TABLE OF CONTENTS

ARTICLE I DEFINITIONS		3
Section 1.1	Terms	3
ARTICLE II CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS		7
Section 2.1	Contribution of Interests by BreitBurn Energy to Operating LP and Operating GP	7
Section 2.2	Distribution and Assignment of Interests in Operating GP and Operating LP by BreitBurn Energy to Pro GP, Pro LP and BEC	7
Section 2.3	Contribution of Interests by Pro GP, Pro LP and BEC to the General Partner	7
Section 2.4	Contribution of Interests by the General Partner to the Partnership	8
Section 2.5	Contribution of Interests in Operating GP and Operating LP by Pro GP, Pro LP and BEC to the Partnership	8
Section 2.6	Public Cash Contribution	8
Section 2.7	Payment of Transaction Expenses by the Partnership; Distribution to Pro GP, Pro LP and BEC by the Partnership; Cash Contribution by the Partnership to Operating LP	8
Section 2.8	Contribution of Interests in the General Partner by Pro GP, Pro LP and BEC to BreitBurn Management	8
Section 2.9	Over-Allotment Option	9
Section 2.10	Redemption of the Initial Limited Partner Interest	9
ARTICLE III ASSUMPTIONS OF CERTAIN LIABILITIES; INDEMNIFICATION		9
Section 3.1	Assumption of Indebtedness	9
Section 3.2	Environmental Indemnification	9
Section 3.3	Limitations Regarding Environmental Indemnification	10
Section 3.4	Additional Indemnification	10
Section 3.5	Indemnification Procedures	11
ARTICLE IV TITLE MATTERS		12
Section 4.1	Encumbrances	12
Section 4.2	Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales Laws	13
ARTICLE V FURTHER ASSURANCES		14
Section 5.1	Further Assurances	14
Section 5.2	Other Assurances	14

 

 

BREITBURN ENERGY PARTNERS L.P.

CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

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ARTICLE VI EFFECTIVE TIME		15
ARTICLE VII MISCELLANEOUS		15
Section 7.1	Order of Completion of Transactions	15
Section 7.2	Costs	15
Section 7.3	Headings; References; Interpretation	16
Section 7.4	Successors and Assigns	16
Section 7.5	No Third Party Rights	16
Section 7.6	Counterparts	16
Section 7.7	Governing Law	16
Section 7.8	Severability	16
Section 7.9	Amendment or Modification	17
Section 7.10	Integration	17
Section 7.11	Deed; Bill of Sale; Assignment	17
Schedule A
Schedule B
Exhibit A
Exhibit B
Exhibit C

 

 

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CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

This Contribution, Conveyance and Assumption Agreement, dated as of October 10, 2006, is entered into by and among Pro GP Corp., a Delaware corporation (“Pro GP”), Pro LP Corp., a Delaware corporation (“Pro LP”), BreitBurn Energy Corporation, a California corporation (“BEC”), BreitBurn Energy Company L.P., a Delaware limited partnership (“BreitBurn Energy”), BreitBurn Management Company, LLC, a Delaware limited liability company (“BreitBurn Management”), BreitBurn GP, LLC, a Delaware limited liability company (the “General Partner”), BreitBurn Energy Partners L.P., a Delaware limited partnership (the “Partnership”), BreitBurn Operating GP, LLC, a Delaware limited liability company (“Operating GP”) and BreitBurn Operating L.P., a Delaware limited partnership (“Operating LP”).  The above-named entities are sometimes referred to in this Agreement each as a “Party” and collectively as the “Parties.”  Capitalized terms used herein shall have the meanings assigned to such terms in Section 1.1.

RECITALS:

WHEREAS, the General Partner, BEC, Pro GP and Pro LP have formed the Partnership pursuant to the Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”) for the purpose of engaging in any business activity that is approved by the General Partner and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware LP Act;

WHEREAS, in order to accomplish the objectives and purposes in the preceding recital, each of the following actions has been taken prior to the date hereof:

1.     Pro GP, Pro LP and BEC formed the General Partner under the terms of the Delaware Limited Liability Company Act (the “Delaware LLC Act”) and contributed an aggregate of $1,000 to the General Partner in exchange for all of the member interests in the General Partner;

2.     Pro GP, Pro LP and BEC formed BreitBurn Management under the terms of the Delaware LLC Act and contributed an aggregate of $1,000 to BreitBurn Management in exchange for all of the member interests in BreitBurn Management;

3.     the General Partner, BEC, Pro GP and Pro LP formed the Partnership under the terms of the Delaware LP Act and the General Partner contributed $20 to the Partnership in exchange for a 2% general partner interest in the Partnership and BEC, Pro GP and Pro LP contributed an aggregate of $980 to the Partnership in exchange for a 98% limited partner interest in the Partnership (the “Initial Limited Partner Interest”);

4.     BreitBurn Energy formed Operating GP under the terms of the Delaware LLC Act and contributed $1,000 to Operating GP in exchange for all of the member interests in Operating GP; and

 

5.     Operating GP and BreitBurn Energy formed Operating LP under the terms of the Delaware LP Act and contributed $.01 and $999.99 to Operating LP in exchange for a .001% general partner interest and a 99.999% limited partner interest in Operating LP, respectively;

WHEREAS, concurrently with the consummation of the transactions contemplated hereby, each of the following shall occur:

1.     BreitBurn Energy will convey to Operating LP (.001% on behalf of Operating GP) its interests in the Assets (as defined herein) (provided that with respect to the Non-Consent Assets (as defined herein) same will only be conveyed to the extent provided herein), and Operating LP will assume the Indebtedness (as defined herein);

2.     BreitBurn Energy will distribute its interest in Operating GP and its limited partner interest in Operating LP to Pro GP, Pro LP and BEC in proportion to their ownership interests in BreitBurn Energy;

3.     Pro GP, Pro LP and BEC will convey a 0.01%, 1.90% and 0.09%, respectively, interest in Operating LP to the General Partner, which interests in Operating LP will have an aggregate value equal to 2% of the equity value of the Partnership at the closing of the transactions contemplated by this Agreement (as defined herein) and shall be referred to herein as the “Interests”, in exchange for a 0.40%, 95.15% and 4.45%, respectively, member interest in the General Partner;

4.     the General Partner will convey the Interests to the Partnership in exchange for a continuation of its 2% general partner interest in the Partnership;

5.     Pro GP, Pro LP and BEC will convey all of their interests in Operating GP and their remaining interests in Operating LP to the Partnership in exchange for (a) 15,975,758 common units (“Common Units”) representing limited partner interests with a 71.24% limited partner interest in the Partnership and (b) the right to receive $63.2 million to reimburse them for certain capital expenditures made directly by them or through BreitBurn Energy;

6.     in connection with the Partnership’s initial public offering (the “Offering”), the public, through the Underwriters (as defined herein), will contribute $111,000,000 in cash to the Partnership, less the Underwriters’ discount of 7%, in exchange for 6,000,000 Common Units representing a 26.76% limited partner interest in the Partnership;

7.     the Partnership will use the proceeds from the Offering of Common Units to (a) pay transaction expenses, which are estimated to be $3.5 million (exclusive of the Underwriters’ discount), (b) distribute $63.2 million to Pro GP, Pro LP and BEC to reimburse them for certain capital expenditures, and (c) contribute the balance, $36.5 million, to Operating LP (.001% on behalf of Operating GP), which will use it to retire the Indebtedness;

8.     Pro GP, Pro LP and BEC will convey their interests in the General Partner to BreitBurn Management as a capital contribution;

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9.     to the extent that the Underwriters exercise their over-allotment option to purchase up to 900,000 Common Units (the “Over-Allotment Option”), the Partnership will use the net proceeds to redeem from Pro GP, Pro LP and BEC a number of Common Units owned by Pro GP, Pro LP and BEC (in proportion to their Common Unit ownership) equal to those sold pursuant to the Over-Allotment Option and to reimburse Pro GP, Pro LP and BEC for capital expenditures incurred by them or BreitBurn Energy; and

10.   the organizational documents of the Parties will be amended and restated as necessary to reflect the applicable matters set forth above and as contained in this Agreement;

NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the Parties undertake and agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1                                      Terms.

The following defined terms shall have the meanings given below:

“Agreement” means this Contribution, Conveyance and Assumption Agreement.

“Affiliates” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

“Assets” means the assets listed on Schedule A hereto and as described in the Assignment with respect thereto.

“Assignment” means one or more Deed, Assignment and Bill of Sale substantially in the form attached as Exhibit A, but modified as necessary for state-specific requirements.

“BEC” has the meaning as set forth in the opening paragraph of this Agreement.

“BreitBurn Energy” has the meaning as set forth in the opening paragraph of this Agreement.

“BreitBurn Management” has the meaning as set forth in the opening paragraph of this Agreement.

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

“Common Units” has the meaning as set forth in the Partnership Agreement.

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“Conflicts Committee” means the Conflicts Committee of the General Partner.

“Corporate Subs” means Alamitos Company and Phoenix Production Company.

“Covered Environmental Losses” is defined in Section 3.2.

“Delaware GCL” has the meaning as set forth in the Recitals of this Agreement.

“Delaware LLC Act” has the meaning as set forth in the Recitals of this Agreement.

“Delaware LP Act” has the meaning as set forth in the Recitals of this Agreement.

“Effective Date” means October 10, 2006.

“Effective Time” means 12:01 a.m. Eastern Daylight Time on October 10, 2006.

“Environmental Laws” means all federal, state, and local laws, statutes, rules, regulations, orders and ordinances, legally enforceable requirements and rules of common law, now or hereafter in effect, relating to protection of the environment including, without limitation, the federal Comprehensive Environmental Response, Compensation, and Liability Act, the Superfund Amendments Reauthorization Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Toxic Substances Control Act, the Oil Pollution Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act and other environmental conservation and protection laws, each as amended from time to time.

“General Partner” has the meaning as set forth in the opening paragraph of this Agreement.

“Hazardous Substance” means (a) any substance that is designated, defined or classified as a hazardous waste, hazardous material, pollutant, contaminant or toxic or hazardous substance, or that is otherwise regulated under any Environmental Law, including, without limitation, any hazardous substance as such term is defined under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, and (b) petroleum, petroleum products, crude oil, gasoline, natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel and other petroleum hydrocarbons whether refined or unrefined and (c) asbestos, whether in a friable or a non-friable condition, and polychlorinated biphenyls.

“Indebtedness” means the indebtedness listed on Schedule B hereto.

“Indemnified Party” means either the Partnership Group or BreitBurn Energy, as the case may be, each in its capacity as a party entitled to indemnification in accordance with Article III.

“Indemnifying Party” means either the Partnership Group or BreitBurn Energy, as the case may be, each in its capacity as a party from whom indemnification may be required in accordance with Article III.

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“Indemnified Assets” means all assets conveyed, contributed or otherwise Transferred by BreitBurn Energy and its Affiliates to the Partnership Group prior to or on the Effective Date, including any such assets held by a Person whose ownership interests are Transferred by BreitBurn Energy and its Affiliates thereof to the Partnership Group prior to or on the Effective Date by means of operation of law or otherwise.

“Interests” has the meaning as set forth in the Recitals of this Agreement.

“Non-Consent Assets” has the meaning as set forth in Section 2.1 of this Agreement.

“Offering” has the meaning as set forth in the Recitals of this Agreement.

“Operating GP” has the meaning as set forth in the opening paragraph of this Agreement.

“Operating LP” has the meaning as set forth in the opening paragraph of this Agreement.

“Operating Subsidiaries” means the Corporate Subs and the Partnership Subs.

“Operations and Proceeds Agreement” means one or more agreements substantially in the form attached as Exhibit B hereto.

“Other Losses” is defined in 3.4(a).

“Over-Allotment Option” has the meaning as set forth in the Recitals of this Agreement.

“Party” or “Parties” has the meaning as set forth in the opening paragraph of this Agreement.

“Partnership” has the meaning as set forth in the opening paragraph of this Agreement.

“Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of the Partnership, as it may be amended, supplemented or restated from time to time.

“Partnership Entities” means the General Partner, the Partnership, Operating GP, Operating LP and the Operating Subsidiaries.

“Partnership Group” means the General Partner, the Partnership and all of their respective Subsidiaries.

“Partnership Subs” means Preventive Maintenance Services LLC and Alamitos Company LLC.

“Person” means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.

“Pro GP” has the meaning as set forth in the opening paragraph of this Agreement.

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“Pro LP” has the meaning as set forth in the opening paragraph of this Agreement.

“Registration Statement” means the registration statement on Form S-1 filed by the Partnership relating to the Offering.

“Retained Assets” means the assets and investments owned by BreitBurn Energy and any of its Affiliates that were not conveyed, contributed or otherwise Transferred to the Partnership Group pursuant to the Contribution Agreement and other documents relating to the transactions referred to in the Contribution Agreement, including, without limitation, the replacements and natural extensions thereof.

“Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof, (b) a partnership (whether general or limited) or limited liability company in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership or member of such limited liability company, but only if more than 50% of the partnership interests of such partnership or membership interests of such limited liability company (considering all of the partnership interests or membership interests as a single class) is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a corporation, a partnership or a limited liability company) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly,  at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such person.

“Surface Operating Agreement” means the agreement attached as Exhibit C hereto.

“Transfer” including the correlative terms “Transferring” or “Transferred” means any direct or indirect transfer, assignment, sale, gift, pledge, hypothecation or other encumbrance, or any other disposition (whether voluntary, involuntary or by operation of law) of any assets, property or rights.

“Underwriters” means RBC Capital Markets Corporation, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, A.G. Edwards & Sons, Inc., Wachovia Capital Markets, LLC, Deutsche Bank Securities Inc. and Canaccord Adams Inc.

“Voluntary Cleanup Program” means a program of the United States or a state of the United States enacted pursuant to Environmental Laws which provides for a mechanism for the written approval of, or authorization to conduct, voluntary remedial action for the clean-up, removal or remediation of contamination that exceeds actionable levels established pursuant to Environmental Laws.

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ARTICLE II
CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS

 

Section 2.1                                      Contribution of Interests by BreitBurn Energy to Operating LP and Operating GP.

BreitBurn Energy hereby agrees to contribute, bargain, convey, assign, transfer, set over and deliver to Operating LP (.001% on behalf of Operating GP), its interests in the Assets, as a capital contribution, pursuant to the Assignment and such other additional instruments and agreements as may be necessary to affect same in exchange for an assumption by Operating LP of the Indebtedness, and Operating LP hereby accepts such contribution to the capital of Operating LP and assumes the Indebtedness; provided however that the underlying real property interests described in Part 2 of Schedule A and described in “Exhibit A” to Exhibits B-1 and B-2 to this Agreement (collectively, the “Non-Consent Assets”) shall only be contributed, if at all, following receipt of all consents deemed necessary to such contribution by BreitBurn Energy; and further provided that, with respect to the property described in Part 3 of Schedule A and described in “Exhibit A” to Exhibit C to this Agreement, it is understood and agreed that the Surface Use Agreement (as defined in Exhibit C, the Surface Operating Agreement) related to such property shall only be contributed, if at all, following receipt of all consents deemed necessary to such contribution by BreitBurn Energy.  Concurrently, with such contribution, BreitBurn Energy and Operating LP shall enter into the Operations and Proceeds Agreement with respect to the Non-Consent Assets and the Surface Operating Agreement.

Section 2.2                                      Distribution and Assignment of Interests in Operating GP and Operating LP by BreitBurn Energy to Pro GP, Pro LP and BEC.

BreitBurn Energy hereby grants, distributes, contributes, bargains, conveys, assigns, transfers, sets over and delivers to Pro GP, Pro LP and BEC, their respective successors and assigns, for their own use forever, all of its interest in Operating GP and its limited partner interest in Operating LP in proportion to the ownership of Pro GP, Pro LP and BEC in BreitBurn Energy, and Pro GP, Pro LP and BEC hereby accept such interests.

Section 2.3                                      Contribution of Interests by Pro GP, Pro LP and BEC to the General Partner.

Pro GP, Pro LP and BEC hereby grant, contribute, bargain, convey, assign, transfer, set over and deliver to the General Partner, its successors and assigns, for its and their own use forever, the Interests, which Interests have an aggregate value equal to 2% of the equity value of the Partnership at the closing of the transactions contemplated by this Agreement, in exchange for a 0.40%, 95.15% and 4.45%, respectively, member interest in the General Partner, and the General Partner hereby accepts the Interests as a contribution to the capital of the General Partner.

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Section 2.4             Contribution of Interests by the General Partner to the Partnership.

 

The General Partner hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to the Partnership, its successors and assigns, for its and their own use forever, the Interests in exchange for a continuation of its 2% general partner interest in the Partnership, and the Partnership hereby accepts the Interests as a contribution to the capital of the Partnership.

Section 2.5                                      Contribution of Interests in Operating GP and Operating LP by Pro GP, Pro LP and BEC to the Partnership.

Pro GP, Pro LP and BEC hereby grant, contribute, bargain, convey, assign, transfer, set over and deliver to the Partnership, its successors and assigns, for its and their own use forever, all their member interests in Operating GP and their remaining interests in Operating LP in exchange for (a) 15,975,758 Common Units, representing limited partner interests with a 71.24% limited partner interest in the Partnership, and (b) the right to receive $63.2 million to reimburse them for certain capital expenditures made directly by them or through BreitBurn Energy, and the Partnership hereby accepts such member interests in Operating GP and limited partner interests in Operating LP as a contribution to the capital of the Partnership.

Section 2.6                                      Public Cash Contribution.

The Parties acknowledge a cash contribution by the public through the Underwriters to the Partnership of $111,000,000 ($103,230,000 after the Underwriters’ discount of 7%) in exchange for 6,000,000 Common Units representing a 26.76% limited partner interest in the Partnership.

Section 2.7                                      Payment of Transaction Expenses by the Partnership; Distribution to Pro GP, Pro LP and BEC by the Partnership; Cash Contribution by the Partnership to Operating LP.

The Parties acknowledge (a) the payment by the Partnership, in connection with the transactions contemplated hereby, of transaction expenses in the amount of approximately $3.5 million (exclusive of the Underwriters’ discount), (b) the distribution by the Partnership of approximately $63.2 million to Pro GP, Pro LP and BEC to reimburse them for certain capital expenditures and (c) the contribution by the Partnership of its remaining cash of approximately $36.5 million as a capital contribution to Operating LP (.001% on behalf of Operating GP), which will use it to retire the Indebtedness.

Section 2.8                                      Contribution of Interests in the General Partner by Pro GP, Pro LP and BEC to BreitBurn Management.

Pro GP, Pro LP and BEC hereby grant, contribute, bargain, convey, assign, transfer, set over and deliver to the BreitBurn Management, its successors and assigns, for its and their own use forever, their interests in the General Partner, and BreitBurn Management hereby accepts their interests in the General Partner as a contribution to the capital of the BreitBurn Management.

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Section 2.9             Over-Allotment Option.

 

The Parties acknowledge that in the event the Underwriters exercise their Over-Allotment Option, the Partnership will use the net proceeds therefrom to redeem from Pro GP, Pro LP and BEC a pro rata number of Common Units owned by each of Pro GP, Pro LP and BEC equal to the number of Common Units issued upon exercise of the Over-Allotment Option, at a price per Common Unit equal to the net proceeds per Common Unit received by the Partnership after the Underwriters’ discount but before other expenses.

Section 2.10                                Redemption of the Initial Limited Partner Interest.

The Partnership hereby agrees to redeem from BEC, Pro GP and Pro LP and agrees to retire the Initial Limited Partner Interest in exchange for an aggregate payment of cash of $980.

ARTICLE III
ASSUMPTIONS OF CERTAIN LIABILITIES; INDEMNIFICATION

Section 3.1                                      Assumption of Indebtedness.

In connection with the contribution and transfer by BreitBurn Energy of interests in the Assets to Operating LP, pursuant to Section 2.1 above, Operating LP hereby assumes and agrees to duly and timely pay, perform and discharge the Indebtedness, to the full extent that the parties thereto have been heretofore or would have been in the future obligated to pay, perform and discharge the Indebtedness were it not for the execution and delivery of this Agreement; provided, however, that said assumption and agreement to duly and timely pay, perform and discharge the Indebtedness shall not (a) increase the obligation of the Operating LP with respect to the Indebtedness beyond that of the parties thereto, (b) waive any valid defense that was available to the parties thereto with respect to the Indebtedness or (c) enlarge any rights or remedies of any third party, if any, under the Indebtedness.

Section 3.2                                      Environmental Indemnification.

(a)           Subject to Section 3.3, BreitBurn Energy shall indemnify, defend and hold harmless the Partnership Group from and against any environmental claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent, suffered or incurred by the Partnership Group by reason of or arising out of:

(i)            any violation of Environmental Laws associated with the ownership or operation of the Indemnified Assets; or

(ii)           any event or condition associated with ownership or operation of the Indemnified Assets (including, without limitation, the presence of Hazardous Substances on, under, about or migrating to or from the Indemnified Assets or the disposal or release of Hazardous Substances generated by operation of the Indemnified Assets at non-Indemnified Asset locations) including, without limitation, (A) the cost and expense

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of any investigation, assessment, evaluation, monitoring, containment, cleanup, repair, restoration, remediation, or other corrective action required or necessary under Environmental Laws or to satisfy any applicable Voluntary Cleanup Program, (B) the cost or expense of the preparation and implementation of any closure, remedial, corrective action or other plans required or necessary under Environmental Laws or to satisfy any applicable Voluntary Cleanup Program and (C) the cost and expense for any environmental pre-trial, trial, or appellate legal or litigation support work;

but only to the extent that such violation complained of under Section 3.2(a)(i) or such events or conditions included under Section 3.2(a)(ii) occurred before the Effective Date (collectively, “Covered Environmental Losses”).  Covered Environmental Losses shall not include any claim, loss or expense arising from or related to the plugging and abandonment of wells associated with the Indemnified Assets upon the determination that such well or wells have reached its or their useful economic life.   The term “plugging and abandonment” as used herein shall mean all plugging, replugging, and abandonment associated with the Indemnified Assets, or any portion thereof, and including, but not limited to, all plugging and abandonment, associated removal, disposal or restoration of the surface, site clearance and disposal of the wells, structures and personal property located on or associated with the Indemnified Assets, the removal or capping and burying of all associated flowlines, the recontouring of the surface in accordance with applicable laws or the terms and conditions of applicable leases, licenses, franchises or contracts, site clearance and any disposal of related waste materials or Hazardous Substances of the type ordinarily encountered in oil and gas operations, but “plugging and abandonment” shall not include investigation or remediation of soil, groundwater, or surface water contamination (requiring remediation or response action under applicable Environmental Laws) exceeding the level of site restoration typically required for normal plugging and abandonment activities.

(b)           Except for claims for Covered Environmental Losses made before the fourth anniversary of the Effective Date, which shall not terminate, all environmental indemnification obligations in this 3.2 shall terminate on the fourth anniversary of the Effective Date.

Section 3.3                                      Limitations Regarding Environmental Indemnification.

The aggregate liability of BreitBurn Energy in respect of all Covered Environmental Losses under Section 3.2 shall not exceed $5.0 million and BreitBurn Energy shall not have any obligation under Section 3.2 until such Covered Environmental Losses exceed $500,000 and then only to the extent such aggregate Covered Environmental Losses exceed $500,000.  Notwithstanding anything herein to the contrary, in no event shall BreitBurn Energy Entities have any indemnification obligations under Section 3.2 for claims made as a result of additions to or modifications of Environmental Laws promulgated after the Effective Date.

Section 3.4                                      Additional Indemnification.

(a)           In addition to and not in limitation of the indemnification provided under Section 3.2, BreitBurn Energy shall indemnify, defend and hold harmless the Partnership Group from and against any claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown,

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fixed or contingent, suffered or incurred by the Partnership Group (“Other Losses”) by reason of or arising out of (i) failure to convey good and defensible title to the Indemnified Assets to one or more members of the Partnership Group subject only to encumbrances that do not materially adversely affect the value of the Indemnified Assets or the ability of the Partnership Group to operate the Indemnified Assets in substantially the same manner as they were operated immediately prior to the Effective Date, (ii) events and conditions associated with the Retained Indemnified Assets whether occurring before or after the Effective Date and (iii) all federal, state and local income tax liabilities attributable to the operation of the Indemnified Assets prior to the Effective Date, including any such income tax liabilities of BreitBurn Energy that may result from the consummation of the formation transactions for the Partnership Entities; provided that the Partnership Group shall not be entitled to the indemnity in Section 3.2(a)(ii) for Other Losses to the extent caused by gross negligence, bad faith or fraud or willful misconduct of any member of the Partnership Group.  All title indemnification obligations in Section 3.2(a)(i) shall terminate on the fourth anniversary of the Effective Date

(b)           In addition to and not in limitation of the indemnification provided under the Partnership Agreement, the Partnership Group shall indemnify, defend and hold harmless BreitBurn Energy and its Affiliates from and against any claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent, suffered or incurred by BreitBurn Energy and its Affiliates by reason of or arising out of events and conditions associated with the operation of the Indemnified Assets and occurring on or after the Effective Date unless such indemnification would not be permitted under the Partnership Agreement by reason of one of the provisos contained in Section 7.7(a) of the Partnership Agreement.

Section 3.5                                      Indemnification Procedures

(a)           The Indemnified Party agrees that promptly after it becomes aware of facts giving rise to a claim for indemnification under this Article III, it will provide notice thereof in writing to the Indemnifying Party, specifying the nature of and specific basis for such claim.

(b)           The Indemnifying Party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the Indemnified Party that are covered by the indemnification under this Article III, including, without limitation, the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such matter or any issues relating thereto; provided, however, that no such settlement shall be entered into without the consent of the Indemnified Party (with the concurrence of the Conflicts Committee in the case of the Partnership Group) unless it includes a full release of the Indemnified Party from such matter or issues, as the case may be, and does not include the admission of fault, culpability or a failure to act, by or on behalf of such Indemnified Party.

(c)           The Indemnified Party agrees to cooperate fully with the Indemnifying Party, with respect to all aspects of the defense of any claims covered by the indemnification under this Article III, including, without limitation, the prompt furnishing to the Indemnifying Party of any correspondence or other notice relating thereto that the Indemnified Party may receive, permitting the name of the Indemnified Party to be utilized in connection with such defense, the

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making available to the Indemnifying Party of any files, records or other information of the Indemnified Party that the Indemnifying Party considers relevant to such defense and the making available to the Indemnifying Party, at no cost to the Indemnifying Party, of any employees of the Indemnified Party; provided, however, that in connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact thereof on the operations of the Indemnified Party and further agrees to endeavor to maintain the confidentiality of all files, records and other information furnished by the Indemnified Party pursuant to this Section 3.5.  In no event shall the obligation of the Indemnified Party to cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection with the defense of any claims covered by the indemnification set forth in this Article III; provided, however, that the Indemnified Party may, at its own option, cost and expense, hire and pay for counsel in connection with any such defense.  The Indemnifying Party agrees to keep any such counsel hired by the Indemnified Party informed as to the status of any such defense, but the Indemnifying Party shall have the right to retain sole control over such defense.