Exhibit 10.9

 

Execution Version

 

ANCHOR SHIPPER GAS GATHERING AGREEMENT
  FOR NORTHERN PENNSYLVANIA

 

THIS AGREEMENT is effective January 1, 2012 (“Effective Date”), by and between APPALACHIA MIDSTREAM SERVICES, L.L.C. (“Gatherer”), EPSILON ENERGY USA, INC. (“Shipper”), and EPSILON ENERGY USA, INC. (“Producer”). Gatherer and Shipper may be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

 

WHEREAS, Producer owns and/or controls interests in Wells in the Dedicated Area and has either sold or assigned the right to market Gas produced from such Wells to Shipper;

 

WHEREAS, Gatherer is operator of certain gas gathering systems in and around the Dedicated Area on behalf of the owners of such systems; and

 

WHEREAS, Gatherer and Shipper desire to enter into this Agreement for the gathering of Shipper’s Gas on the Systems.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby confessed and acknowledged), the Parties agree as follows:

 

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

 

1.1                               “Actual Suction Pressure” means, for a given Month, the sum of the daily average pressures (measured in Psig) at the inlet separator for each compression facility in operation on a common suction system divided by the number of days in the given month and further divided by the number of compression facilities in operation on that common suction system.

 

1.2                               “Agreement” means this Anchor Shipper Gas Gathering Agreement for Northern Pennsylvania and any attachments, exhibits, supplements, modifications, special provisions, or amendments thereto.

 

1.3                               “Anchor Shippers” for each System means the parties listed in Exhibit 1.3 each such party’s successors, and each party that is assigned all or part of a Voting Percentage as permitted in this Agreement.

 

1.4                               “Blocking Vote” means, with respect to any System, the negative Vote of two (2) or more Voting Shippers who collectively hold at least thirty percent (30%) of all Voting Percentages, provided that a Blocking Vote of multiple affiliates will be aggregated as one (1) Voting Shipper with a single vote.

 

1.5                               “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 (59°) to sixty degrees (60°) Fahrenheit.

 











 

1.6                               “Business Day” means a Day on which the Federal Reserve System is open for the transaction of business.

 

1.7                               “Compression Fee” has the meaning set forth in Section 4.5.

 

1.8                               “Compression Ratio” means the discharge pressure for a particular compression facility expressed in Psia divided by the suction pressure expressed in Psia.

 

1.9                               “COS Calculations” has the meaning set forth in Section 4.3.

 

1.10                        “Credit-Worthy Assignee” means a Person who, or whose obligations are guaranteed by a Person who, either: (a) has a long-term non credit enhanced corporate credit rating of at least “BB” by Standard & Poors or a corporate family rating of at least “Ba2” by Moody’s; or (b) if such Person does not have any long-term unsecured and non credit enhanced debt credit rating by either Standard & Poors or Moody’s, has produced to Gatherer information sufficient to demonstrate to the reasonable satisfaction of Gatherer that the creditworthiness of such Person is equivalent to a Person that possesses such rating.

 

1.11                        “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 pressure of fourteen and seventy-three hundredths pounds per square inch absolute (14.73 psia) as required by this Agreement and at a temperature of sixty degrees (60°) Fahrenheit.

 

1.12                        “Day” means a period of twenty-four (24) consecutive hours beginning and ending at the Standard Time Zone Hour. The reference date for any Day will be at the beginning of such Day.

 

1.13                        “Dedicated Area(s)” means the geographic area(s) shown on the map(s) in Exhibit 1.13.

 

1.14                        “Dedicated Production” has the meaning set forth in Section 3.1.

 

1.15                        “Dedicated Well” means any Well that is now completed or may be hereafter completed with a surface location within the Dedicated Area, and in which Shipper, Producer or either of their affiliates own a working interest.

 

1.16                        “Delivery Points” means the inlet of the Gas measurement facilities at the existing or future interconnections between the System and the facilities of a Third Party Transporter where Dedicated Production is delivered to Third Party Transporter for Shipper’s account.

 

1.17                        “Design Suction Pressure” means the target design pressure (measured in Psig), mutually agreed to by Shipper and Gatherer, for a System at the inlet separator for each compression facility on a common suction system.

 

1.18                        “EFM” has the meaning set forth in Exhibit 9.8.

 

1.19                        “Force Majeure” has the meaning set forth in Section 14.4.

 

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1.20                        “Fuel” means Gas used by Gatherer, or a sub-contractor to Gatherer, to operate compressors, dehydrators, treaters, and related equipment and facilities on, or to vent, relieve, or blowdown equipment and facilities of the Systems.

 

1.21                        “Gas” or “Natural Gas” means all hydrocarbons produced from the Wells or otherwise, including casinghead Gas, together with all liquefiable hydrocarbon components thereof and all concomitant gaseous substances produced from the Wells or otherwise, including, but not limited to, nitrogen, carbon dioxide and contained helium, but excluding crude oil and condensate recovered by Shipper or Producer at the Wells before the Receipt Point by ordinary mechanical separation means.

 

1.22                        “Gathering Fee” shall mean the fee charged per MMBtu by Gatherer to Shipper for wellhead or system gathering services inclusive of dehydration but not including compression. “Gathering Fee” may be used specifically to describe the fee for services provided under this Agreement or may be used to describe the fees for similar services provided under gas gathering agreements with other Anchor Shippers or Third Party Shippers.

 

1.23                        “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 (60°) Fahrenheit in the absence of water vapor and under a constant pressure of 14.73 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.

 

1.24                        “Law” means all applicable and 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.

 

1.25                        “Lost Gas” means any Gas lost or unaccounted for incident to the operations of the System, including, but not limited to, lost or unaccounted for gas resulting from leakage, discrepancies due to meter inaccuracies or variations of temperature or pressure.

 

1.26                        “Mc?’ means one thousand (1,000) cubic feet.

 

1.27                        “Midstream Gas Gathering Assets” means Gas pipelines, Gas measurement facilities, Gas compressors, dehydrators, and any treating or related facilities, buildings with contents, surface leases and rights-of-way, used for the gathering of Gas.

 

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

 

1.29                        “Month” means the period beginning the Standard Time Zone Hour on the first Day of the calendar month and ending at the Standard Time Zone Hour on the first Day of the next succeeding calendar month.

 

1.30                        Party” or “Parties” has the meaning contained in the preamble.

 

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1.31                        “Person” 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.

 

1.32                        “Psia” means pounds per square inch absolute.

 

1.33                        “Psig” means pounds per square inch gauge.

 

1.34                        “Purchaser” has the meaning set forth in Section 3.2.

 

1.35                        “Quarter” means the period beginning on the first Day of a calendar quarter and ending immediately prior to the commencement of the first Day of the next calendar quarter.

 

1.36                        “Priority 1 Gas”, “Priority 2 Gas” and “Priority 3 Gas” have the meanings set forth in Section 8.1.

 

1.37                        “Receipt Point” means the inlet of Gatherer’s existing or future Gas measurement facilities on the Systems where Gatherer receives Dedicated Production.

 

1.38                        “Receipt Point Volume” means the Shipper’s gross metered volume at a Receipt Point, expressed in MMBtu.

 

1.39                        “Redetermination Date” January 1, 2012, and January 1 of each year thereafter during the term of this Agreement.

 

1.40                        “Shipper Supermajority Approval” means with respect to any:

 

1.40.1        System with two (2) Voting Shippers, the affirmative Vote of both Voting Shippers; or

 

1.40.2        System with three (3) or more Voting Shippers, a Vote in which there is not a Blocking Vote.

 

1.41                        “Standard Time Zone Hour” means 10:00 a.m. Eastern Time.

 

1.42                        “Super-System” means the combination of two or more Systems for the purpose of facilitating combined Fuel and Lost Gas, and Gas volume allocations and nominations over a wider area. The initial Super-Systems are described in Exhibit 1.43.

 

1.43                        “System” means a group of inter-related Midstream Gas Gathering Assets operated by Gatherer that are located within a single Target System Boundary. The initial Systems are set forth in Exhibit 1.43. Exhibit 1.43 also includes Super-Systems, Target System Boundaries and the items described in Sections 4.1, 4.5 and 11.2. Exhibit 1.43 will be updated to reflect changes made under the terms of this Agreement.

 

1.44                        “Target System Boundary” means the geographic area within which a System will be constructed.  The initial Target System Boundaries are set forth in Exhibit 1.13.

 

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

 

1.46                        “Third Party” means all Persons other than Shipper Indemnitees and Gatherer Indemnitees as defined in Section 17.1.

 

1.47                        “Total FLG Cap” has the meaning set forth in Exhibit 9.4.

 

1.48                        “Transporter” means the owner of pipeline facilities downstream of the inlet of the Gas measurement facilities for the Delivery Points.

 

1.49                        “Vote” means a written ballot or written statement duly executed by a Voting Shipper that indicate approval or disapproval of a matter with respect to a particular System.

 

1.50                        “Voting Percentage” means the voting percentage for each Anchor Shipper set forth in Exhibit 1.3.

 

1.51                        “Voting Shipper” means a Shipper and its affiliates that hold an aggregated amount of at least eight percent (8%) of all Voting Percentages and has Dedicated Production on the System for which a Vote is being held.

 

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

 

2.                                      Term.  The term of this Agreement for each System will remain in full force and effect for a primary term expiring at the end of the Redetermination Period (as defined in Exhibit 4.3) for such System (the “Primary Term”) and will continue in effect year to year thereafter (each, an “Extended Term”) unless terminated as provided in this Agreement. As to each System, either Party may terminate this Agreement effective at the end of the Primary Term or any Extended Term by providing written notice to the other Party at least ninety (90) Days prior to the expiration of the Primary Term or any succeeding Extended Term.

 

3.                                      Dedication.

 

3.1                               Dedication of Gas from Wells.  Subject to the exceptions in Exhibit 3.1 and the reservations in Section 3.3, Shipper and Producer dedicate to this Agreement and agree to deliver to the Receipt Points all of their respective owned or controlled Gas produced from all Dedicated Wells (collectively, “Dedicated Production”). Shipper and Producer represent and warrant that any of such Dedicated Production that is currently committed to other gathering arrangements prior to the date of this Agreement will be released from such other gathering arrangements as of the Effective Date.

 

3.2                               Sale of Dedicated Production.  Notwithstanding the foregoing, Shipper or its affiliates reserve the right to sell the Dedicated Production, Dedicated Wells or the underlying mineral leases or interests to any other party (referred to as “Purchaser”) so long as Purchaser is subject to and agrees to comply with and perform all of the obligations of Shipper contained in this Agreement. Such assignment will be subject to Section 19.7. If the Dedicated Production,

 

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Dedicated Wells or the mineral leases or mineral interests underlying the Dedicated Production are sold to a Purchaser, Gatherer will remain obligated to fulfill Gatherer’s obligations under this Agreement.

 

3.3                               Reservations of Shipper.  Shipper reserves the following rights under this Agreement:

 

3.3.1                     Sole discretion to determine the appropriate flow rate (which flow rate may be zero) for any Well producing for or on behalf of Shipper or its affiliate;

 

3.3.2                     The right to retain all condensates, distillates, drip gas and any other liquids that are recovered in Shipper’s system upstream of the Receipt Points; and

 

3.3.3                     The right to retain the net proceeds from the sale of all condensates, distillates, drip gas and any other liquids that are recovered in Gatherer’s System downstream of the Receipt Points and marketed by Gatherer on behalf of Shipper less all Third Party costs for collection, removal and transport of said products; and

 

3.3.4                     The exclusive right to process the Gas for extraction of natural gas liquids and other liquid hydrocarbons downstream of the Receipt Points. Gatherer has no right to such liquids or to install facilities for the removal of such liquids beyond industry standard mechanical separation or to condition fuel gas as needed for operations.

 

4.                                      Gatherer Services and Fees.  Subject to the terms of this Agreement, Gatherer will receive, accept and gather the Dedicated Production at the Receipt Points, and deliver the Dedicated Production at the Delivery Points, less applicable Fuel and Lost Gas. Gatherer is not required to take Gas if accepting such Gas would, in Gatherer’s opinion, reasonably exercised, create a safety or operational problem. Gatherer will provide services other than gathering and compression pursuant to Section 4.7. The fees for the foregoing services are determined as follows:

 

4.1                               Gathering Fee.  For all of Shipper’s Gas received by Gatherer at the Receipt Points, Shipper will pay Gatherer the Gathering Fee set forth in Exhibit 1.43  multiplied by the Receipt Point Volume.

 

4.2                               Special Provisions.  In addition, the following special provisions will apply. The Gathering Fees and Compression Fees set forth in this Section 4.2 commence on September 1, 2011, and will not accrue or be due for periods prior to that date.

 

4.2.1                     All Gas from the Smithfield GGS that flows into the Liberty GGS will flow on the Liberty GGS as Priority 1 Gas and will incur an additional fee equal to twenty-five present (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Liberty GGS.

 

4.2.2                     All Gas from the Litchfield GGS that flows into the Rome GGS will flow on the Rome GGS as Priority 1 Gas and will incur an additional fee equal to twenty-five percent (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Rome GGS.

 

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4.2.3                     The Rome GGS will be interconnected with the Auburn GGS and Gas may flow in either direction between such Systems subject to the following terms:

 

(a)                                 A bidirectional meter will be installed at the interconnect at some point after initial flow commences but in conjunction with startup of the Auburn Compression Facility.

 

(b)                                 All Gas from the Rome GGS that flows into the Auburn GGS will flow on the Auburn GGS as Priority 2 Gas and will incur an additional fee equal to twenty-five percent (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Auburn GGS.

 

(c)                                  All Gas from the Auburn GGS that flows into the Rome GGS will flow on the Rome GGS as Priority 2 Gas and will incur an additional fee equal to twenty-five percent (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Rome GGS.

 

(d)                                 Up until such time as both (i) the Chief Wyoming Pipeline is in service and (ii) the CNYOG Marc 1 Pipeline is in service, Shipper shall also have the right to elect to flow all or a portion of its Gas as Priority 1 Gas from the Rome GGS on the Auburn GGS or from the Auburn GGS on the Rome GGS under the following terms: (1) Shipper shall pay an additional seventy-five percent (75%) of the Gathering Rate on the receiving System, (2) Shipper shall send written notice of its election to Gatherer and each Anchor Shipper on the Rome GGS and Auburn GGS (at the Anchor Shipper’s addresses set forth in Exhibit 1.3) at least ten (10) Business Days before the end of a Month, (3) conversion to Priority 1 Gas treatment will begin on the first day of the Month following such notice, and (4) such election will be for a minimum period of six (6) Months and is terminable on any date thereafter upon at least thirty (30) days prior written notice to Gatherer.

 

4.2.4               The Rome GGS will be interconnected with the Overfield GGS and Gas may flow in either direction between such Systems subject to the following terms:

 

(a)                                 A bidirectional meter will be installed at the interconnect at some point after initial flow commences but in conjunction with startup of the Chief Wyoming Pipeline.

 

(b)                                 All Gas from the Rome GGS that flows into the Overfield GGS will flow on the Overfield GGS as Priority 2 Gas and will incur an additional fee equal to twenty-five percent (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Overfield GGS.

 

(c)                                  All Gas from the Overfield GGS that flows into the Rome GGS will flow on the Rome GGS as Priority 2 Gas and will incur an additional fee equal to twenty-five percent (25%) of the Gathering Fee and one hundred percent (100%) of the Compression Fee for the Rome GGS.

 

4.3                               Redetermination of Gathering Fee.  Effective on each Redetermination Date, the Gathering Fees for each System will be redetermined and adjusted in accordance with

 

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the cost of service provisions set forth in Exhibit 4.3 (the “COS Calculations”). No later than January 31 of each year beginning in 2012, Gatherer will send notice of the adjusted Gathering Fee for such year for each System, along with supporting documents for the calculations, to the Shipper. If the Shipper disagrees with Gatherer’s calculations, the Shipper will have until February 28 of such year to commence an audit of the relevant books and records of Gatherer used to conduct the COS Calculations. If the Parties cannot agree on the adjusted Gathering Fee for a System prior to February 28 of such year, the dispute will be resolved pursuant to Section 18, but in the interim the newly redetermined Gathering Fee will be in effect, subject to adjustment and refund when the new Gathering Fee is finalized. Any redetermination of Gathering Fees under this section 4, including any resolution of any dispute over redetermination resolved pursuant to Section 18, shall result in all Anchor Shippers being subject to the same schedule of Gathering Fees for Dedicated Production during the term of this Agreement.

 

4.4                               Extended Term Gathering Fee. Upon expiration of the Primary Term, Gatherer and Anchor Shippers will attempt to agree on a new fixed Gathering Fee during the Extended Term. If such parties cannot agree, the Gathering Fee during the Extended Term will be the average of the Gathering Fee for the final three (3) years of the Primary Term and will be subject to annual escalation by the Inflation Factor as defined in Section 4.5.

 

4.5                               Compression Fee.  For all of Shipper’s Gas received by Gatherer at the Receipt Points that receives compression prior to delivery to a Delivery Point, Shipper will pay Gatherer the applicable compression fee set forth in Exhibit 1.43 (the “Compression Fee”). Compression Fees will be based on a cost per stage (in half-stage increments) per MMBtu. If compression services are not provided on a System, no Compression Fee will be incurred. The Compression Fee per Stage will escalate effective January 1 of each year in proportion to the average percentage change (the “Inflation Factor”) for the twelve (12) Month period ending June 30 of the preceding calendar year, using the column titled “Annual Average”, or its equivalent, in the Consumer Price Index - All Urban Consumers as published by the United States Department of Labor Bureau of Labor Statistics (“CPI Index”). In no event will the adjustment result in a decrease of the Compression Fee. In the event the CPI Index ceases to be published without a designated replacement index, the Anchor Shippers (by Shipper Supermajority Approval) and Gatherer will mutually agree to an alternative price index reasonably similar to the CPI Index.

 

4.5.1                     For Systems with expected pressures at Delivery Points greater than or equal to 900 Psig and less than or equal to 1300 Psig, the stages assumed for each System will be based on the following Design Suction Pressures (“Deemed Compression Stages”):

 

	
Design Suction
   Pressure
    	
 
    	
Deemed Compression
   Stages
    	
 
    	
Acceptable Design
   Suction Pressure
   Increments
    
	
>= 30.0 Psig and   <=
   50.0 Psig
    	
 
    	
3.0
    	
 
    	
10 psi
    
	
> 50.0 Psig and   <=
   100.0 Psig
    	
 
    	
2.5
    	
 
    	
20 psi
    
	
> 100.0 Psig and   <=
   200.0 Psig
    	
 
    	
2.0
    	
 
    	
25 psi
    
	
> 200.0 Psig and   <= 
   350.0 Psig
    	
 
    	
1.5
    	
 
    	
25 psi
    
	
> 350.0 Psig and   <=
   600.0 Psig
    	
 
    	
1.0
    	
 
    	
50 psi
    
	
> 600.0 Psig
    	
 
    	
0.5
    	
 
    	
50 psi
    


 

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4.5.2                     For Systems with a Design Suction Pressure or an expected Delivery Point pressure that falls outside of Section 4.5.1, the Deemed Compression Stages assumed for each System will be discussed and mutually agreed to by Shipper and Gatherer, but shall generally be based on the expected Compression Ratio for the service provided as follows:

 

	
Compression Ratio (“CR”)
    	
 
    	
Deemed Compression Stages
    
	
CR >= 40.0
    	
 
    	
4.0
    
	
27.0 <= CR < 40.0
    	
 
    	
3.5
    
	
15.0 <= CR < 27.0
    	
 
    	
3.0
    
	
9.0 <= CR < 15.0
    	
 
    	
2.5
    
	
5.0 <= CR < 9.0
    	
 
    	
2.0
    
	
3.3 <= CR < 5.0
    	
 
    	
1.5
    
	
1.9 <= CR <3.3
    	
 
    	
1.0
    
	
CR < 1.9
    	
 
    	
0.5
    


 

4.6                               Electric Compression Fuel.  If Gatherer installs electric compression, Gatherer shall install electric metering for the compression to measure compression electricity separately from the remainder of electricity used elsewhere in Gatherer’s facilities. Gatherer shall bill Shipper for its respective allocated portion of electric costs used for electric compression of Shipper’s Gas each month.

 

4.7                               Other Services  If additional services, other than the services to gather, dehydrate and compress the Gas, are required in order to cause the Gas to conform to the Gas Quality Specifications, then upon Gatherer’s election, either: (a) Shipper will treat, process or otherwise condition or conform the Gas upstream of the Receipt Points to meet the Quality Specifications, with Shipper retaining any products recovered, or (b) Gatherer will furnish an estimated cost and fee to conform the Gas and upon Shipper Supermajority Approval, Gatherer will provide such service (with Shipper retaining the net proceeds of any natural gas liquids resulting from such service) and the cost will be included in the Gathering Fee calculated in accordance with the COS Calculations. If such additional services are only needed by a portion of the Dedicated Wells on a System (for example, H2S treating for a localized elevated H2S level across a portion of a System), Gatherer and Shipper will arrive at a mutually agreeable methodology to charge only the affected Dedicated Wells prior to the service being provided which methodology will be designed not to increase the Gathering Fee for Wells not requiring the additional services.

 

5.                                      Shipper Approvals and Voting.

 

5.1                               Voting Procedure.  Gatherer may submit a written request for a Vote (“Voting Request”) to all Voting Shippers in each of the Systems to which the Voting Request applies for any matter contemplated by Section 5.2 or 5.3 of this agreement. Gatherer will submit a Voting Request to all Voting Shippers in each of the Systems to which the Voting Request applies upon the written request of Shipper for a Vote on any matter contemplated by Section 5.3

 

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of this Agreement. Each Voting Shipper will, within ten (10) Business Days after receipt of the Voting Request, return its Vote to Gatherer. If a Voting Shipper fails to return its Vote within such ten (10) Business Day period, the Voting Shipper will be deemed to have voted in favor of the matter in the Voting Request and Gatherer will send written notice of the deemed affirmative vote to such Voting Shipper. The Voting Shipper will have five (5) Business Days after receipt of the notice to revoke such deemed affirmative vote by written notice to Gatherer. If the Anchor Shipper does not revoke the deemed affirmative vote within such time, the affirmative vote will be irrevocable.                                              When a matter requiring Shipper Supermajority Approval is approved by Shipper Supermajority Approval, the matter is binding on all Anchor Shippers. Gatherer will furnish the results of the Votes to all Voting Shippers in the applicable System within ten (10) Days after receiving Votes (including an irrevocable deemed vote) representing either Shipper Supermajority Approval or a Blocking Vote. Shipper authorizes Gatherer to furnish a copy of Shipper’s Vote to the other Voting Shippers on any matter.

 

5.2                               Required Approvals.  Without Shipper Supermajority Approval from Voting Shippers on each System affected, Gatherer may not take any of the following actions:

 

5.2.1                     Change any Target System Boundary.

 

5.2.2                     Merge two or more Systems into a single System.

 

5.2.3                     Create a Super-System or change the Systems that make up the composition of any Super-System.

 

5.2.4                     Install electric compression that will cause electric compression to exceed 25% of the total compression horsepower on a System.

 

5.2.5                     Lower or raise Design Suction Pressure.

 

5.2.6                     Change a gas price index that is the basis for Fuel and Lost Gas payments or the settlement of cash out Imbalances.

 

5.2.7                     Utilize a third party’s gathering system to sub-contract services contemplated herein.

 

5.2.8                     Add a Receipt Point that is not operated by Gatherer.

 

Gatherer’s Voting Request to merge two or more Systems must include a detailed proposal regarding how the COS Calculations for the Systems to be merged will be consolidated and how any conflicting termination dates for the Primary Term or Secondary Terms will be resolved.

 

5.3                               Gatherer’s Obligations. Upon Shipper Supermajority Approval, the Gatherer will take the action requested by Shipper described in Sections 4.7, 9.4, 9.7 and 11.2.

 

5.4                               Changes to Anchor Shippers or Voting Percentages.  Shipper may assign all or part of Shipper’s Voting Percentage to any party that is also assigned a similar percentage interest in the right to own or receive Dedicated Production, and Shipper may not otherwise assign its Voting Percentage. If Shipper assigns any of Shipper’s Voting Percentages to another

 

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party as provided in the foregoing sentence, Shipper will notify Gatherer of the assignment and the portion of its Voting Percentage assigned to the other party. If Gatherer receives notice from any Anchor Shipper of an assignment of Voting Percentage, Gatherer will update Exhibit 1.3 and send the updated Exhibit to Anchor Shippers.

 

5.5                               No Changes to Other Gathering Agreements.  Gatherer will not amend any gathering agreement with any Anchor Shipper covering the Dedicated Area without written consent of all Anchor Shippers on the Systems affected by the Amendment unless the amendment is expressly provided for in this Agreement, including, without limitation, amendments approved upon Shipper Supermajority Approval.

 

6.                                      Well Connections.

 

6.1                               Dedicated Wells.  Any request by Shipper for Gatherer to connect a Dedicated Well to a System (“Connection Request”) will be in writing and will contain Shipper’s best estimate of the date of first production for a specified Well. As soon as practicable, but no later than sixty (60) Days after Gatherer receives a written Connection Request, Gatherer will elect, by written notice to Shipper, whether or not Gatherer will connect the Dedicated Well. If Gatherer elects to connect the Dedicated Well, Gatherer will use reasonable commercial efforts to ensure that the Dedicated Well is connected to the System by: (a) the date requested by Shipper; or (b) if not connected by the date requested by the Shipper, as soon thereafter as practicable. If Gatherer has failed to respond to Shipper’s Connection Request or has elected in writing to decline to connect the Dedicated Well (a “Rejected Well”) within such sixty (60) Days, then Shipper may elect, by written notice or electronic mail to Gatherer, any of the following:

 

6.1.1                     Permanent Release.  The Rejected Well, and any subsequent wells with a surface location within a two (2) mile radius of the surface location of the Rejected Well, will be permanently released from the Dedication Area.

 

6.1.2                     Shipper Installed Asset.  The Shipper or its affiliate may construct, at Shipper’s sole cost, a gas gathering system (a “Shipper Installed Asset”) to connect such Rejected Well to a System at a mutually agreeable location under the following conditions:

 

(a)                                 Connection Location.  Unless otherwise agreed, the connection location for the Rejected Well will be the nearest location on the System where Shipper can obtain reasonable access and a site sufficient for connection facilities.

 

(b)                                 Custody Transfer.  Gatherer will install custody transfer and measurement facilities at the connection location referenced above at Shipper’s sole cost.

 

(c)                                  Fees.  For the receipt of Gas from a Shipper Installed Asset, Shipper will pay Gatherer a gathering fee equal to twenty-five percent (25%) of the in-effect Gathering Fee for the System, one hundred percent (100%) of the Compression Fee for the System, and one hundred percent (100%) of the proportionate share of actual Fuel and Lost Gas on the System.

 

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(d)                                 Subsequent Wells.  The Shipper may use the Shipper Installed Asset to gather any subsequent Wells drilled with a surface location within a one (1) mile radius of the Rejected Well.

 

(e)                                  Purchase of Shipper Installed Asset.  At any time within three (3) years after the initial flow of Gas (the “Initial Flow Date”) on the Shipper, Installed Asset, Gatherer will have the option to purchase the Shipper Installed Asset for a purchase price equal to the total capital cost paid by Shipper for the construction of such Shipper Installed Asset plus simple interest on the amounts paid at the per annum rate equal to twelve percent (12%) from the Initial Flow Date through the date of purchase. All interest will be computed for the actual number of Days elapsed at a per diem charge based on a year consisting of three hundred sixty-five (365) Days.

 

(f)                                   Service Level.  Gas produced from Wells with wellheads located within the Dedicated Area that flows into a System through a Shipper Installed Asset in accordance with this Section 6.1.2 will be considered Priority 1 Gas as defined in Section 8.1.3.

 

6.1.3                     Pipeline Reimbursement Agreement.  Upon request of Shipper, Gatherer must prepare and deliver to Shipper an AFE for the costs to connect such Rejected Well. If Shipper agrees to execute a Pipeline Reimbursement Agreement in the form attached at Exhibit 6.1.3 (“PRA”) covering the connection of the Rejected Well based on the costs set forth in the AFE, Gatherer must enter into the PRA with Shipper and connect the Rejected Well in an expeditious manner.

 

6.2                               Non-Dedicated Wells.  Shipper may connect any Midstream Gas Gathering Assets that flow Anchor Shipper’s Gas (“Shipper Pipeline”) from Wells located outside the Dedicated Areas to a System at a mutually agreeable location under the following conditions:

 

6.2.1                     Connection Location.  Unless otherwise agreed, the connection location for the Shipper Pipeline will be the nearest location on the System where Shipper can obtain reasonable access and a site sufficient for connection facilities.

 

6.2.2                     Custody Transfer.  Gatherer will install custody transfer and measurement facilities at the connection location referenced above at Shipper’s sole cost.

 

6.2.3                     Fees.  For the receipt of Gas from a Shipper Installed Asset, Shipper will pay Gatherer a gathering fee equal to twenty-five percent (25%) of the in-effect Gathering Fee for the System, one hundred percent (100%) of the Compression Fee for the System, and one hundred percent (100%) of the proportionate share of actual Fuel and Lost Gas on the System.

 

6.2.4                     Service Level.  Gas produced from Wells with wellheads located outside the Dedicated Area that flows into a System in accordance with this Section 6.2 will be considered Priority 2 Gas as defined in Section 8.1.2.

 

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7.                                      Nominations and Balancing.

 

7.1                               Nominations.  Nominations are to be submitted by Shipper to the attention of Gatherer’s gas scheduling department in writing, by electronic means as designated by Gatherer. The nominations shall cite the aggregate volume of Gas by each Super-System (or single System that is not part of a Super-System), adjusted for Shipper’s proportionate share of Fuel, as applicable, to be delivered by Shipper at the Receipt Points for delivery by Gatherer at specified Delivery Points, all in accordance with Gatherer’s then current nomination procedure. Monthly Nominations shall be submitted by Shipper no later than five (5) Days prior to the first day of the Month during which gas is to flow and Gatherer will confirm such Nominations in writing, by electronic means designated by Gatherer, by 12:00 pm Central Time no later than one (1) Day prior to the first Day of the Month in which Gas is to flow. If Shipper’s availabilities are not provided by the Well operator on a timely basis so that Shipper can meet the obligations herein, Gatherer and Shipper will work together to determine a mutually agreeable solution so that Shipper will be able to nominate and flow its Gas. Daily Nominations shall be submitted by Shipper by 12:00 pm Central Time on the Day before gas is to flow. Imbalance makeup or payback by Shipper must be approved by Gatherer, such approval not to be unreasonably withheld.

 

7.2                               Imbalances.  Shipper and Gatherer intend that the physical volumes actually delivered at the Delivery Points and the total volume nominated and confirmed at the Delivery Points will be equal, less Fuel volumes, as close as practicable, on a daily basis. Any difference between the actual quantities of Shipper’s Gas delivered at all Delivery Points on a Super-System (or single System that is not part of a Super-System) (together, the “Aggregated Delivery Points”) and the total volume nominated and confirmed for Shipper at the same Aggregated Delivery Points is the “Imbalance”. If Shipper delivers a greater volume of Gas to Aggregated Delivery Points than Shipper’s total nominations to such Aggregated Delivery Points, such difference shall be considered a positive Imbalance (“Positive Imbalance”). If Shipper delivers a lesser volume of Gas to Aggregated Delivery Points than Shipper’s total nominations to such Aggregated Delivery Points, such difference shall be considered a negative Imbalance (“Negative Imbalance”). If Gatherer’s operations of a System are negatively affected, in Gatherer’s sole, reasonable opinion, by an Imbalance, Gatherer shall notify Shipper and request that Shipper attempt to mitigate the Imbalance. If Shipper fails, refuses, or is unable to eliminate the Imbalance, Gatherer may, without liability hereunder, cease accepting or delivering Gas under this Agreement until the conditions causing the Imbalance are corrected. Gatherer shall provide Shipper regular information and updates to Shipper’s Imbalance position and events that may affect that position. Any expenses paid or revenues received by Gatherer as a result of Imbalances will be included as revenue or operating expenditures in the COS Calculations. Imbalances will be resolved as follows:

 

7.2.1                     Shipper OBA.  If the shippers on a Super-System (or a single System not part of a Super-System) hold all of the operational balancing agreements (“OBAs”) with the downstream pipelines connected to such Super-System or System and Gatherer has no such operational balancing agreements, then: (a) there is no Imbalance for purposes of this Agreement; and (b) Gatherer is not liable for any imbalances Shipper incurs with such downstream pipeline. If at any time any downstream pipeline on such Super-System or System requires that the OBA be between the downstream pipe and the Gatherer, then the Imbalance will be resolved for such Super-System or System pursuant to Sections 7.2.2 and 7.2.3 below.

 

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7.2.2                     In-Kind Balancing.  If all of the downstream pipelines with Delivery Points on a Super-System (or single System not part of a Super-System) require Imbalances to be resolved via in-kind balancing, then the Imbalance on such Super-System or System will be settled in the following manner: (a) if there is a Negative Imbalance then Gatherer will reduce Shipper’s nomination to such Super-System or System by a mutually acceptable percentage below the actual deliveries that is calculated to fully cure such Negative Imbalance within three (3) months, and such reduction will continue until such Negative Imbalance is eliminated; and (b) if there is a Positive Imbalance then Shipper will either adjust its production downward in the subsequent months or increase its nominations to such Super-System or System by a mutually acceptable percentage in either event in an amount that is calculated to fully cure such Positive Imbalance within three (3) months, and such adjustment will continue until such Positive Imbalance is eliminated.

 

7.2.3                     Cash Out Balancing.  All Imbalances on a Super-System (or a single System not part of a Super-System) not covered by Sections 7.2.1 or 7.2.2 above will be resolved as follows: (a) if there is a Negative Imbalance, Shipper will pay Gatherer on a monthly basis an amount equal to the volume of the Negative Imbalance on such Super-System (or a single System not part of a Super-System) multiplied by the Cash Out Price (as hereinafter defined); and (b) if there is a Positive Imbalance, Gatherer will pay Shipper on a monthly basis an amount equal to the volume of the Positive Imbalance on such Super-System (or a single System not part of a Super-System) multiplied by the Cash Out Price. The “Cash Out Price” for each applicable Super System (or single System that is not part of a Super System) will be the average daily index price, during the month in which the applicable Imbalance occurs, for Dominion South Point in the section “Prices of Spot Gas delivered to Pipelines” as published in Inside FERC’s Gas Market Report, as adjusted as set forth below. If for any reason such index ceases to be published or if for any reason such index is no longer applicable to such Super-System or System, Gatherer and Shipper will mutually agree upon an appropriate replacement index and if no agreement can be reached, the provisions of Section 18 will apply. If any downstream pipeline on a Super-System or System charges a penalty to Gatherer as a result of an imbalance on such Super-System or System in any Month, then Gatherer may adjust the Cash Out Price for such Month as set forth in the tables below based on the percentage that the volume of Shipper’s Imbalance is of Shipper’s total Gas deliveries.

 

Settlement price for Negative Imbalances

 

	
% Imbalance
    	
 
    	
% of Cash Out Price
    	
 
    
	
5% or less
    	
 
    	
100
    	
%
    
	
More than 5%,   less than or equal to 10%
    	
 
    	
115
    	
%
    
	
More than 10%,   less than or equal to 15%
    	
 
    	
130
    	
%
    
	
More than 15%,   less than or equal to 20%
    	
 
    	
140
    	
%
    
	
More than 20%
    	
 
    	
150
    	
%
    


 

Settlement price for Positive Imbalances

 

	
% Imbalance
    	
 
    	
% of Cash Out Price
    	
 
    
	
5% or less
    	
 
    	
100
    	
%
    
	
More than 5%,   less than or equal to 10%
    	
 
    	
85
    	
%
    
	
More than 10%,   less than or equal to 15%
    	
 
    	
70
    	
%
    
	
More than 15%,   less than or equal to 20%
    	
 
    	
60
    	
%
    
	
More than 20%
    	
 
    	
50
    	
%
    


 

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8.                                      Curtailment.

 

8.1                               Capacity Curtailment.  If delivery of Gas through the System has been or will be cut back or curtailed due to an event of Force Majeure, maintenance, or physical capacity limitation on a System that limits Gatherer’s ability to flow all quantities of Gas available for delivery to a System situated upstream of the restriction, then Gatherer shall notify Shipper as soon as possible and the acceptance of all Gas at the Receipt Points or at any other points and the gathering of same on such System will be curtailed under the following methodology:

 

8.1.1                     Priority 3 Gas.  Gas delivered to such System that is not dedicated to such System or does not originate from lands, leases, wells or reserves dedicated to such System, (collectively “Priority 3 Gas”), will be curtailed first on a pro rata basis with all other Priority 3 Gas on the System(s), based on each shipper’s most recent confirmed nomination prior to such curtailment. Priority 3 Gas shall include Gas gathered on a Month to Month basis which originally had a prior term obligation.

 

8.1.2                     Priority 2 Gas.  After all Priority 3 Gas has been curtailed, Gas which is dedicated to be delivered to such System and not gathered as Priority 1 Gas, defined below, (“Priority 2 Gas”) will be curtailed pro rata as set forth below.

 

8.1.3                     Priority 1 Gas.  After all other Gas, including, without limitation, Priority 3 Gas and Priority 2 Gas, has been curtailed, Gas delivered to the System that is subject to a gathering fee based on the COS Calculations set forth in this Agreement and any other Gas designated in an agreement to be Priority 1 Gas (collectively, “Priority 1 Gas”) will be curtailed pro rata as set forth below.

 

Priorities will be in ascending numerical order, lower priority Gas being a larger number, and Gatherer shall not curtail Gas from a priority category if it is accepting Gas from a lower priority category. Gatherer will curtail Gas within each priority level as follows: (a) during any Month, on a pro rata basis with all other Gas in such priority level, based on each shipper’s most recent confirmed nomination prior to such curtailment, and, except for Receipt Point reallocations that do not result in additional curtailments, new or additional nominations from shippers on a curtailed System will not be accepted or confirmed by Gatherer for the remainder of the Month during curtailment; and (b) if the curtailment continues to the beginning of the next Month, then each shipper’s share of capacity for the subsequent Month on the System(s) shall be determined pro rata based on each shipper’s relative entitlement for the Month. Gatherer will determine, in good faith without unjust or unreasonable discrimination among Wells, each shipper’s relative entitlement based on the flow potential of each Well in such System(s) using valid information reasonably and consistently compiled among Wells in accordance with industry standards. Nominations by any Shipper shall not exceed such flow potential as described herein, except in the event of imbalance resolutions.

 

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Gatherer will temporarily release all curtailed Gas of Shipper from the terms of this Agreement for the duration of the curtailment only, and Shipper shall resume deliveries of such curtailed Gas to Gatherer no later than the first Day of the second Month immediately following the cessation of such curtailment. If the curtailment under this Section 8.1 persists for more than ninety (90) Days in any three hundred sixty-five (365) Day period, except to the extent Gatherer has been delayed by any governmental action, including but not limited to permitting and zoning, Shipper may seek, and Gatherer shall grant, a permanent release of the curtailed Gas. Gatherer will give Shipper ten (10) Days prior notice before performing any planned or routine maintenance on a System that will cause the curtailment of any of Shipper’s Gas.

 

8.2                               Market Curtailment.  Shipper and each individual producer party in any Dedicated Well shall be responsible for securing transportation or sales of its Gas on the downstream pipeline at the Delivery Points (“Market”). Should one or more parties in a Dedicated Well gathered by Gatherer hereunder make nominations that are not confirmed and scheduled by a downstream pipeline (including, without limitation, as a result of an event of Force Majeure or a downstream pipeline operational flow order), such party will be deemed to have insufficient Market for its Gas. In the event one or more parties has insufficient Market for its Gas, then Gatherer will continue to receive all other parties’ Gas in such Dedicated Well with Market and may curtail the party or parties whose nominations are not confirmed and scheduled by the downstream pipeline until such party secures Market for its Gas. Any potential imbalance created in such Dedicated Well and any liability therefor shall remain with Shipper and any individual producer parties in the Dedicated Well, and Gatherer will have no further obligation or liability to such parties other than to receive Gas at the Receipt Point for the Dedicated Well and provide the gathering services as provided in this Agreement. Upon Shipper or any individual producer party providing commercially reasonable justification that it has sufficient Market for its Gas, Gatherer shall accept nominations for such Gas from Shipper or the individual producer and such nominations will be treated as new or additional nominations of Shipper under and subject to Section 8.1. Any potential Imbalance created on the Systems due to one or more parties having insufficient Market for its Gas shall be resolved according to the provisions outlined in Section 7.2.

 

8.3                               Restrictions.  Subject to applicable Law, as amended from time to time, Gatherer will not, without Shipper’s prior written approval, offer any Third Party: (a) a higher service priority than that offered to Priority 1 Gas on any System; (b) any curtailment procedure on any System more favorable to such Third Party than the curtailment procedures contained in this Agreement; or (c) a gathering agreement on any System for Priority 1 Gas if Gatherer reasonably expects that such agreement would likely cause a System to become oversubscribed in relation to the expected capacity of such System.

 

9.                                      Measurement and Commingling.

 

9.1                               Right to Commingle.  Gatherer has the right to commingle the Dedicated Production received in the System with other shippers’ Gas. It is recognized that Dedicated Production delivered at a Delivery Point may not be the same molecules as those received at a Receipt Point. The quantities of Dedicated Production delivered at a Delivery Point will be Thermally Equivalent to the quantities of Dedicated Production received in accordance with the

 

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terms of this Agreement at a Receipt Point, less Shipper’s share of Fuel and Lost Gas, and any applicable reduction pursuant to Section 3.3.3 of this Agreement.

 

9.2                               Fuel Allocation.  Shipper’s share of Fuel consumed in the operations of the System shall be determined and allocated by Gatherer to each Receipt Point upstream of the applicable point Gas is actually consumed by multiplying the Gas consumed at such point on the System by a fraction calculated by the Receipt Point Volume upstream of such point divided by all Gas volume attributable for all Receipt Points upstream of such point.

 

9.3                               Lost Gas.  Gatherer will exercise prudent operational oversight on each System to minimize the potential for Lost Gas. All Lost Gas on a System caused by the actions of unaffiliated Third Parties and recovered by Gatherer shall be credited, proportionately on an MMBtu basis, to all shippers on such System. Shipper’s prorated share of Lost Gas shall be determined and allocated by Gatherer based on Shipper’s Gas volumes in the System proportionate to total Gas volume in the System.

 

9.4                               Fuel and Lost Gas Caps.  Commencing after December 31, 2011, and subject to the additional terms defined and set forth in Exhibit 9.4, if Gatherer’s calculations pursuant to Section 2.2 of Exhibit 9.4 indicate that an FLG Exceedance has occurred in any Super-System or System, the FLG Report sent by Gatherer shall include an explanation, system balance report, and cost estimate for a remedy that is reasonably expected to prevent Fuel and Lost Gas from exceeding the Total FLG Cap in the future (“FLG Proposal”). Upon receipt of the FLG Proposal, the Total FLG Cap for such System or Super-System will be waived for twelve (12) months beginning with the first month after the FLG Quarter in which the FLG Exceedance occurred unless the Anchor Shippers, by Shipper Supermajority Approval, elect to allow Gatherer to proceed with the remedy and either (i) have Gatherer pay the costs and include the costs in the COS Calculations or (ii) with the agreement of all Anchor Shippers, the Anchor Shippers will pay the costs as incurred and such costs will be excluded from the COS Calculations. If an FLG Exceedance has occurred and Gatherer fails to provide the FLG Proposal to Shipper within forty-five (45) days after receipt of Shipper’s Notice, then Gatherer will pay Shipper the FLG Reimbursement for that FLG Quarter within ninety (90) days after receipt of Shipper’s Notice. The FLG Reimbursement will not be included in the COS Calculations. However, if Gatherer has provided the required information as set forth herein, Gatherer shall not be obligated to pay the FLG Reimbursement. If the FLG Proposal is approved, Gatherer will again be subject to the caps set forth in this Section beginning with the first full FLG Quarter after completion of the work under the FLG Proposal.

 

9.5                               Receipt Points.  The initial Receipt Points are listed in Exhibit 9.5 and will be subcategorized according to System. Exhibit 9.5 will be amended from time to time as Dedicated Wells or other Wells are added to the Systems. Subject to the guidelines set forth in Exhibit 9.8, all meters at Receipt Points shall be installed, owned and operated by Gatherer with the cost included in the COS Calculation. Each Receipt Point will be at a location on or adjacent to the pad for each Dedicated Well on a site designated and provided by Shipper, or at another location mutually agreed upon by Shipper and Gatherer.

 

9.6                               Gas Lift.  At the request of a Shipper, Gatherer shall install a meter at a Dedicated Well pad to furnish gas for gas lift, fuel, or other wellhead purposes (a “Gas Lift

 

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Meter”). All Gas Lift Meters will be listed in Exhibit 9.6. Subject to the guidelines set forth in Exhibit 9.8, all Gas Lift Meters will be installed, owned, and operated by Gatherer, and Shipper or Shippers requesting the Gas Lift Meter shall pay such costs which will not be included in a COS Calculation. In the event that a Gas Lift Meter is no longer needed at a particular Dedicated Well Pad, Gatherer and Shipper will work together to remobilize the Gas Lift Meter at a mutually agreeable site without additional direct cost to the Shipper. Gas delivered by Gatherer via Gas Lift Meters that has not been compressed or dehydrated by Gatherer prior to delivery will not be charged a Gathering Fee or Compression Fee. Prior to allocation of Fuel and Lost Gas, Shipper’s Receipt Point Volume shall be reduced for any corresponding gas lift volumes delivered to a Gas Lift Meter for usage in Wells upstream of the corresponding Receipt Point. Shipper shall be responsible for any allocations of gas lift volumes to individual Wells downstream of each Gas Lift Meter.

 

9.7                               Delivery Points.  The initial Delivery Points are described in Exhibit 9.7. Exhibit 9.7 will be amended from time to time to include new Delivery Points. All meters and necessary pipelines and equipment (“Delivery Assets”) installed at Delivery Points shall be installed, owned, and operated by Gatherer. New Delivery Points may be added as follows:

 

9.7.1                     If required for System operability, Gatherer may install new Delivery Points at Gatherer’s initiative (without Shipper Supermajority Approval) with the cost of the Delivery Assets included in the COS Calculations.

 

9.7.2                     If, upon Shipper Supermajority Approval, the Voting Shippers request that Gatherer install a new Delivery Point, Gatherer must promptly install the appropriate Delivery Assets using Gatherer’s design but meeting capacity specifications requested by the Voting Shippers, and the cost of such installation will be included in the next COS Calculation for the applicable System.

 

9.7.3                     If Gatherer will not install a Delivery Point and Shipper Supermajority Approval for a new Delivery Point cannot be obtained, then, at Shipper’s election by written notice to Gatherer, and upon Shipper’s advance payment to Gatherer of all costs of such installation, Gatherer will install and own the Delivery Assets, but Shipper will exclusively own and control the usage of all capacity in such Delivery Assets.

 

9.8                               Measurement Standards.  All measurement equipment utilized for custody transfer and billing or allocation purposes shall comply with the Gas Measurement Standards set forth in Exhibit 9.8.

 

10.                               Gas Quality.

 

10.1                        Specifications.  Gatherer will not be obligated to accept Gas from Shipper unless it meets the Gas quality specifications set forth in Exhibit 10.1 (“Gas Quality Specifications”).

 

10.2                        Non-conforming Gas.  If all or a portion of the Gas delivered by Shipper fails to meet any of the Gas Quality Specifications (“Non-conforming Gas”), then Gatherer may, at its option: (a) continue to temporarily receive such Non-conforming Gas or (b) discontinue receipt of such Non-conforming Gas. If Gatherer knowingly, based on Gatherer’s tests or

 

18











 

notification from Shipper, elects to continue to receive Non-conforming Gas, the election will not be deemed as a waiver of its right to discontinue receipt of such Non-conforming Gas at any time in the figure, however, Gatherer shall indemnify and hold harmless Shipper for any costs, expenses, losses, damages and liabilities arising out of such accepted Non-conforming Gas. If Gatherer’s tests do not reveal the presence of Non-conforming Gas and Gatherer is otherwise unaware that Gatherer is receiving Non-conforming Gas, then Shipper will be liable to Gatherer for any costs, expenses, losses, damages and liabilities arising from Shipper’s Non-conforming Gas.

 

10.3                        Receiving Pipeline with More Stringent Quality Specifications.  If the quality specifications of the receiving pipeline at any Delivery Point are more stringent than the Gas Quality Specifications, Gatherer is not required to accept at the Receipt Points that are connected to such Delivery Point any Gas tendered by Shipper until Shipper conforms the Gas or causes the Gas to be conformed to such specifications. If Shipper fails to conform the Gas, Gatherer may conform the Gas under the terms of Section 4.7. If neither Party elects to conform the Gas for a period exceeding thirty (30) Days, then Gatherer will release the Dedicated Well(s) producing such Gas from the terms of this Agreement.

 

11.                               Gas Pressure.

 

11.1                        Shipper’s Delivery Obligations.  Shipper will deliver Gas at each Receipt Point at a pressure that is sufficient to enter the System against the prevailing pressures in such System from time to time and Shipper shall not deliver Gas at a pressure that would exceed the maximum allowable operating pressure of the System at the Receipt Points. Shipper shall use commercially reasonable efforts to deliver Gas from Dedicated Wells operated by Shipper or its affiliate to Gatherer at uniform rates of flow.

 

11.2                        Gatherer’s Obligations and Rights.  Gatherer shall endeavor to maintain the pressure at the Receipt Points at a pressure not to exceed 1.3 times the Design Suction Pressure maintained at Gatherer’s compressor facilities for a given System. Gatherer will not raise the Actual Suction Pressure on a System by more than 30% above the Design Suction Pressures set forth in Exhibit 1.43 without Shipper Supermajority Approval. If the Anchor Shippers, upon Shipper Supermajority Approval, request that Gatherer lower the Design Suction Pressure on such System, then Gatherer must provide such lower pressures and all associated costs will be included in the COS Calculations and recovered through the adjustment to the Gathering Fee and Compression Fee applied to the adjusted Deemed Compression Stages. Any change in Design Suction Pressure must be requested in the increments set forth in the third column of the table in Section 4.5.1. Gatherer may install, operate and maintain, at its sole expense, such pressure-regulating devices as may be necessary to regulate the pressure of Gas at the Receipt Points.

 

12.                               Billings, Payments and Audit.

 

12.1                        1 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 Gas delivered into the System in the preceding Month. Shipper will remit to Gatherer the amount invoiced net of any cash out sums as required by Section 7.2, no later than thirty (30)

 

19











 

Days following the date Shipper receives the invoice. The undisputed amount of any payment not timely paid as required herein shall bear interest at the annual rate equal to the lower of the maximum lawful rate of interest in the State of Texas, or the United States national prime rate of interest published in the Eastern edition of The Wall Street Journal on the first day of the month in which delinquency occurs plus six percent (6%), which interest shall be promptly paid by Shipper. If any disputed amount is determined to be owed by Shipper, such amount will bear interest as set forth above. Additionally, if Shipper is more than ten (10) Days late in making any payment of undisputed amounts, in addition to all other rights and remedies of Gatherer, and upon at least five (5) Days prior notice, Gatherer may cease receiving Shipper’s Gas until Shipper’s account is brought current, with interest.

 

12.2                        Either Party, with at least sixty (60) Days prior written notice, shall have the right at its expense, at reasonable times during business hours, to audit the books and records of the other Party to the extent necessary to verify the accuracy of any statement, allocation, measurement, computation, charge, or payment made under or pursuant to this Agreement. Such audits will be conducted at the location where the books and records are normally located. The scope of any audit shall be limited to transactions affecting the Gas hereunder. No audit may include any time period for which a prior audit under this Section 12.2 was conducted (but may include data from a prior audit that affects the time period of the current audit), and no audit may occur more frequently than once each twelve (12) Months. All statements, allocations, measurements, computations, charges, or payments made in any period prior to the twenty-four (24) Month period immediately prior to the Month in which the audit is requested, or made in any twenty four (24) Month period for which the audit is requested but for which a written claim for adjustments is not made within ninety (90) Days after the audit is requested shall be conclusively deemed true and correct and shall be final for all purposes. All other statements, allocations, measurements, computations, charges, or payments shall be deemed true and correct and shall be final for all purposes after the expiration of twenty-four (24) Months from the date thereof. Nothing in this Section will limit the rights of the Parties in the event of a dispute under Section 12.1.

 

13.                               Notices.  Unless otherwise agreed by the Parties in writing, any notice, demand, request, claim or other communication required or permitted to be given under this Agreement will be in writing and will be deemed to have been duly given and received (a) when delivered personally, (b) on the date of delivery when delivered prior to 5:00 p.m. local time on a Business Day by facsimile or electronic mail (with electronic mail only being used for routine operating or other notices, unless receipt is acknowledged by its recipient, in which case, notice shall be effective as of such acknowledgement), otherwise on the following Business Day, (c) on the Business Day following the Day sent by’overnight courier, or (d) on the third (3rd) Business Day following the Day sent by certified mail, postage and charges prepaid, in each case, directed to the addresses set forth in Exhibit 13 or to such other or any other more recent address which has been provided by such Party in writing pursuant to this notice provision.

 

14.                               Force Majeure.

 

14.1                        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).

 

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14.2                        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. Notwithstanding Section 13, 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.

 

14.3                        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.

 

14.4                        For purposes of this Agreement, “Force Majeure” means causes, conditions, events or circumstances that: (a) are beyond the reasonable control of the Party whose performance is sought to be excused thereby; (b) cannot, despite the exercise of commercially reasonable remediation or mitigation efforts, be prevented, avoided or removed; and (c) prevent the total or partial performance of obligations of the affected Party under this Agreement. Such causes, conditions, events and circumstances will include, to the extent such causes and events present the characteristics described above, 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, state, or local, inability of any Party hereto to obtain necessary materials or supplies at reasonable market costs or permits due to existing or future rules, orders and laws of governmental or judicial authorities (federal, state, local, or otherwise), 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 of or accident to machinery or 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 reasonable 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.

 

15.                               Regulations and Choice of Law.  Each Party will comply with, and this Agreement is subject to all Law. 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 laws regarding conflicts or choice of law. The United Nations Convention on Contracts for the International Sale of Goods (1980) shall not apply.

 

16.                               Warranty.  Shipper warrants that the title to and right to possession of all Gas delivered to Gatherer under this Agreement will at the time of delivery be free from all liens and

 

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adverse claims, and Shipper shall indemnify Gatherer 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 reasonably believes either (i) that there is a title dispute, or (ii) that any Dedicated Production is being produced or delivered in violation of applicable laws or regulations. Title to the Dedicated Production shall at all times remain with Shipper or Purchaser, as applicable.

 

17.                               Indemnity.  Indemnities set out in this Article, unless specifically and unambiguously provided otherwise in this Agreement, shall exclusively govern and control the allocation of risks and liabilities of the Parties.

 

17.1                        Definitions.  In this Agreement, specifically including, but not limited to, this Section 17, the following terms have the following meanings:

 

17.1.1              “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 for enforcing this Agreement or otherwise), and judgments and damages (including any third party consequential and indirect damages), 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.

 

17.1.2              “Shipper Indemnitees” means Shipper, its affiliated Persons (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 Persons or entities to be provided by Shipper and/or its subcontractors in connection with the performance of this Agreement.

 

17.1.3              “Gatherer Indemnitees” means Gatherer, its affiliated Persons, and its and their officers, directors, insurers and all employees, supervisors, representatives, agents and other Persons to be provided by Gatherer and/or its subcontractors in connection with the performance of this Agreement (excluding any member of Shipper Indemnitees).

 

17.1.4              “Other Producer Group” means any other shipper of Gas on a System, its affiliated Persons, and its and their officers, directors, agents, representatives, employees.

 

17.1.5              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.

 

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17.2                        General.  The Parties agree that:

 

17.2.1              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, SPECIAL, INCIDENTAL, INDIRECT DAMAGES, LOST PROFITS, LOSS OF RESERVES IN THE GROUND, EXEMPLARY OR PUNITIVE DAMAGES AND EACH PARTY HEREBY WAIVES ANY AND ALL CLAIMS IT MAY HAVE AGAINST THE OTHER PARTY FOR ITS OWN SUCH DAMAGES.

 

17.2.2              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. In support of the indemnity obligations contained in this Agreement, each Party shall provide to the other Party for the benefit of the other Party, adequate proof of insurance, while this Agreement is in force, of coverage and amounts of General Liability Insurance of no less than $5,000,000 per occurrence, or adequate evidence of self-insurance reasonably acceptable to the other Party. The insurance policies of each Party shall, to the extent of the risks and liabilities assumed under this Agreement, waive rights and subrogation against the other Party, and name the other Party as additional insured. Each Party shall also provide to the other Party notice containing all relevant information of any Claim for which it may seek indemnification, promptly after discovering any facts or occurrence that may give rise to such a Claim.

 

17.3                        Gatherer’s Indemnity.  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. HOWEVER, THIS INDEMNITY SHALL NOT APPLY TO THE EXTENT THE CLAIM DIRECTLY ARISES FROM OR IS INCURRED IN CONNECTION WITH SHIPPER DELIVERING, WITHOUT GATHERER’S KNOWLEDGE, ANY GAS INTO THE SYSTEM THAT IS NOT IN COMPLIANCE WITH THE GAS QUALITY REQUIREMENTS OF THIS AGREEMENT.

 

17.4                        Shipper’s Indemnity.  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 Section 17.7, DAMAGE TO PROPERTY OF SHIPPER INDEMNITEES AND THEIR INVITEES; AND/OR (III) 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 TO THE EXTENT INCURRED IN CONNECTION WITH SHIPPER DELIVERING, WITHOUT THE KNOWLEDGE OF

 

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GATHERER, ANY GAS INTO THE SYSTEM THAT IS NOT IN COMPLIANCE WITH THE QUALITY REQUIREMENTS OF THIS AGREEMENT, REGARDLESS OF FAULT.

 

17.5                        Pollution and Hazardous Materials and Substances.

 

17.5.1              Gatherer’s Responsibilities.  Subject to the indemnity, obligations contained in Sections 17.3 and 17.4, 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 ARISING OUT OF OR RESULTING FROM ANY UNAUTHORIZED RELEASE OR DISCHARGE OF ANY SUBSTANCE, MATERIAL, MIXTURE, POLLUTANT, OR CONTAMINANT, WHICH EMANATES FROM THE SYSTEM, GATHERER INDEMNITEES’ PROPERTY, AND/OR OTHER PRODUCER GROUP PROPERTY, REGARDLESS OF FAULT.

 

17.5.2              Shipper’s Responsibilities.  Subject to the indemnity obligations contained in Sections 17.3 and 17.4, 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 ARISING OUT OF OR RESULTING FROM ANY UNAUTHORIZED RELEASE OR DISCHARGE OF ANY SUBSTANCE, MATERIAL, MIXTURE, POLLUTANT, OR CONTAMINANT, WHICH EMANATES FROM SHIPPER INDEMNITEES’ PROPERTY, REGARDLESS OF FAULT.

 

17.6                        Liability to Third Parties.

 

17.6.1              Subject to Sections 17.3, 17.4 and 17.5, 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 any Third Party to the extent such Claim is caused by Shipper Indemnitees.

 

17.6.2              Subject to Sections 17.3, 17.4 and 17.5, 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 Group.

 

17.7                        Risk of Loss.  Notwithstanding anything to the contrary in other provisions of this Agreement, and except if Shipper delivers Gas into the System that does not comply with the Gas Quality Requirements of this Agreement, risk of loss of Dedicated Production shall be borne by Gatherer from the Receipt Points until such time as the Dedicated Production is delivered to the Delivery Points and Gatherer shall defend, release, indemnify, and hold harmless Shipper Indemnitees from any loss of or damage to the Dedicated Production during such time, excepting Fuel and Lost Gas, REGARDLESS OF FAULT.

 

18.                               Dispute Resolution Procedures.  The Parties will first attempt in good faith to negotiate resolution of any dispute, claim, counterclaim, demand, cause of action, controversy and other matter in question associated with, arising out of or relating to this Agreement (a “Dispute”) within fifteen (15) Business Days after written notice of such Dispute by any Party, by discussions between senior managers. If resolution is not reached during such time, unless otherwise agreed to by the Gatherer and Shipper, any Dispute must be resolved through the use

 

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of binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”). If there is any inconsistency between this Section 18 and the Commercial Arbitration Rules, the terms of this Section 18 shall control the rights and obligations of the Parties.

 

18.1                        If there is more than one Dispute that involves the same Parties as the Parties with respect to which arbitration has been initiated pursuant to this Agreement, such Disputes may be consolidated into the first initiated arbitration pursuant to this Agreement; provided that the arbitral tribunal for the first initiated arbitration determines that: (a) the new dispute presents significant issues of law or fact common with those in the first initiated arbitration, (b) no Party would be unduly prejudiced, and (c) consolidation under these circumstances would not result in undue delay for the first initiated arbitration.

 

18.2                        Arbitration may be initiated by a Party serving written notice (“Claimant”) on the other Party (“Respondent”) that the Claimant has referred the Dispute to binding arbitration pursuant to this Section 18. Claimant’s notice initiating binding arbitration must describe in reasonable detail the nature of the Dispute and the facts and circumstances relating thereto. Respondent shall respond to Claimant within thirty (30) calendar Days after receipt of Claimant’s notice initiating binding arbitration and the parties will mutually appoint an arbitrator within sixty (60) Days after Claimant’s original notice. The arbitrator must be a neutral party who has never been an officer, director or employee of the Claimant or Respondent or any Affiliate of either. Unless Claimant and Respondent agree otherwise, the arbitrator must have not less than seven (7) years of experience in the energy industry with experience in exploration, production and pipeline gathering issues. If the Claimant and Respondent are unable to agree on an arbitrator within such time, then an arbitrator will be selected by the AAA with due regard given to the selection criteria above and input from the Claimant and Respondent. The Claimant and Respondent will request that the AAA to select the arbitrator not later than ninety (90) calendar Days from initiation of arbitration. In the event the AAA should fail to select the arbitrator within such time, then either Claimant or Respondent may petition the Chief United States District Judge for the Northern District of Texas to select the arbitrator. Due regard shall be given to the selection criteria above and input from the Claimant and Respondent.

 

18.3                        Subject to Section 18.4, Claimant and Respondent shall each pay one-half of the compensation and expenses of the arbitrator.

 

18.4                        The hearing shall be conducted in Dallas, Texas, and commence within thirty (30) calendar Days after the selection of the arbitrator. Where information necessary to resolve the Dispute is solely within the possession of either Claimant or Respondent, the arbitrator shall allow reasonable discovery necessary for the other Party to obtain the documents or information necessary to present its position. The arbitrator may allow, in the interest of time and efficiency, that the hearing be based on position papers, documents, and prepared testimony, in lieu of a live hearing. The Claimant, Respondent and arbitrator shall proceed diligently in order that the award may be made as promptly as possible. The arbitrator shall determine the Disputes and render a final award on or before thirty (30) calendar Days following the completion of the hearing. The arbitrators’ decision shall be in writing and set forth the reasons for the award and shall include an award of costs to the prevailing Party, including reasonable attorneys’ fees.

 

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18.5                        All statutes of limitations and defenses based upon passage of time applicable to any Dispute (including any counterclaim or setoff) shall be interrupted by the filing of the arbitration and suspended while the arbitration is pending. The terms hereof shall not create or limit any obligations of a Party to defend, indemnify or hold harmless another Party against court proceedings or other claims. In order to prevent irreparable harm, the arbitrator shall have the power to grant temporary or permanent injunctive or other equitable relief.

 

18.6                        A Party may, notwithstanding any other provision of this Agreement, seek temporary injunctive relief from any court of competent jurisdiction; provided that the Party seeking such relief shall (if arbitration has not already been commenced) simultaneously commence arbitration. The decision of the arbitrator shall be binding on and non-appealable by the Parties. Each Party agrees that any arbitration award against it may be enforced in any court of competent jurisdiction and that any Party may authorize any such court to enter judgment on the arbitrators’ decisions. The arbitrator may not grant or award indirect, incidental, special, consequential, punitive or exemplary damages or damages for lost profits, except for such claims by third parties for which indemnification is owed under Section 17, even if such are available under the governing law and even if a court would otherwise be empowered to avoid this limitation on damages to make such an award.

 

18.7                        Notwithstanding anything in this Section 18 to the contrary, if any Party is sued in a court of competent jurisdiction by a third party on an obligation for which indemnity is owed by another Party under this Agreement, then that Party may enforce the indemnity against the other Party by third-party complaint or its procedural equivalent in the same court without the obligation of seeking arbitration under this Section 18.

 

19.                               Miscellaneous.

 

19.1                        Confidentiality.  The Parties agree that this Agreement and all related 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, the Dedicated Wells 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 Persons 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 Law or National Securities Exchange rule or requirement, in which event the disclosing Party shall notify the other Party as soon as practicable.

 

19.2                        Amendment.  Any modification of terms or amendments of provisions of this Agreement will become effective only by duly executed supplemental written agreement

 

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between the Parties, unless another procedure for modification of a provision of this Agreement or the Exhibits hereto is specifically authorized by this Agreement.

 

19.3                        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.

 

19.4                        Taxes.  Shipper shall pay or cause to be paid, and agrees to indemnify and hold harmless Gatherer from and against the payment of, all excise, gross production, severance, sales, occupation, and all other taxes, charges, or impositions of every kind and character required by statute or by any governmental authority with respect to Shipper’s Gas and the handling thereof prior to receipt thereof by Gatherer at the Receipt Points. Subject to Section 19.5, Gatherer shall pay or cause to be paid all taxes and assessments, if any, imposed upon Gatherer for the activity of gathering of Shipper’s Gas after receipt and prior to delivery thereof by Gatherer at the Delivery Points.

 

19.5                        Additional or Subsequent Taxes.  Shipper shall reimburse Gatherer for Shipper’s allocable share of (a) any additional, increased, or subsequently applicable taxes (other than income taxes and any real or personal property or other ad valorem tax imposed on any Gathering System) implemented or imposed after the effective date of this Agreement that are lawfully levied on or paid by Gatherer with respect to its performance under this Agreement or on any part of a Gathering System and (b) any new or subsequently applicable assessments, fees or other charges implemented or imposed on Gatherer with respect to the services provided hereunder, including any such assessments, fees or other charges arising from any carbon tax or cap and trade law, rule or regulation adopted after the effective date. Shipper’s allocable share of any such amounts shall be based on the ratio that Shipper’s Gas (expressed in Mcfs) received at the Receipt Points in the State or States in which such amounts are imposed bears to the total volume of Gas (expressed in Mcfs) received at such Receipts Points, in each case during the applicable period for which such taxes, assessments, fees or other charges are incurred or imposed, as the case may be.

 

19.6                        Changes to Law.  To the extent that any of Gatherer’s activities pursuant to this Agreement result in the generation of or otherwise qualify for any emission reduction credits or emission offset credits or bonus emission allowances (collectively, “Greenhouse Gas Credits”) and Shipper has paid for an allocable share of the costs of such activities, then Shipper shall be entitled to receive, and Gatherer shall obtain and convey to Shipper, Shipper’s allocable share of any such Greenhouse Gas Credits. If any governmental authority takes any action (including issuance of any “policy statement,” rule, or regulation) whereby the receipt, gathering, treating, or delivery of Shipper’s Gas as contemplated under this Agreement shall be prohibited or subject to terms, conditions or regulations, including rate or price controls or ceilings or open access requirements not in effect on the effective date of this Agreement and which, in the reasonable judgment of Gatherer, materially adversely affect the economics of the services provided, and Fees received, under this Agreement, then, upon Notice by Gatherer to Shipper, the Parties shall as promptly as practicable meet to negotiate in good faith such changes to the terms of this Agreement as may be necessary or appropriate to preserve and continue for the Parties the rights and benefits originally contemplated for the Parties by this Agreement, including returns

 

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expected by Gatherer, with such amendment to this Agreement to be effective no later than the effective date of such new or amended applicable law.

 

19.7                        Assignment.  Upon notice to the other Parties, any Party to this Agreement is entitled to assign its rights, obligations or interests under this Agreement to affiliated Persons, which shall include, but not be limited to, a master limited partnership related to a Party and/or such master limited partnership’s subsidiaries and affiliates. No Party to this Agreement can assign its rights, obligations or interests under this Agreement to a non-affiliate: (a) unless such assignee agrees in writing to be bound by, comply with and perform all of the obligations of assignor contained in this Agreement; and (b) without the prior written consent of the other Parties, which consent will not be unreasonably withheld or delayed. If the assigning Party assigns this Agreement to a Credit-Worthy Assignee who assumes the assigning Party’s obligations under this Agreement, the assigning Party will be released from all obligations under this Agreement. If such assignee is not a Credit-Worthy Assignee, such assignment shall not release the assigning Party from any obligations under this Agreement.

 

19.8                        Access.  Shipper and Producer hereby grant to Gatherer such rights as such party 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.

 

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

 

19.10                 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.

 

19.11                 Anti-Corruption and Facilitation Payments.  In implementing the requirements of this Agreement, the Parties agree to use reasonable endeavors to comply with, and to use reasonable endeavors to procure that relevant third parties used for fulfilling the Parties’ respective obligations under the Agreement comply with, all laws, rules, regulations, decrees or official governmental orders prohibiting bribery, corruption and money laundering. All financial settlements, billings and reports in connection with the Agreement shall properly reflect the facts related to any activities and transactions handled for the account of the other Party.

 

19.12                 Counterpart Execution.  This Agreement may be executed in counterparts, including by facsimile, each of which will be deemed an original document but all of which will constitute a single document.

 

19.13                 Entire Agreement.  This Agreement and all agreements executed in connection herewith constitute the entire agreement between the Parties with respect to the subject matter hereof and no waiver, representation, or agreement, oral or otherwise, will affect

 

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the subject matter hereof unless and until such waiver, representation or agreement is reduced to writing and executed by authorized representatives of the Parties.

 

19.14                 Supersession.  This Agreement supersedes and replaces all other gas gathering agreements between Gatherer and Shipper or Producer covering the AMI, except any obligations under any such agreement, which, as of the respective effective dates herein, have then accrued, but which are not yet then satisfied, including, but not limited to those of payment, warranty of title or otherwise, satisfaction of taxes, imbalance settlements, indemnities, audit rights, governing law, dispute resolution, and confidentiality.

 

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the Parties and Producer have executed this Agreement effective the date first above written.

 

	
 
    	
GATHERER:
    
	
 
    	
 
    
	
 
    	
APPALACHIA   MIDSTREAM SERVICES, L.L.C.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   J. Mike Stice
    
	
 
    	
Name:J.   Mike Stice
    
	
 
    	
Title:   President and Chief Operating Officer
    


 

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IN WITNESS WHEREOF, the Parties and Producer have executed this Agreement effective the date first above written.

 

	
 
    	
SHIPPER   and PRODUCER:
    
	
 
    	
 
    
	
 
    	
EPSILON   ENERGY USA, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   :
    	
/s/   Ramik Arandjelovic
    
	
 
    	
Name:   Ramik Arandjelovic
    
	
 
    	
Title:   Chief Operating Officer
    


 

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List of Exhibits and Schedules

 


	
Exhibit 1.3
    	
–
    	
Anchor Shippers
    
	
Exhibit 1.13
    	
–
    	
Dedicated Area(s)
    
	
Exhibit 1.43
    	
–
    	
Systems
    
	
Exhibit 3.1
    	
–
    	
Exclusions from Dedication
    
	
Exhibit 4.3
    	
–
    	
Cost of Service Methodology
    
	
Exhibit 6.1.3
    	
–
    	
PRA Form
    
	
Exhibit 9.4
    	
–
    	
Fuel and Lost Gas Caps
    
	
Exhibit 9.5
    	
–
    	
Receipt Points
    
	
Exhibit 9.6
    	
–
    	
Gas Lift Meters
    
	
Exhibit 9.7
    	
–
    	
Delivery Points
    
	
Exhibit 9.8
    	
–
    	
Measurement Standards
    
	
Exhibit 10.1
    	
–
    	
Gas Quality
    
	
Exhibit 13
    	
–
    	
Notice Addresses