Document:

<PAGE>

                                                                    Exhibit 10.3

                                    RESTATED

                        GAS SALE AND PURCHASE AGREEMENT

                                 March 18, 1991
--------------------------------------------------------------------------------

                        PROJECT ORANGE ASSOCIATES, L.P.

                                     Buyer

                                   -  and  -

                                  NORANDA INC.

                                     Seller

                                   -  and  -

                        CANADIAN HUNTER EXPLORATION LTD.

                                     Agent

--------------------------------------------------------------------------------
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
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                                                                                                      Page
                                                                                                      ----

     ARTICLE 1 - DEFINITIONS
<S>      <C>                                                                                            <C>
         1.1     Definitions.............................................................................3

     ARTICLE 2 - QUANTITIES
         2.1     Purchased Quantity.....................................................................15
         2.2     Source.................................................................................15
         2.3     Maximum Quantity.......................................................................17
         2.4     Delivery...............................................................................18
         2.5     Daily Schedule.........................................................................20
         2.6     Monthly Estimates......................................................................21

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

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                                                                                                      ----
     ARTICLE 3 - PRICING
<S>      <C>                                                                                           <C>
         3.1     General................................................................................21
         3.2     For Production, etc. Costs.............................................................21
         3.3     For 16th Contract Year et seq..........................................................22
         3.4     For Royalties..........................................................................24
         3.5     For Transportation.....................................................................26
         3.6     Import and Export Taxes................................................................27
         3.7     Deferral of Payments...................................................................27
         3.8     Fuel Gas for Transportation............................................................35

     ARTICLE 4 - POINT OF DELIVERY
         4.1     Point of Delivery......................................................................36
         4.2     Additional Points of Delivery..........................................................37

     ARTICLE 5 - MEASUREMENT AND QUALITY
         5.1     Measurement............................................................................37
         5.2     Quality................................................................................37
         5.3     Quantities Resold......................................................................38

     ARTICLE 6 EFFECTIVE DATE AND TERM
         6.1     Effective Date.........................................................................38
         6.2     Term...................................................................................38

     ARTICLE 7 - REGULATORY REQUIREMENTS
         7.1     Conditions.............................................................................39

     ARTICLE 8 - PAYMENT
         8.1     Payment................................................................................40
         8.2     Officer's Certificate..................................................................40
         8.3     Monthly Statement......................................................................41
         8.4     Statements to Third Parties............................................................42
         8.5     Payment of Taxes.......................................................................42
         8.6     Records and Financial Statements.......................................................43
         8.7     Exception to Amount Billed.............................................................44
         8.8     Failure to Pay.........................................................................44
         8.9     Delay in Statement.....................................................................44
         8.10    Overcharges............................................................................44

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                                     -ii-
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     ARTICLE 9 - FORCE MAJEURE
<S>      <C>                                                                                           <C>
         9.1     Effect.................................................................................45
         9.2     Seller's Obligations...................................................................46
         9.3     Failure to Deliver.....................................................................46
         9.4     Buyer's Right to Terminate after 150 Days..............................................48
         9.5     Buyer's Right to Terminate after 60 Days...............................................49
         9.6     Notice of Termination..................................................................49
         9.7     Repayment by Seller....................................................................49
         9.8     Definition.............................................................................51
         9.9     Lack of Funds..........................................................................53
         9.10    Labour Disputes........................................................................53

     ARTICLE 10 - TRANSPORTATION
         10.1    To Point(s) of Delivery................................................................53
         10.2    From Point(s) of Delivery..............................................................54
         10.3    Form and Substance of Contracts........................................................54
         10.4    Obligations............................................................................54
         10.5    Execution of Contracts.................................................................55
         10.6    Use of Transportation by Seller........................................................55

     ARTICLE 11 - TERMINATION
         11.1    Rights to Terminate....................................................................56

     ARTICLE 12 - DEFAULT
         12.1    Default by Seller......................................................................56
         12.2    Default by Buyer.......................................................................64

     ARTICLE 13 - INDEMNIFICATION
         13.1    By Seller..............................................................................66
         13.2    By Buyer...............................................................................67

     ARTICLE 14 - MISCELLANEOUS COVENANTS, REPRESENTATIONS AND WARRANTIES OF SELLER
         14.1    Mortgages, etc.........................................................................67
         14.2    Title..................................................................................69
         14.3    Financial Statements...................................................................69
         14.4    Adverse Change.........................................................................70
         14.5    Execution and Delivery.................................................................70
         14.6    Right and Authority....................................................................71
</TABLE>
                                     -iii-
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     ARTICLE 15 - MARKETING
<S>      <C>                                                                                           <C>
         15.1    Sales to Third Parties by Seller.......................................................71
         15.2    Commencement of Contract Year..........................................................72
         15.3    Proceeds of Sales to Third Parties.....................................................72
         15.4    Statements re Seller's Sales...........................................................73
         15.5    Adjustments............................................................................73
         15.6    Sales to Third Parties by Buyer........................................................73
         15.7    Statements re Buyer's Sales............................................................75

     ARTICLE 16 ARBITRATION
         16.1    Arbitration............................................................................76

     ARTICLE 17 - MISCELLANEOUS
         17.1    Entire Agreement; Amendments...........................................................78
         17.2    Enurement..............................................................................78
         17.3    Rights and Remedies....................................................................79
         17.4    Waiver.................................................................................79
         17.5    Captions...............................................................................80
         17.6    Notices................................................................................80
         17.7    Change of Address......................................................................81
         17.8    Severability...........................................................................81
         17.9    Currency...............................................................................81
         17.10   Time...................................................................................82
         17.11   Exhibits...............................................................................82

</TABLE>

                                     -iv-
<PAGE>

                                    RESTATED

                        GAS SALE AND PURCHASE AGREEMENT
                        -------------------------------

     THIS AGREEMENT restates as of the 18th day of March, 1991 that certain Gas
Sales and Purchase Agreement made and entered into as of the 8th day of
December, 1987, by and between GAS ALTERNATIVE SYSTEMS, INC., a New York
corporation, to whom PROJECT ORANGE ASSOCIATES, L.P., a Delaware limited
partnership (hereinafter referred to as "Buyer"), is the successor by
assignment, and NORANDA INC., an Ontario corporation (hereinafter referred to as
"Seller"), as heretofore amended by the following agreements and as hereby
amended:

(a)  Assignment and Assumption Agreement dated as of December 29, 1987 by and
     between  GAS ALTERNATIVE SYSTEMS, INC. and G.A.S. ORANGE DEVELOPMENT, INC.,
     a New York corporation (hereinafter referred to as "G.A.S.");

(b)  Amendment to Gas Sales and Purchase Agreement made and entered into on
     August 18, 1988 between G.A.S. and Seller;

(c)  Amendment to Gas Sales and Purchase Agreement made and entered into on
     October 11, 1988 by and between G.A.S. and Seller;

(d)  Assignment and Assumption Agreement dated as of November 16, 1988 by and
     between G.A.S. and Buyer;

(e)  Amendment to Gas Sales and Purchase Agreement made and entered into as of
     January 11, 1989 between G.A.S. and Seller;

(f)  Amendment to Gas Sales and Purchase Agreement made and entered into as of
     May 11, 1989 between G.A.S. and Seller;

(g)  Amendment to Gas Sales and Purchase Agreement made and entered into as of
     August 1, 1989 between G.A.S. and Seller; and

(h)  Amendment to Gas Sales and Purchase Agreement made and entered into as of
     November 1, 1989 between Buyer and Seller.

     WITNESSETH:

     WHEREAS Seller has and will have quantities of natural gas, herein
specified, which can and will be made available to Buyer;

     AND WHEREAS Buyer has or will have certain cogeneration facilities which
can and will use the quantities of natural gas, herein specified, and Buyer
desires to purchase and accept such quantities from Seller;
<PAGE>

     AND WHEREAS CANADIAN HUNTER EXPLORATION LTD., an Alberta corporation
(hereinafter referred to as "CHEL"), is Seller's wholly-owned subsidiary and has
acted and will in all respects continue to act as Seller's authorized agent in
all matters affecting or relating to this Agreement, unless and until Seller
otherwise notifies Buyer pursuant to this Agreement, and CHEL has executed this
Agreement for the purpose of acknowledging its role as Seller's authorized
agent;

     NOW THEREFORE in consideration of the mutual agreements, covenants and
conditions herein contained, Seller and Buyer hereby agree as follows.

                                   ARTICLE 1

                                  DEFINITIONS
                                  -----------

1.1  Definitions
     -----------

     When used in this Agreement, whether in the singular or the plural, the
following words and terms shall have the following meanings:

(a)  Account Balance:  on any particular Day, the total of all funds held in the
     ---------------
     Deferral Account;

(b)  Accumulated Deposit Deficiency:  on any particular Day, the amount by which
     ------------------------------

          (x)  the aggregate of (1) all Quarterly Deductions theretofore made
          and (2) all interest accrued pursuant to subsection 3.7(c) minus (3)
          all withdrawals and payments from the Deferral Account, exceeds

          (y)  the Account Balance;

(c)  Accumulated Payment Deficiency:  on any particular Day,
     ------------------------------

          (x)  the aggregate of all amounts required to be paid by Buyer to
          Seller pursuant to each of subsections 3.7(f), (g) and (h), but not
          paid when due, less

          (y)  the aggregate of (1) all payments theretofore made by Buyer to
          Seller pursuant to each of subsections 3.7(j) and (l) and (2) all
          reductions effected by Seller pursuant to subsections 3.7(l) and (o)
          (where Buyer has not made a payment contemplated in subsection 3.7(l)
          or 12.2(a));

(d)  Bank:  Algemene Bank Nederland N.V. as agent, or such other bank as shall
     ----
     from time to time be designated as agent for the primary lender of the
     Senior Debt;

(e)  Btu:  one (1) British Thermal Unit, being the amount of energy required to
     ---
     raise the temperature of one (1) pound of water one degree (1 degree)
     Fahrenheit at sixty degrees (60 degrees) Fahrenheit, or the volume of
     natural gas having the said amount of energy;

                                      -2-
<PAGE>

(f)  Business Day:  each Monday, Tuesday, Wednesday, Thursday and Friday which
     ------------
     is not a legal holiday in the State of New York or the Province of Alberta
     or, for the purposes of determining the Libor Rate, in England;

(g)  Buyer's Facilities:  those cogeneration and related facilities (including
     ------------------
     any facilities for the transportation or storage of natural gas) to be
     constructed by Buyer at or near Syracuse, New York and to be used by Buyer
     in the production of both thermal energy for use by Syracuse University and
     electricity for use by Niagara Mohawk Power Corporation;

(h)  Consumed Amount:  at any particular time, the aggregate number of MMBtu's
     ---------------
     of natural gas:

          (i)  theretofore actually delivered hereunder by Seller to Buyer at
               the Point(s) of Delivery;

          (ii) theretofore resold by Buyer pursuant to sections 2.4(c) and
               9.3(b);

         (iii) constituting natural gas theretofore sold and delivered
               hereunder pursuant to subsection 3.8(d);

          (iv) theretofore sold by Seller pursuant to sections 9.3(c) and 15.1;

          (v)  theretofore added to and deemed to form part of the Consumed
               Amount pursuant to subsection 12.1(c);

          (vi) theretofore exchanged by Buyer pursuant to section 15.6; and

         (vii) which is the quotient of (x) the amount of each refund (made at
               the option of the Buyer pursuant to subclause 9.3(a)) of a
               portion of the lump-sum payment made under section 8.1 divided by
               (y) $0.73333, in respect of each such refund theretofore made;

(i)  Contract Year:  the first Contract Year shall be the period beginning at
     -------------
     the beginning of the Initial Delivery Day through and including the last
     Day of the Month in which the Initial Delivery Day occurs and continuing
     for a period of twelve (12) consecutive Months thereafter; the second
     Contract Year and each successive Contract Year except the final Contract
     Year shall be the period of twelve (12) consecutive Months commencing with
     the end of the preceding Contract Year; and the final Contract Year shall
     be a period of eleven (11) consecutive months commencing with the end of
     the penultimate Contract Year plus the period if any from the first Day of
     the twelfth consecutive Month until immediately prior to the beginning of
     the Day on which the twentieth (20th) anniversary of the Initial Delivery
     Day falls;

                                      -3-
<PAGE>

(j)  Day:  the 24 hour period commencing at 7:00 a.m. (Eastern Standard Time) on
     ---
     one calendar day and ending at 7:00 a.m. (Eastern Standard Time) on the
     following calendar day;

(k)  Debt Repayment Date:  each quarterly date on which all or part of the
     -------------------
     principal of the Senior Debt is to be repaid in accordance with the Senior
     Debt Documents and, if all Senior Debt is repaid, each March 31, June 30,
     September 30 and December 31 in each calendar year;

(l)  Debt Repayment Period:  with respect to the first Debt Repayment Date, the
     ---------------------
     period since the Initial Delivery Date and with respect to each subsequent
     Debt Repayment Date, the period elapsed since the immediately preceding
     Debt Repayment Date;

(m)  Deferral Account:  the account established for the purposes of section 3.7
     ----------------
     in Buyer's name at the Bank;

(n)  Deferral Balance:  on any particular Day,
     ----------------

          (x)  the aggregate (1) of all Quarterly Deductions theretofore made
          (2) all interest accrued pursuant to subsection 3.7(c) (other than
          interest which has theretofore become part of the Accumulated Payment
          Deficiency) and (3) the Accumulated Payment Deficiency, less

          (y)  the aggregate of (1) all payments theretofore made by Buyer to
          Seller pursuant to each of subclauses 3.7(f), (g), (h) and (l) (other
          than payment made in reduction of the Accumulated Payment Deficiency)
          and (2) all reductions made by Seller pursuant to subsections 3.7(l)
          and (o) (where Buyer has not made a payment or deposit as contemplated
          in subsection 3.7(l) or 12.2(a));

(o)  Deferral Ratio:  on any particular Day, the quotient obtained by dividing
     --------------
     (x) the Deferral Balance by (y) the Entitlement Value;

(p)  Deferred Payment:  $470,000 or such lesser amount as is contemplated in the
     ----------------
     first sentence of subsection 3.7(e);

(q)  Entitlement Value:  the product obtained by multiplying (x) the Unconsumed
     -----------------
     Entitlement by (y) $0.73333;

(r)  Financial Statements:  the balance sheet of Buyer as at the end of the
     --------------------
     particular financial year and statements of income, retained earnings,
     changes in financial position and New Cash Flow for such year, prepared in
     accordance with generally accepted accounting principles consistently
     applied, stating in comparative form and on a consistent basis (except
     where noted and quantified) the respective figures as at the end of and for
     the previous year;

                                      -4-
<PAGE>

(s)  Fuel Gas:  natural gas for compressor fuel to transport natural gas to be
     --------
     sold and delivered hereunder to Buyer from the place of production to the
     Point(s) of Delivery;

(t)  Initial Delivery Day:  the day of initial deliveries of natural gas by
     --------------------
     Seller to Buyer or to one or more third parties pursuant to Section 15.2 or
     Section 15.6;

(u)  Libor Rate:  an annual rate of interest equal to the rate of interest
     ----------
     (rounded upwards to the nearest one-sixteenth of one percent) at which
     deposits of U.S. dollars for a period of 90 days, and in an amount
     substantially similar to the particular amount on which interest is to be
     calculated as provided herein, are offered to the principal office of
     Canadian Imperial Bank of Commerce in London, England by leading banks in
     the London Interbank Euro-Currency Market, at approximately 11:00 a.m.,
     London time, determined on the day which is two Business Days prior to
     January 1, April 1, July 1 and October 1 in each calendar year, which rate
     shall apply during the three consecutive calendar months commencing two
     Business Days after the determination as aforesaid;

(v)  Loan Rate:  the annual rate of interest equal to:
     ---------

          (i)  the rate of interest that is from time to time charged to Buyer
               with respect to its outstanding Senior Debt, including a pro rata
               share of any and all closing fees, agent's fees, costs of credit
               hedging arrangements and other similar costs and charges imposed
               or required to be paid pursuant to the terms of the instruments
               governing such Senior Debt as a charge for or as a condition of
               the extension of the credit represented by such Senior Debt; or

          (ii) if and for so long as no amount is outstanding as Senior Debt,
               the rate of interest that is one percentage point above the rate
               of interest published in The Wall Street Journal as "Prime Rate:
               the base rate on corporate loans at large US money centre
               commercial banks";

(w)  Maximum Annual Quantity:  the number of MMBtu's of natural gas calculated
     -----------------------
     in accordance with subsection 2.3(b), or (c), as the case may be;

(x)  Maximum Daily Quantity:  thirty thousand (30,000) MMBtu's of natural gas;
     ----------------------

(y)  Maximum Entitlement:  one hundred and twenty million (120,000,000) MMBtu's
     -------------------
     of natural gas;

(z)  MMBtu:  one million (1,000,000) Btu's;
     -----

(aa) Month:  the period beginning at 7:00 a.m. on the first day of a calendar
     -----
     month and ending at 7:00 a.m. on the first day of the following calendar
     month;

(bb) Net Cash Flow:  in respect of a Debt Repayment Period, Buyer's cash
     -------------
     receipts less the aggregate of:

                                      -5-
<PAGE>

          (i)  debt service in connection with Senior Debt (provided that any
               such amounts which are due and payable solely by virtue of an
               acceleration shall not be subtracted from cash receipts for
               purposes of determining Net Cash Flow);

          (ii) all amounts required to be and actually paid for or in connection
               with the operation and maintenance of the Buyer's Facilities,
               including amounts to be paid to suppliers and transporters of
               consumables (but excluding the payment of any bonuses to any
               operators, any management or other fees to G.A.S., Adam H. Victor
               or any general partner of Buyer or to any entity controlled by,
               under common control with or which controls either G.A.S., Adam
               H. Victor or any such general partner, or any other similar
               payments or fees, except to the extent such bonuses or fees to
               operators or general partners are treated under the Senior Debt
               Documents as operating expenses which Buyer may pay out of its
               revenues prior to the payment of interest on Senior Debt);

         (iii) all fees, charges and other amounts required to be and actually
               paid in connection with Senior Debt, including payments to any
               reserve fund required by such Senior Debt (less all amounts
               released to Buyer from any such reserve fund), except any
               voluntary prepayments of principal and payments in the nature of
               additional interest determined as a percentage of net income or
               revenues of Buyer or in any other manner contingent upon the
               operations of Buyer;

          (iv) all amounts required to be paid and actually paid or set aside
               for payment of real property taxes (or payments to municipal
               authorities in lieu thereof) with respect to all or part of
               Buyer's Facilities or with respect to gross receipts, franchise
               or other similar taxes; and

          (v)  all amounts required to be and actually paid for Buyer's
               reasonable expenses of administration and overhead (other than to
               or for the benefit of G.A.S., Adam H. Victor or any general
               partner of Buyer, or any entity controlled by, under common
               control with or which controls either G.A.S., Adam H. Victor or
               any such general partner, except to the extent that such amounts
               are treated under the Senior Debt Documents as operating expenses
               which Buyer may pay out of its revenues prior to the payment of
               interest on Senior Debt);

(bb1) Noranda Financial Statements:  the consolidated balance sheets of Seller
      ----------------------------
     as at the end of the particular financial year and consolidated statements
     of earnings and retained earnings and consolidated statements of changes in
     financial position for such year, prepared in accordance with generally
     accepted accounting principles consistently applied, stating in comparative
     form and on a consistent basis (except where noted and quantified) the
     respective figures as at the end of and for the previous year;

                                      -6-
<PAGE>

(cc) NOVA:  NOVA Corporation of Alberta;
     ----

(dd)  Permitted Investments:
      ---------------------

          (i)  direct obligations of the United States of America (including
               obligations issued or held in book-entry form on the books of the
               Department of the Treasury of the United States of America) and
               obligations the timely payment of the principal of and interest
               on which are fully guaranteed by the United States of America;

          (ii) obligations, debentures, notes and other evidence of indebtedness
               issued or guaranteed by the Export-Import Bank of the United
               States or the Federal Housing Administration or other agency or
               instrumentality of the United States;

         (iii) interest-bearing demand and time deposits (including
               certificates of deposit) which are either (A) insured by the
               Federal Deposit Insurance Corporation, or (B) held in banks and
               savings and loan associations whose general obligations are rated
               at least "AA" or equivalent by Standard & Poor's Corporation
               ("S&P") or Moody's Investors Services, Inc. ("Moody's"), or if
               not so rated, secured at all times, in the manner and to the
               extent provided by law, by collateral security described in
               subsection 1.1(ee) (i) or (ii) of a market value or no less than
               the amount of moneys so invested;

          (iv) commercial paper rated (on the date of acquisition thereof) at
               least A-1 or P-1 or equivalent by S&P or Moody's respectively (or
               having an equivalent rating by another nationally recognized
               credit-rating agency of similar standing if neither S&P nor
               Moody's is then in the business of rating commercial paper),
               maturing not more than 270 days from the date of creation
               thereof; or

          (v)  any corporate evidence of indebtedness rated at least "A-" or
               equivalent by S&P or Moody's;

(ee) Point(s) of Delivery:  the point (or points, if additional points of
     --------------------
     delivery are designated pursuant to section 4.2) at which natural gas other
     than Fuel Gas is delivered hereunder;

(ff) Promissory Note:  a promissory note made by Buyer in the form attached
     ---------------
     hereto as Exhibit B;

(gg) Purchase Money Mortgage:  any mortgage, charge, hypothec, pledge or other
     -----------------------
     security or encumbrance created upon any real or personal property acquired
     by Seller after the date of this Agreement (or previously acquired and
     substantially unimproved) to secure or securing the whole or any part of
     the purchase price of such property (or, in the case of previously acquired
     and substantially unimproved property, the cost of the improvement

                                      -7-
<PAGE>

     thereof) or the repayment of money borrowed to pay the whole or any part of
     such purchase price or cost or any Vendor's privilege or lien on such
     property securing all or any part of such purchase price or cost, including
     title retention agreements and leases in the nature of title retention
     agreements;

(hh) Quarterly Deduction:  $470,000 or such lesser amount as is contemplated in
      ------------------
     the third sentence of subsection 3.7(b);

(ii) Regularly Scheduled Outage:  a shutdown or partial shutdown of Buyer's
     --------------------------
     Facilities that Buyer schedules in the normal course of business for
     purposes of routine inspection, maintenance and repair of Buyer's
     Facilities;

(jj) Replacement Contract:  shall have the meaning attributed thereto in
     --------------------
     subsection 12.1(d);

(kk) Scheduled Daily Quantity:  each daily quantity of natural gas of which
     ------------------------
     Seller is advised by Buyer pursuant to subsection 2.5(a);

(ll) Seller's Shareholders Equity:  at any date, the aggregate of the dollar
     ----------------------------
     amount of the outstanding share capital of Seller, the amount, without
     duplication, of any surplus, whether contributed or capital, and retained
     earnings, subject to any foreign exchange translation adjustment, all as
     set forth in the most recent audited consolidated balance sheet of Seller;

(mm) Senior Debt:  indebtedness to one or more financial institutions for money
     -----------
     borrowed, the aggregate outstanding principal amount of which will at no
     time exceed $235,500,000 during construction of Buyer's Facilities and
     $200,000,000 following equity infusion, substantially all of the proceeds
     of which are designated for use in connection with the construction,
     development, improvement, expansion, alteration, maintenance, repair,
     replacement, or operation, or for costs of the development of Buyer's
     Facilities, or for refinancing of any indebtedness constituting Senior
     Debt;

(nn) Senior Debt Documents:  the documents evidencing the Senior Debt;
     ---------------------

(oo) Substitute Supplies:  substitute supplies of natural gas or an alternative
     -------------------
     fuel purchased by Buyer to replace quantities of natural gas which Seller
     is obligated but unable to sell and deliver to Buyer at the Point(s) of
     Delivery by reason of an event of force majeure, as defined in Article 9,
     or by reason of a default by Seller, as contemplated by section 12.1, or
     which cannot be delivered to Buyer's Facilities from the Point(s) of
     Delivery by reason of an event of force majeure, as defined in Article 9;

(pp) TCPL:  TransCanada PipeLines Limited;
     ----

(qq) Threshold Data:  means the Day on which the Deferral Balance first equals
     --------------
     or exceeds $11,280,000; and

                                      -8-
<PAGE>

(rr) Unconsumed Entitlement:  at any particular time, the quantity of natural
     ----------------------
     gas, expressed in MMBtu's, equal to the difference, if any, between

          (x)  the Maximum Entitlement, and

          (y) the sum of the Consumed Amount and the aggregate of all reductions
          in the Unconsumed Entitlement made pursuant to subsections 3.7(l) and
          12.2(a).

                                   ARTICLE 2

                                   QUANTITIES
                                   ----------

2.1  Purchased Quantity
     ------------------

     During the term of this Agreement, and subject to the terms and conditions
of this Agreement, Seller shall make the Unconsumed Entitlement available for
sale and delivery to Buyer at the Point(s) of Delivery.  Seller may at its
option purchase natural gas from third parties for sale and delivery hereunder.

2.2  Source
     ------

     During the term of this Agreement, Buyer shall not use in Buyer's
Facilities natural gas purchased from any person other than Seller except in the
following circumstances:

(a)  where and for so long as Seller fails, for any reason whatsoever, including
     the occurrence of an event of force majeure or Seller's default, to deliver
     to the Point(s) of Delivery the quantity of natural gas that Buyer may
     nominate under this Agreement, in which case Buyer shall be entitled to use
     Substitute Supplies;

(b)  where and for so long as, by reason of the occurrence of an event of force
     majeure, the quantity of natural gas that Buyer may nominate under this
     Agreement cannot be delivered from the Point(s) of Delivery to Buyer's
     Facilities, in which case Buyer shall be entitled to use Substitute
     Supplies;

(c)  where and for so long as the pipeline company or local distribution company
     which delivers natural gas directly to Buyer's Facilities shall have
     delivered to Buyer a monthly quantity of natural gas in excess of the
     quantity that Buyer shall have nominated to Seller under this Agreement,
     provided that Buyer shall use reasonable efforts to keep any such excess
     deliveries to the minimum quantity practicable in the circumstances;

(d)  where and for so long as, pursuant to the terms and conditions set forth in
     section 15.6, natural gas purchased from Seller is delivered to one or more
     third parties in exchange, directly or indirectly, for the supply to Buyer
     of fuel to be consumed at Buyer's Facilities;

(e)  where and for so long as, for any reason, the quantity of natural gas
     required by Buyer for consumption in Buyer's Facilities for any Day exceeds
     the greater of

                                      -9-
<PAGE>

          (x)  the quantity of natural gas that Buyer has nominated for such
               Day, or

          (y)  17,250 MMBtu's; or

(f)  where, for so long as and to the extent that, for any reason, the quantity
     of natural gas required by Buyer for consumption in Buyer's Facilities
     exceeds the quantity of natural gas that Seller is obligated to make
     available to Buyer hereunder.

2.3  Maximum Quantity.
     ----------------

     (a)  Subject to the other provisions of this Agreement, including without
limitation the limitations as to Maximum Annual Quantity set forth in
subsections 2.3(b) and (c), Seller shall make the Maximum Daily Quantity
available for delivery to Buyer at the Point(s) of Delivery on each Day during
the term of this Agreement.

     (b)  Subject to the other provisions of this Agreement, during each of the
first five Contract Years, Seller shall make available to Buyer at the Point(s)
of Delivery a Maximum Annual Quantity equal to the lesser of the following
numbers of MMBtu's:

          (i)  9,000,000; and

          (ii) 7,500,000 + [(5,000,000 + [7,500,000 x CY]) - CA]

          where  CY =  the number of completed Contract Years, and

                 CA =  the Consumed Amount as at the end of the most recently
                       completed Contract Year.

     (c) Subject to the other provisions of this Agreement, during each of the
sixth and subsequent Contract Years, Seller shall make available to Buyer at the
Point(s) of Delivery a Maximum Annual Quantity equal to the lesser of the
following numbers of MMBtu's:

          (i)  9,000,000; and

          (ii) 8,500,000 + [(42,500,000 + [8,500,000 x CY]) - CA]

          where  CY =  the number of completed Contract Years less 5, and

                 CA =  the Consumed Amount as at the end of the most recently
                       completed Contract Year.

2.4  Delivery
     --------

     It is understood that Buyer's ability to accept delivery of natural gas
from Seller at the Point(s) of Delivery may be interrupted from time to time as
a result of an outage at Buyer's Facilities, in which case the following
procedures shall apply:

                                      -10-
<PAGE>

(a)  In the event of a Regularly Scheduled Outage, Buyer shall use its best
     efforts to provide Seller with whatever advance notice is reasonably
     practicable in the circumstances and, in any event, Buyer shall provide
     Seller with at least thirty (30) Days notice.  Such notice shall specify
     the time and Day on which Buyer's Facilities will be taken out of service,
     the quantity of natural gas, if any, Buyer shall require during the
     Regularly Scheduled Outage and the time and the Day on which full
     deliveries of natural gas are to be resumed.  Seller shall suspend or
     reduce, as appropriate, deliveries of natural gas to Buyer at the Point(s)
     of Delivery starting on the Day and at the time specified in Buyer's
     notice, provided that Seller shall not be required to suspend or reduce
     such deliveries prior to the expiry of thirty (30) Days following the
     receipt of Buyer's notice.  If there is a change in the duration of a
     Regularly Scheduled Outage, Buyer shall promptly notify Seller of the new
     Day and time on which full deliveries are to be resumed.  Seller shall
     resume or increase, as appropriate, its daily deliveries of natural gas at
     the Point(s) of Delivery on the Day and at the time specified in Buyer's
     notice, provided that Seller shall not be required to resume or increase
     its daily deliveries until the expiry of forty-eight (48) hours following
     the receipt of Buyer's notice.

(b)  If for any reason other than a Regularly Scheduled Outage, Buyer's
     Facilities are unable to consume all or a portion of the Scheduled Daily
     Quantities for one or more remaining Days of the Month, Buyer shall so
     notify Seller.  Within forty-eight (48) hours following receipt of said
     notice, or at such later Day and time as may be specified in said notice,
     Seller shall suspend or reduce, as appropriate, deliveries of gas at the
     Point(s) of Delivery in accordance with Buyer's notice.  Seller shall use
     its best efforts to resume or increase, as appropriate, its daily
     deliveries of natural gas to the Point(s) of Delivery on the Day and at the
     time specified in Buyer's notice but in no event shall Seller be required
     to resume or increase its daily deliveries within less than forty-eight
     (48) hours following receipt of Buyer's notice.

(c)  If for any reason Buyer's Facilities are unable to receive or consume all
     or any portion of the Scheduled Daily Quantities for one or more remaining
     Days of the Month, Buyer shall have the option of reselling to one or more
     third parties which are regularly and substantially engaged in the
     development, production and/or transportation or distribution of oil and/or
     natural gas a daily quantity of natural gas delivered to Buyer at the
     Point(s) of Delivery not exceeding the portion of the Scheduled Daily
     Quantities not delivered to Buyer's Facilities.  Buyer shall provide Seller
     with written notice of Buyer's election to resell such quantities,
     specifying the quantities to be resold, the period of time over which the
     sale of such quantities is to take place and the name and business address
     of the third party purchasing the quantities of natural gas.  Buyer shall
     provide Seller with as much advance notice of its election as is feasible
     under the circumstances.  If at the end of such period Buyer's Facilities
     continue to be unable to receive or consume all or any portion of the
     Maximum Daily Quantity, as specified in section 2.3, Buyer shall have the
     option of continuing to resell to one or more such third parties a daily
     quantity of natural gas not to exceed the Maximum Daily Quantity upon
     written notice to Seller, which notice shall specify the quantities to be
     resold, the period of time over which the sale of such quantities is to
     take place and the name and business address of the third party purchasing

                                      -11-
<PAGE>

     the quantities of natural gas.  When Buyer's Facilities return to service
     or are able to receive and consume the full amount of Scheduled Daily
     Quantities, Buyer shall use reasonable efforts to cease the resale of
     natural gas as soon as possible.

2.5  Daily Schedule
     --------------

     (a)  Buyer shall advise Seller no less than seven (7) Days prior to the
first Day of each Month during the term of this Agreement of the schedule of
daily quantities of natural gas to be delivered by Seller at the Point(s) of
Delivery on each Day, not to exceed the Maximum Daily Quantity, during such
Month.  Buyer shall not be required to advise Seller as aforesaid in respect of
any period during which Seller is unable to deliver or Buyer is unable to
consume natural gas hereunder as the result of the occurrence of an event of
force majeure.

     (b)  Buyer shall during any Month be entitled to request changes in
Scheduled Daily Quantities if appropriate to meet Buyer's needs.  If Buyer makes
such a request, Seller shall use reasonable efforts to increase or decrease
Scheduled Daily Quantities in order to meet such requests.

2.6  Monthly Estimates
     -----------------

     Buyer shall provide Seller no less than seven (7) Days prior to the first
Day of each Month during the term of this Agreement with a preliminary estimate
of the total monthly quantity to be nominated by Buyer for the particular Month
and the succeeding two (2) Months.  Differences between Buyer's actual Scheduled
Daily Quantities provided pursuant to section 2.5 and its preliminary estimate
shall be not be considered a default under or breach of this Agreement.

                                   ARTICLE 3

                                    PRICING
                                    -------

3.1  General
     -------

     The Maximum entitlement shall be paid for in accordance with the provisions
of Article 8.  In addition to the payment contemplated in section 8.1, Buyer
shall pay to Seller, as part of the price for the Maximum Entitlement, the
amounts provided for in sections 3.2, 3.3, 3.4 and 3.5.

3.2  For Production, etc. Costs
     --------------------------

     Buyer shall also pay to Seller, as part of the price for natural gas
delivered hereunder, an amount in respect of production, gathering and
processing costs incurred by Seller.  The said amount shall be $0.3226 per MMBtu
delivered and measured into the pipeline facilities for NOVA until December 31,
1990.  Subject to section 3.3, of the first Day of each particular calendar year
subsequent to 1990, the said amount to be paid for the particular subsequent
calendar year shall be escalated by an amount equal to the product of

                                      -12-
<PAGE>

          (x)  the percentage increase in the United States GNP Implicit Price
          Deflator from the first Day of the immediately preceding calendar year
          to the first Day of the particular calendar year, and

          (y)  the said amount in effect under this Agreement for the
          immediately preceding calendar year.

3.3  For 16th Contract Year et seq.
     ------------------------------

     (a)  Prior to the commencement of the sixteenth (16th) Contract Year,
Seller shall cause to be calculated, in accordance with subsection 3.3(d), as an
amount per MMBtu, the aggregate of all costs actually being incurred by Seller
during the fifteenth Contract Year in producing, gathering and processing
natural gas for delivery hereunder.  Subject to subsection 3.3(b), the amount to
be paid pursuant to section 3.2 by Buyer to Seller for the sixteenth (16th)
Contract Year shall be an amount which is the higher of the amount so calculated
and the amount in effect pursuant to section 3.2 at the end of the fifteenth
(15th) Contract Year.

     (b)  In respect of all natural gas delivered hereunder on or after the
first Day of the calendar year beginning during the sixteenth (16th) Contract
Year, the said amount to be paid pursuant to section 3.2 shall be equal to the
said amount in effect pursuant to section 3.3(a) on the first Day of the
sixteenth (16th) Contract Year escalated by an amount equal to the product of

          (x)  the percentage increase in the United States GNP Implicit Price
          Deflator from the first Day of the immediately preceding calendar year
          to the first Day of the particular calendar year, and

          (y)  the said amount in effect pursuant to section 3.3(a) on the first
          Day of the sixteenth (16th) Contract Year.

     (c)  In respect of all natural gas delivered on or after the first Day of
each particular calendar year beginning after the end of the sixteenth (16th)
Contract Year, the said amount in effect pursuant to subsection 3.3(b) at the
end of the immediately preceding calendar year shall be escalated by an amount
equal to the product of (x) the increase in the United States GNP Implicit Price
Deflator from the first Day of the immediately preceding calendar year to the
first Day of the particular calendar year and (y) the said amount in effect
pursuant to section 3.3(b) for such immediately preceding calendar year.

     (d)  The calculation of all costs actually being incurred by Seller in
producing, gathering and processing natural gas prior to the commencement of the
sixteenth (16th) Contract Year shall be performed by the independent chartered
accountant utilized by Seller for its annual audit of its financial statements
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.  Seller shall cause the said
accountant to deliver to Buyer a certificate attesting to the calculation of
such costs within sixty (60) Days after the end of the calendar year ending at
or immediately prior to the commencement of the sixteenth (16th) Contract Year.
The costs included in the calculation shall be of the types described in Exhibit
A hereto, and the calculation shall be made in the same manner and on the same
basis as

                                      -13-
<PAGE>

the calculation used in deriving the figure of $0.30 per MMBtu in respect of
such costs for the year ended December 31, 1988, on which calculation the said
figure of $0.3226 per MMBtu is based.

3.4  For Royalties
     -------------

     (a)  Subject to subsection 3.4(b), Buyer shall also pay to Seller, as part
of the price of natural gas sold and delivered hereunder, an amount equal to all
royalties paid by Seller:

          (i)  to Her Majesty the Queen in right of Alberta with respect of so
               much of such natural gas as is produced in Alberta; and

          (ii) to duly constituted governmental authorities in other
               jurisdictions in respect of so much of such natural gas as is
               produced in each such other jurisdiction;

provided that the amount payable under this subclause in respect of natural gas
produced elsewhere than in Alberta shall be equal to the royalties which would
have been paid to Her Majesty the Queen in right of Alberta in respect of such
natural gas had it been produced by Seller in Alberta, unless and to the extent
that Seller was unable to produce an equal quantity of its own natural gas in
Alberta for sale and delivery hereunder by virtue of the occurrence of an event
of force majeure.  The said amount shall be reduced to the extent that such
royalties are, following payment by Buyer of part of the price in respect
thereof, rebated to Seller by such governmental authorities.

     (b)  If Seller purchases natural gas from one or more third parties for
sale and delivery to Buyer hereunder, the amount to be paid to Seller pursuant
to this section in respect of such natural gas shall be equal to the product of

          (x)  a fraction having (1) as its numerator the total amount paid by
          Buyer to Seller pursuant to subsection 3.4(a) in respect of natural
          gas produced by Seller for sale and delivery to Buyer hereunder in
          respect of the most recent Month during which natural gas so produced
          was sold and delivered hereunder and (2) as its denominator the
          aggregate number of MMBtu's of natural gas so produced during the said
          most recent Month, and

          (y)  the number of MMBtu's of natural gas purchased from third parties
          and sold and delivered hereunder.

     (c)  The payment during a Contract Year of amounts in respect of Alberta
royalty tax credit by Her Majesty to Seller pursuant to the Alberta Corporate
Tax Act shall constitute a rebate of royalties to Seller for the purposes of
subsection 3.4(a).  The rebate of royalties in a Contract Year for the purposes
of this Agreement shall be deemed to be a portion of the aggregate of all such
amounts paid to Seller in respect of the Alberta royalty tax credit during the
Contract Year, which portion shall be a fraction

                                      -14-
<PAGE>

          (x)  having as its numerator the aggregate of all quantities of
          natural gas sold and delivered hereunder by Seller to Buyer during the
          Contract Year, and

          (y)  having as it denominator the aggregate of all quantities of
          natural gas sold and delivered by Seller or CHEL to all persons during
          the Contract Year, including without limitation Buyer.

3.5  For Transportation
     ------------------

     (a)  Buyer shall also pay to Seller, as part of the price of natural gas
delivered hereunder, an amount equal to all transportation costs incurred by
Seller in delivering natural gas to Buyer at the Point(s) of Delivery. For the
purposes of calculating the amount payable by Buyer under this section, it shall
be irrebuttably presumed that all natural gas delivered to Buyer at the Point(s)
of Delivery was initially delivered and measured into NOVA's facilities at the
NOVA Meter Station designated No. 1541 and located in Section 8, Township 70,
Range 11, West of the Sixth (6th) Meridian.

     (b)  Buyer shall reimburse Seller for all transportation costs incurred by
Seller for service in the NOVA and TCPL pipelines on and after the Initial
Delivery Day in respect of natural gas delivered or to be delivered to Buyer or
third parties hereunder, whether or not actually delivered, including without
limitation fixed costs incurred by Seller for firm service in the NOVA and TCPL
pipelines and facilities whether or not such service is actually utilized,
except to the extent that:

          (i)  Seller recovers any such costs from other parties in respect of
               natural gas delivered to other parties as contemplated hereunder;

          (ii) Seller makes use of such service for its own benefit;

         (iii) such costs relate to a period during which Seller is in default
               under this Agreement; or

          (iv) Buyer makes a payment to Seller in respect of such costs pursuant
               to subsection 3.5(a).

3.6  Import and Export Taxes
     -----------------------

     Buyer and Seller each shall pay 50 per cent of any tax on the export of
natural gas from Canada or on the import of natural gas into the United States
of America imposed on either party in respect of natural gas delivered hereunder
by a duly constituted governmental authority or authorities either in Canada or
the United States of America during the term of this Agreement. Subject to the
foregoing sentence:

(a)  Seller shall be responsible for all sales and use taxes imposed in respect
     of natural gas delivered hereunder by a duly constituted governmental
     authority or authorities in Canada; and

                                      -15-
<PAGE>

(b)  Buyer shall be responsible for all sales and use taxes imposed in respect
     of natural gas delivered hereunder by a duly constituted governmental
     authority or authorities in the United States of America.

3.7  Deferral of Payments
     --------------------

     (a)  Buyer shall be entitled to defer the payment to Seller of a portion of
certain amounts, in the manner provided in this section 3.7.

     (b)  Buyer shall forthwith establish the Deferral Account and notify Seller
of the name and account number of the Deferral Account, and shall forthwith
notify Seller of any change in the name or account number of the Deferral
Account. All funds held in the Deferral Account shall be owned by Buyer and
dealt with, applied and paid by Buyer in accordance with the terms of this
Agreement. Buyer shall apply and pay Net Cash Flow in the manner herein
contemplated and not for any other purpose if there is any amount due or
required to be paid hereunder to Seller or due to or required to be deposited
into the Deferral Account. No amount shall be withdrawn from the Deferral
Account and applied, paid or held otherwise than as expressly permitted by this
Agreement, and any amount so withdrawn shall forthwith be replaced by Buyer.

     (c)  Interest shall accrue quarterly on the Deferral Balance in an amount
equal to:

          (i)  interest from time to time earned on the Account Balance,
               calculated quarterly and compounded yearly; plus

          (ii) interest on the remainder of the Deferral Balance, at the
               weighted average of investment yields on the Account Balance from
               time to time;

except that during any quarter when there is no invested amount contained in the
Deferral Account, interest on the Deferral Balance shall accrue at the Libor
Rate. The Account Balance shall be invested only in Permitted Investments.
Seller shall from time to time notify Buyer as to the Permitted Investments in
which the Account Balance or part thereof shall be invested, and Buyer shall
direct the Bank to invest such amounts in accordance with such instructions. If
Seller fails to provide investment instructions to Buyer at least ten (10) Days
prior to the time when any investment decision is required, amounts held in the
Deferral Account shall be invested in such Permitted Investments as may be
designated by Buyer. The maturity of Permitted Investments in which the Account
Balance or any part thereof is invested shall be structured to allow anticipated
payments from the Deferral Account to be made when due out of uninvested cash in
the Deferral Account.

     (d)  Out of the aggregate of amounts otherwise due from Buyer to Seller
pursuant to sections 3.2, 3.3, 3.4, 3.5 and 3.6 on a Debt Repayment Date falling
prior to the earlier of

          (x)  the first Day of the eleventh (11th) Contract Year, and

          (y)  the Threshold Date,

                                      -16-
<PAGE>

Buyer shall be entitled to withhold and defer payment of an amount equal to the
Quarterly Deduction. If less than $470,000 is due to Seller on any particular
Debt Repayment Date, the difference between $470,000 and the amount then due
shall be withheld from successive amounts thereafter becoming due until the
aggregate of all such additional withholdings equals the particular Quarterly
Deduction to be made. Notwithstanding the foregoing, on any Debt Repayment Date
falling after the Threshold Date, Buyer shall not withhold as a Quarterly
Deduction more than the amount actually paid to Seller pursuant to subsection
3.7(g).

     (e)  On the particular Debt Repayment Date and any such subsequent date on
which a Quarterly Deduction or part thereof is made, Buyer shall deposit into
the Deferral Account the lesser of

          (x)  the Quarterly Deduction or part thereof, as the case may be, and

          (y)  Net Cash Flow for the Debt Repayment Period most recently ended
          or to which the particular Quarterly Deduction or part thereof
          relates.

     (f)  On each Debt Repayment Date falling after the earlier of

          (x)  the last Day of the sixth (6th) Contract Year, and

          (y)  the Threshold Date,

and prior to the eleventh (11th) Contract Year, Buyer shall pay to Seller the
interest accrued pursuant to subsection 3.7(c) during the Debt Repayment Period
ending on the particular Debt Repayment Date or most recently ended, as the case
may be, or, in the case of the first Debt Repayment Date falling after the
Threshold Date if the Threshold Date occurs prior to the first Day of the
seventh (7th) Contract Year, the interest accrued since the Threshold Date.

     (g)  On each Debt Repayment Date falling after the earlier of

          (x)  the last day of the sixth (6th) Contract Year, and

          (y)  the Threshold Date,

and prior to the eleventh (11th) Contract Year, Buyer shall pay to Seller an
amount equal to the Deferred Payment, which shall be equal to the lesser of

          (x)  $470,000, and

          (y)  the amount by which (1) the Deferral Balance, immediately prior
          to giving effect to the payments to be made on the particular Debt
          Repayment Date pursuant to subsection 3.7(f) and this subsection
          3.7(g) exceeds (2) the sum of (A) $11,280,000 plus (B) the amount of
          the payment to be made on the particular Debt Repayment Date pursuant
          to subsection 3.7(f).

                                      -17-
<PAGE>

Each such Deferred Payment shall be paid out of the Account Balance to the
extent that the Account Balance is available to be applied thereto in accordance
with subsection 3.7(k).

     (h)  On each Debt Repayment Date during the eleventh (11th), twelfth (12th)
and thirteenth (13th) Contract Years (other than the last Debt Repayment Date
during the thirteenth (13th) Contract Year), Buyer shall pay to Seller an amount
equal to one twelfth (1/12th) of the Deferral Balance on the first (1st) Day of
the eleventh (11th) Contract Year, plus interest accrued pursuant to subclause
3.7(c) during the Debt Repayment Period most recently ended. On the last Debt
Repayment Date during the thirteenth (13th) Contract Year, Buyer shall pay to
Seller the entire Deferral Balance, if any.

     (i)  On each Debt Repayment Date, to the extent that Net Cash Flow is
available to be applied thereto in accordance with subsection 3.7(k), Buyer
shall deposit into the Deferral Account an amount equal to the Accumulated
Deposit Deficiency or part thereof.

     (j)  On each Debt Repayment Date, to the extent that the Account Balance
and Net Cash Flow for the Debt Repayment Period most recently ended, or any of
them, are or is available to be applied thereto in accordance with subsection
3.7(k), Buyer shall pay to Seller the Accumulated Payment Deficiency or part
thereof.

     (k)  Net Cash Flow shall be paid and applied as contemplated in this
section 3.7 in the following order of priority:

          (i)  firstly, to the payment of interest accruing under subsection
               3.7(c);

          (ii) secondly, to the payment of the current Deferred Payment;

         (iii) thirdly, to the payment of the amount contemplated to be paid
               pursuant to subsection 3.7(h);

          (iv) fourthly, to payment of the Accumulated Payment Deficiency or
               part thereof; and

           (v) fifthly, to deposits to reduce the Accumulated Deposit
               Deficiency.

The Account Balance shall be paid and applied as contemplated in this section
3.7 in the following order of priority:

           (i) firstly, to the payment of interest accruing under subsection
               3.7(c);

          (ii) secondly, to the payment of the current Deferred Payment;

         (iii) thirdly, to the payment of the amount contemplated to be paid
               in subsection 3.7(h); and

          (iv) fourthly, to payment of the Accumulated Payment Deficiency or
               part thereof.

                                      -18-
<PAGE>

     (1)  If at any time the Deferral Ratio is greater than 0.833, and
notwithstanding that the Deferral Balance may be less than $11,280,000; Seller
may so notify Buyer. Buyer shall, within ten (10) Days of receipt of any such
notice, and whether or not Net Cash Flow is available for the purpose or the
Deferral Balance may as a result of such payment be reduced below $11,280,000,
pay to Seller an amount of money in reduction of the Deferral Balance,
sufficient to reduce the Deferral Ratio such that it is not more than 0.833.  If
Buyer does not make any such payment, or pays less than the sufficient amount
aforesaid, within the said ten (10) Day period, Seller may, in its sole
discretion and upon notice to Buyer, unilaterally effect a reduction in the
Deferral Ratio

          (i)  by reducing the Unconsumed Entitlement and thereby the
               Entitlement Value, and

          (ii) by reducing the Deferral Balance by the product of (x) 0.909 and
               (y) the reduction in the Entitlement Value resulting from the
               aforesaid reduction in the Unconsumed Entitlement,

until the Deferral Ratio is equal to 0.833.  The reduction of the Deferral
Balance, whether by virtue of a payment by Buyer or upon Seller's election,
shall be effected by first reducing the Accumulated Payment Deficiency, and,
when the Accumulated Payment Deficiency has been reduced to zero, by further
reducing the Deferral Balance. The Unconsumed Entitlement, Entitlement Value,
Accumulated Payment Deficiency and Deferral Balance as so reduced shall be
deemed for all purposes hereunder to be the Unconsumed Entitlement, Entitlement
Value, Accumulated Payment Deficiency and Deferral Balance, respectively, as at
the particular time. An election to reduce or not reduce the Unconsumed
Entitlement pursuant to this subsection 3.7(1) or subsection 12.2(a) shall not
in any way fetter or prejudice the right of Seller to make a different election
at any other time.

     (m)  If at any time the Deferral Ratio is equal to or greater than 0.909,
and notwithstanding that the Deferral Balance may be less than $11,280,000 and
that the Unconsumed Entitlement may be greater than zero, Seller may, in lieu of
electing to effect the reduction in the Deferral Ratio as contemplated in
subsection 3.7(1), in its sole discretion, upon ten (10) Days Written notice to
Buyer, cease delivering natural gas hereunder until Buyer makes a sufficient
payment to Seller as contemplated in the second sentence of subsection 3.7(1).
An election to cease or not to cease deliveries of natural gas pursuant to this
subsection 3.7(m) at any time shall not in any way fetter or prejudice the right
of Seller to make a different election at any other time.

     (n)  If on any Debt Repayment Date, after giving effect to the payments
actually made on or in respect of the particular Debt Repayment Date, the
Deferral Balance exceeds $11,280,000, Seller may, within fifteen (15) Days of
receipt of the payment or payments, notify Buyer of the amount of the Deferral
Balance. Buyer shall, within ten (10) Days of receipt of any such notice, and
whether or not there is Net Cash Flow available for the purpose, pay to Seller
an amount of money sufficient to reduce the Deferral Balance such that it does
not exceed $11,280,000 on the date of the payment.

                                      -19-
<PAGE>

     (o)  If the Unconsumed Entitlement is reduced pursuant to subsection
12.2(a) in respect of a failure by Buyer to pay, deposit or replace the deposit
of an amount, then the Deferral Balance shall be reduced by an amount equal to
the particular amount of the payment or deposit which Buyer has failed to make
or replace, and the reduction shall be effected in the order contemplated in the
fourth sentence of subclause 3.7(1).

     (p)  On the first Debt Repayment Date on which Buyer is entitled to and
does defer payment of an amount due to Seller in accordance with this section
3.7, Buyer shall execute and deliver to Seller the Promissory Note, evidencing
the obligation of Buyer to pay to Seller the amount so deferred and amounts
thereafter so deferred. In the event of a conflict between the terms and
provisions of this Agreement and the terms and provisions of the Promissory
Note, the terms and provisions of this Agreement shall govern and this Agreement
shall, without limiting the generality of the foregoing, be sufficient to
evidence the obligation of Buyer to pay to Seller any deferred amount as
contemplated in this section 3.7. Notwithstanding the foregoing, Seller shall
not be entitled to transfer the right to receive payment of any amount
contemplated by this section 3.7 without a concurrent transfer of the Promissory
Note evidencing such amount made in compliance with the terms and conditions of
such Promissory Note. Buyer shall, while the Promissory Note remains
outstanding, maintain a register of the owner or owners thereof as contemplated
in the form of Promissory Note attached hereto as Exhibit B.

3.8  Fuel Gas for Transportation
     ---------------------------

     (a)  Seller is required by virtue of the transportation arrangements with
NOVA and TCPL contemplated in section 10.1 to provide for Fuel Gas, in the
volumes determined by the application of the fuel ratios set forth in the said
transportation arrangements. Unless Buyer is providing Fuel Gas as contemplated
in subsection 3.8(c), Seller shall make such arrangements as it considers
necessary and appropriate in its absolute discretion for the supply of Fuel Gas
and may at its option purchase all or any part thereof from one or more third
parties.

     (b)  Buyer shall pay Seller, for all Fuel Gas supplied by Seller, a price
equal to the market value thereof (as agreed upon by Buyer and Seller), plus all
transportation and other costs incurred by Seller in causing such Fuel Gas to be
delivered to the places required.

     (c)  Buyer may, by written notice to Seller, elect to supply all or a
portion of the Fuel Gas required by Seller as contemplated in subsection 3.8(a).
If Buyer so elects, Buyer shall deliver Fuel Gas or cause Fuel Gas to be
delivered to Seller, at no cost to Seller, to the places and in the volumes
required by virtue of Seller's transportation arrangements. Buyer's right and
obligation to supply Fuel Gas shall be subject to any arrangements made by
Seller for the supply of Fuel Gas and the termination thereof.

     (d)  If Buyer and Seller are unable to agree on the market value of all or
any portion of the Fuel Gas supplied or to be supplied by Seller as contemplated
in subsection 3.8(b), or if Buyer so elects, each quantity of Fuel Gas in
respect of which Buyer and Seller are unable to agree or Buyer so elects shall
constitute natural gas sold and delivered to Buyer at the Point(s) of Delivery
on account of Seller's obligation set forth in section 2.1 in respect of the
Unconsumed Entitlement.

                                      -20-
<PAGE>

     (e)  The volumes of Fuel Gas required during any Day or Contract Year are
in addition to the Maximum Daily Quantity and Maximum Annual Quantity which
Seller is required to make available pursuant to section 2.3.

                                   ARTICLE 4

                               POINT OF DELIVERY
                               -----------------

4.1  Point of Delivery
     -----------------

     Title to, and risk of loss of, all natural gas, other than Fuel Gas,
delivered hereunder shall pass from Seller to Buyer at the point(s) of delivery
(herein the "Point(s) of Delivery") hereinafter described. For purposes of this
Agreement, the initial Point of Delivery of all natural gas delivered by Seller
hereunder shall be at the interconnection between the pipeline facilities of
TCPL and Tennessee Gas Pipeline Company located at or near Niagara Falls, New
York, but such initial Point of Delivery shall be subject to change in
accordance with section 4.2.

4.2  Additional Points of Delivery
     -----------------------------

     The parties may agree from time to time, in writing, on the designation of
different or additional point(s) of Delivery for the delivery of natural gas
under this Agreement. Seller shall not unreasonably withhold or delay its
agreement to the designation of any such different or additional Point(s) of
Delivery requested by Buyer.

                                   ARTICLE 5

                            MEASUREMENT AND QUALITY
                            -----------------------

5.1  Measurement
     -----------

     The quantities of natural gas delivered at the Point(s) of Delivery
hereunder shall be measured at the Point(s) of Delivery in accordance with the
applicable provisions of the transportation agreement dated October 11, 1990
entered into by TCPL and Seller or CHEL on Seller's behalf with respect to the
natural gas sold hereunder, as contemplated in that certain Precedent Agreement
dated December 21, 1988 between TCPL and CHEL.

5.2  Quality
     -------

     The natural gas delivered hereunder shall be of pipeline quality and shall
conform to the delivery specifications of TCPL.

5.3  Quantities Resold
     -----------------

     The quantities of natural gas resold by Seller pursuant to sections 9.3 and
15.1 or exchanged by Buyer pursuant to section 15.6 shall be measured and
determined at the border of the Province of Alberta when such quantities are
delivered for use outside the Province of Alberta or at the point where title to
such quantities passes from Seller when such quantities are delivered for use
within the Province of Alberta.

                                      -21-
<PAGE>

                                   ARTICLE 6

                            EFFECTIVE DATE AND TERM
                            -----------------------

6.1  Effective Date
     --------------

     This Agreement shall be effective as of December 8, 1987, provided that
Seller's obligation to deliver natural gas hereunder shall not commence until
the Day specified as the Initial Delivery Day in a notice given by Buyer to
Seller following payment by Buyer to Seller of the lump-sum payment specified in
section 8.1. Buyer shall specify the Initial Delivery Day in writing and on at
least thirty (30) Days notice, but in no event shall Buyer designate as the
Initial Delivery Day a Day less than nine (9) Months following the Month in
which Buyer makes its lump-sum payment to Seller pursuant to section 8.1.

6.2  Term
     ----

     This Agreement shall remain in effect for a term of twenty (20) Contract
Years. At the end of the twentieth (20th) Contract Year, whether or not the
Unconsumed Entitlement has by actual sales and deliveries and otherwise
hereunder been reduced to zero, it shall be deemed irrebuttably and irrevocably
to have reduced to zero and Buyer shall be deemed to have forfeited all right
and entitlement thereto.

                                   ARTICLE 7

                            REGULATORY REQUIREMENTS
                            -----------------------

7.1  Conditions
     ----------

     The parties' obligation to perform in accordance with this Agreement is
subject to the satisfaction of the following conditions precedent:

(a)  Seller shall have obtained a permit from the Alberta Energy Resources
     Conservation Board and the approval of the Lieutenant-Governor in Council
     of Alberta pursuant to the Gas Resources Preservation Act, RSA 1980, c. G-
     3, as amended, in form and substance satisfactory to the parties acting
     reasonably, authorizing the removal of natural gas from the Province of
     Alberta at those quantities set forth in Article 2 at the price provided
     for in Articles 3 and 8;

(b)  Seller shall have obtained an order from the National Energy Board,
     pursuant to Part VI of the National Energy Board Act, in form and substance
     satisfactory to the parties acting reasonably, authorizing the export of
     natural gas from Canada, in those quantities set forth in Article 2 and at
     the aggregate price provided for in Articles 3 and 8;

(c)  Seller shall have obtained all other permits, approvals, or orders, in form
     and substance satisfactory to the parties acting reasonably, required to
     enable Seller to perform its obligations under this Agreement and

                                      -22-
<PAGE>

(d)  Buyer shall have obtained such approvals from regulatory bodies, in form
     and substance satisfactory to the parties acting reasonably, as are
     necessary to permit the import into the United States of the natural gas to
     be delivered to Buyer hereunder and the transportation of such natural gas
     from the Point(s) of Delivery to Buyer's Facilities.

                                   ARTICLE 8

                                    PAYMENT
                                    -------

8.1  Payment
     -------

     In addition to the payments contemplated in Article 3, Buyer shall pay
Seller, on or before April 30, 1991, for the Maximum Entitlement, a lump-sum
payment of $88,000,000.

8.2  Officer's Certificate
     ---------------------

     It shall be a condition precedent to Buyer's obligation to make the lump-
sum payment provided for in section 8.1 that Seller shall have delivered to
Buyer, on a date specified by Buyer which is not more than five (5) Days prior
to the date of such payment, a certificate of an officer dated as of the
specified date certifying for and on behalf of Seller that:

(a)  all representations and warranties made by Seller in this Agreement are
     true and correct in all material respects as at the specified date,
     provided that the said certificate shall not state that the representation
     and warranty set forth in section 14.5 is subject to the condition
     precedent set forth in subsection 7.1(c);

(b)  the execution and delivery of, and the consummation of the transaction
     contemplated in, this Agreement by Seller have been duly authorized by all
     necessary corporate action on the part of Seller, and this Agreement
     constitutes legal, valid and binding obligations of Seller enforceable in
     accordance with its terms;

(c)  Seller is not aware of any default by it under this Agreement, nor of any
     default by any party under any of the transportation agreements, permits,
     licences or orders obtained by Seller or to which Seller is a party in
     order to carry out its obligations hereunder or to satisfy any conditions
     precedent to Buyer's obligations hereunder; and

(d)  Seller has entered into one or more agreements with NOVA and TCPL which is
     or are, so far as Seller is aware, binding and enforceable against NOVA and
     TCPL respectively under which Seller has and will continue to have
     available the right to have transported over the systems of NOVA and TCPL
     respectively such quantities of natural gas, at such times and in such
     amounts as may be necessary to enable Seller to perform its obligations to
     deliver natural gas to Buyer at the Point(s) of Delivery in accordance with
     the terms of this Agreement.

                                      -23-
<PAGE>

8.3  Monthly Statement
     -----------------

     On or before the twentieth (20th) Day of each Month following the Month of
initial delivery of natural gas by Seller to Buyer, Seller shall render a
statement to Buyer specifying the total quantity of gas delivered to Buyer at
the Point of Delivery during the preceding Month. Seller's statement shall also
specify any and all royalties and transportation costs incurred by Seller in
delivering said quantity to Buyer at the Point of Delivery. Subject to section
3.7, on or before the final Business Day of the Month, Buyer will pay to Seller
an amount equal to the aggregate of the amounts payable in accordance with
sections 3.2, 3.3, 3.4, 3.5, 3.8 and 15.6 as specified in Seller's statement.
All such payments shall be made by wire transfer, directed to a New York bank
account designated by CHEL, as agent for Seller, in such form that funds on
account of such payment shall be collectible in such account on the date payment
is due.

8.4  Statements to Third Parties
     ---------------------------

     If Buyer resells natural gas to one or more third parties pursuant to
section 2.4 or arranges for the exchange of natural gas pursuant to section
15.6, Seller shall provide to each party specified by Buyer a duplicate copy of
the statement supplied by Seller pursuant to section 8.3 at the same time the
statement is provided to Buyer. All payments of amounts billed to Buyer which
are made by such third parties and received by Seller will be accepted by Seller
and applied in payment of amounts owing by Buyer hereunder as though such
payments were made directly by Buyer. Nothing in this section 8.4 or in section
17.2 shall or shall be deemed to relieve or release Buyer from its primary
obligation to make payment of all amounts due and owing to Seller under this
Agreement or to impose upon Seller any obligation to seek or enforce payment or
collection of any amount from any such third party.

8.5  Payment of Taxes
     ----------------

     The party directly responsible for the payment of any import or export tax
on natural gas, as specified in section 3.6, shall make timely payment of the
full amount owed to the applicable governmental authority or authorities and
thereafter render a statement to the other party requesting reimbursement for
fifty percent (50%) of the total tax payment. Following receipt of such
statement, the party from which reimbursement is sought shall remit its fifty
percent (50%) share of the total tax payment (exclusive of any interest or
penalties imposed for the late payment of the tax) to the other party within ten
(10) Days. All such payments shall be made by wire transfer, directed to a bank
account designated by the party to which reimbursement is owed, in such form
that funds on account of such payment shall be collectible in such account on
the date payment is due. In lieu of such reimbursement, Buyer may offset monies
owed by Seller to Buyer pursuant to section 3.6 against any amount payable by
Buyer pursuant to section 3.2, 3.3, 3.4, 3.5, 3.8 or 15.6, in such order as
Buyer in its sole discretion may elect.

8.6  Records and Financial Statements
     --------------------------------

     (a) Each party shall have the right, at its own cost and at reasonable
times during normal business hours no more often than once each calendar
quarter, to examine and audit the books, records, accounts and charts of the
other party to the extent necessary to verify the

                                      -24-
<PAGE>

accuracy of any statement, charge or computation made under or pursuant to any
provisions of this Agreement.

     (b) Buyer shall furnish to Seller, as soon as available, and in any event
within ninety (90) days after the end of each financial year of Buyer ending
after the Initial Delivery Date, Financial Statements in respect of the
particular financial year. The Financial Statements furnished pursuant to this
subsection 8.6(b) shall have been audited by independent auditors of nationally
recognized standing and shall be accompanied by such auditors' report and
opinion that they fairly present the results of Buyer's operations for the
particular year.

     (c) Seller shall furnish to Buyer, at the time the same are mailed to
Seller's shareholders, and in any event within one hundred and twenty (120) days
after the end of each financial year of Seller ending after the Initial Delivery
Date, Noranda Financial Statements in respect of the particular financial year.
The Noranda Financial Statements furnished pursuant to this subsection 8.6(c)
shall have been audited by independent auditors of nationally recognized
standing and shall be accompanied by such auditors' report and opinion that they
fairly present the results of Seller's operations for the particular year on a
consolidated basis.

8.7  Exception to Amount Billed
     --------------------------

     If either party takes exception to any amount billed by the other party,
the party required to make the payment shall nonetheless pay the full amount
billed, but such payment may be made under protest.

8.8  Failure to Pay
     --------------

     Should one party fail to pay the amount of any statement rendered by the
other party as herein provided when such amount is due, interest thereon shall
accrue from the due date at the Loan Rate. Interest on any such amount remaining
unpaid beyond thirty (30) Days following the due date shall accrue at the Loan
Rate compounded monthly until the date of payment.

8.9  Delay in Statement
     ------------------

     If, pursuant to section 8.3, presentation of a statement by Seller is
delayed beyond the twentieth (20th) Day of a Month, then the time for payment
shall be extended accordingly, unless Buyer is responsible for the delay.

8.10  Overcharges
      -----------

     If Buyer shall find at any time within twelve (12) Months after the date of
any statement rendered by Seller pursuant to section 8.3 that it has been
overcharged in the amount billed in such statement, and if said overcharge shall
have been paid and Buyer shall have made a claim with respect thereto within
such twelve (12) Month period, the overcharge, if verified by Seller, shall be
refunded within thirty (30) Days, with interest calculated at the Loan Rate. If
Seller shall find at any time within twelve (12) Months after the date of any
statement rendered by it that there has been an undercharge in the amount billed
in such statement, it may submit a statement

                                      -25-
<PAGE>

for such undercharge to Buyer, and Buyer, upon verifying the same, shall pay to
Seller the amount of such undercharge, with interest calculated at the Loan
Rate.

                                   ARTICLE 9

                                 FORCE MAJEURE
                                 -------------

9.1  Effect
     ------

     If, by reason of the occurrence of an event of force majeure, either party
hereto is rendered unable to exercise all or some part of its rights or to
perform all or some part of its obligations as a result of any cause not
reasonably within the control of such party, and if such inability of exercise
or performance could not have been prevented or overcome or cannot be remedied
with the exercise of due diligence by such party and if such party gives notice
and reasonably full particulars of such event, in writing or by telex,
telecopier or other written form of telecommunication, to the other party within
a reasonable time after the occurrence of the event of force majeure, the
exercise of such rights and performance of such obligations shall be suspended,
to the extent that the party claiming force majeure has been rendered unable to
exercise such rights or perform such obligations notwithstanding the exercise of
due diligence as aforesaid, during the pendency of the event of force majeure.
Notwithstanding any other provision hereof, in no case will the occurrence of an
event of force majeure suspend any obligation of a party to pay money to the
other party hereunder.

9.2  Seller's Obligations
     --------------------

     Seller may not suspend performance of its obligations under this Agreement
by reason of the occurrence of an event of force majeure if, despite such
occurrence, Seller can deliver quantities of natural gas requested by Buyer from
portions of Seller's natural gas gathering system not affected by such event,
except that Seller shall not be required to deliver to Buyer quantities of
natural gas committed for sale to Pan-Alberta Gas Limited under two agreements
with Seller both dated November 3, 1980 and TCPL under agreements dated October
27, 1976, May 17, 1976, June 2, 1976 and July 15, 1977. It is understood and
agreed that Seller intends to deliver quantities of natural gas requested by
Buyer principally from natural gas supplies located within the Province of
Alberta and owned by Seller. In the event that the occurrence of an event of
force majeure renders impossible the fulfillment of Seller's obligation to
deliver the requested quantities of natural gas from the Province of Alberta,
Seller shall use reasonable efforts to obtain the necessary permits, approvals
or orders authorizing the removal of natural gas from any other province in
which Seller owns quantities of natural gas and to obtain the necessary
transportation arrangements to deliver such quantities to Buyer at the Point of
Delivery.

9.3  Failure to Deliver
     ------------------

     If Seller fails to deliver natural gas requested by Buyer in accordance
with the terms of this Agreement as the result of the occurrence of an event of
force majeure, and provided that Buyer, but for the occurrence of the event of
force majeure, would have been able to take

                                      -26-
<PAGE>

delivery of natural gas at Buyer's Facilities, Buyer shall have the right to use
Substitute Supplies and the option but not the obligation of:

(a)  obtaining a refund of such portion of the lump-sum payment made under
     section 8.1 as is attributable to each Day during which Seller, as a result
     of the occurrence of the event of force majeure, fails to make available
     and deliver natural gas to Buyer in accordance with the terms of this
     Agreement, together with interest from the Day of payment of the lump-sum
     payment made by Buyer to Seller on such portion of the lump-sum payment
     calculated at the Loan Rates which were in effect from time to time from
     the date of the payment of the lump-sum payment to Seller to the date of
     the payment of the refunded portion of the lump-sum payment;

(b)  reselling on the open market a quantity of natural gas not exceeding the
     quantities, if any, not delivered by reason of the occurrence of an event
     of force majeure; or

(c)  having Seller use all reasonable efforts to sell the quantities, if any,
     not delivered by reason of the occurrence of an event of force majeure, to
     a third party and, following such sale, remitting to Buyer the proceeds of
     such sale less the sum of (x) one and one-half percent (1 1/2%) of the
     gross price obtained from the sale of the natural gas to such third party
     at the delivery point plus (y) the amount of all taxes (other than income
     taxes based on Seller's income) and transportation costs actually paid by
     Seller with respect to the sale and not recovered by Seller under another
     provision of this Agreement or otherwise, in which event Seller's payment
     of the net proceeds from such sale and the right of either party to seek an
     adjustment to such payment shall be governed by the provisions of sections
     8.7, 8.8, 8.9 and 8.10.

Seller shall account for all sales of natural gas made under the preceding
subsection 9.3(c) pursuant to the terms and conditions of section 15.4. Upon the
occurrence of the event of force majeure, Buyer shall promptly notify Seller of
which option Buyer elects and the period, not to be less than one (1) Month,
such election shall remain in effect. On or before the tenth (10th) Day prior to
the expiry of any period for which Buyer has made an election, Buyer may elect
by notice to Seller to elect the same or a different option, for a further
period specified in such notice and not to be less than one (1) Month, to take
effect upon the expiry of the immediately preceding period for which Buyer has
made an election. For purposes of subsections 9.3(a), (b) and (c), the
quantities of natural gas deemed not to have been delivered on each Day during
the period of force majeure shall be calculated by assuming constant daily
deliveries of 17,250 MMBtu's of natural gas at the Point(s) of Delivery.

9.4  Buyer's Right to Terminate after 150 Days
     -----------------------------------------

     If, as a result of the occurrence of a single event of force majeure
involving a law, order, rule, regulation, act or restraint by a court,
regulatory authority or a government or governmental body or authority, civil or
military, or the revocation, suspension or amendment of any permit, licence,
certificate or government authorization, Buyer has been prevented from taking
delivery of natural gas under this Agreement for a period of one hundred and
fifty (150) Days or longer,

                                      -27-
<PAGE>

Buyer shall have the option of terminating this Agreement in the manner
described in section 9.6.

9.5  Buyer's Right to Terminate after 60 Days
     ----------------------------------------

     If, as a result of the occurrence of a single event of force majeure other
than an event of force majeure to which section 9.4 applies, Buyer has been
prevented from taking delivery of natural gas under this Agreement for a period
of sixty (60) Days or longer, Buyer shall have the option of terminating this
Agreement in the manner described in section 9.6.

9.6  Notice of Termination
     ---------------------

     Upon expiry of the relevant time period set forth in section 9.4 or 9.5,
Buyer may elect to terminate this Agreement effective upon thirty (30) Days
written notice to Seller. If the event of force majeure terminates prior to the
effective date of Buyer's notice of termination, such notice shall be deemed to
be null and void and this Agreement shall remain in full force and effect.

9.7  Repayment by Seller
     -------------------

     (a)  Subject to subsection 9.7(b), following termination of this Agreement
by Buyer pursuant to section 9.6, Seller shall pay to Buyer, in six (6) equal
installments, the first of which shall be paid on the fifteenth (15th) Day
immediately following the effective date of termination, and the balance of
which installments shall be paid on the last Day of each of the five (5)
successive thirty (30) Day periods thereafter, the sum of:

          (i)  the amount which is (x) the lump-sum payment made by Buyer
               pursuant to section 8.1 multiplied by the percentage derived by
               dividing (1) the Unconsumed Entitlement as at the effective date
               of termination by (2) the Maximum Entitlement, less (y) the
               Deferral Balance as at the effective date of termination; plus

          (ii) interest for the period from the date of payment of the lump-sum
               payment to Seller to the effective date of termination on the
               amount so determined in subsection 9.7(a)(i), calculated based on
               annual compounding:

               (A)  at a rate which is 1/2 of a percentage point (0.5%) higher
                    than the Libor Rate in effect from time to time during the
                    periods after the date of payment of the lump-sum payment to
                    Seller to the date of payment of such amounts, if the basis
                    upon which Buyer has made its election is one or more events
                    of force majeure not described in subsection 9.7(a)(ii)(B)
                    or

               (B)  at the Loan Rate, if the basis upon which Buyer has made its
                    election is an event of force majeure occurring wholly
                    within or in relation to Canada or the laws of Canada or any
                    political subdivision thereof.

                                      -28-
<PAGE>

     (b) If Seller is required to make a payment pursuant to subsection 9.7(a),
it shall have the sole and exclusive option to pay the amount calculated in
accordance with the said subsection in one payment within fifteen (15) Days of
the effective date of termination instead of paying in- installments as
contemplated in the said subsection. The setting-off of the Deferral Balance or
part thereof as at the effective date of termination as contemplated in
subsection 9.7(a)(i) shall constitute payment by Buyer of the Deferral Balance
or part thereof to the extent of such setting-off.

9.8       Definition
          ----------

     By way of enumeration, but without limiting the generality of section 9.1,
for the purposes of this Agreement, the term "force majeure" shall include but
not be limited to the following:

(a)  lightning, storms, earthquakes, landslides, floods, washouts, and other
     acts of God;

(b)  fires, explosions, ruptures, breakage of or accidents to pipeline, plant,
     machinery and equipment;

(c)  shortages of necessary labour, strikes, lockouts, or other industrial
     disturbances;

(d)  civil disturbances, sabotage, acts of the public enemies, war, blockades,
     insurrections, vandalism, riots, epidemics;

(e)  changes in, or the making and implementation of, laws, orders, rules,
     regulations, acts or restraints by a court, regulatory authority or a
     government or governmental body or authority, civil or military;

(f)  inability to obtain or curtailment of supplies of electric power, water,
     fuel or other utilities or services;

(g)  inability to obtain or curtailment of supplies of any other materials or
     equipment;

(h)  interruption or curtailment of transportation either upstream or downstream
     from the Point(s) of Delivery;

(i)  inability to obtain, or revocation, suspension or amendment of, any permit,
     licence, certificate or authorization of any governmental or regulatory
     body required to perform or comply with any obligation or condition of this
     Agreement, unless the revocation, suspension or amendment of any such
     necessary permit, licence or certificate or authorization was caused by the
     violation of the terms thereof or consented to by the party holding the
     same; provided, however, that, notwithstanding any other provision of this
     Agreement, the inability of Seller to obtain a removal permit from the
     Energy Resources Conservation Board (Alberta), and the related approval of
     the Lieutenant-Governor in Council (Alberta) , or any other approval under
     the laws of Alberta, for the removal of all or any part of the Maximum
     Entitlement from the Province of Alberta, as

                                      -29-
<PAGE>

     contemplated by subsection 7.1(c), shall not be considered to be an event
     of force majeure;

(j)  one or more increases, which together aggregate more than $0.50, in the
     aggregate of the amounts per MMBtu of natural gas sold and delivered
     hereunder that Buyer is required to pay pursuant to section 3.4 and in
     respect of import and export taxes pursuant to section 3.6, over and above
     the average amount per MMBtu that Buyer was required to pay pursuant to
     section 3.4 and in respect of import and export taxes pursuant to section
     3.6 in respect of the first one million (1,000,000) MMBtu's of natural gas
     sold and delivered to Buyer hereunder; provided that the only increases in
     the amount Buyer is required to pay pursuant to section 3.4 which shall be
     included for the purpose of determining whether there shall have occurred
     aggregate increases of more than $0.50 as aforesaid shall be increases in
     the royalties paid by Seller which are due solely to changes in the formula
     established by the laws, rules and regulations of the Province of Alberta
     applicable to the calculation of royalty on natural gas produced from
     Alberta Crown leases, and further provided that if Seller agrees to and
     does reimburse or otherwise compensate Buyer for the amount by which the
     aggregate of any such increase or increases aforesaid aggregate more than
     $0.50 per MMBtu, the foregoing shall not constitute an event of force
     majeure; or

(k)  any other cause, whether herein enumerated or otherwise, not reasonably
     within the control of the party claiming suspension which by the exercise
     of due diligence such party is unable to prevent or overcome.

          Buyer shall be responsible for and make all necessary arrangements for
the transportation of the quantities of natural gas specified in section 2.3
from the Point(s) of Delivery to Buyer's Facilities, except for natural gas
delivered in exchange for supplies of natural gas pursuant to section 15.6.

9.9  Lack of Funds
     -------------

     Notwithstanding any other provision herein, a lack of funds or other
financial cause shall not in any circumstance be an event of force majeure.

9.10  Labour Disputes
      ---------------

     Notwithstanding any other provision herein, the settlement of strikes,
lockouts and other industrial disturbances shall be entirely within the
discretion of the party involved.

                                   ARTICLE 10

                                 TRANSPORTATION
                                 --------------

10.1  To Point(s) of Delivery
      -----------------------

     Seller shall be responsible for and make all necessary arrangements for the
transportation of the quantities of natural gas specified in section 2.3 to the
initial Point(s) of Delivery.

                                      -30-
<PAGE>

10.2  From Point(s) of Delivery
      -------------------------

     Buyer shall be responsible for and make all necessary arrangements for the
transportation of the quantities of natural gas specified in section 2.3 from
the Point(s) of Delivery to Buyer's Facilities, except for natural gas delivered
in exchange for supplies of natural gas pursuant to section 15.6.

10.3  Form and Substance of Contracts
      -------------------------------

     All transportation arrangements shall be in form and substance satisfactory
to both parties acting reasonably.

10.4  Obligations
      -----------

     In arranging transportation of natural gas to the Point(s) of Delivery
pursuant to section 10.1, Seller shall not be obligated to provide for a maximum
daily or annual capacity or a reliability of service which exceeds such capacity
or reliability as is provided for by Buyer in arranging transportation of
natural gas from the Point(s) of Delivery to Buyer's Facilities pursuant to
section 10.2. If Buyer determines that firm, non-interruptible transportation
service of the quantities of natural gas is required, Buyer shall so inform
Seller in writing, specifying the date on which such transportation service is
required, the maximum annual and daily quantities of natural gas to be
transported on a firm, non-interruptible basis and the term over which such
transportation service is to be rendered. Buyer shall provide as much advance
notice of the need for firm, non-interruptible transportation service as is
feasible under the circumstances. Upon Buyer's providing Seller with such
written notice, both parties shall agree on the Point(s) of Delivery, and each
of the parties shall use its best efforts to ensure that the transportation
service required to be arranged by it is available on the date specified in
Buyer's notice and that demand charges payable to the transporting pipelines
shall not become due and owing prior to such date.

10.5  Execution of Contracts
      ----------------------

     On or before the date on which the lump-sum payment is made as contemplated
in section 8.1, Seller and Buyer shall have executed contracts for all necessary
transportation as described in sections 10.1, 10.2 and 10.3, or shall have
obtained evidence satisfactory to the other party acting reasonably that the
necessary transportation can be obtained and shall provide copies of all
executed contracts and such evidence to the other. The refusal of those
providing financing for Buyer's Facilities to accept whatever evidence may be
tendered that either Buyer or Seller can obtain the necessary transportation
shall be considered reasonable grounds for Buyer not accepting such evidence.

10.6  Use of Transportation by Seller
      -------------------------------

     In delivering natural gas to other parties and thereby making use of
transportation arranged for as contemplated in section 10.1, and in making use
of such transportation for its own benefit, all as contemplated hereunder,
Seller shall, to the extent reasonably possible, and without incurring losses,
liabilities, costs or expenses not provided herein to be recoverable from

                                      -31-
<PAGE>

Buyer, and without being obligated to sell natural gas at a net price which is
less than the net price available to Seller through other sale arrangements,
enter into arrangements with such other parties which contemplate, and make use
of, such transportation for its own benefit in such a manner, that use will be
made by any such other party or Seller of Buyer's firm service on the facilities
of Tennessee Gas Pipeline Company from Niagara Falls, New York to Buyer's
Facilities pursuant to the transportation arrangements made as contemplated in
section 10.2.

                                   ARTICLE 11

                                  TERMINATION
                                  -----------

11.1  Rights to Terminate
      -------------------

     In addition to the rights to terminate provided for in sections 9.4, 9.5
and 9.6 and in Article 12, this Agreement shall be terminable:

(a)  at the option of Seller, effective upon written notice to Buyer, if Buyer
     does not make its lump-sum payment as required pursuant to section 8.1 on
     or before April 30, 1991, or if the Bank and Seller have not entered into a
     mutually satisfactory consent and agreement regarding the assignment of
     Buyer's interest in this Agreement to the Bank by way of security prior to
     the time of the said lump-sum payment; and

(b)  at the option of Buyer, effective upon written notice to Seller, if Seller
     does not fulfill the condition precedent to the lump-sum payment, as
     specified in section 8.2.

                                   ARTICLE 12

                                    DEFAULT
                                    -------

12.1  Default by Seller
      -----------------

     (a)  If Seller defaults for any reason, including, without limitation, if
Seller fails to obtain or maintain a removal permit issued by the Province of
Alberta, but excluding the occurrence of an event of force majeure, in its
obligation to deliver to Buyer at the Point(s) of Delivery quantities of natural
gas requested by Buyer in accordance with the terms and conditions of this
Agreement, and provided that Buyer would have been able to accept the gas
requested if delivered but for Seller's failure to deliver, Buyer shall have the
right immediately to obtain Substitute Supplies and discontinue all payments due
or chargeable pursuant to sections 3.2, 3.3, 3.4, 3.5 or 3.6 until Seller fully
resumes performance hereunder.

     (b)  Following its default, Seller shall promptly inform Buyer of the
reasons for the default and the anticipated duration of the period of default
and shall take all steps necessary to resume performance fully as soon as
possible. Buyer may obtain Substitute Supplies for the period of the default as
estimated by Seller, as well as for any period prior to the receipt of the said
estimate if the said estimate is not promptly delivered by Seller, and Seller
shall reimburse Buyer for all reasonable costs paid by Buyer in acquiring and
delivering Substitute Supplies, including any demand charges or other sums due
and owing to transporting pipelines during such

                                      -32-
<PAGE>

period, over and above the incremental costs (i.e., all costs Buyer has or would
have paid to Seller or third parties other than any allocable portion of the
lump-sum payment made by Buyer pursuant to section 8.1) that would have been
incurred by Buyer in acquiring and delivering natural gas purchased by Buyer
from Seller under this Agreement but not delivered due to Seller's default, with
interest from the date of payment of such costs by Buyer until the date of
reimbursement calculated at the Loan Rate from time to time in effect. If the
said period of default extends beyond the period initially estimated by Seller,
or Seller fails properly to deliver such estimate to Buyer, Buyer may continue
to obtain Substitute Supplies for the period that Buyer reasonably anticipates
that Seller will remain in default and Seller shall reimburse Buyer for all
reasonable costs paid by Buyer in acquiring and delivering Substitute Supplies,
including any demand charges or other sums due and owing to transporting
pipelines during such period, over and above the incremental costs (i.e., all
costs Buyer has or would have paid to Seller or third parties other than any
allocable portion of the lump-sum payment made by Buyer pursuant to section 8.1)
that would have been incurred by Buyer in acquiring and delivering natural gas
purchased by Buyer from Seller under this Agreement but not delivered due to
Seller's default, with interest as aforesaid. Seller shall reimburse Buyer for
the reasonable costs of Substitute Supplies, as defined herein, upon demand by
Buyer at any time after such costs are actually incurred by Buyer and have been
paid by Buyer or are due and payable to a third party.

     (c)  Buyer may elect to terminate this Agreement:

          (i)  within five (5) Days after receipt of Seller's estimate of the
               anticipated duration of the period of default;

          (ii) at any time after expiration of the estimated period of default
               set forth in Seller's notice; or

         (iii) at any time more than ten (10) Days after the commencement of
               the default if Seller has not informed Buyer of the reasons for
               the default and the anticipated duration of the period of
               default.

Buyer shall exercise its right to terminate by notifying Seller in writing of
its intention to terminate. If Buyer elects to terminate this Agreement within
five (5) Days after receipt of Seller's estimate, or at any time more than ten
(10) Days after the commencement of the default if Seller has not previously
informed Buyer of the reasons for the default and anticipated duration of the
period of default, Seller shall have ninety (90) Days after receipt of Buyer's
notice of intention to terminate in which to remove the cause of its default and
indemnify Buyer, as provided below. If Buyer elects to terminate this Agreement
after expiration of the estimated period of default contained in Seller's
notice, Seller shall have either ninety (90) Days after the commencement of
Seller's default or thirty (30) Days after receipt of Buyer's notice of
intention to terminate, whichever time period is longer, in which to remove the
cause of its default and indemnify Buyer, as provided below. If, within the
applicable time period, Seller does so remove or remedy said cause and fully
indemnify Buyer for:

          (iv) all reasonable costs paid by Buyer in acquiring and delivering
               Substitute Supplies, including any demand charges or other sums
               due and owing to

                                      -33-
<PAGE>

               transporting pipelines during the duration of Seller's default,
               over and above the incremental costs (i.e., all costs Buyer has
               or would have paid to Seller or third parties other than any
               allocable portion of the lump-sum payment made by Buyer pursuant
               to section 8.1) that would have been incurred by Buyer in
               acquiring and delivering natural gas purchased by Buyer from
               Seller under this Agreement but not delivered to Buyer due to
               Seller's default, with interest as calculated pursuant to
               subsection 12.1(b), or

          (v)  if Buyer is unable to purchase and take delivery of Substitute
               Supplies at Buyer's Facilities, the fixed costs of Buyer's
               Facilities that are paid or payable by Buyer to third parties as
               a consequence of Seller's default (including all payments Buyer
               is required to make to third parties not related to the
               profitability of Buyer's Facility and all income taxes
               attributable to the amount of the indemnity payments under this
               provision)

then the Agreement shall remain in full force and effect. Upon reimbursement by
Seller to Buyer of such costs of Substitute Supplies, as required by subsection
12.1(c)(iv), the quantities of natural gas acquired by Buyer as Substitute
Supplies shall be added to and deemed to form part of the Consumed Amount.

     (d)  If Seller does not remedy and remove the cause of default and does not
so indemnify Buyer within the applicable time period set forth in subsection
12.1(c), then upon expiry of said period, this Agreement shall be terminated and
be of no further force or effect. Upon termination, subject to adjustment by
virtue of Seller entering into a Replacement Contract contemplated in this
subsection 12.1(d) and subject to subsection 12.1(f), Seller shall pay to Buyer,
in six (6) equal installments the first of which shall be paid on the fifteenth
(15th) Day immediately following the effective date of termination and the
balance of which shall be paid on the last Day of each of the five (5)
successive thirty (30) Day periods thereafter, the sum of:

          (i)  the amount which is (x) the lump-sum payment made by Buyer
               pursuant to section 8.1 multiplied by the percentage derived by
               dividing (1) the Unconsumed Entitlement as at the effective date
               of termination by (2) the Maximum Entitlement, less (y) the
               Deferral Balance as at the effective date of termination;

          (ii) interest for the period from the date of payment of the lump-sum
               payment to Seller to the effective date of termination on the
               amount so determined pursuant to subsection 12.1(d)(i),
               calculated based on quarterly compounding, at the Loan Rate in
               effect from time to time for each calendar quarter-year during
               the periods from the date of payment of the lump-sum payment to
               Seller to the date of payment pursuant to this subsection
               12.1(d);

         (iii) an amount equal to the costs incurred by Buyer in breaking the
               interest rate and interest rate hedging arrangement in force with
               respect to such

                                      -34-
<PAGE>

               portion of the Senior Debt as is required to be prepaid and is
               actually prepaid out of the proceeds of the sums paid by Seller
               to Buyer pursuant to this subsection 12.1(d);

          (iv) the costs reasonably incurred by Buyer in acquiring and
               delivering Substitute Supplies to Buyer's Facilities, determined
               as set forth in subsection 12.1(c)(iv), for the period from the
               date of Seller's default until the effective date of termination;
               and

          (v)  a lump-sum payment equal to the present value (based on an annual
               discount rate equal to the Loan Rate as of the effective date of
               termination) of the excess, if any, of (x) the aggregate costs
               that would be paid by Buyer, under the conditions existing on the
               effective date of termination, in acquiring and delivering
               Substitute Supplies equal in quantity to the Unconsumed
               Entitlement (to the extent Buyer would have been entitled
               pursuant to section 2.3 to obtain delivery of such quantity over
               the remaining term of the Agreement but for Seller's default)
               over (y) the sum of (1) the costs that Buyer would have paid for
               obtaining and delivery of such quantity if Seller had continued
               performance under this Agreement (other than the lump-sum payment
               made by Buyer pursuant to section 8.1) plus (2) the product of
               $0.73333 and the Unconsumed Entitlement as at the effective date
               of termination plus (3) the amount of interest calculated in
               accordance with subsection 12.1(d)(ii).

Seller may, within ninety (90) Days following the effective date of termination,
arrange for a replacement contract, from a source and on terms and conditions
acceptable to Buyer acting reasonably, for the sale and delivery to Buyer at the
Point(s) of Delivery of a quantity of natural gas equal to the Unconsumed
Entitlement to the extent Buyer would have been entitled to obtain delivery of
such quantity over the remaining term of the Agreement as of the effective date
of termination (hereinafter the "Replacement Contract"). If Seller elects to
arrange for such Replacement Contract, the amount payable by Buyer for
Substitute Supplies in determining damages payable by Seller under subsection
12.1(d)(iv) shall be determined based on the costs established by such
Replacement Contract. In determining damages payable by Seller pursuant to
subsection 12.1(d)(iv), Buyer's costs of obtaining delivery of Substitute
Supplies shall include the purchase price of the required quantity of natural
gas plus all production, gathering, processing and transportation costs,
royalties and taxes payable in acquiring and delivering such quantities to
Buyer's Facilities, and the costs Buyer would have paid for obtaining delivery
of such quantity under this Agreement shall include all production, gathering,
processing and transportation costs, royalties and taxes that would have been
payable by Buyer pursuant to this Agreement. Seller shall also remain
responsible following termination of this Agreement pursuant to this section
12.1 for the payment of any demand charges or other sums payable by Buyer to
transporting pipelines under agreements for the transportation of natural gas
sold by Seller to Buyer under this Agreement. Upon termination of this
Agreement, Buyer shall take all reasonable steps to mitigate its damages.

                                      -35-
<PAGE>

     (e)  The costs of Substitute Supplies that are recoverable by Buyer from
Seller pursuant to this section 12.1 shall not exceed the costs that were or
would have been incurred in acquiring and delivering the lowest cost fuel which
was at the time available from a reliable source to Buyer at Buyer's Facilities
and of which Buyer could reasonably have been expected to have been aware, given
the nature and immediacy of Buyer's fuel consumption needs. Disputes between the
parties as to the reasonableness of the costs of acquiring and delivering
Substitute Supplies shall be resolved pursuant to the arbitration provisions in
Article 16, except that costs established by Replacement Contract acceptable to
Buyer acting reasonably shall be conclusive and shall be deemed irrebuttably to
be the lowest costs available for all periods after deliveries of natural gas
are or would be (but for Buyer's inability or refusal to accept same) available
to Buyer at the delivery point pursuant to the Replacement Contract.

     (f)  If Seller is required to make a payment pursuant to subsection
12.1(d), it shall have the sole and exclusive option to pay the amount
calculated in accordance with the said subsection in one payment within thirty
(30) Days of the effective date of termination, instead of paying in
installments as contemplated in the said subsection.

     (g)  This section 12.1 shall not be construed to limit the amount
recoverable by Buyer from Seller in the event of termination following Seller's
default or to relieve Seller from liability for payment of any amount due to
Buyer pursuant to any other provision of this Agreement at the time of such
termination.

12.2  Default by Buyer
      ----------------

     (a)  If Buyer fails for more than forty-five (45) Days after the same is
due to make a payment due to Seller (and which Buyer is not entitled to defer
pursuant to subsection 3.7(d)) pursuant to any of sections 3.2, 3.3, 3.4, 3.5,
3.6, 3.7, 3.8 and 15.6, or a deposit to the Deferral Account pursuant to section
3.7, or uses or applies an amount withdrawn from the Deferral Account otherwise
than in accordance with section 3.7, as the case may be, then (unless Seller,
pursuant to subsection 3.7(1) reduces the Unconsumed Entitlement in respect of
the particular amount of the payment, deposit or withdrawal, and thereby reduces
the Deferral Balance to $11,280,000 or less) Seller may, on ten (10) Days prior
written notice to Buyer, reduce the Unconsumed Entitlement by an amount equal to
the quotient derived by dividing

          (x) an amount equal to 110 per cent of the amount of the payment or
          deposit Buyer has failed to make or the withdrawal wrongfully held or
          applied, by

          (y)  $0.73333.

Any such reduction in the Unconsumed Entitlement will take effect immediately
upon the expiry of the said ten (10) Day period commencing with the giving of
the said notice, unless prior thereto Buyer has paid, deposited or replaced the
deposit of the particular amount, as the case may be, and paid to Seller all
other amounts of money then due to Seller under this Agreement. Upon any such
reduction taking effect, Buyer shall be released from any obligation to make the
particular payment or to make or replace the particular deposit, as the case may
be, in respect of which the particular reduction was made, or to pay interest or
other charges with respect to the

                                      -36-
<PAGE>

amount of the payment or deposit. Seller shall not suspend or interrupt
deliveries of natural gas to Buyer pursuant to this subsection 12.2(a) during
the period of Buyer's particular failure to make a payment or deposit or to
replace a particular amount withdrawn from the Deferral Account otherwise than
in accordance with Section 3.7, as the case may be, unless and until the
Unconsumed Entitlement is reduced to zero, but nothing contained in this
subsection 12.2(a) shall in any way affect or restrict Seller's right to suspend
or interrupt deliveries pursuant to subsection 3.7(m). If the Unconsumed
Entitlement is reduced to zero by virtue of reductions pursuant to subsections
3.7(1) and 3.8(d) and this subsection 12.2(a), or any of them, Seller may
immediately suspend deliveries to Buyer and elect to terminate this Agreement by
notifying Buyer of its intention to terminate. This Agreement will terminate on
the expiry of ninety (90) Days following Buyer's receipt of such notice unless
Buyer shall have remedied its particular failure to make a payment or deposit or
to replace a particular amount withdrawn from the Deferral Account otherwise
than in accordance with Section 3.7, as the case may be, within such ninety (90)
Day period and reimbursed Seller for all other monies due under this Agreement,
in which case the reduction in the Unconsumed Entitlement in respect of the
particular failure shall be reversed and deemed not to have been made, the
Unconsumed Entitlement shall be reinstated to that extent and the Agreement
shall remain in full force and effect. An election to suspend or not to suspend
deliveries of natural gas and to terminate this Agreement pursuant to this
subsection at any time shall not in any way fetter or prejudice the right of
Seller to make a different election at any other time.

     (b)  Upon termination of this Agreement pursuant to subsection 12.2(a),
Seller shall take all reasonable steps to mitigate its damages.

     (c)  Any termination of this Agreement by Seller under this section shall
be without prejudice to the right of Seller to collect any amounts then due it
and without waiver of any other remedy to which Seller may be entitled for
breach of this Agreement. Buyer shall remain responsible following termination
of this Agreement pursuant to this section 12.2 for the payment of any fixed
costs or other sums payable by Seller to TCPL under agreements for the
transportation of natural gas sold by Seller to Buyer under this Agreement and
not recovered by Seller under another provision of this Agreement or otherwise.

                                   ARTICLE 13

                                INDEMNIFICATION
                                ---------------

13.1  By Seller
      ---------

     Seller shall defend, indemnify and save Buyer harmless from all suits,
actions, debts, accounts, damages, costs, losses, liabilities and expenses
arising from or out of claims of any or all persons to natural gas sold
hereunder or other charges thereon which attach before title passes to Buyer.

                                      -37-
<PAGE>

13.2  By Buyer
      --------

     Buyer shall defend, indemnify and save Seller harmless from all suits,
actions, debts, accounts, damages, costs, losses, liabilities and expenses
arising from or out of claims of any or all persons to natural gas sold
hereunder or other charges thereon which attach after title passes to Buyer.

                                   ARTICLE 14

       MISCELLANEOUS COVENANTS, REPRESENTATIONS AND WARRANTIES OF SELLER
       -----------------------------------------------------------------

14.1  Mortgages, etc.
      ---------------

     Seller covenants and agrees with Buyer that it will not mortgage, charge,
hypothecate, pledge or otherwise encumber any of its property or assets to
secure any indebtedness for borrowed money without also at the same time or
prior thereto securing its obligation to make payments of amounts due under this
Agreement so that, in the opinion of counsel to Seller, such obligation
hereunder shall be secured equally and ratably with such indebtedness, provided
that this covenant shall not apply to nor operate to prevent:

(a)  any security given in the ordinary course of business to any bank or banks,
     or others, to secure any indebtedness payable on demand or maturing within
     twelve (12) Months of the date that such indebtedness is originally
     incurred;

(b)  any Purchase Money Mortgage;

(c)  any security to secure indebtedness incurred for the construction of
     townsites, warehouses, employees' housing or office premises;

(d)  any security on any resource property of Seller that has not been in
     commercial production during the twelve (12) Month period ending on the
     date hereof, or has not been in commercial production during the twelve
     (12) Month period ending at the time of the imposition of such security, to
     secure any indebtedness incurred for the development or improvement thereof
     or the development or improvement of any other resource property of Seller
     that has not been in commercial production during the twelve (12) Month
     period ending on the date hereof or has not been in commercial production
     during the twelve (12) Month period ending at the time of the imposition of
     such security;

(e)  any security with respect to any property in favour of the Government of
     Canada or of the United States of America or the government of any province
     of Canada or state of the United States of America or any municipality in
     Canada or the United States of America or any political subdivision,
     department or agency of any of them;

(f)  any renewal, refunding or extension of any security or encumbrance referred
     to in the foregoing subsections 14.1(a) to (e) or of any security or
     encumbrance on any property in existence at the time of acquisition
     thereof, in which the principal outstanding after such

                                      -38-
<PAGE>

     renewal, refunding or extension is not increased and the security or
     encumbrance is limited to the property originally subject thereto and any
     improvements thereon; or

(g)  any security or encumbrance, other than of the nature referred to in the
     foregoing subsections (a) to (f), created by Seller if, after giving effect
     to the creation of such security or encumbrance, the aggregate principal
     amount of the indebtedness secured by such securities or encumbrances would
     not be greater than 5 per cent of Seller's Shareholders' Equity.

14.2  Title
      -----

     Seller covenants and agrees with Buyer that all natural gas sold by Seller
pursuant to this Agreement will be delivered by Seller free from all liens and
adverse claims.

14.3  Financial Statements
      --------------------

     Seller represents and warrants to Buyer that it has delivered to Buyer
copies of the audited consolidated balance sheets, consolidated statements of
earnings and retained earnings and consolidated statements of changes in
financial position of Seller as of and for the fiscal years ended December 31,
1990, December 31, 1989, December 31, 1988 and December 31, 1987, together with
such unaudited consolidated financial statements as of and for the periods
ending March 31, June 30 and September 30 as were mailed to Seller's
shareholders, that all such consolidated financial statements are in accordance
with the books and records regularly maintained by Seller and prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved except as disclosed in such consolidated
financial statements, that all such consolidated financial statements fairly
present:

          (i)  the assets and liabilities of Seller on a consolidated basis as
               at the respective dates of the balance sheets; and

          (ii) the revenues and expenses of Seller on a consolidated basis for
               the fiscal periods ended on such dates;

and that there is no mortgage, charge, hypothecation, pledge or other
encumbrance on any of Seller's property or assets as of the date of this
Agreement, other than as disclosed herein, which if made subsequent to the date
hereof would constitute a breach of the covenant set forth in section 14.1.

14.4  Adverse Change
      --------------

     Seller represents and warrants to Buyer that since December 31, 1990, there
has been no material adverse change in the business, condition (financial or
otherwise) or results of operations of Seller (and all other entities whose
financial affairs are presented on a consolidated basis in the financial
statements referred to in section 14.3), from that disclosed in the consolidated
financial statements for the fiscal year ended December 31, 1990.

                                      -39-
<PAGE>

14.5  Execution and Delivery
      ----------------------

     Subject to the satisfaction of the condition precedent set forth in
subsection 7.1(c), Seller represents and warrants to Buyer that neither the
execution and delivery by Seller of this Agreement nor the consummation by
Seller of the transactions contemplated hereby is an event which, of itself or
with the giving of notice or the passage of time or both, constitutes a
violation of or will conflict with or result in any material breach of or any
default under, the terms, conditions or provisions of, any judgment, law, rule
or regulation to which Seller is subject, or of Seller's constating documents,
or of any agreement or instrument to which Seller is a party or by which it is
bound, and that to the best of Seller's knowledge, there has been no event which
would hinder its performance under this Agreement or affect the business,
condition (financial or otherwise) or result of operations of Seller, including
without limitation, as a result of any pending or proposed laws, rules,
regulations, orders, injunctions or litigation.

14.6  Right and Authority
      -------------------

     Seller represents and warrants to Buyer that it has full right and
authority to enter into this Agreement and that CHEL is and shall be its duly
authorized agent for all purposes relating to this Agreement unless and until
Seller shall otherwise notify Buyer. All agreements and arrangements for the
transportation of natural gas and other purposes as contemplated in this
Agreement made by or in the name of CHEL shall be treated as if made by and for
the benefit of Seller.

                                   ARTICLE 15

                                   MARKETING
                                   ---------

15.1  Sales to Third Parties by Seller
      --------------------------------

     From time to time as provided for in section 15.2, Buyer may request and,
upon receipt of such request, Seller shall use all reasonable efforts to sell to
third parties quantities of natural gas purchased by Buyer under this Agreement.
Seller shall not be obligated to sell to third parties over a twelve (12) Month
period more than the lesser of

          (x) the excess of nine million (9,000,000) MMBtu's over the aggregate
          of the quantities of natural gas actually delivered by Seller to Buyer
          at the Point of Delivery, resold by Buyer on the open market pursuant
          to subsection 9.3(b) and sold by Seller pursuant to subsection 9.3(c)
          during such twelve (12) Month period or

          (y) four million, five hundred thousand (4,500,000) MMBtu's.

15.2  Commencement of Contract Year
      -----------------------------

     For purposes of this Article 15, each twelve (12) Month period shall
commence on the First (1st) Day of November that occurs within a Contract Year.
Within ninety (90) Days prior to the start of each such twelve (12) Month
period, Buyer shall inform Seller in writing of the

                                      -40-
<PAGE>

quantity of natural gas to be sold by Seller during such twelve (12) Month
period. Within forty-five (45) Days prior to the start of such twelve (12) Month
period, Seller shall provide to Buyer in writing a description of the options
available for selling the quantity of natural gas designated by Buyer. Such
description shall specify the purchase price of the natural gas under each
option and the term over which the sale of the natural gas will take place.
Within thirty (30) Days prior to the start of such twelve (12) Month period,
Buyer shall notify Seller in writing of which option, if any, Buyer selects for
the sale of natural gas to third parties.

15.3  Proceeds of Sales to Third Parties
      ----------------------------------

     Following the sale of natural gas pursuant to section 15.1, Seller shall
remit to Buyer the proceeds of such sale net of the sum of (x) three percent
(3%) of the gross price obtained from the sale of the natural gas to such third
party at the delivery point plus (y) the amount of all taxes (other than income
taxes payable by Seller) and transportation costs actually paid by Seller in
connection with such sale, except to the extent (i) such costs are otherwise
paid or reimbursed by Buyer under this Agreement, (ii) a payment in respect of
such costs is made pursuant to section 3.5 or (iii) such costs are attributable
to the initial delivery and measurement of the gas at a location other than as
contemplated by second sentence of subsection 3.5(a). Seller shall remit the net
proceeds of each sale of natural gas to a third party within seven (7) Days of
the receipt of the purchase price by Seller from the third party. Seller shall
use its normal collection procedures in the event of nonpayment by the third
party purchaser.

15.4  Statements re Seller's Sales
      ----------------------------

     Each payment to Buyer of the net proceeds of any sale shall be accompanied
by a statement prepared by Seller specifying for each sale the name and business
address of the purchaser of the natural gas, the quantity of gas sold, the date
of initial deliveries, the purchase price, the term over which the sale is to
occur and an itemization of the transportation costs and taxes paid by Seller.
Seller shall also provide Buyer with copies of all agreements for the sale of
natural gas to third parties.

15.5  Adjustments
      -----------

     Seller's payment of the net proceeds from such sales to Buyer and the right
of either party to seek an adjustment to such payment shall be governed by the
provisions of sections 8.7, 8.8, 8.9 and 8.10.

15.6  Sales to Third Parties by Buyer
      -------------------------------

     (a)  Subject to the limitations set forth in subsection (b), Buyer may
arrange for the delivery of natural gas purchased by Buyer from Seller under
this Agreement to one or more third parties which are regularly and
substantially engaged in the development, production and/or transportation or
distribution of oil and/or natural gas in exchange, directly or indirectly, for
quantities of natural gas to be delivered to Buyer's Facilities. If such an
arrangement is made, Buyer may send to Seller a transportation request, which
shall be in writing, shall be provided to Seller with as much advance notice as
is feasible under the circumstances but in no event less

                                      -41-
<PAGE>

than thirty (30) Days advance notice prior to the scheduled start of deliveries
to each third party, and shall specify:

          (i)  the date on which such deliveries are to commence and end;

          (ii) the daily quantity to be delivered to each third party;

         (iii) the name and business address of each third party; and

          (iv) the Point(s) of Delivery of such quantities to each third party.

Upon receipt of Buyer's written request, Seller shall use reasonable efforts to
arrange transportation in Canada of the appropriate daily quantities of natural
gas to each third party at the Point(s) of Delivery in Canada specified in
Buyer's written notice. Buyer shall reimburse Seller for the actual
transportation costs incurred by Seller in delivering such quantities to such
Point(s) of Delivery and for any related payments to third parties made by
Seller with Buyer's prior written consent or authorization, to the extent that
such costs and payments are not paid or reimbursed by Buyer pursuant to any
other provision of this Agreement, including without limitation costs in respect
of which a payment is made pursuant to section 3.5.

     (b)  Seller shall be required to deliver to one or more third parties,
pursuant to this section 15.6, on any Day specified in Buyer's written notice,
an aggregate quantity of natural gas not to exceed the excess of thirty thousand
(30,000) MMBtu's of natural gas over the aggregate of the quantities actually
delivered by Seller to Buyer, resold by Buyer pursuant to sections 2.4(c) and
9.3(b) and sold by Seller pursuant to sections 9.3(c) and 15.1 on such Day. In
no event shall Seller be required to deliver to one or more third parties,
pursuant to this section 15.6, during any twelve (12) Month period, as defined
in section 15.2, an aggregate quantity of natural gas which is greater than the
lesser of

          (x) the excess of nine million (9,000,000) MMBtu's of natural gas over
          the aggregate quantities actually delivered by Seller to Buyer, resold
          by Buyer pursuant to sections 2.4(c) and 9.3(b) and sold by Seller
          pursuant to sections 9.3(c) and 15.1 during such twelve (12) Month
          period and

          (y) four million, five hundred thousand (4,500,000) MMBtu's.

15.7  Statements re Buyer's Sales
      ---------------------------

     On or before the twentieth (20th) Day of each month following a Month in
which Seller has made deliveries of natural gas pursuant to section 15.6, Seller
shall render a statement to Buyer specifying the quantities of natural gas
delivered by Seller to third parties at Buyer's request, the actual
transportation costs incurred by Seller in delivering such quantities to the
designated Point(s) of Delivery and all other amounts payable by Buyer in
accordance with sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8 and 15.6. A duplicate
copy of such statement shall also be provided to each third party pursuant to
section 8.4. Payment of the amounts specified on

                                      -42-
<PAGE>

Seller's statement and the right of either party to seek an adjustment to such
amounts shall be governed by the provisions of sections 8.7, 8.8, 8.9 and 8.10.

                                   ARTICLE 16

                                  ARBITRATION
                                  -----------

16.1  Arbitration
      -----------

     In the event of a dispute as to the reasonableness of the costs of
acquiring and delivering Substitute Supplies acquired by Buyer pursuant to
section 12.1, the provisions of this Article 16 shall apply. Buyer or Seller, as
the case may be, may give written notice of such dispute to the other party, and
if the parties are unable to settle the dispute within ten (10) Days of the
delivery of such notice, either party desiring a settlement shall refer the
matter to arbitration by giving prompt written notice to the other party of its
desire to submit the matter to arbitration. Arbitration shall be conducted in
accordance with the following principles and procedures:

(a)  Each party shall appoint an arbitrator and the two arbitrators so appointed
     shall promptly thereafter appoint a third. If either party shall fail to
     appoint an arbitrator within ten (10) Days from the date of such demand,
     then the arbitrator shall be appointed by a judge of the Supreme Court of
     Ontario. If the two (2) arbitrators shall fail within ten (10) Days of
     their appointment to agree upon and appoint the third arbitrator, then upon
     the application of either party, such third arbitrator shall be appointed
     by a judge of the Supreme Court of Ontario. The arbitration shall take
     place within the City of Toronto in the Province of Ontario, Canada.

(b)  The arbitrators shall proceed immediately to hear and determine the matter
     in dispute. The arbitrators shall be instructed that their award must be
     made within forty-five (45) Days of the appointment of the third
     arbitrator, subject to any reasonable delay due to unforeseen
     circumstances.

(c)  The award of the arbitrators shall be drawn up in writing and signed by the
     arbitrators, or a majority of them, and shall be final and binding on the
     parties, and the parties shall abide by the award and perform the terms and
     conditions thereof. Unless otherwise determined by the arbitrators, the
     fees and expenses of the arbitrator named by Seller shall be paid by
     Seller, the fees and expenses of the arbitrator named by Buyer shall be
     paid by Buyer and the fees and expenses of the third arbitrator shall be
     paid in equal proportions by Buyer and Seller.

(d)  If the arbitrators resolve a dispute in favor of Buyer and grant Buyer an
     award, Buyer may offset such award against the amounts otherwise payable by
     Buyer to Seller under the several provisions of this Agreement, in such
     order of priority as Buyer in its sole discretion may elect.

                                      -43-
<PAGE>

                                   ARTICLE 17

                                 MISCELLANEOUS
                                 -------------

17.1  Entire Agreement; Amendments
      ----------------------------

     This Agreement represents the entire agreement between the parties relative
to the matters contained herein. This Agreement may not be amended without the
execution of a written document by both parties. This Agreement is governed by
and is to be construed under the laws in force in the Province of Ontario,
Canada. This Agreement amends, restates, supersedes and replaces the said Gas
Sales and Purchase Agreement made and entered into as of the 8th day of
December, 1987, as amended as aforesaid.

17.2  Enurement
      ---------

     This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned by Seller except with the prior written consent of
Buyer. This Agreement may be freely assigned by Buyer during the first ten (10)
Contract Years. Following the first ten (10) Contract Years, this Agreement may
be assigned by Buyer only with the prior written consent of Seller except that
written consent shall not be required to authorize an assignment by Buyer for
purposes of financing or security. No such assignment shall be effective unless
and until the assignee shall have executed and delivered to the other party an
agreement in writing whereby the assignee agrees to be bound by the assignor's
obligations under this Agreement and no such assignment shall release such
assignor from its duties and obligations under this Agreement, unless expressly
consented to by the other party. Notwithstanding the foregoing:

(a)  subject to section 14.1, either party may pledge or mortgage its interests
     hereunder for financing purposes; and

(b)  Buyer may assign its right to receive deliveries of natural gas from Seller
     under this Agreement to one or more third parties which are regularly and
     substantially engaged in the development, production and/or transportation
     or distribution of oil and/or natural gas as part of an exchange of
     Seller's natural gas for quantities of natural gas pursuant to section
     15.6, provided that no such assignment pursuant to this subsection (b)
     shall be binding on Seller without its written consent, and Seller will not
     unreasonably withhold or delay such consent following written request
     therefor.

17.3  Rights and Remedies
      -------------------

     The rights and remedies of each party enumerated in this Agreement are not
exclusive but shall be in addition to all of the rights and remedies at law and
in equity to which that party is or may be entitled against the other party.

                                      -44-
<PAGE>

17.4  Waiver
      ------

     The terms, covenants, representations, warranties and conditions of this
Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later date to enforce the same. No waiver by any party of any
condition or of the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.

17.5  Captions
      --------

     The captions and headings of the various articles and sections of this
Agreement are inserted for convenience of reference only and are not to be
construed so as to define or limit the scope, extent or intent of this Agreement
or any of its provisions.

17.6  Notices
      -------

     Any notice, request, demand or statement provided in this Agreement shall
be in writing and will be deemed properly given if hand delivered, telecopied or
mailed, registered or certified mail, return receipt requested, prepaid, to the
other at the following address:

<TABLE>
<CAPTION>
Buyer:                                          Seller:
------                                          -------
<S>                                             <C>
Project Orange Associates, L.P.                 Canadian Hunter Exploration Ltd.
630 First Avenue, Suite 30C                     700, 435 - 4th Avenue S.W.
New York, New York 10016                        Calgary, Alberta T2P 3A8

Attn:  Adam H. Victor                           Attn: Vice-President, Marketing

Telecopier: (212) 725-0427                      Telecopier: (403) 260-1146

with a copy to:                                 with a copy to:
--------------                                  --------------
Russell S. Berman, Esq.                         Noranda Inc.
Kronish, Lieb, Weiner & Hellman                 Suite 4500
1345 Avenue of the Americas                     Commerce Court West
New York, New York 10105                        Toronto, Ontario M5L 1B6

                                                Attn: Vice President, Treasurer

Telecopier: (212) 765-8943                      Telecopier (416) 982-7416
</TABLE>

                                      -45-
<PAGE>

17.7  Change of Address
      -----------------

     Either Seller or Buyer may change addresses by giving the other party
notice of such. Scheduling and dispatching by telephone may be accomplished,
provided written confirmation of the same is given to the other party within
five (5) Days.

17.8  Severability
      ------------

     If any provision in this Agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions hereof will not in any way be affected or impaired thereby.

17.9  Currency
      --------

     All amounts of money referred to herein and payments contemplated hereunder
shall be in lawful currency of the United States of America. Any costs and other
amounts which are incurred, received or calculated hereunder in lawful currency
of Canada shall be converted to lawful currency of the United States of America
by applying the simple average, for the Month in or in respect of which the cost
or amount was incurred, received or calculated, as the case may be, of the New
York Canadian dollar selling rates, expressed in United States dollars, applying
to trading among banks in amounts of $1,000,000 and more, as quoted at 3:00 p.m.
Eastern time on each Day in the Month and published in The Wall Street Journal.

17.10  Time
       ----

     All times referred to herein are Eastern Standard Time unless otherwise
stated.

17.11  Exhibits
       --------

     Exhibits A and B are attached hereto and incorporated herein.

                                      -46-
<PAGE>

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

                              PROJECT ORANGE ASSOCIATES, L.P.

                              By its general partner
                              G.A.S. ORANGE PARTNERS, L.P.
                              By its general partner

                                G.A.S. ORANGE DEVELOPMENT, INC.

                                By: /s/ Adam H. Victor
                                   --------------------------------
                                   President

                              NORANDA INC.

                              By: /s/
                                 --------------------------------
                                (Title:  Sr. Vice-President, Finance)

                              By: /s/
                                 --------------------------------
                                (Title:  Vice-President and Associate Treasurer)

                              CANADIAN HUNTER EXPLORATION LTD.

                              By: /s/
                                 --------------------------------
                                (Title:  Vice-President)

                              By: /s/
                                 --------------------------------
                                (Title:  Senior Vice-President)

                                      -47-
<PAGE>

                                EXHIBIT A to the
                    RESTATED GAS SALE AND PURCHASE AGREEMENT
                          dated March 18, 1991 between
                    PROJECT ORANGE ASSOCIATES, L.P. (Buyer)
                           and NORANDA INC. (Seller)

--------------------------------------------------------------------------------

                    PRODUCING, GATHERING AND PROCESSING COSTS
                    -----------------------------------------

Producing Costs
---------------

     All costs relating to producing each well including without limitation
overhead allowance and the costs described in Appendix 1 attached hereto.

Gathering Costs
---------------

1.  Operating cost component

     --  includes all direct and indirect costs described in Appendix 1

     --  also includes an overhead allowance which is a percentage of direct
         costs

     --  includes environmental costs of site reclamation when the facility is
         abandoned

2.  Capital cost component (Rate Base)

     --  includes capital balance plus working capital allowance

     --  return on rate base

     --  depreciation

3.  Lost gas cost allowance ("GCA")

     --  loss occurs because total facility GCA is allocated between facility
         owners and custom users on the basis of throughput. Some GCA for
         unused capacity will be allocated to custom users, and this GCA plus
         the GCA associated with the capacity used by the custom user is lost
         to the facility owners, and will result in a higher Crown royalty for
         the owners.

Processing Costs
----------------

1.  Operating cost component

     --  includes all direct and indirect costs described in Appendix 1
<PAGE>

     --  also includes an overhead allowance which is a percentage of direct
          costs

     --  includes environmental costs of site reclamation when the facility is
          abandoned

2.   Capital cost component (Rate Base)

     --  includes capital balance plus working capital allowance

     --  return on rate base

     --  depreciation

3.   Lost gas cost allowance

     --  loss occurs because total facility GCA is allocated between facility
         owners and custom users on the basis of throughput. Some GCA for
         unused capacity will be allocated to custom users, and the GCA plus
         the GCA associated with the capacity used by the custom user is lost
         to the facility owners, and will result in a higher Crown royalty for
         the owners.

                                      -2-
<PAGE>

                                   APPENDIX 1
                                   ----------

602  Company labour and expenses

603  Contract field supervision and consulting services

606  Facility and equipment maintenance labour

607  Contract operating expenses

608  Contract helicopter rentals

610  Crude oil hauling

611  Freight and hauling

612  Salt water hauling

620  Well servicing and minor workovers

621  Well testing and pressure surveys

622  Lab analysis

623  Gas plant and gathering turnarounds

624  Oil battery turnarounds

630  Utilities

631  Telecontrol

641  Treating and dehydrating chemicals and lube oils

642  Road and lease maintenance

643  Equipment rentals

645  Repair parts and supplies

648  Miscellaneous

X  Overhead allowance

X  Materials

X  Automotive

X  Purchased fuel gas<PAGE>

                                                                    Exhibit 10.4
December 6, 1999

Union Pacific Resources Inc.
4th Floor
425 - 1st Street S.W.
Calgary, Alberta
T2P 3L8

and

Project Orange Associates, L.P.
c/o G.A.S. Orange Associates LLC
90 Presidential Plaza
Syracuse, New York 13209

Dear Sirs:

Re:  Replacement of Restated Gas Purchase and Sale Agreement dated March 18,
     1991 (the "Gas Supply Agreement") between Project Orange Associates, L.P.
     (the "Buyer"), Noranda Inc. ("Noranda") and Canadian Hunter Exploration
     Ltd. ("Old Hunter")

The purpose of this letter agreement ("Letter Agreement") is to set forth the
understanding of the Buyer, Canadian Hunter Exploration Ltd. ("CHEL") (which is
the successor by amalgamation to Old Hunter) and Union Pacific Resources Inc.
("UPRI") (which is the successor to North Canadian Oils Limited and North
Canadian Marketing Inc.) concerning the amendment and restatement, and partial
assignment to UPRI, of the Gas Supply Agreement.

By virtue of an Assignment, Amendment and Release Agreement dated the date
hereof, in respect of the Gas Supply Agreement between Noranda as Assignor, CHEL
as Assignee and the Buyer, CHEL has become a party to the Gas Supply Agreement
in the place and stead of Noranda and Old Hunter (as so assigned the "Assigned
Gas Supply Agreement").  The Buyer, CHEL and UPRI hereby agree that effective
January 1, 2000 (subject only to Section 8 hereof) the Assigned Gas Supply
Agreement will be replaced by two agreements, the first of which will be between
CHEL and the Buyer (the "CHEL Supply Agreement") and the second of which will be
between UPRI and the Buyer (the "UPRI Supply Agreement").  CHEL will not have
any liability under the UPRI Supply Agreement and UPRI will not have any
liability under the CHEL Supply Agreement and
<PAGE>

the liability of CHEL and UPRI hereunder shall be separate and not joint and
several for so long as this Letter Agreement is applicable in the circumstances
described in Section 5(b) hereof, as if the CHEL Supply Agreement and the UPRI
Supply Agreement had been executed and delivered.

1.   The terms of the CHEL Supply Agreement will be identical to the Assigned
     Gas Supply Agreement with the following exceptions:

     (a)  for the purpose of establishing the term, the Initial Delivery Day
          shall be deemed to have been June 1, 1992;

     (b)  the Maximum Daily Quantity from and after the effective date of the
          CHEL Supply Agreement shall be 17,500 MMBtu;

     (c)  for the purpose of establishing the Unconsumed Entitlement, the
          Maximum Entitlement on the Initial Delivery Day shall be deemed to
          have been or 69,999,600 MMBtu;

     (d)  the introductory phrase of Section 2.2 will be modified to reflect
          that Buyer shall be entitled to purchase gas from CHEL and UPRI under
          the CHEL Supply Agreement and the UPRI Supply Agreement, respectively
          and the quantity of Gas referred to in Section 2.2(e)(y) shall be
          10,062 MMBtu;

     (e)  the quantities of natural gas referred to in Sections 2.3(b)(i) and
          (ii) and 2.3(c)(i) and (ii) shall be 58.333% of those quantities set
          forth in the same clauses of the Gas Supply Agreement;

     (f)  there being no Deferral Balance, there shall be no further deferral of
          payments as contemplated in Section 3.7 of the Assigned Gas Supply
          Agreement, and Section 3.7 and any other references to the Deferral
          Balance or the Deferral Account shall therefore not appear in the CHEL
          Supply Agreement, mutatis mutandis;
                            ------- --------

     (g)  the reference in Section 8.6(c) to Noranda Financial Statements shall
          be changed to a reference to CHEL Financial Statements;

     (h)  references to the Deferral Account and the Deferral Balance in Section
          12.2 and elsewhere shall be deleted;

     (i)  Section 14.3 shall be deleted;

     (j)  Section 14.4 shall be deleted;

     (k)  Section 14.6 shall be modified, as appropriate, to reflect CHEL being
          the successor to Noranda;

                                      -2-
<PAGE>

     (l)  the quantities set forth in Section 15.1(x) and (y) of the CHEL Supply
          Agreement shall be equal to 58.333% of the quantities set forth in
          Section 15.1 of the Gas Supply Agreement;

     (m)  the addresses for notices under the CHEL Supply Agreement in Section
          17.6 shall be as follows:

               Buyer:    Project Orange Associates, L.P.
                         c/o G.A.S. Orange Associates, LLC
                         90 Presidential Plaza
                         Syracuse, New York  13209

                         Attention:  President
                         Telecopier: (315) 425-3621

               CHEL:     Canadian Hunter Exploration Ltd.
                         2800, 605 - 5th Avenue SW
                         Calgary, Alberta  T2P 3H5

                         Attention:  Treasurer
                         Telecopier: (403) 260-1664

     (n)  the CHEL Supply Agreement shall be governed by and construed under the
          laws in force in the Province of Alberta, Canada.

2.   The terms of the UPRI Supply Agreement will be identical to the CHEL Supply
     Agreement with the following exceptions:

(a)  for the purpose of establishing the term, the Initial Delivery Day shall be
     deemed to have been June 1, 1992;

(b)  the Maximum Daily Quantity on the effective date of the UPRI Supply
     Agreement shall be 12,500 MMBtu;

(c)  for the purpose of establishing the Unconsumed Entitlement, the Maximum
     Entitlement on the Initial Delivery Day shall be deemed to have been
     50,000,400 MMBtu;

(d)  the quantity of Gas referred to in Section 2.2(e)(y) shall be 7,188 MMBtu;

(e)  the quantities of natural gas referred to in Sections 2.3(b)(i) and (ii)
     and 2.3(c)(i) and (ii) shall be 41.667% of those quantities set forth in
     the same clauses of the Gas Supply Agreement;

                                      -3-
<PAGE>

(f)  the reference in Section 8.6(c) to CHEL Financial Statements shall be
     changed to a reference to UPRI Financial Statements;

(g)  Section 14.6 shall be modified to reflect the administration by CHEL of the
     nominations, transportation services and accounting and that payments due
     to UPRI will be made to CHEL as UPRI's agent;

(h)  the quantities set forth in Section 15.1(x) and (y) of the UPRI Supply
     Agreement shall be equal to 41.667% of the quantities set forth in Section
     15.1 of the Gas Supply Agreement;

(i)  the addresses for notices under the UPRI Supply Agreement in Section 17.6
     shall be as follows:

               Buyer:    Project Orange Associates, L.P.
                         c/o G.A.S. Orange Associates LLC
                         90 Presidential Plaza
                         Syracuse, New York  13209

                         Attention:  President
                         Telecopier: (315) 425-3621

               UPRI:     Union Pacific Resources Inc.
                         4th Floor
                         425 - 1st Street S.W.
                         Calgary, Alberta  T2P 3L8

                         Attention:  Vice President, Marketing
                         Telecopier:  (403) 231-0501

(j)  the UPRI Supply Agreement shall be governed by and construed under the laws
     enforced in the Province of Alberta, Canada.

3.   The Parties agree that the Unconsumed Entitlement under the Gas Supply
     Agreement was 70,236,028 MMBtu as at November 1, 1999 and that if the CHEL
     Supply Agreement and UPRI Supply Agreement had been in force on that date,
     the Unconsumed Entitlements thereunder would have been 40,970,782 MMBtu and
     29,265,246 MMBtu, respectively.

4.   In consideration of the foregoing:

(a)  CHEL has paid US $291,665 to the Buyer, the receipt and sufficiency of
     which are hereby acknowledged; and

(b)  UPRI has paid US $208,335 to the Buyer, the receipt and sufficiency of
     which are hereby acknowledged.

                                      -4-
<PAGE>

5.   Assuming the conditions precedent set forth in paragraph 8 hereof have been
     met, effective January 1, 2000:

     (a)  if the CHEL Supply Agreement and the UPRI Supply Agreement have been
          executed and delivered, then as of such date the CHEL Supply Agreement
          and the UPRI Supply Agreement will be deemed to replace, amend and
          restate in all respects the Assigned Gas Supply Agreement.

     (b)  If the CHEL Supply Agreement and the UPRI Supply Agreement have not
          then been executed and delivered, then this Letter Agreement shall be
          effective to govern the gas purchase and sale arrangement among, and
          the respective rights, duties and obligations of, the parties, and
          shall for such purpose constitute an amendment to the Assigned Gas
          Supply Agreement, until such time as the CHEL Supply Agreement and the
          UPRI Supply Agreement have been executed and delivered.  In case of
          any inconsistencies between this Letter Agreement and the Assigned Gas
          Supply Agreement in such event, the terms of this Letter Agreement
          shall be controlling.

6.   The Buyer, CHEL and UPRI each acknowledge and agree that the foregoing
     terms reflect their mutual understanding as of the date hereof of the
     changes that will be necessary and appropriate to effectuate the CHEL
     Supply Agreement and the UPRI Supply Agreement in replacement of the
     Assigned Gas Supply Agreement, leaving Buyer and CHEL in the same position,
     economic and otherwise, as they are in under the Gas Supply Agreement as in
     effect on the date hereof (except to the extent of the changes agreed to in
     connection with paragraphs 1 and 2); provided, however, that UPRI and CHEL
     will have separate and not joint and several liability. Nonetheless, the
     Parties understand and agree to cooperate fully to incorporate any other
     changes to the Assigned Gas Supply Agreement that they mutually determine
     to be necessary and appropriate between the date hereof and the date the
     CHEL Supply Agreement and UPRI Supply Agreement are executed and delivered.

7.   It is the intention of the parties that this Letter Agreement is a binding
     contract. CHEL and the Buyer, and UPRI and the Buyer, respectively, will
     use their best efforts to enter into formal agreements reflecting the
     above, reflecting the terms hereof, on or before December 31, 1999.

8.   The following additional actions shall be taken, and the following
     additional documents shall be delivered to or as directed by Buyer, as
     conditions precedent to the effectiveness of the CHEL Supply Agreement and
     the UPRI Supply Agreement:

(a)  Buyer shall as soon as practicable submit to the U.S. Department of Energy
     ("DOE") an application seeking expedited approval of an

                                      -5-
<PAGE>

     amendment to Buyer's authorization for the importation of natural gas, and
     as a condition to the effectiveness of the CHEL Supply Agreement and the
     UPRI Supply Agreement, Buyer shall have received from DOE a binding Order
     approving such amendment;

(b)  A Consent and Agreement from UPRI in favor of Buyer's lenders substantially
     in the form executed by CHEL in connection with the closing of the offering
     of Buyer's Senior Secured Notes issued December 6, 1999 (the "Closing"),
     modified as appropriate for UPRI;
(c)  An opinion of Alberta counsel to UPRI in customary form as to the
     enforceability of the UPRI Supply Agreement against UPRI and other
     customary matters, addressed to said lenders;
(d)  A revised Consent and Agreement from CHEL in favor of the lenders, bringing
     forward the Consent and Agreement of CHEL provided in connection with the
     Closing;
(e)  An opinion from Alberta counsel to CHEL, in customary form as to the
     enforceability of the CHEL Supply Agreement against CHEL and other
     customary matters, addressed to said lender; and
(f)  Buyer shall have received evidence reasonably satisfactory to it that firm
     gas transportation arrangements with TransCanada Pipelines Limited shall be
     in place with respect to all deliveries to be made under the CHEL Supply
     Agreement and the UPRI Supply Agreement at no additional cost to Buyer over
     and above Buyer's existing costs for such arrangements under the Assigned
     Gas Supply Agreement as in effect on the date of the Closing.

                                      -6-
<PAGE>

If the foregoing accurately reflects your understanding of our agreement, please
so indicate by signing this letter in the space provided below and returning an
executed copy to each other party to this letter.

Yours truly,

CANADIAN HUNTER EXPLORATION LTD.

Per:       /s/ John Kowal
     ------------------------------------

Per:       /s/
     ------------------------------------

                                    ACKNOWLEDGED AND AGREED TO
                                    this 6th day of December, 1999.

                                    UNION PACIFIC RESOURCES INC.

                                    Per:      /s/
                                         --------------------------------

                                    ACKNOWLEDGED AND AGREED TO
                                    this 6th day of December, 1999

                                    PROJECT ORANGE ASSOCIATES, L.P., , by its
                                    general partner, G.A.S. ORANGE ASSOCIATES,
                                    LLC

                                    Per:      /s/ Adam Victor
                                         ----------------------------------
                                              Adam H. Victor
                                              President

                                      -7-

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