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EXHIBIT 10.5
CRUDE OIL SUPPLY AGREEMENT
This Agreement, dated September 1, 1998, is entered into by and among
Pennzoil Exploration and Production Company, a Delaware corporation ("E&P"),
Pennzoil Company, a Delaware Corporation, and Pennzoil Products Company, a
Delaware corporation ("Products").
W I T N E S S E T H
WHEREAS, Products wishes to transfer all of its oil and gas exploration
and production related assets and operations, and Products' staff and management
support associated with such assets and operations to E&P; and
WHEREAS, E&P wishes to accept the transfer of all of Products' oil and
gas exploration and production related assets and operations, and Products'
staff and management support associated with such assets and operations;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereby agree as follows:
1. DEFINITIONS.
The following terms shall have the meanings hereinafter ascribed.
1.1 "Eastern Properties" shall mean all Oil and Gas Assets of
Products in Michigan, New York, Ohio, Pennsylvania and West
Virginia (the "Eastern Properties").
1.2 "Oil and Gas Assets" shall mean (i) all assets relating to the
exploration for and production of hydrocarbons including all
(a) oil, gas and mineral fee and leasehold interests
(including royalty and overriding royalty interests); (b)
related or adjoining surface fee, leasehold and associated
surface interests; (c) related personal property and fixtures
thereon or associated therewith; and (d) all rights and
obligations under all contracts associated therewith.
1.3 "Western Properties" shall mean all Oil and Gas Assets of
Pennzoil Company in the Bluebell Altamont Field, Duschesne and
Uintah Counties, Utah.
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2. TRANSFER OF ASSETS.
Transfer of Oil and Gas Assets, etc. Effective as of 7:00 A.M. on the
thirteenth of April, 1998, Products shall transfer, assign, convey and
deliver the Eastern Properties to E&P.
3. OBTAINING CONSENTS OF THIRD PARTIES; GOVERNMENT APPROVALS.
(a) Certain leases, contracts and other agreements to which Products is
a party may require the consents of other parties thereto. Products
undertakes to use its best efforts to obtain all such requisite
consents with respect to such leases, contracts and other agreements.
Products shall cooperate fully in seeking and using their best efforts
to assist E&P in obtaining any governmental consents or approvals which
may be required as an incident to the transfer of Properties to, and
the assumption of liabilities by E&P. The parties intend that all such
assignments and transfers will be effective as of the effective date of
such assignments and transfers without regard to any such consents.
(b) Notwithstanding the last sentence of Section 3(a), it is
specifically understood that the transfer of the West Virginia Utility
Division assets from Products to E&P is conditioned upon and shall not
become effective until either (i) consent to such transfer is obtained
from the Public Service Commission of West Virginia pursuant to West
Virginia Code Section 24-2-12 or (ii) an exemption from the
requirements of such statute is obtained and until E&P shall have
obtained any necessary exemption under the Public Utility Holding
Company Act of 1935, including, without limitation, an exemption by
reason of a good faith filing pursuant to Section 2(a)(4) of such Act.
As used herein, "West Virginia Utility Division assets" means all of
the assets used in the natural gas utility business heretofore
conducted as the West Virginia Utility District in the Eastern Division
of the Eastern Refining Business Unit division of Products, consisting
primarily of approximately 250 miles of distribution pipeline serving
approximately 5,000 primarily residential customers.
4. CERTAIN EMPLOYMENT MATTERS; ADMINISTRATIVE MATTERS.
Products agrees that in connection with the transfers of assets
referred to in Section 2, E&P shall employ the Products work force
engaged in operating the respective assets. The parties will cooperate
in making necessary arrangements to effect such transfers of
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employment in an orderly manner. The parties will cooperate in making
arrangements whereby Products will furnish transitional staff and
management support to E&P and its other subsidiaries with respect to
the Eastern and Western Properties.
5. PRODUCTS' PREFERENTIAL RIGHT TO PURCHASE CRUDE.
Products shall have the preferential right (but not the obligation) to
purchase on a month-to-month basis, at market prices, up to one hundred
percent (100%) of the crude oil produced and saved attributable to the
Eastern and Western Properties (the "Committed Crude"). This
preferential right to purchase shall extend until October 1, 2017 in
the case of the Eastern Properties, and until March 1, 2010 in the case
of the Western Properties. Throughout the term of Products'
preferential right to purchase, E&P (which shall be defined, for
purposes hereafter, to include Pennzoil Company, unless otherwise
stated) shall have the right to solicit and/or entertain written offers
from purchasers other than Products ("third parties") for the purchase
or exchange of all or any portion of the Committed Crude. If E&P
receives a third party offer to purchase or exchange Committed Crude
that it wishes to accept, it shall notify Products in writing of such
offer at least fifteen (15) working days prior to the beginning of the
calendar month in which such third party purchase is to commence.
Products shall advise E&P within five (5) working days of its receipt
of such notification whether or not it elects to match all substantive
terms and conditions of the third party offer. If Products does not
elect to match all substantive terms and conditions of the third party
offer within such five (5) working day period, E&P may accept the third
party offer for the full term contemplated and the crude subject to the
third party offer shall no longer be considered Committed Crude.
6. PRODUCTS' PREFERENTIAL RIGHT TO PURCHASE OIL AND GAS ASSETS.
Throughout the term of Products' preferential right to purchase
Committed Crude, in the event E&P elects to sell, exchange or otherwise
assign to a third party all or any portion of E&P's interest in any of
the xxxxx producing Committed Crude, E&P shall, within ten (10) working
days after reaching agreement with the third party purchaser on the
terms of such sale, exchange or assignment, notify Products in writing
of such election, with full information concerning the proposed sale,
exchange or assignment, which shall
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include the name and address of the third party (who must be ready,
willing and able to purchase, exchange or take assignment), the
purchase, exchange or assignment price, and all other terms of the
offer. Products shall advise E&P within twenty (20) working days of
Products' receipt of such notification whether or not it elects to
match all substantive terms and conditions of such sale, exchange or
assignment. If Products does not elect to match all substantive terms
and conditions of such sale, exchange or assignment, E&P may accept
such sale, exchange or assignment. Such sale, exchange or assignment
shall be free and clear of pre-existing contractual commitments between
Products and E&P, including, without limitation, any contractual
commitments found in this Agreement. Except for the above notification
requirement, this preferential right to purchase Oil and Gas Assets
shall not apply in those cases where E&P wishes to mortgage its
interests, or to transfer title to its interests to its mortgagee in
lieu of or pursuant to foreclosure of a mortgage of its interests, or
to dispose of its interests by merger, reorganization, consolidation,
or by sale of all or substantially all of its Oil and Gas Assets to any
party, or by transfer of its interests to a subsidiary or parent
company or to a subsidiary of a parent company, or to any company in
which such party owns a majority of the stock. In the event of such
mortgage of E&P's interests, or transfer of title to E&P's interests to
its mortgagee in lieu of or pursuant to foreclosure of a mortgage of
its interests, or disposal of E&P's interests by merger,
reorganization, consolidation, or by sale of all or substantially all
of E&P's Oil and Gas Assets to any party, or transfer of E&P's
interests to a subsidiary or parent company or to a subsidiary of a
parent company, or to any company in which such party owns a majority
of the stock, Products shall retain its preferential right to purchase
Committed Crude.
7. PRODUCTS' RIGHT TO EXTEND PRODUCTION FOR EXISTING ZONES.
Ninety (90) days prior to the end of each calendar year, E&P shall
provide Products with a development plan for the Eastern Properties and
the Western Properties showing planned recompletions and well
abandonments for the upcoming calendar year. For a period of thirty
(30) days following Products' receipt of the development plan, Products
may elect to cause E&P to refrain from implementing any or all of the
planned recompletions and well abandonments identified in the
development plan. If Products so elects, then E&P shall have the right
at its sole option to either:
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(a) withdraw its plan for recompletion or abandonment; or
(b) continue to operate any such well at Products' expense; or
(c) assign any such well to Products for operation by Products or
by a third party on Products' behalf (in which event Products
shall thereafter be liable for the cost of operating and
maintaining such well, and Products will receive all revenues
attributable to such well).
If Pennzoil E&P exercises option (b) above, Products shall, beginning
on the first day of the calendar year covered by the development plan,
reimburse E&P for (a) the direct expense (as described in Section II of
the "Accounting Procedures Joint Operations" 1984 XXXXX-ONSHORE) of
operating the well, and (b) fixed overhead charges $300.00 (normal
operations) and $3,000.00 (rig operations) for Eastern Property xxxxx
and $1,500.00 per month (normal operations) and $15,000.00 per month
(rig operations) for Western Property xxxxx. Fixed overhead charges
shall be adjusted annually to reflect changes in the average weekly
earnings of Crude Petroleum and Gas Production Workers, as published by
the United States Department of Labor, Bureau of Labor Statistics and
referenced in the 1984 XXXXX Accounting Procedure for Joint Operations.
Products shall be entitled to all revenues (net of royalty, ad valorem
and severance taxes) attributable to xxxxx for which it has assumed
operational and/or cost responsibility pursuant to this paragraph.
Production from any such well shall be limited to the zones producing
at the time Pennzoil Products assumed cost responsibility for such
well. In the event that Products has assumed cost responsibility for a
well pursuant to this paragraph, and thereafter intends to relinquish
such responsibility and to abandon all zones producing in such well,
Products shall provide E&P with thirty (30) written notice of such
intention. Upon the expiration of such notice period, all rights and
obligations regarding such well shall be returned to E&P, but rights
and obligations (including Products' pro-rata share of plugging and
abandonment costs based on total production derived from the well)
attributable to the period of time in which the well was operated on
Products' behalf shall remain with Products.
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8. PRODUCTS' RIGHT TO FUND DEVELOPMENT.
Products may elect to cause E&P to drill additional xxxxx for the
production of Committed Crude by agreeing to fund all development costs
associated with such xxxxx. On or before January 1 of each calendar
year, Products shall notify E&P of its desire to fund the drilling of
new xxxxx (including associated pipelines, processing and support
facilities) for the production of Committed Crude. Within sixty (60)
days following the receipt of such an election, E&P shall furnish
Products with a recommended drilling plan consisting of a list of
recommended drilling locations, relevant technical information
supporting such recommendations and Authorizations For Expenditure
(AFE's) providing estimates for the proposed work. Any such plan shall
be provided to Products only as a convenience to Products and in
accepting such plan, Products agrees that it shall not rely on the
accuracy or completeness thereof, and that E&P shall never be deemed to
have made any warranty or representation, express or implied, as to the
accuracy or completeness of any data, information, estimates,
projections or materials furnished in association therewith, or as to
the quality or quantity of hydrocarbon reserves (if any) to be
discovered or developed in association with any such plan, except in
such instances of gross negligence or willful misconduct on the part of
E&P. Within thirty (30) days of its receipt of the recommended drilling
plan, Products shall make a final selection of the xxxxx it desires to
have drilled during the remainder of the calendar year. E&P may elect
to drill any of the proposed xxxxx for its own account. Products shall
fund all capital expenditures on the proposed xxxxx (including
associated pipelines, processing and support activities) which E&P
elects not to drill for its own account (the "Joint Xxxxx") and will
receive one hundred percent (100%) of all revenues (net of royalty, ad
valorem and severance taxes) attributable to each of the Joint Xxxxx
until "payout," which will occur when Products has recovered all of its
capital expenditures attributable to such well, plus E&P's good faith
estimate of the anticipated cost of plugging and abandonment of such
well, plus a discounted cash flow return on Products' investment
calculated at the six-month LIBOR rate plus one percent (1%). Until
payout, Products shall bear all of the direct operating expenses
attributable to the Joint Xxxxx (calculated as described in paragraph 7
above) plus monthly fixed overhead charges of $300.00 (normal
operations) and $3,000.00 (rig operations) for Eastern Property Joint
Xxxxx and $1,500.00 (normal operations) and $15,000.00 (rig operations)
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for Western Property Joint Xxxxx. Fixed overhead charges shall be
adjusted annually to reflect changes in the average weekly earnings of
Crude Petroleum and Gas Production Workers, as published by the United
States Department of Labor, Bureau of Labor Statistics and referenced
in the 1984 XXXXX Accounting Procedure for Joint Operations. Products
also shall bear all costs incurred for the plugging and abandonment of
any xxxxx drilled pursuant to this paragraph. Products' obligation to
bear costs and expenses hereunder shall apply to all costs and expenses
incurred, notwithstanding the fact that such costs and expenses may
exceed the estimates provided for in any AFE. Following "payout", E&P
shall bear all costs, and shall receive all revenues, associated with
the Joint Xxxxx, with the exception of costs attributable to the
plugging and abandonment of the well. However, at any time after
payout, Products may relieve itself of such responsibility to pay for
plugging and abandonment by paying E&P the amount of E&P's original
good faith estimate to plug and abandon the well.
9. PRODUCTS' RIGHT TO PURCHASE OIL AND GAS ASSETS.
At any time after the second anniversary of a spin-off of Products from
Pennzoil Company, and until October 1, 2017 in the case of the Eastern
Properties, and until March 1, 2010 in the case of the Western
Properties, Products shall have the right to purchase the entirety of
E&P's interest in the Eastern Properties, and/or Pennzoil Company's
interest in the Western Properties, including: (a) oil, gas and mineral
fee and leasehold interests (including royalty and overriding royalty
interests); (b) related or adjoining surface fee, leasehold and
associated surface interests; (c) related personal property and
fixtures thereon or associated therewith; and (d) all rights and
obligations under all contracts associated therewith. Within five (5)
working days of the giving of notice to make such a purchase by
Products, the parties shall each name a qualified independent
appraiser, and such two named appraisers shall choose a third
independent appraiser, who shall each submit an appraisal of the fair
market value of the properties to be purchased. After receiving such
appraisals, in the event Products wishes to proceed with such purchase,
Products shall pay to E&P the higher of (i) the average of the three
independent appraisals of the properties, or (ii) the net book value
(book value adjusted for DD&A plus capital and other investments) of
the properties at the purchase date, plus the amount of any book value
write-down(s) required by
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generally accepted accounting practices taken subsequent to the date of
this Agreement and prior to the receipt by E&P of Products' notice to
make such purchase.
10. E&P'S OBLIGATION TO COMPLY WITH LAWS AND CONTRACTUAL DUTIES.
Nothing in this agreement shall prevent E&P (including Pennzoil
Company in the case of the Western Properties) from complying fully
with all applicable rules, regulations and other legal requirements
relating to the production of oil, gas and minerals from the Eastern
Properties and Western Properties, and to the payment of royalty
thereon.
11. EVENTS SUBSEQUENT TO THE CLOSING.
On and after the date hereof, Products will cause to be executed and
delivered from time to time at the reasonable request of E&P all such
further instruments of conveyance, assignments and further assurances
as may be reasonably required to transfer and assign to E&P the title
to the properties, assets, rights and interests hereby agreed and
intended to be conveyed to E&P pursuant to this Agreement. The parties
shall take all such other action before and after the date hereof as
may be necessary or appropriate to carry out and consummate the
transactions contemplated by this Agreement.
12. MISCELLANEOUS.
12.1 Expenses. Except as may be otherwise specifically provided
herein, all expenses incidental to the consummation of the
transactions contemplated hereby shall be borne by the party
incurring such expenses.
12.2 Entire Agreement. This Agreement constitutes the entire
contract between the parties hereto and no party shall be
liable or bound to any other party in any manner by any
warranties, representations or guaranties (whether expressed,
implied or otherwise) except as specifically set forth herein.
Nothing in this Agreement, express or implied, is intended to
or shall confirm upon any party, other than the parties
hereto, and their respective successors and assigns, any
rights remedies, obligations or liabilities under or by reason
of this Agreement, except with respect to liabilities
expressly assumed herein or as may be
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otherwise expressly provided herein. This Agreement shall be
binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
12.3 Invalidity. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
12.4 Dispute Resolution. Except as expressly provided elsewhere in
this Agreement, any controversy or claim relating to the
interpretation of this Agreement shall be settled by
arbitration in accordance with the Commercial Arbitration
Rules of the AAA as such rules may be modified herein or as
otherwise agreed by the parties in such controversy. The forum
for arbitration shall be Houston, Texas, and the parties
acknowledge that such venue is appropriate. The governing law
for such arbitration shall be the laws of the State of Texas.
Following thirty (30) days' notice by any party of intention
to invoke arbitration, any dispute arising under this
Agreement and not mutually resolved within such thirty (30)
day period shall be determined by a single arbitrator upon
which the parties agree, or, if the parties cannot agree on a
single arbitrator within five (5) business days following such
thirty (30) day period, then by a board of three (3)
arbitrators, which arbitrator(s) shall be selected for each
such controversy so arising hereunder. In the event it is
necessary to proceed with a board of three (3) arbitrators in
order to resolve any controversy arising hereunder, then
either party to the arbitration proceeding may apply to the
AAA for the appointment of arbitrators to be selected by the
parties to the arbitration from a list of ten (10) qualified
potential arbitrators supplied by the AAA, which shall include
a resume of qualifications, background and experience. For a
period of fifteen (15) days after the AAA's list is delivered
to a party, such party shall have the right to strike three
names from the list of arbitrators and the AAA shall pick
three arbitrators from the names not stricken, who shall be
the arbitrators hereunder. Any party who is unable to
unwilling to so strike a name timely shall forfeit his right
to participate in the selection process. If a selected
arbitrator is unable or unwilling to act, or if for
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any other reason an appointment of the requisite number of
arbitrators cannot be made from the list submitted to the
parties by the AAA, the AAA may be requested to submit another
list of potential arbitrators and the same procedures shall
apply. If the arbitrators are not appointed from the second
list submitted by the AAA, then any party, on behalf of all
the parties, may request such appointment by the United States
District Judge for the Southern District of Texas, who is then
senior in service (acting as an individual and not in his
judicial capacity). In the event of any subsequent withdrawal,
by death, incapacity or resignation, of an arbitrator, the AAA
may be requested to supply a list of three qualified
arbitrators and each party shall have the right to strike one
name from the list and the arbitrator not stricken shall be
the replacement arbitrator; if, for any reason, more than one
arbitrator's name remains on the list, the replacement
arbitrator shall be chosen by the AAA. The arbitrator or
arbitrators shall be guided, but not bound, by the Federal
Rules of Evidence and by the discovery rules of the Federal
Rules of Civil Procedure. Any discovery shall be limited to
information directly relevant to the controversy or claim in
arbitration. Such board shall determine the matters submitted
to it pursuant to the provisions of this Agreement and render
a decision thereon no later than sixty (60) days after such
board (or single arbitrator, as the case may be) has been
appointed. The action of the sole arbitrator, or of a majority
of the members of the board of arbitrators, as the case may
be, shall govern and their decisions in writing shall be
final, nonappealable, and binding on the parties hereto. Each
party shall pay costs of the arbitration as allocated by the
arbitrators in their decision. The arbitrators shall have the
right, in rendering their decision with regard to remedies
available to the parties to utilize any rights or remedies
available at contract, law or equity, including, without
limitation, assessing damages or specific performance.
12.5 Notices: All notices provided for herein shall be addressed
to:
Pennzoil Exploration and Production Company
P. O. Xxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxxx
(000) 000-0000
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Pennzoil Products Company
P. O. Xxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxxx X. Xxxx
(000) 000-0000
Pennzoil Company
P. X. Xxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxxx
(000) 000-0000
12.6 Further Assurances. After Closing, each of the parties shall
execute, acknowledge and deliver to the others such further
instruments, and take such other actions as may be reasonably
necessary to carry out the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year above written.
PENNZOIL COMPANY
BY: /s/ S.D. XXXXXXXX'
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NAME: S.D. Xxxxxxxx'
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TITLE: President
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PENNZOIL EXPLORATION AND
PRODUCTION COMPANY
BY: /s/ X.X. XXXXXXXXX
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NAME: X.X. Xxxxxxxxx
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TITLE: President
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PENNZOIL PRODUCTS COMPANY
BY: /s/ X.X. XXXX
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NAME: X.X. Xxxx
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TITLE: Group Vice President
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