GAS PURCHASE AGREEMENT

 

INDEX

 

I.		BASIS OF COMPENSATION		Page 1
II.		TERM		Page 1
III.		DEDICATION, EXCLUSIVITY, INITIAL WELLS, AND SUBSEQUENT WELLS		Page 1
IV.		RESERVATIONS OF SELLER AND BUYER		Page 2
V.		QUALITY OF DELIVERED GAS		Page 3
VI.		DELIVERY, COMPRESSION, PRESSURES, METER FEES, REBUILD AND ALTERATIONS		Page 3
VII.		DELIVERIES		Page 4
VIII.		PAYMENT, ESCALATION OF FEES, EXAMINATION, INDEMNIFICATION, SUSPENSION, AND DEDUCTIONS		Page 4
IX.		WARRANTY, TITLE, AND EASEMENTS		Page 5
X.		INDEMNITY, INTERRUPTION, AND FORCE MAJEURE		Page 5
XI.		ROYALTY AND TAXES		Page 6
XII.		MEASUREMENT OF GAS VOLUME AND TESTING		Page 7
XIII.		NOTICES AND STATEMENTS		Page 9
XIV.		DEFAULT		Page 10
XV.		DEFINITIONS		Page 11
XVI.		MISCELLANEOUS		Page 13
		EXHIBIT “A”
		EXHIBIT “B”
		EXHIBIT “C”

 

 

GAS PURCHASE AGREEMENT

 

This Gas Purchase Agreement (“Agreement”) is made and entered into as of JANUARY 1, 2005, by and between ONEOK Texas Field Services, L. P., hereinafter referred to as “BUYER,” and W. O. OPERATING COMPANY, LTD., hereinafter, referred to as “SELLER”.

 

W I T N E S S E T H:

 

WHEREAS, SELLER owns and/or controls, natural; Gas produced from Wells on Lands or Leases from properties more particularly described in Exhibit “B” attached hereto, including the right to process and sell such Gas, which shall be delivered to BUYER; and

 

WHEREAS, BUYER desires to purchase and SELLER desires to sell said Gas to BUYER; and

 

NOW THEREFORE, BUYER and SELLER, in consideration of the mutual covenants, promises, and agreements contained herein and for other good and valuable consideration, do hereby agree as follows:

 

I.  BASIS OF COMPENSATION

 

1.1            Compensation.   The basis of compensation is set forth in Exhibit “A” attached hereto and included herein by this reference.

 

II.  TERM

 

2.1            Term.  This Agreement shall be effective JANUARY 1, 2005 (“Effective Date”), and shall continue until JANUARY 31, 2005 (“Primary Term”), and Month to Month thereafter until terminated, such termination to be effective at the end of said Primary Term or at any month thereafter by either party giving at least thirty (30) days prior written notice to the other party or to be effective as otherwise provided by this Agreement.

 

III.  DEDICATION, EXCLUSIVITY, INITIAL WELLS, AND SUBSEQUENT WELLS

 

3.1            Dedication.  SELLER hereby commits and dedicates to the performance of this Agreement and for the term hereof, all of its owned or controlled interest in Gas produced from all geological formations under the Lands and Leases and/or Wells described in Exhibit “B” attached hereto (“Dedicated Wells”), except for the following reservations which SELLER specifically reserves:

 

3.1.1      To use Gas produced from or under the Lands or Leases and/or Wells and used by SELLER for the development and operation of same; including, but not limited to, Gas used by SELLER in Gas lifting and pressure maintenance operations;

 

3.1.2      To use Gas which may be required to fulfill SELLER’s obligations to the lessors of said Leases and/or Wells for domestic fuel; and,

 

3.1.3      To use Gas used as fuel in the operation of SELLER’s compression, dehydration or treating facilities, if any, installed for the delivery of Gas hereunder.

 

3.2            Exclusivity.   Subject to the terms and conditions of this Agreement, SELLER hereby contracts exclusively with BUYER for the purchase of SELLER’s Gas and the right to process and extract Plant Products attributable to SELLER’s Gas.  SELLER further agrees to dedicate to BUYER and

 

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to the terms and conditions of this Agreement any interest in said Leases or Wells which (i) are acquired by SELLER, or (ii) are owned by SELLER but are no longer subject to the terms of any third-party agreement, subsequent to the Effective Date hereof.  Any transfer of SELLER’s interest in the Leases or Wells dedicated hereunder shall be subject to BUYER’s rights hereunder, and SELLER shall take action necessary to ensure that any such transfer is subject to BUYER’s rights hereunder.  BUYER reserves the right to reject any such additional dedication hereunder.

 

3.3            Initial Well(s).   SELLER agrees to proceed with due diligence to install or cause to be installed, ^: at its expense, all facilities at and upstream of each Receipt Point which are necessary to connect all Dedicated Wells completed for production as of the date of this Agreement to the existing gathering system.  All such facilities will be owned and operated by SELLER or its designee at its expense.

 

3.4            Subsequent Wells.   If the location of any Well (“Subsequent Well”) is within the dedication described in Exhibit “B” then SELLER shall notify BUYER in writing upon start of the Subsequent Well’s drilling.  After completion of the Subsequent Well, SELLER shall, within seven (7) days from the date of completion of such Subsequent Well, provide BUYER any and all relevant Well data (including, but not limited to, daily drilling reports, logs, completion reports, flow test, and gas analysis) (“Well Data”). BUYER shall have the right, but not the obligation, to connect such Subsequent Well to BUYER’s system at its expense.  If BUYER elects not to construct such facilities, or does not initiate right-of-way acquisition for such facilities within thirty (30) days after BUYER receives the Well Data, SELLER may construct, at its expense, the facilities necessary to deliver the Gas from such Subsequent Well to BUYER’s existing system.  If neither party connects such Subsequent Well, SELLER shall be entitled to a wellbore release from this agreement for production from the Subsequent Well only.

 

IV.  RESERVATIONS OF SELLER AND BUYER

 

4.1            SELLER’s Reservations.

 

4.1.1         To operate said Leases and/or Wells free from control by BUYER in such manner as SELLER, in SELLER’s sole discretion, may deem advisable, including, without limitation, the right to drill new Wells, to repair and rework old Wells, and to abandon any Well or surrender any Lease when no longer deemed to be capable of producing Gas in commercial paying quantities under normal methods of operation by SELLER.

 

4.1.2         To unitize or pool any of the Leases or portions thereof with other Leases, in such event SELLER’s interest in the unit and the unit Gas attributable to SELLER’s interest shall be subject to and SELLER agrees to take all action necessary to commit such unit Gas attributable to SELLER’s interest to this Agreement.

 

4.1.3         To retain all liquids and Condensate separated from the Gas by the use of typical volumetric (non-refrigerated) oil and Gas separators prior to the delivery of the Gas to BUYER at the Receipt Point(s) specified herein.

 

4.2            BUYER’s Reservations.

 

4.2.1         Processing Rights.   SELLER does hereby grant, assign, and convey to BUYER exclusive processing rights for the recovery of Plant Products for Gas delivered to BUYER for processing at the Receipt Point(s). SELLER shall not process the Gas or allow the Gas to be processed prior to receipt by BUYER hereunder for processing.

 

4.2.2         Condensate.   Condensate recovered by BUYER downstream of the Receipt Point(s) shall belong to BUYER.  Title to the Condensate shall pass to BUYER upon its recovery by BUYER and shall be free and clear of all liens, claims, and encumbrances created by,

 

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through or under SELLER.

 

4.2.3         Uneconomic.   At any time during the term of this Agreement, in the event purchasing of SELLER’s Gas from any Receipt Point becomes uneconomic, as determined in the sole discretion and judgment of BUYER, BUYER may (i) suspend receipt of Gas at that Receipt Point, (ii) terminate this Agreement or (iii) modify Exhibit “B” attached hereto to remove that Receipt Point.  In such event, BUYER shall give SELLER thirty (30) days written notice that purchasing of Gas made available by SELLER from a Receipt Point has become economically unfeasible and what action BUYER shall take. Removal of a Receipt Point constitutes a release of Dedication of the Well(s) behind that Receipt Point.

 

V.  QUALITY OF DELIVERED GAS

 

5.1            The Gas delivered at the Receipt Point(s) shall meet the quality specifications defined in Exhibit “C” attached hereto.

 

5.2            BUYER shall have the right to either (i) accept Gas that does not conform to such specifications and deduct from payment due SELLER BUYER’s standard fee(s) for treatment as determined from time to time, or (ii) refuse delivery of the nonconforming Gas.  If BUYER refuses delivery of non-conforming Gas and SELLER elects not to conform such Gas to the quality specifications set forth herein, this Agreement may be terminated with respect to such non-conforming Gas upon thirty (30) days prior notice.

 

5.3            BUYER’s acceptance of Gas that does not conform to quality specifications set forth herein will not constitute a waiver of SELLER’s obligation to conform to such specifications in the future, nor a waiver of BUYER’s right to refuse delivery of such nonconforming Gas at any time.

 

VI.   DELIVERY, COMPRESSION, PRESSURES, METER FEES, REBUILD AND ALTERATIONS

 

6.1            Delivery.   Gas shall be delivered hereunder at the Receipt Point(s) described in Exhibit “B” attached hereto and shall be at pressures sufficient to enter, but not to exceed, the maximum allowable pressure for BUYER’s gathering system at the Receipt Point(s).  SELLER shall provide equipment required to protect BUYER’s systems from receiving Gas at pressures that exceed the maximum allowable pressures.  BUYER will provide SELLER the maximum allowable pressure for specific Receipt Point(s).

 

6.2            Pressures.  Pressures calculated for stages of compression shall be volume-weighted pressures at the Receipt Point(s) for the Month as determined by BUYER.

 

6.3            Meter Fees.   In the event that the total metered volume from any one (1) receipt Point falls below an average of ten (10) MCF per day for any month, BUYER shall charge SELLER a meter Fee for each MCF delivered by or for the account of SELLER for that month.  The meter fee for each MCF delivered shall be determined by dividing a sum of Three Hundred Dollars ($300) by the total metered volume (MCF) for that month.  In the event the total metered volume is zero (0) the fee shall be Three Hundred Dollars ($300) multiplied by SELLER’s owned or controlled interest.

 

6.4            Rebuild and Alterations.   BUYER reserves the right, in its sole discretion, to alter, repair, maintain, expand or rebuild, without approval of SELLER, any portion of BUYER’s facilities.  SELLER shall make no alterations, additions or repairs to or on the facilities of BUYER.  SELLER agrees not to connect or cause the connection of any third-party well to BUYER’s facilities for any purpose without the express written consent of BUYER, such consent to be in

 

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BUYER’s sole discretion.  If this condition is breached by SELLER, BUYER shall have the right and option, notwithstanding any other provision of this Agreement, to terminate this Agreement immediately and without further obligation to SELLER.

 

VII.   DELIVERIES

 

7.1            Deliveries.   SELLER shall deliver all available Gas in such uniform hourly flows as is commercially practicable.  In the event SELLER anticipates a material increase or decrease in the flow of Gas at any Receipt Point, SELLER shall provide BUYER with reasonable advance notice of change.

 

VIII.   PAYMENT, ESCALATION OF FEES, EXAMINATION, INDEMNIFICATION, SUSPENSION, AND DEDUCTIONS

 

8.1            Payment.   BUYER shall, on the later of (i) the last day of the month or (ii) within ten (10) day’s of BUYER’s receipt of any necessary allocation statements, pay SELLER for the Gas delivered hereunder during the preceding month.  During any period BUYER purchases Gas from SELLER and other SELLER(s) delivered to any Receipt Point(s), SELLER shall furnish, or cause to be furnished, to BUYER on or before the fifteenth (15th) day of each calendar month, any necessary allocation statements containing data (including, but not limited to, quantity and BTU content) that BUYER may require to enable BUYER to make payments.  SELLER is to cooperate with other SELLER(s) delivering Gas at the Receipt Point(s) in order to appoint in writing a representative who, as their agent, is to furnish an allocation statement.  BUYER is entitled to rely conclusively on such allocation statement, and has a complete defense to any claim by SELLER for any sums due for Gas delivered by SELLER at the Receipt Point(s) during any period by showing that BUYER has made payment to SELLER for its share, as identified in such allocation statement, of the total quantity of Gas received by BUYER at the applicable Receipt Point(s) during the period in question (other than for measurement error as specified in the Article titled MEASUREMENT OF GAS VOLUME AND TESTING) . If any allocation statement is not furnished to BUYER by the fifteenth (15 ^th ) day of any month, the time that BUYER has to make payment for delivered Gas (without interest) is to be extended until the payment cycle which next follows the tenth (10 ^th ) day after BUYER’s receipt of the allocation statement.

 

8.2            Final Payment.   All payments under this Agreement will be final unless questioned by either party within two (2) years of the due date of a payment, and during this two (2) year period either party may audit all records, accounts, books and charts of the other party, upon reasonable advance notice and during normal office hours, to verify the accuracy of any statement, charge, computation or demand made.

 

8.3            Escalation of Fixed Fees.  The fixed fee charges contained herein, unless otherwise noted, shall be escalated annually beginning on the first (1 ^st ) anniversary of the Effective Date of this Agreement based on the GDP Implicit Price Deflator contained in the Gross Domestic Product, fourth quarter (final) report, published by the U.S. Department of Commerce,  Bureau of Economic analysis, “GDP Deflator” in March of each year for the previous year.  For purposes of escalating the fixed fee charges herein, the annual rate escalation percentage (“Escalator”) will be determined by BUYER each April 1 by calculating the percent of increase from the year preceding said previous year’s GDP Deflator and the previous year’s GDP Deflator.

 

8.4            Examination of Records.   Each party to this Agreement shall have the right, at any and all reasonable times during normal business hours, to examine the books and records of the other

 

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party, to the extent necessary to verify the accuracy of any statement, charge, computation, or demand made under or pursuant to this Agreement, and both parties shall keep all such records for at least twenty-four (24) months after the Receipt of Gas to which such records are applicable.  Such books and records shall be conclusively presumed to be correct, except as to claims or corrections by the parties made by written notice to the other within such twenty-four (24) month period.

 

8.5            Indemnification Payment Suspension.  Each party agrees to indemnify and hold the other party harmless with respect to all costs, losses, and damages (including without limitation reasonable attorney’s fees) arising from or related to the breach of any covenant, representation, or warranty made to the other party contained in this Agreement.  In the event of any claim arising from or relating to such a breach, BUYER shall be entitled, at its option, in addition to any other rights it may have, to suspend payment of sums due SELLER hereunder until such claim is resolved, and such suspension shall not constitute a breach of BUYER’s payment obligations under this Agreement.

 

8.6            Deductions.   BUYER shall also be entitled, at its option, in addition to any other rights it may have, to deduct from any payment due SELLER under this Agreement any amounts payable to BUYER from SELLER under this Agreement, any other agreement, or otherwise, and to apply such amounts deducted to pay such amounts payable to BUYER, and such deduction and application shall not constitute a breach of BUYER’s payment obligations under this Agreement.

 

8.7            Reimbursement of State Severance Taxes.   The payment set forth on Exhibit “A” for gas purchased by BUYER hereunder shall be deemed to be inclusive of reimbursement to SELLER for production and severance taxes borne by SELLER.  No additional payment from BUYER to SELLER hereunder, other than that specified on Exhibit “A”, shall be required to compensate SELLER for such tax reimbursement.

 

IX.   WARRANTY, TITLE, AND EASEMENTS

 

9.1            Warranty of Title.   SELLER warrants that it has the title to the Gas dedicated hereunder and delivered at the Receipt
Point(s), and said Gas is free from all liens and adverse claims of all kinds, including the right and authority to sell and to process for the recovery of Plant Products.  SELLER shall hold BUYER harmless against adverse claims related thereto.

 

9.2            Title.   Title shall pass to BUYER at the Receipt Point(s).

 

9.3            Easements.   To the extent SELLER has the right to do so, SELLER hereby permits BUYER the rights of ingress and egress on the Leases to construct, install, operate, repair, inspect and maintain BUYER’s facilities necessary to receive Gas from SELLER at the Receipt Point(s). SELLER hereby assigns and grants to BUYER, to the extent it has the right to do so, an easement and right-of-way upon all lands covered by the Leases for the purposes above.  Any property of BUYER placed in or upon any of those lands shall remain the personal property of BUYER, and may be disconnected and removed at any time.  SELLER shall, at its expense, maintain and provide all such easements, rights-of-way, lease roads and other facilities upon such Leases as may reasonably be deemed necessary by BUYER for its performance of this Agreement.  SELLER further agrees to indemnify BUYER from any adverse claims related thereto.

 

X.  INDEMNITY, INTERRUPTION, AND FORCE MAJEURE

 

10.1          Indemnity.   In addition to the indemnities contained herein, BUYER shall indemnify and hold SELLER harmless against any claims for damages arising out of the operations conducted

 

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hereunder by BUYER. Likewise, SELLER shall indemnify and hold BUYER harmless against any claims for damages arising out of SELLER’s operations hereunder.  The obligations of the parties under this Agreement are obligations of the parties only and no recourse or remedy shall be available against any officer, director, or employee representative of a party or against any affiliate of a party.

 

10.2          Interruption.   It is understood and agreed that either party hereto may, without liability to the other party, interrupt the operations of its facilities for the purpose of making necessary alterations, maintenance, or repairs thereto, but that such interruption shall be for only such time as may be commercially reasonable to perform such operations.  Delivery and/or receipt of Gas pursuant to this Agreement may be suspended for such period of interruption.

 

10.3          Force Majeure.   If SELLER or BUYER is rendered unable, wholly or in part, by reason of force majeure, from carrying out its obligations under this Agreement (other than the obligation to make payment of amounts due hereunder), then upon said party’s giving prompt written notice of such force majeure to the other party, the obligations of the party giving such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall be remedied with all commercially reasonable dispatch.  The term “force majeure,” as used herein, shall include acts of God; acts of federal, state, or local government or any agencies thereof; compliance with rules, regulations, permits or orders of any governmental authority or any office, department, agency, or instrumentality thereof; strikes, lockouts, or other industrial disturbances; acts of the public enemy, wars, blockages, insurrections, riots, and epidemics; landslides, lightning, earthquakes, fires, storms, floods, and washouts; arrests and restraint of people; civil disturbances; explosions, leakage, breakage, or accident to equipment or pipes; freezing of Wells or pipes; weather-related shutdowns; inability to secure rights-of-way; inability to timely obtain equipment, supplies, materials, permits, labor; failures or delays in transportation; receipt of non-specification or non- merchantable Gas; and any other causes, whether of the kind herein enumerated or otherwise, not within the reasonable control of the party claiming suspension, which, by the exercise of due diligence, such party shall not have been able to avoid.  The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty.  The requirement that any force majeure shall be remedied with all commercially reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party, when such is deemed inadvisable by the party involved.

 

XI.  ROYALTY AND TAXES

 

11.1          Royalty.   SELLER shall account for and pay all royalties, overrides, and other sums due by SELLER to the owners of the mineral, royalty, and other interests in the Gas, and SELLER shall indemnify and save BUYER harmless against all loss, damage, and expense of every character on account of adverse claims to all such Gas, Residue Gas, and Plant Products or royalties, taxes, payments, or other charges due thereon.  Should BUYER be obligated by law or regulation to make payment for any royalties or overrides due to be paid by SELLER, BUYER shall deduct such payments from any amounts due by BUYER to SELLER.  Should such payments be in excess of amounts due by BUYER to SELLER, SELLER shall promptly reimburse BUYER for the amount of royalties or overrides so paid within ten (10) days of receipt of such statement

 

11.2          Taxes.   SELLER shall pay any sales, transaction, occupation, service, production, severance, gathering, transmission, or excise taxes, assessments, or fees levied, assessed, or fixed, whether by the United States, the state, or other governmental agency, in respect of or applicable to the

 

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Gas delivered hereunder.  Any taxes and statutory charges levied or assessed against SELLER’s properties, facilities, or operations shall be borne by SELLER.  BUYER shall bear all taxes levied against its properties or facilities. Should BUYER be obligated by law or regulation to make payment for any taxes due to be paid by SELLER, BUYER shall deduct such payments from any amounts due by BUYER to SELLER.

 

11.3          Production Taxes.   Notwithstanding the provisions of Section 11.2, above, as an accommodation to SELLER, BUYER shall remit on behalf of SELLER any state production taxes in respect of or applicable to the Gas delivered hereunder.  BUYER shall deduct such state production taxes remitted on behalf of SELLER from any amounts due by BUYER to SELLER. Should such state production taxes remitted on behalf of SELLER be in excess of amounts due by BUYER to SELLER, SELLER shall promptly reimburse BUYER for the amount of such production taxes so remitted within ten (10) days of receipt of such statement. It is recognized that the remittance of state production taxes by BUYER on behalf of SELLER is a voluntary accommodation by BUYER to SELLER and not an obligation of BUYER hereunder.  BUYER may, in its sole discretion, cease remitting state production taxes on behalf of SELLER at any time upon thirty (30) days’ written notice to SELLER.

 

XII.  MEASUREMENT OF GAS VOLUME AND TESTING

 

12.1          Calibr