MASTER COOPERATION AND SAFETY AGREEMENT

Exhibit 10.70

 

Execution Copy

 

MASTER COOPERATION AND SAFETY AGREEMENT

 

Dated as of August 1, 2005

 

by and among

 

CONSOL ENERGY INC.

 

And each of the CEI Subsidiaries

 

AND

 

CNX GAS CORPORATION

 

And each of the CNX Subsidiaries

TABLE OF CONTENTS

 

MASTER COOPERATION AND SAFETY AGREEMENT

 

This MASTER COOPERATION AND SAFETY AGREEMENT (this “ Agreement ”) dated as of August 1, 2005 (the “Effective Date” ) is by and among (a) CONSOL Energy Inc., a Delaware corporation, with its principal place of business at 1800 Washington Road, Pittsburgh, PA 15241(“ CEI ”) and each CEI Subsidiary (as defined below) (together with CEI, collectively, the “ Coal Parties ”), and (b) CNX Gas Corporation, a Delaware corporation, with its principal place of business at 1800 Washington Road, Pittsburgh, PA 15241 (“ CNX ”) and each CNX Subsidiary (as defined below) (together with CNX, collectively, the “ Gas Parties ”). Capitalized terms used in this Agreement shall have the meanings ascribed to them in Section 1 [Definitions; Construction; Accounting Principles] unless the context clearly indicates otherwise.

 

Recitals

 

A.

The Coal Parties are in the business of mining and marketing coal.

 

B.

The Gas Parties are in the business of producing and marketing Gas.

 

C.

Certain of the Coal Parties have interests in (by lease, deed or otherwise) significant Gas resources, and, pursuant to a series of transactions contemporaneous with this Agreement, are transferring their rights to such Gas to certain of the Gas Parties in return for certain good and valuable consideration, the receipt and sufficiency of which is hereby confirmed.

 

D.

It is anticipated that, in certain circumstances, it shall be in the interests of the Gas Parties to Capture Coal Gas from coal seams in advance of mining by the Coal Parties. Removal of Coal Gas in advance of mining operations results in significant benefit to the Coal Parties’ mining operations since it greatly improves the safety of the mining process and minimizes ventilation concerns both during development and production.

 

E.

The Coal Parties and the Gas Parties have agreed that, in areas in which both have interests, to the extent there is any conflict between the two, the Coal Parties’ coal operations shall prevail over Gas operations within certain of the parties’ joint areas of interest as more fully set forth in this Agreement.

 

F.

The Coal Parties and the Gas Parties have agreed to cooperate in order to economically produce coal and Gas from certain areas which may produce both coal and Gas for the mutual benefit of both parties with a priority on the safety of mining operations.

 

Now therefore, for and in consideration of the premises and mutual covenants and agreements herein contained and intending to be legally bound, the Coal Parties and the Gas Parties agree as follows:

 

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1. Definitions; Construction; Accounting Principles

 

1.1 Definitions

 

In addition to the words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

 

“ Affiliate ” as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 10% or more of any class of the voting or other equity interests of such Person, or (iii) 10% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be.

 

“ Agreement ” shall have the meaning ascribed to such term in the preamble.

 

“ Annual Drilling Plan ” shall mean a plan, prepared by the Gas Parties prior to September 1 of each year in consultation with the Coal Parties showing (a) the general area of drilling and the number of Wells proposed to be drilled in the next calendar year by each of the Gas Parties and the Coal Parties and (b) the approximate location of all Systems proposed to be installed by the Gas Parties; provided , however , that an Annual Drilling Plan need not address any Well or System to be located in any area that is not reasonably likely to ever become a Coal Area.

 

“ Business Day ” shall mean any day on which each Coal Party and each Gas Party is open for business in the ordinary course of affairs.

 

“ Capital Costs of Development ” shall mean the Capital Costs of any Well covered by an Annual Drilling Plan or requested by any Coal Party outside of an Annual Drilling Plan, (a) including, without limitation, (i) costs of bonding, permitting, leasing, surface agreements and rights of way, easements, site preparation, drilling (both tangible and intangible costs), completing, recompleting, stimulating, equipping, constructing or expanding a System to connect to a Well, connecting a Well to a System, compression, gas treatment facilities and (ii) costs of legal, regulatory and environmental compliance and all fees associated therewith, including attorneys’ fees, (b) but expressly excluding any credits or adjustments in respect of taxes or other positive amounts.

 

“ Capital Costs ” shall mean any expenditure which is required to be capitalized under generally accepted accounting principles as are in effect from time to time and applied on a consistent basis both as to classification of items and amounts; with respect to Gas accounting, all of the foregoing shall be applied on a “successful efforts” basis (as defined according to generally accepted accounting principles).

 

“ Capture ” shall mean to collect, treat (if necessary), process (if necessary), transport, store (if necessary), market and sell Gas that is available from any Well.

 

“ CEI Contact ” shall have the meaning ascribed to such term in Section 2.7.1.

 

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“ CEI ” shall have the meaning ascribed to such term in the preamble.

 

“ CEI Subsidiary ” shall mean each party to this Agreement that is designated as a “CEI Subsidiary” on the signature page hereof and each other Person that joins this Agreement as a CEI Subsidiary after the Effective Date pursuant to Schedule A other than CNX or any CNX Subsidiary.

 

“ Claim ” shall mean any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable out-of-pocket fees, including attorneys’ fees) arising out of or as a consequence of, whether direct or indirect, a given transaction or occurrence.

 

“ CNX ” shall have the meaning ascribed to such term in the preamble.

 

“CNX Subsidiary” shall mean each party to this Agreement that is designated as a “CNX Subsidiary” on the signature page hereof and each other Person that joins this Agreement as a CNX Subsidiary after the date hereof pursuant to Schedule A .

 

“ Coal Area ” shall mean any area that is either a Mine Area or a Coal Plan Area.

 

“ Coal Area Well ” shall mean (a) with respect to Wells not owned by any Coal Party or Gas Party as of the Effective Date, any Well that, when originally Spudded or acquired (whichever is later) by any Coal Party or Gas Party, is located in a Coal Area, or (b) with respect to Wells owned by any Coal Party or Gas Party as of the Effective Date (i) in the event that such Party is in fact either a Coal Party or a Gas Party on the Effective Date, any such Well that is located in a Coal Area on the Effective Date, or (ii) in the event that such Party is neither a Coal Party nor a Gas Party on the Effective Date, any such Well that is located in a Coal Area on the date on which such Party first becomes a Coal Party or a Gas Party.

 

“ Coal Gas ” shall mean occluded methane gas and all associated natural gas and other hydrocarbons of whatever quality or quantity produced or emitted from coalbeds or coal formations and seams and any related, associated or adjacent rock material or strata. For the avoidance of doubt, the term “Coal Gas” shall expressly include all substances commonly known as “coalbed methane”, “coal mine methane” and “gob gas”.

 

“ Coal Parties ” shall have the meaning ascribed to such term in the preamble.

 

“ Coal Permit ” shall mean a valid and active coal mining permit duly filed with the applicable Official Body by any Coal Party or its predecessor in interest.

 

“ Coal Plan ” Area at any point in time shall mean any area that is both (i) (a) outside a Mine Area, and (b) within the Ten Year Mine Plan in effect at that point in time and (ii) owned, leased or otherwise controlled by the Coal Parties as of the Effective Date or acquired by the Coal Parties at any time thereafter while CNX is an Affiliate of CEI.

 

“ Committee ” shall have the meaning ascribed to such term in Schedule A .

 

“ Conventional O & G ” shall mean all liquid or gaseous hydrocarbons (including condensate and other substances produced therewith) other than Coal Gas. For the avoidance of doubt, the term “Conventional O & G” shall expressly include all substances commonly known as “conventional oil and gas”.

 

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“ Conventional Well ” shall mean a well drilled and permitted for the purpose of producing Conventional O & G and not for the purpose of producing Coal Gas.

 

“ Current Gas Rights ” shall mean Gas Rights held or otherwise controlled (by lease or other binding legal arrangement) by any Person as of the date of this Agreement, including, without limitation, by way of any unrecorded document or instrument; for the avoidance of doubt and in no way limiting the foregoing, the term “Current Gas Rights” shall expressly include those certain beneficial Gas Rights more fully described on Schedule 1(CGR) attached hereto and made a part hereof, but shall exclude any option or other right to acquire Wells and related Gas owned by third parties.

 

“ Current System ” shall mean any portion of any System owned, leased or otherwise controlled by any Gas Party (other than a Gas Party that joined this Agreement after the Effective Date) as of the Effective Date.

 

“ Development ” shall mean, with respect to any Well, all development activities relating thereto, including, without limitation, bonding, permitting, leasing, surface agreements and rights of way, easements, site preparation, drilling, completing, recompleting, stimulating or equipping.

 

“ Effective Date ” shall have the meaning ascribed to such term in the Preamble.

 

“ Failure of Title ” shall mean an event which occurs when, as a result of a final order or decree from any Official Body, a determination is made that the title to any Coal Gas within a Project Area is not held by any Coal Party or any Gas Party and that, notwithstanding regulatory action, such as forced pooling, the Coal Parties and the Gas Parties do not have vested rights to develop Coal Gas, and instead said rights are vested in third parties.

 

“ Frac Well ” shall mean a vertical Well drilled in advance of mining and producing from zones artificially fractured or stimulated and which is capable of producing Coal Gas.

 

“ Future Gas Rights ” shall mean Gas Rights acquired or otherwise first controlled (by lease or other binding legal arrangement) by any Person after the date of this Agreement including, without limitation, by way of any unrecorded document or instrument.

 

“ Future System ” shall mean any portion of any System that is not a Current System.

 

“ Gas ” shall mean Conventional O & G and Coal Gas (but expressly excluding any Conventional O & G and Coal Gas that, prior to Capture, is located outside of the continental United States of America).

 

“ Gas Asset ” shall mean any Gas Unit, Well, Well site, and all associated assets, including, without limitation, Gas Reserves and Systems.

 

“ Gas Parties ” shall have the meaning ascribed to such term in the preamble.

 

“ Gas Reserves ” shall mean proved developed oil and gas reserves and proved undeveloped oil and gas reserves as defined by SEC Regulation S-X, Rule 4-10(a) as in effect on the Effective Date.

 

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“ Gas Rights ” shall mean any Person’s legal or equitable right, title and interest in any Gas and any Gas Asset, whether by deed, lease or otherwise, together with such Person’s right to Capture such Gas, including, without limitation, surface rights of way and access to information concerning Gas.

 

“ Gas Unit ” shall mean a “drilling unit,” as that term in commonly used in the Gas business, (a) established or prescribed by field rules or other regulatory order or (b) otherwise designated any Gas Party.

 

“ GasCo Contact ” shall have the meaning ascribed to such term in Section 2.7.1.

 

“ Gob ” shall mean the de-stressed zone associated with any full seam extraction of coal that extends above and below the mined out coal seam, and may be sealed or unsealed.

 

“ Gob Well ” shall mean (a) a Well drilled in advance of mining or after mining for the purpose of extracting Gas from the Gob or (b) a Frac Well that is recompleted for the purpose of extracting Gas from the Gob.

 

“ Horizontal Hole ” shall mean a hole drilled from within the mine horizontally into the coal seam to be mined, or sloping into adjacent strata, for the purpose of degasification in advance of mining for mine safety purposes.

 

“ Loss(es) ” means liabilities, losses, claims, demands, actions, suits, damages, judgments, assessments, interest, penalties, fines, amounts paid in settlement, reasonable attorneys’ fees and costs and expenses, including court costs, but excluding any incidental, special, punitive, exemplary or consequential damages, such as lost profits, loss of revenue, loss of use or diminution in value of property.

 

“ Master Control System ” shall mean any master control system for operation of Wells.

 

“ Master Separation Agreement ” shall mean that certain Master Separation Agreement entered into on or about the date hereof among the Parties, as amended from time to time.

 

“ Mine Area ” shall mean any area that is both (i) subject to active coal mining operations by any Coal Party, including, without limitation, any developed coal panel and any Gob other than Gob located in a Sealed Gob Area, and (ii) owned, leased or otherwise controlled by the Coal Parties as of the Effective Date or acquired by the Coal Parties at any time thereafter while CNX is an Affiliate of CEI.

 

“ Mine Area Well ” shall mean (a) with respect to Wells not owned by any Coal Party or Gas Party as of the Effective Date, any Well that, when originally Spudded or acquired (whichever is later) by any Coal Party or Gas Party, is located in a Mine Area, or (b) with respect to Wells owned by any Coal Party or Gas Party as of the Effective Date, (i) in the event that such Party is in fact either a Coal Party or a Gas Party on the Effective Date, any such Well that is located in a Mine Area on the Effective Date, or (ii) in the event that such Party is neither a Coal Party nor a Gas Party on the Effective Date, any such Well that is located in a Mine Area on the date on which such Party first becomes a Coal Party or a Gas Party.

 

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“ Mine-Through Development Costs ” shall mean costs incurred to obtain access to PDPR, including, without limitation, the costs of (a) providing facilities for extracting and on-site treatment, (b) gathering lines (from the wellhead to the collection point, not to exceed 2500 feet in length), (c) gaining access to and preparing well locations for drilling (including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing any PDPR), (d) drilling and equipping development wells, exploratory wells, and service wells (including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly), (e) to the extent that such items cannot be reused, acquiring, constructing, and installing production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems, and (f) providing improved recovery systems specific to the Gas Unit. All equipment will be net of any applicable salvage value.

 

“ Mine-Through Non-Production Costs ” shall mean all royalty, direct and general administration, selling, land rental, well closing, vehicle, excise tax and other costs which are not directly associated with Mine-Through Production Costs and Mine-Through Development Costs of the Well.

 

“ Mine-Through Production Costs ” shall mean costs incurred to operate and maintain Wells and related equipment and facilities, including applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities, including, but not limited to: (a) costs of direct labor to operate the wells and related equipment and facilities, (b) repairs and maintenance, (c) materials, supplies, and fuel consumed and supplies utilized in operating the Wells and related equipment and facilities, (d) property taxes and insurance applicable to PDPR and Wells and related equipment and facilities, and (e) severance and ad valorem taxes.

 

“ Non-Coal Area ” shall mean any area that is both (i) not a Coal Area and (ii) owned, leased or otherwise controlled by the Coal Parties as of the Effective Date or acquired by the Coal Parties at any time thereafter while CNX is an Affiliate of CEI.

 

“ Non-Coal Area Well ” shall mean (a) with respect to Wells not owned by any Coal Party or Gas Party as of the Effective Date, any Well that, when originally Spudded or acquired (whichever is later) by any Coal Party or Gas Party, is located in a Non-Coal Area, or (b) with respect to Wells owned by any Coal Party or Gas Party as of the Effective Date, (i) in the event that such Party is in fact either a Coal Party or a Gas Party on the Effective Date, any such Well that is located in a Non-Coal Area on the Effective Date, or (ii) in the event that such Party is neither a Coal Party nor a Gas Party on the Effective Date, any such Well that is located in a Non-Coal Area on the date on which such Party first becomes a Coal Party or a Gas Party; for the avoidance of doubt, the term “Non-Coal Area Well” shall expressly include any Sealed Gob Area Well.

 

“ Non-Viable Coal Seam ” shall mean any portion of any coal seam that, as of the time of the proposed event or activity (including, without limitation, Stimulation), is (a) not controlled by any Coal Party, or (b) controlled by a Coal Party but not reasonably

 

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likely to ever be mined commercially by any Coal Party based upon reasonable assumptions and trade custom in effect as of the time of the proposed event or activity (including, without limitation, Stimulation).

 

“ Notice ” shall have the meaning ascribed to such term in Schedule A .

 

“ NPV ” shall mean the net present value of the PTCF as determined immediately prior to mine-through and projected for the remaining economic life of the subject Well calculated using a discount rate of ten percent (10%).

 

“ Official Body ” shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, board, bureau, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

 

“ Operating Expenses ” shall mean the cash expenses of operating any Well, System or other equipment, as distinguished from the Capital Costs associated with Development, and shall include, without limitation, (a) any operating fees and expenses due under any operating agreement, (b) any in transit and/or collection fees, (c) the expenses of gathering and marketing production from any Well, (d) applicable ad valorem , production, severance and excise taxes, (e) royalty and overriding royalty payments, (f) costs of power, supplies and services, (g) insurance and damages, (h) costs of legal, regulatory and environmental compliance and all fees associated therewith, including attorneys’ fees, and (i) any expenses commonly known as lifting expenses (including, without limitation, Well Fluid expenses and Gas processing expenses).

 

“ Party ” shall mean a Coal Party or a Gas Party, as the context requires.

 

“ Person ” shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

 

“ Pre Tax Cash Flow ” or “ PTCF ” shall mean, with respect to any Gas Asset, Pre Tax Operating Income before depreciation, depletion, amortization, interest expense and income taxes; for the avoidance of doubt, PTCF shall be based on real or unescalated costs and revenues.

 

“ Pre Tax Operating Income ” shall mean, with respect to a Gas Asset, (a) the total future estimated revenues generated by the sale of Gas from the Gas Asset over the estimated economic life of the Gas Asset, less (b) the total future estimated Mine-Through Production Costs (but not Mine-Through Non-Production Costs).

 

“ Project Area ” shall mean the Coal Area plus the Non-Coal Area.

 

“ Proved Developed Producing Reserves ” or “ PDPR ” shall mean the net Gas Reserves associated with an operating Well that (a) in the case of Coal Gas, is completed in one (1) or more target coal seams, or (b) in the case of Conventional O & G, is completed in one or more target reservoirs, and (c) is producing commercially recoverable quantities of Gas in an economically viable manner. A Gas Asset’s total PDPR immediately before and immediately after the planned mining operations shall be calculated based on forecasts prepared by the applicable Gas Party for the completed coal seams or gas reservoirs using the actual historical production performance of the particular Well in the Gas Unit.

 

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“ Sealed Gob Area ” shall mean any Gob that, as determined by the applicable Coal Party in its sole discretion, is sealed and not (a) directly subject to or associated with active mining or (b) subject to a Ten Year Mine Plan for future mining activities; provided , however , that the fact that Gob is subject to a Coal Permit shall in no way mean that such Gob is not within a Sealed Gob Area. Upon request of any Gas Party, the applicable Coal Party shall confirm in writing that a given Gob is, in fact, a Sealed Gob Area.

 

“ Sealed Gob Area Well ” shall mean any Gob Well that, at the time a given action is taken or proposed to be take (for example, plugging), is located in a Sealed Gob Area.

 

“ SEC ” shall mean the U. S. Securities and Exchange Commission.

 

“ Shut-In Date ” shall mean the date on which Capture activities at any Non-Coal Area Well is scheduled to cease in anticipation of mine-through.

 

“ Spud ” shall mean to commence drilling a Well as more specifically defined as the time when the drill bit first penetrates the earth.

 

“ Stimulate ” or “ Stimulation ” shall mean the artificial fracture or stimulation of geological zones or strata.

 

“ Subsidiary ” of any Person at any time shall mean (i) any corporation or trust of which more than 50% (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person’s Subsidiaries, (ii) any partnership of which such Person is a general partner or of which more than 50% of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person’s Subsidiaries, (iii) any limited liability company of which such Person is a member or of which more than 50% of the limited liability company interests is at the time directly or indirectly owned by such Person or one or more of such Person’s Subsidiaries or (iv) any corporation, trust, partnership, limited liability company or other entity which is controlled by such Person or one or more of such Person’s Subsidiaries.

 

“ System(s) ” shall mean all equipment that is necessary to Capture Gas produced from any Well other than equipment needed merely to vent Gas, including, without limitation, compressors, treating facilities, surface storage facilities, processing plants and gathering or transportation lines.

 

“ Ten Year Mine Plan ” shall mean at any time the then completed mine plan delivered to the Gas Parties with respect to the Coal Parties’ projected mining activities for the subsequent ten (10) years produced by the Coal Parties for areas in which the Gas Parties hold Gas Rights as of the Effective Date or have acquired Gas Rights at any time thereafter while CNX is an Affiliate of CEI, and certified by the chief operating officer of CEI as genuine; provided , however , that any area that is not reasonably likely ever to be subject to Gas Development or Capture activities by any Gas Party need not be included in any such plan.

 

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“ VAM ” shall mean any Gas extracted from a mine by way of the mine’s ventilation fans.

 

“ Vertical Vent Hole ” shall mean a vertical borehole into a mine drilled or used for the purpose of venting Coal Gas for mine safety, including, without limitation, the release of pressure in a Sealed Gob Area as required by any Official Body.

 

“ Viable Coal Seam ” shall mean any portion of any coal seam other than a Non-Viable Coal Seam.

 

“ VTH Well ” shall mean a vertical-to-horizontal Well drilled in advance of mining and producing from within virgin coal seams.

 

“ Water Disposal Facility ” shall mean a facility used for disposal of fluids produced as a result of the drilling, stimulation, recompletion, development, production, and gathering of Gas.

 

“ Well Fluid ” shall mean any fluid produced in conjunction with the Capture of Gas appropriate and eligible for disposal in any Class II or V or similar Water Disposal Facility permitted by the United States Environmental Protection Agency or any similar Official Body.

 

“ Well ” shall mean a well drilled and permitted, or later permitted, for the commercial production of Gas, including, without limitation, any Conventional Well, VTH Well, Frac Well, or Gob Well.

 

Capitalized terms used and not defined above or otherwise defined herein shall have the meaning ascribed thereto in the Master Separation Agreement unless the context clearly indicates otherwise.

 

1.2 Accounting and Other Principles

 

Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters pursuant to this Agreement shall be made and prepared in accordance with generally accepted accounting principles as in effect from time to time (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by such generally accepted accounting principles. Unless the context clearly requires a different interpretation, references in this Agreement to any Gas Asset mean a Gas Asset which the Gas Parties owned, leased or otherwise controlled as of the Effective Date or at any time thereafter when CNX is an Affiliate of CEI. The intention of the parties is that this Agreement applies (i) to the properties and other assets of the Gas Parties which they own, lease or otherwise control during the period of time from on and after the Effective Date to and including the date on which CNX is no longer an Affiliate of CEI and (ii) to the properties and other assets of the Coal Parties which they own, lease or otherwise control during the period of time from on and after the Effective Date to and including the date on which CNX is no longer an Affiliate of CEI.

 

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2. General Objectives and Overriding Principles

 

All Gas Development and Capture pursuant to the terms of this Agreement shall be subject to, and all other provisions of this Agreement shall be construed and applied in a manner which is consistent with, the following general objectives and overriding principles:

 

2.1. Safety

 

The safety of mining and Gas operations is the most important objective of the business relationship memorialized in this Agreement.

 

2.2. Separate Businesses with General Obligation to Cooperate

 

While they are separate, self-sufficient business groups, in light of certain overlapping interests, the Coal Parties on the one hand and the Gas Parties on the other shall work with the other in good faith with the goal of maximizing value for both groups subject to the terms of this Agreement.

 

2.3. Priority of Coal Estate; Right to Vent/Shut In

 

With respect to any Gas operations within a Mine Area, the Coal Parties’ coal operations, including considerations of mine productivity and mine safety, shall at all times prevail over Gas operations. Consequently, with respect to any Mine Area, the Coal Parties shall have the unencumbered right and ability, exercisable in any Coal Party’s sole discretion, to vent and/or shut in, at any and all times, any Gas so as to assure and promote at all times a safe and productive working environment in any Coal Party’s mine if such Coal Party determines, in its sole discretion, that it is not safe or productive for the applicable Gas Party to produce, collect, gather or otherwise Capture such Gas.

 

2.4. Limitation on Liability

 

Except as set forth elsewhere in this Agreement, the Coal Parties shall have no liability to any Gas Party arising from any determination by any Coal Party with respect to its coal operations within a Coal Area, including venting and shutting in Gas, unless the Gas Parties demonstrate by clear and convincing evidence that such determination was made in bad faith.

 

2.5. Core Samples and Related Matters

 

Upon request, the Coal Parties shall make available for review to the Gas Parties the results of any core hole samples and desorption tests relating to Gas and any title studies, opinions or reports relating to Gas for any areas in which the Gas Parties hold Gas Rights as of the Effective Date or have acquired Gas Rights at any time thereafter when CNX is an Affiliate of CEI. Upon request, the Gas Parties shall make available for review to the Coal Parties the results of any core hole samples and desorption test results relating to Gas and any title studies relating to coal for any areas in which the Gas Parties hold as of the Effective Date or have acquired Gas Rights thereafter at any time when CNX is an Affiliate of CEI.

 

2.6. Consent for Mining and Gas Operations

 

Subject to the terms of this Agreement relating to certain required payments, the Gas Parties agree that each of them shall execute and deliver any waiver or consent as may be

 

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reasonably necessary to allow mining operations in the vicinity of any property owned or controlled by any Gas Party, including, without limitation, any Gas Asset. The Coal Parties agree that (a) the Gas Parties are hereby granted the rights, if any, which the Coal Parties have to Capture Gas from any Well associated with such Coal Party’s property within the Project Area, and (b) each of them shall deliver any waiver or consent as may be reasonably required for such Well, including, without limitation, with regard to Well spacing restrictions and location of Systems; provided , however , that, with respect to any Mine Area Well, and in order to promote mine safety or mine productivity, any Coal Party may refuse to (x) waive its rights or (y) consent to any proposed action.

 

2.7. Operational Relationship Between Gas Parties and Coal Parties

 

2.7.1 CEI Contact and CNX Contact

 

In order to facilitate a smooth operational relationship between the Gas Parties and the Coal Parties, each of CNX and CEI shall designate a representative with operational knowledge to serve as such Party’s principal contact for the other Party in respect of matters arising under, or in connection with, this Agreement (with respect to CNX, the “ GasCo Contact ”; with respect to CEI, the “ CEI Contact ”). The full contact information for each such representative as of the date of this Agreement is set forth on Schedule 2 attached hereto and made a part hereof. Each of CEI and CNX shall promptly notify the other Party and update Schedule 2 to the extent that any information relating to the CEI Contact or the GasCo Contact changes.

 

2.7.2 Coordination of Annual Drilling Plan and Ten Year Mine Plan

 

In addition to overseeing all operational matters relating to this Agreement, it shall be the duty of the GasCo Contact and the CEI Contact to coordinate in good faith the Annual Drilling Plan with the Ten Year Mine Plan as follows: (a) not later than September 1 of each year, the GasCo Contact shall deliver to the CEI Contact a draft of the Annual Drilling Plan for the next following calendar year for coordination with the Ten Year Mine Plan (it being understood that such draft shall have been the result of prior coordination, as reasonably necessary, between the GasCo Contact and the CEI Contact, or their respective designees), (b) not later than October 1 of the same year, the CEI Contact, subject to the consent of the GasCo Contact, shall approve a mutually agreeable final form of Annual Drilling Plan for the next following calendar year that is appropriately coordinated with the Ten Year Mine Plan.

 

3. Certain Operating Terms

 

The following operating terms shall govern the Capture of Gas by the Gas Parties under this Agreement:

 

3.1. Activities in Non-Coal Area

 

3.1.1 Control of Gas Parties Over Operations

 

Except as set forth below in this Section 3.1.1, the Gas Parties, in their sole discretion and at their sole cost and expense, shall be responsible for the Development of Wells and the Capture of Gas in any Non-Coal Area, including, without limitation, where to locate Wells, what types of Wells to drill, where to locate or expand Systems, how and when to market Gas and all related matters. Notwithstanding the foregoing the Gas

 

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Parties shall (a) through the delivery of the Annual Drilling Plan, at all times keep the applicable Coal Parties reasonably informed of where the Gas Parties intend to locate Wells and Systems in any Non-Coal Area, and (b) consent to any reasonable request by a Coal Party to change the proposed location of a Non-Coal Area Well not yet drilled (for the avoidance of doubt any request to move a proposed Well to another location in the same Gas Unit shall be deemed prima facie reasonable); provided , however , that the foregoing duty to inform and consent shall not apply to any area that is not reasonably likely to ever become a Coal Area; and further provided , however , that the applicable Coal Party shall promptly pay upon demand to the applicable Gas Party any incremental Capital Costs of Development incurred by the Gas Party as a result of its compliance with the Coal Party’s request to change the location of any Well.

 

3.1.2 Plugging (Non-Coal Area)

 

The Gas Parties shall be responsible, in their sole discretion and at their sole cost and expense, for the plugging of any Well that, at the time of the proposed plugging, is located in any Non-Coal Area. The Gas Parties shall keep the Coal Parties reasonably informed of planned plugging activities other than plugging activities in any area that is not reasonably likely to ever become a Coal Area. No Gas Party shall delay the plugging of a Well then located in a Non-Coal Area that is not then producing Gas in commercial quantities to the extent reasonably foreseeable that such Well will be located in a Coal Area at a later date and hence subject to any Coal Party’s duty to plug as set forth below in Section 3.2 [Activities in Coal Area]; in the event of such delay, the applicable Gas Party shall reimburse the applicable Coal Party upon demand for the Coal Party’s out-of-pocket costs incurred in plugging such Well. Notwithstanding the foregoing, in the event that any Coal Party determines, in its sole discretion, that any Sealed Gob Area Well should be plugged for the safety of any Mine Area, the applicable Gas Party shall, upon written request, plug such Well, provided that the applicable Coal Party shall reimburse the Gas Party upon demand for all out-of-pocket costs arising from any such plugging.

 

3.2. Activities in Coal Area

 

3.2.1 Development of Wells in Coal Area

 

The Coal Parties, in their sole discretion and at their sole cost and expense, may engage in the Development of any Coal Area Well other than the expansion of any System to connect to a Well. Notwithstanding the foregoing, the Gas Parties may, with the prior written approval of the applicable Coal Party (such approval shall not be unreasonably withheld), drill and Capture Gas from a Coal Area Well provided that the applicable Gas Party, at its sole cost and expense, shall be responsible for all costs associated therewith, including, without limitation, costs of plugging, Capital Costs associated with Development of such Well and Operating Expenses.

 

3.2.2 Capture of Gas in Coal Area

 

Except as set forth above in Section 2 [General Objectives and Overriding Principles] and below in this Section 3.2.2, the Gas Parties, at their sole cost and expense, shall be responsible for all aspects of the Capture of Gas in any Coal Area, including, without limitation, how and when to transport, store and market Gas. Except as set forth below, in Section 3.2.3 [Participation by Coal Parties in Experimental Projects], the Coal

 

12

Master Cooperation and Safety Agreement

 

Parties shall have no right to participate in the Capture of Gas in a Coal Area. The Gas Parties shall keep the Coal Parties reasonably informed of all Gas Capture activities within any Coal Area; notwithstanding the foregoing, consistent with Sections 2.3 [Priority of Coal Estate; Right to Vent/Shut In] and 2.4 [Limitation on Liability], except as set forth below in Section 3.2.4 [Mine-Through of Wells], the Coal Parties shall not be liable to any Gas Party for any Losses arising from, and the Gas Parties agree to indemnify and hold harmless each Coal Party against any Claims made with respect to, any Coal Party’s decision to plug a given Well then located in a Mine Area at any time to promote mine safety or mine productivity.

 

3.2.3 Participation by Coal Parties in Experimental Projects

 

The Coal Parties shall be entitled to participate in Mine Area projects for the Capture of VAM. The terms and conditions of such participation shall be agreed upon by the applicable Gas Parties and Coal Parties.

 

3.2.4 Mine-Through of Wells

 

Subject only to the payment obligations set forth in Section 3.2.5 below [Coal Parties Pay for Loss of Non-Coal Area Gas Assets due to Mine-Through], the Coal Parties shall have the absolute right to mine through any Well located in a Mine Area. Not later than sixty (60) days prior to the Shut-In Date, if any Coal Party anticipates that mine-through of a Well from which any Gas Party is Capturing Gas will occur as a result of a Coal Party’s mining operations, the Coal Party shall notify the applicable Gas Party of the anticipated mine-through. In the case of a Frac Well that could be recompleted as a Gob Well following mine-through, the Coal Party shall also inform the applicable Gas Party whether or not the Coal Party intends to recomplete the Frac Well as a Gob Well. In the event that the Coal Party does not elect to recomplete the Well, the Gas Party shall have the option, at its sole cost and expense, and with the prior written consent of the applicable Coal Party, which shall not be unreasonably withheld, to recomplete the Frac Well as a Gob Well; provided , however , that the Gas Party shall be responsible for the plugging of the Gob Well.

 

3.2.5 Coal Parties Pay for Loss of Non-Coal Area Gas Assets due to Mine-Through

 

As more fully set forth on Schedule 3 attached hereto and made a part hereof, the applicable Coal Party shall reimburse the applicable Gas Party for loss of each Non-Coal Area Well and associated Gas Assets. As more fully set forth on Schedule 3 , the Coal Parties shall have the right to audit the applicable Gas Party’s books and records relating to any given Non-Coal Area Well once a Coal Party has received a demand for payment in respect of mine-through of that Well; the Gas Parties shall comply promptly and in good faith with any such request to audit books and records. Notwithstanding the