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Exhibit 10.4  

 
 

CONTRACT OF AFFREIGHTMENT    
    

        This Contract of Affreightment ("COA") is entered into between Public Service Marine, Inc., (hereinafter called "Owner") with an office and place of
business at 249 E. Ocean Blvd., Suite 310, Long Beach, California, 90802, and VENOCO LLC (hereinafter called "Charterer") with an office and place of business at 217 State Street,
Suite 300, Santa Barbara, California 93101. 

        WHEREAS,
Charterer requires transportation for certain cargoes between ports as further specified herein; and 

        WHEREAS,
Owner is willing and able to supply Charterer's requirements as set forth herein; and 

        WHEREAS,
Charterer acknowledges that Owner has and will have future additional contract commitments, including but not limited to the San Francisco Bay Area; 

        NOW,
THEREFORE, in consideration of the mutual promises set forth herein, the parties agree as follows: 

1.     TERM  

        The term of the COA shall commence on the date of the execution of this COA, ("Commencement Date") and shall continue until to March 31, 2008, except as
where otherwise provided in this COA. Notwithstanding the above, either party shall have the right to terminate this COA effective on or after March 31, 2001 upon giving the other party at
least 180 days written notice of such termination, provided further that the effective date of any termination initiated by the Charterer shall be the date on which Charterer is permitted and
begins to ship the Ellwood crude oil production by pipeline. 

2.     CONTRACT RESPONSIBILITY  

        (a)   Charterer
agrees that it is the Charterer's sole responsibility during the term of this COA to maintain all leases, licenses, and permits in an in-force
status necessary to support the overall Ellwood/Holly operation and to comply with all regulations, rules and laws effecting operation of the Ellwood facilities. 

        (b)   Except
as otherwise expressly provided in this COA, Owner agrees that it is Owner's sole responsibility during the term of this COA to maintain the Vessel (as defined
below) in good working order and in compliance with all regulations, rules and laws applicable to its operations under this COA and to comply with all safety and operational requirements of the
loading and discharge terminals to which service is provided under this COA. 

        (c)   Owner
agrees to be responsible for and bear the cost of (i) all tugs and / or escort vessels necessary to perform services hereunder, other than the auxiliary
vessel for the Ellwood Marine Terminal, the cost of which shall be born by Charterer, and (ii) all port charges. 

3.     PAYMENT  

        (a)   Payment
of all of Owner's invoices sent to Charterer shall be due within twenty (20) business days of receipt, as specified in this COA. All payments owed
by Charterer to Owner shall be made by wire transfer of funds to the Owner's account at Mellon Bank, Pittsburgh, PA., ABA 043000261, For Credit to Merrill Lynch Account #1011730, For Further Credit to
Public Service Marine, Inc. Account #582-07D98 or such other place Owner may specify. Payments received after the above-referenced twenty-day period shall be charged
interest from the date such payment was due until paid at the rate of one and one-half percent (1.5%) per month. Should any portion of the invoice be in dispute, that portion not in
dispute shall be timely paid. If any disputed portion cannot be resolved 

 

between
the parties within twenty (20) business days after the receipt of the invoice, it is agreed that such disputed amount shall be submitted to binding arbitration. 

        (b)   It
is understood and agreed by all parties to this COA that uniform cash flow is important to the Owner. Therefore, the parties agree that if Owner's invoices to
Charterer are paid late on any three invoices, whether consecutive or non-consecutive, the Charterer then agrees that all future shipments will be paid by Charterer in advance of the
shipment and will be paid to Owner at least twenty-four (24) hours prior to the time of the shipment. 

4.     PRICE (Freight Rate)  

        (a)   The
price (freight rate) for shipments from Ellwood to Los Angeles/Long Beach Harbor will be $1.50/bbl. The price from Ellwood to San Francisco will be $.40 above the
prevailing contract price to Los Angeles/Long Beach Harbor. 

        (b)   Beginning
on January 1, 1999 the freight rates set forth in Article 4 (a) above shall escalate or de-escalate based on changes in the
Consumer Price Index—all items ("CPI") as shown on Exhibit 1. 

        (c)   Owner
will send Charterer a letter by the beginning of each calendar quarter, commencing with the First Quarter of 1999, showing the price to be effective for such
quarter as adjusted for changes in the CPI. If requested by Charterer in writing, Owner will furnish to Charterer the calculations supporting that price. 

5.     SCHEDULING  

        (a)   Every
Monday, or Tuesday if Monday is a holiday, Charterer will fax to Owner a schedule for the next four weeks which indicates the probable earliest date(s) on which
Charterer will have a full load (approximately 54,000 barrels unless restricted to a lesser amount by regulation) available for pick-up by Owner. On the following day Owner shall advise
the Charterer the estimated date(s) on which it will commence loadings. Such loading dates shall be within the Window Period, as defined below, for each proposed shipment. At least 2 days
before each estimated loading date, Owner shall confirm with Charterer the date on which loading will commence (which date shall be within the Window Period for such shipment). Upon giving of such
confirmation Owner shall fax to Charterer a Charter Order (Exhibit 2) giving Charterer 24 hours to confirm agreement of the date. This scheduling shall be repeated each week, with
anticipated loading dates being modified to reflect changes in Charterer's production rates, provided loading dates for which Charter Orders have been executed may not be adjusted without the mutual
consent of the parties. To the extent reasonably possible, all loading operations shall be undertaken and completed on weekdays. However, Charterer authorizes Owner to load on one weekend per month.
The authorization of additional weekend loading over and above the one weekend per month shall be at the sole discretion of Charterer, which Charterer shall not unreasonably withhold. 

        (b)   As
used in this COA, the term "Window Period" refers to the time period following each date Charterer has predicted the availability of a full load for shipment. As
production rates at the Ellwood Field increase, the Window Period will decrease as follows: 

	Production Rate
 
	 	Window Period

	Less than 5,500 b/d	 	10 days
	5,500 to 7,000 bbl/d	 	8 days
	7,000 bbl/d to 9,000 bbl/d	 	7 days
	9,000 bbl/d to 18,000 bbl/d	 	5 days

        If
Owner is unable to commence loading within any Window Period designated by Charterer, Owner shall pay to Charterer a late loading fee equivalent to the Demurrage Rate set forth in
this 

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COA,
which fee shall accrue commencing at Midnight of the last day of the Window Period until actual loading operations have been completed. The maximum fee for any loading will be $25,000. 

        (c)   In
the event Owner fails to commence a loading within the Window Period, Charterer shall have the right, but not the obligation, to seek an alternate shipper for such
load. 

        (d)   Charterer
understands and agrees that Owner is obligated to perform required maintenance and/or USCG/ABS inspections in shipyards. Notwithstanding anything in this COA
to the contrary, Owner will have such a reasonable period of time as may be necessary to perform any such shipyard maintenance and/or repairs, such maintenance and repairs to be scheduled so as to the
extent reasonably possible not to interfere with the loading schedules proposed by Charterer. Owner will provide Charterer with a schedule of such required events, at least sixty (60) days
prior to the time of such required events. In any case the Owner will not be responsible for any interruptions in production due to the unavailability of Owner's Vessel because of such maintenance
and/or repairs to the Vessel, but Charterer shall be entitled to contract with other vessels for shipments if Owner is unable to meet the scheduling times set forth in notices referred to above. 

6.     VESSEL  

        Owner shall utilize its U.S. flag barge, "JOVALAN", official number 601581 including the existing vapor recovery system, for this COA or any substitute vessel
which is deemed to be equivalent to the JOVALAN and duly permitted ("Vessel"). 

7.     LEASES, LICENSES, PERMITS AND VESSEL MODIFICATIONS  

        (a)   Owner
agrees that if, after the date of this COA, any new governmental or regulatory entity or authority requires any modifications to the Vessel, its manning costs, its
operating costs, and/or its operations, the costs thereof shall be prorated over the dollar value of 100% of Owner's revenue for each year affected, and the prorated amount attributable to Charterer
shall be paid for by Owner and charged to the Cost Recovery Pool (defined below) and recovered pursuant to Article 7(g), below. 

        (b)   The
cost of any modifications or alterations to the Vessel required as a result of regulatory changes by Santa Barbara regulatory agencies shall be paid for by Owner and
charged to the Cost Recovery Pool. 

        (c)   Any
modifications requested by the Charterer are for the account of the Charterer. Owner is entitled to charge interest at the rate of one and one-half
percent (1.5%) per month for the cost of all such work and expenses associated with such changes, unless Charterer pays Owner for all such costs within thirty (30) days after Owner sends
Charterer the invoice for such costs. The Owner will present reasonable information to the Charterer 30 days prior to implementing the change. 

        (d)   Charterer
agrees to reimburse Owner for all costs of any and all tests involving the JOVALAN associated with or related to permits which are unique to Santa Barbara. 

        (e)   Commencing
on the effective date of the COA Charterer shall be responsible for providing any oil spill containment booms required in connection with loading operations
at the Ellwood facility. 

        (f)    Owner
has advised Charterer that an increase in natural gas liquids ("NGL") will increase the vapor load on the JOVALAN'S vapor recovery unit Charter
shall not increase the percentage of NGL above the level present in Ellwood crude oil in August, 1997 without Owner's prior written consent. 

        (g)   Owner
shall establish a Cost Recovery Pool on its books. Costs incurred by Owner and chargeable to such Pool pursuant to Article 7(a) and 7(b) shall be
charged to such Pool as incurred. Commencing the first month after the month costs are charged to such Pool, Owner shall be entitled to increase the freight rate set forth in
Article 4(a) by up to $.05 per barrel until such Cost Pool has been reduced to a zero balance. Regardless of the size of the Cost Recovery Pool, or the number of 

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modifications
or improvements made by Owner pursuant to Article 7(a) or 7(b), the maximum amount by which the freight rate may be increased above the rate set forth in
Article 4(a) shall be $.05 per barrel. Charterer shall have no liability for any balance in the Cost Recovery Pool at the time this COA terminates. It is not the intent of this
section to guarantee the repayment of amounts expended by Owner pursuant to Article 7(a) or 7(b). 

8.     FORCE MAJEURE  

        (a)   No
delay in or failure of performance of either party hereto shall constitute a default hereunder or give rise to any claim for damages to the extent such delay or
failure is caused by an event of Force Majeure. An event of Force Majeure is defined as an occurrence beyond the control of the party affected and which, by the exercise of reasonable diligence, said
party is unable to prevent, avoid or remove, including, without limitation, acts of God, hurricanes, storms, explosion, rupture, breakage of or accident to the plant, the vessel, machinery, or
equipment, action or inaction on the part of governmental authorities or any person purporting to act therefore, war, riots, strikes, acts of terrorists and public disorders. Notwithstanding the
above, Force Majeure shall also apply if the Vessel is delayed in any shipyard because of circumstances beyond the reasonable control of Owner. Inability of either party to secure funds shall not be
regarded as an event of Force Majeure. In the event of delay in or failure of performance for reasons stated in this Article, such party shall give notice and details of such event of Force Majeure in
writing to the other party, as promptly as possible after its occurrence. The obligations of the party giving the notice shall be suspended during the continuance of any event of Force Majeure.
Nothing in this Paragraph 8(a) shall affect, alter, or amend the rights and obligations of Owner and Charterer as provided in Articles 19 and 21 of this COA. 

        (b)   Neither
party shall be responsible to the other for any delay, damage or failure caused by or occasioned by Force Majeure. Both parties shall diligently do all things
reasonably required to remove such causes or to repair the effects thereof and shall resume performance hereunder as soon as such cause or causes are removed, repaired, or resolved. 

9.     LOAD PORT  

        Ellwood Marine Terminal, Santa Barbara County, CA. 

10.   DISCHARGE PORT(S)  

        At one, or more, safe berth(s) in Los Angeles/Long Beach Harbor or San Francisco Bay as declared by Charterer. 

11.   CARGO  

        Ellwood crude oil, unless Owner otherwise gives its prior written consent to a different cargo. 

12.   QUANTITY  

        Charterer guarantees to Owner a minimum volume of 50,000 barrels per load (the actual loaded amount to be determined pursuant to Article 17, below) unless
a lesser volume is agreed to by the parties or is mandated by applicable laws, rules or regulations. Subject to the terms of this COA, Owner shall have the right to transport all crude oil produced by
Charterer from the Ellwood field. 

13.   DEMURRAGE RATE  

        On the effective date of this COA the demurrage rate for the Vessel is $650/hour. This rate will escalate or de-escalate based on changes as the CPI
using the same method as provided in Article 4b, above. 

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14.   SEAWORTHINESS INSPECTION  

        (a)   Owner
shall exercise reasonable diligence to insure that at the beginning of each voyage, each Vessel will be seaworthy and properly manned, equipped and supplied for
the voyage, with cargo tanks, pipelines, valves, pumps and heating coils, if any, suitable for the intended cargo and in good working condition. Owner shall use reasonable efforts to maintain such
condition and shall use reasonable care in the loading, handling, stowage, carriage, custody, care and delivery of the cargo. Owner shall provide sufficient towing power to handle properly any barges
furnished hereunder to Charterer whether in loaded or light conditions. 

        (b)   Charterer
shall, before loading, inspect all cargo tanks of each Vessel. Prior to inspection, Owner shall inform Charterer of the prior cargo carried by Vessel. If
Charterer finds any tank unfit for the intended cargo by reason of danger of contamination, Charterer shall notify Owner with specific and documented reasons it finds the tank unfit. If the tank is
unfit, then Charterer may refuse to load cargo in such tank. If Charterer accepts the tank after inspection, Owner shall not be responsible if the cargo shipped in such tank shall be contaminated by
the tank not having been sufficiently clean at the time of the inspection. 

15.   CARGO VAPOR PRESSURE  

        No product shall be shipped with a vapor pressure exceeding thirteen and nine-tenths pounds (13.9) at one hundred degrees Fahrenheit (100 degrees F.)
as determined by the A.S.T.M. Method (Reid Method) identified as D-323. In no case shall the cargo quantity loaded exceed the quantity that the Vessel can reasonably stow and carry, after
allowing for expansion of the cargo. 

16.   INSURANCE  

        (a)   Cargo
insurance shall be carried by Charterer. However, such insurance shall under no circumstances inure to the benefit of the Vessel, Owner, operator, Master, officer,
crew or any other person or persons having an interest in the Vessel nor relieve the Vessel or any of the aforementioned persons of any of their liabilities for loss of or damage to said cargo which
they or any of them may have pursuant to the Carriage of Goods by Sea Act of 1936 and/or any other law, statute, regulation or tariff. 

        (b)   Hull
and P & I Insurance will be carried on each Vessel with a first class underwriter and solely for Owner's accounts. Owner warrants that it has and will
continue to have throughout the period of this COA the standard oil pollution insurance coverage available from its P & I Club or any other insurance in the amount of at least Five Hundred
Million Dollars (U.S.) ($500,000,000.00 U.S.). Further, Owner will cause Charterer to be named as an additional assured on the above coverage and shall furnish to Charterer a certificate from the
insurer or underwriter evidencing such coverage. 

17.   MEASUREMENT OF CARGO  

        Cargo quantity will be based on shore meter readings or shore tank gauges, or if neither is available, on Vessel gauges at loading port, based on current
Calibration Tables corrected to 60 degrees F., in accordance with the latest supplement to A.S.T.M., -1P, Petroleum Measurement Tables (American Edition, published by the American Society
for Testing Materials). 

18.   LOADING AND DISCHARGING BERTHS  

        (a)   The
loading and discharging berth shall be such terminal, wharf or other place or alongside such vessel or craft designated by Charterer and accessible and ready when
the Vessel arrives. All wharfage and charges for use of the berth shall be paid by Charterer. Any time lost by the Vessel 

5

 

because
of inaccessibility or non-readiness of a berth shall count as used laytime for loading or discharging. 

        (b)   Charterer
agrees to furnish Vessel with safe berth at loading and unloading points. Charterer shall not be liable for the consequences of errors in navigation or
management of the Vessel or any other acts, neglect, default, or barratry of the captain, pilots, mariners, or other employees or representatives of Owner. 

        (c)   If
shifting between berths for loading and discharging is required by Charterer, all time used in shifting shall count as used laytime for loading or discharging. 

19.   LOADING AND DISCHARGING  

        Cargo shall be pumped into the cargo tanks of the Vessel by Charterer at its expense but at its risk and peril only to the point where the Vessel's hoses are
attached to the shipper's lines, or if such Vessel's hoses are not used, then to the permanent hose connections on the Vessel receiving the cargo. Cargo shall be pumped out of the cargo tanks by Owner
at its expense and at its risk and peril only to the point where the Vessel's hoses are connected to the receiver's lines, or if the Vessel's hoses are not used, then to the permanent hose connections
on the Vessel discharging the cargo. If the condition of any part of the cargo requires that it be heated before discharge from a Vessel fitted with heating coils, steam shall be furnished by
Charterer at its expense unless the Vessel is equipped with its own steam plant. Extra time used in heating cargo shall count as used laytime for discharging. 

20.   FREIGHT, TAXES, AND LIENS  

        (a)   Charterer
will furnish Owner, free of cost, copies of Loading Certificates. Freight shall be paid as provided in this COA on intake quantity computed as provided in
Article 17 above. All transportation or other excise taxes on freight and any taxes, dues, or other charges on the cargo, shall be paid by Charterer. 

        (b)   Owner
shall have a lien on all cargo and subfreights for all unpaid freight, deadfreight, and other amounts due from Charterer to Owner under the terms of this COA. Such
lien shall survive delivery of the cargo so long as the cargo remains identifiable or is not in possession of a buyer who has received the cargo without notice of the lien. Owner shall not suffer or
permit to be continued any lien upon the cargo arising out of any act or omission of Owner. 

        (c)   Charterer
shall have the right to file a lien on Vessel for any damages sustained by Charterer as a result of beach of the COA by Owner, which shall not however,
be enforceable until set forth in a judgment issued by the appropriate court of competent jurisdiction. 

21.   LAYTIME AND DEMURRAGE  

        (a)   Laytime
shall commence on tender of notice of readiness (either in writing or verbally) of the Vessel to Charterer's representatives at the point of loading and/or
discharging, day or night, Saturdays, Sundays, or holidays. A specified number of running hours, as set forth in Exhibit 2 shall be allowed Charterer as laytime to provide adequate
berth, to prepare for loading and/or discharging and to load and/or discharge. If the conditions of the Vessel will not permit loading or discharging at the rates or within the time so agreed upon,
then the additional time necessary therefor shall be included in allowed laytime. Laytime shall stop when this vessel has clear seaway to depart the berth or when all lines are hauled on board at the
mooring. If the Vessel or Vessels have completed loading or discharging, time awaiting arrival of the towboat and/or any delay of departure of the tow, unless caused by fault of Charterer, shall be
for Owner's account. 

        (b)   Charterer
shall pay demurrage per running hour and pro rata for a part thereof at the applicable rate for all time that used laytime exceeds the allowed laytime. If,
however, demurrage shall 

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be
incurred at ports of loading and/or discharge by reason of fire, explosion, or by strike, lockout, stoppage or restraint of labor or by breakdown of machinery or equipment in or about the
plant of the Charterer, supplier, shipper, or consignee of the cargo, the rate of demurrage shall be reduced one-half of the amount stated per running hour or pro rata for part of an hour
for demurrage so incurred. Demurrage incurred by reason of weather delays shall be charged at the full rate then in effect. Charterer shall not be liable for any demurrage or delay caused by strike,
lockout, stoppage or restraint of labor by the Master, officers and crew of the Vessel, or pilots. 

22.   NEW JASON CLAUSE AND GENERAL AVERAGE  

        (a)   In
the event of accident, danger, damage or disaster before or after commencement of a voyage resulting from any cause whatsoever, whether due to negligence or not, for
which or for the consequence of which the Owner is not responsible by statute, contract, or otherwise, the cargo shipper, receiver, or owner of the cargo shall contribute with the carrier in General
Average to the payment of any sacrifices, losses, or expenses of a General Average nature that may be made or incurred, and shall pay salvage and special charges incurred in respect of the cargo. If a
salving ship is owned or operated by Owner, or Charter, the charge for the use of such vessel shall be paid for as fully as if the salving ship or ships belonged to strangers. 

        (b)   General
Average shall be adjusted, stated, and settled according to York-Antwerp Rules 1974, excluding Rule XXII thereof, at such port or place
in the United States as may be selected by Owner and as to matters not provided for by those Rules according to the Laws and usages at the Port of New York. 

23.   SUB-CHARTERING AND ASSIGNMENT  

        Neither Charterer or Owner shall have the right to sub-charter or assign this COA without the express written consent of the other party, which
consent either party may give or withhold within its absolute and sole discretion; provided consent shall be deemed given in the event Charterer transfers all of its interest in the Ellwood Field to
such third assignee or sub-charterer, and provided, further, that no such consent shall be required for an assignment to a parent company or to a subsidiary in which the assigning party
owns a controlling interest and the assigning party shall
remain liable and obligated for all payments and to perform all terms and conditions pursuant to this COA. 

24.   INDEMNITY  

        OWNER SHALL NOT BE LIABLE TO CHARTERER FOR ANY LOSS OR DAMAGE OF WHATSOEVER KIND OR NATURE WHILE PERFORMING SERVICES HEREUNDER UNLESS SUCH LOSS OR DAMAGE RESULTS
FROM THE NEGLIGENCE OR FAULT OF OWNER, ITS AGENTS, CONTRACTORS AND EMPLOYEES; AND IN LIKE MANNER CHARTERER SHALL NOT BE LIABLE TO OWNER FOR ANY LOSS OR DAMAGE OF WHATSOEVER KIND OR NATURE WHILE OWNER
IS PERFORMING SERVICES HEREUNDER UNLESS SUCH LOSS OR DAMAGE RESULTS FROM THE NEGLIGENCE OR FAULT OF CHARTERER, ITS AGENTS, CONTRACTORS AND EMPLOYEES. 

25.   INDEPENDENT CONTRACTOR  

        In performing services hereunder, Owner shall be an independent contractor. Charterer shall designate the transportation service to be performed and the ultimate
result to be obtained, but shall leave to Owner the method and details of performing such services, Charterer being interested only in the results obtained and having no control over the manner and
the method of performance of such services or obtaining such results. 

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   26.   TANKERMEN  

        Any tankermen utilized shall for all purposes be taken and deemed to be employees of Owner. 

27.   DEMISE  

        Nothing herein contained shall be construed as creating a demise of Owner's Vessel to Charterer. 

28.   AUDIT  

        If any payment provided for hereunder is to be made on the basis of Owner's costs, Charterer or its duly authorized representatives shall have access at
reasonable times to Owner's books and records relating to such costs. In this connection, Owner agrees to maintain all books and records pertaining to such costs for a period of one (1) year
from the date such costs were invoiced and to make such books and records available to Charterer at a reasonable time within the one (1) year period for the purpose of audit. 

29.   POLLUTION  

        (a)   Any
provisions of this Agreement to the contrary notwithstanding, Owner will comply with all laws, rules, and regulations applicable by their terms to a vessel owner
relating to water or air pollution and will, in the case of an escape or discharge of oil from a Vessel of Owner (whether or not caused by the Vessel's negligence), promptly take whatever measures are
necessary to prevent pollution damage from thereby arising and to mitigate any such damage. 

        (b)   When
an escape or discharge of oil occurs from a Vessel of Owner, Charterer may, at its option, and upon notice to Owner or Master, undertake such measures as are
reasonably necessary to prevent or mitigate resulting pollution damages, unless Owner promptly undertakes same. Charterer shall keep Owner advised of the nature of the measures intended to be taken by
it. Any of the aforementioned measures actually taken by the Charterer shall be at Owner's expense (except to the extent that such escape or discharge was caused or contributed to by Charterer),
provided that if Owner considers said measures should be discontinued, Owner may so notify Charterer and thereafter Charterer shall have no right to continue said measures under the provisions of this
clause; provided, however, if Charterer undertakes such measures without notice to Owner or continues such measures after notification from Owner to discontinue, Owner agrees that Owner will not raise
or plead as a defense to a claim for reimbursement for the expenses so incurred by Charterer that in undertaking or performing such measures, Charterer acted as a volunteer and any such defense of
"volunteer" is hereby waived by Owner; however, Owner does not waive hereby any other defense Owner may have unless Owner is notified and permits said measures to be continued as aforesaid. 

        (c)   If
any dispute shall arise between Owner and Charterer as to the reasonableness of the measures undertaken and/or the expenditures incurred by Charterer hereunder, such
dispute shall be referred to arbitration provided herein. 

        (d)   The
above provisions are not in derogation of any other right Charterer or Owner may have under this COA or may otherwise have or acquire by law or any international
convention. 

        (e)   Notwithstanding
any other provision of this COA, the foregoing provisions shall be applicable only between Owner and Charterer and shall not affect, as between Owner and
Charterer, any liability of Owner to third parties or governments resulting from navigation of a Vessel, loading or unloading of cargo, pollution or other causes if Owner shall have any such
liability. 

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30.   POLLUTION CONTROL PERSONNEL  

        CHARTERER MAY, AT ITS OPTION, PLACE POLLUTION CONTROL PERSONNEL ABOARD A VESSEL TO OBSERVE LOADING AND DISCHARGE OF CARGO AND RELATED OPERATIONS DURING THE PERIOD
THE VESSEL IS IN PORT. CHARTERER'S REPRESENTATIVE WILL RENDER ADVICE TO THE OWNER/MASTER AND ASSIST HIM IN AVOIDANCE OF POLLUTION. HE WILL NOT, HOWEVER, UNDER ANY CIRCUMSTANCES, ORDER OR DIRECT THE
TAKING OF ANY PARTICULAR ACTION OR INTERFERE IN ANY WAY WITH THE OWNER'S/MASTER'S EXERCISE OF HIS AUTHORITY. 

        CHARTERER
AGREES THAT THE VESSEL, OWNER, MASTER, OFFICERS, CREW, OR AGENTS THEREOF WILL NOT BE HELD LIABLE BY CHARTERER FOR PERSONAL INJURY, ILLNESS, OR DEATH OF ANY REPRESENTATIVE OR
CONTRACTOR OF CHARTERER PLACED ON BOARD THE VESSEL UNDER THE FOREGOING PROVISION, UNLESS SUCH INJURY, ILLNESS, OR DEATH ARISES OUT OF, OR RESULTS FROM, THE NEGLIGENT ACTS OR OMISSION OF THE OWNER,
MASTER, OFFICERS, CREW, OR AGENTS OF THE VESSEL. 

31.   CONTROLLING PROVISIONS  

        In the event there is a conflict between the provisions hereof and any papers or documents, which may have been executed or passed between the parties hereto in
connection with the subject matter hereof, the provisions hereof shall be controlling. If there is a conflict between the provisions hereof and a Charter Order (Exhibit 2) on a transportation
for Charterer, then the provisions of the Charter Order shall be controlling. 

32.   CONSEQUENTIAL DAMAGES  

        NEITHER OWNER OR CHARTERER SHALL BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES OF ANY NATURE CAUSED TO THE BUSINESS OR PROPERTY OF THE OTHER PARTY FOR ANY REASON
WHATSOEVER. 

33.   ARBITRATION  

        (a)   All
disputes and controversies of any kind between the parties arising out of or in connection with this COA shall be submitted to binding arbitration. Either party may
demand such arbitration in writing within thirty (30) days after the controversy arises, which demand shall include the name of arbitrator appointed by the party demanding arbitration, together
with a statement of the matter in controversy. 

        (b)   Within
ten (10) days after such demand, the other party shall name its arbitrator, or if it fails to do so within such time, the arbitrator named by the party
demanding arbitration shall be the arbitrator. If the other party shall name its arbitrator within the time set forth above, then the two arbitrators so selected by each of the parties shall name a
third arbitrator within ten (10) days or, in lieu of such agreement on a third arbitrator by the two arbitrators so appointed, a third arbitrator shall be appointed by the Arbitration Committee
of the American Arbitration Association of Los Angeles, California. The arbitration panel shall be composed of these three arbitrators and they shall arbitrate the matter in controversy and such
arbitration panel shall hear all of the evidence and make all of the findings and rulings relating to the controversy being arbitrated. 

        (c)   The
arbitration hearing and proceedings shall be held at a location selected by a majority of the arbitrators. 

        (d)   The
arbitration hearing shall be concluded within sixty (60) days after the appointment of the arbitration panel or the sole arbitrator as defined above and the
award of the arbitrator shall be made 

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within
five (5) days after the close of submission of evidence. An award rendered by the arbitrator shall be final and binding on all parties to this Agreement and judgment on such award may be
entered by either party in the highest court in California, or any other state or federal court having jurisdiction. 

        (e)   Nothing
herein contained shall be deemed to give the arbitrators any authority, power, or right to alter, change, amend, modify, add to, or subtract from any of the
provisions of this COA. 

        (f)    Except
otherwise set forth herein, the arbitration shall be held in accordance with the latest Commercial Arbitration Rules of the American Arbitration
Association. 

        (g)   All
out of pocket legal costs and attorney's fees, arbitration costs, expert witness fees, deposition costs, and other expenses incurred related to the arbitration will
be completely paid to the prevailing party and shall be made an award of the arbitrator. The prevailing party is defined as the party which has any amount awarded to it by the arbitrator, or the party
that has the highest award made to it in the event the arbitrator made an award to both parties. 

34.   CHARTERER POLLUTION CLAUSE  

        When an escape or discharge of cargo occurs from the Vessel and/or shore and causes or threatens to cause pollution damage, or when there is a threat of an escape
or discharge of cargo then Charterer may, at its option, upon notice to Owner, undertake such measures as are reasonably necessary to prevent or minimize such pollution damage or to remove the threat
unless Owner promptly undertakes the same. Charterer shall keep Owner advised of the nature and result of any such measures taken by them. Any of the aforementioned measures taken by Charterer shall
be deemed taken on Owner's authority and as Owner's agent, and shall be at Owner's expense except to the extent that any such escape or discharge or threat was caused or contributed to by Charterer. 

        The
above provisions are not in derogation of such other rights as Charterer or Owner may have under the Charter or may otherwise have or acquire by law. 

35.   EMERGENCY RESPONSE PLAN  

        Owner has provided Charterer with a copy of its National Oil and Hazardous Substances Pollution Contingency Plan as required by 40 CFR, Part 300 and other
pertinent portions of the Vessel Response Plan. 

36.   CANCELLATION OF COA  

        (a)   In
the event Owner commits any act of default under this COA, any Charter Order, or any other agreement between Owner and Charterer, Charterer shall give Owner notice of
such default within thirty (30) days of Charterer becoming aware of such act of default, otherwise Charterer shall be barred and shall be deemed to have waived Charterer's right to bring any
action for such act of default. Notice of default shall be given to Owner by both fax and certified mail, returned receipt requested. Charterer shall give Owner written notice of any alleged breach of
this COA, any Charter Order or any other agreement between Owner and Charterer, specifying such default with particularity, and Owner shall have sixty (60) days after receiving such notice plus
any additional reasonable period of time as may be required by Owner, in which to cure any such default, provided such default is capable of being cured. Unless and until Owner fails to cure any
default after the notice provided for above, Charterer shall not have the right to terminate this COA. If Owner fails to cure a material default for which notice has been given by Charterer during the
term of this COA, then Charterer shall have the right to terminate this COA within a period of 30 days from the end of the period it has to cure such default and not thereafter, upon giving
written notice of termination to Owner. 

        (b)   In
the event Owner does commit any act of default under this COA, any Charter Order or any other agreement between Owner and Charterer, then Charterer's sole remedy
shall be for 

10

 

monetary
damages only, and not for the termination or cancellation of this COA, any Charter Order, or any other agreement between the Owner and Charterer, except as provided above. 

37.   DEPARTMENT OF TRANSPORTATION DRUG AND ALCOHOL POLICY  

        Owner warrants, undertakes and represents that, as of the date of this COA, Owner has an active drug and alcohol policy which complies with DOT's 46 CFR Parts 4,
5, and 16. Owner further warrants, undertakes, and represents that the policy will remain in effect during the term of this COA and that Owner shall exercise due diligence to ensure that the policy is
complied with. It is understood that an actual impairment or any test finding of impairment shall not in and of itself mean the Owner has failed to exercise due diligence. 

38.   LIMITATION OF LIABILITY  

        Charterer specifically agrees to look solely to the assets of the Owner, excluding, however, any interest right or claim to D & V Investments Ltd.,
for the recovery of any award or judgment from Owner, it being agreed that Owner's officers, directors, agents, or employees shall never be personally liable for any such judgment or award. The
provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Charterer might otherwise have to obtain injunctive relief against Owner or Owner's successors in
interest, or any suit or action in connection with enforcement or collection of amounts which may become owning or payable under or because of insurance maintained by Owner. 

39.   NUMBERS AND GENDER  

        Where the context so indicates, the masculine shall include feminine and neuter, and the neuter shall include the masculine and feminine, the singular shall
include the plural and any reference to a "person" shall mean a natural person or a corporation, association, partnership, joint venture, estate, trust or any other entity. 

40.   BINDING EFFECT  

        Except as herein otherwise provided to the contrary, this COA shall be binding upon and inure to the benefit of the parties, their distributes, heirs, legal
representatives, executors, administrators, successors and assigns. 

41.   ENTIRE COA  

        This COA and all Exhibits constitute all of the understandings and agreements of whatsoever kind and nature existing between the parties with respect to the
subject matter contained herein and supersede all prior agreements and undertakings with respect thereto. 

42.   VENUE AND LAW  

        Venue for any legal proceedings involving this COA shall be in Los Angeles County, California, and this COA shall be governed by and construed in accordance with
the maritime laws of the United States and except to the extent not governed by the maritime laws, by the laws of the State of California. 

43.   AMENDMENT  

        Except as otherwise expressly set forth in this COA, this COA may be amended, supplemented or restated only by a written agreement executed by each of the
parties. 

11

 

44.   SEVERABILITY  

        If any term or provision of this COA or the application thereof to any person or circumstances shall, to any extent, be deemed invalid or unenforceable, the
remainder of this COA, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and
shall be valid and enforced to the fullest extent permitted by applicable law. 

45.   SECTIONS  

        Unless the context requires otherwise, all references in this COA to Sections or Articles shall be deemed to mean and refer to Sections or Articles
of this COA. 

46.   CAPTIONS  

        The titles and captions contained herein are for convenience only and shall not be deemed part of the context of this COA. 

47.   ADDITIONAL REMEDIES  

        Unless the context requires otherwise, the rights and remedies of the Parties hereunder shall not be mutually exclusive so that the exercise of one or more of the
provisions hereof shall not preclude the exercise of any other provision hereof. 

48.   NOT CONSTRUED AGAINST DRAFTING PARTY  

        The parties agree that the normal rule of construction of the effect that any ambiguities are to be resolved against the drafting party shall not be employed in
the interpretation of this COA or any Charter Order or any exhibits or amendments to them. 

49.   COUNTERPARTS  

        This COA may be executed in counterparts, each of which shall be deemed to be an original and shall be binding upon the party who executed the same, but all of
such counterparts shall constitute one and the same agreement. 

50.   NO THIRD PARTY BENEFITS  

        The provisions of this COA, any Charter Order, or any other agreement between Charterer and Owner are intended for the exclusive benefit of the parties hereto and
their successors and assigns, if any, and no person or entity not a party hereto shall be entitled to any right or benefit by reason of this COA. 

51.   NOTICES  

        All notices which are required by or may be given pursuant to this COA shall be sufficient in all respects if given in writing and delivered personally, by
facsimile or by registered or certified United States mail, postage prepaid, as follows: 

	If to Venoco LLC:	 	Venoco, Inc.

Attention: Rod L. Eson

217 State Street, Suite 300

Santa Barbara, CA 93101

Telephone: (805) 966-6596

Fax: (805) 966-1425
	 	 	 

12

 

	

If to PSMI:	
 	

Public Service Marine, Inc.

Attention: George Reiss

249 East Ocean Blvd. #310

Long Beach, CA 90802

Telephone: (562) 983-9034

Fax: (562) 983-9040

        Notices
sent by facsimile shall be deemed received when sent if electronic verification is obtained and notice otherwise given as provided herein. Notices given by personal delivery
shall be deemed received upon delivery and notices sent by U. S. mail, as above provided, shall be deemed received upon execution by the receiving party of the Return Receipt. Either party may change
its address for notice by notice to the other in the manner set forth above. 

52.   REPRESENTATIONS AND TRANSFER OF OWNERSHIP  

        (a)   Charterer
represents that it owns and has the right to produce and sell crude oil from the Ellwood field, offshore Santa Barbara, California. In the event Charterer
sells, transfers or conveys its ownership and/or right to produce and sell crude oil from the Ellwood field, the sale, transfer or conveyance must provide that the new owner or transferee must accept
and agree to it and be bound by and obligated to the terms and provisions of this COA. 

        (b)   Owner
represents that D & V Investments Ltd. does not have any interest in the Vessel or this COA. 

        (c)   Owner
represents that owns and has the right to operate the Vessel. 

53.   ADDITIONAL CONSIDERATIONS  

        (a)   Charterer
agrees that if it constructs or obtains the right to use any type or kind of emissions or vapor removal system, including, but not limited to, any incinerator
or flaring device, which can be or is used on any marine vessel, Charterer will not use or authorize the use of such vapor removal system on any marine vessel outside the Ellwood field. 

        (b)   Owner
agrees that it shall not intervene, comment on or otherwise interfere with Charterer's application to (i) permit other vessels to transport crude oil from
the Ellwood terminal or (ii) expand the Ellwood field development, including the permitting of a crude oil pipeline to transport Ellwood crude oil production. 

        IN
WITNESS WHEREOF, the parties hereto have executed this COA as of March 13, 1998, "the commencement date". 

	

 	
 	

VENOCO LLC
	

 	
 	

By:	
 	

Venoco, Inc., Member & Operator
	

 	
 	

By:	
 	

/s/  TIMOTHY MARQUEZ      

	

 	
 	

PUBLIC SERVICE MARINE, INC.
	

 	
 	

By:	
 	

/s/  GEORGE REISS      
 George Reiss

13

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Exhibit 10.6  

 
 

GRACE PLATFORM LEASE AGREEMENT    
    
    BETWEEN    
    
    VENOCO, INC.    
    
    AND    
    
    CRYSTAL ENERGY, LLC    
    
    DATED    
    
    MARCH 1, 2003

    

   GRACE PLATFORM LEASE AGREEMENT  

 Table of Contents  

	SECTION
 
	 	PAGE

	1.0	 	DEFINITIONS, INTERPRETATIONS AND PROCEDURAL CONVENTIONS	 	1
	2.0	 	OPTION TO LEASE GRACE PLATFORM AND LEASE OF GRACE PLATFORM	 	1
	3.0	 	TERM OF AGREEMENT AND LEASE TERM	 	3
	4.0	 	COMPUTATION OF RENT	 	4
	5.0	 	PLATFORM DESCRIPTION, SURVEYS AND CURRENT USES	 	6
	6.0	 	REGULATORY PERMITS	 	7
	7.0	 	LNG SYSTEM DESCRIPTION	 	7
	8.0	 	MUTUAL OBLIGATIONS	 	8
	9.0	 	PLATFORM CAPACITY	 	9
	10.0	 	ADDITIONAL CAPACITY AND FUTURE MODIFICATIONS OR USES	 	9
	11.0	 	OWNERSHIP AND ABANDONMENT	 	11
	12.0	 	GOVERNMENTAL COMPLIANCE	 	11
	13.0	 	ANNUAL BUDGET	 	11
	14.0	 	EMERGENCY PROCEDURES	 	12
	15.0	 	RELATIONSHIP OF THE PARTIES	 	12
	16.0	 	INDEMNIFICATION	 	13
	17.0	 	WARRANTY OF TITLE	 	14
	18.0	 	FORCE MAJEURE	 	15
	19.0	 	RULES AND REGULATIONS	 	15
	20.0	 	DEFAULT	 	16
	21.0	 	NOTICES	 	16
	22.0	 	VENUE/APPLICABLE LAW	 	16
	23.0	 	ASSIGNMENT OF INTEREST	 	16
	24.0	 	CONFIDENTIALITY	 	17
	25.0	 	MISCELLANEOUS	 	18

SCHEDULES  

	SCHEDULES
 
	 	PAGE

	1.0	 	DEFINITIONS AND PROCEDURAL CONVENTIONS	 	20
	3.2	 	RECLAMATION AND ABANDOMENT OPERATIONS	 	 
	5.1	 	DESCRIPTION OF GRACE PLATFORM	 	 
	5.4	 	DESCRIPTION OF CURRENT MAINTENANCE REGIME	 	 
	7.1	 	LNG SYSTEM	 	 
	8.1	 	PLATFORM OPERATOR QUALIFICATIONS	 	 
	9.1	 	PLATFORM CAPACITY	 	 
	10.6	 	INSURANCE AND INDEMNIFICATION FOR EXPLORATION AND PRODUCTION ACTIVITIES	 	 
	13.3	 	COMPUTATION OF BASE MONTHLY RENT AND PERMITTING FEES	 	 
	16.6	 	INSURANCE REQUIREMENTS	 	 

i

   GRACE PLATFORM LEASE AGREEMENT  

        This Grace Platform Lease Agreement (the "Agreement" or the "Platform Lease") is made and entered into effective as of the 1st day of October, 2002 ("Effective
Date"), by and between Venoco, Inc., a Delaware corporation ("Venoco" or "Platform Owner"), as owner of Grace Platform (defined below) and Crystal Energy LLC, a Delaware limited liability
company ("Crystal Energy" or "Lessee") with each party to this Agreement being referred to individually as "Party" and collectively as the "Parties." 

INTRODUCTION  

        Platform Owner owns the Grace Platform and conducts a pipeline Pigging Operation on the Grace Platform. 

        Lessee
is in the process of developing a business of accepting and vaporizing LNG delivered by LNG Tankers, transporting the vaporized LNG through proprietary Gas Pipelines and selling
the vaporized LNG to third party customers. 

        Lessee
desires to lease the Grace Platform for use in its LNG Business, including serving as a location for use and operation of its LNG Equipment and as a location for connection to its
LNG Mooring System and its Gas Pipelines. 

        Platform
Owner agrees to lease the Grace Platform to the Lessee for use in its LNG Business pursuant to the terms hereof. 

        The
construction of the LNG Mooring System, fabrication of the LNG Equipment, and construction of the Gas Pipelines by Lessee or its affiliates and the operation of the LNG Business will
require Permits to be obtained at Lessee's cost by Platform Owner and/or Lessee. 

        Neither
Platform Owner nor Lessee can predict when, if ever, all such Permits will be obtained as required to construct and operate the LNG System. 

        Lessee
desires to obtain from Platform Owner an annually renewable option to commence the Lease Term with respect to the Grace Platform. 

        Platform
Owner and Lessee desire to set out the terms of their agreement (1) applicable during the period before Lessee exercises its option to cause commencement of the Lease
Term; (2) applicable during the Lease Term; and (3) regarding rights and responsibilities for removal of the LNG System from the Grace Platform, in connection with the termination of the
Lease Term. 

        For
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and also in consideration of the mutual covenants and conditions contained herein, the Parties
agree as follows: 

1.0   DEFINITIONS, INTERPRETATIONS AND PROCEDURAL CONVENTIONS  

        Unless the context shall otherwise require, terms used and not defined herein shall have the meanings set out in Schedule 1 attached hereto and
incorporated herein by this reference and all rules as to usage and procedural conventions set forth in Schedule 1 shall govern this Agreement. 

2.0   OPTION TO LEASE GRACE PLATFORM AND LEASE OF GRACE PLATFORM  

        2.1   In
consideration of the timely payment annual Option Payment by Lessee to Platform Owner, Platform Owner hereby grants to Lessee the option, at any time during the
Option Period, to lease, under the terms of this Agreement, the Grace Platform and to take possession of the Grace Platform 

1

 

as
a tenant. The Option Payment equals Three Hundred Thousand Dollars ($300,000) for each twelve month Option Period and shall be due according to the following schedule: 

	Option Payment Due Date
 
	 	Option Period

	Effective Date:	 	First Option Payment for the Option Period beginning on the Effective Date and ending on the first anniversary of Effective Date ("First Option Period");
	

First Anniversary Of Effective Date:	
 	

Second Option Payment for the Option Period beginning on the first anniversary of the Effective Date and ending on the second anniversary of the Effective Date ("Second Option Period");
	

Second Anniversary Of Effective Date:	
 	

Third Option Payment for the Option Period beginning on the second anniversary of the Effective Date and ending on the third anniversary of the Effective Date ("Third Option Period"); and
	

Third Anniversary Of Effective Date:	
 	

Fourth Option Payment for the Option Period beginning on the third anniversary of the Effective Date and ending on the fourth anniversary of the Effective Date ("Fourth Option Period").

        2.2   A
five percent (5%) late charge will be due on all Option Payments more than thirty (30) days late. If any Option Payment is more than sixty (60) days past
due, Lessee shall forfeit all rights in this Agreement and the right to proceed to lease hereunder unless the option payment due date is extended in writing by Platform Owner at Platform Owner's sole
option. 

        2.3   Lessee
has the right to terminate this Agreement, at any time during any Option Period, and thereafter have no obligation to the Platform Owner to pay any additional
Option Payment (other than past due amounts or other charges owing), to commence the Lease Term or to lease the Grace Platform. If Lessee exercises its right to terminate this Agreement without
commencing the Lease Term, Lessee shall not be entitled to any refund, repayment, credit or offset for any Option Payment previously paid to Platform Owner. If Lessee exercises its right to lease the
Grace Platform and to commence the Lease Term during any Option Period, a prorata portion of the Option Payment for the Option Period in effect at the time the Lease commences shall be credited to the
account of Lessee as prepaid rent. The proration of the Option Payment shall be made, as of the day the Lease Term commences, using a per day proration based on an Option Period of 365 days. 

        2.4   Upon
exercise by Lessee of the option described in Section 2.1, Lessee shall provide written notice to Platform Owner of the Lessee's exercise of the option to
lease the Grace Platform and of the date, not more than thirty (30) days thereafter, of commencement of the Lease Term ("Lease Effective Date"). Platform Owner agrees to lease the Grace
Platform to Lessee and Lessee agrees to lease from Platform Owner the Grace Platform, during the Lease Term. Lessee agrees to pay to Platform Owner and Platform Owner agrees to accept as consideration
of the lease of the Grace Platform during the Lease Term the Rent as computed in accordance with Section 4. 

        2.5   During
the Option Period or Periods, Platform Owner may utilize the Platform for certain alternative uses consistent with the terms of this Agreement and with the
permitting process for the LNG System. Not as a limitation on the foregoing sentence, advance approval is deemed specifically herein provided for the allowance of Platform Owner's oil and gas
operations as set forth in Section 10 and a pilot mariculture project for salt-water fish breeding and rearing as described in that certain Draft Lease Agreement dated
March 10, 2003 attached as Appendix A hereto. Should Lessee exercise its option to proceed to Platform Lease, said mariculture project shall be subject to timely cessation, which total
cessation and removal from the Grace Platform shall not exceed 200 days from the date of notice of cessation is sent by Lessee to Platform Owner. Lessee's right to timely cessation of
alternative uses shall not apply to Platform Owner's oil and gas operations as set forth in Section 10. 

2

 

3.0   TERM OF AGREEMENT AND LEASE TERM  

        3.1   This
Agreement shall commence on the Effective Date and unless sooner terminated as provided for elsewhere in this Agreement, this Agreement shall remain in full force
and effect until the end of the applicable Lease Term. The Lease Term, unless sooner terminated, shall be as follows: 

        (a)   The
Lease Term shall be for ten (10) years from the Lease Effective Date as set forth in Section 2.4. Thereafter, Lessee shall have the option to extend
the lease for three (3) additional consecutive periods of Ten (10) years each, a total potential aggregate Lease Term of forty (40) years. At the commencement of each of the
First, Second and Third Extended Lease Terms, Lessee shall pay a non-refundable lease extension fee of $1,000,000, $1,500,000 and $2,000,000, respectively in order to enter the next ten
(10) year period. 

        (b)   The
Lease Term may terminate on the earliest to occur of (1) the date of the closing of the purchase of the Grace Platform by Lessee according to the provisions
of Section 3.2; (2) a date which is sixty
(60) days after any uncured default in the payment of rent to Platform Owner as set forth in Section 4; and (3) the date which is one (1) year after delivery by the Lessee
of written notice of its election to terminate the applicable Lease Term; provided that the Lease Term shall not be terminated sooner than the date that Lessee completes its obligations for LNG System
Removal as set forth herein below. 

        3.2   (a) Lessee
shall have the right to purchase the Grace Platform "as is" at any time before the first anniversary of the Lease Effective Date, including any time
before the Lessee shall have received all the Permits required for the construction and operation of the LNG System. Lessee shall exercise said right by written notice to Platform Owner effective
within said time period. The purchase price shall be (i) ten million dollars ($10,000,000) plus (ii) the agreement of Lessee to assume the obligations to conduct, at Lessee's
expense, the reclamation and abandonment operations described on Schedule "3.2" ("Platform Purchase Price"). If Lessee elects to exercise its option to purchase the Grace Platform under this
Section 3.2, Platform Owner will provide to Lessee an assignment, if and as permitted by all relevant governmental agencies and Chevron USA, Inc. ("CUSA") pursuant to that certain
agreement referred to in Schedule 3.2, (Platform Owner shall use its best efforts to obtain CUSA consent) of all of Platform Owner's interest in the Grace Platform, including any contract
rights, permits or other assets necessary for Lessee to own and use the Grace Platform for the LNG Business, and Lessee shall indemnify and hold Platform Owner harmless from any and all costs
associated with obtaining government and CUSA consents or permits necessary therefor. Lessee shall fully cooperate with Platform Owner in pursuing such consents and permits, and the parties shall use
their best efforts to close and complete such purchase and sale within ninety (90) days from the effective date of the notice required in this subsection 3.2(a). 

        (b)   The
Grace Platform sale to Lessee herein shall not include the interests of Platform Owner in and to Platform Owner's oil and gas production and/or reserves and
leasehold interests. Lessee's reclamation and abandonment activities shall be deferred until such production and reserves have been produced and, in the sole opinion of Platform Owner, have become
uneconomic. This provision shall not relieve Lessee of its obligations to indemnify Platform owner as herein provided. 

        (c)   If
at any time after the first anniversary of the Lease Effective Date, Platform Owner desires to sell the Grace Platform, Lessee shall have the right but not the
obligation to purchase the Grace Platform by paying to Platform Owner the amount of an actual bona fide offer from a third party. Lessee shall exercise said right by written notice to Platform Owner
effective within thirty (30) days of receipt by Lessee of notice of said third party offer. The closing and cash payment of the purchase price by Lessee shall occur not later than ninety
(90) days after Lessee's election to purchase. 

3

 

        (d)   In
the event Platform Owner desires permanently to cease the Pigging Operations and other Platform Owner oil and gas and related operations conducted on the Grace
Platform before the expiration of this Agreement, Platform Owner shall give written notice to Lessee. Lessee shall have the exclusive right for thirty (30) days from receipt of such notice to
negotiate with the Platform Owner for the price and terms of a purchase of the Grace Platform. If after thirty (30) days of exclusive
negotiation, the parties are unable to reach agreement on the price and terms for the sale of the Grace Platform to the Lessee, the Platform Owner shall have the right to obtain offers from third
parties. Lessee shall have an additional thirty (30) days in which to accept the same price and terms of any bona fide third party offer for the purchase of the Grace Platform. If the third
party offer includes any other assets or any consideration other than cash, the terms of the third party offer shall be presented with any consideration other than cash or deferred cash converted to
cash. At the closing of any sale to Lessee herein, according to this paragraph 3.2 (d), Platform Owner shall provide to Lessee an assignment from the Platform Owner for all of its interest in
Grace Platform, including any contract rights, permits or other assets necessary for Lessee to own and use the Grace Platform for the LNG Business. In the event of a sale to Lessee pursuant to this
clause, (1) Lessee shall pay a mutually agreed upon purchase price or match the third party offer; and (2) Lessee shall retain all costs, risks and liabilities for abandonment and
reclamation in accordance with Schedule 3.2 and in accordance with present or future MMS regulations or applicable requirements of other Governmental Authorities. If Lessee fails to purchase
the Grace Platform as provided in this Section 3.2 (d) and if a third party shall purchase the Grace Platform, such third-party purchase shall be subject to Lessee's rights hereunder
such that Lessee shall continue to have the right to lease the Grace Platform under the terms of this Agreement. 

        (e)   Any
sale to Lessee pursuant to this Section 3.2 shall be subject to the execution of a mutually satisfactory purchase and sale agreement ("PSA") between the
Parties containing the terms specified in the relevant subsection of Section 3.2 and which in all respects shall be consistent with the Parties' respective rights and duties as provided
in this agreement. 

        3.3   At
the election of the Lessee, the Lessee may give written notice to Platform Owner that the Lessee and its Affiliates are required to cease operation of the LNG System
due to the lack of any approval, permit, or other governmental authorization that is required for continued operation of the LNG System or conduct of the LNG Business by the Lessee or its Affiliates.
Such an early termination of the lease shall be effective upon the later of (1) completion of the LNG System Removal or (2) the notice period required in Section 3.1 (b). 

        3.4   At
any time during the term of this Lease, the Platform Owner, at its election, may give written notice to Lessee, effective in one hundred eighty (180) days
after the date of such notice, that Platform Owner will no longer maintain Platform Grace as herein provided as a result of governmental actions or other events making it, in the opinion of Platform
Owner, legally or economically infeasible to continue to honor this Lease. Upon receipt of such notice, Lessee shall have the right to purchase the Platform for the Platform Purchase Price as defined
in subsection 3.2(a) upon all of the terms provided therein, except the time limit of the first anniversary, and upon giving notice of its election to do so within thirty
(30) days of receipt of said notice from Platform Owner, provided such purchase is completed before the earlier of ninety (90) days from the exercise of such right by Lessee or the date
by which governmental action requires the termination of operation on Grace Platform by Platform Owner. 

4.0   COMPUTATION OF RENT  

        During the Lease Term Platform Owner shall have the exclusive right to maintain, repair and modify the Grace Platform as set forth in this Agreement. The
following is the Rent required to be 

4

 

paid
by Lessee to Platform Owner for such work and services to be computed and paid in accordance with Schedule 13.3 of this Agreement: 

        (a)   BASE
MONTLY RENT: Lessee shall pay to Platform Owner the base monthly rent ("Base Monthly Rent") compiled as follows: 

        i.      As
the Base Monthly Rent, Lessee shall pay Platform Owner an amount equal to the actual maintenance component for the Grace Platform equal to the maintenance, repair and
modification costs, including employee benefits, incurred by Platform Owner in connection with the maintenance, repair and modification of the Grace Platform plus a charge equal to fifteen percent
(15%) of the aggregate of all such costs to reimburse Platform Owner for the administrative costs associated with conducting the maintenance program. The Base Monthly Rent component will be computed
and paid according to Schedule 13.3. 

        ii.     Upon
the earlier to occur of the tenth (10th) anniversary of the Lease Effective Date or the termination of production from platform Gail, Lessee shall owe
Platform Owner the Base Monthly Rent, payable as provided in Schedule 13.3, plus an additional One Hundred Thousand Dollars ($100,000) per month "Base Minimum Monthly Fixed Rental", payable in
advance each month, without the necessity of Platform Owner invoicing Lessee therefor. The Base Minimum Monthly Fixed Rental shall be a deduction against any amounts of Variable Rent accrued. For
example, if the Base Minimum Monthly Fixed Rental paid to Platform Owner exceeds the amount of the Variable Rent, no Variable Rent will be due for that month. If the Variable Rent exceeds the Base
Minimum Monthly Fixed Rental, such excess shall be paid when otherwise due to be paid. In no instance, however, shall Base Minimum Monthly Fixed Rental be returned to Lessee by Platform Owner. 

        (b)   VARIABLE
RENT: Lessee shall pay to Platform Owner the Variable Rent computed with respect to the activity recorded by Lessee with respect to each calendar quarter. Such
Variable Rent shall be computed as follows: 

        (i)    The
greater of (a) an amount equal to $0.02 per MSCF of each MSCF of gas delivered from the LNG Equipment into the Gas Pipeline or (b) an amount equal to
five percent (5%) of the gross revenue received by the Lessee for LNG Processing Services. LNG Processing Services as used herein means the aggregate charges of Lessee for accepting, pressurizing,
heating vaporizing the LNG delivered from LNG Tankers through the LNG System. 

        (ii)   The
amount of Variable Rent shall be computed each calendar quarter and shall be paid by Lessee to Platform Owner on or before the fifteenth (15th) day of
the month following the end of each calendar quarter. During the period in which the Base Minimum Monthly Fixed Rental is paid, the amount of Variable Rent to be paid shall be compared to the Base
Minimum Monthly Fixed Rental that has been paid, with the excess amount paid to Platform Owner as provided in Section 4.1(a) above. 

        (c)   METHOD
FOR REVIEWING COMPUTATION OF RENT: 

        i.      Within
fifteen (15) days of the end of each calendar quarter, Lessee shall provide to Platform Owner an accounting, including delivery sheets, bills of lading and
other documents as may be needed to show all LNG processing volumes for the previous calendar quarter. The information shall be in sufficient detail to allow the Platform Owner to review the
computation of the Variable Rent provided by Lessee. In addition, Platform Owner shall have the right, and be given reasonable notice to exercise the right, to witness actual meter proving of such
volumes. 

5

 

        ii.     Within
thirty (30) days of the end of each calendar quarter, Platform Owner shall provide to Lessee an accounting of all maintenance costs for the previous
calendar quarter. The information shall be in sufficient detail to allow the Lessee to compute the Base Monthly Rent and shall be calculated and compiled in accordance with Schedule 13.3. 

        iii.    Each
party shall have the right to audit the books and records of the other party relative to sub-sections (c)i and (c)ii at any time within twelve
(12) months after the end of each calendar year upon thirty (30) days prior written notice. If an error of over two percent (2%) of the total due is found in the audit, the Party making
the error, if in its favor, shall pay for the audit and correct the error. 

5.0   PLATFORM DESCRIPTION, SURVEYS AND CURRENT USES  

        5.1   Attached
as Schedule "5.1" is a general description provided by Platform Owner of the Grace Platform, including its history, design, use, location, capacities and
current uses. Platform Owner agrees to provide to Lessee access for due diligence purposes to all existing material contracts, agreements, applications, approvals, filings, notices and permits in
Platform Owner's possession with respect to the Grace Platform for a period of sixty (60) day commencing with the execution of this Agreement. Due diligence, if undertaken, will be at Platform
Owner's office in Carpinteria, California and on Platform Grace. 

        5.2   Platform
Owner agrees to provide to Lessee a complete description of the history of the design, maintenance and use of the Grace Platform as well as the condition of the
Platform as of December 31, 2002 ("Initial Platform Survey Date"), which will be provided by virtue of a supplement to a regularly scheduled annual marine survey, conducted at Lessee's cost,
from a recognized marine surveyor reasonably acceptable to Lessee, and such other inspections and descriptions as may be reasonably required by Lessee at Lessee's cost to satisfy the Lessee of the
condition of Grace Platform ("Initial Platform Survey") as of the Initial Platform Survey Date. Platform Owner understands that Lessee will use the Initial Platform Survey as a basis for its design of
the LNG Facilities to be located on the platform, the LNG Mooring System to be connected to the platform and the Gas Pipelines to be connected to the platform. Platform Owner, upon mutual agreement
with Lessee, may provide Lessee such additional information, or surveys, at Lessee's cost, as may be reasonably requested by Lessee for purpose of assessing the actual condition of the platform as of
the date of commencement of the installation of the LNG Facilities, the LNG Mooring System and Gas Pipelines ("Installation Platform Survey"). If there occurs any event or condition that could
reasonably be assumed to have caused damage to the platform before the date of the conduct of the Installation Platform Survey, such as an explosion, allision with a marine vessel, aircraft or other
moving item, lightening, structural failure of exiting components of the platform, structural failure of equipment located on the platform, fire, storm, sea floor subsidence, or other condition or
event that could cause a physical change to the platform, Platform Owner shall notify Lessee of such event within fifteen (15) days of knowledge of such event or the discovery of such
condition. Within fifteen (15) days after such notification, Platform Owner and Lessee shall meet to review the event or condition and the platform and determine whether an additional survey or
other testing is required. If reasonably requested by Lessee, Platform Owner shall obtain such additional testing or surveys as required by Lessee at Lessee's cost. 

        5.3   Platform
Owner currently operates the platform as a Pigging Station to conduct maintenance of certain pipelines and facilities owned by the Platform Owner. Platform
Owner will provide to Lessee by December 31, 2002 a complete description of the Pigging Operations that have been conducted from Grace Platform and the Pigging Operations that Platform Owner
intends to continue to conduct from Grace Platform. 

        5.4   Platform
Owner shall provide to Lessee a description of the current maintenance regime with respect to the Platform. A copy of the current maintenance regime shall be
attached as Schedule "5.1" 

6

 

Platform
Owner and Lessee shall review the existing maintenance regime, assess the maintenance needs of the platform assuming the location of the LNG System on the platform and develop a mutually
acceptable maintenance regime to be conducted during the Lease Term. 

        5.5   Any
damage to the platform incident to the inspection and/or surveys conducted by or on behalf of Lessee hereunder shall be promptly repaired at Lessee's sole cost and
expense. 

6.0   REGULATORY PERMITS  

        6.1   Lessee
and Platform Owner, (if required to join in permit applications) at Lessee's sole cost and expense, will seek the required approval for all necessary permits with
the MMS and any other governmental authority having jurisdiction, including, but not limited to, permits relating to platform safety shutdown systems, charts, etc. and shall furnish Platform Owner
copies of all such applications, safety shutdown systems, SAFE charts, Hazops and approvals at the time of filing and upon Lessee's receipt of the same. Neither Lessee nor Platform Owner shall be
liable for any costs or damages incurred due to the failure of the MMS or any other governmental authority to approve any such permits. All direct and indirect costs and expenses incurred by Platform
Owner in performance of this Section 6.1 shall be charged directly to the Lessee and shall be charged in accordance with the procedures set out in Schedule 13.3. 

        6.2   Permit
applications have not been submitted to the MMS and other Governmental Authorities for approval as of the execution of this Agreement. The Parties hereby agree
that the applications will be mutually developed and approved by the Parties prior to submission to the MMS and other Governmental Authorities. Lessee agrees to use reasonable commercial efforts to
achieve approval of the MMS and other Governmental Authorities. All direct and indirect costs to develop such permit applications will be at the Lessee's sole expense, including costs of Platform
Owner's employees and consultants providing information, engineering, operational, health and safety, regulatory, legal and governmental relations support. 

7.0   LNG SYSTEM DESCRIPTION  

        7.1   The
Lessee shall be responsible for all costs related to and all consequences resulting from the design and fabrication of the LNG System as described in
Schedule 7.1. Lessee shall provide Platform Owner with a description of the LNG System. Platform Owner shall have the right to review the design of the LNG System, including the LNG Facilities,
LNG Mooring System components and the interconnection of the Gas Pipelines to the platform. Without assuming any liability or responsibility therefor, or waiving any of its rights hereunder, Platform
Owner shall provide to Lessee on a timely basis a written consent to the LNG System design, including placement of the LNG System components on or in connection with the Grace Platform. If in the
opinion of the Platform Owner any modifications or repairs are required to be completed before the LNG System as designed by the Lessee may be installed and operated on the Grace Platform, the
Platform Owner shall provide to Lessee a description of the repairs or modifications, the estimated cost of such repairs and the estimated time required to complete such repairs or modifications.
Costs to develop such estimates will be borne by Lessee. Lessee assumes full responsibility for the compatibility of the LNG System with the Grace Platform and the fitness of the Grace Platform for
the purpose of the LNG System. 

        7.2   Any
repairs or modifications identified by Platform Owner pursuant to Section 7 shall be undertaken by the Platform Owner. The cost of such repairs or
modifications shall be borne by the parties as follows: 

        (a)   Cost
to be paid by the Platform Owner: 

        (i)    Initial
repairs or modifications identified as necessary to bring the Grace Platform into current compliance with the capabilities or condition as represented in the
Initial 

7

 

Platform
Survey, or with any Permits, rules or regulations, including any requirements of insurance companies providing insurance coverages with respect to the Grace Platform, but only to the extent
that such repairs or modifications are required due to the Platform Owner's current use of the Platform, such as the Pigging Operations, and any alternative uses by Platform Owner as provided in
Section 2.5, as opposed to repairs or modifications required for the LNG system, which shall be the sole responsibility of Lessee. The foregoing sentence is subject in all events to the terms
of subsections (b)(i), (b)(ii), (b)(iii) and (b)(v) of this Section 7.2. 

        (ii)   Any
repairs or modifications required by governmental authorities or insurance carriers to be conducted due solely to activities of Platform Owner for its own account
and unrelated to the activities of Lessee with respect to the LNG System. 

        (iii)  The
provisions of Section 7.2 notwithstanding, Platform Owner may cancel this Agreement if the costs of initial repairs and modifications required to be paid by
Platform Owner by the Initial Platform Survey or by Section 7.2, are anticipated to be more than Three Hundred Thousand Dollars ($300,000); provided that this Agreement shall not be canceled if
the Lessee agrees to limit the actual costs to be borne by Platform Owner to an amount less than Three Hundred Thousand Dollars ($300,000). 

        (b)   Costs
to be paid by the Lessee, to the extent not included as costs to be paid by Platform Owner as provided in (a) above: 

        (i)    Repairs
or modifications identified as caused by material changes in the design of the LNG System as compared to the initial design of the LNG System as provided to the
Platform Owner and as attached as Schedule "7.1". 

        (ii)   Repairs
or modifications required to be conducted in order for the Grace Platform to accommodate the LNG System or to comply with Permit requirements for the operation
of the LNG System. 

        (iii)  Repairs
or modifications of any new code or regulatory requirements for which Grace Platform would otherwise be exempt and/or "grand fathered" except for the LNG
Project. 

        (iv)  Except
as provided in Subsection 7.2(a), all other costs that do not solely benefit the operations of Platform Owner. 

        (v)   The
provisions of Section 7 notwithstanding, Lessee may cancel this Agreement if the costs of initial repairs and modifications required to be paid by Lessee by
either the Initial Platform Survey or by Section 7.2 (b) are anticipated to be more than Three Hundred Thousand Dollars ($300,000). 

8.0   MUTUAL OBLIGATIONS  

        8.1   The
Platform Owner and Lessee will coordinate and be responsible for the development of operating procedures and an initial training program in which personnel from
Platform Owner and the Lessee will be instructed and trained in the safe and reliable operation and maintenance of the Grace Platform and the LNG System. Platform Owner shall have reasonable approval
rights as to acceptability of any party selected as Platform Operator, which approval rights will not be unreasonably withheld; provided, such operator meets the operational criteria set out on
Schedule 8.1. Lessee will provide all required input for these procedures and the program. The costs of the aforementioned procedures and program shall be borne by the Lessee. The cost of any
subsequent training and any revision of the procedures regarding the LNG System, as originally installed and/or modified shall be borne by the Lessee. 

8

 

        8.2   The
responsibilities of the Lessee with respect to the design and fabrication of the LNG System shall follow the requirements of Schedule "7.1". 

9.0   PLATFORM CAPACITY  

        9.1   The
Platform Owner is willing to make the Platform Capacity as set forth in Schedule 9.1 on the Grace Platform available to the Lessee subject to the limitations
of equipment presently installed on Grace Platform. It is the intent that the Platform Owner shall not incur any additional costs or other obligations to service Lessee's LNG System except as provided
in this Agreement. 

        9.2   With
regards to the Platform Capacity, Platform Owner and Lessee acknowledge that, based on the estimated design capacity of the Grace Platform and the LNG System,
Platform Capacity will be available to Lessee at any time after the Second quarter of 2004. Platform Owner and Lessee also acknowledge that this capacity of the Grace Platform and LNG System are
currently engineering estimates, not a guarantee, of actual Grace Platform and LNG System capacity and available Platform Capacity. 

10.0 ADDITIONAL CAPACITY AND FUTURE MODIFICATIONS OR USES  

        10.1 If
Lessee requires additional Platform Capacity, Lessee and Platform Owner, at Lessee's expense, shall mutually determine the scope, timing and feasibility of any
modifications required for such excess capacities. Platform Owner will accommodate any reasonable request of the Lessee to modify the LNG System or Platform, all subject to the physical limitations of
the Grace Platform, existing contractual obligations and governmental constraints, including but not limited to necessary approval of the MMS, but shall not be liable for failure to do so. Lessee
shall provide the Platform Owner the opportunity to provide input and to interface with Lessee in the design of such modifications to the existing LNG System or Platform to accommodate the additional
Platform Capacity; provided, however, that Lessee shall always retain the right to determine in its sole discretion the final design of the LNG System; provided that such modifications do not in any
way impair the safe operation or permitted emissions or effluents of the Platform and are permissible by governing authorities. 

        10.2 Any
and all modifications to the Grace Platform necessary to achieve the Additional Platform Capacity addressed herein shall be at the cost and risk of Lessee. 

        10.3 The
Parties recognize that the regulatory environment could change during the term of this Agreement and such change could result in unforeseen costs to Platform Owner
in order to maintain compliance therewith. Accordingly, the Parties hereby agree that in the event Platform Owner incurs any additional costs due to: (a) changes in regulations set forth by the
EPA, MMS, Federal Energy Regulatory Commission ("FERC"), Coast Guard or Air Pollution Control District ("APCD") or similar governing authority related to the provision of Platform Capacity or
Additional Platform Capacity to the Lessee; or (b) extraordinary and unforeseen changes in the site of the Grace Platform that require design modifications to Grace Platform or extraordinary
operational expense in order that the LNG System be effectively maintained, then the Lessee and Platform Operator shall share such costs as follows: 

        (a)   all
such costs required solely because of the presence of the LNG System on the Grace Platform shall be paid by Lessee; 

        (b)   all
such costs required solely because of the location of the Pigging Operation or other operations conducted solely for the benefit of Platform Owner shall be paid by
Platform Owner; and 

        (c)   all
such costs not solely related to the LNG System or Pigging Operations or other operations of Platform Owner shall be paid by Lessee. 

9

 

        10.4 Lessee
and Platform Owner acknowledge that the Platform Operator may find it necessary to move the Platform Owners equipment associated with the Pigging Operation to
facilitate operations of the LNG System from time to time. Any such movement and/or relocation shall be subject to the mutual agreement of Platform Owner and Lessee and Lessee shall pay the costs for
movement including, but not limited to, the cost of lost oil and gas revenue resulting from any shutdown of the transportation lines to which the Pigging Operation is attached. Notwithstanding the
foregoing, the Lessee shall not be charged any amount or have any responsibility for any down time of the Pigging Operation, if such downtime of the Pigging Operation is not the direct cause of any
loss of oil and gas deliveries. 

        10.5 If
Lessee purchases the Grace Platform, Lessee agrees to operate the Pigging Operation for the account of the Platform Owner, for a period not to exceed the remaining
Lease Term on the date of the purchase of the Grace Platform by the Lessee. The Platform Owner and Lessee agree to enter into a pigging operation agreement under customary industry terms with the cost
of such pigging services to be paid by Platform Owner and computed as the actual cost to the Lessee plus fifteen percent (15%) for administrative costs of such activities. 

        10.6 Lessee
and Platform Owner acknowledge that during the Option Period(s) or Lease Term that Platform Owner may desire to use the Grace Platform as a platform for drilling
new wells, reworking existing wells, operating new or existing wells, reclaiming and abandoning new or existing wells and construction and operation of related production facilities ("Exploration and
Production Activities"). In such event, the following principles will govern as specified: 

        (a)   The
actual direct cost of any Exploration and Production Activities will be paid by Platform Owner; 

        (b)   Platform
Owner will provide indemnification and insurance coverage to hold Lessee and its affiliates and customers harmless from any claims or costs associated with the
Exploration and Production Activities at the time and in the amounts as set forth in Schedule 16.6; 

        (c)   The
Lessee and the Platform Owner will negotiate in good faith to establish rules for health, safety and environment compliance for all activities to be conducted with
respect to the Grace Platform; 

        (d)   The
cost of any modifications to the Grace Platform required due to the Exploration and Production Activities will be paid by Platform Operator; 

        (e)   The
Base Monthly Rent under the Lease as provided in Section 4.1 (a), including the fifteen percent (15%) administrative charge, shall be allocated between
Platform Owner and Lessee by ratios consistent with the following principles: If all thirty-six (36) slots are used by Platform Owner, fifty percent (50%) of costs are to be paid by
Platform Owner and fifty percent (50%) are to be paid by Lessee. If no slots are used by Platform Owner, zero percent (0%) of costs are to be paid by Platform Owner and one hundred percent (100%) of
costs are to be paid by Lessee. For example, if
nine (9) slots are used by Platform Owner, the Platform Owner would pay twelve and one-half percent (12.5%) of the costs and the Lessee would pay eighty-seven and
one-half percent (87.5%) of the costs, and if twenty-seven (27) slots are used by Platform Owner, Platform Owner would pay thirty-seven and one-half percent (37.5%) of
the costs and Lessee would pay sixty-seven and one-half percent (67.5%) of the costs, and so forth; 

        (f)    The
right of Platform Owner to conduct any Exploration and Production Activities shall not unreasonably interfere with the right of Lessee to conduct the operation of
the LNG System nor shall the right to conduct LNG System activities unreasonably interfere with the conduct of any Exploration and Production Activities. In determining reasonableness, legal
obligations to public or private third parties shall have greater weight than equivalent economic consequences. 

10

   11.0 OWNERSHIP AND ABANDONMENT  

        11.1 Lessee
shall pay for, have title to, and own all of the LNG System. Lessee shall pay for and be responsible for the abandonment of the LNG System. Unless Lessee
purchases the Platform as set forth in Section 3, Platform Owner shall own and be responsible for the abandonment of the Grace Platform, except that additional and/or increased costs of
abandonment due to the construction and operation of the LNG System which shall be the responsibility of Lessee. 

        11.2 Lessee
shall be responsible for the final abandonment of the components of the LNG System on Grace Platform at the time that the Lessee shall cease operations of the
LNG Facilities or is otherwise required by applicable law to conduct such abandonment. The Lessee shall give Platform Owner one (1) year's advance written notice of the Lessee's intent to
abandon the LNG System, voluntarily. 

        11.3 The
period beginning on the later to occur of the date the Lessee sends notice to Platform Owner of Lessee's intention to abandon the LNG System or the date Lessee last
accepts LNG deliveries through the LNG System and ending on the date Lessee completes the abandonment of the LNG System shall be the abandonment phase. During the abandonment phase, Platform Owner
shall receive the Base Monthly Rent. The maintenance regime will be reduced to levels consistent with the LNG System Removal and not maintenance requirements planned to extend the live of the Grace
Platform beyond the time required for LNG System Removal. 

        11.4 Lessee,
at its cost, shall take all necessary steps involved in any LNG abandonment and removal operation, including engineering, planning, permitting and actual
decommissioning all of LNG facilities, keeping Platform Owner advised of its progress. Lessee shall deliver to the MMS or other appropriate agency a supplemental performance bond in the sum required
by the MMS executed and acknowledged by Lessee and sureties acceptable to Platform Owner. 

        11.5 If
a supplemental performance bond is not required by any agency, lessee shall deliver a performance bond in favor of Platform Owner to insure full execution of
Lessee's LNG System abandonment obligations. The bond shall be delivered not later than completion of construction and installation of the LNG System in the amount of the abandonment obligations for
the LNG System as estimated by an independent marine surveyor mutually selected by the Parties. 

        11.6 If
Lessee fails to properly remove the LNG System, if and when required, Platform Owner, in addition to any other remedies at law or equity, including placing a claim
against the performance bond, may stop the operation of the LNG System, separate the LNG System from any other property and remove or salvage the same, at Lessee's cost, using all reasonable force
necessary or permitted by applicable law, without incurring any liability to Lessee arising out of taking such action. 

12.0 GOVERNMENTAL COMPLIANCE  

        This Agreement shall be subject to any necessary Governmental Approvals. 

13.0 ANNUAL BUDGET  

        At least thirty (30) days before the end of each annual rental year, Platform Owner shall submit to Lessee for approval its estimate of expenditures,
calculated pursuant to Schedule 13.3, to be made during each quarter of the next succeeding year. If any such estimate shall include the installation, construction, repair, maintenance or
enlargement of the Platform involving an expenditure in excess of fifty thousand dollars ($50,000), such estimate shall be accompanied by a statement of the nature of the work proposed and the reason
therefor. Lessee shall, within fifteen (15) days after receipt of such regular annual estimate approve or disapprove the same. If the Lessee fails to notify Platform Owner in writing of its
disapproval within fifteen (15) days, Lessee shall be conclusively presumed to have approved such estimate. If Lessee does not approve such estimate, a meeting of the Parties shall be 

11

 

called
by Platform Owner to be held within ten (10) days thereafter and the Parties shall determine upon and approve a proper estimate. Whenever it shall appear to Platform Owner that the
estimate of expenditures is insufficient, Platform Owner shall submit an itemized supplemental estimate, which shall be acted upon in the same manner as the regular annual estimate. Platform Owner may
also obtain specific approval for non-estimated items by submitting to Lessee Platform Owner's Approval for Expenditure ("AFE") setting forth the work to be performed and the estimated
cost of the same. 

14.0 EMERGENCY PROCEDURES  

        14.1 Nothing
herein shall prevent either Party from undertaking any operation, including the shutting-in of LNG System, when an emergency arises that, in that
Party's sole opinion, endangers life, property, or the environment. The Party discovering the event, without obtaining prior approval from the other Party, may take such steps and incur such expenses
as it deems in its sole discretion, are required to deal with such emergency and to safeguard life and property, including shutting-in of the LNG System at such time it deems necessary.
With respect to occurrences or threats of severe weather or hurricanes, that Party shall have the authority to shut-in the LNG System and/or associated facilities at such time it, in its
sole discretion, deems necessary. That Party shall report, as promptly as reasonably possible, all such emergencies and weather conditions warranting action hereunder to the other Party and advise the
other Party of all such actions taken by that Party. In the event that an emergency does arise that pertains to an oil spill or any other pollution or environmental emergency, the discovering Party
shall take appropriate action in an attempt to contain said spill. The costs of all actions under this section shall be treated as costs pursuant to Section 7.2 hereof, but without the
provisions for cancellation. 

15.0 RELATIONSHIP OF THE PARTIES  

        15.1 Each
Party hereto is and shall be an independent contractor with respect to the performance of this Agreement, and no one employed by one Party shall be deemed for any
purpose to be the employee, agent, servant or representative of the other. 

        15.2 This
Agreement is not intended to create, and shall not be construed to create, a relationship or an association for profit between or among the parties hereto.
Notwithstanding any provision that the rights and liabilities hereunder are several and not joint or collective, or that this Agreement and operations hereunder shall not constitute a partnership, if
for federal tax purposes this Agreement and the operations hereunder are regarded as a partnership, each party hereby affected elects to be excluded from application of all of the provisions of
Subpart "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1986 ("Code"), as permitted and authorized by Section 761 of the Code and the regulations promulgated thereunder. Operator
is authorized and directed to execute on behalf of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal
Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by Federal Regulations 1.761. Should there be any requirement that
each party hereby affected give further evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal Revenue
Service or as may be necessary to evidence this election. No such party shall give any notices or take any other action inconsistent with the election made hereby. If any present or future income tax
laws of the state or states in which the this Agreement takes place or any future income tax laws of the United States contain provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A",
of the Internal Revenue Code of 1986, under which an election similar to that provided by Section 761 of the Code is permitted, each party hereby affected shall make such election as may be
permitted or required by such laws. In making the foregoing election, each such party states that the income derived by such party from operations hereunder can be adequately determined without the
computation of partnership taxable income. 

12

 

16.0 INDEMNIFICATION  

        16.1 LIABILITY AND INDEMNIFICATION BY LESSEE. LESSEE SHALL DEFEND, RELEASE, INDEMNIFY AND HOLD PLATFORM OWNER ITS AFFILIATES
AND ALL OF RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS, INVITEES, INSURERS AND OTHER REPRESENTATIVES, HARMLESS FROM AND AGAINST ALL DEMANDS, CAUSES OF
ACTION, JUDGMENTS, CLAIMS, LIABILITIES AND OTHER COSTS (INCLUDING, WITHOUT LIMITATION, COURT COSTS, INTEREST, PENALTIES, LITIGATION EXPENSES AND ATTORNEYS' FEES) FOR DAMAGE TO OR LOSS OF PROPERTY, FOR
PERSONAL INJURY OR DEATH, AND FOR DAMAGE OR HARM TO THE ENVIRONMENT (INCLUDING SPILL RESPONSE, ENVIRONMENTAL POLLUTION AND CONTAMINATION, AND CLEAN-UP COSTS) BROUGHT BY OR ON BEHALF OF ANY
PARTY WHOMSOEVER (INCLUDING BUT NOT LIMITED TO ALL THIRD PARTIES AND GOVERNMENTAL AGENCIES), TO THE EXTENT ARISING FROM

        (a)   THE CONSTRUCTION, MAINTENANCE, REPAIR, OPERATION AND ABANDONMENT OF THE LNG SYSTEM AND  

         (b)   FROM THE DATE AFTER THE LESSEE HAS PURCHASED THE GRACE PLATFORM, THE CONSTRUCTION, MAINTENANCE, REPAIR, OPERATION, AND ABANDONMENT OF THE GRACE PLATFORM,

WITHOUT REGARD TO THE CAUSE(S) THEREOF, INCLUDING PRE-EXISTING CONDITIONS, THE UNSEAWORTHINESS OF ANY VESSEL, THE STRICT LIABILITY,
NEGLIGENCE OR OTHER FAULT OF ANY PARTY, EVEN THOUGH THE INDEMNIFIED PARTY MAY HAVE BEEN NEGLIGENT, AND REGARDLESS OF WHETHER THE NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE, EXCEPT TO
THE EXTENT THAT ANY OF THE FOREGOING ARE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF PLATFORM OWNER.

        16.2 LIABILITY AND INDEMNIFICATION OF PLATFORM OWNER. PLATFORM OWNER SHALL DEFEND, RELEASE, INDEMNIFY AND HOLD HARMLESS,
LESSEE AND ALL OF ITS RESPECTIVE OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS, INVITEES, INSURERS AND OTHER REPRESENTATIVES HARMLESS FROM AND AGAINST ALL DEMANDS,
CAUSE OF ACTION, JUDGMENTS, CLAIMS, LIABILITIES AND OTHER COSTS (INCLUDING WITHOUT LIMITATION, COURT COSTS, INTEREST, PENALTIES, LITIGATION EXPENSES AND ATTORNEY'S FEES) FOR DAMAGE TO OR LOSS OF
PROPERTY, FOR PERSONAL INJURY OR DEATH, AND FOR DAMAGE OR HARM TO THE ENVIRONMENT (INCLUDING SPILL RESPONSE, ENVIRONMENTAL POLLUTION AND CONTAMINATION, AND CLEAN-UP COSTS) BROUGHT BY OR ON
BEHALF OF ANY PARTY WHOMSOEVER (INCLUDING BUT NOT LIMITED TO ALL THIRD PARTIES AND GOVERNMENT AGENCIES) TO THE EXTENT ARISING FROM

        (a)   THE CONSTRUCTION, MAINTENANCE, REPAIR, OPERATION AND ABANDONMENT OF THE GRACE PLATFORM AND  

         (b)   PLATFORM OWNER'S PIGGING OPERATION ON THE GRACE PLATFORM  

WITHOUT REGARD TO THE CAUSE(S) THEREOF, INCLUDING PREEXISTING CONDITIONS, UNSEAWORTHINESS OF ANY VESSEL, THE STRICT LIABILITY, NEGLIGENCE OR OTHER FAULT
OF ANY PARTY, EVEN THOUGH, THE INDEMNIFIED PARTY MAY HAVE BEEN NEGLIGENT, REGARDLESS OF WHETHER THE NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE, EXCEPT TO THE EXTENT THAT ANY OF THE
FOREGOING ARE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSEE.

13

 

        16.3 EXCEPT AS OTHERWISE STATED HEREINBELOW WITH RESPECT TO LOST PRODUCTION FROM PLATFORM GAIL, UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO
ANOTHER PARTY UNDER THIS AGREEMENT FOR CONSEQUENTIAL DAMAGES, LOST PROFITS, LOST PRODUCTION, PUNITIVE DAMAGES AND/OR ANY OTHER DAMAGES TO RESERVOIRS, RESERVES OR MINERAL INTERESTS OR PLATFORM OWNER'S
RESERVOIRS, RESERVES OR MINERAL INTERESTS, WITHOUT REGARD TO THE CAUSE(S) THEREOF, INCLUDING PRE-EXISTING CONDITIONS, THE UNSEAWORTHINESS OF ANY VESSEL, THE STRICT LIABILITY, NEGLIGENCE OR
OTHER FAULT OF ANY PARTY, REGARDLESS OF WHETHER THE NEGLIGENCE BE SOLE, JOINT, OR CONCURRENT, ACTIVE OR PASSIVE, AND EVEN IF CAUSED BY A PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE FOREGOING
NOTWITHSTANDING, LESSEE SHALL BE RESPONSIBLE FOR LOST PROFITS AND PRODUCTION FROM PLATFORM OWNERS' PLATFORM GAIL IF THE LNG SYSTEM OPERATION CAUSES OR PREVENTS SHIPPING OIL AND GAS ACROSS PLATFORM
GRACE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 16.1 OR 16.2, EACH PARTY SHALL BEAR ITS RESPECTIVE EXPENSES, LIABILITIES AND COSTS, INCLUDING THOSE RESULTING FROM ENVIRONMENTAL
POLLUTION AND CONTAMINATION, ARISING FROM OR ASSOCIATED WITH DEFECTS IN DESIGN AND CONSTRUCTION OF THE GRACE PLATFORM.

        16.4 Any
applicable statutory, regulatory or judicial limitations or restrictions now or hereafter imposed that a Party hereto correctly asserts affects the validity or
enforceability of the indemnification provisions shall operate to amend the indemnity provisions hereof only to the minimum extent necessary to bring such provisions into conformity with the
particular statutory, regulatory or judicial requirements. As so modified, the indemnity provisions hereof shall continue in force and effect to the fullest extent permitted by applicable law. 

        16.5 Throughout
the term of this Agreement, each Party hereto, at its sole cost and expense, shall procure with "A" rated insurance companies or better such insurance as set
forth in Schedule 16.6 necessary in discharging its obligations hereunder, including those necessary to protect against all claims for damages, risks of losses and contractual indemnities
covered by this Agreement. Lessee's policies shall name Platform Owner as an additional insured subject to minimum coverages established by Platform Owner as set forth in Schedule "16.6". All policies
of insurance purchased which are intended to cover any damages, liabilities, expenses, losses, claims, costs (including attorney's fees), suits and causes of action incurred by any Party hereunder
shall be properly endorsed to waive the insurer's rights of subrogation, under any such policies, against the other Party hereto (or said Party's insures) when said Party is released from liability or
loss or damage pursuant to this Agreement, an may name the other Party (subject to the other Party's approval) as an additional insured in the proportion that indemnity obligations are assumed
hereunder. Throughout the term of this Agreement, Lessee shall cause Platform Operator to be provided current certificates of insurance evidencing the required coverages in full force and effect and
endorsed to provide not less than thirty (30) days notice of any renewal or termination hereunder. 

        16.6 The
Parties agree to provide insurance for their indemnity obligations in accordance with the description in Schedule "16.6". 

17.0 WARRANTY OF TITLE  

        17.1 Title to
the LNG gas and pipeline liquids recovered during the processing, storage and transportation of the LNG shall remain with the LNG Owner. 

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18.0 FORCE MAJEURE  

        18.1 The
term "Force Majeure" as here employed shall mean an act of God, strike, lockout, or other industrial disturbances, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, hurricane, flood, explosion, pipeline breaks, governmental restraint, and any other cause, whether of the kind specifically enumerated above or otherwise, all of which
are not reasonably within the control of the Party claiming suspension. 

        18.2 If
any Party hereto is rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement, other than the obligation to make money
payments, that Party shall give to the other Party prompt written notice of the Force Majeure with reasonably full particulars concerning same. Thereupon, the duties and obligations of the Party
giving the notice, so far as they are affected by the Force Majeure, shall be suspended during, but no longer than, the continuance of the Force Majeure. The affected Party shall use all possible
diligence to remove the Force Majeure as quickly as possible. 

        18.3 The
requirement that any Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty
by the Party involved contrary to its wishes; the methods by which all such difficulties shall be handled shall be entirely within the discretion of the Party concerned. 

19.0 RULES AND REGULATIONS  

        19.1 This
Agreement and the activities performed hereunder shall be subject to all valid and applicable laws, rules, regulations, orders and other directives of any federal,
state or local governmental or judicial body or agency having Jurisdiction hereof, hereinafter collectively referred to as "laws, regulations and orders." Both Platform Owner and the Lessee shall be
entitled to regard all laws, regulations and orders issued by any governmental or judicial body or agency having jurisdiction thereof as valid and may act in accordance therewith, until such time as
same maybe suspended or invalidated by a court of competent jurisdiction. Without limiting the generality of the foregoing, the Parties hereto shall comply with all provisions of Sections 202
(1) through (7), inclusive, of Executive Order 11246, as revised. 

        Notwithstanding
any other provisions of this Agreement, neither Party shall be liable to the other Party for any delays or failures to act (including any resulting costs or damages) due
to or caused by reason of any laws, regulations or orders of any public body or official purporting to exercise authority or control respecting the operations covered hereby; and any delays due to any
of the above causes shall not be deemed a breach or failure to perform under this Agreement unless caused by the gross negligence or willful misconduct of the respective Party or that Parties' failure
to cure or correct any condition giving rise to such exercise of control or authority. 

        19.2 Any
non-compliance citations issued to Platform Owner concerning the Grace Platform shall be promptly reported to the Lessee. Any non-compliance
citations issued to the Lessee concerning the LNG System shall be promptly reported to Platform Owner. 

        During
the Option Period, reporting requirements to any Governmental Entity for the Grace Platform will be the sole responsibility of the Platform Owner, provided that any new or
additional reporting resulting from the installation or operation of the LNG System will be at the expense of the Lessee. Once the Lease Term for the LNG System commences, all reporting and permitting
requirements to the same or similar governmental agencies for the LNG System and the Grace Platform will be the sole responsibility and cost of Lessee. 

15

 

20.0 DEFAULT  

        20.1 In
the event any Party breaches any of its obligations or duties hereunder and fails to cure same within sixty (60) days after receipt of written notice thereof
from the other Party, the non-defaulting Party shall have the right to immediately terminate this Agreement, without incurring any liability or obligation to the other Party. However, if
the breach specified in the notice is of such a nature that it reasonably cannot be corrected within the sixty (60) day period, and the Party receiving such notice begins within said period
corrective action or steps to correct the breach and thereafter diligently carries such corrective action to completion, this Agreement shall not be terminated as aforesaid. 

        20.2 In
the event of the termination of this Agreement for default, the defaulting Party shall remain liable for all duties, obligations and liabilities incurred prior to
the termination date. Further, termination shall not be the non-defaulting Party's sole remedy for default. The non-defaulting Party shall be entitled to seek all damages,
remedies or other forms of relief to which it may be entitled either in law or in equity, other than those damages excluded from collection under this Agreement pursuant to Article 16.5. 

21.0 NOTICES  

        21.1 All
notices (including, without limitation, statements, billings and payments) provided for or required to be given between Platform Owner and the Lessee shall be made
in writing and delivered to the designated representative of the other Party in person or by facsimile transmission, U.S. Mail, overnight express, or courier. The addresses for notices are as follows: 

Venoco, Inc.
Attn: Bruce Berwager, Vice President

5464 Carpinteria Avenue, Suite J

Carpinteria, CA 93013-1423

Facsimile: (805) 745-5146 

Crystal
Energy LLC

Attn: William Perkins, President

2017 Morse

Houston, TX 77019

Facsimile: (713) 523-3850 

Addresses
may be changed by notifying the other Party in writing. 

22.0 VENUE/APPLICABLE LAW  

        22.1 AS BETWEEN THE PARTIES HERETO ALL ISSUES ARISING OUT OF THIS AGREEMENT OR OTHERWISE INVOLVING ITS VALIDITY, INTERPRETATION, PERFORMANCE OR
BREACH SHALL BE GOVERNED BY THE GENERAL MARITIME LAW OF THE UNITED STATES TO THE EXTENT APPLICABLE, OTHERWISE BY THE LAWS OF THE STATE OF CALIFORNIA. THE VENUE OF ANY LEGAL ACTION WITH RESPECT TO THIS
AGREEMENT SHALL BE IN THE STATE OR FEDERAL COURTS LOCATED NEAREST TO CARPINTERIA, CALIFORNIA.

23.0 ASSIGNMENT OF INTEREST  

        23.1 The
Lessee shall have the right to assign its rights and obligations in this Agreement in whole or in part with the written consent of the Platform Owner. Such consent
shall not be unreasonably withheld. 

16

 

        23.2 Platform
Owner shall have the right at any time to assign its obligations and rights in this Agreement and its interest in the Grace Platform or the Facilities, in
whole or in part, without the consent of the Lessee. 

        23.3 Any
assignee to this Agreement shall evidence its assumption of the obligations under this Agreement by executing a separate written instrument in form and content
reasonably acceptable to the other party. Any Party assigning its interest shall so notify the other Party in writing. 

24.0 CONFIDENTIALITY  

        24.1 The
Parties agree to keep in secrecy and confidence all matters pertaining to this Agreement save and except to their respective Affiliates, subcontractors, lenders and
consultants and their respective employees, servants or agents actively engaged in the operations hereunder to the extent that they need to know, or such disclosure as may be required for the purposes
of regulatory and statutory reporting. Each Party acknowledges the sensitivity of the processing and handling fees contained herein and agrees to protect that data and to disclose it only to such
persons as may be required on a strict need-to-know basis. 

        24.2 Each
Party agrees to maintain the secrecy of all such information using the standard of care it normally uses in protecting its own confidential information and trade
secrets for a period of two (2) years from the termination of this Agreement. Any such information shall be made available to each Party for its exclusive use and such confidential information
shall not be disclosed to any third party (unless disclosed under "an exception to confidentiality" as provided below). 

        24.3 Exceptions
to Confidentiality—The confidentiality obligation shall not apply to the extent that particular items of information: 

        (a)   are
now or later become part of the public domain (other than as a result of a wrongful act or omission by the disclosing Party); or 

        (b)   are
now or later become available to the disclosing Party on a non-confidential basis from a source that is, to the best of the knowledge of the disclosing
party, legally permitted to disclose the confidential information; or 

        (c)   were
known to the disclosing Party on a non-confidential basis prior to the disclosure of the confidential information to it under the terms of this
Agreement; or 

        (d)   are
independently developed by employees or contractors of the disclosing Party who have not had access to such confidential information; or 

        (e)   are
required by governmental or judicial order or process to be produced. In such case the releasing Party shall take reasonable steps to provide for confidential
handling of such information in accordance with applicable regulations, laws and rules of civil procedure. Prior to the release of any information under this Section 24.3(e), the releasing
Party shall notify the disclosing Party to this Agreement and keep them appraised of the status of such release of information. Said notification shall be given immediately upon the releasing Party
hearing of such requirement. 

        24.4 Any
Party who assigns its interest in this Agreement shall nonetheless remain bound by the confidentiality and use obligations of this Agreement as to any confidential
information obtained throughout the term of this Agreement. 

17

 

25.0 MISCELLANEOUS  

        25.1 This
Agreement shall extend to and be binding upon and inure to the benefit of the Parties hereto and respective successors and assigns, and this Agreement shall not be
altered or amended except by an agreement in writing executed by all the Parties hereto. 

        25.2 Public
Announcements 

        Neither
party shall make any public announcements or permit any publication of any information with respect to this Agreement without the prior written approval of the other party, which
approval shall not be unreasonably withheld. Each Party shall act in a cooperative and expeditious manner in reviewing any such proposed statement or release. 

        25.3 In
the case of any discrepancy in terms or meaning between the body of this Agreement and the Schedules attached hereto, the wording of the Agreement shall prevail and
be used in the resolution of disputes. 

        25.4 Should
any Article or part thereof of this Agreement be held invalid or unenforceable for any reason, such holding shall not affect the remaining parts hereof,
which shall continue in full force and effect. 

        25.5 All
provisions relating to audit, abandonment, confidentiality, indemnity, regulatory compliance and warranty shall survive any termination of this Agreement. 

        25.6 Waivers. The parties to any Transaction Document may (a) extend the time for the performance of any of the
obligations or other acts of the other parties thereto, (b) waive any inaccuracies in the representations and warranties of the other parties contained therein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or conditions contained therein. Any agreement on the part of a party to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. 

        25.7 Amendment. The Transaction Documents may be modified, supplemented or amended only by a written instrument executed by
all parties thereto. 

        25.8 Headings. The headings contained in any Transaction Document are for the sole purpose of convenience of reference, and
shall not in any way limit or affect the meaning or interpretation of any of the terms of provisions of such Transaction Document. 

        25.9 This
Agreement (including all schedules) contains the entire agreement of the Parties regarding the subject matter hereof and supersedes all prior representations,
agreements, understandings, and commitments, whether oral or written, between the Parties concerning the subject matter. 

18

 

        IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement, effective as of the date set forth hereinabove when fully executed by all Parties. 

	

WITNESSES	
 	

VENOCO Inc. (Platform Owner)
	

/s/  BRUCE A. BERWAGER      
	
 	

By:	
 	

/s/  RODNEY L. ESON      

	 	 	Title:	 	Chief Executive Officer
	/s/  HARRY C. HARPER      
	 	Date:	 	3-13-03
	

WITNESSES	
 	

CRYSTAL ENERGY, LLC (Lessee)
	

	
 	

By:	
 	

/s/  WILLIAM PERKINS      

	 	 	Title:	 	President
	/s/  J. BRENT BAKER      
	 	Date:	 	3-13-03

19

 
SCHEDULE 1  

 GRACE PLATFORM LEASE AGREEMENT  

 DEFINITIONS AND PROCEDURAL CONVENTIONS  

        The following provisions shall apply to each Transaction Document that expressly states that it is governed by this Schedule 1, except as such Transaction
Document otherwise expressly provides. 

ARTICLE 1

DEFINITIONS  

1.01 Usage  

        (a)   The
terms defined below have the meanings set forth below for all purposes of any agreement or instrument governed by this Schedule, and such meanings shall apply
equally to both the singular and plural forms of the terms defined and to the correlative forms of such terms. 

        (b)   Whenever
the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. References in an agreement or instrument to
Sections and Schedules shall be deemed to be references to Articles and Sections of, and Schedules to, such agreement or instrument unless the context shall otherwise require. 

        (c)   All
and Schedules attached to an agreement or instrument shall be deemed incorporated therein as if set forth in full therein. 

        (d)   References
to a Person are also to its permitted successors and permitted assigns.    References to any statute, proclamation or decree include all rules and
regulations promulgated thereunder. 

1.02 Terms  

        Except as otherwise provided herein or in the applicable Transaction Document or as otherwise clearly required by the context, the following terms shall have the
following meanings: 

        "Affiliate"
means with respect to any person, any other person directly or indirectly controlling, controlled by, or under common control with, such person; for purposes of this
definition, "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of
voting securities or otherwise. 

        "Claim"
means giving notice of a contractual claim of breach of a representation and warranty given in this Agreement within the applicable Survival Period, with such notice specifying
the breach, the Damages, and providing material information then known to the claiming Party indicating that the breach has occurred. 

        "Controversy"
has the meaning set forth in Section 3 of the Schedule 1. 

        "Damages"
means demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including interest, penalties, reasonable attorneys' fees and
all costs of enforcement, disbursements and expenses and excluding, specifically, (i) damages resulting from loss in value of assets or shares, and (ii) special, indirect and
consequential damages, damages resulting from lost profits and exemplary, treble, remote, speculative or punitive damages of either Platform Owner or Lessee;  provided, however, that the exclusions contained in clauses (i) and (ii) above shall not
apply to any such damages resulting from a liability to a Third Party. 

        "Environment"
means all air, surface water, groundwater, or land, including land surface or sub-surface, including all fish, wildlife, biota, flora or fauna and related
natural resources. 

20

 

        "Environmental
Claim" means any and all pending and/or threatened in writing administrative or judicial actions, suits, claims, liens, notices of violations, investigations, complaints
or proceedings whether criminal or civil, pursuant to or relating to any Environmental Law by any person (i) including, but not limited to, any Governmental Entity, private person and citizen's
group; (ii) excluding any of the above by a Lessee Indemnified Party or Platform Owner Indemnified Party; (iii) excluding any of the above resulting from any Remediation Activities
associated with or arising from any Voluntary Remedial Action. 

        "Environmental
Laws" means any and all applicable federal, state, provincial or local and foreign public, civil and criminal laws, statutes, ordinances, orders, codes, statutory
guidance, rules, regulations, judgments, decrees, injunctions or agreements with any Governmental Entity that are in force from time to time before or after the date of this Agreement, relating to
(i) the protection of human health and worker health and safety; or (ii) the protection of the Environment; or (iii) governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging, labeling or Release of Hazardous Substances to the extent the same relate to protection of human health and the
Environment; or (iv) the existence, cleanup and/or remedy of contamination on property. Environmental Laws also include civil or common law doctrines (including negligence, nuisance, trespass,
personal injury and property damage) to the extent that claims under such doctrines arise out of the presence, Release or Exposure to a hazardous Substance. Environmental Laws include laws relating to
product safety, but no other product liability issues. 

        "EPA"
shall mean the United States Environmental Protection Agency or its successor of the U.S. Government. 

        "Facilities"
shall mean all production handling, processing and associated equipment located on the superstructure of Grace Platform. 

        "First
Extended Lease Term" has the meaning set out in Section 3.1. 

        "Governmental
Approvals" means all authorizations approvals, consents, franchises, licenses, permits or clearances of or notices to or filings with any Governmental Entity required under
Applicable Law to be obtained or made in order to allow for the consummation of the Transactions or expiration of waiting periods imposed by or agreed with any Governmental Entity in connection with
the Transactions. 

        "Governmental
Entity" means any federal, state, local or foreign government or any court of competent jurisdiction, regulatory or administrative agency or commission or other
governmental authority or non-commercial instrumentality, domestic or foreign. 

        "Grace
Platform" means the Venoco Platform described in Schedule "5.1". 

        "Improvements"
means all storage tanks, structures, pipelines, fixtures, electrical and other improvements of any nature or kind located in or upon the Grace Platform. 

        "Initial
Lease Term" has the meaning set out in Section 3.1. 

        "Lease
Effective Date" has the meaning set out in Section 2.4. 

        "Lease
Term" has the meaning set out in Section 3.1 and includes, if applicable, the Initial Lease Term, First Extended Lease Term, Second Extended Lease Term and the Third
Extended Lease Term. 

        "Lessee
Indemnified Party" means Lessee, its Affiliates, and their respective directors, stockholders, officers, partners, employees, agents, consultants, attorneys, representatives,
successors, permitted transferees and permitted assignees. 

        "LNG"
means liquefied natural gas. 

21

 

        "LNG
Business" means the business of accepting and vaporizing LNG delivered by LNG Tankers, transporting the vaporized LNG through proprietary Gas Pipelines and selling the vaporized LNG
to third party customers. 

        "LNG
Equipment" means the equipment, machinery, facilities and any other physical assets of any nature or kind whatsoever located in or upon the Grace Platform by or for the benefit of
Lessee. 

        "LNG
Mooring System" means the docking system for offloading of LNG Tankers to Platform Grace. 

        "LNG
System" means the LNG Equipment, LNG Mooring System and Gas Pipelines and any other equipment or facilities used by Lessee in conduct of its LNG Business, whether located on or
adjacent to Platform Grace. 

        "LNG
System Removal" means the removal of all LNG systems related equipment and environmental contamination from the Grace Platform, all conducted in accordance with Applicable Laws. 

        "LNG
Tankers" means transport ships delivering LNG to the LNG System. 

        "MMS"
shall mean the U.S. Department of the Interior, Minerals Management Service or its successor. 

        "MSCF"
shall mean one thousand (1,000) Standard Cubic Feet (as hereinafter defined) of natural gas. 

        "Operator"
means the person charged with the responsibility for operating the LNG System platform. 

        "Permits"
means licenses, permits, certificates, orders, approvals and authorizations from Governmental Entities. 

        "Pigging
Facilities" means the one (1) pig launcher/receiver with associated piping [one (1) line heater, hydraulic power unit, chemical injection facilities,
master control center, accumulator skid, methanol injection skid, methanol storage facilities,] control panels and other devices located on the superstructure of Grace Platform and used by
the Platform Owner to conduct the Pigging Operations. 

        "Platform
Capacity" means capacity as defined in Schedule 9.1 of the Agreement. 

        "Platform
Owner" means Venoco, Inc. and its successors and assigns. 

        "Second
Extended Lease Term" has the meaning set out in Section 3.1. 

        "Standard
Cubic Foot" shall mean that quantity of natural gas that occupies one (1) cubic foot of space when held at a base temperature of sixty (60) degrees Fahrenheit and
a pressure of fourteen and seventy-three one hundredths (14.73) psia. 

        "Third
Extended Lease Term" has the meaning set out in Section 3.1. 

        "Third
Party Claims" has the meaning set forth in Article 2 of this Schedule 1. 

        "Transactions"
means the transactions contemplated by the Transaction Documents. 

        "Transaction
Documents" means this Agreement and the Schedules to this Agreement. 

22

 

ARTICLE 2

PROCEDURE  

        2.1   The obligations and liabilities of the Parties with respect to all items indemnified against under any Transaction
Document that are initiated by a Third Party (the "Third Party Claims), shall be subject to the following terms and conditions. 

        (a)   Upon
notice of a Third Party Claim asserted against, resulting to, imposed upon or incurred by any Person to be indemnified pursuant to a Transaction Document (the
"Indemnified party"), or upon the Indemnified Party becoming aware of a matter for which it may be entitled to indemnification with respect to a Third Party, from a party pursuant to a Transaction
Document, the Indemnified Party shall promptly give written notice to the other party (the "Indemnifying Party") of the Third Party Claim or other indemnifiable matter;  provided, however, that no failure or delay on the part of the Indemnified Party in notifying any
Indemnifying Persons shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying party thereby is prejudiced by the delay.
Promptly upon receiving a written notice of an indemnified Third Party Claim, the Indemnifying party shall undertake satisfactory to the Indemnified Party;  provided, that if, in the Indemnified Party's
and the Indemnifying Party's reasonable judgment, a conflict of interest may exist between the Indemnified
Party and the Indemnifying party with respect to such Third Party Claim, or if the Indemnifying party does not promptly defend after notification of such Third Party Claim, such Indemnified Party may,
at its option, undertake the defense and may compromise or settle such Third Party Claim on behalf of and for the account and at the risk of the Indemnifying party to the extent that the Indemnifying
party is determined to be obligated to indemnify the Indemnified Party under the applicable Transaction Document with respect to such Third Party Claim. The written notice of the Third Party Claim by
the Indemnified Party shall contain all material information known to the Indemnified Party with respect to the Third Party Claim and shall include copies of materials submitted
to the Indemnified Party by the relevant Third Party with respect to the Third Party Claim. So long as the Indemnifying Party is conducting the defense of the Third Party Claim, the Indemnified Party
may retain a separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim. 

        (b)   If
the Indemnifying Party elects to undertake and diligently pursue the defense of a Third Party Claim hereunder, and acknowledges in writing its duty to provide full
indemnification to the Indemnified Party regarding such Third Party Claim, the Indemnifying Party shall control all aspects of the defense and settlement of such Third Party Claim and may settle,
compromise or enter into a judgment with respect to such Third Party Claim; provided, that the Indemnifying Party shall not enter into any such
settlement, compromise or judgment without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld) if it would result in the imposition of any liability or
obligation on the Indemnified Party. 

        If
the Indemnified Party undertakes the defense of a Third Party Claim hereunder, it shall not settle, compromise or enter into any judgment with respect to a Third Party Claim for which
it is seeking or shall seek indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. 

        (c)   The
Indemnified Party shall provide the Indemnifying Party with access to all reasonably requested records and documents of the Indemnified Party relating to any Third
Party Claim, other than documents for which the Indemnified Party has claimed or shall validly claim a legal privilege. 

23

 

ARTICLE 3

DISPUTE RESOLUTION PROCEDURE  

3.1   Overview  

        (a)   Description
and Goals 

        Arbitration
as used in this Agreement is a procedure whereby an Arbitrator resolves any claim(s), controversy (ies) or dispute(s) (the "Dispute") between the parties to this Agreement,
arising out of, relating to, or in connection with this Agreement, including the interpretation, validity, termination or breach thereof 

        (i)    Binding

        The
arbitration process is binding on the Parties and is intended to be a final resolution of any Dispute between the Parties as described above, to the same extent as a final judgment
of a court of competent jurisdiction. Each Party hereby expressly covenants that it shall not resort to court remedies except as provided for herein, and for preliminary relief in aid of arbitration. 

        (b)   Duty
to Negotiate 

        The
Parties shall provide written notice to one another promptly, but not later than thirty (30) days following the occurrence or discovery of any item or event which might
reasonably be expected to result in a Dispute in connection with this Agreement. The Parties will attempt to resolve satisfactorily any such matters. 

3.2   Arbitration Process  

        (a)   Arbitration

        If
the Parties are unable to resolve the Dispute within 30 days of the notice of Dispute, or such additional time as may be mutually agreed, the matter shall be submitted to
nonbinding arbitration in accordance with the procedures set forth in this Schedule 1. 

        (b)   Initiation
of Arbitration 

        The
arbitration shall be initiated by either Party delivering to the other a Notice of Intention to Arbitrate. 

        (c)   Governing
Procedures 

        The
arbitration shall be conducted in Santa Barbara, California or such place as may be mutually agreed in accordance with the rules and procedures of the Commercial Industry
Rules of the American Arbitration Association. 

24

QuickLinks

GRACE PLATFORM LEASE AGREEMENT BETWEEN VENOCO, INC. AND CRYSTAL ENERGY, LLC DATED MARCH 1, 2003

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