Gas Purchase Agreement - Western Gas Resources Inc. and Big Basin Petroleum LLC
GAS PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of this 28th day of January,
2000, to be effective on January 1, 2000 (the Effective Date), by and between
WESTERN GAS RESOURCES, INC., a Delaware corporation (Buyer), and Big Basin
Petroleum, LLC (Seller). Buyer and Seller shall also be hereinafter referred to
individually as the "Party" and jointly as the "Parties."
In consideration of the Agreement and of the mutual covenants contained
herein, Seller agrees to sell and deliver to Buyer, gas under the terms
specified in this Agreement.
1. Definitions. The following terms have the following meanings:
1.1 Accounting Period. The period commencing at 7:00 a.m., Mountain Time, on the
first day of a calendar month and ending at 7:00 a.m., Mountain Time, on the
first day of the next succeeding month.
1.2 BTU. The amount of heat required to raise the temperature of one pound of
water from 59 degrees Fahrenheit to 60 degrees Fahrenheit.
1.3 Compression Design Capacity or CDC. Compression capability, in MCF per day,
at the following operational criteria:
(i) 5 psig suction pressure at the compressor suction pulsation
bottle;
(ii) 12.7 psia barometric pressure;
(iii) 80 degrees Fahrenheit ambient air temperature;
(iv) 60 degrees Fahrenheit inlet gas temperature.
1.4 Cubic Foot. The volume of gas contained in one cubic foot of space at a
standard pressure base of 14.73 pounds per square inch absolute (psia) and a
standard temperature base of 60 degrees Fahrenheit.
1.5 Delivery Point. The inlet flange of Western's meters to be located in or
near Section 28, Township 47 North, Range 72 West, or at mutually agreeable
locations.
1.6 Excess Gas. Gas from the Lands, deliverable to a Delivery Point, in excess
of the firm CDC Buyer is committed to make available hereunder to Seller at that
Delivery Point.
1.7 Force Majeure. Any cause or condition not reasonably within the control of
the Party claiming suspension and which by the exercise of due diligence, that
Party is unable to prevent or overcome.
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1.8 Gas. All hydrocarbon and non-hydrocarbon substances produced from gas and/or
oil wells in a gaseous state
1.9 Gross Heating Value. The number of BTU's produced by the combustion, on a
dry basis and at a constant pressure, of the amount of the gas which would
occupy a volume of one Cubic Foot at a temperature of 60 degrees Fahrenheit and
at a pressure of 14.73 psia, with air of the same temperature and pressure as
the gas, when the products of combustion are cooled to the initial temperature
of the gas and air and when the water formed by combustion is condensed to the
liquid state.
1.10 Losses. Any loss, cost, expense, liability, damage, demand, suit, claim,
sanction, claim, settlement, judgment, lien, fine, penalty, and interest of
every kind and character (including reasonable fees and expenses of attorneys).
1.11 Purchasing Facilities. Any facility, including but not limited to
dehydration, pigging equipment, pipelines, and compressors, acquired hereby or
contemplated hereunder to be installed, operated and/or maintained by Buyer
regardless of whether Buyer owns, operates, leases or contracts for any such
facilities, including facilities installed, owned and operated by MIGC, Inc.
and/or Fort Union Gas Gathering, LLC.
1.12 Retained Fuel. All fuel that is either consumed or assessed between the
Delivery Point and the outlet of Purchasing Facilities. Fuel will be allocated
to the gas that Buyer delivers to Seller by multiplying the total quantity of
fuel consumed or assessed at the points where fuel is consumed for the benefit
of that gas by a fraction, the numerator of which is the quantity of gas that
Buyer delivers to Seller that flowed through the facility using the fuel and the
denominator of which is the total of all gas, including Buyer's, flowing through
that facility. For purposes of this agreement, Retained Fuel shall include any
gain or loss from the Delivery Point through the discharge of all Purchasing
Facilities where Seller's gas is compressed.
1.13 Lands. The lands in which Seller owns leasehold interests, described on
exhibit A attached hereto and made a part hereof, together with any wells in
which Seller owns interests which are now or hereafter drilled on the lands.
2. Terms of Purchase and Sale.
2.1 Delivery. Seller shall deliver gas to Buyer at the Delivery Point(s) against
the operating pressures at the Delivery Point(s) as they from time to time
exist; provided, Buyer agrees that it shall not cause the Delivery Point(s) to
be operated at an average pressure during any Accounting Period which exceeds
the suction pressure set forth in Section 1.3 at volumes less than or equal to
the CDC provided at that Delivery Point.
2.2 Commitment and Quantity.
a. Seller hereby commits, sells, and agrees to deliver to Buyer, and
Buyer agrees to purchase and receive, or cause to be received for Buyer's
account, from Seller, all gas attributable to the leasehold interests of
Seller and produced from formations from the surface of the earth to the
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base of the tertiary Age Coal Formations from well now or hereafter located
on the Lands described on Exhibit A. Seller agrees that the foregoing
deduction shall be a covenant running with the land and that any
assignment, sale or other transfer of all or a portion of Seller's
interests in the Lands shall include and be subject to the dedication under
this Agreement.
b. Buyer agrees to make available for the purchase of Seller's gas
from the Lands a firm CDC of 2,500 MCF per day at the Delivery Point(s).
Buyer will use reasonable efforts to make such CDC available after an
acceptable production test demonstrating production equal to at least 75%
of the 2,500 Mcf CDC to be provided and within 30 days following the
receipt of all necessary permits. Buyer agrees to make available on an
interruptible basis an additional CDC of 1,500 MCF per day.
c. Seller agrees to make a reasonable effort to drill, complete for
production, and connect sufficient additional wells within 3 months
following the date that the CDC is made available hereunder to utilize 100%
of such CDC. Seller acknowledges that Buyer is relying on the foregoing
representation of Seller as a material inducement in entering into this
Contract.
d. If, during the 48-month period following the three-month period
after installation of the CDC, the average daily volume of gas delivered
during any Accounting Period is less than 90% of the CDC made available
hereunder, Buyer shall collect a Deficiency Payment as set forth below.
Deficiency = ((CDC X Days) x .90) - (Actual Deliveries)
Where,
CDC = The amount of firm CDC provided hereunder.
Days= The total number of days in the Accounting Period, less any
days Buyer was unable to provide the firm CDC (subject to
variations from design conditions under Paragraph 1.3 above)
and less any days Seller was prevented from delivering gas
due to conditions of Force Majeure.
Actual The total deliveries of gas by Seller during the Accounting
Deliveries = Period if Mcf.
If a Deficiency exists for any Accounting Period, then Seller shall be liable
for a Deficiency Payment equal to the Deficiency (in Mcf) multiplied by the Fee
in effect at the time the deficiency occurred. All payments for Deficiencies
hereunder shall be due within fifteen (15) days following receipt of invoice by
Seller.
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e. If Seller has Excess Gas at any Delivery Point for which Seller
desires firm CDC, Seller may request Buyer, in writing, to cause the
expansion of the Purchasing Facilities to provide such firm CDC. Buyer will
then have thirty (30) days after such request to determine whether it is
economic for Buyer, in Buyer's sole judgment, to cause the expansion of the
Purchasing Facilities under the terms of this Agreement, considering the
amount of additional gas available from Seller and all other physical and
economic conditions then existing. In the event that Buyer determines that
it is economic for Buyer to cause the expansion of the Purchasing
Facilities under the terms of this Agreement, Buyer shall cause the
expansion of the Purchasing Facilities under the terms of this Agreement in
a timely and diligent fashion. Seller will be responsible for Deficiency
Payments for this new firm CDC as set forth above.
f. In the event that Buyer determines that the requested additional
firm CDC is uneconomic in Buyer's sole judgment, then the Excess Gas shall
be released from the terms of this Agreement upon the request of Seller.
g. During periods when gas production from all wells (including the
Wells hereunder and wells of third party sellers) connected to a Delivery
Point exceeds the capacity available at that Delivery Point, Buyer shall
curtail receipts of all Excess Gas, on a ratable basis pursuant to the
capacity committed to all sellers connected to the Delivery Point.
h. During periods when gas production from all wells connected to all
Purchasing Facilities (including the Wells hereunder and wells of third
party sellers) exceeds the capacity available to Buyer from third parties
to receive, transport, redeliver and/or sell gas, then Buyer shall take gas
ratably from all sources unstream of the capacity restriction. Gas shall be
curtailed ratably from wells producing gas not in association with oil
first and then, if capacity is still restricted, gas shall be curtailed
ratably from wells producing gas together with oil ("Associated Gas").
i. If the average daily volume of gas delivered hereunder for three
consecutive Accounting Periods is less than 90% of the firm CDC made
available hereunder, Buyer shall have the right to reduce the firm CDC made
available to the average volume of gas delivered during those three
Accounting Periods. Buyer shall not, however, reduce the firm CDC made
available hereunder until after 48-month period that Seller is responsible
for Deficiency Payments, as set forth in Section 2.2d above, has ended.
2.3 Price and Fees.
a. Buyer shall pay Seller for Seller's gas delivered to the Delivery
Point(s) hereunder, less Retained Fuel. It is understood that no
compensation is due from Buyer, or any other party, for Retained Fuel.
Buyer shall use reasonable efforts to minimize fuel use in its Purchasing
Facilities.
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b. The total amount paid for Seller's gas shall be equal to (I) the
quantity of Seller's gas delivered to Buyer, less Retained Fuel, in MMBtu,
multiplied by the Index, less (ii) the quantity of Seller's gas delivered
to Buyer, in MCF, multiplied by a Fee. The Fee applicable to firm CDC
volumes shall be forty-seven cents ($0.47) per MCF. The Fee applicable to
interruptible CDC volumes shall be forty-two cents ($0.42) per Mcf. "Index"
shall be equal to the "Inside FERC's GAS MARKET REPORT, Prices of Spot Gas
Delivered to Pipelines" index for Colorado Interstate Gas Co., Rocky
Mountains, in the first publication of the applicable month. If the Index
is no longer published or, in the opinion of either Party, is not
representative of the gas market at Glenrock, Wyoming, the Parties shall
mutually agree as to an alternative pricing formula representative of the
foregoing. If the parties cannot agree on such alternative pricing formula,
Seller shall purchase the Gas delivered hereunder from Buyer at Glenrock,
Wyoming for a price equal to the Index.
c. The Fee specified in 2.3.b. above shall be adjusted on an annual
basis (beginning on the first day of the second year of the Primary Term)
in proportion to the percentage change, from the preceding year, in the
Producer Price Index for oil and gas field services (SIC 138) as published
by the Department of Labor. The adjustment of the Fee shall reflect the
percentage change in the foregoing index as it existed for the immediately
preceding January from the index for the second immediately preceding
January.
3. Term.
3.1 The term of this Agreement shall extend, subject to 3.2 below, for a period
of ten (10) years from the Effective Date (the Primary Term) and month-to-month
thereafter until canceled by either Party upon 30 days prior written notice in
advance of the expiration of the Primary Term or of any monthly extension
thereof.
3.2 If it becomes uneconomic for Buyer to continue to receive and purchase
Seller's Gas, at any Delivery Point(s), then Buyer shall have the right to give
Seller a written notice of that condition ("Uneconomic Notice"). Upon that
notice:
a. The Parties shall then attempt in good faith to negotiate mutually
acceptable terms to provide for continued delivery of gas at the affected
Delivery Point(s).
b. If the Parties cannot agree on those terms within 30 days following
the date of the Uneconomic Notice, then either Party shall have the right
to terminate this Agreement upon 10 days' written notice.
4. Measurement. Measurement and determination of gas delivered, including
quantity and Gross Heating Value, shall be calculated by Buyer from the
measurements taken at the meter installed, operated and maintained by Buyer at
the Delivery Point, and from the Gross Heating Value determined by gas
chromatography, all in accordance with the recommendations set forth in the AGA
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measurement Committee Report Number 3, including any amendments or superseding
standards agreeable to the parties. The unit of measurement shall be one million
British Thermal Units (MMBtu).
5. Quality. In the event that any gas delivered by Seller fails to meet any of
the quality specifications set forth on Exhibit B, then Buyer shall have the
right to cease receiving that gas as long as that condition exists, provided,
however, Buyer shall not cease receiving non-conforming gas hereunder unless it
also ceases receipts of all other gas which fails to a similar extent to meet
the same quality specifications. In the event that Buyer ceases to receive gas
as herein provided and if Seller does not treat the gas prior to delivery
hereunder to conform to the quality specifications, then so long as that gas
fails to conform to the quality specifications, Seller shall have the right to
deliver the non-conforming gas to any other party.
6. Taxes and Royalty. Buyer shall have no responsibility for any taxes
applicable to the gas delivered hereunder, prior to its delivery to Buyer,
including all production, severance, excise, ad valorem and other taxes of
whatever nature and Seller shall have no responsibility for any such taxes
applicable to the gas delivered hereunder after its delivery hereunder. Buyer
shall have no responsibility for any royalty applicable to the gas delivered
hereunder and Seller shall remain fully responsible for the timely and proper
payment of all royalties due on gas delivered hereunder.
7. Title and Indemnity.
7.1 Seller hereby warrants title to all gas sold hereunder and that Seller has
the right and full authority to sell the same to Buyer, receive all of the
proceeds from that sale, and that all gas is free from any and all liens and
adverse claims. Seller will indemnify Buyer against and hold Buyer harmless from
any and all Losses arising out of or related to Seller's breach of the foregoing
warranty. Buyer shall have no obligation to make payments for gas delivered
hereunder until Seller has furnished Buyer with an executed division order or
title opinion (addressed to Buyer) in form and content acceptable to Buyer
indicating that payments for all gas delivered hereunder are to be made to
Seller.
7.2 Seller shall indemnify, defend and hold Buyer harmless from and against all
Losses arising out of Seller's operation hereunder or arising while the gas is
in Seller's exclusive control and possession. Buyer shall indemnify, defend and
hold Seller harmless from and against all Losses arising out of Buyer's
operation hereunder or arising while the gas is in Buyer's exclusive control and
possession.
8. Payment. Payments shall be made by Buyer not later than the last day of each
month for all gas purchased during the preceding Accounting Period. Payment and
a statement showing full details of the account shall be transmitted to Seller
at the address stated herein. Examination by Seller of books of account kept by
Buyer respecting the account shall be permitted by Buyer at reasonable times
during business hours upon thirty (30) days advance written notice from Seller.
The scope of any audit shall be limited to the twenty-four (24) month period
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immediately prior to the month in which the audit is requested; provided, no
audit may include any time period for which a prior audit hereunder was
conducted, and no audit may occur more frequently than once each twelve (12)
months. All statements and records pertaining to the purchases hereunder shall
be retained for at least two (2) years.
9. Succession and Assignment. This Agreement and each of its terms and
conditions, shall bind and inure to the benefit of the Parties hereto and to
their respective successors and assignees. However, any such assignment must be
in writing and shall not be binding on the other Party unless and until a copy
is provided to the other party, and further, shall not be binding upon Buyer
until Buyer has been furnished with appropriate transfer orders or
letters-in-lieu of transfer or division orders.
10. Force Majeure
10.1 Except for payment due hereunder, neither Party shall be liable to the
other for failure or delay in making or accepting deliveries or performing other
obligations hereunder to the extent that the failure or delay may be due to
Force Majeure conditions.
10.2 Notwithstanding the foregoing, for a Party to claim force majeure
suspension, that Party must first give notice by telephone or facsimile to the
other Party within twenty four (24) hours of occurrence specifying the
conditions or causes of force majeure and the particular performance or
obligation affected by the force majeure.
11. Regulatory Bodies. In the event any regulatory body asserts jurisdiction
over the sale of natural gas hereunder, either Party may terminate this
Agreement upon 10 days advance written notice.
12. Confidentiality. The terms of this Agreement, including, but not limited to,
the price paid for gas, the volumes of gas purchased or sold, and all other
material terms of this Agreement shall be kept confidential by the Parties
hereto, except to the extent that information which must be disclosed by law.
13. Miscellaneous.
13.1 This Agreement shall be governed in accordance with the laws of the State
of Colorado, without regard to choice of law principles.
13.2 This Agreement, including all exhibits and appendices, contain the entire
agreement between the Parties, and except as stated herein, there are no oral
promises, agreements, warranties, obligations, assurances, or conditions
precedent, affecting it.
13.3 Any change, modification or alteration of this Agreement shall be in
writing, signed by the Parties, and no course of dealing between the Parties
shall be construed to alter the terms hereof, except as expressly stated herein.
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13.4 A waiver by either Party of any one or more defaults by the other in the
performance of any provisions of this Agreement shall not operate as a waiver of
any future default, whether of a like or different character.
13.5 IN NO EVENT WILL EITHER PARTY BE LIABLE HEREUNDER FOR INDIRECT,
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.
14. Notices. Any notice, request, demand, statement or bill provided for in this
Agreement, or any notice which a Party may desire to give to the other, shall be
in writing and shall be considered as duly delivered as of the date of
transmittal if mailed by ordinary mail, telecopied, wired or courier expressed
to the other Party at the following address:
Notices to Buyer:
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Western Gas Resources, Inc.
12200 N. Pecos Street
Denver, Colorado 80234
ATTN: Contract Administration
Telephone No. (303) 452-5603
Telecopy No. (303) 452-0186
Notices to Seller:
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Big Basin Petroleum, LLC
3105 E. 2nd Avenue
Gillette, WY 82717
ATTN: Matt Murphy
Telephone: (307) 685-4210
Telecopy No. (307) 685-4211
Either Party may change its address for purposes of notice by giving
notice to the other Party.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the day
and year first above written.
SELLER BUYER:
------ -----
BIG BASIN PETROLEUM, LLC WESTERN GAS RESOURCES, INC.
By: /s/ Matt Murphy By: /s/ J. Burton Jones
-------------------- -------------------
Name: Matt Murphy Name: J. Burton Jones
Title: Managing Member/Owner Title: V.P.-Business Development
Date: 12/21/99 Date: 1/28/00
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EXHIBIT A
To Gas Purchase Agreement between Western Gas Resources, Inc. (Buyer) and
_______________________ Petroleum, LLC (Seller) dated January 28, 2000 to be
effective January 1, 2000.
The Lands committed to this Agreement shall include all of Seller's interest in
the following:
Sections Township Range County State
-------- -------- ----- ------ -----
28.33 47 North 72 West Campbell Wyoming
limited to formations from the surface of the earth to the base of the Tertiary
Age Coal Formations.
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EXHIBIT B
To Gas Purchase Agreement between Western Gas Resources, Inc. (Buyer) and Big
Basin Petroleum, LLC (Seller) dated January 28, 2000, to be effective January 1,
2000.
QUALITY SPECIFICATIONS
Gas delivered by Seller hereunder to Buyer shall:
(a) be reasonably free from dust, gum, gum-forming constituents, condensate,
free water, diluents, and other liquids and solids which may become separated
from the gas;
(b) contain not more than ten (10) ppm (parts per million) oxygen by volume (and
Seller shall make every effort to keep gas free from oxygen);
(c) contain not more than one-fourth (1/4) grain of hydrogen sulfide per one
hundred (100) Cubic Feet of Gas;
(d) contain not more than twenty (20) grains of total sulphur, including sulphur
in hydrogen sulfide and mercaptan, per one hundred (100) Cubic Feet of Gas;
(e) contain not more than three percent (3%) carbon dioxide, by volume;
(f) have a temperature less than or equal to one hundred (100) degrees
Fahrenheit;
(g) have a heating value not less than nine hundred sixty-eight (968) BTU's per
Cubic Foot of Gas, dry basis.