Exhibit 10.3

Execution Version

TRANSITION SERVICES AGREEMENT

This Transition Services Agreement (this “Agreement”) is made and entered into
as of the 21st day of May, 2010, by and between KinderHawk Field Services LLC, a
Delaware limited liability company (“Newco”), and Petrohawk Energy Corporation,
a Delaware corporation (“Petrohawk”).

RECITALS:

WHEREAS, Petrohawk, Hawk Field Services, LLC, an Oklahoma limited liability
company (“HFS”), and KM Gathering LLC, a Delaware limited liability company
(“KM”), which is a wholly-owned subsidiary of Kinder Morgan Energy Partners,
L.P., a Delaware limited partnership (“KM”), have entered into a Formation and
Contribution Agreement dated April 12, 2010 (the “FCA”);

WHEREAS, pursuant to the FCA, KM and HFS will enter into a Limited Liability
Company Agreement with respect to Newco (“LLC Agreement”);

WHEREAS, this Agreement is entered into and executed pursuant to the FCA; and

WHEREAS, Newco desires to retain, and Petrohawk desires to perform certain
services with respect to Newco, on the terms and conditions set forth herein.

NOW, THEREFORE, for and in consideration of the mutual covenants, conditions,
and agreements hereinafter set forth, the parties, intending to be legally bound
hereby, agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, each of the following terms shall have the meaning
ascribed to them in this Article 1 unless otherwise specified or clearly
required by the context in which such term is used:

“Approved Budget” means the Approved Budget for 2010 or the Approved Budget for
2011, as applicable, for the period during which the Services are being
performed under this Agreement.

“Approved Budget for 2010” has the meaning set forth in the FCA, including any
permitted variances in accordance with Section 5.17 of the LLC Agreement, as the
same may be subsequently amended from time to time in accordance with the LLC
Agreement.

“Approved Budget for 2011” has the meaning set forth in the FCA, including any
permitted variances in accordance with Section 5.17 of the LLC Agreement, as the
same may be subsequently amended from time to time in accordance with the LLC
Agreement.

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“Business Day” means any day other than (a) a day on which commercial banks in
Houston, Texas are required or authorized to be closed for business and (b) a
Saturday, a Sunday or a day observed as a holiday in Houston, Texas under the
applicable Law of the State of Texas or the United States of America.

“Commencement Date” shall mean May 21, 2010, or such other date as agreed by the
Parties.

“Extended Term” shall have the meaning set forth in Article 2 of this Agreement.

“Haynesville Business” shall have the meaning given such term in the FCA.

“Initial Term” shall have the meaning set forth in Article 2 of this Agreement.

“Notice” has the meaning set forth in Article 10 of this Agreement.

“Operating Services” shall have the meaning set forth in Article 3 of this
Agreement.

“Parties” means the parties to this Agreement, Newco and Petrohawk, together,
and “Party” refers to either of them, individually; provided, where appropriate,
Party refers to Newco, on the one hand, and Petrohawk, on the other hand.

“Person” shall mean a corporation, partnership, joint venture, trust,
unincorporated organization or association or other form of business enterprise
or any individual.

“Project” shall have the meaning set forth in the LLC Agreement.

“Prior Period” shall mean the 12 calendar months immediately prior to the
Commencement Date.

“Services” shall have the meaning set forth in Article 3 of this Agreement.

“Services Fee” shall have the meaning set forth in Article 5 of this Agreement.

“Term” shall have the meaning set forth in Article 2 of this Agreement, and
shall include both the Initial Term and the Extended Term, if applicable.

“Transaction Documents” means the FCA, the LLC Agreement and the Gas Gathering
Agreement (as defined in the FCA).

“Transition Employees” shall have the meaning set forth in Article 3 of this
Agreement.

“Transition Services” shall have the meaning set forth in Article 3 of this
Agreement.

 

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ARTICLE 2

TERM

Unless sooner terminated pursuant to other provisions hereof, the term of this
Agreement (the “Term”) shall commence on the Commencement Date and shall
continue through December 31, 2010 (the “Initial Term”); provided, however, to
the extent the Services have not been fully transitioned to Newco on a
stand-alone basis as of the expiration of the Initial Term, Newco may extend the
Term on a month-to-month basis, for up to five (5) months after the expiration
of the Initial Term (the “Extended Term”) by providing Notice to Petrohawk at
least 10 days prior to the expiration of the Initial Term or the last day of any
month in the Extended Term.

ARTICLE 3

THE SERVICES

(a) Subject to the terms and conditions of this Agreement, during the Term,
Petrohawk shall manage the day-to-day operations of the Haynesville Business and
provide general and administrative services necessary to operate the Haynesville
Business and to pursue development of the Project including, but not limited to,
accounting, information technology, human resources, legal, marketing and
technical functions (collectively, the “Operating Services”). Such Operating
Services shall be performed subject to the Approved Budget. Subject to the terms
and conditions of this Agreement, Petrohawk shall perform the Operating Services
with the same degree of care, diligence and responsiveness and, in the same
manner in which such Operating Services were provided by Petrohawk to the
Haynesville Business during the Prior Period. Notwithstanding the foregoing, the
Parties acknowledge that business conditions may require adjustments to the
manner in which Petrohawk provides the Operating Services in order to achieve
continuity of the Haynesville Business during the Term, but in all cases any
such adjustments shall remain subject the Approved Budget. With respect to
Operating Services not contemplated by the Approved Budget, Petrohawk and KM
shall meet to discuss the appropriate means to have such Operating Services
provided to Newco and any related fees.

(b) The Parties acknowledge that it is the intention of the Parties that the
Operating Services be fully transitioned to Newco on a stand-alone basis by the
expiration of the Initial Term, and Petrohawk shall use its commercially
reasonable efforts to cooperate and assist Newco in facilitating such transition
(collectively, the “Transition Services,” and together with the Operating
Services, collectively referred to herein as the “Services”).

(c) During the Term, Petrohawk agrees not to, and shall cause its subsidiaries
not to, terminate the employment of any employee who provides Services under
this Agreement (“Transition Employees”) without the consent of Newco (such
consent not to be unreasonably withheld); provided, however, that Petrohawk
shall have the right to terminate any Transition Employee for cause and the
Parties acknowledge that any Transition Employee may terminate his or her
employment voluntarily. If a Transition Employee voluntarily terminates
employment with Petrohawk (or a subsidiary) or is terminated for cause,
Petrohawk agrees to (i) allocate the responsibilities of such Transition
Employee related to the provision of Services among the remaining employees of
Petrohawk and its subsidiaries and (ii) to the extent necessary, hire employees
or use sub-contractors in order to provide the Services in accordance with
Article 3.

 

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(d) Except in the case of fraud, gross negligence or willful misconduct on the
part of Petrohawk, Petrohawk’s sole liability and Newco’s sole remedy for any
breach of Petrohawk’s obligation to provide the Services in accordance with this
Article 3 shall be for Petrohawk to perform or re-perform such Services at no
cost to Newco.

ARTICLE 4

SERVICE FEE

In consideration for Petrohawk’s performance of the Services hereunder, during
the Term Newco will pay Petrohawk a monthly fee (the “Service Fee”) equal to
$881,415. Petrohawk will provide Newco with a monthly written invoice for the
Service Fee and expenses, including a reasonably detailed accounting, and Newco
shall pay such invoice promptly upon receipt and in no event later than 15 days
after receipt of such invoice.

ARTICLE 5

INDEMNIFICATION

TO THE EXTENT PERMITTED BY LAW AND NOTWITHSTANDING ANY OTHER TERM OF THIS
AGREEMENT OR ANY OTHER AGREEMENT TO THE CONTRARY, NEWCO, FROM AND AFTER THE
COMMENCEMENT DATE, SHALL DEFEND, INDEMNIFY AND HOLD PETROHAWK, ITS RESPECTIVE
DIRECTORS, OFFICERS AND EMPLOYEES (COLLECTIVELY, THE “INDEMNIFIED PERSONS”) FROM
AND AGAINST ANY AND ALL LIABILITY SUFFERED BY THEM AS A RESULT OF THE
PERFORMANCE OF THE SERVICES HEREUNDER EXCEPT TO THE EXTENT OF SUCH DAMAGES
SUFFERED ARE AS A RESULT OF ANY ACT OR OMISSION ARISING FROM OR PURSUANT TO THIS
AGREEMENT BY ANY INDEMNIFIED PERSON CONSTITUTING FRAUD, WILLFUL MISCONDUCT OR
GROSS NEGLIGENCE. NEWCO’S INDEMNIFICATION OBLIGATIONS HEREUNDER SHALL INCLUDE
LIABILITIES ARISING OUT OF ANY INDEMNIFIED PERSONS’ STRICT LIABILITY OR THE SOLE
OR CONCURRENT NEGLIGENCE OF SUCH INDEMNIFIED PERSON (BUT NOT FRAUD, WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE OF SUCH INDEMNIFIED PERSON).

ARTICLE 6

BOOKS AND RECORDS

All books, records, files, data and other information relating solely to the
Haynesville Business shall be the property of Newco. Upon termination of this
Agreement, all such books, records, files, data and other information relating
solely to the Haynesville Business shall be delivered to Newco within sixty
(60) days of such termination. For a period of one (1) year after the
termination of this Agreement, Petrohawk shall retain and provide Newco
reasonable access to and right to inspect the books and records of Petrohawk
relating to the provision of Services hereunder, for the sole purpose of
auditing, at Newco’s cost and expense, invoices that Newco receives from
Petrohawk pursuant to this Agreement.

 

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ARTICLE 7

RELATIONSHIPS OF THE PARTIES

Petrohawk shall perform its duties hereunder as an independent contractor and it
is expressly agreed that this Agreement shall not create a partnership, joint
venture or association. All matters pertaining to the employment, supervision,
compensation, promotion and discharge of any personnel of Petrohawk are the
responsibility of Petrohawk. All such employment arrangements are solely
Petrohawk’s obligation, and Newco shall have no liability with respect thereto.
Newco hereby grants Petrohawk all necessary authority and appoints Petrohawk as
its attorney-in-fact for the limited purpose of providing the Services.

ARTICLE 8

TERMINATION

Newco may from time to time elect to terminate individual Services upon written
notice to Petrohawk, which shall specify the Service or Services to be
terminated and the effective date of such termination. Petrohawk and Newco shall
meet promptly after the delivery of each notice terminating a Service and shall
negotiate in good faith a reasonable reduction in the Service Fee based on the
reduced obligations of Petrohawk to provide Services hereunder. Any such
reduction in the Service Fee shall become effective on the date of termination
specified in Newco’s notice and all subsequent invoices for Service Fees shall
reflect the agreed upon reduction, which shall be prorated on a daily basis for
the month in which such termination occurred. Either Party shall have the right
to terminate this Agreement upon a material breach thereof if the other party
fails to cure such breach within 30 days after receiving Notice thereof;
provided, in the case of Petrohawk, if it uses its reasonable best efforts to
perform or re-perform any Services subject to a Notice of breach, then Petrohawk
shall be deemed to have cured any such breach. Notwithstanding any termination
of this Agreement, Newco and Petrohawk expressly agree that all provisions of
this Agreement that contemplate performance after the expiration or earlier
termination hereof shall survive such expiration or earlier termination of this
Agreement.

ARTICLE 9

FORCE MAJEURE

The Parties hereto shall be excused for failure to perform the respective
obligations hereunder (other than a failure relating to payment obligations
imposed hereunder) to the extent that such failure is directly or indirectly
caused by an occurrence commonly known as force majeure, including, without
limitation, delays arising from fire, earthquake, flood or other acts of God,
acts or orders of a government, agency or instrumentality thereof, acts of a
public enemy, acts of terror, civil disturbances, riots, embargoes, strikes or
other consorted acts of workers, casualties or accidents, failure or delay in
deliveries or materials or transportation, shortages of labor or materials,
communications failure or any other causes, circumstances or contingencies, that
are beyond the reasonable control of the Party unable to perform. The Party
claiming a force majeure event shall, to the extent reasonably possible, remedy
such force majeure event with all reasonable dispatch.

 

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ARTICLE 10

MISCELLANEOUS

(a) Any notice, request, instruction, correspondence or other document to be
given hereunder by Newco or Petrohawk to the other (herein collectively called
“Notice”) shall be in writing and delivered in person, by courier service
requiring acknowledgment of receipt of delivery, by facsimile, or by email as
follows:

If to Petrohawk, addressed to:

Petrohawk Energy Corporation

1000 Louisiana, Suite 5600

Houston, Texas 77002

Attention: Stephen W. Herod, Executive Vice President

Facsimile: (832) 204-2801

Email: sherod@petrohawk.com

with a copy (which shall not constitute Notice) to:

Petrohawk Energy Corporation

1000 Louisiana, Suite 5600

Houston, Texas 77002

Attention: David S. Elkouri, Executive Vice President and General Counsel

Facsimile: (832) 204-2872

Email: delkouri@petrohawk.com

If to Newco, addressed to:

KinderHawk Field Services LLC

1000 Louisiana, Suite 5600

Houston, Texas 77002

Attention: Stephen W. Herod

Facsimile: (832) 204-2801

Email: sherod@petrohawk.com

with copies (which shall not constitute Notice) to:

KM Gathering LLC

500 Dallas, Suite 1000

Houston, Texas 77002

Attention: Vice President of Corporate Development

Facsimile: 713-495-2813

Email: david_kinder@kindermorgan.com

 

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Petrohawk Energy Corporation

1000 Louisiana, Suite 5600

Houston, Texas 77002

Attention: David S. Elkouri, Executive Vice President and General Counsel

Facsimile: (832) 204-2872

Email: delkouri@petrohawk.com

Notice given by personal delivery or courier service shall be effective upon
actual receipt. Notice given by facsimile shall be confirmed by appropriate
receipt of the completed transmission, and notice by email shall be established
or confirmed by appropriate evidence generated from the sender’s electronic mail
server showing that such notice was sent to the appropriate email on a specified
date. Such facsimile or email shall be effective if the facsimile receipt or
evidence of email establishes it was received during the recipient’s normal
business hours, or at the beginning of the recipient’s next Business Day after
the facsimile receipt or evidence of email establishes it was not received
during the recipient’s normal business hours. Any Party may change any address
to which Notice is to be given to it by giving Notice as provided above of such
change of address.

(b) This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter hereof. Each Party to this Agreement agrees that no other party
(including its agents and representatives) has made any representation,
warranty, covenant or agreement to or with such Party relating to this Agreement
or the transactions contemplated hereby, other than those expressly set forth
herein and in the Transaction Documents.

(c) No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by each Party to be bound thereby. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (regardless of whether similar), nor shall any
such waiver constitute a continuing waiver unless otherwise expressly provided.

(d) Specific provisions prevail over general provisions in this Agreement. In
the event of a conflict between this Agreement and the Transaction Documents,
this Agreement shall control.

(e) This Agreement shall be binding upon and inure to the benefit of the Parties
and their respective permitted successors and assigns, but neither this
Agreement nor any of the rights, benefits or obligations hereunder shall be
assigned or transferred, by operation of law or otherwise, by any Party without
the prior written consent of each other Party, provided that the Parties hereby
acknowledge and agree that KM is entitled to succeed to all rights and
obligations of Petrohawk under this Agreement, upon the occurrence of certain
events, as contemplated by the LLC Agreement.

(f) This Agreement shall be governed and construed in accordance with the
substantive laws of the State of Texas without reference to principles of
conflicts of law.

 

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(g) Each Party hereby irrevocably submits to the jurisdiction of the courts of
the State of Texas and the federal courts of the United States of America
located in the Harris County, Texas over any dispute or proceeding arising out
of or relating to this Agreement or any Transaction Document or any of the
transactions contemplated hereby or thereby, and each Party irrevocably agrees
that all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Each Party hereby irrevocably waives, to the fullest
extent permitted by applicable Law, any objection which it may now or hereafter
have to the venue of any dispute arising out of or relating to this Agreement or
any Transaction Document or any of the transactions contemplated hereby or
thereby brought in such court or any defense of inconvenient forum for the
maintenance of such dispute or proceeding. Each Party agrees that a judgment in
any dispute heard in the venue specified by this section may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
applicable Law. EACH PARTY WAIVES ITS RIGHT TO TRIAL BY JURY IN CONNECTION WITH
ANY DISPUTE OR PROCEEDING RELATING TO THIS AGREEMENT.

(h) If any provision of the Agreement is rendered or declared illegal or
unenforceable by reason of any existing or subsequently enacted legislation or
by decree of a court of last resort, the Parties shall promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable, but all of the remaining provisions of this Agreement shall
remain in full force and effect.

(i) It is expressly agreed by the Parties that this Agreement shall not be
construed against any party thereto, and no consideration shall be given or
presumption made, on the basis of who drafted this Agreement or any provision
hereof or who supplied the form of this Agreement or any of the Transaction
Documents. Each Party agrees that this Agreement has been purposefully drawn and
correctly reflects its understanding of the transactions contemplated by this
Agreement and, therefore, waives the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the Party drafting such agreement or
document.

(j) The headings of the several articles and sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

(k) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

[signature page follows on next page]

 

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EXECUTED as of the date first set forth above.

 

PETROHAWK ENERGY CORPORATION By:  

/s/    STEPHEN W. HEROD        

Name:   Stephen W. Herod Title:   Executive Vice President – Corporate
Development KINDERHAWK FIELD SERVICES LLC By:  

/s/    DAVID D. KINDER        

Name:   David D. Kinder Title:   Vice President

 

Signature Page to Transition Services Agreement