Document:

exv10w6

 

EXHIBIT 10.6

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 Sales and Purchase Agreement

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

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	I.

	 	DEFINITIONS
	 	 	2	 
	 
	 	 	 	 	 	 
	II.

	 	COMMITMENT AND DEDICATION
	 	 	3	 
	 
	 	 	 	 	 	 
	III.

	 	TERM
	 	 	4	 
	 
	 	 	 	 	 	 
	IV.

	 	PRICE
	 	 	5	 
	 
	 	 	 	 	 	 
	V.

	 	DELIVERIES
	 	 	6	 
	 
	 	 	 	 	 	 
	VI.

	 	MEASUREMENT AND TESTING	 	 	6	 
	 
	 	 	 	 	 	 
	VII.

	 	WARRANTY OF TITLE
	 	 	8	 
	 
	 	 	 	 	 	 
	VIII.

	 	SCHEDULING AND NOMINATIONS
	 	 	8	 
	 
	 	 	 	 	 	 
	IX.

	 	QUALITY AND PROCESSING
	 	 	8	 
	 
	 	 	 	 	 	 
	X.

	 	BILLING AND PAYMENT
	 	 	9	 
	 
	 	 	 	 	 	 
	XI.

	 	FORCE MAJEURE
	 	 	11	 
	 
	 	 	 	 	 	 
	XII.

	 	NOTICES
	 	 	11	 
	 
	 	 	 	 	 	 
	XIII.

	 	OPTION TO LEASE
	 	 	12	 
	 
	 	 	 	 	 	 
	XIV.

	 	MISCELLANEOUS
	 	 	13	 

Page 1

 

GAS SALES AND PURCHASE AGREEMENT

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

     WITNESSETH:

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

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

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

I. DEFINITIONS

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

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

Page 2

 

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

	II.	 	COMMITMENT AND DEDICATION

Page 3

 

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

	III.	 	TERM

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

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	IV.	 	PRICE AND GATHERING CHARGES

	 	4.1.	 	Base Price. The price payable by Buyer to Seller for all gas delivered at the
Point(s) of Delivery shall be the (**), as adjusted pursuant to the Gathering
Charge set forth in paragraph 4.2, below.
	 
	 	4.2	 	Gathering Charge.  (**)

	 	4.3	 	Redetermination of Gathering Charge.  (**)

Page 5

 

	 	 	 
	 	4.4.	 	Curtailment or Restrained Capacity.  (**)

	V.	 	DELIVERIES AND PRESSURES

	 	5.1.	 	Title, Possession and Risk of Loss. As between Buyer and Seller, title,
possession and control of the gas sold and purchased hereunder shall pass from Buyer to
Seller at the Point(s) of Delivery. Prior to delivery, Seller shall be liable for any
damages resulting from Seller’s possession of same, except for damages resulting from
the gross negligence or willful misconduct of Buyer. Subsequent to delivery, Buyer
shall be liable for all damages resulting from Buyer’s ownership and control of same,
except for those damages resulting from the gross negligence or willful misconduct of
Seller.
	 
	 	5.2.	 	Pressure Requirements. Buyer shall use its best efforts to maintain operating
pressures prevailing at the Delivery Point(s) at (**). Buyer and Seller
each agree that each will act as a prudent operator of their respective facilities in
endeavoring to maintain such operating pressures to accommodate reasonable development
of Seller’s reserves.

	VI.	 	MEASUREMENT AND TESTING

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

Page 6

 

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

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

Page 7

 

	VII.	 	WARRANTY OF TITLE

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

	VIII.	 	SCHEDULING AND NOMINATIONS

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

	IX.	 	QUALITY AND PROCESSING

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

Page 8

 

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

	X.	 	BILLING AND PAYMENT

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

Page 9

 

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

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

Page 10

 

	XI.	 	FORCE MAJEURE

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

	XII.	 	NOTICES

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

	 	 	   To Buyer:

	 	 	 	 	 
	 

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

	 	 	 	P.O. Box 283
	 

	 	 	 	Houston, TX 77001-0283
	 

	 	 	 	Attention: Gas Purchase Accounting
	 

	 	 	 	Facsimile: (713) 963-3087
	 
	 	 	 	 
	 

	 	(II) Notices:
	 	MidCon Gas Services Corp.
	 

	 	 	 	P.O. Box 283
	 

	 	 	 	Houston, TX 77001-0283
	 

	 	 	 	Phone: (713) 963-3700
	 

	 	 	 	Facsimile: (713) 963-5611

Page 11

 

To Seller:

	 	 	 	 	 
	 

	 	Notices:
	 	MC Panhandle
	 

	 	 	 	c/o OXY USA Inc.
	 

	 	 	 	P.O. Box 300
	 

	 	 	 	Tulsa, OK 74102
	 

	 	 	 	Phone: (918) 561-_____
	 
	 	 	 	 
	 

	 	Payments:
	 	MC Panhandle
	 

	 	 	 	c/o OXY USA Inc.
	 

	 	 	 	P.O. Box 300
	 

	 	 	 	Tulsa, OK 74102
	 
	 	 	 	 
	 

	 	Wire Transfers:
	 	[to be provided]

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

	XIII.	 	OPTION TO LEASE

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

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

Page 12

 

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

	XIV.	 	MISCELLANEOUS

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

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

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

	 	 	 	 	 	 	 
	MidCon Gas Services Corp.	 	MC Panhandle, Inc.
	 
	 	 	 	 	 	 
	By:

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

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

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

Natural Gas Pipeline Company of America

	 	 	 	 	 
	By:
	 	/s/ C. E. DOULRAVA	 	 
	 

	 	 

	 	 
	Title: SVP	 	 

Page 14

 

	 	EXHIBIT “A”	 

(**)

 

 

EXHIBIT C

MONTHLY STATEMENT EXAMPLE

	 	 	 	 	 	 	 

(**) 

 

EXHIBIT “D”

Lease and License Agreement

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

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

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

ARTICLE I

DEFINITIONS

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

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

 

 

	 	 	amended from time to time.

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

 - 2 -

 

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

 - 3 -

 

ARTICLE II

CONDITION AND OPERATION AND MAINTENANCE OF PIPELINE ASSETS

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

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

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

 - 4 -

 

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

ARTICLE III

DEMISE

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

ARTICLE IV

TERM

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

 - 5 -

 

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

ARTICLE V

RENT

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

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

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

 - 6 -

 

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

ARTICLE VI

USE
OF PIPELINE ASSETS

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

 - 7 -

 

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

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

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

 - 8 -

 

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

ARTICLE VII

ADDITIONS

     7.1 Before commencement of any Addition having an

 - 9 -

 

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

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

 - 10 -

 

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

ARTICLE VIII

CONDITION OF PIPELINE ASSETS

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

ARTICLE IX

SURRENDER

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

 - 11 -

 

possession, normal wear and tear excepted.

ARTICLE X

DAMAGE OR DESTRUCTION AND MAJOR REGULATORY CHANGE

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

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

 - 12 -

 

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

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

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

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

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

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

 - 13 -

 

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

ARTICLE XI

EMINENT DOMAIN

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

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

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

 - 14 -

 

damages allocable to the Additions and Extensions.

ARTICLE XII

INDEMNIFICATION

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

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

 - 15 -

 

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

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

 - 16 -

 

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

ARTICLE XIII

INSURANCE; WAIVER OF SUBROGATION

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

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

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

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

 - 17 -

 

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

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

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

ARTICLE XIV

LESSOR’S RIGHT OF ACCESS

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

 - 18 -

 

repair of the Pipeline Assets.

ARTICLE XV

CONTRACTS

     Purchase and Sales Agreements. Lessee agrees to transport for Lessor volumes of gas delivered to
the Pipeline from those contracts described on Schedule 2. Lessee shall deliver at no cost to
Lessor equivalent MMBtu to the outlet of the Pipeline facilities or other mutually acceptable point
as may be agreed upon. Should volumes delivered from these contracts materially increase from the
volumes existing on the Commencement Date then Lessee and Lessor shall endeavor in good faith to
mutually agree to reasonable compensation to Lessee for such increased transport volumes.

ARTICLE XVI

TRANSFER OF LESSEE’S INTEREST

     16.1 Lessee shall not sell, assign, encumber, mortgage or transfer this Agreement or any interest
herein or in the Pipeline Assets or any part thereof, or allow any transfer thereof or any lien
upon any of such interest of Lessee by operation of law or otherwise to any person or entity other
than an affiliate or subsidiary of Lessee (collectively, a “Transfer”), without the prior written
consent of Lessor, which, Lessor may withhold in the exercise of its absolute discretion. Any
Transfer which is not in compliance with the provisions of this Article XVI shall, at the option of
Lessor, be void and of no force or effect.

 - 19 -

 

     16.2 If Lessee shall Transfer the Pipeline Assets or any
part thereof, Lessee shall be responsible for all actions and
neglect of the transferee and its officers, partners, employees,
agents, guests and invitees. Nothing in this Section 16.2 shall
be construed to relieve Lessee from the obligation to obtain
Lessor’s prior written consent to any proposed Transfer.

     16.3 The consent by Lessor to any Transfer shall not be
construed as a waiver or release of Lessee from liability for the performance of all covenants and obligations to be performed by
Lessee under this Agreement, and Lessee shall remain liable
therefor, nor shall the collection or acceptance of Rent from any
assignee, subtenant or occupant constitute a waiver or release of
Lessee from any of its obligations or liabilities under this
Agreement. Any consent given pursuant to this Article XVI shall
not be construed as relieving Lessee from the obligation of
obtaining Lessor’s prior written consent to any subsequent
Transfer.

     16.4 Neither this Agreement nor any interest therein nor
any estate created thereby shall pass by operation of law or
otherwise to any trustee, custodian or receiver in bankruptcy of
Lessee or any assignee for the assignment of the benefit of
creditors of Lessee.

 - 20 -

 

ARTICLE XVII

DEFAULT: RIGHTS AND REMEDIES

     17.1 The occurrence of any one or more of the following matters constitutes a default by Lessee
under this Agreement unless cured, or agreed upon arrangements for cure are made, as specified
below (“Default”):

     (a) Failure by Lessee to pay, within five (5) days after
the due date, any Rent or any other amounts due and payable by
Lessee under this Agreement;

     (b) Failure by Lessee to cure forthwith, within 30 days of
notice thereof from Lessor, any hazardous condition that Lessee
has created in violation of law or of this Agreement;

     (c) Failure to cure within 30 days of notice of a failure
of Lessee to observe or perform any covenant, agreement,
condition or provision of this Agreement;

     (d) The levy upon execution or the attachment by legal
process of the leasehold interest of Lessee, or the filing or
creation of a lien in respect of such leasehold interest which
has not been cured within 30 days of notice;

     (e) Lessee becoming insolvent or bankrupt or admitting in
writing its inability to pay its debts as they mature, making an
assignment for the benefit of creditors, or applying for or
consenting to the appointment of a trustee or receiver for itself
or for all or a part of its property;

     (f) Proceedings for the appointment of a trustee, custodian
or receiver of Lessee or for all or a part of Lessee’s property

 - 21 -

 

being filed against Lessee and not being dismissed within thirty (30) days; or

     (g) Proceedings in bankruptcy, or other proceedings for relief under any law for the relief of
debtors, being instituted by or against Lessee, and, if instituted against Lessee, being allowed
against Lessee or being consented to by Lessee or not being dismissed within sixty (60) days
thereof.

     17.2 If a Default occurs then Lessor shall have the
following rights and remedies, which shall be distinct, separate
and cumulative, and which may be exercised by Lessor concurrently
or consecutively in any combination:

     (a) Lessor may terminate this Agreement by giving to Lessee
written notice of the Lessor’s intention to do so, in which event
the Term shall end, and all rights, title and interest of Lessee
hereunder shall expire, on the date stated in such notice; and

     (b) Lessor may enforce the provisions of this Agreement and
may enforce and protect the rights of Lessor hereunder by a suit
or suits in equity or at law for the specific performance of any
covenant or agreement contained herein, including injunctive
relief and recovery of all payments due and damages from Lessee.

     17.3 If Lessor exercises the remedy provided for in
subparagraph (a) of Section 17.2, Lessee shall surrender
possession and vacate the Pipeline Assets immediately and deliver
possession thereof to Lessor, and Lessor may then, or at any time
thereafter, re-enter and take complete and peaceful possession of
the Pipeline Assets, with or without process of law, full and

 - 22 -

 

complete license to do so being granted to Lessor, without relinquishing Lessor’s right to Base
Rent or any other right given to Lessor hereunder.

     17.4 Lessee shall pay all costs, charges and expenses,
including court costs and reasonable attorneys’ fees incurred by
Lessor or its beneficiaries in enforcing Lessee’s obligations
under this Agreement or, in the exercise by Lessor of any of its
remedies in the event of a Default.

     17.5 Notwithstanding any provision of applicable law
governing the sale or leasing of goods, the defaults, rights and
remedies of each of the parties hereto shall be limited to those
specified in this Agreement.

ARTICLE XVIII

HOLDING OVER

     If Lessee retains possession of the Pipeline Assets or any part thereof after the termination of
the Agreement by lapse of time or otherwise, Lessee shall, at the option of
Lessor, become a tenant from month to month and shall pay Lessor monthly rent, at one-sixth of the
Base Rent plus the applicable Taxes last in effect, computed on a per month basis, for each month
or part thereof (without reduction for any such partial month) that Lessee thus remains in such
possession. As a month to month tenant, Lessee shall be subject to all the terms, conditions,
covenants and agreements hereunder. Nothing herein contained shall preclude Lessor from
terminating such month to month tenancy. The provisions of this Article XVIII do not exclude

 - 23 -

 

Lessor’s right of re-entry or any other right hereunder.

ARTICLE XIX

NOTICES AND DEMANDS

     All notices, demands, approvals, consents, requests for approval or consent or other writings in
this Agreement provided to be given, made or sent by either party hereto to the other (“Notice”)
shall be in writing and shall be deemed to have been fully given, made or sent when made by
personal service or deposited in the United States mail certified or registered and postage prepaid
and properly addressed as follows:

	 	 	 	 	 
	 

	 	To Lessor:
	 	Natural Gas Pipeline
	 

	 	 	 	     Company of America
	 

	 	 	 	701 E. 22nd Street
	 

	 	 	 	Lombard, Illinois 60148
	 

	 	 	 	Attn: Sr. Vice President
	 

	 	 	 	          Transmission
	 

	 	 	 	Facsimile No.: (708) 691-3829
	 
	 	 	 	 
	 

	 	To Lessee:
	 	MC Panhandle, Inc.
	 

	 	 	 	c/o Oxy USA Inc.
	 

	 	 	 	P. O. Box 300
	 

	 	 	 	Tulsa, Oklahoma 74102
	 

	 	 	 	Facsimile No.: (918) 561-3561

The address to which any Notice should be given, made or sent to either party may be changed by
written notice given by such party as above provided.

ARTICLE XX

CONSTRUCTION OF AGREEMENT

     20.1 (a) The language in all parts of this Agreement shall in all cases be construed as a whole
according to its fair

 - 24 -

 

meaning and neither strictly for nor against either Lessor or Lessee.

          (b) Article headings in this Agreement are for
convenience only and are not to be construed as part of this
Agreement or in any way defining, limiting, amplifying,
construing, or describing the provisions hereof.

          (c) Unless the context otherwise requires “or” is not
exclusive. Unless the context otherwise requires an accounting
term not otherwise defined has the meaning assigned to it in
accordance with accounting principles and practices that are
generally accepted in the United States of America and have been
consistently applied by either of the parties.

          (d) Time is of the essence of this Agreement and of
every term, covenant and condition hereof.

          (e) All of the covenants of Lessee and Lessor
hereunder shall be deemed and construed to be “conditions” as
well as “covenants” as though the words specifically expressing
or importing conditions were used in each separate instance.

          (f) Subject to Section 10.3, Lessor and Lessee agree
that in the event any term, covenant or condition herein
contained (other than with respect to the payment of Rent) is
held to be invalid or void by any court of competent
jurisdiction, the invalidity of any such term, covenant or
condition shall in no way affect any other term, covenant or
condition herein contained.

     20.2 Except as specifically provided in this Agreement or

 - 25 -

 

in the Exhibits and Schedules hereto for the Term of this Agreement, Lessor makes no warranties to
Lessee, express or implied, that the Pipeline Assets are of any particular nature or quality, or
have any particular capabilities or condition. LESSOR MAKES NO WARRANTY THAT THE PIPELINE ASSETS
ARE MERCHANTABLE OR THAT THEY WILL BE FIT FOR A PARTICULAR PURPOSE.

ARTICLE XXI

BROKERS

     Lessee represents and warrants to Lessor that Lessee has not engaged or dealt with, directly or
indirectly, any broker in connection with this Agreement, and agrees to indemnify and hold harmless
Lessor from and against any and all claims or demands, damages, liabilities and expenses of any
type or nature whatsoever arising by reason of the incorrectness or breach of the aforesaid
representation and warranty.

ARTICLE XXII

MISCELLANEOUS

     22.1 Subject to the provisions of Article XVI, all terms,
covenants and conditions of this Agreement shall be binding upon
and inure to the benefit of and shall apply to the respective
heirs, executors, administrators, successors, assigns and legal
representatives of Lessor and Lessee.

     22.2 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

     22.3 Any amount due hereunder shall bear interest after

 - 26 -

 

default in the payment thereof at the annual rate of three percent (3%) above the corporate base
rate as announced by Chemical Bank from time to time, or if the use of the corporate base rate is
discontinued by Chemical Bank, such other rate as may thereafter be announced from time to time by
Chemical Bank or any other major bank in New York, New York selected by the non-defaulting party as
a measure of the cost to such bank’s borrowers of short-term commercial loans, until said past due
amount shall be paid by defaulting party to the non-defaulting party or, in the absence of any such
rate, 12% per year or, if less, the maximum rate of interest Lessor shall be permitted lawfully to
charge.

     22.4 No waiver of any provision of this Agreement shall be implied by any failure of Lessor or
Lessee to enforce any remedy on account of the violation of such provision, even if such violation
be continued or repeated subsequently, and no express waiver shall affect any provision other than
the one specified in such waiver and in that event only for the time and in the manner specifically
stated. Unless otherwise agreed to in writing, no receipt of monies by either party hereto from
the other after the termination of this Agreement will in any way alter the length of the Term or
Lessee’s right of possession hereunder or, after the giving of any notice, shall reinstate,
continue or extend the Term or affect any notice given hereunder prior to the receipt of such
monies.

 - 27 -

 

     22.5 If a party fails timely to perform any of its duties under this Agreement, the other party
shall have the right (but not the obligation), after the expiration of any grace period
specifically provided by this Agreement, to perform such duty on behalf and at the expense of the
defaulting party without further notice to that party, and all sums expended or expenses incurred
by the non-defaulting party in performing such duty shall be recoverable from the defaulting party.

     22.6 This Agreement is subject to all valid laws, rules and regulations of any duly constituted
governmental authority. Nothing contained herein shall be construed as a waiver of any right to
question or contest any such laws, rules or regulations.

     22.7 Lessor shall cooperate with Lessee to obtain any and
all governmental permits and authorizations required to be
obtained by Lessee, and to make any notices to governmental
authorities required to be made, in connection with the use and
operation of the Pipeline Assets by Lessee pursuant to this
Agreement, provided, however, any costs to obtain such permits
and authorizations or to provide such notices shall be borne by
Lessee.

     22.8 Accounting Adjustments and Imbalances. Retroactive
adjustments to payments and performance, and the settlement of
imbalances, that arise out of Lessor ownership and operation of
the Pipeline Assets or out of any accounting period ending prior
to January 1, 2000, shall be the responsibility of Lessor and
Lessor-shall indemnify and hold Lessee harmless for the same.

 - 28 -

 

Likewise, retroactive adjustments to payment and performance that arise out of Lessee’s operation
of the Pipeline Assets subsequent to January 1, 2000 and until such time, if any, that Lessor
resumes operation of the Pipeline Assets shall be the responsibility of Lessee and Lessee shall
indemnify and hold Lessor harmless for the same. To the extent cash balancing is not practicable,
imbalances may be settled through the physical transfer of gas on a fair and equitable basis as
agreed upon by the parties hereto.

     22.9 Gas Quality. Lessee agrees to operate the pipeline
according to the gas quality specifications set forth on Schedule
3. Lessor reserves the right to audit and inspect Lessee’s
compliance with this Section pursuant to Article XIV hereof.

     22.10 By the Commencement Date or as soon thereafter as
reasonable possible, Lessor shall provide Lessee with all records
in the possession of Lessor relating to the Pipeline Assets and
the Contracts as are reasonably requested by Lessee to exercise
its rights and perform its obligations under this Agreement.
Lessee will thereupon maintain and keep current all records
relating to the Pipeline Assets. Lessor shall have the right to
audit and inspect the records maintained by Lessee to ensure
Lessee’s compliance with this paragraph and the terms and
conditions of this Agreement. Should this Agreement terminate,
all records pertaining to the Pipeline Assets shall be returned
to Lessor by the termination date or as soon thereafter as is
reasonably possible.

 - 29 -

 

     22.11 The schedules and exhibits attached hereto are hereby
incorporated in this Agreement by reference.

     22.12 It is the specific intention of the parties hereto
that the provisions of this Agreement shall not impart rights
enforceable by any person, firm or organization not a party or
not a successor or assignee of a party to this Agreement and,
therefore, that there be no third party beneficiary to this
Agreement.

XXIII

MEMORANDUM

     Lessor and Lessee shall execute and deliver a short form or memorandum of this Agreement,
satisfactory in substance and form to Lessor, for recording in the proper office or offices in the
State of Texas.

XXIV

CONCURRENT AGREEMENT

     In the event Lessor and Lessee execute this Agreement, they also shall execute an amendment of that
certain Gas Sales and Purchase Agreement between them dated July 1, 1997, which amendment shall
provide that the Seller thereunder will be obligated to install EFM downstream of each field
booster unit at Seller’s sole cost and expense, but that the Buyer thereunder will own and operate
all such EFM.

 - 30 -

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first
above written.

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Lessee: MC PANHANDLE, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Lessor: NATURAL GAS PIPELINE	 	 
	 	 	 	 	 	 	               COMPANY OF AMERICA	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

 - 31 -

 

SCHEDULE 1

EASEMENTS, PERMITS & REAL PROPERTY

Information regarding Easements, Permits, Real Property and Leased Inventory, if
any, will be provided prior to execution of this Agreement.

- 32 -

 

SCHEDULE 2

THIRD PARTY CONTRACTS IN PANHANDLE GATHERING SYSTEM

	 	 	 	 	 	 	 	 	 	 	 	 	 
	MAIN	 	 	 	PIN	 	 	 	 	CONTRACT	 	CONTRACT
	B/S	 	WELL NAME	 	NO.	 	 	PRODUCER	 	NO.	 	TYPE
	2	 	Comstock Master #1	 	 	7929	 	 	Comstock Resources	 	5368	 	Purchase
	2	 	Comstock Master #2	 	 	8182	 	 	Comstock Resources	 	5368	 	Purchase
	2	 	N. J. Jones / Comstock	 	 	8183	 	 	Comstock Resources	 	5368	 	Purchase
	8	 	Thompson Et Al	 	 	5069	 	 	Shamrock [ILLEGIBLE]	 	 	 	Transportation
	10	 	MEGG Garrett  #1 [ILLEGIBLE]	 	 	5070	 	 	MEGG, Inc	 	 	 	Transportation
	10	 	MEGG Kilgore	 	 	25158	 	 	MEGG, Inc	 	6482	 	Purchase
	10	 	Holtorf  #1	 	 	25438	 	 	Big Run Production	 	6682	 	Purchase
	41	 	R.A. Burnett  #1-B	 	 	1564	 	 	Char-Will Corp.	 	6029	 	Purchase
	44	 	McCoy #1	 	 	1565	 	 	Kimberlin & Miller	 	311	 	Purchase
	44	 	Brown #1	 	 	1584	 	 	Bryan Exploration	 	5667	 	Purchase
	44	 	MEGG Taylor  #1	 	 	25395	 	 	MEGG, Inc.	 	6550	 	Purchase
	46	 	MEGG McConnell	 	 	25246	 	 	Werner Oil	 	6554	 	Purchase
	47	 	S. B. Burnett  66-A	 	 	7852	 	 	Conoco	 	91-6918	 	Purchase
	47	 	S. B. Burnett  84-A	 	 	7854	 	 	Conoco	 	91-6918	 	Purchase
	47	 	S. B. Burnett  75-A	 	 	7853	 	 	Conoco	 	91-6918	 	Purchase
	51	 	E. B. Johnson A-102	 	 	751	 	 	Rio Petroleum, Inc.	 	91-6867	 	Purchase
	51	 	E. B. Johnson  A-101	 	 	750	 	 	Rio Petroleum, Inc.	 	91-6867	 	Purchase
	51	 	E. B. Johnson A-l-G	 	 	749	 	 	Rio Petroleum, Inc.	 	91-6867	 	Purchase

- 33 -

 

SCHEDULE 3

TO LEASE AND LICENSE AGREEMENT

DATED JANUARY 1, 2000

GAS QUALITY

Gas shall be/contain:

	 	1.	 	Free of liquids.
	 
	 	2.	 	Free of dust, gum, etc.
	 
	 	3.	 	Not more than .25 grain/100 cf of Hydrogen Sulfide
(H2S).
	 
	 	4.	 	Not more than one quarter (.25) grains/100 cf of
mercaptans.
	 
	 	5.	 	Not more than twenty (20) grains/100 cf of total
sulfur.
	 
	 	6.	 	Not more than three (3) percent carbon dioxide (CO2).
	 
	 	7.	 	Not more than ten (10) parts per million oxygen (02).
	 
	 	8.	 	Not more than three (3) percent nitrogen (N).
	 
	 	9.	 	Heating value greater than 975 Btu per cubic foot.
	 
	 	10.	 	At a flowing gas temperature between 40° and 120° F.

	 
	 	11.	 	 Not more than 400 parts per million hydrogen.

     All gas qualities determined for gas measured at 14.73 psia, 60° F, on a dry basis.

- 34 -

 

     14.6.
Waiver of Default. No waiver by either Party hereto of any one or more
defaults by the other in the performance of any of the provisions of
this Agreement shall
operate or be construed as a waiver of any subsequent default or defaults whether of a
[ILLEGIBLE] or a different character.

     14.7. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAW OF
THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

     14.8. Headings. The headings used for the Articles herein are for convenience and reference
purposes only and shall in no way affect the meaning or
interpretation of the provisions of this Agreement.

     14.9.
Taxes. The Contract Price is inclusive of all royalties, production
taxes, severance taxes, ad [ILLEGIBLE] taxes, or other sums
now or hereafter levied on the production of the
gas prior to its delivery to Buyer at the Delivery Point(s). All such taxes and royalties
shall be [ILLEGIBLE] and paid exclusively by Seller.

     14.10.
Special Damages Waiver. THE PARTIES WAIVE ALL PUNITIVE SPECIAL, EXEMPLARY OR
CONSEQUENTIAL DAMAGES FOR ANY BREACH OF THIS CONTRACT.

     AGREED
TO AND ACCEPTED, this 19th day of November, 1996

	 	 	 	 	 	 	 	 	 	 	 
	 	 	MidCon Gas Services Corp.	 	 	 	MC Panhandlen, Inc.
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Sharon M. Hillman
	 	 	 	By:
	 	/s/  
	 

	 	 	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	Vice President Energy Marketing
	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 	 	 	 	 

Page 11

 

AMENDMENT TO GAS SALES AND PURCHASE AGREEMENT

     THIS AMENDMENT is entered into effective March 1, 2000 (“Effective Date”),
between Chesapeake Energy Marketing, Inc., an Oklahoma corporation, as Seller, and ONEOK
Texas Field Services, L.P., a Texas limited partnership, as Buyer, as successors to the
original Seller and Buyer under that certain Gas Sales and Purchase Agreement dated effective
July 1, 1997 (“the 1997 Gas Contract”), between MC Panhandle, Inc., as Seller, and MidCon Gas
Services Corp., as Buyer.

     WHEREAS, this Amendment is entered into pursuant to that certain Settlement Agreement
executed contemporaneously herewith in settlement and compromise of the claims asserted in
Chesapeake Panhandle Limited Partnership, et al. v. Kinder Morgan,
Inc., et al., United
States District Court for the Western District of Oklahoma, Case No. CIV-00-0397-F (“the
Settlement Agreement”).

     WHEREAS, in furtherance of the Settlement Agreement, the parties desire to amend the
1997 Gas Contract to extend the term contained in Paragraph 3.1 thereof to a “life of lease”
contract, to stipulate that effective July 1, 2002 the Gathering Charge provided for in
Paragraph 4.3 of the 1997 Gas Contract shall be (**), to add an
arbitration provision, and that Article XIII shall be deleted from the 1997 Gas Contract
effective from inception. In all other respects the 1997 Gas Contract shall remain in full
force and effect as originally written.

     NOW THEREFORE, in consideration for the mutual covenants contained herein
and such other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:

     1. TERM. The language of Paragraph
3.1 of the 1997 Gas Contract is hereby
deleted in its entirety and replaced with
the following:

The term of this Agreement shall be for so long as the life of each lease
dedicated to this Agreement now or in the future.

     2. REDETERMINATION OF GATHERING CHARGE. The language of Paragraph 4.3(i) of the
1997 Gas Contract is hereby deleted in its entirety and replaced with the following:

The
Gathering Charge set forth in Paragraph 4.2 shall remain in effect until
June 30, 2002. Effective July 1, 2002 the Gathering Charge set forth in
Paragraph 4.2 shall be (**) as follows: (1) (**); (2) (**); and (3)
the variable charge component will be (**)

1

 

shall remain in effect for two (2) years from and after July 1, 2002, and
then from year-to-year thereafter unless redetermined pursuant to Paragraph 4.3(ii).

     3. ARBITRATION. The following provision shall
be, and is hereby, added as Paragraph 4.3(iv)
to the 1997 Gas Contract:

          “Any dispute arising out of or relating to the redetermination of the Gathering
Charge under Section 4.3 of this Agreement, including the breach, termination or
validity thereof, shall be finally resolved by arbitration in accordance with the
CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration (“CPR
Rules”) by three arbitrators, of whom each party shall appoint one. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, and judgment
upon the award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be selected by mutual
agreement of the parties, or if the parties cannot agree, then by the chair of the
tribunal as selected under CPR Rule 5. The parties elect the following options and
amend the CPR Rules in the following respects:

	 	1.	 	Notices. CPR Rule 2 is hereby supplemented as follows: All
notices required or permitted under the provisions hereof shall be in writing
and shall be given by delivery in person; registered mail, return receipt
requested; or by Federal Express or other similar courier service providing
evidence of delivery, addressed as follows:

	 	a.	 	If to Seller:
	 
	 	 	 	Mr. James C. Johnson

Mr. Henry J. Hood

Chesapeake Energy Marketing, Inc.

P. O. Box 18496

Oklahoma City, OK 73154-0496
	 
	 	 	 	Fax: (405) 879-9531

        (405) 879-9575
	 
	 	b.	 	If to Buyer:

	 
	 	 	 	ONEOK Field Services

P. O. Box 871

Tulsa, OK 74102-0871

	 
	 	 	 	Attn: Contract Administration

Fax: (918) 588-7499

2

 

	 	 	 	ONEOK Field Services

1600 ONEOK Plaza

100 West Fifth Street

Tulsa, OK 74103

	 	2.	 	Commencement of Arbitration. CPR Rule 3 is hereby supplemented
as follows: No party may commence arbitration sooner than sixty (60)
days after either party has given written notice of a request to
redetermine the Gathering Charge as provided for in Paragraph 4.2(ii).
	 
	 	3.	 	Applicable Laws(s) and Remedies. CPR Rule 10 is hereby
supplemented as follows: The substantive law to be applied in
connection with the arbitration, and any hearings, trials or proceedings
related thereto, shall be the law of the State of Texas.

     4. Option to Lease. The parties agree that
Article XIII, inclusive of Paragraphs
13.1, 13.2 and 13.3, and Exhibit “D”, Lease and
License Agreement, are hereby stricken
from the 1997 Gas Contract in its entirety,
effective as of July 1,1997.

     5. Ratification. This Amendment shall be binding upon and inure to the benefit
of the parties hereto, including but not limited to their officers, agents, employees,
representatives, heirs, assigns, predecessors and successors-in-interest. In all other
respects the 1997 Gas Contract is hereby confirmed, ratified and adopted as originally
written in every respect.

     EXECUTED THIS                      DAY OF APRIL 2002, BUT EFFECTIVE FOR ALL PURPOSES AS OF THE EFFECTIVE DATE,
EXCEPT AS OTHERWISE PROVIDED FOR HEREIN.

	 	 	 	 	 	 	 	 	 
	Chesapeake Energy Marketing, Inc.	 	 	 	ONEOK Texas Field/Services, L.P.
	 
	 	 	 	 	 	 	 	 
	By

	 	/s/ James C. Johnson
	 	 	 	By
	 	/s/ Greg Phillips
	 

	 	 
	 	 	 	 	 	 
	 

	 	James C. Johnson, President
	 	 	 	 	 	By and through its General Partner
	 

	 	 	 	 	 	 	 	  ONEOK Field Services Company
	 

	 	 	 	 	 	 	 	  Greg Phillips
	 

	 	 	 	 	 	Its	 	  Vice President

3exv10w7

 

EXHIBIT 10.7

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 (**).

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

Between

UNION PACIFIC RESOURCES COMPANY

and

UNION PACIFIC RESOURCES COMPANY

Jasper County, Texas

Dated September 1, 1993

 

 

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	I.

	 	Definitions
	 	 	3	 
	II.

	 	Commitment of Processing Rights
	 	 	9	 
	III.

	 	Reservations of Parties	 	 	10	 
	IV.

	 	Delivery Point and Pressure	 	 	11	 
	V.

	 	Regulation of Production	 	 	16	 
	VI.

	 	Quantity
	 	 	17	 
	VII.

	 	Quality
	 	 	18	 
	VIII.

	 	Tests
	 	 	22	 
	IX.

	 	Measurement and Meter Testing
	 	 	23	 
	X.

	 	Allocation Procedure
	 	 	28	 
	XI.

	 	Disposition of Producer’s Portion of Plant Products
	 	 	34	 
	XII.

	 	Processing Payment	 	 	35	 
	XIII.

	 	Disposition of Producer’s Portion of Residue Gas	 	 	36	 
	XIV.

	 	Accounting and Payments
	 	 	37	 
	XV.

	 	Warranty	 	 	39	 
	XVI.

	 	Taxes
	 	 	40	 
	XVII.

	 	Indemnity
	 	 	41	 
	XVIII.

	 	Force Majeure
	 	 	42	 
	XIX.

	 	Unprofitable Operations and Rights of Termination 	 	 	44	 
	XX.

	 	Term	 	 	45	 
	XXI.

	 	Regulatory Bodies
	 	 	46	 
	XXII.

	 	Arbitration
	 	 	47	 
	XXIII.

	 	Notices and Payments
	 	 	48	 
	XXIV.

	 	Assignment	 	 	49	 
	XXV.

	 	Miscellaneous
	 	 	50	 

 

 

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

     THIS AGREEMENT, made as of the 1st day of September, 1993, by and between UNION PACIFIC
RESOURCES COMPANY, a Delaware corporation, the Operator, and SONAT EXPLORATION COMPANY, a Delaware
corporation, the Owners of the Facilities, hereinafter referred to collectively as “Processor,” and
UNION PACIFIC RESOURCES COMPANY, hereinafter referred to as
“Producer.”

WITNESSETH, THAT:

     WHEREAS, the Processor has agreed to construct and operate a Gas Gathering System; and

     WHEREAS, the Processor is constructing and will operate a Gas Plant; and

     WHEREAS, the Producer owns or controls Gas production from various wells on the lands within
the Contract Area and desires to have the Processor gather the Gas for processing in the Plant; and

     WHEREAS, the Processor is willing to gather and process such Gas for the Producer;

     NOW, THEREFORE, the parties agree as follows:

ARTICLE I

DEFINITIONS

     1.1 For the purpose of this Agreement, certain terms and expressions herein used are
defined as follows:

	 	a.	 	“Btu” shall mean one British thermal unit, which is the
quantity of heat required to raise one pound

3

 

avoirdupois of pure water from 58.5 degrees Fahrenheit to 59.5 degrees Fahrenheit at
a constant pressure of 14.73 pounds per square inch absolute.

	 	b.	 	“Component” shall mean those hydrocarbon and non-hydrocarbon molecular constituents which
are definable by industry standards and procedures. Such Components as used in this Agreement
shall be:

	 	 	 	 	 	 	 
	 

	 	N2
	 	-
	 	Nitrogen
	 

	 	C02
	 	-
	 	Carbon Dioxide
	 

	 	H2S
	 	-
	 	Hydrogen Sulfide
	 

	 	Cl
	 	-
	 	Methane
	 

	 	C2
	 	-
	 	Ethane
	 

	 	C3
	 	-
	 	Propane
	 

	 	ic4
	 	-
	 	Iso-butane
	 

	 	nC4
	 	-
	 	Normal Butane
	 

	 	ic5
	 	-
	 	Iso-pentane
	 

	 	nc5
	 	-
	 	Normal Pentane
	 

	 	C6+
	 	-
	 	Hexanes and Heavier Compounds

	 	c.	 	“Contract Area” shall mean that area as outlined on
Exhibit “A,” as amended from time to time.
	 
	 	d.	 	“Day” shall mean a period of 24 consecutive hours beginning and ending at seven o’clock a.m.
Central Time.
	 
	 	e.	 	“Delivery Point” is defined as the inlet flange of Processor’s metering facilities located at
or near the well or such other point as may be mutually agreed upon. Each Delivery Point will
be listed on Exhibit “B” to this Agreement; and Exhibit “B” will be amended
from time to time to reflect the addition or deletion of Delivery Points.
	 
	 	f.	 	“Facilities” shall mean the Plant and Gathering System.

4

 

	 	g.	 	“Gas” shall mean natural gas, including casinghead gas produced with crude oil, gas from gas
wells produced in association with crude oil (associated gas) , and gas from condensate wells
(non-associated gas), and shall include any inerts or impurities contained therein.
	 
	 	h.	 	“Gathering system” shall mean, but not be limited to, the Gas gathering pipelines, fuel
gas pipelines, dehydration facilities, compression facilities, junctions, heaters, meters,
separators, electric power lines, communications cables, roads, and other related facilities
and equipment from the inlet flange of the pipeline metering facility installed up to the
inlet flange of the block valve upstream of the inlet header at the Plant inlet, necessary
to gather and transport Gas from the Delivery Point(s) to the Plant and shall include any
expansion of the Gathering System as provided in Paragraph 4.5.
	 
	 	i.	 	“Liquefiable Hydrocarbons” shall mean ethane, propane, iso-butanes, normal butanes,
iso-pentanes, normal pentanes, hexanes and heavier, and incidental methane, or any mixtures
thereof, which can be recovered or extracted in the Gathering System or the Plant and sold as
Plant Products.

5

 

	 	j.	 	“MCF” shall mean 1,000 standard cubic feet of gas.
	 
	 	k.	 	“Month,” “billing month,” “period,” and “accounting period” shall mean the period beginning
at seven o’clock a.m. on the first day of a calendar month and ending at seven o’clock a.m. on
the first day of the next succeeding calendar month.
	 
	 	l.	 	“MMBtu” shall mean 1,000,000 Btu.
	 
	 	m.	 	“Plant” shall mean, but not be limited to, all tanks, machinery, equipment, fixtures,
appliances, pipe, valves, fittings, and materials of any nature or kind whatsoever; including
appropriate storage, compression, metering, shipping, dehydration, and delivery facilities
for Plant Products; all buildings and structures of any kind whatsoever located, or to be
located, on the site or sites, at which the processing and recompression facilities of
Processor are located; all easements pertaining to such rights-of-way, the site or sites, and
the operation of the Plant, and any and all other facilities and appurtenances located, or to
be located, on or away from such site or sites deemed by Processor to be necessary for the
successful operation of the Plant, including inlet compression, if any, but not including the
Residue Redelivery Facility.
	 
	 	n.	 	“Plant Products” shall mean all Liquefiable

6

 

Hydrocarbons recovered, extracted, or otherwise removed from the Gas after the Delivery
Point, including, but not limited to, plant condensate (sometimes referred to as pentanes
plus, heavier than butanes or, natural gasoline), and all commercial non-hydrocarbon
substances recovered, extracted, or otherwise removed from the Gas in the Gathering
System or the Plant.

	 	o.	 	“Plant Tailgate” shall mean the point of interconnect between the Plant and the Residue
Redelivery Facility located at the downstream flange of the block valve which is downstream
of the Residue Gas meter and emergency shutdown valve.
	 
	 	p.	 	“Process Fuel” shall mean the MMBTU’s of Gas consumed at the Plant for fuel which shall
include, but not be limited to, fuel used for Gas conditioning and treating; recovery,
extraction, and removal of Plant Products; and the recompression of the Residue Gas.
	 
	 	q.	 	“Process Flare” shall mean any MMBTU’s of Gas dispersed or lost at the Plant as flare which
shall include, but not be limited to, flare dispersed or lost in the Gas conditioning and
treating; recovery, extraction, and removal of Plant Products; and the recompression of
Residue Gas.
	 
	 	r.	 	“Residue Gas” shall mean that hydrocarbon and non-

7

 

hydrocarbon stream remaining after the recovery, extraction, and removal of Plant
Products, and after reduction for Gas used for Process Fuel, Process Flare, and other
incidental losses.

	 	s.	 	“Residue Redelivery Facility” shall mean the Residue Gas pipeline and associated equipment
operated by Union Pacific Texas Gas Pipeline, Inc. (“UPTGPI”) that are located at the Plant
Tailgate and are used to deliver Residue Gas to the Residue Redelivery Point(s).
	 
	 	t.	 	“Residue Redelivery Point(s)” shall mean the point(s) of interconnect between the Residue
Redelivery Facility and the facilities of third party pipeline (s) to which the Residue Gas is
delivered and which point(s) are shown on Exhibit “C,” attached hereto and made a part
hereof in full.
	 
	 	u.	 	“SCF” or “standard cubic foot of gas” shall mean the amount of Gas necessary to fill a cubic
foot of space when the Gas is at a pressure of 14.65 pounds per square inch absolute and a
temperature of 60 degrees Fahrenheit.

8

 

ARTICLE II
 COMMITMENT OF PROCESSING RIGHTS

     2.1 Subject to the terms and provisions hereof and as of the date hereof, Producer
agrees to deliver for processing to Processor at the Delivery Point(s) the total volume of Gas
owned or controlled by Producer lawfully produced from wells now or hereafter drilled on the lands
within the Contract Area shown on Exhibit “A” or lands pooled therewith excluding Gas
reserved or utilized by Producer in accordance with the terms of
Article III. Any transfer
by Producer of its right, title, or interest in Producer’s Gas to a third party, whether by
farmout, contract, or otherwise, shall be made specifically subject to this Agreement. Producer
will notify any person to whom Producer transfers all or a portion of its right, title, or interest
in Producer’s Gas that such Gas is dedicated pursuant to the terms of this Agreement to be gathered
and processed in the Facilities; and Producer shall obtain such third party’s agreement to continue
delivering such Gas to Processor during the term of and in accordance with this Agreement. Producer
will notify Processor of any such transfer within 10 days of the effective date. Failure of
Producer to so notify Processor will not impair Processor’s rights under this Agreement.

     2.2 Gas shall be delivered after mechanical separation by Producer for the removal of free
water and free liquid hydrocarbons, but shall not otherwise be processed by Producer for the
removal of Liquefiable Hydrocarbons.

9

 

     2.3 Processor agrees that subject to the provisions hereof, it will take and gather Gas from
the Delivery Points and will cause such Gas to be processed in the Plant for the recovery of Plant
Products. Processor also agrees to deliver at the Plant Tailgate to Producer or Producer’s nominee
Producer’s share of Residue Gas as determined under the provisions of Paragraph 10.6.

ARTICLE III

 RESERVATIONS OF PARTIES

     3.1 Producer reserves all liquid hydrocarbons, oil, or condensate removed by Producer
by means of mechanical gas-liquid separators (including heater-treaters), drips, and/or lines from
the Gas prior to delivery to Processor. If mechanical cooling is performed by Producer to meet the
temperature specifications of this Agreement, Producer shall not reduce the temperature of the Gas
below 110 degrees Fahrenheit.

     3.2 Producer reserves all Gas that may be required for cycling, repressuring, pressure
maintenance, and gas lift operations with respect to oil reservoirs on the premises committed
hereunder; provided, however, Gas used in such operations shall be subject to the terms of this
Agreement (to the extent that such Gas can be economically saved) and delivered to Processor,
subsequent to the cessation of such operations.

     3.3 Producer reserves Gas for above ground development and operation of premises covered
hereby.

10

 

     3.4 Producer may at any time, without liability to Processor, clean out, deepen, re-work, plug
back, shut-in, use for injection, or abandon any well within the Contract Area or use any methods
for the production of oil or gas that meet current industry standards.

     3.5 Producer hereby specifically reserves the right to introduce Gas, water, or any other
extraneous substances into a well covered hereby or into the formation(s) from which said well is
producing when, in the exclusive judgment of Producer, the introduction of such substances is
desirable in the operation of such well for the production of oil or gas; provided, that if
Producer’s operations under this paragraph create a condition which, in the exclusive judgment of
Processor, (i) makes the taking and utilization of Gas therefrom unprofitable to Processor, or (ii)
tends to endanger the Plant or property of Processor or the lives of Processor’s employees, then
Processor reserves the right to discontinue taking Gas from the particular Delivery Point to which
the well is connected so long as such condition continues to exist.

     3.6 Producer expressly reserves the right to deliver or furnish to Producer’s lessor Gas as
required to satisfy the terms of Producer’s oil and gas leases.

ARTICLE IV

DELIVERY POINT AND PRESSURE

     4.1 Producer, at its own expense, shall construct, equip, maintain, and operate all
facilities (including, but not limited to, all necessary separation, dehydration, and/or
compression)

11

 

necessary to deliver Producer’s Gas to Processor at the Delivery Point at such pressure as is
required and sufficient to enter Processor’s Delivery Point, but not to exceed 1,075 psig.

     4.2 If the Processor provides compression for the Producer’s Gas other than Plant
recompression, the Processor shall provide or cause to be provided each stage of compression for an
initial fee of (**) per MCF per stage, and Producer will provide its pro rata share of fuel
required for operating such compressor(s), in order that Gas dedicated hereunder will meet the
pressure requirements at the Plant inlet. Commencing (**), and each (**) thereafter,
the compression fee set forth herein will be adjusted upward or downward, in proportion to the
percentage increase or decrease in the average hourly earnings of crude petroleum and Gas
production workers for the last calendar year, compared to the previous calendar year, as shown by
the “(**)” as
published by the Bureau of Labor Statistics of the United States Department of Labor.

     4.3 The fuel used for inlet compression will be handled according to Paragraphs 10.1 or
10.6(c) depending on the source of the fuel.

     4.4 Processor, at its own expense, shall construct, equip, maintain, and operate all meters
and facilities necessary to measure Producer’s Gas at the Delivery Point(s);

     4.5 As of the effective date, Processor has installed the initial portion of a Gathering
System with a number of pipelines,

12

 

trunklines, and laterals in the Contract Area as shown in Exhibit “A.” It is expected that
Processor will expand the Gathering System to handle new wells which will be connected to
additional Delivery Points within the Contract Area. To expeditiously handle expansion of the
Gathering System, the Processor and Producer agree to the following terms:

	 	a.	 	Producer shall provide written notice to Processor of
Producer’s intent to drill a well or wells on lands within the Contract Area or
lands pooled therewith and request that Processor initiate the construction of
necessary pipelines and related facilities to connect the Delivery Point(s) for
the well or wells to the existing Gathering System (hereinafter “pipeline
expansion”). Processor shall notify Producer of the estimated costs of the
right-of-way portion of the pipeline expansion, and if those costs exceed
(**), Producer shall have ten days from receipt of notice to make a written
election for Processor to proceed with the pipeline expansion or to rescind its
request for the pipeline expansion. If Producer elects to proceed with the
pipeline expansion, Processor may decline to construct the pipeline expansion
if it determines that it would not be profitable to do so. In such event,
Producer may construct the pipeline expansion at its sole cost. The pipeline

13

 

	 	 	 	expansion must meet all Processor’s specifications, and Processor will be responsible for
the meter station and connection to the Gathering System. The Processor may, at its
election, acquire the ownership of the pipeline expansion installed by the Producer by
reimbursing Producer for the actual pipeline expansion costs with no allowance for
inflation or depreciation. Producer agrees to execute all assignments or contracts deemed
necessary to accomplish the transfer to Processor of title to the pipeline expansion,
including rights-of-way and easements. In the event neither Processor nor Producer elect to
construct the necessary pipeline expansion to connect the Delivery Point to the existing
Gathering System, then this Agreement shall terminate as to the Gas from the well or wells
to be connected to that Delivery Point.
	 
	 	b.	 	If Producer timely elects to proceed with pipeline expansion where right-of-way costs exceed
(**) or the estimated cost does not exceed (**), and Processor has agreed to construct
the pipeline expansion, Processor shall cause commencement of construction as soon as
practicable after the later of right-of-way acquisition or commencement of drilling of the
well.

14

 

	 	c.	 	Producer shall guarantee reimbursement to Processor of the total actual cost
associated with each pipeline expansion (including, but not limited to, the costs of
right-of-way, construction, and materials) according to the following
calculations:

	 	 	 	 	 	 	 
	 

	 	(**)
	 	
	 	

15

 

ARTICLE V

REGULATION OF PRODUCTION

     5.1 It is understood and agreed by the parties hereto that in order for Processor to
maintain maximum efficiency in the Facilities, and in order to prevent flaring and/or bypassing of
Gas, it will be necessary to maintain a uniform rate of flow of Gas to the Facilities from all
sources during each 24 hour period. Therefore, Producer agrees that it will cooperate with
Processor in regulating the flow rate of Producer’s Gas and in establishing a producing schedule
to deliver on a best efforts basis the Gas at a uniform and continuous flow rate.

16

 

ARTICLE VI

QUANTITY

     6.1 Subject to Gathering System and Plant capacity, Processor shall take and process that
volume of Gas legally allowed to be produced which is attributable to the interest owned or
controlled by Producer in wells drilled on lands within the Contract Area or lands pooled
therewith; provided, after processing, Producer or Producer’s nominee will accept the Residue
Gas attributable to Producer.

     6.2 If insufficient Plant capacity exists to process all the Gas, the Plant processing capacity
will be prorated for all Gas, without undue discrimination, and the Gas unable to be processed will
be bypassed ratably during the period that processing capacity is not available in the Plant,
provided that such unprocessed volumes of Gas, together with all other volumes of Gas owned by
third parties which are bypassed around the Plant will not, in Processor’s sole opinion, cause the
commingled Gas and Residue Gas to fail to meet the quality specifications set forth by the third
party pipelines at the Residue Redelivery Point(s) listed on Exhibit “C.”

     6.3 Recognizing that the Plant may not have sufficient capacity to process all Gas produced from
the Contract Area, Processor shall have the right, but not the obligation, to expand the Plant or
build a new Gas processing plant at a different location, and in such event, Producer’s Gas, or a
portion thereof, may be processed by Processor in the expanded Plant or the new Gas

17

 

processing plant in accordance with the terms of this Agreement.

     6.4 Notwithstanding the above, Processor reserves the right to operate the Plant and Gathering
System in the manner it deems necessary, in its sole judgment.

ARTICLE VII

QUALITY

     7.1 Processor shall not be obligated to receive and process Gas delivered hereunder that fails to
meet the following specifications:

	 	a.	 	Commercial in quality and free from any foreign materials such as dirt, dust, iron
particles, crude oil, dark condensate, and free water, and other similar matter; and
substances which may be injurious to pipelines or which may interfere with the
processing, transmission, or commercial utilization of said Gas;
	 
	 	b.	 	the Gas delivered hereunder shall not exceed a temperature of 120 degrees Fahrenheit at the
Delivery Point(s) to Processor;
	 
	 	c.	 	The Gas delivered hereunder shall not contain more than:

	 	(i)	 	One-fourth grain of hydrogen sulfide, or five grains of total sulfur, or one grain mercaptan
per 100 cubic feet;

18

 

	 	(ii)	 	five parts per million by volume of oxygen;
	 
	 	(iii)	 	five and one-half percent by volume of carbon dioxide;
	 
	 	(iv)	 	two percent by volume of nitrogen;
	 
	 	(v)	 	seven and one-half percent by volume of a
combined total of inerts, including, but
not limited to, carbon dioxide and
nitrogen Components; or
	 
	 	(vi)	 	seven pounds of water per million cubic
feet.

	 	d.	 	No diluents such as carbon dioxide, air, or nitrogen shall be added to the Gas;
	 
	 	e.	 	The Gas shall contain no carbon monoxide, halogens, or unsaturated hydrocarbons, and no more
than 400 parts per million of hydrogen; and
	 
	 	f.	 	The Gas shall contain no less than 1,050 Btu and 2.1 GPM ethane and heavier hydrocarbons.

     7.2 If any of the Gas delivered by Producer hereunder should fail to meet the quality
specifications set forth in this Article VII, Processor may elect to accept and process
such Gas, or elect to accept, but treat and/or condition, such Gas prior to gathering or
processing. The acceptance of Gas not meeting the quality specifications set forth in Article
VII shall not be deemed a waiver of Processor’s right to reject such Gas at any later time, and
Processor shall be entitled, at any time and from time to time,

19

 

to decline to accept proffered deliveries of Gas not meeting the quality specifications set forth
herein.

     7.3 If Processor elects to accept but treat and/or condition the non-conforming Gas prior to
gathering and processing, the Processor shall advise the Producer of such election, and the
Producer shall have a maximum of (**) to advise Processor if it will treat and/or condition its
own Gas. If Producer does not elect to treat and/or condition or fails to make such election within
the specified time, then the Processor shall have the right to proceed and the following shall
apply:

	 	a.	 	If for any reason the Gas delivered hereunder fails to comply with the quality
specifications for temperature as described in Paragraph 7.1(b) above, the
Processor shall have the right, but not the obligation, to treat non-conforming Gas in
order that it will comply with the temperature specifications. In the event Processor
exercises its right to treat non-conforming Gas, Processor shall receive a fee for
performing said treating in accordance with the following:

	 	 	 
	Temperature (°F) 	 	Fee 
	(**)

	 	(**)

	 	b.	 	If for any reason the Gas delivered hereunder fails to comply with the quality
specifications for carbon dioxide (CO2) as described in Paragraph 7.1(c) above,
the

20

 

	 	 	 	Processor shall have the right, but not the obligation, to treat non-conforming Gas in order that
it will comply with the CO2 specifications. In the event Processor exercises its right
to treat non-conforming Gas, Processor shall receive a fee for performing said treating in
accordance with the following schedule:

	 	 	 
	CO2 MOL %	 	FEE
	(**)
	 	(**)

	 	c.	 	If for any reason the Gas delivered hereunder fails to comply with the quality
specifications for water content as described in Paragraph 7.1(c) above, the Processor
shall have the right, but not the obligation, to treat non-conforming Gas in order that it will
comply with the water content specifications. In the event Processor exercises its right to treat
non-conforming Gas, Processor shall receive a fee for performing said treating of (**).

     7.4 Processor shall have the right to invoice Producer for treating and/or conditioning the
non-conforming Gas, or Processor may elect to deduct the fees from payments to be made by Processor
to Producer. The fees noted in Paragraph 7.3 shall be in effect until (**), at
which time the fee will be adjusted up or down in accordance with the adjustment methodology used
for compression fees in Paragraph 4.2.

21

 

ARTICLE VIII

TESTS

     8.1 a. Processor shall procure or cause to be procured a sample of Gas at each Delivery
Point and analyze the samples by chromatographic analysis to determine the Component content (mole
percent), specific gravity, the BTU content, and the Plant Product content (expressed in gallons
per MCF) thereof.

          b. The individual Plant Products contained in the commingled stream of Plant Products delivered
from the Plant each month shall be determined from a chromatographic analysis of a spot sample or a
sample taken from a continuous sampling device. The results of the chromatographic analysis shall
be applied to the commingled stream of Plant Products to determine the volume of each individual
Plant Product delivered from the Plant.

          c. Tests provided for in Subparagraphs (a) and (b) of this Paragraph 8.1 shall be
made by Processor using its own equipment or by an independent testing service at least once in
each calendar quarter. All such tests shall be made in accordance with approved engineering
practices. Representatives of Producer shall be entitled to witness such tests, and Producer shall
be given at least ten days written notice in advance of tests to be made concerning Producer.

     8.2 Physical constants required for making calculations hereunder shall be taken from the Gas
Processors Association Physical Constants Publication No. 2145-93 (as it may be hereafter amended
from time to time). Physical constants for the hexanes and

22

 

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 Component
shall be determined by multiplying the cubic feet per gallon of such liquid hydrocarbon Component
by the heat content per cubic foot thereof. Said physical constants, adjusted to 14.65 psia, with
the heat content per gallon as calculated, are now as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cubic Feet	 	BTU Per	 	BTU Per
	Component	 	Per Gallon	 	Cubic Ft.	 	Gallon
	Methane
	 	 	59.321	 	 	 	1006.8	 	 	 	59,724	 
	Ethane
	 	 	37.594	 	 	 	1764.1	 	 	 	66,320	 
	Propane
	 	 	36.489	 	 	 	2508.2	 	 	 	91,521	 
	Iso-Butane
	 	 	30.735	 	 	 	3241.7	 	 	 	99,634	 
	Normal Butane
	 	 	31.891	 	 	 	3252.1	 	 	 	103,713	 
	Iso-Pentane
	 	 	27.466	 	 	 	3988.4	 	 	 	109,545	 
	Normal Pentane
	 	 	27.759	 	 	 	3996.4	 	 	 	110,936	 
	Hexanes Plus
	 	 	24.456	 	 	 	4741.0	 	 	 	115,946	 

ARTICLE IX

MEASUREMENT AND METER TESTING

     9.1 The unit of volume for measurement of Gas delivered
hereunder shall be (**) cubic feet
of Gas at a base temperature of (**) degrees Fahrenheit and at an absolute pressure of (**) psia and
saturated with water vapor. All fundamental constants, observations, records, and procedures
involved in determining the quantity of Gas delivered hereunder shall be in accordance with the
standards prescribed in Report No. 3 of the American Gas Association, as now and from time to time
amended or supplemented. It is agreed that for the purpose of measurement and computations
hereunder, the atmospheric pressure shall be assumed to be (**)

23

 

psia regardless of the atmospheric pressure at which the Gas is measured and that the Gas obeys the
Ideal Gas Laws as to variations of volume with pressure and specific gravity, including the
deviation from Boyle’s law, shall all be made by Processor in accordance with applicable rules,
regulations, and orders promulgated by the Railroad Commission of Texas pursuant to the Standard
Gas Measurement Law of Texas. It is also agreed that the Processor may apply a uniform correction
factor for water vapor if the Processor deems necessary.

     9.2 Processor shall install, maintain, and operate a measuring station located at each
Delivery Point. Said measuring station(s) shall be so equipped with orifice meters, recording
gauges, or other types of meter or meters of standard make and design commonly acceptable in the
industry, and of suitable size and design, as to accomplish the accurate measurement of Gas
delivered hereunder. The changing and integration of the charts (if utilized for measurement
purposes hereunder) and calibrating and adjusting of meters shall be done by Processor. At
Processor’s election, electronic gas measuring equipment may be used.

     9.3 Processor shall measure or cause to be measured the volume of Plant Products in gallons.

     9.4 Producer may, at its option and expense, install check meters for checking Processor’s
metering equipment; and the same shall be so installed as not to interfere with the operation of
Processor’s Facilities.

24

 

     9.5 The temperature of the Gas flowing through the meter shall be determined by the continuous use
of a recording thermometer or device installed by Processor so that it will properly record the
temperature of the Gas flowing through the meter.

     9.6 The specific gravity of the Gas flowing through the meter shall be determined by methods
commonly accepted in the industry. Specific gravities so determined will be used in calculating Gas
deliveries until the next specific gravity test is made.

     9.7 Each party shall have the right to be present at the time of any installing, reading,
sampling, cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting done
in connection with the other’s measuring equipment used in measuring deliveries hereunder.
The records from such measuring equipment shall remain the property of their owner, but upon
request, each will submit to the other its records and charts, together with calculations
therefrom subject to return within 30 days after receipt thereof. If meters utilizing charts
are used to measure Gas hereunder, then the charts shall be kept on file for a period of two
years, or such longer period as may be required by law. In addition, any other measurement
data shall also be kept for the same time period. Each party, during each of the first three
production months, and after that at least quarterly, or more often if necessary, shall
calibrate the meters and instruments installed by it or cause the same to be calibrated.
Processor shall give the Producer ten days notice in advance of such tests so that the

25

 

latter may, at its election, be present in person or by its representative to observe
adjustments, if any which are made.

     9.8 If the metering equipment is found to be inaccurate by two percent or more, registration
thereof and any payment based upon such registration shall be corrected at the rate of such
inaccuracy for any period of inaccuracy which is definitely known or agreed upon, or if not known
or agreed upon, then for a period extending back one-half of the time elapsed since the last day of
the calibration, not exceeding, however, 90 days. If, however, the metering equipment is on a well
that averaged more than five MMCFD for the production month, the factor shall be one percent or
more in lieu of two percent or more. Unless conclusively determined that Processor’s measurement
equipment is inaccurate by two percent or more, or one percent or more, as applicable, Processor’s
measurement shall be deemed to be correct for all purposes hereunder, and no adjustment shall be
made to the previous volumes. Following any test, any metering equipment found to be inaccurate to
any degree shall be adjusted immediately to measure accurately. If for any reason any meter is out
of service or out of repair so that the quantity of Gas delivered through such meter cannot be
ascertained or computed from the readings thereof, the quantity of Gas so delivered during such
period shall be estimated and agreed upon by the parties hereto upon the basis of the best
available data using the first of the following methods which is feasible.

26

 

	 	a.	 	By using the registration of any check measuring equipment of Producer, if installed
and registering accurately;
	 
	 	b.	 	By correcting the error if the percentage of error
is ascertainable by calibration, test, or mathematical calculation; or
	 
	 	c.	 	By estimating the quantity of deliveries during preceding periods under similar conditions
when the meter was registering accurately.

     9.9 If Producer shall notify Processor, or if Processor shall notify Producer, at any time that a
special test of any meter is desired, the parties shall cooperate to secure an immediate
verification of the accuracy of such meter and joint observation of any adjustments. All tests of
Processor’s measuring equipment shall be made at Processor’s expense, except that the Producer
shall bear the expense of tests made at its request if the inaccuracy found is less than two
percent. Expense as used herein shall be limited to actual costs of Processor as the result of
testing and shall not include any costs incurred by Producer as the result of witnessing said
testing.

     9.10 If during any month less than three MMCF of Gas is delivered to a Delivery Point, (except for
reasons of Force Majeure), then Processor shall charge a meter fee applicable to any such Delivery
Point equal to (**). Such fee shall be deducted from the compensation otherwise due Producer
under this Agreement; or, at Processor’s election, Producer may be invoiced for such

27

 

amount payable 30 days after receipt.

     9.11 The parties hereto recognize and acknowledge that technological advances may occur over the
term of this Agreement which may render certain measurement devices obsolete, or less accurate, or
less efficient than that which may be available. In such event, Processor may, with Producer’s
approval, substitute or utilize such available measurement equipment in lieu of any measurement
equipment described above in this Article IX.

     9.12 If for any reason Producer’s Gas is delivered to the Processor at the Delivery Point with
pulsations that affect the accuracy of the measurement, the Producer shall be responsible for
installing necessary pulsation dampeners, or other devices, to eliminate or reduce the pulsations
to an acceptable level determined by the Processor.

ARTICLE X

ALLOCATION PROCEDURE

     10.1
Adjusted Gas Volume. (**)

28

 

(**)

     10.2 Allocation of Plant Products. The allocation of Plant Products attributable to each
Delivery Point shall be determined as follows:

	 	a.	 	(**)
	 
	 	b.	 	(**)

29

 

     10.3 Allocation of Process Fuel. The allocation of Process
Fuel attributable to each Delivery Point shall be determined as
follows:

	 	a.	 	(**)
	 
	 	b.	 	(**)

30

 

     10.4 Allocation of Process Flare.  (**)

	 	a.	 	(**)
	 
	 	b.	 	(**)

     10.5 Allocation of Gains or Losses.  (**)

     10.6 Allocation of Residue Gas. The allocation of Residue Gas attributable to each Delivery
Point and of proceeds attributable thereto shall be determined as
follows:

31

 

	 	a.	 	Theoretical BTU’s of Residue Gas.  (**)

32

 

	 
	 	b.	 	(**)
	 
	 	c.	 	(**)

33

 

ARTICLE XI

DISPOSITION OF PRODUCER’S PORTION OF PLANT PRODUCTS

     11.1  (**)

     11.2  (**)

34

 

     11.3
(**)

ARTICLE XII

PROCESSING PAYMENT

     12.1 Processor shall retain (**) of the BTUs of Residue Gas available for sale which are
attributable to Producer’s Gas; and (**) of the proceeds received by Operator for the Plant Products
attributable to Producer’s Gas. Subject to Producer’s right to take in kind purity Plant Products
from the purchaser in accordance with the provisions of
Article XI, Processor shall remit
to Producer (**) of the amount derived by summing the results of

35

 

multiplying the respective gallons of each Plant Product allocated to Producer pursuant to
Paragraph 10.2 by the price per gallon received by Operator for such Plant Product f.o.b.
Plant Tailgate. Processor shall have the right to deduct from the amount to be remitted to Producer
any amounts due Processor by Producer pursuant to the terms of this
Agreement.

ARTICLE XIII

DISPOSITION OF PRODUCER’S PORTION OF RESIDUE GAS

     13.1 Processor will deliver Producer’s portion of Residue Gas to the Residue Redelivery
Facility at the Plant Tailgate. Processor agrees to deliver Producer’s Residue Gas at a pressure
sufficient to enter the Residue Redelivery Facility, but in no event shall Processor be obligated
to deliver Residue Gas at a pressure which exceeds the higher of plant discharge pressure or (**)
psig. Producer and Processor will separately contract with the Residue Redelivery Facility
regarding the redelivery of their respective shares of Residue Gas to the various Residue
Redelivery Point(s). Producer and Processor understand there will normally be some inventory gains
and losses caused by balancing of Residue Gas among the Residue Redelivery Points pipelines;
however, Processor shall not be required to bear any costs resulting from such inventory or
balancing.

36

 

ARTICLE XIV

ACCOUNTING AND PAYMENTS

     14.1 Processor shall furnish to Producer on or before the 25th day of each month a report or
statement disclosing information necessary to enable Producer to make reasonable and accurate
statistical and accounting entries upon its books concerning all phases of this Agreement related
to the preceding month, including an allocation statement of Residue Gas delivered for Producer’s
account to its Residue Gas purchaser.

     14.2 Each party shall have the right during reasonable hours to examine books, records, charts, and
original test data of the other party to the extent necessary to verify the accuracy of any
statement, charge, credit, computation, test, or delivery made pursuant to any provision hereof. If
any such examination reveals any inaccuracy in any such statement, charge, credit, computation,
test, or delivery, the necessary adjustment shall be promptly made.

     14.3 Processor shall pay to Producer monthly, on or before the (**) day after the end of the
production month, the sums due under Article XII for Producer’s Plant Products marketed by
Processor during the preceding month less the amount of any taxes actually paid by Processor which
are applicable to such quantities. This payment shall be made irrespective of the interest, title,
or lien of any royalty or mineral owner or any third party or parties in and to the Gas delivered
by Producer to Processor hereunder, the Plant Products, or Residue Gas derived therefrom, or
proceeds accruing from the sale thereof. Payments not made within the

37

 

specific time period shall accrue interest at two percent over the prime loan rate in effect
at the end of each business day as described by the Chase Manhattan Bank of New York; provided that
there shall be no obligation to pay interest if a payment is not timely made because Processor does
not have sufficient information from Producer to make the payment.

     14.4 Producer shall be responsible for the payment of all royalties due on Residue Gas and Plant
Products. Producer shall indemnify and hold Processor harmless from all claims, actions, causes of
action or damages, liability, or obligations arising out of or related to the payment of the
lessor’s royalty or any other burden or encumbrance affecting Producer’s Gas.

     14.5 Notwithstanding any change in ownership of Producer’s properties, Processor shall never be
required to make payments or to give notices required under the provisions of this Agreement to
more than one party, and, in the event the Producer’s properties shall ever be owned by more than
one party, Processor may withhold (without interest) further payments and notices until all of the
owners of Producer’s properties have designated one party to act for them in all respects relating
to said properties and this Agreement, including the rendering of bills, the submission of charts,
and the receipt of payments and notices hereunder.

     14.6 Processor, at its election, may deduct from its payment to Producer sums, if any, due to
Processor under the terms of this Agreement.

38

 

     14.7 All accounting records and documents directly related to this Agreement prepared by
either party hereto shall be retained for a period of not less than two years following the end of
the calendar year of their origination. The parties further agree that all matters relating to the
accounting hereunder for any calendar year shall be considered correct and not subject to further
audit or legal challenge after two years following the end of the calendar year.

ARTICLE XV

WARRANTY

     15.1 Producer warrants the title to all Gas and all Components thereof which shall be
delivered by Producer to Processor hereunder, the right to enter into this Agreement with reference
to such Gas, and that such Gas is free from all liens and adverse claims; and agrees, if notified
thereof by Processor, to indemnify Processor against all suits, action, debts, accounts, damages,
costs, and expenses arising from and out of any adverse legal claims of any and all persons
whomsoever to or against such Gas and against the Plant Products derived therefrom. Producer agrees
to make settlement for all royalties, overriding royalty interests, and/or production payments due
and payable on the Gas delivered to Processor hereunder, the Plant Products extracted and saved
therefrom, and the sale and disposition of the Reside Gas thereof, all in accordance with the terms
of the leases from which Gas processed hereunder is produced, applicable instruments of title,

39

 

and all amendments thereto; and Producer agrees to hold Processor harmless from any and all
claims or demands of mineral or royalty owners and third party claimants as to their respective
portions of such Gas delivered hereunder.

     15.2 If Producer’s title is questioned, Processor may withhold payments of proceeds due hereunder
without interest up to the amount of the claim until title is free from such questions or until
Producer furnishes a bond satisfactory to Processor conditioned to save Processor harmless, or
other surety satisfactory to Processor.

     15.3 Producer also represents and warrants that it has full authority to receive payment for the
sum of all Gas delivered hereunder.

ARTICLE XVI

TAXES

     16.1 Producer shall pay or cause to be paid all production, severance and ad valorem taxes,
assessments, and other charges levied or assessed against the Gas delivered by Producer hereunder,
and against Producer’s portion of the Plant Products, against Producer’s Residue Gas, and against
the sale thereof, and all taxes and statutory charges levied or assessed against any of Producer’s
properties, facilities, or operations.

     16.2 Processor shall pay all taxes and statutory charges levied or assessed against its Plant,
operations, and that portion of the Plant Products derived from Producer’s Gas which accrue to

40

 

Processor under the provisions of Article XII hereof.

ARTICLE XVII

INDEMNITY

     17.1 Each of the parties hereto assumes full responsibility and liability for the
maintenance of its respective properties and agrees to indemnify and save the other party harmless
from all liability and expense on account of any and all damages, claims, taxes, actions, including
injury to or death of persons and damage to or destruction of property arising from any act or
omission or accident in connection with control or possession of the Gas by, or the installation,
presence, maintenance, and/or operation of the property and equipment of, the indemnitor.

     17.2 Producer agrees to defend, indemnify, and hold Processor harmless from all claims, actions,
damages, liability, expenses, including wrongful death, personal injury, or property damage arising
out of or in connection with (i) Producer’s ownership and control of the Gas prior to the time the
Gas passes through the Delivery Point(s); (ii) after the Residue Gas leaves the Plant Tailgate; and
(iii) the ownership and operation of any wells and facilities installed by Producer above the
Delivery Point(s), whether or not required under the terms of this Agreement.

     17.3 Processor agrees to defend, indemnify, and hold Producer harmless from all claims, actions,
damages, liability, or expense, including wrongful death, personal injury, or property damage
arising out of or connected with the operation of the Gathering

41

 

System or Plant.

     17.4 As between the parties hereto, and as to liability, if any accruing to either party
hereto, or to any third party, Producer shall be solely liable for and in control and possession of
the Gas deliverable hereunder and shall bear the risk of loss until the Gas is delivered to
Processor at the Delivery Point. Processor shall be solely liable for and in control and possession
of the Gas and the Plant Products and shall bear the risk of loss until Processor has delivered
Residue Gas to Producer at the Plant Tailgate and delivered Plant Products to Union Pacific Fuels,
Inc. at the Plant Tailgate, whereupon Producer shall again be in control and possession thereof and
bear the risk of loss of the Residue Gas, and Union Pacific Fuels, Inc. shall be in control and
possession of and bear the risk of loss of the Plant Products.

     17.5 Neither Producer nor Processor shall have any responsiblity with respect to Gas
deliverable or delivered hereunder, Plant Products derived therefrom, and Residue Gas, or on
account of anything which may be done, happen, or arise with respect thereto, during such time as
said Gas, Plant Products, and Residue Gas are in control and possession of the other party as
hereinabove provided.

ARTICLE XVIII

FORCE MAJEURE

     18.1 In the event any party hereto is rendered unable, wholly or in part, by force majeure
to carry out its obligations under

42

 

this Agreement, other than the obligation to make payments due hereunder, it is agreed that on such
party giving notice and full particulars of such inability by telephone and in writing to the other
party as soon as possible after the occurrence of the cause relied on, then 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,
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 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; explosion, breakage, or accidents to machinery, plant facilities, or lines of pipe;
the necessity for making repairs to or alterations of machinery, plant facilities, or lines of
pipe; freezing of wells or lines of pipe; partial or entire failure of wells; and the inability of
either Producer or Processor to acquire, or the delays on the part of either Producer or Processor
in acquiring, at reasonable cost and after the exercise of reasonable diligence: (a) any servitude,
rights-of-way grants, permits, or licenses; (b) any materials or supplies for the construction or
maintenance of facilities; (c) any permits or permissions from any governmental agency if such are
required; and any other causes, whether of a kind herein enumerated or otherwise,

43

 

not within control of the party claiming suspension and which by the exercise of due diligence such
party is unable to prevent or overcome. 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 the opposing party when
such course is inadvisable in the sole discretion of the party having the difficulty.

ARTICLE XIX

UNPROFITABLE OPERATIONS AND RIGHTS OF TERMINATION

     19.1 If, in the opinion of Processor, the processing of Gas from any well or wells, or any
Delivery Point, under this Agreement, is or becomes uneconomical due to its volume, Plant Product
content, government regulations, or any other cause, Processor shall not be obligated to process or
may cease processing the Gas therefrom so long as such condition exists. Processor agrees that in
its determination of uneconomical processing, the same criteria shall be used for Producer’s Gas as
for all other Gas being processed through Processor’s Plant. In the event that Processor refuses to
process such Gas, Producer may dispose of the Gas not processed as it sees fit; provided that
Processor at any time thereafter shall have the right to process all Gas refused, if refused for
reason or reasons resulting from an act of Producer or

44

 

lack of action on the part of Producer, conditioned upon Processor giving Producer at least two
months’ notice of its election so to do.

     19.2 In the event Processor should at any time hereafter elect to permanently discontinue the
operation of the Plant, Processor or Producer shall have the option, exercised solely at its
discretion, of terminating this Agreement in its entirety upon (**) advance written notice of
such termination notice to the other party.

     19.3 Nothing herein shall be construed to require Producer to drill any well or to continue to
operate any well which a prudent operator would not in like circumstances drill or continue to
operate.

     19.4 It is agreed that Processor shall not be obligated to expand any Facilities in order to
provide capacity hereunder.

ARTICLE XX

TERM

     20.1 This Agreement shall be effective from the date hereof and shall continue in full force
and effect for the life of the oil and gas leases or mineral interests of Producer within the
Contract Area, or any extension or renewal thereof, or for so long as Processor continues the
operation of its Facilities.

45

 

ARTICLE XXI

REGULATORY BODIES

     21.1 This Agreement and the provisions hereof shall be subject to all laws, order, rules,
regulations, and directives of the United States, the State of Texas, and of any duly constituted
governmental body, agency, commission, legislature, or court having jurisdiction herein. Nothing
contained herein shall be construed as a waiver of any right to question or contest any such law,
order, rule, regulation, or directive in any forum having jurisdiction in the premises. Producer
and Processor have entered into this Agreement with the understanding, and in reliance on the fact,
that this Agreement and/or performance of this Agreement are not and will not be subject to the
jurisdiction or regulation of the Federal Energy Regulatory Commission (“FERC”) and/or any other
local, state, or federal governmental authorities or entities including, without limitation, any
public utility or common carrier authorities or entities. If this Agreement and/or performance of
this Agreement becomes subject to such jurisdiction and/or regulation, this Agreement shall
automatically terminate unless both Producer and Processor agree, in writing, within 30 days of the
effective date of the attachment of any such jurisdiction and/or regulation, that this Agreement
shall continue after such effective date.

     21.2 If the price for Gas delivered hereunder to be paid Producer by Processor or to be paid
Processor by Processor’s Gas purchaser is a price which, under the Natural Gas Policy Act of

46

 

1978, requires an affirmative determination by a jurisdictional agency, then Producer shall file
with the appropriate jurisdictional agency prior to initial deliveries of Gas hereunder the
material required (including, but not limited to, FERC’s form No. 121) to establish Producer’s or
Processor’s right to be paid such price. If Producer fails to make such filing, then Processor
shall also retain and withhold from payment otherwise due Producer hereunder an amount equal to the
aggregate loss of Processor’s margin as a result of Producer’s failure to make such filing.

ARTICLE XXII

ARBITRATION

     22.1 Any controversy between the parties arising under this Agreement not resolved by
agreement shall be determined by a board of arbitration upon notice of submission given either by
Processor or Producer, which request shall also name one arbitrator. The party receiving such
notice shall, within ten days thereafter, by notice to the other, name the second arbitrator, or
failing so to do, the party giving notice of submission shall name the second. The two arbitrators
so appointed shall name the third, or failing so to do within ten days, then upon the written
application of either party, such third arbitrator may be appointed by the American Arbitration
Association. The arbitrators selected to act hereunder shall be qualified by education, experience,
and training to pass upon the particular question in dispute. The arbitrators so appointed shall
promptly hear and determine (after giving the

47

 

parties due notice of hearing and a reasonable opportunity to be heard) the questions
submitted and shall render their decision within 60 days after appointment of the third arbitrator.
If within said period a decision is not rendered by the board or a majority thereof, new
arbitrators may be named and shall act hereunder at the election of either Processor or Producer in
like manner as if none has been previously named. The decision of the arbitrators, or of a majority
thereof, made in writing shall be final and binding upon the parties hereto as to the questions
submitted and the parties will abide by and comply with such decision. The expenses of arbitration
shall be borne equally by the parties, except that each party shall bear the compensation and
expenses of its counsel, witnesses, and employees.

ARTICLE XXIII

NOTICES AND PAYMENTS

     23.1 Any notice, request, demand, statement, or bill provided for in this Agreement shall be in
writing and delivered by hand, mail, or telecopy. All such written communications shall be
effective upon receipt by the other party at the address of the parties hereto as follow:

	 	 	 	 	 
	 

	 	Producer	 	 
	 
	 	 	 	 
	 

	 	Statements:
	 	Union Pacific Resources Company
	 

	 	 	 	Attn: Manager,
	 

	 	 	 	         Austin Chalk Accounting
	 

	 	 	 	P.O. Box 7
	 

	 	 	 	Fort Worth, Texas 76101-0007

48

 

	 	 	 
	Payments:

	 	Union Pacific Resources Company
	 

	 	P.O. Box 842511
	 

	 	Dallas, Texas 75284-2511
	 
	 	 
	Contractual:

	 	Union Pacific Resources Company
	 

	 	Attn: General Manager — Austin Chalk
	 

	 	P.O. Box 7
	 

	 	Fort Worth, Texas 76101-0007
	 
	 	 
	Processor
	 	 
	 
	Statements:

	 	Union Pacific Resources Company
	 

	 	Attn: Manager,

         Austin Chalk Accounting
	 

	 	P.O. Box 7
	 

	 	Fort Worth, Texas 76101-0007
	 
	 	 
	Payments:

	 	Union Pacific Resources Company
	 

	 	P.O. Box 842511
	 

	 	Dallas, Texas 75284-2511
	 
	 	 
	Contractual:

	 	Union Pacific Resources Company
	 

	 	Attn: Manager, Natural Gas Operations
	 

	 	P.O. Box 7
	 

	 	Fort Worth, Texas 76101-0007

     Either of the parties may designate a further or different address by giving written notice
to the other party.

ARTICLE XXIV

ASSIGNMENT

     24.1 This Contact shall extend to and be binding upon and inure to the benefit of the heirs,
executors, administrators, successors, and assigns, of the respective parties hereto, but no
transfer of or succession to the interest of either party hereunder, wholly or partially, shall
affect or bind the other party until it shall have been furnished with the original instrument or
with the proper proof that the claimant is legally

49

 

entitled to such interest.

ARTICLE XXV

MISCELLANEOUS

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

     25.2 No modifications of the terms and provisions of the Agreement shall be made except by the
execution of written agreements. This Agreement contains the entire agreement between the parties
and there are no oral promises, agreements, or warranties affecting it.

     25.3 The descriptive headings of the provisions of these general provisions are formulated and used
for convenience only and shall not be deemed to affect the meaning or construction of any such
provisions.

     25.4 This Agreement supersedes and replaces any other contract(s) or agreements(s) which may exist
between the parties covering the processing of the Gas dedicated hereunder.

     25.5 Nothing in this Agreement is intended to create a partnership or joint venture under state law
or to render the parties hereto jointly and severally liable to any third party. Each of the
parties elects to be excluded from the provisions of Subchapter K, Chapter 1 of Subtitle A, of the
Internal Revenue Code of 1986 pursuant to the provisions of Article 761(a) of such code

50

 

and from any similar provisions of state law. Processor shall timely file such evidence of this
election as may be required under applicable law.

     25.6 Should any section, paragraph, subparagraph, or other portion of this Agreement be found
invalid as a matter of all in a duly authorized court, or by a duly authorized government agency,
then only that portion of the Agreement shall be invalid. The remainder of the Agreement which
shall not have been found invalid shall remain in full force and effect.

     25.7 This Agreement shall be interpreted, construed, and governed by the laws of the State of
Texas.

     25.8 This Agreement was prepared jointly by the parties hereunder and not by either party to the
exclusion of the other.

     25.9 Producer recognizes and acknowledges Processor’s proprietary interest in this Agreement,
and Producer agrees not to divulge any of the contents hereof to any other person, firm,
corporation, or other entity. Producer agrees to be responsible for enforcing the confidentiality
of this Agreement and agrees to take such action as necessary to prevent any disclosure by any of
its agents or employees.

51

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement in several originals as of
the date first above written.

	 	 	 	 	 	 	 	 	 	 	 
	UNION PACIFIC RESOURCES

COMPANY	 	UNION PACIFIC RESOURCES

COMPANY
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Donald P. Amsden
	 	By:
	 	/s/ J. B. Vering	 	 	 	 
	 

	 	 

Donald P. Amsden
	 	 	 	 

J. B. Vering
	 	 	 	 
	 

	 	Attorney-in-Fact
	 	 	 	Attorney-in-Fact	 	 	 	 
	 

	 	PROCESSOR
	 	 	 	PRODUCER	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 	 	 

52

 

Exhibit “A”

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

(**)

 

 

EXHIBIT “B”

to the

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

between

UNION PACIFIC RESOURCES COMPANY

and

UNION PACIFIC RESOURCES COMPANY

September 1, 1993

	 	 	 	 	 	 	 
	Delivery Point	 	Survey	 	API #
	(**)
	 	(**)	 	 	(**)	 

 

 

EXHIBIT “C”

to the

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

between

UNION PACIFIC RESOURCES COMPANY

and

UNION PACIFIC RESOURCES COMPANY

September 1, 1993

Residue Redelivery Point(s)

(**)

 

 

EXHIBIT “D”

to the

Brookeland Gas Facilities

Gas Gathering and Processing Agreement

between

RME PETROLEUM COMPANY

and the predecessor of

DUKE ENERGY FIELD SERVICES, LP

dated as of

September 1, 1993

     This Exhibit “D” is attached to and made a part of that certain Brookeland Gas
Facilities Gas Gathering and Processing Agreement dated September 1, 1993, as amended, between RME
Petroleum Company (“RME”) and the predecessor of Duke Energy Field Services, LP (“DEFS”),
regarding the gathering and processing by DEFS, as processor or buyer, of gas produced and
supplied by RME, as producer or seller (“Agreement”).

     From time to time, the quantities of gas confirmed and delivered by DEFS to the Tennessee Gas
Pipeline Company Redelivery Point (“Delivered Quantities”) are greater or less than the quantities
of gas to which RME is actually entitled at the tailgate of the Brookeland Processing Plant,
resulting in over- or under-deliveries relative to Receipt Quantities; and

     The Parties desire to implement a balancing agreement in order to facilitate more efficient
gas scheduling and accounting at the Brookeland Processing Plant and at the Redelivery Point as
defined in the Agreement;

     Therefore, in consideration of the premises and mutual covenants contained herein, the
Parties agree as follows:

     1. COMMITMENT. In accordance with the requirements of the Agreement, RME shall make
nominations, and DEFS shall confirm nominations and make deliveries at the Redelivery Point. The
Parties intend that the quantity of gas actually delivered each day at the Redelivery Point will
equal RME’s full entitlement of producer’s share of all gas owned and controlled by RME and
gathered to the Brookeland Processing Plant for processing or for bypass. This full entitlement
quantity is less (a) the MMBtu’s of gas attributable to gas returned for RME’s gas lift and lease
operations, (b) the MMBtu’s of gas attributable to RME for fuel for compression, dehydration,
treating, or conditioning, and (c) the MMBtu’s attributable to RME’s gas for process fuel, flare,
shrinkage, and gains and losses (“Receipt Quantities”). Any imbalance created when the Receipt
Quantities are different than the Delivered Quantities will be the “Imbalance,” which will be the
responsibility of the Parties to eliminate pursuant to this Exhibit D. Any Imbalance shall be
eliminated as soon as practicable, using the same Redelivery Point to the greatest extent feasible,
pursuant to the terms and conditions of this Exhibit.

 

 

     2. REDELIVERY POINT. Subject to the downstream pipeline’s capacity
allocation rules, and to the extent pipeline capacity is available, the Redelivery Point for
RME’s
redelivered gas shall be the existing pipeline interconnect to Tennessee Gas Pipeline Company
in
Jasper County, Texas, Meter No. 012277. DEFS will use reasonable efforts to deliver at the
required pipeline inlet pressure and quality specifications of the applicable pipeline that
may be used
as a Redelivery Point. DEFS shall not be required to install any additional facilities to
accommodate
RME’s redelivered Gas disposition.

     3. NOMINATION
PROCESS. Estimated operating quantities flowing at the Brookeland Processing Plant inlet and at the Redelivery Point will be used on a daily basis
during
any current period to determine the estimated Imbalance, with nomination adjustments to be
made
during that current period by RME to attempt to maintain or achieve an Imbalance of zero at
the
Redelivery Point. The Parties will cooperate in order to minimize the daily over and under
deliveries. In this regard, the Parties’ gas marketing operations and scheduling personnel
will be in
contact each business day, or more frequently if needed, in order to balance Receipt
Quantities of
gas with Delivered Quantities of gas to the greatest extent feasible.

     4. IMBALANCES. Any cumulative Imbalance remaining at the end of a month
will be eliminated using the following (**).

     (**)

     5. TERM. This Exhibit is effective as of September 1, 2001, and will remain
in
effect for a term coterminous with that of the Agreement except as stated below. Either party may
invoke a renegotiation of the terms of this Exhibit upon at least 30 days advance written notice,
with any agreed resulting changes to be effective as of the first of the month following the
notice period. If no renegotiation has been agreed within 60 days of the date of a notice under
the preceding sentence, then either party may cancel this Exhibit and thereby delete it from the
Agreement upon 30 days advance written notice to the other Party, effective as of the end of a
month. Notwithstanding any termination of this Exhibit or the Agreement, the Parties agree to
reconcile and eliminate any remaining Imbalance pursuant to the terms and conditions of this
Exhibit and the Agreement within 30 days of termination of this Exhibit. If the remaining
Imbalance is not resolved

- 2 -

 

within 30 days following termination of this Agreement, it will be reduced to zero pursuant to the
cash-out provisions set forth in Section 4.

     6. FORCE MAJEURE. If an event of force majeure as defined in the Agreement
occurs affecting DEFS’ ability to receive gas hereunder, then RME’s gas volume will be reduced
by
a percentage equal to the overall system reduction for gas in each priority category. DEFS
will use
reasonable efforts to notify RME promptly of any reduction and to restore gas volumes
equitably to
RME as soon as the force majeure event is corrected.

     7. ADDRESSES AND NOTICES. Either party may give notices to the other party or
parties by first class mail prepaid, by overnight delivery service, or by facsimile at the
following
addresses or other addresses furnished by either Party by written notice.

Notices to RME Petroleum Company:

	 	 	 
	Notices to RME — General:

	 	RME Petroleum Company
	(Commercial)

	 	P.O. Box 1330
	 

	 	Houston, TX 77251-1330
	 

	 	Phone: (281) 863-7160
	 

	 	Fax: (281) 863-7090
	 
	 	 
	Notices to RME — operations, imbalances,

	 	RME Petroleum Company
	Nominations, and revisions:

	 	c/o Gas Control — Marketing Field Services
	 

	 	1200 Timberloch Place
	 

	 	The Woodlands, TX 77380-1046
	 

	 	Phone: (281) 863-7174
	 

	 	Fax: (281) 863-7198
	 
	 	 
	Payments to RME via wire transfer:

	 	RME Petroleum Company
	 

	 	Bank of America (Dallas, TX)
	 

	 	Account #: 1252625601
	 

	 	ABA#: 111000012
	 
	 	 
	Notices to DEFS — General:

	 	Duke Energy Field Services, LP
	(Commercial and Accounting)

	 	5718 Westheimer, Suite 2000
	 

	 	Houston, TX 77057
	 

	 	Fax: (713) 627-6429
	 
	 	 
	Marketing Operations, imbalances, nominations

	 	Duke Energy Field Services, LP
	and revisions:

	 	Marketing Operations — Brookeland Plant
	 

	 	5718 Westheimer, Suite 2000
	 

	 	Houston, TX 77057
	 

	 	Phone: (713) 627-6200
	 

	 	Fax: (713) 627-6273
	 
	 	 
	Payments to DEFS via wire transfer:

	 	Chase Manhattan Bank
	 

	 	Credit to Duke Energy Field Services, LP
	 

	 	ABA#: 021 000 021
	 

	 	Account #: 910-2-771343

- 3 -

 

	 	 	 
	Payments to DEFS via check:

	 	Duke Energy Field Services, LP

P. O. Box 201207

Houston, TX 77216-1207

End of Exhibit D Balancing Agreement provisions.

- 4 -

 

Amendment to Brookeland Gas Facilities

Gas Gathering and Processing Agreement

#80-29.2

WITNESSETH, THAT:

     WHEREAS, UNION PACIFIC RESOURCES COMPANY, hereinafter referred to as “Processor”, and UNION
PACIFIC RESOURCES COMPANY, hereinafter referred to as “Producer” are parties to a Gas Gathering and
Processing Agreement, hereinafter referred to as the “Agreement”, dated September 1, 1993, covering
the gathering and processing of gas produced from certain wells delivering gas to Processor’s Gas
Facilities (Facilities) in Jasper, Newton, and Sabine Counties, Texas and Vernon Parish, Louisiana;
and

     WHEREAS, Producer and Processor desire to amend the Agreement as described herein.

     NOW THEREFORE,
in consideration of the premises and covenants herein contained, Producer and Processor agree that
effective July 1, 1998:

	1.	 	Article 4.2 is deleted in its entirety and replaced by the
following:

	 
	 	 	“4.2 If the Processor provides compression for the Producer’s Gas (other than Plant
recompression), the Processor shall provide or cause to be provided each stage of
compression for an initial fee of (**) per MCF per stage, and Producer will provide (**) of fuel required for operating such compressor(s), in order that Gas dedicated
hereunder will meet the pressure requirements at the Plant inlet. Commencing (**),
and each (**) thereafter, the compression fee set forth herein will be adjusted upward
or downward, in proportion to the percentage increase or decrease in the

1

 

	 	 	average hourly earnings of crude petroleum and Gas production workers for the last
calendar year, compared to the previous calendar year, as shown by the “Index of the Average
Hourly Earnings of Crude Petroleum and Gas Production Workers” as published by the Bureau of
Labor Statistics of the United States Department of Labor.”

	2.	 	Paragraph 7.1 .c (iii) is deleted in its entirety and replaced by the
following:

“(iii) six percent by volume of carbon dioxide;”
	 
	3.	 	The first sentence of Article 7.3.(b) is deleted and replaced by the following:

“If for any reason the commingled stream of all Gas delivered at the Plant inlet hereunder
exceeds five and one-half percent by volume of carbon dioxide (CO2), the Processor shall
have the right, but not the obligation, to treat non-conforming Gas.”
	 
	4.	 	Article 12.1 shall be deleted in its entirety and replaced by the following:

“12.1 For Gas produced from wells spud before (**) Processor shall retain (**) of
the BTU’s of Residue Gas available for sale which are attributable to Producer’s Gas; and
(**) of the proceeds received by Operator for Plant Products attributable to Producer’s Gas.
For Gas produced from wells spud after (**) Processor shall retain (**) of the BTU’s
of Residue Gas available for sale which are attributable to Producer’s Gas; and (**) of the
proceeds received by Operator for Plant Products attributable to Producer’s Gas. Subject to
Producer’s right to take in kind purity Plant Products from the purchaser in accordance with
the provisions of Article XI, Processor shall remit to Producer (**), depending on
well spud date, of the amount derived by summing the results of multiplying the respective
gallons of each Plant Product allocated to Producer pursuant to Paragraph 10.2 by the price
per gallon received by

2

 

	 	 	Operator for such Plant Product f.o.b. Plant Tailgate. Processor shall have the right to
deduct from the amount to be remitted to Producer any amounts due Processor by Producer
pursuant to the terms of this Agreement.”

	5.	 	The following Article 25.10 is added:

“25.10 Processor, each month, shall notify Producer of its intent to recover or reject
ethane at the Plant in the following month. Processor will reject ethane when Processor’s
expected value of ethane as part of Residue Gas at the Plant Tailgate exceeds Processor’s
expected value of ethane as a Plant Product at the Plant Tailgate. Processor reserves the
right to alter its decision to recover or reject ethane at any time in the event of
significant price changes. Should Processor alter Plant operations during a month Producer
will be notified as soon as practical.”

          Except as amended herein, the Agreement remains in full force and effect as
originally executed, and the parties hereto do hereby adopt and ratify and confirm same.

     IN WITNESS WHEREOF, each of the paries hereto has executed this Agreement on the
date of its acknowledgment hereof.

	 	 	 	 	 	 	 	 	 	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/
	 	 	 	By:
	 	/s/ B. Bowersock	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Its:

	 	Business Unit Manager
	 	 	 	Its:
	 	Attorney-in-Fact	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	“Producer”
	 	 	 	 	 	“Processor”	 	 

3

 

Amendment to Brookeland Gas Facilities

Gas Gathering and Processing Agreement

#80-29.2

WITNESSETH, THAT:

     WHEREAS, UNION PACIFIC RESOURCES COMPANY, hereinafter referred to as “Processor”, and UNION
PACIFIC RESOURCES COMPANY, hereinafter referred to as “Producer” are parties to a Gas Gathering and
Processing Agreement, hereinafter referred to as the “Agreement”, dated September 1, 1993, covering
the gathering and processing of gas produced from certain wells delivering gas to Processor’s Gas
Facilities (Facilities) in Jasper, Newton, and Sabine Counties, Texas and Vernon Parish, Louisiana;
and

     WHEREAS, by Amendment dated December 1, 1995 (the “Amendment”), Processor and Producer amended
the Agreement by deleting and replacing Paragraph 13.1 thereof and by adding a new Paragraph 13.2;
and

     WHEREAS, Producer and Processor desire to further amend the Agreement by rescinding
the Amendment as more particularly described herein.

     NOW THEREFORE, in consideration of the premises and covenants herein contained, Producer and
Processor agree that effective July 1, 1998:

	1.	The version of Paragraph 13.1 contained int
the Amendment shall be deleted in its
entirety and replaced by the version contained in the original
Agreement, which reads as follows:
	 
	 	“13.1 Processor will deliver Producer’s portion of Residue Gas to the Residue

1

 

	 	Redelivery Facility at the Plant Tailgate. Processor agrees to deliver Producer’s
Residue Gas at a pressure sufficient to enter the Residue Redelivery Facility, but in no
event shall Processor be obligated to deliver Residue Gas at a pressure which exceeds the
higher of Plant discharge pressure or (**) psig. Producer and Processor will separately
contract with the Residue Redelivery Facility regarding the redelivery of their respective
shares of Residue Gas to the various Residue Redelivered Point(s). Producer and Processor
understand there will normally be some inventory gains and losses caused by balancing of
Residue Gas among the Residue Redelivered Points pipelines; however, Processor shall not be
required to bear any costs resulting from such inventory or balancing.”

	2. 	Paragraph 13.2 that was add to the Agreement by the Amendment is hereby deleted in its
entirety.

          Except as amended herein, the Agreement remains in full force and effect as
originally executed, and the parties hereto do hereby adopt and ratify and confirm same.

2

 

     IN WITNESS WHEREOF, each of the paries hereto has executed this Agreement on the date of its
acknowledgment hereof.

	 	 	 	 	 
	PROCESSOR	 	 
	 
	 	 	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 
	 
	 	 	 	 
	By:

	 	/s/ B. Bowersock	 	 
	 

	 	 

	 	 
	Its:

	 	Attorney-in-Fact	 	 
	 
	 	 	 	 
	PRODUCER	 	 
	 
	 	 	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 
	 
	 	 	 	 
	By:

	 	/s/ B. E. Kleinsorge	 	 
	 

	 	 

	 	 
	Its:

	 	General Manager	 	 
	 

	 	Austin Chalk Business Unit	 	 

3

 

Amendment to Brookeland Gas Facilities

Gas Gathering and Processing Agreement

#80-29.2

     THIS AGREEMENT, dated February 1, 1998, by and between UNION PACIFIC RESOURCES COMPANY,
a Delaware corporation, the Operator, hereinafter referred to as “Processor”, and UNION
PACIFIC RESOURCES COMPANY, hereinafter referred to as “Producer”.

WITNESSETH, THAT:

     WHEREAS, Producer and Processor are parties to a Gas Gathering and Processing Agreement,
hereinafter referred to as the “Agreement”, dated September 1, 1993, covering the gathering and
processing of gas produced from certain wells delivering gas to Processor’s Gas Facilities
(Facilities) in Jasper, Newton, and Sabine Counties, Texas and Vernon Parish, Louisiana; and

     WHEREAS, Producer has acquired from Texaco Exploration and Production Inc. (Texaco)
interest in a gas gathering system and wells dedicated to Texaco’s Brookeland Gas Processing
Plant; and

     WHEREAS, Processor has acquired 100% of Texaco’s Brookeland Gas Processing Plant; and

     WHEREAS, Processor desires to operate and maintain the gas gathering system Producer acquired
from Texaco, cancel the Texaco Brookeland Gas Processing Plant gas processing agreements between
Producer and Processor, and amend the Agreement to include the interest in the wells Producer
acquired from Texaco; and Producer agrees.

     NOW THEREFORE, in consideration of the premises and covenants herein contained, the Producer
and Processor agree that effective February 1, 1998:

I.

     All contracts and agreements, including but not limited to those specified on Exhibit
“1” attached hereto and hereby made a part of, related to the Texaco Brookeland Gas Processing
Plant between Producer and Processor are terminated.

II.

     Exhibit “A” of the Agreement shall be amended to increase the Contract Area by moving the
Northern boundary in Texas (**) of its present position.

 

 

III.

     Exhibit “B” of the Agreement shall be amended to include Producer’s interest in wells
on Exhibit “B-l”, attached hereto and hereby made a part of this Amendment.

IV.

The Agreement shall be amended by the addition of the following paragraph
25.10:

25.10 It is Producer’s intent to convey to Processor, Producer’s interest in all gas
metering and gathering assets located in Jasper, Sabine, and Newton Counties, Texas which
Producer acquired January 1, 1998 from Texaco Exploration and Production Inc. (the “Texaco
Gathering System”). Until such conveyance, Producer and Processor agree, Processor shall
have complete control of the Texaco Gathering System and at its own expense, shall operate,
maintain, and when appropriate, abandon the Texaco Gathering System. In addition, Processor
shall be liable for any claim, demand, or cause of action arising out of the operation of
the Texaco Gathering System.”

     Except as amended herein, the Agreement remains in full force and effect as originally
executed, and the parties hereto do hereby adopt and ratify and confirm same.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in several originals, as of the
date first written above.

	 	 	 	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 
	as Processor	 	 
	 
	 	 	 	 
	By:

	 	/s/ B. Bowersock	 	 
	 

	 	 

Attorney-In-Fact
	 	 
	 
	 	 	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 
	as Producer	 	 
	 
	 	 	 	 
	By:

	 	/s/ B. E. Kleinsorge	 	 
	 

	 	 	 	 
	 

	 	Attorney-In-Fact	 	 

 

 

EXHIBIT “1”

Terminated Contracts

	 	 	 	 	 	 	 	 	 
	UPRC#	 	Date	 	Type	 	Parties	 	 
	80-29.5

	 	6/22/94
	 	Gas Processing
	 	Producer -
	 	Union Pacific Resources Company
	 

	 	 	 	 	 	Processors -
	 	Texaco Exploration and Production, Inc.*
	 

	 	 	 	 	 	 	 	Maersk NGL, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.11

	 	11/27/95
	 	Gas Gathering & Processing
	 	Gatherer -
	 	Union Pacific Resources Company
	 

	 	 	 	 	 	Producer -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.12

	 	8/1/95
	 	Gas Purchase/Processing
	 	Producer -
	 	Torch Energy Marketing, Inc.*
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.13

	 	12/1/95
	 	Gas Purchase/Processing
	 	Producer -
	 	Union Pacific Resources Company
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.14

	 	1/1/96
	 	Gas Purchase/Processing
	 	Producer -
	 	Union Pacific Resources Company
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.16

	 	7/7/93
	 	Gas Purchase/Processing
	 	Producer -
	 	Maersk Energy, Inc*
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.17

	 	7/26/93
	 	Gas Purchase/Processing
	 	Processor -
	 	Maersk NGL, Inc*
	 

	 	 	 	 	 	Producer -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-29.18

	 	3/15/96
	 	Gas Purchase/Processing
	 	Producer -
	 	Bexco Operating, Inc.*
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*

 

 

	 	 	 	 	 	 	 	 	 
	UPRC#	 	Date	 	Type	 	Parties	 	 
	80-29.19

	 	7/7/93
	 	Gas Balancing
	 	Producer -
	 	Various*
	 

	 	 	 	 	 	Processor -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-50.7

	 	11/1/95
	 	Gas Gathering & Redelivery
	 	Gatherer -
	 	Union Pacific Resources Company
	 

	 	 	 	 	 	Producer -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-60.3

	 	7/8/92
	 	Gas Treating
	 	Producer -
	 	Arco Oil and Gas Company*
	 

	 	 	 	 	 	Treater -
	 	Texaco Exploration and Production, Inc.*
	 
	 	 	 	 	 	 	 	 
	80-60.4

	 	4/1/95
	 	Gas Treating
	 	Producer -
	 	Arco Oil and Gas Company*
	 

	 	 	 	 	 	Treater -
	 	Texaco Exploration and Production, Inc.*

 

			
	*	 	Denotes original party later succeeded by Union Pacific Resources Company

 

 

EXHIBIT “B-l”

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Well Name	 	County	 	Operator	 	API #	 	WINS
	 

	 	(**)
	 	(**)
	 	(**)
	 	 	(**)	 	 	 	(**)	 

 

 

Amendment to Brookeland Gas Facilities

Gas Gathering and Processing Agreement

     THIS AGREEMENT, dated as of December 1, 1995, by and between UNION PACIFIC RESOURCES COMPANY,
a Delaware corporation, the Operator, of the Facilities, hereinafter referred to as “Processor”,
and UNION PACIFIC RESOURCES COMPANY, hereinafter referred to as “Producer”.

WITNESSETH, THAT:

     WHEREAS, Producer and Processor are parties to a Gas Gathering and Processing
Agreement, hereinafter referred to as the “Agreement”, dated September 1, 1993, covering the
gathering and processing of gas produced from certain wells delivering gas to Processor’s Gas
Facilities (Facilities) in Jasper, Newton and Sabine Counties, Texas and Vernon Parish, Louisiana;
and

     WHEREAS, Producer and Processor desire to amend the Agreement as hereinafter written; and

     NOW THEREFORE, in consideration of the premises and covenants herein contained, the Producer
and Processor agree that effective December 1, 1995, the Agreement will be amended as follows:

I.

     Exhibit “A” shall be amended by the addition of the Contract Area set forth on Exhibit “A”
attached to this Amendment. All references in the Agreement to Exhibit “A” shall now be deemed to
include the attached Exhibit “A”.

-1-

 

II.

     ARTICLE XIII paragraph 13.1 of the Agreement shall be amended
by the addition of the following:

Producer shall have no right to take its proportionate share of Residue
Gas in kind. Processor shall pay Producer the net proceeds from the sale
of Residue Gas attributable to Producer. Such net proceeds shall be
determined by (**). Using the Inside F.E.R.C. Gas Market
Report First of the Month Publication the weighted average index price
shall be equal to the sum of (**) of the (**).

III.

     Article XIII of the Agreement shall be amended by the addition
of the following paragraph 13.2:

13.2 In the event that Inside F.E.R.C.’s Gas Market Report fails to
report said price(s) or ceases publication in its entirety, then
Processor and Producer shall mutually agree, within thirty (30) Days
thereafter on a substitute price(s) or publication (whichever the case
may be) upon which to deem (**) to be.
Such substitute price (s) or

-2-

 

publication as adjusted will reflect the spot market price of gas in the
producing area subject to this Agreement.

IV.

     Article XVI of the Agreement shall be amended by the addition
of the following paragraph 16.3:

16.3 The price paid under Articles XII and XIII of this Agreement include
reimbursement for state severance taxes paid by Producer and Processor under this
Article XVI of this Agreement.

V.

     Exhibit “C” shall be amended by the addition of a point of
interconnect set forth on Exhibit “C” attached to this Amendment.
All references in the Agreement to Exhibit “C” shall now be deemed
to include the attached Exhibit “C”.

     Except as amended herein, the Agreement remains in full force and effect as originally
executed, and the parties hereto do hereby adopt and ratify and confirm same.

-3-

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement in several originals,
as of the date first above written.

	 	 	 	 	 	 	 
	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 	 	as Processor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Donald P. Amsden	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Donald P. Amsden	 	 
	 

	 	 	 	Attorney-in-Fact	 	 
	 
	 	 	 	 	 	 
	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 	 	as Producer	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ J. B. Vering	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	J. B. Vering	 	 
	 

	 	 	 	Attorney-in-Fact	 	 

- 4 -

 

EXHIBIT “C”

to the

Brookeland Gas Facilities
Gas
Gathering and Processing Agreement

between

UNION PACIFIC RESOURCES COMPANY

and

UNION PACIFIC RESOURCES COMPANY

September 1, 1993

Residue
Redelivery Point (s)

(**)

Amendment dated December 1, 1995

- 5 -

 

TERMINATION OF PROCESSING CONTRACT

This instrument is entered into by and between UNION PACIFIC RESOURCES COMPANY, as operator of the
Brookeland Gas Facilities (referred to herein as “Processor”) and UNION PACIFIC RESOURCES COMPANY,
as operator of certain oil and gas properties located in the vicinity of the aforementioned gas
facilities (referred to herein as “Producer”).

Recitals

i. Processor and Producer have heretofore entered into that certain Gas Gathering and
Processing Agreement dated September 1, 1993 (the “Producer Processing Agreement”) covering
the gathering and processing of natural gas owned or controlled by Producer at Processor’s
Brookeland Gas Facilities. Pursuant to the Producer Processing Agreement, an area of
dedication was created within which any interest owned by Producer (or which might be
acquired by Producer in the future) within such area would be subject to the Producer
Processing Agreement.

ii. On November 1, 1995, Torch Energy Marketing, Inc. (“Torch”) and Processor entered into a
similar Gas Gathering Agreement (the “Torch Processing Agreement”) pursuant to which Torch
dedicated the gas produced from certain identified properties to be processed at Processor’s
Brookeland Gas Facilities.

iii. Subsequent to the foregoing, Producer acquired all of Torch’s interest in certain oil
and gas leases (the “Torch Leases”) more particularly described in that certain purchase
agreement effective January 1, 1996 which Leases were subject to the Torch Processing
Agreement.

NOW, THEREFORE, for $10.00 and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

1. The Torch Processing Agreement is hereby terminated with respect to the Torch Leases.

2. The Torch Leases shall hereafter be subject to the Producer Processing Agreement.

EXECUTED this 15th day of March, 1999.

	 	 	 	 	 	 	 	 	 	 	 
	PROCESSOR:	 	 	 	PRODUCER:	 	 
	UNION PACIFIC RESOURCES COMPANY	 	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/
	 	 	 	By:
	 	/s/ B. Bowersock	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Its:

	 	Attorney-in-Fact
	 	 	 	Its:
	 	Attorney-in-Fact	 	 

 

 

Amendment to Brookeland Gas Facilities

Gas Gathering and Processing Agreement

     THIS AGREEMENT, dated as of March 7, 1994, by and between UNION PACIFIC RESOURCES
COMPANY, a Delaware corporation, the Operator, and SONAT EXPLORATION COMPANY, a Delaware
corporation, the owners of the Facilities, hereinafter referred to collectively as “Processor,” and
UNION PACIFIC RESOURCES COMPANY, hereinafter referred to as “Producer”.

WITNESSETH, THAT:

     WHEREAS, Producer and Processor are parties to a Gas Processing Agreement, hereinafter
referred to as the “Agreement”, dated September 1, 1993, covering the gathering and processing of
gas produced from certain wells delivering gas to Processor’s Gas Facilities in Jasper and Newton
Counties, Texas; and

     WHEREAS, Producer is delivering Producer’s Gas to Processor at the Delivery Point at such
pressure as is required and sufficient to enter Processor’s Delivery Point, but not to exceed
(**) psig.

     NOW THEREFORE, in consideration of the premises and covenants herein contained, the Producer
and Processor agree that effective as of the date of April 1, 1994, Article 4.1 in the Agreement
shall be deleted in its entirety, and the following is substituted therefor:

          4.1 Producer, at its own expense, shall

- 1 -

 

construct, equip, maintain, and operate all facilities (including, but not limited to, all
necessary separation, dehydration, and/or compression) necessary to deliver Producer’s Gas
to Processor at the Delivery Point at such pressure as is required and sufficient to enter
Processor’s Delivery Point, but not to exceed (**) psig.

     Except as amended herein, the
Agreement remains in full force
and effect as originally executed, and the parties hereto do hereby
adopt and ratify and confirm same.

     IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in several originals, as of the date first above written.

	 	 	 	 	 	 	 
	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 	 	as Operator for Processor	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Donald P. Amsden	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Donald P. Amsden	 	 
	 

	 	 	 	Attorney-in-Fact	 	 
	 
	 	 	 	 	 	 
	 

	 	“Processor”	 	 
	 
	 	 	 	 	 	 
	 	 	UNION PACIFIC RESOURCES COMPANY	 	 
	 	 	as Producer	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ J. B. Vering	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	“Producer”	 	 

- 2 -

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