Document:

Exhibit 10.110

 

THE COMPANY HAS REQUESTED AN
ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT
TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING
CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. 
ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS
EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.  OMITTED PORTIONS ARE INDICATED IN THIS
EXHIBIT WITH “*****”.

 

 

GAS PURCHASE CONTRACT

 

BETWEEN W. O. OPERATING COMPANY,
LTD. AS “SELLER”

 

AND DUKE ENERGY FIELD SERVICES,
LP AS “BUYER”

 

DATED NOVEMBER 1, 2003

 

BOR147100*

 

INDEX

 

	
   

  	
  PAGE

  
	
  SECTION

  	
   

  
	
  1.

  	
  COMMITMENT

  	
  1

  
	
  2.

  	
  DELIVERY POINTS

  	
  1

  
	
  3.

  	
  DELIVERY PRESSURE

  	
  1

  
	
  4.

  	
  QUANTITY

  	
  2

  
	
  5.

  	
  PRICE

  	
  2

  
	
  6.

  	
  TERM

  	
  7

  
	
  7.

  	
  ADDRESSES AND NOTICES

  	
  7

  
	
  8.

  	
  TERMINATION OF PRIOR
  CONTRACTS AND RELEASE

  	
  8

  
	
   

  	
  SIGNATURE PAGE

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT
  A GENERAL TERMS AND CONDITIONS

  	
   

  
	
  A.

  	
  DEFINITIONS

  	
  A-1

  
	
  B.

  	
  DELIVERY DATE

  	
  A-1

  
	
  C.

  	
  RESERVATIONS OF SELLER

  	
  A-2

  
	
  D.

  	
  METERING

  	
  A-2

  
	
  E.

  	
  DETERMINATION OF GAS
  COMPOSITION

  	
  A-3

  
	
  F.

  	
  QUALITY OF GAS

  	
  A-3

  
	
  G.

  	
  BILLING AND PAYMENT

  	
  A-4

  
	
  H.

  	
  FORCE MAJEURE

  	
  A-4

  
	
  I.

  	
  WARRANTY OF TITLE

  	
  A-5

  
	
  J.

  	
  ROYALTY

  	
  A-5

  
	
  K

  	
  SEVERANCE AND SIMILAR
  TAXES

  	
  A-5

  
	
  L. 

  	
  INDEMNIFICATION
  AND RESPONSIBLITY FOR INJURY OR DAMAGE

  	
  A-5

  
	
  M. 

  	
  RIGHT OF WAY

  	
  A-6

  
	
  N.

  	
  ASSIGNMENT

  	
  A-6

  
	
  O.

  	
  MISCELLANEOUS PROVISIONS

  	
  A-6

  

 

 

GAS PURCHASE CONTRACT

 

B0R147
100*

 

This Contract is entered as
of the 1st day of November 2003, between W. O.
OPERATING COMPANY, LTD. (“Seller”) and DUKE ENERGY
FIELD SERVICES, LP (“Buyer”).

 

For and in consideration of
the mutual covenants contained herein, the parties agree as follows:

 

1.                                      COMMITMENT.  Seller will sell and deliver, and Buyer will
purchase and receive gas produced from all wells now or later located on all
oil and gas interests now or later owned or controlled by Seller on or
allocated to the following lands in Carson County, Texas:

 

W/2 Section 89, Block
7, I&GN Survey

NE/4 SW/4 Section 89,
Block 7, I&GN Survey

 

The above lands contain the
following well(s), which are or soon will be producing:

 

Rosa #1

Rosa #3

 

Definitions and General
Terms and Conditions included in this Contract are attached as Exhibit A
and incorporated by reference.

 

2.                                      DELIVERY
POINTS.  The Delivery
Points for gas to be delivered by Seller to Buyer for existing sources of
production will be at the inlets of Buyer’s Facilities at a mutually agreeable
site at or near Seller’s sources of production. 
The Delivery Points for future sources of production committed under
this Contract will be established under Section B .2 of Exhibit A.  Title to the gas and all its components shall
pass to and vest in Buyer at the Delivery Points without regard to the purposes
for which Buyer may later use or sell the gas or its components.

 

3.                                      DELIVERY
PRESSURE.  Seller will deliver the gas at the Delivery
Points at a pressure sufficient to enable it to enter Buyer’s Facilities
against the working pressure at reasonably uniform rates of delivery, not to
exceed the maximum allowable operating pressure established by Buyer or
pressures that prevent others from producing ratably.  Buyer in its discretion may require that
Seller install and operate a pressure relief or reduction device upstream of
any Delivery Point set at the pressure designated by Buyer to limit the
pressure at 

 

1

 

which Seller delivers gas, where Seller’s deliveries might interfere
with ratable deliveries from others or to enhance safety.

 

4.                                      QUANTITY.  (a) Seller shall deliver and Buyer shall
purchase and take Seller’s gas subject to the operating conditions and capacity
of Buyer’s Facilities and resale markets. Although there is no specific
purchase quantity, Buyer will use commercially reasonable efforts to market gas
for resale and operate its facilities in an effort to maintain consistent takes
of all available quantities. If Buyer takes less than the full quantities
available, Buyer will use commercially reasonable efforts to purchase gas from
the lands covered by this Contract ratably with its purchases of similar gas in
each common gathering system or area within its capabilities using existing
facilities, in compliance with Buyer’s existing contracts and with applicable
laws and regulations, including ratable purchases from Buyer’s affiliates.

 

(b)                         Seller may
dispose of any gas not taken by Buyer for any reason, including events of force
majeure, subject to Buyer’s right to resume purchases at any subsequent
time.  In the event Buyer does not take
gas for 15 consecutive days and Seller secures a different temporary market,
Buyer may resume purchases only upon 15 days’ advance written notice as of the
beginning of a month unless otherwise agreed.

 

(c)                          Seller will use
commercially reasonable efforts to deliver gas meeting the quality requirements
and to avoid delivery of Inferior Liquids as defined in Exhibit A, Section A(g).  In the event the gas at any Delivery Point
becomes insufficient in volume, quality, or pressure, Buyer may cease gas takes
from those points so long as the condition exists, or may terminate this
Contract as to any affected gas upon 30 days advance written notice to
Seller.  If Buyer ceases taking gas under
this Section for 30 consecutive days for reasons other than quality [Ex. A
Sec. F] or force majeure [Ex. A Sec. H], Seller may terminate this Contract
with respect to the affected sources as to the then productive zones upon 30
days’ advance written notice to Buyer; provided that during the notice period
Buyer may resume consistent takes and purchases, and thereby avoid Contract
termination under Seller’s notice.

 

5.                                      PRICE.

 

5.1                               Consideration.  As full consideration for the gas and all its
components delivered to Buyer each month, Buyer shall pay Seller (i) percentage
determined in Table 5.1 below of the net value determined under Section 5.2
below for residue gas attributable to Seller’s gas, and (ii) percentage
determined in Table 5.1 below of the net value determined under Section 5.3
below 

 

2

 

for any NGL’s attributable to Seller’s gas.  No separate payment or value calculation is
to be made under this Contract for helium, sulfur, CO2, other non-hydrocarbons,
or Inferior Liquids.

 

3

 

Table 5.1

 

	
  Average MCFD delivered hereunder in a 

  production month/delivery point

  	
   

  	
  Percentage in 5.1 (i) and 5.1 (ii) for 

  such production month

  	
   

  
	
  0 – 150 MCFD

  	
   

  	
  *****

  	
  %(1)

  
	
  151 and Greater MCFD

  	
   

  	
  *****

  	
  %(1)

  

 

5.2                               Residue Gas Value.  The  net residue gas value will
be determined by multiplying the MMBtu’s of residue gas attributable to Seller
times the “Index Price,” which shall be *****(1)% of the price per MMBtu
published in Inside F.E.R.C.’s Gas Market
Report in its first publication of the month in which the gas is
delivered for “Prices of Spot Gas Delivered to Pipelines” for Panhandle Eastern
Pipeline Company: Texas, Oklahoma (mainline). 
If this price quotation is discontinued or materially modified, its
successor will be used, or in the absence of a successor, Buyer will select
another publication that enables calculation of an Index Price closely
comparable to that previously used.  If a
change in the Index Price calculation becomes necessary, Buyer will so inform
Seller by written notice, setting forth the changes.

 

5.3                               NGL
Value.  The net value of any
recovered NGL’s attributable to Seller will be determined by multiplying the
quantity of each NGL component attributable to Seller’s gas by the average
price per gallon for each NGL component f.o.b. Buyer’s plant or plants.  The term “average price per gallon for each
NGL component f.o.b. Buyer’s plant or plants” as to each NGL component will
mean the simple average of the midpoint of the daily high/low spot price for (i) ethane,
(ii) propane, (iii) isobutane, (iv) normal butane, and (v) natural
gasoline (pentanes and heavier) during the month as reported for Conway/Group
140 Spot Gas Liquids Price (Mapco), Kansas published by the Oil Price
Information Service (or in its absence, a comparable successor publication
designated by Buyer) less a transportation, fractionation, and storage (“TF&S”)
fee of $0.065244 per gallon.  The
TF&S fee for NGL components shall be adjusted as follows, but shall never
be less than the initial fee.  The
TF&S fee shall be adjusted at the beginning of each calendar year beginning
with 2004 by an amount equal to the annual percentage change in the preliminary
estimate of the implicit price deflator, seasonally adjusted, 

 

(1) THE
COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE
“COMMISSION”) PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS.  ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE
BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE
COMMISSION.  OMITTED PORTIONS ARE
INDICATED IN THIS EXHIBIT WITH “*****”.

 

4

 

for the gross domestic product (“GDP”) as computed and most recently
published by the U.S. Department of Commerce, or in its absence, a similar
successor adjustment factor designated by Buyer.

 

5.4                               Low
Volume Delivery Points.  The price for gas delivered at any Delivery
Point where the volume delivered to Buyer has been less than 450 Mcf per month
for three consecutive months will be reduced to one-half (1/2) of that computed
under Section 5.1, 5.2 and 5.3 effective the first day of the month
following the three month period.  The
price for gas from the affected Delivery Points will remain so reduced until
the quantity delivered from the Delivery Point is again at least 450 Mcf per
month for three consecutive months effective as of the first day of the
following month.

 

5.5                               Allocation of Residue Gas and NGL’s.  Buyer will determine the residue gas and NGL’s
attributable to Seller using the following definitions and procedures.  Additional definitions are in Section A
of Exhibit A.  From time to time
Buyer may make changes and adjustments in its allocation methods to improve
accuracy of efficiency.

 

(a)                                  Field Compression-all
Compression downstream from the Delivery Points, including that adjacent to the
plant inlet, that compresses gas to the plant inlet pressure.

 

(b)                                 Low Pressure Gas-any gas
delivered by Seller into Buyer’s Facilities at pressures that allow receipt at
Buyer’s Field Compression at a compressor station inlet pressure equal to or
less than zero pounds psig.

 

(c)                                  Intermediate
Pressure Gas-any gas delivered by Seller into Buyer’s Facilities
at pressures that allow receipt at Buyer’s Field Compression at a compressor
station inlet pressure of greater than zero pounds (0#) psig.

 

(d)                                 High Pressure
Gas-any gas delivered by Seller into Buyer’s Facilities that is not
compressed by Field Compression.

 

(e)                                  Plant Inlet
Gallons-the quantity of each NGL component attributable to Seller delivered to
the plant inlet will be determined by multiplying the gallons of each component
contained in the gas delivered by Seller at each Delivery Point by the
applicable percentage as follows:

 

	
  High Pressure

  	
   

  	
  90

  	
  %

  
	
  Intermediate Pressure

  	
   

  	
  88

  	
  %

  
	
  Low Pressure

  	
   

  	
  85

  	
  %

  

 

5

 

(f)                                    NGL’s Attributable
to Seller-the quantity of each NGL component attributable to
Seller’s gas will be determined by multiplying Seller’s Plant Inlet Gallons
times fixed recovery percentages as follows:

 

	
  Ethane

  	
   

  	
  50

  	
  %

  
	
  Propane

  	
   

  	
  90

  	
  %

  
	
  Iso & Normal Butanes

  	
   

  	
  95

  	
  %

  
	
  Pentanes & Heavier

  	
   

  	
  95

  	
  %

  

 

(g)                                 Residue Gas
Attributable to Seller-the MMBtu’s of residue gas attributable to
Seller will be the sum of the MMBtu’s of methane and heavier hydrocarbons
contained in the gas delivered at the Delivery Points by Seller, less the MMBtu’s
contained in the NOL gallons allocated to Seller’s gas determined under Section 5.5(1) above,
less the applicable percentage below of the MMBtu’s delivered at each Delivery
Point for gathering and plant fuel, losses, and unaccountables:

 

	
  High Pressure

  	
   

  	
  10

  	
  %

  
	
  Intermediate Pressure

  	
   

  	
  12

  	
  %

  
	
  Low Pressure

  	
   

  	
  15

  	
  %

  

 

Whenever force majeure or
maintenance needs prevent normal gathering and processing operations for Seller’s
gas, fixed recovery percentages will not apply, and Seller’s attributable NGL
gallons and residue gas will be based on Seller’s prorata share of actual
gathering and processing results during those periods based on gas
compositions, volumes from each common source, and an equitable distribution
among suppliers of fuel, losses, and unaccountables, in a manner similar to
that used for Buyer’s purchase contracts that call for allocations based on
actual results.  Buyer will include the
adjusted overall monthly recoveries in its monthly gas statement to Seller.

 

5.6                               Price
Renegotiation Rights.  Notwithstanding the foregoing provisions of
this Section 5, PRICE, if at any time, and from time to time, Buyer in its
sole judgment determines that at any or all Delivery Points, regulatory or
operating conditions relating to Buyer’s Facilities or market conditions relating
to Buyer’s purchase of gas or resale of residue gas and NGL’s indicate that a
downward price revision is necessary or appropriate, then Buyer may notify
Seller of Buyer’s intent to renegotiate Seller’s price and pricing basis or to
terminate this Contract, upon 30 days advance written notice from Buyer to
Seller prior to the proposed effective date. 
If Seller is not willing to accept a renegotiated price nominated by
Buyer, then as to all gas affected by Buyer’s notice, Seller may (i) cause
a renegotiation of pricing percentages or (ii) terminate this Contract as
to the affected gas by written notice to Buyer at any time prior to the
effective 

 

6

 

date of Buyer’s nominated price. 
Whether or not notice of termination is given by Seller within that
period, if Seller makes and Buyer accepts deliveries of gas from the affected
sources after the effective date of the price change, Seller will be deemed to
have accepted Buyer’s nominated price for those deliveries.

 

6.                                             TERM.  This Contract shall be in force for a primary
term extending through October 31, 2008, and from year to year thereafter
until canceled by either party as of the end of the primary term or any
anniversary thereafter by giving the other party at least 60 but not more than
120 days’ advance written notice of termination.

 

7.                                             ADDRESSES
AND NOTICES.  Either party may give notices to the other
party or parties by first class mail postage prepaid, by overnight delivery
service, or by facsimile with receipt confirmed at the following addresses or
other addresses furnished by a party by written notice.  Unless Seller objects in writing, Buyer may
also use Seller’s current address for payments. 
Any telephone numbers below are solely for information and are not for
Contract notices.  The parties opt out of
electronic delivery of notices and amendments under this Contract, except that
notices and hand signed amendments may be delivered by facsimile with receipt
confirmed as stated above.

 

	
  Notices to Seller:

  	
   

  	
  W. O. Operating Company,
  Ltd.

  
	
   

  	
   

  	
  Attn: Gas Contract
  Administration

  
	
   

  	
   

  	
  P. O. Box 960

  
	
   

  	
   

  	
  Pampa, TX 79066-0960

  
	
   

  	
   

  	
  Phone: (806) 665-8298

  
	
   

  	
   

  	
  Fax: (806) 665-1960

  
	
   

  	
   

  	
   

  
	
  Notices to Buyer —
  General:

  	
   

  	
  Duke Energy Field
  Services, LP

  
	
  (Gas Acquisitions and Accounting)

  	
   

  	
  Two Warren Place

  
	
   

  	
   

  	
  6120 South Yale,
  Suite 1100

  
	
   

  	
   

  	
  Tulsa, OK 74136

  
	
   

  	
   

  	
  Phone: (918) 492-3331

  
	
   

  	
   

  	
  Fax: (918) 492-3375

  
	
   

  	
   

  	
   

  
	
  Ownership changes,
  Division

  	
   

  	
  Duke Energy Field
  Services, LP

  
	
  Orders:

  	
   

  	
  Attn: Division Orders

  
	
   

  	
   

  	
  Two Warren Place

  
	
   

  	
   

  	
  6120 South Yale,
  Suite 1100

  
	
   

  	
   

  	
  Tulsa, OK 74136

  
	
   

  	
   

  	
  Fax: (918) 499-4286

  

 

7

 

8.                                             TERMINATION
OF PRIOR CONTRACTS AND RELEASE.

 

8.1                                      Termination
and Release.  This Contract terminates and
supersedes any prior contracts for the sale or handling of gas between the
parties or their predecessors in interest that apply or applied to any gas
produced from any sources covered by this Contract effective as of its
date.  In negotiating the terms of this
Contract, the parties have compromised and settled any and all price, fee
payment, and other disputes relating to or under the superseded
contract(s).  In consideration of the
covenants contained herein, each party hereby releases the other party, its
affiliates, and its predecessors in interest under the prior contracts from any
causes of action, claims, and liabilities (i) that they failed to pay the
full prices or fees under the prior contracts, including interest, (ii) that
they failed to perform any other obligation under the prior contracts, and (iii) arising
from their relationship as parties to the prior contracts

 

8.2                                      Exceptions.  This termination and release does not
include, and the parties expressly retain, the right to receive payments under
the prior contract(s) for current gas production for which payment is not
yet due and for which a party has not yet made payment in the ordinary course
of business.  This mutual release also
does not include matters relating to title to gas and gas processing rights,
Seller’s obligations for payment of third parties and severance taxes, related
interest and penalties, or gas imbalances under prior gathering or take in kind
agreements.

 

IN WITNESS WHEREOF, the
parties have set their hands in person or by their duly authorized
representatives as of the date set first forth above.

 

	
  W.O. OPERATING COMPANY, LTD.

  	
  DUKE ENERGY FIELD SERVICES, LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Miles O’Loughlin

  	
   

  	
  By:

  	
  /s/ Mark B. Concienne

  
	
   

  	
   

  	
   

  	
   

  
	
  Title: 

  	
  Manager

  	
  Title: 

  	
  Managing Director

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed on 3/18/2004

  	
  Executed on: 3/25/2004

  
					

 

 

Signature Sheet for Gas
Purchase Contract

 

Dated as of November 1,
2003

 

8

 

EXHIBIT A

 

TO GAS PURCHASE CONTRACT

 

BETWEEN W. O. OPERATING COMPANY, LTD. AS “SELLER”

 

AND DUKE ENERGY FIELD SERVICES, LP AS “BUYER”

 

DATED AS OF NOVEMBER 1, 2003

 

BOR147100*

 

GENERAL TERMS & CONDITIONS

 

A.                 DEFINITIONS

 

Except where the context
indicates a different meaning or intent, and whether or not capitalized, the
following terms will have meaning as follows:

 

a.           Affiliate-a company (i) in which
a party owns directly or indirectly more than 50% of the issued and outstanding
voting stock or other equity interests; (ii) which owns directly or
indirectly more than 50% of the issued and outstanding voting stock or equity
interests of the party; (iii) in which a company described in (ii) owns,
directly or indirectly, more than 50% of the issued and outstanding voting
stock or other equity interests, or (iv) coventurers of Duke Energy Field
Services, LP or its successors.

 

b.          Btu-British Thermal Unit, or the
quantity of heat required to raise the temperature of 1 pound of water 1°F at a
starting temperature of 59.5°F. MMBtu-one million Btu’s.

 

c.           Buyer’s Facilities-the gas delivered by Seller
will be gathered in gathering systems and may be redelivered to a gas
processing plant or plants for the removal of NGL’s together with gas produced
from other properties.  The gathering
systems and plant or plants, or successor facilities, are “Buyer’s Facilities”
whether owned by Buyer, an affiliate of Buyer, or an unaffiliated third
party.  No facilities downstream of the
processing plant or plants other than short connecting lines to transmission
lines are included in “Buyer’s Facilities.”

 

d.          Day-a period of 24 consecutive
hours beginning and ending at 9:00 am. Central Clock Time.

 

e.           Force Majeure-see Section H.2 below.

 

f.             Gas-all natural gas available
from the wells or acreage subject to this Contract that arrives at the surface
in the gaseous phase, including all hydrocarbon and non-hydrocarbon components,
casinghead gas produced from oil wells, gas well gas, stock tank vapors, and
other sources of production, unless specifically excluded in the Commitment Section above.

 

g.          Inferior Liquids-mixed crude oil, slop oil,
salt water, nuisance liquids, and other liquids recovered by Buyer in its
gathering system or at plant inlet receivers. 
Revenues from Inferior Liquids, drips, and other gathering system
liquids will be retained by Buyer to defray costs of treating and handling;
Buyer will not allocate or pay for those liquids.

 

h.          Mcf-1,000 cubic feet of gas at a
standard condition of 60°F and 14.65 psia.

 

i.              Month-a calendar month beginning
on the first Day of a month.

 

j.              NGL or NGL’s-ethane and heavier
liquefiable hydrocarbons separated from gas and any incidental methane in NGL
after processing. See Section 5.3(i) through (v) for particular
components.

 

k.           Delivery Points-whether one or more, see
Sections 2, B.1, and B.2.

 

l.              psi-pounds per square inch; psia-psi
absolute; psig-psi gauge.

 

m.        Residue gas-merchantable hydrocarbon gas
available for sale from Buyer’s Facilities remaining after processing, and
hydrocarbon gas resold by Buyer without first being processed.

 

n.          TF&S-NGL transportation,
fractionation, and storage, see Section 5.3.

 

B.               DELIVERY
DATE; COMPRESSION

 

B.1        Existing
Sources Delivery Date.

 

As to committed sources of
production, deliveries under this Contract will commence within thirty (30)
days of the earlier of (a) Oneok’s refusal to match Buyer’s bona fide
offer contained herein; or (b) termination of the contract currently in
effect between Oneok and Seller.  Seller
hereby agrees to provide timely and proper notice to terminate such
contract.  As to committed sources of
production existing as of the date of this Contract but not yet connected,
Seller will commence and complete with due diligence the construction of the
facilities necessary to enable Seller to deliver the committed gas at the
Delivery Points, and Buyer will cause prompt commencement and complete with due
diligence the construction of the facilities necessary and economically
feasible to enable Buyer or its gas gathering contractor to receive gas
deliveries at the Delivery Points.

 

A1-1

 

B.2        Additional
Sources Delivery Date.

 

As to committed sources of
production acquired, drilled, or discovered after the date of this Contract,
Seller will commence and complete with due diligence the construction of the
facilities necessary to enable Seller to deliver gas at the Delivery Points
established for the additional production. 
Buyer will cause prompt commencement and complete with due diligence
construction of the facilities necessary and economically feasible to enable
Buyer or its gas gathering contractor to receive deliveries of gas at those
Delivery Points.  If Buyer determines it
is not profitable to construct the facilities, Seller will have the option to
construct facilities necessary to deliver gas into Buyer’s then existing
facilities.  In the event neither party
elects to construct the necessary facilities, either party may cancel this
Contract as to the affected gas upon 15 days advance written notice to the
other.

 

B.3        Delivery
Rates.

 

Seller will have agents or
employees available at all reasonable times to receive from Buyer’s dispatchers
advice and directions for changes in the rates of delivery of gas as required
by Buyer from time to time.

 

B.4        Options to
Compress.

 

If  Seller’s wells become
incapable of delivering gas into Buyer’s Facilities, neither party will be
obligated to compress, but either party will have the option to do so.  If neither party elects to compress within a
reasonable time after the need for compression appears, Buyer upon written
request of Seller will either arrange promptly to provide compression or
release the gas sources unable to deliver gas into Buyer’s Facilities as to the
then-producing formations from commitment under this Contract.

 

C.               RESERVATIONS
OF SELLER

 

C.1.     Reservations.

 

Seller reserves the following
rights with respect to its interests in the oil and gas properties committed by
Seller to Buyer under this Contract together with sufficient gas to satisfy
those rights:

 

a.           To operate Seller’s oil and gas properties free from
control by Buyer, in such manner, as Seller, in Seller’s sole discretion deems
advisable, including without limitation the right, but never the obligation, to
drill new wells, to repair and rework old wells, renew or extend, in whole or
in part, any oil and gas lease covering any of the oil and gas properties, and
to abandon any well or surrender any such oil and gas lease, in whole or in
part, when no longer deemed by Seller to be capable of producing gas in paying
quantities under normal methods of operation.

 

b.          To use gas for developing and operating Seller’s oil
and gas properties committed under this Contract and to fulfill obligations to
Seller’s lessors for those properties.

 

c.           To pool, combine, and unitize any of Seller’s oil and
gas properties with other properties in the same field, and to alter pooling,
combinations, or units, in which event this Contract will cover Seller’s
allocated interest in unitized production insofar as that interest is
attributable to the oil and gas properties committed under this Contract, and
the description of property committed will be considered to have been amended
accordingly.

 

C.2        Exception.

 

Notwithstanding, Seller will
not engage in any operation, including without limitation reinjection,
recycling, or curtailment, that would materially reduce the amount of gas
available for sale to Buyer except upon 120 days advance written notice to
Buyer, or as much advance notice as is feasible under the circumstances. In the
event Seller ceases or materially curtails deliveries to Buyer under this Section C,
the Contract term will be extended by the duration of the interruptions and
curtailments.  Buyer will own and be
entitled to collect and pay Seller for any NGL’s that condense or are
manufactured from gas during any of Seller’s operations, excluding crude oil
and distillate recovered from gas by conventional type mechanical separation
equipment and not delivered to Buyer.

 

D.               METERING
AND MEASUREMENT

 

D.1        Buyer to
Install Meters.

 

Buyer will install, maintain
and operate orifice meters or other measuring devices of standard make at or
near the Delivery Points. Except as otherwise specifically provided to the
contrary in this Section D, orifice meters or other measurement devices
will be installed and volumes computed in accordance with accepted industry
practice.  Buyer may re-use metering
equipment not meeting current standards but meeting 1985 or later published
standards for gas sources not expected to deliver in excess of 100 Mcf per
day.  A party providing compression
facilities will also provide sufficient pulsation dampening equipment to
prevent pulsation from affecting measurement at the Delivery Points.  Electronic recording devices may be
used.  Seller will have access to Buyer’s
metering equipment at reasonable hours, but only Buyer will read, calibrate,
adjust, operate, and maintain it.

 

D.2        Unit of
Volume.

 

The unit of volume will be
one cubic foot of gas at a base temperature of 60°F and at a pressure base of
14.65 psia.  Computations of volumes will
follow industry accepted practice.

 

D.3        Pressure,
Temperature.

 

Buyer may measure the
atmospheric pressure or may assume the atmospheric pressure to be 13.2
psia.  Buyer may determine gas
temperature by using a recording thermometer; otherwise, the temperature will
be assumed to be 60°F.  The specific
gravity will be determined annually, or more often as Buyer deems advisable.

 

D.4        Check Meters.

 

Seller may install, maintain,
and operate in accordance with accepted industry practice at its own expense
pressure regulators and check measuring equipment of standard make 

 

A1-2

 

using separate taps.  Check meters shall not interfere with operation
of Buyer’s equipment.  Buyer will have
access to Seller’s check measuring equipment at all reasonable hours, but only
Seller will read, calibrate, adjust, operate, and maintain it.

 

D.5        Meter Tests.

 

Annually, Buyer will verify
the accuracy of Buyer’s measuring equipment, and Seller or its lease operator
will verify the accuracy of any check measuring equipment.  If Seller’s lease operator or Buyer notifies
the other that it desires a special test of any measuring equipment, they will
cooperate to secure a prompt verification of the accuracy of the
equipment.  If either at any time
observes a variation between the delivery meter and the check meter, it will
promptly notify the other, and both will then cooperate to secure an immediate
verification of the accuracy of the equipment. 
Only if so requested in advance by Seller in writing, Buyer will give
Seller’s lease operator reasonable advance notice of the time of all special
tests and calibrations of meters and of sampling for determinations of gas composition
and quality, so that the lease operator may have representatives present to
witness tests and sampling or make joint tests and obtain samples with its own
equipment.  Seller will give or cause its
lease operator to give reasonable advance notice to Buyer of the time of tests
and calibrations of any check meters and of any sampling by Seller for
determination of gas composition and quality.

 

D.6        Correction of Errors.

 

If at any time any of the
measuring or testing equipment is found to be out of service or registering
inaccurately in any percentage, it will be adjusted promptly to read accurately
within the limits prescribed by the manufacturer.  If any measuring equipment is found to be
inaccurate or out of service by an amount exceeding the greater of two percent
at a recording corresponding to the average hourly rate of flow for the period
since the last test, or 100 Mcf per month, then previous readings will be
corrected to zero error for any known or agreed period.  The volume of gas delivered during that
period will be estimated by the first feasible of the following methods:

 

a.                     using the data recorded by
any check measuring equipment if registering accurately;

 

b.                    correcting the error if the
percentage of error is ascertainable by calibration, test, or mathematical
calculation; or

 

c.                     by estimating the quantity or
quality delivered based on deliveries under similar conditions during a period
when the equipment was registering accurately.

 

No adjustment will be made
for inaccuracies unless they exceed the greater of two percent of affected
volumes, or 100 Mcf per month.

 

D.7        Meter Records.

 

The parties will preserve for
a period of at least two years all test data, charts and similar measurement
records. The parties will raise metering questions as soon as practicable after
the time of production. No party will have any obligation to preserve metering
records for more than two years except to the extent that a metering question
has been raised in writing and remains unresolved.

 

E.                 DETERMINATION
OF GAS COMPOSITION AND HEATING VALUE

 

Annually, or more often as
Buyer deems advisable, Buyer will obtain a representative sample of Seller’s
gas delivered at each Delivery Point; or Buyer may use continuous
samplers.  By chromatography or other
accepted method in the industry, Buyer will determine the composition and gross
heating value of the hydrocarbon components of Seller’s gas in Btu per cubic
foot on a dry basis at standard conditions, then adjusting the result for the
water vapor content of the gas (by either the volume or Btu content method),
using an industry accepted practice.  No
heating value will be credited for Btu’s in H2S and other nonhydrocarbon components.  The first determination of Btu content for
Seller’s deliveries will be made within a reasonable time after deliveries of
gas begin.  If continuous samplers are
used, the determinations will apply to the gas delivered while the sampler was
installed.  If not, the determination
will apply until the first day of the month following the next determination.

 

F.                 QUALITY
OF GAS

 

F.1          Quality
Specifications.

 

The gas shall be merchantable
natural gas, at all times complying with the following quality
requirements.  The gas shall be
commercially free of crude oil, water in the liquid phase, brine, air, dust,
gums, gum-forming constituents, bacteria, and other objectionable liquids and
solids, and not contain more than:

 

a.                     1/4 grain of H2S per 100 cubic feet.

 

b.                    Five grains of total sulfur
nor more than one grain of mercaptan per 100 cubic feet.

 

c.                     Two mole percent of carbon
dioxide.

 

d.                    Three mole percent of
nitrogen

 

e.                     20 parts per million by
volume of oxygen, and not have been subjected to any treatment of process that
permits or causes the admission of oxygen, that dilutes the gas, or otherwise causes
it to fail to meet these quality specifications.

 

f.                       Five mole percent of combined
carbon dioxide, nitrogen, and oxygen.

 

The gas shall:

 

g.                    Not exceed 120°F in
temperature at the Delivery Point.

 

h.                    Have a total heating value of
at least 1050 Btu’s per cubic foot.

 

F.2          Quality Tests.

 

Buyer will make
determinations of conformity of the gas with the above specifications using
procedures generally accepted in the gas industry.  Such determinations will be made as often as
Buyer reasonably deems necessary.  If in
the lease operator’s 

 

A1-3

 

judgment the result of any
such test or determination is inaccurate, Buyer upon request will again conduct
the questioned test or determination. 
The costs of the additional test or determination will be borne by
Seller unless it shows the original test or determination to have been
materially inaccurate.

 

F.3          Separation
Equipment.

 

Seller will employ only
conventional mechanical separation equipment at all production sites covered by
this Contract.  Low temperature,
absorption, and similar separation facilities are not considered conventional
mechanical separation equipment.  Except
for liquids removed through operation of conventional mechanical separators and
except for removal of substances as required to enable Seller to comply with
this Section F, no components of the gas will be removed prior to delivery
to Buyer.

 

F.4          Rights as to
Off Specification.

 

a.                     If any of the gas delivered
by Seller fails to meet the quality specifications stated in this Section,
Buyer may at its option accept delivery of and pay for such gas or discontinue
or curtail taking of gas at any Delivery Point whenever its quality does not
conform to the quality specifications. 
If Buyer accepts delivery of off specification gas from Seller or incurs
costs relating to inferior gas quality in its gathering system, Buyer may
deduct from the proceeds otherwise payable a reasonable fee for monitoring the
gas quality and treating and handling the gas. 
Buyer typically adjusts gas quality deduction levels annually, but may
do so more often if needed.

 

b.                    If Buyer is declining to take
off quality gas, Seller may by written notice to Buyer request a release of the
affected gas from commitment under this Contract.  In that event, Buyer will within 30 days
either (i) waive its right to refuse to take the affected off quality gas
(subject to its right to charge treating fees under this Section F) and
again take gas from the affected sources, or (ii) release the affected gas
from commitment under this Contract.

 

G.               BILLING
AND PAYMENT

 

G.1        Statement and
Payment Date.

 

Buyer will render to Seller
on or before the last working day of each month a statement showing the volume
of gas delivered by Seller during the preceding month.  Buyer will make payment to Seller on or
before the last day of each month for all gas delivered during the preceding
month.  As between the parties, late
payments by Buyer and recoupments/refunds from Seller will carry simple
interest at the lesser of 6% per annum or the maximum lawful interest rate;
provided that no interest will accrue as to monthly principal amounts of less
than $1,000 due for less than one year when paid.  The parties waive any rights to differing
interest rates.  Except as limited in Section 0.2
below, Buyer may recover any overpayments or collect any amounts due from
Seller to Buyer for any reason at any time under this or other transactions by
deducting them from proceeds payable to Seller.

 

G.2        Audit
Rights; Time Limit to Assert Claims.

 

a.               Subject to the execution of a reasonable
confidentiality obligation, each party will have the right during reasonable
business hours to examine the books, records and charts of the other party and
to review its own records to the extent necessary to verify performance of this
Contract and the accuracy of any statement, charge or computation.  If any examination reveals an inaccuracy in
any payment, the appropriate adjustment will promptly be made.

 

b.              No adjustment for any billing or payment will be
made, and payments shall be final after the lapse of two years from their due
date except to the extent that (i) either party has noted a specific
exception to the other party in writing during that period, (ii) Buyer has
made the appropriate correction, or (iii) underpayment claims arise with
respect to severance tax or third party liabilities and related interest.

 

c.               No party will have any right to recoup or
recover prior overpayments or underpayments that result from errors that occur
in spite of good faith performance if the amounts involved do not exceed
$10/month/meter.  Either party may
require prospective correction of such errors.

 

G.3        Metering
Records Availability.

 

Buyer will not be required to
furnish gas volume records relating to electronic recording devices for gas
meters other than daily volume information unless there are indications the
meter was not operating properly.

 

H.               FORCE
MAJEURE

 

H.1        Suspension
of Performance.

 

In the event either party is
rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Contract, other than to make payments due, the
obligations of that party, so far as they are affected by force majeure, will
be suspended during the continuance of any inability so caused, but for no
longer period.  The party whose
performance is affected by force majeure will provide notice to the other
party, which notice may initially be oral, followed by a written notification.

 

H.2        Force
Majeure Definition.

 

“Force Majeure” means acts of
God, strikes, lockouts or other industrial disturbances, acts of the public
enemy, war, blockades, insurrections, riots, epidemics, landslides, lightning,
earthquakes, storms, floods, washouts, arrests and restraints of governments
and people, civil disturbances, fires, explosions, breakage or accidents to
machinery or lines of pipe, freezing of wells or lines of pipe, partial or
entire failure of wells or sources of supply of gas, inability to obtain at
reasonable cost servitude’s, right of way grants, permits, governmental
approvals, or licenses, inability to obtain at reasonable cost materials or
supplies for constructing or maintaining facilities, and other causes, whether
of the kind listed above or otherwise, not within the control of the party claiming
suspension and which by the exercise of reasonable diligence the party is
unable to prevent or overcome.

 

A1-4

 

H.3        Labor
Matters Exception.

 

The settlement of strikes or
lockouts will be entirely within the discretion of the party having the
difficulty, and settlement of strikes, lockouts, or other labor disturbances
when that course is considered inadvisable is not required.

 

I.                    WARRANTY
OF TITLE

 

Seller warrants that it has
good title and processing rights to the gas delivered, free and clear of any
and all liens, encumbrances, and claims whatsoever, and that Seller has good
right and lawful authority to sell the same. Seller grants to Buyer the right
to process Seller’s gas for extraction of NOL’s and other valuable
components.  If Seller’s title or right
to receive any payment is questioned or involved in litigation, Buyer will have
the right to withhold the contested payment without interest until title
information is received, during the pendency of litigation, until the title or
right to receive the questioned payments are freed from question, or until
Seller furnishes security for repayment acceptable to Buyer.  Without impairment of Seller’s warranty of
title to gas and gas processing rights, if Seller owns less than full title to
the gas delivered, payments will be made only in the proportion that Seller’s
interest bears to the entire title to the gas.

 

J.                 ROYALTY
AND OTHER INTERESTS

 

J.1          Seller’s
Responsibility.

 

Seller is responsible for all
payments due to the owners of all working interests, mineral interests,
royalties, overriding royalties, bonus payments, production payments and the
like.  Buyer assumes no direct liability
to Seller’s royalty or other interest owners under this Contract. For federal
and Indian leases, Buyer may at any time require Seller to sign and furnish a
Payor Information Form or other papers to the Minerals Management Service
or successor agency to cover Buyer’s royalty payments for Seller and to verify
Buyer’s refusal to assume Seller’s lease royalty payment obligations.

 

J.2            Buyer’s
Payment Services.

 

At Seller’s request, Buyer
agrees to deduct from payments to Seller and to disburse other working and
mineral interests, royalties, overriding royalties, other working interests,
bonus payments, production payments, and the like as Seller directs from time
to time on Seller’s behalf.  In return,
Buyer shall retain from the proceeds otherwise due Seller a monthly fee of
$35.00 per well or other settlement payment basis.  Buyer reserves the right to adjust this fee
upon advance written notice to Seller.

 

J.3          Buyer’s
Reliance on Ownership Information.

 

Buyer
shall not commence payments for any month under Section J.2 until 30 days
after receipt from Seller of all title information and executed payment
directions necessary for such payments. 
Payments on behalf of Seller shall include penalties and interest when
payable under applicable laws or regulations. 
Buyer shall deduct all such payments, penalties, and interest from the
amounts otherwise due Seller.  Buyer may
at any time upon at least 30 days advance written notice cease disbursements on
behalf of Seller under Sections J.2 and J.3 as of the end of any month.

 

K.               SEVERANCE
AND SIMILAR TAXES

 

K.1        Included in Price.

 

Reimbursement to Seller for Seller’s full
liability for severance and similar taxes levied upon Seller’s gas
production is included in the prices payable under this Contract, regardless of
whether some included interests may be exempt from taxation.

 

K.2        Tax Responsibilities and
Disbursements.

 

Seller shall bear all sales, severance, and other
taxes  imposed upon Seller with
respect to the gas delivered hereunder, and Buyer shall bear all taxes imposed
upon Buyer with respect to such gas after delivery to Buyer.  Unless otherwise required by law, severance
and similar taxes that are payable on a monthly basis and are based upon the
value or volume of the gas produced and sold by Seller shall be computed and
paid by Buyer for the account of Seller, and Buyer shall deduct such payments
from the amounts due Seller. 
Notwithstanding, Buyer will compute and pay severance and similar taxes
only at the standard tax rate.  If
special incentive tax programs or deductions are available that require more
detailed calculations that Seller desires to use, Seller will file with the tax
authorities and pursue any necessary refund claim with them.

 

L.                  INDEMNIFICATION
AND RESPONSIBILITY FOR INJURY OR DAMAGE

 

L.1         Title, Royalty, and Severance
Taxes.

 

SELLER RELEASES AND AGREES TO DEFEND, INDEMNIFY, AND SAVE
BUYER, ITS AFFILIATES, AND THEIR OFFICERS, EMPLOYEES, AND AGENTS (“BUYER
INDEMNITEES”) HARMLESS FROM AND AGAINST ALL CLAIMS, CAUSES OF ACTION,
LIABILITIES, AND COSTS (INCLUDING REASONABLE ATTORNEYS’ FEES AND COSTS OF
INVESTIGATION AND DEFENSE) RELATING TO (a) SELLER’S TITLE TO GAS AND GAS
PROCESSING RIGHTS, (b) PAYMENTS TO OTHER WORKING AND MINERAL INTERESTS,
AND OTHER OWNERS, AND (c) ROYALTY AND OVERRIDING ROYALTY PAYMENTS, SALES,
SEVERANCE, AND SIMILAR TAXES, THAT ARE THE RESPONDIBILITY OF SELLER UNDER
SECTIONS I, J, AND K ABOVE.

 

L.2         Responsibility for Injury or
Damage.

 

As between
the parties, Seller will be in control and possession of the gas deliverable
hereunder and responsible for any injury or damage relating to handling or delivery
of gas until the gas has been delivered to Buyer; after delivery, Buyer will be
deemed to be in exclusive control and possession and responsible for any injury
or damage relating to handling or gathering of gas. THE PARTY HAVING
RESPONSIBILITY UNDER THE PRECEDING SENTENCE SHALL RELEASE,
DEFEND, INDEMNIFY, AND HOLD THE OTHER PARTY, ITS AFFILIATES, 

 

A1-5

 

AND THEIR
OFFICERS, EMPLOYEES, AND AGENTS HARMLESS FROM AND AGAINST ALL CLAIMS, CAUSES OF
ACTION, LIABILITIES, AND COSTS (INCLUDING REASONABLE ATTORNEYS’ FEES AND COSTS
OF INVESTIGATION AND DEFENSE) ARISING FROM ACTUAL AND ALLEGED LOSS OF GAS,
PERSONAL INJURY, DEATH, AND DAMAGE FOR WHICH THE PARTY IS RESPONSIBLE UNDER
THIS SECTION L.2; PROVIDED THAT NEITHER PARTY WILL BE INDEMNIFIED FOR ITS
OWN NEGLIGENCE OR THAT OF ITS AGENTS, SERVANTS, OR EMPLOYEES.

 

M.               RIGHT
OF WAY

 

Insofar as Seller’s lease or
leases permit and insofar as Seller or its lease operator may have any rights
however derived (whether pursuant to oil and gas lease, easement, governmental
agency order, regulation, statute, or otherwise), Seller grants to Buyer and
Buyer’s gas gathering contractor, if any, and their assignees the right of free
entry and the right to lay and maintain pipelines, meters, and any equipment on
the lands or leases subject to this Contract as reasonably necessary in
connection with the purchase or handling of Seller’s gas.  All pipelines, meters, and other equipment
placed by Buyer or Buyer’s contractors on the lands and leases will remain the
property of the owner and may be removed by the owner at any time.  Without limitation, Buyer or its gathering
contractor may disconnect and remove measurement and other facilities from any Delivery
Point due to low volume, quality, term expiration, or other cause.

 

N.                 ASSIGNMENT

 

N.1          Binding on
Assignees.

 

Either party may assign this
Contract.  This Contract is binding upon
and inures to the benefit of the successors, assigns, heirs, personal
representatives, and representatives in bankruptcy of the parties, and, subject
to any prior dedications by the assignee, shall be binding upon any prior
dedications by the assignee, shall be binding upon any purchaser of Buyer’s
Facilities and upon any purchaser of the properties of Seller subject to this
Contract. Nothing contained in this Section will prevent either party from
mortgaging its rights as security for its indebtedness, but security is
subordinate to the parties’ rights and obligations under this Contract.

 

N.2             Notice
of Assignment.

 

Any assignment or sublease by
Seller of any oil and gas properties or any gas rights contracted to Buyer will
be made expressly subject to the provisions of this Contract. No transfer of or
succession to the interest of Seller, however effected, will bind Buyer unless
and until the original instrument or other proper proof that the claimant is
legally entitled to an interest has been furnished to Buyer at its Division
Order address noted in the Notices Section or subsequent address.

 

O.                   MISCELLANEOUS
PROVISIONS

 

O.1            Governing
Law.

 

THIS
CONTRACT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, without reference to those that might refer to the laws of another jurisdiction.

 

O.2            Default
and Nonwaiver.

 

A
waiver by a party of any one or more defaults by the other in the performance of
any provisions of this Contract will
not operate as a waiver of any future default or defaults, whether of a like or
different character.

 

O.3            Counterparts.

 

This Contract may be executed
in any number of counterparts, all of which will be considered together as one
instrument, and this Contract will be binding upon all parties executing it,
whether or not executed by all parties owning an interest in the producing
sources affected by this Contract.

 

O.4            Negotiations;
Entire Agreements; Amendment; No Third Party Beneficiaries.

 

The
language of this Contract shall not be construed in favor of or against either Buyer or Seller,
but shall be construed as if the language were drafted mutually by both
parties.  This Contract constitutes the
final and complete agreement between the parties.  There are no oral promises, prior agreements,
understanding, obligations, warranties, or representations between the parties
relating to this Contract other than those set forth herein.  All waivers, modifications, amendments, and
changes to this Contract shall be in writing and executed by the authorized
representatives of the parties.  The
relations between the parties are those of independent contractors; this
Contract creates no joint venture, partnership, association, other special
relationship, or fiduciary obligations. 
There are no third party beneficiaries of Buyer’s sales contract or of
this Contract.

 

O.5            Ratification.

 

If requested in writing by
Buyer of other interest owners, this Contract may be ratified and adopted by
any owner of an interest in any oil and gas properties subject to this Contract
or any lands or leases with which those oil and 
gas properties may be pooled or unitized, by execution and delivery to
Buyer of an instrument in writing ratifying and adopting this Contract insofar
as the owner’s interest in any such land, lease or oil and gas properties is
concerned, and the ratifying owner will become a party Seller to this Contract
with like force and effect as though the owner had executed this Contract as
amended as of the time of execution of the ratification, and all of the terms
and provisions of this Contract as amended to the date of the ratification will
become binding upon Buyer and the ratifying owner.

 

O.6            Compliance
with Laws and Regulations.

 

This Contract is subject to
all valid statutes and rules and regulations of any duly constituted
federal or state authority or regulatory body having jurisdiction.  Neither party will be in default as a result
of compliance with laws and regulations.

 

A1-6

 

O.7            Fees
and Costs; Damages.

 

In the event of a breach, the
parties are entitled to recover as their sole and exclusive damages for breach
of the price and quantity obligations under this Contract the price for gas
taken by Buyer in the case of Seller and the lost margin less avoided costs in
the case of Buyer.  In the event
mediation or arbitration is necessary to resolve a dispute other than one
arising under the indemnification obligation of this Contract, each party
agrees to bear its own attorney’s fees and costs of investigation and defense,
and each party waives any right to recover those fees and costs from the other
party or parties.

 

O.8         Mutual
Waiver of Certain Remedies.

 

Except as to the parties
indemnification obligations, NEITHER PARTY SHALL BE LIABLE OR OTHERWISE
RESPONSIBLE TO THE OTHER FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES,
AS TO ANY ACTION OR OMISSION, WHETHER CHARACTERIZED AS A CONTRACT BREACH OR
TORT, THAT ARISES OUT OF OR RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR
NONPERFORMANCE

 

0.9            Arbitration.

 

The parties desire to resolve
any disputes that may arise informally, if possible.  All disputes arising out of or relating to
this Contract that are not resolved by agreement of the parties must be
resolved using the provisions of this Section O.9.  To that end, if a dispute or disputes arise
out of or relating to this Contract, a party shall give written notice of the
disputes to the other involved parties, and each party will appoint an employee
to negotiate with the other party concerning the disputes. If the disputes have
not been resolved by negotiation within 30 days of the initial dispute notice,
the disputes shall be resolved by arbitration in accordance with the then
current Comprehensive Arbitration Rules and Procedures of the Center for
Public Resources Institute for Dispute Resolution (“Rules”) and this Section O.9.  The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. §~ 1-16, and the Rules, to the
exclusion of any provision of state law inconsistent with them.  The arbitration shall be initiated by a party
seeking arbitration by written notice transmitted to the other party or parties
involved.  The parties shall select one
disinterested arbitrator with at least ten years’ experience in the natural gas
industry or ten years’ experience with natural gas law, and not previously
employed by either party or its affiliates, and, if possible, shall be selected
by agreement between the parties.  If the
parties cannot select an arbitrator by agreement within 15 days of the date of
the notice of arbitration, a qualified arbitrator will be selected in
accordance with the Rules.  If the
disputes involve an amount greater than $100,000, they will be decided by a
panel of three arbitrators with the above qualifications, one selected by each
party, and the third selected by the party-appointed arbitrators, or in the
absence of their agreement, pursuant to the Rules. The arbitrator(s) shall
resolve the disputes and render a final award in accordance with the
substantive law of the state referenced in Section O.1 above, “Governing
Law.”  The arbitrator’s award will be
limited by the provisions set forth in Sections O.7, “Fees and Costs; Damages”
and O.8 above, “Mutual Waiver of Certain Remedies.”  The arbitrator(s) shall set forth the
reasons for the award in writing, and judgment on the arbitration award may be
entered in any court having jurisdiction.

 

END
OF EXHIBIT A TO GAS PURCHASE CONTRACT

 

A1-7Exhibit 10.111

 

BOR067500B

 

AMENDMENT TO GAS PURCHASE CONTRACT

 

This Amendment is entered as of August 1, 2005,
regardless of the date of execution, between W O  OPERATING COMPANY (“Seller”) and DUKE ENERGY FIELD SERVICES,
LP (“Buyer”).

 

In consideration of the premises and of the mutual
covenants contained herein, the parties agree to amend the Gas Purchase
Contract dated August 3, 1995, Buyer’s File No. BOR067500B
(the “Contract”) between the parties or their predecessors in interest covering
producing sources located in Hutchinson County, Texas, as follows:

 

1.                                      Lease Return Gas.  Section 5 Price, is amended by adding
the following new Section 5.7:

 

5.7                               Lease
Use Return Gas.  (a) Buyer agrees to deliver to Seller on
a fully interruptible basis, and Seller agrees to receive from Seller up to 100
MMBtu per day of natural gas to be used for fuel for operation of oil and gas
lease equipment.  The Delivery Point for
these deliveries shall be the existing Buyer Meter No. 97728 in Hutchinson
County, Texas.  Buyer may curtail or
interrupt all or any part of the deliveries of gas to Seller at any time for
any reason without any obligation or liability to Seller.  Buyer shall not be liable to Seller for
injury or damage of any kind whatsoever caused by curtailment, interruptions,
diminutions, failure of supply, or fluctuations of pressure caused by an act of
God, the elements, labor troubles, fires, freeze-ups, accidents, breakage,
repair, routine maintenance, cleaning or testing of pipelines or machinery,
depletion of gas supply (including curtailed use or suspension) of Buyer’s
lines, shut-in of wells, requirements of other consumers, or any other causes
or contingencies.

 

(b)                                 In
consideration for all gas delivered to Seller through Meter No. 97728
during the term of this Contract, Buyer shall deduct the measured redelivered
volume at Meter No. 97728 from Seller’s existing raw gas deliveries to
Buyer through Buyer’s Meter No. 38369 (Kingsland CDP), thus reducing the
quantities for which payment is due to Seller. 
If the lease use return volumes exceed Seller’s sale volumes under the
Contract for a month, Buyer may invoice Seller for the excess quantity at Buyer’s
then going rate for lease use gas, and Seller will pay the invoice within 15
days of receipt.

 

(c)                                  All lease use
return gas delivered shall be used solely for Lease
Purposes only, and shall not be diverted to domestic or other uses
or resold by Seller.  Seller shall not
add additional oil and gas lease equipment, irrigation pump engines or other
agricultural equipment, or increase the capacity of existing equipment without
the prior written consent of Buyer. 
Notwithstanding anything contained in this Contract, if at any time
Seller uses gas sold and delivered hereunder for any purpose or use other than
Lease Purposes, Buyer may charge Seller a per incident penalty charge of
$1000.00, and Buyer may terminate all lease use gas returns under this Contract
immediately upon notice to Seller. From and after the date of lease use gas
return termination, Buyer shall have no obligation to deliver any lease use
return gas to Seller.  Seller shall pay
all amounts due 

 

 

and
owing to Seller, including the penalty charge. 
Buyer shall have the right after any termination of this Contract to
enter Seller’s premises after termination to remove Seller’s metering and other
facilities.

 

(d)                                 The lease use
return gas quality shall be the actual “AS IS” quality
of the raw gas produced by wells connected to the gathering systems where the
lease return gas Delivery Point is located. 
This gas will not be treated,
dehydrated, ordorized, or stenched prior to delivery.  Seller assumes and will perform any
requirements for gas odorization and any gas dehydration or other treating
requirements.  Buyer assumes no liability
for the gas quality delivered to Seller. 
Buyer shall not be liable for any property damage or personal injury or
death to Seller, Seller’s employees, contractors, agents, guests, or any third
party arising out of, attributable in whole or in part to, or in connection
with the quality of gas delivered by Buyer to Seller.  Any odorization that is required by any
applicable statute, order, rule, or regulation beyond the lease use gas return
Delivery Point shall be the sole responsibility of Seller.  Seller acknowledges that it has been informed that the gas
may contain natural gasoline and other liquids, hydrogen sulfide, other sulfur
compounds, carbon dioxide, and carbon monoxide, that the gas is not
artificially odorized, that the pressure at the Delivery Point will be
subject to fluctuation, and that there may be periods during which no gas will
be available.  Seller agrees to assume
all risks resulting from the acquisition, handling, and use of Buyer’s lease
return gas.  Buyer excludes any and all
express and implied warranties of gas condition, including warranties of MERCHANTABILITY and FITNESS FOR A PARTICULAR
PURPOSE.  SELLER SHALL TAKE THE LEASE USE
RETURN GAS “AS-IS.”

 

2.                                      Scope.  The Contract is amended to the extent noted
herein. In all other respects, it is confirmed and shall continue in full force
and effect.

 

3.                                      Counterparts.  This Amendment may be executed in any number
of counterparts, all of which shall be considered together as one
instrument.  This Amendment is binding
upon all parties executing it, whether or not it is executed by all parties
owning interests in the properties committed under the Contract as amended.

 

The
parties have signed this Amendment by their duly authorized representatives as
of the date set forth above.

 

	
  W O
  OPERATING COMPANY

  	
   

  	
  DUKE
  ENERGY FIELD SERVICES, LP

  
	
   

  	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  Miles O’Loughlin

  	
   

  	
  By:

  	
  /s/
  Mark B. Concienne

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:
  

  	
  Manager

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
  Executed
  on: 8/17/2005

  	
   

  	
  Executed
  on: 8/24/2005

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}]]