1 Exhibit X-0
Xxxxxxx 00, 0000
Xxxx Gas, Inc.
Attn: Xx. Xxxx X. Xxxxxxxx
Bank Xxx Xxxxxx Xxxx, 0xx Xxxxx 2155. Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxx Xxxxxxxx 00000-0000
RE: Hope Properties
Letter of Intent to Purchase
Gentlemen:
CNG Producing Company ("CNGP") and Hope Gas, Inc. ("Hope")
desire to set forth in this binding Letter of Intent the terms
and conditions pursuant to which CNGP intends to purchase and
Hope intends to sell certain assets currently owned by Hope, as
described below. This Letter of Intent replaces and supersedes
CNGP's earlier nonbinding proposals dated September 21 and
September 26, 1995, respectively.
1. Assets To Be Purchased: All of Hope's right, title and
interest in and to the oil and gas properties currently
owned by Hope in West Virginia, together with all of
Hope's interest in the oil, gas and other minerals in
place; rights to production; all associated xxxxx;
fixture; facilities; compressors; selected pipelines or
gathering systems; improvements and other property,
real or personal, tangible or intangible, moveable or
fixed, located on or which was acquired for or is used
in connection with the operation of the properties; all
associated contractual rights and agreements, including
but not limited to leases, operating agreements, unit
agreements, permits, rights of way, surface rights,
easements, licenses, options and orders in any way
relating thereto and all geological and geophysical
reports and data which Hope can legally transfer. All
of the foregoing properties, rights and interests are
hereinafter referred to as the "Assets".
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2. Purchase Price: Subject to such adjustments as may be
provided for in the definitive Purchase and Sale
Agreement hereinafter referred to, CNGP will pay to
Hope a lump sum equivalent to the net book value (as
shown on Hope's books of account maintained in the
ordinary course of business and determined in
accordance with generally accepted accounting
principles) as of the Effective Date (as hereafter
defined) for all of the Hope's right, title and
interest in and to said Assets. Such net book value is
anticipated to be Four Million Six Hundred Thousand
Dollars ($4,600,000.00).
3. Effective Date And Time Of Purchase: The effective date
of the transfer of the Assets will be December 31, 1995
at 7:00 am. local time where the Assets are located
("Effective Date"). Hope's share of any petroleum
hydrocarbons held in tanks above the pipeline
connection on the Effective Date will remain the
property of Hope. Until Closing, Hope will continue to
operate the Assets or cause the Assets to be operated
in the ordinary course 'of business and in the same
manner as a reasonable and prudent operator would
operate in the same or similar circumstances. At CNGP's
request, Hope shall act as a CNGP's interim agent after
Closing for the payment of royalties, delay rentals and
other payments due third parties in connection with the
ownership and operation of the Assets until such time
as the data necessary for CNGP to make such payments
directly to such third parties is fully incorporated
into CNGP's land records and accounting systems.
4. Purchase of Produced Gas: At Closing, the Assets shall be
transferred free and clear of any production sales
contracts, calls on production or any other contractual
commitment for the sale or purchase of production therefrom.
At Closing, CNGP, as Seller, and Hope, as Buyer, shall enter
into in a Gas Purchase Agreement ("GPA") covering gas
produced from all xxxxx within the Assets and containing the
following principal terms:
a. The term of the GPA shall commence on the date of
Closing and shall end on the last day of the 36th
calendar month following the month in which the Closing
occurs;
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b. CNGP shall commit exclusively to Hope gas produced from
xxxxx within the Assets; provided that during periods
when Hope is unable to take CNGP's gas due to capacity
outages or other events of force majeure (as defined in
the GPA), CNGP shall be released from the foregoing
commitment and may sell such gas to others. The
delivery points under the GPA shall be at the inlet of
the Hope-owned meters located at each point of entry
into Hope's pipeline system;
c. Each month during the term of the GPA, Hope shall
pay CNGP a Demand Charge equal to $750.00 times the
number of days in the month. The Demand Charge shall be
prorated on a daily basis to account for any period
during the term of GPA which does not correspond to a
full calendar month. The Demand Charge shall be payable
on or before the tenth (10th) day of each subsequent
month; d. Each month during the term of the GPA, Hope
shall also pay CNGP a Commodity Charge equal to the
quantity of gas delivered to Hope during the preceding
month times the applicable Unit Price. For quantities
delivered during the month up to and including the
Monthly Tier (3000 Dth times the number of days in the
applicable month), the Unit Price shall be: $2.20 per
0th for gas delivered during the first Contract Year
(i. e. Closing Date through last day of 12th month
following month in which Closing occurs), $2.10 per 0th
for gas delivered during the second Contract Year (i.
e. the 12 months following the first Contract Year);
and $2.00 per 0th for gas delivered during the third
Contract Year (i.e. the final 12 months of the term of
GPA). For quantities of gas delivered during the month
in excess of the Monthly Tier, the Unit Price shall be
the price designated as "Index" effective as of the
first day of the delivery month (as listed on the table
entitled "Prices of Spot Gas Delivered to Pipelines"),
as published in Inside FERC's Gas Market Report for
that month, for deliveries into the facilities of CNG
Transmission Corp. in "Appalachia". If such price is no
longer available, CNG and Hope shall select, in good
faith, a functionally similar price posting that is
published at least once per month and reports prices
for gas originating from Appalachia, as delivered into
the mainline of CNG Transmission Corp. as of the first
of the month. Hope shall pay the Commodity Charge on
the later of the 15th day of the month following the
delivery month or 10 days after receipt of CNGP's
invoice;
e. If on any day during the term of the GPA, (i) CNGP
fails to deliver up to 2500 Dth, as requested by Hope,
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(ii) as a consequence of CNGP's failure to deliver,
Hope incurs penalties, overrun charges or losses from
CNG Transmission Corporation an-or other gas suppliers,
and (iii) Hope is, at the time such request is made,
ready, willing and able to receive the entire requested
quantity:
i Hope shall receive a credit of $0.30 per Dth against
subsequent payments due CNGP for the amount of the
delivery deficiency; and
ii. If CNGP's failure to deliver is not the consequence of
force majeure, Hope shall receive an additional credit
of $0.30 per 0th against subsequent payments due CNGP
for the amount of the delivery deficiency.
Receipt of the foregoing credits shall be Hope's exclusive
remedy in the event of non-delivery by CNGP and shall
supplant and supersede damages and other remedies otherwise
available under applicable law;
f. A late payment charge equal to the Prime Rate, as
published in the Money Rates table of the Wall Street
Journal, plus 2% per annum shall be applied to all
past due payments; and
g. During the term of the GPA, CNGP shall pay Hope a fee
of $0.093 per 0th of gas delivered to Hope from the
Xxxxx and Tucker Fields. Such fee shall compensate
Hope for any and all dehydration, fuel, gathering and
processing related expenses or losses incurred by Hope
with respect to such gas downstream of the delivery
points. Unless otherwise agreed, CNGP shall retain the
right to cause the gas produced from the Assets to be
processed for the extraction of liquifiable
hydrocarbons; provided CNGP shall be obliged to
compensate Hope for any Btu shrinkage occasioned
thereby.
5. Taxes: Ad valorem, property and other similar forms of
taxes, which have been paid by Hope and which have accrued
on or before the Effective Date, shall be prorated based on
the representative holding period of each Paffi during the
assessment period applicable to such tax. Income taxes and
franchise taxes shall be the sole responsibility of the
party incurring same.
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6. Purchase And Sale Agreement: Upon receipt of the regulatory
authorization described in Section 10 below, CNGP and Hope
shall enter into a Purchase and Sale Agreement incorporating
the terms and conditions of this Letter of Intent and shall
execute such other agreements or documents as may be
necessary to effect the transfer of the Assets to CNGP.
7. Assignments and Warranties: At Closing, Hope shall convey
the Assets by a mutually acceptable assignment(s), which
shall include a special warranty of title, defending against
any person claiming by, through or under Hope, but not
otherwise. Such special warranty of title shall not apply to
claims attributable to title defects forming the basis for a
negotiated reduction in the Purchase Price pursuant to
Section 11. Hope shall further warrant that Hope has made or
will make full and correct payment of royalties and any
other lease burdens for the period of time prior to the
Effective Date and that all leases have been properly
maintained according to their terms and shall be in full
force and effect at Closing. Finally, Hope shall indemnify
and hold CNGP harmless for any and all claims or suits
relating to occurrences prior to the Effective Date.
8. Liens And Encumbrances: The Assets shall be transferred from
Hope to CNGP free and clear of all liens, mortgages, rights
of reassignment, reversionary rights, preferential rights,
taxes (other than those for the current year), obligations
(including delinquent operating expenses), claims, suits, or
any other encumbrance.
9. Press Releases: Hope shall not issue any press release or
make any announcement directed to the general public
concerning this Letter of Intent without the prior written
consent of CNGP, but may treat this Letter of Intent as a
non-confidential document in connection with seeking the
consents, approvals and regulatory authorization referenced
in Section 10 hereof.
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10. Consents, Approvals, Regulatory Authorizations
a. Unless specifically waived by CNGP, Hope shall, prior
to Closing, obtain and furnish CNGP with all necessary
consents, approvals, or waivers thereof.
b. Hope shall, prior to Closing, request each regulatory
authorization from the Public Service Commission of
West Virginia as may be required for Hope to transfer
to Assets in the manner specified herein.
Notwithstanding anything herein to the contrary,
either CNGP or Hope may terminate this Letter of
Intent (and thereby be released from any and all
obligations hereunder) upon notice to the other party,
if the Public Service Commission of West Virginia
fails to issue on or before April 1, 1996 a final
order unconditionally authorizing Hope to transfer the
Assets to CNGP in the manner specified herein.
c. The consummation of the transaction contemplated
hereby is contingent upon Seller's obtaining approval
from the Securities and Exchange Commission ("SEC") of
a Form U-1, Declaration under the Public Utility
Holding Company of 1935, (the "Declaration"), which
Seller shall file as soon as practicable with the SEC.
Seller shall give Buyer immediate written notice of
the approval or denial of the Declaration. If the
Declaration is approved, the Closing shall occur in
the manner provided herein. If the Declaration is
denied or if SEC fails to approve or deny the
Declaration by April 1, 1996, either CNGP or Hope may
terminate this Letter of Intent (and thereby be
released from any and all obligations hereunder) upon
notice to the other party.
11. Review Of Contracts and Data: Upon acceptance of this
proposal, Hope will thereafter provide CNGP with a list of
all contracts and agreements which will be assigned to CNGP
in conjunction with the sale and will permit CNGP to have
access to Hope's premises and to the records of Hope insofar
as they relate to the Assets to permit CNGP to, among other
things, verify Hope's working interest, net revenue
interest, title to the Assets, the adequacy of permits, and
to review and approve financial statements, operating
reports, geological and geophysical reports and data
(including without limitation original well records, log
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films and proprietary or joint venture seismic data or other
seismic data that Hope is not contractually restricted from
providing to CNGP), engineering data, production data,
contracts (including without limitation oil and gas sales
contracts, gathering agreements, transportation agreements,
marketing or processing agreements, leases, operating
agreements, unit agreements, farmins, farmouts and any other
contract or agreements relating to Assets), land records
(including without limitation abstracts, title opinions,
division orders, prospect plats and unit orders) and any
other books and records of Hope that relate to the Assets.
If after said review it is determined that the working
interest or net revenue is different than that which is
stated herein or that there exists a title defect or some
other situation or condition that would materially detract
from the value of the Assets, CNGP reserves the right to
negotiate an adjustment to the Purchase Price with Hope or
(if this proposal covers multiple properties) have the
property in question removed from the sale with a
corresponding adjustment to the Purchase Price based on the
value allocated to such property. In the event CNGP and
Hope cannot agree on an adjusted price within a reasonable
time period, either party' may terminate this Letter of
Intent and the Purchase and Sale Agreement.
12. Physical And Environmental Inspections: Hope will also
permit CNGP to conduct a physical and environmental
inspection of the Assets and to witness tests and/or inspect
any of Hope's oil and gas xxxxx as CNGP may reasonably
request, to examine and verify field operations, producing
equipment, and volumes and prices as represented by Hope.
Hope will promptly obtain any consent from any co-owner
necessary with respect to the matters described in this
paragraph. If after said review it is discovered that there
exists a physical or environmental defect affecting the
Assets involving repair or remediation costs that exceed
normal maintenance costs, Hope shall have the option to
repair or remedy such defect at Hope's sole cost or exclude
the lands or facilities affected by said defect from the
Assets and to receive a corresponding reduction of the
Purchase Price based on the value allocated to such excluded
lands or facilities.
13. Conditions: CNGP's obligation to enter into a definitive
Purchase and Sale Agreement and/or to close under such
Purchase and Sale Agreement is subject to and conditioned
upon the following:
(a) approval by CNGP of Hope's title to the Assets;
(b) approval by CNGP of all material agreements pertaining
to the Assets;
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(c) performance by CNGP of a physical inspection of the
Assets, the results of which are acceptable to CNGP;
(d) performance by CNGP of an environmental audit of the
Assets by experts on CNGP's staff or an independent
environmental auditing firm retained by CNGP at CNGP's
expense;
(e) confirmation by CNGP of Hope's working interest and net
revenue interest in the Assets;
(f) Hope furnishing CNGP with a listing of all pending,
threatened or anticipated claims or suits relating to
the Assets, and CNGP's determination that such matters
will not materially impair the value of the Assets;
(g) the absence of any take-or-pay recoupment rights,
prepayment arrangements, production payment agreements
or similar agreements or encumbrances which would
prevent CNGP from receiving full value for its share of
production acquired from Hope;
(h) the Assets not being subject to a gas imbalance
attributable to Hope's overproduction of gas prior to
the Effective Date;
(i) the absence of any material adverse change in the
Assets after the Effective Date through Closing,
including accrual of an overproduction imbalance or
commitment to a capital expenditure of Fifty Thousand
Dollars ($50,000.00) or more.
If Hope agrees to the terms and conditions set forth above,
please so signify such concurrence by executing in the space
provided below and returning one fully executed original of this
Letter of Intent.
Very truly yours,
CNG PRODUCING COMPANY
By: __________________________
Xxxxxx X. Xxxxx
General Manager
Appalachian Region
ACCEPTED AND AGREED TO THIS
31st DAY OF OCTOBER, 1995.
HOPE GAS INC.
By: ____________________________
Title: _________________________
