Exhibit 10.1
SETTLEMENT AGREEMENT AND MUTUAL
RELEASE
This
Settlement Agreement and Mutual Release (Settlement Agreement) is
made between Western Energy Company, (Western Energy), the United
States Department of Justice (DOJ), and the United States
Department of the Interior (DOI), through its agency the Minerals
Management Service (MMS) (collectively “the
Parties”).
RECITALS
A. Western Energy is the
lessee of the Federal coal leases located in the Rosebud Mine in
Montana listed in Exhibit A. The Rosebud Mine is a surface
mining operation consisting of designated areas A, B, C, D, and E,
with each designated area supplying coal to specific units of the
adjacent Colstrip Power Plant (Colstrip Plant).
B. On July 10, 1981,
Western Energy entered into a Coal Transportation Agreement
(CTA) with the Colstrip Plant under which Western Energy
agreed to design, construct, own, operate, and maintain a coal
conveyor system for the transportation of coal to the Colstrip
Plant. In the CTA, the Colstrip Owners agreed to pay Western Energy
for transportation of the coal.
C. On September 23,
2002, The MMS, based on an audit conducted by the State of Montana
(State), issued to Western Energy an Order to Report and Pay
Additional Royalties (2002 Order). This Order to Pay directed
Western Energy to pay additional royalties of $ 3,184,724.85 on
coal produced and sold from the Rosebud Mine from the period from
October 1, 1991, through December 31, 1995. MMS issued
the Order because it determined that Western Energy had underpaid
royalties because Western Energy incorrectly excluded payments it
received under the CTA for transporting production from within the
Rosebud Mine to the adjacent Colstrip Plant. Western Energy
appealed the 2002 Order to the MMS Director in Docket
No. MMS-02-0092-COAL.
D. On January 27, 2003,
MMS, based on an audit conducted by the State, issued a second
Order to Report and Pay Additional Royalties (2003 Order),
directing Western Energy to pay additional royalties of $
3,830,043.50 on coal produced and sold from the Rosebud Mine for
the period from January 1, 1996, through December 31,
2001 for the same reasons as the 2002 Order. Western Energy
appealed the 2003 Order to the MMS Director in Docket
No. MMS-03-0022-COAL.
E. On March 28, 2005,
the Associate Director, Policy and Management Improvement, MMS,
denied Western Energy’s appeals in MMS-02-0092-COAL and
MMS-03-0022-COAL on substantive grounds, but rescinded the 2002
Order to the extent it directed the payment of royalty accruing
more than 7 years before the date of the 2002 Order (Associate
Director’s Decision). The Associate Director’s Decision
rescinded the portion of the 2002 Order applying to royalties
accruing more than 7 years before the date of the 2002 Order based
upon the then-MMS Director’s October 8, 2002, written
policy directing MMS to grant lessees’ appeals for any period
more than 7 years prior to the date of the order (7-Year
Policy). In Chiang v. Kempthorne, No. 1:04CV00199, slip
op. (D.D.C. Aug. 30, 2007), the court disagreed with the government
and held that the 7-Year Policy was arbitrary and capricious and
vacated and remanded the 7-Year Policy to MMS. On November 17,
2007, the current MMS Director rescinded the 7-Year Policy. Western
Energy appealed the Associate Director’s Decision to the
Interior Board of Land Appeals (IBLA). The IBLA upheld the
Associate Director’s Decision on all grounds in Western
Energy Company, 172 IBLA 258 (2007) (IBLA Decision).
5
Exhibit 10.1
F. Western Energy sought
judicial review of the IBLA Decision in Western Energy Company
v. Kempthorne, No. 1:07-cv-2237 (RCL) (D.D.C.)
(Litigation).
G. On September 26,
2006, MMS, based on an audit conducted by the State, issued a third
Order to Report and Pay Additional Royalties (2006 Order),
directing Western Energy to pay additional royalties of
$1,569,146.81 on coal produced and sold from the Rosebud Mine for
the period from January 1, 2002, through December 31,
2004, for the same reasons as the 2002 Order. Western Energy
appealed the 2006 Order to the MMS Director in Docket
No. MMS-06-0056-COAL. On March 26, 2008, the Assistant
Secretary for Land and Minerals Management issued a decision in
MMS-06-0056-COAL affirming the 2006 Order in all respects (ASLM
Decision). Subsequently, the ASLM Decision was added to the
Litigation.
H. On September 25,
2008, MMS, based on an audit conducted by the State, issued a
fourth Order, however because the issue in this order was the same
as identified in the prior 3 Orders, MMS issued an Order to Perform
Restructured Accounting and Pay Additional Royalties (2008 Order).
The 2008 Order directed Western Energy to pay additional royalties
of $ 1,363,274.88 on coal produced and sold from the Rosebud Mine
for the period from January 1, 2005, through December 31,
2007, and to recalculate and pay additional royalties for the
period January 2008 through August 2008. Western Energy
appealed the 2008 Order to the MMS Director in Docket
No. MMS-08-0194-COAL.
I. Collectively the 2002
Order, 2003 Order, 2006 Order, and 2008 Order are herein referred
to as “the Orders.”
J. In addition to the time
periods covered by the Orders, the Parties desire to resolve the
issues in the Orders for the additional period from January 1,
1983, through September 30, 1991. Collectively the period from
January 1, 1983, through December 31, 2007 is the
“Settlement Period.”
K. The Parties also desire
to reach an agreement on the transportation allowance deductions to
be used by Western Energy in reporting and paying MMS royalties
attributable to the transportation of Western Energy’s Coal
to the Colstrip Plant after the Settlement Period.
AGREEMENT
THEREFORE, in consideration of the mutual
promises and covenants set forth herein and other valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties to this Settlement Agreement hereby
incorporate by reference and agree to the accuracy of the above
recitals and further agree as follows:
1. Payment : Western
Energy will pay MMS $12,239,538.22 w
|
