Document:

Exhibit 10.3 - Marathon and APC 1988 Agreement

    Exhibit
      10.3

    

    

    

    

    

    

    

    

    

    

    

    GAS
      PURCHASE
      AGREEMENT

    

    

    

    

    

    

    

    MARATHON
      OIL
      COMPANY

    

    

    AND

    

    

    ALASKA
      PIPELINE COMPANY

    

    

    

    

    

    Dated:
      May 1,
      1988

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    GAS
      PURCHASE
      AGREEMENT

    DATED
      May 1,
      1988

    MARATHON
      OIL
      COMPANY

    AND

    ALASKA
      PIPELINE COMPANY

    

    

    

    INDEX

    

    
      	 	
              ARTICLE

            	
              PAGE

            
	
              1.

            	
              Definitions

            	
              5

            
	
              2.

            	
              Conditions
                and Scope of Agreement

            	
              10

            
	
              3.

            	
              Reservations
                of Seller

            	
              12

            
	
              4.

            	
              Quantity

            	
              15

            
	
              5.

            	
              Delivery
                Points

            	
              40

            
	
              6.

            	
              Pressure

            	
              42

            
	
              7.

            	
              Measuring
                Stations

            	
              43

            
	
              8.

            	
              Measurements

            	
              47

            
	
              9.

            	
              Quality

            	
              49

            
	
              10.

            	
              Price

            	
              51

            
	
              11.

            	
              Billing

            	
              63

            
	
              12.

            	
              Force
                Majeure

            	
              65

            
	
              13.

            	
              Default
                and Termination

            	
              68

            
	
              14.

            	
              Term

            	
              70

            
	
              15.

            	
              Warranty
                of Title

            	
              70

            
	
              16.

            	
              Arbitration

            	
              71

            
	
              17.

            	
              Regulatory
                Bodies

            	
              76

            
	
              18.

            	
              Addresses

            	
              76

            
	
              19.

            	
              Miscellaneous

            	
              77

            
	 	
              Signature

            	
              81

            

    

    

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    EXHIBITS

    

    

    

    

    
      	
              Exhibit
                A

            	
              Buyer’s
                Current Gas Purchase Contracts

            
	 	 
	
              Exhibit
                B

            	
              Initial
                Commitment Forecast

            
	 	 
	
              Exhibit
                C

            	
              Seller’s
                Reserved Gas and Gas Sales Commitments

            
	 	 
	
              Exhibit
                D

            	
              Unocal
                - Marathon Exchange Agreement

            
	 	 
	
              Exhibit
                E

            	
              Initial
                Delivery Points

            
	 	 
	
              Exhibit
                F

            	
              Definitions
                of Proved Developed Reserves, Proved Undeveloped Reserves, Probable
                Reserves, and Possible Reserves

            

    

    

    

    

    -3-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    THIS
      AGREEMENT dated as of May 1, 1988, is between MARATHON OIL COMPANY, an Ohio
      corporation (“Seller”), and ALASKA PIPELINE COMPANY, an Alaska corporation
      (“Buyer”).

    

    WHEREAS,
      Buyer owns and operates a natural gas pipeline transmission system within the
      State of Alaska and desires to reorganize its purchase schedules, extend its
      gas
      reserve life and provide for long-term supplies of natural gas;

    

    WHEREAS,
      Seller owns, controls, or has the right to dispose of natural gas produced
      from
      lands located in or near the Cook Inlet region of Alaska, and Seller desires
      to
      sell a portion of such natural gas to Buyer; and

    

    WHEREAS,
      Buyer desires to purchase such natural gas from Seller for certain of the
      requirements of its system;

    

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants and
      agreements herein contained, the parties covenant and agree as
      follows:

    

    -4-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1. DEFINITIONS

    

    The
      terms
      used in this Agreement shall have meanings as follows:

    

    1.0 Day

    

    The
      term
“Day” shall mean a period of twenty-four (24) consecutive hours beginning and
      ending at eight o’clock a.m. Anchorage local time.

    

    1.1 Month

    

    The
      term
“Month” shall mean a period beginning at eight o’clock a.m. Anchorage local time
      on the first Day of a calendar month and ending at eight o’clock a.m. Anchorage
      local time on the first Day of the next calendar month.

    

    1.2 Year

    

    The
      term
“Year” shall mean a period of twelve (12) consecutive Months beginning on
      January 1 and ending on the next January 1. Where the context requires, a Year
      shall mean a period of less than twelve (12) Months ending on the next January
      1, or starting on January 1 and ending prior to the next January 1.

    

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    1.3 Gas

    

    The
      term
“Gas” shall mean natural gas including both gas well gas and oil well gas, and
      the residue gas therefrom of the quality described in Article 9.

    

    1.4 Mcf;
      MMcf;
      Bcf

    

    The
      term
“Mcf” shall mean one thousand (1,000) cubic feet; the term “MMcf” means one
      million (1,000,000) cubic feet; and the term “Bcf” shall mean one billion
      (1,000,000,000) cubic feet.

    

    1.5 Annual
      Contract Quantity

    

    The
      term
“Annual Contract Quantity” shall mean the quantity (expressed in Bcf) of New Gas
      (as defined in Section 4.6) Buyer requires each Year or, in the case of Seller’s
      Final Additional Commitment Forecast, the quantity of Gas Seller forecasts
      it
      can supply each Year.

    

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    1.6 Swing
      Rate

    

    The
      term
“Swing Rate” shall mean the maximum rate of delivery of New Gas expressed in
      MMcf per Day required to serve Buyer’s customers or, in the case of Seller’s
      Final Additional Commitment Forecast, the maximum rate of delivery of Gas
      expressed in MMcf per Day which Seller forecasts it can supply.

    

    1.7 Btu;
      MMBtu

    

    The
      term
“Btu” shall mean British Thermal Unit and the term “MMBtu” shall mean one
      million British Thermal Units.

    

    1.8 Gross
      Heating Value

    

    The
      term
“Gross Heating Value” shall mean the total calorific value, expressed in Btu’s,
      obtained by the complete combustion, at constant pressure, of the amount of
      Gas
      which would occupy a volume of one (1) cubic foot at a temperature of sixty
      (60)
      degrees Fahrenheit if saturated with water vapor and under a pressure equivalent
      to that of thirty (30) inches of mercury at thirty-two (32) degrees Fahrenheit
      and under standard gravitational force (980.665 cm. per second per second),
      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.

    

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    1.9 APUC

    

    The
      term
“APUC” shall mean Alaska Public Utilities Commission or any successor
      governmental authority.

    

    1.10 Seller’s
      Properties

    

    The
      term
“Seller’s Properties” shall mean oil and gas leaseholds and other interests in
      minerals or mineral rights and/or lands located in or near the Cook Inlet region
      of Alaska which Seller now or hereafter owns or controls and/or from which
      it
      has the right to dispose of Gas production.

    

    1.11 Seller’s
      Available Gas Reserves

    

    The
      term
“Seller’s Available Gas Reserves” shall mean the total quantity of Seller’s
      proved developed Gas reserves, proved undeveloped Gas reserves, and a percentage
      of probable Gas reserves (as defined in Exhibit “F” and as determined in
      accordance with sound engineering practices) in the various formations
      underlying Seller’s Properties, less the undelivered portion of the total
      volumes of Gas which Seller has reserved and/or committed under the contracts
      listed in Exhibit “C”.

    

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    1.12 Unaffiliated
      Purchaser

    

    The
      term
“Unaffiliated Purchaser” shall mean an entity which acquires Gas from Seller and
      which Seller does not control, does not control Seller and is not under common
      control with Seller. “Control” is determined by ownership of the voting
      securities of an entity, or upon other forms of ownership. Ownership of thirty
      percent (30%) or more constitutes a rebuttable presumption of control and
      ownership of less than thirty percent (30%) constitutes a rebuttable presumption
      of non-control, unless there is actual control in the form of interlocking
      directorates (which means that a majority of directors of one entity constitutes
      a majority of directors of a second entity), voting arrangements, management
      contracts or similar arrangements.

    

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    2. CONDITIONS
      AND SCOPE OF AGREEMENT

    

    2.0 Other
      Agreements Superseded

    

    Subject
      to
      future resolution of claims, if any, respecting Gas delivered prior to 8:00
      a.m.
      Anchorage time on May 1, 1988, this Agreement shall supersede and replace all
      other Gas purchase agreements between Buyer and Seller, all of which are
      terminated as of that time. Buyer and Seller shall incur no further obligations
      or liabilities under those agreements for Gas delivered after their termination,
      and all of Buyer’s previous take-or-pay obligations shall be extinguished at
      termination of the agreements.

    

    2.1 Agreement
      to Sell and Purchase Gas

    

    Subject
      to
      all of the terms, conditions, reservations and limitations set forth, Seller
      agrees to sell and deliver, or cause to be delivered, to Buyer, and Buyer agrees
      to purchase and receive from Seller, the quantities of Gas hereinafter provided
      which Seller owns, controls, or otherwise has the right to sell.

    

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    2.2 APUC
      Approval

    

    Buyer
      shall
      submit this Agreement to the APUC for approval no later than June 1, 1988,
      and
      shall proceed diligently and in good faith to secure APUC approval. Buyer shall
      supply Seller with copies of all pleadings filed with the APUC and shall keep
      Seller fully informed on a timely basis about the APUC proceeding. Seller shall
      cooperate with Buyer in Buyer’s efforts to obtain APUC approval.

    

    This
      Agreement shall be deemed approved when the APUC issues a final order finding
      that approval of the Agreement is in the public interest and that the costs
      incurred under the Agreement are fully recoverable in the rates of ENSTAR
      Natural Gas Company. Buyer shall notify Seller immediately upon approval or
      disapproval of the Agreement.

    

    If
      this
      Agreement does not receive the approvals contemplated by the preceding paragraph
      by December 1, 1988, Buyer or Seller may cancel the Agreement after thirty
      (30)
      Days prior written notice to the other party, provided that such prior notice
      is
      given prior to the receipt of the APUC’s approval. Buyer and Seller have read
      the APUC’s Order No. 7 in Docket U-87-42 and are on notice that the APUC
      indicated a preference to have one (1) year to review the supply contracts
      of
      ENSTAR’S power plant customers. While neither party has any present intent to
      cancel the Agreement if it is not approved by December 1, the option to cancel
      has been included because of the pending trial of the dispute about the contract
      price of Gas sold under the contract between and among Buyer, Seller, and Union
      Oil Company of California dated May 13, 1960 and subsequently amended, and
      Buyer’s contingent liability which increases as trial is delayed.

    -11-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Upon
      approval
      by the APUC, this Agreement shall be deemed effective as of May 1, 1988, and
      deliveries of Gas shall be deemed to have started on that date.

    

    3. RESERVATIONS
      OF SELLER

    

    Except
      as
      otherwise provided, Seller reserves the following rights with respect to its
      Gas
      and Seller’s Properties from which Gas is produced, and sufficient Gas produced
      from Seller’s Properties to satisfy such rights:

    

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    3.0 0peration
      of Seller’s Properties; Use of Gas

    

    The
      right to
      operate Seller’s Properties and to use Gas produced therefrom for operation of
      Seller’s Properties free from any control by Buyer in such manner as Seller, in
      Seller’s sole discretion, may deem advisable; including, without limitation the
      right, but never the obligation, to drill new wells, to repair and rework old
      wells, to renew or extend, in whole or in part, any oil and gas lease and to
      abandon any well or surrender any such oil and gas lease, in whole or in
      part.

    

    3.1 Formation
      of Units

    

    The
      right,
      free from any and all control by Buyer, to continue participation in or to
      form
      or to participate in the formation of any unit which may include all or any
      part
      of Seller’s Properties and thereafter to increase or decrease Seller’s
      Properties contained in such unit so formed and to pool and combine any unit
      or
      any part of any unit with properties owned by others.

    

    3.2 Delivery
      Facilities

    

    The
      right to
      use Gas produced from Seller’s Properties for the operation of the facilities
      which Seller may install in order to deliver gas.

    

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    3.3 Gas
      Lift;
      Enhanced Oil Recovery

    

    The
      right to
      use on Seller’s Properties Gas produced from Seller’s Properties for Gas lift
      operations and/or enhanced oil recovery projects.

    

    3.4 Gas
      for
      Delivery to Lessors

    

    The
      right to
      deliver Gas produced from Seller’s Properties to any of its lessors in
      accordance with its leases.

    

    3.5 Processing
      Rights

    

    The
      right at
      any time, and from time to time, prior to the delivery of Gas to Buyer, to
      process Gas, or cause it to be processed, including, but not limited to, the
      right to use such Gas as fuel in processing for the recovery of: (i) liquefiable
      hydrocarbons other than methane, except methane necessarily removed in such
      processing; (ii) sulfur; and (iii) helium and other gaseous components. Buyer
      shall not acquire any right, title or interest in any products resulting from
      such processing.

    

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    4. QUANTITY

    

    4.0 The
      Total
      Commitment

    

    Subject
      to
      all of the terms of this Agreement, Seller commits to deliver and sell to Buyer
      and Buyer commits to receive and purchase from Seller the Total Commitment
      of
      Gas. The Total Commitment (which is subject to adjustment) consists of an
      Initial Commitment of four hundred fifty-six (456) Bcf of Gas, plus Annual
      Additional Commitments, plus a Final Additional Commitment. Under specified
      circumstances, there may be no Annual or Final Additional Commitments. Subject
      to Buyer’s rights pursuant to Section 4.13(a, b and e), deliveries of the
      Additional Commitments shall begin immediately after Buyer has exhausted the
      Initial Commitment.

    

    4.1 The
      Annual
      Additional Commitments

    

    An
      Annual
      Additional Commitment is the total amount of Gas in excess of the amount of
      Gas
      previously committed under this Agreement and all other contracts under which
      Buyer has the right to purchase Gas which:

    

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              (a)

            	
              Buyer
                forecasts will be necessary to meet its Gas supply requirements for
                the
                first eight (8) Years of any Option Forecast; or
                which

            

    

    

    
      	 	
              (b)

            	
              Buyer
                forecasts will be necessary to meet its Gas supply requirements for
                the
                first nine (9) Years of any Option
                Forecast.

            

    

    

    
      	 	 	
              Annual
                Additional Commitments are made pursuant to the procedures in Section
                4.4.

            

    

    

    4.2 The
      Final
      Additional Commitment

    

    The
      Final
      Additional Commitment is the commitment, if any, of Gas by Seller to Buyer
      pursuant to Section 4.5. The sum of all Annual Additional Commitments and the
      Final Additional Commitment shall not exceed four hundred (400)
      Bcf.

    

    4.3 Buyer’s
      Initial, Supplemental, and Option Forecasts

    

    Buyer
      shall
      prepare for Seller the following written forecasts:

    

    
      	 	
              (a)

            	
              Initial
                Commitment Forecast:
                Attached as Exhibit “B” is the Initial Commitment Forecast for ten (10)
                Years beginning January 1, 1989 plus the Year May 1, 1988 to January
                1,
                1989, showing the estimated Annual Contract Quantity and Swing Rate
                for
                each of the Years included.

            

    

    

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              (b)

            	
              Supplemental
                Forecasts:
                On
                October 1, 1988 and on October 1 of each Year in which Seller is
                delivering any part of the Initial Commitment or any part of any
                Annual
                Additional Commitment(s), Buyer shall give Seller a forecast
                (“Supplemental Forecast”) of the Annual Contract Quantity and Swing Rate
                for each of the next ten (10) Years. Any Supplemental Forecast which
                shows
                that the Initial Commitment plus Annual Additional commitments (if
                any
                have been made) will be exhausted on or before the end of the eighth
                (8th)
                Year of the forecast shall be called an “Option Forecast.” Every Option
                Forecast presents the options in Section 4.4 until Option 1 or Option
                3 is
                selected. After Option 1 or Option 3 is selected, there will be no
                further
                Annual or Final Additional
                Commitments.

            

    

    

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    4.4 Making
      the
      Annual and Final Additional Commitments

    

    
      	 	
              (a)

            	
              Each
                Year during which Seller receives an Option Forecast, Seller has
                the sole
                right to choose, but must notify Buyer no later than December 1 of
                that
                Year that it has so chosen, one (1) of the following
                options:

            

    

    

    Option
      1: Seller
      will
      make an Annual Additional Commitment calculated pursuant to Section 4.1(a)
      and
      advise Buyer that Seller will stop delivery and sale of Gas to Buyer after
      Buyer
      has exhausted the Initial Commitment plus any Annual Additional Commitments
      which have previously been made, plus the Annual Additional Commitment made
      pursuant to this Option.

    

    Option
      2: Seller
      will
      make an Annual Additional Commitment calculated pursuant to Section
      4.1(b)

    

    Option
      3: Seller
      will
      make a Final Additional Commitment calculated pursuant to Section
      4.5.

    

    -18-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              If
                the
                Option Forecast is prepared in the Year 1995 (i.e. for the ten (10)
                Year
                period beginning 1996) or later, Buyer may reject Option 2. When
                such an
                Option Forecast is delivered to Seller, Buyer shall advise Seller
                whether
                it will accept Option 2. If Buyer chooses to reject Option 2, Buyer
                shall
                deliver Buyer’s Final Additional Commitment Forecast as described in
                Section 4.5(a) with the Option Forecast, and Seller shall choose
                Option 1
                or Option 3 by December 1 of that Year. Seller cannot choose Option
                2 in
                any Year after 2001.

            

    

    

    
      	 	
              (c)

            	
              Seller
                may challenge, an Option Forecast by providing notice pursuant to
                Section
                16.2(a) by December 1 of the Year the Option Forecast is provided;
                otherwise, any challenge shall be deemed to have, been
                waived.

            

    

    

    4.5 Determination
      of the Final Additional Commitment

    

    
      	 	
              (a)

            	
              Buyer’s
                Final Additional Commitment
                Forecast

            

    

    

    
      	 	 	
              If
                it
                is determined pursuant to Section 4.4 that there will be a Final
                Additional Commitment, Buyer shall by December 15 of the Year in
                which
                that determination is made (unless Buyer, pursuant to Section 4.4,
                has
                furnished Buyer’s Final Additional Commitment Forecast simultaneously with
                an Option Forecast) deliver to Seller Buyer’s Final Additional Commitment
                Forecast showing Buyer’s estimate of the Annual Contract Quantity and
                Swing Rate for each Year until four hundred (400) Bcf minus the sum
                of the
                Annual Additional Commitments (if any have been made) will be
                exhausted.

            

    

    

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              Seller
                may challenge the reasonableness of Buyer’s Final Additional Commitment
                Forecast by providing Buyer notice pursuant to Section 16.2(a) within
                thirty (30) Days of receiving Buyer’s Final Additional Commitment
                Forecast; otherwise, any challenge shall be deemed to have been
                waived.

            

    

    

    
      	 	
              (b)

            	
              Determination
                of the Final Additional
                Commitment

            

    

    

    
      	 	 	
              Seller’s
                Available Gas Reserves as of the date of Buyer’s Final Additional
                Commitment Forecast shall be determined and the report delivered
                to Buyer
                within one hundred eighty (180) Days of Seller’s receipt of Buyer’s Final
                Additional Commitment Forecast. The Final Additional Commitment shall
                be
                calculated by first subtracting from Seller’s Available Gas Reserves the
                undelivered portions of the Initial and any Annual Additional Commitments
                and any New Sales as of the date of Buyer’s Final Additional Commitment
                Forecast. The Final Additional Commitment shall be the lesser of
                (1) the
                amount calculated or (2) four hundred (400) Bcf minus the sum of
                all
                Annual Additional Commitments, if
                any.

            

    

    

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              (c)

            	
              Seller’s
                Final Additional Commitment
                Forecast

            

    

    

    
      	 	 	
              At
                the
                same time that Seller’s Available Gas Reserves are determined, Seller
                shall furnish Buyer a schedule showing the Swing Rate and Annual
                Contract
                Quantity which Seller can deliver each Year during which Gas is to
                be
                delivered pursuant to the Final Additional Commitment. This schedule
                (“Seller’s Final Additional Commitment Forecast”) is subject to the
                following constraints:

            

    

    

    
      	 	
              (1)

            	
              For
                any
                Year in Seller’s Final Additional Commitment Forecast for which there is a
                corresponding Year in Buyer’s Final Additional Commitment Forecast, the
                Swing Rate in Seller’s Final Additional Commitment Forecast must be either
                one hundred percent (100%) or not more than eighty percent (80%)
                of the
                Swing Rate in Buyer’s Final Additional Commitment Forecast. Such
                percentage for any Year shall not exceed the percentage for the prior
                Year.

            

    

    

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    (2) 
      For
      any Year in Seller’s Final Additional Commitment Forecast for which there is not
      a corresponding Year in Buyer’s Final Additional Commitment Forecast (i.e., if
      Seller’s Final Additional Commitment Forecast covers a longer period than
      Buyer’s Final Additional Commitment Forecast), the Swing Rate shall not be
      greater than the Swing Rate for the prior Year.

    

    
      	 	
              (d)

            	
              Buyer’s
                Right to Challenge Seller’s Final Additional Commitment
                Forecast

            

    

    

    Buyer
      may
      challenge all or any aspect of Seller’s Final Additional Commitment Forecast by
      serving a notice on Seller pursuant to Section 16.2(a) within thirty (30) Days
      of receipt of such forecast.

    

    
      	 	
              (e)

            	
              Buyer’s
                Supplemental Final Additional Commitment
                Forecasts

            

    

    

    On
      or before
      October 1 of each Year in which Seller is delivering any part of the Final
      Additional Commitment, Buyer shall give Seller a forecast of the Annual Contract
      Quantity for each Year until the Final Additional Commitment is expected to
      be
      exhausted.

    

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    4.6 New
      Gas

    

    “New
      Gas”
      means all Gas received by Buyer from all sources in excess of (i) that Gas
      which
      Buyer is obligated to take under its Gas supply contracts listed on Exhibit
“A”
      and (ii) that Gas which Buyer has the option to take under the contract dated
      January 26, 1988 with Shell Western Exploration and Production, Inc. Buyer
      warrants that it has supplied Seller with all its existing Gas purchase
      contracts and all related amendments and letter agreements. Buyer may, but
      shall
      not be obligated to, exercise its rights pursuant to Section 5.2.2 of the
      contract with Shell oil Company (dated December 20, 1982) listed on Exhibit
“A”.
      Except as provided in the immediately preceding sentence, Buyer shall not
      directly or indirectly consent to any reduction in any swing rate provided
      in
      any of the Exhibit “A” contracts and shall not acquiesce in any unilateral
      reductions in the swing rates in the Exhibit “A” contracts except to the extent
      that on May 1, 1988 such contracts expressly authorize such reductions.

    

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    Buyer
      shall
      not amend the Exhibit “A” contracts after May 1, 1988, to increase Gas
      purchases. If the seller under any contract listed in Exhibit “A” claims that
      Buyer is obligated to take more Gas than Buyer is then taking under the contract
      (and any related amendments and letter agreements), Buyer shall immediately
      notify Seller of the claim. Seller shall have no cause of action against Buyer
      if Buyer decides, in its sole discretion, not to contest the claim, and if
      Buyer
      at the request of Seller assigns to Seller all of Buyer’s rights to contest the
      claim and preserves all of Buyer’s defenses to the claim.

    

    4.7 Buyer’s
      Obligation to Take Gas

    

    Subject
      to
      Buyer’s rights to take Gas purchased from other sellers pursuant to Section
      4.13, Buyer shall take from Seller all of Buyer’s New Gas requirements which
      Seller can supply until the Initial, Annual Additional and Final Additional
      Commitments, net of any reductions permitted by this Agreement, have been
      exhausted.

    

    Operational
      constraints and unpredictable weather make it impossible for Buyer to predict
      and control precisely the amount of Gas it will take from the Exhibit “A”
      contracts. In some years, Buyer may take from its other Gas supply contracts
      amounts in excess of the amounts it is obligated to take under those contracts.
      Buyer will in good faith make all reasonable efforts to take no more each year
      than the amount of Gas it is required to take under its other Gas supply
      contracts. Total excess annual takes of two (2) Bcf or less under the contracts
      listed in Exhibit “A” will not be deemed to be in violation of Buyer’s purchase
      obligations under this Agreement, provided that Buyer shall not exceed its
      obligations to take Gas by more than one (1) Bcf per year in more than five
      (5)
      of any ten (10) consecutive years.

    

    -24-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              4.8

            	
              Seller’s
                Obligation to Deliver the Initial and Annual Additional
                Commitments

            

    

    

    Subject
      to
      all of the terms of this Agreement, Seller shall deliver all of Buyer’s
      requirements for New Gas each Day until the Initial Commitment and any Annual
      Additional Commitments are exhausted. If a reserve determination in accordance
      with Section 4.18 made prior to the determination of the Final Additional
      Commitment shows that Seller’s Available Gas Reserves are less than the
      undelivered portion of the Initial Commitment and Annual Additional
      Commitment(s), those commitments, beginning with the commitment most recently
      made, shall be reduced by the shortfall. Seller shall continue to deliver all
      of
      Buyer’s New Gas requirements each Day and Buyer shall continue to take all of
      its New Gas requirements from Seller pursuant to Section 4.7 until the Initial
      and Annual Additional Commitments, less the shortfall, have been
      exhausted.

    

    -25-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              4.9

            	
              Seller’s
                Obligation to Deliver the Final Additional
                Commitment

            

    

    

    Subject
      to
      all of the terms of this Agreement, when the Initial and Annual Additional
      Commitments are exhausted, Seller shall immediately begin deliveries of the
      Final Additional Commitment. Seller shall deliver all of Buyer’s New Gas
      requirements each Day up to the Swing Rates shown in Seller’s Final Additional
      Commitment Forecast. If a reserve determination in accordance with Section
      4.18
      made after the Final Additional Commitment has been determined shows that
      Seller’s Available Gas Reserves are less than the undelivered portions of the
      Initial Commitment, Annual Additional Commitments and the Final Additional
      Commitment, those commitments, beginning with the commitment most recently
      made,
      shall be reduced by the shortfall. Seller shall continue to deliver all of
      Buyer’s New Gas requirements each Day up to the amounts required by this Article
      4 and Buyer shall continue to take such amounts from Seller pursuant to Section
      4.7 until all commitments, less the shortfall, have been delivered.

    

    -26-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Seller’s
      obligation to deliver the Initial, Annual Additional, and Final Additional
      Commitments requires Seller, if necessary, to reduce or stop deliveries of
      Gas
      pursuant to New Sales contracts executed as permitted by Section
      4.12.

    

    4.10 No
      Warranty of Seller’s Available Gas Reserves

    

    Seller
      does
      not represent or warrant that Seller’s Available Gas Reserves are adequate to
      supply the Initial Commitment, Annual Additional Commitments, or the Final
      Additional Commitment.

    

    
      	 	
              4.11

            	
              Effect
                of Fluctuation of Seller’s Available Gas
                Reserves

            

    

    

    Buyer
      and
      Seller acknowledge that the Initial Commitment (plus any Annual Additional
      Commitments) may be reduced pursuant to Section 4.8 at some time(s) prior to
      the
      determination of the Final Additional Commitment. Buyer and Seller also
      acknowledge that after such a reduction in the Initial and/or Annual Additional
      Commitments, Seller’s Available Gas Reserves may be augmented to a level
      permitting Seller to make subsequent Annual Additional Commitments and/or a
      Final Additional Commitment. In that event, all provisions of this Agreement
      governing determination and implementation of subsequent Annual Additional
      Commitments and/or the Final Additional Commitment shall be operative, and
      the
      following language shall be deemed added to Exhibit “A”:

    

    -27-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Any
      Gas
      purchase contract executed pursuant to Section 4.13(b) by Buyer in the period
      between a reduction in the Initial and/or Annual Additional Commitments pursuant
      to Section 4.8 and a determination by Seller pursuant to Section 4.4 or Section
      4.5 that Seller can make subsequent Annual Additional Commitments and/or a
      Final
      Additional Commitment.

    

    4.12 Seller’s
      Right to Sell Gas to Other Buyers

    

    Seller
      shall
      not sell or otherwise commit Gas from Seller’s Properties to anyone other than
      Buyer except as necessary or convenient to honor the commitments listed in
      Exhibit “C” or as provided in this Section. Seller shall have (1) the right to
      sell Gas produced from Seller’s Properties to any Unaffiliated Purchaser and (2)
      the right to amend any transaction listed in Exhibit “C” to increase Gas use or
      sales. The transactions described in the preceding sentence are collectively
      defined as “New Sales.” The right to make any New Sale is subject to the
      following constraints:

    

    -28-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (a)

            	
              No
                New
                Sale shall be made unless, at the time the New Sale contract is signed,
                Seller’s Available Gas Reserves
                exceed:

            

    

    
      	 	
              (i)

            	
              the
                undelivered portions of the Initial Commitment and any Annual Additional
                Commitments which have been made;
                plus

            

    

    

    
      	 	
              (ii)

            	
              the
                undelivered portion of the Final Additional Commitment, if the Final
                Additional Commitment has been determined;
                plus

            

    

    

    
      	 	
              (iii)

            	
              the
                undelivered portions of all prior New Sales;
                plus

            

    

    

    
      	 	
              (iv)

            	
              the
                amount of Gas which would be committed to the proposed New
                Sale.

            

    

    

    
      	 	
              (b)

            	
              Each
                contract for a New Sale shall contain the following
                provision:

            

    

    If
      it is at
      any time determined that Seller’s Available Gas Reserves are insufficient to
      permit it to make deliveries under this contract and meet its obligations to
      Alaska Pipeline Company under the Gas Purchase Agreement dated May 1, 1988,
      Gas
      deliveries under this contract may be reduced or terminated by Seller in its
      sole discretion. Seller’s Available Gas Reserves will be determined in
      accordance with the provisions of the Alaska Pipeline Company
      Agreement.

    

    
      	 	
              (c)

            	
              Each
                time Seller enters into a New Sale, Seller shall provide Buyer the
                name of
                the purchaser, the total and annual quantities of Gas sold, or to
                be sold,
                the term of the contract, and the maximum quantities deliverable
                daily.
                Seller shall provide this information (except for the amount of gas
                actually delivered) within fifteen (15) Days of entering into a New
                Sale
                and at least thirty (30) Days in advance of beginning deliveries
                under any
                such New Sale. Each July 15, Seller shall advise Buyer in writing
                of the
                amount of Gas sold and delivered during the prior twelve (12) Months
                under
                New Sale contracts.

            

    

    

    -29-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    A
      New Sale by
      Seller directly or indirectly to a purchaser (other than Phillips Petroleum
      Company (“Phillips”), Chugach Electric Association (“CEA”), and parties listed
      on Exhibit “C”, including the successors in interest, legal representatives,
      assigns, parents, subsidiaries, or affiliates of Phillips, CEA, or any Exhibit
      “C” purchaser) who has purchased Gas from Buyer (or Buyer’s affiliated Gas
      distribution utility) for other than space heating, cooking, water heating,
      air
      conditioning and similar uses within five (5) Years preceding the effective
      date
      of the sales contract shall be called a “Miscellaneous Sale.” Buyer may reduce
      the Initial, Annual Additional, or Final Additional Commitment, by five (5)
      times the amount of the Gas actually sold under each Miscellaneous Sale
      contract. No such reduction will be permitted in any case in which Seller
      acquires any interest in Gas production, reserves, or properties subject to
      a
      contract which would be a Miscellaneous Sale if such sale had originally been
      made by Seller.

    

    -30-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.13 Buyer’s
      Right to Purchase Gas from Other Sellers

    

    Buyer
      shall
      have the right to purchase a portion or all of its New Gas requirements from
      other sellers under the following circumstances:

    

    
      	 	
              (a)

            	
              If
                the
                Initial Commitment, any Annual Additional Commitment, or the Final
                Additional Commitment is reduced pursuant to the final paragraph
                of
                Section 4.12, Buyer may purchase from other sellers at times of Buyer’s
                choosing an amount up to, but not in excess of the amount of the
                reduction, provided that such purchases shall not in any Year exceed
                twice
                the largest annual amount of Gas actually sold under all Miscellaneous
                Sale contracts. If Buyer agrees to purchase Gas under this paragraph,
                Buyer shall provide to Seller the information required by Section
                4.13(g)
                within fifteen (15) Days of such agreement. Buyer shall further notify
                Seller at least thirty (30) Days in advance of beginning to take
                Gas under
                any such agreement.

            

    

    

    -31-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              If
                the
                Initial Commitment and/or the Annual Additional Commitments are reduced
                pursuant to Section 4.8 or 4.9, Buyer may purchase from other sellers
                the
                greater of (i) the amount of the reduction or (ii) the lesser of
                (a)
                twenty percent (20%) of the Gas remaining (immediately after the
                reduction) to be delivered under the Initial Commitment plus the
                Annual
                Additional Commitments or (b) twice the amount of the reduction.
                If there
                are further reductions of the Initial and/or Annual Additional
                Commitments, Buyer may purchase from other sellers the amount of
                the
                further reductions, provided that the total amount of purchases which
                Buyer may make from others pursuant to this paragraph is the greater
                of
                (i) the sum of all, reductions or (ii) the lesser of (a) twenty percent
                (20%) of the undelivered portions (calculated after the reduction)
                of the
                Initial Commitment and Annual Additional Commitments at the time
                of the
                first reduction or (b) twice the amount of all reductions. Buyer’s
                purchase contracts permitted by this Section 4.13(b) may include
                whatever
                other provisions are necessary to permit Buyer to obtain the necessary
                Swing Rates.

            

    

    

    -32-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (c)

            	
              If
                Seller’s Final Additional Commitment Forecast projects Swing Rates lower
                than those for any corresponding Year in Buyer’s Final Additional
                Commitment Forecast, Buyer may contract to purchase from other sellers
                the
                additional Gas necessary to meet Buyer’s needs. Buyer and Seller recognize
                that any such contract to purchase from other sellers may be executed
                many
                Years before Buyer expects to take delivery of the Gas, and further
                recognize that it is likely that Buyer’s forecast of its requirements and
                its actual requirements may differ, even though, in making such forecasts,
                Buyer has applied the standards set forth in Section 4.21. Therefore,
                in
                any Year in which Buyer is taking Gas under the Final Additional
                Commitment and meets a portion of its New Gas requirements with purchases
                from other sellers pursuant to this Section 4.13(c), Buyer will take
                from
                Seller at least the lesser of: (i) the total New Gas multiplied by
                a
                fraction, the numerator of which is the Swing Rate from Seller’s Final
                Additional Commitment Forecast for that Year and the denominator
                of which
                is the Swing Rate from Buyer’s Final Additional Commitment Forecast for
                that Year; or (ii) the Annual Contract Quantity (net of any reduction
                pursuant to the final paragraph of Section 4.12) from Seller’s Final
                Additional Commitment Forecast for that
                Year.

            

    

    

    -33-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (d)

            	
              If
                the
                Swing Rate for any Year in Seller’s Final Additional Commitment Forecast
                equals the Swing Rate in Buyer’s Final Additional Commitment Forecast,
                Buyer will take from Seller in that Year an amount of Gas equal to
                the
                Annual Contract Quantity (net of any reduction pursuant to the final
                paragraph of Section 4.12) in Seller’s Final Additional Commitment
                Forecast for that Year, or all of Buyer’s New Gas requirements for that
                Year, whichever is less.

            

    

    

    
      	 	
              (e)

            	
              If
                Seller for any reason, including Force Majeure, does not deliver
                all of
                Buyer’s daily requirements for New Gas, or if Buyer because of failure
                of
                its facilities and/or Force Majeure, cannot take from Seller all
                of
                Buyer’s daily requirements for New Gas, Buyer may make whatever purchases
                are necessary to cover the shortage. Buyer will in good faith attempt
                to
                purchase only the amount of Gas necessary to cover the shortage.
                Buyer is
                a public utility and must attempt to meet the needs of its customers.
                Should any provision of this Agreement constrain Buyer in such a
                way that
                Buyer cannot cover the shortage on reasonable terms and conditions,
                that
                provision (or provisions) shall be relaxed or waived but only to
                the
                extent necessary to permit Buyer to cover its requirements on reasonable
                terms and conditions. In addition, Buyer and Seller shall have all
                remedies provided by the Uniform Commercial Code, except the remedies
                of
                incidental or consequential damages. Further, in the event of Force
                Majeure neither Buyer nor Seller shall have a cause of action against
                the
                other.

            

    

    

    -34-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (f)

            	
              Buyer
                may contract during the term of this Agreement for delivery of Gas
                after
                termination of this Agreement.

            

    

    

    
      	 	
              (g)

            	
              Each
                time Buyer agrees to receive Gas from a supplier other than Seller,
                Buyer
                shall provide Seller the name of the supplier, the total and annual
                quantities of Gas obtained or to be obtained, the term of the transaction
                and the Swing Rate.

            

    

    

    -35-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              4.14

            	
              Extension
                of Time for Taking Final Additional
                Commitment

            

    

    

    If
      Buyer
      purchases from Seller less than the Annual Contract Quantities shown in Seller’s
      Final Additional Commitment Forecast, the period during which the Final
      Additional Commitment is taken may be longer than the period shown in Seller’s
      Final Additional Commitment Forecast. If the period for taking the Final
      Additional Commitment is longer than projected, the Swing Rate for each
      additional Year shall be the Swing Rate in the last Year of Seller’s Final
      Additional Commitment Forecast multiplied by a fraction, the numerator of which
      shall be the total actual purchases by Buyer from Seller during the period
      shown
      in Seller’s Final Additional Commitment Forecast and the denominator of which
      shall be the Final Additional Commitment.

    

    4.15 Seller
      Not
      Obligated to Source of Supply

    

    Seller
      may
      supply Gas to Buyer from any or all of Seller’s Properties, but Seller shall not
      be obligated to provide Gas to Buyer from any particular source of supply
      available to Seller.

    

    -36-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.16 Buyer
      Not
      Ob1igated to Construct New Faci1ities

    

    Except
      as may
      be necessary pursuant to Section 7.0, Buyer shall not be obligated to construct
      new facilities at Buyer’s expense or attempt to receive Gas in volumes, at
      rates, or under conditions which existing facilities are unable to receive
      and
      handle. Buyer shall be obligated to operate and maintain its facilities in
      a
      prudent manner in order to be able to maximize possible receipts of Gas from
      Seller. If either Buyer or Seller determines that new compression facilities
      are
      necessary to enable Seller to deliver and Buyer to receive Gas from Seller
      at
      pressures in excess of those provided in Section 6.0, Seller and Buyer shall
      meet and negotiate in good faith to allocate fairly the .cost of the necessary
      compression.

    

    4.17 Seller’s
      Obligations as Operator

    

    Seller
      shall
      act as a prudent operator to develop, produce, and deliver Gas from Seller’s
      Properties so as to meet its obligations to Buyer under this
      Agreement.

    

    -37-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.18 Determination
      of Seller’s Available Gas Reserves

    

    On
      or before
      July 1, 1988, and on or before July 1 each Year thereafter, Seller shall in
      good
      faith following sound engineering practice make and provide to Buyer a
      determination of Seller’s Available Gas Reserves as of January 1 of that Year.
      When determining Seller’s Available Gas Reserves, there shall be a determination
      of the Swing Rates and Annual Contract Quantities which can be delivered to
      Buyer. To permit Buyer to evaluate any such determination, Seller shall make
      available to Buyer (and, if necessary, to any panel of arbitrators) all
      information, material and data which Seller has available concerning Seller’s
      Available Gas Reserves. To challenge Seller’s determination, Buyer shall provide
      Seller with a notice pursuant to Section 16.2(a) within thirty (30) Days after
      Seller first makes available to Buyer such information, material and data.
      All
      information, material, and data furnished to Buyer, or to any panel of
      arbitrators, shall be subject to an appropriate confidentiality agreement
      acceptable to Seller. Seller’s Available Gas Reserves as last determined shall
      remain in effect until redetermined.

    

    -38-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.19 Deliveries
      Prohibited by Law Not Permitted

    

    Nothing
      in
      this Agreement shall be construed to require Seller to produce and deliver
      or
      Buyer to purchase and receive from Seller any quantities of Gas in excess of
      those which may be produced under any applicable statute or the applicable
      rules, regulations, or orders of regulatory bodies having
      jurisdiction.

    

    4.20 Curtailment
      of LNG Operations

    

    Seller
      has an
      interest in and delivers Gas to a liquefied natural gas plant at Nikiski,
      Alaska. While delivering the Initial, Annual Additional, and Final Additional
      Commitments, and after utilizing all other sources of Gas available to Seller,
      Seller will reduce or stop deliveries of Seller’s Gas to that plant to the
      extent necessary to permit it to deliver the portion of Buyer’s Swing Rate which
      Seller is obligated to deliver pursuant to Article 4.

    

    
      	 	
              4.21

            	
              Buyer’s
                Forecasts Advisory Only; Relevant Data Submitted to
                Seller

            

    

    

    The
      Initial
      Commitment Forecast, the Supplemental Forecasts, the Option Forecasts, Buyer’s
      Final Additional Commitment Forecast, and Buyer’s Supplemental Final Additional
      Commitment Forecasts (collectively “Buyer’s Forecasts”) are advisory only and
      impose no obligations on Buyer other than (1) the obligation to prepare Buyer’s
      Forecasts in good faith as accurately as possible using methods generally
      accepted in the American gas distribution industry and (2) the obligation to
      provide to Seller all the relevent information, data, and material which Buyer
      has available in preparing Buyer’s Forecasts at the time it submits such
      forecasts to Seller, and to furnish that information, data and material to
      any
      panel of arbitrators.

    

    -39-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5. DELIVERY
      POINTS

    

    5.0 Delivery
      Points

    

    The
      Delivery
      Point(s) for Gas shall be at the inlet side of Buyer’s meters at the locations
      shown on Exhibit “E” and at such other locations as shall be agreed upon from
      time to time by Buyer and Seller. Buyer shall not unreasonably withhold its
      consent to Delivery Points proposed by Seller.

    

    -40-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.1 Delivery
      Point Forecast

    

    Seller
      shall
      provide to Buyer an Annual Delivery Point Forecast on or before each July 1.
      The
      Annual Delivery Point Forecast shall be in writing and shall be Seller’s best
      estimate of (i) the Delivery Points for the next Year and (ii) the volume of
      Gas
      that is expected to be delivered to Buyer at each Delivery Point.

    

    5.2 Risk
      of
      Loss and Damage; Passage of Title

    

    Prior
      to
      delivery to Buyer, Seller shall be in control and possession of Gas and shall
      bear the risk of loss of Gas and be responsible for any damage to property
      or
      injury or death of persons caused thereby, and Seller shall protect, defend,
      and
      indemnify Buyer, its agents, servants, employees, officers, and directors to
      the
      full extent that the law will allow. At delivery, title to Gas and the risk
      of
      loss shall pass to Buyer, and Buyer shall be in exclusive control and possession
      thereof and shall bear the risk of loss of Gas and be responsible for any damage
      to property or injury or death of persons caused thereby and shall protect,
      defend, and indemnify Seller, its agents, servants, employees, officers, and
      directors to the full extent that the law will allow.

    

    -41-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6. PRESSURE

    

    6.0 Delivery
      Pressure

    

    The
      Gas
      delivered shall be delivered at sufficient pressure to enter Buyer’s system;
      provided, however, that Seller shall not be required to deliver such Gas at
      a
      pressure in excess of five hundred (500) pounds per square inch gauge. By July
      1
      of each Year, Seller shall provide Buyer with a pressure forecast for each
      of
      the next two (2) Years showing the pressures expected at the Delivery Point(s).
      The use of pressure forecasts by Buyer shall be at Buyer’s risk.

    

    6.1 Reports
      of
      Delivery Pressure; Dispatching

    

    Buyer
      shall
      make reports to Seller, as often as may be necessary in practice, of the
      pressure at which Gas is being delivered and the rate of such deliveries. Seller
      shall have agents or employees available at all times to receive from Buyer’s
      dispatchers advice and requests for changes in the rates of delivery of Gas
      as
      required by Buyer from time to time. Because Seller’s Properties are situated in
      isolated locations, Buyer agrees to allow a reasonable period for Seller to
      comply with dispatching requests.

    

    -42-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7. MEASURING
      STATIONS

    

    
      	 	
              7.0

            	
              Buyer’s
                Obligation to Install, Maintain and Operate Measurement
                Facilities

            

    

    

    Buyer
      shall
      install, maintain, and operate or cause to be operated, at Buyer’s expense, at
      or near each Delivery Point, a measuring station, designed and installed in
      accordance with the current recommendations of the American Gas Association,
      properly equipped with orifice meters, and other necessary equipment, including
      a Gas temperature recorder, by which the volume of Gas delivered shall be
      measured. The orifice meters will utilize flange taps and be installed,
      maintained, and operated with volumes computed in accordance with ANSI/API
      2530
      (also known as the American Gas Association Gas Committee Report No. 3) in
      its
      latest revision with applicable appendices. Seller shall have access to such
      metering equipment at reasonable hours, but Buyer will make, or cause to be
      made, the calibrations and adjustments thereof. Buyer shall have the right
      to
      change charts or designate Seller or others to do so, but Buyer shall have
      the
      exclusive right to integrate charts.

    

    -43-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              7.1

            	
              Seller’s
                Right to Install, Maintain and Operate Regulators and Measuring
                Equipment

            

    

    

    Seller
      may
      install, maintain, and operate, at its own expense, such pressure regulators
      and
      check measuring equipment as it desires, and Buyer, to the extent that Buyer
      has
      the right to do so, hereby grants to Seller the right to install, maintain,
      and
      operate such equipment in and connected to Buyer’s measuring station or
      stations. Any such equipment shall be so installed as not to interfere with
      the
      operation of Buyer’s measuring equipment. Buyer shall have access to such check
      measuring equipment at reasonable hours, but Seller shall have the exclusive
      right to read, calibrate, and adjust the equipment and change all
      charts.

    

    
      	 	
              7.2

            	
              Parties’
                Rights to Observe Installation and Regulation of Equipment; Right
                to
                Inspect Records

            

    

    

    Each
      party
      shall have the right to be present at the time of any installing, reading,
      cleaning, changing, repairing, inspection, testing, calibrating, or adjusting
      of
      the other’s measuring equipment. Notice of such activity shall be given at least
      forty-eight (48) hours (if possible) in advance. Records from such measuring
      equipment will remain the property of the equipment owner, but upon request
      each
      owner will submit to the other its records and charts, together with
      calculations therefrom, for inspection and verification, subject to return
      within thirty (30) Days after receipt.

    

    -44-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              7.3

            	
              Estimated
                Volumes When Meters Inaccurate or Out of
                Service

            

    

    

    In
      the event
      a meter is out of service or registering inaccurately, the volumes of Gas
      delivered shall be estimated:

    

    
      	 	
              (a)

            	
              by
                using the registration of any check meter or meters if installed
                and
                accurately registering, or in the absence of
                (a),

            

    

    

    
      	 	
              (b)

            	
              by
                correcting the error if the percentage of error is ascertainable
                by
                calibration, test, or mathematical calculations, or in the absence
                of both
                (a) and (b), then,

            

    

    

    
      	 	
              (c)

            	
              by
                estimating the quantity of deliveries by deliveries during comparable
                periods under similar conditions when the meter was registering
                accurately.

            

    

    

    -45-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7.4 Verification
      of Accuracy of Equipment

    

    At
      least once
      each Month, Buyer and Seller will verify the accuracy of their respective
      measuring equipment. If either party notifies the other that it desires to
      test
      the accuracy of any measuring equipment, the parties will cooperate to secure
      prompt testing.

    

    7.5 Accuracy
      Requirements; Corrections

    

    If,
      upon
      test, any measuring equipment is found to be not more than one percent (1%)
      inaccurate, previous records of such equipment shall be considered accurate.
      In
      the event any measuring equipment is found to be inaccurate to the extent that
      it affects the measurement accuracy by an amount exceeding one percent (1%),
      any
      previous records of such equipment will be corrected to zero error for any
      period known definitely or agreed upon. If a period of inaccuracy is not
      definitely known or agreed upon, such correction shall be made for a period
      of
      the lesser of sixteen (16) Days or one-half (1/2) of the time elapsed since
      the
      date of the last test. Any measuring equipment found by test to be inaccurate
      will be adjusted at once to measure accurately.

    

    -46-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7.6 Preservation
      of Records

    

    Each
      party
      shall preserve for a period of at least six (6) calendar years all test data,
      charts and other similar records.

    

    8. MEASUREMENTS

    

    8.0 Unit
      of
      Sale

    

    The
      sale unit
      of the Gas delivered hereunder shall be one (1) Mcf of Gas.

    

    8.1 Parameters
      of Measurement

    

    The
      calculation of the volumes of Gas delivered hereunder shall be governed by
      the
      following:

    

    
      	 	
              (a)

            	
              The
                unit of volume measurement shall be one (1) cubic foot of Gas at
                the base
                temperature of sixty (60) degrees Fahrenheit and at a pressure of
                fourteen
                and sixty-five hundredths (14.65) pounds per square inch absolute
                with
                correction for deviation from the Ideal Gas Law according to ANSI/API
                2530
                or AGA Report No. 8, as applicable.

            

    

    

    
      	 	
              (b)

            	
              The
                average absolute atmospheric pressure shall be assumed to be fourteen
                and
                seven-tenths (14.7) pounds per square inch, irrespective of actual
                elevation or location of the Delivery Point above sea level or variations
                in actual atmospheric pressure.

            

    

    

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              (c)

            	
              Unless
                the parties agree to the use of a spot test method, the specific
                gravity
                of Gas shall be determined by the use of a recording gravitometer
                generally accepted in the industry. When a recording gravitometer
                is used,
                the arithmetic average of the specific gravity of Gas flowing through
                the
                meters shall be used in computing Gas volumes. If a spot test method
                is
                used, the specific gravity of the Gas shall be determined at monthly
                intervals. Any such test shall determine the specific gravity to
                be used
                in computation of volumes effective the first Day of the following
                Month
                and shall be used until changed in like manner by subsequent
                test.

            

    

    

    
      	 	
              (d)

            	
              The
                actual temperature of Gas shall be determined by a recording thermometer
                so installed that it will record the temperature of the Gas flowing
                through the meters. The average of the recorded temperatures to the
                nearest one (1) degree Fahrenheit obtained while Gas is being delivered
                shall be used in computing measurements for that
                Day.

            

    

    

    -48-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9. QUALITY

    

    9.0 Heating
      Value of Gas

    

    
      	 	
              (a)

            	
              Delivered
                Gas shall have a Gross Heating Value of not less than nine hundred
                fifty
                (950) Btu’s per cubic foot nor more than one thousand fifty (1,050) Btu’s
                per cubic foot.

            

    

    

    
      	 	
              (b)

            	
              The
                Gross Heating Value of Gas shall be determined from a representative
                composite Gas sample taken at the point of measurement by periodic
                tests
                to be conducted monthly by Buyer or at such other intervals as the
                parties
                may mutually agree. The determination may be made by means of a
                calorimeter using the Thomas principle of calorimetry or its equal
                or by
                calculation from the component analysis using NGPA Publication 2145,
                as it
                may be revised, entitled “Physical Constants of Paraffin Hydrocarbons or
                Other Compounds of Natural Gas”.

            

    

    

    -49-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9.1 Deleterious
      Matter; Specifications

    

    Gas
      shall be
      commercially free of dust, gum, gum-forming constituents, or other liquid or
      solid matter which may separate from the Gas in transportation, shall not exceed
      one hundred twenty (120) degrees Fahrenheit, and shall not contain:

    

    
      	 	
              (a)

            	
              more
                than four (4) pounds of water per million cubic feet of
                Gas;

            

    

    
      	 	
              (b)

            	
              more
                than one (1) grain of hydrogen sulfide per one hundred (100) cubic
                feet of
                Gas;

            

    

    
      	 	
              (c)

            	
              more
                than twenty (20) grains of total sulfur per one hundred (100) cubic
                feet
                of Gas;

            

    

    
      	 	
              (d)

            	
              in
                excess of:

            

    

    
      	 	
              (1)

            	
              three
                percent (3%) by volume of carbon dioxide;
                or

            

    

    
      	 	
              (2)

            	
              one
                percent (1%) by volume of oxygen.

            

    

    

    9.2 Seller’s
      Responsibility to Dispose of Condensates

    

    Seller
      shall
      be the owner of and be solely responsible for ultimate disposal of any
      condensates which Buyer has extracted from its pipelines and which were
      contained in the Gas provided by Seller. Such condensates shall be made
      available to Seller in suitable containers provided by Seller at a location
      designated by Seller on the road system in the Kenai Peninsula Borough or
      Anchorage Area Borough.

    

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    9.3 Buyer’s
      Right to Refuse Gas

    

    Buyer
      shall
      have the right to refuse to accept delivery of any Gas failing to meet the
      quality requirements of this Article 9.

    

    10. PRICE

    

    Buyer
      shall
      pay for Gas delivered by Seller the applicable Total Price determined pursuant
      to this Article.

    

    10.0 Base
      Prices

    

    
      	 	
              (a)

            	
              The
                Base Price for the Initial Commitment shall be $1.55 per
                Mcf.

            

    

    

    
      	 	
              (b)

            	
              The
                Base Price for all Gas delivered after the Initial Commitment is
                exhausted
                shall be $1.35 per Mcf.

            

    

    

    -51-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.1 The
      Price
      Index

    

    
      	 	
              (a)

            	
              The
                Price Index will be used to calculate the Annual Base Prices of the
                Initial, Annual Additional and Final Additional
                Commitments.

            

    

    

    
      	 	
              (b)

            	
              The
                Price Index is a fraction. The numerator is the daily average price
                per
                barrel of Light Sweet Crude Oil Futures (“LSCOF”) for the quarter ending
                on September 30 of the Year prior to the Year for which the Annual
                Base
                Price is being calculated. The denominator is $18.00 per
                barrel.

            

    

    

    
      	 	
              (c)

            	
              The
                average price of LSCOF shall be determined from prices for “CRUDE OIL,
                Light Sweet” futures contracts traded on the New York Mercantile Exchange
                or its successor. The daily average price of LSCOF shall be the sum
                of the
                “Settle” prices reported in the Wall
                Street Journal or
                its
                successor for (i) July contracts for each day that July contracts
                are
                reported as the contracts for the Current Trading Month, plus (ii)
                August
                contracts for each day that August contracts are reported as the
                contracts
                for the Current Trading Month, plus (iii) September contracts for
                each day
                that September contracts are reported as the contracts for the Current
                Trading Month, divided by the total number of days that such “Settle”
                prices are reported. “Current Trading Month” means the final month in
                which a contract can be traded.

            

    

    

    -52-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (d)

            	
              In
                the
                event that the information necessary to calculate the daily average
                price
                of LSCOF is no longer publicly reported, the parties shall attempt
                to
                agree on a successor index. If the parties fail to agree at least
                eighty—five (85) Days before the beginning of a new Year, either party may
                initiate arbitration procedures by giving notice pursuant to Section
                16.2(a).

            

    

    

    10.2 Adjustment
      of the Base Price

    

    Effective
      January 1, 1990, the Base Price of the Initial Commitment ($1.55) shall be
      adjusted by multiplying it by the Price Index. The result will be the “Annual
      Base Price” for 1990. This process of calculating the applicable Annual Base
      Price for each Year shall be repeated annually until the Initial Commitment
      is
      exhausted.

    

    -53-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    When
      the
      Initial Commitment is exhausted, the Base Price for all additional Gas ($1.35)
      sold subsequently shall be adjusted by multiplying it by the Price Index. The
      result will be the “Annual Base Price” for the first Year for all additional Gas
      delivered and sold. This process of calculating the applicable Annual Base
      Price
      for each Year shall be repeated annually until the Annual Additional and Final
      Additional Commitments are exhausted.

    

    Changes
      in
      the Annual Base Price are subject to limitation. If a calculated change in
      the
      Annual Base Price is limited by any or all of Sections 10.4, 10.5, or 10.6,
      the
      resulting price shall be called the “Limited Annual Base Price.” Any limitations
      shall be determined by first applying Section 10.5, then Section 10.4, and
      finally Section 10.6.

    

    10.3 The
      Total
      Price for the Initial Commitment

    

    The
      Total
      Price each Year for the Initial Commitment shall be the Annual Base Price (or
      Limited Annual Base Price, if applicable) for that Year plus any Taxes and
      other
      charges added pursuant to Sections 10.7 and 10.8. The Annual Base Price until
      January 1, 1990 shall be $1.55 per Mcf.

    

    -54-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              10.4

            	
              The
                Total Price for the Annual Additional and Final Additional
                Commitments

            

    

    

    The
      Total
      Price each Year for the Annual Additional and Final Additional Commitments
      shall
      be the Annual Base Price (or Limited Annual Base Price, if applicable) for
      that
      Year plus any Taxes and other charges added pursuant to Sections 10.7 and 10.8.
      The Annual Base Price (or Limited Annual Base Price, if applicable) paid each
      Month while the Annual Additional or Final Additional Commitments are being
      delivered shall never exceed the amount paid to Seller, net of taxes and excess
      royalties, during the same Month under Seller’s largest sale (measured by
      volume) to any Alaskan utility other than Buyer.

    

    10.5 Limitation
      on Annual Base Price Increase or Decrease

    

    
      	 	
              (a)

            	
              If
                an
                Annual Base Price calculated pursuant to Section 10.2 would produce
                a
                change from the prior Year’s Annual or Limited Annual Base Price
                (whichever was used to pay Seller for Gas sold in the prior Year)
                of less
                than twenty percent (20%) the change in price will be limited to
                the
                lesser of (1) the percentage change calculated or (2) fifteen percent
                (15%). If the calculated change equals or exceeds twenty percent
                (20%),
                the change in price will be fifteen percent (15%) plus one-half (1/2)
                of
                the amount of the calculated change in excess of fifteen percent
                (15%)
                unless the price change is limited by Section 10.5(b) and/or Sections
                10.4
                and 10.6.

            

    

    

    -55-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              If
                an
                Import Fee is first imposed or increased in the Year preceding the
                Year
                for which the price limitation is being calculated pursuant to Section
                10.5(a), the permissible change from the prior Year’s Annual or Limited
                Annual Base Price (whichever was used to pay Seller for Gas sold
                in the
                prior Year) shall be calculated as provided in Section 10.5(a) but
                shall
                be limited to twenty percent (20%).

            

    

    

    
      	 	
              (c)

            	
              An
                Import Fee shall be considered as having been “first imposed” in the first
                Year in which it is in effect for each day of the third quarter.
                If an
                Import Fee is eliminated and later reimposed, the later reimposition
                will
                be treated as a new Import Fee which is “first imposed” in accordance with
                the definition in the preceding sentence. An Import Fee is “increased” in
                any Year in which the average Import Fee, which has previously been
“first
                imposed”, is higher for the third quarter of a Year than the average
                Import Fee for the third quarter of the prior
                Year.

            

    

    

    -56-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (d)

            	
              The
                term “Import Fee” means a fee which is imposed by the United States on or
                after May 1, 1988, on crude oil imported into the United States and
                which
                is intended to be an economic incentive to the domestic oil industry
                and/or to protect national security interests and/or to promote
                conservation and/or to stabilize or increase the price of crude oil
                sold
                in the United States. An Import Fee is not a tax such as that imposed
                by
                Section 4611 of the Internal Revenue Code of 1986, or an import duty,
                customs fee, antidumping or countervailing duty, or tariff schedule,
                such
                as currently set forth in 19 U.S.C. Sec.1202 of the United States
                Code.

            

    

    

    10.6 Regulated
      Prices

    

    Seller
      shall
      never charge or collect a price in excess of the applicable lawful price
      prescribed under the Natural Gas Policy Act of 1978 or other applicable
      legislation or regulation.

    

    -57-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.7 Tax
      Reimbursement

    

    
      	 	
              (a)

            	
              The
                taxes to be added to each Annual Base Price (or Limited Annual Base
                Price,
                if applicable) to determine the Total Price for each Year shall consist
                of
                the full amount of any “Tax” or “Taxes” paid by Seller with respect to Gas
                sold or to be sold pursuant to this Agreement regardless of the mode
                or
                basis of imposition. The term “Tax” or “Taxes” shall include any tax or
                similar charge on Gas measured by the volume, value, removal price,
                prevailing value, proceeds, gross receipts, net receipts or sales
                price
                imposed by any government or Alaska Native authority, including (i)
                severance taxes and production taxes; (ii) windfall profits taxes;
                (iii)
                taxes on the Gas itself; (iv) taxes on the act, right or privilege
                or
                occupation of producing, severing, gathering, transporting, selling,
                or
                delivering Gas; and (v) the ad valorem taxes provided for in (b),
                below.
                The term “Tax” or “Taxes” shall not include (i) taxes or charges imposed
                on any value attributable to liquid hydrocarbons removed from Gas
                by
                processing or arising from or incident to the processing of or handling
                of
                Gas through any processing plant; (ii) any franchise tax, tax on
                capital
                stock, or other tax imposed on corporations on account of their corporate
                existence or their right to do business; (iii) any income taxes;
                or (iv)
                any royalty.

            

    

    

    -58-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              The
                term “Tax” or “Taxes” shall also include any ad valorem taxes which may be
                reasonably and equitably allocated to volumes of Gas which Buyer
                is
                entitled to have delivered as of the date of assessment. The fair
                allocation of such Taxes shall be accomplished by negotiations between
                Buyer and Seller, taking into account (i) the problems of allocating
                Taxes
                ratably among oil or other liquid hydrocarbons, reservoir substances
                which
                are gaseous in place but become or may be processed into liquids,
                Gas, and
                other minerals subject to a particular assessment; (ii) the ratio
                of the
                total volumes of Gas from Seller’s Properties subject to such Taxes to the
                volumes which Buyer is entitled to have delivered as of the date
                of
                assessment; (iii) the ratio of Seller’s Properties subject to assessment
                to the total acreage of Seller’s Properties; (iv) the relative proportion
                of the volumes and values of Seller’s Available Gas Reserves subject to
                assessment in comparison with the total volumes and values of Seller’s
                Available Gas Reserves; and (v) such other factors as the circumstances
                may require. Should the parties fail to agree on a fair allocation
                within
                thirty (30) Days of receipt by Buyer of written notice from Seller
                of an
                assessment, either party may initiate arbitration procedures by giving
                notice pursuant to Section 16.2(a) if the dispute is subject to
                arbitration pursuant to Section 16.1. Buyer shall reimburse Seller
                for the
                share of ad valorem taxes allocated to Buyer within thirty (30) Days
                of a
                final allocation (whether by agreement or arbitration) of such Taxes.
                Buyer shall also pay interest to the date of reimbursement by Buyer
                on the
                amount allocated, whether by agreement or arbitration, from the latter
                of
                (1) the date Buyer is notified of the assessment or (2) payment of
                the Tax
                by the Seller. The interest rate shall be the rate provided in Section
                11.2.

            

    

    

    -59-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (c)

            	
              Buyer
                shall not be obligated to pay any interest or penalty because Seller
                is
                delinquent in paying any Tax. In the event that Seller contests its
                obligation to pay any Tax assessed and, following the conclusion
                of such
                dispute, Seller is required to pay interest on the portion of the
                contested amount determined to be lawfully owed, Buyer shall reimburse
                Seller for the interest Seller is required to pay. If Seller is lawfully,
                retroactively assessed Taxes and required to pay interest on such
                amounts,
                Buyer shall reimburse Seller for such Taxes as well as for such
                interest.

            

    

    

    -60-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (d)

            	
              Tax
                reimbursements shall be paid by Buyer in accordance with the billing
                procedures in Article 11 unless Buyer contests its liability to pay
                any
                Tax (other than ad valorem taxes reimbursable under (b) above). If
                Buyer
                contests its liability, Buyer shall notify Seller within thirty (30)
                Days
                of being billed by Seller for the Tax. Should the parties fail to
                resolve
                any contested liability by diligent, good faith negotiations within
                thirty
                (30) Days of receipt by Seller of such written notice, either party
                may
                initiate arbitration procedures by giving notice pursuant to Section
                16.2(a) if the dispute is subject to arbitration pursuant to Section
                16.1.

            

    

    

    
      	 	
              (e)

            	
              Should
                Seller receive any refund, reimbursement, or credit for Taxes for
                which
                Buyer has reimbursed Seller, Seller shall credit Buyer on Seller’s next
                invoice the full amount thereof, together with any interest received
                from
                or credited to Seller by the taxing entity. If the refund or credit
                is
                greater than the amount of Seller’s next invoice, the excess shall be
                refunded when the invoice is sent to
                Buyer.

            

    

    

    -61-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (f)

            	
              Nothing
                in this Agreement shall be construed as a limitation on Buyer’s or
                Seller’s rights to contest assessment of any
                Tax.

            

    

    

    10.8 Payment
      of
      Royalties; Excess Royalties

    

    Seller
      agrees
      to pay or cause to be paid to the parties entitled thereto all royalties,
      overriding royalties or like charges against the Gas delivered to Buyer. Buyer
      agrees to reimburse Seller for all “Excess Royalty Payments” which Seller shall
      be required to pay to the State of Alaska, the United States of America or
      any
      other royalty or overriding royalty owners on Gas delivered to Buyer. Such
      payments shall be made by Buyer in accordance with the billing procedures in
      Article 11. The term “Excess Royalty Payments” means the amount by which actual
      royalty or overriding royalty payments or like charges exceed the amount any
      such payment would have been had royalty or overriding royalty or like charges
      been calculated by using the applicable Annual Base Price as limited by Sections
      10.4, 10.5 and 10.6.

    

    -62-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              10.9

            	
              Notice
                of Additional Taxes and Royalties for Prior
                Periods

            

    

    

    If
      Seller
      receives a bill for Taxes or Excess Royalty Payments attributable to Gas
      delivered prior to the current billing period, Seller shall advise and consult
      with Buyer prior to payment of the bill.

    

    11. BILLING

    

    11.0 Statements;
      Payment

    

    On
      or before
      the tenth (10th) Day of each Month, Buyer shall furnish to Seller a statement
      showing the total volume of Gas delivered during the preceding Month. By the
      fifteenth (15th) Day of the Month following the Month of deliveries, Seller
      shall give Buyer an invoice showing the Annual Base Price (or Limited Annual
      Base Price, if applicable) for Gas, Taxes, and Excess Royalty Payments. Buyer
      shall make payment to Seller on or before the twenty-fifth (25th) Day of each
      Month for all Gas delivered during the preceding Month according to the
      measurements, computations, and prices herein provided. Payments are to be
      made
      by wire transfer of immediately available Federal Reserve funds to the following
      account:

    

    Marathon
      Oil
      Company

    National
      City
      Bank

    Cleveland,
      Ohio

    Account
      of
      Marathon oil Company

    Account
      No.
      2110051

    

    -63-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.1 Right
      to
      Examine Books and Records; Errors

    

    Each
      party
      shall have the right during normal business hours to examine the books, records,
      and charts of the other party to the extent necessary to verify the accuracy
      of
      any statement, invoice, charge, or computation made pursuant to any of the
      provisions of this Agreement. In the event an error is discovered in the amount
      paid by Buyer, the error shall be adjusted within thirty (30) Days. No error
      will be adjusted after thirty-six (36) Months from the date of any statement
      or
      invoice.

    

    -64-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11.2 Disputes

    

    Without
      prejudice to any other remedy or remedies of Seller hereunder or by operation
      of
      law, if the correct amount is not paid when due pursuant to Article 10 or 11,
      interest on any unpaid amount shall be paid by Buyer, which shall accrue daily
      at the prime rate plus one (1) percentage point charged by the Chemical Bank
      of
      New York or its successor bank (but not to exceed the rate permitted by law).
      Payment by Buyer of any amount, whether or not disputed, shall not constitute
      a
      waiver of Buyer’s right to contest and recover any amounts determined to have
      been overpaid. If Buyer overpays Seller, interest on any such overpayment shall
      be paid by Seller and shall accrue daily at the rate applicable to late payments
      under this Section by Buyer; provided, however, that no interest shall accrue
      on
      any Tax refund or credit if Seller timely complies with Section
      10.7(e).

    

    12. FORCE
      MAJEURE

    

    12.0 Effect
      of
      Force Majeure

    

    If
      either
      party is rendered unable, wholly or in part, by Force Majeure to carry out
      its
      obligations (other than to make payments due) under this Agreement, upon such
      party giving notice in writing or by telecopier and reasonably full particulars
      of such Force Majeure as soon as reasonably possible after the commencement
      of
      the Force Majeure event relied upon, the obligations of the party giving such
      notice, as far as they are affected by such Force Majeure, shall be suspended
      during the continuation of any inability so caused but for no longer period,
      and
      such cause shall, as far as reasonably possible, be remedied with all
      dispatch.

    

    -65-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    12.1 Definition
      of Force Majeure

    

    The
      term
“Force Majeure” shall mean: (i) acts of God; (ii) governmental action, acts of
      the public enemy, wars, blockades, insurrections, riots, or epidemics; (iii)
      strikes, lockouts or other industrial disturbances of third parties; (iv)
      landslides, lightning, earthquakes, fires, hurricanes, tornadoes, high winds,
      storms, storm warnings, floods, tsunami, or washouts; (v) arrests and restraints
      of governments and people, or civil disturbances; (vi) explosions, breakage
      or
      accidents to machinery or lines of pipe, the necessity for making repairs to
      or
      alterations of machinery or lines of pipe, freezing of wells, equipment, or
      lines of pipe, partial or entire failure 

    

    -66-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    of
      wells or
      sources of supply of Gas; and (vii) any other causes, whether of the kind herein
      enumerated or otherwise, no reasonably within the control of the party claiming
      suspension and which by the exercise of due diligence such party is unable
      to
      prevent or overcome. “Force Majeure” shall likewise include: (i) in those
      instances where either party is required to obtain servitudes, rights-of—way
      grants, permits or licenses to enable such party to fulfill its obligations,
      the
      inability of such party to acquire, or the delays encountered by such party,
      despite its best efforts, in acquiring, at reasonable cost, such servitudes,
      rights-of-way grants, permits or licenses; and (ii) in those instances where
      either party is required to furnish materials and supplies for the purpose
      of
      constructing, repairing or maintaining facilities or is required to secure
      permits or permissions from any governmental agency to enable such party to
      fulfill its obligations, the inability of such party to acquire, or the delays
      encountered by such party, despite its best efforts, in acquiring at reasonable
      cost such materials and supplies, permits, and permissions.

    

    -67-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    12.2 Inability
      of Buyer to Take Annual Contract Quantity

    

    If
      Buyer or
      Seller has invoked Force Majeure which prevents Buyer from taking the Annual
      Contract Quantity, expressed on a daily basis, provided in Article 4 for one
      hundred eighty (180) Days during any period of three hundred sixty-five (365)
      Days, the party not invoking Force Majeure shall have the option of terminating
      this Agreement in the ninety (90) Days following such three hundred sixty-five
      (365) consecutive Day period by giving written notice of termination, and this
      Agreement shall then terminate one hundred eighty (180) Days from the date
      of
      receipt of such notice by the other party.

    

    13. DEFAULT
      AND TERMINATION

    

    13.0 Breach;
      Notice of Default; Correction; Termination

    

    If
      either
      party fails to perform any of its material obligations under this Agreement,
      the
      other, in addition to any other remedies it may have, may at its option
      terminate this Agreement in the following manner. The party not in default
      shall
      serve on the party in default a written notice stating specifically the facts
      and basis upon which default is claimed. The party in default shall have sixty
      (60) Days after receipt of notice in which it may decide to (A) remedy or remove
      the default (“Response A”); or (B) (i) commence such actions as are reasonable
      and prudent to remedy or remove the cause or causes stated in the notice, and
      (ii) agree in writing to protect, defend, and indemnify fully the party not
      in
      default from any and all consequences of the acts or occurrences constituting
      the default (“Response B”). If, within that period, the party in default acts in
      accordance with either Response A or Response B, this Agreement shall continue
      in full force and effect. If the party in default does not, within sixty (60)
      Days of receipt of notice act in accordance with the requirements of either
      Response A or Response B, the party giving notice may, at its option, terminate
      this Agreement by giving written notice of termination, and this Agreement
      shall
      then terminate one hundred eighty (180) Days from the date of receipt of such
      notice by the party in default.

    

    -68-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              13.1

            	
              Termination
                Without Prejudice to Rights of Parties to Collect Amounts
                Due

            

    

    

    Any
      termination of this Agreement shall be without prejudice to the right of either
      Buyer or Seller to collect any amounts then due from the other
      party.

    

    -69-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    13.2 Effect
      of
      Waiver of Default

    

    No
      waiver by
      either party of any one or more defaults by the other party in the performance
      of any of the provisions of this Agreement shall operate or be construed as
      a
      waiver of any other default or any future default or defaults, whether of a
      like
      or of a different character.

    

    14. TERM

    

    Subject
      to
      its other provisions, this Agreement shall be deemed effective May 1, 1988,
      and
      shall remain in full force and effect until the delivery by Seller and payment
      by Buyer for the Initial Commitment and, if applicable, the Annual Additional
      Commitments and the Final Additional Commitment.

    

    15. WARRANTY
      OF TITLE

    

    Seller
      hereby
      warrants title to all Gas delivered by it to Buyer hereunder and the right
      to
      sell the same, and further represents and warrants that such Gas will, at the
      time of delivery, be free from all liens and other adverse claims. Upon written
      notice by Buyer, Seller agrees to indemnify and defend Buyer against all suits,
      actions, debts, accounts, damages, costs, losses, and expenses arising from
      or
      out of any adverse claims of title or any liens or other adverse claims by
      any
      and all persons to or against such Gas. In the event any adverse claim of any
      character is asserted as to any delivered Gas, then as security for Seller’s
      performance of its obligations under this Article 15, Buyer may retain the
      purchase price thereof up to the amount of such claim without interest until
      the
      claim has been finally determined, or until Seller shall have furnished bond
      to
      Buyer in an amount and with sureties satisfactory to Buyer, conditioned for
      the
      protection of Buyer against such claim.

    

    -70-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    16. ARBITRATION

    

    16.1 Matters
      Subject to Arbitration

    

    Disputes
      respecting the following matters shall be resolved by arbitration:

    

    
      	 	
              (a)

            	
              Any
                Annual Contract Quantity or Swing Rate set forth in Buyer’s Final
                Additional Commitment Forecast or any Annual Contract Quantity or
                Swing
                Rate set forth in any Option
                Forecast;

            

    

    

    
      	 	
              (b)

            	
              Seller’s
                Available Gas Reserves;

            

    

    

    -71-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (c)

            	
              Any
                determination of an Annual Contract Quantity or Swing Rate on Seller’s
                Final Additional Commitment
                Forecast;

            

    

    

    
      	 	
              (d)

            	
              Determination
                of the successor index contemplated by Section
                10.1(d);

            

    

    

    
      	 	
              (e)

            	
              An
                allocation of ad valorem taxes pursuant to Section 10.7(b);
                and

            

    

    

    
      	 	
              (f)

            	
              Buyer’s
                obligation pursuant to Section 10.7(a) and (d) to reimburse Seller
                for
                Taxes;

            

    

    

    Provided,
      however, that disputes respecting Taxes shall not be subject to arbitration
      unless the panel of arbitrators possesses sufficient authority under applicable
      law to compel (i) the attendance of all witnesses with knowledge of the facts
      of
      the disputed issues and (ii) the submission of all relevant
      information.

    

    16.2 Initiating
      Arbitration Procedures

    

    
      	 	
              (a)

            	
              If
                a
                dispute arises which is subject to arbitration pursuant to Section
                16.1, a
                party contemplating requesting arbitration shall provide prompt written
                notice to the other of the dispute and the party’s intent to submit the
                dispute to arbitration. The parties shall attempt by good-faith,
                diligent
                negotiations to resolve the dispute described in the notice within
                forty-five (45) Days of the receipt of the
                notice.

            

    

    

    -72-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              If
                a
                resolution is not achieved within the forty-five (45) Day period
                provided
                by Section 16.2(a), the dispute shall be resolved by a board of three
                (3)
                arbitrators selected in the following manner. The party first giving
                notice pursuant to Section 16.2(a) shall, within ten (10) Days of
                the
                expiration of the forty-five (45) Day period, choose an arbitrator
                and
                give notice to the other party of its choice of arbitrator together
                with
                notice of the issues it desires to submit for arbitration. If the
                party
                receiving the original notice fails to name a second arbitrator within
                ten
                (10) Days of receipt of the second notice and notify the other party,
                then
                the party that served the original notice may, on five (5) Days further
                notice apply to the Chief Judge of the United States District Court
                for
                the District of Alaska for the appointment of the second arbitrator
                on
                behalf of the other party, and in such case the arbitrator appointed
                shall
                act as if named by the other party.

            

    

    

    -73-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      two (2)
      arbitrators chosen shall, within twenty (20) Days after appointment of the
      second arbitrator, choose a third arbitrator. If they fail to do so, either
      of
      the parties may, on five (5) Days notice to the other party, apply to the Chief
      Judge for the appointment of a third arbitrator.

    

    The
      arbitrators shall fix a reasonable time and place for the hearing, at which
      time
      each of the parties may submit such evidence as the arbitrators may require
      or
      permit. The action of a majority of the arbitrators shall govern, and their
      decisions in writing shall be final and binding on the parties. Each party
      shall
      pay the expense of the arbitrator selected by or for it, and all other joint
      costs of the arbitration shall be equally divided between the parties. The
      arbitrations shall be conducted in accordance with the rules of the American
      Arbitration Association.

    

    -74-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    16.3 Qualification
      of Arbitrators

    

    The
      arbitrators shall be qualified by education, experience, and training to pass
      upon the particular questions in dispute. In the case of disputes which require
      determination of Seller’s Available Gas Reserves, Swing Rates, or Annual
      Contract Quantities, all arbitrators shall be reservoir engineers considered
      to
      be experts in determining gas reserves and swing rates. No arbitrator shall
      be
      or have been under contract for services within the preceding year to either
      Buyer or Seller or their parents, subsidiaries or affiliates, and no arbitrator
      shall be or have been employed by either Buyer or Seller or their respective
      parents, subsidiaries or affiliates. Each arbitrator shall agree as a condition
      of appointment not to contract with or be employed by Buyer or Seller (or their
      parents, subsidiaries, or affiliates) for one (1) year following the completion
      of the arbitration.

    

    16.4 Special
      Arbitration Standards

    

    
      	 	
              (a)

            	
              In
                deciding an issue subject to 16.1(a), the arbitrators shall utilize
                methods generally accepted by the American gas distribution
                industry.

            

    

    

    -75-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              In
                deciding a dispute subject to Section 16.1(d), the arbitrators shall
                choose the successor index which is most likely to emulate the prior
                index.

            

    

    

    16.5 Postponements
      Due to Arbitration

    

    If
      any matter
      is submitted to arbitration pursuant to this Article 16, then any decision
      or
      action directly related to the matter in dispute, including making or responding
      to a forecast, shall be postponed until sixty (60) Days following issuance
      of
      the final decision of the arbitration panel.

    

    17. REGULATORY
      BODIES

    

    This
      Agreement is subject to all present and future valid orders, rules and
      regulations of any regulatory body having jurisdiction. Seller shall furnish
      Buyer with copies of all filings submitted to the APUC relevant to this
      Agreement and a copy of any consequent order, ruling or other action of the
      APUC. On request of Buyer, Seller shall furnish Buyer with copies of any
      documents or filings relating to Seller’s Properties filed with or issued by any
      regulatory body or any native authority having jurisdiction.

    

    -76-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    18. ADDRESSES

    

    All
      notices
      shall be given in writing to the respective parties at the addresses set forth
      below, or such other addresses as the parties shall designate by written notice.
      Notice shall not be deemed to have been given until actual receipt thereof
      by
      Buyer or Seller at the address provided:

    

    
      	 	
              Buyer

            	
              Seller

            
	 	
              Alaska
                Pipeline Company

            	
              Marathon
                Oil Company

            
	 	
              Attn:
                President

            	
              Attn:
                Production Manager

            
	 	
              P.O.
                Box 190288

            	
              P.O.
                Box 102380

            
	 	
              Anchorage,
                AK 99519-0288

            	
              Anchorage,
                AK 99510

            

    

    

    19. MISCELLANEOUS

    

    19.0 Binding
      of
      Successors

    

    This
      Agreement shall be binding upon and inure to the benefit of the legal
      representatives, successors and assigns of the parties. Neither party may assign
      its obligations without first obtaining the written consent of the other to
      such
      assignment, which consent shall not be unreasonably withheld; provided, however,
      that no such consent shall be required in the event that all or substantially
      all of the assets of a party are acquired by another person or in the event
      that
      a party is merged, consolidated or reorganized with another person; further
      provided, however, that in the event of such acquisition, merger,
      reorganization, stock transfer, corporate restructuring, or consolidation,
      the
      surviving entity shall assume the obligations of this Agreement. Nothing
      contained in this Section shall in any way prevent either party from pledging
      or
      mortgaging its rights hereunder for security of its indebtedness.

    

    -77-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19.1 Restrictions
      on Transfers by Seller

    

    Seller
      shall
      not assign or sublease any lease which is used to calculate Seller’s Available
      Gas Reserves unless the assignee or sublessee ratifies and joins in this
      Agreement as a party Seller by executing an instrument describing such lease
      and
      dedicating such party’s Gas used to calculate Seller’s Available Gas Reserves to
      the performance of this Agreement.

    

    19.2 Easement
      and Rights of Way

    

    Seller
      and
      Buyer, at no expense to the other, grant and assign to each other, insofar
      as
      each has the right to do so, all necessary easements and rights-of-way for
      the
      construction of pipelines and/or other facilities necessary or convenient for
      the delivery or receipt of Gas hereunder.

    

    -78-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19.3 Choice
      of
      Law

    

    This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Alaska.

    

    
      	 	
              19.4

            	
              Agreement
                Not to Be Construed Against Either Party as
                Draftsman

            

    

    

    The
      parties
      recognize that this Agreement is the product of the joint efforts of the parties
      and agree that it shall not be construed against one party or the other as
      a
      result of the preparation, submittal or other event of negotiation, drafting
      or
      execution hereof.

    

    19.5 Exchange
      Agreement

    

    Paragraph
      7
      of that Exchange Agreement (Exhibit D) between Union Oil Company of California
      and Seller shall not be amended and Seller shall not take any action which
      would
      cause it to be terminated without Seller first obtaining the written consent
      of
      Buyer.

    

    -79-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19.6 Entire
      Agreement

    

    This
      Agreement constitutes the entire agreement and understanding between the parties
      respecting the subject matter of this transaction and all prior agreements,
      understandings and representations, whether oral or written, respecting this
      subject matter are merged into and superseded by this written Agreement. No
      amendment to this Agreement shall be binding on either party until reduced
      to
      writing and signed by the parties.

    

    19.7 Headings

    

    The
      headings
      throughout this Agreement are for reference purposes only and shall not be
      construed or considered in interpreting the terms and provisions of this
      Agreement.

    

    19.8 No
      Incidental or Consequential Damages

    

    Neither
      party
      shall have any liability to the other for incidental or consequential damages
      resulting from or arising out of this Agreement.

    

    -80-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS
      WHEREOF, the parties have executed this Agreement in two (2)
      originals.

    

    
      	
              ALASKA
                PIPELINE COMPANY

            	 	
              MARATHON
                OIL COMPANY

               

            
	
              By

            	
              /s/R.
                F. Barnes

            	 	
              By

            	
              /s/Wm.
                Harper

            
	
              Its
                President

            	 	
              Its

            	
              Vice
                President

            
	 	 	 	 	 
	
              DATE:

            	
              May
                19,
                1988

            	 	
              DATE:

            	
              May
                21,
                1988

            

    

    

    

    

    —81—Exhbit 10.3.1 - Marathon and APC 1989 Amendment 1

    Exhibit
      10.3.1

    

    FIRST
      AMENDMENT TO GAS PURCHASE AGREEMENT

    BETWEEN
      MARATHON OIL COMPANY AND

    ALASKA
      PIPELINE COMPANY

    DATED
      MAY 1,
      1988

    

    

    WHEREAS,
      Marathon Oil Company (“Seller”) and Alaska Pipeline Company (“Buyer”) entered
      into that certain Gas Purchase Agreement dated May 1, 1989 (“the
      Agreement”);

    WHEREAS,
      Seller and Buyer desire to modify the Agreement for the benefit of both
      parties;

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants and
      agreements herein contained, the parties do covenant and agree as
      follows:

    Article
      4 of
      the Agreement shall be amended by adding the following provision to Section
      4.4:

     

    
      	 	
              (d)

            	
              Each
                time Seller makes an Annual or Final Additional Commitment of Gas
                under
                this Section 4.4, Buyer shall promptly seek from the APUC a ruling
                (“the
                first request”) that all costs of that Additional Commitment are fully
                recoverable in the rates of ENSTAR Natural Gas Company. APL shall
                not be
                obligated to take any Gas committed under this Section 4.4 unless
                the APUC
                rules in advance that all costs of such Gas are fully recoverable
                in the
                rates of ENSTAR Natural Gas
                Company.

            

    

    
      	 	
              i.

            	
              If
                the
                APUC approves the first request within one year of its filing, the
                Additional Commitment covered by the first request shall be delivered
                in
                accordance with the Agreement.

            

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              ii.

            	
              If
                the
                APUC has not approved the first request within one year of its filing,
                Seller may, at its option, (1) cancel the Additional Commitment or
                (2)
                await the APUC’s decision. If the Additional Commitment has not been
                cancelled and the APUC approves the first request more than one year
                after
                its filing, the Additional Commitment shall be delivered in accordance
                with the Agreement.

            

    

    
      	 	
              iii.

            	
              If
                the
                APUC disapproves the first request, Seller may, at its option, (1)
                cancel
                the Additional Commitment or (2) within 30 days of the final APUC
                decision
                propose a different price or price formula for the Additional Commitment.
                If Seller elects to propose a different price or price formula for
                the
                Additional Commitment, Buyer shall promptly file Seller’s proposal with
                the APUC and request a ruling (“the second request”) that the costs of the
                Additional Commitment are fully recoverable in the rates of ENSTAR
                Natural
                Gas Company.

            

    

    
      	 	
              iv.

            	
              Seller
                may, after consultation with Buyer, require Buyer to request, as
                part of
                any first or second request, that the APUC rule that all costs of
                the
                Additional Commitment covered by the request and all costs of all
                later
                Additional Commitments are fully recoverable in the rates of ENSTAR
                Natural Gas Company.

            

    

    

    (2)

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              v.

            	
              If
                the
                APUC approves the second request within one year of its filing, the
                price
                or price formula for the Additional Commitment shall be modified
                in
                accordance with the second request and the Additional Commitment
                shall be
                delivered in accordance with the
                Agreement.

            

    

    
      	 	
              vi.

            	
              If
                (1)
                the Additional Commitment is cancelled under subparagraphs ii. or
                iii. of
                this Section 4.4(d), or if (2) the APUC does not approve (or if it
                disapproves) the second request within one year of filing, or (3)
                the APUC
                fails to approve either the first or second request within two years
                of
                filing the first request with the
                APUC:

            

    

    
      	 	
              (a)

            	
              Seller
                shall, at the first occurrence of one of these three events, make
                a
                Terminal Commitment of Gas to Buyer. The Terminal Commitment shall
                be the
                total of the Additional Commitments previously submitted to but not
                approved by the APUC. The Terminal Commitment shall be delivered
                after all
                Gas previously committed by Seller to Buyer has been delivered. The
                price
                of the Terminal Commitment shall be calculated in accordance with
                the last
                price formula approved by the APUC but for all other purposes the
                Terminal
                Commitment will be treated like the Annual Additional Commitment(s)
                and/or
                Final Additional Commitment which it supersedes;
                and

            

    

    

    (3)

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              (b)

            	
              Seller
                shall have no further right or obligation to commit Gas under this
                Section
                4.4, and Buyer shall have no further right or obligation to take
                Gas other
                than Gas committed under Section 4.4(d)vi.(a), the Initial Commitment,
                and
                Additional Commitments previously submitted to and approved by the
                APUC.

            

    

     

    IN
      WITNESS
      WHEREOF, the parties have executed this Agreement in two (2)
      originals.

     

    
      
        	
                ALASKA
                  PIPELINE COMPANY

                 

                 

              	 	 	MARATHON
                OIL COMPANY 
	By:
                /s/R. F. Barnes 	 	 	By:
                /s/Wm. Harper 
	
                

              	 	 	
                

              
	
                Its
                  President

                
DATED: 
                  12/20/89

              	 	 	
                Its
                  Vice President

                DATED: 
                  12/15/89

              

      

    

    

    (4)

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