Document:

exv10w5

 

EXHIBIT 10.5

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL

TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL

HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,

AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH TWO ASTERISKS (**).

NATURAL GAS LIQUIDS EXCHANGE AGREEMENT

By and Between

ONEOK HYDROCARBON, L.P.

and

ONEOK TEXAS FIELD SERVICES, L.P.

Dated: December 1, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Article I., Definitions
	 	 	1	 
	Article II., Term
	 	 	4	 
	Article III., Quantity, Delivery of NGLs, Exchange of Products, Exchange Differentials
	 	 	5	 
	Section 3.1, Dedicated Plants
	 	 	5	 
	Section 3.2, Deliveries, Receipts
	 	 	5	 
	Section 3.3, Customer’s Deliveries
	 	 	6	 
	Section 3.4, Linefill, Product Volumes
	 	 	7	 
	Section 3.5, Exchange Points
	 	 	8	 
	Section 3.6, Exchange Differential
	 	 	9	 
	Section 3.7, CO2 Quality Adjustment Fees
	 	 	10	 
	Section 3.8, Alternative Connections
	 	 	11	 
	Article IV., Statements and Payments
	 	 	11	 
	Article V., Termination of Prior Agreement
	 	 	12	 
	Article VI., Notices
	 	 	12	 
	Article VII., General
	 	 	12	 
	Article VIII., Measurement, Sampling and Analysis
	 	 	12	 
	Article IX., Quality
	 	 	16	 
	Article X., Records
	 	 	16	 
	Article XI., Custody and Title
	 	 	17	 
	Article XII., Warranties, Indemnification
	 	 	17	 
	Article XIII., Taxes
	 	 	18	 
	Article XIV., Remedies for Breach
	 	 	18	 
	Article XV., Government Edicts
	 	 	19	 
	Article XVI., Force Majeure
	 	 	20	 
	Article XVII., Interpretation
	 	 	20	 
	Article XVIII., Assignment
	 	 	21	 
	Article XIX., Credit
	 	 	21	 
	Article XX., Processor’s System Shutdown
	 	 	22	 
	Article XXI., Miscellaneous
	 	 	22	 
	Section 21.1, Headings, Articles and Sections
	 	 	22	 
	Section 21.2, No Third Party Beneficiary
	 	 	22	 
	Section 21.3, Severability
	 	 	22	 
	Section 21.4, Setoffs and Counterclaims
	 	 	22	 

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	Section 21.5, No Partnership or Association
	 	 	22	 
	Section 21.6, No Commissions, Fees or Rebates
	 	 	23	 
	Section 21.7, Joint Action
	 	 	23	 
	Section 21.8, Safe Handling
	 	 	23	 
	Section 21.9., Processor’s Safety Regulations
	 	 	23	 
	Section 21.10., Use of Products
	 	 	23	 

2

 

NATURAL GAS LIQUIDS EXCHANGE AGREEMENT

     THIS NATURAL GAS LIQUIDS EXCHANGE AGREEMENT (“Agreement”) is made on this 1st day
of December, 2005 by and between ONEOK TEXAS FIELD SERVICES, L.P., a Texas limited partnership,
Tulsa, Oklahoma, (“Customer”), and ONEOK HYDROCARBON, L.P., a Delaware limited liability company,
Tulsa, Oklahoma (“Processor”).

     WHEREAS, Customer and its Affiliates (defined below) are in the business of producing and
marketing NGLs (defined below), and Owns or Controls raw natural gas liquid production from various
gas processing plants as hereinafter set forth; and

     WHEREAS, Customer wishes to exchange all NGLs Owned or Controlled by Customer and/or its
Affiliates from such plants for Products (defined below).

     NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and
other good and valuable consideration, Customer and Processor agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. In this Agreement, each of the terms set forth
hereinafter shall have the meanings stated in this Section.

	A.	 	“Adjusted Base Exchange Differential” shall have the meaning specified in Section 3.6 of this
Agreement.
	 
	B.	 	“Affiliate” of a corporation, partnership, company, or other business enterprise or entity
(collectively “Person”) means a Person which directly or indirectly controls, is controlled
by, or is under common control with such Person. As used herein, the term “control”
(including its derivatives and similar terms) means (i) owning, directly or indirectly, at
least fifty percent (50%) of the voting rights attributable to the outstanding shares of the
controlled Person if such voting rights confer upon the shareholder the power, directly or
indirectly, to direct, or cause to be directed, the management and policies of the controlled
Person, or (ii) with respect to a Person that is not a corporation, having the power, directly
or indirectly, to direct, or cause to be directed, the management and policies of the
controlled Person through the ownership of voting securities, other ownership interests, by
contract, or otherwise.
	 
	C.	 	“Alternative Term” shall have the meaning specified in Section 2.1 of this Agreement.
	 
	D.	 	“Barrel” shall be forty-two U.S. Gallons.
	 
	E.	 	“Base Exchange Differential” shall have the meaning specified in Section 3.6 of this
Agreement.
	 
	F.	 	“CO2” shall have the meaning specified in Section 3.7 of this Agreement.

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	G.	 	“CO2 Content” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	H.	 	“Contract Year” shall be each twelve (12) Month period during the term hereof ending on June
30, provided that the first such period shall commence on the Effective Date and end on June
30, 2006, and each subsequent period thereafter through the term of this Agreement shall be
for a full twelve (12) Months, including any renewal terms.
	 
	I.	 	“Controlled” means, when referring to NGLs, NGLs that Customer or its Affiliates, as the case
may be, has the right, directly or indirectly, to have fractionated or exchanged into
Products.
	 
	J.	 	“Current Linefill Requirement” shall have the meaning specified in Section 3.4 of this
Agreement.
	 
	K.	 	“Day” shall be a period of twenty-four (24) consecutive hours commencing at 7:00 A.M. Central
Time.
	 
	L.	 	“Dedicated Plants” or “Dedicated Plant” shall have the meanings specified in Section 3.1 of
this Agreement.
	 
	M.	 	“Delivery Point” or “Delivery Points” shall have the meaning specified in Section 3.3 of this
Agreement.
	 
	N.	 	“Effective Date” shall have the same meaning as the term “Closing Date” in that certain
Agreement and Plan of Merger by and among ONEOK Field Services Company, ONEOK Field Services
Holdings, L.L.C., Eagle Rock Gas Gathering & Processing, Ltd., and Eagle Rock Field Services,
L.P.
	 
	O.	 	“Exchange Point” and “Exchange Points” shall have the meanings specified in Section 3.5 of
this Agreement.
	 
	P.	 	“Force Majeure” shall have the meaning specified in Section 16.2 of this Agreement.
	 
	Q.	 	“Fractionator” shall mean Processor’s fractionation facilities located at or near Medford,
Oklahoma.
	 
	R.	 	“Fuel Gas Cost” as used in Article III, shall mean the sum of (i) and (ii) below:

	 	(i).	 	The price of natural gas for the Month prior to the Month in question obtained by
referencing the Williams Natural Gas Index, Texas, Oklahoma, Kansas, as published in
Inside F.E.R.C.’s Gas Market Report (McGraw-Hill Inc.); and,
	 
	 	(ii).	 	The maximum transportation rate (including fuel and loss) for natural gas
delivered to Medford, Oklahoma (or the nearest point thereto served by the pipeline at
issue), for the Month prior to the Month in question, obtained by referencing the maximum
transportation rate to such destination for the Williams Pipeline. The maximum
transportation rate referred to in this paragraph shall be obtained from the Williams
Pipeline approved natural gas tariff.

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	 	 	If the Inside F.E.R.C.’s Gas Market Report, or its successor publication, ceases to be
published, or if it ceases to publish the above described index, then the price(s) shall, if
available, be obtained from an alternative industry publication (private or government) which
publishes the same pricing information. If the above index prices are no longer available,
then Processor and Customer shall, within sixty (60) Days of the first Day of the Month that
the cessation occurred, agree upon an alternative pricing mechanism which will reflect the
fair market price of natural gas utilized as fuel in Processor’s Fractionator. The
alternative pricing mechanism agreed upon shall apply retroactively to the first Day of the
Month that the posting terminated. If the parties cannot agree upon an alternate pricing
mechanism within the period stipulated above, then the issue of how to determine the fair
market price of natural gas utilized as fuel in Processor Fractionator shall be submitted to
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
	 
	S.	 	“Gallon” shall be a U.S. Gallon of 231 cubic inches of liquid corrected for temperature to
sixty degrees (60°) Fahrenheit, and at the equivalent vapor pressure of the liquid.
	 
	T.	 	“Gas Producers” shall mean corporations, partnerships, companies, or other business
enterprises or entities that supply natural gas to the Dedicated Plant(s) at issue for the
extraction of NGLs therefrom. A “Gas Producer” at a particular Dedicated Plant shall not be
deemed a “Gas Producer” at other Dedicated Plants unless the “Gas Producer” actually delivers
natural gas for processing in the other Dedicated Plant in question.
	 
	U.	 	“High CO2 NGLs” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	V.	 	“Linefill” shall have the meaning specified in Section 3.4 of this Agreement.
	 
	W.	 	“Location A” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	X.	 	“Location B” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	Y.	 	“Location C” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	Z.	 	“Location D” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	AA.	 	“Material Variance” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	BB.	 	“Month” shall be a period of time commencing on the first Day of a calendar Month,
and ending on the first Day of the next calendar Month.
	 
	CC.	 	“NGLs” shall mean the mixture of liquid hydrocarbons and non-hydrocarbon components that are condensed, and/or absorbed
from or separated out of gas currently and subsequently processed in the Dedicated Plant(s). NGLs shall not include field
condensate recovered in gas gathering systems, unless and until Processor delivers written notice to Customer stating that
it is able and willing to exchange such condensate from any one or more of the Dedicated Plants pursuant to the terms of
this Agreement, and upon delivery of such notice, NGLs shall include all condensate delivered from

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	 	 	such Dedicated Plants. As used herein, “condensate” means liquid hydrocarbons that separate from natural gas due to temperature and/or pressure
changes upstream of a gas plant.
	 
	DD.	 	“Option Term” shall have the meaning specified in Section 2.1 of this Agreement.
	 
	EE.	 	“Owned” or “Owns” means, when referring to NGLs, NGLs to which Customer or its Affiliates, as the case may be, have title.
	 
	FF.	 	“Products” shall be fractionated NGLs, consisting of E/P, HD5 propane, I-Grade isobutane, D-Grade normal butane and M-Grade
14# Reid Vapor Pressure (RVP) natural gasoline, in conformity with the specifications attached hereto as Exhibits A, B, C,
D, and E, respectively. HD5 propane, I-Grade isobutane, D-Grade normal butane, and M-Grade 14# RVP natural gasoline may be
referred to herein as “Propane Plus”, or as “C3+”.
	 
	GG.	 	“Quality Adjustment Fee” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	HH.	 	“Take-In-Kind-Rights” shall mean the right of a Gas Producer to receive, and the obligation of Customer to deliver, at or
near the tailgate of the Dedicated Plant in question, the NGLs extracted from natural gas owned and delivered by such Gas
Producer to the Dedicated Plant at issue.
	 
	II.	 	“Year” shall be a period of three hundred sixty-five (365) consecutive Days; provided, however, that any Year which
contains three hundred sixty-six (366) consecutive Days shall also constitute one “Year.”

ARTICLE II

TERM

     Section 2.1 Term. This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect through (**) (the “Primary Term”), and (a) the
effectiveness may be extended until (**) (the “Option Term”) in accordance with the terms
and conditions contained herein, if the Processor and Customer mutually agree to such Option Term
and such agreement is evidenced by a writing signed by both Processor and Customer, or (b), if the
Option Term is not agreed upon, the effectiveness will be extended (the “Alternative Term”) upon
other terms and conditions to be negotiated in good faith by Processor and Customer prior to the
expiration of the Primary Term; provided that such negotiations (i) shall be conducted exclusively
between Processor and Customer, (ii) shall be based on and take into account Processor’s costs,
overhead, and capital expenditures required to continue performance hereunder, and (iii) shall
provide Processor with a rate of return based on the greater of Processor’s historical rates of
return under this Agreement or twelve percent after taxes. If the parties hereto have not agreed
to the Option Term at least ninety (90) Days prior to the conclusion of the Primary Term, they
shall promptly enter into good faith negotiations to determine the Alternative Term, and shall use
commercially reasonable efforts to agree upon an Alternative Term prior to the expiration of the
Primary Term. This Agreement shall continue in full force and effect after the Option Term or
Alternative Term, as applicable, from Contract Year to Contract Year unless or until terminated
either by Customer or Processor upon ninety (90) Days advance written notice to the other party
hereto specifying a termination date at the end of the Option Term or Alternative Term, as
applicable, or of any Contract Year thereafter.

4

 

ARTICLE III

QUANTITY, DELIVERY OF NGLS, EXCHANGE OF PRODUCTS, EXCHANGE DIFFERENTIALS

     Section 3.1 Dedicated Plants.

	A.	 	Subject to the provisions herein, Customer shall deliver to Processor all of the NGLs that
Customer or its Affiliates Own or Control from the following plants (hereinafter the
“Dedicated Plants”), such volume of NGLs from each Dedicated Plant estimated to be the
following (the “Estimated Production”):

	 	 	 	 	 
	Dedicated Plants	 	BPD
	Arrington

	 	 	2,000	 
	Canadian

	 	 	2,200	 
	Cargray

	 	 	3,000	 
	Kingsmill/Gray

	 	 	2,500	 
	Lefors

	 	 	2,200	 
	Stinnett

	 	 	3,000	 
	 
	 	 	 	 
	Total:

	 	 	14,900	 

	B.	 	Notwithstanding the foregoing provisions of this Section, Customer may elect to exempt from
delivery hereunder any Propane extracted and fractionated at the Cargray Plant, and sold by
Customer at the tailgate of such Plant.
	 
	C.	 	Except as otherwise provided herein, and except for any Take-In-Kind Rights that the Gas
Producers have or may have, it is understood and agreed that Customer shall not enter into any
agreement that would call for or allow any NGLs Owned or Controlled by Customer or its
Affiliates to be marketed by a party other than Customer unless that party agrees in writing
that all such NGLs shall be subject to this Agreement for its remaining term, including any
extensions or renewals of this Agreement pursuant to the terms hereof. Subject to Article
XVIII, ASSIGNMENT, this Agreement shall not be construed to limit or otherwise constrain
Customer’s right to grant Take-In-Kind Rights to the Gas Producers. Customer shall exercise
commercially reasonable efforts to continue to Own or Control NGLs which are Owned or
Controlled at the time this Agreement is entered into or which it may subsequently Own or
Control during the term of this Agreement.

     Section 3.2 Deliveries, Receipts.

	A.	 	Subject to the following provisions, Processor shall accept the NGLs from Customer tendered
hereunder during the term of this Agreement. Although it is the intention of both parties to
this Agreement for Processor to receive, and Customer to deliver, the entire production of
NGLs from the Dedicated Plants, notwithstanding anything herein however, Processor shall not
be required to accept NGLs in excess of 110% of the Estimated Production from any Dedicated
Plant if such excess volumes are not economical for Processor to accept and fractionate, in
Processor’s sole discretion, and Processor provides written notice of such determination to Customer. If
Customer

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	 	 	provides notice to Processor of its desire to amend this Agreement to adjust the
Estimated Production during the term of this Agreement, Processor shall not unreasonably
refuse such request. If Processor refuses to so amend this Agreement, then upon thirty (30)
days notice to Processor, Customer shall have the right to terminate this Agreement with
respect to only the volume of NGLs actually produced from such Dedicated Plant(s) which is
in excess of 110% of the then-effective Estimated Production for such Dedicated Plant(s).

	B.	 	If, for any period of one hundred and eighty (180) consecutive Days (commencing on or after
one (1) Year following the Effective Date), Customer fails to deliver at least ninety percent
(90%) of the then-effective Estimated Production from any Dedicated Plant (excluding periods
of Force Majeure), then Processor shall have the right, within thirty (30) Days immediately
after the expiration of such 180 consecutive Day period, by providing written notice to
Customer, to reduce the then-effective Estimated Production to the average daily NGL volume
actually delivered from the Dedicated Plant at issue during such 180 consecutive Day period
(excluding periods of Force Majeure). Such reduction is to be effective as of the date of
Processor’s notice. If the volume of Customer’s NGLs available to be delivered hereunder from
a particular Dedicated Plant or Dedicated Plants increases to a level which is in excess of
the then-effective Estimated Production, then Customer may request an increase in the
then-effective Estimated Production to the volume of NGLs Customer estimates to be available
from a Dedicated Plant or Dedicated Plants, which such request will be in writing and detail
the basis for the increase or anticipated increase in the NGL volume. Processor shall
respond, in writing, to Customer’s request within fifteen (15) Days of Processor’s receipt of
Customer’s request. If Processor declines to increase the then-effective Estimated Production
applicable to a particular Dedicated Plant or Dedicated Plants then upon thirty (30) days
notice to Processor, Customer shall have the right to terminate this Agreement with respect to
only the volume of NGLs actually produced from such Dedicated Plant(s) which is in excess of
110% of the then-effective Estimated Production of such Dedicated Plant(s).

	C.	 	Processor recognizes that, from time to time, Customer, by virtue of its agreements with
owners of a Dedicated Plant(s), or otherwise may acquire title to or obtain the right under
operating, processing or similar agreements to dispose of or market NGLs recovered from
natural gas belonging to third parties not a party to this Agreement. To the extent Customer
so acquires title or obtains such rights, and subject to the foregoing provisions of this
Section, Customer agrees to deliver and Processor agrees to receive such NGLs under the terms
and conditions of this Agreement. If any party other than Customer is entitled, under
Customer’s agreement with such other party or otherwise, to have redelivered to it Products
fractionated from such NGLs, Customer or its representative shall advise Processor each Month
of the division of such Products among all such parties, and Processor shall be entitled to
rely on such advice in making Product redeliveries, disbursements and accounting.

  Section 3.3 Customer’s Deliveries. Customer shall deliver, or cause to be
delivered, the NGLs committed hereunder to the interconnection between Processor’s (or its
Affiliate’s) facilities and each respective Dedicated Plant’s facilities (“Delivery Point”).
Customer has installed or shall cause to be installed and shall operate or cause to be operated, at
its cost and expense, any facilities or equipment necessary to deliver the NGLs from the Dedicated
Plants to the Delivery Points. Customer shall use all reasonable efforts to deliver such NGLs to
Processor at a

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consistent and continuous flow over a twenty-four (24) hour period, and Processor shall use all
reasonable efforts to deliver Products at the Exchange Points at a consistent and continuous flow.
Customer shall deliver the NGLs (i) at temperatures set forth in Exhibit “Y”, and (ii) at pressures
sufficient to deliver the NGLs into Processor’s or its Affiliate’s facilities at the Delivery
Points which shall be greater than or equal to 600 psig and less than 1440 psig. Processor shall
exchange Products with Customer for the NGLs Processor receives at the applicable exchange
differentials specified below.

     Section 3.4 Linefill, Product Volumes.

	A.	 	“Linefill” shall mean a volume of Products equal to the daily mean of the volume of Products
fractionated from NGLs produced at the Dedicated Plants, times seven (7).

	B.	 	During the first Contract Year, Linefill shall be calculated using the 18 Month period
immediately prior to the Effective Date as the basis for such calculation. During the first
Contract Year, beginning on the Effective Date, Processor shall retain the first Barrels of
Products otherwise deliverable to Customer pursuant to this Agreement until the Linefill
requirement has been satisfied. After the Linefill requirement has been satisfied, Processor
shall deliver all additional Products as required pursuant to the other terms and conditions
of this Agreement.

	C.	 	At the beginning of each succeeding Contract Year, the parties will calculate a then-current
linefill requirement (the “Current Linefill Requirement”) for such Contract Year which shall
mean the daily mean of the volume of Products fractionated from NGLs produced at the Dedicated
Plants during the 12 Month period immediately prior to the Contract Year, times seven (7).
Linefill will remain unchanged unless the calculation of the Current Linefill Requirement is
at least twenty-five percent (25%) greater than, or at least twenty-five percent (25%) less
than the Linefill (a “Material Variance”). In the event of a Material Variance then: i) the
Linefill for the Contract Year under consideration will be adjusted to equal the Current
Linefill Requirement and ii) Processor shall, over the three month period immediately
following of the Contract Year under consideration, ratably redeliver on a daily basis or
ratably withhold on a daily basis the volume of Products necessary to balance the imbalances
of the Linefill provision of this exchange.

	D.	 	At all times, Processor shall retain title to and possession of a volume of Linefill as
security for Customer’s performance of its obligations herein. Except as provided for in both
the immediately preceding and next sentences of this Section, Processor shall exchange with
Customer, during the Month of delivery of NGLs by Customer, a number of Barrels of each
Product calculated according to the number of Barrels of each hydrocarbon component contained
in the NGLs delivered by Customer to Processor. For purposes of calculating the amount of
Products to be exchanged with Customer hereunder, methane delivered up to the limits set forth
in Exhibit “Y” shall be deemed to be ethane, but no credit will be given anywhere for methane
delivered in excess of the limits set forth in Exhibit “Y”, or for carbon dioxide or other
non-hydrocarbon components contained in the NGLs delivered to Processor. Upon termination of
this Agreement, and provided that Customer has performed all of its obligations herein,
Processor shall return and deliver Linefill to Customer after ninety days from the date that
Customer has performed all of its obligations herein.

7

 

     Section 3.5 Exchange Points. Subject to the other provisions of this
Agreement, Processor shall exchange Products with Customer at the following destinations
(collectively referred to as the “Exchange Points” or individually as an “Exchange Point”) as
designated from time to time by Customer, as set forth below:

MAPCO/Koch Junction 306, Conway, Kansas (“Location A”);

Inlet Flange, Enterprise, Mont Belvieu, Texas or the Inlet Flange, Dynegy
Midstream Services, Limited Partnership, Mont Belvieu, Texas, as mutually
agreed between Customer and Processor (“Location B”); and/or

Kinder Morgan/Koch Junction, Reno County, Kansas (“Location C”).

Texaco Delivery Point, Conway, Kansas (“Location D”)

	A.	 	Fifty percent (50%) of the E/P attributable to all the Dedicated Plants shall be delivered by
Processor to Customer at Location B each Month. The remainder shall be delivered to Location
A. Notwithstanding, however, Customer shall have the right to request delivery of the lesser
of: i) 26,000 barrels or ii) 50% of E/P attributable to all the Dedicated Plants at Location
C. Such request from Customer must be in writing, be received at least ten (10) Days prior to
the beginning of each Month’s redeliveries, and shall contain the volume so requested.

	B.	 	The C3+ attributable to all the Dedicated Plants shall be delivered by Processor to Customer
at Location A, C and/or Location D as designated by Customer. Customer shall advise Processor
in writing of the desired Exchange Point for the C3+ due Customer at least ten (10) Days prior
to the beginning of each Month’s redeliveries. Customer may elect to have part of a Product
constituting C3+ delivered to Location A, and the remainder of such Product constituting C3+
to Location D and/or C. Notwithstanding anything to the contrary contained herein, Customer
may not: i) nominate C3+ Products other than Iso Butane and Natural Gasoline to Location D;
ii) nominate in any Month more than 39,000 Barrels of Iso Butane; and iii) nominate in any
Month more than 39,000 Barrels of Natural Gasoline.

	C.	 	During and after the Option Term, if applicable, Location B shall not be available as an
Exchange Point, and Processor shall have no obligation to make deliveries of any kind at
Location B after the Primary Term.

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     Section 3.6 Exchange Differential. For each Gallon of
NGLs delivered to Processor, Customer shall pay Processor an exchange differential (“Base Exchange
Differential”) as set forth below and as adjusted pursuant to Subsection 3.6.B below:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Base Exchange
	 	 	Originating	 	 	 	 	 	Differential,
	Exchange Point Location	 	Dedicated Plant	 	Product	 	$/Gal.
	Location “A”, MAPCO/Koch
Junction 306, Conway, Kansas
	 	All	 	 	C3+, E/P	 	 	$	(**)	*
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Location “B”, Enterprise,
Mont Belvieu, TX; or Dynegy,
Mont Belvieu, TX.
	 	All	 	 	E/P	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Location “C”, Kinder
Morgan/Koch Junction, Reno
County, Kansas
	 	All	 	 	E/P, C3+	 	 	$	(**)	*
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Location “D”, Texaco Delivery
Point, Conway, Kansas
	 	All	 	IC4 & C5	 	$	(**)	*

 

			
	*	 	Each applicable Base Exchange Differential shall be increased by $0.007 per Gallon after the
Primary Term, such increase to be applicable during and after the Option Term, if applicable.

	A.	 	In addition to any other fees and charges due hereunder, the parties agree that if any third
party charges a fee for receiving Products (whether in connecting pipelines or in storage
facilities), Customer shall pay such charges either by: i) reimbursing Processor therefor, or
ii) paying such charges directly to such third party; with i) or ii) being at Processor’s
option.
	 
	B.	 	Adjustment to Base Exchange Differential.

	 	(i)	 	Fuel Gas Adjustment. The Base Exchange Differential shall be
adjusted at the beginning of each Month commencing with the Month of initial
deliveries hereunder by an amount attributable to the change in Processor’s Fuel Gas
Cost incurred during the Month prior to the Month in question, and compared to the
Base Rate, all as more fully described in Appendix 1 hereto, and using the
Efficiency Levels set forth therein. The Base Rate for actual Fuel Gas Costs shall
equal the amount set forth in Appendix 1.
	 
	 	(ii)	 	Electrical Adjustment. The Base Exchange Differential shall be
adjusted at the beginning of each Month commencing with the Month of initial
deliveries hereunder by an amount attributable to the change in Processor’s actual
electrical power costs, for the Fractionator and Processor’s gathering system
connected to the Fractionator, incurred during the Month prior to the Month in
question, and compared to the Base Rate, all as more fully described in Appendix 1
hereto. The Efficiency Levels and Base Rates for actual electrical power costs
shall equal the amount set forth in Appendix 1.

9

 

	 	(iii)	 	CPIU Adjustment. The Base Exchange Differential shall be adjusted at the
beginning of each Contract Year by multiplying the Base Exchange Differential by a
fraction, the numerator of which is the Consumer Price Index for All Urban Consumers
(U.S. city average, all items, not seasonally adjusted, the “CPI”) for the last
Month of the just concluded Contract Year, and the denominator of which is CPI for
the last Month of the prior Contract Year. Notwithstanding the foregoing, if the
CPI has declined from the prior Contract Year, then the adjustment provided for in
the prior sentence shall not be performed.
	 
	 	(iv)	 	Adjusted Base Exchange Differential. The Base Exchange Differential, as
adjusted in accordance with this Section, shall be referred to herein as the
“Adjusted Base Exchange Differential.” Notwithstanding anything herein to the
contrary, in no event shall such adjustments reduce the Adjusted Base Exchange
Differential below the Base Exchange Differential. An example, for illustrative
purposes only, of the above adjustments is attached as Appendix 1.

     Section 3.7 Quality Adjustment Fees. In addition to the Adjusted Base Exchange
Differential specified above, Customer shall pay Processor the quality adjustment fees specified
below.

	A.	 	CO2 Quality Adjustment Fees. In addition to the Base Exchange
Differential, as adjusted, Customer shall pay Processor a CO2 quality adjustment fee (“Non-S&P
CO2 Quality Adjustment Fee”) for each Dedicated Plant as specified below in this Section 3.7.A
(i). For purposes of determining the Non-S&P CO2 Quality Adjustment Fees for each plant, the
term “CO2 Content” shall mean the liquid volume percentage ratio of the Carbon Dioxide (“CO2”)
to the ethane contained in the NGLs delivered hereunder. As further specified in Exhibit “Y”,
if Customer tenders NGLs to Processor with a CO2 Content of greater than two and one-half
percent (2.5%) by liquid volume of the ethane (hereinafter referred to as “Non-S&P High CO2
NGLs”), Processor shall have the right to reject such Non-S&P High CO2 NGLs from any Dedicated
Plant. In such event, Processor shall, as soon as reasonably possible, notify Customer of its
election to reject such Non-S&P High CO2 NGLs. If Processor accepts Non-S&P High CO2 NGLs, no
additional CO2 quality fees other than the fees set forth in this Section shall be charged to
Customer. Failure of Processor to exercise its right to refuse Non-S&P High CO2 NGLs from
time to time shall not constitute a waiver of said right with respect to future deliveries of
Non-S&P High CO2 NGLs pursuant to this Agreement. In addition, Customer shall use reasonable
efforts to notify Processor when they have or expect to produce or deliver Non-S&P High CO2
NGLs.

	 	 	 
	 	 	CO2 Quality Adjustment Fee, per Barrel of NGLs
	CO2 Content	 	Delivered hereunder at the Delivery Point(s).
	0.35% or less
	 	No Fee
	> 0.35%, but < 1.0%
	 	$0.10*
	1.0%, but < 2.5%
	 	$0.50*
	2.5% or more
	 	$2.00*

 

			
	*	 	Each applicable CO2 Quality Adjustment fee shall be increased by 1.3 times
after the Primary Term, such increase to be applicable during and after the Option
Term, if applicable.

10

 

			
	B.	 	Excess Methane Quality Adjustment Fees. If the ratio of the methane to the ethane
delivered hereunder in the NGLs is equal to or greater than two percent (2.0%) on a liquid
volume basis, then Processor shall charge Customer or deduct from the payments due Customer
hereunder an Excess Methane Quality Adjustment Fee equal to five cents ($0.05)* per Barrel of
NGLs delivered at the Delivery Point at issue. As further specified in Exhibit Y, if Customer
tenders NGLs to Processor with an methane to ethane ratio of 1.5% or more, Processor shall
have no obligation to accept such NGLs.

 

			
	*	 	The Excess Methane Quality Adjustment fee shall be increased by 1.3 times after the Primary
Term, such increase to be applicable during and after the Option Term, if applicable.

     Section 3.8 Alternative Connections. Notwithstanding anything to the contrary
contained herein, if any of the Dedicated Plants are shut down or the natural gas and NGLs
previously being processed in such Dedicated Plant(s) are diverted to another gas plant(s) that is
not a Dedicated Plant (“Non-dedicated Plant(s)”), Processor (or its Affiliate) shall have the
right, at its option, to connect to the Non-dedicated Plant(s) in order to receive the NGLs
Customer or its Affiliates Own or Control that would have otherwise been extracted at the Dedicated
Plants. In the event of such a diversion, Customer shall, within thirty (30) Days prior to such
diversion, notify Processor of the diversion. If Processor wishes to exercise its option, it shall
so notify Customer, within thirty (30) Days of its receipt of Customer’s notice, of Processor’s
intent (or its Affiliate’s) to so connect to the Non-dedicated Plant(s), and shall, at Processor’s
(or its Affiliate’s) own cost and expense, connect the Non-dedicated Plant(s) as soon as is
reasonably practicable, but in no event to exceed three hundred and sixty-five (365) days. Upon
such connection, the NGLs Owned or Controlled by Customer or its Affiliates which were so diverted
and are produced at such Non-dedicated Plant(s) shall be delivered under the terms and conditions
of this Agreement. If Processor (or its Affiliate) does not so connect the Non-dedicated Plant(s)
for delivery hereunder, the NGLs Owned or Controlled by Customer or its Affiliates which were
diverted and are produced at such Non-dedicated Plant(s) shall be released from this Agreement.
Provided, however, NGLs which are diverted to another gas plant connected and flowing NGLs to
Processor or its Affiliate shall continue to be delivered hereunder pursuant to the terms and
conditions of this Agreement. The interconnection between Processor’s, or its Affiliate’s,
facilities and the Non-dedicated Plant(s) facilities shall be deemed an additional Delivery Point
under this Agreement.

ARTICLE IV

STATEMENTS AND PAYMENTS

     Section 4.1 On a Monthly basis, Processor shall prepare and transmit to Customer an invoice
reflecting exchange activity that describes receipts, deliveries, differentials, quality adjustment
fees, and other charges due and owing for NGLs and Products exchanged hereunder. Customer shall
pay the amount of the invoice within ten (10) Days after Customer’s receipt of such invoice. Such
invoice shall be transmitted by electronic mail or facsimile from Processor to Customer. Said
invoice shall be sent and be deemed received as set forth in Article VI below.

11

 

ARTICLE V

TERMINATION OF PRIOR AGREEMENTS

     Section 5.1 On the Effective Date, all previous contracts and agreements between Customer
(and/or its Affiliates) and Processor (and/or its Affiliates) pertaining to the exchange of NGLs
from the Dedicated Plants shall terminate with respect to such Dedicated Plants and be superseded
by this Agreement.

ARTICLE VI

NOTICES

     Section 6.1 Notices, demands and statements shall be in writing, directed as follows:

	 	 	 
	Processor:	 	Customer:
	ONEOK Hydrocarbon, L.P.

	 	ONEOK Texas Field Services, L.P.
	 
	 	 
	100 West Fifth Street

	 	100 West Fifth Street
	P.O. Box 871

	 	Tulsa, Oklahoma 74103
	Tulsa, Oklahoma 74102-0871
	 	 
	Attn:

	 	Attn:
	Telephone:

	 	Telephone:
	Fax:

	 	Fax:

	A.	 	Notices, demands, and statements shall be deemed received the Day after the Day of mailing if
mailed by United States express or certified mail, return receipt requested, and in all other
cases deemed received upon actual Day of delivery or, if transmitted by facsimile, on the Day
the transmission is sent, if sent during normal business hours. Either party may change its
address shown above by notifying the other party, in writing, of such change.

ARTICLE VII

GENERAL

     Section 7.1 The provisions of the attached Appendix 1, Exhibits A, B, C, D, E, and Y are
hereby incorporated in and made a part of this Agreement.

ARTICLE VIII

MEASUREMENT, SAMPLING AND ANALYSIS

     Section 8.1 The NGLs delivered hereunder shall be measured on a mass basis by means of
mass measurement stations equipped with a turbine-type liquid meter(s), continuous composite
sampler gated proportional to flow, a pressure transmitter, vibrating element densitometer, on-line
flow computer, a back pressure controller, and a temperature transmitter, all generally accepted in
the industry, and installed or caused to be installed and operated by Processor or Processor’s
designee, at Processor’s expense; however, Customer, at Customer’s costs and expense, shall provide
any necessary electrical

12

 

power to operate such meter, sampler, transmitter, and any other concomitant equipment related to the measurement
facility. The measurement facilities shall be capable of measuring the volume of NGLs delivered
hereunder up to 1,440 psig. If at any time during the term hereof a new method or technique is
developed with respect to liquid measurement, such new method or technique may be substituted for
the methods set forth in this Agreement if mutually agreed upon by the parties. Mass measurement
stations shall be installed, maintained, operated, and calibrated, and the mass of the hydrocarbon
streams calculated, in accordance with the latest edition of the American Petroleum Institute (API)
Manual of Petroleum Measurement Standards and the latest edition of the Gas Processors Association
(GPA) Standards including, but not limited to the following:

	 	•	 	API Chapter 1, Vocabulary;
	 
	 	•	 	API Chapter 4, Proving Systems: Section 2-Conventional Pipe Provers; Section 3-Small
Volume Provers;
	 
	 	•	 	API Chapter 5, Metering: Section 3-Measurement of Liquid Hydrocarbon by Turbine Meters;
Section 4-Accessory Equipment for Liquid Meters;
	 
	 	•	 	API Chapter 14, Natural Gas Fluids Measurement: Section 6-Continuous Density
Measurement; Section 7-Mass Measurement of Natural Gas Liquids; Section 8-Liquefied
Petroleum Gas Measurement;
	 
	 	•	 	GPA Standard 8182-Tentative Standard for the Mass Measurement of Natural Gas Liquids;
	 
	 	•	 	GPA Standard 2174-Obtaining Liquid Hydrocarbon Samples for Analysis by Gas
Chromatography;
	 
	 	•	 	GPA Standard 2177-Analysis of Demethanized Hydrocarbon Liquid Mixtures Containing
Nitrogen and Carbon Dioxide by Gas Chromatography;
	 
	 	•	 	GPA Standard 2186-Tentative Method for the Extended Analysis of Hydrocarbon Liquid
Mixtures Containing Nitrogen and Carbon Dioxide by Temperature Programmed Gas
Chromatography;
	 
	 	•	 	GPA Standard 2145-Physical Constants for Paraffin Hydrocarbons and Other Components of
Natural Gas;
	 
	 	•	 	GPA Standard 8173-Method for Converting Mass Natural Gas Liquids and Vapors to
Equivalent Liquid Volumes. (English Units.)
	 
	 	•	 	GPA TP-17-Table of Physical Properties of Hydrocarbons for Extended Analysis of Natural
Gases.

     Section 8.2 Customer, or its representative, may, at its option and expense, install and
maintain check measurement equipment, which shall not interfere with the use of Processor’s
measurement equipment, or that of its designee, and which installation and operation of such
equipment shall also not interfere with the flow of NGLs or other natural gas liquids through
Processor’s fractionation facility of other facilities. Customer, or its representative, shall
have access during normal business hours to observe the equipment of Processor’s measurement
stations, or that of Processor’s designees, but the reading, calibrating and adjusting thereof
shall be done only by the employees, agents, representatives, or designees of Processor.
Similarly, should Customer exercise its option to install check measurement equipment, Customer
will comply with all directions of Processor relative to environmental, health and safety while on
the premises of Processor’s fractionation, or other, facilities. Processor shall have access at all
reasonable times to the check measuring equipment, but the reading, calibrating and adjusting
thereof shall be done only by the employees, agents, or representatives of Customer. Customer may
also install, at its sole option and its sole cost and expense, equipment that will receive
electronic information generated

13

 

by Processor’s on-line flow computer. The electronic information may be either
electronic analog or streaming digital. Such electronic information obtained by Customer may be
used for internal business purposes only. Customer’s equipment will not interfere with, and will be
sufficiently isolated to protect, Processor’s equipment. Processor may also install, at its sole
option and at its sole cost and expense, equipment that will receive electronic information
generated by Customer’s on-line analyzer (Gas Chromatograph used for the analysis of demethanized
liquid hydrocarbon). The electronic information may be either electronic analog or streaming
digital. Processor’s equipment will not interfere with, and will be sufficiently isolated to
protect, Customer’s equipment. Such electronic information obtained by Processor may be used for
internal business purposes only.

     Section 8.3 Meter tickets shall be written once at the end of the accounting period.
Processor, or its designee, shall promptly provide Customer a copy of each such meter ticket. On a
scheduled Day of each Month, or at other mutually agreeable intervals, Processor, or Processor’s
designee, shall test and verify the accuracy of its measurement equipment in accordance with the
appropriate above-referenced standards. Processor, or its designee, shall give Customer notice of
the date and time of each such test sufficiently in advance to permit Customer to have a
representative present to witness such test. Processor or its designee shall promptly provide
Customer a copy of each test result. If either party to this Agreement shall notify the other
party that it desires a special test of the measurement equipment, the parties shall cooperate to
secure a prompt verification of such equipment.

     Section 8.4 Meter and Density Factor Deviation. The determined meter and density
factors shall be applied to the daily registered volume and mass for that measurement station until
the next applicable correction is determined. If any test shows the meter or density factor is not
in error more than 0.25%, such equipment will be considered as correct; but such equipment or
correction factors will be properly adjusted at once to zero error. If any test shows the meter or
densitometer factor then in use, are in error by more than 0.25% but less than 0.50%, it shall be
the decision of the concerned field personnel as to the scope and corrective action taken towards
the repair of the equipment, if any. Deviation of factor(s) greater than 0.50% will not be
acceptable and Processor shall proceed with diligence to effect the required maintenance, repairs
or replacement. If any test shows the meter or densitometer is not in error more than a total of
one-quarter of one percent (0.25%), previous readings of such equipment will be considered as
correct; but such equipment or correction factors will be properly adjusted at once to zero error.

     Section 8.4.1 Volume Adjustments. If any test shows the meter or
densitometer factor then in use is in error by more than one-quarter of one percent (0.25%),
such equipment or correction factor will be properly adjusted at once to zero error and the
previous readings of such equipment will be corrected for any prior period of inaccuracy
which is known definitely or agreed upon. For any error not known or agreed upon for the
period in which the equipment was inaccurate or out of service, the volume of NGLs shall be
determined by the first of the following methods that is applicable:

	 	A.	 	Using measurements from accurate check meters which were in operation during
the period to be corrected;
	 
	 	B.	 	by correcting the error if the percentage of error is ascertainable by
calibration test or calculation; or

14

 

	 
	 	C.	 	by a method to be agreed upon by both parties.

The correction shall be retroactive for one-half (1/2) of the period affected, but not to
exceed 16 Days.

     Section 8.5 NGLs delivered by truck, if any, shall be measured by Processor’s scales, or
that of its designee. Scales must be designed and calibrated in accordance with Industry standard
GPA 8186 (latest edition) —  Measurement of Liquid Hydrocarbons by Truck Scale. Volumes shall be
calculated in accordance with API 14.7  —  Mass Measurement of Natural Gas Liquids.

     Section 8.6 The automatic flow proportional sampling equipment installed at the Delivery
Points shall be operated by Processor or that of its designee, and shall be designed to accumulate
a representative sample proportional to the flow of the NGLs passing through the measurement
facilities, shall be designed to prevent Product vaporization, and shall be equipped with mixing
facilities to eliminate any stratification. All sampling shall be conducted in accordance with GPA
Standard 2174 (latest edition) — Obtaining Liquid Hydrocarbon Samples for Analysis by Gas
Chromatography. The sampling equipment shall collect a liquid volume to be agreed during the
sampling period. Processor or its designee shall fill sample transportation containers from the
sampler, for subsequent analysis, at a mutually agreeable time. The number of samples to be taken
may be changed by agreement in writing between Processor and Customer. Each sample collected shall
be divided into three identical samples. One sample shall be shipped to Processor’s central
laboratory in Medford, Oklahoma, for analysis. Such sample shall be analyzed in accordance with
GPA Standard 2177 (latest edition) and Processor shall provide Customer a copy of the results of
each such analysis within five (5) working Days from the end of the Month in which the production
occurred. The molecular weight and pounds per Gallon of the hexane and heavier fraction shall be
determined analytically in accordance with GPA Standard 2186 (latest edition). Customer may, at
its option, analyze one of the remaining samples to verify the accuracy of Processor’s analysis.
Unless contested by Customer, the analysis so determined by Processor shall be used as the official
analysis for accounting purposes. The remaining sample shall be retained by Processor for a period
of at least thirty (30) Days. If Customer and Processor are unable to mutually agree on the
analysis, the retained sample shall be sent to a mutually agreeable independent laboratory for
analysis. In the event the liquid volume percentage for any laboratory is less than ninety-five
(95%) percent or more than one hundred five (105%) percent of the percentage determined by
Processor for these same components, the commercial analysis shall be used rather than Processor’s
analysis, and Processor shall bear the cost of the analysis conducted by the laboratory; otherwise,
however, the analysis conducted by Processor shall be used exclusively and Customer shall bear the
cost of the commercial laboratory’s analysis. In the event that a sample is not available for a
particular period, the parties shall determine an analysis based on the most recent mutually
accepted data.

     Section 8.7 Volumes of the NGLs delivered at the Delivery Point, and each component
thereof, shall be calculated according to GPA Standard 8173 (latest edition).

15

 

ARTICLE IX

QUALITY

     Section 9.1 Customer shall deliver NGLs which (a) are merchantable, (b) meet Processor’s
specifications as such specifications may change from time to time to meet pipeline and other
downstream requirements, the most current of which are contained in Exhibit Y, and (c) are free
from dust, free of entrained water, and other impurity, as determined by Processor, in its sole
discretion. Processor shall have the right, but not the obligation, to modify such specifications
to meet or conform to downstream pipeline or market revisions or requirements with thirty (30) Days
prior notice to Customer. All NGLs shall be received subject to Processor’s inspection and
rejection. If Processor determines Customer has delivered NGLs that have contaminated the common
fungible stream, Processor may treat or otherwise dispose of the contaminated stream in any
reasonable commercial manner at Customer’s sole cost and expense. Customer shall indemnify,
reimburse and hold Processor harmless from and against all claims, penalties, treating or blending
fees, losses, costs, expenses, liabilities or damages of any kind or nature (including reasonable
attorney’s fees and court costs associated therewith) (collectively “Losses”) arising out of or
related to Customer’s delivery to Processor of NGLs not meeting the aforementioned quality
standards and/or specifications on Exhibit “Y”.

     Section 9.2 All NGLs shall be received subject to Processor’s (i) inspection, and (ii)
rejection if such NGLs fail to meet the quality specifications of this Agreement. Failure of
Processor to exercise its right of rejection from time to time shall not constitute a waiver of
said right with respect to future deliveries of NGLs pursuant to this Agreement.

     Section 9.3 All Products shall be redelivered subject to Customer’s (i) inspection, and
(ii) rejection if such Products fail to meet the quality specifications of this Agreement. Failure
of Customer to exercise its right of rejection from time to time shall not constitute a waiver of
said right with respect to future redeliveries of Products pursuant to this Agreement.

ARTICLE X

RECORDS

     Section 10.1 All accounting records and documents related to this Agreement prepared by
either party shall be retained for a period of not less than two (2) Years from the end of each
Contract Year during which such record and documents originate. As a condition precedent to either
party’s right to challenge the correctness of any invoice or payment under this Agreement, the
challenging party must, within two (2) Years following the end of each Contract Year in which any
such invoice was received by Customer or payment was made by a party, whichever is later, notify
the other party in writing of the basis for such challenge. With respect to all invoices or
payments for which such notice is not timely given, such invoices and payments shall conclusively
be presumed correct.

     Section 10.2 Subject to Section 10.1 above and upon providing fifteen (15) Days written
notice to the other party, each party shall have the right at mutually agreeable and reasonable
hours to examine copies of relevant portions of the books and records of the other to the extent
necessary to verify the accuracy of charges made, and volumes allocated hereunder. Any costs
associated with such examination shall be at the sole expense of the party requesting such
examination. Except as required by law or to enforce its rights under this Agreement, each party
agrees not to divulge any of its findings resulting from

16

 

such examination to any other person, firm, corporation or other entity, other than the parties to
this Agreement. Each party agrees to (i) be responsible for enforcing the confidentiality of such
examination and of this Agreement, and (ii) to take such action as necessary to prevent any
disclosure by any of its agents, consultants, or employees. In the event a party is compelled by
legal process to disclose any of such information, such party shall (i) provide the other party
with timely notice of such legal process so that such party may seek a protective order or other
appropriate remedy, (ii) furnish only that portion of the information to which the compelling party
is legally entitled, and (iii) make reasonable efforts to protect the confidential nature of the
information furnished.

ARTICLE XI

CUSTODY AND TITLE

     Section 11.1 Possession, title, and risk of loss to the NGLs shall pass from Customer
to Processor and vest in Processor at the inlet flange connection at the Delivery Point(s) and
possession , title, and risk of loss to the Products shall pass from Processor to Customer and vest
in Customer at the inlet flange connection at the Exchange Point(s). Upon receipt of the NGLs or
Products, as the case may be, the receiving party will be deemed to have exclusive ownership and
control of said NGLs or Product and shall be responsible for any injuries or damages caused
thereby.

ARTICLE XII

WARRANTIES, INDEMNIFICATION

     Section 12.1 Customer warrants merchantable title to the NGLs delivered to Processor
hereunder and the right to exchange the same pursuant to this Agreement, and further warrants that
all such NGLs are, at the time of delivery, free from all and charges, liens, encumbrances, defects
and adverse claims. Customer agrees to indemnify and hold Processor harmless from and against any
and all claims, causes of action, judgments or liabilities brought by or awarded to third parties
arising out of or connected with any allegation that Customer or its Affiliate did not have title
or the authority to exchange and convey title to the same or to cause such NGLs to be fractionated
and redelivered hereunder. Said indemnity includes payments of reasonable attorney’s fees and
expenses incurred in defense of said claims or causes of action. Said indemnity shall survive the
expiration or termination of this Agreement.

     Section 12.2 Processor warrants title to the Products redelivered to Customer hereunder
and the right to exchange the same pursuant to this Agreement, and further warrants that all such
Products are, at the time of redelivery, free from all charges, liens, encumbrances, defects and
adverse claims, except to the extent that Processor may breach its warranty of title by reason of
Customer breaching its warranty of title at paragraph 12.1 with respect to NGLs actually delivered
to Processor. Processor agrees to indemnify and hold Customer harmless from and against any and
all claims, causes of action, judgments or liabilities brought by or awarded to third parties
arising out of or connected with any allegation that Processor or its Affiliate did not have title
or the authority to exchange and convey title to the same or to cause such Products to be
redelivered hereunder. Said indemnity includes payments of reasonable attorney’s fees and expenses
incurred in defense of said claims or causes of action. Said indemnity shall survive the
expiration or termination of this Agreement.

17

 

     Section 12.3 Processor and Customer each assume liability for and shall indemnify, defend
and hold harmless the other party, and that party’s partners and Affiliates, and their officers,
employees, and agents, from and against all liability, loss, claims, strict liability claims,
demands, lawsuits, judgments, orders, penalties, expenses (including but not limited to reasonable
attorneys’ fees), costs, and causes of action (collectively referred to as “Claims”) asserted by
any person or entity (including but not limited to the employees of either Customer or Processor)
for personal injury or death, for compliance with environmental laws, regulations, orders, or
guidelines, or for loss or damage to property, arising from or relating to, or claimed to arise
from or relate to, the activities of the indemnifying party pursuant to this Agreement, but only to
the extent that such Claims are caused by the negligence or willful misconduct of the indemnifying
party or its agents or contractors.

ARTICLE XIII

TAXES

     Section 13.1 Customer shall assume liability for, and pay all taxes, including all new taxes
or increases in existing taxes including excise taxes (but excluding net income, excess profits, or
corporate franchise taxes) imposed by any governmental authority upon the processing, severance,
manufacture, sale, use, delivery, or receipt of the NGLs delivered or Products received. If
Customer is exempt from the payment of such taxes, fees or other charges, Customer shall furnish
Processor proper exemption certificates to cover the NGLs delivered or Products received hereunder.
Customer agrees to indemnify and hold Processor harmless from and against any and all claims,
causes of action, proceedings, judgments, interest, penalties, fees or other liabilities brought by
or awarded to third parties arising out of or connected with any taxes to be paid by Customer
pursuant to this Section. Said indemnity includes payments of reasonable attorney’s fees and
expenses incurred in defense of said claims, proceedings or causes of action.

     Section 13.2 Without limiting anything in Section 13.1 and for further clarification of
Section 13.1, with respect to the Superfund Petroleum tax imposed on natural gasoline, Customer
hereby agrees to reimburse Processor if, and to the extent, such tax is levied against the delivery
of natural gasoline pursuant to this Agreement.

ARTICLE XIV

REMEDIES FOR BREACH

     Section 14.1 If Customer is late in making any payment due hereunder, Processor may charge
Customer, and Customer shall pay, interest on late payments from the due date to the date of
payment in full at a rate equal to the then-current one-month LIBOR rate (as reported in the Wall
Street Journal), plus 1% per annum until Processor receives payment from Customer; provided,
however, such interest rate shall not exceed the maximum lawful rate permitted by applicable law.

18

 

     Section 14.2 If Customer disputes an invoiced amount, Customer shall nevertheless pay the
undisputed portion of the invoice on a timely basis, as set forth in Article IV, STATEMENTS AND
PAYMENTS. Except for the portion of any invoice disputed in good faith by Customer, if Customer
has not remedied late payments to the reasonable satisfaction of Processor within thirty (30) Days
of receipt of written notice from Processor to do so, Processor may in addition to other remedies
it may have at law or herein, and at its option, upon thirty (30) Days advance written notice to
Customer, terminate this Agreement. The election by Processor of any of the courses of action
hereto shall in no way limit any other remedies available to Processor in law or in equity.

     Section 14.3 If either party shall:

	A.	 	Voluntarily petition under or otherwise seek the benefit of any bankruptcy, reorganization,
arrangement or insolvency law; or

	B.	 	Make a general assignment for the benefit of creditors, or

	C.	 	Be adjudicated bankrupt or insolvent; or

	D.	 	Allow a receiver or trustee of the business to be appointed; or

	E.	 	Fail to perform any part of this Agreement (except where such failure is excused under the
terms of this Agreement) and upon written notice of such failure by the other party fail to
either remedy the same within thirty (30) Days of such notice or fail to take reasonable steps
within thirty (30) Days to remedy the same;

then, should any of events listed in A through E above occur, this Agreement may be terminated
forthwith by written notice at the option of the other party with such other party retaining all
its other rights and remedies at law or equity.

     Section 14.4 No waiver by either party of any breach by the other party of any of the
terms of this Agreement shall be construed as a waiver of any subsequent breach, whether of the
same or of a different term of Agreement.

ARTICLE XV

GOVERNMENT EDICTS

     Section 15.1 This Agreement is in all respects subject to all state and federal laws and
all directives, regulations and orders issued or published by any state or federal boards,
commission or agency, but nothing contained herein shall be construed as a waiver of any right to
question or contest any such order, law, rule or regulation. The parties shall be entitled to
regard all such laws, rules, regulations and orders as valid and may act in accordance therewith
until such time as the same may be invalidated by final judgment in a court of competent
jurisdiction.

19

 

ARTICLE XVI

FORCE MAJEURE

     Section 16.1 If either party is rendered unable by Force Majeure to carry out its
obligations under this Agreement (other than the obligation to make payments of monies due
hereunder), then that party shall give prompt written notice of the Force Majeure stating facts
supporting such claim of inability to perform. Thereupon, the obligation to deliver or receive the
quantities so affected shall be suspended during the continuation of an inability so caused, but
for no longer period, but this Agreement shall otherwise remain unaffected. The party claiming
Force Majeure shall use due diligence to remove the cause with all reasonable dispatch; provided,
however, that this provision shall not require the settlement of strikes, lockouts, or other labor
difficulty of the party involved, when such course is determined inadvisable by the party having
the difficulty.

     Section 16.2 The term “Force Majeure,” as employed herein, shall include strikes,
lockouts, or other industrial disturbances; wars, sabotage, blockades, insurrections, or acts of
the public enemy; epidemics, landslides, lightning, earthquakes, tornadoes, fires, storms, floods,
washouts, or other acts of God; arrests or restraints of governments and people; compliance
(voluntary or involuntary) with federal, state or local laws, rules or regulations, permits, acts,
orders, directives, requisitions, or requests of any official or agency of the federal, state, or
local governments; rationing of, shortages of, or inability to obtain or use any material or
equipment; riots or civil disturbances, fires, explosions, failures, disruptions, breakdowns, or
accidents to machinery, facilities, or lines of pipe (whether owned, leased or rented); the
testing, making repairs, alterations, enlargements or connections to machinery, facilities, or
lines of pipe (whether owned, leased or rented); the necessity to not operate, or to reduce the
operation of, equipment to protect the safety of the public and/or environment; freezing of lines;
embargoes, priorities, expropriation, or condemnation by government or governmental authorities;
interference by civil or military authorities; any inability to either tender NGLs or exchange
Products that is caused by pipeline prorationing, and any cause which is not reasonably within the
control of the party, or its Affiliates, claiming suspension.

ARTICLE XVII

INTERPRETATION

     Section 17.1 This Agreement sets forth the final and complete agreement between the
parties with respect to this subject matter and supersedes all prior contracts, understandings,
negotiations and dealings between the parties with respect to this subject matter. No modification
of, addition to, or waiver of any of the terms of this Agreement shall be binding upon either party
unless in writing and signed by an authorized representative of such party, nor shall any such
waiver constitute a continuing waiver unless expressly provided in writing by the party to be
charged with such waiver. Neither course of performance, nor course of dealing, nor usage of trade
shall be used to qualify, explain or supplement any of the terms of this Agreement. This Agreement
shall be governed exclusively according to the laws of the State of Oklahoma without giving effect
to its principles regarding conflicts of laws.

20

 

ARTICLE XVIII

ASSIGNMENT

     Section 18.1 The rights and obligations of this Agreement shall bind and inure to the
respective successors and assigns of the parties hereto. However, any assignment or attempted
assignment, except to an Affiliate, shall be void without the prior written consent of the other
party, which consent shall not be unreasonably withheld, conditioned, delayed or denied except for
reasons which may include, but not be limited to the creditworthiness of the assignee. Customer
further agrees that it and its Affiliates will not sell or assign their interest in the NGLs
subject to this Agreement or processed in the Dedicated Plants unless (i) they first obtain
Processor’s prior written consent to such sale or assignment, which shall not be unreasonably
withheld or delayed; (ii) contemporaneously with such sale or assignment, this Agreement is
assigned to such assignee; and (iii) the buyer or assignee agrees, in a writing executed by an
authorized representative of the buyer or assignee and delivered to Processor, that the NGLs so
sold or assigned shall be bound by, and subject to this Agreement. If a Dedicated Plant(s) is
transferred, assigned, conveyed or otherwise disposed of, this Agreement shall be deemed a separate
agreement covering the particular Dedicated Plant(s) so transferred, assigned, conveyed or
otherwise disposed of.

ARTICLE XIX

CREDIT

     Section 19.1 Either party may, from time to time, demand different terms of payment,
assurance of payment, assurances of performance, or other credit terms whenever such party
reasonably determines, in its sole discretion, that a material adverse change in the delivering
party’s financial condition so warrants, or in the event either party grants or attempts to grant
to any third party a security interest or lien in the NGLs or Products to be delivered and
exchanged hereunder. In any such event, and upon written notice specifying the event or events
warranting the change in terms of payment or of credit, assurance of payment, or assurances of
performance, the party may withhold exchange or delivery or refuse acceptance of deliveries pending
agreement to and performance of the revised terms, including, but not limited to, (i) prepayment,
(ii) cash on delivery, and/or (iii) the posting of an appropriate bond, irrevocable letter of
credit or other security to secure the other party’s obligations hereunder in a form and from an
institution satisfactory to the party withholding performance. If the party in question refuses to
give adequate assurance of due or future performance or payment upon demand therefor, the party
demanding such assurance may treat such failure or refusal as a repudiation of this Agreement as to
that portion not yet performed in addition to any other remedy it may have at law or at equity. In
the event that a party fails to make payment when due, files or has filed against it a petition or
complaint in bankruptcy, insolvency or receivership (defaulting party) the party to whom such
payment is owed (nondefaulting party) shall be authorized to sell any NGLs or Products, as the case
may be, the custody to which were theretofore transferred to the nondefaulting party by the
defaulting party (such as linefill, exchange imbalances, and NGLs received but not yet redelivered)
and to setoff and apply the proceeds from such sale to the extent necessary to cover the
nondefaulting party’s damages resulting from the defaulting party’s failure to make payment or
otherwise perform as herein contemplated; and to the extent of the application of the proceeds from
such sale to the nondefaulting party’s damages, the nondefaulting party shall be discharged from
its obligation to deliver or redeliver NGLs or Products to the defaulting party. Any proceeds from
such sale over and above the nondefaulting party’s damages shall be paid to the defaulting party.

21

 

ARTICLE XX

PROCESSOR’S SYSTEM SHUTDOWN

     Section 20.1 If, in the sole discretion of Processor, the continued operation of a
portion of, or all, of Processor’s system becomes uneconomic, then Processor shall have the right
to shut down such uneconomic portion of its system with at least a one (1) Year prior written
notice to Customer. For purposes of this Article, “Processor’s system” includes all NGL pipelines,
fractionation facilities, loading or unloading facilities, or other physical facilities utilized in
the performance of this Agreement. If Processor so notifies Customer and shuts down all or a
portion of Processor’s system, and declines to accept NGLs from a particular Dedicated Plant or
Dedicated Plants, then such Dedicated Plant or such Dedicated Plants shall be released from this
Agreement effective on the date that Processor so declines to accept NGLs from such Dedicated Plant
or Dedicated Plants.

ARTICLE XXI

MISCELLANEOUS

     Section 21.1 Headings, Articles and Sections. All references to “Articles”
and “Sections” herein pertain to Articles and Sections of this Agreement, unless expressly stated
otherwise. Headings are for purposes of reference only and shall not be used to construe the
meaning of this Agreement.

     Section 21.2 No Third Party Beneficiary. This Agreement is for the sole
benefit of the parties hereto and their respective successors and permitted assigns, and shall not
inure to the benefit of any other person whomsoever, it being the intention of the parties that no
third parties, other than Affiliates of the parties hereto, shall be deemed a third party
beneficiary of this Agreement or otherwise have any rights hereunder.

     Section 21.3 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective during the term of
this Agreement, (i) such provision will be fully severable, (ii) this Agreement will be construed
and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement, and (iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement a provision similar in
terms to such illegal, invalid, or unenforceable provision as may be possible and as may be legal,
valid, and enforceable. If a provision of this Agreement is or becomes illegal, invalid, or
unenforceable in any jurisdiction, the foregoing event shall not affect the validity or
enforceability in that jurisdiction of any other provision of this Agreement nor the validity or
enforceability in other jurisdictions of that or any other provision of this Agreement.

     Section 21.4 Setoffs and Counterclaims. Except as otherwise provided herein,
each party reserves to itself all rights, offsets, setoffs, counterclaims, and other remedies
and/or defenses which that party is or may be entitled to arising from or out of this Agreement or
as otherwise provided by law.

     Section 21.5 No Partnership or Association. Nothing contained in this
Agreement shall be construed to create an association, trust, partnership, principal./agent, joint
enterprise, or joint venture

22

 

relationship or impose a trust, fiduciary or partnership duty,
obligation, or liability on or with regard to either party. The parties are independent
contractors only.

     Section 21.6 No Commissions, Fees or Rebates. Except as expressly authorized
by this Agreement, no director, employee or agent of either party shall give or receive any
commission, fee, rebate, gift or entertainment of significant cost or value in connection with this
Agreement. Any representative or representative(s) authorized by either party may audit the
applicable records of the other party for the purpose of determining whether there has been
compliance with this Section.

     Section 21.7 Joint Action. The parties acknowledge and agree
that the language used in this Agreement shall be deemed to be chosen by the joint action of the
parties hereto to express their mutual intent, and no rule of strict construction against any one
party shall be applied hereto.

     Section 21.8 Safe Handling. Processor reserves the right, in its sole discretion
to (i) reject any trucks, pipelines, or storage facilities presented or suggested by Customer for
loading/unloading which would present an unsafe or potentially unsafe situation, and (ii) refuse to
load/unload, transfer, or handle any NGLs or Product under any conditions it deems unsafe or
potentially unsafe, which is caused by, including without limitation, drivers, personnel,
equipment, procedures, and/or weather conditions.

     Section 21.9 Processor’s Safety Regulations. With regards to NGLs or Products
delivered to or from Processor’s facilities, Customer agrees that it and its customers, agents and
employees will comply with Processor’s safety regulations and rules when on Processor’s premises.
Customer shall indemnify, defend and hold Processor harmless from and against any and all liability
occurring from or arising out of any non-compliance with such safety regulations and rules or the
negligence of Customer, its agents or customers. Processor shall have the right to require
Customer, its agents and/or customers to execute an access agreement with Processor for truck
loading.

     Section 21.10 Use of Products.  Customer acknowledges the hazards associated with the
handling, storage, transportation, use, misuse, disposal or subsequent processing (the “Use”) of
the Products and assumes the responsibility of advising those of its employees, agents,
contractors, and customers, who shall use, work or come in contact with the Products, of the
hazards to human health or human or environmental safety, whether such Products are used singly or
in combination with other substances or in any processes or otherwise. Customer shall indemnify,
defend and hold Processor harmless from and against any and all liability occurring from or arising
out of a breach of Customer’s obligations under this Section and from and against claims, demands
or cause of action for personal injury, damage to the environment or property arising from or
attributable to Customer’s Use of the Products.

23

 

     IN WITNESS WHEREOF, the undersigned parties have executed this Agreement in duplicate
originals as of date first set forth above.

	 	 	 	 	 	 	 	 	 
	CUSTOMER:	 	 	 	PROCESSOR:
	 
	 	 	 	 	 	 	 	 
	ONEOK TEXAS FIELD SERVICES, L.P.	 	 	 	ONEOK HYDROCARBON, L.P.
	 
	 	 	 	 	 	 	 	 
	By: ONEOK Field Services Company, its
general partner	 	 	 	By: ONEOK Hydrocarbon GP, L.L.C.,
its general partner
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ John W. Gibson 	 	 	 	By:	 	/s/ John W. Gibson 
	 

	 	 
	 	 	 	 	 	 
	Printed Name:

	 	John W. Gibson 	 	 	 	Printed Name:	 	John W. Gibson 
	Title:

	 	President 	 	 	 	Title:	 	President 

24

 

APPENDIX 1

An example of the computations for Fuel Gas Cost and electric power adjustments.

	 	 	 	 	 	 	 	 	 
	 	 	BASE RATE	 	CURRENT1
	Base Exchange Differential/Bbl.
	 	$	1.2180	 	 	To be determined/Bbl.
	 
	 	 	 	 	 	 	 	 
	Fractionator Costs:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Fuel Gas Cost
	 	$	1.80	 	 	$2.0000 /MMBtu2
	Electrical
	 	$	0.0350	 	 	$0.0380 /KWH3
	 
	 	 	 	 	 	 	 	 
	Medford Gathering Costs:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Electrical
	 	$	0.0620	 	 	$0.0650 /KWH3
	 
	 	 	 	 	 	 	 	 
	Efficiency Levels for Fuel and
Electrical:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Fuel Gas Cost
	 	Frac. Electrical:	 	Gathering, Electrical:
	.081 MMBtu/Bbl.
	 	2.24 KWH/Bbl.	 	.392 KWH/Bbl.
	 
	 	 	 	 	 	 	 	 
	Computation of Monthly Escalation Adjustment:
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fuel Gas Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	0.081
	 	 	X	 	 	$	4.00	 	 	-	 	 	$	1.80	 	 	 	=	 	 	$	0.1782	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Medford Electrical Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2.24
	 	 	X	 	 	$	0.0380	 	 	-	 	 	$	0.0350	 	 	 	=	 	 	$	0.0067	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Medford Gath. Electrical Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	0.392
	 	 	X	 	 	$	0.0650	 	 	-	 	 	$	0.0620	 	 	 	=	 	 	$	0.0012	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Escalation Adjustment
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	.18619	 
	Base Exchange Differential
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1.2180	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted Base Exchange Differential
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1.4041	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Payable4
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$1.404	1/BBL 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

			
	1	 	“Current” is inserted for illustrative purposes only, and is the hypothetical
actual cost for the prior Month.
	 
	2	 	Fuel Gas Cost for the preceding Month.
	 
	3	 	Actual electrical cost for the preceding Month.
	 
	4.	 	Greater of the Base Exchange Differential or the Adjusted
Base Exchange Differential.

 

EXHIBIT “A”

SPECIFICATIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Test
	80/20 ETHANE/PROPANE MIX	 	Minimum	 	Maximum	 	Procedure
	Ethane Content (Liquid Volume %)
	 	 	75	%	 	 	82	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Composition (Liquid Volume %)
	 	 	 	 	 	 	 	 	 	ASTM D-2163
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Propane
	 	 	11.5	%	 	 	25	%	 	 	 	 
	Methane and Lighter
	 	 	 	 	 	 	1.5	%	 	 	 	 
	Ethylene
	 	 	 	 	 	 	4.0	%	 	 	 	 
	Butane and Heavier
	 	 	 	 	 	 	0.5	%	 	 	 	 
	Propylene
	 	 	 	 	 	 	1.0	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Carbon Dioxide, ppm (Weight)
	 	 	 	 	 	 	1,000	 	 	ASTM D-2505
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total Sulfur, ppm (Weight)
	 	 	 	 	 	 	30	 	 	ASTM D-2784
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Corrosiveness, copper strip at 100o F
	 	 	 	 	 	No. 1	 	 	ASTM D-1838

 

 

EXHIBIT “B”

SPECIFICATIONS

HD5 Propane

Definition — Predominately a liquefiable hydrocarbon with three carbon atoms per molecule.

	 	 	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100o F psig, maximum
	 	 	 	 	 	 	208	 
	 
	 	 	 	 	 	 	 	 
	(2) Volatility;
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	 	 	-37	 
	 
	 	 	 	 	 	 	 	 
	(3) Residual Matter:
	 	ASTM D-2158	 	 	 	 
	Residue on evaporation,
100o F, m1, maximum
	 	 	 	 	 	 	0.05	 
	Oil stain observed
	 	 	 	 	 	Pass	 
	 
	 	 	 	 	 	 	 	 
	(4) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Propane, minimum
	 	 	 	 	 	 	90.0	 
	Propylene, maximum
	 	 	 	 	 	 	5.0	 
	Butane, maximum
	 	 	 	 	 	 	2.5	 
	 
	 	 	 	 	 	 	 	 
	(5) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip at 100o F
	 	 	 	 	 	No. 1	 
	 
	 	 	 	 	 	 	 	 
	(6) Total Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	 	 	123	 
	 
	 	 	 	 	 	 	 	 
	(7) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass	 
	 
	 	 	 	 	 	 	 	 
	(8) Dryness:
	 	ASTM D-2713	 	 	 	 
	Freeze Valve, seconds,
minimum
	 	 	 	 	 	 	60	 

 

 

EXHIBIT “C”

SPECIFICATIONS

Iso Butane I-Grade

Conway, Kansas

Definition — Predominately an isomer of normal butane.

	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100° F psig, minimum
	 	 	 	 	56.0	 
	at 100° F psig, maximum
	 	 	 	 	60.0	 
	 
	 	 	 	 	 	 
	(2) Volatility:
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	16	 
	 
	 	 	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Iso Butane, minimum
	 	 	 	 	95.0	 
	Propane, maximum
	 	 	 	 	3.0	 
	Normal Butane, maximum
	 	 	 	 	5.0	 
	 
	 	 	 	 	 	 
	(4) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip
at 100° F
	 	 	 	No. 1
	 
	 	 	 	 	 	 
	(5) Volatile Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	93	 
	 
	 	 	 	 	 	 
	(6) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass
	 
	 	 	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 	 	 
	Free Water
	 	 	 	None

 

 

EXHIBIT “D”

SPECIFICATIONS

Normal Butane D-Grade

Conway, Kansas

	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100° F psig, minimum
	 	 	 	 	36.0	 
	at 100° F psig, maximum
	 	 	 	 	38.0	 
	 
	 	 	 	 	 	 
	(2) Volatility:
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	36	 
	 
	 	 	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Normal Butane, minimum
	 	 	 	 	95.0	 
	Iso Butane, maximum
	 	 	 	 	4.0	 
	Pentanes and Heavier, maximum
	 	 	 	 	2.0	 
	Propane, maximum
	 	 	 	 	1.0	 
	 
	 	 	 	 	 	 
	(4) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip at 100° F
	 	 	 	No. 1
	 
	 	 	 	 	 	 
	(5) Volatile Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	93	 
	 
	 	 	 	 	 	 
	(6) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass
	 
	 	 	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 	 	 
	Free Water
	 	 	 	None
	 
	 	 	 	 	 	 
	(8) Olefins	 	Gas Chromatography 10,000 (1%)
	PPM by weight, maximum
	 	 	 	 	 	 

 

 

EXHIBIT
“E”

SPECIFICATIONS

14# Natural Gasoline

M-Grade

			
	Definition—	 	Predominately a mixture of liquefiable hydrocarbons with five to ten carbon atoms per
molecule.

	 	 	 	 	 
	 	 	Test Method 	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure: (Reid)
	 	ASTM D-323	 	 
	At 100o F psig, minimum
	 	 	 	12.0
	at 100o F psig, maximum
	 	 	 	14.0
	 
	 	 	 	 
	(2) Distillation:
	 	ASTM D-216	 	 
	25% evaporated temp. oF, minimum
	 	 	 	140
	90% evaporated temp. oF, minimum
	 	 	 	275
	End point temp. oF, maximum
	 	 	 	375
	 
	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2597	 	 
	Hexanes and Heavier, maximum
	 	 	 	50.0
	Pentanes, minimum
	 	 	 	40.0
	Butanes, maximum
	 	 	 	6.0
	Propane, maximum
	 	 	 	None  
	 
	 	 	 	 
	(4) Corrosion:
	 	ASTM D-130	 	 
	Copper strip at 100o F
	 	 	 	No. 1  
	 
	 	 	 	 
	(5) Color:
	 	ASTM D-156	 	 
	Saybolt Number, minimum
	 	 	 	+25
	 
	 	 	 	 
	(6) Doctor Test:
	 	GPA Publication 1138	 	Negative      
	 
	 	(latest edition)	 	 
	 
	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 
	Free Water
	 	 	 	None

 

 

EXHIBIT “Y”

SPECIFICATIONS

DEMETHANIZED MIX

(NGLS)

	 	 	 	 	 
	 	 	 	 	Standard Units
	 	 	Test Method 	 	Receipt
	Specification Point	 	(Latest Issue)	 	Specifications
	1) Composition:
	 	 	 	 
	Carbon Dioxide
	 	GPA Pub. 2177 (latest edition)	 	(See Note 1)
	Methane, Maximum
	 	 	 	(See Note 2)
	Aromatics, Maximum
	 	 	 	10.00
	Olefins, Maximum
	 	GPA Pub. 2186  (latest edition)	 	(See Note 3)
	 
	 	 	 	 
	2) Vapor Pressure:
	 	 	 	 
	At 100oF, psig, Maximum
	 	ASTM D-1267  (latest edition)	 	600
	 
	 	 	 	 
	3) Corrosiveness:
	 	 	 	 
	Copper Strip at 100oF
	 	ASTM D-1838  (latest edition)	 	No. 1
	 
	 	 	 	 
	4) Total Sulfur:
	 	 	 	 
	PPM by Weight, Maximum
	 	ASTM D-2784  (latest edition)	 	150 (WTPL spec)
	 
	 	 	 	 
	5) Hydrogen Sulfide:
	 	 	 	 
	 
	 	ASTM D-2420  (latest edition)	 	Pass
	 
	 	 	 	 
	6) Distillation:
	 	 	 	 
	End Point at 14.7, psia, oF, Maximum
	 	ASTM D-216  (latest edition)	 	375
	(See Note 4)
	 	 	 	 
	 
	 	 	 	 
	7) Color:
	 	 	 	 
	Saybolt Number, Minimum
	 	ASTM D-156  (latest edition)	 	+25
	(see Note 4)
	 	 	 	 
	 
	 	 	 	 
	8) Dryness:
	 	 	 	 
	Free Water
	 	Inspection	 	None
	 
	 	 	 	 
	9) Product Temperature:
	 	 	 	 
	Minimum temperature, oF 
	 	40
	Product with 65 mole % or more Ethane, oF, Maximum 
	 	90
	Product with less than 65 mole % Ethane, oF, Maximum 
	 	110

Note: 1 Carbon Dioxide Maximum is 2.5 L.V.% of the Ethane content.

Note: 2 Methane Maximum is the greater of .5 L.V.% of the total components excluding N2 and CO2 or
1.5 L.V.% of the Ethane.

Note: 3 Olefin Maximum is 1.0 L.V.% (10,000 ppmw) of the total stream, C4 Olefin Maximum is .1 L.V.%
(1,000 ppmw) of the Normal Butane content.

Note: 4 Distillation and Color to be run on that portion of the mixture having a boiling point of 70oF and above at atmospheric
pressure.

Note: 5 Product shall be commercially free from sand, dust, gums, gum-producing substances, oil, glycol, inhibitors, amine, any
other contaminants, or any compound added to the product to enhance the ability to meet these specifications, and other impurities
which may be injurious to the Processor’s property or the property of third parties, or may interfere with its transmission through
the pipeline.exv10w6

 

EXHIBIT 10.6

Gas Sales and Purchase Agreement

MC Panhandle, Inc., Seller and MidCon Gas Services Corp., Buyer

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	I.

	 	DEFINITIONS
	 	 	2	 
	 
	 	 	 	 	 	 
	II.

	 	COMMITMENT AND DEDICATION
	 	 	3	 
	 
	 	 	 	 	 	 
	III.

	 	TERM
	 	 	4	 
	 
	 	 	 	 	 	 
	IV.

	 	PRICE
	 	 	5	 
	 
	 	 	 	 	 	 
	V.

	 	DELIVERIES
	 	 	6	 
	 
	 	 	 	 	 	 
	VI.

	 	MEASUREMENT AND TESTING	 	 	6	 
	 
	 	 	 	 	 	 
	VII.

	 	WARRANTY OF TITLE
	 	 	8	 
	 
	 	 	 	 	 	 
	VIII.

	 	SCHEDULING AND NOMINATIONS
	 	 	8	 
	 
	 	 	 	 	 	 
	IX.

	 	QUALITY AND PROCESSING
	 	 	8	 
	 
	 	 	 	 	 	 
	X.

	 	BILLING AND PAYMENT
	 	 	9	 
	 
	 	 	 	 	 	 
	XI.

	 	FORCE MAJEURE
	 	 	11	 
	 
	 	 	 	 	 	 
	XII.

	 	NOTICES
	 	 	11	 
	 
	 	 	 	 	 	 
	XIII.

	 	OPTION TO LEASE
	 	 	12	 
	 
	 	 	 	 	 	 
	XIV.

	 	MISCELLANEOUS
	 	 	13	 

Page 1

 

GAS SALES AND PURCHASE AGREEMENT

     This agreement is entered into effective this 1st day of July, 1997, by and between MC
Panhandle, Inc., a Delaware corporation, hereinafter referred to as “Seller”, and MidCon Gas
Services Corp., hereinafter referred to as “Buyer.”

     WITNESSETH:

     WHEREAS, Seller has the right to sell and dispose of certain gas produced from properties
more particularly described herein and desires to sell same; and

     WHEREAS, Buyer desires to purchase and receive said gas under the terms set forth herein.

     Now, therefore, in consideration of the mutual covenants herein contained, Seller and Buyer
do hereby agree as follows:

I. DEFINITIONS

     Unless specifically set forth to the contrary, the following terms shall have the meanings
ascribed to them herein:

	 	1.1.	 	British Thermal Unit (“Btu”). The term “British thermal unit” shall mean the
amount of heat required to raise the temperature of one pound of water from fifty-nine
degrees Fahrenheit (59°F) to sixty degrees Fahrenheit (60°F).
	 
	 	1.2.	 	Business Day. The term “Business Day” shall mean from 8:00 a.m. to 5:00
p.m.. Central Standard Time on any weekday excluding holidays.
	 
	 	1.3.	 	Buyer’s Processing Plant. The term “Buyer’s Processing Plant” shall mean
the Stinnett Processing Plant currently owned by MidCon Gas Products Corp., located
in the NW/4 of Section 1, T.T. RR Survey, in Moore County, Texas, any reconfiguration
or replacement thereof, and any other functionally similar facility which Buyer may
designate from time to time during the term hereof.
	 
	 	1.4.	 	Day. The term “Day” shall mean a period of twenty-four (24) consecutive hours
beginning and ending at 9:00 A.M. Local Clock Time. The reference date for any Day
shall be the date of the beginning of such Day.

Page 2

 

	 	1.5.	 	Delivery Point. The term “Delivery Point(s)” shall mean the point(s) at
which Seller delivers Gas to the Buyer, or to Buyer’s designee for Buyer’s account,
which shall be the outlet flange of Seller’s EFM located at or near the well(s).
	 
	 	1.6.	 	EFM. The term “EFM” shall mean electronic flow measurement and control
equipment.
	 
	 	1.7.	 	Fuel. The term “fuel” shall mean the volume of Gas used for fuel by the
Gathering Facilities and Seller’s Facilities located downstream of the Delivery
Point(s), as stipulated in paragraph 4.2 hereof.
	 
	 	1.8.	 	Gas. The term “Gas” shall mean natural gas, or any mixture of hydrocarbons or
of hydrocarbons and non-combustible gases, including helium, in a gaseous state, the
quantity of which shall be determined on an MMBtu basis.
	 
	 	1.9.	 	Gathering Facility(ies). The term “Gathering Facility(ies)” shall mean any and
all equipment used by Gatherer to gather Gas under this Agreement or any other
gathering agreement including, but not limited to, pipe, meters, and field booster
compression equipment and wet gas compression equipment located at Buyer’s Processing
Plant.
	 
	 	1.10.	 	Gatherer. The term “Gatherer” shall mean Buyer or Buyer’s designee who
delivers gas from the Point(s) of Delivery to the inlet of Buyer’s Processing Plant.
	 
	 	1.11.	 	Index. The term “Index” shall mean the first of the month index price for
“Natural Gas Pipeline Company of America — Mid-Continent” as published by Inside
F.E.R.C.
	 
	 	1.12.	 	Interest Rate. The term “Interest Rate” shall mean the lesser of (i) two
percent (2%) over the per annum rate of interest announced from time to time by
Citibank, N.A., as its “prime” rate for commercial loans, effective for such date as
established from time to time by such bank or (ii) the highest rate permitted by
applicable law.
	 
	 	1.13.	 	Mcf. The term “Mcf” shall mean 1,000 cubic feet of Gas measured at 14.73
psia and sixty degrees Fahrenheit (60°F).
	 
	 	1.14.	 	MMBtu. The term “MMBtu” shall mean 1,000,000 Btu.

	II.	 	COMMITMENT AND DEDICATION

Page 3

 

	 	2.1.	 	Seller’s Dedication. Seller dedicates for sale to Buyer herein all
of its interest in the Gas now or hereafter produced from the area set forth and
described on Exhibit “A” attached hereto and made a part hereof from all
producing formations from the surface to the base of the Granite Wash formation
as found in the existing Panhandle Field producing horizons (“Dedicated
Formations”).
	 
	 	2.2.	 	Seller’s Reservations. Seller reserves the right to deepen, rework, plug
or perform any other work on the gas, wells or property dedicated to Buyer herein
at its sole discretion.
	 
	 	2.3.	 	New Wells — Dedicated Formations. For gas from new wells drilled by Seller on
the dedicated acreage which is produced from the Dedicated Formations, Seller shall
construct the facilities necessary to connect Seller’s well(s) to a mutually agreeable
interconnection point on Gatherer’s existing gathering system. Following the
installation of such facilities, Seller shall submit to Buyer an invoice identifying the
costs incurred by Seller in constructing those facilities downstream of Seller’s
production equipment (which equipment includes wellhead compression, if any). Buyer,
within thirty (30) days of receipt of Seller’s invoice, shall reimburse Seller for
twenty-five percent (25%) of the costs identified on such invoice.
	 
	 	2.4	 	New Wells — Other Formations. For gas from new or recompleted wells which
is produced from other than the Dedicated Formations, Seller shall be permitted to
solicit third-party offers to purchase such production. Upon receipt of any such
third-party offers, Buyer shall have the right to purchase such production on the
same terms and conditions as those offered to Seller by such third party.
	 
	 	2.5.	 	Buyer’s Commitment. Buyer shall take and purchase all gas tendered by
Seller at the Point(s) of Delivery.

	III.	 	TERM

	 	3.1	 	The term of this Agreement shall be from the effective date hereof until
January 1, 2012 (“Primary Term”), and year-to-year thereafter. This contract may
be terminated by either party at the end of the Primary Term or any anniversary date
thereafter upon sixty (60) days’ prior written notice.
	 
	 	3.2	 	This Agreement supersedes that certain Gas Sales and Purchase Agreement between
the parties dated December 1, 1996 as of the effective date hereof.

Page 4

 

	IV.	 	PRICE AND GATHERING CHARGES

	 	4.1.	 	Base Price. The price payable by Buyer to Seller for all gas delivered at the
Point(s) of Delivery shall be the Index Price, as adjusted pursuant to the Gathering
Charge set forth in paragraph 4.2, below.
	 
	 	4.2	 	Gathering Charge. In consideration for the gathering service provided by Buyer
hereunder, Buyer shall be able to deduct from the amount payable to Seller pursuant to
4.1 the following:

	 	(i)	 	a fuel and lost gas charge equal to eight point five
percent (8.5%) of the gas volumes delivered by Seller to Buyer at Point(s) of
Delivery;
	 
	 	(ii)	 	a gathering fee which shall be the sum of:

	 	(a)	 	a fixed monthly charge of Three Hundred
Forty-five Thousand and 00/100’s Dollars ($345,000), and
	 
	 	(b)	 	a variable charge of seven cents per MMBtu
($.07/MMBtu) actually delivered by Seller to Buyer at the point of
delivery.

	 	(iii)	 	an example of a monthly statement to support the amount
payable to Seller is attached hereto as Exhibit C.

	 	4.3	 	Redetermination of Gathering Charge.

	 	(i)	 	The Gathering Charge set forth in 4.2 shall remain in effect for a
period of five (5) years from the effective date hereof and year to year
thereafter unless redetermined pursuant to 4.3(ii).
	 
	 	(ii)	 	Either party, upon sixty (60) days written notice prior to
the end of the term set forth in 4.3(i), may request a redetermination of the
Gathering Charge, and the parties shall negotiate in good faith to determine a
new charge based both on reasonable estimates of Buyer’s expected costs
associated with the provision of gathering the gas produced and sold hereunder
to the Plant, as well the volumes Seller expects to produce and sell hereunder.
	 
	 	(iii)	 	The redetermined Gathering Charge shall be effective the
first day of July following the notice of the party requesting same and shall

Page 5

 

	 	 	 	be effective for a minimum of two (2) years thereafter, after which period
either party may again request another redetermination.

	 	 	 	Unless the parties specifically agree to the contrary, in no event shall any part
of the Gathering Charge set forth in 4.2 be required to be changed more than ten
percent (10%) from that previously in effect.
	 	 	 
	 	4.4.	 	Curtailment or Restrained Capacity. In the event Buyer is unable to receive
and purchase all of the volumes tendered by Seller pursuant to this Agreement for a
period of three (3) consecutive days, except by reason of force majeure, then for so
long as such condition exists the fixed portion of the gathering fee set forth in
4.2(ii) shall be prorated by the ratio of (i) the volumes actually taken by Buyer to
(ii) the lower of the volumes tendered or the average of the latest 3-month production
during which no curtailment occurred, for so long as such condition exists.

	V.	 	DELIVERIES AND PRESSURES

	 	5.1.	 	Title, Possession and Risk of Loss. As between Buyer and Seller, title,
possession and control of the gas sold and purchased hereunder shall pass from Buyer to
Seller at the Point(s) of Delivery. Prior to delivery, Seller shall be liable for any
damages resulting from Seller’s possession of same, except for damages resulting from
the gross negligence or willful misconduct of Buyer. Subsequent to delivery, Buyer
shall be liable for all damages resulting from Buyer’s ownership and control of same,
except for those damages resulting from the gross negligence or willful misconduct of
Seller.
	 
	 	5.2.	 	Pressure Requirements. Buyer shall use its best efforts to maintain operating
pressures prevailing at the Delivery Point(s) at the effective date hereof. Buyer shall
not adversely affect Seller’s deliverability through the purchase of Gas from third
parties for delivery into Gatherer’s existing Gathering Facilities. Buyer and Seller
each agree that each will act as a prudent operator of their respective facilities in
endeavoring to maintain such operating pressures to accommodate reasonable development
of Seller’s reserves.

	VI.	 	MEASUREMENT AND TESTING

	 	6.1.	 	EFM as Custody Transfer Point. It is agreed between the parties that
where EFM is currently operating or installed by Seller, that EFM will be the

Page 6

 

	 	 	 	custody transfer point. New measurement facilities installed by Seller shall be EFM and
shall meet current AGA standards. In order to minimize pulsation problems, the design and
layout of new or relocated measurement facilities shall be approved by Buyer prior to
installation. Seller will provide and transfer to Buyer within 48 hours of collection, gas
measurement data via electronic transfer for all wells connected to Buyer’s Gathering
Facilities. Additionally, Seller and Buyer agree that Seller shall be responsible for the
performance of primary measurement. Seller shall provide buyer remote electronic access to
EFM and compressor alarm polling computers for the purpose of downloading volume and alarm
data. It is understood that electronic flow data, rather than charts, will be provided for
audit purposes.

	 	6.2.	 	Gas Sampling. Every six (6) months Seller or Seller’s designee shall collect spot gas samples
and perform or have performed analysis, on such samples, for Seller’s well(s) connected to
Gatherer’s Gathering Facilities. Seller or Seller’s Designee shall be responsible for data
input of analysis information into Seller’s measurement facilities within seven (7) days from
the date of analysis. Additionally Seller shall be responsible for providing the collection
and analysis service within 72 hours from initial deliveries from all new Delivery Points on
Gatherer’s Facilities. Seller will provide a hard (paper) copy record of all analysis to Buyer
and Gatherer in a timely fashion. Buyer shall have the right to witness and Seller shall give
Buyer sufficient notice to allow Buyer to witness all gas sampling conducted by Seller. Seller
shall provide sufficient notice of such sampling to Buyer.
	 
	 	6.3.	 	Location of EFM with respect to Wellhead Compressors. Subsequent to the effective date
hereof, any new installation or relocation of either EFM facilities or wellhead compression
units that results in the EFM being located upstream of the wellhead compression unit will
require adjustment to the fuel charge specified in paragraph 4.2(i).

Page 7

 

	VII.	 	WARRANTY OF TITLE

	 	7.1.	 	Title. Seller warrants that Seller at the time of Delivery of Gas to Gatherer
will have good title to all such Gas pursuant to contractual arrangements entered into
prior to commencement of Service, and that it will deliver, or cause to be delivered,
such Gas free from all liens, encumbrances and claims whatsoever. Seller will
indemnify Buyer and save it harmless from
all suits, actions, debts, liabilities, accounts, damages, costs, losses, and
expenses (including attorneys’ fees and court costs) arising out of the adverse
claim of any person or persons claiming ownership of any interest in the Gas or for
any taxes, licenses, royalties, fees or charges which are applicable prior to the
time of delivery of such Gas to Buyer.

	VIII.	 	SCHEDULING AND NOMINATIONS

	 	8.1.	 	Subject to Buyer’s obligation to take and purchase all volumes made available
for sale by Seller hereunder, Seller recognizes Buyer’s interest in maintaining as
constant a rate of flow as is reasonably possible. Seller shall provide Buyer with
such advance notice as is reasonably possible of any material changes in volumes
tendered (or to be tendered) to Buyer under this Agreement and will cooperate in
providing Buyer whatever information is required by Buyer to accommodate Buyer’s
obligations to nominate gas for gathering service with Gatherer.

	IX.	 	QUALITY AND PROCESSING

	 	9.1.	 	Quality. The Gas delivered and sold to Buyer hereunder shall be in its natural
state and will meet the quality specifications of Gatherer from time to time. The
current specifications of Gatherer are identified in Exhibit “B” attached hereto and
made a part hereof. Notwithstanding the foregoing, Buyer also agrees to accept Gas
tendered by Seller which does not meet Gatherer’s quality specification for water,
nitrogen, and maximum Btu content until such time as Buyer or Gatherer determine that
acceptance poses operational problems for Buyer or the Gatherer.
	 
	 	9.2.	 	Processing. Seller grants to Buyer the right to process all Gas produced
from the Dedicated Formations during the term hereof. Except for the operation of
traditional non-refrigerated wellhead mechanical separation

Page 8

 

	 	 	 	equipment of the type generally in use in the industry, Seller shall not
operate or allow to be operated any equipment to extract any liquefiable
hydrocarbons from the Gas delivered hereunder prior to the Delivery Point(s).

	X.	 	BILLING AND PAYMENT

	 	10.1.	 	Invoicing. Seller shall submit to Buyer a statement and billing for the
actual volumes (in MMBtus adjusted for actual delivery conditions) delivered at the
Delivery Point(s) during the preceding month. Buyer shall, within the later of ten (10)
days of the receipt of such billing or the twenty-fifth (25th) day of the month, render
to Seller, wire transfer payment of the amount billed by Buyer, less applicable Fuel
charges incurred by Buyer, for the preceding month. Payment shall be made to the
payment address provided in Article 11 of this Agreement.
	 
	 	10.2.	 	Disputed Billings. If Buyer, in good faith, disputes any part of any
statement, Buyer shall pay the portion of such statement conceded to be correct. If
the disputed billing is determined to be correct, it shall be paid within ten (10)
business days of such determination, along with interest calculated at the Interest
Rate from the original due date until the date paid.
If an error is discovered in any billing, such error shall be adjusted within
thirty (30) days of the determination thereof, provided that claims therefor shall
have been made within two (2) years from the date of such billing.
	 
	 	10.3.	 	Late Payments. Should Buyer fail to pay part or all of the amount of any
billing for gas delivered hereunder, Seller may impose interest calculated at the
Interest Rate, from the due date until date of payment. If such failure to pay
continues, Seller, in addition to any other remedy it may have and subject to the
provisions of paragraph 10.2, above, may suspend deliveries hereunder upon thirty (30)
day written notification to Buyer and may be released from the terms of this Agreement.
	 
	 	10.4.	 	Audit. Each party has the right, as its sole expense and during normal
working hours, to examine the records of the other party as necessary to verify the
accuracy of any statement, charge or computation made pursuant to the provisions of
this Agreement. If any such examination reveals any inaccuracy in any statement, the
necessary adjustments to such statement and the payments thereof will be promptly made;
provided that no adjustment for any statement or payment will be made after the lapse
of two (2) years from the rendition thereof; and provided further that this provision

Page 9

 

	 	 	 	of this Agreement will survive any termination of the Agreement for a period of two
(2) years from the date of such termination for the purpose of such statement and payment
adjustments.

	 	10.5.	 	Credit Worthiness. Seller shall not be required to perform or to continue deliveries if
Buyer is or has become insolvent or who, at Seller’s request, fails within a reasonable period
to demonstrate credit worthiness; provided, however, Buyer may continue to receive deliveries
if Buyer prepays for such service or furnishes good and sufficient security, as determined by
Seller in its reasonable discretion, in an amount equal to the cost of estimated gas
deliveries under this Agreement for a two (2) month period. For purposes herein, the
insolvency of Buyer shall be evidenced by the filing by Buyer, or any parent entity thereof,
of a voluntary petition in bankruptcy or the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Buyer bankrupt or insolvent, or approving as
properly filed, a petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Buyer under the Federal Bankruptcy Act or any other applicable federal or
state law, or appointing a receiver, liquidator, assignee, trustee, or sequestrator (or other
similar official) of the Buyer or of any substantial part of its property, or the ordering of
the winding-up or liquidation of its affairs, with said order or decree continuing unstayed
and in effect for a period of sixty (60) consecutive days.

Page 10

 

	XI.	 	FORCE MAJEURE

	 	11.1.	 	In the event either Seller or Buyer is rendered unable, by an event of force
majeure, to carry out wholly or in part its obligations under the provisions hereunder
except payment obligations hereunder, it is agreed that if such Party gives written
notification and full particulars of such event of force majeure to the other Party as
soon as practicable after the occurrence of the cause relied on, then the obligations
of the Party affected by such event of force majeure, other than the obligation to
make payments then due or becoming due hereunder, shall be suspended from the
inception and throughout the continuance of any such inability so caused, but for no
longer period, and such event of force majeure shall, so far as practicable, be
remedied with all reasonable dispatch. The term “force majeure” as employed herein
shall mean any cause of any kind not reasonably within the control of the party
claiming suspension and which by the exercise of due diligence such party could not
have prevented or is unable to overcome.

	XII.	 	NOTICES

	 	12.1.	 	Any notice, statement, or bill provided for in this Agreement shall be in
writing and shall be considered as having been given if delivered personally, by
facsimile, or if mailed by United States mail, postage prepaid, to the following
addresses, or any changed address if provided by the other Party:

	 	 	   To Buyer:

	 	 	 	 	 
	 

	 	(I) Invoices for Gas:
	 	MidCon Gas Services Corp.
	 

	 	 	 	P.O. Box 283
	 

	 	 	 	Houston, TX 77001-0283
	 

	 	 	 	Attention: Gas Purchase Accounting
	 

	 	 	 	Facsimile: (713) 963-3087
	 
	 	 	 	 
	 

	 	(II) Notices:
	 	MidCon Gas Services Corp.
	 

	 	 	 	P.O. Box 283
	 

	 	 	 	Houston, TX 77001-0283
	 

	 	 	 	Phone: (713) 963-3700
	 

	 	 	 	Facsimile: (713) 963-5611

Page 11

 

To Seller:

	 	 	 	 	 
	 

	 	Notices:
	 	MC Panhandle
	 

	 	 	 	c/o OXY USA Inc.
	 

	 	 	 	P.O. Box 300
	 

	 	 	 	Tulsa, OK 74102
	 

	 	 	 	Phone: (918) 561-_____
	 
	 	 	 	 
	 

	 	Payments:
	 	MC Panhandle
	 

	 	 	 	c/o OXY USA Inc.
	 

	 	 	 	P.O. Box 300
	 

	 	 	 	Tulsa, OK 74102
	 
	 	 	 	 
	 

	 	Wire Transfers:
	 	[to be provided]

     The above-referenced addresses may be modified at any time by either party by providing at
least 30 days prior written notice to the other either via facsimile or first class mail.

	XIII.	 	OPTION TO LEASE

	 	13.1.	 	Option to Lease Gathering System. Seller shall have the option, exercisable on
or before December 31, 1998, to lease a portion of Buyer’s gathering system by
executing a Lease and License agreement in the form attached as Exhibit “D”. Such
portion shall consist of the lines, drips, meters and field booster compressors up to
the inlet of Buyer’s four wet gathering trunklines as more fully described in said
Exhibit. The said lease will be effective January 1, 2000 and terminate concurrently
with the sale of the gas hereunder. Should the requisite regulatory approvals set
forth in 13.2 not be obtained prior to January 1, 2000, then such lease shall be
effective the first day of the month following thirty (30) days after the receipt of
such authorization.

	 	13.2	 	Option Subject to Regulatory Approval; Contract Revisions. The option to
lease set forth herein is subject to receipt by Natural Gas Pipeline Company of
America receiving the requisite authorization to spindown the Gathering Facilities.
Notwithstanding the provisions of 4.3(i), the parties recognize that should Seller
exercise its option to lease such facilities, then certain contract modifications
including, but not limited to gathering charges, fuel, pressures, measurement and
testing shall be renegotiated by the parties in good faith to be effective with the
effective date of the lease.

Page 12

 

	 	13.3.	 	Buyer to Provide Information. Buyer shall provide Seller, on a timely
basis, all relevant information requested by Seller needed to evaluate whether to
exercise its option herein. Such information shall include, but not be limited to,
permits, licenses, rights-of-way, leases, easements and servitudes related to the
Gathering Facilities.

	XIV.	 	MISCELLANEOUS

	 	14.1	 	Laws, Orders and Regulations. This Agreement and the respective rights and
obligations of the Parties hereto is subject to all present and future valid laws,
orders, rules and regulations of any legislative body, or duly constituted authority
now or hereafter having jurisdiction and shall be varied and amended to comply with or
conform to any valid rule, regulation, order, or direction of any board, tribunal, or
administrative agency which affects any of the provisions of this Agreement.
	 
	 	14.2	 	Authority to Execute. The Parties represent and warrant that each party has the
requisite power and authority to execute, deliver and perform this Agreement.
Execution, delivery and performance of this Agreement by the Parties hereto and the
consummation of the transactions contemplated hereby have been duly authorized by all
requisite corporate action.
	 
	 	14.3.	 	Entire Agreement. This Agreement constitutes the entire agreement between
the Parties and no other representations, memoranda, agreements or other matter, oral
or written, prior to the date hereof, shall vary, alter or aid in the interpretation
of the provisions hereof.
	 
	 	14.4.	 	No Third-Party Beneficiary. There is no third party beneficiary to this
Agreement, and the provisions of this Agreement shall not impart rights enforceable by
any person, firm or organization not a Party or not bound as a Party, or not a
successor or assignee of a Party bound to this Agreement.
	 
	 	14.5.	 	Amendments in Writing. All modifications, amendments or changes to this
Agreement, whether made simultaneously with or after the execution of this Agreement,
shall be in writing, and executed with the same formality as this Agreement.
	 
	 	14.6.	 	Waiver of Default. No waiver by either Party hereto of any one or more
defaults by the other in the performance of any of the provisions of this Agreement
shall operate or be construed as a waiver of any subsequent default or defaults
whether of a like or a different character.

Page 13

 

	 	14.7.	 	Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, ENFORCED
AND PERFORMED IN ACCORDANCE WITH THE LAW OF THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
	 
	 	14.8.	 	Headings. The headings used for the Articles herein are for convenience and reference
purposes only and shall in no way affect the meaning or interpretation of the provisions
of this Agreement.
	 
	 	14.9.	 	Taxes. The Contract Price is inclusive of all royalties, production taxes, severance
taxes, ad valorem taxes, or other sums now or hereafter levied on the production of the
gas prior to its delivery to Buyer at the Delivery Point(s). All such taxes and
royalties shall be borne and paid exclusively by Seller.
	 
	 	14.10.	 	Special Damages Waiver. THE PARTIES WAIVE ALL PUNITIVE, SPECIAL, EXEMPLARY OR
CONSEQUENTIAL DAMAGES FOR ANY BREACH OF THIS CONTRACT.

AGREED TO AND ACCEPTED this 6th day of November, 1997.

	 	 	 	 	 	 	 
	MidCon Gas Services Corp.	 	MC Panhandle, Inc.
	 
	 	 	 	 	 	 
	

	By:

	 	/s/ Steven M. Salato
	 	By:
	 	/s/ 
	 

	 	 
	 	 	 	 
	

	Title: Senior Vice President	 	Title: Attorney-In-Fact

Natural Gas Pipeline Company of America is executing this Agreement solely for the purposes
of Article XIII hereof.

Natural Gas Pipeline Company of America

	 	 	 	 	 
	

	By:
	 	/s/ C.E. Doulrava	 	 
	 

	 	 

	 	 
	

	Title: SVP	 	 

Page 14

 

	 	EXHIBIT “A”	ORIGINAL DOCUMENT IS BELOW

STANDARD 
LEGIBLE IMAGE NOT POSSIBLE

 

 

EXHIBIT C

MONTHLY STATEMENT EXAMPLE

	 	 	 	 	 	 	 
	Wellhead Volume
	 	 	1,650,000	     MMBTU
	 
	 	 	 	 	 	 
	Fuel and GLU Volume
	 	 	140,250	     MMBTU
	 
	 	 	 	 	 	 
	Index Price
	 	 	2.50	     $/MMBTU
	 
	 	 	 	 	 	 
	Gross Wellhead Purchase
	 	$	4,125,000	 	 	 
	 
	 	 	 	 	 	 
	Fuel Charge
	 	$	(350,625	)	 	 
	 
	 	 	 	 	 	 
	Fixed Demand Charge
	 	$	(345,000	)	 	 
	 
	 	 	 	 	 	 
	Commodity Charge
	 	$	(115,500	)	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Net Monthly Payment
	 	$	3,313,875	 	 	 

 

 

EXHIBIT “D”

Lease and License Agreement

     This Lease and License Agreement (“Agreement”) is made and entered into effective
January 1, 2000, between Natural Gas Pipeline Company of America, a Delaware corporation (“Lessor”)
and MC Panhandle, Inc., a Delaware corporation (“Lessee”).

     This Agreement sets forth, among other things, the terms and conditions upon which (i) Lessor
demises and leases, subleases and licenses to Lessee and Lessee takes from Lessor certain pipeline
facilities and related interests of Lessor and (ii) Lessor assigns to Lessee and Lessee assumes
certain contractual rights and obligations.

     In consideration of the mutual agreements contained herein, intending to be legally bound
hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

     Definitions. For purposes of this Agreement, including the schedules and exhibits
attached hereto, the terms defined in this Article I have the following meanings assigned:

	(a)	 	“Additions” means all Improvements not constituting Extensions, including, but not limited
to equipment, machinery, pipeline, compressor stations, expansions of the system, loop lines,
or related facilities and materials, that serve to improve the operation of the Leased Assets
as they exist on the Commencement Date.
	 
	(b)	 	“Agreement” means this Lease and License Agreement, as

 

 

	 	 	amended from time to time.

	(c)	 	“Base Rent” means, for each twelve-month period during the Term, seven hundred thousand
dollars ($700,000).
	 
	(d)	 	“Commencement Date” means January 1, 2000.
	 
	(e)	 	“Contracts” means the gas Purchase and Sales Agreements described on Schedule 2 hereto.
	 
	(f)	 	“Default” has the meaning assigned to such term in Section 17.1.
	 
	(g)	 	“Easements” means the easements, rights of way, benefits, servitudes, and leases described
with more particularity on Schedule 1 hereto.
	 
	(h)	 	“Extensions” means Improvements that consist of natural gas pipelines that are extensions
from, or connections to the Pipeline Assets, including interconnects or gathering systems,
constructed after the Commencement Date.
	 
	(i)	 	“Improvements” means Additions and Extensions as defined herein.
	 
	(j)	 	“Term” has the meaning assigned to such term in Article IV.
	 
	(k)	 	“Leased Assets” means the Real Property and Pipeline.
	 
	(1)	 	“Leased Inventory” means the materials and supplies more particularly described on
Schedule 1.
	 
	(m)	 	“Licensed Assets” means the Easements and the Permits.
	 
	(n)	 	“Permits” means the permits and licenses described with more particularity on Schedule 1
hereto.
	 
	(o)	 	“Pipeline” means the approximate 368-mile gathering system in Carson, Gray,
Hutchinson, and Moore Counties, Texas, all

 - 2 -

 

	 	 	as more particularly described and shown in Exhibit “A”.
	 
	(p)	 	“Pipeline Assets” means the Leased Assets and the Licensed Assets in place as of the
Commencement Date.
	 
	(q)	 	“Real Property” means the fee property and surface
leases and easements described with more particularity on Schedule 1 hereto.
	 
	(r)	 	“Rent” means, collectively, Base Rent and Taxes payable by Lessee pursuant to Article V.
	 
	(s)	 	“Taxes” means all federal, state and local government taxes, assessments and charges of any
kind or nature, whether general, special, ordinary or extraordinary, payable with respect to
the Pipeline Assets, and all related improvements thereto or thereon and all machinery,
equipment, fixtures and other facilities, including personal property, as may now or hereafter
exist in or on the Pipeline Assets, including, without limitation, real estate and transit
district taxes and assessments, impact fees, ad valorem taxes, personal property taxes, all
taxes, assessments and charges in lieu of, substituted for, or in addition to, any or all of
the foregoing taxes, assessments and charges, but excluding any federal, state or local
government income or franchise taxes.
	 
	(t)	 	“Term” as it is defined in Article IV.
	 
	(u)	 	“Transfer” has the meaning assigned to such term in Section 16.1.

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ARTICLE II

CONDITION AND OPERATION AND MAINTENANCE OF PIPELINE ASSETS

     2.1 Normal Operation and Maintenance. Subject to Section 2.2 below, Lessee shall be
responsible for operation and maintenance of the Pipeline Assets throughout the Term.

     2.2 Extraordinary Repair or Replacement. Upon Lessor’s receipt of written notice from
Lessee of the necessity for an extraordinary repair or replacement project (with an estimated total
cost equal to or greater than $200,000) on the Pipeline Assets by July 1, 2000, the parties will
enter into good faith negotiations and within 45 days of such notice reach a cost-sharing
agreement on the project. In the event investigation discloses that the identified problem is
attributable to pre-Commencement Date operations of the Pipeline Assets, then Lessor shall bear
all of the financial responsibility for the project. In the event investigation discloses that the
identified problem is attributable exclusively to post-Commencement Date operations, then Lessee
shall bear all of the financial responsibility for the project. In the event responsibility for
the identified problem cannot be readily ascertained or it is determined that both parties share
some responsibility for the identified problem, then the parties shall share financial
responsibility equally for the project.

     2.3 Election Not to Make Extraordinary Repair or Replacement. Notwithstanding
Section 2.2, in the event Lessor is exclusively or partly responsible for an extraordinary repair

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or replacement project, and Lessor determines that the costs associated with the project
represent an uneconomic activity as it pertains to this Agreement, Lessor may elect, upon written
notice to Lessee received by Lessee no later than forty-five (45) days after Lessor’s receipt of
Lessee’s notification under Section 2.2, to refuse to contribute to the project. In the event of
such an election by Lessor, Lessee may elect to terminate the Agreement in its entirety if, within
sixty (60) days of Lessor’s election to refuse to contribute to the project, Lessee gives written
notice to Lessor.

ARTICLE III

DEMISE

     Lessor hereby leases the Leased Assets to Lessee and, to the extent permitted under the
terms of the Easements and Permits, hereby licenses Lessee to utilize the Licensed Assets upon the
terms, covenants and conditions set forth in this Agreement and in the Licensed Assets. Lessee
covenants as a material part of the consideration for this Agreement to keep and perform each and
all of the terms, covenants and conditions by it to be kept and performed pursuant to this
Agreement.

ARTICLE IV

TERM

     Subject to the terms, covenants and conditions in this Agreement, the Term of the
lease and license of the Pipeline

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Assets by Lessee pursuant to this Agreement shall commence at 12:01 a.m. C.S.T. on the
Commencement Date and end at 12:01 a.m. C.D.T. on July 1, 2012 (the “Term”).

ARTICLE V

RENT

     5.1 Lessee shall pay to Lessor by wire transfer according to the written instructions of
Lessor or to such other person or entity or at such other place as Lessor may from time to time
direct in writing, all amounts due Lessor from Lessee hereunder, including, without limitation,
Base Rent. For the duration of the Term and except as specifically provided in this Agreement,
Base Rent and Taxes shall be paid without abatement, deduction or setoff of any kind.

     5.2
Base Rent for each twelve (12) month period shall be payable in advance in equal
semi-annual installments, on or before each June 30 and December 31st for the six-month period
commencing the next day, with the first semi-annual payment due January 1, 2000.

     5.3 In addition to Base Rent, Lessee shall pay directly to the appropriate governmental entity
all Taxes assessed relating to the Pipeline Assets for periods which occur in whole or in part
during the Term. As to any Taxes assessed for periods which do not occur entirely within the Term,
Lessee shall pay to Lessor a pro rata share of such Taxes determined by multiplying the total
amount of Taxes assessed for such period by a fraction the numerator of which is the number of days
of the Term included in

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the period to which the assessment applies and the denominator of which is the total number of
days in the period to which the assessment applies. Lessor shall provide to Lessee written
statements of all Taxes assessed, promptly following receipt thereof by Lessor. Lessee shall
provide Lessor with receipts and other sufficient proof of the payment of such Taxes payable
hereunder within fourteen (14) days of the date such Taxes are due or the thirtieth day following
Lessee’s receipt of Lessor’s invoice for such Taxes. Lessee’s obligation to pay the Taxes which
accrue during the Term shall survive the expiration or termination of this Agreement. At Lessee’s
sole expense and with the cooperation of Lessor, Lessee shall have the right to contest or protest
the valuations of property and tax assessments by taxing entities and all other such matters
affecting ad valorem or other tax assessments against the Pipeline Assets.

ARTICLE VI

USE
OF PIPELINE ASSETS

     6.1 Lessee shall use and occupy the Pipeline Assets solely for the receipt, delivery,
transportation and exchange of natural gas, or any other activity traditionally associated with
natural gas gathering and for the repair, operation and maintenance of the Pipeline Assets in
furtherance of the foregoing, and for no other use or purpose. Lessee may enter into contracts
pursuant to which Lessee receives, delivers, transports or exchanges for the account of third
persons natural gas in and through the Pipeline Assets provided that, to the extent the term of any

 - 7 -

 

purchase or sales contract extends beyond the Term, Lessor may elect to assume any such contract.
In the event Lessor elects not to assume any such purchase or sales contract, then Lessor agrees to
provide transportation, on market responsive terms and conditions, to Lessee for all volumes of gas
associated with such non-assumed contract(s) provided that Lessor shall have no obligation to
increase the system capacity or install compression to provide such transportation service. With
respect to transportation contracts entered into by Lessee during the Term, the effectiveness of
any of such contracts shall not extend beyond the Term, but may be coextensive therewith.

     6.2 Lessee shall be responsible for operating, maintaining and preserving the Pipeline Assets
during the Term (including without limitation making all payments under and complying with all
terms and conditions of the Permits and Easements) and shall conduct all such operations and
maintenance in full compliance with all applicable laws, ordinances, rules and regulations of
governmental authorities and all terms and conditions of the Easements and the Permits. Lessee
shall use and operate the Pipeline as a gathering system and shall not use or operate the Pipeline
in a manner that would subject the Pipeline or Lessor to regulation by the Federal Energy
Regulatory Commission as an interstate pipeline or a natural gas company under the Natural Gas Act
of 1938, respectively.

     6.3 Subject to its compliance with the other provisions of this Agreement, Lessee shall have sole
and exclusive control over

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the day to day operation and maintenance of the Pipeline Assets, including, without limitation, the
duty to perform all dispatching, measurement, leak detection, surveys, cathodic protection,
monitoring, inspections, right-of-way maintenance, line locates, pigging, routine repair,
supervision of personnel, and safety monitoring. In addition, Lessee shall have the right to
remove, relocate or redeploy pipe, meter equipment, or other associated pipeline facilities for use
on the Pipeline Assets. Subject to Section 2.2, all expenses of operation and maintenance shall be
borne by Lessee. Lessee shall maintain the Pipeline Assets in good working order, making such
repairs to the Pipeline Assets as may be appropriate to receive, transport, exchange and deliver
natural gas. Upon termination of this Agreement the Pipeline Assets shall be returned to Lessor in
substantially the same condition as on the Commencement Date, normal wear and tear excepted. Lessee
shall retain ownership and be permitted to remove any Additions it has made to the Pipeline Assets
in accordance with Section 7.1, provided any such removal shall not impair the operating
capabilities of the Pipeline Assets as measured by its capabilities on the Commencement Date.
Lessee’s permitted removal of Additions shall be completed within ninety (90) days of contract
termination, otherwise the Addition shall, at Lessor’s option, become Lessor’s property.

ARTICLE VII

ADDITIONS

     7.1 Before commencement of any Addition having an

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estimated cost in excess of $100,000 in or to the Pipeline Assets, Lessee shall furnish to Lessor a
description of the intended project and such other documentation as Lessor shall reasonably
request. All such Additions shall be completed (i) in compliance with all applicable laws,
ordinances, rules and regulations of governmental bodies, and with the terms and provisions of the
Permits and Easements and (ii) in a good and workmanlike manner and with the use of good grades of
materials. Lessee agrees to hold Lessor, its agents, officers, servants and employees forever
harmless against all claims, liabilities, losses and expenses (including reasonable attorney fees)
of every kind, nature and description which may arise out of or in any way be connected with any
such Additions. Lessee shall pay the cost of all such Additions and the cost of altering the
Pipeline Assets occasioned by any such Additions. All Additions shall be the property of Lessee.
Upon completion of any Addition, Lessor shall have the right to audit Lessee’s records to verify
compliance with this Article VII, including allowing the inspection of the as-built plans,
contractors’ affidavits, full and final waivers of lien, and receipted bills covering all labor and
materials expended and used in connection with such Additions.

     7.2 Without limitation of the provisions of Section 7.1, Lessee agrees not to suffer or permit any
lien of any mechanic or materialman to be placed or filed against the Pipeline Assets. In case any
such lien shall be filed, Lessee shall immediately

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satisfy and release such lien of record. If Lessee shall fail to have such lien immediately
satisfied and released of record, Lessor may, on behalf of Lessee, without being responsible for
making any investigation as to the validity of such lien and without limiting or affecting any
other remedies Lessor may have, pay the same and Lessee shall pay Lessor on demand the amount so
paid by Lessor.

ARTICLE VIII

CONDITION OF PIPELINE ASSETS

     Subject to the terms and conditions of this Agreement, Lessee shall, at its own expense, keep the
Pipeline Assets safe and in good repair and condition and shall expeditiously notify Lessor of all
damage to the Pipeline Assets or other events reportable to any state or federal regulatory
authority, and shall pay all costs of repair of all such damage. If Lessee does not promptly and
adequately make such repairs or replacements, Lessor may, at its sole option, make such repairs and
replacements and Lessee shall pay Lessor the cost thereof on demand.

ARTICLE IX

SURRENDER

     At the termination of this Agreement by lapse of time or otherwise, Lessee shall surrender
possession of the Pipeline Assets to Lessor and return the Pipeline Assets to Lessor in
substantially the same condition as when Lessee originally took

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possession, normal wear and tear excepted.

ARTICLE X

DAMAGE OR DESTRUCTION AND MAJOR REGULATORY CHANGE

     10.1(a) Damage or Destruction. If, during the Term, part or all the Pipeline Assets are damaged
or destroyed to such an extent that the Pipeline Assets are rendered substantially unavailable for
use for the purposes specified in Section 6.1, either party may, by written
notice to the other given within thirty (30) days after such damage or destruction, terminate this
Agreement. Such termination shall become effective as of the date of such damage or destruction.

            (b) In the event of damage or destruction within the meaning of Section 10.1 (a) and neither party
has elected to terminate this Agreement pursuant to that Section, then Lessor, subject to the terms
and conditions of this Agreement, shall undertake restoration and repair of the Pipeline Assets to
their pre-damage condition with reasonable promptness. If Lessor fails to commence such
restoration or repair within ninety (90) days after the damage or destruction or fails to
diligently complete the restoration or repair of the Pipeline Assets thereafter, then Lessee may,
by giving written notice thereof to Lessor, either terminate this Agreement (prior to the
substantial completion of the restoration or repair) or undertake such repairs itself. Termination
of the Agreement pursuant to this paragraph 10.1(b) shall be effective as of the fifth (5th) day
after receipt of said notice by Lessor. If Lessee undertakes the restoration or

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repair, in no event shall Lessor possess the right to terminate the Agreement under this Section
10.1.

          (c) In the event of damage or destruction within the meaning of Section 10.1 (a), Lessee’s
liability for Base Rent and Taxes shall abate from date of the casualty until the Pipeline Assets
are ready for use and reasonably accessible to Lessee.

          (d) Notwithstanding anything to the contrary in this Section 10.1, Lessee shall not have the right
to terminate this Agreement and its liability for Rent and Taxes shall in no event abate if such
casualty was caused by Lessee, its contractors, subcontractors, employees, or agents.

     10.2 Limitations on Lessor’s Obligations to Restore or Repair. If Lessor repairs or restores the
Pipeline Assets as provided in Section 10.1 above, Lessor shall not be required to repair or
restore any Additions or Extensions to the Pipeline Assets previously made by or on behalf of
Lessee or any trade fixtures, furnishings, equipment or personal property belonging to or installed
by Lessee.

     10.3 Major Regulatory or Legal Change. If during the Term of the Agreement, a major regulatory or
legal change effectively renders the Pipeline Assets substantially unavailable for use for the
purposes specified in Section 6.1, either party may terminate this Agreement upon 30 days prior
written notice.

     10.4 Proration of Rent and Taxes. In the event of termination of the Agreement pursuant to this
Article X, Base Rent and Taxes shall be prorated on a per diem basis and paid

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only to the date of the damage or destruction or the effective date of the major regulatory or
legal change, whichever is applicable.

ARTICLE XI

EMINENT DOMAIN

     11.1 In the event that the whole or a substantial part of
the Pipeline Assets shall be condemned or taken in any manner for
any public or quasi-public use (or sold under threat of such
taking), this Agreement shall terminate as of the date
possession is taken.

     11.2 If less than a substantial part of the Pipeline Assets
shall be so condemned or taken (or sold under threat thereof) and
after such taking the Pipeline Assets can be used for the same
purposes as prior thereto, the Term shall cease only as to the
part so taken as of the date possession shall be taken by such
authority, and Lessee shall pay full Rent up to that date (with
appropriate refund by Lessor of such Rent attributable to the
part so taken as may have been paid in advance for any period
subsequent to the date possession is taken) and thereafter Rent
shall be equitably adjusted to reflect the reduction in the
Pipeline Assets by reason of such taking.

     11.3 Subject to Section 11.2, Lessor shall be entitled to
receive the entire award, including the damages for the property
taken and damages to the remainder, with respect to any
condemnation proceedings affecting the Pipeline Assets, except
that Lessee shall be entitled to the portion of the award or

 - 14 -

 

damages allocable to the Additions and Extensions.

ARTICLE XII

INDEMNIFICATION

     12.1 To the extent not expressly prohibited by law, Lessee
agrees to hold harmless and indemnify Lessor, and any of Lessor’s
agents, officers, servants and employees against claims and
liabilities, including reasonable attorneys’ fees, for injuries
to all persons and damage to or theft or misappropriation or loss
of property occurring in or about the Pipeline Assets arising
from Lessee’s occupancy of the Pipeline Assets or the conduct of
its business or from activity, work, or things done, permitted or
suffered by Lessee in or about the Pipeline Assets, or from any
breach or default on the part of Lessee, its affiliates,
employees, agents, contractors and subcontractors in the
performance of any covenant or agreement on the part of Lessee to
be performed pursuant to the terms of this Agreement or due to
any other act or omission of Lessee, its agents or employees. In
the event any action or proceeding is brought against Lessor, or
its officers, servants or employees by reason of any such claims,
then, upon notice from Lessor, Lessee covenants to defend such
action or proceeding at Lessee’s expense by counsel reasonably
satisfactory to Lessor.

     12.2 To the extent not expressly prohibited by law, Lessor
agrees to hold harmless and indemnify Lessee, and any of Lessee’s
agents, officers, servants and employees against claims and
liabilities, including reasonable attorneys’ fees, for injuries

 - 15 -

 

to all persons and damage to or theft or misappropriation or loss of property occurring in or about
the Pipeline Assets arising from the conduct of its business or from activity, work, or things
done, permitted or suffered by Lessor, its affiliates, employees, agents, contractors and
subcontractors in or about the Pipeline Assets prior to the Commencement Date, or from any breach
or default on the part of Lessor in the performance of any covenant or agreement on the part of
Lessor to be performed pursuant to the terms of this Agreement or due to any other act or omission
of Lessor, its agents or employees. In the event any action or proceeding is brought against
Lessee, or its officers, servants or employees by reason of any such claims, then, upon notice from
Lessee, Lessor covenants to defend such action or proceeding at Lessor’s expense by counsel
reasonably satisfactory to Lessee.

     12.3 Environmental Indemnifications. Lessee agrees to hold harmless and indemnify Lessor, and any
of Lessor’s agents, officers, servants and employees for claims of damage, degradation or other
harm to the environment, natural resources, wildlife, habitat, other ecologically sensitive area,
or persons, arising by virtue of a spill, release, discharge, venting or other disposal that occurs
after the Commencement Date and as a result of Lessee’s operation of the Pipeline Assets.
Likewise, Lessor agrees to hold harmless and indemnify Lessee, and any of Lessee’s agents,
officers, servants and employees for claims of damage, degradation or other harm to environment,
natural

 - 16 -

 

resources, wildlife, habitat, other ecologically sensitive areas, or persons, arising by virtue of
a spill, release, discharge, venting or other disposal that occurs or originates prior to the
Commencement Date and as a result of Lessor or its affiliate’s operation of the Pipeline Assets.
The indemnifications granted hereunder shall include all claims and liabilities, including
reasonable attorney and consultant fees and costs, associated with the relevant claim of damage,
degradation, or other harm.

ARTICLE XIII

INSURANCE; WAIVER OF SUBROGATION

     13.1 Upon execution of this Agreement, Lessee shall furnish evidence in a form satisfactory to
Lessor of the following insurance coverage:

          (a) Comprehensive General Liability: Five million
dollars $5,000,000.00 combined single limit (including broad from
property damage, blanket contractual liability, products and
completed operations, and owners and contractors protective
insurance with “x”, “c” and “u” exclusions deleted) for bodily
injury, death and property damage, including Lessor, its
directors, officers, agents and employees as additional insureds.

          (b) Automobile: Five million dollars ($5,000,000.00)
combined single limit for bodily injury, death and property
damage, including Lessor, its directors, officers, agents and
employees as additional insureds.

          (c) Worker’s Compensation and Employer’s Liability:
Workers’ compensation, statutory levels; employer’s liability,

 - 17 -

 

$500,000.00 per occurrence including a waiver of subrogation in favor of Lessor.

     13.2 Coverage required by 13.1 (a) through (c) shall be
evidenced by certificates of insurance from companies
satisfactory to Lessor, delivered to Lessor upon Lessee’s
execution of this Agreement, and thereafter from time to time at
Lessor’s request, showing the requisite liability limits and
containing a clause obligating the insurer to provide Lessor with
thirty (30) days notice of cancellation or material change in
coverage. The coverage afforded additional insureds, pursuant to
this Article XIII, shall be primary insurance with respect to any
insurance that is applicable to the additional insureds. If the
additional insureds have other insurance that it is applicable to
the loss, such other insurance shall be on an excess basis.
Lessee shall promptly report in writing to Lessor all accidents,
claims, suits or threats of litigation arising out of, or in
connection with, the performance of this Agreement.

     13.3 Any policies of insurance required to be maintained by
Lessee under the terms of this Agreement shall contain waiver of
subrogation clauses in form and content satisfactory to Lessor.

ARTICLE XIV

LESSOR’S RIGHT OF ACCESS

     Lessor and its representatives shall have the right, upon 24 hours notice, (i) to inspect the
Pipeline Assets at all reasonable times and (ii) to inspect at all reasonable times all records of
Lessee relating to the operation, maintenance and

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