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EXHIBIT 10.10
G A S P U R C H A S E C O N T R A C T
Between
CONSUMERS POWER COMPANY
As Buyer
- and -
NORTHERN MICHIGAN EXPLORATION COMPANY
As Seller
Dated: November 2, 1978
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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TABLE OF CONTENTS
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ARTICLE PAGE
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I Definitions 2
II Initial Procedure 4
III Commitment of Gas 5
IV Determination of Reserves 6
V Reservations 9
VI Quantity 11
VII Price 15
VIII Billing and Payment 18
IX Delivery Point or Points 19
X Term 20
XI Quality of Gas 20
XII Delivery Pressure 23
XIII Measurements and Tests 23
XIV Force Majeure 28
XV Laws, Orders, Rules and Regulations 29
XVI Taxes 29
XVII Assignment 30
XVIII Notices 31
XIX General 31
XX Option 32
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GAS PURCHASE CONTRACT
THIS AGREEMENT, made and entered into as of this 2nd day of November
1978, by and between NORTHERN MICHIGAN EXPLORATION COMPANY, (hereinafter
referred to as "Seller") and CONSUMERS POWER COMPANY, a Michigan corporation,
(hereinafter referred to as "Buyer");
W I T N E S S E T H :
WHEREAS, Seller presently owns or controls or has contractual rights in
certain oil and gas leases that cover or relate to portions of the lands
embraced within the area described on Exhibit "A", attached hereto and made a
part hereof; and
WHEREAS, Seller desires to sell all gas attributable to its interest
which may be produced from said well; and
WHEREAS, Buyer, a public utility, engaged in the distribution and sale
of gas in numerous cities, villages and townships within the State of Michigan,
is willing, subject to the terms and conditions hereinafter contained, to
purchase the gas that may be produced by Seller from the area described on
Exhibit "A";
NOW, THEREFORE, in consideration of the mutual promises, agreements and
undertakings hereinafter set forth, it is hereby agreed by and between Seller
and Buyer as follows:
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ARTICLE I
DEFINITIONS
1. The term "gas well gas", unless the context otherwise requires, shall
mean that part of the effluent produced from a well classified as a gas well by
the regulatory agency having jurisdiction in such matters which remains in the
vapor phase after passing such well effluent through a conventional mechanical
separator or separators for the separation of liquids and gas.
2. The term "oil well gas", unless the context otherwise requires, shall
mean that part of the effluent produced from a well classified as an oil well
by the regulatory agency having jurisdiction in such matters which remains in
the vapor phase after passing such well effluent through a conventional
mechanical separator or separators for the separation of liquids and gas.
3. The term "gas", unless the context otherwise requires, shall mean gas
well gas or oil well gas or the combination of both.
4. The term "reserves", unless the context otherwise requires, shall
mean the estimated quantities of producible gas in place that remain as of
November 2, 1978, in the following types of reservoirs. For gas reservoirs,
defined as those subsurface accumulations in which all hydrocarbons are
initially in the vapor phase, producible reserves shall be calculated using a
recovery factor of 92 percent of hydrocarbon gas in place with no further
adjustment for shrinkage due to surface condensation of liquids. For oil
reservoirs, defined as those subsurface accumulations in which all hydrocarbons
are initially in the liquid phase, producible reserves shall be
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calculated using a recovery factor of 80 percent of the vaporizable
hydrocarbons ("solution gas") in place with no further adjustment for shrinkage
due to surface condensation. For associated reservoirs, defined as those
subsurface accumulations in which a hydrocarbon vapor phase (gas cap) and a
hydrocarbon liquid phase (oil column) co-exist at initial conditions,
producible reserves shall be calculated using recovery factors of 92 percent of
the hydrocarbon vapor phase (gas cap gas) initially in place and 80 percent of
the vaporizable liquid phase ("solution gas') initially in place with no
further adjustments for shrinkage due to surface condensation. All reserves
shall be estimated using engineering principles generally accepted in the gas
industry.
5. The term "contract year" shall mean a period of twelve (12)
consecutive months commencing on January 1st of each year; provided, however,
that the first contract year will commence on the date of first delivery of gas
hereunder and end on January 1 next following the date of such first delivery.
6. The term "annual contract quantity" shall mean a quantity of gas well
gas equal to the sum of the products obtained by multiplying the contract
quantity in effect during a contract year by the number of days for which it
was in effect.
7. The term "well" shall mean an individual completion in an oil or gas
reservoir.
8. The term "Deliverability" shall mean the maximum daily volume of
legally producible gas well gas which, in the course of prudent operations (as
determined in the sole discretion of Seller), can be delivered to Buyer from
the properties covered hereunder.
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9. The term "month" shall mean the period of time beginning at 12:00
noon on the first day of a calendar month and ending at 12:00 noon on the first
day of the next succeeding calendar month.
10. The term "day" shall mean a period of twenty-four (24) consecutive
hours beginning at 12:00 noon.
11. The term "Mcf" shall mean one thousand cubic feet.
12. The term "Bcf" shall mean one billion cubic feet.
13. The term "tendered" shall mean Seller's commitment of reserves
hereunder.
ARTICLE II
INITIAL PROCEDURE
1. Seller agrees that it shall, in the exercise of due diligence, file
for all governmental consents and authorizations, if any, necessary for Seller
to produce, sell and deliver gas to Buyer in accordance with the terms and
provisions hereof. Seller further agrees that it will install or cause to be
installed the facilities necessary for Seller to perform its obligations
hereunder.
2. Buyer agrees that it shall, in the exercise of due diligence file for
all governmental consents and authorizations, if any, necessary for Buyer to
purchase and receive gas hereunder. Buyer agrees to make any required
Petitions to the Michigan Public Service Commission within thirty (30) days
after the date on which this Agreement has been executed by the parties hereto.
If any such necessary governmental consents and authorizations have not been
issued to Buyer within one hundred eighty (180) days after application
therefor, then Seller may, acting in good faith and not capriciously, by notice
to Buyer during the time such condition continues, cancel this Agreement
insofar as it pertains to the reserves affected by the lack of such consents
and authorizations Buyer further agrees that,
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subsequent to the receipt of all necessary governmental consents and
authorizations, it will proceed with due diligence to install the facilities
necessary for Buyer to perform its obligations hereunder.
ARTICLE III
COMMITMENT OF GAS
1. Subject to all of the provisions hereof, Seller commits to the
performance of this Agreement all gas reserves in the formations and strata in
and under the area described on Exhibit "A" which are above the base of the
Niagaran Formation and which are attributable to any interest in such gas now
or hereafter owned by Seller.
Said commitment shall continue in effect until December 31, 1981 and from
month to month thereafter unless cancelled by written notice by Seller to Buyer
given at least thirty (30) days prior to the xxxx Xxxxxx desires to cancel the
commitment provided for hereunder. Said cancellation shall apply only to
acreage outside of drilling or production units in the area described on
Exhibit "A" on the effective date of said cancellation.
2. Seller, with Buyer's written concurrence, may add acreage to the
performance of the foregoing commitment. If Seller elects to so add additional
acreage to this Agreement, Seller shall prepare and submit to Buyer a
description of the additional acreage and the written acceptance by Buyer of
the document containing such description shall constitute Buyer's written
concurrence and thereupon Exhibit "A" to this Agreement shall be deemed to have
been amended to reflect the additional acreage.
3. The gas reserves discovered in xxxxx drilled within the area
described on Exhibit "A", or on acreage added to this Agreement pursuant to
Section 2 above, shall be determined in accordance with the provisions of
Article IV hereof.
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ARTICLE IV
DETERMINATION OF RESERVES
1. Seller shall forthwith furnish Buyer all information and data in
Seller's possession which Seller deems nonconfidential that may be required by
Buyer for the purpose of estimating the initial amount of reserves, and shortly
after furnishing such information Seller shall also submit to Buyer a statement
showing Seller's estimate of the initial amount of reserves and the amount of
reserves in each gas well gas reservoir then covered hereunder. If Buyer does
not object to all or any part of such statement within forty-five (45) days
after receipt thereof, Seller's said statement shall be deemed correct for all
purposes hereof. If Buyer objects to all or any part of such statement within
said forty-five day period, the parties shall promptly meet to attempt to
resolve their difference over those portions of such statement to which Buyer
has objected. If the parties have not resolved all such portions within thirty
(30) days after Buyer's said objection, then the parties shall submit those
portions of the statement still in disagreement to arbitration as provided in
Section 4 of this Article IV. The effective date of the initial determination
of reserves pursuant to this Section 1 shall be the date of initial deliveries
of gas hereunder or within one hundred twenty (120) days following the tender
by Seller of gas reserves to Buyer, whichever is earlier.
2. From time to time after execution hereof, Seller may discover
additional reserves on acreage committed to Buyer pursuant to the provisions
hereof. Promptly after the time of each such discovery Seller shall furnish
Buyer all available basic data required to estimate the gas reserves discovered
and a statement showing the amount of such reserves and the amount of reserves
in
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each gas well gas reservoir as committed. If Buyer does not object to all or
any part of such statement within thirty (30) days after receipt thereof, the
amount of reserves shown on Seller's said statement shall be added to the
then-current amount of reserves, and the total shall be the reserves for all
purposes hereunder. If Buyer objects to all or any part of such statement
within said thirty-day period, the parties shall promptly meet to attempt to
resolve their differences over those portions of such statement to which Buyer
has objected. If the parties have not resolved all such portions within thirty
(30) days after Buyer's said objection, then the parties shall submit those
portions of the statement still in disagreement to arbitration as provided in
Section 4 of this Article IV. The effective date that such committed reserves,
as determined by agreement or arbitration, shall be added to the
previously-committed reserves hereunder shall be the first day of the month
next following the date of connection of such reserves to Buyer's facilities.
3. After the initial determination of reserves hereunder, Buyer may
make, or Seller may request Buyer to make, at reasonable intervals, a
redetermination of the amount of reserves. Upon Buyer's making a
redetermination or within thirty (30) days after a request for a
redetermination, Buyer shall furnish Seller a statement showing Buyer's
estimate of the amount of reserves and the amount of reserves in each gas well
gas reservoir then covered hereby. If Seller does not object to all or any
part of such statement within thirty (30) days after receipt thereof, Buyer's
said statement shall be deemed correct for all purposes hereof. If Seller
objects to all or any part of such statement within said thirty-day period, the
parties shall promptly meet to attempt to resolve their differences over those
portions of such statement to which Seller
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has objected. If the parties have not resolved all such portions within thirty
(30) days after Seller's said objection, then the parties shall submit those
portions of the statement still in disagreement to arbitration as provided in
Section 4 of this Article IV. The effective date of any redetermination of
reserves pursuant to this Section 3 shall be the first day of the month
following the date of request therefor.
4. If arbitration is required to resolve any differences over reserves,
such dispute shall be submitted to three qualified arbitrators for arbitration,
one to be selected by Seller, one to be selected by Buyer and the third
arbitrator to be selected by the first two arbitrators. If either Seller or
Buyer shall fail to select an arbitrator within ten (10) days after said
dispute is provided to be submitted to arbitration hereunder, or if the two
arbitrators first selected shall fail to select a third arbitrator within ten
(10) days after the selection of the second of them, then either Seller or
Buyer may request the American Arbitration Association to select the arbitrator
or arbitrators to complete the board of three. After three arbitrators are
selected in accordance with the foregoing, they shall meet, hear the parties
with respect to the dispute and arrive at a decision all in accordance with the
Rules of the American Arbitration Association. Any decision regarding such
dispute which has been agreed in writing by at least two of the said
arbitrators shall be final and conclusive and all costs of arbitration
hereunder shall be borne equally by Seller and Buyer. All arbitrators
appointed pursuant to this section shall be qualified independent engineers
experienced in the oil and gas industry and competent to pass on the matter of
reserves. A judgment upon the award or decision rendered by the arbitrators
may be entered in any Circuit Court having
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Jurisdiction; and this arbitration agreement shall be governed by the laws of
the State of Michigan.
5. If, upon the conclusion of any redetermination, Buyer does not have
sufficient capacity in its facilities to take the total quantities of gas which
it is required to take or pay for under this Agreement, Buyer shall diligently
proceed to obtain the governmental consents and authorizations, if any,
required to expand the capacity of such facilities. If Buyer has not received
all such consents and authorizations within one hundred eighty (180) days after
conclusion of the redetermination, then either party, acting in good faith and
not capriciously, by notice to the other party given prior to Buyer's receipt
of all such consents and authorizations, may cancel this Agreement insofar as
it covers gas in excess of Buyer's capacity.
6. Seller agrees to furnish to Buyer, as it becomes available, all
information and data in Seller's possession which Seller deems nonconfidential
that may be required by Buyer for the purpose of estimating reserves pursuant
to the provisions of this Article IV.
ARTICLE V
RESERVATIONS
1. Notwithstanding anything to the contrary which may be contained or
implied herein, Seller hereby reserves unto itself the following rights with
respect to the gas produced from the lands and leaseholds subject to this
Agreement:
(a) To operate Seller's leaseholds, lands and/or interests therein free
from any control by Buyer in such manner as Seller, at Seller's sole
discretion, may deem advisable, including without limitation the right,
but never the obligation, to drill new xxxxx, to repair and
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rework old xxxxx, renew and extend, in whole or in part, any leases
subject hereto and to abandon any well or surrender any lease, in whole
or in part, when no longer deemed by Seller to be capable of producing
gas in paying quantities.
(b) To deliver to Seller's lessors sufficient gas to meet Seller's
obligations under its leases.
(c) To use all gas that Seller may need or require for the development
and operation ofSeller's leases subject hereto and other leases in the
vicinity thereof, including, but not limited to, the use of gas for fuel,
drilling, deepening, reworking, compression, gas lifting, processing,
cycling, repressuring, or other secondary recovery operations.
(d) To sell gas to others for drilling fuel in the vicinity of the leases
subject hereto.
(e) To process gas prior to delivery to Buyer for the extraction of any
substance contained therein other than methane (except such methane
necessarily removed in such processing); provided, however, that such
processing shall not render the residue gas remaining after processing
incapable of meeting the quality standards required herein.
(f) To form or participate in the formation of any unit or units,
including, but not limited to, field wide unit or units, which may
include all or part of the lands and leaseholds subject hereto;
provided that this Agreement shall apply to the interest of Seller in
such unit or units to the extent such interest is attributable to the
lands and leaseholds subject hereto.
2. The obligations of Seller hereunder are subject to the ability of
Seller's well to produce without waste and in accordance with
prudent oil and gas field practice, and Seller shall not be required to produce
any well in excess of the maximum rate of flow fixed by law or regulatory body
or in
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excess of maximum efficient rate of flow of such well, at Seller's sole
discretion.
ARTICLE VI
QUANTITY
1. Commencing on the date of first delivery of gas hereunder and
continuing throughout the term hereof, Seller shall sell and deliver to Buyer,
and Buyer shall purchase and take from Seller hereunder, during each day, all
of the oil well gas made available for sale by Seller from the properties
covered hereby.
2. Commencing on the date of first delivery of gas well gas hereunder
and continuing throughout the term of this Agreement, Seller shall sell and
deliver to Buyer, and Buyer shall purchase and take from Seller hereunder, or
pay Seller for whether taken or not, during each contract year, a daily
contract quantity of gas well gas equal to the sum of the following:
(a) One million (1,000,000) cubic feet for each two billion, five hundred
million (2,500,000,000) cubic feet of gas well gas reserves from gas well
gas reservoirs from which less than fifty percent (50%) of the reserves
have been produced; and
(b) One million (1,000,000) cubic feet for each three billion, six
hundred and fifty million (3,650,000,000) cubic feet of gas well gas
reserves from gas well gas reservoirs other than those described in
subsection (a) above.
3. Buyer agrees, in the absence of force majeure, to purchase and take
from Seller, on each day, a quantity of gas well gas sufficient
to keep Seller's leases in effect, but not less than one million (1,000,000)
cubic
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feet for each five billion (5,000,000,000) cubic feet of gas well gas
reserves as established from time to time pursuant to Article IV hereof.
4. If Seller fails on any day for any reason other than force majeure to
deliver the daily volume of gas well gas requested by Buyer hereunder up to one
hundred eleven percent (111%) of the daily contract quantity, then the daily
contract quantity for that day shall be reduced to ninety percent (90%) of the
volume of gas well gas which Seller delivered on such day.
5. If Seller fails for any reason other than force majeure to deliver
the volumes of gas well gas requested by Buyer up to one hundred eleven percent
(111%) of the daily contract quantity for five (5) consecutive days, then,
commencing on the first day of the month following the end of the fifth (5th)
day of such failure to deliver, and continuing thereafter until adjusted as
hereinafter provided, the daily contract quantity of gas well gas shall be
reduced to ninety percent (90%) of the average daily volume of gas well gas
delivered during such five (5) day period.
6. If the daily contract quantity is adjusted downwards as provided in
Section 5 of this Article VI, then Seller shall have the opportunity to restore
all or a portion of the daily contract quantity determinable under Section 2 or
Section 3, as the case may be, of this Article VI in the following manner: Not
later than three (3) days after Seller has notified Buyer in writing that its
inability to deliver gas well gas hereunder has been remedied, Buyer shall,
upon twenty-four (24) hours' notice by Buyer to Seller, commence a five (5) day
test period, during which xxxx Xxxxxx will deliver and Buyer will purchase the
Deliverability, but not to exceed one hundred eleven percent (111%) of the
daily contract quantity determinable under Section 2 or Section 3, as the case
may be, of this Article VI. Commencing on the day following the last day of
such test period, the daily contract quantity under Section 2 or Section 3, as
the case may be, of this Article VI shall be deemed to be ninety
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percent (90%) of the average daily volume of gas well gas delivered by Seller
during such five (5) day test period.
If, as a result of such test, the daily contract quantity is not restored
to the daily contract quantity determinable under Section 2 or Section 3, as
the case may be, of this Article VI, Seller shall not be permitted until three
(3) months following the completion of such test to again request Buyer to
conduct a subsequent test unless a reasonable amount of additional development
or remedial work has been performed by Seller since the last test, in which
case evidence of such work shall be sufficient to permit a request for a
subsequent test.
Upon receipt of notice from Seller that the inability to deliver has been
remedied, Buyer may, in lieu of conducting such test, notify Seller that,
commencing with the first day following receipt of said notice from Seller, the
downward adjustment in daily contract quantity shall no longer be effective.
7. If the total volume of gas well gas actually purchased and taken by
Buyer during any contract year is less than the annual contract quantity for
such year, then, within fifteen (15) days following the end of such contract
year, Buyer shall pay Seller for any such deficiency at the then-effective
price per Mcf hereunder. Buyer shall have the right, during the next five (5)
contract years following the contract year in which a deficiency occurred, to
take gas well gas paid for but not taken by Buyer hereunder by taking gas well
gas in volumes in excess of the annual contract quantities for such years. Any
such gas well gas so taken as makeup for gas well gas shall be free of
additional cost to Buyer, except that Buyer shall pay Seller the difference
between the price paid for gas not taken and the price in effect at the end of
the contract year during which gas well gas was made up, plus the tax
reimbursement, if any, due under Article XVI.
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8. If withdrawals by other producers from a reservoir or common source
of supply containing gas well gas reserves committed hereunder cause drainage
of Seller's reserves, Buyer shall be obligated, upon written notice from Seller
to Buyer accompanied by sufficient proof of such drainage, to equalize, within
the limits of the physical capacity of its facilities, withdrawals of gas well
gas from such reservoir and shall thereafter take volumes of gas, well gas from
such reservoir so that, during the remaining term of this Agreement, Seller's
reserves will be delivered hereunder as if such drainage had not occurred. If
the capacity of Buyer's facilities is not sufficient to prevent such drainage,
Buyer shall, within thirty (30) days after Seller's said notice, file an
application with the governmental authority having jurisdiction for such
authorization as may be necessary to accept and transport the quantities of gas
well gas necessary to prevent such drainage. Promptly after receipt of such
authorization, Buyer shall enlarge its said facilities and thereafter take
volumes of gas well gas from such reservoir so that, during the remaining term
of this Agreement, Seller's reserves will be delivered hereunder as if such
drainage had not occurred. Buyer shall release from this Agreement an amount
of gas equal to the volumes which have been drained and which, without such
release, would be drained prior to the completion of Buyer's facilities if
approval to construct the facilities is not obtained within ninety (90) days
after application therefor.
9. Notwithstanding anything to the contrary contained or implied herein,
on any day when deliveries or takes are affected by force majeure and as a
result thereof volumes delivered are less than the applicable daily contract
quantity, the daily contract quantity hereunder shall be deemed to be the
actual volume delivered and purchased on such day.
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10. Notwithstanding the provisions of Section 2 and 3 of this Article
VI, Buyer shall not be obligated to take, or pay for if not taken, gas which
does not meet the quality specifications set forth in Article XI hereafter.
ARTICLE VII
PRICE
1. The price to be paid by Buyer to Seller for gas to be sold and
purchased under this Agreement, or for which payment is due hereunder, shall be
230.049 cents per Mcf, which price shall remain in effect until January 1,
1979. On January 1, 1979 and thereafter, at the beginning of each subsequent
three-month period the price then in effect shall be increased by the following
percentage rates:
Years Quarterly Escalation
----- --------------------
1979 1.50%
1980-1981 1.75%
1982-1983 2.00%
1984-1985 2.25%
1986 and thereafter 2.50%
All increases in price shall be calculated to the nearest one thousandth of one
cent. The price provided to be paid under the provisions of this Section 1
shall constitute the Contract Price.
2. Commencing in January, 1986, and in each month thereafter in which
the Contract Price exceeds the equivalent value of 1,000,000 BTU's of Number 2
Fuel Oil based on the arithmetic average of the daily price quotations for
Number 2 Fuel Oil as reported by "Platts Oilgram Price Service, US Tank
Car-Truck Transport Lots, Midcontinent, Detroit," Seller shall refund to Buyer
an amount calculated by multiplying the difference between the Contract Price
and the equivalent value of 1,000,000 BTU's of Number 2 Fuel Oil, as herein
defined, by the volume of gas taken or paid for by Buyer hereunder during the
month. For the purpose hereof, a gallon of Number 2 Fuel Oil shall be
considered to
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contain 140,640 BTU's. Notwithstanding the foregoing provisions of this
Section 2, it is understood and agreed that there is hereby established a base
price of 390.000 cents per Mcf for the period commencing January 1, 1986, and
ending March 31, 1986, which shall increase at the rate of six and one-quarter
cents (6.25c.) at the beginning of each three-month period thereafter,
commencing April 1, 1986. If the base price so established for any month is in
excess of the equivalent value of 1,000,000 BTU's of Number 2 Fuel Oil
(calculated as provided above), the base price shall be utilized in lieu of the
price equivalent value of 1,000,000 BTU's of Number 2 Fuel Oil for the purpose
of determining the amount of refund to be made by Seller to Buyer hereunder.
3. If, at any time and from time to time, the Federal Energy Regulatory
Commission (or any other governmental authority, whether Federal or State,
having jurisdiction over the rates to be charged or paid for the sale or
purchase of natural gas) shall authorize by order, by settlement, or by other
authorization of general applicability (except with regard to (i) emergency
sales, (ii) sales of gas made in accordance with optional certificate
procedures pursuant to Federal Power Commission Order Nos. 455 and 455-A,
including any modification, amendment or replacement of similar import of said
Orders, and (iii) sales of gas made by any producer at a price prescribed
pursuant to a petition for special relief filed by any such producer), or if
any statute shall authorize, a higher rate (whether or not subject to refund)
than the rate herein provided to be paid for all or a portion of the gas
hereunder, which higher rate is applicable to the geographical area of gas
sales under this contract and to other sales or purchases of gas produced in
the Lower Peninsula of the State of Michigan (including the adjacent waters of
Lakes Michigan and Huron), then the price to be paid by Buyer to Seller for gas
delivered or for which payment is due hereunder shall be increased to equal
such higher rate, effective as of the date such higher rate is authorized. If
any such higher rate is subject to refund pursuant to applicable law, such
increased rate under this
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Agreement shall also be subject to refund, and if refunds are required with
respect to such higher rate, Seller shall make refunds hereunder in the same
manner as are applicable to such higher rate; provided, Seller shall not be
required to make any refunds hereunder based on rates less than the prices set
forth in the foregoing provisions of this Article. If, pursuant to this
Paragraph, the price to be paid hereunder is increased, such increased price
shall be in effect until a higher price shall become effective hereunder
pursuant to this Agreement.
4. Notwithstanding the foregoing provisions of this Article VII, Buyer
shall pay Seller, in lieu of any other price herein provided the greater of the
following prices for the gas attributable to royalty and overriding royalty
shares, if any, owned by the United States, the State of Michigan, or a
political subdivision thereof (hereinafter called "government lease gas"):
(a) The price provided from time to time by Buyer for gas delivered
or for which payment is due hereunder; or
(b) The price at which Seller is required to account to the United
States, the State of Michigan, or a political subdivision thereof, for
royalties on the sale of government lease gas.
5. Buyer and Seller acknowledge that the price per Mcf is related to
both the temperature base and the pressure base used for measurement of gas.
Therefore, if either the temperature base or the pressure base of this
Agreement is, for any reason, modified from the base temperature of sixty
degrees (60 degrees) Fahrenheit and/or from the base pressure of 14.73 pounds
per square inch absolute, the price provisions of all sections of this Article
VII will be adjusted proportionately.
6. It is the intent of the parties that Buyer shall be permitted to pay
and Seller shall be permitted to collect each of the prices provided in
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this Agreement from time to time. Therefore, each party covenants and agrees
it will not, by act or omission, conduct itself in a manner calculated to
nullify, cancel, circumvent or minimize the operation of any of the pricing
provisions hereof. These covenants and agreements shall extend to and be
binding upon each of the parties, their successors, assigns, subsidiaries,
parent corporations and affiliated corporations and the directors, officers,
employees, agents and attorneys of each of same.
ARTICLE VIII
BILLING AND PAYMENT
1. After deliveries of gas have commenced under this Agreement, Buyer
shall, on or before the tenth (10th) day of each month, render to Seller a
statement showing the quantity of gas delivered hereunder to Buyer during the
preceding month. Not later than the twenty-fifth (25th) day of each month,
Buyer shall pay Seller for the gas taken by Buyer during the preceding month.
2. Each party hereto shall have the right at reasonable hours to examine
books, records and charts of the other party to the extent necessary to verify
the accuracy of any statement, charge, or computation made pursuant to the
provisions of this Agreement. If any such examination reveals an inaccuracy
resulting in an error in any billing theretofore made, the necessary
adjustments in such billing and payments shall be promptly made.
3. In the event any adverse claim of any character whatsoever is
asserted in respect to any of the gas committed hereunder, Buyer may retain, as
security for the performance of Seller's obligations with respect to such
claim, the entire purchase price of said gas until Buyer has been satisfied as
to the amount of such claim and thereafter up to the amount of such claim, both
without interest, until such claim has been finally determined or until Seller
shall have furnished bond to Buyer in the amount and with sureties satisfactory
to Buyer, conditioned for the protection of Buyer with respect to such claim.
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ARTICLE IX
DELIVERY POINT OR POINTS
1. The delivery point or points of all gas provided to be sold and
purchased hereunder shall be as follows:
Oil Well Gas - - - At the entrance of a meter station to be installed
by Buyer at a mutually agreeable location in each
field.
Gas Well Gas - - - At the entrance of a meter station to be installed
by Buyer at or near each well in each field.
Title to all gas sold hereunder shall pass from Seller to Buyer at said
point or points of delivery.
2. Seller hereby warrants title to all gas sold under this Agreement and
the right to sell the same, and that such gas is free and clear from all liens
and adverse claims, and that Seller will indemnify, defend and save Buyer
harmless from and against all suits, actions, debts, accounts, damages, costs,
losses and expenses arising from or out of adverse claims of any or all persons
or parties to said gas or to royalties, taxes, license fees or charges with
respect thereto, which are a proper charge against Seller, or which may be
levied or assessed upon the production of the said gas, the sale thereof to
Buyer or upon the operation of Seller's xxxxx.
3. Seller undertakes and agrees to maintain and be entirely responsible
for its ownership in said well, equipment and other facilities up to the point
of delivery hereinabove specified and further agrees to hold harmless,
indemnify and defend Buyer from and against all expense and liability in any
manner connected therewith. Buyer agrees to maintain and be entirely
responsible for its meter stations and transmission facilities beyond the
above-mentioned point of delivery and that it will hold harmless, indemnify and
defend Seller from and against all loss, damage, expense and liability
resulting therefrom.
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22
As between the parties hereto, Seller shall be in control and possession
of the gas delivered hereunder and shall be responsible therefor and for any
damage or injury caused thereby, in whole or in part, until the same is
delivered to Buyer at the said point of delivery, after which delivery Buyer
shall be in exclusive control and possession thereof and shall be responsible
therefor any injury or damage caused thereby in whole or in part.
ARTICLE X
TERM
1. This Agreement shall become effective as of the date hereof and
unless cancelled earlier pursuant to the other provisions of this Agreement
shall remain effective for a period of twenty (20) years from the date of this
Agreement.
ARTICLE XI
QUALITY OF GAS
1. All gas delivered by Seller under the terms of this Agreement shall
conform to the following specifications:
(a) The gas shall be commercially free from dust, gum, gum-forming
constituents and liquids and solids which may become separated from gas.
(b) The water content of the gas shall not exceed five (5) pounds per
million cubic feet; provided, however, water content in excess of five
(5) pounds per million cubic feet will be accepted, if said water
content will not occasion any adverse effect on the operation of Buyer's
facilities, but in no event shall the water exceed seven (7) pounds per
million cubic feet.
(c) The gas shall not at any time have an oxygen content in excess
- 20 -
23
of one percent (1%) by volume, and Seller shall make every reasonable
effort to keep the gas free of oxygen.
(d) The partial pressure of carbon dioxide shall not exceed 4 psi at a
total gas pressure of 100 psig.
(e) The gas shall not contain more than one quarter (1/4) grain of
hydrogen sulphide per one hundred (100) cubic feet. The purity
requirement shall be considered as satisfied if a strip of white filter
paper, freshly moistened with a solution of one hundred (100) grains of
lead acetate in one hundred (100) cubic centimeters' of water is exposed
to the gas for one and one-half (1-1/2) minutes in a previously purged
apparatus through which gas is flowing at a rate of approximately five
(5) cubic feet per hour, the gas not impinging from a jet upon the test
paper, and after this exposure the test paper is not found distinctly
darker than a second paper freshly moistened with the solution and not
exposed to the gas. If the gas does not meet the purity requirements
determined in the above test, the hydrogen sulphide content shall be
determined by a cadmium sulphate quantitative test. The gas shall not
contain more than one-half (1/2) grain of mercaptan sulfur per one
hundred (100) cubic feet, provided that if the mercaptan sulfur level of
Seller's gas causes intolerable odorant conditions, Buyer, after making
every reasonable effort to correct said conditions, will notify Seller,
which in turn agrees to use its best efforts to alleviate said condition.
Failing to alleviate the intolerable condition, the volume of gas causing
the intolerable condition
- 21 -
24
which cannot be reasonably treated by Seller nor utilized by Buyer
through mixing with other gases will be excluded from those volumes of
gas which Buyer is obligated to purchase and take from Seller hereunder
or pay Seller for whether taken or not. In no event, however, shall
Seller be required to reduce the mercaptan sulfur level below one-fifth
(1/5th) grain per one hundred (100) cubic feet.
(f) The gas shall not contain more than five (5) grains of total sulfur
(including the sulfur in any hydrogen sulphide and mercaptans) per one
hundred (100) cubic feet.
(g) The gas shall have a total heating value per cubic foot of not
less than one thousand (1,000) British thermal units. The gas shall have
a maximum total heating value per cubic foot sufficiently low that the
quotient of the total heating value per cubic foot of gas divided by the
square root of the specific gravity of the gas does not exceed 1375. The
phrase "total heating value per cubic foot" shall mean the number of
British thermal units, produced by combustion at constant pressure, of
that amount of gas, saturated with water vapor, which would occupy a
volume of one (1) cubic foot at a temperature of sixty degrees (60
degrees) Fahrenheit and under a pressure equivalent to that of thirty
(30) inches of mercury at thirty-two degrees (32 degrees) Fahrenheit
and under the standard gravitational force with air of the same
temperature and pressure as the gas, when the products of combustion
are cooled to the initial temperature of gas in air and when the water
formed by combustion is condensed to a liquid state.
(h) The gas shall be interchangeable as defined in American Gas
Association Research Bulletin 36, published in 1946, entitled
"Interchangeability of Other Fuel Gases with Natural Gases."
- 22 -
25
2. If the gas offered for sale to Buyer fails at any time to conform to
any of the specifications of this Article XI, Buyer may notify Seller of any
such failure in writing and Seller shall make a diligent effort to correct such
failure so as to deliver gas conforming to the above specifications. If after
receiving such notice, Seller is unable to deliver gas conforming to the above
specifications by treatment consistent with prudent operations and by means
which are economically feasible, in Seller's opinion, Buyer may at its option
either accept or reject deliveries thereof. If Buyer rejects the gas, such gas
shall be released from this Agreement.
ARTICLE XII
DELIVERY PRESSURE
1. Seller shall deliver gas well gas at a pressure sufficient to allow
the gas well gas to enter Buyer's facilities at the delivery points hereunder,
provided Seller shall not be obligated to deliver gas well gas to Buyer at a
pressure in excess of one thousand and fifty (1,050) pounds per square inch
gauge. If the well is unable to produce the daily contract quantity applicable
to such reservoir against the pressure prevailing in Buyer's pipelines, then
Buyer shall promptly reduce such pressures to the extent required to permit the
delivery of such quantity from such well; provided, that Buyer shall never be
obligated to reduce such pressure below 200 pounds per square inch gauge. If
Buyer is required to install compression facilities to effectuate such
reduction in pressure, the provision of Article XIV hereof shall excuse Buyer's
failure to take such daily contract quantity during the period prior to the
completion of the installation of such compression facilities.
ARTICLE XIII
MEASUREMENTS AND TESTS
1. Standards of measurements and tests:
(a) The volume of gas delivered hereunder shall be computed in
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26
accordance with the methods prescribed in the Gas Measurement Committee
Report #3, Natural Gas Department, American Gas Association, as revised
and reprinted September, 1969, and any subsequent amendments thereof
which are mutually acceptable to the parties hereto. The unit of volume
for all purposes hereunder shall be one cubic foot of gas at a base
temperature of sixty degrees (60o) Fahrenheit and a base pressure of
14.73 pounds per square inch absolute.
(b) The deviation of the gas from the Ideal Gas Laws at the pressures
and temperatures under which gas is delivered hereunder, shall be
determined at the beginning of deliveries hereunder and at intervals of
six (6) months thereafter or at such other intervals as may be mutually
agreed upon or found necessary in practice. Results of each such
determination shall be used in computing the volumes of gas delivered
hereunder until the next such determination is made. Such determination
shall be made by reference to the Tables on Super Compressibility
Factors for Natural Gas, American Gas Association.
(c) The specific gravity of the gas shall be determined every six (6)
months by joint tests or as much oftener as is found necessary in
practice. The method of test used shall be by gravity balance or by such
other methods as shall be agreed upon by the parties. The regular tests
at the first of each six-month period shall determine the specific
gravity to be used in the computation for the measurement of gas
deliveries during such period or until changed by special tests, the
special tests to be applicable from the date made to and including the
last day of such period or until further special tests are made.
- 24 -
27
(d) The flowing temperature of the gas at the points of delivery shall be
determined by means of a recording thermometer of standard make
acceptable to both parties, and the arithmetical average of hourly
readings during the time gas is flowing each day shall be deemed the gas
temperature and used in computing the volumes of gas delivered during
such day.
(e) The heating value of the gas delivered hereunder shall be
determined by means of a recording calorimeter using the Xxxxxx Principle
of calorimetry or its equal. If neither party elects to install a
recording calorimeter so located as to record the heating value of said
gas, then the heating value shall be determined by test from samples
taken under delivery conditions in one of Buyer's recording calorimeters
at Buyer's expense.
2. Measurements:
(a) For the purpose of calculating the volume of gas delivered
hereunder and for other purposes of establishing a volume where
applicable and in the compilation of such volumes, the atmospheric
pressure shall be assumed to be fourteen and four-tenths (14.4) pounds
per square inch absolute regardless of the actual atmospheric pressure at
which the gas is delivered and measured, unless otherwise established by
governmental authority.
(b) Buyer shall install, maintain and operate at its own expense,
equipment of a character and design acceptable to Seller and perform
all tests required to accomplish the measurement of volumes,
temperatures, specific gravity and heating values, except as provided in
Section 1(e), of this Article XIII, of the gas delivered hereunder. Such
volume measuring equipment shall conform to the specifications contained
in the Report designated in
- 25 -
28
Section l(a) of this Article XIII. Seller shall have access to such
measuring equipment at all reasonable hours, but the calibrating and
adjusting thereof and changing of charts shall be the responsibility of
Buyer. Upon request of Seller, all volume, specific gravity, and
temperature charts used in the measurement of gas hereunder shall be
mailed or delivered to Seller for checking and calculating. Such charts
shall be mailed or returned to Buyer within thirty (30) days after
receipt thereof by Seller.
(c) Seller may install, maintain and operate such check measurement
equipment as it may desire, but same shall not interfere in any way with
the operation of Buyer's measurement equipment hereunder. All
calibrating and adjusting of Seller's meters and changing of charts shall
be done by Seller.
(d) Buyer and Seller shall each have the right to be present at the
time of installing, testing, cleaning, changing, repairing, inspecting,
calibrating or adjusting done in connection with the measuring equipment
of the other which is used in measuring deliveries hereunder; and the
party which is planning to conduct such operations shall give the other
party at least ten (10) days' prior notice thereof in order that it may
be present.
(e) If, for any reason, Buyer's measuring equipment is out of service
or out of repair so that the quantity of gas is not correctly indicated
by the reading thereof, the gas delivered during the period such
measuring equipment is out of service or repair shall be estimated and
agreed upon on the basis of the best data available, using the first of
the following methods which is feasible:
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29
i. By using the registration of any check measuring equipment
if installed and accurately registering; or
ii. By correcting the error if the percentage of error is
ascertainable by calibration, tests or mathematical calculations; or
iii. By estimating the quantity of deliveries by comparison
with deliveries during preceding periods under similar conditions
when the meter was registering accurately.
(f) The accuracy of the measuring equipment at the point of delivery
shall be tested at reasonable intervals of not less than once a month and
whenever requested by Buyer or Seller. If any such test shall be
requested by Seller and, upon such test, the measuring equipment in
question shall be found to be registering correctly, the cost of such
test shall be charged to and borne by Seller; otherwise, the cost of all
such tests shall be borne by Buyer.
(g) If, upon any test, the measuring equipment in the aggregate is found
to be inaccurate by two percent (2%) or less, previous readings of such
equipment shall be considered correct in computing the deliveries of gas
hereunder, but such equipment shall be immediately adjusted to record
accurately. If, upon any test, the measuring equipment shall be found to
be inaccurate by more than two percent (2%), then and in that event any
previous readings of such equipment and any payments based on such
previous readings of such equipment and any payments based on such
previous readings, shall be corrected to zero error for any period is not
definitely known or agreed upon, but, if the period is not definitely
known and agreed upon, such
- 27 -
30
corrections shall be for a period covering the last half of the time
elapsed since the last test. (h) Buyer shall preserve or cause to be
preserved for a period of at least six (6) years all test data, charts,
or other similar records for the mutual use of both parties.
ARTICLE XIV
FORCE MAJEURE
1. If either Buyer or Seller is rendered unable, wholly or in part, by
force majeure or any other cause of any kind not reasonably within such party's
control to perform or comply with any obligation or condition of this
Agreement, upon giving notice and reasonably full particulars to the other
party such obligation or condition shall be suspended during the continuance of
the inability so caused and such party shall be relieved of liability and shall
suffer no prejudice for failure to perform the same during such period;
provided, obligations to make payments then due for gas delivered hereunder
shall not be suspended and the cause of suspension (other than strikes or
lockouts) shall be remedied so far as possible with reasonable dispatch.
Settlement of strikes and lockouts shall be wholly within the discretion of the
party having the difficulty. The term "force majeure" shall include, without
limitation by the following enumeration, acts of God and the public enemy, the
elements, fire, flood, accidents, breakdowns, permits (including any necessary
authorizations from the Michigan Public Service Commission), strikes and any
other industrial, civil or public disturbances, and any laws, orders, rules,
regulations, acts or restraints of any government or governmental body or
authority, civil or military.
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31
ARTICLE XV
LAWS, ORDERS, RULES AND REGULATIONS
1. The performance by either party of any and all of the obligations set
forth in the Agreement shall be subject to all valid and applicable laws,
orders, rules and regulations of any duly constituted authority having
jurisdiction. Either party shall have the right to contest the validity of any
such law, order, rule or regulation and the acquiescence or compliance
therewith for any period of time shall not be construed as a waiver of such
right.
ARTICLE XVI
TAXES
1. Except as hereinafter provided, Seller agrees to pay or cause to be
paid all taxes imposed upon gas prior to its delivery to Buyer hereunder or
upon any occupation or privilege relating to the production, sale or delivery
of such gas to Buyer. Buyer agrees to pay or cause to be paid all taxes
imposed on such gas after its receipt by Buyer, or upon any occupation or
privilege relating to the transmission or sale of such gas after its receipt by
Buyer.
2. If at any time after the date of this Agreement, there is imposed
upon Seller any new tax or increased rate of existing taxes, then, from and
after the date of imposition of such new or additional taxes, Buyer shall
reimburse Seller one hundred percent (100%) of the calculated amount of such
new or increased tax or taxes imposed on Seller. As used herein the term "tax"
shall mean sales, transaction, occupation, service, production, severance,
gathering, transmission, value added, export or excise tax, assessment or fee
levied, assessed or fixed by governmental authority, and taxes of similar
nature or equivalent in effect (not including income, payroll, excess profits,
capital stock, franchise or general property taxes). Such reimbursement shall
apply to the royalty interest as well as the working interest
- 29 -
32
provided that Seller passes such reimbursement on to such royalty interest.
Any present or future tax levied on any liquid product which Seller is entitled
to retain shall be borne wholly by Seller.
3. If Seller receives written notice from Buyer that questions the
validity of any additional or supplemental tax, Seller will consult with Buyer
as to the best procedure to be followed in the payment of the questioned tax
and the means of testing its validity, having due regard for the protection of
the interests of both Seller and Buyer. Following such consultation, each
party will pursue the course of action it deems proper.
4. If Seller fails, refuses or neglects to pay any excise tax imposed by
governmental authority upon or by reason of any of Seller's operations in
connection with the gas provided to be sold and purchased hereunder and a lien
shall be filed by such governmental authority as a result thereof, then Buyer
shall have, and Seller hereby expressly gives it, the right to withhold the
amount of money necessary to discharge such lien from the amounts payable to
Seller by Buyer until final judicial determination.
ARTICLE XVII
ASSIGNMENT
1. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided that no
assignment of interest under this Agreement, conveyance, transfer of any
interest or change of ownership by either party shall be binding upon the other
party until such other party has been furnished with a written notice
evidencing such assignment, conveyance, transfer of interest or change of
ownership.
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33
ARTICLE XVIII
NOTICES
1. Any notice, request, demand, statement or payment provided for in
this Agreement shall be sent to the parties hereto at the following:
BUYER: Consumers Power Company
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Att: Director of Oil and Gas Supply
SELLER: Northern Michigan Exploration Company
Xxx Xxxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxx, Xxxxxxxx 00000
to such other address which may be designated by either party.
ARTICLE XIX
GENERAL
1. Seller represents that the gas committed by it hereunder has not been
previously, nor is it now dedicated in interstate commerce, and Seller
specifically agrees that it will not commingle gas covered hereby with any gas
to be used or consumed in or transported into any state other than the State of
Michigan prior to delivery of such gas to Buyer hereunder. Buyer agrees it
will only transport, or cause to be transported, gas purchased from Seller
hereunder to markets located in the State of Michigan and that none of the gas
purchased from Seller will be used or consumed in or transported into any state
other than the State of Michigan, and that none of the gas purchased from
Seller hereunder will be commingled with any gas to be used or consumed in, or
transported out of or into, any state other than the State of Michigan.
Buyer's and Seller's agreements expressed in the preceding sentences of this
Section 1 constitute a large measure of the consideration for each party's
entering into this Agreement. Therefore, violation of these agreements will
constitute an irreparable injury to the other party, and such other party
- 31 -
34
shall be entitled to injunctive relief and all other relief, in law and in
equity, to which it may be entitled including, but not limited to, cancellation
of this Agreement and, further, notwithstanding assignment by a party of its
rights under this Agreement, the party in default shall nevertheless remain
liable to the other party for any injury, damage or expense such other party
may sustain by reason of a breach of such agreement even by an assignee hereof,
immediate or remote. The provisions of this Section 1 shall not be waived by
Seller except by written notice to Buyer.
2. Seller grants to Buyer, so far as Seller has the right so to do,
rights-of-way on the lands described on Exhibit "A" acquired by Seller as
lessee for Buyer's pipelines and other equipment, as may be necessary, with
full right of ingress and egress to and from said premises, and the further
right to do thereon acts necessary or convenient for the carrying out of the
terms of this Agreement. All pipelines and equipment placed on the lands
described in this Section 2 by Buyer shall be and remain its property and be
subject to removal by it at any time. Buyer agrees to indemnify and hold
Seller harmless from any cost, injury, claim or damage caused by or arising out
of the installation, operation or presence of Buyer's facilities on said lands.
3. The failure of any party hereto to exercise any right granted
hereunder shall not impair nor be deemed as a waiver of such party's privilege
of exercising such right at any subsequent time or times.
4. All headings appearing herein are for convenience only, and shall not
be considered a part of this Agreement for any purpose or as in any way
interpreting, construing, varying, altering, or modifying this Agreement or any
of the provisions hereof.
ARTICLE XX
OPTION
1. It is expressly understood and agreed that, commencing with the date
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35
on which it is determined that at least seventy-five percent (75%) of the gas
reserves attributable to any gas well gas field subject to this Agreement has
been produced and extending throughout the remaining term of this Agreement,
Buyer shall have the exclusive right and option, with respect to each such
field, to purchase from Seller, all of Seller's right, title and interest to
the extent that same are assignable, in and to: (a) any and all oil and gas
leases owned or controlled by Seller which cover those lands embraced within
the boundaries of such gas well gas field insofar as such leases cover or
relate to the Niagaran formation; (b) all rights and interests heretofore or
hereafter acquired by Seller for the storage of gas in such formation within
the drilling unit; (c) all interests of Seller in and to the xxxxx located on
the above-mentioned lands which are drilled and completed in the Niagaran
formation and which Seller elects to assign to Buyer. If Seller elects not to
sell a well or xxxxx in said field and if said well or xxxxx have been
completed in the Niagaran formation, then Seller agrees to isolate said well or
xxxxx at Seller's expense, from the Niagaran formation.
2. For the purpose of this Article XX, the determination of the
remaining gas reserves attributable to each gas well gas field subject to this
Agreement shall be as follows:
(a) Prior to production from each such field and on an annual basis
thereafter for three years, Seller shall measure in each well therein the
stabilized static reservoir pressure or determine the extrapolated
reservoir pressure from a conventional Xxxxxx type pressure build-up
analysis. Following the third year, measurements shall be made at
mutually acceptable time intervals; however, at no time shall well
off-line times resulting from abovesaid pressure measurements be counted
as force majeure and result in a reduction in the
- 33 -
36
annual contract quantity to be purchased by Buyer. Measurements,
whenever possible, shall be conducted at times when xxxxx are shut-in for
reasons so as not to reduce production. Seller shall give Buyer
sufficient advance notice each time that Seller determines the reservoir
pressure of said xxxxx as aforesaid, and Buyer shall, at its election,
have the right to be present each time such pressures are being recorded.
Within thirty (30) days after Buyer exercises its option hereunder
Seller shall make the final pressure recording as to each gas well and
Buyer and Seller shall determine the total original gas reserves in place
in each separate gas field where an option has been exercised by Buyer,
by plotting reservoir pressures divided by compressibility factor (P/Z)
versus production and extending a straight line down to a reservoir
pressure of zero psia. Such straight line will be drawn through
P/Z-production points as of the respective dates during the period
commencing prior to production and the time that the above-mentioned test
has been made after Buyer exercises its option hereunder. The date on
which the above stated determination of original gas reserves is made
shall, for purposes of this Agreement, be known as the "Determination
Date". The production figure to be utilized as the abscissa for each of
the said P/Z-production points for each separate gas field will be the
total volume of gas produced from each separate gas field during the
period immediately prior to production and the end of each of said dates
respectively. The pressure (P) to be utilized as the ordinate for each
of the said P/Z-production points for each separate gas field shall be
either the arithmetical average
- 34 -
37
or volumetric average, as mutually agreed upon, of the bottomhole
pressure of each well in the gas field. The bottomhole pressure to be
taken under the aforesaid conditions and utilized in the manner
prescribed above shall be obtained in each separate gas field at a subsea
depth which is at or near the midpoint of the gas pay section in each
separate gas field, such depth to be agreed upon by both parties.
(b) The compressibility factors (Z) to be utilized in determining each
such ordinate shall be the compressibility factors of natural gas
produced from each of the separate gas fields at the pressures (P)
utilized in determining each such ordinate with temperature conditions of
each separate gas field measured at the subsea depths mentioned above and
taken immediately prior to production from each separate gas field, as
read from the Table on page 710 of Handbook of Natural Gas, written by X.
X. Xxxx, et al, using critical temperature (Tc) and critical pressure
(Pc) to be determined as follows:
i. A gas sample shall be taken from each separate gas field.
The chemical analysis of the said gas sample shall be applied in the
manner described in Table 4-8 on page 108 with the critical constants
from Table A-1 on page 708 of the aforementioned Handbook.
Notwithstanding the foregoing, if any of the separate gas
fields enters and passes through a period of production known as
"retrograde condensation" all P/Z-production points during the period
shall be ignored. If the P/Z-production points actually used in the
reserve determinations do not
- 35 -
38
form a straight line, the line to be drawn through said points shall
be determined by the application of the least squares method.
It is understood, however, that another engineering reserve
determination method may be used if more appropriate and accurate
than the method set forth above.
(c) The gas reserves remaining in the gas well gas field as of the
Determination Date will then be calculated by subtracting the actual
cumulative production from the field as of such date from the total
original gas reserves therein. The remaining gas reserves as calculated
are hereinafter called the "remaining reserves".
(d) A portion of the remaining reserves will then be allocated to each
producing unit embraced in whole or in part within the boundaries of said
gas field which, on the Determination Date, has a well thereon that is
entitled to a Field Rating Percentage by the Michigan Public Service
Commission. This portion will be determined by multiplying the remaining
reserves by the Field Rating Percentage for each such well as established
by the Proration Schedule of the Michigan Public Service Commission in
effect on the Determination Date or, if such Proration Schedule does not
reflect all reworking and additional drilling completed in said gas field
prior to the Determination Date, by the first Proration Schedule
thereafter issued by the Michigan Public Service Commission which does
reflect such reworking and drilling, provided, however, that in the event
a new well or xxxxx to test the field are commenced to be drilled, but
not completed, prior to the Determination Date, and such well or xxxxx
when completed are
- 36 -
39
capable of producing gas from the said field in such quantities as to
entitle the same to have a Field Rating Percentage established therefor
by the Michigan Public Service Commission, the remaining reserves will be
allocated to each producing unit on which such new well or xxxxx are
drilled, by multiplying the said remaining reserves by the Field Rating
Percentage for each well on such units as established by the first
Proration Schedule of the Michigan Public Service Commission which
reflects all reworking and additional drilling in said gas well gas field
completed prior to the Determination Date and the said new well or xxxxx
completed after the Determination Date.
Notwithstanding the foregoing, if, prior to the Determination Date,
any well in said gas field loses its eligibility for a Field Rating
Percentage by the Michigan Public Service Commission as a result of being
reworked, and a new well to replace the well which has lost its
eligibility has not been commenced prior to the Determination Date on the
producing unit on which the well losing its eligibility is located, the
Proration Schedule which is provided to be used under the foregoing
provisions of this Section 2(d) shall be recomputed to include a Field
Rating Percentage for the well which has lost its eligibility, said
recomputation to be made as though such well had not been reworked in
accordance with the formula upon which such Proration Schedule is
predicated. The Proration schedule, as so modified, will be used for the
allocation of remaining reserves hereunder, including an allocation to
the producing unit on which the well which has lost its eligibility is
located. In the event any well in said gas well gas field loses its
eligibility for a Field Rating Percen-
- 37 -
40
tage as aforesaid, and a new well is commenced prior to the Determination
Date on the producing unit on which the well losing its eligibility is
located, the drilling of such new well shall have the same effect under
the foregoing provisions of this Section 2(d) as the drilling of any
other well prior to the Determination Date.
In addition, if the Proration Schedule provided to be used under the
provisions of this Section 2(d) for the allocation of the said remaining
reserves reflects xxxxx reworked or commenced after the Determination
Date, such Proration Schedule, recomputed in accordance with the
foregoing, if such be the case, shall be recomputed as though such
reworking had not occurred or such xxxxx had not been drilled in
accordance with the formula upon which said Proration Schedule is
predicated. The Field Rating Percentage contained in such Proration
Schedules, recomputed as aforesaid shall be used for the allocation of
remaining reserves hereunder in lieu of the percentages contained therein
prior to any recomputation provided to be made in accordance with the
foregoing provisions of this Section 2(d).
(e) The respective portions of the remaining reserves allocated to the
above mentioned producing units which, computed on the basis of surface
acreage, are attributable to interests of Seller therein will then be
totaled. The resultant gas reserve figure shall then be adjusted either
upward or downward, as the case may be, by the total underage or overage
in gas production which is attributable to Seller's interest as of the
Determination Date, shown by the records of the Michigan Public Service
Commission
- 38 -
41
which will be brought up to date by the use of Buyer's daily meter
charts, if necessary.
(f) Buyer shall calculate the remaining reserves referred to in this
Section 2, in accordance with the terms and provisions thereof as soon
after the Determination Date as practicable, and shall furnish Seller
with a written statement of such reserves promptly after it is made. If
Seller fails to give Buyer written notice that Seller questions such
reserves within thirty (30) days after Seller's receipt thereof, it shall
be conclusively presumed that Seller agrees therewith. If, within such
thirty-day period, Seller notifies Buyer that it questions said
determination, Buyer and Seller together shall calculate the same in the
manner set forth in this Section 2.
If, within thirty (30) days after Seller notifies Buyer that Seller
questions such determination, Buyer and Seller are unable to a agree
thereon, said determination shall be determined by arbitration as
provided in Section 4 of Article IV. All arbitrators appointed pursuant
to Section 4 of Article IV shall be qualified independent engineers,
experienced in the oil and gas industry and competent to pass upon the
matter of gas reserves. All costs of arbitration pursuant to the terms
and provisions hereof shall be borne equally by Buyer and Seller.
3. If, for any gas well gas field or fields, Buyer desires to exercise
the option herein granted, Buyer shall do so by giving written notice
thereof to Seller designating such field or fields and thereafter, in
accordance with the terms and provisions of Section 1 and Section 4 of
this Article XX, Seller shall assign to Buyer, by instrument or
instruments satisfactory to Buyer, all of Seller's right, title and
interest in and to all oil and gas leases, storage
- 39 -
42
right and interests, and xxxxx. The assignments, except for the oil and gas
leases and the storage rights assigned thereunder, shall be with warranty of
title and all xxxxx assigned thereby shall be free and clear of all claims,
liens and encumbrances. Such written notice shall include a statement of
Buyer's plan to convert such field or fields to gas storage reservoir use.
In full consideration of such assignments, Buyer shall, simultaneously
with the execution and delivery thereof to Buyer, pay to Seller an amount equal
to the value attributable to Seller's interest in (1) the estimated quantities
of the original gas in place less the cumulative production from such reservoir
at the price then in effect under Sections 1 or 2 as the case may be, of
Article VII of this Agreement, and (2) fifty percent (50%) of Seller's actual
original cost for drilling and equipping each well sold, as shown in Seller's
accounting records, which is producing or is capable of producing at the time
of Buyer's exercise of its option.
As further consideration for the transfer and conveyance by Seller to
Buyer of all of Seller's properties, rights and interests in said gas field,
Buyer shall pay Seller for the remaining commercially recoverable crude oil
and/or lease condensate reserves, if any, at a price equal to Seller's lease
tank revenue per barrel less Seller's average cost for the previous six months
to produce a barrel of crude oil and/or lease condensate from such field. If
the parties are unable to agree on such average cost, Seller shall either
provide Buyer such records to indicate such average cost or shall accept
payment of fifty-five percent (55%) of the then current lease tank revenue per
barrel for each barrel of said reserves. Buyer and Seller shall determine, by
establishing standards and procedures which are acceptable to both parties, the
amount of such remaining commercially recoverable crude oil and/or lease
condensate reserves. If, for any reason, Buyer or Seller are unable to agree
upon the remaining commercially recoverable crude oil and/or lease condensate
reserves, then such reserves shall be determined by arbitration as provided
- 40 -
43
in Section 4 of Article IV. All arbitrators appointed pursuant to Section 4 of
Article IV shall be qualified independent engineers, experienced in the oil and
gas industry and competent to pass on the matters of crude oil and/or
condensate reserves. All costs of arbitration pursuant to the terms and
provisions hereof shall be borne equally by Buyer and Seller.
The payments provided to be made by Buyer to Seller under this Article XX
shall be made simultaneously with the assignments by Seller to Buyer of the
properties, rights and interests referred to herein.
4. Within twenty (20) days after exercise of the option referred to in
this Article XX, Seller shall deliver to Buyer all abstracts and other
documents that Seller has which evidence Seller's title to, and extent of
ownership of, the property and interests referred to in the notice exercising
said option. Buyer shall have one hundred twenty (120) days after receipt of
such abstracts and documents to examine the same or cause the same to be
examined and to notify Seller in writing of Buyer's approval or disapproval of
the extent of Seller's ownership of the property and interests involved and
Seller's title thereto. In the event Buyer approves Seller's title and extent
of ownership, the assignment provided to be made in this Article XX shall be
made by Seller to Buyer within fifteen (15) days after receipt of said approval
notice. In the event Buyer does not approve of Seller's title and extent of
ownership, Buyer shall specify its objections in the disapproval notice and
shall, within thirty (30) days after the date of such disapproval notice, give
Seller written notice of those of the above mentioned oil and gas leases, xxxxx
and other property, rights and interests Buyer desires to have assigned to it
by Seller and Seller shall, within fifteen (15) days thereafter, make the
necessary assignment in accordance with the provisions of this Article XX.
It is expressly understood and agreed that Buyer shall return all
abstracts to Seller within a reasonable time and shall retain all other
documents fur-
- 41 -
44
nished by Seller to Buyer hereunder covering any oil and gas leases, xxxxx and
other properties and interests assigned by Seller to Buyer hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate counterparts, each of which is an original and all of
which are identical, as of the day and year first above written.
WITNESS: NORTHERN MICHIGAN EXPLORATION COMPANY
/s/ Xxxx X. XxXxxxxx By /s/ X. X. Xxxxxxx
--------------------------------- -----------------------------------
X. X. Xxxxxxx
Vice President
Executed at Jackson, Michigan
/s/ Xxxxxx X. Xxxxxxxx November 2, 1978 at 12:55 p.m. EST
---------------------------------
CONSUMERS POWER COMPANY
/s/ J. R. Xxxx By /s/ X. X. Xxxxxxx
--------------------------------- -----------------------------------
X. X. Xxxxxxx
Vice President
Executed at Jackson, Michigan
/s/ Xxxxxx X. Xxxxxxxx November 2, 1978 at 11.34 a.m. EST
---------------------------------
- 00 -
00
XXXXXXXXXXXXXXX
XXXXX XX XXXXXXXX )
) ss
COUNTY OF XXXXXXX )
Before me, the undersigned, a Notary Public within and for said County
and State, on this 2nd day of November, 1978, personally appeared X. X.
Xxxxxxx, to me known to be the identical person who executed the within and
foregoing instrument as Vice President for NORTHERN MICHIGAN EXPLORATION
COMPANY, a corporation, and acknowledged to me that he executed the same as his
free and voluntary act and deed and as the free and voluntary act and deed of
NORTHERN MICHIGAN EXPLORATION COMPANY, a corporation, for the uses and purposes
therein set forth.
In testimony whereof, I have hereunto set my hand and official seal the
day and year last above written.
/s/ Xxxxxx X Xxxxxxxx
-------------------------------------
Notary Public, Xxxxxxx County, Michigan
My commission expires: 11/7/79
STATE OF MICHIGAN )
) ss
COUNTY OF XXXXXXX )
Before me, the undersigned, a Notary Public within and for said County
and State, on this 2nd day of November, 1978, personally appeared X. X.
Xxxxxxx, to me known to be the identical person who executed the within and
foregoing instrument as Vice President for CONSUMERS POWER COMPANY, a
corporation, and acknowledged to me that he executed the same as his free and
voluntary act and deed and as the free and voluntary act and deed of CONSUMERS
POWER COMPANY, a corporation, for the uses and purposes therein set forth.
In testimony whereof, I have hereunto set my hand and official seal the
day and year last above written.
/s/ Xxxxxxxx X. Xxxxx
-------------------------------------
Notary Public, Xxxxxxx County, Michigan
My commission expires: 10/20/81
46
Exhibit "A"
Attached to and made apart of Gas Purchase Contract dated as of November
2, 1978 between NORTHERN MICHIGAN EXPLORATION COMPANY (Seller) and CONSUMERS
POWER COMPANY (Buyer).
Area of Dedication
1. Xxxxxxx Township - T34N-R5E Presque Isle County, Michigan
2. Xxxxxxx Xxxxxxxx - X00X-X0X Xxxxxxx Xxxx Xxxxxx, Xxxxxxxx
