exv10w7



 





Exhibit 10.7




SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE 

CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN 

REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED 

WITH THE SECURITIES AND EXCHANGE COMMISSION, 

AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE 

WITH TWO ASTERISKS (**).




PINNACLE

GAS GATHERING AGREEMENT




between




PINNACLE GAS TREATING LLC (“Gatherer”)




and




ANADARKO PETROLEUM CORPORATION (“Shipper”)




 









 





GAS GATHERING AGREEMENT




COMMERCIAL CONTRACT




     THIS GAS GATHERING AGREEMENT is comprised of this Commercial Contract, the Definitions, and
the Terms and Conditions, and any attachments, exhibits, supplements, or modifications or
amendments thereto (“Agreement”). In consideration of the premises and mutual covenants and
agreements contained in the Agreement and other good and valuable consideration (the receipt and
sufficiency of which is hereby confessed and acknowledged), the Parties stipulate and agree as
follows:



The Parties to the Agreement are:





	 	•	 	Pinnacle Gas Treating LLC (“Gatherer” or “Pinnacle”),
	 
	 	•	 	Anadarko Petroleum Corporation (“Shipper” or “APC”); and
	 
	 	•	 	The Parties to the Agreement set forth in the Commercial Contract may be referred to
individually as a “Party” and collectively as the “Parties”.





System:





	 	•	 	The Pinnacle Gathering System located in Anderson, Freestone, Leon, Limestone and
Robertson Counties, Texas.





The Effective Date is:





	 	•	 	January 1, 2008.





The Term of the Agreement is:





	 	•	 	This Agreement will commence on the Effective Date and will remain in full force and
effect for a primary term of ten (10) years, subject to the termination provisions in
Article VIII of the Terms and Conditions.
	 
	 	•	 	After the primary term has expired, this Agreement will remain in effect for a period
of one (1) year and year to year thereafter, subject to the termination provisions in
Article VIII of the Terms and Conditions.





Dedication:





	 	•	 	Shipper dedicates all Gas, now or herein after, owned, controlled and produced by
Shipper within the Dedicated Area or from the Dedicated Wells. The Dedicated Wells are
producing Wells in which Shipper owns or controls Gas and which are connected to the
System now or in the future. The Dedicated Area will extend to a one mile radius of the
Dedicated Wells or the existing System (“Dedicated Area”). The Dedicated Area will expand
as Dedicated Wells are added and the System is expanded to connect the




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	 	 	 	Dedicated Wells. This dedication is not intended to be a covenant running with the land.
The System as it currently exists is depicted in blue on Attachment A.





Services:





	 	•	 	Gatherer will provide base gathering services as well as treating, compression and
dehydration.
	 
	 	•	 	The priority of service will be firm.
	 
	 	•	 	Gatherer will maintain the Service Levels in Attachment B.
	 
	 	•	 	Fuel and Loss will be actual fuel and loss as defined in the definitions.
	 
	 	•	 	The Rate of ** with an annual escalator of ** commencing on the anniversary of the
Effective Date.
	 
	 	•	 	The agreed upon Rate methodology is set out on Attachment B.
	 
	 	•	 	Adjusted Rates will be based on the original methodology used to determine the original
Rate such as production forecast, capital expense, operating expense, and rate of return
with the exception that capital will only be included on an incremental basis.
	 
	 	•	 	Rate re-determination will be based on the original methodology used to determine the
original Rate such as production forecast, capital expense, operating expense, and rate of
return.
	 
	 	•	 	Gatherer shall provide new well connections within the Dedicated Area.
	 
	 	•	 	Shipper will have the right to access Gatherer’s Point(s) of Receipt meters for SCADA
acquisition.





Gas Quality Requirements:





	 	•	 	See Attachment C.





Force Majeure:





	 	•	 	Force Majeure event must exceed ninety (90) consecutive Days after which thirty (30)
Days notice of termination of the Agreement may be given.





Notices will be sent to the following addresses:




	 	 	 
	 

	 	GATHERER
	 
	 	 
	Payment to be made
according to invoice
and if no instructions to:

	 	PINNACLE GAS TREATING LLC

P.O. Box 730277

Dallas, TX 75353-0277
	 
	 	 
	Nomination and

	 	PINNACLE GAS TREATING LLC

	Scheduling:

	 	Attn.: Gas Control






2









 






	 	 	 
	 

	 	P. O. Box 1330
	 

	 	Houston, TX 77251-1330
	 

	 	Telephone: (832) 636-1000
	 

	 	Telecopy:   (832) 636-8051
	 
	 	 
	Pipeline Emergencies:

	 	Telephone:  (832) 636-1000
	 
	 	 
	All Other:

	 	PINNACLE GAS TREATING LLC
	 

	 	Attn.: Contract Administration
	 

	 	P. O. Box 1330
	 

	 	Houston, TX 77251-1330
	 
	 	 
	 

	 	SHIPPER
	 
	 	 
	Nomination and

	 	ANADARKO PETROLEUM CORPORATION
	Scheduling:

	 	Attn.: Gas Control
	 

	 	P.O. Box 1330
	 

	 	Houston, TX 77251-1330
	 

	 	Telephone: (832) 636-1000
	 

	 	Telecopy:   (832) 636-8051
	 
	 	 
	Pipeline Emergencies:

	 	Telephone:  (832) 636-1000
	 
	 	 
	Billing:

	 	ANADARKO PETROLEUM CORPORATION
	 

	 	Attn.: Midstream Accounting
	 

	 	P.O. Box 1330
	 

	 	Houston, TX 77251-1330






3









 






ATTACHMENT A


DEDICATED AREA









4









 





ATTACHMENT B

SERVICE LEVELS




Service Levels are as follows:





	 	•	 	Services Provided






	 	•	 	Gathering — deliver Gas from Point(s) of Receipt to existing Point(s)
of Delivery.
	 
	 	•	 	Dehydration — reduce water content of the Gas to meet current
downstream Transporter’s pipeline water quality requirements.
	 
	 	•	 	H2S Treating — reduce H2S content of the Gas to meet current
downstream Transporter’s H2S quality specifications.
	 
	 	•	 	CO2 Treating — reduce CO2 content of the Gas to meet current
downstream Transporter’s CO2 quality specifications.
	 
	 	•	 	Gatherer shall waive the Gas quality specifications in Attachment “C”
for CO2 and H2S, and accept Shipper’s Gas, provided the following criteria are
met:






	 	•	 	Shipper’s blended Gas stream is Bossier quality for CO2 and H2S (less
than 5% CO2 and less than 20PPM H2S) at the Central Gathering Facilities,
	 
	 	•	 	The downstream pipeline specifications can be satisfied with the
existing infrastructure, and/or existing downstream arrangements and no
additional capital and/or facilities are required,
	 
	 	•	 	The downstream pipelines continue to take the Gas without additional
blending or treating charges,
	 
	 	•	 	Notwithstanding the above, Gatherer is not required to take Gas that
does not meet the Gas quality specifications in Attachment “C” if
accepting such Gas could, in Gatherer’s sole opinion, create a safety or
operational issue.






	 	•	 	System Pressures






	 	•	 	1,000 — 1,200 psig Point(s) of Receipt pressures depending on
location on the Pinnacle Gathering System. Notwithstanding the above, the Gas
delivered hereunder at the Point(s) of Receipt shall be at a pressure which is
sufficient to enter Pinnacle’s Gathering System against the prevailing pressures
therein from time to time and Shipper shall not deliver Gas to Gatherer at a
pressure that would exceed Gatherer’s MAOP of Gatherer’s system at the Point(s) of
Receipt.






	 	•	 	Firm Gathering Service






	 	•	 	Provide firm gathering service from Dew Gathering System’s Central
Gathering Facilities to the Point(s) of Delivery.




5









 











Original Methodology




     Initial Capital is based upon the Net Book Value of the system assets times the ratio of
Anadarko volume to Total volume in 2007.



     Anadarko production profile represents the “expected” volume curve over the primary term of
the agreement.



     Operating Cost projections are derived from the 2007 forecast assuming a ** fixed to variable
ratio. Fixed portion is escalated at **; the variable portion is unitized and tied to volumes.



     G&A costs are assumed to be zero for this calculation.



     Capital forecasted to include maintenance and well connect capital to coincide with the level
of service established in the agreement.



     The initial rate is established based upon an ** before tax expected rate of return with a **
annual escalation.



     Salvage value is assumed to be ** of the initial capital amount.



Re-determination Methodology



During the Primary Term:




     If the volume in any year exceeds or falls short of the expected volume by **, an option is
triggered for the respective party to elect a re-determination of the rate.



     Such re-determination will be based upon the original methodology as set forth on this
attachment with the following addition:



     Initial Capital will be re-set by netting the FCF line from 2008 through the end of the
re-determination year and adjusting for the cash flow impact of the volume shortfall or excess.



Beyond the Primary Term:




6









 








     Initial Capital will be based upon the salvage value as set forth above.



Adjusted Rate Methodology




     Any Adjusted Rate calculation will use the original methodology applied to incremental capital
and operating costs.



     The Original Rate Methodology for the System is attached hereto.



7









 










8









 














9











 





ATTACHMENT C




GAS QUALITY REQUIREMENTS





	 	•	 	Gas shall not contain more than one (1) grain of total sulphur (not inclusive of
sulphur caused by odorization equipment) per one hundred (100) cubic feet of Gas and shall
not contain more than one-quarter (1/4) of one (1) grain of hydrogen sulphide per one
hundred (100) cubic feet of Gas.
	 
	 	•	 	Gas shall not contain more than ten (10) parts per million of oxygen and shall not
contain more than two percent (2%) by volume of carbon dioxide.
	 
	 	•	 	Gas shall be commercially free of water and hydrocarbons in a liquid state.
	 
	 	•	 	Gas shall not be at a temperature of less than forty degrees Fahrenheit (40°) nor
exceed one hundred twenty degrees (120o) Fahrenheit.
	 
	 	•	 	Gas shall not contain any active bacteria or bacterial agent, including but not limited
to sulphate reducing bacteria and acid producing bacteria, or any hazardous or toxic
substances.
	 
	 	•	 	Gas shall have a total or gross Heating Value of not less than nine hundred fifty (950)
Btu per cubic foot and not more than one thousand two hundred (1,200) Btu per cubic foot.
	 
	 	•	 	Gas shall not contain more than two percent (2%) by volume of nitrogen and not more
than four percent (4%) by volume of total inerts.
	 
	 	•	 	Gas shall be commercial in quality and free from any foreign materials such as dirt,
dust, iron particles, crude oil, dark condensate, free water and other similar matter and
substances which may be injurious to pipelines or which may interfere with the processing,
transmission or commercial utilization of said gas.
	 
	 	•	 	Gas shall not contain mercaptans in excess of five parts per million (5 ppm) by volume.
	 
	 	•	 	The Gas shall be free from all hazardous waste as that term is defined in the Resources
Conservation and Recovery Act, 42 USC § 690 1, et seq.
	 
	 	•	 	In addition to the water quality specification set forth above, Shipper shall be
responsible to ensure that any Point(s) of Receipt shall be equipped with the necessary
dehydration




10









 






	 	 	 	facilities to reduce the water content of the Gas received at such Point(s) of Receipt to
seven pounds of water per one million cubic feet or less, unless, however, alternative
arrangements have been made by Shipper with Gatherer to have Shipper’s Gas dehydrated
downstream of such Point(s) of Receipt in existing facilities owned by Gatherer or by other
Third Party treating. If the water content of the Gas received at a Point(s) of Receipt
does not measure seven pounds per one million cubic feet or less, and such Gas is not
dehydrated by Shipper, or alternative arrangements have not been made by Shipper with
Gatherer to have such Gas dehydrated downstream of such Point(s) of Receipt, then the
Heating Value so determined for such Point(s) of Receipt shall remain at “saturated”
conditions for the purpose of determining the Btu Content of Shipper’s Gas. If, however,
Shipper delivers its Gas at a Point(s) of Receipt at seven pounds of water per one million
cubic feet or less, or alternative arrangements have been made by Shipper with Gatherer to
have such Gas dehydrated downstream of such Point(s) of Receipt in existing facilities
owned by Gatherer, then the Heating Value so determined for such Point(s) of Receipt shall
be corrected to “dry” conditions for purposes of determining the Btu Content of Shipper’s
Gas.






	 	•	 	If at any time all or a portion of the Gas delivered by Shipper hereunder should fail
to meet any quality specification stated above, and except as otherwise addressed in this
Agreement or a separate related written agreement, Gatherer may, at its option: (i)
continue to temporarily receive such Gas or (ii) accept such non-conforming Gas and charge
a mutually agreeable fee to treat or have treated the non-conforming Gas, or (iii)
discontinue receipt of any or all such non-conforming Gas. Should Gatherer elect to
continue to receive such Gas, such election shall not serve as a waiver by Gatherer of its
right to discontinue receipt of such Gas at any time in the future. Shipper’s sole remedy
in the event Gatherer elects to discontinue receipt of such Gas shall be to: (i) treat
the Gas delivered hereunder as necessary to meet the quality specifications stated above,
or (ii) terminate this Agreement as to such Gas. In the event Gatherer unknowingly
accepts delivery of off specification Gas from Shipper, Shipper shall be liable for and
indemnify Gatherer for all damages and claims related thereto.
	 
	 	•	 	Notwithstanding anything in this Attachment C, to the contrary, Shipper recognizes that
the Gas received by Gatherer hereunder is subsequently transported by pipelines whose
quality specifications may change from time to time. Therefore, if Gatherer is prevented
from redelivering Gas from its System to any pipeline due to such Gas not meeting the
pipeline’s quality specifications(s), and such failure is not attributable to Gatherer’s
actions, Gatherer shall be entitled to immediately shut-in all deliveries of Gas by
Shipper which do not satisfy a downstream transporting pipeline’s specification(s).
Shipper’s sole




11









 






	 	 	 	remedy in such event shall be to: (i) cause the quality-deficient Gas delivered hereunder
to meet the downstream transporting pipeline’s quality specification(s), or (ii) terminate
this Agreement as to such Gas. Gatherer shall not be obligated to accept Gas for delivery,
which does not meet the quality specifications referenced hereinabove. Shipper shall
reimburse Gatherer for any loss, cost, damage, or expense incurred by Gatherer as a direct
or indirect result of Shipper’s failure to comply with the provisions of this Attachment C.




12









 











GAS GATHERING AGREEMENT




DEFINITIONS



Unless otherwise specifically provided, the following terms and their respective meanings will
apply throughout the Agreement.





“Agreement” means this Gas Gathering Agreement which is comprised of the Commercial
Contract, these Gas Gathering Definitions, the Gas Gathering Terms and Conditions, and any
attachments, exhibits, supplements, modifications or amendments thereto.




“British Thermal Unit” (sometimes herein referred to as “Btu") shall mean the amount of
heat required to raise the temperature of one pound of water from fifty-nine degrees (59o)
to sixty degrees (60o) Fahrenheit.




“Btu Content” means the number of MMBtu’s contained in the quantity of Gas delivered
hereunder and will be determined by multiplying the volume of Gas, measured in Mcf, by its
corresponding Heating Value (MMBtu/cf).




"Commercial Contract” means the commercial provisions contained in the Gas Gathering
Agreement Commercial Contract.




“cubic foot of Gas” or “cubic feet of Gas” means the volume of Gas contained in one (1)
cubic foot of space at a standard base pressure in (psia) as required by the contract and
at a temperature of sixty degrees (60o) Fahrenheit. The abbreviation “Mcf” means one
thousand (1,000) cubic feet of Gas.




“Day” means a period of twenty-four (24) consecutive hours commencing at the standard A.M.
Time Zone Hour as required by Gatherer on one calendar day and ending at the standard A.M.
Time Zone Hour on the following day. The reference date for any Day will be at the
beginning of such Day.




“Dedicated Area” will have the meaning contained in the Commercial Contract.




“Dedicated Production” means, all Gas, now or hereinafter, owned, controlled or produced by
Shipper from Dedicated Wells and/or Wells within the Dedicated Area, with the exception of
Gas required for: (1) operations on the lease; (2) pressure maintenance; and (3) to
fulfill obligations to Shipper’s Lessor.



13









 






“Dedicated Wells” will have the meaning contained in the Commercial Contract.




“Drip(s)” means a Natural Gas liquid with ion vapor pressure mainly composed of propane,
butane, pentane, and heavier hydrocarbon fractions.




“Effective Date” means the earlier of the date that the services commence, at the
instruction of Shipper, or the Effective Date contained in the Commercial Contract.




“Fuel and Loss” means Gas actually consumed in the operation of the System and any Gas lost
incident to the operations of the System. Fuel and Loss will be allocated to each Point(s)
of Receipt based on the service level specific to such Point(s) of Receipt and pro-rata to
the Gas quantity measured at such Point(s) of Receipt divided by total System receipts
receiving the same service level. Gatherer will use reasonable efforts to minimize fuel
use and loss. Shipper will have the right to audit Gatherer’s fuel consumption and losses
and the allocation thereof.




“Gas” or “Natural Gas” means all hydrocarbons, except oil, produced from the Wells,
including casinghead Gas, together with all liquefiable hydrocarbon components thereof and
all concomitant substances produced from the Wells, including, but not limited to,
nitrogen, carbon dioxide and contained helium.




“Heating Value” means the number of British Thermal Units produced by the combustion, at
constant pressure, of the amount of Gas which would occupy a volume of one (1) cubic foot
at a temperature of sixty degrees (60o) Fahrenheit when saturated with water vapor and
under a constant pressure of 14.65 psia, with air of the same temperature and pressure as
the Gas, when the products of combustion are cooled to the initial temperature of the Gas
and air and when the water formed by combustion is condensed to the liquid state.




“MMBtu” means one million (1,000,000) British Thermal Units.




“Month” means the period beginning the standard A.M. Time Zone Hour as required by Gatherer
on the first Day of the calendar month and ending at the standard A.M. Time Zone Hour on
the first Day of the next succeeding calendar month.



14









 






“Other Producer” means a Person(s) other than Shipper Indemnitees and Gatherer Indemnitees
who is delivering or is preparing to deliver Gas into the System.




“Party” or “Parties” means the parties identified in the Commercial Contract referred to
individually as a “Party” and collectively as the “Parties".




“Person(s)” means any individual or entity, including any corporation, limited liability
company, joint venture, joint stock company, general or limited partnership, trust, agency,
association, organization, governmental authority or entity.




“Point(s) of Delivery” means the inlet of the Gas measurement facilities at the existing
interconnection between the System and the facilities of a Third Party Pipeline Transporter
(“Transporter") where Dedicated Production is redelivered to Transporter for Shipper’s
account.




“Point(s) of Receipt” means the inlet of Gatherer’s existing Gas measurement facilities
where Gatherer receives Dedicated Production.




“psia” means pounds per square inch absolute.




“System” will include but not be limited to, all Gas pipelines, Gas measurement facilities,
Gas compressors, dehydrators, and any treating or related facilities, buildings with
contents, surface leases and rights-of-way, owned or operated by Gatherer which make-up the
System which is named in the Commercial Contract, including future additions or
modifications to the System.




“Terms and Conditions” means the Gas Gathering Agreements Terms and Conditions.




“Thermal” or “Thermally Equivalent” means an equal number of Btu’s.




“Third Party” mean all Person(s) other than Shipper Indemnitees and their invitees and/or
Gatherer Indemnitees and their invitees.




“Uneconomic” means when the direct operating costs exceed the revenue generated from the
System for three (3) consecutive Months.




“Well” means any well classified as a Gas well or an oil well by the governmental authority
having jurisdiction.



15









 





GAS GATHERING AGREEMENT




TERMS AND CONDITIONS




ARTICLE I




Commitments




          Subject to the terms of this Agreement, Shipper dedicates and will deliver the Dedicated
Production to the System and Gatherer will receive, accept, gather, and redeliver Dedicated
Production at the Point(s) of Delivery less applicable Fuel and Loss. In addition, Gatherer will
perform the additional service set forth in the Commercial Contract.




          Notwithstanding the foregoing, Shipper reserves the right to sell the Dedicated Production to
an affiliate or Third Party Purchaser (either may be referred to as “Purchaser") so long as the
Purchaser is subject to and agrees to comply with and perform all of the obligations of the Shipper
contained in this Agreement. Notwithstanding the Purchaser’s assumption of Shipper’s obligations,
Shipper will remain responsible and liable for all obligations, liabilities and other expenses
arising (directly or indirectly) from or related to this Agreement. In the event that Shipper
sells its Dedicated Production to a Purchaser, Gatherer will remain obligated to fulfill its
obligations under this Agreement.




          In the event that Shipper has already dedicated Gas which would be considered Dedicated
Production to a Third Party under another agreement, such Gas will not be considered dedicated
under this Agreement until the Day following the expiration of the Third Party Agreement and
connection of such Gas is deemed economically feasible in Gatherer’s sole opinion.




ARTICLE II




Gas Well Connections




          Shipper may provide to Gatherer, on a quarterly basis, a report containing planned drilling
and completion schedules for the Dedicated Area. Gatherer will use the information contained in
the quarterly report to schedule commencement of acquisition of rights of way and other services
required to connect the Wells in accordance with the drilling and completion schedule. In the
event Shipper provides Gatherer with a request for well connection, the request will contain
Shipper’s best estimate of the date of first Gas production for a specified Well and Gatherer will
use best efforts to ensure that the Well will be connected to the System by the date requested by
the Shipper.




16









 








ARTICLE III




Nominations, Balancing, Measurement, Commingling and Curtailment




          Shipper will comply with the Nomination, Balancing and Measurement Procedures attached as
Exhibit A.




          Gatherer will have the right to interrupt or curtail receipts of Dedicated Production into the
System in accordance with “Curtailment Procedures” contained in Exhibit B.




          Gatherer will have the right to commingle the Dedicated Production received in the System with
Other Producer’s Gas. It is recognized that Dedicated Production redelivered at a Point(s) of
Delivery may not be the same molecules as those received at a Point(s) of Receipt. The quantities
of Dedicated Production redelivered at a Point(s) of Delivery will be Thermally Equivalent to the
quantities of Dedicated Production received at a Point(s) of Receipt less Fuel and Loss.




          Gatherer may collect and remove Drip(s) attributable to the Dedicated Production from the
System prior to redelivery of Dedicated Production. Gatherer will own all Drip(s) and will bear
all costs for collection and removal of the Drip(s) and will credit Shipper the Heating Value of
the proportionate share of the collected Drip(s). Shipper will have the right to audit Gatherer’s
allocation of Drip(s) quantity and allocation of Heating Value.




          The volume of Gas will be measured by a primary and secondary measurement device that is
accepted by industry, state, and federal regulatory agencies. The most common primary devices are
orifice or ultrasonic meter tubes. These devices shall comply with the American Petroleum Institute
- Manual of Petroleum Measurement Standards, 14.3, American Gas Association Report No. 3, and
Report No. 9, (Latest Revisions) where applicable. The secondary measurement devise shall be a
chart recorder or an electronic flow meter (EFM) that includes a temperature recording system. If
an EFM is used it will be capable of establishing an audit trail by compiling and retaining
sufficient electronic data and information for the purpose of verifying daily and hourly
quantities. The EFM shall meet and be capable of performing volumes calculations according to the
current standards prescribed in the American Gas Association Report No. 3, Orifice Metering of
Natural Gas and Other Hydrocarbon Fluids, Parts 1-4, and shall comply with the American Petroleum
Institute — Manual of Petroleum Measurement Standards, Chapter 21, Section 1 — Electronic Gas
Measurement, (Latest Revisions).




          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 degrees Fahrenheit (60°F) and at an




17









 







absolute pressure base as required by the operating area. (An example of said pressure base is
14.65 psia, 14.73 psia or 15.025 psia).




          For purposes of measurement hereunder, the (barometric) atmospheric pressure shall be the
average actual atmospheric pressure for the geographical area as determined by the Gatherer. If the
pressure transmitter being used is capable of measuring actual atmospheric pressure, then actual
atmospheric pressure may be used.




          Gatherer shall determine the Gas stream composition, specific gravity, and gross Heating
Values based on any of the following: spot samples, composite samples, on-line gas chromatograph
analysis or portable gas chromatograph analysis. The component analysis of the Gas shall be
performed by gas chromatography in accordance with GPA 2261 or any pertinent revisions thereto or
replacements thereof. Gas samples shall be obtained in accordance with the procedures set forth in
the Gas Processor’s Association Standard 2166 (Latest Revision) “Obtaining Natural Gas Samples for
Analysis by Gas Chromatography” and American Petroleum Institute 14.1 Section 1 (Latest Revision).




          The sampling frequency will be no less than one year and more often if deemed necessary by
Gatherer.




          Tests for oxygen, carbon dioxide, sulphur, and hydrogen sulfide content of the Gas delivered
hereunder shall be made as often as deemed necessary by Gatherer, by means commonly used and
accepted in the industry.




          Deviation from Boyle’s Law at the pressure, specific gravities and temperatures upon delivery
shall be calculated by the NX-19 as outlined or described in the American Gas Association Report
“Manual for the Determination of Super Compressibility” or AGA 8, Gross or Detail methods as
outlined or described in the AGA Report No. 8 entitled “Compressibility Factors of Natural Gas and
Other Related Hydrocarbon Gases”.




          All measuring equipment, housing, devices, and materials shall be of standard manufacture and
will, with all related equipment, appliances, and buildings, be maintained and operated by Gatherer
at Gatherer’s expense. All testing equipment shall be provided by Gatherer at Gatherer’s expense.




          Shipper may, at its option and expense, install and operate check meters to monitor Gatherer’s
meters. Such meters shall be for check purposes only and shall not be used in the measurement of
Gas for the purposes of this Agreement except as provided for in this




18









 







Agreement. The installation and operation thereof shall, however, be done entirely by Shipper and
shall not interfere in any way with the operation of Gatherer’s meter. The use of a share bar
tubing system shall not be permitted.




          Measurement instruments shall be tested and calibrated by Gatherer semi-annually or more often
if deemed necessary by Gatherer. If Shipper desires to witness any of the tests provided for
herein, Shipper shall so advise Gatherer in writing. If Shipper has so advised Gatherer, then
Gatherer shall give Shipper sufficient notice in advance of such tests so that Shipper may have its
representative present to observe adjustments, if any, which are made.




          When any test shows an error of more than two percent (2%) in the measurement, correction
shall be made for the period during which the measurement instruments were in error first by
correcting the error if the percentage of error is ascertainable by calibration, test or
mathematical calculations or second by using the registration of Shipper’s check meter, if
installed and registering accurately. If neither such method is feasible, correction shall be made
by estimating the quantity and quality delivered, based upon deliveries under similar conditions
during a period of time when the equipment was registering accurately. If the period during which
the measurement was in error cannot be ascertained, correction shall be made for one-half (1/2) of
the period elapsed since the last date of test, and the measuring instrument shall be adjusted
immediately to measure accurately.




          Production equipment upstream of the Point(s) of Receipt shall be designed and operated in a
manner that will not interfere with acceptable measurement standards. If such interference is
detected, then Gatherer shall notify the Shipper and the Shipper shall have sixty (60) Days to
correct or cause to be corrected the problems causing measurement errors due to pulsation,
vibration, or harmonic wave distortion caused by compressors, pumps, or other production equipment
upstream of the Point(s) of Receipt. Volume inaccuracies greater than or equal to one half of one
percent (1/2%) that are found to be the result of pulsation, vibration, or harmonic wave distortion
caused by compressors, pumps, or other production equipment upstream of the Point(s) of Receipt
will be corrected and adjustments made back to the point in time when the inaccuracies first
occurred.




          With respect to the measurement of Gas under this Agreement, Gatherer and Shipper shall have
the right to inspect equipment installed or furnished by the other, and the charts and other
measurement or testing data of the other, at all times during business hours; but the reading,
calibration, and adjustment of such equipment and changing of charts shall be done only by the
Party owning such equipment. Each Party shall preserve all original test data, charts and other
similar records in such Party’s possession, for a period of at least two (2) years or the time




19









 







required by any governmental agency, whichever is greater. Upon written request by either Party all
such data, charts, and other similar records will be made available to the requesting Party,
subject to return within sixty (60) Days after receipt thereof.




ARTICLE IV




Quality




          Gatherer will not be obligated to accept the Dedicated Production, unless it meets the Gas
Quality Requirements contained in the Commercial Contract.




          If all or a portion of the Dedicated Production delivered: (i) fails to meet any of the Gas
Quality Requirements or (ii) does not meet the Transporter’s quality specifications (which may
change from time to time) and such failure to meet the quality specifications is not due to
Gatherer’s actions or inactions, then Gatherer may, at its option: (i) continue to temporarily
receive such Dedicated Production or (ii) discontinue receipt of such Dedicated Production. If
Gatherer elects to continue to receive such Dedicated Production, its election will not be deemed
as a waiver of its right to discontinue receipt of such Dedicated Production at any time in the
future.




          Shipper’s sole remedy in the event Gatherer elects to discontinue receipt of such Gas will be
to: (i) treat the Gas delivered so it will meet the Gas Quality Requirements, or (ii) terminate
this Agreement as to such Dedicated Production.




ARTICLE V




Gathering Rate




          Shipper will pay Gatherer a gathering fee per MCF (“Rate") for all Dedicated Production
delivered at the Point(s) of Receipt. The Rate is set out in the Commercial Contract and will be
based on an agreed upon methodology which takes into consideration capital expense, operating
expense, rate of return, and production forecasts. The Rate will be representative of a Rate
necessary to maintain the current Service Levels and provide the additional services which are
contained in the Commercial Contract.




          Gatherer’s cost to service the Gas measurement facilities at the Point(s) of Receipt is one
hundred and fifty dollars ($150.00) per Month per Point(s) of Receipt. In order to insure Gatherer
recovers its monthly cost, Shipper shall pay Gatherer, for each Point(s) of Receipt, the higher of:
(i) the actual monthly gathering fee or (ii) $150.00. If Shipper nominates zero (0) volumes
during a Month for a Point(s) of Receipt, Shipper shall not be charged the cost to service




20









 







the Gas measurement facilities for such meter during such Month.




ARTICLE VI




Receipt, Delivery, and Service Levels




          Gatherer will maintain the Service Levels. At Shipper’s request, Gatherer will make
modifications or install facilities necessary to improve the Service Level and Gatherer may adjust
Shipper’s Rate (“Adjusted Rate").




ARTICLE VII




Billings and Payments




          On or before the last Day of each Month, Gatherer will invoice Shipper and will provide
supporting documentation as agreed by the Parties, for the amount due Gatherer for Dedicated
Production delivered into the System in the preceding Month at the applicable Rate. Shipper will
remit to Gatherer, at the address shown in the Commercial Contract, the amount invoiced, within
thirty (30) Days after Shipper receives the invoice (“Due Date").




          Each Party will have the right, during reasonable business hours, to examine, the books,
records, EGM data and charts of the other Party to the extent necessary to verify the accuracy of
any statement, supporting documentation, charge, computation, or payment made pursuant to the
provisions of this Agreement. Such examinations will be conducted at the location where the books,
records, EGM data and charts are normally located. Appropriate adjustments will be made to any
billing or payment which is determined to be incorrect unless such payment or billing is more than
two (2) years old and has not been noted as being under dispute within the two (2) year period.




ARTICLE VIII




Termination




          Notwithstanding any other provisions to the contrary in the Agreement, the Agreement can be
terminated under the following conditions:





	 	(a)	 	If at any time, a governmental authority takes or threatens to take any
action as to any Party whereby the delivery, gathering, and redelivery of Dedicated
Production will be proscribed or possibly subjected to terms, conditions, restraints
or regulations, including without limitation, by enumeration, Rate or price controls
or ceilings that would make it Uneconomic or unduly burdensome for one or both of the
Parties, the affected Party may, upon thirty (30) Days prior




21









 






	 	 	 	written notice, terminate this Agreement without further liability, except as to
obligations previously accrued.






	 	(b)	 	In the event the Force Majeure event exceeds the number of consecutive Days
contained in the Commercial Contract, this Agreement may be terminated at the option
of either Party by giving written notice to the other Party in accordance with the
Commercial Contract.
	 
	 	(c)	 	If the Service Levels provided in Article VI are not maintained then Shipper
may terminate this Agreement by providing written notice to Gatherer.
	 
	 	(d)	 	Either Party may terminate this Agreement by providing written notice to the
other Party either ninety (90) Days prior to the expiration of the Primary Term or
ninety (90) Days prior to the end of each annual term after the expiration of the
Primary Term.





ARTICLE IX




Notices




          Any notice, demand, request, claim or other communication required or permitted to be given
under this Agreement will be in writing, and sent by United States mail, postage or charges prepaid
to the address of the Party set forth in the Commercial Contract, or any other more recent address
which has been provided by such Party in writing pursuant to this notice provision.




ARTICLE X




Force Majeure




          Neither Party will be liable to the other Party for failure to perform any of its obligations
under this Agreement to the extent such performance is hindered, delayed or prevented by Force
Majeure (except for failure to make payments hereunder).




          A Party which is unable, in whole or in part, to carry out its obligations under this
Agreement due to Force Majeure must provide notice to the other Party. Initial notice may be given
orally; however, written notification with reasonably full particulars of the event or occurrence
is required as soon as reasonably possible.




          A Party claiming Force Majeure will diligently use all reasonable efforts to remove the cause,
condition, event or circumstance of such Force Majeure, will promptly give written notice to the
other Party of the termination of such Force Majeure, and will resume performance of any suspended
obligation as soon as reasonably possible after termination of such Force Majeure.




22









 








          For purposes of this Agreement, “Force Majeure” will mean causes, conditions, events or
circumstances which are beyond the reasonable control of the Party claiming Force Majeure. Such
causes, conditions, events and circumstances will include 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 rulers and people, arrests and restraints of the Government, either federal or state,
inability of any Party hereto to obtain necessary materials or supplies at market costs or permits
due to existing or future rules, orders and laws of governmental authorities (both federal and
state), interruptions by government or court orders, present and future orders of any regulatory
body having proper jurisdiction, civil disturbances, explosions, sabotage, partial or entire loss
of market. Breakage or accident to machinery on lines of pipe, the necessity for making repairs or
alterations to machinery or lines of pipe, freezing of Wells or lines of pipe, partial or entire
failure of Wells will be considered Force Majeure if the Party claiming Force Majeure has not
caused the condition and the cause of the condition was out of the control of such Party Force
Majeure could include any other causes, whether of the kind herein enumerated or otherwise not
within the control of the Party claiming suspension and which by the exercise of due diligence such
Party is unable to overcome, such as the inability to acquire, or the delays in acquiring, at
market cost and after the exercise of reasonable diligence, any servitude, right-of-way grants,
permits, or licenses required to be obtained to enable a Party hereto to fulfill its obligations
hereunder. Inability of a Party to be profitable or to secure funds, arrange bank loans or other
financing, or to obtain credit will not be regarded as an event of Force Majeure.




ARTICLE XI




Regulations and Choice of Law




          This Agreement is subject to all valid orders, laws, rules and regulations of duly constituted
governmental authorities having jurisdiction or control over the Parties, their facilities or Gas
supplies, this Agreement or any provisions hereof.




          As to all matters of construction and interpretation, this Agreement will be interpreted,
construed and governed by the laws of the State of Texas without reference to the law regarding
conflicts of law.




ARTICLE XII




Warranty




          Each Party warrants that the title to, and right to possession of, all Gas delivered to the
other hereunder will at the time of delivery be free from all liens and adverse claims, and each



23









 






Party shall indemnify the other Party against all damages, costs, and expenses of any nature
arising from every claim against such Gas.




          Gatherer may, in addition to and without waiving any other rights hereunder, immediately
suspend its services hereunder in the event that it has reason to believe either (i) that there is
a title dispute, or (ii) that any Dedicated Production is being produced or delivered in violation
of applicable regulations.




ARTICLE XIII




Indemnity



1. Indemnities:





a. Definitions — In this Agreement, specifically including, but not limited to, this
Article XIII and Article XV:




     (1) “Claim” or “Claims” means, unless specifically provided otherwise, all claims
(including, but not limited to, those for property damage [specifically excluding Dedicated
Production], pollution, personal injury) losses, causes of action, costs (including payment
of attorneys’ fees and costs of litigation), and judgments, of any kind or character (except
punitive or exemplary damages), under any theory of tort, contract, breach of contract,
(including any Claims which arise by reason of indemnification or assumption of liability
contained in other contracts entered into by Shipper Indemnitees or Gatherer Indemnitees),
arising in connection with this Agreement.




     (2) “Shipper Indemnitees” means Shipper, its affiliate companies (specifically excluding
Gatherer Indemnitees) its and their co-owners, if any, and its and their officers, directors,
insurers and all employees, supervisors, representatives, agents and other Person(s) or
entities to be provided by Shipper and/or its subcontractors in connection with the
performance of this Agreement.




     (3) “Gatherer Indemnitees” means Gatherer, Western Gas Partners, LP and its
subsidiaries, Western Gas Holding, LLC and its and their officers, directors, insurers and
all employees, supervisors, representatives, agents and other Person(s) to be provided by
Gatherer and/or its subcontractors in connection with the performance of this Agreement,
(excluding any member of Shipper Indemnitees).




     (4) “Other Producer Group” means any Other Producer, its affiliate companies, its and
their officers, directors, agents, representatives, employees, and other Person(s) or
entities to be provided by Other Producer and/or its subcontractors in connection with
delivery of Gas into the System and the invitees of each of the foregoing.



24









 






     (5) The term “REGARDLESS OF FAULT” means WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY
CLAIM, INCLUDING, WITHOUT LIMITATION, A CLAIM CAUSED OR CONTRIBUTED TO BY THE NEGLIGENCE
(WHETHER SOLE, CONCURRENT, GROSS, OR OTHERWISE), WILLFUL MISCONDUCT, STRICT LIABILITY, OR
OTHER FAULT OF ANY MEMBER OF SHIPPER INDEMNITEES, GATHERER INDEMNITEES, INVITEES, AND/OR
THIRD PARTIES.




b. General — The Parties agree that:




     (1) Notwithstanding any provision in this Agreement to the contrary, this Agreement does
not authorize one Party to sue for or collect from the other Party its own consequential or
indirect damages, and each Party hereby waives any and all Claims it may have against the
other Party for its own such damages. Furthermore, the indemnity obligations contained in
this Agreement do not include indemnification for punitive or exemplary damages under any law
or otherwise;




     (2) The indemnity obligations under this Agreement are effective to the maximum extent
permitted by law. If a law is applied in a jurisdiction which prohibits or limits a Party’s
ability to indemnify the other, then that Party’s liability shall exist to the full extent
allowed by the law of the relevant jurisdiction;




c. Bodily Injury, Death, and Damage to Property of Gatherer and Gatherer’s Personnel:




     Notwithstanding anything to the contrary in the other provisions of this Agreement,
GATHERER AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESS SHIPPER INDEMNITEES AGAINST
CLAIMS ARISING IN CONNECTION WITH: (I) BODILY INJURY TO AND/OR DEATH OF ANY MEMBER OF
GATHERER INDEMNITEES AND THEIR INVITEES AND ANY MEMBER OF OTHER PRODUCER GROUP AND/OR (II)
DAMAGE TO THE SYSTEM AND/OR PROPERTY OF GATHERER INDEMNITEES AND THEIR INVITEES AND ANY
MEMBER OF OTHER PRODUCER GROUP ARISING IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF
FAULT.




d. Bodily Injury, Death, and Damage to Property of Shipper and Shipper’s Personnel: 




     Notwithstanding anything else to the contrary in the other provisions of this Agreement,
SHIPPER AGREES TO DEFEND, RELEASE, INDEMNIFY, AND HOLD HARMLESS GATHERER INDEMNITEES AGAINST
CLAIMS ARISING IN CONNECTION WITH: (I) BODILY INJURY TO AND/OR DEATH OF SHIPPER INDEMNITEES
AND THEIR INVITEES; AND/OR (II) Subject to Sub-section (g) of this Article XIII, DAMAGE TO
PROPERTY OF SHIPPER INDEMNITEES AND THEIR INVITEES, ARISING IN CONNECTION WITH THIS
AGREEMENT, REGARDLESS OF FAULT.




e. Pollution and Hazardous Materials and Substances:



25









 






(1) Gatherer’s Responsibilities — Subject to the indemnity obligations contained
in Sub-sections (c)-(d) of Article XIII, and notwithstanding anything to the contrary in
the other provisions of this Agreement, GATHERER AGREES TO DEFEND, RELEASE, INDEMNIFY AND
HOLD HARMLESS SHIPPER INDEMNITEES AGAINST CLAIMS FOR LOSS OF OR DAMAGE TO PROPERTY ON
ACCOUNT OF AN UNAUTHORIZED RELEASE OR DISCHARGE OF ANY SUBSTANCE, MATERIAL, MIXTURE,
POLLUTANT, OR CONTAMINANT, WHICH EMANATES FROM THE SYSTEM, GATHERER INDEMNITEES’
PROPERTY, AND/OR OTHER PRODUCERS GROUPS PROPERTY, REGARDLESS OF FAULT.




(2) Shipper’s Responsibilities — Subject to the indemnity obligations contained
in Sub-sections (c)-(d) of Article XIII, and notwithstanding anything to the contrary in
the other provisions of this Agreement, SHIPPER AGREES TO DEFEND, RELEASE, INDEMNIFY AND
HOLD HARMLESS GATHERER INDEMNITEES AGAINST CLAIMS FOR LOSS OF OR DAMAGE TO PROPERTY ON
ACCOUNT OF AN UNAUTHORIZED RELEASE OR DISCHARGE OF ANY SUBSTANCE, MATERIAL, MIXTURE,
POLLUTANT, OR CONTAMINANT, WHICH EMANATES FROM SHIPPER INDEMNITEES’ PROPERTY, REGARDLESS
OF FAULT.




f. Liability to Third Parties:




     Subject to sub-sections (c)-(e) of Article XIII, Shipper agrees to defend, release,
indemnify and hold harmless Gatherer Indemnitees from and against Claims by or in favor of or
incurred by or sustained by and Third Party to the extent such Claim is caused by Shipper
Indemnitees. Gatherer agrees to defend, release, indemnify and hold harmless Shipper
Indemnitees from and against Claims by or in favor of or incurred by or sustained by any
Third Party to the extent such Claim is caused by Gatherer Indemnitees or any member of Other
Producer’s Group.




g. Risk of Loss:




     Notwithstanding anything to the contrary in other provisions of this Agreement, risk of
loss of Dedicated Production shall be borne by Gatherer from the Point(s) of Receipt until
such time as the Dedicated Production is delivered to the Point(s) of Delivery and Gatherer
shall defend, release, indemnify, and hold harmless Shipper Indemnitees from any loss of or
damage to the Dedicated Production, REGARDLESS OF FAULT.




h. Title:




     Title to the Dedicated Production (excluding Drip(s), which shall at all times be owned
by Gatherer) shall at all times remain with Shipper or Purchaser, as applicable.



26









 





ARTICLE XIV




Audit




          Gatherer agrees that all financial settlements, billings, reports, and allocations in
connection with this Agreement will properly reflect the facts about all activities and
transactions handled for the account of Shipper, which data may be relied upon as being complete
and accurate in any recording and reporting made by Shipper for whatever purpose. Shipper or its
authorized representative shall have sufficient access to information used to calculate the Rate
and allocations to satisfy themselves that they are accurate.




ARTICLE XV




Miscellaneous



Confidentiality: The Parties agree that this Agreement and all information and data exchanged by
them shall be maintained in strict and absolute confidence and no Party shall make any public
disclosure thereof, except for disclosure (i) pursuant to the contemplated (in good faith) or
actual sale, disposition or other transfer (directly or indirectly) of a Party’s rights and
interest in and to this Agreement, the System, the Dedicated Production, or the Dedicated Area (ii)
pursuant to the contemplated (in good faith) or actual sale or other transfer (directly or
indirectly) of all or substantially all of the assets of a Party, (iii) in conjunction with a
contemplated (in good faith) or actual merger, consolidation, share exchange or other form of
statutory reorganization involving a Party, (iv) to co-owners of the System or the Dedicated
Production, consultants, accountants, rating agencies, lenders, insurers, investors, attorneys or
other representatives with a need to know such information, provided that the disclosing Party
shall remain liable for any use or disclosure by such receiving Person(s) which the disclosing
Party was not otherwise permitted to make pursuant to this Agreement, or (v) as required to make
disclosure in compliance with any applicable Law or exchange rule or requirement.



Amendment: Any modification of terms or amendments of provisions of this Agreement will become
effective only by supplemental written agreement between the Parties.



Waiver: No waiver by either Party of any default of the other under this Agreement will operate
as a waiver of any future default, whether of a like or a different character.



Taxes: Shipper will be solely responsible for all taxes levied on its property, and severance,
production, sales and other similar taxes levied on the Dedicated Production delivered hereunder.
Gatherer will be solely responsible for all taxes levied on its System or on its operations and/or
receipts hereunder.




27









 







Assignment: Either Party is entitled to assign it rights, obligations or interests under this
Agreement to an affiliate. Neither Party can assign its rights, obligations or interests under this
Agreement to a non-affiliate without the prior written consent of the non-assigning Party.



Access: Shipper hereby grants to Gatherer such rights as it may have of ingress and egress, the
right to lay and maintain pipelines, and to install any other necessary equipment on and across any
lands covered by this Agreement. All lines and other equipment placed by Gatherer on said lands
will remain the personal property of Gatherer, and subject to the terms of this Agreement, may be
removed by Gatherer at any time.



Severability: If any provision or clause of this Agreement or application thereof to any
Person(s) or circumstance is held invalid, such invalidity will not affect other provisions or
applications of this Agreement which can be given reasonable meaning without the invalid provisions
or applications.



Royalties: Gatherer shall not be liable for accounting for or paying any royalties due on the Gas
delivered under this Agreement. In no event will Gatherer have any obligation to any persons due
those royalties.



Entire Agreement: This Agreement constitutes the entire agreement between the Parties and no
waiver, representation, or agreement, oral or otherwise, will affect the subject matter hereof
unless and until such waiver, representation or agreement is reduced to writing and executed by
authorized representatives of the Parties. This Agreement supersedes and terminates any and all
Gas Gathering Agreements between Shipper and Gatherer on this System.




          IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Day and year
hereinabove written.




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GATHERER	 	 	 	SHIPPER	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ANADARKO GATHERING COMPANY LLC	 	 	 	ANADARKO PETROLEUM CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Danny J. Rea	 	 	 	By:	 	/s/ Charles A. Meloy	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Danny J. Rea
	 	 	 	 	 	Name:
	 	Charles A. Meloy	 	 
	 

	 	Title:
	 	Vice President, Midstream Services
	 	 	 	 	 	Title:
	 	Sr. V.P. Worldwide Operations	 	 






28









 






EXHIBIT A




TO TERMS AND CONDITIONS




NOMINATION, BALANCING AND MEASUREMENT PROCEDURES




Nomination




          If Shipper desires gathering service in any Month, Shipper must submit nominations to Gatherer
indicating the quantity of Gas to be delivered to Gatherer at each Point(s) of Receipt in MMBtu’s
per Day, hereinafter referred to as the “Receipt Nomination”, and the quantity of Gas to be
delivered to Shipper’s Transporter or Downstream Customer at each Point(s) of Delivery in MMBtu’s
per Day, hereinafter referred to as the “Delivery Nomination”. The Delivery Nomination must be
equal to the Receipt Nomination, less Fuel and Loss.




          All nominations for “first of the Month” gathering service must be received by Gatherer in
accordance with Gatherer’s Nomination Schedule, a copy of which shall be provided to Shipper by
Gatherer. All nominations for “mid-Month” gathering service must be submitted to Gatherer no later
than twenty-four (24) hours prior to requested service. All nominations are subject to nomination
and confirmation deadlines on upstream and downstream pipelines, as may be applicable.




          Shipper has the right to change nominations daily, provided, however, Shipper submits revised
nominations to Gatherer no later than twenty-four (24) hours prior to the Effective Date of the
requested service.




          All nominations are subject to confirmations by Gatherer. Gatherer’s nomination forms may
include other information required by Gatherer to confirm Shipper’s nomination with Shipper’s
Transporter, Downstream Customer, and/or Point(s) of Receipt Operator.




          If Gatherer is unable to confirm Shipper’s nomination for any Point(s) of Receipt on the
System, Shipper’s nomination as to the affected Point(s) of Receipt will be reduced to the
quantity confirmed by Gatherer. Gatherer will notify Shipper of any such nomination change(s).




Balancing




          Any monthly imbalance between nominations and actuals shall be accounted for and administered
in accordance with the following Terms and Conditions:




29









 








          Gatherer and Shipper intend that the quantities of Gas actually delivered and received each
Day under the Agreement will equal the confirmed nominations. Any difference between the aggregate
quantity of Gas nominated and the aggregate quantity of Gas actually delivered on any given Day
shall constitute the “Daily Operational Imbalance”.




          During any given month, operational metered quantities (MMBtu’s) shall be used by Gatherer on
a daily basis, as available, to determine the Daily Operational Imbalance, if any, for any given
Day. Upon notification by Gatherer, Shipper shall promptly make, or cause to be made, such
physical flow adjustments as may be necessary in order to prevent, reduce, or eliminate any Daily
Operational Imbalance.




          The sum of the Daily Operational Imbalances for each Day in a given Month shall constitute
the “Monthly Operational Imbalance” for such Month.




          The actual Monthly Operational Imbalance shall be communicated by Gatherer to Shipper in
writing as soon as possible, but in no case later than the twentieth (20th) Day of the Month
following the Month in which the Monthly Operational Imbalance occurred. Deliveries of Gas to
correct actual Monthly Operational Imbalances shall be nominated in the next Month’s nominations
and may be made through the normal nomination procedures as set out in the Agreement, as such may
be in effect from time to time, or as may otherwise be mutually agreed to by Gatherer and Shipper.
Any Monthly Operational Imbalance Gatherer and Shipper have not eliminated by the end of the Month
following the Month in which the Monthly Operational Imbalance occurred shall be “cashed-out” as
follows:





	 	(a)	 	Excess Receipts: When the actual quantity of Gas received at a
Point(s) of Receipt, less Fuel and Loss, exceeds the confirmed Delivery
Nomination, the excess quantity of Gas, hereinafter referred to as “Excess
Receipts”, shall be sold by Shipper and purchased by Gatherer at a purchase
price equal to eighty percent (80%) of the lowest daily price posted for
Houston Ship Channel, as reported in Gas Daily, published by The
McGraw-Hill Companies, during the Month in which the imbalance occurred, less
the applicable location differential and transport fuel. In the event
Gas Daily ceases to be published or fails to report the necessary
index price, Gatherer shall notify Shipper of the substitute index price to
be used.
	 
	 	(b)	 	Excess Deliveries: When the actual quantity of Gas received at a
Point(s) of Receipt, less Fuel and Loss, is less than the confirmed




30









 






	 	 	 	Delivery Nomination, the excess quantity of Gas, hereinafter referred to
as “Excess Deliveries”, shall be sold by Gatherer and purchased by Shipper
at one hundred and twenty percent (120%) of the highest daily price posted
for Houston Ship Channel, as reported in Gas Daily, published by
The McGraw-Hill Companies, during the Month in which the imbalance
occurred, less the applicable location differential and transport fuel,
plus Gatherer’s gathering and fuel rate(s). In the event Gas
Daily ceases to be published or fails to report the necessary index
price, Gatherer shall notify Shipper of the substitute index price to be
used.




31









 











EXHIBIT B




TO TERMS AND CONDITIONS




CURTAILMENT PROCEDURES




          Gatherer shall have the right to curtail all gathering service, in whole or in part on all or
a portion of its System, at any time for reasons of Force Majeure incurred by Gatherer or Shipper’s
Transporter, or when, in Gatherer’s reasonable judgment, capacity or operating conditions so
require, or it is desirable or necessary to make modifications, repairs or operating changes to the
System. Gatherer shall provide Shipper such notice of the curtailment as is reasonable under the
circumstances.




          Gatherer will use reasonable efforts to identify and curtail only those Shippers whose Gas is
nominated through the Point(s) of Receipt, or portion of the System, which are subject to
curtailment. All curtailments will be made ratably for all affected Shippers, in accordance with
each such Shipper’s confirmed nominations.




          As used herein, the term “ratably” shall mean that available capacity shall be allocated by
Gatherer to all affected Shippers based on the percentage derived by dividing each affected
Shipper’s confirmed quantity of Gas nominated by the total confirmed quantity of Gas nominated by
all affected Shippers. Gatherer shall determine the available capacity in the System, or affected
portion of the System, and the effective time and date of any such curtailment, while taking into
account safety and operational flexibility considerations.




          Gatherer shall provide Shipper with notice of curtailment or interruption at a time and in a
manner that is reasonable under then existing conditions (“Curtailment Order”), and shall in any
event confirm in writing or by facsimile transmission the notice given, if originally provided by
telephone.




          Shipper shall have the responsibility to inform Shipper’s Transporter, end-users, suppliers,
and all others involved or affected by any curtailment or interruption described in Gatherer’s
Curtailment Order.




          Gatherer shall have the right, without liability to Shipper, to interrupt the gathering of Gas
for Shipper, when necessary to test, alter, modify, enlarge, or repair any facility or property
comprising a part of, or appurtenant to, its System, or otherwise related to the operation thereof.
Gatherer shall endeavor to cause a minimum of inconvenience to Shipper. Except in cases of
unforeseen emergency, Gatherer shall give advance notice to Shipper of its intention to so
interrupt the gathering of Gas, stating the anticipated timing and magnitude of each such




32









 







interruption.




          Shipper shall indemnify Gatherer against and hold Gatherer harmless from any and all damages,
claims, suits, actions or proceedings whatsoever threatened or initiated as a result of any
curtailment or interruption invoked by Gatherer, which shall include any curtailment or
interruption described in any of part of this Exhibit B. Shipper shall not be required to
indemnify Gatherer as stated above to the extent that the curtailment or interruption is a result
of Gatherer’s negligence, bad faith, fault, or willful misconduct.





33