NATURAL GAS PURCHASE AGREEMENT Date: December 23, 2004
Exhibit
10.7
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NATURAL
GAS PURCHASE
AGREEMENT
Date:
December 23, 2004
| Seller:
BREK
PETROLEUM, INC.
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Telephone:
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E-mail:
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Contact:
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Tax
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Buyer:
RIVERBEND
GAS GATHERING,
L.L.C.
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Telephone:
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
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E-Mail:
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Contact:
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Tax
ID No.: ▇▇-▇▇▇▇▇▇▇
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Seller
owns or controls quantities of natural gas which it desires to sell to Buyer,
and Buyer desires to purchase quantities of natural gas from Seller, all
on the
terms and provisions set forth below. Seller and Buyer therefore agree as
follows:
1. Seller’s
Commitment of Natural Gas. Subject
to the terms of this Agreement and the terms and conditions set forth in
the
form of Confirmation Letter attached as Exhibit “A” hereto and as may be
executed by the parties from time to time, Seller hereby commits to this
Agreement all of Seller’s natural gas (hereinafter “Gas”) produced and saved
from the leases and leasehold interests now owned and as described on Exhibit
“B” and any leases and leasehold interests hereinafter acquired within the Area
of Mutual Interests depicted on Exhibit “B-1” (hereinafter collectively “the
Leases”) for a period of fifteen (15) years from the effective date. Thereafter,
this Agreement and Seller’s commitment of Gas hereunder shall continue
automatically for consecutive renewal terms of one (1) year until terminated
by
either party providing written notice to the other party at least ninety.
(90)
days prior to the expiration of the primary term, or any subsequent renewal
term. Seller covenants and agrees to sell and deliver the same to Buyer at
the
points of delivery set forth in the Confirmation Letters to be executed by
the
parties without other disposition except as herein otherwise provided. The
foregoing shall be covenants running with the land and any conveyance,
assignment, sale or other transfer, including any contribution to the drilling
and/or exploration effort of another producer, of all or a portion of the
Leases
covered by these covenants shall include and be subject thereto. Seller shall
require any purchaser, assignee or transferee of any portion of Seller’s
interest in the Leases to ratify this Agreement and to expressly assume and
agree to the terms hereto to the extent of the portion of the Leases received
from Seller by that party. Seller agrees to notify Buyer promptly of any
such
conveyance, assignment, transfer or contribution.
2. Nomination
Confirmation. Approximately
ten (10) business days prior to the first day of each production month or
at a
time mutually agreed upon by the parties, Seller and Buyer will reach agreement
on the quantities of natural gas to be purchased and sold during that period
at
the points of delivery set forth in the Confirmation Letter. Seller shall
transmit this “nomination confirmation” via fax and e-mail to
Buyer.
3. Purchase
Price. The
purchase price for sold volumes shall be set forth in the Confirmation Letter(s)
as executed by and between the parties from time to time. The purchase price,
however, shall at all times be equal to the amount per MMBtu paid to and
received by Gasco Energy, Inc. or any of its subsidiaries or affiliates
(“GASCO”), on all gas sold during same timeframe from said points of delivery
under such purchase agreements, either with Seller or with third parties
as may
be entered into by GASCO from time to time. Said amount shall equal the gross
sales price of the gas sold minus: (a) a gathering and transportation fee
of not
more than $0.23 per MMBtu adjusted as provided herein; (b) fuel, line loss,
shrinkage and unaccounted for gas not to exceed 6% under normal operating
conditions; and (c) compression charges in an amount not to exceed $0.07
per
MMBtu per stage of compression from the points of delivery to the receipt
point(s) on the Questar mainline, adjusted as provided herein. The parties
acknowledge and agree that the deductions authorized under 3.(b) above may
temporarily exceed 6% due to unavoidable losses resulting from construction,
maintenance and other necessary and appropriate operations on the gathering
system. In no event shall the deductions provided for in 3.(b) above exceed
6%
for more than 15 consecutive days or 30 days in the aggregate during any
12
month period or a maximum of 8%. The gathering fee and compression fee will
be
adjusted on an annual basis in proportion to the percentage change in the
Consumer Price Index for All Urban Consumers (CPI-U) as published by the
United
States Department of Labor. The adjustment shall be made effective January
1 of
each year beginning January 1, 2006, and shall reflect the percentage change
in
the aforesaid Consumer Price Index for All Urban Consumers (CPI-U) as it
existed
for January of the immediately preceding year. In no event will the adjustment
in any year be less than a 2% nor more than a 4% increase over the previous
year’s fees.
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4. Additional
Fees.
In
addition, Seller shall pay its proportionate share on a leasehold basis of
meter
fees in the amount of $250.00 per month per well for each well up to the
first
50 ▇▇▇▇▇ connected to Seller’s gas gathering system. For each well over 50
▇▇▇▇▇, Seller shall pay its proportionate share of a meter fee of $150.00
per
month per well. The metering fee will be adjusted on an annual basis in
proportion to the percentage change in the Consumer Price Index for All Urban
Consumers (CPI-U) as it existed for January of the immediately preceding
year.
In no event will the adjustment in any year be less than a 2% or more than
a 4%
increase over the previous year’s fees. Seller shall pay Buyer $0.03 per MMBtu
as a marketing fee for the marketing of Seller’s gas and shall reimburse Buyer
for Seller’s proportionate share of any third party marketing fees incurred by
Buyer up to $0.05 per MMBtu. The combined total of such marketing fees shall
not
exceed $0.08 per MMBtu.
5. Payment.
Buyer
shall pay Seller by check, using its best efforts to courier the check to
Seller
by the end of fourteen days following the Buyer’s receipt of payment for the
sale of Seller’s gas. The parties will review this payment provision after six
months. Any change to this payment provision requires the written consent
of
both parties. In the event of any inaccuracy in or dispute as to any billing
or
payment, the parties shall cooperate in good faith to resolve such matter
expeditiously. Buyer shall send a statement to Seller with the check detailing
the following: (a) total volume (MMBtu) and gallons per Mcf of Seller’s gas
measured at the points of delivery and total field volume; (b) total fuel
gas
quantity and lost and unaccounted for gas quantity attributable to Seller’s sold
volumes; (c) gas plant products, if any, and the volume of residue gas
attributable to Seller’s sold volumes. At the request of Seller, or if required
by law, rule or regulation, Buyer shall withhold from sums otherwise due
Seller
hereunder and shall pay all production, severance or similar taxes and all
royalties, overriding royalties and similar burden payments levied, assessed,
charged against, or attributable to the natural gas sold hereunder prior
to
delivery to Buyer hereunder. Seller shall furnish such assessments, statements,
invoices, division orders, or other documents as Buyer may reasonably require
for the purpose of identifying each such payment and the persons entitled
thereto.
Each
party shall have the right, at its own expense, and upon reasonable notice
and
at reasonable times, to inspect and audit the books and records of the other
party to the extent necessary to verify the accuracy of any charge, adjustment,
payment or computation hereunder. In addition, Buyer shall make available
upon
request and Seller shall have the right, at its own expense and upon reasonable
notice and at reasonable times, to inspect and audit the books, records and
natural gas purchase and sales agreements of GASCO to the extent necessary
to
verify the gross sales price and net sales amounts received by GASCO, together
with all gathering, transportation, compression, and other charges paid by
Gasco
for gas transported from the points of delivery common to GASCO and Seller.
All
charges and payments shall be conclusively deemed final unless objected to
in
writing within twelve months following the month of delivery of the natural
gas
which is the subject of such charge or payment.
6. Measurement
and Title. The
measurement of natural gas delivered hereunder shall be performed by Buyer
at
the inlet of Buyer’s metering facilities located at Seller’s lease line or
separation point or at such other points of delivery as may be mutually agreed
upon in writing by the parties from time to time and as set forth in
Confirmation Letter(s). Title shall pass to Buyer at said points of delivery.
Seller shall have responsibility for and assume any liability with respect
to
natural gas prior to delivery to Buyer at the points of delivery, and Buyer
shall have responsibility for and assume any liability with respect to natural
gas after delivery to Buyer at the points of delivery. Seller warrants that
it
will have and deliver good and merchantable title to all natural gas sold
hereunder, tree of all liens, claims, and encumbrances. Buyer, at its expense,
shall furnish, install, operate, and maintain a suitable orifice meter at
all
points of delivery of the gas covered hereby. Each meter installed by Buyer
shall be a meter acceptable in the industry and each meter shall be installed
and operated in accordance with the requirements of applicable provisions
in
ANSI/API 2530, “Orifice Metering of Natural Gas” (American Gas Association Gas
Measurement Committee Report No.3) of the Natural Gas Department of the American
Gas Association as amended from time to time, or by any other method commonly
used in the industry and mutually acceptable to the parties. In the event
of any
question arising as to the accuracy of any meters, the meter or meters shall
be
tested upon demand of either party. The expense of any such test shall be
borne
by the party demanding same if the meter registration is found to be correct,
and by Buyer if found to be incorrect Seller may, at its option and sole
expense, install, maintain, and operate check meters and other equipment
to
check Buyer’s meters provided, however, that such check meters and other
equipment shall not interfere with the operation of any of Buyer’s facilities.
At least semi--annually, Buyer shall calibrate all meters installed at Seller’s
points of delivery in accordance with industry standards and make adjustments
as
necessary.
7. Indemnification.
Seller
shall indemnify Buyer and save it harmless from all losses, costs, and
liabilities of whatsoever nature (including, without limitation, attorneys
fees
and costs) arising out of claims of title, personal injury or death, and
property damage from natural gas delivered hereunder or charges thereon which
attach prior to the passage of title to Buyer. Buyer shall indemnify Seller
and
save it harmless from all losses, costs, and liabilities of whatsoever nature
(including, without limitation, attorneys fees and costs) arising out of
claims
of title, personal injury or death, and property damage from natural gas
delivered hereunder or charges thereon which attach after the passage of
title
to Buyer. In the event of any claim adverse to Seller’s title, Buyer may, but
shall not be required to, withhold payment for the natural gas at issue pending
the resolution of such claim or the posting of security in form and amount
acceptable to Buyer.
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8. Force
Maieure. The
term
“force majeure” as used in this Agreement shall mean any cause or causes not
reasonably within the control of the party claiming suspension and which,
by the
exercise of reasonable diligence, such party is unable to prevent or overcome.
Such term shall likewise include, but not be limited to: Acts of God; acts,
omissions to act and or delays in action of an Indian Tribe or federal, state
or
local government or any agency thereof; compliance with rules, regulations
or
orders of any governmental authority or any office, department, agency or
instrumentality thereof; strikes, lockouts or other industrial disturbances;
acts of the public enemy; wars; blockades; insurrections; riots; epidemics;
landslides; lightning; earthquake; fires; storms; floods; washouts; winter
weather, spring thaw or other inclement weather; civil disturbances;
interruptions by governmental or court orders; present and future valid orders
of any regulatory body having jurisdiction; explosions; the interruption
or
suspension of the receipt or delivery of Gas hereunder due to the inability,
failure or refusal of any party not a party to this Agreement to receive
or
deliver such gas; breakage or accident to, or routine maintenance and repair
of,
machinery or lines or pipes, compressors or plants; well blowouts; freezing
of
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failure to obtain materials and supplies due to governmental regulations;
or the
inability of either party to acquire, or the delays on the part of such party
in
acquiring at reasonable cost and after the exercise of reasonable diligence,
materials and supplies; permits and consents, and easements and/or
rights-of-way.
In
the
event either party hereto is rendered, wholly or in part, by force majeure,
unable to carry out its obligations under this Agreement other than to indemnify
or to make payments of any amount due hereunder, it is agreed that, upon
such
party giving notice and full particulars of such force majeure, in writing
(which can be effected by facsimile, an e-mail, or other electronic media)
to
the other party as soon as possible after the occurrence of the causes relied
on, then the obligation of the party giving such notice, so far as they are
affected by such force majeure, shall be suspended during the continuance
of any
inability so
caused,
but for no longer period, and such cause shall, so far as possible, be remedied
with all reasonable dispatch; provided, however, that this provision shall
not
require the settlement of strikes, lockouts or litigation by acceding to
the
demands of the opposing parties when such course is inadvisable in the
discretion of the party hereto having the difficulty. Notwithstanding the
foregoing, Buyer’s inability to make payments to Seller for gas that is lost due
to explosion, breakage or accident of Buyer’s pipelines, compressors or plants
not reasonably within the control of Buyer or which, by the exercise of
reasonable diligence, Buyer was unable to prevent or control, shall constitute
an event of force majeure hereunder.
9. Quality.
All
natural gas delivered to Buyer shall meet the quality and pressure
specifications and requirements of the receiving pipeline. Seller shall be
solely responsible for, and shall indemnify and save Buyer harmless against,
all
fees, charges, penalties, losses, costs, and liabilities of whatsoever nature
(including without limitation, attorneys fees and costs) arising out of Seller’s
failure to deliver natural gas meeting the applicable specifications and
requirements. Buyer shall, concurrent with the execution of this Agreement,
deliver to Seller, in writing, the applicable specifications and requirements
for the gas to be delivered hereunder.
Buyer
may
test Seller’s gas delivered hereunder for adherence to such specifications, such
testing to be in accordance with generally accepted industry standards and
procedures. If the gas delivered by Seller does not meet the specifications
set
forth above, Buyer may, at its option, refuse to accept delivery of said
gas
into its gathering facilities. If Seller shall deliver gas to Buyer which
exceeds the maximum pressure specifications, or fails to meet the quality
specifications above referenced, Seller shall be responsible for any damages
caused to Buyer’s gathering facilities and any other damages resulting from
Seller’s delivery of such non-conforming gas. If Seller fails to conform its gas
to the specifications and requirements, Buyer may, at its option, elect to
accept such non-conforming gas, condition the same to conform to the above
specifications and charge Seller a mutually acceptable condition fee. If
neither
party elects to condition the gas to conform to the above specifications,
then
Seller, at its option and upon sixty (60) days prior written notice to Buyer,
shall have the right to obtain the release of such non-conforming gas from
the
Agreement.
Should
Buyer elect to accept and pay for non-conforming gas, Buyer shall not be
deemed
to have waived any of its rights hereunder and shall nevertheless be entitled,
at any time and from time to time, to enforce the quality provisions hereof
and
refuse to accept delivery of any volumes of non-conforming gas from
Seller.
At
least
semi-annually, Buyer shall take samples from each of Seller’s ▇▇▇▇▇ at the
points of delivery and have such samples analyzed by chromatograph analysis
or
other mutually agreeable and generally accepted industry methodology to
determine the liquids content by component and the heating value of such
gas.
Buyer shall have the right to take and analyze a spot gas sample prior to
the
regularly scheduled sampling. Additionally, upon Seller’s written request to
Buyer and at Seller’s sole cost and expense, Buyer shall take and analyze gas
samples more frequently. All gas samples taken hereunder shall be taken at
such
times as are reasonably mutually agreeable so to produce a representative
sample
of the gas produced and Seller shall be pennitted to be present at such sampling
and permitted to take its own split sample. The gross heating value calculation
of such samples will use the BTU values assigned to the various hydrocarbon
components as adjusted and updated from time to time by using as a base those
values set forth in the most current GPA publication 2145 in effect at the
time
the gross heating value calculation is derived under the provisions of this
agreement.
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10. Miscellaneous.
a. Imbalances.
Each
party shall use commercially reasonable efforts to avoid the imposition of
imbalance charges and shall be responsible for the payment of any imbalance
charges resulting from its actions or inactions.
b. Notice.
Any notice hereunder shall be in writing any may be personally delivered,
sent
by recognized overnight express courier, e-mail, or by facsimile, to the
address
or facsimile number set forth above (or to such other address or facsimile
number as a party may direct by written notice to the other) and shall be
effective upon receipt.
c. Governing
Law.
This
agreement shall be construed in accordance with the laws of the State of
Colorado, excluding any conflict of law rule, which would result in the
application of the law of another jurisdiction.
d. Waiver.
No
waiver of any breach of this agreement shall constitute a waiver of any other
or
any subsequent breach.
e. Successors
and Assigns.
This
agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties. However, no party may assign this
agreement, or any rights hereunder, without the prior written consent of
the
other party, not to be unreasonably withheld.
f. Partial
Invalidity. If any provision of this agreement is determined to be invalid
or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this agreement.
g. Integration.
This
agreement together with future Exhibit “A” confirmation letter(s) sets forth the
entire agreement of the parties as to the subject matter hereof and 10
supersedes all prior understandings and agreements, whether oral or written.
Any
amendment of supplement hereto shall be in writing.
Paragraph
headings used herein are for convenience only and. shall not be used in
construing this Agreement.
h. Authority.
Each party represents that it has full authority to enter into this agreement
and to perform its obligations hereunder.
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i. Arbitration.
In the
event of any dispute hereunder, an authorized representative of each of the
parties shall endeavor in good faith to resolve the matter in a timely manner.
Any dispute not so resolved shall be submitted to a qualified arbitrator,
acceptable to both parties, having expertise in the subject matter of the
dispute, in arbitration proceedings conducted in Denver, Colorado, in accordance
with the commercial Arbitration Rules of the American Arbitration Association.
The arbitrator may, but shall not be required to, award fees and costs
(including attorneys’ fees and costs) to the prevailing party.
j.
Rules
and Regulations.
This
agreement is subject to all laws, rules, regulations, and orders of governmental
agencies having jurisdiction over the subject matter hereof.
k. Confidentiality.
The
terms and provisions of this Agreement are confidential and proprietary to
the
parties and shall not be disclosed by either party to third persons without
the
prior written consent of the other party, except as may be required by
law.
l. Conflict
with Confinnation Letter.
In the
event of a conflict between any term or provision of this Agreement and any
term
or provision of a Confirmation letter issued hereunder, the term or provision
of
the Confirmation Letter shall control.
Executed
as of the date written above.
| Seller:
BREK
PETROLEUM, INC.
By:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:
President
Date:
December 17, 2004
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Buyer:
RIVERBEND
GAS GATHERING, L.L.C.
By:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
Executive
V.P. and COO
Date:
December 23, 2004
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EXHIBIT
“A”
CONFIRMATION
LETTER ISSUED UNDER
Date:
Seller: Buyer:
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BREK
PETROLEUM, INC.
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▇▇ ▇▇▇ ▇▇▇ Telephone:
Facsimile:
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E-mail:________________________________
Contact:________________________________
Tax
ID No:________________________________
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RIVERBEND
GAS GATHERING, L.L.C.
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Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
E-mail:________________________________
Contact:________________________________
Tax
ID No:________________________________
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Buyer
and
Seller confirm the following transaction between Buyer and Seller pursuant
to
the Natural Gas Purchase Agreement identified above:
Confirmation
Date:________________________________
Period
of
Delivery:________________________________
Purchase
Price:[insert contract price or prices, i.e. final sale price, incremental
volumes based on index, shortfalls, etc.]
Quantity:
100% of Seller’s production from the points of delivery.
Points
of
Delivery: Well or Lease meter facilities located at:
In
the
event of a conflict between any terms or provision of the Natural Gas Purchase
Agreement identified above and any term or provision of this Confirmation
Letter, the term or provision of this Confirmation Letter shall
control.