Document:

exv10w25

 

Exhibit 10.25

APPROACH OPERATING, L.P.,

GAS PURCHASE CONTRACT

DATED

June 1, 2006

By and Between

APPROACH OPERATING, L.P., as “Seller”

and

BELVAN PARTNERS, L.P.,

as “Buyer”

 

 

GAS PURCHASE CONTRACT

     THIS CONTRACT, made and entered into on this 1st day of June, 2006, by and between APPROACH
OPERATING, LLC., referred to herein as “Seller” (whether one or more), and BELVAN PARTNERS, L.P.,
referred to herein as “Buyer”. The parties hereto may be referred to herein jointly as the
“Parties”.

WITNESSETH:

     WHEREAS, Seller owns or controls a certain valid and subsisting oil and gas mining lease or
leases and/or rights to oil and gas or interests therein covering the land described or depicted in
Exhibit “A”, attached hereto and made a part hereof. The land described is hereinafter referred to
as “Premises”; and,

     WHEREAS, Seller has or contemplates having a supply of gas from present and future wells and
desires to deliver and sell such gas; and

     WHEREAS, in the vicinity of Premises, Buyer contemplates the construction of, or has in
operation a gas gathering system and related facilities in order to purchase Seller’s gas and that
of others; and

     WHEREAS, Buyer desires to purchase gas production therefrom for the purpose of extracting
hydrocarbon liquids and for other purposes.

     NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter specified,
Seller hereby agrees to sell and deliver to Buyer and Buyer agrees to purchase and take from Seller
all gas now or hereafter produced from wells on the lands and leases hereinabove described,
subject, however, to the following terms and conditions:

ARTICLE I.

Definitions

	 	1.	 	For the purpose of this Contract, certain terms herein used are defined as follows:

	 	 	 	 	 
	 	 	 	 	(a)    “Gas” or “gas” shall mean all gas produced in its natural state
from present and future wells, including wells classified by the Railroad
Commission of the State of Texas as an oil or gas well, and gas, including tank
vapors, remaining after recovery by Seller of free liquid hydrocarbons by use
of conventional lease separation equipment.

	 	 	 	 	 

	 	 	 	 	(b)    “Day” shall mean a period of twenty-four (24) consecutive hours
beginning and ending at seven o’clock a.m., Central Time.

	 	 	 	 	 

	 	 	 	 	(c)    “Month” shall mean the period beginning at seven o’clock a.m.,
on the first day of the calendar month and ending at seven o’clock a.m., on the
first day of the next succeeding calendar month.

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	 	 	 	 	(d)    “Plant” shall mean the plant and all related facilities owned
and operated by Buyer or Buyer’s designee, in the vicinity of or downstream
from the lands and leases subject to this Contract.

	 	 	 	 	 

	 	 	 	 	(e)    “MCF” or “Mcf” shall mean one thousand (1,000) cubic feet of
gas measured in accordance with the provisions of Article X hereof.

	 	 	 	 	 

	 	 	 	 	(f)    “Measuring Station” shall mean those facilities presently or
hereinafter installed by Buyer at the point(s) of delivery hereunder, to
measure gas produced and delivered to Buyer’s Plant from Seller’s lease or
leases covered hereby. Buyer may install additional measuring stations if in
its sole opinion such additional measuring stations are necessary and feasible
to measure gas subject to this Contract.

ARTICLE II.

Seller’s Representative

     1. In the event Seller is one of two or more parties selling gas under the terms and
conditions of this Contract, Seller agrees that Seller will join with such other parties to appoint
one of their number to serve as their representative hereunder for doing and receiving all things
provided for concerning Seller in this Contract. Buyer may act, and shall be fully protected in
acting, in reliance upon any and all acts and things done or performed by, or agreements with
respect to all matters dealt with herein made by such representative on behalf of the parties
Seller as fully and effectively as though each had done, performed, made or executed the same. The
aforementioned parties may change their representative and designate one of their number as the new
representative from time to time by delivery of written notice of change and designation to Buyer,
provided that any such new representative shall be the same party as designated by all such
parties.

ARTICLE III.

Reservations of Seller

     1. Seller hereby expressly reserves the right to use gas produced from leaseholds and/or lands
subject hereto for:

	 	(a)	 	Above ground lease use including but not limited to drilling,
development and operation of such leaseholds and/or lands including compressors
and/or other equipment necessary to cause the delivery of gas to Buyer
hereunder; and
	 
	 	(b)	 	Delivery to the lessors in Seller’s leases of the gas which
such lessors are entitled to use under the original terms of such leases. Any
gas so used by Seller shall be taken by Seller prior to its delivery to Buyer.

     2. Seller hereby expressly reserves the right to produce, control, manage and operate the
wells, leaseholds and/or lands dedicated hereunder as Seller deems appropriate in its
sole-judgment, including the right to use gas for any efficient, modern, or improved method for
increased production. Seller shall also have the sole-judgment right to surrender or abandon any

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lease and/or lands dedicated hereunder, provided that before any such lease and/or lands are
taken out of service for any reason whatsoever, Seller shall at its sole risk, cost and expense,
first disconnect same from Buyer’s facilities.

ARTICLE IV.

Commitment and Date of Delivery

     1. Subject to the terms and conditions of this Contract, Seller hereby commits and dedicates
to the performance of this Contract all of Seller’s Gas delivered at the delivery point described
on Exhibit “A” hereto, warrants the faithful performance of the provisions of this Contract, and
covenants to sell and deliver Seller’s Gas exclusively to Buyer at the delivery point(s) specified
below without other disposition, except as herein otherwise provided. The delivery and reception of
gas under the terms and provisions of this Contract shall begin on the date of initial deliveries
following the installation of Buyer’s and Seller’s facilities, including Buyer’s Measuring Station,
necessary to deliver and receive Seller’s gas hereunder. Furthermore, Buyer agrees to reimburse
Seller’s expense as an aid to construction for labor and materials for the installation of Buyer’s
Measuring Station.

     2. The effective date of this Contract shall be June 1, 2006.

ARTICLE V.

Delivery Point

     1. The delivery point(s) for Seller’s gas hereunder shall be at a mutually agreeable point on
Buyer’s existing pipeline. Seller will install, own, maintain, and operate the pipeline and
equipment located upstream from the delivery point(s), and Buyer will install, own, maintain, and
operate the pipeline and measurement equipment located downstream from the delivery point. Title to
the gas shall pass at such point(s) from Seller and shall vest in Buyer without regard to the
purpose for which said gas may thereafter be used by Buyer.

     2. Any distillate, condensate and/or liquids accumulating in the drips, separators and lines
from Seller’s wells to the delivery points shall belong to the Seller and all distillate,
condensate and/or liquids accumulating or recovered in drips, scrubbers, station, plants and lines
after the point of delivery shall belong to the Buyer. Buyer shall be entitled to retain all of the
revenue received from the resale of any such substance as partial compensation in order to offset
the cost incurred to recover and dispose of such and repair any damage done.

ARTICLE VI.

Delivery Pressure

     1. Delivery of gas hereunder shall be made by Seller at a pressure sufficient to enter Buyer’s
gathering lines against the varying pressures maintained therein by Buyer. Seller may compress the
gas in order to facilitate delivery hereunder, but such compression shall be installed and operated
so as to not impair the accuracy of Buyer’s measurement of Seller’s gas or be harmful to Buyer’s
facilities.

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ARTICLE VII.

Quality

     1. Seller warrants that it shall deliver its gas for receipt by Buyer that is of merchantable
quality, free of dust, gums, liquids, hazardous materials, bacteria, and other deleterious
substances, shall conform to the quality specifications of the transmission pipeline connected to
the outlet of Buyer’s facilities, as such may vary from time to time, and shall in addition conform
to the following specifications.

	 	 	 	 	 
	 	 	 	 	(a)    Oxygen: The gas shall not contain any oxygen.

	 	 	 	 	 

	 	 	 	 	(b)    Hydrogen Sulfide and Sulfur: The gas shall not contain more
than one quarter (1/4) grain of hydrogen sulfide nor more than five (5) grains
of organic sulfur (mercaptans) per one hundred (100) standard cubic feet.

	 	 	 	 	 

	 	 	 	 	(c)    Non-Hydrocarbons: The gas shall not have a carbon dioxide
content of more than two percent (2%) by volume; and shall not have more than
five percent (5%) by volume of non-hydrocarbons.

	 	 	 	 	 

	 	 	 	 	(d)    Heating Value: The Btu content of the gas shall be greater than
1,050 Btu.

	 	 	 	 	 

	 	 	 	 	(e)    Temperature: The flowing temperature of gas delivered hereunder
shall be less than one hundred (100) and more than forty (40) degrees
Fahrenheit.

     2. Seller shall have the right to treat gas prior to its delivery to Buyer to cause the gas to
conform to the above specifications. As to gas that contains more than one quarter grain of
hydrogen sulfide per one hundred standard feet of gas and/or gas that contains more than two mol
percent (2.0%) carbon dioxide, Buyer may, but shall not be obligated to, accept delivery of such
gas, and Buyer may deduct from the payments otherwise due Seller hereunder a treating fee. Said fee
shall be equal to eight cents ($0.08) per MMBtu plus the product of multiplying the mol percentage,
or fraction thereof, of acid gas by four cents ($0.04) per MMBtu. If neither party elects to treat
gas failing to meet the specifications contained in 1(b) or 1(c) above, then Seller shall have the
right upon thirty (30) days prior written notice to Buyer, to receive a release of such gas from
this Contract, provided, however, that should Buyer begin taking any such gas during said thirty
(30) day notice period, said notice shall be invalid and such gas shall remain committed to this
Contract.

     3. Seller agrees to employ only conventional type mechanical separation equipment on any of
the leases covered by this Contract. Low temperature, refrigeration, adsorption, absorption,
cryogenic, or other process or similar separation facilities shall not be deemed to be conventional
type mechanical separation equipment. Except for liquids removed through operation of conventional
mechanical separators, vapor recovery units, compressors used to effect deliver of gas hereunder
and except for removal of components as required to enable Seller to comply with the provisions of
this Article, Seller agrees that no liquefiable hydrocarbons shall be removed prior to delivery to
Buyer.

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ARTICLE VIII.

Price

     1. Each month, Buyer shall pay Seller for all Gas delivered hereunder a consideration based on
the value of (a) the plant products and (b) the surplus residue gas attributable to Seller’s gas
hereunder.

     (a) The amount of payment due Seller each month for plant products (being ethane and
heavier hydrocarbons extracted by Buyer’s, or its designee’s, gas processing plant) shall be
equal to eighty-five percent (85%) of the plant products value set forth below in Article
IX.

     (b) The amount of payment due Seller each month for surplus residue gas attributable to
Seller’s gas hereunder shall be equal to eighty-five percent (85%) of the surplus residue
gas value set forth below in Article IX.

     2. Notwithstanding any other provisions of this Contract, Buyer shall have the right at any
time or times to reduce the proceeds otherwise due Seller for gas delivered hereunder, in
accordance with the following. If gas delivered to Buyer at a delivery point hereunder averages ten
(10) Mcf per day or less during a production month, Buyer shall be entitled to reduce for any such
month the payments otherwise due Seller for gas at that particular point by fifty percent (50%).
Notwithstanding anything to the contrary herein, in no event shall the above referenced reduction
amount to more than one hundred and fifty dollars ($150.00) or the net amount due Seller and
attributable to Seller’s gas delivered at a particular point hereunder during a production month.

ARTICLE IX.

Allocation and Values of Plant Products and Residue Gas

     1. Plant Products: The plant products value attributable to Seller’s gas delivered hereunder
each month shall be determined by multiplying the recovered plant product gallons attributable to
Seller’s gas delivered during the production month.

     The recovered plant product gallons shall be determined by multiplying (i) Seller’s inlet Mcf
volume (dry basis) of gas hereunder by (ii) the plant product GPM (provided by gas chromatograph
analysis referred to in Section 3 of this Article) and by (iii) the fixed plant product recovery
factors. Seller’s inlet Mcf volume shall be determined (in consideration for Field Fuel or Loss) by
multiplying the volume of gas (dry basis) recorded by Buyer at Seller’s Delivery Point(s) by
ninety-four percent (94%) for gas delivered hereunder into Buyer’s low pressure gas gathering
system. The fixed plant product recovery factors shall be, for purposes of this Contract, as
specified in Table 9.1 below:

	 	 	 
	 	 	Table 9.1
	Component	 	Fixed Plant Product Recovery Factor
	Ethane

	 	Sixty Percent (60%)
	Propane

	 	Eighty-three Percent (83%)
	Butanes

	 	Ninety-five Percent (95%)
	Pentanes and Heavier

	 	Ninety-nine Percent (99%)

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     The plant product price used each production month to compute the amount of payment due Seller
hereunder for ethane, propane, iso-butane, normal butane, and pentanes and heavier products shall
be the average component price per gallon published during the production month by the “Oil Price
Information Service” or “OPIS” publication for Mt. Belvieu, (“Purity Ethane” for ethane and
“Non-TET” for propane and heavier hydrocarbons), less $0.05 per gallon for product transportation,
fractionation, handling, and marketing charges. Said product transportation and fractionation
charge shall be adjusted simultaneously and proportionately with any unaffiliated third party
transportation and fractionation fee escalations and/or de-escalations incurred after the effective
date of this Contract. Should the above mentioned OPIS publication or the referenced prices no
longer be available, a mutually acceptable replacement listing component product prices at Mt.
Belvieu shall be used.

     2. Residue Gas: The surplus residue gas value attributable to Seller’s gas shall be
determined by multiplying the production month’s MMBtu volume of surplus residue gas attributable
to Seller’s gas delivered hereunder by the surplus residue price.

     Seller’s inlet Mcf volume of gas delivered during a production month hereunder shall be
multiplied by the Btu content of Seller’s gas (provided by the gas chromatograph analysis referred
to below in Section 3 of this Article) in order to determine the inlet MMBtu volume of Seller’s gas
so delivered. Seller’s Plant fuel and loss shall be determined by multiplying the volume of gas
(dry basis) recorded by Buyer at Seller’s Delivery Point(s) by the Btu content of Seller’s gas and
by six percent (6%) The sum of the recovered plant product MMBtu volume plus the Plant fuel and
loss attributable to Seller’s gas hereunder for same said production month shall be subtracted from
the Seller’s inlet MMBtu volume of gas and the remainder shall be the MMBtu volume of surplus
residue gas attributable to Seller’s gas delivered during such month.

     The MMBtu volume of the recovered plant products content of Seller’s gas hereunder shall be
determined by multiplying the recovered plant product gallons attributable to Seller’s gas
delivered hereunder during a production month by the appropriate MMBtu per gallon factor for each
component.

     The term “surplus residue price”, as used herein, shall mean the index price published on or
about the first day of each production month by McGraw-Hill’s “Inside F.E.R.C.’s Gas Market
Report” for “El Paso Natural Gas Co. — Permian Basin” under the Table entitled “Prices of Spot
Gas Delivered To Pipelines”. In the event said index price is no longer available, another index
price shall be used reflecting the monthly spot gas price paid for gas into El Paso’s transmission
lines in the Permian Basin area of West Texas.

     3. A representative sample of the gas from each delivery point hereunder shall be taken at
least: 1) semi-annually for points averaging less than 100 Mcf/d, 2) quarterly for points averaging
over 100 Mcf/d and less than 1,000 Mcf/d and 3) monthly for points averaging over 1,000 Mcf/d. Such
samples shall be obtained by Buyer or Buyer’s representative to determine the composition of
Seller’s gas and to allocate plant products and residue gas to Seller. Such sample shall be
analyzed at no cost to Seller by chromatograph to determine the composition and Btu content
thereof. The component analyses of each routine set of samples shall be used for allocation
purposes commencing with the first of the month following the month in which samples were taken.
Buyer will notify Seller reasonably in advance of the time of any sampling
so that Seller may conveniently have its representative present to witness the sampling
procedure.

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ARTICLE X.

Meters and Computations of Volumes

     1. All of the gas delivered hereunder shall be measured by means of a meter or meters of
standard make, furnished, installed and kept in repair by Buyer at the aforesaid point(s) of
delivery and such equipment shall be operated in accordance with that prescribed by the 1985 AGA
specifications. Buyer shall pull and inspect the office plates and test its measuring equipment at
or near the same time as that prescribed above in Article IX for gas sampling. If necessary, Buyer
shall adjust and/or repair its measuring equipment to read accurately in accordance with the 1985
AGA specifications and Buyer shall make the appropriate retroactive adjustments pursuant to the
provisions outlined below. Said meter(s) shall be, at all reasonable times, subject to inspection
by Seller in the presence of Buyer. In case any questions arise as to the accuracy of the meter
measurement, said meter, or meters, shall be tested upon the demand of either party. The expense of
such tests shall be borne by the party demanding same if the meter is found to be correct and by
Buyer if found incorrect. A registration within two percent (2%) shall be considered accurate in
computing deliveries hereunder; however, the equipment shall be adjusted at once to record
correctly. When any test shall show an error of more than two percent (2%) and such error would
result in an adjustment amounting to more than one hundred (100) Mcf in measurement of a production
month’s volume, correction shall be made for that production month during the period that the meter
was known to be in error, and if this period cannot be ascertained, correction shall be made for
one-half (1/2) of the period elapsed since the date of the last previous test, not exceeding ninety
(90) days. Buyer shall give Seller notice of the time of all tests of meters at least ten (10) days
in advance of the making of such tests in order that the Seller may conveniently have its
representative present.

     2. In the event a meter is out of service or registering inaccurately, the volume of gas
delivered hereunder shall be estimated by (1) using the registration of any check meter or meters
if installed and accurately registering, or (2) by correcting the error if the percent of error is
ascertainable by calibration or mathematical computation, or (3) in the absence of both (1) and (2)
by estimating the volume delivered during periods of similar conditions when the meter was
registering accurately.

     3. Seller may, at its option and expense, install and operate meters to check Buyer’s meter,
provided such check meter installation in no way interferes with the proper operation of Buyer’s
meter.

     4. The computations of all gas volumes, for the purpose of this Contract, shall be in
accordance with the American Gas Measurement Committee Report No. 3 of the American Gas Association
and shall be corrected to a base pressure of 14.65 pounds per square inch absolute and a base
temperature of sixty (60) degrees Fahrenheit. There shall be used an assumed atmospheric pressure
of 13.2 pounds per square inch absolute (regardless of actual atmospheric at which the gas is
measured). An assumed flowing temperature of sixty (60) degrees Fahrenheit shall be used unless the
flowing temperature of the gas is determined by Buyer to be other than sixty (60) degrees
Fahrenheit and Buyer installs a continuous temperature-recording device to

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determine the average flowing temperature. It is agreed that the compressibility of the gas
deviates from Boyles’ Law, and that correction shall be made for such deviation from this law and
that the values of the Reynolds number factor and the expansion factor shall also be calculated.

     5. The specific gravity of the gas shall be determined in accordance with the specifications
and test procedures of the Natural Gas Processors Association for the determination of specific
gravity of natural gases by the balance method based on the chromatograph test provided for in
Article IX section 3 above. The tests for specific gravity of the gas shall be made at the same
time as the meters are tested for accuracy.

     6. Seller agrees to endeavor to deliver gas to Buyer at stable rates of flow. Seller agrees to
use reasonable efforts to monitor its deliveries of gas so that any differential pressure
pulsations at the delivery point shall not exceed ten percent (10%).

ARTICLE XI.

Unprofitable Gas

     1. Seller hereby agrees to sell and deliver it gas exclusively to Buyer, and Buyer agrees to
purchase and receive from Seller, subject to the stipulations and conditions herein specified, all
of Seller’s gas available for sale now or hereafter produced from the well(s) on the lands
described in Exhibit “A” provided that Buyer shall not be obligated to take gas testing less than
two (2) gallons of plant products per thousand cubic feet. It is recognized that Buyer may be
unable to receive and process for recovery of natural gas liquids all of the gas available to the
Plant during temporary periods or for such time as is required to make necessary changes or
additions to the Plant. Buyer’s obligation to receive and process hereunder shall be reduced in the
ratio that the Plant capacity bears to the total volume of gas of all types available to the Plant.
Nothing herein shall be construed as an obligation on the part of the Buyer to enlarge its
processing facilities to process Seller’s gas hereunder. In the event the purchase of gas from any
well or wells under this Contract is or becomes unprofitable due to its volume, quality or any
other cause, Buyer shall not be obligated to take or may cease taking the gas therefrom so long as
such condition exists. It is further provided that if at any time the volume and/or gasoline
content of the gas available to Buyer, or if any cause beyond its control shall render the
operation of said Plant unprofitable, Buyer may upon thirty (30) days notice, in writing, and
payment or tender to Seller of ten dollars ($10.00) terminate this Contract.

     2. If through no fault of Seller, Buyer fails for any reason to take all of Seller’s gas
available at the delivery point(s) for at least seventy-five (75) days during any three (3)
consecutive months (a “deficient take event”), then Seller shall have the right to terminate this
Contract by giving Buyer thirty (30) days written notice of its election to terminate which shall
be Seller’s sole remedy. Promptly after delivery of Seller’s deficient take notice, Buyer and
Seller shall meet and use good faith efforts to attempt to remedy the deficient take situation.
This Contract shall terminate at the end of the thirty (30) day notice period unless either (a)
Buyer resumes consistent takes of all of Seller’s gas available at the delivery point(s) or (b) an
agreed resolution has been reached within said thirty (30) day notice period. Seller agrees to work
in good faith with Buyer to provide an extension of said thirty (30) day notice period if Buyer has
initiated construction of facilities or taken other action necessary to remedy its failure to take
all

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of Seller’s gas available at the delivery point(s) and pursues same with due diligence. Buyer
shall be deemed to have resumed consistent takes of all of Seller’s gas only if Buyer takes all of
Seller’s gas available at the delivery point(s) for at least seventy-five (75) of the next ninety
(90) days following the end of the thirty (30) day notice period or the end of any agreed extension
of said notice period. If during the thirty (30) day notice period Buyer resumes consistent takes
but fails to take all of Seller’s gas available at the delivery point(s) for at least seventy-five
(75) of the next ninety (90) days (“subsequent deficient take event”), Seller may then terminate
this Contract by giving Buyer written notice of its election to terminate no later than sixty (60)
days following the subsequent deficient take event, or Seller’s right to terminate shall be deemed
to be waived. Seller shall use good faith efforts to promptly provide notice to Buyer of a
deficient take event after the occurrence of such an event. For purposes of this Article XI section
1 time is of the essences.

ARTICLE XII.

Payment

     1. Buyer shall furnish to Seller by the twenty-fifth (25th) day of the month a settlement
statement for the gas purchased hereunder during the preceding month. Payment shall be made by
Buyer for all gas purchased hereunder on or before the last day of the month following the month of
production, and in the event that payment has not been issued by said date, Buyer shall wire
transfer any such payment to Seller. Examination by the Seller of the books of accounts kept by
Buyer respecting said gas accounts shall be permitted by the Buyer at any and all reasonable hours.
Buyer shall be obligated to preserve said books of accounts for a period of no more than two (2)
years. Payment shall be final unless questioned within two (2) years from the date on which the
payment is issued.

     2. Seller agrees to make proper settlement and accounting to the owners of royalty, overriding
royalty and production payments attributable to or payable from the proceeds from the sale of
Seller’s gas delivered to Buyer hereunder. Seller warrants title to the gas delivered hereunder and
the right to deliver same, and that such gas is free from all liens, prior gas purchase contracts
and adverse claims. Seller agrees to indemnify Buyer and save it harmless from all suits, actions,
debts, accounts, damages, costs, losses and expenses arising from or out of the adverse claims of
any and all persons to said gas or royalties, charges and taxes thereon. Any and all overpayments
made by Buyer hereunder shall be refunded to Buyer within thirty days of invoice. Seller shall
obtain appropriate ratification of this Contract from its interest owners associated with the gas
dedicated and produced from the lands described under the Exhibit “A” attached hereto.

     3. In the event of any dispute, question, or litigation at any time concerning Seller’s title
to the lease(s), or the gas produced therefrom, or proceeds from the sale thereof, Buyer shall be
entitled to suspend payment for the portion of gas in question that is purchased by it hereunder
and withhold the proceeds payable therefore, without interest, until such dispute, defect, or
question of title is corrected or removed to Buyer’s satisfaction or until the Seller furnishes
security conditioned to save Buyer harmless in form and with surety satisfactory to Buyer.

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ARTICLE XIII.

Taxes

     1. Seller agrees to pay or cause to be paid all taxes levied or due on the gas hereunder prior
to its delivery to Buyer and Buyer agrees to pay or cause to be paid all taxes levied on such gas
after its receipt by Buyer. The price provided for in Article VIII shall be considered to be
inclusive of tax reimbursement and production related cost amounts payable to Seller hereunder.
Buyer may pay on behalf of Seller, and deduct from payments otherwise due Seller, any taxes
assessed on the gas delivered hereunder.

ARTICLE XIV.

Term

     1. This Contract shall be effective from the date hereof and shall continue and remain in
force and effect until November 1, 2006 and continue from month to month thereafter, until
cancelled by either party serving ninety (90) days advance written notice to the other.

ARTICLE XV.

Force Majeure

     1. In the event either party hereto is rendered unable wholly or in part by force majeure to
carry out its obligations under this Contract, it is agreed that such obligations including the
obligation to purchase gas hereunder shall upon written notice be suspended during the continuance
of any inability so caused, except for payment, and shall be as far as possible remedied with all
reasonable dispatch.

     2. The term “force majeure” as employed herein shall mean acts of God, strikes, lockouts, or
other industrial disturbances, acts of the public enemy, wars, terrorism, blockades, insurrections,
riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrest and
restraints of rulers and people, arrests and restraints of the Government, either Federal or State,
inability of any party hereto to obtain necessary materials, right-of-way, supplies, or permits due
to existing or future rules, orders and laws of governmental authorities (both Federal and State),
interruptions by government or court orders, present and future orders of any regulatory body
having proper jurisdiction, civil disturbances, explosions, sabotage, breakage or accident to
machinery or lines of pipe, failure of products pipeline or residue gas purchaser’s pipeline,
freezing of wells or lines of pipe, partial or entire failure of wells and any other causes,
whether of the kind herein enumerated or otherwise not within the control of the party claiming
suspension and which by the exercise of due diligence such party is unable to overcome.

     3. It is understood and agreed that the settlement of strikes or lockouts shall be entirely
within the discretion of the party having the difficulty, and that the above requirement of the due
diligence in restoring normal operating conditions shall not require the settlement of strikes or
lockouts by acceding to the terms of the opposing party when such course is inadvisable in the
discretion of the party having the difficulty.

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ARTICLE XVI.

Miscellaneous

     1. Right-of-Way: Seller hereby grants to Buyer, insofar as Seller has the right to do
so at no cost to Seller, the right of ingress and egress, the right to lay and maintain pipelines,
telephone and telegraph lines and to install any other necessary equipment on and across any lands
covered by this Contract. All lines and other equipment placed by Buyer on said lands shall remain
the personal property of Buyer, and subject to the terms of this Contract, may be removed by Buyer
at any time.

     2. Indemnity: Buyer shall indemnify and hold Seller harmless against any claims for
damages growing out of the operations conducted hereunder by Buyer. Likewise, Seller shall
indemnify and hold Buyer harmless against claims for damages growing out of Seller’s operations,

     3. Waiver of Breach: The waiver of any party of any breach of any of
the provisions of the Contract shall not constitute a continuing waiver of other breaches of the
same or other provisions of this Contract.

     4. Regulatory Bodies: The Contract and all operations hereunder are subject to the
applicable Federal and State laws and the applicable orders, rules, and regulations of the Railroad
Commission of Texas and any other State or Federal authority having or asserting jurisdiction; but
nothing contained herein shall be construed as a waiver of any right to question or contest any
such law, order, or regulation in any form having jurisdiction in the premises.

     5. Notices: All notices provided for herein shall be in writing and shall be deemed
to be delivered to Seller when addressed to Seller at:

APPROACH OPERATING, LLC.

6300 RIDGLEA PL., S-1107,

FORT WORTH, TX 76116

and deposited in the United States mail, postage prepaid, and shall be deemed to be delivered to
Buyer when addressed to:

Belvan Partners, L.P.

Midway Lane Gas Plant

211 No. Colorado

Midland, Texas 79701

and deposited in the United States mail, postage prepaid, or to such other single name and address
as either party may by like notice give to the other party.

     6. Assignment: All the covenants, stipulations, terms, conditions and provisions of
this Contract shall extend to and be binding upon the respective successors and assigns of the
parties hereto, and shall be covenants running with the land for the full term herein set forth;
provided, however, that no assignment of this Contract by Seller as to a part or parts less than
the

11

 

whole as applied to the lands covered hereby shall affect or impair the rights of Buyer, nor
in any case increase Buyer’s obligations under this Contract as to the part or parts so segregated.

     7. Prior Gas Contracts: This Contract terminates and supersedes any prior Gas
Purchase Contracts or Agreements by and between the Parties as to Seller’s interest in gas produced
from wells delivered to the delivery point described on Exhibit “A” attached hereto.

     8. This Contract shall apply to lease extensions, renewals and re-acquisitions of lease or
leases by Seller, its successors or assigns, during the term of this Contract. Any Amendment to
this Contract shall not be valid unless it is agreed to in writing and signed by both Buyer and
Seller. In the event that more than the lease is described in Exhibit “A” attached hereto, this
Contract shall be considered as a separate Contract on each lease.

     9. The terms and provisions herein contained constitute the entire agreement between the
parties hereto and shall supersede all previous communications, representations or agreements,
either verbal or written, between the parties with respect to the subject matter hereof, and no
part shall be altered, modified or amended except by agreement in writing, signed by both parties
hereto.

     IN WITNESS WHEREOF, this Contract has been executed in duplicate originals by the parties
hereto as of the day and year first herein written.

	 	 	 	 	 	 	 
	ATTEST/WITNESS:	 	“BUYER”	 	 
	 
	 	 	 	 	 	 
	 	 	BELVAN PARTNWERS, L.P.,	 	 
	 	 	By Belvan Corporation, its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	/s/ J. L. Davis	 	 
	 	 	 	 	 
	 	 	By: J. L. Davis — President	 	 
	 
	 	 	 	 	 	 
	ATTEST/WITNESS:	 	“SELLER”	 	 
	 
	 	 	 	 	 	 
	 	 	APPROACH OPERATING, L.P.,	 	 
	 	 	By Belvan Corporation, its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	/s/ David A. Badley	 	 
	 	 	 	 	 
	 

	 	By:
	 	David A. Badley	 	 
	 

	 	 	 	Executive Vice President	 	 

12

 

EXHIBIT “A”

to

GAS PURCHASE CONTRACT

Between

APPROACH OPERATING, L.P., as “Seller”

and

BELVAN PARTNERS, L.P.

as “Buyer”

Dated: June 1, 2006

LOCATION OF DELIVERY POINT:

Section 13, Block CD, GC&SF Survey, Crockett County, Texas

13exv10w26

 

Exhibit 10.26

Suite 600

505 N. Big Spring Street (79701)

P.O. Box 791

Midland, TX 79702

phone 915.682.8241

fax 915.686.7922

ConocoPhillips

			
	 	 	 
	Mr. David Badley
	 	LEASE CRUDE OIL PURCHASE AGREEMENT
	Approach Operating LLC
	 	Dated: May 1, 2004

	6300 Ridglea Place, Suite 1107	 	 
	Ft. Worth, Texas 76116	 	 

Dear David:

     THIS AGREEMENT is between ConocoPhillips, herein called “Buyer” and Approach Operating LLC,
herein called “Seller”, covering the sale and delivery by Seller and the purchase and receipt by
Buyer of the specified oil and condensate herein called “Production” upon the following terms and
conditions:

1. SOURCE AND LOCATION

     See Exhibit “A” attached and Incorporated by reference.

2. QUANTITY

     Seller agrees to sell to Buyer and Buyer agrees to take such quantities of Production as may
be determined in accordance with the field or pipeline run ticket, subject to state allowables and
the termination provided for herein.

3. QUALITY

     West Texas Intermediate Type Crude Oil

4. PRICE

     For those leases listed on Exhibit “A”, a price equal to ConocoPhillips Company’s Posting for
West Texas Intermediate, gravity deemed 40°, EDQ, plus the average Platt’s mean quotation for
“P-Plus WTI” for the applicable trading month at Cushing, less the average difference between
Platt’s WTI Cushing and WTI Midland quotations for the applicable trading month, less
transportation and handling as listed on Exhibit “A”.

5. BILLING

     All payments due Seller under this Agreement shall commence with the initial date of delivery,
which shall be the effective date of this Agreement. On or before the fifteenth (15th) day of the
month following the month of deliveries, Buyer shall render to Seller a statement showing total net
quantity delivered from each well covered hereunder during the preceding month.

6. DELIVERY

     Title to all Production sold and delivered to Buyer shall pass from Seller to Buyer as such
Production passes the outlet flange of Seller’s tankage on the lease or leases from which such

 

 

			
	 	 	 
	 
	 	Page 2 of 3 to Contract Between

ConocoPhillips Company and

Approach Operating LLC

Dated: May 1, 2004

Production is being purchased. Buyer agrees to promptly take delivery of the Production upon
availability from the Seller’s tanks or through a pipeline. If Buyer takes delivery by a third
party common carrier, Buyer shall immediately notify Seller of the carrier’s name and address.

7. WARRANTY AND INDEMNITY

     Seller warrants title, free and clear of all taxes, liens and encumbrances, to the Production
delivered hereunder and warrants that Production has been produced, handled and transported to the
delivery point in accordance with the laws, rules and regulations of all local, state or federal
authorities having jurisdiction.

     Prior to the delivery of Production Seller will hold Buyer harmless against any loss from any
claim or cause of action arising out of the sale and delivery of the Production. Buyer agrees that
after delivery of the Production Seller will be held harmless against any loss from any claim or
cause of action arising out of the sale and delivery of the Production.

8. TERM

     Initial term of this contract shall be for one month, beginning May 1, 2004 through June 1,
2004, and continuing thereafter from month to month until cancelled by either party upon 30 days
written notice.

9. FORCE MAJEURE

     Neither party hereto shall be liable for failure or delay in making or accepting deliveries
hereunder to the extent such failure or delay may be due to compliance with acts, orders,
regulations or requests of any federal, state or local civilian or military authority, or any
person purporting to act therefor, riots, strikes, labor difficulties, action of the elements,
disruption or breakdown of production or transportation facilities, or any other cause, whether or
not to the same class or kind, reasonably beyond control of such party. If such a failure or delay
extends beyond any reasonable period for the performance of this Agreement, then either party may
terminate this Agreement.

10. ASSIGNMENT

     No assignments of this Agreement shall be valid or binding on either Buyer or Seller unless
the written consent of both parties has been obtained.

11. MEASUREMENT AND TESTS

     Quantities of crude oil delivered hereunder shall be delivered from tank gauges on 100% tank
table basis, or by the use of mutually acceptable automatic measuring equipment. Volume and gravity
(API) of said quantities shall be corrected for temperature to 60 degrees Fahrenheit in accordance
with the latest-A.S.T.M.-I.P. Petroleum Measurement Tables. The crude oil delivered hereunder shall
be merchantable and acceptable to the carriers involved, but not to exceed 2% BS&W. Full deduction
shall be made for all BS&W content as determined by tests conducted according to the latest
A.S.T.M. Standard Method then in effect. Each party shall have the right to have a representative
present to witness all gauges, tests and measurements; however, in the absence of either party’s
representative, the gauges, tests and measurements of the other party shall be deemed to be
correct.

2

 

			
	 	 	 
	 
	 	Page 3 of 3 to Contract Between

ConocoPhillips Company and

Approach Operating LLC

Dated: May 1, 2004

12. SPECIAL PROVISIONS

     N/A

13. DIVISION ORDER AND TAXES

     The basic division order will be held by Approach Operating LLC. ConocoPhillips will remit
100% of proceeds, less state taxes, to Approach. State taxes will be paid by ConocoPhillips.
Division Order information including pay list, title opinion and/or assignments, should be sent to
Vicki Catlin 860G POB, ConocoPhillips, P. O. Box 5400, Bartlesville, Oklahoma 74005.

14. PAYMENTS

     Buyer agrees to make payment on or before the twenty-fifth (25th) day of the month following
the month of delivery. In an effort to improve our service to our customers, ConocoPhillips has a
program that will provide you the option of having your crude oil payments directly deposited to
the financial institution of your choice. You may take advantage of the direct deposit service by
completing the enclosed form and returning the form to the following address:

15. REGULATORY

     N/A

16. LOGISTICS

     N/A

17. MISCELLANEOUS

     Any matter not specifically covered herein arising in connection with this Agreement shall be
handled in accordance with customs and practice in the industry.

     This letter evidences our understanding of the entire agreement and shall constitute the
formal contract. Unless we receive written notice of your objections within ten (10) business days,
we will consider the agreement as final and binding on both parties.

CONOCOPHILLIPS COMPANY

/s/ Karl G. Stuckey

Karl G. Stuckey

Representative, Lease Operations

West Texas and New Mexico

KS/ss

 

			
	 	 	 
	 
	 	Exhibit “A” to Contract Between

ConocoPhillips Company, and

Approach Operating LLC

Dated: May 1, 2004

EXHIBIT “A”

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	COP	 	 	 	 	 	Crude	 	 	 	 	 	 	 	 
	Lease No.	 	Operator	 	Lease Name	 	Type	 	Differential	 	Transporter	 	County	 	State
	2877308
	 	Approach Operating LLC
	 	Clayton 1001
	 	WTI
	 	($1.25)
	 	Sentinel Trucks
	 	Crockett
	 	Texas

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