Document:

exv10w9

 

EXHIBIT
10.9

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL

TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL

HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,

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

GAS PURCHASE AGREEMENT

BY AND BETWEEN

ONEOK Texas Field Services, L. P.

AND

PEAK OPERATING OF TEXAS, LLC

Contract No. 431377

Date of Contract: October 1, 2003

	 	 	 	 	 
	INDEX:	 	 	 
	 
	I.

	 	BASIS OF COMPENSATION
	 	Page 2
	II.

	 	TERM
	 	Page 2
	III.

	 	DEDICATION, EXCLUSIVITY, INITIAL WELLS, AND
SUBSEQUENT WELLS
	 	Page 2
	 
	 	 	 	 
	IV.

	 	RESERVATIONS OF SELLER AND BUYER
	 	Page 4
	V.

	 	QUALITY OF DELIVERED GAS
	 	Page 5
	VI.

	 	DELIVERY, COMPRESSION, PRESSURES, METER FEES,
REBUILD AND ALTERATIONS
	 	Page 5
	 
	 	 	 	 
	VII.

	 	NOMINATIONS AND SCHEDULING
	 	Page 6
	VIII.

	 	PAYMENT, ESCALATION OF FEES, EXAMINATION,
INDEMNIFICATION, SUSPENSION, AND DEDUCTIONS
	 	Page 6
	IX.

	 	WARRANTY, TITLE, AND EASEMENTS
	 	Page 7
	 
	 	 	 	 
	X.

	 	INDEMNITY, INTERRUPTION, AND FORCE MAJEURE
	 	Page 7
	XI.

	 	ROYALTY AND TAXES
	 	Page 8
	 
	 	 	 	 
	XII.

	 	MEASUREMENT OF GAS VOLUME AND TESTING
	 	Page 8
	XIII.

	 	NOTICES AND STATEMENTS
	 	Page 11
	XIV.

	 	DEFAULT
	 	Page 12
	XV.

	 	DEFINITIONS
	 	Page 13
	 
	 	 	 	 
	XVI.

	 	MISCELLANEOUS
	 	Page 14
	 
	 	 	 	 
	 

	 	EXHIBIT “A”	 	 
	 

	 	EXHIBIT “B”	 	 
	 

	 	EXHIBIT “C”	 	 

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GAS PURCHASE AGREEMENT

     This Gas Purchase Agreement (“Agreement”) is made and entered into as of the first day
of October, 2003, by and between ONEOK Texas Field Services, L. P., hereinafter referred to as
“BUYER,” and Peak Operating of Texas, LLC hereinafter referred to as “SELLER”.

WITNESSETH:

     WHEREAS, SELLER owns and/or controls natural Gas produced from Wells on Lands or
Leases from properties more particularly described in Exhibit “B” attached hereto, including the
right
to process and sell such Gas, which shall be delivered to BUYER; and

     WHEREAS, BUYER desires to purchase and SELLER desires to sell said Gas to BUYER; and

     NOW THEREFORE, BUYER and SELLER, in consideration of the mutual covenants,
promises, and agreements contained herein and for other good and valuable consideration, do hereby
agree as follows:

I. BASIS OF COMPENSATION

	1.1	 	Compensation. The basis of compensation is set forth in Exhibit “A”
attached hereto and included herein by this reference.

II. TERM

	2.1	 	Term. This Agreement shall be effective on the first day of October, 2003
(“Effective Date”), and shall continue for five (5) Years (“Primary Term”), and Month –to-
Month thereafter until terminated, such termination to be effective at the end of said
Primary Term or at any month thereafter by either party giving at least thirty (30) days
prior written notice to the other party or to be effective as otherwise provided by this
Agreement.

III.
DEDICATION, EXCLUSIVITY, INITIAL WELLS, AND SUBSEQUENT WELLS

	3.1	 	Dedication. SELLER hereby commits and dedicates to the performance of this
Agreement and for the term hereof, all of its owned or controlled interest in Gas produced
from all geological formations under the Lands and Leases and/or Wells described in Exhibit
“B” attached hereto (“Dedicated Wells”), except for the following reservations:

	 	3.1.1	 	To use Gas produced from or under the Lands or Leases and/or Wells for the
development and operation of same; including, but not limited to, Gas used by SELLER in
Gas lifting and pressure maintenance operations;
	 
	 	3.1.2	 	To use Gas which may be required to fulfill SELLER’s obligations to the
lessors of said Leases and/or Wells for domestic fuel; and,
	 
	 	3.1.3	 	To use Gas used as fuel in the operation of SELLER’s compression, dehydration
or treating facilities, if any, installed for the delivery of Gas hereunder.
	 
	 	3.1.4	 	Gas subject to take in kind provisions of applicable operating agreements
covering unaffiliated third parties.

	3.2	 	Exclusivity. Subject to the terms and conditions of this Agreement, SELLER hereby
contracts exclusively with BUYER for the purchase of SELLER’s Gas and the right to process and
extract Natural Gas Liquids attributable to SELLER’s Gas from
the Lands, Leases and/or Wells

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	 	 	described on Exhibit “B”. SELLER further agrees to dedicate to BUYER and to the terms and
conditions of this Agreement any interest in said Lands and Leases or Wells which (i) are
acquired by SELLER, or (ii) are owned by SELLER but are no longer subject to the terms of any
third-party agreement, subsequent to the Effective Date hereof. Any
transfer of SELLER’s
interest in the Lands and Leases or Wells dedicated hereunder shall be subject to BUYER’s
rights hereunder, and SELLER shall take action necessary to ensure that any such transfer is
subject to BUYER’s rights hereunder.

	3.3	 	Initial Well(s). SELLER agrees to proceed with due diligence to install or cause to
be installed, at its expense, all facilities upstream of the Receipt Point(s) which are
necessary to connect all Dedicated Wells completed for production as of the date of this
Agreement to the existing gathering system. All such facilities will be owned and operated by
SELLER or its designee at its expense.

	3.4	 	Contract Volumes and Excess Deliveries.

	 	3.4.1	 	Transitional Contract Volume.

	 	(a)	 	Initial Deliveries and Pressures. Commencing with the effective
date of the Agreement (“Effective Date”), SELLER may deliver up to 3,000 Mcf/d at
the Receipt Point specified in the Agreement at pressures sufficient to enter
BUYER’s system. BUYER estimates the line pressure to range between 95-150 psig.
Simultaneously, BUYER will (i) commence acquisition of a site for a compressor
station to be located in Section 59, Block M-l, H&GN Survey, Hemphill County, Texas
downstream of the Receipt Point and (ii) initiate the necessary permitting process
for the future installation of compression facilities at such site.
	 
	 	(b)	 	High Pressure Deliveries. Commencing no later than ten (10)
days after the volume delivered at the Receipt Point(s) equals 3,000 Mcf/d, BUYER
will proceed to modify its system so as to provide delivery capacity to SELLER at
the Receipt Point(s) of up to 10,000 Mcf/d at pressures of approximately 450 psig.
	 
	 	(c)	 	Reduced Pressure Deliveries. At any time after the Effective
Date at such time as SELLER’S daily volume exceeds 3,000 Mcf/d, SELLER may notify
BUYER of SELLER’s desire that BUYER install compression facilities in order for
BUYER accept deliveries consistent with the volume and pressure provisions of the
3.4.2 and 6.1 hereof. SELLER will provide all necessary projections of future
production in order for BUYER to maximize the efficiency of its compression
facilities consistent with its contract obligations. No less than four (4) months
following the receipt of SELLER’s notice, BUYER will be prepared to take deliveries
of natural gas under this Agreement pursuant to such provisions.

	 	3.4.2	 	Permanent Contract Volume. Following the installation of the facilities set forth
in 3.4.1(c), above, SELLER shall deliver and sell and BUYER shall receive and purchase at
the Receipt Point(s) all of SELLER’s Gas developed and produced from the Dedicated Wells
up to a volume of 15,000 Mcf/d (the “Contract Volume”). These volumes are to be delivered
consistent with the pressure requirements set forth in section 6.1.
	 
	 	3.4.3.	 	Additional Gas. Gas tendered for delivery to BUYER at the Receipt Point(s) in excess of
the Contract Volume shall be deemed “Additional Gas”. BUYER shall use its best reasonable
efforts to purchase all Additional Gas tendered for delivery by SELLER. In the event
BUYER is unable to take any portion of the Additional Gas, such portion (“Excess Gas”)
shall be released from the terms of this Agreement until and unless, within thirty (30)
days of such release BUYER notifies SELLER of intent to take and purchase such Excess Gas
under the terms of this Agreement and the date upon which such receipts are to commence,
provided such receipts are to commence no later than ninety (90) days from the date of
BUYER’s notice, and subject to Seller’s prior nominations, which nominations

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	 	 	 	shall not exceed a one-month period. Failure to provide notice to SELLER of its
intent to take such Excess Gas shall be deemed a permanent release of such Gas.

IV. RESERVATIONS OF SELLER AND BUYER

	4.1	 	SELLER’s Reservations.

	 	4.1.1	 	To operate said Leases and/or Wells free from control by BUYER in such manner as
SELLER, in SELLER’s sole discretion, may deem advisable, including, without
limitation, the right to drill new Wells, to repair and rework old Wells, and to abandon
any Well or surrender any Lease when no longer deemed to be capable of producing Gas in
commercial paying quantities under normal methods of operation by SELLER.
	 
	 	4.1.2	 	To unitize or pool any of the Leases or portions thereof with other Leases, in
such event SELLER’s interest in the unit and the unit Gas
attributable to SELLER’s
interest shall be subject to and SELLER agrees to take all action necessary to commit
such unit Gas attributable to SELLER’s interest to this Agreement.
	 
	 	4.1.3	 	To retain all liquids and Condensate separated from the Gas by the use of typical
volumetric (non-refrigerated) oil and Gas separators prior to the delivery of the Gas to
BUYER at the Receipt Point(s) specified herein.

	4.2	 	BUYER’s Reservations.

	 	4.2.1	 	Processing Rights. SELLER does hereby grant, assign, and convey to BUYER
exclusive processing rights for the recovery of Plant Products for Gas delivered to BUYER
for processing at the Receipt Point(s). SELLER shall not process the Gas or allow the Gas
to be processed prior to Receipt by BUYER hereunder for processing.
	 
	 	4.2.2	 	Condensate. Condensate recovered by BUYER downstream of the Receipt
Point(s) shall belong to BUYER. Title to the Condensate shall pass to BUYER upon its
recovery by BUYER and shall be free and clear of all liens, claims, and encumbrances
created by, through or under SELLER.
	 
	 	4.2.3	 	Uneconomic Conditions. The purchase of Gas under the terms of this
Agreement will be deemed uneconomic as follows:

	 	(a)	 	The purchase of SELLER’s Gas from any Receipt Point shall be
uneconomic if and to the extent BUYER’s net revenue derived from the purchase and
resale of such Gas and associated products is less than BUYER’s actual average
operating costs associated with the gathering, compression and processing of such
Gas, excluding any allowance for depreciation or return on investment of BUYER’s
plant and equipment. In such event, BUYER shall offer SELLER pricing terms for
such uneconomic gas at which such conditions do not exist, in which event SELLER
may either (i) accept such revised pricing terms for so long as such uneconomic
condition exists or (ii) have the uneconomic gas released from this Agreement.
	 
	 	(b)	 	An “uneconomic Plant” condition shall be deemed to exist if BUYER
determines that the continued operation of BUYER’s gathering and processing
facilities with respect to the purchase, gathering and/or processing of all gas
collectively behind BUYER’s Plant results in BUYER being unable to recover its
actual costs in the operation of such facilities for a period of three
consecutive calendar months. In the event of an “uneconomic Plant” condition,
BUYER may elect to terminate gathering and plant processing operations upon
ninety (90) days prior written notice to SELLER, at which time this Agreement
shall terminate.

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V. QUALITY OF DELIVERED GAS

	5.1	 	The Gas delivered at the Receipt Point(s) shall meet the quality specifications defined in
Exhibit “C” attached hereto.
	 
	5.2	 	SELLER shall not connect any well that would cause the Gas to be delivered to BUYER at the
Receipt Point(s) to fail to conform to the specifications set forth on Exhibit “C”.

	 	5.2.1	 	In the event SELLER wishes to connect any Well which would cause the Gas at
the Receipt Point(s) to fail to conform with such specifications (“Non-Conforming
Well”) SELLER shall notify BUYER of its desire to tender gas from a Non-Conforming Well
at which time BUYER may elect to either:

	 	(a)	 	accept Gas from such well without modification or treatment,
	 
	 	(b)	 	seek agreement with SELLER upon a means of treating the gas from
such well and the fees (if any) to be charged therefor prior to the flow of gas
from such well under this Agreement, or
	 
	 	(c)	 	release such Non-Conforming Well from this Agreement.

	 	5.2.2	 	In the event the quality of SELLER’s Gas generally fails to meet the
specifications, SELLER shall notify BUYER prior to the delivery of such Gas. Upon
receipt of SELLER’s notice BUYER and SELLER shall endeavor to agree upon a means to
bring such gas into compliance with the specifications and a fee (if any) therefore.
Failing such agreement, BUYER may either accept such Gas “as is” or release such Gas
from this Agreement.

	5.3	 	BUYER’s acceptance of Gas that does not conform to quality specifications set forth herein
will not constitute a waiver of SELLER’s obligation to conform to such specifications in the
future, nor a waiver of BUYER’s right to refuse delivery of such nonconforming Gas at any
time.

VI.
DELIVERY, COMPRESSION, PRESSURES, METER

 FEES, REBUILD AND ALTERATIONS

	6.1	 	Delivery Pressures. Commencing with the installation of facilities pursuant to
3.4.1(c) hereof, SELLER shall deliver Gas to BUYER at the Receipt Point(s) at a pressure
sufficient to enter BUYER’s system against the operating pressure as it exists from
time-to-time, but not to exceed 150 psig.
	 
	6.2	 	Pressures. Pressures calculated for purposes of this Agreement shall be
volume-weighted pressures at the Receipt Point(s) for the Month as determined by BUYER.
	 
	6.3	 	Meter Fees. In the event that the total metered volume from any one (1) Receipt
Point falls below an average of twenty-five (25) MCF per day for any month, BUYER shall
charge SELLER a meter fee for each MCF delivered by or for the account of SELLER for that
month. The meter fee shall be determined by dividing a sum of (**) Dollars ($(**)) by
the total metered volume (MCF) for that month. In the event the total metered volume is zero
(0) the fee shall be (**) Dollars ($(**)) multiplied by
SELLER’s owned or controlled
interest.
	 
	6.4	 	Rebuild and Alterations. BUYER reserves the right, in its sole discretion, to
alter, repair, maintain, expand or rebuild, without approval of
SELLER, any portion of BUYER’s
facilities. SELLER shall make no alterations, additions or repairs to or on the facilities of
BUYER. SELLER agrees not to connect or cause the connection of any
third-party well to BUYER’s
facilities for any purpose without the express written consent of BUYER, such consent to be in
BUYER’s sole discretion. If this condition is breached by SELLER, BUYER shall have the right

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	 	 	and option, notwithstanding any other provision of this Agreement, to terminate this
Agreement immediately and without further obligation to SELLER.

VII. NOMINATIONS AND SCHEDULING

	7.1	 	Deliveries. SELLER shall deliver all available Gas in such uniform hourly flows
as is commercially practicable. In the event SELLER anticipates a material increase or
decrease in the flow of Gas at any Receipt Point, SELLER shall provide BUYER with at least
five (5) days advance notice of change.

VIII. PAYMENT, EXAMINATION,

INDEMNIFICATION, SUSPENSION, AND DEDUCTIONS

	8.1	 	Payment. BUYER shall, on the later of (i) the last day of the month or (ii) within
ten (10) days of BUYER’s receipt of any necessary allocation statements relating to sales and
purchases from third parties upstream of the Receipt Point(s), pay SELLER for the Gas
delivered hereunder during the preceding month. During any period BUYER purchases Gas from
SELLER and other SELLER(s) delivered to any Receipt Point(s), SELLER shall furnish, or cause
to be furnished, to BUYER on or before the fifteenth (15th) day of each calendar month, any
necessary allocation statements containing data (including, but not limited to, quantity and
BTU content) that BUYER may require to enable BUYER to make payments. SELLER is to cooperate
with other SELLER(s) delivering Gas at the Receipt Point(s) in order to appoint in writing a
representative who, as their agent, is to furnish an allocation statement. BUYER is entitled
to rely conclusively on such allocation statement, and has a complete defense to any claim by
SELLER for any sums due for Gas delivered by SELLER at the Receipt Point(s) during any period
by showing that BUYER has made payment to SELLER for its share, as identified in such
allocation statement, of the total quantity of Gas received by BUYER at the applicable Receipt
Point(s) during the period in question (other than for measurement error as specified in the
Article titled MEASUREMENT OF GAS VOLUME AND TESTING). If any allocation statement
is not furnished to BUYER by the fifteenth (15th) day of any month, the time that
BUYER has to make payment for delivered Gas (without interest) is to be extended until the
payment cycle which next follows the tenth
(10th) day after BUYER’s receipt of the
allocation statement.
	 
	8.2	 	Final Payment. All payments under this Agreement will be final unless questioned by
either party within two (2) years of the due date of a payment.
	 
	8.3	 	Examination of Records. Each party to this Agreement shall have the right, at any
and all reasonable times during normal business hours, to examine the books and records of the
other party, to the extent necessary to verify the accuracy of any statement, charge,
computation, or demand made under or pursuant to this Agreement, and both parties shall keep
all such records for at least twenty-four (24) months after the due date for payment for the
Receipt of Gas to which such records are applicable. Such books and records shall be
conclusively presumed to be correct, except as to claims or corrections by the parties made by
written notice to the other within such twenty-four (24) month period.
	 
	8.4	 	Indemnification, Payment Suspension. Each party agrees to indemnify and hold the
other party harmless with respect to all costs, losses, and damages (including without
limitation reasonable attorney’s fees) arising from or related to the breach of any covenant,
representation, or warranty contained in this Agreement. In the event of any claim arising
from or relating to such a breach by SELLER, BUYER shall be entitled, at its option, in
addition to any other rights it may have, to suspend payment of sums due SELLER hereunder up
to the amount of such claim

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	 	 	until such claim is resolved or until such time as SELLER provides sureties acceptable
to BUYER. Any such suspension of payment hereunder shall not
constitute a breach of BUYER’s
payment obligations under this Agreement.
	 
	8.5	 	Deductions. BUYER shall also be entitled, at its option, in addition to any other
rights it may have, to deduct from any payment due SELLER under this Agreement any amounts
payable to BUYER from SELLER under this Agreement and to apply such amounts deducted to pay
such amounts payable to BUYER, and such deduction and application shall not constitute a
breach of BUYER’s payment obligations under this Agreement.
	 
	8.6	 	Reimbursement of State Severance Taxes. The payment set forth on Exhibit “A” for gas
purchased by BUYER hereunder shall be deemed to be inclusive of reimbursement to SELLER for
production and severance taxes borne by SELLER. No additional payment from BUYER to SELLER
hereunder, other than that specified on Exhibit “A”, shall be required to compensate SELLER
for such tax reimbursement.

IX. WARRANTY, TITLE, AND EASEMENTS

	9.1	 	Warranty of Title. SELLER warrants that it has the title to the Gas dedicated
hereunder and delivered at the Receipt Point(s), and said Gas is free from all liens and
adverse claims of all kinds, including the right and authority to sell and to process for the
recovery of Plant Products. SELLER shall hold BUYER harmless against adverse claims related
thereto.
	 
	9.2	 	Title. Title shall pass to BUYER at the Receipt Point(s).
	 
	9.3	 	Easements. To the extent SELLER has the right to do so, SELLER hereby permits BUYER
the rights of ingress and egress on the Leases to construct, install, operate, repair, inspect
and maintain BUYER’s facilities necessary to receive Gas from SELLER at the Receipt Point(s).
SELLER hereby assigns and grants to BUYER, to the extent it has the right to do so, an
easement and right-of-way upon all lands covered by the Leases for the purposes above. Any
property of BUYER placed in or upon any of those lands shall remain the personal property of
BUYER, and may be disconnected and removed at any time. SELLER shall, at its expense,
maintain and provide all such easements, rights-of-way, lease roads and other facilities upon
such Leases as may reasonably be deemed necessary by BUYER for its performance of this
Agreement. SELLER further agrees to indemnify BUYER from any adverse claims related thereto.

X.
INDEMNITY, INTERRUPTION, AND FORCE MAJEURE

	10.1	 	Indemnity. In addition to the indemnities contained herein, BUYER shall indemnify
and hold SELLER harmless against any claims for damages arising out of the operations
conducted hereunder by BUYER. Likewise, SELLER shall indemnify and hold BUYER harmless against
any claims for damages arising out of SELLER’s operations hereunder. The obligations of the
parties under this Agreement are obligations of the parties only and no recourse or remedy
shall be available against any officer, director, or employee representative of a party or
against any affiliate of a party.
	 
	10.2	 	Interruption. It is understood and agreed that either party hereto may, without
liability to the other party, interrupt the operations of its facilities for the purpose of
making necessary alterations, maintenance, or repairs thereto, but that such interruption
shall be for only such time as may be commercially reasonable to perform such operations.
Delivery and/or receipt of Gas pursuant to this Agreement may be suspended for such period of
interruption.
	 
	10.3	 	Force Majeure. If SELLER or BUYER is rendered unable, wholly or in part, by reason
of force majeure, from carrying out its obligations under this Agreement (other than the
obligation to make payment of amounts due hereunder), then upon said party’s giving prompt
written

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	 	 	notice of such force majeure to the other party, the obligations of the party giving such
notice, so far as they are affected by such force majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period, and such cause shall be
remedied with all commercially reasonable dispatch. The term “force majeure,” as used herein,
shall include acts of God; acts of federal, state, or local government or any agencies
thereof; compliance with rules, regulations, permits or orders of any governmental authority
or any office, department, agency, or instrumentality thereof; strikes, lockouts, or other
industrial disturbances; acts of the public enemy, wars, blockages, insurrections, riots, and
epidemics; landslides, lightning, earthquakes, fires, storms, floods, and washouts; arrests
and restraint of people; civil disturbances; explosions, leakage, breakage, or accident to
equipment or pipes; freezing of Wells or pipes; weather-related shutdowns; inability to
secure rights-of-way; inability to timely obtain equipment, supplies, materials, permits,
labor; failures or delays in transportation; receipt of non-specification or non-merchantable
Gas; and any other causes, whether of the kind herein enumerated or otherwise, not within the
reasonable control of the party claiming suspension, which, by the exercise of due diligence,
such party shall not have been able to avoid. The settlement of strikes or lockouts shall be
entirely within the discretion of the party having the difficulty. The requirement that any
force majeure shall be remedied with all commercially reasonable dispatch shall not require
the settlement of strikes or lockouts by acceding to the demands of the opposing party, when
such is deemed inadvisable by the party involved.

XI. ROYALTY AND TAXES

	11.1	 	Royalty. SELLER shall account for, pay, or cause to be paid all royalties,
overrides, and other sums due by SELLER to the owners of the mineral, royalty, and other
interests in the Gas, and SELLER shall indemnify and save BUYER harmless against all loss,
damage, and expense of every character on account of adverse claims to all such Gas, Residue
Gas, and Plant Products or royalties, taxes, payments, or other charges due thereon. Should
BUYER be obligated by law or regulation to make payment for any royalties or overrides due to
be paid by SELLER, BUYER shall deduct such payments from any amounts due by BUYER to SELLER.
Should such payments be in excess of amounts due by BUYER to SELLER, SELLER shall promptly
reimburse BUYER for the amount of royalties or overrides so paid within ten (10) days of
receipt of such statement
	 
	11.2	 	Taxes. SELLER shall pay or cause to be paid any sales, transaction, occupation,
service, production, severance, gathering, transmission, or excise taxes, assessments, or fees
levied, assessed, or fixed, whether by the United States, the state, or other governmental
agency, in respect of or applicable to the Gas delivered hereunder. Any taxes and statutory
charges levied or assessed against SELLER’s properties, facilities, or operations shall be
borne by SELLER. BUYER shall bear all taxes levied against its properties or facilities.
Should BUYER be obligated by law or regulation to make payment for any taxes due to be paid by
SELLER, BUYER shall deduct such payments from any amounts due by BUYER to SELLER. Should such
payments be in excess of amounts due by BUYER to SELLER, SELLER shall promptly reimburse BUYER
for the amount of taxes so paid within ten (10) days of receipt of such statement.

XII. MEASUREMENT OF GAS VOLUME AND TESTING

	12.1	 	Calibration. BUYER shall keep its measurement equipment accurately calibrated
and in repair, making tests at reasonable intervals of no less than once every calendar
quarter. BUYER agrees to give SELLER reasonable notice of such tests of the measuring
equipment so

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	 	 	that, if SELLER desires, it may have its representative present. In the event the meters
are found to be inaccurate, such meters will be adjusted to register accurately.
	 
	12.2	 	Accuracy. Each party shall have the right to challenge the accuracy of any
related equipment and, when challenged, the equipment shall be tested, calibrated and repaired
by BUYER; the cost of any such special test shall be borne by BUYER if the percentage of
inaccuracy is found to be more than two percent (2%), but if the percentage of inaccuracy is
found to be two percent (2%) or less, the cost of such special test shall be borne by SELLER.
If, upon any test, the percentage of inaccuracy of the measuring equipment is found to be in
excess of two percent (2%), registrations thereof and any payment based upon such registration
shall be corrected for a period extending back to the time (not to exceed one (1) year) when
such inaccuracy began, if such time is ascertainable, and if not ascertainable, then back
one-half
(1/2) of the time elapsed since the last date of calibration not exceeding, however,
forty-five (45) days.
	 
	12.3	 	Repairs. If, for any reason, the meters are out of service or out of repair so
that the amount of Gas delivered cannot be ascertained or computed from the reading thereof,
the Gas delivered during the period such meters are out of service or out of repair shall be
estimated and agreed upon by the parties hereto upon the basis of the data available using the
first of the following methods that is feasible:

	 	12.3.1	 	By using the registration of any check meter or meters if installed and
accurately registering, or in the absence of (12.3.1) then;
	 
	 	12.3.2	 	By correcting the error if the percentage of error is ascertainable by
calibration, special test, or mathematical calculation, or in the absence of both
(12.3.1) and (12.3.2) then;
	 
	 	12.3.3	 	By estimating the quantity of Gas delivered based on the registration of any
meter or meters if installed and accurately registering, or in the absence of (12.3.1),
(12.3.2), and (12.3.3) then;
	 
	 	12.3.4	 	By estimating the quantity of Gas delivered or redelivered based on deliveries or
redeliveries during preceding periods under similar conditions when the meter was
registering accurately.

	12.4	 	Records. The records from the measuring equipment shall remain the property of the
party owning such equipment and shall be kept by such party on file for a period of not less
than two (2) years. At any time within such period, such party shall, upon request to the
other party, submit to such party records from the measuring equipment, together with
calculations therefrom, for inspection and verification, subject to return within thirty (30)
days from receipt thereof.
	 
	12.5	 	Measurement Standards. The measuring station or stations provided for hereunder shall
be so equipped with meters, recording gauges, or other types of meter or meters of standard
make and design used in the industry and according to applicable AGA or API standards, so as
to accomplish the measurement of Gas delivered and redelivered hereunder. Gas measured
hereunder will have its volume, mass, gravity, composition or energy content determined and
computed in accordance with applicable AGA standards in effect at the date of installation of
the measurement equipment and shall comply with applicable state and federal regulation. At
BUYER’s option, BUYER may update the measurement equipment and/or the determination of volume,
mass, gravity, composition or energy content in accordance with subsequent revisions,
supplements, and appendices to said AGA standards.
	 
	12.6	 	Pulsation. The Parties shall design, install, operate and maintain their respective
equipment in such a manner that pulsation-induced measurement error is minimized.
Pulsation-induced error shall not exceed one quarter of one percent (0.25%) of square root
error (SRE). Either party has the right to request a test of the orifice meter facility. If
SRE is found to exceed the limit stated above, the party responsible for the creation of the
SRE must have a plan for the

9

 

	 	 	elimination of the SRE within thirty (30) days and equipment installed or modified to
correct SRE in a reasonable amount of time, not to exceed six (6) months. Pulsation errors
determined by the use of a square root error indicator manufactured under a license for the
Southern Gas Association are to be used only for the purpose of determining SRE and are not
to be used for adjusting measured volumes.
	 
	12.7	 	Boyle’s Law. The measurement hereunder shall be corrected for deviation from Boyle’s
Law at the pressures and temperatures under which Gas is delivered hereunder.
	 
	12.8	 	Temperature. The temperature of the Gas shall be determined to the nearest one
degree Fahrenheit (1°F) at the points of measurement by the continuous use of recording
thermometers of standard manufacture acceptable to the parties, to be installed in accordance
with the recommendations contained in American Gas Association Measurement Committee Report
Number 3, 7, or 9 as appropriate, and the arithmetical average of hourly temperatures of the
Gas so determined each day shall be used in computing temperatures of the Gas during each day.
	 
	12.9	 	Supercompressibility. Unless otherwise allowed by state law, adjustment for the
effect of supercompressibility shall be determined by test or by mutual consent of the parties
hereto according to the provisions contained in American Gas Association Measurement Committee
Report Number 3, 7, 8 or 9 as appropriate, for the average conditions of pressure, flowing
temperature, and specific gravity at which the Gas was measured during the period under
consideration and with the respective proportionate values for carbon dioxide and nitrogen
fractional values and to obtain subsequent values of these Components as may be required from
time to time.
	 
	12.10	 	Check Measurement. At the Receipt Point(s) SELLER may install check measuring
equipment at its own cost and expense; provided, such equipment shall be so installed as not
to interfere with the operations of the BUYER. BUYER’s meter shall be the meter used for all
measurement purposes. BUYER and SELLER, in the presence of each other, shall have access to
the other’s measuring equipment at all reasonable times; but the reading, calibrating, and
adjusting thereof, and the changing of charts, if any, shall be done only by the owner of the
meter or its representative unless otherwise agreed. Each party shall give notice sufficiently
in advance, and the other parties notified shall have the right to be present at the time of
any installing, reading, cleaning, changing, repairing, inspecting, testing, calibrating, or
adjusting done in connection with the other’s measuring equipment; provided, however, failure
of either party so notified to witness such an operation after due notification shall not
affect the validity of such operation in any way.
	 
	12.11	 	Sampling. BUYER shall obtain a sample at least annually of Gas at the Receipt
Point(s) by using methods contained in GPA Standard 2166 / API 14.1, as revised, “Methods for
Obtaining Natural Gas Samples for Analysis by Gas Chromatography.” This sample may be
obtained utilizing a spot sampler, continuous sampler, on-stream chromatograph or other
instruments approved by BUYER. SELLER may request that additional samples be taken in order
that SELLER may have its own sample tested independently. Any additional samples requested by
SELLER shall be at SELLER’s sole expense.
	 
	12.12	 	Composition, Gross Heating Value, Specific Gravity. The composition of the
Gas shall be determined from the sample of the Gas by using GPA Standard 2261, as revised,
“Method of Analysis for Natural Gas and Similar Gaseous Mixtures by Gas Chromatography,” with
the exception of sulfur compounds. The gallons per MCF and the Gross Heating Value of the Gas
shall be determined by using technically correct methods contained in GPA Standard 2172, as
revised, “Method for Calculation of Gross Heating Value, Specific Gravity,
and Compressibility of Natural Gas Mixtures from Compositional Analysis”, and the Gross
Heating Values from GPA Standard 2145, as revised from time to time, “Table of Physical
Constants

10

 

	 	 	for the Paraffin Hydrocarbons and Other Components of Natural Gas,” Each composition, Gross
Heating Value and Specific Gravity determination shall be effective until the next
determination. The Specific Gravity of the Gas shall be recorded to the nearest
one-thousandth (0.001).
	 
	12.13	 	Water Content. Gas delivered at the Receipt Point(s) shall be considered to be
saturated with water at measurement temperature and pressure, unless Gas has been dehydrated
to a water content of seven (7) Ibs/MMCF or less prior to the point of measurement. The water
content shall be determined by BUYER using practices contained in GPA 181, GPA 2172, AGA
Report No. 3 or other reasonable practices as determined appropriate by BUYER. Gas with
seven (7) Ibs/MMCF or less shall be considered dry, i.e. containing no water
	 
	12.14	 	Assumed Atmospheric Pressure. The atmospheric pressure shall be assumed to be the
average atmospheric pressure for the elevation as used by BUYER in that particular geographic
area regardless of the actual atmospheric pressure where Gas is measure.
	 
	12.15	 	Sulfur. The sulfur content shall be determined from tests taken at the Receipt
Point(s) by methods accepted in the industry, such as GPA Standard 2377, as revised, “Method
of Test for Hydrogen Sulfide and Carbon Dioxide in Natural Gas Using Length of Stain Tubes.”
Other sulfur species can be determined by chromatographic analysis conditional on the parties’
acceptance of the type of analysis to be used and the condition of the sample.
	 
	12.16	 	NGL Measurement. The Natural Gas Liquids removed by processing will be measured
using measurement equipment and practices accepted in the industry and supported by AGA, API
and/or GPA standards, as applicable.

XIII. NOTICES AND STATEMENTS

	13.1	 	All notices, statements, payments and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed to have been effectively given when
delivered by facsimile or mailed by first class mail, addressed to the parties as follows:

	 	 	 	 	 
	NOTICE TYPE	 	BUYER	 	SELLER
	CONTRACTS

	 	ONEOK Texas Field Services, L. P.
	 	Peak Operating of Texas, LLC
	 

	 	Attn: Contract Administration
	 	Attn:
	 

	 	P. O. Box 871
	 	3473 Main Avenue, Suite 23
	 

	 	Tulsa, OK 74102-0871
	 	Durango, CO 81301
	 

	 	Telephone: (918)732-1307
	 	Telephone: ( 970) 247-1500
	 

	 	Fax: (918) 588-7466
	 	Fax: (970) 247-5424
	 
	 	 	 	 
	SCHEDULING

	 	ONEOK Texas Field Services, L. P.
	 	Peak Operating of Texas, LLC
	 

	 	Attn: Scheduling
	 	Attn:
	 

	 	P. O. Box 871
	 	3473 Main Avenue, Suite 23
	 

	 	Tulsa, OK 74102-0871
	 	Durango, CO 81301
	 

	 	Telephone: (918) 591-5000
	 	Telephone: (970) 247-1500
	 

	 	Fax:
	 	Fax: (970) 247-5424
	 
	 	 	 	 
	ACCOUNTING

	 	ONEOK Texas Field Services, L. P.
	 	Peak Operating of Texas, LLC
	 

	 	Attn: Accounting
	 	Attn:
	 

	 	P. O. Box 871
	 	3473 Main Avenue, Suite 23
	 

	 	Tulsa, OK 74102-0871
	 	Durango, CO 81301
	 

	 	Telephone: (918) 591-5000
	 	Telephone: (970) 247-1500
	 

	 	Fax:
	 	Fax: (970) 247-5424

11

 

	 	 	 	 	 
	PAYMENTS	 	By Check	 	By Check 
	 

	 	ONEOK Texas Field Services, L. P.	 	 
	 

	 	 	 	 
	 

	 	P.O. Box 972833	 	 
	 

	 	 	 	 
	 

	 	Dallas, TX 75397-2833	 	 
	 

	 	 	 	 

	 	 	 	 	 
	PAYMENTS	 	By Wire 	 	By Wire
	 

	 	Bank One, Oklahoma, NA	 	 
	 

	 	15 East 5th Street	 	 
	 

	 	Tulsa, OK 74103	 	 
	 

	 	ABA# 103000648	 	 
	 

	 	Bank Account #632945051	 	 
	TAX ID:
	 	 	 	 
	 

	 	 
	 	 

	13.2	 	Changes. Notices of change of address of any of the parties shall be given in
writing to the other in the manner aforesaid and shall be observed in the giving of all
future notices, statements, or other communications required or permitted to be given
hereunder.

XIV. DEFAULT

	14.1	 	If either party shall fail to perform any of the covenants and obligations imposed upon
it under and by virtue of this Agreement (except where such failure shall be excused under
any of the provisions of this Agreement), then in such event the other party may, at its
option, terminate this Agreement by proceeding as follows:

	 	14.1.1	 	The party not in default shall give notice stating specifically the cause for
terminating this Agreement and declaring it to be the intention of the party giving
the notice to terminate same.
	 
	 	14.1.2	 	The party in default shall have sixty (60) days after the service of the aforesaid
notice in which to remedy or remove cause or causes stated in the notice for
terminating this Agreement, and, if within said period of sixty (60) days, the party
in default does so remove or remedy said cause or causes and fully indemnifies and/or
reimburses the party not in default for any and all damages, losses, and consequences
of such breach, then such notice shall be withdrawn and this Agreement shall continue
in full force and effect.
	 
	 	14.1.3	 	In case the party in default does not so remedy and remove the cause or causes or
does not indemnify and/or reimburse the party giving the notice for any and all
damages, losses, and consequences of such breach within said period of sixty (60)
days, then this Agreement shall, at the expiration of said sixty (60) day period,
terminate, except as to all accrued obligations not yet discharged; provided, however,
that if such default be remedied but no indemnification therefore has been made due to
a bona fide dispute between the parties as to the amount thereof, then this Agreement
shall not terminate, but the party not in default shall have the right to seek
indemnification in any manner provided by law or by this Agreement.

Any cancellation of this Agreement, pursuant to the provisions of this Article,
shall be without

12

 

	 	 	prejudice to the right of the party not in default to collect any amounts due for
breach of this Agreement; provided, however, the provisions herein for termination of this
Agreement shall not apply if the failure of BUYER involves failure to pay any sum or amount
due hereunder, and BUYER’s refusal to pay is subject to a bona fide dispute, and BUYER pays
all amounts not in dispute; provided further, however, that any termination of this
Agreement for breach shall be carried out by the party not in default exclusively in
accordance with to the provisions set out in this Article.
	 
	14.2	 	No waiver of any default under this Agreement shall constitute a waiver of any other
default, whether of like or different character.

XV. DEFINITIONS

	15.1	 	For the purpose of this Agreement, unless the context clearly indicates otherwise, the
following definitions shall be applicable:

	 	15.1.1	 	BTU shall mean British Thermal Unit and is equal to 1055.05585262 Joule.
	 
	 	15.1.2	 	Business Day shall mean any day except Saturday, Sunday or Federal Reserve Bank
holidays starting at eight o’clock a.m. Central Standard Time.
	 
	 	15.1.3	 	Condensate shall mean the liquid hydrocarbons that are recovered from the Gas
in typical oil and Gas separators or pipeline drips, usually from changes in ambient or
ground temperature and/or pressure, but not from processing.
	 
	 	15.1.4	 	Cubic Foot of Gas for the purpose of measurement of the Gas delivered hereunder
shall mean the amount of Gas necessary to fill one cubic foot of space at a base pressure
of fourteen and seventy-three hundredths (14.73) pounds per square inch absolute and at a
base temperature of sixty degrees Fahrenheit (60°F) (“Base Conditions”) and shall be the
volume unit of measurement.
	 
	 	15.1.5	 	Day or day shall mean a twenty-four (24) consecutive hour period. For
measurement purposes described herein it will begin with the hour that is the then
beginning hour that is the standard practice of BUYER.
	 
	 	15.1.6	 	FL&U shall mean the sum of the MMBTU’s of field fuel and the MMBTU’s of lost
and unaccounted gas, but not including other fuel retained for services such as
compression and dehydration.
	 
	 	15.1.7	 	Gas or gas shall mean natural gas as produced from Wells in its natural state
that meets the quality specifications of Article V of this Agreement.
	 
	 	15.1.8	 	GPM shall mean gallons per MCF.
	 
	 	15.1.9	 	Gross Heating Value of the Gas shall mean the BTU content of one Cubic Foot of
Gas at defined conditions which is the number of BTU’s produced by the complete
combustion of such Cubic Foot of Gas, at constant pressure with air of the same
temperature and pressure as the Gas, when the products of combustion are cooled to the
initial temperatures of the Gas and air, and when water is formed by such combustion is
condensed to a liquid state at the initial temperature of the Gas.
	 
	 	15.1.10	 	Gross Heating Value of the NGL’s shall mean the BTU per gallon, fuel as ideal
gas, as described in the current GPA Standard 2145 with the exception of hexanes plus,
which shall be that recommended in the current GPA Standard 2261, i.e. 60% hexane, 30%
n-heptane and 10% n-octane
	 
	 	15.1.11	 	Lands and Lease(s) shall mean the contractual right to the title of and to the
minerals, including oil and gas, from geological formations on and below the properties
described in Exhibit “B” attached hereto and made a part hereof and as amended from time
to time, including certain surface rights as necessary to explore, develop, drill and
produce said minerals from such properties or lands.

13

 

	 	15.1.12	 	MCF shall mean one thousand (1,000) Cubic Foot of Gas.
	 
	 	15.1.13	 	MMBTU shall mean one million (1,000,000) British Thermal Units.
	 
	 	15.1.14	 	MMCF shall mean one million (1,000,000) Cubic Foot of Gas.
	 
	 	15.1.15	 	Month shall mean that period of time beginning on the first Day of a calendar
Month and ending on the first Day of the following calendar Month, except that the first
Month shall commence on the Day of initial receipt of Gas hereunder and shall end on the
first Day of the following calendar Month.
	 
	 	15.1.16	 	Natural Gas Liquids or NGL’s shall mean those liquid hydrocarbons extracted
from the Gas from processing. The components (“Components”) of the NGL’s are identified
as ethane, propane, iso-butane, normal butane, natural gasolines and incidental methane
and other miscellaneous liquids that become associated with the NGL’s.
	 
	 	15.1.17	 	Psig shall mean pounds per square inch gauge.
	 
	 	15.1.18	 	Psia shall mean pounds per square inch absolute.
	 
	 	15.1.19	 	Plant(s) shall mean Gas processing facilities where Natural Gas Liquids and
other Plant Products are separated from the Gas.
	 
	 	15.1.20	 	Plant Products shall mean the Natural Gas Liquids and helium, if any, as
extracted from processing.
	 
	 	15.1.21	 	Receipt Point(s) shall mean the inlet flange of BUYER’S pipeline facilities
installed to take deliveries of Gas from SELLER.
	 
	 	15.1.22	 	Water Content shall mean the water vapor content of one Cubic Foot of Gas at
Base Conditions. The Gas not dehydrated to a Water Content of less than seven (7) pounds
per MMCF prior to delivery by SELLER at the Receipt Point(s) shall be considered to be
saturated with water at Base Conditions. Gas with a Water Content equal to or less than
seven (7) pounds per MMCF shall be considered to be dry at Base Conditions
	 
	 	15.1.23	 	Wells shall mean the Well or Wells productive of Gas from all geological
formations which is completed on the Leases described in Exhibit “B” attached hereto and
in which SELLER has an interest, owns or controls the right to dispose of Gas produced
therefrom.
	 
	 	15.1.24	 	Year shall mean any period of twelve (12) consecutive calendar Months.

XVI. MISCELLANEOUS

	16.1	 	Changes. All modifications, ratifications, amendments or changes to this
Agreement, whether  made simultaneously with or after the execution of this Agreement shall
be in writing, executed by both BUYER and SELLER, and attached hereto.
	 
	16.2	 	Regulation. This Agreement shall be subject to all valid rules, regulations,
interpretations, and orders of any duly constituted federal or state regulatory body having
jurisdiction hereof. This Agreement and the respective rights and obligations of the parties
hereto are subject to all existing and future laws, statutes, rules, regulations, orders or
directives promulgated by any duly constituted state or federal governmental authority,
regulatory body or commission having jurisdiction or control over the parties, their
respective facilities or services contemplated herein. Should either party be ordered or
required to do any act inconsistent with the provisions of this Agreement, this Agreement
shall be deemed modified to conform to the requirements of such law or regulation. If any
provision of this Agreement is held to be illegal, invalid, unenforceable or have a material
and substantial negative impact on the rights, duties or obligations of either party, then the
parties shall meet in good faith to determine if such negative impact can be eliminated or
mitigated. If such negative impact cannot be eliminated or mitigated to the satisfaction of
either party, then either party shall have the right to terminate this Agreement.

14

 

	16.3	 	Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and assigns, and the
assigns of any oil and gas leases or interests subject to the terms hereof, and shall
constitute a covenant running with lands, leaseholds and interests covered hereby. Any
assignment, transfer or conveyance hereof shall expressly require that the assignee assume
and agree to discharge the duties and obligations of its assignor under this Agreement. No
assignment, transfer or conveyance of this Agreement or of any interest of either party
herein shall be binding upon the other until such party has been notified, in writing, of
such assignment, transfer or conveyance and furnished a true copy of same. No such
assignment, conveyance or transfer of either party shall in any way operate to enlarge, alter
or modify any obligation of the other party or parties hereto.
	 
	16.4	 	Entire Agreement. This Agreement contains the entire agreement between the parties
hereto and there are no oral promises, agreements, or warranties affecting same.
	 
	16.5	 	Headings. The topical headings and index used herein are inserted for convenience
only and shall not be construed as having any substantive significance or meaning whatsoever,
or as indicating that all of the provisions of this Agreement relating to any particular topic
are to be found in any particular section.
	 
	16.6	 	Interpretations. The parties hereto agree and confirm that, in the
consideration and interpretation of this Agreement, same shall be construed under the laws of
the State of Texas, excluding any conflicts of law, rule, principle, or law which might refer
to the laws of another state and this Agreement was prepared by all parties hereto and not by
any party to the exclusion of the other or others.
	 
	16.7	 	Independent Contractor. It is not the intention of the parties hereto to create,
nor is there created hereby, a partnership, joint venture, or association. The status of each
party hereunder is solely that of an independent contractor.
	 
	16.8	 	Confidentiality. SELLER AGREES THAT THE TERMS AND CONDITIONS OF THIS AGREEMENT WILL
BE HELD CONFIDENTIAL AND SHALL NOT BE DISCLOSED TO OTHER PARTIES WITHOUT CONSENT OF BUYER
UNLESS THAT DISCLOSURE IS REQUIRED BY FEDERAL OR STATE LAW OR AGENCY. SELLER SHALL FURNISH
BUYER PROMPT NOTICE IF SUCH DISCLOSURE IS MADE.
	 
	16.9	 	Damages.

	 	16.9.1	 	In no event shall either party be liable to the other for consequential,
incidental, special, punitive, indirect damages, lost profits, or other business
interruption damages in connection with the performance or nonperformance of the
parties under this Agreement.
	 
	 	16.9.2	 	THE PARTIES CERTIFY THAT THEY ARE NOT “CONSUMERS” WITHIN THE MEANING OF THE TEXAS
DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT, SUBCHAPTER E OF CHAPTER 17,
SECTIONS 17.41 ET SEQ. OF THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED, (“DTPA”).
THE PARTIES COVENANT, FOR THEMSELVES AND FOR AND ON BEHALF OF ANY SUCCESSOR OR
ASSIGNEE, THAT, IF THE DTPA IS APPLICABLE TO THIS AGREEMENT, (1) THE PARTIES ARE
“BUSINESS CONSUMERS” AS THAT TERM IS DEFINED IN THE DTPA, (2) OTHER THAN SECTION 17.555
OF THE TEXAS BUSINESS AND COMMERCE CODE, EACH PARTY HEREBY WAIVES AND RELEASES
ALL OF ITS RIGHTS AND REMEDIES THEREUNDER AS APPLICABLE TO THE OTHER PARTY AND ITS
SUCCESSORS AND ASSIGNS, AND (3) EACH PARTY SHALL DEFEND AND INDEMNIFY THE OTHER PARTY
FROM AND AGAINST ANY AND ALL CLAIMS OF OR BY THE INDEMNIFYING PARTY OR ANY OF
ITS SUCCESSORS AND ASSIGNS OR ANY OF ITS OR THEIR AFFILIATES OR

15

 

SUBSIDIARIES BASED IN WHOLE OR IN PART ON THE DTPA ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT.

     IN WITNESS WHEREOF, the parties have executed this Agreement in one or more copies
or counterparts, each of which, when executed by BUYER and SELLER, shall constitute and
be an original effective Agreement between BUYER and such SELLER.

	 	 	 	 	 	 	 	 	 	 	 
	“BUYER”	 	 	 	“SELLER”	 	 
	ONEOK Texas Field Services, L.P.	 	 	 	PEAK OPERATING OF TEXAS, LLC	 	 
	a limited partnership	 	 	 	 	 	 	 	 
	By: ONEOK Field Services Co.	 	 	 	 	 	 	 	 
	general partner	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By

	 	/s/ Terry Spencer
 

	 	 	 	By
	 	/s/ Jack E. Vaughn
 

	 	 
	 
	Name:

	 	Terry Spencer
	 	 	 	Name:
	 	Jack E. Vaughn	 	 
	 
	Title:

	 	Vice President
	 	 	 	Title:
	 	President	 	 
	 
	Date:

	 	3/31/04
	 	 	 	Date:
	 	March 19, 2004	 	 

16

 

EXHIBIT “A”

Percent of Proceeds

Allocated Plants

     This Exhibit “A” is incorporated into that certain Gas Purchase Agreement dated the first day
October, 2003, by and between ONEOK Texas Field Services, L. P., hereinafter referred to as
“BUYER,” and Peak Operating of Texas, LLC, hereinafter referred to as “SELLER.”

BASIS OF COMPENSATION shall be the sum of the following:

	1.	 	NGL Products Payment. BUYER shall pay to SELLER an amount equal to (**)
percent ((**)%) of the Net NGL Proceeds.
	 
	2.	 	Residue Gas Payment. BUYER shall pay to SELLER an amount equal to (**)
percent ((**)%) of the Net Residue Proceeds.
	 
	3.	 	Compression Fee. (**)
	 
	4.	 	Gathering Fee. (**)
	 
	5.	 	Dehydration Fee. (**)
	 
	6.	 	Treating Fee. (**)

DEFINITIONS: ‘

SELLER’s NGL Products shall be determined by multiplying the total quantity of each NGL
Component saved and sold at the Plant(s) by a fraction, the numerator of which shall be the
theoretical gallons of such Component contained in SELLER’s Gas delivered at the Receipt Point(s)
and the denominator of which shall be the total theoretical gallons of each Component contained in
all Gas delivered to BUYER’s facilities upstream of the Plant(s).

Net NGL Proceeds shall be sum of each Component of SELLER’s NGL Products multiplied by the
Monthly Average NGL Sales Price of each Component.

Monthly Average NGL Sales Price shall mean the average net price received by BUYER f.o.b.
BUYER’s Plant for the sale of each NGL Component.

Residue Gas shall mean the total quantity of MMBTU’s of gas (both processed and
unprocessed) sold at the tailgate of BUYER’s Plant(s).

NGL Shrinkage shall be the sum of the BTU equivalent (BTU/gal, fuel as ideal gas) of each
such NGL Component as set forth in the GPA Standard 2145, as revised, “Table of Physical Constants
of Paraffin Hydrocarbons and Other Components of Natural Gas with the exception of hexanes plus,
the value of which shall be 117,007 BTU per gallon.

Residue Price shall mean average net price per MMBTU received by BUYER, f.o.b. BUYER’s
Plant for the sale of Residue Gas.

Net Residue Proceeds shall be determined by multiplying SELLER’s Residue Gas by the
Residue Price.

17

 

SELLER’s Residue Gas shall be the total MMBTU’s of Residue Gas multiplied by a fraction,
the numerator of which shall be the MMBTU’s contained in SELLER’s Gas at the Receipt Point(s), less
the MMBTU’s of NGL Shrinkage attributable to SELLER’s NGL Products and the denominator of which
shall be the total MMBTU’s of all gas delivered to BUYER upstream of BUYER’s Plant less NGL
Shrinkage attributable to the total quantity of NGL Components saved and sold from BUYER’s
Plant(s).

18

 

EXHIBIT “B”

     This Exhibit “B” is incorporated into that certain Gas Purchase Agreement dated
the 1st day of October, 2003, by and between ONEOK Texas Field Services, L. P.,
hereinafter referred to as “BUYER,” and Peak Operating of Texas, LLC, hereinafter referred
to as “SELLER.”

	1.	 	SELLER dedicates to this Gas Purchase Agreement, as amended from time to time,
the Wells and Leases described below:

	 	 	 	 	 	 	 	 	 	 	 
	Wells	 	Lands/Lease Description	 	County	 	State	 	*WI%
	 

	 	NW /4 Section 52, Block Ml,

H&GN Survey
	 	Hemphill
	 	TX
	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	All of Section 59, Block Ml,

H&GN Survey
	 	Hemphill
	 	TX
	 	 	100	%

This dedication excludes the following wells producing from the
designated zones, which are under terms of another contract:

	 	 	 
	Vise John 1 Sec 52, Ml, H&GN Survey, Hemphill County, TX

	 	Chert
	 
	 	 
	Young Ranch 524 Sec 52, Ml, H&GN Survey, Hemphill County, TX

	 	Strawn Granite Wash
	 
	 	 
	Johnson LA 1 Sec 59, Ml, H&GN Survey, Hemphill County, TX

	 	Strawn Granite Wash

 

			
	*	 	Includes owned or controlled interest.

19

 

EXHIBIT “C”

Quality Specifications. Unless excepted by specific exemption on Exhibit “B” attached
hereto, Gas from each Receipt Point(s) shall meet the following quality specifications:

Hydrogen Sulfide. The Gas shall not contain more than one part per million (1 ppm) of
hydrogen
sulfide by volume as determined by a method generally acceptable for use in the gas industry and
to the parties hereto.

Total Sulfur. The Gas shall not contain more than one quarter (1/4) grain of total
sulfur per one hundred (100) Cubic Foot of Gas as determined by a method generally acceptable for use in the
gas industry and to the parties hereto.

Temperature. The Gas shall not have a temperature of less than forty degrees Fahrenheit
(40°F) nor more than one hundred-twenty degrees Fahrenheit (120°F).

Carbon Dioxide. The Gas shall not contain in excess of two percent (2.0%) by volume of
carbon dioxide.

Nitrogen. The Gas shall not contain in excess of two percent (2%) by volume of nitrogen.

Oxygen. The Gas shall not contain in excess of ten parts per million (10 ppm) by
volume of oxygen.

Objectionable Liquids, Solids, Contaminants. The Gas shall be free of liquids and solids
and other
potentially harmful contaminants such as arsenic, mercury, selenium, radon, or antimony, Well
treating chemicals, dust, gums, gum-forming constituents, or other objectionable liquid or solid
matter.

Hazardous Waste. The Gas shall be free from all “hazardous waste” as defined in the
Resources
Conservation and Recovery Act, 42 USC 6901, et seq.

Water. The Gas shall not contain free water. Gas which contains in excess of seven (7)
pounds of water vapor per one million (1,000,000) Cubic Foot shall incur a charge for dehydration service
as shown in Exhibit “A” attached hereto.

Mercaptans. The Gas shall have a mercaptan content not in excess of one tenth of one
part per
million (0.1 ppm) by volume.

Hydrogen. The Gas shall contain no carbon monoxide, halogens, or unsaturated
hydrocarbons, and
no more than four hundred parts per million (400 ppm) of hydrogen.

Hydrocarbon Constituents. The Gas shall have not less than a ninety-five percent (95%)
hydrocarbon constituency by volume and shall have a Heating Value of not less than one thousand
(1,000) BTU per Cubic Foot.

20exv10w10

 

EXHIBIT 10.10

GAS PURCHASE CONTRACT

CANADIAN PLANT

HEMPHILL COUNTY, TEXAS

Between

WARREN PETROLEUM COMPANY

(a Division of Chevron U.S.A. Inc.)

as “Buyer”

And

WALLACE OIL & GAS, INC.

as “Seller”

 

 

GAS PURCHASE CONTRACT

INDEX

	 	 	 	 	 	 	 
	ARTICLE	 	 	 	PAGE
	I

	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	II

	 	Representations and Commitment
	 	 	2	 
	 
	 	 	 	 	 	 
	III

	 	Reservations of Seller
	 	 	4	 
	 
	 	 	 	 	 	 
	IV

	 	Quantity
	 	 	4	 
	 
	 	 	 	 	 	 
	V

	 	Price
	 	 	4	 
	 
	 	 	 	 	 	 
	VI

	 	Delivery Point
	 	 	7	 
	 
	 	 	 	 	 	 
	VII

	 	Delivery Pressure
	 	 	8	 
	 
	 	 	 	 	 	 
	VIII

	 	Quality
	 	 	9	 
	 
	 	 	 	 	 	 
	IX

	 	Measurement and Tests
	 	 	10	 
	 
	 	 	 	 	 	 
	X

	 	Allocation Procedure
	 	 	12	 
	 
	 	 	 	 	 	 
	XI

	 	Payment
	 	 	13	 
	 
	 	 	 	 	 	 
	XII

	 	Warranty of Title
	 	 	14	 
	 
	 	 	 	 	 	 
	XIII

	 	Royalty
	 	 	15	 
	 
	 	 	 	 	 	 
	XIV

	 	Scope
	 	 	15	 
	 
	 	 	 	 	 	 
	XV

	 	Drip
	 	 	15	 
	 
	 	 	 	 	 	 
	XVI

	 	Rights-of-Way
	 	 	15	 
	 
	 	 	 	 	 	 
	XVII

	 	Force Majeure
	 	 	15	 
	 
	 	 	 	 	 	 
	XVIII

	 	Compliance with Laws, Rules and
Regulations
	 	 	16	 
	 
	 	 	 	 	 	 
	XIX

	 	Effective Date and Term
	 	 	16	 
	 
	 	 	 	 	 	 
	XX

	 	Assignment
	 	 	17	 
	 
	 	 	 	 	 	 
	XXI

	 	Notices
	 	 	17	 
	 
	 	 	 	 	 	 
	XXII

	 	Counterpart Execution
	 	 	17	 
	 
	 	 	 	 	 	 
	XXIII

	 	Unprofitable Gas
	 	 	17	 
	 
	 	 	 	 	 	 
	XXIV

	 	Cancellation of Prior Contract
	 	 	18	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit “A”
	 	 	19	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit “B”
	 	 	22	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit “C”
	 	 	23	 

 

 

GAS PURCHASE CONTRACT

          THIS CONTRACT, made and entered into this 28th day of
March, 1994, by and between WARREN PETROLEUM COMPANY,
a Division of Chevron U.S.A. Inc., hereinafter referred to as “Buyer”, and WALLACE OIL & GAS, INC.
hereinafter referred to as “Seller”;

          WITNESSETH:

          WHEREAS, Seller owns or controls certain mineral leases or interests therein which are
more particularly described in Exhibit “A” and Exhibit “B” attached hereto and made a part
hereof from which Seller has or will have a supply of gas available for sale hereunder, and
Seller desires to sell such gas to Buyer; and,

          WHEREAS, Buyer represents that it has in operation a gas gathering system and processing
plant in the area in which Seller’s leases are located and desires to purchase the gas which
Seller has available for sale from time to time;

          NOW, THEREFORE, Buyer and Seller in consideration of the mutual agreements herein
contained the parties hereto hereby covenant and agree as follows:

ARTICLE I  — DEFINITIONS

Except in those certain instances where the context states another meaning, the following
terms, when used in this Contract, shall have the following meanings:

	 	1.1	 	Lease — Any written instrument which gives Seller the right to drill for,
produce and dispose of oil and gas in and under the properties described in Exhibit “A”
and Exhibit “B”.
	 
	 	1.2	 	Well — A well capable of production of oil, oil and gas or gas presently
classified by the Railroad Commission of Texas as a gas well, a 49-B gas well, or an oil
well; provided, however, if a well is completed and capable of producing from more than
one reservoir, each completion shall be considered as a separate well, unless the
Railroad Commission of Texas allows commingling, and to the extent as allowed, it will
be considered as one well.
	 
	 	1.3	 	Gas — The gaseous effluent, including all the constituents thereof from
Seller’s gas-liquid separator or separators to which the well or wells are connected on
each lease described in Exhibit “A” and Exhibit “B” attached hereto.
	 
	 	1.4	 	Day — The period of twenty-four (24) consecutive hours beginning at 8:00
a.m. CST on any calendar day and ending at 8:00 a.m. CST on the calendar day immediately
following.
	 
	 	1.5	 	Month — A period beginning at 8:00 a.m. CST on the first day of a calendar
month and ending at 8:00 a.m. CST on the first day of the calendar month immediately
following.
	 
	 	1.6	 	Year — A period of twelve (12) consecutive months from the date of initial
deliveries of gas hereunder.
	 
	 	1.7	 	MCF — One thousand cubic feet.
	 
	 	1.8	 	BTU — British Thermal Unit.
	 
	 	1.9	 	MMBTU — One million British Thermal Units.
	 
	 	1.10	 	Liquid Hydrocarbon Products — Individual hydrocarbon products are hereby
defined as follows: pentanes and heavier

1

 

	 	 	 	hydrocarbons collectively treated as a single product sometimes referred to
as natural gasoline, iso-butane, normal butane, propane, ethane (including any
incidental methane recovered).
	 
	 	1.11	 	Gross Heating Value — The number of BTUs produced by the combustion of
gas at a constant pressure of 14.65 psi and 60°F and saturated with water vapor.
Expressed as BTUs per cubic foot.
	 
	 	1.12	 	Psig — Pounds per square inch gauge.
	 
	 	1.13	 	Residue Gas — The volume of gas available for sale at the plant tailgate
after the extraction of liquid hydrocarbon products and fuel usage.

ARTICLE II — REPRESENTATIONS AMD COMMITMENT

	 	2.1	 	Seller represents that it owns or controls certain leases or interests described in
Exhibit “A” and Exhibit “B”, the gas to be produced therefrom, and has the right to sell
the gas. Subject to the other provisions hereof, Buyer represents that it has in
operation a gathering system and gas processing plant capable of gathering, receiving and
processing the gas and that it will maintain and operate said system and plant for the
purpose of receiving and processing gas from Seller hereunder together with the gas
produced by others.
	 
	 	2.2	 	Seller hereby commits to the performance of this Contract for the term hereof, all
of the gas Seller owns or controls which may be produced from the leases described in
Exhibits “A” and “B” attached hereto, except such gas as is reserved by Seller under
Article III hereof. Such dedication shall include, but not be limited to, gas currently
being produced from the wells identified in Exhibits “A” and “B” as being located on such
leases, and any wells which may subsequently be drilled on such leases. Seller agrees
that prior to delivery to Buyer the gas shall not be processed other than in
conventional mechanical gas-oil separators operating at no less than ambient
temperatures.
	 
	 	2.3	 	New Gas Production: Lean Gas

	 	(a)	 	In the event Seller develops new gas supplies subsequent to
January 1, 1994 on the leases described in Exhibits “A” or “B”, and the dry
MMBTU per MCF is less than 1.075, then Buyer shall have the right, but not the
obligation, to take Seller’s gas by matching any bona fide written third-party
offer (hereinafter referred to as “Offer”). However, Buyer shall not be
obligated to match such Offer. Seller shall provide to Buyer such written Offer
along with production data (hereinafter referred to as “Production
Data”). Production Data shall consists of information such as well tests
indicating deliverability, gas analysis, and any other pertinent information
Buyer requires in order to evaluate such Offer. In the event Buyer desires to
obtain another gas analysis after receipt of the Production Data, Buyer shall
have five (5) working days after receiving such Production Data to notify
Seller of such desire. If Buyer so notifies Seller, Seller shall coordinate
with Buyer to ensure such sample will be taken within five (5) working days.
After receipt of such written Offer and Production Data, Buyer shall have
twenty (20) working days to match such Offer. In the event that the results
from the two (2) gas analyses are significantly different, a third sample
will be taken immediately and such twenty (20) day period will be extended by
ten (10) working days. Buyer shall be deemed to have matched said Offer in the
event the economic

2

 

	 	 	 	benefit to Seller from Buyer’s offer equals or exceeds the economic benefit to
Seller from said Offer. Seller shall provide Buyer with sufficient documentation
necessary to support such determination. Should Buyer elect not to match such Offer,
then Buyer shall release from the provisions of this Contract the well(s)
attributable to such Offer.
	 
	 	(b)	 	Should Buyer elect to match such Offer, Buyer shall have forty-five (45)
days from the date Seller is notified by Buyer that Buyer intends to match such Offer
to connect the referenced new gas supplies (although Buyer shall endeavor to connect
Seller’s gas as soon as reasonably possible). Buyer shall receive an extension of
said forty-five (45) day period in the event Buyer has initiated construction prior
to the expiration of said forty-five (45) day period and has not been able to
complete installation of equipment to connect Seller’s well(s) due to extenuating
circumstances including, but not limited to, a gas connect requiring more than one
(1) mile of pipeline to connect Seller’s well(s). Notwithstanding the
foregoing, said forty-five (45) day period shall be suspended in the event of delays
due to force majeure as provided for in Article XVII.
	 
	 	(c)	 	In the event that Buyer elects to match such Offer, Buyer will prepare a
contract for execution by Seller for such new lean gas production.

	 	2.4	 	New Gas Production: Rich Gas

	 	(a)	 	In the event Seller develops gas supplies subsequent to January 1, 1994,
and the dry MMBTU per MCF is greater than or equal to 1.075, then Buyer shall have
the right, but not the obligation, to process such new gas supplies under the
settlement terms set forth in Article V. Seller shall provide to Buyer Production
Data that Buyer requires in order to evaluate such new gas supplies, In the
event Buyer desires to obtain another gas analysis after receipt of the Production
Data, Buyer shall have five (5) working days after receiving such Production Data
to notify Seller of such desire, If Buyer so notifies Seller, Seller shall
coordinate with Buyer to ensure such sample will be taken within five (5) working
days. After receipt of Production Data, Buyer shall have twenty (20) working days
to notify Seller whether Buyer intends to process said new gas supplies. In the
event that the results from the two (2) gas analyses are significantly different, a
third sample will be taken immediately and such twenty (20) day period will be
extended by ten (10) working days. Should Buyer not elect to process such new gas
supplies, then Buyer shall release from the provisions of this Contract the well(s)
attributable to such new gas supplies.
	 
	 	(b)	 	Should Buyer elect to process said new gas supplies, Buyer shall have
forty-five (45) days from the date Seller is notified by Buyer that Buyer intends to
process said gas to connect such new gas supplies (although Buyer shall endeavor to
connect Seller’s gas as soon as reasonably possible). Buyer shall receive an
extension of said forty-five (45) day period in the event Buyer has initiated
construction prior to the expiration of said forty-five (45) day period and has not
been able to complete installation of equipment to connect Seller’s well(s) due to
extenuating circumstances including, but not limited to, a gas connect requiring more
than one (1) mile of pipeline to connect Seller’s well(s). Notwithstanding the
foregoing, said forty-five (45) day

3

 

	 	 	 	period shall be suspended in the event of delays due to force majeure as
provided for in Article XVII.
	 
	 	(c)	 	Should Buyer elect to process said new gas supplies, such well(s)
shall be added to Exhibit “A”.

ARTICLE III — RESERVATIONS OF SELLER

	 	3.1	 	Seller reserves the following rights:

	 	(a)	 	To operate the leases free from any control by Buyer in such
manner as Seller, in Seller’s discretion, may deem advisable, including without
limitation the right to drill new wells, to repair and rework old wells, and to
abandon any well or surrender any lease when it no longer is deemed by Seller to
be capable of producing gas in paying quantities under normal methods of
operation; provided, however, that in the event Seller should terminate or
surrender any of the leases, written notice of same shall be given to Buyer
within thirty (30) days thereafter.
	 
	 	(b)	 	To pool or unitize the leases with other leases in the same
field, and in the event of such pooling or unitizing, this Contract shall cover
and apply to Seller’s interest in the unit and the gas attributable thereto.
	 
	 	(c)	 	To use gas produced from the leases for developing and operating
the leases and for fulfilling obligations to the lessors in the leases for
domestic fuel maintenance.

ARTICLE IV — QUANTITY

	 	4.1	 	Ratable Takes  — Buyer agrees to take all Seller’s gas, subject to Article
VIII, QUALITY, provided that during flush gas production and during periods of
curtailment by the residue gas Purchaser(s), Buyer shall only be obligated to take gas
ratably as to quantity with all other gas connected to its gathering system and/or plant.
A flush gas condition is hereby defined to exist whenever, in Buyer’s sole opinion,
Buyer’s gathering line or plant is of insufficient capacity to gather or process all of
the gas connected thereto.
	 
	 	4.2	 	Temporary Release — Unless Buyer within thirty (30) days from the
commencement of such excess production arranges to take or pay for any part or all of
such excess gas, upon request by Seller, Buyer shall temporarily release any such excess
gas not taken or paid for by Buyer. Buyer and Seller shall mutually determine which gas
supplies will be released should Seller request such temporary release pursuant to this
Paragraph 4.2. This temporary release shall be for an initial period of one (1) month
and month-to-month thereafter; provided, however, that Buyer shall have the right to
resume taking any or all gas released upon the expiration of said one (1) month period
(or any such one (1) month period thereafter) by giving Seller fifteen (15) days’ notice
in writing of its election to do so.

ARTICLE V — PRICE

Buyer shall pay to Seller for the gas delivered hereunder the sum of the values
computed in accordance with Paragraphs 5.1 and 5.2.

	 	5.1	 	Liquid Hydrocarbons Value — Buyer shall pay Seller a percentage of the
value received from the sale of liquid hydrocarbon products attributable to Seller’s gas
determined in accordance with Article X. Such percentage shall be determined from the
table in Paragraph 5.3 on the basis of the

4

 

	 	 	 	total cumulative monthly volume of Seller’s gas having a dry MMBTU per MCF of
1.075 or greater, as measured at the Delivery Point(s), which is delivered into Buyer’s
low-pressure gas gathering system and processed at Buyer’s plant (hereinafter referred to
as Seller’s “Monthly Processed Volume”). The applicable price of each liquid hydrocarbon
product shall be the amount per gallon equal to the arithmetical average of the daily
high and low spot market prices for such products at Conway, Kansas, as published by the
Oil Price Information Service (OPIS) less a charge for transportation and
fractionation or an exchange differential. In addition, a
$.0075 per gallon handling fee will be deducted. Such fee
will be deducted from the value received from the sale of
liquid hydrocarbon products attributable to Seller’s gas prior to applying the settlement
percentage in Paragraph 5.3.

	 	5.2	 	Residue Gas Value — Buyer shall pay to Seller a percentage of the “net value of the
residue gas”. Such percentage shall be determined from the table in Paragraph 5.3 on the basis
of Seller’s Monthly Processed Volume. “Net value of the residue gas” shall mean the gross
value received from the sale of the residue gas attributable to Seller’s gas less
transportation costs (if any) from the plant tailgate to the point of sale. The volume of
residue gas sold from the gas delivered hereunder shall be that proportionate part of the
total volume of residue gas sold from Buyer’s plant, which is determined in accordance with
the provisions of Paragraph 10.2 of Article X.
	 
	 	5.3	 	The settlement under Paragraphs 5.1 and 5.2 shall be as follows:

	 	 	 	 	 	 	 	 	 
	VOLUME (MCF PER DAY)*	 	% LIQUIDS	 	% RESIDUE
	Less than 5,000 MCFD
	 	 	75	 	 	 	78	 
	5,000 — 7,499
	 	 	78	 	 	 	78	 
	7,500 — 10,000
	 	 	79	 	 	 	79	 
	Greater than 10,000
	 	 	80	 	 	 	80	 

 

			
	*	 	The applicable percentages will be determined monthly by dividing the Seller’s
Monthly Processed Volume by the number of days in such month.

	5.4	(a) 	 	Within twelve (12) months following February 1, 1994,
Seller shall spend, or cause to be spent, $1 million ($1,000,000.00) towards the
cost of exploring for and developing potential oil and/or gas reserves on Exhibit
“A” and “B” leases. It is expressly understood that the aforementioned $1 million
($1,000,000.00) in exploration and development costs will include, but not be
limited to, leasehold acquisition costs and the legal and curative costs associated
therewith, seismic costs, drilling, completion, and equipment costs.
	 
	 	(b)	 	In addition to Buyer’s audit rights defined in Paragraph 11.2, Seller
shall, if Buyer requests, and within thirty (30) days of such request, provide
Buyer with a detailed summary accounting for the $1 million ($1,000,000.00)
expenditure referenced in Paragraph 5.4 (a). Buyer may make such request at any
time between March 1, 1995, and August 31, 1995.

	 	5.5	 	In the event Seller does not fulfill its obligations under either Paragraph 5.4 (a) or 5.4
(b) above, the following settlements shall be deemed effective retroactive to January 1, 1994:

5

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	                Properties	 	 	 	 	 	% Liquids	 	% Residue
	Exhibit “A”
Delivery
Points
	 	 	 	 	 	 	75	 	 	 	75	 
	Exhibit “B”
Delivery
Points
	 	 	 	 	 	 	75	 	 	 	78	 

	 	5.6	 	In the event Seller should sell or assign one or more wells or leases covered by this
Contract, the volumes from such wells or leases shall not be included for purposes of
computing the settlement due Seller under this Article V. The settlement with the party
acquiring such well(s) or lease(s) shall be based on volumes attributable only to the acquired
production.
	 
	 	5.7	 	Residue Take-in-Kind Rights —  Seller may elect to take its share of the residue gas
volume in kind in lieu of payment as described in Paragraph 5.2 above. Election must be made
by giving written notice to Buyer at least forty-five (45) days in advance of the first day of
the month in which Seller elects to exercise its take-in-kind rights. Seller may only
exercise such election one time during each calendar year. Once Seller exercises its right,
should Seller subsequently elect to discontinue taking its share of residue gas in kind,
Seller must give Buyer written notice at least forty-five (45) days in advance of the first
day of the month in which Seller’s take-in-kind election is to be discontinued,
	 
	 	5.8	 	Gas Control

	 	(a)	 	Should Seller elect to take its share of the residue gas volume in-kind as
described in this Article, Seller shall provide all information deemed necessary to
Buyer for gas control at least five (5) working days prior to the first day of each
calendar month. Information shall include but not be limited to the
following:
	 
	 	 	 	          Transporter

          Purchaser

          Transportation Service Contract Number

          Name and Phone Number of Seller’s Gas Control Contact

	 	 	 	Seller further agrees to be responsible for nominations to the transporting
pipeline. Buyer agrees to be responsible for confirmation and delivery to the
transporting pipeline. Under no circumstances shall Buyer be required to confirm or
deliver more than the estimated available volume.
	 
	 	(b)	 	Buyer shall have the right to maintain an “over and short account” for
residue gas deliveries for Seller’s account. The statement sent monthly to Seller
shall identify any over or under deliveries for the current month and the cumulative
over or under deliveries to Seller’s receiving pipeline. Buyer shall endeavor to keep
the over and short volumes as much in balance as possible by making flow adjustments
monthly. However, if upon termination of this Gas Purchase Contract, an imbalance
exists, then Buyer shall have the option to pay Seller for a “short” balance over the
subsequent three (3) months. Seller shall have the option to pay Buyer for an “over”
balance at an average market price at the plant for the prior three (3) months or by
delivering the “over” balance over the subsequent three (3) months.
	 
	 	(c)	 	Should Seller fail to establish a market for the disposition of Seller’s
residue gas, Buyer shall have the right to market Seller’s allocated share of residue
gas and pay ninety-five percent (95%) of the net proceeds to Seller from the sale by
Buyer of Seller’s gas at the

6

 

	 	 	 	tailgate of the plant. Buyer shall retain five percent (5%) of the net
proceeds from the sale of the Seller’s gas as Buyer’s fee for marketing
Seller’s gas.
	 
	 	(d)	 	The right to take residue in-kind only applies to Seller
including without limitation their subsidiaries or affiliates, and the
interests they represent. Notwithstanding Article XIII, ROYALTY, Seller shall
act as representative for subsequent distribution of gag and NGL products, or
the value of such products, to any owners of royalties, working interest,
production payments and the like. If this Contract is assigned by Seller to
another party, written notices must be furnished to Buyer and effective the
first day of the following month the in-kind deliveries will cease.

ARTICLE VI — DELIVERY POINT

	6.1	(a)	 	Non-Red Deer Properties: With the exception of properties connected to
what is commonly known as the Red Deer Gathering System (currently owned by
Transwestern, hereinafter defined as “RDGS”), Buyer owns or will construct a metering
facility near the outlet of Seller’s separator on the lease(s) or at such other mutually
agreed upon location. This meter will be the point of delivery (“Delivery Point”) for
non-Red Deer properties for purposes of this Contract.

	 	(b)	 	Existing Red Deer Properties: The Delivery Point for
purposes of this Contract for any properties connected to RDGS (see Exhibit “C”
attached) shall be the interconnect between RDGS and Buyer’s gathering system
(Buyer’s existing meter 21-P, hereinafter defined as “Meter 21-P”). Seller will
be responsible for delivering the gas from such properties to the Delivery
Point and paying any associated delivery costs or fees.
	 
	 	 	 	If Seller is unable to maintain or renew its existing gathering agreement
with the owner of RDGS, Buyer will attempt to obtain a gathering agreement
with the owner of RDGS to receive the gas from Seller’s facilities and deliver
such gas to the Delivery Point. Prior to entering into such a gathering
agreement, Buyer shall submit a copy to Seller for its approval. If Seller
approves such gathering agreement, or fails to object to Buyer in writing
within 15 days after its receipt thereof (which failure shall be deemed to
constitute approval), Buyer shall proceed to execute the gathering agreement,
in which case Buyer shall have the right to deduct all costs associated with
such gathering agreement from the amounts otherwise due to Seller hereunder.
	 
	 	 	 	If Buyer cannot obtain a gathering agreement on RDGS to deliver Seller’s gas
to the Delivery Point and so notifies Seller in writing, or if Seller makes a
timely objection to a proposed gathering agreement as outlined above, then
Seller shall have 30 days from the date of such notice or objection (whichever
is applicable) in which to commit to Buyer in writing to construct and
operate, at Seller’s sole risk and expense, the necessary gathering facilities
to deliver Seller’s gas to the Delivery Point.
	 
	 	 	 	If Seller fails to make such commitment within the time permitted and Buyer
desires to extend its existing gathering system to connect directly to well(s)
listed in Exhibit “C”, Buyer may do so and Seller shall reimburse Buyer for the
full cost of constructing and operating such new gathering system.
Reimbursement for the construction

7

 

	 	 	 	cost shall be payable in a lump sum upon completion of construction, unless the
parties mutually agree to amortize such cost, together with a 20% return on the
capital employed, over a mutually agreeable period of time. Upon completion of
any such new connection, the Delivery Point for the affected gas shall be the
point of interconnection between Seller’s facilities and Buyer’s gathering
system.
	 
	 	 	 	If Buyer does not elect to extend its gathering system under the circumstances
described above and Seller is not able to deliver its gas to the Delivery
Point, then Buyer shall permanently release the affected wells from the terms
of this Contract.
	 
	 	(c)	 	Properties Connected Subsequent to Jan. 1, 1994: Buyer,
in its sole opinion, shall determine whether new gas supplies shall be tied in
to either the RDGS or to Buyer’s gathering system, and shall be responsible for
all costs associated therewith, with the exception of costs or fees charged by
the owner of the RDGS.

	 	(i)	 	In the event such new gas supplies referenced in
Paragraph 6.1 (c) above are connected to the RDGS, Paragraph 6.1(b) will
apply to such new gas supplies. Such Meter 21-P will be the Delivery
Point for purposes of this Contract and the new well(s) shall be added
to Exhibit “C”.
	 
	 	(ii)	 	In the event such new gas supplies referenced in
Paragraph 6.1 (c) above are connected directly to Buyer’s gathering
system, Buyer will construct a metering facility near the outlet of
Seller’s separator on the lease(s) or at such other mutually agreed upon
location. This meter will be the Delivery Point for purposes of non Red
Deer properties for purposes of this Contract.

	 	6.2	 	Except for properties connected to RDGS, title to the gas sold and delivered
hereunder shall pass to Buyer at the Delivery Point(s). Seller shall be in control and
possession of the gas delivered hereunder and responsible for any damage or injury caused
thereby until same shall have been delivered to Buyer, after which delivery Buyer shall
be deemed to be in exclusive control and possession thereof and responsible for any
injury or damage caused thereby.
	 
	 	6.3	 	For properties connected to RDGS, title to the gas shall pass from Seller to Buyer
at the point where Seller’s facilities connect to RDGS, but, as between the parties
hereto, custody and risk of loss to such gas shall remain with Seller until the gas is
delivered into Buyer’s facilities at the Delivery Point specified in Paragraph 6.1 (b)
above for such gas. Seller shall be deemed to be in control and possession of such gas,
and responsible for any damage or injury caused thereby, until same shall have been
delivered to Buyer at the Delivery Point, after which delivery Buyer shall be deemed to
be in exclusive control and possession thereof and responsible for any injury or damage
caused thereby.

ARTICLE VII — DELIVERY PRESSURE

	 	7.1	 	The gas purchased hereunder shall be delivered at a pressure sufficient to effect
delivery into Buyer’s gathering system against the pressure prevailing therein from time
to time. If any of Seller’s wells are unable to deliver gas at such delivery pressure,
neither Buyer nor Seller shall be obligated to install compression facilities at such
Delivery Point(s) in order to effect such deliveries.

8

 

	7.2	(a)	 	Buyer shall endeavor, through utilization of existing equipment, to
maintain an operating system pressure of approximately seventy-five (75) psig
at the suction to Buyer’s Canadian plant inlet compressors; however, should
such pressure exceed seventy-five (75) psig, Buyer shall not be required to
install new equipment to reduce the pressure at such plant inlet compressors,
Buyer shall have no liability to Seller for failing to maintain such pressure
and, notwithstanding the provisions of Article XVII, FORCE MAJEURE, Seller
shall remain obligated to continue delivering gas to Buyer except as provided
for in Paragraph 7.2 (b).
	 
	 	(b)	 	In the event the operating system pressure at the suction to
Buyer’s Canadian plant inlet compressors exceeds one hundred (100) psig for
thirty (30) consecutive days, then to the extent Seller’s well(s) are incapable
of producing gas into Buyer’s system, such gag shall be deemed to be
temporarily released. This temporary release shall be for an initial period of
one (1) month and month-to-month thereafter; provided, however, that Buyer
shall have the right to resume taking any or all gas released upon the
expiration of said one (1) month period (or any such one (1) month period
thereafter) by giving Seller fifteen (15) days’ notice in writing of its
election to do so.

ARTICLE VIII — QUALITY

	 	8.1	 	The gas delivered to Buyer hereunder shall be commercially free of dust, gum,
gum-forming constituents, and other solid and/or liquid matter and shall conform to the
following specifications:

	 	 	 	 	 
	 

	 	(a) Dust, rust, or other solids
	 	None
	 
	 	 	 	 
	 

	 	(b) Carbon Dioxide
	 	Not more than 2.0% by
Volume
	 
	 	 	 	 
	 

	 	(c) Oxygen
	 	None
	 
	 	 	 	 
	 

	 	(d) Hydrogen Sulfide
	 	Not more than 10 grains per
100 cubic feet
	 
	 	 	 	 
	 

	 	(e) Total Sulfur
	 	Not more than 20 grains per
100 cubic feet
	 
	 	 	 	 
	 

	 	(f) Heating Value
	 	Not less than 1,000 BTU/CF
	 
	 	 	 	 
	 

	 	(g) Temperature
	 	Not more than 120 degrees
F.
	 
	 	 	 	 
	 

	 	(h) Water
	 	No free water
	 
	 	 	 	 
	 

	 	(i) Nitrogen
	 	Not more than 2.0% by
Volume

	 	8.2	 	Buyer, at its option, may at any time and from time to time refuse to accept
delivery of any or all gas not meeting the quality specifications set out in this
Article VIII; thereafter Seller shall have the right to conform the gas to the above
specifications. If neither Buyer nor Seller elects to treat the gas to conform to the
above specifications, then Buyer shall upon ninety (90) days’ prior written notice from
Seller, release from the provisions of this Contract the producing formation of the well
and the acreage attributable thereto from which such gas is produced.
	 
	 	8.3	 	In the event that Seller’s gas contains substances which, in Buyer’s sole
opinion, could result in serious damage to Buyer’s employees, plant, or equipment, then
Buyer shall have

9

 

	 	 	 	the right to immediately cease receiving Seller’s gas as long as such condition
exists.

ARTICLE IX — MEASUREMENT AND TESTS

The measurement and tests for quality of gas delivered hereunder shall be governed by the
following:

	 	9.1	 	The volume shall be measured at the Delivery Point(s) by orifice meters installed,
maintained and operated by Buyer, and computations made in accordance with published
procedures adopted as American National Standard, “Orifice Metering of Natural Gas,”
published as ANSI/API 2530 as amended or revised from time to time. Buyer may, at its
option, install an electronic flow recorder to record the static and differential
pressures, flowing temperature and volume of such gas.
	 
	 	9.2	 	The unit of volume for purposes of measurement shall be one
(1) cubic foot of gas at a temperature base of 60° Fahrenheit and at a pressure base
of fourteen and sixty-five one-hundredths (14.65) pounds per square inch absolute.
	 
	 	9.3	 	The arithmetical average of the hourly temperatures recorded during each day, if
available, and the factor for specific gravity according to the latest tests, applicable
during each day shall be used to make proper computations of volumes hereunder. Only
those gas volumes measured at pressures of 100 psig or greater shall be corrected for
deviation from Boyle’s Law. Chart integration and volume computations shall be made as
accurately as possible and within the accuracy prescribed by the manufacturer of the
computing equipment used.
	 
	 	9.4	 	Temperature shall at Buyer’s option be determined by a
recording thermometer continuously used and installed so as to
record properly the temperature of the gas flowing through the
meter. If a recording thermometer is not being utilized at such meter, the
temperature shall be deemed to be 60° F.
	 
	 	9.5	 	The specific gravity of the gas purchased and sold hereunder shall be determined by
Buyer, at its election, either by the use of a gravitometer of the Ranarex type or by the
Gravity Balance Method in accordance with the official code of the Gas Processors
Association, or by chromatographic analysis, or any other method acceptable to Buyer and
Seller.
	 
	 	9.6	 	The average atmospheric (barometric) pressure shall be
assumed to be 13.2 psia
unless otherwise specified.
	 
	 	9.7	 	The total gross heating value of the individual wellhead gas streams and the GPM of
each individual product contained therein shall be determined by performing a
chromatographic analysis of the samples of the gas taken at each Delivery Point at such
times as may be mutually agreed by Buyer and Seller, but not less often than once each
six (6) months; provided, that if at any time, either party believes that the heating
value of the gas may have changed, such party may call for a special test to be conducted
at its expense after having given notice of the time of such test sufficiently in advance
to permit convenient arrangements for a representative of the other party to be present.
The MMBTUs removed due to product shrinkage will be calculated based on plant liquid
products measurement converted to MMBTUs utilizing the constants contained in G.P.A.
Publication No. 2145-93, as revised from time to time, and adjusted to 14.65 psia, plus
adjustment for plant fuel usage determined by measurement and BTU determination of
the gas so utilized. Physical constants for

10

 

	 	 	 	the hexanes and heavier hydrocarbons portion of hydrocarbon mixtures shall be
assumed to be the same as the physical constants for hexane. The heat content per gallon
of each liquid hydrocarbon shall be determined by multiplying the cubic feet per gallon
of such liquid by the heat content per cubic foot thereof. A continuous sampling device
shall be used to obtain a sample of the commingled stream of the plant products delivered
each month to a product pipeline. A chromatographic analysis of such sample will be used
to determine the gallons of each individual product so delivered. The specific gravity or
flowing density of the liquid will be determined by equipment installed by Buyer or the
operator of the products pipeline.
	 
	 	9.8	 	Tests for carbon dioxide, sulfur and hydrogen sulfide content of the gas delivered
hereunder shall be made by approved standard methods from time to time as requested by any
party hereto, but not less often than once each six (6) months.
	 
	 	9.9	 	All measuring equipment, housing, devices and materials shall be of standard manufacture
and shall, with all related equipment, appliances and buildings, be installed, maintained,
and furnished by Buyer at its expense in accordance with standards and specifications
generally accepted in the industry. Seller may install and operate check-measuring
equipment, which shall not interfere with the use of Buyer’s equipment. All testing
equipment shall be of standard manufacture and shall be maintained, operated and furnished by
Buyer at Buyer’s expense.
	 
	 	9.10	 	The accuracy of Buyer’s measuring equipment shall be verified by Buyer at reasonable
intervals, but not less often than once each six (6) months. The accuracy of Buyer’s testing
equipment shall be verified by Buyer at reasonable intervals according to the manufacturer’s
specifications. Tests for quality of the gas may be made at the time of testing equipment, or
at other times, but not less often than once each six (6) months. Notice of the time and
nature of each test shall be given by Buyer to Seller sufficiently in advance to permit
convenient arrangements for Seller’s representative to be present. Measuring and testing
equipment shall be tested by reasonable means and methods determined by Buyer. Tests and
adjustments shall be made in the presence of and observed by representatives of both Buyer
and Seller, if present. If after proper notice Seller fails to have a representative present,
Seller shall not have the right to dispute the accuracy of such tests. All tests shall be
made at Buyer’s expense, except that Seller shall bear the expense of tests made at its
request if the inaccuracy found is two percent (2%) or less.
	 
	 	9.11	 	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 shall be adjusted at once to read accurately,
within the limits prescribed by the manufacturer. If such equipment is out of service, or
inaccurate by an amount exceeding two percent (2%) at a reading corresponding to the average
rate of flow for the period since the last preceding test, the previous readings of such
equipment shall be disregarded for any period definitely known or agreed upon, or if not so
known or agreed upon, for a period of sixteen (16) days or one-half (1/2) of the elapsed time
since the last test, whichever is shorter. The volume of gas delivered during such period
shall be estimated by:

	 	(a)	 	Using the data recorded by any check-measuring equipment if installed
and accurately registering, or if not installed or registering accurately;

11

 

	 	(b)	 	By correcting the error if the percentage of error is ascertainable by
calibration, test or mathematical calculation, or if neither such method is
feasible;
	 
	 	(c)	 	By estimating the quantity, or quality, delivered, based upon
deliveries under similar conditions during a period when the equipment was
registering accurately. No corrections shall be made for recorded inaccuracies
of two percent (2%) or less.

	 	9.12	 	Buyer and Seller shall have the right to inspect equipment installed or furnished
by the other, and the charts and other measurement or testing data of the other, at all
times during business hours; but the reading, calibration and adjustment of such
equipment and changing of charts shall be done only by the party owning such equipment.
Each party shall preserve all original test data, charts and other similar records, in
such party’s possession for a period of at least two (2) years following the end of the
calendar year in which such data, charts, and records were created.

ARTICLE X — ALLOCATION PROCEDURE

	 	10.1	 	Allocation of Plant Products — For each monthly period, the theoretical
plant product content at each Delivery Point shall be determined. The actual net plant
production of each plant product during the period shall then be allocated between all
Delivery Points in the ratio that the theoretical content of each product contained in
the gas at each Delivery Point, determined as set forth below, bears to the total
theoretical content of each product in all the gas processed in the plant during the
period. The actual net plant production of each product in gallons shall be the total
quantity of such product delivered from the plant. The theoretical plant product content
of the gas at each Delivery Point shall be the result of multiplying the volume in MCF by
the GPM (Gallons per MCF) of each plant product contained in such gas as determined from
the gas sample analysis.
	 
	 	10.2	 	Allocation and Disposition of Gas — For each monthly period, the total heat
content of the gas at each Delivery Point shall be determined by multiplying the volume
of gas metered from each Delivery Point expressed in MCF by the BTU per cubic foot of
such gas as determined from the gas sample analysis. The attributable residue gas BTUs
for each Delivery Point shall be determined each month by multiplying the total heat
content of all of the residue gas actually delivered from Buyer’s plant, as determined by
Buyer’s purchaser or purchasers receiving deliveries of residue gas, by a fraction, the
numerator of which is the “theoretical heat content of the residue gas remaining” from
each Delivery Point connected to Buyer’s plant during such month and the denominator of
which is the “theoretical heat content of the residue gas remaining” from all Delivery
Points connected to Buyer’s plant during such month. The “theoretical heat content of
the residue gas remaining” shall be determined by deducting from the total heat content
of the gas delivered from each Delivery Point the following:

	 	(a)	 	The heat content of the residue gas or gas used as fuel for
dehydrating, treating, compressing and processing in the plant or in the field;
and allocated to each Delivery Point in the proportion that the volume of gas
in MCF from each Delivery Point bears to the total volume of all gas connected
to the plant.
	 
	 	(b)	 	The heat content of the liquid hydrocarbons shall be determined
by multiplying the gallons of each liquid hydrocarbon product recovered and
attributable to each

12

 

	 	 	 	Delivery Point by the heat content per gallon of each product determined in
accordance with Paragraph 9.7 of Article IX hereof.

	 	10.3	 	In the event that gas from more than one well is delivered to Buyer through a
common meter, Buyer shall account only to said common meter and Seller shall account to
all individual wells delivering gas through said common meter and hold Buyer harmless
from any adverse claims arising therefrom. Seller also agrees to install and maintain
any metering facilities, prior to the Delivery Point, not installed by Buyer hereunder
as may be required by the Texas Railroad Commission or other jurisdictional governmental
body. Seller further agrees to provide to Buyer on or before the sixth working day of
each month, the percentages of gas delivered through said common meter which is
attributable to wells classified by the Texas Railroad Commission as proratable and
non-proratable. In the event Seller fails to provide such information by said date,
payment as provided for in Article XI will be delayed until the month following the
month the information is received by Buyer.

ARTICLE XI — PAYMENT

	 	11.1	 	After the delivery of gas has commenced hereunder, Buyer shall on or before the
last day of each month render to Seller a statement showing the quantity of gas delivered
during the preceding month and shall mail to Seller the amount due hereunder on or before
the last day of the month in which such statement was rendered. Such statement shall also
contain all information relative to the payment computations and the allocation in
accordance with Article X hereof.
	 
	 	11.2	 	Each party hereto shall have the right at any and all reasonable times to examine
the books and records of the other party, to the extent necessary to verify the accuracy
of any statement, charge, computation or demand made under or pursuant to this
Contract.
	 
	 	11.3	 	Notwithstanding the above, all statements rendered to Seller by Buyer during any
calendar year shall be conclusively presumed to be true and correct after twenty-four
(24) months following the end of any such calendar year, unless within the said
twenty-four (24) month period Seller takes written exception thereto and makes claim on
Buyer for adjustment. Failure on the part of Seller to make claim on Buyer for adjustment
within such period shall establish the correctness thereof and preclude the filing of
exceptions thereto or making of claims for adjustment thereof.
	 
	 	11.4	 	If the lease or leases described herein are owned by two or more parties to this
Contract, the Gas Purchase Statement will be sent to the party who is Operator and
payment of any sums due to Seller hereunder shall be made to the party designated as
Operator of such lease or leases. The Operator shall make proper distribution of the sums
to the other parties. In the event Seller notifies Buyer of its desire for Brigham Oil &
Gas to receive payment directly, Buyer shall make direct payment (as instructed by
Seller) to Brigham Oil & Gas.
	 
	 	11.5	 	The following shall apply only for Delivery Points delivering Seller’s gas into
Buyer’s low pressure gathering system and processed at Buyer’s plant:

	 	(a)	 	In the event that the Annual Percent Unaccountable MMBTUs, as
provided for in Paragraph 11.5 (b), exceeds four percent (4%), then Buyer shall
pay Seller for the Excess Unaccountable MMBTUs, defined in Paragraph 11.5 (b),
as

13

 

	 	 	 	provided for in Paragraph 11.5 (c). An annual calculation covering January
1 through December 31 will be made in March of the following year and, if
payment is due Seller, such payment shall be made by Buyer to Seller by April
30 of such year.
	 
	 	(b)	 	ANNUAL IMBALANCE CALCULATION

	 	 	 	(for processed gas)

	 	i.	 	Unaccountable MMBTU =
	 
	 	 	 	Seller’s Metered Delivery Point MMBTU (saturated)
	 
	 	 	- 	Allocated Fuel MMBTU (dry)
	 
	 	 	- 	Allocated Product Shrinkage MMBTU (dry)
	 
	 	 	- 	Allocated Residue MMBTU (dry)
	 
	 	ii.	 	Annual Percent Unaccountable =

	(Total
Unaccountable MMBTU for all Seller’s Delivery Points
 ̧  Total MMBTU for all
Seller’s Delivery Points) x 100

	 	iii.	 	Excess Unaccountable MMBTUs =
	 
	 	 	 	(Annual % Unaccountables — 4%)
 x
Total MMBTUs for all Seller’s
Delivery Points

	 	(c)	 	ANNUAL PAYMENT CALCULATION

	 	i.	 	Payment = Price X Excess Unaccountable MMBTU’s
	 
	 	 	 	where
	 
	 	 	 	Price = Weighted Average Residue Price of Seller’s gas as further defined
in Paragraph 11.5 (c) ii. and
	 
	 	 	 	Excess Unaccountable MMBTU’s = As defined in Paragraph 11.5 (b) iii.
	 
	 	ii.	 	Weighed Average Residue Price =

(PJVJ+PFVF+PMVM+PAVA+PMAVMA+PJUVJU+PJLVJL+PAUVAU+PSVS+POVO+PNVN+PDVD)

(VJ+VF+VM+VA+VMA+VJU+VJL+VAU+VS+VO+VN+VD)

	 	 	 	where
	 
	 	 	 	P = Residue price attributable to Seller’s gas for
given month
	 
	 	 	 	V = Seller’s total allocated residue volume for
given month
	 
	 	 	 	J = January during annual calculation period
	 
	 	 	 	F = February during
annual calculation period
	 
	 	 	 	M = March during annual calculation period
	 
	 	 	 	A = April during annual calculation period
	 
	 	 	 	MA = May during annual
calculation period
	 
	 	 	 	JU = June during annual calculation period
	 
	 	 	 	JL =
July during annual calculation period
	 
	 	 	 	AU = August during annual
calculation period
	 
	 	 	 	S = September during annual calculation period
	 
	 	 	 	O =
October during annual calculation period
	 
	 	 	 	N = November during annual
calculation period
	 
	 	 	 	D = December during annual calculation period

ARTICLE XII — WARRANTY OF TITLE

	 	12.1	 	Seller warrants title to all gas delivered by it and warrants that it has the right
to sell the same and that such gas upon

14

 

delivery to Buyer will be free from liens and adverse claims of every kind.
Seller shall indemnify and save Buyer harmless against all loss, damage and expense
of every character on account of adverse claims to the gas delivered hereunder. If
Seller’s title is questioned or involved in any action, Buyer may withhold payment
(without interest, to the extent permitted under V.T.C.A. Natural Resources Code
Section 91.402) of sums due hereunder up to the amount of the claim until title is
freed from such question or such action is finally determined, or until Seller has
furnished bond conditioned to save Buyer harmless, with a surety satisfactory to
Buyer.

ARTICLE XIII — ROYALTY

	 	13.1	 	Seller agrees to account and pay to the persons entitled thereto all royalties,
overriding royalties, bonus payments and production payment due with respect to the gas
sold or delivered hereunder and to hold Buyer harmless therefrom.

ARTICLE XIV — SCOPE

	 	14.1	 	This Contract shall be construed as a separate contract as to each lease and as
to each well on each lease identified in Exhibits “A” and “B” attached hereto.

ARTICLE XV — DRIP

	 	15.1	 	Buyer shall keep reasonably clear of obstruction all its pipelines through which
said gas is being delivered and shall own all liquids collecting in such lines.

ARTICLE XVI — RIGHTS-OF-WAY

	 	16.1	 	To the full extent that Seller is able to convey such rights, Seller hereby
assigns and grants to Buyer an easement across the premises covered hereby to lay and
maintain lines and to install, maintain and operate any equipment necessary to its
operations hereunder and Buyer shall have the right of free entry for any purpose
connected therewith. All lines and equipment placed by Buyer on said premises shall
remain the property of Buyer and may be removed by Buyer before, or within a reasonable
time after, the expiration of this Contract.

ARTICLE XVII — FORCE MAJEURE

	 	17.1	 	In the event of either party hereto being rendered unable, wholly or in part, by
force majeure to carry out its obligations under this Contract, other than to make
payments due hereunder, the obligations of the party suffering force majeure, so as they
are affected by such force majeure, shall be suspended to the extent and for the period
of such force majeure condition. Such party suffering force majeure shall give notice
and full particulars of such force majeure in writing or by telegraph to the other party
as soon as possible after the occurrence of the cause. Such cause shall as far as
possible be remedied with all reasonable dispatch. The term “force majeure” as employed
herein shall mean acts of God, strikes, lockouts or other industrial disputes or
disturbances, acts of the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests
and restraints of governments and people, civil disturbances, explosions, breakage or
accidents to machinery or lines of pipe, the making of repairs or alterations to lines
of pipe or plants, inability to secure labor or materials, freezing of wells or lines of
pipe, partial or entire failure of wells or gas supply, necessity for compliance with
any court order, or

15

 

any law, statute, ordinance, regulation or order promulgated by a governmental
authority having jurisdiction, inclement weather that necessitates extraordinary
measures and expense to construct facilities and/or maintain operations and any
other causes, whether of the kind enumerated herein or otherwise, not within the
control of the party claiming suspension and which by the exercise of due diligence
such party is unable to prevent or overcome. Such term shall likewise include (a) in
those instances where either party hereto is required to obtain servitude,
right-of-way grants, permits or licenses to enable such party to fulfill its
obligations hereunder, the inability of such party to acquire, or delays on the part
of such party in acquiring, at reasonable cost and after the exercise of reasonable
diligence, such servitude, right-of-way grants, permits or licenses, and (b) in
those instances where either party hereto is required to furnish materials and
supplies for the purpose of constructing or maintaining facilities or is required to
secure permits or permissions from any governmental agency to enable such party to
fulfill its obligations hereunder, the inability of such party to acquire, or delays
on the part of such party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such materials, supplies, permits and permissions. 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
requirements that any force majeure shall be remedied with all reasonable dispatch
shall not require the settlement of strikes or lockouts by acceding to the demands
of opposing party when such course is inadvisable in the discretion of the party
having difficulty. Either party may briefly interrupt its performance hereunder for
the purpose of making necessary or desirable inspections, alterations and repairs;
and the party requiring such relief shall give to the other party reasonable notice
of its intention to suspend its performance hereunder, except in cases of emergency
where such notice is impracticable or in cases where the operations of the other
party will not be affected. The party requiring such relief shall endeavor to
arrange such interruptions so as to inconvenience the other party as little as
possible. Service interruptions on the part of either party which are sanctioned by
this provision are expressly included within the definition of “force majeure” for
the purposes of this Contract.

In the event that during the term of this Contract Seller claims a suspension of its
obligation to deliver gas to Buyer for sixty (60) or more days for the reason of one
or more events of force majeure, then the term of this Contract shall be extended
for the number of days during which such force majeure condition is claimed.

ARTICLE
XVIII — COMPLIANCE WITH LAWS, RULES AND REGULATIONS

	 	18.1	 	This Contract and all provisions herein shall be subject to and performed in
accordance with all present and future, applicable and valid, orders, laws, rules or
regulations of any duly constituted federal, state or local governmental authority now
or hereafter having jurisdiction over the parties, their facilities, and the gas
delivered hereunder or this Contract.

ARTICLE XIX — EFFECTIVE DATE AND TERM

	 	19.1	 	This Contract will become effective January 1, 1994 and shall remain in full force
and effect for the life of Seller’s oil and gas leases or any extension or renewal
thereof further described on Exhibits “A” and “B”.

16

 

	 	19.2	 	Upon termination, this Contract will cease to have any force or effect,
except as to unsatisfied obligations or liabilities of either party attributable to
the period prior to 12:00 midnight on the date of termination, or arising thereafter
as a result of such termination.

ARTICLE XX — ASSIGNMENT

	 	20.1	 	The provisions of this Contract shall be binding upon and inure to the benefit of
the parties hereto, their heirs, successors and assigns. If Seller assigns or conveys
all or any part of the leases covered hereby, or any wells located thereon, Seller shall
provide in any instrument of assignment or conveyance that such assignment or conveyance
is subject to the terms and conditions of this Contract and that the party or parties to
whom such assignment or conveyance is made shall be bound by the
terms of this Contract.
No transfer of or succession to the interest of Seller hereunder, wholly or partially,
shall effect or bind Buyer until Buyer shall have been furnished with written notice and
the original instrument or a certified copy of an acceptable photocopy of the instrument
or instruments effecting such changes of ownership.

ARTICLE XXI — NOTICES

	 	21.1	 	Any notice, request, demand, or statement provided for in this Contract shall be
in writing and deemed given when deposited in the United States mail, postage prepaid,
directed to the Post Office address of the parties as follows or at such address as
either party may from time to time designate as the address for such purpose by
registered or certified letter addressed to the other party.

	 	 	 	 	 
	 

	 	BUYER:
	 	Warren Petroleum Company
	 

	 	 	 	(a Division of Chevron U.S.A. Inc.)
	 

	 	 	 	P. O. Box 1589
	 

	 	 	 	Tulsa, Oklahoma 74102
	 
	 	 	 	 
	 

	 	SELLER:
	 	Wallace Oil & Gas, Inc.
	 

	 	 	 	3030 Northwest Expressway
	 

	 	 	 	18th Floor
	 

	 	 	 	Oklahoma City, OK 73112

ARTICLE XXII — COUNTERPART EXECUTION

	 	22.1	 	This Contract may be executed in any number of counterparts, each of which, when
executed by any Buyer and any Seller, shall be deemed to be an original, binding
agreement between such Buyer and Seller, as of the effective date hereof, regardless of
any failure by one or more parties to execute such contract.

ARTICLE XXIII — UNPROFITABLE GAS

	 	23.1	 	In the event the gas from any well or combination of wells on the properties
described in Exhibit “A” and Exhibit “B” is or becomes, in the sole judgement of Buyer,
insufficient in volume or liquefiable hydrocarbon content, or for any other cause is or
becomes unprofitable for the extraction of liquefiable hydrocarbons
therefrom, Buyer
shall not be required to take such gas so long as such condition exists.

17

 

	 	 	 	If at any time the volume and/or liquefiable hydrocarbon content of the gas available
from any well or combination of wells located on the properties listed in Exhibits
“A” and “B”, or any other cause beyond Buyer’s control, shall render the operation of
Buyer’s plant or the gas gathering lines to such wells unprofitable, Buyer may by
thirty (30) days’ written notice to Seller cancel this Contract in regard to such
well or combination of wells which are unprofitable.

ARTICLE XXIV — CANCELLATION OF PRIOR CONTRACTS

	 	24.1	 	Effective January 1, 1994, this Contract shall supersede any prior gas contracts
and any amendments thereto effective between the parties hereto insofar as such
contracts cover the leases described in Exhibits “A” and “B” including, but not limited
to, Gas Purchase Contracts dated November 5, 1992, and June 4, 1992, between Wallace Oil
& Gas, Inc., and Warren Petroleum Company.
	 
	 		 	IN WITNESS WHEREOF, the parties hereto have executed this Contract as of the day and year
hereinabove written.

	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	WARREN PETROLEUM COMPANY	 	 
	 	 	 	 	(a Division of Chevron U.S.A. Inc.)	 	 
	 
	 	 	 	 	 	 	 	 
	         /s/ [ILLEGIBLE]
 

                    Secretary

	 	 	 	By
	 	/s/ D. D. Dunlap
 

D. D. Dunlap, Vice President
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	                    “BUYER”	 	 
	 
	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	WALLACE OIL & GAS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Dan F. Wallace
 

          Secretary

	 	 	 	By
	 	/s/ [ILLEGIBLE]
 

Title President
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	                    “SELLER”	 	 

18

 

EXHIBIT “A”

This
Exhibit “A” is attached to and made a part of Gas Purchase
Contract dated March 28, 1994, between Warren Petroleum Company, A Division of Chevron U.S.A. Inc, hereinafter collectively
referred to as “Buyer”, and Wallace Oil & Gas, Inc., as “Seller”.

RED DEER CREEK FIELD

Marian Osborne 3-26

Section 26, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

B.F.A.
Byrum et al 2-27, 3-27

Section 27, Block B-1, H&GN RR Co. Survey, Roberts County, Texas

Byrum

Section 4, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

 Marian Osborne 1-26, 2-26, 4-26 & 5-26

Section 26, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

Osborne 3-36 

Section 36, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

Mother Bear

Section 28, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

R. A. Byrum 1-6

Section 6, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

Jameson

Section 35, Block B-1, H&GN RY Co. Survey, Roberts County, Texas

CANADIAN SE FIELD

Isaacs
#207:

Harry Wilbur, Jr., Receiver, Lessor — Section 207 (less Santa Fe Railroad
right of way) in Block C, G&M and MB&A Surveys, Hemphill County, Texas

John C.
Isaacs, Jr., et al, Lessor — Section 207 (less Santa Fe Railroad right of way),
Block C, G&M and MB&A Surveys, Hemphill County, Texas

The Atchison, Topeka and Santa Fe Railway Company Lessor — Insofar and only insofar as
the following described tract or parcel of land lies in and describes
lands in Section 207, Block
C, G&M and MB&A Survey:

All of that certain tract or parcel of land situated in said Sections 207 and 209 and being a
part of the original track rights of way described in deed dated March 21, 1888, from John J.
McCook, et al, to The Southern Kansas Railway Company of Texas, predecessor in interest to Lessor
herein and all of that certain 2.54 acre tract of land described in deed dated June 3, 1908 from
W.C. Isaacs, et al, to said The Southern Kansas Railway Company, more particularly described as
follows:

BEGINNING at a point in the center line of Lessor’s main track at Railway Engineer’s Station 915
+ 23.3 which equals Railway Engineer’s Original Station 629 + 67.4, located north 776.0 feet
(assuming for the purpose of this description that the west line of said Section 209

19

 

bears due
north and south) and north 34° 00' east 2,306.7 feet from the southwest corner of
Section 209;

THENCE north 34° 00' east along the original main track center line as same was located and
constructed prior to its relocation, 871.4 feet to beginning of a curve to the right at Railway
Engineer's Original Station 620 + 96;

THENCE
northeasterly along said original center line along a curve having a radius of 1,910.08
feet, a central angle of 24° 25', an arc distance of 813.8 feet to a point of tangency at Railway
Engineer’s Original Station 612 + 82.2;

THENCE north 58° 25' east, tangent to last described course 789.80 feet to a point for corner
located 18.0 feet northwesterly measured at right angles to the relocated and existing main track
center line opposite Railway Engineer’s Station 890 + 73.3;

THENCE south 31° 35' east, at 18.0 feet to the center line of said existing main track, in
all 118.0 feet to a point for corner in the southeasterly property line located 100.0 feet
southeasterly from measure normal to the said existing main tract center line;

THENCE southwesterly along said southeasterly property line concentric with and 100 feet
southeasterly from said main track center line along a curve to the left having a radius of
5,629.65 feet, a central angle of 24° 30', an arc distance of 2,407.2 feet to point for corner
opposite Railway Engineering Station 915 + 23.3;

THENCE
north 56° 00' west 100.0 feet to the place of BEGINNING, containing an area of 8.61
acres, more or less. Hemphill County, Texas.

CANADIAN SW FIELD

W. Campbell 3-56

That part of Section 56, save and except the SW/4 of said Section 56, Block 1, I&GN RR Co.
Survey, lying East of the Easterly line of the right of way of the Panhandle and Santa Fe
Railroad, which right of way lies easterly 100 feet at right angles from the center of the main
tract of said railway company’s main line of road. Hemphill County, Texas.

MENDOTA NW FIELD

John
C. Isaacs 1-1, D.O. Isaacs “A” 2-205 and D.O. Isaacs 204 and 205:

John C.
Isaacs, et al, Lessor — Alfred Lout Survey Number 1, Hemphill County, Texas,
South of a line 456.3 varas South of and parallel to the South lines
of Sections 192 and 193,
Block C, G&M and MB&A Surveys, Hemphill County, Texas, and the West 144 acres of that part of
Section 197, Block C, G&M and MB&A Surveys, Hemphill County, Texas,
South of a line 456.3 varas South of and parallel to the South line of
Section 192, Block C, G&M and MB&A Surveys, Hemphill County, Texas, said parts of the Alfred
Lout Survey Number 1 and said Section 197 containing 710.70 acres. Hemphill County, Texas.

Harry
Wilbur, Jr., Receiver, et al, Lessor — The South 906.71 acres of the Alfred
Laut Survey No. 1 and the West 144 acres of the South 239 acres
of Section l97, Block C, G&M
and MB&A Surveys. Hemphill County, Texas.

 Harry
Wilbur, Jr. Receiver, et al, Lessor — Section 204 and 205 (less
Santa Fe Railroad right-of-way) in Block C, G&M and MB&A Surveys. Hemphill County, Texas.

John C.
Isaacs, et al, Lessor — Section 204 and 205 (less Santa Fe Railroad
right-of-way) in Block C, G&M and MB&A Surveys. Hemphill County, Texas.

20

 

Campbell Santa Fe Unit:

W. R. Campbell, et ux., Lessor — All of Section No. 38, Block No. 1, I&GN Ry. Co. Survey,
save and except such portions of said survey as have been granted to the Panhandle & Santa Fe
Railway or its predecessors in interest. Hemphill County, Texas.

The Atchison, Topeka and Santa Fe Railway Company, Lessor — Insofar and only insofar as
the following described lands lie within Section 38, Block 1,
I&GN RR Co. Survey:

A strip of land 200 feet in width, lying 100 feet on each side of the center line of Lessor’s main
track as now located and constructed, extending from the south line of said Section 35 in a
northeasterly direction across said Sections 35 and 38 a distance of 6,730 feet to a line
perpendicular to the center line of said main tract at Railway
Engineer’s Station 1111 thence the
strip of land is 250 feet in width, lying 100 feet on the southeast side and 150 feet on the
northwest side of the center line of said Lessor’s main tract and continuing in a northeasterly
direction a distance of 3,300 feet to a line perpendicular to the center line of said Lessor’s
main track at Railway Engineer’s Station 1078; thence the strip of land is 200 feet in width,
lying 100 feet on each side of the center line of said Lessor’s main tract and continuing
northeasterly to the east and north line of said Section 38, a distance of 1,260 feet, measured
along the center line of said main track, said strip or tract of land containing an area of 55.95
acres more or less. Hemphill County, Texas.

J.C. Campbell

All of Section No. 37, Block No. 1, I&GN Ry. Co. Survey. Hemphill County, Texas.

W.R.
Campbell Unit:

W.R.
Campbell, Lessor — Insofar as covers E/2 Section 53, Block 1, I&GN Ry. Co. Survey,
Hemphill County, Texas.

T.D. Wiggins, Lessor — Insofar as covers W/2 Section 53, Block 1, I&GN Ry. Co. Survey.
Hemphill County, Texas.

Cities Service Oil Company, Lessor — W/2 Section 53, Block 1, I&GN Ry. Co. Survey.
Hemphill County, Texas.

Campbell
“A” 2 - 41 and Campbell “A” 1 - 41

All of Section 41, Block No. 1, I&GN RR Company Survey, Hemphill County, Texas.

Wiggins Gas Unit and T.D. Wiggings #2:

T.D.
Wiggins, et ux., Lessor — Section 54, Block 1, I&GN Ry. Co. Survey. Hemphill
County, Texas.

Cities
Service Petroleum Company, Lessor — N/2 Section 54, Block 1, I&GN Ry. Co.
Survey. Hemphill County, Texas.

Cities Service Petroleum Company, Lessor — S/2 Section 54, Block 1, I&GN Ry. Co. Survey.
Hemphill County, Texas.

R.A. Flowers 

Section 84, Block B-1, H&GN Ry. Co. Survey. Hemphill County, Texas.

Myrtle Flowers

Section 61, Block B-1, H&GN RR Co. Survey, Hemphill and Roberts Counties, Texas.

21

 

EXHIBIT “B”

RED DEER CREEK

#66 - R Osborne

The North half of Section 66 containing 320.01 acres and the abutting correction strip 31.9
acres SF 15958 for a total of 352 acres all in Block M-2, H & GN Survey, Roberts County, Texas

#2 - R Osborne

All of Section 35, Block M-2, H & GN Survey, 640 acres, Roberts County, Texas

CREE FLOWERS

B #1 Flowers Lease

The center 1/3 of the S 2/3 of the W 3737 acres of the S 5189.3 acres, Survey A-50 of the Clay
County School Lands, containing 553.4 acres more or less, Roberts County, Texas

#2 - K Flowers Lease

The West 1/3 of the S 2/3 of the W 3737 acres of the S 5189.3 acres, Survey A-50, of the Clay
County School Lands, containing 553.4 acres more or less, Roberts County, Texas

#3 Flowers Lease

The E 692.26 acres of the N 1/3 of the E 2/3 Of the W 3737 acres of the S 5189.3 acres, Survey
A-50 of the Clay County School Lands, Roberts County, Texas

#1 Kim Flowers Lease

All of Section 94 (467 acres) and the West 186.3 of Section 93 all of Block C, G & M Survey,
Roberts County, Texas a total of 653.3 net acres

#l R. L. Flowers Lease 

Section 68, Block C, G & M Survey, Roberts County, Texas

A #1 - 79 Flowers Lease
 Section 79, Block C, G & M Survey, Roberts
County, Texas

#1 Mills

The Southwest 640.00 acre tract of the Mills Ranch, Clay County School Lands, Roberts County,
Texas

#2 - B Mills

Tract 7-A of the Mills Ranch 740.00 net acres Clay County School Lands, Roberts County, Texas

#2 - A Payne

The Southeast 640 acres Payne Ranch Clay County School Lands, Roberts County, Texas

#2 - B Payne

The Southwest 640 acres Payne Ranch Clay County School Lands, Roberts
County, Texas

22

 

EXHIBIT “C”

Existing Red Deer Properties: Defined as Seller’s properties delivering gas into
Transwestern’s Red Deer Gathering System as of December 31, 1993. These well(s) and the associated
leases are further described in Exhibits “A” or “B”.

Well Name(s) — (Commonly known as) —

Marian Osborne 3-26

B.F.A. Byrum et al 2-27,
3-27

Byrum

Marian Osborne 1-26, 2-26, 4-26 & 5-26

Osborne 3-36

Mother Bear

R. A. Byrum 1-6

Jameson

#66-R Osborne

#2-R Osborne

23

 

GAS PURCHASE CONTRACT

AMENDATORY AGREEMENT

     Under date of March 28, 1994, a Gas Purchase Contract was entered into by and between
WARREN PETROLEUM COMPANY, a Division of Chevron U.S.A., Inc. as “Buyer” and WALLACE OIL &
GAS, INC. as “Seller”, covering the purchase of gas connected to Buyer’s Canadian Plant.

     NOW, THEREFORE, by mutual agreement of the parties hereto, said Contract is hereby
amended to add Seller’s interest in the lands described below:

All of Sections 66, 67 and 68 of Block M2, H & G.N. RR. Co. Survey, Roberts
County, Texas.

and,

It is agreed by both parties that under the terms outlined in ARTICLE VI — DELIVERY
POINT Paragraph 6.1 (b) that Buyer shall install the
facilities necessary to gather the
following Red Deer Properties at a capital cost not to exceed five hundred thousand dollars
($500,000):

	 	 	 	 	 	 	 	 	 
	 

	 	Osbourne #3-36
	 	Osbourne #l-26
	 	Osbourne #5-26
	 	 
	 

	 	Osbourne #4-26
	 	Osbourne #2-26
	 	Osbourne #3-26
	 	 
	 

	 	Sharon Well
	 	 	 	 	 	 

Seller shall reimburse Buyer for said capital cost, along with a 20% return on the
capital employed, at a rate of eight cents per MCF ($0.08/MCF) delivered by Seller
from the Red Deer properties listed above. Said eight cent per MCF fee shall
terminate when Buyer has received full reimbursement as outlined herein. The volume
from any additional Red Deer properties that are gathered by Buyer while not
exceeding the $500,000 limit will also stand the eight cent per MCF fee and will be
applied to the reimbursement

and,

It is agreed by both parties that the recovery of capital costs, by Buyer from
Seller, of any facilites necessary to gather gas from the lands added in this
Amendment shall be subject to the same provisions, excluding the $500,000 capital
limitation, as stated herein for the Red Deer Properties. Said capital costs for the
amended lands shall be limited to mainline facilities, eight (8) inch or larger pipe
sizes and shall include the following but not be limited to: purchase of pipe, labor
to install the pipe, Right Of Way acquisitions, pigging facilities, miscellaneous pipe
fittings.

The
effective date of this Amendment shall be
March 1, 1995.

Except as hereinabove amended, all other terms and provisions of the above referred to
Contract shall remain in full force and effect for the term thereof.

	 	 	 	 	 	 	 
	 	 	WARREN PETROLEUM COMPANY	 	 
	 	 	(A Division of Chevron U.S.A. Inc.)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ [ILLEGIBLE]
 

Attorney-in-Fact
	 	 
	 
	 	 	 	 	 	 
	ACCEPTED AND AGREED TO THIS 31st
	 	 	 	 	 	 
	DAY OF March      , 1995
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Dan F. Wallace
	 	 	 	 	 	 
	 

WALLACE OIL & GAS, INC.

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By: /s/ Dan F. Wallace
	 	 	 	 	 	 
	 

Title: Vice President

	 	 	 	 	 	 

 

 

	 	 	 	 	 
	STATE OF Oklahoma

	 	}
	 	 
	 

	 	} ss.
	 	 
	COUNTY OF Oklahoma

	 	}
	 	 

     On this 31st day of March, A.D., 1995, before me, the undersigned, a Notary Public in and for
the county and state aforesaid, personally appeared Dan F. Wallace to me personally known to be
the identical person who signed the name of the maker thereof to the within and foregoing
instrument as its Vice President and acknowledged to me that he executed the same as his free and
voluntary act and deed, and as the free and voluntary act and deed of said corporation, for the
uses and purposes therein set forth.

     Given under my hand and seal the day and year last above written.

	 	 	 	 	 
	My commission expires 6-3-95

	 	/s/ [ILLEGIBLE]	 	 
	 

	 	 

Notary Public

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