Exhibit 10.6
NATURAL GAS PURCHASE AND SALE AGREEMENT
BETWEEN
CHEVRON U.S.A. INC.
AND
NATURAL GAS CLEARINGHOUSE
TABLE OF CONTENTS
Page
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I. DEFINITIONS..................................................... 1
II. COMMITMENT OF GAS AND OBLIGATIONS TO PURCHASE................... 2
2.1 Committed Gas ............................................. 2
2.1.1 Pre-Effective Date Commitment....................... 3
2.1.2 Post-Effective Date Commitment...................... 3
2.1.3 Addition of New Sources of Committed Gas............ 3
2.1.4 Lease Use Gas....................................... 3
2.1.5 Non-Operated Xxxxx.................................. 5
2.1.6 Non-Conventional Gas................................ 5
2.1.7 Farmout Acreage..................................... 6
2.2 Availability Reports....................................... 6
2.2.1 Revision of Availability Report..................... 7
2.2.2 NGC Information..................................... 7
2.3 Right to Control Production and Curtailment................ 7
2.4 Dedicated Contracts........................................ 8
2.5 Right to Process........................................... 8
2.5.1 Accounting and Billing Procedures................... 9
2.5.2 Offshore Condensate................................. 9
2.5.3 Documentation of Charges............................ 9
III. TRANSPORTATION AND PENALTIES.................................... 9
3.1 Upstream Gathering and Transportation Agreements........... 9
3.2 Transporter's Tariff....................................... 10
3.3 Imbalance Charges.......................................... 10
3.3.1 Underdeliveries - Cash-Out Costs.................... 11
3.3.2 Overdeliveries - Cash-Out Costs..................... 11
3.3.3 Imbalance Trading................................... 12
3.4 Operational Flow Orders.................................... 12
3.5 Operational Balancing Agreements........................... 12
IV. COMMODITY PRICE................................................. 13
4.1 First of the Month Commodity Price......................... 13
4.2 Description of Sources of Supply........................... 13
4.3 Split Connect Committed Gas................................ 14
4.4 Split Connect Committed Gas Price.......................... 14
4.4.1 Effect of Capacity Constraints...................... 15
4.4.2 Measurement Capacity Constraints.................... 15
4.5 Firm Market Split Connect Committed Gas.................... 16
4.6 Downstream Released Firm Transportation............... ..... 16
4.7 Mid-Month Increases........................................ 16
4.8 Mid-Month Decreases...,,,,,................................ 18
4.9 Commodity Price of Curtailed Sources of Supply............. 20
4.10 Locked Price Option........................................ 20
4.10.1 Request for Locked Price........................... 21
4.10.2 Procedures......................................... 21
4.10.3 Locked Quantities.................................. 22
4.10.4 Irrevocability..................................... 22
4.10.5 Availability of Committed Gas...................... 22
4.10.6 Failure to Deliver Committed Gas................... 22
4.10.7 Cessation of Futures Trading....................... 23
4.11 NGC's Failure to Purchase Committed Gas................... 23
V. TITLE AND RESPONSIBILITY........................................ 24
5.1 CUSA Responsibility........................................ 24
5.2 NGC Responsibility......................................... 25
VI. QUALITY, MEASUREMENT AND TESTS.................................. 25
6.1 Quality Specifications..................................... 25
6.2 Volume and Heating Value................................... 25
6.3 Test Data and Charts....................................... 25
VII. ACCOUNTING, BILLING AND PAYMENT................................. 25
7.1 Statements................................................. 25
7.2 Payment.................................................... 26
7.3 Failure to Pay............................................. 26
7.4 Two Year Limit on Adjustments.............................. 27
7.5 Audit...................................................... 27
7.6 Accounting Information..................................... 27
7.7 Setoff..................................................... 27
7.8 Letter of Credit........................................... 28
VIII. DISCLAIMER AND WARRANTY......................................... 28
8.1 Warranty................................................... 28
8.2 Disclaimer................................................. 28
IX. FORCE MAJEURE................................................... 28
9.1 Suspension of Obligations.................................. 28
9.2 Force Majeure Defined...................................... 29
X. TERM............................................................ 29
10.1 Term...................................................... 29
10.2 Early Termination......................................... 30
XI. RENEGOTIATION, PRICE REDETERMINATION AND ARBITRATION............ 31
11.1 Renegotiation and Price Redeterminations.................. 31
11.2 Limits on Arbitration..................................... 31
11.3 Price Redetermination..................................... 31
11.3.1 Scope of Price Redetermination.................... 32
11.3.2 Price Redetermination Procedure................... 32
11.3.3 Arbitration of Price Redetermination.............. 33
11.3.4 Effective Date.................................... 34
11.4 Substitution of Published Index Prices.................... 34
11.5 Unavailability of Published Index Prices.................. 34
11.6 Dispute Resolution - Other Price Issues................... 34
11.7 Arbitration After the Fifth Anniversary................... 35
11.8 Renegotiation of the Premium.............................. 35
11.9 All Disputes Arbitration.................................. 35
11.10 Procedure................................................. 35
11.11 Arbitration Hearings...................................... 36
11.12 Arbitration Decision...................................... 36
XII. GOVERNMENTAL REGULATIONS AND AUTHORIZATIONS..................... 36
12.1 Application of Law and Regulation......................... 36
12.2 Authorization and Regulatory Filings...................... 37
XIII. NOTICES......................................................... 37
13.1 Procedure................................................. 37
XIV. NON-ASSIGNABILITY AND TRANSFER OF INTEREST BY CUSA.............. 38
14.1 Non-Assignability......................................... 38
14.2 Transfer of Interest...................................... 38
XV. MISCELLANEOUS................................................... 39
15.1 Waiver.................................................... 39
15.2 Entire Agreement.......................................... 39
15.3 Choice of Law............................................. 39
15.4 Confidentiality........................................... 39
15.5 Limitation of Damages..................................... 39
15.6 Severability.............................................. 39
EXHIBIT A Sources of Supply, Delivery Points, Published Index Prices, and Index
Price Adjustments
EXHIBIT B Pre-Effective Date Commitments
EXHIBIT C Upstream Gathering and Transportation Agreements
EXHIBIT D Firm Market Split Connect Committed Gas
EXHIBIT E Price Lock Confirmation
EXHIBIT F Letter of Credit
"Pages where confidential treatment has been requested are stamped
Confidential Treatment Requested. The redacted material has been separately
filed with the Commission, the appropriate section has been marked at the
appropriate place and in the margin with a star (*)."
NATURAL GAS PURCHASE AND SALE AGREEMENT
This Natural Gas Purchase and Sale Agreement is made and entered into this
_____ day of August, 1996, but effective as of the 1st day of September, 1996
("Effective Date"), between CHEVRON U.S.A. INC., a Pennsylvania corporation
("CUSA"), and NATURAL GAS CLEARINGHOUSE, a Colorado general partnership ("NGC"),
both CUSA and NGC sometimes referred to collectively as "Parties" or singularly
as "Party".
RECITALS
1. CUSA is the owner and producer of natural gas and desires to sell
natural gas to NGC; and
2. NGC is a marketer of natural gas, provides products and services
associated with the production, transportation and marketing of
natural gas, and desires to purchase natural gas from CUSA;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained in this Agreement, CUSA and NGC agree as follows:
I. DEFINITIONS
"Agreement" means the provisions of this document as it may be amended from
time to time.
"Alliance Agreement" means that certain Master Alliance Agreement dated as
of September 1, 1996, executed by CUSA and NGC among other parties.
"Btu" (British Thermal Unit) means the amount of heat energy required to
raise the temperature of one pound of water from fifty-nine degrees
Fahrenheit (59EF) to sixty degrees Fahrenheit (60EF), as determined on a
dry basis.
"Business Day" means a day on which commercial banks are open for business
in Houston, Texas.
"Day" means that period of 24 consecutive hours beginning and ending at
8:00 a.m. Central Time, or such other time as may be specified in the
FERC Gas Tariff, or the equivalent, of a pipeline transporting gas subject
to this Agreement.
"Delivery Point" means the point at which title of gas delivered under this
Agreement passes from CUSA to NGC.
"Effective Date" means September 1, 1996.
"FERC" means the Federal Energy Regulatory Commission or any successor
government authority.
"gas" or "natural gas" means the effluent vapor stream in its natural state
produced from xxxxx, including all hydrocarbon and nonhydrocarbon
constituents and including casinghead gas produced with crude oil, and
residue gas resulting from the processing of gas well gas or casinghead
gas.
"MMBtu" means one million (1,000,000) Btu.
"Month" means the period commencing at 8:00 a.m. Central Time on the first
Day of a calendar month and ending at 8:00 a.m. Central Time on the first
Day of the immediately following calendar month.
"Source of Supply" means the xxxxx, common field point, field, or similar
designation used by CUSA to describe sources of gas supply subject to this
Agreement.
"Transporter" means the pipeline receiving the gas for the account of Buyer
immediately downstream of a delivery point.
II. COMMITMENT OF GAS AND OBLIGATION TO PURCHASE
2.1 Committed Gas. During the term of this Agreement, CUSA agrees to sell
to NGC and NGC agrees to purchase from CUSA under the terms of this
Agreement all Committed Gas. Subject to the terms and conditions of
this Agreement, CUSA's obligation to sell one hundred percent (100%)
of the Committed Gas and NGC's obligation to purchase one hundred
percent (100%) of the Committed Gas made available by CUSA are firm
obligations. Committed Gas is defined as all gas produced and owned
or controlled by CUSA during the term of this Agreement, except gas
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that is dedicated to a Pre-Effective Date Commitment, gas dedicated to
a Post-Effective Date Commitment, gas reserved by CUSA for Lease Use,
gas produced from non-conventional sources of supply, and gas produced
from acreage farmed out by CUSA to a third party. Committed Gas
includes, without limitation, gas produced from xxxxx in existence on
the Effective Date, xxxxx drilled or recompleted subsequent to the
Effective Date and make up gas accruing to, and capable of being
delivered by, CUSA after the Effective Date as a result of production
or pipeline imbalances regardless of whether the imbalances
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occurred before or after the Effective Date.
2.1.1 Pre-Effective Date Commitment. Exhibit B to this Agreement
describes xxxxx, oil, gas and mineral leases, gas reserves, or
producing properties however characterized that are not subject
to this Agreement because the gas produced from such properties
is dedicated to the contractual arrangements described in
Exhibit B ("Pre-Effective Date Commitment"). Gas subject to a
Pre-Effective Date Commitment shall become Committed Gas at
such time as the gas may be sold and delivered to NGC as a
result of termination or cancellation of the Pre-Effective Date
Commitment or other release of the gas from the Commitment.
2.1.2 Post-Effective Date Commitment. For purposes of this
Agreement, a Post-Effective Date Commitment is defined as an
instance where (i) CUSA acquires well(s), oil, gas and mineral
leases, gas reserves, or producing properties however
characterized ("Subsequently Acquired Properties") subsequent
to the Effective Date; and (ii) contractual arrangements in
place at the time of CUSA's acquisition prohibit CUSA from
selling all or a portion of the gas produced from the
Subsequently Acquired Property to NGC under this Agreement. Gas
subject to a Post-Effective Date Commitment shall become
Committed Gas at such time as the gas may be sold and delivered
to NGC as a result of a termination or cancellation of the
Post-Effective Date Commitment or other release of the gas from
the commitment. CUSA agrees to exercise reasonable efforts to
terminate any Post-Effective Date Commitment at the earliest
opportunity in accordance with the terms and conditions of the
commitment if, in the reasonable judgment of CUSA, such
termination will not result in adverse economic consequences to
CUSA.
2.1.3 Addition of New Sources of Committed Gas. In the event CUSA
acquires or develops new sources of Committed Gas or enhances
the productive capability of existing Sources of Supply, CUSA
shall exercise reasonable efforts to give NGC notice as soon as
possible of the new sources and increased production, including
an estimate of the date of initial deliveries or increased
production of Committed Gas to NGC. In addition, CUSA and NGC
will cooperate in the development of a joint strategy to market
Committed Gas from a new Source of Supply.
2.1.4 Lease Use Gas. CUSA retains the right to use gas produced from
xxxxx in which CUSA has an interest for purposes of the
operation of such xxxxx, or the operation of other xxxxx, in
quantities deemed necessary by CUSA acting as a prudent
operator. For purposes of this Agreement, the Lease Use of gas
includes, without limitation, gas lift, pressure
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maintenance, enhanced recovery, equipment fuel, delivery to a
third party for purposes of clearing a positive joint venture
partner imbalance incurred by CUSA, satisfying in-kind royalty
obligations to the extent such obligations require CUSA to
deliver royalty gas to a third party, and delivery of gas to a
third party in consideration of the delivery by that third
party to CUSA of equivalent (although not always equal)
quantities of gas at a different location. Lease Use Gas
utilized by CUSA in connection with the operation of a well
located on the lease producing such Lease Use Gas, or a well
located on a different lease in instances where gathering or
transportation downstream of the applicable Delivery Point is
not required to transport the Lease Use Gas to the different
lease, will not appear in an Availability Report, as defined in
Section 2.2 below. Lease Use Gas utilized by CUSA in connection
with the operation of a well in which CUSA has an interest
located on a lease other than the lease producing such Lease
Use Gas, and requiring gathering or transportation downstream
of the applicable Delivery Point, will: (i) not constitute
Committed Gas but will appear in an Availability Report as a
separate category specifically designated as Lease Use Gas;
(ii) be purchased by NGC at the applicable First of the Month
Commodity Price, as defined in Section 4.1 below; (iii) be
transported by NGC to the location designated by CUSA; and (iv)
be resold to CUSA at the same First of the Month Commodity
Price, plus any incremental costs associated with
transportation of such Lease Use Gas to the point designated by
CUSA. In addition to the categories of Lease Use Gas described
above in this Section 2.1.4, CUSA and NGC acknowledge that CUSA
shall have the right from time to time during the term of this
Agreement to supply gas from a Source of Supply to a third
party for emergency use in the operation of a well in which
CUSA has no interest. For purposes of this Section 2.1.4 such
emergency use is intended to apply in an instance where a third
party requires an immediate short term (typically no more than
seven Days) supply of gas for purposes of restoring or
maintaining the productive capacity of a well. Typically
gathering or transportation downstream of the applicable
Delivery Point is not required to transport the emergency use
gas to the third party well; however the Parties acknowledge
that such gathering or transportation may be required in
isolated instances, in which cases CUSA will pay the gathering
or transportation charges. In the event CUSA determines to
supply emergency use gas to a third party in accordance with
this Section 2.1.4, the applicable Availability Report will
designate the quantity of such emergency use gas as a separate
entry and set forth the estimated duration of CUSA's delivery
of the emergency use to the third party. Should NGC conclude
that CUSA's delivery of emergency use gas to a third party may
have an adverse
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of NGC's ability to serve NGC's markets, the Parties will
confer in an attempt to mitigate any such potential adverse
impact. Nothing in this Section 2.1.4 shall authorize CUSA to
deliver gas to a third party for purposes of pressure
maintenance or enhanced recovery. Once gas has been designated
as Committed Gas on an Availability Report for any Month, CUSA
shall not subsequently reduce the quantity of Committed Gas
designated for delivery in that Month by declaring any portion
of such Committed Gas to be Lease Use Gas.
2.1.5 Non-Operated Xxxxx. NGC and CUSA acknowledge that CUSA has
interests in xxxxx operated by third parties and that from time
to time NGC and CUSA may determine that it is more efficient to
sell gas attributable to CUSA's interest in such xxxxx to third
parties, including, without limitation, the operator of a well.
In addition to gas produced from non-operated xxxxx, CUSA
produces casinghead gas from CUSA operated xxxxx and sells such
gas to third parties. This gas shall be treated as gas produced
from non-operated xxxxx for purposes of determining whether or
not such gas will be Committed Gas under this Agreement. In
respect to instances where, as of the Effective Date, CUSA
sells gas produced from a non-operated well to a third party,
CUSA and NGC will evaluate each such sale and determine whether
to continue the sale to the third party or to declare the gas
Committed Gas subject to this Agreement. CUSA and NGC
acknowledge that their evaluation will not be complete on the
Effective Date. The Parties will complete the evaluation within
one year of the Effective Date, or within such other period
agreed upon by the Parties. If during the term of this
Agreement CUSA deems it advisable to sell gas produced from a
non-operated well to a third party, CUSA will give notice to
NGC and the Parties will determine whether to sell the gas to a
third party or declare the gas Committed Gas under this
Agreement. In the event CUSA and NGC are unable to agree on
whether the gas will be sold to a third party or to NGC under
this Agreement, and in the event the quantity of gas at issue
is less than 200 MMBtu per Day, CUSA may sell the gas to a
third party. In the event the quantity of gas at issue is more
than 200 MMBtu per Day, on average over the preceding three
Months, NGC may declare the gas Committed Gas under this
Agreement. Notwithstanding the foregoing, CUSA shall be
entitled to continue the sale to the third party at its option
if CUSA concludes in its reasonable judgment that the
termination of the sale will result in adverse economic
consequences to CUSA.
2.1.6 Non-Conventional Gas. For purposes of this Agreement, "Non-
Conventional Gas" means gas which is (a) produced from Devonian
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shales, coal seams, or tight gas sands, defined as very low
permeability sandstones ( 0.1 millidarcies or less, as measured
using sound engineering practices) and (b) administered within
CUSA by CUSA's Non-Conventional Gas Business Team or its
successor. Non-Conventional Gas shall not be Committed Gas
subject to this Agreement and CUSA shall not be obligated to
sell such Non-Conventional Gas to NGC, nor shall NGC be
obligated to purchase such gas from CUSA. Notwithstanding the
foregoing, upon NGC's request, made not more frequently than
once each six Months, NGC and CUSA shall evaluate CUSA's
portfolio of Non-Conventional Gas and determine whether or not
any quantity of such Non-Conventional Gas is suitable for
treatment as Committed Gas subject to this Agreement. If the
Parties are unable to agree on the treatment of any quantity of
Non-Conventional Gas, it shall remain Non-Conventional Gas.
2.1.7 Farmout Acreage. During the term of this Agreement CUSA shall
be entitled to farmout to a third party undeveloped acreage
covered by an oil, gas and mineral lease or mineral fee
interest held by CUSA in the event CUSA, acting as a prudent
operator, determines that such a farmout is in the best
interests of CUSA. In the event of such a farmout, CUSA will
exercise reasonable efforts to (i) retain a call on gas
produced from the acreage subject to the farmout, provided that
such a call does not diminish the return to CUSA when compared
to the return in the absence of the call; or (ii) minimize the
period of time elapsing before CUSA is entitled to take and
market its proportionate share of the gas produced from the
farmout acreage. Gas produced from farmout acreage shall not be
Committed Gas under this Agreement until such time that CUSA is
entitled to take and market such gas.
2.2 Availability Reports. In each Month during the term of this
Agreement, CUSA shall submit to NGC an Availability Report setting
forth CUSA's best estimate of the quantity of Committed Gas that CUSA
will deliver to NGC from each Source of Supply during the following
Month. If the quantity of Committed Gas available for delivery from a
Source of Supply is expressed as a single monthly quantity, and unless
the Availability Report states otherwise, it shall be presumed that
such quantity will be delivered at a relatively constant daily rate of
flow throughout the Month. Except as provided below in this Section
2.2, the Availability Report shall be delivered to NGC no later than
the tenth Business Day before the first Day of the Month of delivery.
It shall identify the estimated quantity of Committed Gas that will be
produced from each Source of Supply and the estimated quantity that
will be delivered at each Delivery Point. The quantity of Committed
Gas set forth in the Availability Report in effect at 8:00 a.m. on the
second Business Day before the Day
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nominations to the applicable Transporter are due will form the basis
of the quantity of Committed Gas nominated by NGC for first Day of the
Month delivery into that Transporter. CUSA shall exercise reasonable
efforts to submit the Availability Report applicable to a Source of
Supply operated by a third party no later than the tenth Business Day
before the first Day of the Month of delivery, and shall, in any
xxxxx, xxxxxx the Availability Report as soon as possible. However, in
the event such an Availability Report is submitted later than 8:00
a.m. on the second Business Day before the Day nominations to the
applicable Transporter are due, the Committed Gas set forth on the
Availability Report will be treated as Incremental Committed Gas under
Section 4.7 below. To the fullest extent possible, taking into account
the information systems capabilities of CUSA and NGC, the Availability
Report will be delivered via Electronic Data Interchange ("EDI") in a
format permitting the downloading of data directly into NGC's systems.
In the event the delivery of the Availability Report via EDI is not
possible beginning on the Effective Date, the Parties will strive to
develop the systems required to implement the electronic delivery of
the Availability Report, provided CUSA and NGC are in agreement in
respect to the expenditure of funds required to develop the systems.
CUSA and NGC will each have gas control personnel accessible twenty-
four hours a Day seven Days a week. Nothing in this Section 2.2 or in
Section 2.2.1 below, shall require CUSA to deliver information via EDI
if such information can be delivered to NGC faster or more efficiently
by telephone followed by facsimile confirmation.
2.2.1 Revision of the Availability Report. Following submission of
the initial Availability Report, CUSA shall revise the
Availability Report to reflect changes to CUSA's estimated
quantities of Committed Gas (if the revision is submitted prior
to the beginning of the Month of delivery) or changes in actual
quantities of Committed Gas (if the revision is submitted
during the Month of delivery). The revisions shall also be
delivered to NGC via EDI and shall be delivered as soon as
commercially possible in order to permit NGC to submit revised
pipeline nominations and to make any market adjustments that
may be required, but in no event later than one hour before the
pipeline nomination deadline of the pipeline immediately
downstream of the Delivery Point.
2.2.2 NGC Information. In respect to instances where CUSA is a
Delivery Point operator, and Committed Gas flows through that
point, and upon CUSA's request, NGC will exercise reasonable
efforts to provide CUSA with information required by CUSA in
its role as point operator, including, without limitation,
NGC's downstream transportation contract number, the identity
of the downstream shipper, and, in the event NGC purchases gas
flowing through that point from other suppliers, the
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quantity of gas purchased from each such supplier. The Parties
acknowledge that the purpose of this Section 2.2.2 is not to
require NGC to furnish information that CUSA would otherwise be
able to collect on its own, but rather to obligate NGC to use
reasonable efforts to furnish information not readily
accessible to CUSA.
2.3 Right to Control Production and Curtailment. CUSA reserves the right,
acting as a prudent operator, to limit, curtail or shut-in production
(collectively referred to as "curtail or curtailment") of Committed
Gas from any well or xxxxx if it determines that curtailment is
warranted as a result of any mechanical, engineering, legal, title, or
other field or well condition. CUSA also reserves the right to
curtail production of Committed Gas from any well or xxxxx if it
concludes such action is warranted due to prevailing market prices for
natural gas. In the event CUSA desires to curtail production of
Committed Gas, CUSA shall give NGC written notice of such action no
later than the tenth Business Day before the first Day of the Month of
delivery. CUSA's notice shall set forth the quantity of Committed Gas
to be curtailed, the Source of Supply and Delivery Point(s) affected
and the estimated duration of the curtailment. CUSA shall not curtail
the production of Committed Gas if the Gas has been designated in
CUSA's Availability Report as available for delivery to NGC unless
such curtailment is the result of an event of force majeure as defined
in Article IX below. Any curtailment of Committed Gas after such gas
has been designated as available in the absence of an event of force
majeure may subject CUSA to Deficiency Keep Whole Payments pursuant to
Section 4.8 below. CUSA shall be entitled to reduce the period of
curtailment by submitting a revised Availability Report in accordance
with Section 2.2.1 above.
2.4 Dedicated Contracts. Notwithstanding anything in Section 2.3 above to
the contrary, CUSA shall not be entitled to curtail production of
Committed Gas as a result of prevailing market prices to the extent
Committed Gas has been dedicated for delivery to a customer of NGC
under a gas purchase and sale agreement designated a "Dedicated
Contract" by NGC and CUSA unless CUSA and NGC agree on an alternate
source of Committed Gas to meet the requirements of the Dedicated
Contract during the period of curtailment. Contracts eligible for
designation as a Dedicated Contract will be gas purchase and sale
agreements that NGC proposes to execute as seller after the Effective
Date and which will require the dedication of Committed Gas produced
from a specific Source(s) of Supply to that contract. NGC shall give
CUSA written notice of NGC's desire to designate a Dedicated Contract,
which notice shall set forth the quantity of Committed Gas dedicated,
the Source of Supply and Delivery Point affected and the duration of
the dedication. CUSA's agreement to the designation of a contract as
a Dedicated Contract shall not be construed to
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be a warranty or guaranty by CUSA that a given Source of Supply will
produce Committed Gas in quantities sufficient to meet the
requirements of a Dedicated Contract.
2.5 Right to Process. CUSA hereby reserves the right to process all or
any portion of the Committed Gas deliverable to NGC under this
Agreement for the removal of all or any constituents other than
methane. Such processing rights may be exercised either before or, if
the Transporter allows, after delivery of the Committed Gas to NGC.
When CUSA is exercising its right to process the Committed Gas (and
such right may be exercised at any time and from time to time during
the term of this Agreement), title to the liquefiable hydrocarbons and
other constituents removed or consumed during processing shall not
pass to NGC, but shall remain at all times in CUSA. NGC and CUSA
agree that they will cooperate in good faith to facilitate the
exercise of Seller's processing right, including, without limitation,
taking the actions described in the remainder of this Section 2.5.
2.5.1 Accounting and Billing Procedures. When and if CUSA elects to
exercise its processing rights, NGC and CUSA will establish
reasonable accounting and billing procedures so that (i) NGC
will pay only for the quantities of residue Committed Gas
remaining after processing and (ii) all charges of the
Transporter will be equitably allocated between NGC and CUSA,
with CUSA paying all costs attributable to the exercise of its
processing rights and NGC paying all costs attributable to the
Committed Gas purchased by it.
2.5.2 Offshore Condensate. It is understood that CUSA's gas xxxxx
may produce liquid hydrocarbons (condensate) along with the gas
well Committed Gas to be delivered under this Agreement. To the
extent that any Delivery Point provided for in this Agreement
is located on an offshore platform, and if Transporter allows,
NGC agrees that CUSA may inject condensate into the gas stream
delivered hereunder for transportation and redelivery to CUSA
at a separation facility located onshore. CUSA agrees to bear,
or reimburse NGC for, all charges of the Transporter
attributable to the injection, transportation, and redelivery
of CUSA's condensate.
2.5.3 Documentation of Charges. NGC shall furnish CUSA with
documentation establishing the actual charges incurred by NGC
and borne by CUSA under Sections 2.5.1 and 2.5.2. Such
documentation shall reflect the method of allocation of such
charges between NGC and CUSA. Upon agreement of the Parties,
amounts paid by NGC and borne by CUSA under Sections 2.5.1 and
2.5.2 may be netted against amounts
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NGC is obligated to pay CUSA for Committed Gas delivered
under this Agreement.
III. TRANSPORTATION AND PENALTIES
3.1 Upstream Gathering and Transportation Agreements. Exhibit C to this
Agreement contains a list of all upstream gathering and transportation
service agreements associated with the delivery of Committed Gas to
the Delivery Points. The Parties shall revise the list during the
term of this Agreement to reflect the addition or deletion of
gathering and transportation service agreements. CUSA shall be
responsible for arranging, nominating and paying for, all upstream
transportation and gathering services (and associated charges)
necessary for CUSA to deliver Committed Gas to the Delivery Point(s),
with the following exception. In respect to any upstream gathering or
transportation service agreement managed by CUSA's Natural Gas
Business Unit as of the Effective Date, CUSA shall have the option to
shift responsibility for the management and operation of such service
agreements to NGC as of the Effective Date (or effective as of a later
date if CUSA does not exercise its option on or before the Effective
Date). CUSA will use reasonable efforts to exercise its option on or
before the Effective Date, however the Parties recognize that time
constraints may preclude the completion of such action by such date.
The Parties agree to execute any agreements they deem necessary to
implement the shifting of such responsibility to NGC. Management and
operation of such service agreements will include, without limitation,
nominations, confirmations and the payment of invoices. Amounts paid
by NGC to an upstream gatherer or transporter will be netted against
amounts NGC is obligated to pay CUSA for Committed Gas delivered under
this Agreement. Notwithstanding the foregoing, upon agreement of the
Parties, in respect to any payments to an upstream gatherer or
transporter, CUSA shall reimburse NGC for one hundred percent (100%)
of all payments made by NGC to such upstream gatherer or transporter
prior to the date NGC is required to make such payments to the
gatherer or transporter provided that NGC furnishes CUSA a copy of the
invoice no later than ten Days prior to the payment due date. If NGC
furnishes a copy of the invoice later than the tenth Day before the
payment due date, CUSA shall exercise reasonable efforts to reimburse
NGC prior to the payment due date, but shall in any event reimburse
NGC no later than the close of business on the tenth Day following
CUSA's receipt of the invoice. In the event CUSA requests NGC's
assistance in obtaining a new upstream gathering or transportation
rate during the term of this Agreement, such assistance will be
furnished pursuant to an agreement addressing, among other items, the
allocation between CUSA and NGC of any cost saving associated with new
rates.
-10-
3.2 Transporter's Tariff. The rules, guidelines, and policies of the
pipeline immediately downstream of the Delivery Point ("Transporter")
shall define and set forth the manner in which the Committed Gas
purchased and sold under this Agreement is measured and transported.
CUSA and NGC recognize that the receipt and delivery into
Transporter's pipeline facilities of Committed Gas purchased and sold
under this Agreement shall be subject to the operational procedures of
Transporter as well as the terms of Transporter's transportation
service agreement(s) with NGC, if any, addressing operational
procedures.
3.3 Imbalance Charges. The terms and conditions of Transporter's FERC Gas
Tariff (or equivalent state-approved tariff) addressing penalties,
scheduling fees, cash-out costs or similar charges attributable to
underdeliveries or overdeliveries of gas into the pipeline
(collectively "Imbalance Charges") shall be used for purposes of
calculating Imbalance Charges under this Agreement. Imbalance Charges
under this Agreement will be assessed on a transporter-by-transporter
basis using the applicable terms of Transporter's FERC Gas Tariff and
as if CUSA is the shipper and NGC is the transporter. In instances of
split connect Committed Gas, as defined in Section 4.3 below, the
tariff of the pipeline downstream of the Delivery Point associated
with the Published Index Price selected by CUSA shall be used for
purposes of this Section 3.3 If an Imbalance Charge is assessed under
this Agreement, then CUSA shall pay to NGC an amount calculated in
accordance with the applicable terms of Transporter's FERC Gas Tariff.
For purposes of this Agreement, an underdelivery is defined as an
instance where the monthly quantity of Committed Gas delivered to a
given Delivery Point is less than the monthly quantity of Committed
Gas designated for delivery at that Delivery Point in CUSA's
Availability Report as changed throughout the Month by timely
revisions of the Availability Report in accordance with Section 2.2.1
above. An overdelivery is defined as an instance where the monthly
quantity of Committed Gas delivered to a given Delivery Point is
greater than the monthly quantity of Committed Gas designated for
delivery at that Delivery Point in CUSA's Availability Report as
changed throughout the Month by timely revisions of the Availability
Report in accordance with Section 2.2.1 above. In the event the
applicable Transporter requires balancing on a daily basis, the
definitions of underdelivery and overdelivery shall be modified to
reflect daily balancing as opposed to monthly balancing.
Overdeliveries by CUSA into a transporter at one Delivery Point will
be netted against underdeliveries into that transporter at a different
Delivery Point to the extent permitted under that transporter's FERC
Gas Tariff. Underdeliveries by CUSA on one transporter will not be
netted against overdeliveries by CUSA to a different transporter
absent the Parties' consent and underdeliveries or overdeliveries by
CUSA will not be netted against overdeliveries or underdeliveries by
other NGC suppliers of gas.
-11-
3.3.1 Underdeliveries - Cash-Out Costs. In the event (i) of net
underdeliveries by CUSA in any Month in respect to a given
Transporter; (ii) that Transporter's per MMBtu cash-out prices
(in the case of tiered cash-out prices the cash-out price
associated with the level of CUSA's net underdeliveries in each
tier) is higher than the appropriate Published Index Price; and
(iii) CUSA would be required to pay cash-out costs to
Transporter under Transporter's FERC Gas Tariff if CUSA was the
shipper and NGC was the transporter, CUSA shall pay NGC an
amount equal to the quantity of the underdelivery, expressed in
MMBtu, multiplied by the difference between the per MMBtu cash-
out price and the Published Index Price.
3.3.2 Overdeliveries - Cash-Out Costs. In the event (i) of net
overdeliveries by CUSA in any Month in respect to a given
Transporter; and (ii) that Transporter would be required to
purchase the overdelivered quantity of gas at the cash-out
prices (in the case of tiered cash-out prices the cash-out
price associated with the level of CUSA's net overdeliveries in
each tier) under Transporter's FERC Gas Tariff if CUSA was the
shipper and NGC was the transporter, the First of the Month
Commodity Price of the overdelivered quantity of Gas shall be
calculated using the lesser of the Published Index Price or the
cash-out price.
3.3.3 Imbalance Trading. In the event of net underdeliveries or
overdeliveries by CUSA in any Month and notwithstanding the
absence of an actual net underdelivery or overdelivery assessed
by Transporter, NGC will exercise best efforts to mitigate the
adverse consequences of the net underdeliveries or
overdeliveries through imbalance trading, or the equivalent,
opportunities set forth in the FERC Gas Tariff of the
applicable Transporter. NGC and CUSA acknowledge that net
underdeliveries or overdeliveries by CUSA calculated in
accordance with this Agreement may or may not result in a
corresponding actual net underdelivery or overdelivery assessed
by Transporter pursuant to its FERC Gas Tariff.
3.4 Operational Flow Orders. CUSA and NGC recognize that Transporter may
be authorized to issue Operational Flow Orders ("OFOs"), or the
equivalent, under the General Terms and Conditions of Transporter's
FERC Gas Tariff, or any successor provision. CUSA and NGC also
recognize that Transporter may issue an OFO that obligates CUSA or NGC
to take action that may be contrary to the terms of this Agreement,
including, without limitation, the delivery and taking of gas in
quantities contrary to those set forth in Availability Reports and
prior nominations. CUSA and NGC agree to use their best efforts to
prevent the issuance of such an OFO. In the event an OFO is issued,
CUSA and NGC
-12-
agree that compliance with any duly authorized OFO will not constitute
a violation of this Agreement, provided that: (i) the Party receiving
an OFO notify the other Party as soon as possible, and (ii) the
Parties use their best efforts to minimize the operational and
economic consequences of compliance with the OFO by all means at their
disposal. In the event an OFO can be construed as calling for the
shutting-in of CUSA production, the Parties will cooperate to take
steps alternative to a shut-in to the extent such alternative steps
may be taken without causing a different NGC firm supplier to bear a
disproportionate share of adverse consequences flowing from the OFO.
Nothing in this Section 3.4 shall be construed to require CUSA to bear
adverse economic consequences under an OFO issued as a result of
overdeliveries by a third party supplier of gas to NGC or deficient
takes by an NGC market, and not as a result of any act or omission by
CUSA.
3.5 Operational Balancing Agreements. The Parties agree to use their best
efforts to maintain an operational balancing agreement, or the
equivalent ("OBA"), at each point of delivery into a transporting
pipeline or at such other points the Parties deem advisable. In
respect to any point at which an OBA is not in effect, upon CUSA's
request, NGC will assume the responsibility for negotiating and
implementing an OBA on terms and conditions acceptable to CUSA and
NGC.
IV. COMMODITY PRICE
4.1 First of the Month Commodity Price. The commodity price paid by NGC
to CUSA for each MMBtu of Committed Gas delivered to NGC shall be
based on prevailing index prices reported in commercial publications,
will change each Month, and will vary by Source of Supply and Delivery
Point. The "First of the Month Commodity Price" of Committed Gas
produced from a given Source of Supply shall be the index price
reported in the first issue of the designated commercial publication
published in the Month of delivery in the designated table, heading
and entry in that table ("Published Index Price"), plus or minus
adjustments applicable to that Source of Supply, including, without
limitation, deduction of gathering and transportation charges
(collectively "Index Price Adjustments"), and the premium, if any (the
"Premium"). Prior to delivery of Committed Gas under this Agreement,
CUSA and NGC shall agree on (i) the Published Index Price that will
form the basis of the First of the Month Commodity Price of the
Committed Gas delivered to the applicable Delivery Point; (ii) the
Index Price Adjustments, if any, to the published index price
necessary to arrive at the First of the Month Commodity Price; and
(iii) the
-13-
Premium, if any. The substitution of a new Published Index Price (or a
change in the table, heading and entry) or a modification of the Index
Price Adjustment also requires the agreement of CUSA and NGC. Although
the Parties will strive to reduce agreements substituting a new
Published Index Price or modifying an Index Price Adjustment to
writing, the Parties recognize that market conditions may require
prompt action. Consequently, oral agreements substituting a new
Published Index Price or modifying an Index Price Adjustment will be
effective until reduced to writing. The Parties agree to exercise best
efforts to reduce such oral agreements to writing within thirty Days
of reaching agreement. The First of the Month Commodity Price shall be
calculated each Month during the term of this Agreement and shall
remain in effect during the entire Month unless the Parties agree to
change the First of the Month Commodity Price during the course of the
Month.
4.2 Description of Sources of Supply. The Sources of Supply, Delivery
Points, Published Index Price, and Index Price Adjustments effective
as of the Effective Date are set forth in Exhibit A to this Agreement.
The Parties expect that Exhibit A will be agreed upon and made a part
of this Agreement on or around the Effective Date and the absence of
Exhibit A at the time this Agreement is executed by the Parties and
thereafter shall not affect the enforceability of this Agreement. New
Sources of Supply or Delivery Point(s), and the associated Published
Index Price and Index Price Adjustments that CUSA and NGC have agreed
upon shall be set forth in a notice prepared by NGC and furnished to
CUSA. The Parties may from time to time, but are not required to,
amend Exhibit A to reflect the information contained in such notice,
and the failure to so amend Exhibit A shall not affect CUSA's
obligation to deliver, and NGC's obligation to purchase, Committed
Gas.
4.1 Split Connect Committed Gas. In the event Committed Gas produced
from a Source of Supply is capable of being delivered into more than
one pipeline system ("split connect Committed Gas"), CUSA shall select
the Published Index Price and Index Price Adjustments applicable to
such split connect Committed Gas. Except as provided below in this
Section, and absent agreement of the Parties to the contrary, the
selection of a Published Index Price and Index Price Adjustments
applicable to a given source of split connect Committed Gas will
remain in effect for a period of no less than five full Months or
seven full Months, as the case may be as set below. CUSA will make its
selection for a succeeding period no later than thirty Days prior to
the first Day of the new period. The five Month period will run from
November 1 through March 31 and the seven Month period will run from
April 1 through October 31. The period in effect as of the Effective
Date will be less than seven full Months and will run through October
31, 1996. Notwithstanding the foregoing, certain Sources of Supply
producing split connect Committed Gas will not be subject to the
selection described above in this Section 4.3. The Published
-14-
Confidential Treatment Requested.
The redacted material has been
separately filed with the Commission.
Index Price(s) and Index Adjustments applicable to such Sources of
Supply have been selected by CUSA and NGC and shall remain in place
for the period designated by the Parties and shall not be changed
during the designated period absent the consent of CUSA and NGC. Such
Sources of Supply will be designed in Exhibit A-1 as "Fixed Selection
Split Connect."
4.4 Split Connect Committed Gas Price. Except as to (i) Fixed Selection
Split Connect Sources of Supply set forth in Exhibit A to this
Agreement, (ii) as provided in Section 4.5 below, and (iii) split
connect Committed Gas subject to a Locked Price in accordance with
Section 4.10 below, in respect to each Source of Supply producing
split connect Committed Gas, the First of the Month Commodity Price
paid by NGC to CUSA for each MMBtu of split connect Committed Gas
delivered by CUSA to NGC during a given Month will be adjusted in the
* following instance. REDACTED In the event the Highest Commodity
* Price exceeds the Selected Commodity Price by more than REDACTED per
MMBtu, the First of the Month Commodity Price shall be increased by an
* amount equal to REDACTED of such excess above the Selected Commodity
Price. In the event the Highest Commodity Price exceeds the Selected
* Commodity Price by REDACTED or less, the First of the Month Commodity
Price shall not be increased.
4.4.1 Effect of Capacity Constraints. Notwithstanding Section 4.4
above, the quantity of split connect Committed Gas subject to
the First of the Month Commodity Price adjustment during any
Month will take into account capacity constraints, which will
be defined by NGC's ability to deliver the split connect
Committed Gas into the pipeline system associated with the
Highest Commodity Price. If NGC is unable to nominate, or would
have been unable to nominate had it attempted to nominate,
* REDACTED of the split connect Committed Gas designated in
CUSA's Availability Report for delivery on the first Day of the
Month into the pipeline system associated with the Highest
Commodity Price, the quantity of split connect Committed Gas
subject to the First of the Month Commodity Price adjustment
* will be calculated by REDACTED. NGC's ability to nominate
REDACTED of the split connect Committed Gas will be determined
as of the applicable pipeline's confirmation of first Day of
the Month quantities of gas.
4.4.2 Measurement of Capacity Constraints. In all instances covered
by Section 4.4 above, NGC's ability to nominate Committed
Gas for delivery
-15-
Confidential Treatment Requested.
The redacted material has been
separately filed with the Commission.
into a pipeline system associated with the Highest Commodity
Price shall be evaluated by reference to instances where CUSA
and NGC have agreed that capacity constraints exist, pipeline
announcements of constraints or curtailments, however
characterized and communicated, and by NGC's efforts to
nominate Committed Gas for delivery into the applicable
pipeline. If NGC exercises reasonable efforts to nominate gas
on the pipeline associated with the Highest Commodity Price,
* and is unable to nominate REDACTED of the split connect
Committed Gas due to a lack of available capacity, a capacity
constraint will be deemed to exist to the extent of NGC's
inability. NGC shall exercise reasonable efforts to create and
retain a written record, such as notes of telephone
conversations, of NGC's efforts to nominate Committed Gas for
delivery into a pipeline system associated with the Highest
Commodity Price, provided, however, that NGC's failure to
create and retain such a written record shall not preclude NGC
from claiming the existence of a capacity constraint.
4.5 Firm Market Split Connect Committed Gas. Notwithstanding Section 4.4,
in the Months of December, January and February during the period
beginning with December 1996 and continuing through February 1998, the
First of the Month Commodity Price of split connect Committed Gas
delivered to firm market customers under certain natural gas purchase
and sale agreements, however characterized, calling for deliveries at
primary receipt points ( "Firm Market Split Connect Committed Gas"),
which firm natural gas purchase and sale agreements, corresponding
primary receipt points and affected quantities of gas are described in
Exhibit D to this Agreement, shall not be adjusted in accordance with
* Section 4.4 above. REDACTED
4.6 Downstream Released Firm Transportation. In the event (i) NGC is the
replacement shipper under a firm transportation service agreement
released by CUSA to NGC and covering transportation upstream of the
point at which the applicable Published Index Price is determined;
(ii) such firm transportation service agreement expires or is subject
to termination by NGC or CUSA during the term of this Agreement; and
(iii) an alternate Published Index Price is available at a point
upstream of the point at which the then current Published Index Price
is determined, the following procedure shall apply. NGC shall enter
into negotiations with the Transporter for the purpose of obtaining
the rate applicable to the rollover, extension or renewal, as the case
may be, of the firm transportation service agreement. CUSA shall have
the option to approve the new rate, in which case the firm
transportation service agreement will be
-16-
extended or renewed and the Published Index Price shall remain the
same and the Adjustment attributable to the firm transportation
service agreement will equal the new rate, or not approve the new
rate, in which case the point at which the Published Index Price is
determined shall move upstream to the appropriate point. In the latter
case, NGC shall be entitled to enter into the new firm transportation
service agreement at a rate equal to or higher than the rate CUSA
elected not to approve. In the event CUSA elects not to approve the
new rate, the foregoing procedure shall not apply to subsequent
instances where a firm transportation service agreement expires or is
subject to termination.
4.7 Mid-Month Increases. In the event (i) CUSA increases the quantity of
Committed Gas delivered to NGC on any Day at a given Delivery Point to
a level in excess of one hundred five percent (105%) of the quantity
of Committed Gas designated for delivery by CUSA in the Availability
Report in effect at 8:00 a.m. on the second Business Day before the
date on which nominations for delivery on the first Day of the Month
of delivery are due ("First of the Month Committed Gas"); (ii)
notifies NGC of such increase no later than one hour prior to the
pipeline nomination deadline applicable to the Day on which the
increase will be implemented; and (iii) does not in its notice
specifically state that such increase is for the purpose of offsetting
underdeliveries incurred by CUSA at the applicable Delivery Point
earlier that month, the commodity price per MMBtu for the quantity in
excess of one hundred five percent (105%) of the First of the Month
Committed Gas ("Incremental Committed Gas") shall be determined as
follows. The "Incremental Gas Commodity Price" of Incremental
Committed Gas shall be determined on a Delivery Point by Delivery
Point basis, and therefore any increases in the quantity of Committed
Gas delivered to a given Delivery Point will not be netted against a
decrease at a different Delivery Point unless the Committed Gas
delivered at different Delivery Points is delivered into a single pool
such that an increase at one Delivery Point and a corresponding
decrease at the second Delivery Point can be netted to arrive at the
quantity of Committed Gas delivered into the pool on the applicable
Day, in which case deliveries at all such Delivery Points will be
netted for purposes of this Section 4.7. CUSA will give notice to NGC
of any increase in the delivery of Committed Gas in a revised
Availability Report as soon as commercially possible, but in no event
later than one hour prior to the nomination deadline of the pipeline
immediately downstream of the Delivery Point. The Incremental Gas
Commodity Price shall be based on the Gas Daily Index Price. The "Gas
Daily Index Price" shall be the "Daily Midpoint" price published in
the issue of Gas Daily reporting prices of Gas flowing on the Day on
---------
which Incremental Committed Gas is delivered to NGC under this
Agreement in the table titled "Daily Price Survey" under the heading
and entry applicable to the downstream pipeline and the Delivery Point
where CUSA delivers the Incremental Committed Gas. The Gas Daily Index
-17-
Price corresponding to each Published Index Price, including any
adjustment required to make the two prices comparable, is set forth in
Exhibit A to this Agreement. For purposes of determining which issue
of Gas Daily reports the range of prices applicable to the Day of
---------
delivery, the instructions published by Gas Daily in the paragraph
---------
appearing under the heading "Daily Price Survey" will be used. In the
event Gas Daily does not report prices applicable to a Day on which
---------
Incremental Committed Gas is delivered to NGC, then the issue of Gas
---
Daily reporting prices applicable to the closest subsequent Day shall
-----
be used. The same Index Price Adjustments and Premiums used to
calculate the First of the Month Commodity Price pursuant to Section
4.1 above shall be used to calculate the Incremental Gas Commodity
Price if the Gas Daily Index Price covers a geographical location
comparable to that covered by the Published Index Price. The
Incremental Gas Commodity Price will be based on the Gas Daily Index
Price applicable to the Day of delivery and will therefore vary Day-
by-Day. Notwithstanding the foregoing, in the event that the parties
agree that Gas Daily does not report prices applicable to any Delivery
---------
Point, the Parties shall select an alternate index price, which
alternate index price shall be treated as the Gas Daily Index Price
for all purposes under this Agreement. For purposes of calculating
the Incremental Gas Commodity Price of Incremental split connect
Committed Gas subject to commodity price adjustment in accordance with
Section 4.4 above, Incremental split connect Committed Gas will be
deemed to be delivered into the pipeline system associated with the
Highest Commodity Price. Capacity constraints, as defined and measured
in Sections 4.4.1 and 4.4.2 above shall be taken into account in
determining the quantity of Incremental split connect Committed Gas
that is deemed to be delivered into the pipeline system associated
with the Highest Index Price. For example, if only fifty percent
(50%) of the split connect Committed Gas designated in CUSA's
Availability Report for delivery on the first Day of the Month can be
nominated for delivery into the pipeline system associated with the
Highest Commodity Price, it shall be presumed that no Incremental
split connect Committed Gas can be delivered into the pipeline system
associated with the Highest Commodity Price and therefore the
Incremental Gas Commodity Price shall be based on the Selected
Commodity Price. In the event CUSA increases the quantity of Committed
Gas delivered to NGC on any Day (x) without prior notice; (y) with
notice given later than one hour before Transporter's nomination
deadline; or (z) notifies NGC that the increase is for the purpose of
offsetting underdeliveries incurred by CUSA at the applicable Delivery
Point earlier that Month, such Committed Gas shall not be treated as
Incremental Committed Gas, but shall be treated as an overdelivery of
Committed Gas for purposes of calculating imbalance charges in
accordance with Section 3.3 above.
4.8 Mid-Month Decreases. In the event (i) CUSA decreases the quantity of
-18-
Committed Gas delivered to NGC on any Day at a given Delivery Point to
a level below ninety-five percent (95%) of the quantity of Committed
Gas designated for delivery by CUSA in the Availability Report in
effect at 8:00 a.m. on the second Business Day before the date on
which nominations for delivery on the first Day of the Month of
delivery are due, including instances where CUSA is required to
decrease the quantity of Committed Gas in response to a Transporter's
instructions, ("First of the Month Committed Gas"); (ii) notifies NGC
of such decrease no later than one hour prior to the pipeline
nomination deadline applicable to the Day on which the decrease will
be implemented; (iii) does not in its notice specifically state that
such decrease is for the purpose of offsetting overdeliveries incurred
by CUSA at the applicable Delivery Point earlier that Month; (iv) the
applicable Gas Daily Index Price is higher than the corresponding
First of the Month Commodity Price (whether calculated using the
Published Index Price or the Locked Price), and (v) such reduction is
not the result of an event of force majeure or an OFO, CUSA shall pay
to NGC an amount calculated as follows (the "Deficiency Keep Whole
Payment"). If on the Day that CUSA's deliveries of Committed Gas fall
below ninety-five percent (95%) of First of the Month Committed Gas,
the Gas Daily Index Price, as defined in Section 4.7 above, applicable
to the Delivery Point (as adjusted by the Index Price Adjustments
applicable to the Delivery Point and the Premium) is higher than the
First of the Month Commodity Price calculated under Section 4.1 above,
the difference will be the "Deficiency Cost". The Deficiency Cost
shall be multiplied by a number equal to the difference between
ninety-five percent (95%) of the first of the month nominated quantity
and the quantity of Committed Gas actually delivered by CUSA on that
Day, and the product shall be the Deficiency Keep Whole Payment.
Notwithstanding the foregoing, in the event any portion of the
Committed Gas that is not delivered by CUSA is subject to a Locked
Price in accordance with Section 4.10 below, the Deficiency Cost and
the Deficiency Keep Whole Payment attributable to the quantities
subject to the Locked Price shall be determined by subtracting the
higher of (a) the First of the Month Commodity Price calculated using
the Locked Price, or (b) the First of Month Commodity Price calculated
using the Published Index Price that would have been used in the
absence of the Locked Price, from the Gas Daily Index Price. No
Deficiency Keep Whole Payment shall be payable in the event the Gas
Daily Index Price is lower than the First of the Month Commodity
Price. The Deficiency Keep Whole Payment shall be determined on a
Delivery Point-by-Delivery Point basis, and therefore any decrease in
the quantity of Committed Gas delivered to a given Delivery Point will
not be netted against a increase at a different Delivery Point unless
the Committed Gas delivered at different Delivery Points is delivered
into a single pool such that an increase at one Delivery Point and a
corresponding decrease at the second Delivery Point can be netted to
arrive at the quantity of Committed Gas delivered into the pool on the
applicable Day, in which case deliveries at all
-19-
such Delivery Points will be netted for purposes of this Section 4.8.
A Deficiency Keep Whole Payment shall be calculated in respect to each
Day that CUSA's deliveries fall below ninety-five percent (95%) of the
quantity of Committed Gas nominated for delivery on the first Day of
the Month of delivery and shall be based on the Gas Daily Index Price
applicable to that Day. In the event Gas Daily does not report prices
---------
applicable to a Day on which deliveries of Committed Gas are reduced,
then the issue of Gas Daily reporting prices applicable to the closest
---------
subsequent Day shall be used. For purposes of calculating the total
amount of Deficiency Keep Whole Payments due in any Month, a decrease
in the quantity of Committed Gas delivered by CUSA on any given Day
shall not be netted against an increase in the quantity of Committed
Gas delivered by CUSA on a different Day. Deficiency Keep Whole
Payments shall be paid in accordance with Article VII below. For
purposes of calculating the Deficiency Cost, if any, associated with a
decrease in the delivery of split connect Committed Gas subject to
commodity price adjustment in accordance with Section 4.4 above, the
decrease in delivery of split connect Committed Gas will be allocated
to the pipeline system associated with the Highest Index Price.
Capacity Constraints, as defined and measured in Sections 4.4.1 and
4.4.2 above, shall be taken into account in determining the allocation
of a decrease in the delivery of split connect Committed Gas to the
pipeline system associated with the Highest Commodity Price. For
example, if only fifty percent (50%) of the split connect Committed
Gas designated in CUSA's Availability Report for delivery on the first
Day of the Month can be nominated for delivery into the pipeline
system associated with the Highest Commodity Price, then fifty percent
(50%) of a decrease in the delivery of split connect Committed Gas
will be allocated to that pipeline system for purposes of calculating
the Deficiency Cost. In the event CUSA decreases the quantity of
Committed Gas delivered to NGC on any Day (x) without prior notice;
(y) with notice given later than one hour before Transporter's
nomination deadline; or (z) notifies NGC that the decrease is for the
purpose of offsetting overdeliveries incurred by CUSA at the
applicable Delivery Point earlier that Month, such decrease shall not
be treated as a mid-month decrease for purposes of this Section 4.8,
but shall be treated as an underdelivery of Committed Gas for purposes
of calculating imbalance charges in accordance with Section 3.3 above.
Notwithstanding the foregoing, no Deficiency Keep Whole Payments under
this Agreement shall be payable in respect to decreases in deliveries
of Committed Gas to Delivery Points subject to the "Stranded Capacity
Valuation Adjustment" set forth in Section 3 of that certain
"Transportation Assignment and Valuation Agreement" effective
September 1, 1996, executed by CUSA and NGC and decreases in the
delivery of Committed Gas at those Delivery Points shall be governed
by the terms of that agreement.
4.9 Commodity Price of Curtailed Sources of Supply. Notwithstanding
anything
-20-
in this Article IV to the contrary, in the event CUSA exercises its
right under Section 2.3 above to curtail production of Committed Gas
from a Source of Supply as a result of any mechanical, engineering,
legal, title or other field or well condition, and the period of
curtailment set forth in CUSA's Availability Report lasts less than
the entire Month, the Commodity Price of the Committed Gas subject to
CUSA's notice of curtailment that is produced and delivered by CUSA
shall be the Incremental Gas Commodity Price, as determined under
Section 4.7 above. To the extent less than one hundred percent of
Committed Gas produced from a given Source of Supply is subject to
CUSA's notice of curtailment, the Committed Gas not affected by CUSA's
notice of curtailment shall be priced at the First of the Month
Commodity Price as determined under Section 4.1 above, or at the
Incremental Gas Commodity Price if the Incremental Gas Commodity Price
is applicable in accordance with Section 4.7.
4.10 Locked Price Option. For purposes of calculating the First of the
Month Commodity Price of Committed Gas produced from a given Source of
Supply, and in lieu of a Published Index Price designated in Exhibit A
to this Agreement, CUSA may request that a fixed price (the "Locked
Price") be substituted for the Published Index Price for a period as
short as one Month or as long as twelve Months. In the event a Locked
Price is substituted for the Published Index Price, the First of the
Month Commodity Price of the Committed Gas subject to the Locked Price
shall be calculated as set forth in Section 4.1 above except that the
Locked Price shall be substituted for the Published Index Price. The
Index Price Adjustments and Premiums used to calculate the First of
the Month Commodity Price of Committed Gas shall not be affected by
the substitution of a Locked Price. The Parties acknowledge that a
Locked Price will be based on New York Mercantile Exchange (or other
exchange selected by NGC) posting for the natural gas futures contract
applicable to the Month(s) selected by CUSA and prevailing at the time
of CUSA's request for a Locked Price plus a basis differential
adjustment required to equate the posted price with an imputed price
at the applicable Delivery Point.
4.10.1 Request for a Locked Price. CUSA may request a quote of a
Locked Price by telephone on any Business Day, between the
hours of 8:30 a.m. and 2:00 p.m., local Houston, Texas time, up
to and including the seventh Business Day prior to the
beginning of a Month to which the Locked Price shall apply.
CUSA's request shall identify the Source(s) of Supply subject
to the request for a Locked Price, the Month(s) for which CUSA
requests a Locked Price and the quantity of Committed Gas
delivered from the applicable Source of Supply that will be
subject to the Locked Price. CUSA and NGC acknowledge and agree
that all telephone conversations between the Parties relating
to a Locked Price
-21-
may be recorded by NGC or CUSA, or both, for
purposes of establishing the terms and conditions associated
with a Locked Price. CUSA and NGC also agree that the taped
conversation may be used to establish the terms and conditions
associated with a Locked Price in the event the Parties are
unable to agree on such terms and conditions subsequent to the
conversation in question.
4.10.2 Procedures. As soon as possible after CUSA's telephonic
request, but in any event within twenty-four hours (excluding
weekends and holidays), NGC shall determine if it is able to
offer a Locked Price and, if it is able, the per MMBtu Locked
Price and shall notify CUSA of such price. NGC's notice shall
be addressed to the person(s) identified in Section XIII below,
and shall separately state the basis differential component of
the Locked Price. If CUSA accepts the Locked Price, including
the basis differential, then NGC shall forward to CUSA a "Price
Lock Confirmation", similar to the form attached hereto as
Exhibit E, specifying the terms to which the Parties have
agreed. Such Price Lock Confirmation shall be forwarded to CUSA
as soon as possible following CUSA's acceptance of the Locked
Price. The terms set forth in the Price Lock Confirmation shall
be binding upon the Parties unless CUSA notifies NGC in writing
that CUSA disputes one or more of the terms set forth in said
Price Lock Confirmation within forty-eight hours, exclusive of
weekends and CUSA holidays, of CUSA's receipt of the Price Lock
Confirmation. Any terms which remain undisputed after
expiration of said period shall be binding on the Parties, and
the Parties shall work together in good faith to resolve any
disputes as expeditiously as possible.
4.10.3 Locked Quantities. CUSA may request that all, or any portion
of, the Committed Gas available for delivery from a Source of
Supply during the Month(s) designated by CUSA be subject to a
Locked Price, provided that CUSA's request shall designate a
specific quantity of Committed Gas. NGC shall be entitled to
decline to offer a Locked Price at its sole discretion. In the
event a Locked Price has been established for a portion of the
Committed Gas available for delivery from a Source of Supply
for a given period, CUSA shall be entitled to make one or more
additional requests for a Locked Price on all or any portion of
the remaining Committed Gas available for delivery from that
Source of Supply during the designated period.
4.10.4 Irrevocability. Unless CUSA and NGC agree otherwise, a Locked
Price shall remain effective for the entire period designated
in the Price Lock Confirmation and shall not be increased or
decreased. In the event
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the Locked Price applies to split connect Committed Gas, the
periodic selection of the Published Index Price and Index Price
Adjustments forming the basis of the First of the Month
Commodity Price in accordance with Section 4.3 shall not apply
in respect to such split connect Committed Gas until it is no
longer subject to the Locked Price.
4.10.5 Availability of Committed Gas. CUSA shall make available and
deliver one hundred percent of Committed Gas subject to a
Locked Price. CUSA shall not be entitled to curtail production
and delivery of Committed Gas subject to a Locked Price
pursuant to Section 2.3 above. Curtailment of Committed Gas
subject to a Locked Price is permitted under this Agreement
only in the event of an event of force majeure declared in
accordance with Article IX below. If CUSA and NGC establish a
Locked Price for less than one hundred percent (100%) of the
Committed Gas available for delivery from a Source of Supply,
or establish more than one Locked Price for Committed Gas
available for delivery from a Source of Supply, the first
Committed Gas delivered on each Day and during the applicable
Month shall be deemed to be subject to the first Locked Price
established, followed by quantities of Committed Gas subject to
additional Locked Prices in the order established, followed by
quantities of Committed Gas not subject to a Locked Price.
4.10.6 Failure to Deliver Committed Gas. If during any Month CUSA
fails to deliver quantities of Committed Gas subject to a
Locked Price, and such failure is not the result of an event of
force majeure or NGC's failure to perform its obligations under
this Agreement, CUSA shall pay to NGC an amount calculated as
follows. The quantity of Committed Gas subject to a Locked
Price made available and delivered by CUSA during that Month
shall be subtracted from the quantity of Committed Gas subject
to a Locked Price and the result shall be multiplied by the
difference between the Locked Price and the settlement price of
the natural gas futures contract on NYMEX (or other applicable
exchange) for the Month in which CUSA fails to deliver
Committed Gas subject to a Locked Price plus or minus the basis
differential set forth in the Price Lock Confirmation. In
addition, in the event NGC has entered into a financial
instrument, including, without limitation, an over-the-counter
basis swap, for purposes of hedging the risk associated with
the basis differential component of the Locked Price, CUSA
shall reimburse NGC one hundred percent (100%) of the actual
losses incurred by NGC under such financial instrument to the
extent such losses result from CUSA's failure to deliver
Committed Gas subject to a Locked Price. NGC shall exercise its
best efforts to minimize such losses (including for example
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the early termination of financial instruments if NGC
reasonably believes at the time of termination that early
termination may minimize such losses). CUSA's obligation to
deliver Committed Gas subject to a Locked Price is a monthly
obligation and not a daily obligation and therefore for
purposes of this Section 4.10.6 CUSA shall have complied with
its obligation to deliver quantities of Committed Gas subject
to a Locked Price if it delivers such quantities during the
course of the Month. However, for purposes of calculation of
Deficiency Keep Whole Payments in accordance with Section 4.8
above, decreases in the delivery of Committed Gas subject to a
Locked Price on any Day shall be taken into account.
4.10.7 Cessation of Futures Trading. If natural gas futures
contracts cease to be traded on the New York Mercantile
Exchange or on any other mercantile exchange acceptable to NGC
in its sole discretion, then after such cessation NGC shall be
relieved of any and all obligation to establish Locked Prices
hereunder.
4.11 NGC's Failure to Purchase Committed Gas. If NGC fails in any Month
to purchase at least ninety five percent (95%) of the quantity of
Committed Gas designated for delivery on CUSA's Availability Report
(as adjusted during the Month) from each Source of Supply ("Availed
Quantity"), and to the extent that such failure is not the result of
force majeure, an OFO, or CUSA's failure to make Committed Gas
available, NGC shall pay to CUSA, as liquidated damages, an amount
calculated as follows:
(a) If NGC has purchased at least ninety percent (90%), but less than
ninety five percent (95%) of the Availed Quantity for the Source
of Supply, the liquidated damages shall be equal to ten percent
(10%) of the First of the Month Commodity Price applicable to
that Source of Supply, multiplied by the difference between
ninety five percent (95%) of the Availed Quantity and the lesser
quantity of Committed Gas actually purchased by NGC in such Month
from the Source of Supply. For purposes of this Section 4.11, in
instances where Committed Gas from different Sources of Supply
are delivered into a single pool, the calculation of the
percentage of Committed Gas purchased by NGC shall be based on
NGC's purchases from the entire pool and the Availed Quantity
applicable to the entire pool.
(b) If NGC has purchased less than ninety percent (90%) of the
Availed Quantity for the Source of Supply, the liquidated Damages
shall be equal to the sum of (i) ten percent (10%) of the First
of the Month Commodity Price applicable to that Source of Supply,
multiplied by five percent
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(5%) of the Availed Quantity; and (ii) twenty percent (20%) of
the First of the Month Commodity Price applicable to that Source
of Supply, multiplied by the difference between ninety percent
(90%) of the Availed Quantity and the lesser quantity of
Committed Gas actually purchased by NGC.
V. TITLE AND RESPONSIBILITY
5.1 CUSA Responsibility. Title to Committed Gas delivered by CUSA to NGC
shall pass to NGC at the Delivery Points. The price for Committed Gas
delivered under this Agreement is inclusive of all production,
severance, ad valorem, or similar taxes levied on the production or
transportation of the Committed Gas prior to its delivery to or for
the account of NGC at the Delivery Point(s). All charges, royalties,
lease burdens, expenses, fees, taxes, damages, injuries, and other
costs incurred in or attributable to production and transfer,
transportation (except as otherwise agreed by the Parties), and
handling of Committed Gas delivered in accordance with this Agreement
prior to delivery to NGC at the Delivery Point(s) shall be the
exclusive responsibility of CUSA, as between the Parties. CUSA shall
indemnify, defend, and hold harmless NGC from all such charges,
royalties, expenses, fees, taxes, damages, injuries, and other costs.
In the event NGC is required by law to collect any such taxes, and
CUSA claims an exemption from the taxes, CUSA shall, upon NGC's
request, furnish NGC with a copy of CUSA's exemption certificate.
5.2 NGC Responsibility. All charges, expenses, fees, taxes, damages,
injuries, and other costs incurred in or attributable to the purchase
and transfer, transportation, and handling of the Committed Gas
delivered in accordance with this Agreement from and after delivery of
Committed Gas at the Delivery Point(s) shall be the exclusive
responsibility of NGC, as between the Parties. NGC shall indemnify,
defend, and hold harmless CUSA from all such charges, expenses, fees,
taxes, damages, injuries, and other costs. In the event CUSA is
required by law to collect any such taxes, and NGC claims an exemption
from the taxes, NGC shall, upon CUSA's request, furnish CUSA with a
copy of NGC's exemption certificate.
VI. QUALITY, MEASUREMENT AND TESTS
6.1 Quality Specifications. NGC agrees to purchase Committed Gas
delivered by CUSA to the Delivery Point(s) meeting the quality and
pressure specifications set forth in the filed tariff of the pipeline
immediately downstream of the Delivery Point's ("Transporter"). If
Committed Gas delivered by CUSA to the Delivery Point(s) is rejected
by Transporter for failure to meet its quality specifications, NGC
shall be relieved of the obligation to purchase such Committed Gas.
To the extent that Transporter accepts Committed Gas
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tendered by CUSA for NGC's account at the Delivery Point(s), CUSA
shall be deemed to have complied with the quality specifications of
this Agreement.
6.2 Volume and Heating Value. NGC and CUSA agree that the volume and
heating value of Committed Gas sold and delivered under this Agreement
will be measured at or near the Delivery Point(s) by Transporter,
using equipment owned or controlled by, and measuring procedures
employed by, Transporter. The measurements made by Transporter shall
be accepted by NGC and CUSA (subject to adjustment if prior
measurements are determined to be inaccurate or incomplete), provided,
however, the measuring equipment and procedures used must conform to
Transporter's filed tariffs and to generally recognized industry
standards.
6.3 Test Data and Charts. CUSA and NGC shall preserve all original test
data, charts and other similar records in a Party's possession for a
period of at least three years.
VII. ACCOUNTING, BILLING AND PAYMENT
7.1 Statements. On or before the twentieth Day of the Month following the
Month of delivery, NGC will furnish CUSA the following information
concerning the Month of delivery: the quantity of Committed Gas and
Incremental Committed Gas delivered under this Agreement at each
Delivery Point; First of the Month Commodity Prices; Incremental Gas
Commodity Prices; Deficiency Keep Whole Payments; Imbalance Charges;
and the total amounts payable by NGC and CUSA. If the actual total
volumes of Committed Gas delivered under this Agreement are not
available by the date of the statement, estimated volumes or prices
shall be used and adjustments shall be made on the following Month's
billing, or as soon as available. CUSA shall provide NGC copies of
pipeline allocation statements CUSA receives from applicable pipelines
as soon as such statements become available. NGC's statement shall
also show the total amount of any Deficiency Keep Whole Payments and
Imbalance Charges payable by CUSA to NGC, which amount shall be
deducted from the amount payable by NGC to CUSA for Committed Gas
delivered during the Month. The statement furnished by NGC to CUSA
shall be exchanged via EDI to the extent possible. NGC will also
furnish a separate statement to each CUSA profit center showing the
information applicable to that profit center alone. If the accuracy
of any statement or the sufficiency of any payment is questioned by
CUSA, CUSA shall provide written notice of its question. If it is
subsequently determined that NGC underpaid CUSA, NGC shall pay
interest on such amounts from the date of CUSA's notice computed at a
rate equal to the Base Rate in effect from time to time published by
the First National Bank of Chicago plus two percent.
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7.2 Payment. No later than the last Business Day of each calendar Month,
NGC shall pay CUSA, by wire transfer of funds into an account
designated by CUSA, all amounts due under this Agreement for Committed
Gas delivered during the previous Month.
7.3 Failure to Pay. In the event NGC fails to make timely payment of
amounts reflected on NGC's statement, NGC shall pay CUSA interest on
all amounts past due computed from the date the payment was due at the
rate set forth in Section 7.1 above. In addition, if NGC fails to pay
any amount due CUSA under this Agreement within five Business Days
after the due date, except for any amount which is disputed by NGC in
good faith, CUSA shall have the right upon written notice to NGC to
(i) suspend any further deliveries of Committed Gas until all
undisputed amounts due have been paid with interest at the rate
specified in Section 7.1, and (ii) provide notice to NGC that this
Agreement shall terminate if the payment default has not been cured
within five Days after the date such written notice is given. During
the period of any such suspension of deliveries, and until any payment
default is cured as provided above, CUSA shall have the right, but not
the obligation, to sell all or any portion of the Committed Gas to
third parties, and in such event NGC shall pay to CUSA as liquidated
damages an amount equal to the difference between a lower price
received by CUSA in the sale of such Committed Gas to third parties
and the commodity price CUSA would have received from NGC under this
Agreement multiplied by the quantity of Committed Gas sold by CUSA to
third parties.
7.4 Two Year Limit on Adjustments. No retroactive adjustments may be made
for any overcharge or undercharge after a period ending twenty-four
Months from the end of the calendar year in which the gas forming the
basis of the overcharge or undercharge was delivered or not delivered,
as the case may be. Any payment with respect to a retroactive
adjustment shall include an amount equal to interest on all amounts
past due from the date of the initial payment at the rate set forth in
Section 7.1 above, except in instances where neither Party knew or
could have known that the overcharge or undercharge occurred or
instances of reallocations of gas by a transporting pipeline, in which
cases interest shall run from the date of demand for payment.
7.5 Audit. Each Party shall have the right to audit the books and records
of the other Party at any time during reasonable business hours during
the term of this Agreement and for a period of two years after its
termination to the extent necessary to determine compliance by the
other Party with the terms of this Agreement, but such audit rights
shall be limited to auditing such books and records for the then
current and four preceding years. The audited Party shall make its
books and records available to the auditing Party. Notwithstanding
the foregoing, in the event a governmental body asserts a claim, or
conducts an
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audit, against a Party arising from the purchase or sale of Committed
Gas and that Party determines in its reasonable judgment that its
response to such claim requires or would benefit from an audit of
books and records of the other Party, such audit may be conducted
during the term of this Agreement and for a period ending on the tenth
anniversary of the event or payment forming the basis of the third
party claim. In order to accommodate such third party audits, CUSA and
NGC will maintain the appropriate books and records for a period not
less than ten years. Each Party shall also have access to the books
and records of the other Party for purposes of responding to claims,
or requests for audits, asserted by a non-governmental third party and
arising from the purchase or sale of Committed Gas.
7.6 Accounting Information. CUSA and NGC will exercise reasonable efforts
to provide each other with data required by their respective
accounting departments to close out books for each Month as soon as
possible. CUSA and NGC will exercise reasonable efforts to provide
such data no later than the fifth Business Day of the Month following
the Month being closed out.
7.7 Setoff. All payments will be made without setoff or counterclaim;
provided, however, that upon a Party's (the defaulting Party) failure
to make payment of undisputed amounts on the due date, the other Party
(the non-defaulting Party) may, at its option and in its discretion,
setoff against any amounts owed to the defaulting Party any amounts
owed by the defaulting Party under this Agreement or otherwise. The
obligations of the non-defaulting Party and the defaulting Party under
this Agreement in respect of such amounts shall be deemed satisfied
and discharged to the extent of any such setoff. The non-defaulting
Party will give the defaulting Party notice of any setoff made under
this Section 7.7 as soon as practicable after the setoff is made
provided that failure to give such notice shall not offset the
validity of the setoff.
7.8 Letter of Credit. NGC shall furnish to CUSA prior to the Effective
Date an executed irrevocable standby letter of credit issued by a bank
acceptable to CUSA in an amount calculated in accordance with Exhibit
F to this Agreement. The letter of credit shall be satisfactory in
form and substance to CUSA and the issuing bank or banks. Subsequent
to the Effective Date, NGC shall maintain, or cause to be maintained,
the letter(s) of credit in accordance with the requirements and
procedures set forth in Exhibit F. NGC's obligation to furnish the
executed standby letter of credit prior to the Effective Date shall be
a condition precedent to CUSA's obligations to perform under this
Agreement. NGC's failure to maintain, or cause to be maintained, the
letter(s) of credit in effect at any time during the term of this
Agreement in accordance with the requirements and procedures set forth
in Exhibit F shall be deemed to be a material breach of this
Agreement. In addition to any other rights and remedies
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CUSA may have under this Agreement, in the event NGC fails to
maintain, or cause to be maintained, the letter(s) of credit in effect
at any time during the term of this Agreement and such failure
continues for a period of more than five consecutive Days, CUSA shall
have the right upon written notice to NGC to suspend any further
deliveries of Committed Gas until NGC furnishes the letter(s) of
credit in accordance with the requirements and procedures set forth in
Exhibit F.
VIII. DISCLAIMER AND WARRANTY
8.1 Warranty. CUSA hereby warrants title to all gas sold by CUSA under
this Agreement and the right to sell the same free from adverse
claims of third parties, and except as provided in Section 8.2, CUSA
agrees to hold NGC harmless from such claims.
8.2 Disclaimer. EXCEPT AS PROVIDED IN SECTION 8.1, CUSA MAKES NO
EXPRESS OR IMPLIED WARRANTY TO NGC UNDER THE UNIFORM COMMERCIAL CODE
OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
IX. FORCE MAJEURE
9.1 Suspension of Obligations. If either CUSA or NGC is rendered unable,
by reason of an event of force majeure, to perform, wholly or in part,
any obligation or commitment set forth in this Agreement, except for
the payment of monies owed, then upon that Party's giving notice (the
initial notice may be oral notice followed by written notice) and full
particulars of the event of force majeure, then the obligations of
both parties under this Agreement shall be suspended, except for the
payment of amounts owed under this Agreement, to the extent and for
the period of the event.
9.2 Force Majeure Defined. The term "force majeure" means an event that
(i) was not within the control of the Party claiming its occurrence;
and (ii) could not have been prevented or avoided by such Party
through the exercise of due diligence. Events of force majeure
include, without limitation by enumeration, acts of God; lightning,
hurricanes or storms, hurricane or storm warnings which in CUSA's
judgment require and result in the precautionary shut-down or
evacuation of production facilities; earthquakes, epidemics, fires,
floods, landslides, washouts, freezing of xxxxx or lines of pipe used
to supply Committed Gas under this Agreement and other similar severe
natural calamities; acts of public enemy; wars; blockades;
insurrections; riots; civil
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disturbances and arrests; strikes, lockouts or other industrial
disturbances; explosions, breakage, accidents to xxxxx, equipment,
facilities or lines of pipe used to enable CUSA to deliver or NGC to
receive Committed Gas under this Agreement; events of force majeure
declared by transporting pipelines; imposition by a regulatory agent,
court or other governmental authority having jurisdiction of binding
laws, conditions, limitations, orders, rules or regulations that
prevent or prohibit either Party from performing, provided such
governmental action has been resisted in good faith by all reasonable
legal means; or any other cause of a similar type. The Parties
recognize that NGC is not required by this Agreement to utilize firm
transportation to receive Committed Gas from CUSA at each Delivery
Point, but it is the intent of both Parties that transportation or
sales arrangements downstream of the Delivery Points be made by NGC in
such a manner that the possibility of a curtailment of Committed Gas
due to curtailment of interruptible transportation or recall of
acquired transportation be minimized. In addition to the foregoing
events of force majeure, the loss, interruption or curtailment
(collectively "curtailment") of transportation downstream of a
Delivery Point shall constitute an event of force majeure provided
that NGC exercises reasonable efforts to arrange alternative
transportation, or the resumption of the curtailed transportation
arrangements, as soon as possible following its discovery of the
curtailment of downstream transportation. In that event, NGC will
consult with CUSA and endeavor to agree upon a plan of action to avoid
further curtailment of Committed Gas from that Delivery Point.
X. TERM
10.1 Term. This Agreement shall remain in full force and effect for an
initial term of ten years from the Effective Date, and for additional
five year terms thereafter unless terminated by either Party by giving
written notice of termination no later than sixty Days prior to the
last Day in the then-effective term.
10.2 Early Termination. Notwithstanding Section 10.1, either Party may
terminate this Agreement as follows:
(a) In the event of a material breach of this Agreement by either
Party, the non-breaching Party may terminate this Agreement upon
sixty days' prior written notice to the breaching Party (which
notice shall specify in detail the nature of the breach and the
steps necessary to cure the breach), unless the breaching Party,
within thirty days after receipt of the non-breaching Party's
notice, cures the breach and agrees in writing to indemnify the
non-breaching Party against all direct damages arising from the
breach (such damages to be determined by agreement of the
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Parties, or in the event the Parties are unable to agree, by
arbitration in accordance with Section XII below). For purposes
of this Section, a material breach shall be any failure to
perform under this Agreement which is not excused by force
majeure and which exposes the non-breaching Party to economic
loss in an amount which the breaching Party cannot reasonably be
expected to pay in money damages. Notwithstanding the foregoing,
NGC's unexcused failure to receive and purchase CUSA's available
Committed Gas produced from a specific Source of Supply, which
failure results in the shut-in of a CUSA-operated well(s) for a
period of five or more consecutive days, or which failure results
in the shut-in of one or more CUSA-operated well(s) for a
cumulative period of at least twenty days (which need not be
consecutive) in any calendar year shall be conclusively deemed to
be a material breach of this Agreement. For purposes of the
preceding sentence a shut-in of a well shall be deemed to begin
on the first Business Day following NGC's receipt of CUSA's
notice of a shut-in, which notice shall be effective if delivered
orally, followed by written confirmation, and shall be deemed to
end on the earlier of (i) the resumption of production or (ii)
5:00 p.m. on the Day CUSA receives NGC's notice of the resumption
of purchases if such notice is received prior to 1:00 p.m. or
8:00 a.m. on the next Day if CUSA receives NGC's notice after
1:00 p.m. For purposes of quantifying NGC's right to cure in the
event of a material breach due to a shut-in, CUSA's direct
damages on each Day of the shut-in are deemed to be an amount
calculated by multiplying the (x) the quantity of Committed Gas
shut-in times (y) the First of the Month Commodity Price
applicable to such Committed Gas. In the event NGC pays such
amount to CUSA, the quantity of Committed Gas shut-in and forming
the basis of such amount shall be deemed to be purchased for
purposes of Section 4.11 above, and in instances where NGC pays
amounts to CUSA pursuant to Section 4.11 prior to the payment of
amounts pursuant to this Section 10.2, the payment pursuant to
Section 4.11 shall be reduced to the extent required by this
Section 10.2. If one Party alleges a material breach under this
Section and the other Party disputes that allegation, the matter
shall be submitted to arbitration in accordance with Section XII
below and the non-breaching Party's termination notice shall be
suspended pending the decision of the arbitrators. If the
arbitrators conclude that a material breach has occurred, the
termination notice shall become effective thirty days after
issuance of the arbitrators' written decision.
(b) A Party may terminate this Agreement in the event the other Party
(the Affected Party) is: (i) dissolved (other than pursuant to a
consolidation,
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acquisition, amalgamation, merger, or other reorganization not
arising from bankruptcy or insolvency proceedings); or (ii)
institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under
any bankruptcy or insolvency law or similar law affecting
creditors' rights, or a petition is presented for its winding up
a liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding or
petition results in a judgment of insolvency or bankruptcy or the
entry of an order for its winding up or liquidation.
XI. RENEGOTIATION, PRICE REDETERMINATION AND ARBITRATION
11.1 Renegotiation and Price Redetermination. During the term of this
Agreement, CUSA and NGC will have the right to request that the terms
and conditions of this Agreement be renegotiated and that the various
pricing mechanisms be redetermined. This Article XI establishes the
procedures applicable to such renegotiations and redeterminations.
11.2 Limits On Arbitration. Nothing in this Article XI shall be construed
to limit a Party's ability to present issues for discussion under the
Alliance Agreement. However, this Article XI shall limit CUSA and
NGC's rights to institute the renegotiation or price redetermination
process and invoke arbitration under this Agreement or pursuant to
the Alliance Agreement and the Parties agree that no other provision
of this Agreement or of the Alliance Agreement shall be construed to
supersede or modify the limitations on arbitration contained in this
Article XI.
11.3 Price Redetermination. It is the intent of CUSA and NGC that the
First of the Month Commodity Price and the Incremental Gas Commodity
Price of Committed Gas delivered at a given Delivery Point under this
Agreement reflect the prevailing fair market value of spot gas at
that Delivery Point. CUSA and NGC agree that the Published Index
Prices designated in Exhibit A and corresponding Gas Daily Index
Prices represent an accurate measure of the fair market value of spot
gas because those index prices reflect surveys of prices paid in
actual transactions between willing buyers and sellers under no
compulsion to buy or sell. In the event CUSA or NGC believes in good
faith that the Published Index Prices or the corresponding Gas Daily
Index Prices, or both, no longer represent an accurate measure of the
fair market value of spot gas, that Party may seek a price
redetermination in accordance with the following procedure.
11.3.1 Scope of Price Redetermination. Price redeterminations
pursuant to this Section 11.3 are limited to replacing one or
more of the Published
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Index Prices or Gas Daily Index Prices with a different
measure of the fair market value of spot gas that is not based
on prices reported in a commercial publication. This Section
11.3 does not apply in instances where: (i) CUSA desires to
select a different index price for purposes of calculating the
First of the Month Commodity Price for split connect Committed
Gas during the six month period designated in accordance with
Section 4.3 above; (ii) CUSA or NGC desires to replace a
Published Index Price or a Gas Daily Index Price with a
different Published Index Price or Gas Daily Index Price; or
(iii) where CUSA or NGC desires to modify or amend the Index
Price Adjustments necessary to arrive at a First of the Month
Commodity Price or Incremental Gas Commodity Price.
11.3.2 Price Redetermination Procedure. In the event CUSA or NGC
seeks a price redetermination pursuant to this Section 11.3,
such Party (the "initiating Party") may notify the other Party
(the "non-initiating Party") in writing, specifying the
Published Index Price(s) or Gas Daily Index Price(s) at issue
and describing (i) the proposed replacement measure of the
fair market value of spot gas at the location; and (ii) the
proposed effective date of the replacement measure of fair
market value. If the non-initiating Party agrees with the
replacement measure of the fair market value of spot gas and
its effective date, Exhibit A shall be amended to reflect the
replacement and its effective date. If the non-initiating
Party does not agree with the proposed replacement measure of
the fair market value of spot gas or its effective date, then
within thirty days after delivery of the initiating Party's
initial notice each Party shall designate a representative
with authority to negotiate and agree upon a replacement
measure of the fair market value of spot gas. The
representatives shall then meet and attempt in good faith to
reach agreement. If the representatives have not reached
agreement within sixty days after delivery of the initiating
Party's initial notice, then the initiating Party may elect to
have the issue resolved by binding arbitration in accordance
with Section 11.3.3 below. If a replacement measure of the
fair market value of spot gas is established, either by
agreement of the Parties or through arbitration, such
replacement measure of the fair market value of spot gas shall
be reflected in an appropriate amendment to Exhibit "A". A
Party receiving a price redetermination request under this
Section 11.3 may respond by requesting a replacement measure
of the fair market value of spot gas at any other applicable
location(s) in accordance with the procedure set forth in this
Section 11.3.2. To the extent feasible, both the initial
request and any responsive request shall be addressed in the
same negotiating sessions and/or arbitration so as to minimize
the
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administrative cost of resolving all pricing issues.
Notwithstanding anything in this Section to the contrary, in
the event a replacement measure of the fair market value of
spot gas is determined by arbitration, the Party invoking the
arbitration (or Parties if both Parties invoked the
arbitration) shall not be entitled to invoke arbitration
pursuant to this Section 11.3.2 during a period of twelve full
Months following the date of the arbitration award.
11.3.3 Arbitration of Price Redetermination. If any price
redetermination is presented for arbitration under this
Section 11.3, the Parties shall follow the arbitration
procedure outlined in Sections 11.7 through 11.12 below,
except as follows: In any arbitration under this Section 11.3,
each Party shall submit to the arbitration panel such Party's
proposed measure of the fair market value of spot gas at the
applicable location. The arbitrators shall select from the two
proposals the one which they feel most closely reflects the
fair market value of spot gas at the applicable location as
evidenced by prices paid by willing buyers and sellers under
no compulsion to buy or sell and, in the case of the
replacement of a Published Index Price, pursuant to contracts
providing for a one month obligation to buy and sell spot gas.
Any Premium that may be payable under this Agreement shall not
be taken into consideration by the arbitrators in their
deliberations. The arbitrators must select the proposal of one
of the Parties and may not average the two proposals or
otherwise craft an alternative proposal. The arbitrators, in
the absence of unusual extenuating circumstances, shall be
required to render their decision in writing within ten
Business days after the conclusion of the arbitration
proceeding. The cost of any arbitration under this Section
11.3 shall be borne as follows:
(i) Each Party shall bear the costs of its own attorneys,
witnesses and representatives; and
(ii) The remaining costs of the arbitration, including the
fees of all arbitrators, the costs of securing a location
for the arbitration, and any similar costs, shall be
borne equally by the Parties.
11.3.4 Effective Date. The effective date of any replacement measure
of the fair market value of spot gas selected by arbitration
shall be the first day of the month following the month in
which the arbitrators' decision is rendered.
11.4 Substitution of Published Index Prices. At any time during the term
of this Agreement, in the event (i) CUSA or NGC believes in good faith
that a
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Published Index Price or Gas Daily Index Price does not reflect
the fair market value of spot gas at the applicable location; (ii)
also believes in good faith that a different index price in the same
commercial publication or in a different commercial publication does
reflect such fair market value; and (iii) the Parties have been unable
to reach agreement on an amendment to Exhibit A as contemplated in
Section 4.1 above, the Party requesting the substitution of a new
index price shall be entitled to present the issue to arbitration in
accordance with the procedure established in Section 11.3 above. In
the event a new Published Index Price at a specific location is
determined by arbitration, neither Party shall be entitled to invoke
arbitration for the purpose of selecting a new Published Index Price
at that location during a period of twelve full Months following the
date of the arbitration award. The same limitation shall apply if a
new Gas Daily Index Price at a given location is determined by
arbitration. This Section 11.4 does not apply to instances where CUSA
desires to change the Published Index Price selected in respect to
split connect Committed Gas pursuant to Section 4.3 above. In such
instances, if the Parties are unable to agree on a change, the
selected Published Index Price shall remain in place for the full six
Month period.
11.5 Unavailability of Published Index Prices. If at any time during the
term of this Agreement a Published Index Price or Gas Daily Price is
no longer published and in the event CUSA and NGC are unable to agree
on a replacement index price, either Party may submit the issue to
arbitration in accordance with the procedure established in Section
11.3 above, with the following modifications. There shall be no limit
on the number of times a Party may invoke arbitration. The effective
date of the replacement Published Index Price or Gas Daily Index Price
shall be the Day after the previous index price became unavailable and
the arbitrators shall make their award retroactive to such date.
During the pendency of the Parties' attempt to agree on a replacement
Published Index Price or Gas Daily Price and the subsequent
arbitration proceeding, the commodity price of the Committed Gas
affected by the unavailability of the index price shall be based on
the last available Published Index Price or Gas Daily Price. The
amounts paid by NGC to CUSA during such period shall be adjusted to
reflect the retroactive implementation of the replacement index price.
11.6 Dispute Resolution - Other Price Issues. In the event the Parties
are unable to agree on any factor required to calculate the commodity
price of Committed Gas that will be produced from a new source of
supply, or are unable to agree on the Index Price Adjustments
applicable to Committed Gas from an existing Source of Supply, the
issue shall be eligible for arbitration in accordance with Sections
11.9 through 11.12 below.
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11.7 Arbitration After the Fifth Anniversary. In addition to the
arbitration of price redetermination issues under Sections 11.4
through 11.6 above, following the fifth anniversary of this
Agreement, CUSA and NGC shall have the right to request a
renegotiation of any term or condition of this Agreement and to
invoke arbitration in accordance with Sections 11.9 through 11.12
below if the Parties are unable to reach agreement in respect to such
a request. The limitation contained in this Section 11.7 shall not
apply to disputes between CUSA and NGC relating to the construction
or interpretation of this Agreement or to the performance of the
Parties under this Agreement, which disputes may be presented to
arbitration at any time during the term of this Agreement in
accordance with Sections 11.9 through 11.12 below.
11.8 Renegotiation of the Premium. Neither CUSA nor NGC shall be entitled
to request a renegotiation of the Premium paid in accordance with
Article IV above and to invoke arbitration in the event the Parties
are unable to agree prior to the fifth anniversary of this Agreement.
11.9 All Disputes Arbitration. All unresolved disputes between the
Parties (i) arising under this Agreement and relating to the
construction and interpretation of this Agreement or the Parties'
performance under this Agreement; or (ii) arising from renegotiation
or price redetermination under this Article XI shall be submitted to
binding arbitration in accordance with this Article XI. Neither Party
shall have the right to litigate such disputes in state or federal
court. Arbitration shall be governed by the Federal Arbitration Act,
9 U.S.C. ' 1, et seq., and will not be governed by the arbitration
acts, statutes or rules of any other jurisdiction.
11.10 Procedure. In the event the Parties are unable to resolve a dispute
arising under this Agreement after exercising good faith efforts to
resolve the dispute, either Party may request arbitration by
submitting a written notice to the other. The notice shall name the
noticing Party's arbitrator and shall contain a statement of the
issue(s) presented for arbitration. Within fifteen (15) Days of
receipt of a notice of arbitration, the other Party shall name its
arbitrator by written notice and may designate any additional
issue(s) for arbitration. The two named arbitrators shall select the
third arbitrator within fifteen (15) Days after the date on which the
second arbitrator was named. Should the two arbitrators fail to agree
on the selection of the third arbitrator, either Party shall be
entitled to request the Senior Judge of the United States District
Court of the Southern District of Texas to select the third
arbitrator. All arbitrators shall be qualified by education or
experience within the natural gas industry to decide the issues
presented for arbitration. No arbitrator shall be: a current or
former director, officer or employee of either Party, or its
affiliates; an attorney (or member of a law firm) who has rendered
legal services to either Party, or its
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affiliates, within the preceding three years; or an owner of any of
the common stock of either Party, its affiliates or direct
competitors.
11.11 Arbitration Hearings. The three arbitrators shall commence the
arbitration hearing within twenty-five (25) Days following the
appointment of the third arbitrator. The proceeding shall be held at
a mutually acceptable site. If the Parties are unable to agree on a
site, the arbitrators shall select a site. The arbitrators shall have
the authority to establish rules and procedures governing the
arbitration hearing. Each Party shall have the opportunity to present
its evidence at the hearing. The arbitrators may call for the
submission of pre-hearing statements of position and legal authority,
but no post-hearing briefs shall be submitted. After the presentation
of the evidence has concluded, each Party shall submit to the
arbitration panel a final offer of its proposed resolution of the
dispute. In the event the dispute presented to the arbitration panel
involves (i) a price redetermination pursuant to Sections 11.3
through 11.6 above; (ii) a renegotiation of the Premium pursuant to
Section 11.8 above; or (iii) a claim by one or both Parties for an
award of damages, expenses or costs of any nature, a majority of the
arbitrators shall approve the final offer of one Party without
modification, and reject the offer of the other Party. In the event
the dispute presented to the arbitration panel involves issues other
than those defined in the preceding sentence, the arbitration panel
shall be authorized to render an award that departs from the offers
of both Parties. The arbitration panel shall not have the authority
to award punitive, exemplary, consequential or incidental damages.
The arbitrators' decision must be rendered within thirty (30) Days
following the conclusion of the hearing or submission of evidence.
All evidence submitted in an arbitration proceeding, transcripts of
such proceedings, and all documents submitted by the Parties in an
arbitration proceeding shall be deemed confidential information
subject to Section 15.4 below.
11.12 Arbitration Decision. The decision of the arbitrators or a majority
of them, shall be in writing and shall be final and binding upon the
Parties as to the issue submitted. Each Party shall bear the expense
and cost of its arbitrator and one-half of the expense and cost of
the third arbitrator.
XII. GOVERNMENTAL REGULATIONS AND AUTHORIZATIONS
12.1 Application of Law and Regulation. This Agreement shall be subject
to all valid and applicable laws of the United States and to the
applicable valid rules, regulations or orders of any regulatory agency
or governmental authority having jurisdiction, and the Parties shall
be entitled to regard all applicable laws, rules and regulations
(federal, state or local) as valid and may act in accordance with them
until such time as they may be declared invalid by final judgment of a
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court of competent jurisdiction and such judgment is not subject to
appeal.
12.2 Authorization and Regulatory Filings. Upon execution of this
Agreement, each Party agrees to seek such government certificates,
permits, licenses and authorizations which, in its sole discretion, it
deems necessary to perform its obligations under this Agreement.
During the term of this Agreement, each Party shall make all filings
required by any regulatory bodies having jurisdiction over the
activities covered by this Agreement and upon request of the other
Party shall promptly provide copies of such to the other Party.
Neither Party will knowingly enter into agreements nor undertake any
activities or filings that would interfere with or frustrate the other
Party's efforts to obtain the necessary regulatory approvals to
fulfill its obligations under this Agreement.
XIII. NOTICES
13.1 Procedure. Except as provided in this Agreement, all notices,
requests, demands, statements, and other communications under this
Agreement shall be in writing and shall be deemed given on the date
thereof if delivered personally, or by telecopy. If mailed by
certified or registered mail, postage prepaid, return receipt
requested, such notice shall be deemed given three Days after the
date of mailing. All notices shall be delivered or transmitted to
the Parties, their successors in interest or their assignees at the
following addresses, or at such other addresses as the Parties may
designate by written notice in the manner aforesaid:
CUSA:
Notices and Correspondence:
Chevron U.S.A. Inc.
X.X. Xxx 0000
Xxxxxxx, XX 00000
Attn: Midstream Business Unit Alliance Manager (CPDN)
Telephone: (000) 000-0000 or 000-0000
Fax: (000) 000-0000
Invoices and Statements:
Chevron U.S.A. Inc.
X.X. Xxx X
Xxxxxxx, XX 00000
Attn: Section 980
Telephone: (000) 000-0000
Fax: (000) 000-0000
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NGC:
Notices and Correspondence:
Natural Gas Clearinghouse
00000 Xxxxxxxxx Xxxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Contract Administration (Xxxxx Xxxx)
Telephone: (000) 000-0000
Fax: (000) 000-0000
Invoices and Statements:
Natural Gas Clearinghouse
00000 Xxxxxxxxx Xxxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Gas Accounting
Telephone: (000) 000-0000
Fax: (000) 000-0000
XIV. NON-ASSIGNABILITY AND TRANSFER OF INTEREST BY CUSA
14.1 Non-Assignability. Except as provided in Section 14.2 below, neither
this Agreement nor any obligation of a Party under this Agreement are
assignable without the express written consent of the other, which
consent may be withheld in its sole discretion for any reason, except
to wholly owned subsidiaries and affiliates, in which case the
assigning entity shall not be relieved of responsibility for any of
its obligations under this Agreement.
14.2 Transfer of Interest. CUSA shall have the right to convey a Source
of Supply to a non-affiliated entity. In the event of such a
conveyance, and at CUSA's option, the affected Source of Supply shall
either remain subject to this Agreement and gas produced from that
Source of Supply shall be Committed Gas for all purposes under this
Agreement or shall remain Committed Gas pursuant to a separate
agreement executed by NGC and CUSA's successor in interest and
containing terms and conditions substantially identical to this
Agreement. In the event CUSA elects to convey the Source of Supply
subject to this Agreement, the documents evidencing the conveyance of
the Source of Supply shall specifically identify this Agreement and
obligate CUSA's successor in interest to ratify and adopt this
Agreement insofar as it applies to the Source of Supply acquired by
CUSA's successor in interest. In the event CUSA elects to require its
successor in interest to execute an agreement substantially identical
to this Agreement, such agreement shall be executed contemporaneously
with the documents evidencing the conveyance of the Source of Supply.
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Notwithstanding the foregoing, CUSA shall have the right to convey a
Source of Supply to a non-affiliated entity free and clear of this
Agreement if the Source of Supply, when combined with any other
Source of Supply contemporaneously conveyed to the non-affiliated
entity, produced an average of 000 XXXxx per Day, or less, over the
six month period ending ninety Days prior to the Effective Date of
the conveyance.
XV. MISCELLANEOUS
15.1 Waiver. No waiver by either CUSA or NGC of any default of the other
under this Agreement shall operate as a waiver of any future default,
whether of like or different character or nature.
15.2 Entire Agreement. This Agreement constitutes the entire agreement of
the Parties, and is intended to be a final, complete, integrated and
exclusive expression of their agreement and its terms. Except as
otherwise provided in this Agreement, this Agreement shall not be
modified or amended except by a written instrument executed by the
Parties.
15.3 Choice of Law. THIS AGREEMENT SHALL BE SUBJECT TO, AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS, BUT NOT THE LAWS REGARDING
CHOICE OF LAW, OF THE STATE OF TEXAS.
15.4 Confidentiality. Each Party agrees that the terms of this Agreement
and any information provided under this Agreement shall be kept
confidential by it and shall not be disclosed to any third Party
without first obtaining the written consent of the other, which
consent shall not be unreasonably withheld. In addition, any
information designated as confidential by one Party and provided to
the other during the term of any agreement shall be kept confidential
by the receiving Party and shall not be disclosed to any third party
for a period of three years from the date of receipt without first
obtaining the written consent of the other, which consent shall not
be unreasonably withheld. This Section shall not prevent a Party from
making any disclosure required by law, regulation or SEC disclosure
rules (in such case, the disclosing Party shall notify the non-
disclosing Party as soon as practicable of the pendency, nature and
content of the planned disclosure) or from disclosing any information
which is already in the public domain.
15.5 Limitation of Damages. In no event shall either Party be liable for
punitive, exemplary, consequential or incidental damages arising from
any breach or default under this Agreement, indemnification under
this Agreement or from any act or omission under or in connection
with this Agreement.
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15.6 Severability. If any provision of this Agreement is determined to be
invalid, illegal or otherwise unenforceable for any reason by a court
of competent jurisdiction, the remaining terms and conditions of this
Agreement shall remain in full force and effect to the fullest extent
permitted by law. In such an event, the Parties agree to make a good
faith effort to replace the affected provisions.
IN WITNESS WHEREOF, this Agreement is executed on the _____ day of August,
1996.
CHEVRON U.S.A. INC. NATURAL GAS CLEARINGHOUSE
__________________________ ____________________________________
By: By:
Title: Title:
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EXHIBIT A
SOURCES OF SUPPLY, DELIVERY POINTS, PUBLISHED INDEX
PRICES, AND INDEX PRICE ADJUSTMENTS
EXHIBIT B
POST-EFFECTIVE DATE COMMITMENTS
EXHIBIT C
UPSTREAM GATHERING AND TRANSPORTATION AGREEMENTS
EXHIBIT D
FIRM MARKET SPLIT CONNECT COMMITTED GAS
EXHIBIT "E"
[Date]
Price Lock Confirmation
Natural Gas Purchase and Sale Agreement
NGC Contract No. ______________
Chevron U.S.A. Inc.
[Address]
Gentlemen:
In accordance with that certain Natural Gas Purchase and Sale Agreement dated
effective ______________ by and between Chevron U.S.A. Inc., as Seller, and
Natural Gas Clearinghouse, as Buyer, which agreement is incorporated herein and
made a part hereof, Buyer hereby confirms establishment of the following "Locked
Price" and "Locked Quantities" as previously discussed and agreed orally:
Date of Parties' Oral Agreement:_____________________________________
Month of Delivery:___________________________________________________
Source of Supply:____________________________________________________
Delivery Point:______________________________________________________
Locked Quantities (MMBtus/day):______________________________________
Locked Price ($/MMBtu):______________________________________________
Basis Differential Adjustment ($/MMBtu):_____________________________
This Price Lock Confirmation is binding upon the Parties unless Seller notifies
Buyer of a dispute with all or a portion hereof 48 hours (exclusive of weekends
and Chevron holidays) after Seller's receipt hereof.
Very truly yours,
NATURAL GAS CLEARINGHOUSE
By:_________________________________________
Trading Representative
Date:______________________________________
EXHIBIT F Letter of Credit
EXHIBIT "F"
LETTER OF CREDIT
1. CALCULATION OF FACE AMOUNT
After CUSA submits its Availability Report applicable to the first Month of
deliveries of Committed Gas under this Agreement and prior to the Effective
Date, NGC shall furnish to CUSA one or more irrevocable standby letters of
credit (referred to in this Exhibit F as "LC" regardless of whether one or more
LCs are posted), and shall subsequently maintain the LC in effect, in a form
similar to the form attached hereto as Exhibit "F-1" and acceptable to CUSA and
the issuing bank or banks, from a bank or banks acceptable to CUSA and in an
aggregate amount calculated as follows:
! The face amount of the LC furnished prior to the Effective Date shall
equal ([65 x eV x eRP] minus $80,000,000) x 25%. Thereafter, and until the
twentieth Day of the second Month of deliveries of Committed Gas under the
Agreement, the face amount of the LC shall be increased to the following
face amounts according to the following schedule:
(i) no later than the fifteenth Day after the Effective Date - ([65 x
eV x eRP] minus $80,000,000) x 50%;
(ii) no later than the thirtieth Day after the Effective Date - ([65 x
eV x eRP] minus $80,000,000) x 75%; and
(iii) no later than the forty-fifth Day after the Effective Date -
([65 x eV x eRP] minus $80,000,000) x 100%.
The LC posted by NGC no later than the forty-fifth Day following the
Effective Date in the face amount of ([65 x eV x eRP] minus $80,000,000) x
100% is hereafter referred to as the "Initial LC".
! Following the twentieth Day of the second Month of deliveries of
Committed Gas and in subsequent Months the face amount of the LC to be
posted by NGC shall equal the aggregate face amount of the Initial LC plus
or minus A.
Where:
V shall equal the average daily volume of Committed Gas designated for
delivery by CUSA to NGC in CUSA's initial Availability Report submitted in
accordance with Section 2.2 of the Agreement and applicable to the Month in
which the aggregate face amount of the LC is calculated.
eV shall equal the average daily volume of Committed Gas designated for
delivery by CUSA to NGC in CUSA's initial Availability Report applicable to
the first Month of deliveries of Committed Gas under this Agreement.
RP shall mean the Reference Price
eRP shall mean the estimated Reference Price
Reference Price shall equal the volume weighted average First of the Month
Commodity Price of Committed Gas to be delivered by CUSA to NGC at the
Delivery Points designated in the applicable initial Availability Report
during the Month in which the aggregate face amount of the LC is
calculated. For purposes of calculating the volume weighted average First
of the Month Commodity Price, the average daily volume of Committed Gas
designated for delivery at each Delivery Point by CUSA to NGC in CUSA's
initial Availability Report applicable to the Month in which the aggregate
face amount of the LC is calculated will be used for weighing purposes.
estimated Reference Price shall equal the volume weighted average imputed
First of the Month Commodity Price of Committed Gas that will be delivered
by CUSA to NGC during the first Month of deliveries of Committed Gas under
this Agreement at the Delivery Points designated in the applicable initial
Availability Report. For purposes of calculating the volume weighted
average imputed First of the Month Commodity Price: (i) the average daily
volume of Committed Gas designated for delivery at each Delivery Point by
CUSA to NGC in CUSA's initial Availability Report applicable to the first
Month of deliveries of Committed Gas under this Agreement will be used for
weighing purposes; and (ii) the Published Index Prices applicable to the
Month preceding the first Month of deliveries under this Agreement and the
applicable Index Price Adjustments and Premiums, if any, set forth in
Exhibit A to the Agreement will be used to arrive at the imputed First of
the Month Commodity Price
X shall equal the total net dollar amount NGC is obligated to pay CUSA in
accordance with the terms of the Agreement as reflected in the applicable
statement furnished by NGC to CUSA in accordance with Section 7.1 of the
Agreement.
A shall equal (i) the result of subtracting the aggregate face amount of
the Initial LC from [X plus (35 x V x RP) minus $80,000,000] if [X plus (35
x V x RP) minus $80,000,000] is greater than the aggregate face amount of
the Initial LC or (ii) the result of subtracting [X plus (35 x V x RP)
minus $80,000,000] from the aggregate face amount of the Initial LC if the
aggregate face amount of the Initial LC is greater than [X plus (35 x V x
RP) minus $80,000,000]. Notwithstanding the foregoing, A shall equal zero
if the result of the calculation set forth in (i) or (ii), as the case may
be, is not greater than $30,000,000. If the difference resulting from the
calculation set forth in (i) is greater than $30,000,000, the difference
shall be added to the aggregate
face amount of the Initial LC to arrive at the aggregate face amount of the
LC to be posted in accordance with the procedures set forth below. If the
difference resulting from the calculation set forth in (ii) is greater than
$30,000,000, the difference shall be subtracted from the aggregate face
amount of the Initial LC to arrive at the adjusted aggregate face amount of
the LC to be posted in accordance with the procedures set forth below.
2. PROCEDURES
The aggregate face amount of the Initial LC shall not be subject to
adjustment until the twentieth Day of the second Month of deliveries of
Committed Gas under this Agreement. Beginning on the twentieth Day of the
second Month and on the twentieth Day of each succeeding Month during the
term of this Agreement, the aggregate face amount of the LC shall be
calculated in accordance with the formula set forth above. If an
adjustment in the aggregate face amount of the LC is required, within five
Business Days following the twentieth Day of the Month NGC shall at its
sole option either: (a) authorize the issuing bank or banks to amend the
aggregate face amount of the LC to reflect the proper adjustment; (b)
deliver a replacement standby LC in an aggregate face amount determined in
accordance with the formula set forth above; or (c) deliver an additional
LC in a face amount that, when added to the aggregate face amount of any
LC(s) in effect at that time, equals the face amount determined in
accordance with the formula set forth above. Upon receipt of a replacement
LC complying with the requirements of this Exhibit F, CUSA shall return any
superseded LC(s) to the issuing bank(s) for cancellation.
