee, the Processing Fee, the
Treating Fee and the rates provided in Exhibit D (pertaining to the Compression
Fee) will increase by a percentage equal to the CPI Adjustment.
 
12.6.   At any time during the term of this Agreement, Producer may request that
the Parties enter into negotiations to reduce either the Gathering Fee or
Processing Fee, or both, and Gatherer and Processor agree to participate fully
and reasonably in such negotiations.
 
ARTICLE XIII -
DISPOSITION OF PRODUCER'S PORTION OF RESIDUE GAS
 
Processor will deliver the Residue Gas to the Residue Gas Delivery
Point(s).  Processor agrees to deliver Producer's Residue Gas at a pressure
sufficient to enter the third party natural gas pipeline(s), but in no event
shall Processor be obligated to deliver Residue Gas at a pressure which exceeds
the Plant discharge pressure of one thousand and sixty (1,060) psig.  Producer
will separately contract with a third party regarding the transportation and
sale of their Residue Gas.
 
ARTICLE XIV -
ACCOUNTING, PAYMENTS AND CREDIT ASSURANCES
 
14.1    Gatherer and Processor shall furnish to Producer on or before the
twenty-fifth (25th) day of each month a report or statement disclosing
information necessary to enable
 
15

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

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

 

Producer to make reasonable and accurate statistical and accounting entries upon
its books concerning all phases of this Agreement related to the preceding
month, including an allocation statement of Residue Gas delivered for Producer's
account to its Residue Gas purchaser and the amounts due Gatherer and Processor
for the services provided hereunder.  Producer shall remit the amounts due
Gatherer and Processor within thirty (30) days after the receipt of Gatherer’s
and Processor’s statement.  PRODUCER SHALL INDEMNIFY AND HOLD GATHERER AND
PROCESSOR HARMLESS FROM ANY ALL CHARGES, PENALTIES, COSTS AND EXPENSES OF
WHATEVER KIND OR NATURE ARISING FROM PRODUCER’S FAILURE TO PAY SUCH PAYMENTS,
INCLUDING COSTS AND EXPENSES OF ANY LITIGATION AND REASONABLE ATTORNEYS’ FEES
ASSOCIATED THEREWITH. Unpaid amounts due shall accrue interest at the lesser of
a rate equal to one and one half percent (1.5%) per Month or the maximum rate
permitted by law, until the balance is paid in full.
 
14.2    Each Party shall have the right during reasonable hours to examine
books, records, charts, and original test data of another Party to the extent
necessary to verify the accuracy of any statement, charge, credit, computation,
test, or delivery made pursuant to any provision hereof.  If any such
examination reveals any inaccuracy in any such statement, charge, credit,
computation, test, or delivery, the necessary adjustment shall be promptly made
without interest or penalty. No Party will have any right to recoup or recover
prior overpayments or under payments that result from error that occur in spite
of good faith performance if the amounts involved do not exceed one thousand
dollars ($1,000.00).
 
14.3    Processor shall pay to Producer monthly, on or before the sixtieth
(60th) day after the end of the production month, but in no case sooner than
Processor receives payment from its purchaser, the sums due under ARTICLE XI for
Producer's Plant Products marketed by Processor during the preceding month less
the amount of any taxes actually paid by Processor which are applicable to such
quantities.  This payment shall be made irrespective of the interest, title, or
lien of any royalty or mineral owner or any third party or parties in and to the
Gas delivered by Producer to Processor hereunder, the Plant Products, or Residue
Gas derived therefrom, or proceeds accruing from the sale thereof.
 
14.4    Producer shall be responsible for the payment of all royalties due on
the Gas. PRODUCER SHALL INDEMNIFY AND HOLD GATHERER AND PROCESSOR HARMLESS FROM
ANY AND ALL CLAIMS, ACTIONS, CAUSES OF ACTION, DAMAGES, LIABILITY, OR
OBLIGATIONS ARISING OUT OF OR IN ANY WAY RELATED TO THE PAYMENT OF THE LESSOR'S
ROYALTY OR ANY OTHER BURDEN OR ENCUMBRANCE AFFECTING THE GAS.
 
14.5    Notwithstanding any change in ownership of Producer's properties,
Gatherer and Processor shall never be required to make payments or to give
notices required under the provisions of this Agreement to more than one party,
and, in the event that the properties subject to this Agreement shall ever be
owned by more than one party, Gatherer and Processor may withhold (without
interest) further payments and notices until all of the owners of such
properties have designated one party to act for them in all respects relating to
said properties and this Agreement, including the rendering of bills, the
submission of charts, and the receipt of payments and notices hereunder.
 
16

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

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

 

 
14.6    Processor, at its election, may deduct from its payment to Producer
sums, if any, due to Gatherer or Processor under the terms of this Agreement.
 
14.7    All accounting records and documents directly related to this Agreement
prepared by any Party hereto shall be retained for a period of not less than two
(2) years following the end of the calendar year of their origination.  The
Parties further agree that all matters relating to the accounting hereunder for
any calendar year shall be considered correct and not subject to further audit
or legal challenge after two years following the end of the calendar year.
 
Producer must maintain such creditworthiness as Gatherer and Processor shall
reasonably require.  Gatherer and Processor’s creditworthiness requirements
shall be substantially similar to the requirements set forth below:
 
 
a.
Producer will be deemed creditworthy if its long-term unsecured debt securities
are rated at least BB- by Standard & Poor’s Corporation (“S&P”) and at least Ba3
by Moody’s Investor Service (“Moody’s”); provided, however, that if the
Producer’s rating is at BB- or Ba3 and the short-term or long-term outlook is
negative, Gatherer and Processor may require further analysis.

 
 
b.
If Producer does not meet the criteria described above, then Producer may
request that Gatherer and Processor evaluate its creditworthiness based upon the
level of service requested relative to the Producer’s current and future ability
to meet its obligations.  Further, if Producer’s creditworthiness does not meet
any of the foregoing criteria, Producer will be considered creditworthy if
Producer maintains and delivers to Gatherer and Processor an irrevocable
guaranty of payment in form acceptable to Gatherer and Processor, or an
irrevocable letter of credit from a financial institution rated at least A- by
S&P or at least A3 by Moody’s, in a form acceptable to Gatherer and Processor,
in either case of the guaranty or the letter of credit in an amount satisfactory
to Gatherer and Processor.  The obligation to maintain such credit assurance
shall extend until such time as Producer is deemed creditworthy as defined
herein.  Producer shall provide the guaranty or the letter of credit within
twenty (20) days of written notice by Gatherer and Processor that such financial
assurance is required.

 
 
c.
The creditworthiness requirements set forth in this Section 14.8 shall apply to
any permitted assignment (in whole or in part), and to any permitted permanent
release, as applicable, of this Agreement.  Gatherer and Processor shall apply
consistent evaluation practices to all similarly situated producers to determine
the Producer’s financial ability to perform the payment obligations due to
Gatherer and Processor.

 
17

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

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

 

 
ARTICLE XV -
WARRANTY
 
15.1    Producer warrants the title to all Gas and all Components thereof which
shall be delivered by Producer to Gatherer and Processor hereunder, the right to
enter into this Agreement with reference to such Gas, and that such Gas is free
from all liens and adverse claims; AND AGREES, IF NOTIFIED THEREOF BY GATHERER
OR PROCESSOR, TO INDEMNIFY, DEFEND AND HOLD GATHERER AND PROCESSOR HARMLESS FROM
AND AGAINST ANY AND ALL SUITS, ACTIONS, LOSSES, DEBTS, ACCOUNTS, DAMAGES, COSTS,
AND EXPENSES ARISING FROM OR OUT OF ANY ADVERSE CLAIM AS TO PRODUCER’S TITLE,
INCLUDING, BUT NOT LIMITED TO, ANY ADVERSE CLAIM BROUGHT BY OR THROUGH A MINERAL
INTEREST OR ROYALTY OWNER, TO OR AGAINST THE GAS AND AGAINST THE PLANT PRODUCTS
DERIVED THEREFROM.  Producer agrees to make settlement for all royalties,
overriding royalty interests, and/or production payments due and payable on the
Gas delivered to Gatherer and Processor hereunder, the Plant Products extracted
and saved therefrom, and the sale and disposition of the Residue Gas thereof,
all in accordance with the terms of the leases from which Gas processed
hereunder is produced, applicable instruments of title, and all amendments
thereto.
 
15.2    If Producer's title to the Gas, Plant Products derived therefrom, or
Residue Gas is questioned, Processor may withhold payments of proceeds due
hereunder without interest up to the amount of the claim until title is free
from such questions or until Producer furnishes a bond satisfactory to Processor
conditioned to save Gatherer and Processor harmless, or other surety
satisfactory to Gatherer or Processor.
 
15.3    Producer also represents and warrants that it has full authority to
receive payment for the sum of all Gas delivered hereunder.
 
ARTICLE XVI -
TAXES
 
16.1    Producer shall pay or cause to be paid all production, severance and ad
valorem taxes, assessments, and other charges levied or assessed against the Gas
delivered by Producer hereunder, and against Producer's portion of the Plant
Products, against Producer's Residue Gas, and against the sale thereof, and all
taxes and statutory charges levied or assessed against any of Producer's
properties, facilities, or operations.
 
16.2    Processor shall pay all taxes and statutory charges levied or assessed
against the Plant and operations concerning such plant.
 
16.3    Gatherer shall pay all taxes and statutory charges levied or assessed
against the Gathering System and operations concerning such system.
 
16.4    The price paid under ARTICLE XII of this Agreement includes
reimbursement for state severance taxes paid by Producer and Processor under
this ARTICLE XVI of the Agreement.
 
18

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

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

 

 
ARTICLE XVII -
INDEMNITY
 
17.1    As between the Parties, and as to liability, if any, accruing to a Party
hereto, or to any third party, Producer shall be solely liable for and in
control and possession of the Gas deliverable hereunder until the Gas is
delivered to Gatherer at the Gathering System Delivery Point(s).  Gatherer shall
be solely liable for and in control and possession of the Gas deliverable
hereunder until the Gas is delivered to Processor at the Plant Delivery
Point(s).  Processor shall be solely liable for and in control and possession of
the Gas and the Plant Products until Processor has delivered Residue Gas to
Producer at the Residue Gas Delivery Point(s) whereupon Producer shall again be
in control and possession thereof and bear the risk of loss of the Residue Gas.
 
17.2    PRODUCER SHALL BE AFFORDED ACCESS TO GATHERER’S AND PROCESSOR’S PROPERTY
AND THE FACILITIES TO THE EXTENT NECESSARY TO CARRY OUT ITS RIGHTS AND
OBLIGATIONS UNDER THIS AGREEMENT, AND PRODUCER SHALL FULLY OBSERVE AND COMPLY
WITH ALL OF GATHERER’S AND PROCESSOR’S SAFETY PRACTICES AND PROCEDURES WHILE ON
THE PREMISES.  PRODUCER HEREBY AGREES TO INDEMNIFY, HOLD HARMLESS, PROTECT,
DEFEND, AND DISCHARGE GATHERER AND PROCESSOR AND THEIR AFFILIATED COMPANIES,
PARTNERS, SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND
AGENTS FOR, FROM AND AGAINST ANY AND ALL JUDGMENTS, EXECUTIONS, CAUSES OF
ACTION, DEMANDS, RIGHTS, SUITS, DEBTS AND SUMS OF MONEY, ACCOUNTINGS, DUES,
PENALTIES, FINES, CLAIMS (INCLUDING, WITHOUT LIMITATION, CLAIMS FOR
CONTRIBUTION), LIABILITIES, LOSSES, COSTS, DAMAGES AND EXPENSES (INCLUDING COURT
COSTS, REASONABLE COSTS OF INVESTIGATION, DEFENSE AND ATTORNEY’S FEES) FOR THE
INJURY TO OR DEATH OF ANY PERSON (INCLUDING, WITHOUT LIMITATION, EACH OF
PRODUCER’S, GATHERER’S AND PROCESSOR’S EMPLOYEES, AGENTS AND CONTRACTORS) OR
PROPERTY DAMAGE OF ANY NATURE, KIND OR DESCRIPTION OR ANY OTHER CLAIM OF ANY
NATURE, KIND OR DESCRIPTION BROUGHT BY ANY PERSON OR ENTITY, WHETHER LEGAL OR
EQUITABLE, WHICH ARISES OUT OF, RESULTS FROM OR IS IN ANY WAY RELATED TO (i)
PRODUCER’S OWNERSHIP AND CONTROL OF THE GAS PRIOR TO THE TIME THAT THE GAS
PASSES THROUGH THE GATHERING SYSTEM DELIVERY POINT(S) AND AFTER THE RESIDUE GAS
PASSES THROUGH THE RESIDUE GAS DELIVERY POINT(S), (ii)  PRODUCER’S OWNERSHIP AND
OPERATION OF THE WELLS LOCATED WITHIN THE CONTRACT AREA AND ANY FACILITIES OR
EQUIPMENT INSTALLED OR MAINTAINED BY PRODUCER UPSTREAM OF THE GATHERING SYSTEM
DELIVERY POINT, REGARDLESS OF WHETHER SUCH WAS REQUIRED BY THE TERMS OF THIS
AGREEMENT, (iii) THE PERFORMANCE OF ANY OBLIGATIONS, RIGHTS OR DUTIES HEREUNDER,
(iv) PRODUCER’S BREACH OF THIS AGREEMENT, OR (v) ANY VIOLATION OF THE LAW,
REGARDLESS OF EITHER GATHERER’S OR PROCESSOR’S SOLE, CONCURRENT OR COMPARATIVE
NEGLIGENCE.  GATHERER HEREBY AGREES TO INDEMNIFY, HOLD HARMLESS, PROTECT, DEFEND
AND DISCHARGE PROCESSOR
 
19

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

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

 

AND PRODUCER AND THEIR AFFILIATED COMPANIES, PARTNERS, SUCCESSORS, ASSIGNS,
OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS, FOR, FROM AND AGAINST
ANY AND ALL JUDGMENTS, EXECUTIONS, CAUSES OF ACTION, DEMANDS, RIGHTS, SUITS,
DEBTS AND SUMS OF MONEY, ACCOUNTINGS, DUES, PENALTIES, FINES, CLAIMS (INCLUDING,
WITHOUT LIMITATION, CLAIMS FOR CONTRIBUTION), LIABILITIES, LOSSES, COSTS,
DAMAGES AND EXPENSES (INCLUDING COURT COSTS, REASONABLE COSTS OR INVESTIGATION,
DEFENSE AND ATTORNEY’S FEES) OF ANY NATURE, KIND OR DESCRIPTION BROUGHT BY ANY
PERSON OR ENTITY, WHETHER LEGAL OR EQUITABLE, WHICH ARISE OUT OF, RESULT FROM OR
ARE IN ANY WAY RELATED TO (i) GATHERER’S OWNERSHIP AND CONTROL OF THE GAS AFTER
THE GAS PASSES THROUGH  THE GATHERING SYSTEM DELIVERY POINT(S) AND PRIOR TO THE
TIME THAT THE GAS PASSES THROUGH THE PLANT DELIVERY POINT(S), (ii) GATHERER’S
OWNERSHIP AND OPERATION OF THE GATHERING SYSTEM, (iii) THE SERVICES PROVIDED BY
GATHERER PURSUANT TO THIS AGREEMENT, (iv) GATHERER’S BREACH OF THIS AGREEMENT,
OR (v) ANY VIOLATION OF THE LAW, REGARDLESS OF PRODUCER’S OR PROCESSOR’S SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE.  PROCESSOR HEREBY AGREES TO INDEMNIFY,
HOLD HARMLESS, PROTECT, DEFEND AND DISCHARGE GATHERER AND PRODUCER AND THEIR
AFFILIATED COMPANIES, PARTNERS, SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES AND AGENTS, FOR, FROM AND AGAINST ANY AND ALL JUDGMENTS,
EXECUTIONS, CAUSES OF ACTION, DEMANDS, RIGHTS, SUITS, DEBTS AND SUMS OF MONEY,
ACCOUNTINGS, DUES, PENALTIES, FINES, CLAIMS (INCLUDING, WITHOUT LIMITATION,
CLAIMS FOR CONTRIBUTION), LIABILITIES, LOSSES, COSTS, DAMAGES AND EXPENSES
(INCLUDING COURT COSTS, REASONABLE COSTS OR INVESTIGATION, DEFENSE AND
ATTORNEY’S FEES) OF ANY NATURE, KIND OR DESCRIPTION BROUGHT BY ANY PERSON OR
ENTITY, WHETHER LEGAL OR EQUITABLE, WHICH ARISE OUT OF, RESULT FROM OR ARE IN
ANY WAY RELATED TO (i) PROCESSOR’S OWNERSHIP AND CONTROL OF THE GAS AFTER THE
GAS PASSES THROUGH THE PLANT DELIVERY POINT(S) AND PRIOR TO THE TIME THAT THE
RESIDUE GAS PASSES THROUGH THE RESIDUE GAS DELIVERY POINT(S) AND THE PLANT
PRODUCTS PASS THROUGH THE PLANT PRODUCTS DELIVERY POINT , (ii) PROCESSOR’S
OWNERSHIP AND OPERATION OF THE PLANT, (iii) THE SERVICES PROVIDED BY PROCESSOR
PURSUANT TO THIS AGREEMENT, (iv) PROCESSOR’S BREACH OF THIS AGREEMENT, OR (v)
ANY VIOLATION OF THE LAW, REGARDLESS OF GATHERER’S OR PRODUCER’S SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE.  THE INDEMNIFICATION RIGHTS HEREIN SHALL
BE CUMULATIVE OF, AND IN ADDITION TO, ANY AND ALL OTHER RIGHTS, REMEDIES OR
RECOURSE OF THE PARTIES AND SHALL SURVIVE ANY EXPIRATION OR TERMINATION OF THIS
AGREEMENT.  TO THE EXTENT AND ONLY TO THE EXTENT THE FOREGOING INDEMNIFICATION
RIGHTS ARE BY LAW, EITHER INAPPLICABLE OR NOT ENFORCEABLE, PRODUCER, GATHERER
AND PROCESSOR SHALL EACH BE RESPONSIBLE FOR THE RESULTS OF ITS OWN
 
20

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

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

 

ACTIONS AND FOR THE ACTIONS OF THOSE PERSONS AND ENTITIES OVER WHICH IT
EXERCISES CONTROL.
 
ARTICLE XVIII -
FORCE MAJEURE
 
In the event any Party is rendered unable, either wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make payments due hereunder, it is agreed that on such Party
giving notice and full particulars of such inability by telephone and in writing
to the other Parties as soon as possible after the occurrence of the cause
relied on, then the obligations of the Party giving such notice, so far as they
are affected by such force majeure, shall be suspended during the continuance of
any inability so caused, but for no longer period, and such cause shall, as far
as possible, be remedied with all reasonable dispatch.  The term "force majeure"
as employed herein shall mean any act or event which wholly or partially
prevents or delays the performance of obligations arising under this Agreement
if such act or event is not reasonably within the control of and not caused by
the fault or negligence of the Party claiming force majeure and which by the
exercise of due diligence such Party is unable to prevent or overcome,
including, without limitation, by the following enumeration:  acts of God;
strikes; lockouts; or other industrial disturbances; acts of the public enemy;
wars; blockades; insurrections; riots; epidemics; landslides; lightning;
earthquakes; fires; storms; floods; washouts; arrests and restraints of
governments and people; civil disturbances; explosion, breakage, or accidents to
machinery, plant facilities, or lines of pipe; the necessity for making repairs
to or alterations of machinery, plant facilities, or lines of pipe; freezing of
wells or lines of pipe; partial or entire failure of wells; and the inability of
either Producer, Gatherer or Processor to acquire, or the delays on the part of
either Producer, Gatherer or Processor in acquiring, at reasonable cost and
after the exercise of reasonable diligence:  (a) any servitude, rights-of-way
grants, permits, or licenses; (b) any materials or supplies for the construction
or maintenance of facilities; and (c) any permits or permissions from any
governmental agency if such are required.  It is understood and agreed that the
settlement of strikes or lockouts shall be entirely within the discretion of the
Party having the difficulty and that the above requirements that any force
majeure shall be remedied with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands of the opposing
party when such course is inadvisable in the sole discretion of the Party having
the difficulty.
 
ARTICLE XIX -
UNPROFITABLE OPERATIONS AND RIGHTS OF TERMINATION
 
19.1    If, in the sole and absolute opinion of Gatherer, the gathering of Gas
from any well or wells, or any Gathering System Delivery Point, under this
Agreement, is or becomes uneconomical due to its volume, government regulations,
or any cause other than force majeure, Gatherer shall not be obligated to gather
or may cease gathering the Gas therefrom so long as such condition
exists.  Gatherer agrees that in its determination of uneconomical gathering,
the same criteria shall be used for the Gas as for all other gas being gathered
through the Gathering System.  In the event that Gatherer refuses to gather the
Gas, Producer may dispose of the Gas not gathered as it sees fit; provided that
 
21

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

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

 

Gatherer at any time thereafter shall have the right to gather all of the Gas
refused, if refused for reason or reasons resulting from an act of Producer or
lack of action on the part of Producer, conditioned upon Gatherer giving
Producer at least two (2) months' notice of its election so to do.  In the event
that Gatherer refuses to gather the Gas for a period of sixty (60) consecutive
days causing Producer’s well(s) to be shut-in, Producer shall have the option,
exercised solely at its discretion, to terminate the Agreement in its entirety
insofar and only insofar as it pertains to Gas produced from the affected
well(s) by providing to Gatherer a thirty (30) days’ advance written notice of
such termination.
 
19.2    If, in the sole and absolute opinion of Processor, the processing of Gas
from any well or wells, or any Gathering System Delivery Point, under this
Agreement, is or becomes uneconomical due to its volume, Plant Product content,
government regulations, or any cause other than force majeure, Processor shall
not be obligated to process or may cease processing the Gas therefrom so long as
such condition exists.  Processor agrees that in its determination of
uneconomical processing, the same criteria shall be used for the Gas as for all
other gas being processed through the Plant.  In the event that Processor
refuses to process the Gas, Producer may dispose of the Gas not processed as it
sees fit; provided that Processor at any time thereafter shall have the right to
process all of the Gas refused, if refused for reason or reasons resulting from
an act of Producer or lack of action on the part of Producer, conditioned upon
Processor giving Producer at least two (2) months' notice of its election so to
do.  In the event that Processor refuses to process the Gas for a period of
sixty (60) consecutive days and Gatherer is unable to by-pass the Plant in order
to deliver Producer’s gas to an alternative pipeline willing to accept
Producer’s unprocessed Gas causing Producer’s well(s) to be shut-in, Producer
shall have the option, exercised solely at its discretion, to terminate this
Agreement insofar as it pertains to Gas produced from the affected well(s) by
providing to Processor a thirty (30) days’ advance written notice of such
termination.
 
19.3    In the event Processor should at any time hereafter elect to permanently
discontinue the operation of the Plant, Gatherer, Processor and Producer shall
each have the option, exercised solely at its discretion, of terminating this
Agreement in its entirety upon one hundred twenty (120) days advance written
notice of such termination notice to the other Parties.
 
19.4    Nothing herein shall be construed to require Producer to drill any well
or to continue to operate any well which a prudent operator would not in like
circumstances drill or continue to operate.
 
19.5    It is agreed that neither Gatherer nor Processor shall be obligated to
expand the Facilities in order to provide capacity hereunder.
 
ARTICLE XX -
TERM
 
This Agreement shall be effective from the Effective Date and, subject to the
other provisions hereof, shall continue in full force and effect until August
10, 2017 (the “Primary Term”) and shall be automatically renewed for one (1)
year periods thereafter unless on or
 
22

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

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

 

before ninety (90) days prior to the expiration of the Primary Term or the
expiration of a one (1) year renewal period a Party hereto provides written
notice of termination (the “Term”).
 
ARTICLE XXI -
REGULATORY BODIES
 
This Agreement and the provisions hereof shall be subject to all valid
applicable federal, state, and local laws, order, rules, and
regulations.  Producer, Gatherer and Processor have entered into this Agreement
with the understanding, and in reliance on the fact, that this Agreement and/or
performance of this Agreement are not and will not be subject to the
jurisdiction or regulation of the Federal Energy Regulatory Commission
("FERC").  If this Agreement and/or performance of this Agreement becomes
subject to such jurisdiction and/or regulation, this Agreement shall
automatically terminate unless Producer, Gatherer and Processor agree, in
writing, within thirty (30) days of the effective date of the attachment of any
such jurisdiction and/or regulation, that this Agreement shall continue after
such effective date.
 
ARTICLE XXII -
ARBITRATION
 
Any controversy between the Parties arising under ARTICLE X of this Agreement
and not resolved by agreement shall be determined by a board of arbitration upon
notice of submission given either by Processor, Gatherer or Producer, which
request shall also name one arbitrator.  The Parties receiving such notice
shall, within ten (10) days thereafter, by notice to the others, jointly name
the second arbitrator, or failing so to do, the Party giving notice of
submission shall name the second.  The two arbitrators so appointed shall name
the third, or failing so to do within ten (10) days, then upon the written
application of any Party, such third arbitrator may be appointed by the American
Arbitration Association.  The arbitrators selected to act hereunder shall be
qualified by education, experience, and training to pass upon the particular
question in dispute.  The jurisdiction of the arbitrators will be limited to the
single issue referred to arbitration, and the arbitration shall be conducted
pursuant to the guidelines set forth by the American Arbitration Association;
provided, however, that should there be any conflict between the guidelines and
the procedures set forth in this Agreement, the terms of this Agreement shall
control.  Within fifteen (15) days following selection of the third arbitrator,
each Party shall furnish the arbitrators in writing its position regarding the
issue being arbitrated.  The arbitrators may, if they deem necessary, convene a
hearing regarding the issue being arbitrated.  The arbitrators shall render
their decision in writing within thirty (30) days after the appointment of the
third arbitrator or the conclusion of the hearing, if one is held.  If within
said period a decision is not rendered by the arbitrators, new arbitrators may
be named and shall act hereunder at the election of any of Processor, Gatherer
or Producer in like manner as if none has been previously named.  The
arbitrators’ decision shall be final and binding upon the Parties as to the
issue submitted and the Parties will abide by and comply with such
decision.  The expenses of arbitration shall be borne equally by the Parties,
except that each Party shall bear the compensation and expenses of its counsel,
witnesses, and employees.
 
23

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

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

 

 
ARTICLE XXIII -
DISPUTES
 
23.1    Subject to the terms as set forth in ARTICLE XXII of this Agreement,
should a dispute arise between the Parties, the Parties shall promptly seek to
resolve any such dispute by negotiations among the senior executives of the
Parties who have the authority to settle such dispute (“Senior Executives”)
prior to the initiation of any lawsuit.  The Senior Executives shall meet at a
mutually acceptable time and place within fifteen (15) days and thereafter as
often as they reasonably deem necessary to exchange relevant information and to
attempt to resolve the dispute.  All negotiations and communications pursuant to
this ARTICLE XXIII shall be treated and maintained by the Parties as
confidential information and shall be treated as compromise and settlement
negotiations for purposes of the federal and state Rules of Evidence.  If the
matter has not been resolved within thirty (30) days after the initial meeting
of the Senior Executives, or such longer period as may be mutually agreed upon,
either Party may initiate a lawsuit.
 
23.2    THIS AGREEMENT, AND ALL QUESTIONS RELATING TO ITS VALIDITY,
INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING, WITHOUT LIMITATION,
PROVISIONS CONCERNING LIMITATIONS OF ACTIONS) SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, NOTWITHSTANDING ANY
CONFLICT-OF-LAWS DOCTRINES OF SUCH STATE OR OTHER JURISDICTION TO THE
CONTRARY.  ALL MATTERS LITIGATED BY OR BETWEEN THE PARTIES THAT INVOLVE THIS
AGREEMENT, THE RELATIONSHIP OF THE PARTIES, OR ANY RELATED DOCUMENTS OR MATTERS
HEREUNDER SHALL BE BROUGHT ONLY IN FORT WORTH, TARRANT COUNTY, TEXAS.
 
23.3    In any suit filed by a Party hereto to resolve a dispute arising under
this Agreement or related to the services provided hereunder, each Party hereby
covenants and agrees to take all steps necessary to waive a trial by jury.
 
ARTICLE XXIV -
NOTICES AND PAYMENTS
 
Any notice, request, demand, statement, or bill provided for in this Agreement
shall be in writing and delivered by hand, mail, or facsimile.  All such written
communications shall be effective upon receipt by the other party at the address
of the parties hereto as follow:
 
Producer
 
Statements:
Quicksilver Resources Inc.
777 West Rosedale Street
Fort Worth, TX  76104
Attn:  Revenue Accounting
 
Payments:
Quicksilver Resources Inc.
 

 
24

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

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

 

 
 
777 West Rosedale Street
Fort Worth, TX  76104
Attn:  Accounting
 
Contractual:
Quicksilver Resources Inc.
777 West Rosedale Street
Fort Worth, TX  76104
Attn:  Marketing

 
25

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

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

 

 
Gatherer
 
Statements:
Cowtown Pipeline Partners L.P.
777 West Rosedale Street
Fort Worth, TX  76104
Attn:  Revenue Accounting
 
Payments:
Cowtown Pipeline Partners L.P.
777 West Rosedale
Fort Worth, TX  76104
Attn:  Accounting
 
Contractual:
Cowtown Pipeline Partners L.P.
777 West Rosedale
Fort Worth, TX  76104
Attn:  Marketing

 
Processor
 
Statements:
Cowtown Gas Processing Partners L.P.
777 West Rosedale
Fort Worth, TX  76104
Attn:  Revenue Accounting
 
Payments:
Cowtown Gas Processing Partners L.P.
777 West Rosedale
Fort Worth, TX  76104
Attn:  Accounting
 
Contractual:
Cowtown Gas Processing Partners L.P.
777 West Rosedale
Fort Worth, TX  76104
Attn:  Marketing

 
Any of the Parties may designate a further or different address by giving
written notice to the other Parties.
 
ARTICLE XXV -
ASSIGNMENT
 
This Agreement (and a Party’s rights and obligations hereunder) is assignable in
whole or in part.  This Agreement shall be binding upon and inure to the benefit
of the heirs, executors, administrators, successors, and assigns of the
respective Parties hereto; provided that no transfer of or succession to the
interest of any Party hereunder, either wholly or partially, shall affect or
bind the other Parties until it shall have been furnished with the original
instrument or with the proper proof that the claimant is legally entitled to
such interest.
 
26

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

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

 

 
ARTICLE XXVI -
MISCELLANEOUS
 
26.1    No waiver by any Party of any one or more defaults in the performance of
any provision of this Agreement shall operate or be construed as a waiver of
any  default or future defaults, whether of a like or different character.
 
26.2    This Agreement contains the entire agreement between the Parties and
there are no oral promises, agreements, or warranties affecting it.  This
Agreement may be amended or modified from time to time only by the written
agreement of all the Parties hereto; provided, however, that the Parties may
not, without the prior approval of the Conflicts Committee (as such term is
defined in the partnership agreement for Quicksilver Gas Services L.P.(“MLP”),
the parent of Gatherer and Processor, agree to any amendment or modification of
this Agreement that the general partner of MLP determines will adversely affect
the holders of common units of MLP.
 
26.3    The provisions of this Agreement are enforceable by the Parties hereto
and MLP, which is an intended third party beneficiary hereof. Except as
described in the immediately preceding sentence, nothing in this Agreement,
express or implied, is intended to confer upon any person other than the Parties
hereto and MLP and their respective successors and assigns, any rights, benefits
or obligations hereunder.  No limited partner of the MLP shall have the right,
separate and apart from MLP, to enforce any provision of this Agreement or to
compel any Party to this Agreement to comply with the terms of this Agreement.
 
26.4    The descriptive headings of the provisions of these general provisions
are formulated and used for convenience only and shall not be deemed to affect
the meaning or construction of any such provisions.
 
26.5    This Agreement supersedes and replaces any other contract(s) or
agreements(s) which may exist between the Parties covering the gathering and
processing of the Gas dedicated hereunder; provided the Parties agree that a
separate gathering agreement may be executed in substitution of this Agreement
to provide for the gathering by Gatherer of gas produced from some portion of
the dedicated Contract Area but which is deemed “dry” and not otherwise
desirable or acceptable for processing at the Facilities.
 
26.6    Nothing in this Agreement is intended to create a partnership or joint
venture under state law or to render the Parties hereto jointly and severally
liable to any third party.  Each of the Parties elects to be excluded from the
provisions of Subchapter K, Chapter 1 of Subtitle A, of the Internal Revenue
Code of 1986 pursuant to the provisions of Article 761(a) of such code and from
any similar provisions of state law.  Processor shall timely file such evidence
of this election as may be required under applicable law.
 
26.7    Should any section, paragraph, subparagraph, or other portion of this
Agreement be found invalid as a matter of law in a duly authorized court, or by
a duly authorized government agency, then only that portion of the Agreement
shall be invalid.
 
27

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

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

 

The remainder of the Agreement which shall not have been found invalid shall
remain in full force and effect.
 
26.8    This Agreement was prepared jointly by the Parties hereunder and not by
any Party to the exclusion of the other.
 
26.9    Producer recognizes and acknowledges Gatherer’s and Processor's
proprietary interest in this Agreement, and Producer agrees not to divulge any
of the contents hereof to any other person, firm, corporation, or other
entity.  Producer agrees to be responsible for enforcing the confidentiality of
this Agreement and agrees to take such action as necessary to prevent any
disclosure by any of its agents or employees.
 
 
 
(SIGNATURE PAGE FOLLOWS)

 
28

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

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

 

 
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in several
originals to be effective as of the Effective Date.
 

  PRODUCER           Quicksilver Resources Inc., a Delaware corporation        
 
 
By:
/s/ Stan Page       Stan Page       Vice President - U.S. Operations  

              GATHERER           Cowtown Pipeline Partners L.P., a Texas limited
partnership          
 
By:
Quicksilver Gas Services Operating GP LLC, its general partner  

       
 
By:
/s/ Thomas F. Darden       Thomas F. Darden       President and Chief Executive
Officer  

              PROCESSOR           Cowtown Gas Processing Partners L.P., a Texas
limited partnership          
 
By:
Quicksilver Gas Services Operating GP LLC, its general partner  

       
 
By:
/s/ Thomas F. Darden       Thomas F. Darden       President and Chief Executive
Officer