Exhibit 10.3


 


NATURAL GAS SERVICES AGREEMENT


 


This
Natural Gas Services Agreement (“Agreement”) is made and entered into with
effect as of the 23rd day of May, 2006 by and between BP Canada Energy
Marketing Corp., (“BP”) and Otter Tail Ag Enterprises, LLC (“Customer”). BP and
Customer are also referred to individually as “Party” and collectively as “Parties”.


 


WHEREAS:


 


Customer
is in the process of developing an ethanol plant near the City of Fergus Falls,
Minnesota, that, when constructed, will be an end user of natural gas behind
the citygate of Great Plains Natural Gas Company (the “Local Distribution
Company” or “LDC”) receiving deliveries through the pipeline system of Viking
Gas Transmission Company and/or such other pipeline that is capable of delivering
gas to the citygate (the “Delivery Pipeline”);


 


Customer may from time to
time contract for firm transportation capacity on the Delivery Pipeline, (“Customer
Transportation Capacity”), such capacity contracted for will be set out in
Schedule A, as such Schedule is amended from time to time by the parties;


 


Customer wishes BP to manage
the procurement of a reliable, competitively priced supply of natural gas
delivered to the appropriate Delivery Pipeline receipt point and/or citygate;


 


BP and Customer have entered
into a Base Contract for Short-Term Sale and Purchase of Natural Gas between BP
and Customer, dated May 1st, 2006, (a copy of which is attached hereto as Exhibit A)
pursuant to which BP delivers and sells, or may deliver and sell, gas to Customer
and in accordance with the terms more particularly set out therein (“Gas
Purchase and Sale Agreement”);


 


BP has the capability and
resources to provide natural gas supply, transportation management, and other
related services to Customer as contemplated herein.


 


NOW THEREFORE, in consideration of the premises and mutual covenants and conditions
contained in this Agreement, the parties agree as follows:


 


Management
Services


 


1.             BP shall provide Customer with management
services (“Management Services”) that shall consist of:


 


	
  (i)

  	
  Upon Customer’s request, assisting Customer in its
  request for proposal (“RFP”) processes for natural gas for its ethanol
  plant(s) which utilizes natural gas. In the event Customer submits
  written request(s) for assistance with more than two (2) RFP
  processes during any

  



 


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  calendar month, Customer
  shall provide BP a written prioritization of such requests and BP shall use
  reasonable commercial efforts to comply with such requests. The parties agree
  that a customary process through which BP may support Customer pursuant to
  this RFP service is as follows:

  
	
   

  	
   

  
	
   

  	
  (A)

  	
  BP shall assist Customer
  in the preparation of the RFP and supporting data for distribution to
  potential suppliers.

  
	
   

  	
   

  	
   

  
	
   

  	
  (B)

  	
  Customer shall mail the
  RFP to potential suppliers using Customer letterhead and shall request that
  responses to the RFP be sent directly to Customer.

  
	
   

  	
   

  	
   

  
	
   

  	
  (C)

  	
  Customer shall review the
  RFP responses independently and make the final decisions on the
  winner(s) of the RFP, subject to BP’s right to match any bid pursuant to
  the right to match provided to BP pursuant to Section 2 of this
  Agreement.

  
	
   

  	
   

  	
   

  
	
   

  	
  (D)

  	
  All agreements for third
  party gas supply shall be entered into under contracts that are in place
  between Customer and such third party supplier.

  
	
   

  	
   

  	
   

  
	
   

  	
  In assisting Customer with
  its RFP processes, BP does not and shall not guarantee or make any
  representation that gas supply is or shall be obtainable under any
  circumstances, that any gas supply may be obtained at any price, or that any
  gas supply is for the best available pricing or other terms of service.
  Customer represents and warrants to BP that, in selecting any third party bid
  through an RFP process, and entering into any contract or transaction with
  such a third party, that it is acting for its own account, after having made
  its own independent decisions with respect to such selection or agreement,
  and that it is capable of understanding and assuming, and understands and
  assumes, the obligations and risks associated with such selection and
  transaction.

  
	
   

  	
   

  
	
  (ii)

  	
  assisting Customer in
  researching, identifying, and evaluating appropriate transportation routings
  with respect to Customer’s gas supply and plant. Customer acknowledges that
  BP does not and shall not guarantee or make any representation that
  transportation of any Customer gas is or shall be obtainable under any
  circumstances, that any such service may be obtained at any price, or that
  any such transportation is for the best available pricing or other terms of
  service. Customer represents and warrants to BP that, in making any decisions
  with respect to transportation routings or entering into any agreement with a
  third party for transportation or storage service, that it is acting for its
  own account, after having made its own independent decisions with respect to
  such routings and agreement, and that it is capable of understanding and
  assuming, and understands and assumes, the obligations and risks associated
  with such agreements.

  



 


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  (iii)

  	
  managing,
  coordinating and monitoring the day-to-day operations of the Customer
  Transportation Capacity in accordance with and subject to the posted tariffs
  of the Delivery Pipeline and the LDC, including, without limitation, managing
  daily delivery and receipt point nominations and resolving any imbalance or
  capacity curtailment issues that may arise in respect of the Customer
  Transportation Capacity;

  
	
   

  	
   

  
	
  (iv)

  	
  as necessary, coordination
  and communication of daily gas nominations between Customer and third party
  gas suppliers;

  
	
   

  	
   

  
	
  (v)

  	
  assisting
  Customer in mitigating its cost of Customer Transportation Capacity by
  identifying any such Customer Transportation Capacity not necessary to meet
  Customer’s requirements and effecting, at the direction and approval of
  Customer, for the credit of Customer and subject to applicable regulatory
  requirements, the short term or long term release of such Customer
  Transportation Capacity to secondary capacity markets, including to BP;

  
	
   

  	
   

  
	
  (vi)

  	
  as
  requested by Customer, assisting Customer in analyzing and solving problems
  relating to supply procurement, transportation, dispatching and accounting
  and in negotiations with the Delivery Pipeline and/or LDC for the purpose of
  receiving discounted pipeline transportation and/or distribution rates;

  
	
   

  	
   

  
	
  (vii)

  	
  receiving,
  confirming the accuracy of, and paying (subject to Section 5 of this
  Agreement), on behalf of Customer, all statements and invoices payable by
  Customer in respect of the Customer Transportation Capacity, and to the
  extent BP is Customer’s supplier for any portion of the gas supply being
  transported via the Customer Transportation Capacity, all LDC statements and
  invoices payable by Customer associated with such supply;

  
	
   

  	
   

  
	
  (viii)

  	
  providing Customer with
  relevant publicly available current and historical Gas industry market
  information to assist Customer in making cost effective Gas purchasing
  decisions;

  
	
   

  	
   

  
	
  (ix)

  	
  monitoring,
  reporting and communicating to Customer possible risk management
  opportunities as to the forward price of gas and, if agreed to by Customer,
  executing any hedging activities for Customer with approved counterparties;
  and,

  
	
   

  	
   

  
	
  (x)

  	
  advising Customer in a
  timely manner of any critical day events on the Delivery Pipeline or any
  other industry developments or circumstances

  



 


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of
which BP has become aware that may have a material effect on the supply or
transportation of gas to Customer.


 


2.             Right to Match (“RTM”).
BP shall have the right, but not the obligation, to participate as a bidder in
any Customer RFP, provided however, that in any event, BP shall have the right
to match any bid made by any third party supplier and selected by Customer as
the potential winning bid. Customer shall present BP with the bid(s) selected
by it in the RFP process as the potential winning bid(s), and BP shall have one
Business Day from the date it is presented with the bid(s) to be
matched(the “RTM Deadline”) to notify Customer that it will match the bid(s) presented
to it as the potential winning bid(s). If BP does not notify Customer by the
RTM Deadline, then BP shall be deemed to have waived its RTM for such RFP. Any
bids that BP matches hereunder shall be effected through a gas purchase and
sale transaction(s) made and to be performed in accordance with the terms
of the Gas Purchase and Sale Agreement.


 


3.             In consideration of the Management Services,
Customer shall pay BP US $0.015 per Decatherm on all natural gas scheduled to
be delivered to Customer’s city gate by reference to all Customer’s nominations
each month during the period of May 1, 2006 through May 31, 2011 and
during each month thereafter for which this Agreement continues pursuant to Section 12.
(“Monthly Management Fee”).


 


4.             Customer shall provide BP with all agreements
undertaken by Customer for Customer Transportation Capacity, including any new
agreements that Customer may undertake from time to time and any amendments
thereto. BP shall maintain ongoing familiarity with the terms of such
agreements, including the pipeline tariffs applicable to the Customer
Transportation Capacity, and shall use all reasonable efforts to operate such
agreements so as to achieve the maximum benefit for Customer. Customer shall
also provide BP with all information required by BP in respect of third party
supply in order to provide the services set out in Section 1(iv),
including, without limitation, the name and particulars of each third party,
the third party Duns number and any applicable upstream contract numbers.


 


5.             On or before the date on which BP is required
to pay pipeline reservation charges for Customer Transportation Capacity, or
LDC charges, pursuant to Section 1(vii), Customer shall reimburse BP the
full amount of such payment. Customer’s payment to BP of such amount in
accordance with the foregoing is a condition precedent to BP’s obligation under
Section 1(vii) to pay any statements or invoices payable by Customer
in respect of Customer Transportation Capacity or LDC charges on Customer’s
behalf.


 


6.             BP and Customer shall work together to
minimize any penalties or forfeitures that may arise in respect of the Customer
Transportation Capacity or other


 


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transportation
capacity that may be utilized for the purposes of this Agreement. Each Party
shall be responsible for Imbalance Charges that result from the actions, errors
or omissions of that Party. BP shall not be responsible for Imbalance Charges
to the extent that BP was acting reasonably on information provided by Customer
or on instructions from Customer. Customer shall not be liable for Imbalance
Charges incurred as a result of BP failing to nominate, schedule and/or confirm
the quantity of Scheduled Gas under Customer’s Transportation Capacity in
accordance with Customer’s instructions. In this paragraph, “Imbalance Charges”
means any fees, penalties, costs or charges (in cash or in kind), assessed by
Delivery Pipeline in accordance with its tariff, for failure to satisfy
Delivery Pipeline’s balancing, nomination or other scheduling requirements.


 


7.             Subject to Section 5, billing and
payment in respect of the Monthly Management Fee and any other amounts owing to
BP by Customer or to Customer by BP in respect of Management Services provided
hereunder [including, without limitation, any amounts owing by Customer to BP
with respect to the Customer Transportation Capacity or LDC invoices to be paid
by BP on behalf of Customer under Section 1(vii)] shall be governed by the
terms set out in Section 7 of the Gas Purchase and Sale Agreement, applied
mutatis mutandis.


 


8.             Customer shall take all actions necessary to
designate BP as its agent to the extent necessary to enable BP to perform its
obligations under Sections 1(iii), 1(iv), 1(v), 1(vi) and 1(vii).


 


9.             Except for any obligation to make payment
pursuant to Sections 3, 5, and 7, if either Party is rendered unable, by reason
of an event of Force Majeure, to perform, wholly or in part, any obligation or
commitment included in or related to the Management Services then, upon such
Party giving to the other Party written notice with full particulars of the
event of Force Majeure, such obligation or commitment shall be suspended to the
extent and for the period of the Force Majeure event. The term “Force Majeure”,
as used in this Section 9, shall have the meaning set out in the Gas
Purchase and Sale Agreement.


 


Additional
Pipeline or Storage Capacity


 


10.           Subject to mutual agreement on terms in each
case, BP may, at its sole discretion, contract with Customer for Customer to
utilize BP’s transportation or storage capacity on the Delivery Pipeline.


 


11.           Any agreements reached pursuant to Section 10
of this Agreement shall be subject to all applicable laws and regulations,
including without limitation, the Federal Energy Regulatory Commission’s (FERC’S)
rules and regulations respecting capacity release.


 


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Term


 


12.           This Agreement shall be in effect during the
period of May 1, 2006, through April 30, 2011, and shall continue on
a year to year basis thereafter unless terminated on not less than sixty (60)
days written notice given by one of the Parties to the other, provided that:


 


(i)            any termination shall occur at the end of a
month;


 


(ii)           any obligation to make payment hereunder
shall survive the termination of this Agreement; and,


 


(iii)          such termination shall not apply to gas purchase arrangements made and
then in effect pursuant to the Gas Purchase and Sale Agreement.


 


13.           So long as this Agreement is in effect, the
Gas Purchase and Sale Agreement may not be terminated by either Party pursuant
to Section 11 thereunder.


 


14.           If an Early Termination Date is declared
under Section 10.3 of the Gas Purchase and Sale Agreement, this Agreement
shall terminate s of such Early Termination Date, subject to Section 12(i) and
(ii).


 


15.           If an Event of Default as defined in Section 10.2
of the Gas Purchase and Sale Agreement occurs with respect to either party; or
if either party shall fail to make any payment when due under this Agreement on
or before the second Business Day following notice that such payment is due or
fail to perform any material covenant hereunder and such failure is not
remedied with 5 Business Days following notice that such failure exists, then
the other party shall, subject to Section 12(i) and (ii) have
the right to terminate this Agreement by providing at least one Business Day
written notice to the other party. For the purpose of this Agreement Business
Day shall have the meaning given to it under the Gas Purchase and Sale
Agreement.


 


16.           Termination of this Agreement under Sections
14 or 15 above shall not preclude or limit the non-defaulting party from
pursuing any other remedy available at law or in equity in respect of any breach
of this Agreement.


 


Miscellaneous


 


17.           Any notice, demand, request, or invoice or
payment required or permitted to be made hereunder shall be deemed given or
made when received by the party to whom it is addressed at the addresses set
out for the purpose in the Gas Purchase and Sale Agreement.


 


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18.           If any provision in this Agreement is
determined to be invalid, void or unenforceable by any court having
jurisdiction, such determination shall not invalidate, void, or make
unenforceable any other provision, agreement or covenant of this Agreement; and
the parties agree to negotiate in good faith a replacement to such invalid,
void or unenforceable provision and/or any other amendment as may be necessary to
ensure that this Agreement as a whole reflects the original intention of the
parties.


 


19.           No waiver of any breach of this Agreement
shall be held to be a waiver of any other or subsequent breach.


 


20.           The Parties expressly acknowledge and agree
that it is neither the purpose of this Agreement nor their intent to create a
partnership, joint venture contract or company, association or trust, fiduciary
relationship or partnership between them and nothing herein shall be construed
to create any such relationship between the parties. Except as expressly
provided herein, neither Party shall have any authority to act for or assume
any obligations, or responsibilities on behalf of, the other Party and neither
shall Party shall be liable for the debts or obligations of the other. IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER THIS
AGREEMENT, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT
LIABILITY), OR OTHERWISE, FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE
DAMAGES.


 


21.           This Agreement shall be binding upon and
inure to the benefit of the successors, assigns, personal representatives, and
heirs of the respective parties hereto. No assignment of this Agreement, in
whole or in part, will be made without the prior written consent of the
non-assigning party, which consent will not be unreasonably withheld or
delayed; provided, either party may transfer its interest to any parent or
affiliate by assignment, merger or otherwise without the prior approval of the
other party. Upon any transfer and assumption, the transferor shall not be
relieved of or discharged from any obligations hereunder.


 


22.           This Agreement sets forth all understandings
between the parties as of the effective date herein respecting each transaction
subject hereto and any prior contracts, understandings and representations,
whether oral or written, relating to such transactions are merged into and
superseded by this Agreement. This Agreement may be amended only by a writing
executed by both Parties.


 


23.           The interpretation and performance of this
Agreement shall be governed by the laws of Minnesota excluding, however, any
conflict of laws rule that would apply the law of another jurisdiction.


 


24.           This Agreement and all provisions herein will
be subject to all applicable and valid statutes, rules, orders and regulations
of any Federal, State, or local governmental authority having jurisdiction over
the parties, their facilities, or gas supply.


 


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25.           Neither Party shall disclose directly or indirectly without the prior
written consent of the other Party the terms of this Agreement, any
Confidential Information (as defined herein) of a Party, or any transaction
contemplated hereunder to a third party (other than the officers, governors, directors,
employees, lenders, royalty owners, counsel, accountants and other agents of
the Party, or prospective purchasers of all or substantially all of a Party’s
assets or of any rights under this Agreement, provided such persons shall have
agreed to keep such terms confidential) except (i) in order to comply with
any applicable law, order, regulation, or exchange rule, (ii) to the
extent necessary for the enforcement of this Agreement and (iii) to the
extent necessary to implement and perform this Agreement. Each party shall
notify the other Party of any proceeding of which it is aware which may result
in disclosure of the terms of this Agreement (other than as permitted
hereunder) and use reasonable efforts to prevent or limit the disclosure.
Subject to Section 20, the Parties shall be entitled to all remedies
available at law or in equity to enforce or seek relief in connection with this
confidentiality obligation. The terms of this Agreement shall be kept
confidential by the Parties hereto for two years from the expiration or
termination of this Agreement any Confidential Information disclosed during the
term shall be kept confidential for two years from the date such information
was disclosed.


 


a.          “Confidential Information” shall mean all
trade secret, proprietary or confidential information, including, without
limitation, business plans, strategies, financial data, specifications,
production information, equipment details, process information, intellectual
property and other information of a confidential, trade secret, or proprietary
nature, received or generated during the course of the performance of this Agreement
including the books and records of either party. Confidential Information shall
not include that which (i) is in the public domain prior to disclosure to
another Party, (ii) is lawfully in the other party’s possession, as
evidenced by written records, prior to the disclosure by a Party, or (iii) becomes
part of the public domain by publication or otherwise through no unauthorized
act or omission on the part of the other Party.


 


b.         Reasonable steps shall be taken and
maintained by each Party to protect the Confidential Information of the other
party.


 


c.          Confidential Information shall be used by the parties only in connection
with their performance under this Agreement; no other use will be made of it by
either party, the Parties acknowledge that their representatives will form and
retain mental impressions based upon the Confidential Information disclosed to
each Party and it is not the intent of the Parties that the non-use
restrictions contained in this Agreement will prevent these representatives
from performing their other work assignments for their respective employers.


 


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d.         All documents containing Confidential
Information of a Party shall remain the property of that Party. They shall be
returned to that party or destroyed upon request.


 


In
the event that disclosure is required by a governmental body or applicable law,
the Party subject to such requirement may disclose the material terms of this
Agreement to the extent so required, but shall promptly notify the other Party,
prior to disclosure, and shall cooperate (consistent with the disclosing Party’s
legal obligations) with the other Party’s efforts to obtain protective orders
or similar restraints with respect to such disclosure at the expense of the
other Party.


 


26.           Each Party to this Agreement represents and warrants that it has full
and complete authority to enter into and perform this Agreement. Each person
who executes this Agreement on behalf of either party represents and warrants
that it has full and complete authority to do so and that such Party will be
bound thereby.


 


27.           Customer acknowledges that BP is not a “utility” as such term is used
in 11 U.S.C. Section 366, and Customer agrees to waive and not to assert
the applicability of the provisions of 11 U.S.C. Section 366 in any
bankruptcy proceeding involving Customer.


 


28.           This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the Parties.


 


29.           BP will perform the services contemplated by
this Agreement in a diligent, professional and workmanlike manner and in
compliance with all applicable laws, rules and regulations.


 


INTENDING TO BE LEGALLY BOUND, the Parties have executed this Agreement
through their duly authorized representatives effective as of the date
specified above.


 


	
  BP CANADA
  ENERGY MARKETING CORP.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ SCOTT H. SMITH

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  SCOTT H. SMITH

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  ASS’T SECRETARY

  	
   

  



 


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  OTTER TAIL AG ENTERPRISES, LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Jerry Larson

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Jerry Larson

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  President

  	
   

  



 


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SCHEDULE A


 


Attached to and made a part of that certain Natural Gas Services
Agreement dated May 23rd, 2006 by and between


BP Canada Energy Marketing Corp., and Otter Tail Ag Enterprises, LLC


 


Customer Transportation Capacity:


 


[None provided as of the date of this Agreement]


 

















 


EXHIBIT A


 


Base Contract for
Short-Term Sale and Purchase of Natural Gas dated May 1st, 2006 by and between

BP Canada Energy Marketing Corp., and Otter Tail Ag Enterprises, LLC


 


[See Attached]