Pipeline Capacity Lease Agreement - LaGloria Oil and Gas Co. and Scurlock Permian LLC
PIPELINE CAPACITY LEASE AGREEMENT
THIS Pipeline Capacity Lease Agreement (hereinafter referred to as the
"Lease") is made and entered into this 12th day of April, 1999, by and between
LaGloria Oil and Gas Company, a Delaware corporation, with a mailing address of
4747 Bellaire Boulevard, Bellaire, Texas 77401 (hereinafter referred to as
"LaGloria"), and Scurlock Permian LLC, a Delaware limited liability company,
with a mailing address of P.O. Box 4648, Houston, Texas 77210-4648 (hereinafter
referred to as "SPLLC").
WHEREAS, SPLLC owns a pipeline system for the transportation of crude oil
beginning at the inlet weld connection to SPLLC's ten-inch, 300 pound scraper
trap located at LaGloria's Nettleton Station in Gregg County, Texas, proceeding
southwesterly a distance of approximately 34.62 miles to a point of termination
at SPLLC's Bullard Junction in Tyler, Smith County, Texas (hereinafter referred
to as the "Pipeline"). The point of termination is defined as the inlet flange
of the downstream ten-inch, 300 pound gate valve at SPLLC's Bullard Junction.
The location of the Pipeline is shown generally on Exhibit "A" attached hereto
and made a part hereof;
WHEREAS, LaGloria desires to lease the capacity of the Pipeline from SPLLC
for transportation of crude oil.
NOW, THEREFORE, LaGloria and SPLLC agree as follows:
1. TERM
a. As used in this Lease, the term "Lease Commencement Date" shall mean
January 1, 2000; and the term "Lease Year" shall mean the period from
January 1 to December 31.
b. This Lease shall have an initial term of five (5) Lease Years
commencing on the Lease Commencement Date (hereinafter referred to as
the "Initial Term"), unless sooner terminated as provided in Section 3
below. This Lease may be renewed thereafter on a year-to-year basis by
the mutual agreement of the parties.
2. LEASE OF CAPACITY
a. Upon and subject to the terms and conditions set forth in this
Lease, SPLLC leases all the Pipeline capacity to LaGloria for delivery
of crude oil from LaGloria's Nettleton Station to SPLLC Bullard
Junction.
b. Pipeline capacity for LaGloria and other shippers, if any, shall be
scheduled and transported ratably on a month-to-month basis such that
volumes actually scheduled for delivery out of the Pipeline in any
month may vary.
c. In addition to the Pipeline, SPLLC shall also provide LaGloria with
the use of SPLLC's tankage at Munro Station (tank numbers 992 and
1016), with a shell capacity totaling 140,000 barrels. Nothing
contained in this Lease obligates SPLLC to construct, or obtain, new
or additional tankage to accommodate or increase the Pipeline
capacity. The Pipeline capacity is currently 24,000 barrels of crude
oil per day, however, this volume is subject to change and may be
reduced due to
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regulatory, operational or other capacity changes during the Term of this
Lease. SPLLC shall give LaGloria notice in writing in the event the
Pipeline capacity is reduced.
d. LaGloria shall deliver crude oil to SPLLC at the inlet weld connection to
SPLLC's ten-inch, 300 pound scraper trap at LaGloria's Nettleton Station at
480 pounds maximum delivery pressure.
e. LaGloria shall provide linefill inventories of crude oil to the Pipeline as
SPLLC determines necessary to operate the Pipeline at its maximum
efficiency, and a minimum of 12,000 barrels of crude oil for each tank at
SPLLC's Munro Station. Upon termination of this Lease, the linefill
inventories in the Pipeline and the inventories in the storage tanks at
SPLLC's Munro Station, if any, shall be delivered to LaGloria, as soon as
reasonable, provided that all costs and expenses for such delivery shall be
solely borne by LaGloria.
f. LaGloria owns 1.9 miles of pipeline from SPLLC's Bullard Junction to
LaGloria's Tyler refinery (hereinafter referred to as "Pipeline Two"). La
Gloria shall confirm that Pipeline Two complies with the laws, rules and
regulations of the local, state and federal agencies, having jurisdiction
over this 1.9 miles of Pipeline Two. LaGloria grants SPLLC the right to the
exclusive use and operation of Pipeline Two at no cost or expense in
connection with the operation of the Pipeline under this Agreement.
g. From time to time and upon 48 hours notice, LaGloria may request SPLLC to
deliver crude oil to SPLLC's Munro Station. If so requested by LaGloria,
SPLLC can delivery crude oil from the Pipeline through SPLLC's three-inch,
positive displacement meter, pumped through a separate SPLLC pipeline
system to a tank at SPLLC's Nettleton Station, and then delivered to a
three-inch, positive displacement meter for delivery into LaGloria's
Nettleton Station. This volume of crude oil delivered at SPLLC's Munro
Station, at LaGloria's request, will be transported to LaGloria's Nettleton
Station at no additional cost above the Rent as stated in Section 4, below,
however, this volume will not be applied to the minimum throughput volume
specified in Section 3, below.
3. MINIMUM THROUGHPUT VOLUME
For the first two (2) years of the Initial Term (January 1, 2000 through
December 31, 2001), LaGloria shall schedule and transport a minimum of
7,500,000 barrels of crude oil through the Pipeline excluding volumes delivered
pursuant to Subsection 2.g., above. If this minimum volume of 7,500,000 barrels
of crude oil, subject to the capacity limits of Subsection 2.c., above has not
been transported by December 31, 2001, LaGloria shall pay SPLLC the difference
between the transported volume and 7,500,000 multiplied by [***] per barrel, as
discussed in Section 4 below, which shall be due and payable within thirty (30)
days of receipt of SPLLC's statement. In the event of force majeure, as
described in Section 15 herein, during the first two (2) years of the Initial
Term, the time period to schedule and transport the minimum of 7,500,000
barrels shall be extended for the same period of time as the force majeure
condition exists.
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4. RENT
In consideration of SPLLC's lease of Pipeline capacity to LaGloria under
this Lease, LaGloria shall pay Rent to SPLLC within fifteen (15) days of
SPLLC's statement date for the volume of crude oil received at SPLLC's ten-inch,
300 pound scraper trap at LaGloria's Nettleton Station, as measured by
LaGloria's positive displacement meter, in the previous month as follows:
a. For the initial 21,500,000 barrels of crude oil, the Rent shall be
calculated by multiplying the total volume of crude oil received,
subject to the capacity limits of Subsection 2.c., above, by [***]
per barrel of crude oil.
b. For each barrel of crude oil in excess of 21,500,000 barrels, the
Rent shall be calculated by multiplying the total volume of crude
oil received, subject to the capacity limits of Subsection 2.c.,
above by [***] per barrel of crude oil.
c. During the annual renewal(s), if any, LaGloria and SPLLC shall
mutually agree upon the Rent.
In addition to the Rent, LaGloria shall pay directly or reimburse SPLLC
for the costs and expenses of Subsection 8.b., below.
5. PERMISSIBLE CRUDE OIL
LaGloria shall not put through the Pipeline any material which has
been classified as, or would constitute in SPLLC's sole discretion, a
hazardous waste, material or substance or damage the Pipeline or render it
unfit for use. LaGloria warrants that the crude oil transported through
the Pipeline shall be of merchantable quality and fit for normal refinery
processing. Merchantable crude oil is defined as virgin crude oil produced
from wells which are free of foreign contamination (whether injected or
outside) and free of added chemicals containing (by way of illustration
and not of limitation) halogenated organic compounds and/or oxygenated
compounds, SPLLC may return any crude oil containing contaminants in which
event LaGloria agrees to: accept the returned crude oil; reimburse SPLLC
for any costs incurred; and be liable for all damages, but excluding
consequential damages and loss of profits suffered by SPLLC. SPLLC
reserves the right to refuse crude oil having a Reid vapor pressure of 10
psi or above. Without limiting the generality of the foregoing, LaGloria
shall not put into or through the Pipeline and SPLLC shall not be
obligated to accept or transport (1) any contaminated crude oil or (2) any
material which does not conform.
6. PIPELINE SYSTEM TARIFF
a. SPLLC shall have the right to file from time to time, as necessary,
for regulatory approval for tariffs and regulations that comport
with the terms and conditions of this Lease, as reasonably
practical, and comply with the federal and state regulations for the
Pipeline and Pipeline Two, as hereinafter defined.
b. In the event of a protest or complaint filed by any third party,
including any local, state or federal agency, with respect to
SPLLC's Pipeline tariff, if, as and/or when a tariff may be on file,
SPLLC shall have the right to file such tariff in its absolute
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discretion and to refile a new tariff that comports to the terms and
conditions of this Lease, as reasonably practical, and the
then-current state or federal tariff regulations.
7. USE OF PIPELINE/TARIFFS
SPLLC'S ownership, management and supervision and LaGloria's use of the
Pipeline shall be subject to, and SPLLC and LaGloria agree to and shall comply
with, the terms and conditions of this Lease and all applicable federal, state
and local laws, ordinances, rules, regulations, orders and judgments which are
now or hereafter may be applicable to the ownership, use or occupancy of the
Pipeline.
8. OPERATION AND MAINTENANCE
a. SPLLC shall operate the Pipeline providing supervision, labor and
materials. It is understood that LaGloria it not involved in the
management, supervision, method of operation or maintenance and
repair of the Pipeline.
b. The costs and expenses of electricity and tankage at LaGloria's
Nettleton Station shall be solely borne by LaGloria. All costs of
operation of Pipeline Two, including labor and materials for
maintenance and repair of Pipeline Two, shall be for the account of
LaGloria. LaGloria will be responsible for the performance, at its
sole expense, of all routine maintenance of the 1.9 miles of
Pipeline Two from the inlet flange of the downstream ten-Inch, 300
pound gate valve at SPLLC's Bullard Junction to LaGloria's Tyler
refinery, such as, but not limited to, clearing right of way,
excavation, construction, maintenance, repair, inspection, testing,
patrolling, corrosion control and aerial patrol.
c. Except as provided in Subsection 8.b., above, all costs of operation
of the Pipeline, including labor and materials for maintenance and
repair of the Pipeline, shall be for the account of SPLLC SPLLC will
be responsible for the performance, at its sole expense, of all
routine maintenance of the Pipeline such as, but not limited to,
clearing right of way, excavating, construction, maintenance,
repair, inspection, testing, patrolling, corrosion control and
aerial patrol.
d. SPLLC agrees to use its best efforts to schedule and/or perform any
and all operations, maintenance and repair so as to avoid loss of
use of the Pipeline capacity by LeGloria and shall give LaGloria
reasonable notice of maintenance and repair work, except in the case
of emergency, prior to its performance.
e. LaGloria shall designate a valve connection on a crude oil storage
tank at LaGloria's Tyler refinery, which will be locked open by
SPLLC for use in a relief valve system. SPLLC shall design and, upon
approval from LaGloria, which approval shall not be unreasonably
denied, install a pressure relief system from a point upstream of
LaGloria's positive displacement meter at the Tyler refinery to this
dedicated valve. At the termination of this Lease, this relief valve
system will be conveyed from SPLLC to LaGloria, at no cost to
LaGloria.
f. SPLLC agrees to comply with all governmental regulations applicable
to the operation of the Pipeline, including, but not limited to,
environmental and safety laws relating to the Pipeline, at SPLLC's
sole expense.
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9. CRUDE OIL LOSSES AND GAINS
a. For the purposes of this Lease, crude oil losses and gains shall be
classified as "accountable losses" and "unaccountable losses and
gains" "Unaccountable losses and gains" shall be those experienced
in the operation of the Pipeline which cannot be attributed to a
specific occurrence, "Accountable losses" shall include those
resulting from specific occurrences, such as, but not limited to,
acts of God, fire, earthquakes, floods, malicious mischief,
insurrection, riots, strikes, war and any other similar cause and
losses arising from line breaks and/or specific losses during
transit in the Pipeline. This Section 9 shall not apply if the crude
oil losses occur because of SPLLC's gross negligence or willful
misconduct.
b. "Unaccountable losses and gains" in the Pipeline during any calendar
month shall be ratably charged to LaGloria or other shippers, if
any, on the basis of the shipper's total deliveries out of the
Pipeline through such shipper's respective owned or leased space
during such calendar month, as compared to the total of all barrels
delivered out of the Pipeline during such month.
c. "Accountable losses" for any one event or a sequence of connected
events in the Pipeline during any calendar month shall be SPLLC's
responsibility. The measurement of any such loss can be calculated
on an over and short calculation using LaGloria's Nettleton and
Tyler positive displacement meters and the storage tank inventories,
if any. If either SPLLC or LaGloria disputes the over and short
calculation, the parties mutually agree to resolve the dispute
through arbitration. If arbitration is requested, both parties shall
designate one arbitrator and those two designated arbitrators shall
select a third arbitrator. The decision of these three arbitrators
on any over and short calculation shall be binding on the parties
hereto.
10. PIPELINE APPORTIONMENT
In the event capacity in the Pipeline is restricted on account of
maintenance, emergencies, force majeure, or legal or regulatory requirements,
SPLLC shall: (1) forthwith advise LaGloria of such capacity restriction and the
anticipated duration thereof; and (2) apportion among all shippers in proportion
to the volumes nominated by each for such month, based on the capacity of the
Pipeline.
11. NOMINATIONS
a. Either party shall have the right to require Pipeline nominations.
If requested, LaGloria will be responsible for scheduling movements
in its portion of the capacity of the Pipeline and will furnish
SPLLC, on the twenty-fifth (25th) day of each month, or if such day
is a holiday, then on the most immediate business day preceding such
holiday, a monthly schedule indicating the Pipeline capacity
scheduled for the upcoming month, and the expected volumes.
b. LaGloria shall at all times be responsible for providing that share
of the volume of crude oil required for linefill, tank bottoms, and
working stock in the Pipeline equal to the ratio that its current
deliveries bear to the total of all current deliveries out of
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the Pipeline. Only crude oil shall be shipped through the Pipeline
and on a common stream basis with other crude oil of similar
characteristics. SPLLC shall assume no risk of loss for crude oil or
value thereof transported and/or commingled in or through the
Pipeline.
12. INDEMNIFICATION
a. LAGLORIA AGREES TO AND SHALL INDEMNIFY SPLLC, ITS PARENT,
SUBSIDIARIES, DIVISIONS, AFFILIATES, EMPLOYEES, CONTRACTORS,
SUBCONTRACTORS, AGENTS, REPRESENTATIVES, AND/OR CONSULTANTS FROM ANY
LOSS, DAMAGE, INJURY, COST, EXPENSE (INCLUDING BUT NOT LIMITED TO
ATTORNEY FEES AND COURT COSTS) CLAIMS, DEMANDS, LIABILITY, OR CAUSES
OF ACTION ARISING OUT OF, IN WHOLE OR IN PART: (1) A BREACH BY
LAGLORIA, ITS EMPLOYEES, CONTRACTORS, SUBCONTRACTORS, AGENTS,
REPRESENTATIVES, AND/OR CONSULTANTS OF ANY TERM, PROVISION OR
WARRANTY CONTAINED IN THIS LEASE; (2) ANY ACT OR OMISSION OF
LAGLORIA ITS EMPLOYEES, CONTRACTORS, SUBCONTRACTORS, AGENTS,
REPRESENTATIVES, AND/OR CONSULTANTS IN THE PERFORMANCE OF THIS
LEASE; OR (3) ANY VIOLATION BY LAGLORIA, ITS EMPLOYEES, CONTRACTORS,
SUBCONTRACTORS, AGENTS, REPRESENTATIVES, AND/OR CONSULTANTS OF ANY
LAWS, REGULATIONS OR ORDINANCES RELATED TO THIS LEASE.
b. SPLLC AGREES TO AND SHALL INDEMNIFY, LAGLORIA, ITS EMPLOYEES,
CONTRACTORS, SUBCONTRACTORS, AGENTS, REPRESENTATIVES, AND/OR
CONSULTANTS, FOR ANY LOSS, DAMAGES, INJURY, COST, EXPENSE (INCLUDING
BUT NOT LIMITED TO ATTORNEY FEES AND COURT COSTS), CLAIMS, DEMANDS,
LIABILITY, OR CAUSES OF ACTION ARISING OUT OF, IN WHOLE OR IN PART;
(1) SPLLC'S BREACH OF ANY TERM, PROVISION OR WARRANTY CONTAINED IN
THIS LEASE; (2) ANY ACT OR OMISSION OF SPLLC, ITS EMPLOYEES,
CONTRACTORS, SUBCONTRACTORS, AGENTS, REPRESENTATIVES (AND/OR
CONSULTANTS) IN THE PERFORMANCE OF THIS LEASE; OR (3) ANY VIOLATION
BY SPLLC, ITS EMPLOYEES, CONTRACTORS, SUBCONTRACTORS, AGENTS,
REPRESENTATIVES (AND/OR CONSULTANTS), OF ANY LAWS, REGULATIONS OR
ORDINANCES RELATED TO THIS LEASE.
c. LAGLORIA AND SPLLC, SHALL, IN THE EVENT OF LIABILITY ARISING OUT OF
THEIR JOINT OR CONCURRENT ACTS OR OMISSION, BE LIABLE TO THE OTHER
AND ANY DAMAGED THIRD PARTY IN PROPORTION TO THEIR RELATIVE DEGREE
OR FAULT OR RESPONSIBILITY.
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d. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL
DAMAGES.
13. ASSIGNING, SUBLETTING, LIENS
LaGloria shall not have the right to assign or sublease its rights under
this Lease without the written consent of SPLLC, such consent shall not be
unreasonably withheld, provided, however, that it is reasonable that SPLLC may
consider the safety record, operations ability and financial condition of the
proposed assignee. LaGloria shall not allow any lien or encumbrance to be placed
on the Pipeline, or any part thereof, by operation of law or otherwise.
14. NOTICES
All notices required or permitted hereunder shall be in writing and sent
by mail, postage prepaid, or by facsimile, and shall be effective when received
by a party at the address set forth for that party below, or such other address
hereafter specified by notice to the other party.
For SPLLC: Scurlock Permian LLC
P. O. Box 4648
Houston, Texas 77210-4648
Attn: Mr. J. B. Fryfogle, Senior Vice President Trading,
Scheduling and Lease Acquisition
Facsimile No. 713-646-4680
For LaGloria: LaGloria Oil and Gas Company
4747 Bellaire Boulevard
Bellaire, Texas 77401
Attn: Mr. J. E. Blakistone
Facsimile No. 713-660-4550
15. FORCE MAJEURE
a. Effect of Force Majeure. In the event that either SPLLC or LaGloria
is rendered unable, by reason of an event of force majeure, as
defined herein, to perform, wholly or in part, any obligation or
commitment set forth in this Lease, then upon such party's giving
notice and full particulars of such event as soon as practicable
after the occurrence thereof, the obligations of both parties, to
the extent they are affected by such event of force majeure, except
for unpaid financial obligations arising prior to such event of
force majeure, shall be suspended to the extent and for the period
of such force majeure condition.
b. Nature of Force Majeure. The term "force majeure" as employed in
this Lease shall mean acts of God, strikes, lockouts or industrial
disputes or disturbances, civil disturbances, arrests and restraint
from rulers of people, interruptions by government or court orders,
present and future valid orders, decisions or rulings of any
government or regulatory entity having proper jurisdiction, acts of
the public enemy,
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wars, riots, blockades, insurrections, inability to secure labor or
inability to secure materials, including inability to secure
materials by reason of allocation promulgated by authorized
governmental agencies, epidemics, landslides, lightning,
earthquakes, fire, storms, floods, washouts, inclement weather which
necessitates extraordinary measures and expense to construct
facilities and/or maintain operations, explosions, breakage or
accident to machinery or lines of pipe, inability to obtain or delay
in obtaining easements or rights-of-way, the making of repairs or
alterations to pipelines or facilities, or any other cause, whether
of the kind herein enumerated or otherwise, not reasonably within
the control of the party claiming force majeure. The term "force
majeure" as employed in this Lease shall not include LaGloria
idling, suspending operation, shutting down or otherwise ceasing
operations, whether temporary or permanent, of their refinery in
Tyler, Smith County, Texas.
c. Resumption of Normal Performance. Should there be an event of force
majeure affecting performance hereunder, the parties shall
cooperate, other than financially, to take all reasonable steps to
remedy such event with all reasonable dispatch to insure resumption
of normal performance.
d. Termination. In the event that, by reason of force majeure, the
Pipeline, or any substantial portion thereof, is shut down or unable
to operate for any continuous period of sixty (60) days or in the
event either party, by reason of force majeure, is unable to resume
its obligations described in this Lease for any continuous period of
sixty (60) days such that it materially affects the ongoing economic
operation of the Pipeline in this Lease, then either party on thirty
(30) days written notice to the other party may elect to terminate
this Lease, unless within such thirty (30) days notice period such
event of force majeure is relieved. Any such termination shall be
without liability of either party to the other. The term of this
Lease shall not be extended for any period of shutdown or inability
to operate attributable to any event of force majeure.
16. EVENTS OF DEFAULT
If one or more of the following events (hereinafter referred to as "Events
of Default") shall occur:
a. LaGloria shall fail to pay monthly rent when due and nonpayment
continues for thirty (30) days after the same becomes due and
payable; or
b. SPLLC or LaGloria shall fail to perform or comply with any of the
terms or conditions of this Lease, other than those referred to in
the foregoing Subsection 16.a., above and such failure shall
continue for sixty (60) days after written notice of such failure is
received by the non-performing party;
then, in any such event, SPLLC (and LaGloria in the case of non-performance by
SPLLC in accordance with Subsection 16.b., above) and any time thereafter may
give a written termination notice to the other party specifying a date, which
shall be at least ten (10) days after the giving of such notice, on which this
Lease shall terminate, and on such date the term of this Lease shall expire and
terminate and all rights of LaGloria under this Lease shall cease, except as set
forth elsewhere in this Lease. The exercise of such right to terminate this
Lease upon the occurrence of any of the
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foregoing Events of Default shall not operate to deprive either party of any
other action, right or premedy against the other party at law or equity or by
statute or otherwise.
17. MISCELLANEOUS
a. This Lease embodies the entire agreement between the SPLLC and
LaGloria and it may not be modified or terminated except as provided
herein or by other written agreement between the parties and
executed by authorized officers.
b. The headings of the sections herein arc for convenience and shall
not be used in construing the meaning of any provision of this
Lease.
c. Failure of either party to insist on strict performance of the
terms, agreements and conditions herein contained, or any of them,
or to exercise any right, power or remedy consequent upon a breach
thereof, shall not constitute or be construed as a waiver or
relinquishment of such party's right to enforce any such term,
agreement or condition, but the same shall continue in full force
and effect. No waiver of any breach shall affect or alter this
Lease, which shall continue in full force and effect with respect to
any other existing or subsequent breach.
d. Each right, power and remedy provided for in this Lease shall be
cumulative and concurrent and shall be in addition to every other
right, power or remedy provided for in this Lease or now or
hereafter existing at law, in equity, by statute or otherwise, and
the exercise or beginning of the exercise of any one or more of the
rights,powers or remedies provide for in this Lease or now or
hereafter existing at law, equity, by statute or otherwise shall not
preclude the simultaneous or later exercise of any or all such other
rights, powers or remedies.
e. This Lease shall be governed by and construed in accordance with,
and the rights and liabilities of the parties under this Lease shall
be determined in accordance with, the laws of the State of Texas. In
the event of any legal action between the parties in respect of this
Lease, the parties hereby acknowledge and agree to attorn to the
jurisdiction of the courts of Texas, with venue in Harris County,
Texas, having jurisdiction over such matters, excluding any choice
of law rules which may direct the application of the laws of another
jurisdiction.
f. This Lease wholly replaces and supersedes any and all previous
agreements, whether written or oral, between SPLLC and LaGloria with
respect to or pertaining to the subject matter hereof.
g. If any provisions or part of this Lease is hold or deemed to be
invalid, illegal or void, then, in such event, the remainder of this
Lease Shall still be in full force and effect as if such invalid,
illegal or void provision has been deleted from or never included in
the Lease
h. This Lease may be executed by the parties in duplicate originals but
not in counterpart.
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IN WITNESS WHEREOF, SPLLC and LaGloria have caused this Pipeline Capacity
Lease Agreement to be executed as of the day and year first hereinabove written.
ATTEST: Scurlock Permian LLC
/s/ Lisa Beene By: /s/ Gerald E. Wassum
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Name: Gerald E. Wassum
Title: President
ATTEST: LaGloria Oil & Gas Company
/s/ Karen A. Jones By: /s/ Randall M. Trembly
-----------------------------
Name: Randall M. Trembly
Title: Executive Vice President
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