Document:

exv10w4

 

EXHIBIT 10.4

 

 

SALE, CONTRIBUTION AND EXCHANGE AGREEMENT

Covering the Sale and Contribution of

100% of the Partnership Interests in

Midstream Gas Services, L.P.

In Exchange for Cash and Partnership

Interests in Eagle Rock Pipeline, LP

Dated June 2, 2006

 

 

 

 

SALE, CONTRIBUTION AND EXCHANGE AGREEMENT

     THIS SALE, CONTRIBUTION AND EXCHANGE AGREEMENT (“Agreement”) is made and entered into this 2nd
day of June, 2006, by and among MGS GP, L.L.C., a Texas limited liability company (“MGS GP”);
ANTHONY R. MICHOG, in his individual capacity (“Michog”); DAVID E. HIETT, in his individual
capacity (“Hiett”); DAVID B. BRALEY, in his individual capacity (“Braley”); RICHARD W. WILKERSON in
his individual capacity (“Wilkerson”); TERRY D. GREGSON in his individual capacity (“Gregson”);
NATURAL GAS PARTNERS VII, L.P., a Delaware limited partnership (“NGP” along with Michog, Hiett,
Braley, Wilkerson and Gregson are collectively the “MGS LPs” or individually an “MGS LP”); EAGLE
ROCK ENERGY SERVICES, L.P., a Texas limited partnership (“Buyer”); and EAGLE ROCK PIPELINE, LP, a
Delaware limited partnership (“ER Pipeline”).

     WHEREAS, MGS GP and the MGS LPs own all of the issued and outstanding limited and general
partner interests, incentive interests, options and related rights (collectively, the “MGS Units”)
in MIDSTREAM GAS SERVICES, L.P., a Texas limited partnership (“MGS”) which owns and operates
certain assets consisting generally of a gas plant, gathering pipelines and compressor stations and
other related assets, located in Roberts County, Texas; and

     WHEREAS, pursuant to the terms of this Agreement, MGS GP desires to sell, convey and assign to
Buyer and Buyer desires to purchase, acquire and receive from MGS GP all of the general partner
interests in MGS; and

     WHEREAS, pursuant to the terms of this Agreement, NGP desires to contribute its limited
partner interests in MGS to ER Pipeline and ER Pipeline desires to accept from NGP such limited
partner interests in MGS; and

     WHEREAS, pursuant to the terms of this Agreement, Michog, Hiett and Braley desire to sell,
convey and assign a portion of their limited partner interests in MGS to Buyer and Buyer desires to
purchase, acquire and receive from Michog, Hiett and Braley such portion of limited partner
interests in MGS; and

     WHEREAS, pursuant to the terms of this Agreement, Michog, Hiett and Braley desire to
contribute the remaining portion of their limited partner interests in MGS to ER Pipeline and ER
Pipeline desires to accept from Michog, Hiett and Braley such remaining portion of limited partner
interests in MGS; and

     WHEREAS, pursuant to the terms of this Agreement, Wilkerson and Gregson desire to sell, assign
and convey their limited partner interests in MGS to Buyer and Buyer desires to purchase, acquire
and receive from Wilkerson and Gregson all of their limited partner interests in MGS; and

 

 

     WHEREAS, pursuant to the terms of this Agreement, Buyer and ER Pipeline desire to acquire and
receive such interests from MGS GP and the MGS LPs.

     NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained
herein, the parties to this Agreement hereby agree as follows:

 

 

ARTICLE I

DEFINITIONS; INTERPRETATION

	1.01	 	Definitions. Capitalized terms used herein and not defined elsewhere in this
Agreement shall have the meanings given such terms as is set forth below.

     “Advisory Services Agreement” means the Advisory Services, Reimbursement and Indemnification
Agreement, effective as of November 1, 2004, between MGS and NGP.

     “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 the
definition of “Affiliate,” the term “control” (including the correlative terms “controlled by” and
“under common control with”), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of such
Person, through the ownership of voting securities, by contract, or otherwise. For purposes of this
Agreement, the term Affiliate, with respect to MGS, MGS GP, Buyer and ER Pipeline, shall not
include NGP.

     “Assets” shall mean all of the Facilities, Property Rights, Rights of Way, Pipeline and Other
Fixtures, Permits, Contracts, Leases, Other Assets, and Line Fill, but shall specifically exclude
the Excluded Assets.

     “Assumed Liabilities” shall have the meaning given it in Section 6.07.

     “Business Day” means any day, Monday through Friday, on which nationally chartered banks are
open for the transaction of business in Houston, Texas.

     “Casualty Loss” shall have the meaning given it in Section 6.01.

     “Chesapeake Agreement” means that certain Gas Processing Agreement dated July 10, 2005,
between MGS and Axio Production Company, an Affiliate of Chesapeake Energy Corporation.

     “Closing” shall have the meaning given it in Section 8.01.

     “Closing Amount” shall have the meaning given it in Section 6.04.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Confidentiality and Noncompete Agreements” means the Confidentiality and Noncompete
Agreements, dated as of November 1, 2004, between MGS and certain of MGS’ employees.

     “Contracts” means any and all contracts and agreements relating exclusively to or which are
reasonably necessary for conduct of the business of MGS in Roberts County, Texas, or the use of the
Assets, including contracts related to the purchase, processing, gathering and

 

 

transportation of gas; the sales, marketing and fractionation of natural gas liquids; and the sale
of condensate.

     “Contributor(s)” means NGP, Michog, Hiett and/or Braley.

     “Deferred Units” means the amount, if any, of additional Units in ER Pipeline to be delivered
to NGP as calculated using the Financial Model, but not to exceed the Maximum Deferred Units.

     “Effective Time” shall mean 11:59 p.m. central time on May 31, 2006.

     “Environmental Laws” means any and all Legal Requirements or Orders, rules, codes, policies,
directives, standards, licenses or permits of any Governmental Body relating to the environment,
specifically, including those relating to the exposure to, use, Release, emission, presence,
storage, treatment, generation, transportation, processing or handling of Hazardous Materials,
previously, presently, or hereafter in effect, including the Safe Drinking Water Act, 42 U.S.C. §
300f et seq.; the Federal Insecticide, Fungicide & Rodenticide Act, 7 U.S.C. § 136 et seq.; the
Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. §
2701 et seq.; the Clean Water Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (“CERCLA”), and
the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001 et seq.; and all similar
statutes adopted by the State of Texas, as each may be amended from time to time.

     “ER Indemnitees” shall have the meaning given it in Section 9.01(a).

     “ER Partnership Agreement” means that certain Amended and Restated Agreement of Limited
Partnership dated March 27, 2006, as amended, among the general and limited partners of ER
Pipeline, governing the operation and affairs of ER Pipeline.

     “ER Pipeline” means Eagle Rock Pipeline, LP, a Delaware limited partnership.

     “ER Units” means limited partnership interests in ER Pipeline which, for purposes of this
Agreement, shall be valued at $18.02 per Unit.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Excluded Assets” shall have the meaning given it in Section 6.06.

     “Facilities” means the gas plant, gathering pipelines, compressor station, processing plant,
pad site and related facilities owned by MGS and located in Roberts County, Texas.

 

 

     “Financial Model” shall mean the formula described on Exhibit D hereto to be used by
the parties to determine the amount of Deferred Units, if any, to be paid to NGP in accordance with
Section 3.02(a).

     “Governmental Body” means any (a) nation, state, county, city, town, village, district,
territory, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or
other government; (c) governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); or (d) body exercising,
or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.

     “Hazardous Material” means at any time (i) any material, substance, waste, pollutant, or
contaminant regulated, designated or defined as hazardous, extremely or imminently hazardous,
dangerous or toxic under the following federal statutes and their state counterparts, as well as
those statutes’ implementing regulations: CERCLA, the Federal Insecticide, Fungicide and
Rodenticide Act, the Atomic Energy Act, the Hazardous Materials Transportation Act, and the Solid
Waste Disposal Act, each as amended; (ii) petroleum products including crude oil and any fractions
thereof; (iii) asbestos; (iv) natural gas, synthetic gas and any mixtures thereof; or (v) any
substance with respect to which a Governmental Body otherwise requires environmental investigation,
monitoring, reporting or remediation.

     “Indemnitee” shall have the meaning given it in Section 10.01

     “Indemnitor” shall have the meaning given it in Section 10.01.

     “Initial Units” means the aggregate amount of one million one hundred twenty five thousand
four hundred sixteen (1,125,416) ER Units, which, for purposes of this Agreement, has a deemed
value of Twenty Million Two Hundred Eighty Thousand and No/100 Dollars ($20,280,000).

     “Knowledge of Sellers and Contributors” means the actual knowledge of each Seller and
Contributor.

     “Leases” means all leases of real or personal property, including the lease of the real
property on which the Facilities operate.

     “Legal Requirement” means any Order, constitution, law, ordinance, regulation, statute, or
treaty issued by any federal, state, local, municipal, foreign, international, multinational, or
other administrative body, any principle of common law or governmental interpretation thereof.

     “Liabilities/Claims” shall have the meaning given it in Section 9.01(a).

     “Line Fill” means the quantity of natural gas owned by MGS.

 

 

     “Maximum Deferred Units” means an amount not to exceed 1,109,878 Units in ER Pipeline.

     “Order” means any award, decision, injunction, judgment, decree, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency, or other
Governmental Body or by any arbitrator.

     “Other Assets” means all vehicles, computers, software, communication equipment and other
assets utilized in the operation of the business of MGS in Roberts County, Texas.

     “Permits” means all environmental and other governmental permits, licenses, orders, franchises
and related instruments or rights relating to the ownership or operation of the Assets.

     “Permitted Encumbrances” shall mean:

	 	(i)	 	the terms, conditions, restrictions, obligations, exceptions, reservations,
limitations and other matters contained in: (A) any of the Rights of Way or documents
under which Sellers obtained any of the Property Rights or Rights of Way; (B) other
easements, leases, permits or other conveyancing documents which are of record in the
land records of the county where the affected Assets are located; and (C) the
Contracts;
	 
	 	(ii)	 	liens for property taxes and assessments that are not yet due and payable (or
if delinquent, that are being contested in good faith by MGS by appropriate
Proceedings);
	 
	 	(iii)	 	mechanic’s, materialmen’s, repairmen’s and other liens arising in the ordinary
course and securing obligations incurred prior to Closing and for which MGS is are
responsible for payment;
	 
	 	(iv)	 	any obligations or duties affecting the Assets as to any Governmental Body
under any Permit and all Legal Requirements, and any rights reserved to or vested in
any Governmental Body to control or regulate the Assets or the operation thereof in any
manner;
	 
	 	(v)	 	utility easements, restrictive covenants, and other matters that (A) are of
record or (B) do not and will not interfere materially with the ownership, use and
operation of the Assets; and
	 
	 	(vi)	 	preferential rights to purchase, required third-party consents to assignment
and other similar agreements which do not apply to this transaction or with respect to
which waivers or consents are obtained from the appropriate parties with respect to the
sale contemplated hereby or as to which the appropriate time for asserting such rights
has expired as of Closing without an exercise of such rights.

     “Person” means any individual, corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture, estate, trust,

 

 

unincorporated organization, business, syndicate, sole proprietorship, association, organization, labor union, or
other entity or Governmental Body.

     “Pipeline and Other Fixtures” shall mean those certain pipelines, and related valves, pumps,
compressors and other equipment, personal property and fixtures relating to the Facilities.

     “Proceeding” means any action, arbitration, audit, claim, inspection, notice, review, hearing,
investigation, litigation, or suit, injunction, judgment, order, decree or ruling (whether civil,
criminal, administrative, investigative, or informal), at law or in equity, commenced, brought,
conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

     “Property Rights” shall mean any fee properties, surface leases, other rights to use of the
surface and related instruments, upon which the Facilities are located.

     “Release” or “Released” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, migrating or disposing (including the
abandoning or discarding of barrels, containers and other closed receptacles containing any
Hazardous Material) of a substance into the environment.

     “Rights Agreement” means the Voting and Transfer Restriction Agreement, dated as of November
1, 2004, by and among MGS, MGS GP, NGP, and certain employees and investors.

     “Rights of Way” means all easements, rights-of-way, servitudes, permits and/or licenses
pertaining to the Facilities or the Pipeline and Other Fixtures.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Seller Indemnitees” shall have the meaning given it in Section 9.01(b).

     “Seller(s)” means MGS GP, Michog, Hiett, Braley, Wilkerson and/or Gregson.

     “Tax” or “Taxes” means all income, profits, franchise, gross receipts, capital, sales, use,
withholding, value added, ad valorem, transfer, employment, social security, disability,
occupation, asset, property, severance, documentary, stamp, excise and other taxes, duties and
similar governmental charges or assessments imposed by or on behalf of any governmental authority
and any interest, fines, penalties or additions relating to any such tax, duty, charge or
assessment.

     “Tax Return” means any return, report, information statement, or similar statement required to
be filed with respect to any Taxes (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return and declaration of estimated
Tax.

 

 

	1.02	 	Interpretation. All references in this Agreement to Exhibits, Schedules, Articles,
Sections, subsections and other subdivisions refer to the corresponding Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions of or to this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections,
subsections or other subdivisions of this Agreement are for convenience only, do not
constitute any part of this Agreement, and shall be disregarded in construing the language
hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words
of similar import, refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The words “this Article,” “this Section” and “this
subsection,” and words of similar import, refer only to the Article, Section or subsection
hereof in which such words occur. The word “or” is not exclusive, and the word “including”
(in its various forms) means including without limitation.

 

 

ARTICLE II

SALE AND CONTRIBUTION OF MGS UNITS

	2.01	 	Purchase and Sale. Subject to the terms and conditions of this Agreement, Buyer
shall purchase from Sellers, and Sellers shall sell, transfer, assign and convey to Buyer, the
MGS Units set forth on Schedule 2.01. Such sale, transfer, assignment and conveyance
shall be performed pursuant to instruments generally in the form of the Assignment attached
hereto as Exhibit A.

	2.02	 	Contribution. Subject to the terms and conditions of this Agreement, Contributors
shall contribute and transfer to ER Pipeline, and ER Pipeline shall received and accept from
Contributors, in a transaction under Section 721 of the Code, the MGS Units set forth on
Schedule 2.02. Such contributions shall be performed pursuant to instruments
generally in the form of the Contribution Agreement attached hereto as Exhibit B.

 

 

ARTICLE III

PURCHASE PRICE

	3.01	 	Purchase Price. Subject to the terms and conditions of this Agreement, and in full
payment for the MGS Units being sold to Buyer pursuant to Section 2.01, Buyer shall pay or
cause to be paid to Sellers, as further detailed below, at Closing, by wire transfer as
described in Section 8.01(b), the aggregate sum of Four Million Seven Hundred Twenty Thousand
and no/100 Dollars ($4,720,000) as such sum may be adjusted pursuant to the provisions of this
Agreement, such sum to be payable to the respective Sellers as follows:

	 	(a)	 	As payment for the sale, assignment and conveyance by MGS GP of all of the
general partner interests in MGS, Buyer will pay to MGS GP, Two Hundred Fifty Thousand
and No/100 Dollars ($250,000.00);
	 
	 	(b)	 	As payment for the sale, assignment and conveyance by Michog of 10,743 MGS
Units, Buyer will pay to Michog, Six Hundred Ninety Thousand and No/100 Dollars
($690,000.00);
	 
	 	(c)	 	As payment for the sale, assignment and conveyance by Hiett of 10,743 MGS
Units, Buyer will pay to Hiett, Six Hundred Ninety Thousand and No/100 Dollars
($690,000.00);
	 
	 	(d)	 	As payment for the sale, assignment and conveyance by Braley of 10,743 MGS
Units, Buyer will pay to Braley, Six Hundred Ninety Thousand and No/100 Dollars
($690,000.00);
	 
	 	(e)	 	As payment for the sale, assignment and conveyance by Wilkerson of 10,435 MGS
Units, Buyer will pay to Wilkerson, One Million Two Hundred Thousand and No/100 Dollars
($1,200,000); and
	 
	 	(f)	 	As payment for the sale, assignment and conveyance by Gregson of 10,435 MGS
Units, Buyer will pay to Gregson, One Million Two Hundred Thousand and No/100 Dollars
($1,200,000).

	3.02	 	Exchange. Subject to the terms and conditions of this Agreement, and in exchange for
the MGS Units being contributed to ER Pipeline pursuant to Section 2.02, ER Pipeline shall
issue and deliver to Contributors, as further detailed below: (i) at Closing the Initial
Units, and (ii) within twenty (20) Business Days after the second anniversary of the Closing
date, the Deferred Units, if any.

	 	(a)	 	In exchange for the contribution by NGP of 495,000 MGS Units, ER Pipeline will
issue and deliver to NGP 610,433 ER Units and the Deferred Units, if any;
	 
	 	(b)	 	In exchange for the contribution by Michog of 42,971 MGS Units, ER Pipeline
will issue and deliver to Michog 171,661 ER Units;

 

 

	 	(c)	 	In exchange for the contribution by Hiett of 42,971 MGS Units, ER Pipeline will
issue and deliver to Hiett 171,661 ER Units; and
	 
	 	(d)	 	In exchange for the contribution by Braley of 42,971 MGS Units, ER Pipeline
will issue and deliver to Braley 171,661 ER Units.

 

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLERS, 

CONTRIBUTORS AND MGS

4.01 Sellers and Contributors. Each Seller and Contributor, severally and not jointly,
with respect to himself or itself and not with respect to any other Seller or Contributor, hereby
represents and warrants to Buyer and ER Pipeline as follows:

(a) Title to MGS Units; Capitalization. Such Seller or Contributor is the lawful
owner, beneficially and of record of the MGS Units set forth on Schedule 2.01 and 2.02, as
applicable, free and clear of any liens, claims or encumbrances of any kind or nature. The
MGS Units set forth on Schedules 2.01 and 2.02, in the aggregate, constitute one hundred
percent (100%) of the general and limited partnership interests of MGS. Such MGS Units have
been duly authorized, are validly issued, fully paid and nonassessable, and were not issued
in violation of any preemptive or other similar rights. Except for the MGS Units, there are
no outstanding (i) voting or other partnership interests of MGS; (ii) securities of MGS
convertible into, or exchangeable or exercisable for, partnership interests of MGS; and
(iii) options, warrants, calls, rights, commitments or agreements to which MGS is a party or
by which it is bound, in any case obligating MGS to issue, deliver, sell, purchase, redeem
or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired,
partnership interests of MGS, or obligating MGS to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. Upon consummation of the
transactions contemplated hereby, Buyer and ER Pipeline will acquire good, valid and
indefeasible title to all the MGS Units of such Seller or Contributor, free and clear of any
liens, claims or encumbrances.

(b) Authorization of Transaction. Such Seller or Contributor has full power and
authority (including full partnership or limited liability company power and authority, to
the extent applicable) to execute and deliver this Agreement and to perform his or its
obligations hereunder. This Agreement constitutes the valid and legally binding obligation
of such Seller or Contributor, enforceable in accordance with its terms and conditions,
subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ rights generally, and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity or at
law). Such Seller or Contributor does not need to give any notice to, make any filing with
or obtain any authorization, consent or approval of, any Governmental Authority in order to
consummate the transactions contemplated by this Agreement. If such Seller or Contributor
is an individual, the MGS Units sold or contributed by such Seller or Contributor are not
subject to any spousal rights or similar restrictions or such Seller’s or Contributor’s
spouse has executed this Agreement, evidencing such spouse’s consent to the execution,
delivery and performance of this Agreement by such Seller or Contributor and such spouse, as
applicable.

 

 

(c) Noncontravention. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any Governmental Body to which such Seller or Contributor is subject or any
provision of its formation documents or instruments, if applicable, or (B) conflict with,
result in a breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any notice under
any agreement, Contract, lease, license, instrument or other arrangement to which such
Seller or Contributor is a party or by which he or it is bound or to which any of the Assets
is subject.

(d) Claims against MGS. Such Seller or Contributor has no outstanding claims for
reimbursement from or indemnity by MGS.

(e) Solvency.

	 	(i)	 	Such Seller or Contributor is not insolvent and will not be
rendered insolvent by any of transactions described hereunder. As used in this
section, “insolvent” means that the sum of the debts and other probable
liabilities of such Seller or Contributor exceed the present fair saleable
value of such Seller’s or Contributor’s assets.
	 
	 	(ii)	 	Immediately after giving effect to the consummation of the
transactions described hereunder: (i) such Seller or Contributor will be able
to pay its liabilities as they become due in the usual course of its business;
(ii) such Seller or Contributor will not have unreasonably small capital with
which to conduct its present or proposed business; (iii) such Seller or
Contributor will have assets (calculated at fair market value) that exceed its
liabilities; and (iv) taking into account all pending and threatened
litigation, final judgments against such Seller or Contributor in actions for
money damages are not reasonably anticipated to be rendered at a time when, or
in amounts such that, such Seller or Contributor will be unable to satisfy any
such judgments promptly in accordance with their terms (taking into account the
maximum probable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered) as well as all other
obligations of such Seller or Contributor. The cash available to such Seller
or Contributor, after taking into account all other anticipated uses of the
cash, will be sufficient to pay all such debts and judgments promptly in
accordance with their terms.

(f) Securities Representation. Such Contributor receiving ER Units in exchange for
his or its MGS Units is acquiring such ER Units for his or its own account and not with a
view to, or for offer of resale in connection with, a distribution thereof, within the
meaning of the Securities Act. Such Contributor acknowledges that he or it is able to fend
for himself or itself, can bear the economic risk of his or its investment in the ER Units,
and has such knowledge and experience in financial and business matters that he or it is capable
of evaluating the merits and risks of an investment in the ER Units. In acquiring the ER

 

 

Units, such Contributor is not offering or selling, and will not offer or sell, for himself
or itself or ER Pipeline in connection with any distribution of the ER Units, and such
Contributor does not have a participation and will not participate in any such undertaking
or in any underwriting of such an undertaking except in compliance with applicable federal
and state securities laws. Further, such Contributor understands that such ER Units will not
have been registered pursuant to the Securities Act or any applicable state securities laws,
that the ER Units will be characterized as “restricted securities” under federal securities
laws, and that under such laws and applicable regulations the ER Units cannot be sold or
otherwise disposed of without registration under the Securities Act or an exemption
therefrom. In this connection, such Contributor represents that he or it is familiar with
Rule 144 promulgated under the Securities Act, as currently in effect, and understands the
resale limitations imposed thereby and by the Securities Act. Stop transfer instructions
may be issued to the transfer agent for securities of ER Pipeline (or a notation may be made
in the appropriate records of ER Pipeline) in connection with the ER Units issued hereunder.
It is agreed and understood by such Contributor that, should any certificate be issued
representing any of the ER Units, each such certificate shall conspicuously set forth on the
face or back thereof, in addition to any legends required by Legal Requirement or other
agreement, a legend in substantially the following form:

THE UNITS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH UNITS MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT
AND APPLICABLE STATE SECURITIES LAWS OR UNLESS EAGLE ROCK PIPELINE, LP RECEIVES A
WRITTEN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

4.02 MGS. Each Seller and Contributor, jointly and severally, hereby represents and
warrants to Buyer and ER Pipeline as follows:

(a) Organization and Standing. MGS is a limited partnership duly organized and
validly existing under the laws of the State of Texas. MGS GP is the sole general partner
of MGS.

(b) Title to Assets; Condition; Operatorship. MGS owns good and defensible title to
all real property included in the Assets, and owns good and defensible title or (in the case
of leases and contractual rights) a valid and subsisting contractual right to its interest
in, all of the other assets included in the Assets, free and clear of all liens, pledges,
encumbrances, adverse claims, or preferential rights, except for Permitted Encumbrances.
Schedule 4.02(b) sets forth a full and complete description of all of the Assets.
The

 

 

tangible assets included in the Assets are in good operating condition and repair, ordinary
wear and tear excepted, and are suitable for the use for which such tangible assets are
currently used. The Assets include all assets or rights used by MGS in connection with the
business and operations conducted with the Assets and are all the rights, properties, and
equipment necessary to carry out the business and operations of MGS with respect to the
Assets as presently conducted. Except as otherwise set forth on Schedule 4.02(b),
MGS is the sole owner and operator of all of the Assets.

(c) Financial Statements. Schedule 4.02(c) sets forth (i) the unaudited
balance sheet of MGS at December 31, 2005 (the “Final Balance Sheet”), and related unaudited
statements of income and cash flows for the year ended on December 31, 2005; (ii) the
unaudited balance sheet of MGS at December 31, 2004, and related unaudited statements of
income and cash flows for the year ended December 31, 2004; and (iii) the unaudited balance
sheet of MGS at April 30, 2006, and the related unaudited income statement for the four (4)
month period ended April 30, 2006 (collectively, the “Financial Data”). The Financial Data
are derived from the books and records of MGS and were prepared in accordance with generally
accepted accounting principles, have been prepared consistent with the past practices of MGS
in reporting such Financial Data, and present fairly the financial condition of MGS in all
material respects. There is no liability, contingent or otherwise, of MGS that is not
adequately reflected or reserved against in the Financial Data, other than liabilities that
are either (A) liabilities incurred in the ordinary course of business and consistent with
past practices of MGS; or (B) liabilities under this Agreement. MGS has conducted its
business in the ordinary course of business and consistent with past practices of MGS.

(d) Material Change. Except as set forth in Schedule 4.02(d), since
December 31, 2005:

	 	(i)	 	there has not been any material adverse change with respect
to the condition of the Assets or the operations of the Assets;
	 
	 	(ii)	 	the Assets have been operated and maintained in the ordinary
course of business;
	 
	 	(iii)	 	there has been no actual, pending or, to the Knowledge of
Sellers or Contributors, whether in writing or verbally, threatened adverse
change affecting any of the Assets with any customers, licensors, suppliers,
distributors or sales representatives;
	 
	 	(iv)	 	there has not been any material damage, destruction or loss
to any material portion of the Assets, whether or not covered by insurance;
	 
	 	(v)	 	there has been no sale or lease of assets included in the
Assets;

 

 

	 	(vi)	 	there has been no Contract or commitment entered into outside
the ordinary course of business;
	 
	 	(vii)	 	there has been no Contract entered into which grants to a
Person a preferential right to purchase any MGS Units or any of the Assets;
	 
	 	(viii)	 	there has been no Contract or commitment for capital expenditures or the
acquisition or construction of fixed assets for which Buyer shall or may have
responsibility after the Closing; and
	 
	 	(ix)	 	there is no Contract, commitment or agreement to do any of
the foregoing, except as expressly permitted hereby.

(e) Legal Compliance. MGS, with respect to the Assets and the operation thereof,
has complied in all material respects with all Legal Requirements.

(f) Tax Matters. Except as set forth in Schedule 4.02(f):

	 	(i)	 	MGS has (and as of the Closing will have) filed all federal,
state, local and foreign Tax Returns due that it was required to file with any
taxing authority, all such Tax Returns are correct in all material respects,
and the Excluded Assets, and all Taxes owed by Sellers or Contributors (with
respect to the Assets) with respect to the information reflected on any such
Tax Return have been paid;
	 
	 	(ii)	 	MGS has not (and as of the Closing will not have) requested or
been granted any extensions with respect to any Tax Return.
	 
	 	(iii)	 	There is no material adjustment (due to a change in
accounting method or otherwise), dispute or claim concerning any Tax liability
of MGS either claimed or raised by any authority in writing;
	 
	 	(iv)	 	MGS has never made an effective election to be treated as an
association taxable as a corporation for federal tax purposes and
	 
	 	(v)	 	No waiver or extension of any statute of limitations as to
any federal, state, local or foreign Tax Matter that has been given by or
requested from MGS is currently effective.

(g) Contracts and Commitments. Schedule 4.02(g) includes a list of all
Contracts and commitments (including any contract, lease, agreement or commitment, written
or oral, providing for receipt or payment, contingent or otherwise, or which may not be
terminated without payment or penalty, or restricting the ability of the owner of the Assets
to engage in any line of business in any geographic area, or containing any indemnity
obligation, or relating to indebtedness or guarantee obligations) which are included in the
Assets, and each such Contract is in full force and effect. MGS has

 

 

performed all material obligations
required to be performed by it to date under the Contracts, has invoiced and collected all
amounts due to MGS under the Contracts, except for amounts not required to be paid as of the
date hereof and as of the Closing date, respectively, under the terms of the Contract, and
is not in default under any material obligation of any such Contracts. To the Knowledge of
Sellers and Contributors, no other party to any Contract is in default thereunder. The
construction of the Facilities is complete. The Facilities are currently operational and
have been designed as a 25MMSCF per day gas processing plant.

(h) Litigation. Neither MGS nor any of the Assets (i) is subject to any outstanding
Proceeding, or (ii) is the subject of any pending or, to the Knowledge of Sellers,
threatened, whether in writing or verbally, claim, demand or notice of violation or
liability from any Person.

(i) Environmental Matters. Except as set forth in Schedule 4.02(i),

	 	(i)	 	MGS is and has been in compliance in all material respects with
all applicable Environmental Laws.
	 
	 	(ii)	 	MGS has obtained all Permits, licenses, franchises,
authorities, consents and approvals, and has made all filings and maintained
all material information, documentation, and records, as necessary under
applicable Environmental Laws for operating the business conducted with the
Assets as it is presently conducted, and all such permits, licenses,
franchises, authorities, consents, approvals, and filings remain in full force
and effect.
	 
	 	(iii)	 	There are no pending or, to Sellers’ Knowledge, threatened,
whether in writing or verbally, claims, demands, actions, administrative
proceedings, lawsuits or investigations against MGS relating to Environmental
Laws, and MGS is not subject to any injunction, judgment, order, decree or
ruling under any Environmental Laws.
	 
	 	(iv)	 	None of the real property leased by MGS nor any off-site
location used for the treatment, storage or disposal of waste from any Asset,
is: (A) listed on the National Priorities List or any similar state list of
sites requiring remedial action; (B) to the Knowledge of Sellers and
Contributors, being considered for possible inclusion on the National
Priorities List or on any such similar state list; or (C) to the Knowledge of
Sellers and Contributors, the subject of any action or investigation that may
lead to claims under any Environmental Law.
	 
	 	(v)	 	No part of any of the real property leased by MGS is now being
used, or has been used by MGS or its Affiliates or, by any third party, as a
landfill, dump or other disposal area for Hazardous Substances.

 

 

	 	(vi)	 	Neither Sellers, Contributors nor MGS have received any notice
or other communication that it, with respect to the Assets, is or may be a
potentially responsible party or otherwise liable under any Environmental Law in
connection with any site actually or allegedly containing or used for the
treatment, storage or disposal of Hazardous Substances.

(j) Permits, Bonds, Regulatory Requirements. Schedule 4.02(j) lists all
Permits, surety bonds, performance bonds, guarantees, financial assurances required to be
provided by MGS, consents, approvals and authorizations of all Governmental Bodies necessary
for the conduct of the business and operations conducted by MGS. Each Permit is in full
force and effect, and MGS is in compliance in all material respects with all of its
obligations with respect to each Permit and no event has occurred that permits, or upon the
giving of notice or the lapse of time or otherwise would permit, revocation or termination
of any Permit.

(k) No “Take or Pay”. Except as expressly set forth in Schedule 4.02(k),
there are currently no arrangements under any of the Contracts by which MGS will be
obligated by virtue of a prepayment arrangement, a “take-or-pay” arrangement, a production
payment or any other arrangement, to sell, transport or deliver hydrocarbons at some future
time without then or thereafter being entitled to receive full payment therefor, or to make
payment at some future time for hydrocarbons or the transportation or the delivery of
hydrocarbons purchased or transported prior to the date of this Agreement.

(l) Pipeline Rights of Way. Except as expressly set forth in Schedule
4.02(l), neither Sellers, Contributors nor MGS have received written notice from any
third party of any deficiency in any Rights of Way with respect to the entire route of all
pipelines owned and used or held for use with respect to the Assets. Other than sales or
assignments to customers, Sellers have not sold or assigned any Rights of Way, in whole or
in part, or any undivided interest therein to any party whatsoever, except as expressly
disclosed in Schedule 4.02(l).

(m) Tariffs. Except as expressly set forth in Schedule 4.01(m), to the
extent that the operations with respect to the Assets are subject to a tariff approved by
the Texas Railroad Commission (“TRC”), those operations are in compliance with each such
tariff. Sellers have no Knowledge of any refund claim of any customers or any refund
obligation imposed under an order issued by the TRC and, except as expressly set forth in
Schedule 4.01(m), has no Knowledge of any facts or circumstance which would give
rise to any such refund claim or refund obligation. Except as expressly set forth in
Schedule 4.01(m), there are no customer complaints pending or, to the Knowledge of
Sellers or Contributors, whether in writing or verbally, threatened, before the TRC or any
other administrative or regulatory agency.

(n) Real Property.

	 	(i)	 	MGS does not own any real property. Schedule 4.02(n)
sets forth an accurate, correct and complete list of each parcel of real
property leased by

 

 

	 	 	 	MGS, including the street address, complete legal
description, and a list of all contracts and agreements, oral or written,
relating to or affecting such
real property or any interest therein, including any lease agreement
therefor. MGS has delivered to Buyer accurate, correct and complete copies
of all such contracts and agreements, which are all valid and binding and in
full force and effect.
	 
	 	(ii)	 	Neither the whole nor any portion of the real property listed
on Schedule 4.02(n) has been condemned, requisitioned, or otherwise
taken by any public authority, and no notice of any such action has been
received by MGS, or to the Knowledge of Sellers or Contributors, threatened,
whether in writing or verbally.
	 
	 	(iii)	 	MGS has delivered to Buyer accurate, correct and complete
copies of all existing surveys, appraisals, mechanical and structural reports,
engineering plans, architectural drawings, and soil studies and similar
reports, if any, with respect to the real property listed on Schedule
4.01(n) which is in its possession.
	 
	 	(iv)	 	With respect to any leased real property, MGS has been in
peaceable possession of the premises covered by the applicable real property
lease since the commencement of the original term of such lease.

(o) Patents, Copyright, Trademarks, Etc. The present conduct of business by MGS
does not conflict with, infringe upon or violate the patents, trademarks, servicemarks,
trade names, copyrights or trade secrets or other intangible assets of any other Person, and
MGS has not received any written notice of any infringement thereof.

(p) No Leases. Except as expressly set forth in Schedule 4.02(p), all the
equipment and real property (other than Rights of Way, easements, licenses and permits)
which is material to the operation of the business of MGS is owned by MGS and not leased or
rented.

(q) Illegal Payments. None of Sellers or MGS or any director, officer, employee, or
agent of such Seller or MGS has, directly or indirectly, paid or delivered any fee,
commission, or other sum of money or item of property however characterized to any broker,
finder, agent, government official, or other Person, in the United States or any other
country, in any manner related to the business or operations of MGS, which Sellers or MGS or
any such director, officer, employee, or agent knows or has reason to believe to have been
illegal under any Legal Requirement.

(r) Employees and ERISA.

	 	(i)	 	Schedule 4.02(r) contains a complete and accurate list
of the following information for each employee and/or independent contractor,
consultant 

 

 

	 	 	 	and agent of MGS: name; job title; date of hiring or engagement; and
current compensation.
	 
	 	(ii)	 	Except as set forth on Schedule 4.02(r), all employees
of MGS are “at-will” employees not under any form of employment agreement.
	 
	 	(iii)	 	During the past five years, neither MGS nor any of its
Affiliates has made or been required to make contributions to any
“multiemployer plan”, as defined in Section 3(37) of ERISA. MGS has paid and
discharged promptly when due all liabilities and obligations arising under
ERISA or the Code of a character which if unpaid or unperformed might result in
the imposition of a lien against any of the Assets. For purposes of this
Section 4.01(r) only, an “Affiliate” of any Person means any other Person
which, together with such Person, would be treated as a single employer under
Section 414 of the Code.
	 
	 	(iv)	 	As of the Closing date, all employees of MGS will have been
terminated or will have resigned and no such employee shall have any claim for
payroll, severance or other benefits, all of which will have been paid by MGS.

(s) Insurance. Schedule 4.02(s) contains a list of all insurance policies
carried by MGS with respect to its business or the Assets. All premiums due and payable with
respect to such policies have been timely paid. No notice of cancellation of, or indication
of an intention not to renew, any such policy has been received by MGS. During the past
three years, no application by MGS for insurance with respect to any of the Assets or
operations of the business of MGS has been denied for any reason. None of the insurances
maintained by MGS will terminate as a result of the transaction contemplated by this
Agreement, nor, to the Knowledge of Sellers or Contributors, will premiums under any such
policy increase solely as a result of the transaction contemplated by this Agreement.

(t) Books and Records. All the books and records of MGS, including all personnel
files, employee data, and other materials relating to employees of MGS, are substantially
complete and correct in all material respects, have been in all material respects maintained
in accordance with good business practice and all Legal Requirements. Such books and
records accurately and fairly reflect, in reasonable detail, all material transactions,
revenues, expenses, assets, and liabilities of MGS with respect to the Assets and the
business associated with the Assets.

(u) Disclosure. No representation or warranty or other statement made by MGS
hereunder or on any certificates delivered pursuant hereto or otherwise in connection with
the transactions described herein contains any untrue statement or omits to state a material
fact necessary to make any of them, in light of the circumstances in which it was

 

 

made, not
misleading. There exists no fact that has specific application to MGS (other than general
economic or industry conditions) and that may materially adversely affect the Assets,
business, financial condition or results of operations of MGS that has not been set forth in
this Agreement or the schedules.

(v) Receivables. All receivables (including accounts and notes receivable, employee
advances, and accrued interest receivables) of MGS as reflected in the Financial Data or
arising since the date thereof are valid obligations of the respective makers thereof, have
arisen in the ordinary course of business for goods or services delivered or rendered, are
not subject to any valid defenses, counterclaims, or set offs, and have been collected or
are collectible in full at their recorded amounts in the ordinary course of business without
resort to litigation or other extraordinary collection efforts, net of all cash discounts
and doubtful accounts as reflected in the Financial Data (in the case of receivables so
reflected) or on the books of MGS (in the case of receivables arising since the date
thereof). The allowances for doubtful accounts reflected in the Financial Data and on the
books of MGS were determined in accordance with generally accepted accounting principles
consistently applied and were and are reasonable in light of historical data and other
relevant information.

(w) Inventory. All inventory reflected in the Financial Data or thereafter acquired
and not disposed of in the ordinary course of business is in good condition and is
merchantable, or suitable and usable for the intended purpose. None of such items is
obsolete, discontinued, returned, damaged, overage, or of below standard quality or
merchantability, except for items that have been written down to realizable market value or
for which adequate reserves have been provided in the Financial Data.

(x) Broker’s Commissions. Neither Sellers, Contributors nor MGS have, directly or
indirectly, entered into any agreement with any Person that would obligate Sellers,
Contributors or MGS to pay any commission, brokerage fee or “finder’s fee” in connection
with the transactions contemplated herein.

(y) Accounts; Powers of Attorney. Set forth on Schedule 4.02(y) are (i) the
name and address of each bank or other financial institution with which MGS has an account
or safe deposit box or vault, the account and safe deposit box and vault numbers thereof,
the purpose of each thereof, and the names of all persons authorized to draw thereon or to
have access thereto; (ii) the names of all Persons authorized to borrow funds on behalf of
MGS and the names and addresses of all entities from which they are authorized to borrow
funds; and (iii) the names of all Persons, if any, holding proxies, powers of attorney, or
other like instruments from MGS. No such proxies, powers of attorney, or other like
instruments are irrevocable.

 

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES BY 

BUYER AND ER PIPELINE

	5.01	 	Buyer and ER Pipeline. Buyer and ER Pipeline, jointly and severally, hereby represent
and warrant to Sellers and Contributors that:

	 	(a)	 	Organization and Standing. Buyer is a limited partnership duly
organized and validly existing under the laws of the State of Texas. ER Pipeline is a
limited partnership duly organized, validly existing and in good standing under the
laws of the State of Delaware.
	 
	 	(b)	 	Authorization. Buyer and ER Pipeline have the power and authority to
enter into and perform this Agreement and to carry out the transactions contemplated
herein.
	 
	 	(c)	 	Enforceability. This Agreement constitutes the valid and binding
obligation of Buyer and ER Pipeline, enforceable in accordance with its terms, except
as that enforceability may be (i) limited by an applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally and (ii) subject to general principles of equity (regardless of
whether such enforceability is considered in a Proceeding in equity or at law).
	 
	 	(d)	 	Legal Proceedings. There are no pending Proceedings before any
Governmental Body as to which Buyer or ER Pipeline has been served process or received
notice which would hinder, impede, or prevent it from consummating the transactions
contemplated by this Agreement.
	 
	 	(e)	 	No Violations. This transaction will not (i) violate or conflict with
any provision of Buyer’s or ER Pipeline’s organizational documents; (ii) result in the
breach of any term or condition of, or terminate or constitute a default or cause the
acceleration of any obligation under, any agreement or instrument to which Buyer or ER
Pipeline is a party or is otherwise bound; or (iii) violate or conflict with any
applicable Legal Requirement or Order.
	 
	 	(f)	 	Securities Representation. Buyer and ER Pipeline are acquiring the MGS
Units for Buyer’s and ER Pipeline’s own account and not with a view to, or for offer of
resale in connection with, a distribution thereof, within the meaning of the Securities
Act.
	 
	 	(g)	 	Capitalization. There are 6,580,466 ER Units issued and outstanding in
the aggregate. All ER Units to be issued to Contributors hereunder have been duly
authorized and, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable. There are no preemptive or similar
rights that would be applicable to the issuance of such ER Units to

 

 

	 	 	 	Contributors hereunder. Upon consummation of the transactions contemplated hereby, Contributors
will acquire good, valid and indefeasible title to all of such ER Units, free and
clear of any liens, claims, encumbrances or restrictions, except under applicable
securities laws.
	 
	 	(h)	 	Financial Statements. Schedule 5.01(h) sets forth the
unaudited balance sheet of ER Pipeline as of March 31, 2006, and the related unaudited
statements of income and cash flows of ER Pipeline for the three-month period then
ended (the “ER Financial Data”). The ER Financial Data was prepared in accordance with
generally accepted accounting principles, have been prepared consistent with the past
practices of ER Pipeline and present fairly the financial condition and results of
operations of ER Pipeline at such date and for such periods in all material respects.
	 
	 	(i)	 	Legal Compliance. ER Pipeline has complied in all material respects
with all applicable Legal Requirements.
	 
	 	(j)	 	ER Partnership Agreement. The ER Partnership Agreement is in full
force and effect. To ER Pipeline’s Knowledge, no party is in breach or default
thereunder.
	 
	 	(k)	 	Disclosure. No representation or warranty or other statement made by
ER Pipeline hereunder or on any certificates delivered pursuant hereto or otherwise in
connection with the transactions described herein contains any untrue statement or
omits to state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading.

 

 

ARTICLE VI

COVENANTS

	6.01	 	Casualty Loss. Prior to Closing, if all or any portion of the Assets have been or
are destroyed by fire, flood, storm, or any other casualty, or shall be taken by condemnation
or under the right of eminent domain (all of which are herein called “Casualty Loss”),
Sellers, Contributors and MGS shall bear the risk of such Casualty Loss. Any insurance
proceeds, payments made under threat of condemnation, or condemnation awards, shall be the
sole property of MGS. The risk of Casualty Loss relating to the Assets shall pass to Buyer as
of Closing.
	 
	6.02	 	Conduct of Business Prior to Closing.

	 	(a)	 	Prior to Closing, Sellers and Contributors shall cause MGS to maintain the
Assets in the ordinary course of business, including timely completion of all
interconnects to producers using or intending to use the Facilities pursuant to any
existing Contract.
	 
	 	(b)	 	Without the consent of Buyer, and prior to Closing, Sellers and Contributors shall not
permit MGS to:

	 	(i)	 	waive, compromise, or settle any right or claim;
	 
	 	(ii)	 	make any distribution of any kind or character to its partners,
other than the Excluded Assets;
	 
	 	(iii)	 	incur obligations with respect to, or undertake any
transactions relating to, the Assets other than transactions (1) in the normal,
usual, and customary manner, (2) of a nature and in an amount consistent with
prior practice, and (3) in the ordinary course of business of owning and
operating the Assets;
	 
	 	(iv)	 	encumber, sell, or otherwise dispose of any of the Assets,
other than property which is replaced by equivalent property, or which is used,
consumed, or abandoned in the normal operations of Sellers’ business;
	 
	 	(v)	 	amend its certificate of limited partnership or Agreement of
Limited Partnership;
	 
	 	(vi)	 	liquidate, dissolve, recapitalize or otherwise wind up its
business;
	 
	 	(vii)	 	change its accounting methods, policies or practices, except
as required by generally accepted accounting principles;

 

 

	 	(viii)	 	sell, assign, transfer, lease or otherwise dispose of any material
non-current assets except in the ordinary course of business;
	 
	 	(ix)	 	make any capital expenditure in excess of $50,000, other than
reasonable capital expenditures in connection with any emergency or force
majeure events affecting MGS;
	 
	 	(x)	 	incur any indebtedness outside the ordinary course of business
consistent with past practices of MGS;
	 
	 	(xi)	 	merge or consolidate with, or purchase substantially all of the
assets or business of, or equity interests in, or make an investment in any
Person;
	 
	 	(xii)	 	issue or sell any equity interests, notes, bonds or other
securities of MGS, or any option, warrant or right to acquire same; or
	 
	 	(xiii)	 	agree, whether in writing or otherwise, to do any of the foregoing.

	6.03	 	Compliance with Conditions Precedent. Each party shall use its commercially
reasonable efforts to cause the conditions precedent to Closing set forth in Sections 8.02 and
8.03, applicable to such party, to be fulfilled and satisfied as soon as practicable but in
any event prior to Closing.

	6.04	 	Press Release. Buyer, Sellers and Contributors shall consult with each other with
regard to all publicity and other releases issued at or prior to Closing concerning this
Agreement and the transactions contemplated hereby and except as required by Legal
Requirements. Neither party shall issue any publicity or other release without the prior
written consent of the other party, except as required by law, regulation or stock exchange
rule.

	6.05	 	Non-solicitation. Sellers and Contributors agree that, for a period beginning on the
date this Agreement has been fully executed and ending upon the Closing or the termination
hereof, except as otherwise consented to in writing by Buyer, Sellers, Contributors and any
Affiliates or agents of Sellers and Contributors will immediately terminate all discussions
with any third parties relating to the sale of the Assets, excluding ordinary course of
business discussions, and shall not solicit any third parties, respond to any expressions of
interest or questions regarding the Assets, or enter into any new discussions with any party
other than Buyer with respect to any sale or other similar transaction involving the MGS Units
or the Assets or involving any extraordinary corporate event involving MGS.

	6.06	 	Excluded Assets. Prior to the Closing, Sellers and Contributors will cause MGS to
distribute or otherwise convey to one or more Sellers or Contributors or to one or more
Affiliates of Sellers or Contributors all of the assets as more particularly described on
Schedule 6.06 (the “Excluded Assets”).

 

 

	6.07	 	Assumption of Liabilities. Prior to the Closing, one or more Sellers or Contributors
or one or more Affiliates of a Seller or a Contributor will assume and/or discharge the
Liabilities of MGS described on Schedule 6.07 which will include any and all
liabilities, costs and expenses arising out of or related to the Excluded Assets
(collectively, the “Assumed Liabilities”).

	6.08	 	ER Partnership Agreement. At Closing, Buyer and ER Pipeline shall cause the ER
Partnership Agreement to be amended in accordance with Exhibit C to reflect
Contributors as limited partners in ER Pipeline.

 

 

ARTICLE VII

POST-CLOSING AGREEMENTS

	7.01	 	Files and Records. Within five (5) Business Days after Closing, Sellers and
Contributors shall deliver to Buyer all of the files, records and data relating to MGS or the
Assets in Sellers’ and Contributors’ possession. From time to time as reasonably requested
by Sellers and/or Contributors, Buyer shall make such files, records, and data which it takes
possession of available to Sellers and Contributors for inspection and copying during normal
business hours, together with such additional files, data, and records of Buyer as may be
reasonably requested by Sellers and/or Contributors in order to pursue any claims,
obligations, and disputes relating to the ownership of the MGS Units or the Assets.

	7.02	 	Further Assurances. Each party shall, from time to time at the reasonable request of
the other, and without further consideration, execute and deliver such other instruments of
transfer, conveyance, assignment, clarification, and termination, and take such other action
as the party making the request may reasonably require to effectuate the intentions of the
parties, including those required to transfer, convey and assign to, and vest in Buyer, and to
place Buyer in possession of the MGS Units, and to transfer, assign, or convey the Excluded
Assets to Sellers and/or Contributors and/or their Affiliates.

	7.03.	 	Non-competition. (a) Each of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson
acknowledges that in consideration of the payments and deliveries being made to them
hereunder, Buyer and ER Pipeline are acquiring MGS and the goodwill associated with the
Assets, including complete ownership and control thereof. Therefore, each of MGS GP, Michog,
Hiett, Braley, Wilkerson and Gregson agrees that, for a period commencing upon the Closing
date and ending upon the fourth anniversary thereof for Carson, Collingsworth, Donley, Gray,
Hemphill, Hutchinson, Lipscomb, Moore, Potter, Roberts, and Wheeler Counties in Texas, unless
otherwise extended pursuant to the terms of this Section 7.03, MGS GP, Michog, Hiett, Braley,
Wilkerson and Gregson will not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity, engage or participate in processing, treating or
gathering of natural gas (including casinghead gas) for third parties or entering into any
agreement to process or treat third party natural gas produced or gathered within such
territories other than as a result of his ownership of ER Units, if any. Each of MGS GP,
Michog, Hiett, Braley, Wilkerson and Gregson represents to Buyer and ER Pipeline that the
enforcement of the restriction contained in this Section 7.03(a) would not be unduly
burdensome to any of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson and that in order to
induce Buyer and ER Pipeline to enter into this Agreement, each of MGS GP, Michog, Hiett,
Braley, Wilkerson and Gregson further represents and acknowledges that each of MGS GP, Michog,
Hiett, Braley, Wilkerson and Gregson is willing and able to compete in other geographical
areas not prohibited by this Section 7.03(a).

 

 

	(b)	 	Each of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson agrees that a breach or
violation of this covenant not to compete shall entitle Buyer and/or ER Pipeline, as a matter
of right, to an injunction issued by any court of competent jurisdiction, restraining any
further or continued breach or violation of this covenant. Such right to an injunction shall
be cumulative and in addition to, and not in lieu of, any other remedies to which Buyer and/or
ER Pipeline may show itself justly entitled. Further, during any period in which any of MGS
GP, Michog, Hiett, Braley, Wilkerson or Gregson is in breach of this covenant not to compete,
the time period of this covenant shall be extended with respect to such Person for the amount
of time that such Person is in breach hereof.
	 
	(c)	 	The representations and covenants contained in this Section 7.03 on the part of MGS GP,
Michog, Hiett, Braley, Wilkerson and Gregson will be construed as ancillary to and independent
of any other provision of this Agreement, and the existence of any claim or cause of action of
MGS GP, Michog, Hiett, Braley, Wilkerson or Gregson against Buyer, ER Pipeline or any officer,
director, partner or shareholder of Buyer and/or ER Pipeline, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by Buyer of the
covenants of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson contained in this Section
7.03.
	 
	(d)	 	If any of MGS GP, Michog, Hiett, Braley, Wilkerson or Gregson violates any covenant contained
in this Section 7.03 and Buyer and/or ER Pipeline brings legal action for injunctive or other
relief, Buyer shall not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of any such covenant.
	 
	(e)	 	The parties to this Agreement agree that the limitations contained in this Section 7.03 with
respect to time, geographical area, and scope of activity are reasonable. However, if any
court shall determine that the time, geographical area, or scope of activity of any
restriction contained in this Section 7.03 is unenforceable, it is the intention of the
parties that such restrictive covenant set forth herein shall not thereby be terminated but
shall be deemed amended to the extent required to render it valid and enforceable.
	 
	(f)	 	The covenants of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson contained in this
Section 7.03 may be assigned by Buyer and/or ER Pipeline to any person to whom MGS Units or
the Assets are transferred substantially as an entirety, it being the intention of the parties
hereto that such covenants shall inure to the benefit of any successor to the MGS Units or the
Assets, with the same force and effect as if such covenants had been made directly to such
successor or successors.
	 
	(g)	 	The representations and covenants of MGS GP, Michog, Hiett, Braley, Wilkerson and Gregson set
forth in this Section 7.03 are several and not joint, and in no event shall a breach by one or
more of such Persons affect or be deemed to be a breach by any other of such Persons.

	7.04	 	Continuation of MGS’ Existing Indemnification Obligations. From and after the
Closing, MGS or its successor shall indemnify and hold harmless Sellers and Contributors and

 

 

	 	 	each Person who has been at any time prior to the Closing, an officer, director or partner of MGS
(collectively, the “Indemnified Parties”) but only to the extent that such Indemnified Party
was entitled to indemnification from MGS immediately prior to the date hereof under
applicable law or the Agreement of Limited Partnership of MGS, or under contracts between
such Indemnified Party and MGS (including indemnification as provided to NGP under the
Advisory Services Agreement), regardless of whether such contracts are terminated on or
after the Closing. The procedures associated with such indemnification shall be the same as
those associated with the Indemnitees’ indemnification from MGS immediately prior to the
date hereof. The provisions of this Section 7.04 are intended to be for the benefit of, and
shall be enforceable by, each Indemnified Party and their respective heirs and
representatives.

	7.05  	Termination of Certain Agreements. At Closing, the Advisory Services Agreement and
the Rights Agreement shall be terminated and no party shall have further rights or obligations
thereunder, except for the continuation of indemnity rights as provided in Section 7.04. All
outstanding agreements between MGS and Sellers and Contributors, including the Confidentiality
and Noncompete Agreements, shall be terminated by MGS prior to Closing.

	7.06  	Tax Closing. Buyer and ER Pipeline shall cause the books and financial accounts of
MGS to be closed for tax purposes as of the Closing date. Sellers will cause to be prepared
and timely filed the final federal income Tax Return for MGS on IRS Form 1065 for the period
that ends at Closing.

 

 

ARTICLE VIII

CLOSING

	8.01	 	Time and Place. The Closing of the transaction contemplated by this Agreement shall
take place at the offices of Thompson & Knight LLP in Houston, Texas, at 9:00 a.m., central
time, on June 2, 2006 (the “Closing”). At Closing, the following events shall occur, each
being a condition precedent to the others and each being deemed to have occurred
simultaneously with the others:

	 	(a)	 	Sellers’ Obligations at Closing. At Closing, Sellers shall deliver to
Buyer, unless waived by Buyer in writing, the following:

	 	(i)	 	A conveyance of all of Sellers’ right, title, and interest in
and to the MGS Units set forth on Schedule 2.01, substantially in the
form and content of the Assignment set forth in Exhibit A, executed by
each Seller and such other conveyance documents and instruments of transfer and
assignment necessary to convey such MGS Units to Buyer in the manner
contemplated by this Agreement;
	 
	 	(ii)	 	An Officer’s Certificate or other documentation reasonably
satisfactory to Buyer and ER Pipeline, evidencing that the person or persons
signing documents in connection with this transaction on behalf of MGS GP have
appropriate authorization to bind MGS GP;
	 
	 	(iii)	 	Evidence reasonably satisfactory to Buyer that all employees
of MGS have been terminated or have resigned;
	 
	 	(iv)	 	Such other instruments, documents, or certificates as necessary
to carry out its obligations under this Agreement as determined in Buyer’s sole
discretion.

	 	(b)	 	Contributors’ Obligations at Closing. At the Closing, Contributors
shall deliver to ER Pipeline, unless waived by ER Pipeline in writing, the following:

(i) A contribution of all of such Contributors’ right, title, and interest in and to
the MGS Units set forth on Schedule 2.02, substantially in the form and
content of the Contribution Agreement set forth in Exhibit B, executed by
each Contributor, and such other documents and instruments for the contribution of
such MGS Units to ER Pipeline in the manner contemplated by this Agreement;

(ii) An Officer’s Certificate or other documentation reasonably satisfactory to
Buyer and ER Pipeline, evidencing that the person or persons signing documents in
connection with this transaction on behalf of NGP have appropriate authorization to
bind NGP; and

 

 

(iii) Such other instruments, document, or certificates as necessary to carry out
such Contributor’s obligations under this Agreement.

	 	(c)	 	Buyer’s Obligations at Closing. At the Closing, Buyer shall deliver to
Sellers, unless waived by Sellers in writing, the following:

	 	(i)	 	Buyer shall deliver or cause to be delivered to Sellers, and
Sellers shall have received, the cash payment set forth in Article III, as
adjusted;
	 
	 	(ii)	 	An Officer’s Certificate or other documentation satisfactory to
Sellers and Contributors, evidencing that the person or persons signing
documents in connection with this transaction on behalf of Buyer has
appropriate authorization to bind the parties for whom they are signing; and
	 
	 	(iii)	 	Such other instruments, document, or certificates as necessary
to carry out its obligations under this Agreement.

	 	(d)	 	ER Pipeline’s Obligations at Closing. At the Closing, ER Pipeline
shall deliver to Contributors unless waived by Contributors in writing, the following:

	 	(i)	 	ER Pipeline shall cause to be issued in the name of each Seller
or Contributor the Initial Unit Payment set forth in n Article III;
	 
	 	(ii)	 	An Officer’s Certificate or other documentation reasonably
satisfactory to Sellers and contributors, evidencing that the person or persons
signing documents in connection with this transaction on behalf of ER Pipeline
has appropriate authorization to bind the parties for whom they are signing;
and
	 
	 	(iii)	 	Such other instruments, document, or certificates as necessary
to carry out its obligations under this Agreement.

	8.02	 	Conditions to Buyer’s and ER Pipeline’s Obligations. Each and every obligation of
Buyer and ER Pipeline to be performed at the Closing, is, at the option of Buyer and ER
Pipeline, subject to each of the conditions set forth below, which conditions may be waived by
Buyer and ER Pipeline:

	 	(a)	 	The representations and warranties made by Sellers and Contributors in this
Agreement shall be true and accurate in all material respects on and as of the Closing
with the same effect as though such representations and warranties had been given on
and as of the Closing, except to the extent such representations and warranties
specifically speak as of an earlier date, in which case they shall be true as of that
date. Sellers and Contributors shall also have performed or complied with, in all
material respects, all of their obligations under this Agreement which are to be
performed or complied with by them as of the Closing.

 

 

	 	(b)	 	There shall not be on the Closing (i) any Order by any Governmental Body, (ii)
any threat thereof by any Governmental Body, which is evidenced by a writing by the
threatening agency, or (iii) any lawsuit, which in all reasonable likelihood, might
prohibit or render illegal, Buyer’s or ER Pipeline’s consummation of the transactions
contemplated herein. All material consents and approvals, if any, of Persons,
including Governmental Bodies, whether required contractually or by applicable Legal
Requirement or otherwise necessary for execution, delivery, and performance of this
Agreement (except for consents and approvals of Governmental Bodies customarily
obtained after transfer of title) shall have been obtained and delivered before the
Closing date and shall not have been withdrawn or revoked.
	 
	 	(c)	 	All agreements, documents, and instruments contemplated under this Agreement to
be executed and delivered by Sellers and/or Contributors shall have been duly executed
by Sellers and/or Contributors, as applicable, and be ready for delivery concurrently
with the consummation of the transactions contemplated by this Agreement.
	 
	 	(d)	 	No material adverse change has occurred with respect to the condition of the
Assets or the operations of MGS or the Assets; provided, however, that an adverse
change in the market price of crude oil, natural gas, or natural gas liquids would not
constitute a material adverse change hereunder.

	8.03	 	Conditions to Sellers’ and Contributors’ Obligations. Each and every obligation of
Sellers and Contributors to be performed on the Closing is, at the option of Sellers and
Contributors, subject to each of the conditions set forth below, which conditions may be
waived by Sellers and Contributors:

	 	(a)	 	The representations and warranties made by Buyer and ER Pipeline in this
Agreement shall be true and accurate in all material respects on and as of the Closing
with the same effect as though such representations and warranties had been given on
and as of the Closing. Buyer and ER Pipeline shall also have performed or complied
with, in all material respects, all of its obligations under this Agreement which are
to be performed or complied with by them prior to or on the Closing.
	 
	 	(b)	 	All agreements, documents, and instruments contemplated under this Agreement to
be executed and delivered by Buyer and ER Pipeline shall have been duly executed by
Buyer and ER Pipeline and be ready for delivery concurrently with the consummation of
the transactions contemplated by this Agreement.
	 
	 	(c)	 	All material consents and approvals, if any, of Persons including Governmental
Bodies, whether required contractually or by applicable Legal Requirement or otherwise
necessary for execution, delivery, and performance of this Agreement

 

 

	 	 	 	(except for consents and approvals of Governmental Bodies customarily obtained after
transfer of title) shall have been obtained and delivered before the Closing date
and shall not have been withdrawn or revoked.
	 
	 	(d)	 	The ER Partnership Agreement shall have been amended in accordance with
Exhibit C.
	 
	 	(e)	 	There shall not be on the Closing (i) any Order by any Governmental Body, (ii)
any threat thereof by any Governmental Body, which is evidenced by a writing by the
threatening agency, or (iii) any lawsuit, which in all reasonable likelihood might
prohibit or render illegal Sellers or Contributors consummation of the transactions
contemplated herein.

 

 

ARTICLE IX

INDEMNITY

	9.01	 	Indemnity. (a) FROM AND AFTER THE CLOSING, SELLERS AND CONTRIBUTORS SHALL, JOINTLY
AND SEVERALLY, INDEMNIFY DEFEND, AND HOLD HARMLESS BUYER, ER PIPELINE, THEIR PARENT COMPANIES,
AFFILIATES AND SUBSIDIARIES, AND THEIR RESPECTIVE PARTNERS, MEMBERS, DIRECTORS, SHAREHOLDERS,
OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES (COLLECTIVELY, “BUYER INDEMNITEES”), FROM AND
AGAINST ANY AND ALL LIABILITIES, CLAIMS, LOSSES, STRICT LIABILITY CLAIMS (INCLUDING THOSE
ARISING UNDER ENVIRONMENTAL LAWS), DEMANDS, LAWSUITS, JUDGMENTS, ORDERS, FINES, PENALTIES,
DAMAGES, PUNITIVE DAMAGES, EXPENSES (INCLUDING REASONABLE ATTORNEYS’ AND CONSULTANTS’ FEES),
COSTS AND CAUSES OF ACTION ASSERTED BY ANY PERSON (COLLECTIVELY REFERRED TO HEREINAFTER AS
“LIABILITIES/CLAIMS”), ARISING FROM OR RELATING TO ANY BREACH OF THE REPRESENTATIONS AND
WARRANTIES MADE BY SELLERS, CONTRIBUTORS SET FORTH IN SECTION 4.01 AND/OR 4.02.
	 
	 	 	(b) SUBJECT ONLY TO SECTION 9.01(a), FROM AND AFTER THE CLOSING, BUYER AND ER PIPELINE
SHALL, JOINTLY AND SEVERALLY, SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLERS,
CONTRIBUTORS AND THEIR PARENT COMPANIES, AFFILIATES AND SUBSIDIARIES, AND THEIR RESPECTIVE
PARTNERS, MEMBERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES (COLLECTIVELY,
“SELLER INDEMNITEES”), FROM AND AGAINST ANY AND ALL LIABILITIES/CLAIMS ARISING FROM OR
RELATING TO ANY INACCURACY IN OR BREACH OF THE REPRESENTATIONS AND WARRANTIES MADE BY BUYER
AND ER PIPELINE SET FORTH IN SECTION 5.01.
	 
	 	 	(c) IN ADDITION TO THE OBLIGATIONS OF EACH OF THE SELLERS AND CONTRIBUTORS SET FORTH IN
SECTION 9.01(a) AND 9.01(d) BELOW, SELLERS AND CONTRIBUTORS SHALL, JOINTLY AND SEVERALLY,
INDEMNIFY DEFEND, AND HOLD HARMLESS MGS AND THE BUYER INDEMNITEES FROM AND AGAINST ANY AND
ALL LIABILITIES/CLAIMS ARISING FROM OR RELATED TO THE ASSUMED LIABILITIES. THE ASSUMED
LIABILITIES SHALL BE PAID OR DISCHARGED BY THE SELLERS AND CONTRIBUTORS.
	 
	 	 	(d) IN ADDITION TO THE OBLIGATIONS OF EACH OF THE SELLERS AND CONTRIBUTORS SET FORTH IN
SECTION 9.01(a) AND 9.01(c) ABOVE; SELLERS AND CONTRIBUTORS SHALL, JOINTLY AND SEVERALLY,

 

 

	 	 	INDEMNIFY DEFEND, AND HOLD HARMLESS MGS AND THE BUYER INDEMNITEES FROM AND AGAINST (I) THE
COSTS AND EXPENSES WHICH ARISE OR ARE RELATED TO PERIODS PRIOR TO THE EFFECTIVE TIME FOR THE
CONSTRUCTION OF THE FACILITIES; (II) AMOUNTS WHICH ARISE OR ARE RELATED TO PERIODS PRIOR TO
THE EFFECTIVE TIME DUE TO ANY SELLER OR CONTRIBUTOR, INCLUDING ANY ADMINISTRATION OR OTHER
FEES DUE TO NGP; (III) SEVERANCE, VACATION OR OTHER BENEFITS RELATING TO THE EMPLOYEES OF
MGS OR MGS GP WHICH ARISE OR ARE RELATED TO PERIODS PRIOR TO THE EFFECTIVE TIME; (IV) THE
COSTS AND EXPENSES DUE TO ANY CONTRACTOR PROVIDING SERVICES TO OR ON BEHALF OF MGS OR MGS GP
PRIOR TO THE CLOSING DATE; (V) THE COSTS AND EXPENSES CHARGED FOR LEGAL COUNSEL, ACCOUNTING
OR OTHER PROFESSIONAL SERVICES INCURRED FOR THE PREPARATION, NEGOTIATION AND DELIVERY OF
THIS AGREEMENT; AND (VI) ANY AD VALOREM OR SIMILAR PROPERTY TAXES FROM THE PERIOD JANUARY 1,
2006 THROUGH THE DATE OF CLOSING. THE OBLIGATIONS OF THE SELLERS AND CONTRIBUTORS UNDER
THIS SECTION 9.01(d) ARISE ONLY TO THE EXTENT THAT THE FOREGOING OBLIGATIONS ARE NOT OR
CANNOT BE SATISFIED BY MGS FROM CASH ON HAND AS OF THE CLOSING DATE AND REVENUE GENERATED BY
MGS PRIOR TO THE EFFECTIVE TIME.
	 
	9.02	 	Limits on Indemnity Obligations.
	 
	 	 	(a) No Person shall be entitled to seek indemnification pursuant to Section 9.01(a) and 9.01
(b) with respect to any Liabilities/Claims (with such Liabilities/Claims being determined
without giving effect or other regard to qualifications or other words of “material,”
“materially,” “material adverse effect,” or “Material Adverse Effect,” since the parties’
determinations as to relevance under this Article IX are as reflected in this Article IX),
unless such Person notifies the indemnifying party of such Liability Claim in writing within
the period set forth in Section 9.04.
	 
	 	 	(b) No indemnification shall be required to be made by any Party hereto pursuant to Section
9.01(a) or 9.01(b) with respect to any Liabilities/Claims arising out of or resulting from
the breach of the representations and warranties of a Party contained in this Agreement,
unless and until the aggregate amount of such asserted Liabilities/Claims incurred by a
Party (whether asserted, resulting, imposed, or incurred before, on, or after the Closing
Date) exceeds $250,000 (the “Threshold”), it being agreed and understood that, if such
amount is exceeded, the breaching Party shall be liable to the full extent of such
Liabilities/Claims, including those not in excess of the Threshold. The Threshold shall not
apply to the obligations of the Sellers and Contributors pursuant to Section 9.01(c) or
9.01(d).

 

 

	 	 	(c) The total amount of obligations with respect to any Liabilities/Claims pursuant to
Section 9.01(a) or 9.01(b)shall be limited to an aggregate maximum amount equal to
$2,500,000. The forgoing limitation shall not apply to the obligations of the Sellers and
Contributors pursuant to Section 9.01(c) or 9.01(d).
	 
	9.03	 	Exclusive Remedy. Notwithstanding any provision of this Agreement to the contrary,
the sole remedy of the parties hereto for any breach of any of the provisions of Article IV or
V shall be to exercise their rights under this Article IX, which shall be subject to the
procedures and limitations set forth in this Article IX, excluding, however, any cause of
action for fraud or specific performance.
	 
	9.04	 	Survival. All representations and warranties of the Parties contained in this
Agreement and all covenants contained in this Agreement that are to be performed prior to the
Closing shall survive the Closing until twelve (12) months after the Closing date, except that
the representations and warranties in Sections 4.01, 4.02(a), 4.02(b), 5.01(a) and 5.01(b)
shall survive until the third anniversary of the Closing date. No Party shall have any
liability for indemnification claims made under this Article XI with respect to any such
representation, warranty or covenant unless a claim notice is provided by the non-breaching
Party to the other Party prior to the expiration of the applicable survival period for such
representation, warranty or covenant. If a claim notice has been timely given in accordance
with this Agreement prior to the expiration of the applicable survival period for such
representation, warranty or covenant, then the applicable representation, warranty or covenant
shall survive as to such claim, until such claim has been finally resolved.

 

 

ARTICLE X

INDEMNIFICATION PROCEDURES

	10.01	 	Indemnification Procedures. Subject to the provisions set forth in Article IX, in
the event that any Proceedings shall be instituted or any claim or demand shall be asserted by
any Person in respect of which indemnification may be sought by any Person or Persons from any
party or parties under the provisions of this Agreement, the Person or Persons seeking
indemnification (collectively, the “Indemnitee”) shall cause written notice of the assertion
of any claim of which it has knowledge that is covered by the indemnity to be forwarded
promptly to the party or parties from which indemnification is sought (collectively, the
“Indemnitor”). The Indemnitor shall have the right, at its option and at its own expense, to
be represented by counsel of its choice; provided, however, the Indemnitor shall provide the
Indemnitee five (5) Business Days during which the Indemnitee may approve or disapprove of the
Indemnitor’s choice of counsel, such approval not to be unreasonably withheld. The Indemnitor
shall also have the right to participate in, or to take exclusive control of, the defense,
negotiation, and/or settlement of any Proceeding or demand which relates to any amounts
indemnifiable or potentially indemnifiable under this Agreement; provided, however, that the
Indemnitee may participate in any such Proceeding with counsel of its choice and at its own
expense, shall have a right to notice of any settlement, and the Indemnitor shall not execute
or otherwise agree to any settlement or consent decree which provides for other than monetary
payment without the Indemnitee’s prior written consent, which consent will not unreasonably be
withheld, conditioned or delayed. Notwithstanding the foregoing, the Indemnitee shall have
the right to pay or settle any such claim, provided that in such event it shall waive any
right to indemnity therefor by the Indemnitor. In the event that the Indemnitor elects not to
defend or settle such Proceeding or demand and the Indemnitee defends, settles, or otherwise
deals with any such Proceeding or demand, which settlement may be without the consent of the
Indemnitor, the Indemnitee will provide fifteen (15) days advance written notice of any
settlement to the Indemnitor and will act reasonably and in accordance with its good faith
business judgment. The parties hereto agree to reasonably cooperate fully with each other in
connection with the defense, negotiation, or settlement of any such Proceeding or demand.
After final judgment or award shall have been rendered by a Governmental Body and the
expiration of the time in which to appeal therefrom, or a settlement shall have been
consummated, or the Indemnitee and the Indemnitor shall have arrived at a mutually binding
agreement with respect to each separate matter indemnified by the Indemnitor, the Indemnitee
shall forward to the Indemnitor notice of any sums due and owing by the Indemnitor with
respect to such matter and the Indemnitor shall pay all of the sums so owing to the Indemnitee
by check within thirty (30) days after the date of such notice. In the event of any claim by
a third party against an Indemnitee, the Indemnitee will, at its own expense, use its
commercially reasonable efforts to make available to the Indemnitor those employees whose
assistance, testimony, or presence is necessary to assist the Indemnitor in evaluating and in
defending such claims; provided, however, that any such access shall be conducted in such a
manner as not to interfere

 

 

unreasonably with the operations of the business of the Indemnitee but failure to provide necessary witnesses or
access to information will excuse the Indemnitor’s performance.

 

 

ARTICLE XI

TAXES

	11.01	 	Tax Proceedings. In the event Buyer or any of its Affiliates receives notice of any
examination, adjustment, or other Proceeding relating to the liability for Taxes of or with
respect to MGS for any period prior to the Closing date, Buyer shall notify Sellers and
Contributors in writing within ten (10) days of receiving notice thereof (or such lesser time
if such notice given to Buyer requires action in less than ten (10) days). As to any such
Taxes for which Sellers and/or Contributors are or may be liable, Sellers and/or Contributors
shall, at Sellers’ and/or Contributors’ expense, control or settle the contest of such
examination, adjustment, or other Proceeding, and shall defend (upon Buyer’s request) and
indemnify Buyer against all losses in connection therewith. The parties shall cooperate with
each other and with their respective Affiliates in the negotiations and settlement of any
Proceeding described in this Section 11.01.
	 
	11.02	 	Taxes. The payments provided for hereunder exclude any sales tax or other Taxes
required to be paid in connection with the sale of the MGS Units. Buyer shall be responsible
for all applicable sales and use taxes, gross receipts, conveyance, transfer, and recording
fees, motor vehicle transfer and excise taxes and registration fees, and real estate transfer
taxes and documentary stamp taxes, if any, that may be imposed on any transfer pursuant to
this Agreement. Buyer shall defend (upon Sellers’ and/or Contributors’ request), indemnify and
hold Sellers and Contributors harmless for any and all sales, use, gross receipts and similar
taxes, penalties, and interest imposed on Sellers or Contributors based on the sale of the
Assets.
	 
	11.03	 	Other Taxes.

	 	(a)	 	All Taxes which have accrued prior to the Effective Time have been or will be
properly paid or withheld by MGS and all statements, returns, and documents pertinent
thereto have been or will be properly filed, and Sellers and Contributors shall
indemnify and hold harmless Eagle Rock Pipeline and Buyer for such Taxes.
	 
	 	(b)	 	Buyer shall defend (upon Sellers’ or Contributors’ request) and indemnify and
hold harmless Sellers and Contributors for, and shall be responsible for, paying or
withholding or causing to be paid or withheld all such Taxes which have accrued after
the Effective Time and for filing all statements, returns, and documents incident
thereto.

 

 

ARTICLE XII

MISCELLANEOUS PROVISIONS

	12.01	 	Commission. Each of the parties hereto represents and warrants that there are no
claims for brokerage commission or finders’ fees in connection with the transaction
contemplated by this Agreement, and Sellers, Contributors, Buyer and ER Pipeline will
respectively pay or discharge, and will defend and indemnify the other for, brokerage
commissions or finders’ fees incurred by reason of any action taken by such indemnifying
party.
	 
	12.02	 	Assignment. The terms, provisions and conditions of this Agreement shall extend to,
be binding upon and inure to the benefit of the parties hereto, their respective successors
and assigns. No party will make an assignment of its rights and/or obligations under this
Agreement without the prior written consent of the others, which such consent may be withheld
for any reason.
	 
	12.03	 	Entire Agreement; Amendments. This Agreement and the exhibits and schedules
attached hereto and incorporated by reference herein contain the entire understanding of the
parties with respect to its subject matter. There are no restrictions, agreements, promises,
warranties, covenants or undertakings relating to the transactions contemplated herein other
than those expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This Agreement may be
amended only by a written instrument duly executed by the parties. Any condition to a party’s
obligations hereunder may be waived in writing by such party. No waiver by any party of any
one or more defaults by the other in performance of any of the provisions of this Agreement
shall operate or be construed as a waiver of any future default or defaults, whether of a like
or different character.
	 
	12.04	 	Severability. Each portion of this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or
invalidity shall not affect the validity of the remainder of this Agreement.
	 
	12.05	 	Actions. Sellers, Contributors, Buyer and ER Pipeline warrant and agree that each
shall use its commercially reasonable efforts to take or cause to be taken all such action as
may be necessary to consummate and make effective the transactions as set forth in this
Agreement and to assure that it will not be under any material corporate, legal or contractual
restriction that would prohibit or delay the timely consummation of such transactions.
	 
	12.06	 	Termination. Based solely upon the unanimous approval of the board or other
governing body of the Party electing to terminate, this Agreement may be terminated at any
time on or prior to the Closing:

	 	(a)	 	by mutual written consent of MGS, Buyer and ER Pipeline;

 

 

	 	(b)	 	by Sellers and Contributors on June 14, 2006, if the conditions set forth in
Section 8.03 have not been satisfied in all material respects or waived by Sellers and
Contributors in writing by such date; or
	 
	 	(c)	 	by Buyer and ER Pipeline on June 14, 2006, if the conditions set forth in
Section 8.02 have not been satisfied in all material respects or waived by Buyer and ER
Pipeline in writing by such date.

	12.07	 	Counterparts. This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
	 
	12.08	 	GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, ENFORCED IN ACCORDANCE WITH,
AND INTERPRETED UNDER, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS OF LAW
PRINCIPLES.
	 
	12.09	 	Preparation of Agreement. This Agreement was prepared jointly by the parties hereto
and not by either to the exclusion of the other.
	 
	12.10	 	Further Assurance. After Closing, at Buyer’s or ER Pipeline’s request and without
further consideration, Sellers and Contributors shall execute and deliver or use reasonable
efforts to cause to be executed and delivered such other instruments of conveyance and
transfer and take such other actions as Buyer or ER Pipeline reasonably may request to more
effectively vest or put Buyer and ER Pipeline in possession of the MGS Units.
	 
	12.11	 	Confidentiality. Except as otherwise required by law, the Parties shall hold a
confidential the terms and conditions of this Agreement and the information provided in
association herewith.
	 
	12.12	 	No Partnership Created. It is not the purpose or intention of this Agreement to
create (and it shall not be construed as creating) a joint venture, partnership, or any type
of association, and the Parties are not authorized to act as agent or principal for each other
with respect to any matter related hereto.
	 
	12.13	 	No Third Party Beneficiary. Nothing in this Agreement entitles any parties other
than the parties hereto, their permitted successors or assigns and the Indemnitees, to any
claim, cause of action, remedy or right of any kind relating to the transactions contemplated
by this Agreement.
	 
	12.14	 	Notices and Addresses. Any notice, request or other communication required or
permitted hereunder shall be in writing and either delivered personally delivered by facsimile
transmission or by registered or certified mail (postage prepaid and return receipt requested)
and shall be deemed given when received (or, if mailed, five (5) Business Days after the date
of mailing) at the following addresses or facsimile transmission numbers (or at such other
address or facsimile

 

 

transmission number for a Party as shall be specified by like notice):

SELLERS, CONTRIBUTORS OR MGS:

C/O: MGS GP, LLC

7633 E. 63rd Place, Suite 245

Tulsa, Oklahoma 74133

Attention: Anthony R. Michog

Phone: (918) 250-0407

Fax: (918) 249-0413

With copies (which shall not constitute notice) to:

Conner & Winters, LLP

Attn: Robert A. Curry

4000 One Williams Center

Tulsa, Oklahoma 74172-0148

Phone: (918) 586-5725

Fax: (918) 586-8625

and

Natural Gas Partners

Attn: Christopher Ray

125 E. John Carpenter Fwy., Suite 600

Irving, Texas 75062

Fax: (972) 432-1441

BUYER OR ER PIPELINE:

C/O EAGLE ROCK ENERGY SERVICES, L.P.

14950 Heathrow Forest Parkway

Houston, Texas 77032

Attention: Alex A. Bucher

Phone: (832) 327-8000

Fax: (832) 327-8009

With copies (which shall not constitute notice) to:

 

 

Thompson & Knight LLP

Attn: Barry Davis

333 Clay street, Suite 3300

Houston, Texas 77002

Phone: (713) 951-58623

Fax: (713) 654-1871

or at such other address as either party may designate by written notice.

SIGNATURE PAGES TO FOLLOW

 

 

     IN WITNESS WHEREOF, the parties have hereto set their hands by their duly authorized officials
as of the date set forth above.

	 	 	 	 	 	 	 
	 	 	“BUYER”	 	 
	 
	 	 	 	 	 	 
	 	 	EAGLE ROCK ENERGY SERVICES, L.P.

By: Eagle Rock Energy G&P, LLC;

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alex A. Bucher
 

	 	 
	 	 	Name: Alex A. Bucher	 	 
	 	 	Title: President	 	 
	 
	 	 	 	 	 	 
	 	 	“ER PIPELINE”	 	 
	 
	 	 	 	 	 	 
	 	 	EAGLE ROCK PIPELINE, L.P.

By: Eagle Rock Pipeline GP, LLC;

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Alex A. Bucher	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Alex A. Bucher	 	 
	 	 	Title: President	 	 
	 
	 	 	 	 	 	 
	 	 	“SELLERS AND CONTRIBUTORS”	 	 
	 
	 	 	 	 	 	 
	 	 	MGS GP, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Anthony R. Michog	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Anthony R. Michog	 	 
	 	 	Title: President	 	 
	 
	 	 	 	 	 	 
	 	 	MICHOG	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Anthony R. Michog	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Anthony R. Michog, Individually	 	 
	 
	 	 	 	 	 	 
	 	 	HIETT	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David E. Hiett	 	 
	 

	 	 	 	 	 	 
	 	 	Name: David E. Hiett, Individually	 	 

 

 

	 	 	 	 	 	 	 
	 	 	BRALEY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David B. Braley	 	 
	 

	 	 	 	 	 	 
	 	 	Name: David B. Braley, Individually	 	 
	 
	 	 	 	 	 	 
	 	 	WILKERSON	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Richard W. Wilkerson	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Richard W. Wilkerson, Individually	 	 
	 
	 	 	 	 	 	 
	 	 	GREGSON	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Terry D. Gregson	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Terry D. Gregson, Individually	 	 

	 	 	 	 	 	 	 
	 	 	NGP	 	 
	 
	 	 	 	 	 	 
	 	 	NATURAL GAS PARTNERS VII, L.P.

By: G.F.W. Energy VII, L.P., General Partner

   By: GFW VII, L.L.C., General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/
Kenneth Hersh 
	 	 
	 

	 	Name:
	 	Kenneth Hersh 

	 	 
	 

	 	Title:
	 	Managing Partner 

	 	 
	 

	 	 	 	 	 	 

 

 

EXHIBIT A

FORM OF ASSIGNMENT OF MGS UNITS

     THIS ASSIGNMENT OF MGS UNITS (this “Assignment”) is made and entered into this ___
day of June, 2006, by and between                                         , a                                    
                         
(“Assignor"), and Eagle Rock Energy Services, LP, a Texas limited partnership
(“Assignee”).

     Section 1. Defined Terms. All capitalized terms not otherwise defined herein shall have
the respective meanings assigned to them in that certain Sale, Contribution and Exchange Agreement
(the “Agreement”) dated as of June 2, 2006, by and among Assignor, Assignee and the other
parties hereto.

     Section 2. Assignment. Assignor hereby sells, transfers, assigns, contributes and conveys
to Assignee [certain/all] of the MGS Units owned by Assignor, together with all of Assignor’s
corresponding rights, duties and obligations as a partner in MGS, to have and to hold such MGS
Units unto Assignee, its successors and assigns, forever. The MGS Units sold, transferred,
assigned, contributed and conveyed to Assignee hereby consist of                      units of [limited/
general] partner interest in MGS (the “Sold MGS Units”).

     Section 3. Acceptance. Assignee hereby accepts the Sold MGS Units and, in consideration
therefor, contemporaneously herewith has tendered to Assignor the consideration set forth in
Section 3.01 of the Agreement.

     Section 4. Substituted Partner. Assignor and Assignee agree that, effective upon the
assignment referred to above, Assignee shall become a [limited/ general] partner of MGS in place of
Assignor.

     Section 5. Agreement. The representations, warranties, covenants and agreements of
Assignee and Assignor with respect to the sale, transfer and assignment of the Sold MGS Units are
set forth in the Agreement, and this Assignment is being executed and delivered pursuant to, and is
expressly subject to, the terms and provisions of the Agreement.

     Section 6. Counterparts. This Assignment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute but one and the same
instrument. This Assignment may
be executed by facsimile transmission and such facsimile signatures shall be afforded the same
force and effect as original signatures for all purposes.

     Section 7. Governing Law. This Assignment shall be governed by and construed and enforced
in accordance with the internal laws of the State of Texas, without regard to the principles of
conflicts of laws thereof.

 

 

     Section 8. Further Assurances. Each party hereto will take all actions necessary and will
sign all documents which may be necessary or desirable to effectuate this Assignment.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

     IN WITNESS WHEREOF, the undersigned have executed this Assignment as of the date set forth
above.

	 	 	 	 	 	 	 
	 	 	ASSIGNOR:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ASSIGNEE:	 	 
	 
	 	 	 	 	 	 
	 	 	EAGLE ROCK ENERGY SERVICES, L.P.

By: Eagle Rock Energy G&P, LLC

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

 

 

EXHIBIT B

FORM OF CONTRIBUTION AGREEMENT

     THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into this ___day
of June, 2006, by and between                                         , a                                                             
(“Contributor”), and Eagle Rock Pipeline, LP, a Delaware limited partnership
(“Issuer”).

     Section 9. Defined Terms. All capitalized terms not otherwise defined herein shall have
the respective meanings assigned to them in that certain Sale, Contribution and Exchange Agreement
(the “SCEA”) dated as of June 2, 2006, by and among Contributor, Issuer and the other
parties thereto.

     Section 10. Contribution. Contributor hereby contributes and conveys to Issuer [certain/
all] MGS Units owned by Contributor, together with all of Contributor’s corresponding rights,
duties and obligations as a partner in MGS, to have and to hold such MGS Units unto Issuer, its
successors and assigns, forever. The MGS Units transferred, assigned, contributed and conveyed to
Issuer hereby consists of                      limited partner interests in MGS (the “Contributed
Units”).

     Section 11. Acceptance. Issuer hereby accepts the contribution of the MGS Units and, in
consideration therefor, contemporaneously herewith has issued in the name of Contributor the ER
Units set forth in Section 3.02 of the Agreement.

     Section 12. Substituted Partner. Contributor and Issuer agree that, effective upon the
contribution and issuance referred to above, Issuer shall become a limited partner of MGS in place
of Contributor and Contributor shall be admitted as a limited partner in Issuer.

     Section 13. Agreement. The representations, warranties, covenants and agreements of Issuer
and Contributor with respect to the contribution of the MGS Units are set forth in the SCEA, and
this Agreement is being executed and delivered pursuant to, and is expressly subject to, the terms
and provisions of the SCEA.

     Section 14. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an
original and all of which shall constitute but one and the same instrument. This Agreement may be
executed by facsimile transmission and such facsimile signatures shall be afforded the same force
and effect as original signatures for all purposes.

     Section 15. Governing Law. This Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Texas, without regard to the principles of
conflicts of laws thereof.

 

 

     Section 16. Further Assurances. Each party hereto will take all actions necessary and will
sign all documents which may be necessary or desirable to effectuate this Agreement.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth
above.

	 	 	 	 	 	 	 
	 	 	CONTRIBUTOR:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ISSUER:	 	 
	 
	 	 	 	 	 	 
	 	 	EAGLE ROCK PIPELINE, L.P.

By: Eagle Rock Pipeline GP, LLC

its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

 

 

EXHIBIT C

AMENDMENT NO. 1

TO

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

OF

EAGLE ROCK PIPELINE, L.P.

     This Amendment (this “Amendment”) to the Amended and Restated Agreement of Limited Partnership
of Eagle Rock Pipeline, L.P., a Delaware limited partnership (the “Partnership”), dated as of March
27, 2006 (the “Partnership Agreement”), is entered into effective as of June ___, 2006, by Eagle
Rock Pipeline GP, LLC, a Delaware limited liability company (the “General Partner”), as the general
partner of the Partnership, on behalf of itself and the Limited Partners of the Partnership.
Capitalized terms used but not defined herein are used as defined in the Partnership Agreement.

RECITALS

     WHEREAS, Section 3.3 of the Partnership Agreement provides that the General Partner, without
the approval of any Limited Partner except as otherwise provided in the Partnership Agreement, may,
for any Partnership purpose, at any time or from time to time, issue additional Partnership
Securities for such consideration and on such terms and conditions as shall be established by the
General Partner in its sole discretion; and

     WHEREAS, Section 3.3(e) of the Partnership Agreement provides that the General Partner,
without the approval of any Partner, may amend the Partnership Agreement in connection with the
issuance of any class or series of Partnership Securities pursuant to Section 3.3 of the
Partnership Agreement; and

     WHEREAS, the Partnership has entered into a Sale, Contribution and Exchange Agreement, dated
as of June 2, 2006, between the Partnership and all of the equity owners of Midstream Gas Services,
L.P., a Delaware limited partnership (the “Contribution Agreement”); and

     WHEREAS, the Contribution Agreement obligates the Partnership to issue limited partner
interests designated as Common Units having the terms set forth in the Partnership Agreement; and

     NOW, THEREFORE, the Partnership Agreement is hereby amended as follows:

 

 

AMENDMENT

     Section 1. Issuance of Common Units.

     (a) The Partnership hereby issues an aggregate of 1,125,416 Common Units to the following
Persons and admits such Persons as Limited Partners of the Partnership:

	 	 	 	 	 
	Name	 	Number of Common Units
	Natural Gas Partners VII, L.P.
	 	 	610,433	 
	Anthony R. Michog
	 	 	171,661	 
	David B. Braley
	 	 	171,661	 
	David E. Hiett
	 	 	171,661	 

     (b) The Partnership agrees to issue additional Common Units, up to a maximum of 1,109,878
Common Units, to Natural Gas Partners VII, L.P. upon the terms and conditions specified in the
Contribution Agreement and, upon such issuance, Natural Gas Partners VII, L.P. will be admitted as
a Limited Partner with respect to such additional Common Units.

     Section 2. Ratification of Partnership Agreement. Except as expressly modified and amended
herein, all of the terms and conditions of the Partnership Agreement shall remain in full force and
effect.

     Section 3. Governing Law. This Amendment will be governed by and construed in accordance
with the laws of the State of Delaware.

     Section 4. Counterparts. This Amendment may be executed in counterparts, all of which
together shall constitute an agreement binding on all the parties hereto, notwithstanding that all
such parties are not signatories to the original or the same counterpart.

     IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

	 	 	 	 	 	 	 
	 	 	GENERAL PARTNER:	 	 
	 
	 	 	 	 	 	 
	 	 	Eagle Rock Pipeline GP, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Alex A. Bucher	 	 
	 

	 	 	 	 

Alex A. Bucher
	 	 
	 

	 	 	 	President	 	 

 

 

	 	 	 	 	 	 	 
	 	 	LIMITED PARTNERS:	 	 
	 
	 	 	 	 	 	 
	 	 	All Limited Partners now and hereafter admitted as
limited partners of the Partnership, pursuant to
Powers of Attorney now and hereafter executed in
favor of, and granted and delivered to, the General
Partner.	 	 
	 
	 	 	 	 	 	 
	 	 	By: Eagle Rock Pipeline GP, LLC, General Partner, as
attorney-in-fact for all Limited Partners pursuant to
the powers of Attorney granted pursuant to Section
2.10 of the Partnership Agreement.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Alex A. Bucher	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Alex A. Bucher	 	 
	 

	 	 	 	President	 	 

 

 

EXHIBIT D

FINANCIAL MODEL FOR DETERMINATION OF

DEFERRED UNIT PAYMENT

The Earn Out Payment in the following table has been calculated using a model which projects EBITDA
based on various volume and commodity price scenarios. Such EBITDA is then multiplied by 8.5, to
calculate a total value. The Earn Out Payment will be such total value minus the $25 million
initial acquisition price. The Earn Out Payment is shown on the following tables as a final
calculated dollar amount, which will then be paid as provided below.

Under the terms listed below and as discussed in 3.02 (a), NGP will earn Deferred Units as defined
in section 3.02 (a) under the following circumstances.

The Deferred Units will be earned if the Earn Out Value as defined below is greater than zero.

The number of Deferred Units granted is based on a calculation of the “Earn Out Value” as defined
below.

The “Earn Out Volume” is determined by taking the average daily volumes in MMcfd that were produced
by Latigo Petroleum, Inc., Dominion Exploration and Production Inc., and Chesapeake Energy
Corporation or their successors within the Earn Out Area, which is shown on the following Map 3.2
(a), and were gathered, treated or processed by Eagle Rock Energy Field Services, L.P. for the
calendar quarter ending December 31, 2007.

The “Oil and Gas Prices” used to determine the Earn Out Value will be obtained by multiplying (i)
each of the forward twelve-month NYMEX Crude Oil and Natural Gas prices as of December 31, 2007 by
(ii) 0.9.

The “Earn Out Value” is obtained by using the Oil and Gas Prices determined above to look up the
NYMEX Natural Gas and NYMEX Oil Price axes shown on the Table D for the box which represents the
nearest closest Earn Out Volume, then selecting the corresponding Earn Out Value.

Interpolation should be used to determine an Earn Out Payment that falls between the volume and/or
commodity price values on Table D

The number of Deferred Units payable to NGP is determined by dividing the Earn Out Value by $18.02,
which entitlement to units will be adjusted in the same manner as the Eagle Rock Pipeline, L.P.
partners’ units in connection with the restructuring into Eagle Rock Energy Partners, L.P., as if
NGP held such Deferred Units at the time of such restructuring and then NGP

 

 

will be entitled to receive the Deferred Units in the form of the corresponding number units of, and issued by, Eagle
Rock Energy Partners, L.P.

Table D

(Earn Out Payments below already reflect subtraction of the $25 million initial acquisition price
and the NYMEX Natural Gas and Crude Oil Prices below have already been multiplied by 90%)

(dollars in thousands, except per unit data)

10 MMcfd Average Wellhead Reserves Earnout Payment

NYMEX Oil

($/Bbl)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NYMEX Natural Gas ($/Mmbtu)
	 
	 	$	4.50	 	 	$	6.50	 	 	$	10.50	 	 	$	12.00	 
	$45.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$55.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$65.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$75.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 

15 MMcfd Average Wellhead Reserves Earnout Payment

NYMEX Oil

($/Bbl)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NYMEX Natural Gas ($/Mmbtu)
	 
	 	$	4.50	 	 	$	6.50	 	 	$	10.50	 	 	$	12.00	 
	$45.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$55.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$65.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 
	$75.00
	 	$	0.0	 	 	$	0.0	 	 	$	0.0	 	 	$	273	 

20 MMcfd Average Wellhead Reserves Earnout Payment

NYMEX Oil

($/Bbl)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NYMEX Natural Gas ($/Mmbtu)
	 
	 	$	4.50	 	 	$	6.50	 	 	$	10.50	 	 	$	12.00	 
	$45.00
	 	$	0	 	 	$	0	 	 	$	2,800	 	 	$	4,394	 
	$55.00
	 	$	0	 	 	$	53	 	 	$	4,304	 	 	$	5,898	 
	$65.00
	 	$	0	 	 	$	1,557	 	 	$	5,808	 	 	$	7,402	 
	$75.00
	 	$	936	 	 	$	3,061	 	 	$	7,312	 	 	$	8,906	 

 

 

25 MMcfd Average Wellhead Reserves Earnout Payment

NYMEX Oil

($/Bbl)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NYMEX Natural Gas ($/Mmbtu)
	 
	 	$	4.50	 	 	$	6.50	 	 	$	10.50	 	 	$	12.00	 
	$45.00
	 	$	1,937	 	 	$	4,594	 	 	$	9,908	 	 	$	11,900	 
	$55.00
	 	$	3,817	 	 	$	6,474	 	 	$	11,788	 	 	$	13,780	 
	$65.00
	 	$	5,697	 	 	$	8,354	 	 	$	13,668	 	 	$	15,660	 
	$75.00
	 	$	7,577	 	 	$	10,234	 	 	$	15,548	 	 	$	17,540exv10w5

 

EXHIBIT 10.5

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT

FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY

FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED

AT THE APPROPRIATE PLACE WITH TWO ASTERISKS (**).

NATURAL GAS LIQUIDS EXCHANGE AGREEMENT

By and Between

ONEOK HYDROCARBON, L.P.

and

ONEOK TEXAS FIELD SERVICES, L.P.

Dated: December 1, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Article I., Definitions
	 	 	1	 
	Article II., Term
	 	 	4	 
	Article III., Quantity, Delivery of NGLs, Exchange of Products, Exchange Differentials
	 	 	5	 
	Section 3.1, Dedicated Plants
	 	 	5	 
	Section 3.2, Deliveries, Receipts
	 	 	5	 
	Section 3.3, Customer’s Deliveries
	 	 	6	 
	Section 3.4, Linefill, Product Volumes
	 	 	7	 
	Section 3.5, Exchange Points
	 	 	8	 
	Section 3.6, Exchange Differential
	 	 	9	 
	Section 3.7, CO2 Quality Adjustment Fees
	 	 	10	 
	Section 3.8, Alternative Connections
	 	 	11	 
	Article IV., Statements and Payments
	 	 	11	 
	Article V., Termination of Prior Agreement
	 	 	12	 
	Article VI., Notices
	 	 	12	 
	Article VII., General
	 	 	12	 
	Article VIII., Measurement, Sampling and Analysis
	 	 	12	 
	Article IX., Quality
	 	 	16	 
	Article X., Records
	 	 	16	 
	Article XI., Custody and Title
	 	 	17	 
	Article XII., Warranties, Indemnification
	 	 	17	 
	Article XIII., Taxes
	 	 	18	 
	Article XIV., Remedies for Breach
	 	 	18	 
	Article XV., Government Edicts
	 	 	19	 
	Article XVI., Force Majeure
	 	 	20	 
	Article XVII., Interpretation
	 	 	20	 
	Article XVIII., Assignment
	 	 	21	 
	Article XIX., Credit
	 	 	21	 
	Article XX., Processor’s System Shutdown
	 	 	22	 
	Article XXI., Miscellaneous
	 	 	22	 
	Section 21.1, Headings, Articles and Sections
	 	 	22	 
	Section 21.2, No Third Party Beneficiary
	 	 	22	 
	Section 21.3, Severability
	 	 	22	 
	Section 21.4, Setoffs and Counterclaims
	 	 	22	 

1

 

	 	 	 	 	 
	Section 21.5, No Partnership or Association
	 	 	22	 
	Section 21.6, No Commissions, Fees or Rebates
	 	 	23	 
	Section 21.7, Joint Action
	 	 	23	 
	Section 21.8, Safe Handling
	 	 	23	 
	Section 21.9., Processor’s Safety Regulations
	 	 	23	 
	Section 21.10., Use of Products
	 	 	23	 

2

 

NATURAL GAS LIQUIDS EXCHANGE AGREEMENT

     THIS NATURAL GAS LIQUIDS EXCHANGE AGREEMENT (“Agreement”) is made on this 1st day
of December, 2005 by and between ONEOK TEXAS FIELD SERVICES, L.P., a Texas limited partnership,
Tulsa, Oklahoma, (“Customer”), and ONEOK HYDROCARBON, L.P., a Delaware limited liability company,
Tulsa, Oklahoma (“Processor”).

     WHEREAS, Customer and its Affiliates (defined below) are in the business of producing and
marketing NGLs (defined below), and Owns or Controls raw natural gas liquid production from various
gas processing plants as hereinafter set forth; and

     WHEREAS, Customer wishes to exchange all NGLs Owned or Controlled by Customer and/or its
Affiliates from such plants for Products (defined below).

     NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and
other good and valuable consideration, Customer and Processor agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. In this Agreement, each of the terms set forth
hereinafter shall have the meanings stated in this Section.

	A.	 	“Adjusted Base Exchange Differential” shall have the meaning specified in Section 3.6 of this
Agreement.
	 
	B.	 	“Affiliate” of a corporation, partnership, company, or other business enterprise or entity
(collectively “Person”) means a Person which directly or indirectly controls, is controlled
by, or is under common control with such Person. As used herein, the term “control”
(including its derivatives and similar terms) means (i) owning, directly or indirectly, at
least fifty percent (50%) of the voting rights attributable to the outstanding shares of the
controlled Person if such voting rights confer upon the shareholder the power, directly or
indirectly, to direct, or cause to be directed, the management and policies of the controlled
Person, or (ii) with respect to a Person that is not a corporation, having the power, directly
or indirectly, to direct, or cause to be directed, the management and policies of the
controlled Person through the ownership of voting securities, other ownership interests, by
contract, or otherwise.
	 
	C.	 	“Alternative Term” shall have the meaning specified in Section 2.1 of this Agreement.
	 
	D.	 	“Barrel” shall be forty-two U.S. Gallons.
	 
	E.	 	“Base Exchange Differential” shall have the meaning specified in Section 3.6 of this
Agreement.
	 
	F.	 	“CO2” shall have the meaning specified in Section 3.7 of this Agreement.

1

 

	G.	 	“CO2 Content” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	H.	 	“Contract Year” shall be each twelve (12) Month period during the term hereof ending on June
30, provided that the first such period shall commence on the Effective Date and end on June
30, 2006, and each subsequent period thereafter through the term of this Agreement shall be
for a full twelve (12) Months, including any renewal terms.
	 
	I.	 	“Controlled” means, when referring to NGLs, NGLs that Customer or its Affiliates, as the case
may be, has the right, directly or indirectly, to have fractionated or exchanged into
Products.
	 
	J.	 	“Current Linefill Requirement” shall have the meaning specified in Section 3.4 of this
Agreement.
	 
	K.	 	“Day” shall be a period of twenty-four (24) consecutive hours commencing at 7:00 A.M. Central
Time.
	 
	L.	 	“Dedicated Plants” or “Dedicated Plant” shall have the meanings specified in Section 3.1 of
this Agreement.
	 
	M.	 	“Delivery Point” or “Delivery Points” shall have the meaning specified in Section 3.3 of this
Agreement.
	 
	N.	 	“Effective Date” shall have the same meaning as the term “Closing Date” in that certain
Agreement and Plan of Merger by and among ONEOK Field Services Company, ONEOK Field Services
Holdings, L.L.C., Eagle Rock Gas Gathering & Processing, Ltd., and Eagle Rock Field Services,
L.P.
	 
	O.	 	“Exchange Point” and “Exchange Points” shall have the meanings specified in Section 3.5 of
this Agreement.
	 
	P.	 	“Force Majeure” shall have the meaning specified in Section 16.2 of this Agreement.
	 
	Q.	 	“Fractionator” shall mean Processor’s fractionation facilities located at or near Medford,
Oklahoma.
	 
	R.	 	“Fuel Gas Cost” as used in Article III, shall mean the sum of (i) and (ii) below:

	 	(i).	 	The price of natural gas for the Month prior to the Month in question obtained by
referencing the Williams Natural Gas Index, Texas, Oklahoma, Kansas, as published in
Inside F.E.R.C.’s Gas Market Report (McGraw-Hill Inc.); and,
	 
	 	(ii).	 	The maximum transportation rate (including fuel and loss) for natural gas
delivered to Medford, Oklahoma (or the nearest point thereto served by the pipeline at
issue), for the Month prior to the Month in question, obtained by referencing the maximum
transportation rate to such destination for the Williams Pipeline. The maximum
transportation rate referred to in this paragraph shall be obtained from the Williams
Pipeline approved natural gas tariff.

2

 

	 	 	If the Inside F.E.R.C.’s Gas Market Report, or its successor publication, ceases to be
published, or if it ceases to publish the above described index, then the price(s) shall, if
available, be obtained from an alternative industry publication (private or government) which
publishes the same pricing information. If the above index prices are no longer available,
then Processor and Customer shall, within sixty (60) Days of the first Day of the Month that
the cessation occurred, agree upon an alternative pricing mechanism which will reflect the
fair market price of natural gas utilized as fuel in Processor’s Fractionator. The
alternative pricing mechanism agreed upon shall apply retroactively to the first Day of the
Month that the posting terminated. If the parties cannot agree upon an alternate pricing
mechanism within the period stipulated above, then the issue of how to determine the fair
market price of natural gas utilized as fuel in Processor Fractionator shall be submitted to
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
	 
	S.	 	“Gallon” shall be a U.S. Gallon of 231 cubic inches of liquid corrected for temperature to
sixty degrees (60°) Fahrenheit, and at the equivalent vapor pressure of the liquid.
	 
	T.	 	“Gas Producers” shall mean corporations, partnerships, companies, or other business
enterprises or entities that supply natural gas to the Dedicated Plant(s) at issue for the
extraction of NGLs therefrom. A “Gas Producer” at a particular Dedicated Plant shall not be
deemed a “Gas Producer” at other Dedicated Plants unless the “Gas Producer” actually delivers
natural gas for processing in the other Dedicated Plant in question.
	 
	U.	 	“High CO2 NGLs” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	V.	 	“Linefill” shall have the meaning specified in Section 3.4 of this Agreement.
	 
	W.	 	“Location A” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	X.	 	“Location B” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	Y.	 	“Location C” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	Z.	 	“Location D” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	AA.	 	“Material Variance” shall have the meaning specified in Section 3.5 of this Agreement.
	 
	BB.	 	“Month” shall be a period of time commencing on the first Day of a calendar Month,
and ending on the first Day of the next calendar Month.
	 
	CC.	 	“NGLs” shall mean the mixture of liquid hydrocarbons and non-hydrocarbon components that are condensed, and/or absorbed
from or separated out of gas currently and subsequently processed in the Dedicated Plant(s). NGLs shall not include field
condensate recovered in gas gathering systems, unless and until Processor delivers written notice to Customer stating that
it is able and willing to exchange such condensate from any one or more of the Dedicated Plants pursuant to the terms of
this Agreement, and upon delivery of such notice, NGLs shall include all condensate delivered from

3

 

	 	 	such Dedicated Plants. As used herein, “condensate” means liquid hydrocarbons that separate from natural gas due to temperature and/or pressure
changes upstream of a gas plant.
	 
	DD.	 	“Option Term” shall have the meaning specified in Section 2.1 of this Agreement.
	 
	EE.	 	“Owned” or “Owns” means, when referring to NGLs, NGLs to which Customer or its Affiliates, as the case may be, have title.
	 
	FF.	 	“Products” shall be fractionated NGLs, consisting of E/P, HD5 propane, I-Grade isobutane, D-Grade normal butane and M-Grade
14# Reid Vapor Pressure (RVP) natural gasoline, in conformity with the specifications attached hereto as Exhibits A, B, C,
D, and E, respectively. HD5 propane, I-Grade isobutane, D-Grade normal butane, and M-Grade 14# RVP natural gasoline may be
referred to herein as “Propane Plus”, or as “C3+”.
	 
	GG.	 	“Quality Adjustment Fee” shall have the meaning specified in Section 3.7 of this Agreement.
	 
	HH.	 	“Take-In-Kind-Rights” shall mean the right of a Gas Producer to receive, and the obligation of Customer to deliver, at or
near the tailgate of the Dedicated Plant in question, the NGLs extracted from natural gas owned and delivered by such Gas
Producer to the Dedicated Plant at issue.
	 
	II.	 	“Year” shall be a period of three hundred sixty-five (365) consecutive Days; provided, however, that any Year which
contains three hundred sixty-six (366) consecutive Days shall also constitute one “Year.”

ARTICLE II

TERM

     Section 2.1 Term. This Agreement shall be effective as of the Effective Date and
shall continue in full force and effect through (**) (the “Primary Term”), and (a) the
effectiveness may be extended until (**) (the “Option Term”) in accordance with the terms
and conditions contained herein, if the Processor and Customer mutually agree to such Option Term
and such agreement is evidenced by a writing signed by both Processor and Customer, or (b), if the
Option Term is not agreed upon, the effectiveness will be extended (the “Alternative Term”) upon
other terms and conditions to be negotiated in good faith by Processor and Customer prior to the
expiration of the Primary Term; provided that such negotiations (i) shall be conducted exclusively
between Processor and Customer, (ii) shall be based on and take into account Processor’s costs,
overhead, and capital expenditures required to continue performance hereunder, and (iii) shall
provide Processor with a rate of return based on the greater of Processor’s historical rates of
return under this Agreement or twelve percent after taxes. If the parties hereto have not agreed
to the Option Term at least ninety (90) Days prior to the conclusion of the Primary Term, they
shall promptly enter into good faith negotiations to determine the Alternative Term, and shall use
commercially reasonable efforts to agree upon an Alternative Term prior to the expiration of the
Primary Term. This Agreement shall continue in full force and effect after the Option Term or
Alternative Term, as applicable, from Contract Year to Contract Year unless or until terminated
either by Customer or Processor upon ninety (90) Days advance written notice to the other party
hereto specifying a termination date at the end of the Option Term or Alternative Term, as
applicable, or of any Contract Year thereafter.

4

 

ARTICLE III

QUANTITY, DELIVERY OF NGLS, EXCHANGE OF PRODUCTS, EXCHANGE DIFFERENTIALS

     Section 3.1 Dedicated Plants.

	A.	 	Subject to the provisions herein, Customer shall deliver to Processor all of the NGLs that
Customer or its Affiliates Own or Control from the following plants (hereinafter the
“Dedicated Plants”), such volume of NGLs from each Dedicated Plant estimated to be the
following (the “Estimated Production”):

	 	 	 	 	 
	Dedicated Plants	 	BPD
	(**)
	 	 	(**)	 
	 
	 	 	 	 
	Total:

	 	 	(**)	 

	B.	 	Notwithstanding the foregoing provisions of this Section, Customer may elect to exempt from
delivery hereunder any Propane extracted and fractionated at the Cargray Plant, and sold by
Customer at the tailgate of such Plant.
	 
	C.	 	Except as otherwise provided herein, and except for any Take-In-Kind Rights that the Gas
Producers have or may have, it is understood and agreed that Customer shall not enter into any
agreement that would call for or allow any NGLs Owned or Controlled by Customer or its
Affiliates to be marketed by a party other than Customer unless that party agrees in writing
that all such NGLs shall be subject to this Agreement for its remaining term, including any
extensions or renewals of this Agreement pursuant to the terms hereof. Subject to Article
XVIII, ASSIGNMENT, this Agreement shall not be construed to limit or otherwise constrain
Customer’s right to grant Take-In-Kind Rights to the Gas Producers. Customer shall exercise
commercially reasonable efforts to continue to Own or Control NGLs which are Owned or
Controlled at the time this Agreement is entered into or which it may subsequently Own or
Control during the term of this Agreement.

     Section 3.2 Deliveries, Receipts.

	A.	 	Subject to the following provisions, Processor shall accept the NGLs from Customer tendered
hereunder during the term of this Agreement. Although it is the intention of both parties to
this Agreement for Processor to receive, and Customer to deliver, the entire production of
NGLs from the Dedicated Plants, notwithstanding anything herein however, Processor shall not
be required to accept NGLs in excess of 110% of the Estimated Production from any Dedicated
Plant if such excess volumes are not economical for Processor to accept and fractionate, in
Processor’s sole discretion, and Processor provides written notice of such determination to Customer. If
Customer

5

 

	 	 	provides notice to Processor of its desire to amend this Agreement to adjust the
Estimated Production during the term of this Agreement, Processor shall not unreasonably
refuse such request. If Processor refuses to so amend this Agreement, then upon thirty (30)
days notice to Processor, Customer shall have the right to terminate this Agreement with
respect to only the volume of NGLs actually produced from such Dedicated Plant(s) which is
in excess of 110% of the then-effective Estimated Production for such Dedicated Plant(s).

	B.	 	If, for any period of one hundred and eighty (180) consecutive Days (commencing on or after
one (1) Year following the Effective Date), Customer fails to deliver at least ninety percent
(90%) of the then-effective Estimated Production from any Dedicated Plant (excluding periods
of Force Majeure), then Processor shall have the right, within thirty (30) Days immediately
after the expiration of such 180 consecutive Day period, by providing written notice to
Customer, to reduce the then-effective Estimated Production to the average daily NGL volume
actually delivered from the Dedicated Plant at issue during such 180 consecutive Day period
(excluding periods of Force Majeure). Such reduction is to be effective as of the date of
Processor’s notice. If the volume of Customer’s NGLs available to be delivered hereunder from
a particular Dedicated Plant or Dedicated Plants increases to a level which is in excess of
the then-effective Estimated Production, then Customer may request an increase in the
then-effective Estimated Production to the volume of NGLs Customer estimates to be available
from a Dedicated Plant or Dedicated Plants, which such request will be in writing and detail
the basis for the increase or anticipated increase in the NGL volume. Processor shall
respond, in writing, to Customer’s request within fifteen (15) Days of Processor’s receipt of
Customer’s request. If Processor declines to increase the then-effective Estimated Production
applicable to a particular Dedicated Plant or Dedicated Plants then upon thirty (30) days
notice to Processor, Customer shall have the right to terminate this Agreement with respect to
only the volume of NGLs actually produced from such Dedicated Plant(s) which is in excess of
110% of the then-effective Estimated Production of such Dedicated Plant(s).

	C.	 	Processor recognizes that, from time to time, Customer, by virtue of its agreements with
owners of a Dedicated Plant(s), or otherwise may acquire title to or obtain the right under
operating, processing or similar agreements to dispose of or market NGLs recovered from
natural gas belonging to third parties not a party to this Agreement. To the extent Customer
so acquires title or obtains such rights, and subject to the foregoing provisions of this
Section, Customer agrees to deliver and Processor agrees to receive such NGLs under the terms
and conditions of this Agreement. If any party other than Customer is entitled, under
Customer’s agreement with such other party or otherwise, to have redelivered to it Products
fractionated from such NGLs, Customer or its representative shall advise Processor each Month
of the division of such Products among all such parties, and Processor shall be entitled to
rely on such advice in making Product redeliveries, disbursements and accounting.

  Section 3.3 Customer’s Deliveries. Customer shall deliver, or cause to be
delivered, the NGLs committed hereunder to the interconnection between Processor’s (or its
Affiliate’s) facilities and each respective Dedicated Plant’s facilities (“Delivery Point”).
Customer has installed or shall cause to be installed and shall operate or cause to be operated, at
its cost and expense, any facilities or equipment necessary to deliver the NGLs from the Dedicated
Plants to the Delivery Points. Customer shall use all reasonable efforts to deliver such NGLs to
Processor at a

6

 

consistent and continuous flow over a twenty-four (24) hour period, and Processor shall use all
reasonable efforts to deliver Products at the Exchange Points at a consistent and continuous flow.
Customer shall deliver the NGLs (i) at temperatures set forth in Exhibit “Y”, and (ii) at pressures
sufficient to deliver the NGLs into Processor’s or its Affiliate’s facilities at the Delivery
Points which shall be greater than or equal to 600 psig and less than 1440 psig. Processor shall
exchange Products with Customer for the NGLs Processor receives at the applicable exchange
differentials specified below.

     Section 3.4 Linefill, Product Volumes.

	A.	 	“Linefill” shall mean a volume of Products equal to the daily mean of the volume of Products
fractionated from NGLs produced at the Dedicated Plants, times seven (7).

	B.	 	During the first Contract Year, Linefill shall be calculated using the 18 Month period
immediately prior to the Effective Date as the basis for such calculation. During the first
Contract Year, beginning on the Effective Date, Processor shall retain the first Barrels of
Products otherwise deliverable to Customer pursuant to this Agreement until the Linefill
requirement has been satisfied. After the Linefill requirement has been satisfied, Processor
shall deliver all additional Products as required pursuant to the other terms and conditions
of this Agreement.

	C.	 	At the beginning of each succeeding Contract Year, the parties will calculate a then-current
linefill requirement (the “Current Linefill Requirement”) for such Contract Year which shall
mean the daily mean of the volume of Products fractionated from NGLs produced at the Dedicated
Plants during the 12 Month period immediately prior to the Contract Year, times seven (7).
Linefill will remain unchanged unless the calculation of the Current Linefill Requirement is
at least twenty-five percent (25%) greater than, or at least twenty-five percent (25%) less
than the Linefill (a “Material Variance”). In the event of a Material Variance then: i) the
Linefill for the Contract Year under consideration will be adjusted to equal the Current
Linefill Requirement and ii) Processor shall, over the three month period immediately
following of the Contract Year under consideration, ratably redeliver on a daily basis or
ratably withhold on a daily basis the volume of Products necessary to balance the imbalances
of the Linefill provision of this exchange.

	D.	 	At all times, Processor shall retain title to and possession of a volume of Linefill as
security for Customer’s performance of its obligations herein. Except as provided for in both
the immediately preceding and next sentences of this Section, Processor shall exchange with
Customer, during the Month of delivery of NGLs by Customer, a number of Barrels of each
Product calculated according to the number of Barrels of each hydrocarbon component contained
in the NGLs delivered by Customer to Processor. For purposes of calculating the amount of
Products to be exchanged with Customer hereunder, methane delivered up to the limits set forth
in Exhibit “Y” shall be deemed to be ethane, but no credit will be given anywhere for methane
delivered in excess of the limits set forth in Exhibit “Y”, or for carbon dioxide or other
non-hydrocarbon components contained in the NGLs delivered to Processor. Upon termination of
this Agreement, and provided that Customer has performed all of its obligations herein,
Processor shall return and deliver Linefill to Customer after ninety days from the date that
Customer has performed all of its obligations herein.

7

 

     Section 3.5 Exchange Points. Subject to the other provisions of this
Agreement, Processor shall exchange Products with Customer at the following destinations
(collectively referred to as the “Exchange Points” or individually as an “Exchange Point”) as
designated from time to time by Customer, as set forth below:

(**)

	A.	 	(**) of the E/P attributable to all the Dedicated Plants shall be delivered by
Processor to Customer at Location B each Month. The remainder shall be delivered to Location
A. Notwithstanding, however, Customer shall have the right to request delivery of the lesser
of: i) (**) barrels or ii) (**) of E/P attributable to all the Dedicated Plants at Location
C. Such request from Customer must be in writing, be received at least ten (10) Days prior to
the beginning of each Month’s redeliveries, and shall contain the volume so requested.

	B.	 	The C3+ attributable to all the Dedicated Plants shall be delivered by Processor to Customer
at Location A, C and/or Location D as designated by Customer. Customer shall advise Processor
in writing of the desired Exchange Point for the C3+ due Customer at least ten (10) Days prior
to the beginning of each Month’s redeliveries. Customer may elect to have part of a Product
constituting C3+ delivered to Location A, and the remainder of such Product constituting C3+
to Location D and/or C. Notwithstanding anything to the contrary contained herein, Customer
may not: i) nominate C3+ Products other than Iso Butane and Natural Gasoline to Location D;
ii) nominate in any Month more than (**) Barrels of Iso Butane; and iii) nominate in any
Month more than (**) Barrels of Natural Gasoline.

	C.	 	During and after the Option Term, if applicable, Location B shall not be available as an
Exchange Point, and Processor shall have no obligation to make deliveries of any kind at
Location B after the Primary Term.

8

 

     Section 3.6 Exchange Differential. For each Gallon of
NGLs delivered to Processor, Customer shall pay Processor an exchange differential (“Base Exchange
Differential”) as set forth below and as adjusted pursuant to Subsection 3.6.B below:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Base Exchange
	 	 	Originating	 	 	 	 	 	Differential,
	Exchange Point Location	 	Dedicated Plant	 	Product	 	$/Gal.
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	(**)	 	 	 	 	 	 	 	 	 	 	 

 

			
	*	 	Each applicable Base Exchange Differential shall be increased by (**) per Gallon after the
Primary Term, such increase to be applicable during and after the Option Term, if applicable.

	A.	 	In addition to any other fees and charges due hereunder, the parties agree that if any third
party charges a fee for receiving Products (whether in connecting pipelines or in storage
facilities), Customer shall pay such charges either by: i) reimbursing Processor therefor, or
ii) paying such charges directly to such third party; with i) or ii) being at Processor’s
option.
	 
	B.	 	Adjustment to Base Exchange Differential.

	 	(i)	 	Fuel Gas Adjustment. The Base Exchange Differential shall be
adjusted at the beginning of each Month commencing with the Month of initial
deliveries hereunder by an amount attributable to the change in Processor’s Fuel Gas
Cost incurred during the Month prior to the Month in question, and compared to the
Base Rate, all as more fully described in Appendix 1 hereto, and using the
Efficiency Levels set forth therein. The Base Rate for actual Fuel Gas Costs shall
equal the amount set forth in Appendix 1.
	 
	 	(ii)	 	Electrical Adjustment. The Base Exchange Differential shall be
adjusted at the beginning of each Month commencing with the Month of initial
deliveries hereunder by an amount attributable to the change in Processor’s actual
electrical power costs, for the Fractionator and Processor’s gathering system
connected to the Fractionator, incurred during the Month prior to the Month in
question, and compared to the Base Rate, all as more fully described in Appendix 1
hereto. The Efficiency Levels and Base Rates for actual electrical power costs
shall equal the amount set forth in Appendix 1.

9

 

	 	(iii)	 	CPIU Adjustment. The Base Exchange Differential shall be adjusted at the
beginning of each Contract Year by multiplying the Base Exchange Differential by a
fraction, the numerator of which is the Consumer Price Index for All Urban Consumers
(U.S. city average, all items, not seasonally adjusted, the “CPI”) for the last
Month of the just concluded Contract Year, and the denominator of which is CPI for
the last Month of the prior Contract Year. Notwithstanding the foregoing, if the
CPI has declined from the prior Contract Year, then the adjustment provided for in
the prior sentence shall not be performed.
	 
	 	(iv)	 	Adjusted Base Exchange Differential. The Base Exchange Differential, as
adjusted in accordance with this Section, shall be referred to herein as the
“Adjusted Base Exchange Differential.” Notwithstanding anything herein to the
contrary, in no event shall such adjustments reduce the Adjusted Base Exchange
Differential below the Base Exchange Differential. An example, for illustrative
purposes only, of the above adjustments is attached as Appendix 1.

     Section 3.7 Quality Adjustment Fees. In addition to the Adjusted Base Exchange
Differential specified above, Customer shall pay Processor the quality adjustment fees specified
below.

	A.	 	CO2 Quality Adjustment Fees. In addition to the Base Exchange
Differential, as adjusted, Customer shall pay Processor a CO2 quality adjustment fee (“Non-S&P
CO2 Quality Adjustment Fee”) for each Dedicated Plant as specified below in this Section 3.7.A
(i). For purposes of determining the Non-S&P CO2 Quality Adjustment Fees for each plant, the
term “CO2 Content” shall mean the liquid volume percentage ratio of the Carbon Dioxide (“CO2”)
to the ethane contained in the NGLs delivered hereunder. As further specified in Exhibit “Y”,
if Customer tenders NGLs to Processor with a CO2 Content of greater than two and one-half
percent (2.5%) by liquid volume of the ethane (hereinafter referred to as “Non-S&P High CO2
NGLs”), Processor shall have the right to reject such Non-S&P High CO2 NGLs from any Dedicated
Plant. In such event, Processor shall, as soon as reasonably possible, notify Customer of its
election to reject such Non-S&P High CO2 NGLs. If Processor accepts Non-S&P High CO2 NGLs, no
additional CO2 quality fees other than the fees set forth in this Section shall be charged to
Customer. Failure of Processor to exercise its right to refuse Non-S&P High CO2 NGLs from
time to time shall not constitute a waiver of said right with respect to future deliveries of
Non-S&P High CO2 NGLs pursuant to this Agreement. In addition, Customer shall use reasonable
efforts to notify Processor when they have or expect to produce or deliver Non-S&P High CO2
NGLs.

	 	 	 
	 	 	CO2 Quality Adjustment Fee, per Barrel of NGLs
	CO2 Content	 	Delivered hereunder at the Delivery Point(s).
	 
	 	 
	 
	(**) 	 

 

			
	*	 	Each applicable CO2 Quality Adjustment fee shall be increased by 1.3 times
after the Primary Term, such increase to be applicable during and after the Option
Term, if applicable.

10

 

			
	B.	 	Excess Methane Quality Adjustment Fees. If the ratio of the methane to the ethane
delivered hereunder in the NGLs is equal to or greater than (**) on a liquid
volume basis, then Processor shall charge Customer or deduct from the payments due Customer
hereunder an Excess Methane Quality Adjustment Fee equal to (**)* per Barrel of
NGLs delivered at the Delivery Point at issue. As further specified in Exhibit Y, if Customer
tenders NGLs to Processor with an methane to ethane ratio of (**) or more, Processor shall
have no obligation to accept such NGLs.

 

			
	*	 	The Excess Methane Quality Adjustment fee shall be increased by (**) after the Primary
Term, such increase to be applicable during and after the Option Term, if applicable.

     Section 3.8 Alternative Connections. Notwithstanding anything to the contrary
contained herein, if any of the Dedicated Plants are shut down or the natural gas and NGLs
previously being processed in such Dedicated Plant(s) are diverted to another gas plant(s) that is
not a Dedicated Plant (“Non-dedicated Plant(s)”), Processor (or its Affiliate) shall have the
right, at its option, to connect to the Non-dedicated Plant(s) in order to receive the NGLs
Customer or its Affiliates Own or Control that would have otherwise been extracted at the Dedicated
Plants. In the event of such a diversion, Customer shall, within thirty (30) Days prior to such
diversion, notify Processor of the diversion. If Processor wishes to exercise its option, it shall
so notify Customer, within thirty (30) Days of its receipt of Customer’s notice, of Processor’s
intent (or its Affiliate’s) to so connect to the Non-dedicated Plant(s), and shall, at Processor’s
(or its Affiliate’s) own cost and expense, connect the Non-dedicated Plant(s) as soon as is
reasonably practicable, but in no event to exceed three hundred and sixty-five (365) days. Upon
such connection, the NGLs Owned or Controlled by Customer or its Affiliates which were so diverted
and are produced at such Non-dedicated Plant(s) shall be delivered under the terms and conditions
of this Agreement. If Processor (or its Affiliate) does not so connect the Non-dedicated Plant(s)
for delivery hereunder, the NGLs Owned or Controlled by Customer or its Affiliates which were
diverted and are produced at such Non-dedicated Plant(s) shall be released from this Agreement.
Provided, however, NGLs which are diverted to another gas plant connected and flowing NGLs to
Processor or its Affiliate shall continue to be delivered hereunder pursuant to the terms and
conditions of this Agreement. The interconnection between Processor’s, or its Affiliate’s,
facilities and the Non-dedicated Plant(s) facilities shall be deemed an additional Delivery Point
under this Agreement.

ARTICLE IV

STATEMENTS AND PAYMENTS

     Section 4.1 On a Monthly basis, Processor shall prepare and transmit to Customer an invoice
reflecting exchange activity that describes receipts, deliveries, differentials, quality adjustment
fees, and other charges due and owing for NGLs and Products exchanged hereunder. Customer shall
pay the amount of the invoice within ten (10) Days after Customer’s receipt of such invoice. Such
invoice shall be transmitted by electronic mail or facsimile from Processor to Customer. Said
invoice shall be sent and be deemed received as set forth in Article VI below.

11

 

ARTICLE V

TERMINATION OF PRIOR AGREEMENTS

     Section 5.1 On the Effective Date, all previous contracts and agreements between Customer
(and/or its Affiliates) and Processor (and/or its Affiliates) pertaining to the exchange of NGLs
from the Dedicated Plants shall terminate with respect to such Dedicated Plants and be superseded
by this Agreement.

ARTICLE VI

NOTICES

     Section 6.1 Notices, demands and statements shall be in writing, directed as follows:

	 	 	 
	Processor:	 	Customer:
	ONEOK Hydrocarbon, L.P.

	 	ONEOK Texas Field Services, L.P.
	 
	 	 
	100 West Fifth Street

	 	100 West Fifth Street
	P.O. Box 871

	 	Tulsa, Oklahoma 74103
	Tulsa, Oklahoma 74102-0871
	 	 
	Attn:

	 	Attn:
	Telephone:

	 	Telephone:
	Fax:

	 	Fax:

	A.	 	Notices, demands, and statements shall be deemed received the Day after the Day of mailing if
mailed by United States express or certified mail, return receipt requested, and in all other
cases deemed received upon actual Day of delivery or, if transmitted by facsimile, on the Day
the transmission is sent, if sent during normal business hours. Either party may change its
address shown above by notifying the other party, in writing, of such change.

ARTICLE VII

GENERAL

     Section 7.1 The provisions of the attached Appendix 1, Exhibits A, B, C, D, E, and Y are
hereby incorporated in and made a part of this Agreement.

ARTICLE VIII

MEASUREMENT, SAMPLING AND ANALYSIS

     Section 8.1 The NGLs delivered hereunder shall be measured on a mass basis by means of
mass measurement stations equipped with a turbine-type liquid meter(s), continuous composite
sampler gated proportional to flow, a pressure transmitter, vibrating element densitometer, on-line
flow computer, a back pressure controller, and a temperature transmitter, all generally accepted in
the industry, and installed or caused to be installed and operated by Processor or Processor’s
designee, at Processor’s expense; however, Customer, at Customer’s costs and expense, shall provide
any necessary electrical

12

 

power to operate such meter, sampler, transmitter, and any other concomitant equipment related to the measurement
facility. The measurement facilities shall be capable of measuring the volume of NGLs delivered
hereunder up to 1,440 psig. If at any time during the term hereof a new method or technique is
developed with respect to liquid measurement, such new method or technique may be substituted for
the methods set forth in this Agreement if mutually agreed upon by the parties. Mass measurement
stations shall be installed, maintained, operated, and calibrated, and the mass of the hydrocarbon
streams calculated, in accordance with the latest edition of the American Petroleum Institute (API)
Manual of Petroleum Measurement Standards and the latest edition of the Gas Processors Association
(GPA) Standards including, but not limited to the following:

	 	•	 	API Chapter 1, Vocabulary;
	 
	 	•	 	API Chapter 4, Proving Systems: Section 2-Conventional Pipe Provers; Section 3-Small
Volume Provers;
	 
	 	•	 	API Chapter 5, Metering: Section 3-Measurement of Liquid Hydrocarbon by Turbine Meters;
Section 4-Accessory Equipment for Liquid Meters;
	 
	 	•	 	API Chapter 14, Natural Gas Fluids Measurement: Section 6-Continuous Density
Measurement; Section 7-Mass Measurement of Natural Gas Liquids; Section 8-Liquefied
Petroleum Gas Measurement;
	 
	 	•	 	GPA Standard 8182-Tentative Standard for the Mass Measurement of Natural Gas Liquids;
	 
	 	•	 	GPA Standard 2174-Obtaining Liquid Hydrocarbon Samples for Analysis by Gas
Chromatography;
	 
	 	•	 	GPA Standard 2177-Analysis of Demethanized Hydrocarbon Liquid Mixtures Containing
Nitrogen and Carbon Dioxide by Gas Chromatography;
	 
	 	•	 	GPA Standard 2186-Tentative Method for the Extended Analysis of Hydrocarbon Liquid
Mixtures Containing Nitrogen and Carbon Dioxide by Temperature Programmed Gas
Chromatography;
	 
	 	•	 	GPA Standard 2145-Physical Constants for Paraffin Hydrocarbons and Other Components of
Natural Gas;
	 
	 	•	 	GPA Standard 8173-Method for Converting Mass Natural Gas Liquids and Vapors to
Equivalent Liquid Volumes. (English Units.)
	 
	 	•	 	GPA TP-17-Table of Physical Properties of Hydrocarbons for Extended Analysis of Natural
Gases.

     Section 8.2 Customer, or its representative, may, at its option and expense, install and
maintain check measurement equipment, which shall not interfere with the use of Processor’s
measurement equipment, or that of its designee, and which installation and operation of such
equipment shall also not interfere with the flow of NGLs or other natural gas liquids through
Processor’s fractionation facility of other facilities. Customer, or its representative, shall
have access during normal business hours to observe the equipment of Processor’s measurement
stations, or that of Processor’s designees, but the reading, calibrating and adjusting thereof
shall be done only by the employees, agents, representatives, or designees of Processor.
Similarly, should Customer exercise its option to install check measurement equipment, Customer
will comply with all directions of Processor relative to environmental, health and safety while on
the premises of Processor’s fractionation, or other, facilities. Processor shall have access at all
reasonable times to the check measuring equipment, but the reading, calibrating and adjusting
thereof shall be done only by the employees, agents, or representatives of Customer. Customer may
also install, at its sole option and its sole cost and expense, equipment that will receive
electronic information generated

13

 

by Processor’s on-line flow computer. The electronic information may be either
electronic analog or streaming digital. Such electronic information obtained by Customer may be
used for internal business purposes only. Customer’s equipment will not interfere with, and will be
sufficiently isolated to protect, Processor’s equipment. Processor may also install, at its sole
option and at its sole cost and expense, equipment that will receive electronic information
generated by Customer’s on-line analyzer (Gas Chromatograph used for the analysis of demethanized
liquid hydrocarbon). The electronic information may be either electronic analog or streaming
digital. Processor’s equipment will not interfere with, and will be sufficiently isolated to
protect, Customer’s equipment. Such electronic information obtained by Processor may be used for
internal business purposes only.

     Section 8.3 Meter tickets shall be written once at the end of the accounting period.
Processor, or its designee, shall promptly provide Customer a copy of each such meter ticket. On a
scheduled Day of each Month, or at other mutually agreeable intervals, Processor, or Processor’s
designee, shall test and verify the accuracy of its measurement equipment in accordance with the
appropriate above-referenced standards. Processor, or its designee, shall give Customer notice of
the date and time of each such test sufficiently in advance to permit Customer to have a
representative present to witness such test. Processor or its designee shall promptly provide
Customer a copy of each test result. If either party to this Agreement shall notify the other
party that it desires a special test of the measurement equipment, the parties shall cooperate to
secure a prompt verification of such equipment.

     Section 8.4 Meter and Density Factor Deviation. The determined meter and density
factors shall be applied to the daily registered volume and mass for that measurement station until
the next applicable correction is determined. If any test shows the meter or density factor is not
in error more than 0.25%, such equipment will be considered as correct; but such equipment or
correction factors will be properly adjusted at once to zero error. If any test shows the meter or
densitometer factor then in use, are in error by more than 0.25% but less than 0.50%, it shall be
the decision of the concerned field personnel as to the scope and corrective action taken towards
the repair of the equipment, if any. Deviation of factor(s) greater than 0.50% will not be
acceptable and Processor shall proceed with diligence to effect the required maintenance, repairs
or replacement. If any test shows the meter or densitometer is not in error more than a total of
one-quarter of one percent (0.25%), previous readings of such equipment will be considered as
correct; but such equipment or correction factors will be properly adjusted at once to zero error.

     Section 8.4.1 Volume Adjustments. If any test shows the meter or
densitometer factor then in use is in error by more than one-quarter of one percent (0.25%),
such equipment or correction factor will be properly adjusted at once to zero error and the
previous readings of such equipment will be corrected for any prior period of inaccuracy
which is known definitely or agreed upon. For any error not known or agreed upon for the
period in which the equipment was inaccurate or out of service, the volume of NGLs shall be
determined by the first of the following methods that is applicable:

	 	A.	 	Using measurements from accurate check meters which were in operation during
the period to be corrected;
	 
	 	B.	 	by correcting the error if the percentage of error is ascertainable by
calibration test or calculation; or

14

 

	 
	 	C.	 	by a method to be agreed upon by both parties.

The correction shall be retroactive for one-half (1/2) of the period affected, but not to
exceed 16 Days.

     Section 8.5 NGLs delivered by truck, if any, shall be measured by Processor’s scales, or
that of its designee. Scales must be designed and calibrated in accordance with Industry standard
GPA 8186 (latest edition) —  Measurement of Liquid Hydrocarbons by Truck Scale. Volumes shall be
calculated in accordance with API 14.7  —  Mass Measurement of Natural Gas Liquids.

     Section 8.6 The automatic flow proportional sampling equipment installed at the Delivery
Points shall be operated by Processor or that of its designee, and shall be designed to accumulate
a representative sample proportional to the flow of the NGLs passing through the measurement
facilities, shall be designed to prevent Product vaporization, and shall be equipped with mixing
facilities to eliminate any stratification. All sampling shall be conducted in accordance with GPA
Standard 2174 (latest edition) — Obtaining Liquid Hydrocarbon Samples for Analysis by Gas
Chromatography. The sampling equipment shall collect a liquid volume to be agreed during the
sampling period. Processor or its designee shall fill sample transportation containers from the
sampler, for subsequent analysis, at a mutually agreeable time. The number of samples to be taken
may be changed by agreement in writing between Processor and Customer. Each sample collected shall
be divided into three identical samples. One sample shall be shipped to Processor’s central
laboratory in Medford, Oklahoma, for analysis. Such sample shall be analyzed in accordance with
GPA Standard 2177 (latest edition) and Processor shall provide Customer a copy of the results of
each such analysis within five (5) working Days from the end of the Month in which the production
occurred. The molecular weight and pounds per Gallon of the hexane and heavier fraction shall be
determined analytically in accordance with GPA Standard 2186 (latest edition). Customer may, at
its option, analyze one of the remaining samples to verify the accuracy of Processor’s analysis.
Unless contested by Customer, the analysis so determined by Processor shall be used as the official
analysis for accounting purposes. The remaining sample shall be retained by Processor for a period
of at least thirty (30) Days. If Customer and Processor are unable to mutually agree on the
analysis, the retained sample shall be sent to a mutually agreeable independent laboratory for
analysis. In the event the liquid volume percentage for any laboratory is less than ninety-five
(95%) percent or more than one hundred five (105%) percent of the percentage determined by
Processor for these same components, the commercial analysis shall be used rather than Processor’s
analysis, and Processor shall bear the cost of the analysis conducted by the laboratory; otherwise,
however, the analysis conducted by Processor shall be used exclusively and Customer shall bear the
cost of the commercial laboratory’s analysis. In the event that a sample is not available for a
particular period, the parties shall determine an analysis based on the most recent mutually
accepted data.

     Section 8.7 Volumes of the NGLs delivered at the Delivery Point, and each component
thereof, shall be calculated according to GPA Standard 8173 (latest edition).

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ARTICLE IX

QUALITY

     Section 9.1 Customer shall deliver NGLs which (a) are merchantable, (b) meet Processor’s
specifications as such specifications may change from time to time to meet pipeline and other
downstream requirements, the most current of which are contained in Exhibit Y, and (c) are free
from dust, free of entrained water, and other impurity, as determined by Processor, in its sole
discretion. Processor shall have the right, but not the obligation, to modify such specifications
to meet or conform to downstream pipeline or market revisions or requirements with thirty (30) Days
prior notice to Customer. All NGLs shall be received subject to Processor’s inspection and
rejection. If Processor determines Customer has delivered NGLs that have contaminated the common
fungible stream, Processor may treat or otherwise dispose of the contaminated stream in any
reasonable commercial manner at Customer’s sole cost and expense. Customer shall indemnify,
reimburse and hold Processor harmless from and against all claims, penalties, treating or blending
fees, losses, costs, expenses, liabilities or damages of any kind or nature (including reasonable
attorney’s fees and court costs associated therewith) (collectively “Losses”) arising out of or
related to Customer’s delivery to Processor of NGLs not meeting the aforementioned quality
standards and/or specifications on Exhibit “Y”.

     Section 9.2 All NGLs shall be received subject to Processor’s (i) inspection, and (ii)
rejection if such NGLs fail to meet the quality specifications of this Agreement. Failure of
Processor to exercise its right of rejection from time to time shall not constitute a waiver of
said right with respect to future deliveries of NGLs pursuant to this Agreement.

     Section 9.3 All Products shall be redelivered subject to Customer’s (i) inspection, and
(ii) rejection if such Products fail to meet the quality specifications of this Agreement. Failure
of Customer to exercise its right of rejection from time to time shall not constitute a waiver of
said right with respect to future redeliveries of Products pursuant to this Agreement.

ARTICLE X

RECORDS

     Section 10.1 All accounting records and documents related to this Agreement prepared by
either party shall be retained for a period of not less than two (2) Years from the end of each
Contract Year during which such record and documents originate. As a condition precedent to either
party’s right to challenge the correctness of any invoice or payment under this Agreement, the
challenging party must, within two (2) Years following the end of each Contract Year in which any
such invoice was received by Customer or payment was made by a party, whichever is later, notify
the other party in writing of the basis for such challenge. With respect to all invoices or
payments for which such notice is not timely given, such invoices and payments shall conclusively
be presumed correct.

     Section 10.2 Subject to Section 10.1 above and upon providing fifteen (15) Days written
notice to the other party, each party shall have the right at mutually agreeable and reasonable
hours to examine copies of relevant portions of the books and records of the other to the extent
necessary to verify the accuracy of charges made, and volumes allocated hereunder. Any costs
associated with such examination shall be at the sole expense of the party requesting such
examination. Except as required by law or to enforce its rights under this Agreement, each party
agrees not to divulge any of its findings resulting from

16

 

such examination to any other person, firm, corporation or other entity, other than the parties to
this Agreement. Each party agrees to (i) be responsible for enforcing the confidentiality of such
examination and of this Agreement, and (ii) to take such action as necessary to prevent any
disclosure by any of its agents, consultants, or employees. In the event a party is compelled by
legal process to disclose any of such information, such party shall (i) provide the other party
with timely notice of such legal process so that such party may seek a protective order or other
appropriate remedy, (ii) furnish only that portion of the information to which the compelling party
is legally entitled, and (iii) make reasonable efforts to protect the confidential nature of the
information furnished.

ARTICLE XI

CUSTODY AND TITLE

     Section 11.1 Possession, title, and risk of loss to the NGLs shall pass from Customer
to Processor and vest in Processor at the inlet flange connection at the Delivery Point(s) and
possession , title, and risk of loss to the Products shall pass from Processor to Customer and vest
in Customer at the inlet flange connection at the Exchange Point(s). Upon receipt of the NGLs or
Products, as the case may be, the receiving party will be deemed to have exclusive ownership and
control of said NGLs or Product and shall be responsible for any injuries or damages caused
thereby.

ARTICLE XII

WARRANTIES, INDEMNIFICATION

     Section 12.1 Customer warrants merchantable title to the NGLs delivered to Processor
hereunder and the right to exchange the same pursuant to this Agreement, and further warrants that
all such NGLs are, at the time of delivery, free from all and charges, liens, encumbrances, defects
and adverse claims. Customer agrees to indemnify and hold Processor harmless from and against any
and all claims, causes of action, judgments or liabilities brought by or awarded to third parties
arising out of or connected with any allegation that Customer or its Affiliate did not have title
or the authority to exchange and convey title to the same or to cause such NGLs to be fractionated
and redelivered hereunder. Said indemnity includes payments of reasonable attorney’s fees and
expenses incurred in defense of said claims or causes of action. Said indemnity shall survive the
expiration or termination of this Agreement.

     Section 12.2 Processor warrants title to the Products redelivered to Customer hereunder
and the right to exchange the same pursuant to this Agreement, and further warrants that all such
Products are, at the time of redelivery, free from all charges, liens, encumbrances, defects and
adverse claims, except to the extent that Processor may breach its warranty of title by reason of
Customer breaching its warranty of title at paragraph 12.1 with respect to NGLs actually delivered
to Processor. Processor agrees to indemnify and hold Customer harmless from and against any and
all claims, causes of action, judgments or liabilities brought by or awarded to third parties
arising out of or connected with any allegation that Processor or its Affiliate did not have title
or the authority to exchange and convey title to the same or to cause such Products to be
redelivered hereunder. Said indemnity includes payments of reasonable attorney’s fees and expenses
incurred in defense of said claims or causes of action. Said indemnity shall survive the
expiration or termination of this Agreement.

17

 

     Section 12.3 Processor and Customer each assume liability for and shall indemnify, defend
and hold harmless the other party, and that party’s partners and Affiliates, and their officers,
employees, and agents, from and against all liability, loss, claims, strict liability claims,
demands, lawsuits, judgments, orders, penalties, expenses (including but not limited to reasonable
attorneys’ fees), costs, and causes of action (collectively referred to as “Claims”) asserted by
any person or entity (including but not limited to the employees of either Customer or Processor)
for personal injury or death, for compliance with environmental laws, regulations, orders, or
guidelines, or for loss or damage to property, arising from or relating to, or claimed to arise
from or relate to, the activities of the indemnifying party pursuant to this Agreement, but only to
the extent that such Claims are caused by the negligence or willful misconduct of the indemnifying
party or its agents or contractors.

ARTICLE XIII

TAXES

     Section 13.1 Customer shall assume liability for, and pay all taxes, including all new taxes
or increases in existing taxes including excise taxes (but excluding net income, excess profits, or
corporate franchise taxes) imposed by any governmental authority upon the processing, severance,
manufacture, sale, use, delivery, or receipt of the NGLs delivered or Products received. If
Customer is exempt from the payment of such taxes, fees or other charges, Customer shall furnish
Processor proper exemption certificates to cover the NGLs delivered or Products received hereunder.
Customer agrees to indemnify and hold Processor harmless from and against any and all claims,
causes of action, proceedings, judgments, interest, penalties, fees or other liabilities brought by
or awarded to third parties arising out of or connected with any taxes to be paid by Customer
pursuant to this Section. Said indemnity includes payments of reasonable attorney’s fees and
expenses incurred in defense of said claims, proceedings or causes of action.

     Section 13.2 Without limiting anything in Section 13.1 and for further clarification of
Section 13.1, with respect to the Superfund Petroleum tax imposed on natural gasoline, Customer
hereby agrees to reimburse Processor if, and to the extent, such tax is levied against the delivery
of natural gasoline pursuant to this Agreement.

ARTICLE XIV

REMEDIES FOR BREACH

     Section 14.1 If Customer is late in making any payment due hereunder, Processor may charge
Customer, and Customer shall pay, interest on late payments from the due date to the date of
payment in full at a rate equal to the then-current one-month LIBOR rate (as reported in the Wall
Street Journal), plus 1% per annum until Processor receives payment from Customer; provided,
however, such interest rate shall not exceed the maximum lawful rate permitted by applicable law.

18

 

     Section 14.2 If Customer disputes an invoiced amount, Customer shall nevertheless pay the
undisputed portion of the invoice on a timely basis, as set forth in Article IV, STATEMENTS AND
PAYMENTS. Except for the portion of any invoice disputed in good faith by Customer, if Customer
has not remedied late payments to the reasonable satisfaction of Processor within thirty (30) Days
of receipt of written notice from Processor to do so, Processor may in addition to other remedies
it may have at law or herein, and at its option, upon thirty (30) Days advance written notice to
Customer, terminate this Agreement. The election by Processor of any of the courses of action
hereto shall in no way limit any other remedies available to Processor in law or in equity.

     Section 14.3 If either party shall:

	A.	 	Voluntarily petition under or otherwise seek the benefit of any bankruptcy, reorganization,
arrangement or insolvency law; or

	B.	 	Make a general assignment for the benefit of creditors, or

	C.	 	Be adjudicated bankrupt or insolvent; or

	D.	 	Allow a receiver or trustee of the business to be appointed; or

	E.	 	Fail to perform any part of this Agreement (except where such failure is excused under the
terms of this Agreement) and upon written notice of such failure by the other party fail to
either remedy the same within thirty (30) Days of such notice or fail to take reasonable steps
within thirty (30) Days to remedy the same;

then, should any of events listed in A through E above occur, this Agreement may be terminated
forthwith by written notice at the option of the other party with such other party retaining all
its other rights and remedies at law or equity.

     Section 14.4 No waiver by either party of any breach by the other party of any of the
terms of this Agreement shall be construed as a waiver of any subsequent breach, whether of the
same or of a different term of Agreement.

ARTICLE XV

GOVERNMENT EDICTS

     Section 15.1 This Agreement is in all respects subject to all state and federal laws and
all directives, regulations and orders issued or published by any state or federal boards,
commission or agency, but nothing contained herein shall be construed as a waiver of any right to
question or contest any such order, law, rule or regulation. The parties shall be entitled to
regard all such laws, rules, regulations and orders as valid and may act in accordance therewith
until such time as the same may be invalidated by final judgment in a court of competent
jurisdiction.

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ARTICLE XVI

FORCE MAJEURE

     Section 16.1 If either party is rendered unable by Force Majeure to carry out its
obligations under this Agreement (other than the obligation to make payments of monies due
hereunder), then that party shall give prompt written notice of the Force Majeure stating facts
supporting such claim of inability to perform. Thereupon, the obligation to deliver or receive the
quantities so affected shall be suspended during the continuation of an inability so caused, but
for no longer period, but this Agreement shall otherwise remain unaffected. The party claiming
Force Majeure shall use due diligence to remove the cause with all reasonable dispatch; provided,
however, that this provision shall not require the settlement of strikes, lockouts, or other labor
difficulty of the party involved, when such course is determined inadvisable by the party having
the difficulty.

     Section 16.2 The term “Force Majeure,” as employed herein, shall include strikes,
lockouts, or other industrial disturbances; wars, sabotage, blockades, insurrections, or acts of
the public enemy; epidemics, landslides, lightning, earthquakes, tornadoes, fires, storms, floods,
washouts, or other acts of God; arrests or restraints of governments and people; compliance
(voluntary or involuntary) with federal, state or local laws, rules or regulations, permits, acts,
orders, directives, requisitions, or requests of any official or agency of the federal, state, or
local governments; rationing of, shortages of, or inability to obtain or use any material or
equipment; riots or civil disturbances, fires, explosions, failures, disruptions, breakdowns, or
accidents to machinery, facilities, or lines of pipe (whether owned, leased or rented); the
testing, making repairs, alterations, enlargements or connections to machinery, facilities, or
lines of pipe (whether owned, leased or rented); the necessity to not operate, or to reduce the
operation of, equipment to protect the safety of the public and/or environment; freezing of lines;
embargoes, priorities, expropriation, or condemnation by government or governmental authorities;
interference by civil or military authorities; any inability to either tender NGLs or exchange
Products that is caused by pipeline prorationing, and any cause which is not reasonably within the
control of the party, or its Affiliates, claiming suspension.

ARTICLE XVII

INTERPRETATION

     Section 17.1 This Agreement sets forth the final and complete agreement between the
parties with respect to this subject matter and supersedes all prior contracts, understandings,
negotiations and dealings between the parties with respect to this subject matter. No modification
of, addition to, or waiver of any of the terms of this Agreement shall be binding upon either party
unless in writing and signed by an authorized representative of such party, nor shall any such
waiver constitute a continuing waiver unless expressly provided in writing by the party to be
charged with such waiver. Neither course of performance, nor course of dealing, nor usage of trade
shall be used to qualify, explain or supplement any of the terms of this Agreement. This Agreement
shall be governed exclusively according to the laws of the State of Oklahoma without giving effect
to its principles regarding conflicts of laws.

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ARTICLE XVIII

ASSIGNMENT

     Section 18.1 The rights and obligations of this Agreement shall bind and inure to the
respective successors and assigns of the parties hereto. However, any assignment or attempted
assignment, except to an Affiliate, shall be void without the prior written consent of the other
party, which consent shall not be unreasonably withheld, conditioned, delayed or denied except for
reasons which may include, but not be limited to the creditworthiness of the assignee. Customer
further agrees that it and its Affiliates will not sell or assign their interest in the NGLs
subject to this Agreement or processed in the Dedicated Plants unless (i) they first obtain
Processor’s prior written consent to such sale or assignment, which shall not be unreasonably
withheld or delayed; (ii) contemporaneously with such sale or assignment, this Agreement is
assigned to such assignee; and (iii) the buyer or assignee agrees, in a writing executed by an
authorized representative of the buyer or assignee and delivered to Processor, that the NGLs so
sold or assigned shall be bound by, and subject to this Agreement. If a Dedicated Plant(s) is
transferred, assigned, conveyed or otherwise disposed of, this Agreement shall be deemed a separate
agreement covering the particular Dedicated Plant(s) so transferred, assigned, conveyed or
otherwise disposed of.

ARTICLE XIX

CREDIT

     Section 19.1 Either party may, from time to time, demand different terms of payment,
assurance of payment, assurances of performance, or other credit terms whenever such party
reasonably determines, in its sole discretion, that a material adverse change in the delivering
party’s financial condition so warrants, or in the event either party grants or attempts to grant
to any third party a security interest or lien in the NGLs or Products to be delivered and
exchanged hereunder. In any such event, and upon written notice specifying the event or events
warranting the change in terms of payment or of credit, assurance of payment, or assurances of
performance, the party may withhold exchange or delivery or refuse acceptance of deliveries pending
agreement to and performance of the revised terms, including, but not limited to, (i) prepayment,
(ii) cash on delivery, and/or (iii) the posting of an appropriate bond, irrevocable letter of
credit or other security to secure the other party’s obligations hereunder in a form and from an
institution satisfactory to the party withholding performance. If the party in question refuses to
give adequate assurance of due or future performance or payment upon demand therefor, the party
demanding such assurance may treat such failure or refusal as a repudiation of this Agreement as to
that portion not yet performed in addition to any other remedy it may have at law or at equity. In
the event that a party fails to make payment when due, files or has filed against it a petition or
complaint in bankruptcy, insolvency or receivership (defaulting party) the party to whom such
payment is owed (nondefaulting party) shall be authorized to sell any NGLs or Products, as the case
may be, the custody to which were theretofore transferred to the nondefaulting party by the
defaulting party (such as linefill, exchange imbalances, and NGLs received but not yet redelivered)
and to setoff and apply the proceeds from such sale to the extent necessary to cover the
nondefaulting party’s damages resulting from the defaulting party’s failure to make payment or
otherwise perform as herein contemplated; and to the extent of the application of the proceeds from
such sale to the nondefaulting party’s damages, the nondefaulting party shall be discharged from
its obligation to deliver or redeliver NGLs or Products to the defaulting party. Any proceeds from
such sale over and above the nondefaulting party’s damages shall be paid to the defaulting party.

21

 

ARTICLE XX

PROCESSOR’S SYSTEM SHUTDOWN

     Section 20.1 If, in the sole discretion of Processor, the continued operation of a
portion of, or all, of Processor’s system becomes uneconomic, then Processor shall have the right
to shut down such uneconomic portion of its system with at least a one (1) Year prior written
notice to Customer. For purposes of this Article, “Processor’s system” includes all NGL pipelines,
fractionation facilities, loading or unloading facilities, or other physical facilities utilized in
the performance of this Agreement. If Processor so notifies Customer and shuts down all or a
portion of Processor’s system, and declines to accept NGLs from a particular Dedicated Plant or
Dedicated Plants, then such Dedicated Plant or such Dedicated Plants shall be released from this
Agreement effective on the date that Processor so declines to accept NGLs from such Dedicated Plant
or Dedicated Plants.

ARTICLE XXI

MISCELLANEOUS

     Section 21.1 Headings, Articles and Sections. All references to “Articles”
and “Sections” herein pertain to Articles and Sections of this Agreement, unless expressly stated
otherwise. Headings are for purposes of reference only and shall not be used to construe the
meaning of this Agreement.

     Section 21.2 No Third Party Beneficiary. This Agreement is for the sole
benefit of the parties hereto and their respective successors and permitted assigns, and shall not
inure to the benefit of any other person whomsoever, it being the intention of the parties that no
third parties, other than Affiliates of the parties hereto, shall be deemed a third party
beneficiary of this Agreement or otherwise have any rights hereunder.

     Section 21.3 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective during the term of
this Agreement, (i) such provision will be fully severable, (ii) this Agreement will be construed
and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of
this Agreement, and (iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement a provision similar in
terms to such illegal, invalid, or unenforceable provision as may be possible and as may be legal,
valid, and enforceable. If a provision of this Agreement is or becomes illegal, invalid, or
unenforceable in any jurisdiction, the foregoing event shall not affect the validity or
enforceability in that jurisdiction of any other provision of this Agreement nor the validity or
enforceability in other jurisdictions of that or any other provision of this Agreement.

     Section 21.4 Setoffs and Counterclaims. Except as otherwise provided herein,
each party reserves to itself all rights, offsets, setoffs, counterclaims, and other remedies
and/or defenses which that party is or may be entitled to arising from or out of this Agreement or
as otherwise provided by law.

     Section 21.5 No Partnership or Association. Nothing contained in this
Agreement shall be construed to create an association, trust, partnership, principal./agent, joint
enterprise, or joint venture

22

 

relationship or impose a trust, fiduciary or partnership duty,
obligation, or liability on or with regard to either party. The parties are independent
contractors only.

     Section 21.6 No Commissions, Fees or Rebates. Except as expressly authorized
by this Agreement, no director, employee or agent of either party shall give or receive any
commission, fee, rebate, gift or entertainment of significant cost or value in connection with this
Agreement. Any representative or representative(s) authorized by either party may audit the
applicable records of the other party for the purpose of determining whether there has been
compliance with this Section.

     Section 21.7 Joint Action. The parties acknowledge and agree
that the language used in this Agreement shall be deemed to be chosen by the joint action of the
parties hereto to express their mutual intent, and no rule of strict construction against any one
party shall be applied hereto.

     Section 21.8 Safe Handling. Processor reserves the right, in its sole discretion
to (i) reject any trucks, pipelines, or storage facilities presented or suggested by Customer for
loading/unloading which would present an unsafe or potentially unsafe situation, and (ii) refuse to
load/unload, transfer, or handle any NGLs or Product under any conditions it deems unsafe or
potentially unsafe, which is caused by, including without limitation, drivers, personnel,
equipment, procedures, and/or weather conditions.

     Section 21.9 Processor’s Safety Regulations. With regards to NGLs or Products
delivered to or from Processor’s facilities, Customer agrees that it and its customers, agents and
employees will comply with Processor’s safety regulations and rules when on Processor’s premises.
Customer shall indemnify, defend and hold Processor harmless from and against any and all liability
occurring from or arising out of any non-compliance with such safety regulations and rules or the
negligence of Customer, its agents or customers. Processor shall have the right to require
Customer, its agents and/or customers to execute an access agreement with Processor for truck
loading.

     Section 21.10 Use of Products.  Customer acknowledges the hazards associated with the
handling, storage, transportation, use, misuse, disposal or subsequent processing (the “Use”) of
the Products and assumes the responsibility of advising those of its employees, agents,
contractors, and customers, who shall use, work or come in contact with the Products, of the
hazards to human health or human or environmental safety, whether such Products are used singly or
in combination with other substances or in any processes or otherwise. Customer shall indemnify,
defend and hold Processor harmless from and against any and all liability occurring from or arising
out of a breach of Customer’s obligations under this Section and from and against claims, demands
or cause of action for personal injury, damage to the environment or property arising from or
attributable to Customer’s Use of the Products.

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     IN WITNESS WHEREOF, the undersigned parties have executed this Agreement in duplicate
originals as of date first set forth above.

	 	 	 	 	 	 	 	 	 
	CUSTOMER:	 	 	 	PROCESSOR:
	 
	 	 	 	 	 	 	 	 
	ONEOK TEXAS FIELD SERVICES, L.P.	 	 	 	ONEOK HYDROCARBON, L.P.
	 
	 	 	 	 	 	 	 	 
	By: ONEOK Field Services Company, its
general partner	 	 	 	By: ONEOK Hydrocarbon GP, L.L.C.,
its general partner
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ John W. Gibson 	 	 	 	By:	 	/s/ John W. Gibson 
	 

	 	 
	 	 	 	 	 	 
	Printed Name:

	 	John W. Gibson 	 	 	 	Printed Name:	 	John W. Gibson 
	 

	 	 
	 	 	 	 	 	 
	Title:

	 	President 	 	 	 	Title:	 	President 
	 

	 	 
	 	 	 	 	 	 

24

 

APPENDIX 1

An example of the computations for Fuel Gas Cost and electric power adjustments.

	 	 	 	 	 	 	 	 	 
	 	 	BASE RATE	 	CURRENT1
	Base Exchange Differential/Bbl.
	 	 	(**)	 	 	(**)
	 
	 	 	 	 	 	 	 	 
	Fractionator Costs:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Fuel Gas Cost
	 	 	(**)	 	 	(**)2
	Electrical
	 	 	(**)	 	 	(**)3
	 
	 	 	 	 	 	 	 	 
	Medford Gathering Costs:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Electrical
	 	 	(**)	 	 	(**)3
	 
	 	 	 	 	 	 	 	 
	Efficiency Levels for Fuel and
Electrical:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Fuel Gas Cost
	 	Frac. Electrical:	 	Gathering, Electrical:
	(**)
	 	(**)	 	(**)
	 
	 	 	 	 	 	 	 	 
	Computation of Monthly Escalation Adjustment:
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fuel Gas Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(**)
	 	 	X	 	 	$	(**)	 	 	-	 	 	$	(**)	 	 	 	=	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Medford Electrical Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(**)
	 	 	X	 	 	$	(**)	 	 	-	 	 	$	(**)	 	 	 	=	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Medford Gath. Electrical Cost:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(**)
	 	 	X	 	 	$	(**)	 	 	-	 	 	$	(**)	 	 	 	=	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Escalation Adjustment
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(**)	 
	Base Exchange Differential
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted Base Exchange Differential
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(**)	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Payable4
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$(**)	/BBL 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

			
	1	 	“Current” is inserted for illustrative purposes only, and is the hypothetical
actual cost for the prior Month.
	 
	2	 	Fuel Gas Cost for the preceding Month.
	 
	3	 	Actual electrical cost for the preceding Month.
	 
	4.	 	Greater of the Base Exchange Differential or the Adjusted
Base Exchange Differential.

 

EXHIBIT “A”

SPECIFICATIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Test
	80/20 ETHANE/PROPANE MIX	 	Minimum	 	Maximum	 	Procedure
	Ethane Content (Liquid Volume %)
	 	 	75	%	 	 	82	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Composition (Liquid Volume %)
	 	 	 	 	 	 	 	 	 	ASTM D-2163
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Propane
	 	 	11.5	%	 	 	25	%	 	 	 	 
	Methane and Lighter
	 	 	 	 	 	 	1.5	%	 	 	 	 
	Ethylene
	 	 	 	 	 	 	4.0	%	 	 	 	 
	Butane and Heavier
	 	 	 	 	 	 	0.5	%	 	 	 	 
	Propylene
	 	 	 	 	 	 	1.0	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Carbon Dioxide, ppm (Weight)
	 	 	 	 	 	 	1,000	 	 	ASTM D-2505
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total Sulfur, ppm (Weight)
	 	 	 	 	 	 	30	 	 	ASTM D-2784
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Corrosiveness, copper strip at 100o F
	 	 	 	 	 	No. 1	 	 	ASTM D-1838

 

 

EXHIBIT “B”

SPECIFICATIONS

HD5 Propane

Definition — Predominately a liquefiable hydrocarbon with three carbon atoms per molecule.

	 	 	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100o F psig, maximum
	 	 	 	 	 	 	208	 
	 
	 	 	 	 	 	 	 	 
	(2) Volatility;
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	 	 	-37	 
	 
	 	 	 	 	 	 	 	 
	(3) Residual Matter:
	 	ASTM D-2158	 	 	 	 
	Residue on evaporation,
100o F, m1, maximum
	 	 	 	 	 	 	0.05	 
	Oil stain observed
	 	 	 	 	 	Pass	 
	 
	 	 	 	 	 	 	 	 
	(4) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Propane, minimum
	 	 	 	 	 	 	90.0	 
	Propylene, maximum
	 	 	 	 	 	 	5.0	 
	Butane, maximum
	 	 	 	 	 	 	2.5	 
	 
	 	 	 	 	 	 	 	 
	(5) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip at 100o F
	 	 	 	 	 	No. 1	 
	 
	 	 	 	 	 	 	 	 
	(6) Total Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	 	 	123	 
	 
	 	 	 	 	 	 	 	 
	(7) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass	 
	 
	 	 	 	 	 	 	 	 
	(8) Dryness:
	 	ASTM D-2713	 	 	 	 
	Freeze Valve, seconds,
minimum
	 	 	 	 	 	 	60	 

 

 

EXHIBIT “C”

SPECIFICATIONS

Iso Butane I-Grade

Conway, Kansas

Definition — Predominately an isomer of normal butane.

	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100° F psig, minimum
	 	 	 	 	56.0	 
	at 100° F psig, maximum
	 	 	 	 	60.0	 
	 
	 	 	 	 	 	 
	(2) Volatility:
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	16	 
	 
	 	 	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Iso Butane, minimum
	 	 	 	 	95.0	 
	Propane, maximum
	 	 	 	 	3.0	 
	Normal Butane, maximum
	 	 	 	 	5.0	 
	 
	 	 	 	 	 	 
	(4) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip
at 100° F
	 	 	 	No. 1
	 
	 	 	 	 	 	 
	(5) Volatile Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	93	 
	 
	 	 	 	 	 	 
	(6) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass
	 
	 	 	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 	 	 
	Free Water
	 	 	 	None

 

 

EXHIBIT “D”

SPECIFICATIONS

Normal Butane D-Grade

Conway, Kansas

	 	 	 	 	 	 	 
	 	 	Test Method	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure:
	 	ASTM D-1267	 	 	 	 
	At 100° F psig, minimum
	 	 	 	 	36.0	 
	at 100° F psig, maximum
	 	 	 	 	38.0	 
	 
	 	 	 	 	 	 
	(2) Volatility:
	 	ASTM D-1837	 	 	 	 
	Temperature at 95% evaporated,
F, maximum
	 	 	 	 	36	 
	 
	 	 	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2163	 	 	 	 
	Normal Butane, minimum
	 	 	 	 	95.0	 
	Iso Butane, maximum
	 	 	 	 	4.0	 
	Pentanes and Heavier, maximum
	 	 	 	 	2.0	 
	Propane, maximum
	 	 	 	 	1.0	 
	 
	 	 	 	 	 	 
	(4) Corrosion:
	 	ASTM D-1838	 	 	 	 
	Copper strip at 100° F
	 	 	 	No. 1
	 
	 	 	 	 	 	 
	(5) Volatile Sulfur:
	 	ASTM D-2784	 	 	 	 
	PPM by weight, maximum
	 	 	 	 	93	 
	 
	 	 	 	 	 	 
	(6) Hydrogen Sulfide:
	 	ASTM D-2420	 	Pass
	 
	 	 	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 	 	 
	Free Water
	 	 	 	None
	 
	 	 	 	 	 	 
	(8) Olefins	 	Gas Chromatography 10,000 (1%)
	PPM by weight, maximum
	 	 	 	 	 	 

 

 

EXHIBIT
“E”

SPECIFICATIONS

14# Natural Gasoline

M-Grade

			
	Definition—	 	Predominately a mixture of liquefiable hydrocarbons with five to ten carbon atoms per
molecule.

	 	 	 	 	 
	 	 	Test Method 	 	Standard Units
	Specification Point	 	(latest issue)	 	Delivery
	(1) Vapor Pressure: (Reid)
	 	ASTM D-323	 	 
	At 100o F psig, minimum
	 	 	 	12.0
	at 100o F psig, maximum
	 	 	 	14.0
	 
	 	 	 	 
	(2) Distillation:
	 	ASTM D-216	 	 
	25% evaporated temp. oF, minimum
	 	 	 	140
	90% evaporated temp. oF, minimum
	 	 	 	275
	End point temp. oF, maximum
	 	 	 	375
	 
	 	 	 	 
	(3) Composition: (Liquid Volume %)
	 	ASTM D-2597	 	 
	Hexanes and Heavier, maximum
	 	 	 	50.0
	Pentanes, minimum
	 	 	 	40.0
	Butanes, maximum
	 	 	 	6.0
	Propane, maximum
	 	 	 	None  
	 
	 	 	 	 
	(4) Corrosion:
	 	ASTM D-130	 	 
	Copper strip at 100o F
	 	 	 	No. 1  
	 
	 	 	 	 
	(5) Color:
	 	ASTM D-156	 	 
	Saybolt Number, minimum
	 	 	 	+25
	 
	 	 	 	 
	(6) Doctor Test:
	 	GPA Publication 1138	 	Negative      
	 
	 	(latest edition)	 	 
	 
	 	 	 	 
	(7) Dryness:
	 	Inspection	 	 
	Free Water
	 	 	 	None

 

 

EXHIBIT “Y”

SPECIFICATIONS

DEMETHANIZED MIX

(NGLS)

	 	 	 	 	 
	 	 	 	 	Standard Units
	 	 	Test Method 	 	Receipt
	Specification Point	 	(Latest Issue)	 	Specifications
	1) Composition:
	 	 	 	 
	Carbon Dioxide
	 	GPA Pub. 2177 (latest edition)	 	(See Note 1)
	Methane, Maximum
	 	 	 	(See Note 2)
	Aromatics, Maximum
	 	 	 	10.00
	Olefins, Maximum
	 	GPA Pub. 2186  (latest edition)	 	(See Note 3)
	 
	 	 	 	 
	2) Vapor Pressure:
	 	 	 	 
	At 100oF, psig, Maximum
	 	ASTM D-1267  (latest edition)	 	600
	 
	 	 	 	 
	3) Corrosiveness:
	 	 	 	 
	Copper Strip at 100oF
	 	ASTM D-1838  (latest edition)	 	No. 1
	 
	 	 	 	 
	4) Total Sulfur:
	 	 	 	 
	PPM by Weight, Maximum
	 	ASTM D-2784  (latest edition)	 	150 (WTPL spec)
	 
	 	 	 	 
	5) Hydrogen Sulfide:
	 	 	 	 
	 
	 	ASTM D-2420  (latest edition)	 	Pass
	 
	 	 	 	 
	6) Distillation:
	 	 	 	 
	End Point at 14.7, psia, oF, Maximum
	 	ASTM D-216  (latest edition)	 	375
	(See Note 4)
	 	 	 	 
	 
	 	 	 	 
	7) Color:
	 	 	 	 
	Saybolt Number, Minimum
	 	ASTM D-156  (latest edition)	 	+25
	(see Note 4)
	 	 	 	 
	 
	 	 	 	 
	8) Dryness:
	 	 	 	 
	Free Water
	 	Inspection	 	None
	 
	 	 	 	 
	9) Product Temperature:
	 	 	 	 
	Minimum temperature, oF 
	 	40
	Product with 65 mole % or more Ethane, oF, Maximum 
	 	90
	Product with less than 65 mole % Ethane, oF, Maximum 
	 	110

Note: 1 Carbon Dioxide Maximum is 2.5 L.V.% of the Ethane content.

Note: 2 Methane Maximum is the greater of .5 L.V.% of the total components excluding N2 and CO2 or
1.5 L.V.% of the Ethane.

Note: 3 Olefin Maximum is 1.0 L.V.% (10,000 ppmw) of the total stream, C4 Olefin Maximum is .1 L.V.%
(1,000 ppmw) of the Normal Butane content.

Note: 4 Distillation and Color to be run on that portion of the mixture having a boiling point of 70oF and above at atmospheric
pressure.

Note: 5 Product shall be commercially free from sand, dust, gums, gum-producing substances, oil, glycol, inhibitors, amine, any
other contaminants, or any compound added to the product to enhance the ability to meet these specifications, and other impurities
which may be injurious to the Processor’s property or the property of third parties, or may interfere with its transmission through
the pipeline.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]