Exhibit 10.26
Cinergy Marketing & Trading, LP
0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000 Tel
000.000.0000 Fax 000.000.0000
May 23, 2003
Xxxx-XxXxx Oil & Gas Corporation
Xxxx-XxXxx Oil & Gas Onshore LP
Orxy Marketing Limited Partnership
00000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000
Gentlemen:
Reference is hereby made to that certain Amended and Restated Gas Purchase
Agreement dated July 1, 1998, as amended, by and among Xxxx-XxXxx Oil & Gas
Corporation, Xxxx-XxXxx Oil & Gas Onshore LP, and Orxy Marketing Limited
Partnership (collectively, "Seller") and Cinergy Marketing & Trading, LP
("Buyer") (the "Agreement"). In consideration of the mutual covenants contained
herein, Seller and Buyer agree to amend the Agreement in the manner set forth
herein.
1. Seller has a supply of gas that is produced from the BoomVang Nansen area in
the Gulf of Mexico that is currently dedicated to the Agreement (the "BVN Gas"),
and Seller and Buyer agree to amend the Agreement to provide for special
treatment for the first 100,000 MMBtu's of BVN Gas (the "Base BVN Gas") that is
produced each Day of the period commencing on the Start Date and ending on the
third anniversary of the Start Date (the "Limited Term"). The Start Date shall
be the first day of the Month following the Month in which the Facilities
Completion Date, as defined hereinbelow, occurs. It is anticipated that the
Start Date will be September 1, 2003. Exhibit A to the Agreement shall be
restructured to provide a separate line item for the Base BVN Gas, which will be
referred to on the Exhibit A as the Aggregation Area noted as "Base BVN" with a
corresponding Delivery Point noted as the "Markham PLT-Crosstex."
2. During the Limited Term, Seller shall sell and Buyer shall purchase the Base
BVN Gas in accordance with the terms and conditions of the Agreement as amended
by this Letter Agreement. During each Day of the Limited Term, Seller shall be
deemed to have designated 100,000 MMBtu's of gas per Day in its Seller's
Estimate for the Base BVN Gas, 75% of the daily Base BVN Gas, or 75,000 MMBtu's
per Day, as Baseload Gas, and the remaining 25% of the daily Base BVN Gas, or
25,000 MMBtu's per Day, as Swing Gas. Consequently, Seller's Baseload Designated
Percentage shall be 75%, and the Seller's Swing Designated Percentage shall be
25%, of the Base BVN Gas, irrespective of any Baseload Designated Percentages or
Swing Designated Percentages specified by Seller from time to time for Seller's
remaining gas, including the remaining BoomVang Nansen gas above 100,000 MMBtu's
per day, dedicated to the Agreement.
3. The Contract Price for the Base BVN Gas (i.e., the Baseload Price and the
Swing Price) shall be calculated in accordance with Section 7.1 of the
Agreement, based on information contained in Exhibit A from time to time, and
calculated utilizing, as a deduction, an initial Monthly Index Price Adjustment
for the Baseload Price and an initial Daily Index Price Adjustment for the Swing
Price each equal to $0.11 per MMBtu plus the Recoupment Fee per MMBtu (as
defined hereinbelow). If and at such time as Payout, as defined hereinbelow, has
occurred, the Recoupment Fee shall be eliminated during the remainder of the
Limited Term. Effective September 1, 2003, the current form of Exhibit "A,"
however designated, that is in effect immediately prior to September 1, 2003, is
hereby amended by deleting the same and substituting therefore the attached
Exhibit "A:SEP-03," a copy of which is attached hereto as Attachment "A." Each
reference in the Agreement to the phrase, "Exhibit A," shall be a reference to
such form Exhibit "A:SEP-03."
4. a. Seller and Buyer acknowledge that in order to facilitate the flow of the
Base BVN Gas, Buyer is causing (i) Crosstex Gas Company ("Crosstex"), Kinder
Xxxxxx Xxxxx Pipeline ("Kinder"), and Transcontinental Gas Pipe Line Corporation
("Transco") to install several hundred feet of pipeline to connect Transco's and
Crosstex' existing pipeline systems in Matagorda County, Texas near Xxxxxxxx
Field Services Company's Markham Gas Processing Plant and related metering
facilities (this is the location of the Markham PLT-Crosstex Delivery Point),
and (ii) Crosstex and Kinder to construct a new interconnect between their
existing pipeline systems in Matagorda County, Texas and related metering
facilities. Buyer shall notify Seller of the Facilities Completion Date, which
shall be the date on which the above described facilities are completed and
ready for operation as designated by Kinder.
b. The parties agree that the Recoupment Fee is designed to allow Buyer to
recover the costs of construction of the above described facilities (as billed
to Kinder by Crosstex or Transco and as directly incurred by Kinder) and will be
calculated on a per MMBtu basis. The Recoupment Fee shall equal (i) the total
construction costs, as incurred by Kinder directly or billed to Kinder by
Crosstex or Transco, to construct or have constructed the above described
facilities including, without limitation, a reasonable rate of return for Kinder
(not to exceed 18%) and income tax allowances on contributions in aid of
construction that may be assessed by Kinder, Transco, or Crosstex, as specified
by Kinder in a written statement to be provided by Kinder, divided by (ii)
109,500,000 MMBtu's. Seller and Buyer acknowledge that the Recoupment Fee is
currently estimated to be approximately $0.015 per MMBtu, but that the actual
amount will be based on the construction costs as incurred by Kinder which shall
be binding on Seller and Buyer. An estimated Recoupment Fee of $0.015 per MMBtu
shall be used in calculating the Contract Price until such time as the actual
Recoupment Fee is calculated by Kinder and provided to Buyer, with appropriate
retroactive adjustments being made after the actual Recoupment Fee is known. As
a point of information only, at the time of execution of this Agreement the
total construction costs are estimated to be approximately equal to the sum of
(i) $877,000 of Transco costs (which includes income tax allowances), (ii)
$485,000 of Crosstex costs (such estimate does not yet include an estimated
amount for any income tax allowances that may be charged by Crosstex), and (iii)
a reasonable rate of return to be charged by Kinder (not to exceed 18%) as
described above. The Crosstex cost estimate in the preceding sentence includes
$10,000 for the acquisition for right-of-way; however, the right-of-way costs
have not yet been actually determined.
c. Payout shall mean the time at which the total cumulative quantity of gas
(Seller's and third parties' gas) that flows into Crosstex' pipeline system at
the Delivery Point for the Base BVN Gas (which is the Delivery Point noted on
Exhibit A as the "Markham PLT-Crosstex Delivery Point"), during the Limited Term
beginning with the Start Date, equals 109,500,000 MMBtu's. In order to determine
Payout, the number of MMBtu's on which Seller actually pays Buyer an Annual
Adjustment described in Section 5 below (i.e., the quantity determined in clause
(ii) of the first sentence of Section 5) shall be included in the calculation.
Therefore, Payout could occur prior to the end of the Limited Term.
5. If Seller fails to deliver at least 36,500,000 MMBtu's of gas during any of
the three one year periods within the Limited Term, then, within sixty days of
the end of such one year period, Seller shall pay Buyer an amount (the "Annual
Adjustment") equal to the product of (i) the Recoupment Fee per MMBtu, times
(ii) the positive difference between (a) 36,500,000 MMBtu's, and (b) the sum of
the amount of the Base BVN Gas that Seller delivered plus all third party gas
delivered at the Xxxxxx PLT-Crosstex Delivery Point during such one year period.
No payment will be due under this Section after Payout occurs. Seller and Buyer
acknowledge and understand that Transco will not commit to delivering the Base
BVN Gas at the Xxxxxx PLTCrosstex Delivery Point and that, as a consequence,
deliveries of all or a portion of Base BVN Gas may be curtailed, in which case
(i) the Annual Adjustments payable under the above provisions of this Section 5
by Seller shall continue to be due and payable, and (ii) the portion of the Base
BVN Gas that cannot be delivered at the Markham PLT-Crosstex Delivery Point due
to pressure problems will be delivered and sold to Buyer at the other Delivery
Point(s) for BVN Gas and at the Swing Prices specified for the Swing Quantity of
the other BVN Gas deliverable at such other Delivery Point(s) on the applicable
day.
6. Notwithstanding the above provisions of this Letter Agreement, during any
Month in which deliveries of the Base BVN Gas are interrupted due to (i) a
hurricane or threat thereof, (ii) a scheduled pipeline maintenance of Transco,
Crosstex, or Kinder on the systems that receive and transport the Base BVN Gas,
or (iii) a scheduled maintenance of Seller's BVN Gas production facilities, the
Baseload Quantity of the Base BVN Gas shall be increased (but not to exceed the
total of 100,000 MMBtu's on a Day) on the remaining Days of the Month after the
interruption (equally over all such remaining days), and if necessary for the
Days of the Month prior to the interruption (equally over all such prior days),
as may be necessary so that during the Month Seller delivered and sold to Buyer
a daily average Baseload Quantity of Base BVN Gas equal to 75,000 MMBtu's per
Day (determined by dividing the total quantity of Base BVN Gas (plus any
substitute Gas described in Section 7) delivered during the Month by the number
of Days in the Month). The portion of the Base BVN Gas that is Swing Gas shall
be correspondingly reduced on such Days during the Month on which the Baseload
Quantities of the Base BVN Gas are increased. Nothing herein shall cause Seller
to be obligated to sell or Buyer to be obligated to purchase more than 100,000
MMBtu's of Base BVN Gas on any Day during the Limited Term.
7. The parties acknowledge that the provisions of Section 4.2(a) of the
Agreement shall apply to the Base BVN Gas if deliveries of Base BVN Gas fall
below 75,000 MMBtu's of gas on any Day during the Limited Term for any reason
separate and distinct from any other gas Seller has available under the
Agreement; provided, however, the second sentence of Section 4.2(a) shall not
apply to the Base BVN Gas. Notwithstanding anything herein to the contrary, the
first 100,000 MMBtu's of Seller's BVN Gas produced each day shall be deemed to
be Base BVN Gas. In the event that the average daily deliveries of Base BVN Gas
hereunder falls below 75,000 MMBtu's of Gas during any Month of the Limited Term
due to production declines or a sustained production curtailment, Seller has the
right to substitute, for delivery at the Markham PLT-Crosstex Delivery Point,
volumes produced by Seller from other areas on the Central Texas Gathering
System for any Base BVN Gas deficiency (daily amount below 75,000 MMBtu's of
Gas), beginning with the second or any subsequent Month of such reduced
deliveries. Seller will advise Buyer that it is making the substitution at the
same time that the Seller's Estimate is due to Buyer. All of the substituted Gas
shall be (i) deemed to be Base BVN Gas for all purposes hereunder, and (ii)
priced at the Contract Price specified herein for the Base BVN Gas.
8. Notwithstanding anything in the Agreement to the contrary, in the event that
Seller terminates the Agreement pursuant to the second sentence of the first
paragraph of Section 9.1 or the last paragraph of Section 9.1 prior to the end
of the Limited Teen, then Seller shall continue to sell and Buyer shall continue
to buy the Base BVN Gas for the remainder of the Limited Term upon the terms and
conditions of the Agreement as amended by this Letter Agreement as it may be
subsequently amended, and the parties shall enter into new agreement setting
forth such terms and conditions.
9. After the Limited Term, all volumes of the Base BVN Gas shall continue to be
dedicated to the Agreement and will be treated like all other gas under the
Agreement in that, among other things, (i) there will be no minimum volume
commitment of BVN Gas at the Markham PLTCrosstex Delivery Point, (ii) unless the
parties then mutually agree otherwise, the Contract Price for any of the gas
that had been designated as Base BVN Gas shall be either (a) if delivered at the
Markham PLT-Crosstex Delivery Point, the same as the Contract Price specified
during the Limited Term for such gas but as if Payout had occurred, or (b) if
delivered at any other Delivery Point(s) for other BVN Gas, the same Contract
Price as specified for the other BVN Gas deliverable at such other Delivery
Point(s), and (iii) Seller will resume designating a Baseload Designated
Percentage and a Swing Designated Percentage for the gas formerly designated as
Base BVN Gas.
10. All provisions of the Agreement not otherwise amended herein shall remain in
full force and effect.
If the foregoing is in accordance with your understanding of our agreement,
please execute all copies of this letter agreement in the space provided below
and return same to undersigned.
Sincerely,
CINERGY MARKETING & TRADING, LP
By: /s/ Xxxxx X. Xxxxxx
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Name: Xxxxx X. Xxxxxx
Title: Sr. Vice President
Natural Gas Trading &
Origination
Accepted and agreed to on this 28 day
of May, 2003.
XXXX-XXXXX OIL & GAS CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------
Name: Xxxxxxx X. Xxxxxxx
Its: Vice President
XXXX-XXXXX OIL & GAS ONSHORE LP
BY: XXXX-XXXXX OIL & GAS ONSHORE LLC,
ITS MANAGING GENERAL PARTNER
By: /s/Xxxxxxx X. Xxxxxxx
---------------------
Name: Xxxxxxx X. Xxxxxxx
Its: Senior Manager Gas Marketing
