GAS PURCHASE AND SALES AGREEMENT
THIS GAS PURCHASE AND SALES AGREEMENT (the "Agreement") is made, and
entered into as of January 25, 1999, but effective as of February 1, 1999 (the
"Effective Date"), by and among CALPINE FUELS CORPORATION, a California
corporation (hereinafter referred to as "Buyer"), and SHERIDAN CALIFORNIA
ENERGY, INC., a Delaware corporation (hereinafter referred to as "Seller").
W I T N E S S E T H:
WHEREAS, affiliates of Buyer own and operate proprietary systems of gas
gathering and transmission pipelines ("Calpine Pipeline"), some of which are now
or may hereafter be in reasonable proximity to xxxxx producing Seller's Gas, and
Seller wishes to sell Seller's Gas (hereinafter defined) to Buyer on the terms
and conditions set forth below.
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants and agreements set forth herein, the receipt and sufficiency of which
are hereby acknowledged, the parties have agreed as follows:
1. DEFINITIONS
1.1 Unless expressly stated otherwise, the following terms when used
in this Agreement shall mean:
1.1.1 The term "Seller's Gas" shall mean any Gas which is not Excluded
Gas and which Seller now has or hereafter acquires the right to sell, either as
an operator or as a non-working interest owner electing to take its working
interest share of gas produced in kind, from any well now or hereafter drilled
within the area in California described on Exhibit "A" attached hereto.
1.1.2 The term "Btu" shall mean a British thermal unit, which means the
amount of heat required to raise the temperature of one pound of distilled water
from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of
14.73 pounds per square inch absolute.
1.1.3 The term "Governmental Authority" as used herein, shall mean the
California Public Utility Commission, or any other state or local governmental
agency with jurisdiction over all or any part of the subject matter of this
Agreement.
1.1.4 The term "Contract Month" shall mean each successive period of
one calendar month beginning on the Effective Date; provided, however, that if
such Effective Date is other than the first day of a calendar month, then the
period beginning with such Effective Date to the first day of the following
month shall, for all purposes under this Agreement, be treated as a full
Contract Month; and, provided, further, that if the period of time between the
final such anniversary date during the
term of this Agreement and the termination date of this Agreement is less than a
month, such period shall nevertheless be deemed a full Contract Month.
1.1.5 The term "cubic foot" shall mean the quantity of gas which
occupies one cubic foot when such gas is at a temperature of sixty (60) degrees
Fahrenheit and at a pressure of 14.73 pounds per square inch absolute.
1.1.6 A "day" shall begin at 7:00 a.m. Pacific Time on each calendar
day and end at 7:00 a.m. Pacific Time on the following calendar day.
1.1.7 The term "Delivery Capacity" shall mean: (a) Seller's Gas
production, expressed in terms of MMBtu per day, meeting the quality standards
set forth in Section 11 below which is capable of being produced as established
during a test period mutually agreeable to the parties of not more than five
consecutive (5) days against the delivery pressure prescribed by Section 7.
Notwithstanding anything in this Agreement to the contrary, in no event shall
the Delivery Capacity exceed what Seller, in its judgment as a reasonably
prudent operator, deems appropriate for the sound physical operation of its
xxxxx and leases.
1.1.8 The term "Gas" shall mean natural gas produced from a Well,
casinghead gas and the residue resulting from processing both natural gas from a
Well and casinghead gas, meeting the minimum quality standards specified in
Section 11.
1.1.9 The term "Heating Value" shall mean the gross number of Btu which
would be contained in the quantity of one (1) cubic foot of Gas at a temperature
of 60 degrees Fahrenheit, under a pressure of fourteen and seventy-three
hundredths (14.73) pounds per square inch absolute, and adjusted to reflect the
actual water vapor content of the Gas delivered.
1.1.10 The term "Hydrocarbon Liquids" shall mean condensate and/or
distillate which may be recovered by either mechanical or low temperature means
from the Seller's Gas delivered or to be delivered hereunder.
1.1.11 The term "Calpine Pipeline" shall mean the proprietary pipeline
facilities owned and operated by an affiliate of Buyer, as such pipeline
facilities may exist from time to time, as referenced in the second recital in
this Agreement.
1.1.12 The term "Liquefiable Hydrocarbons" shall mean the hydrocarbons
other than crude oil and methane that exist in the gas phase under initial or
original reservoir conditions and are produced with the Seller's Gas committed
hereunder.
1.1.13 The term "Mcf" shall mean one thousand cubic feet.
1.1.14 The term "MMBtu" shall mean one million Btu.
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1.1.15 The term "Excluded Gas" shall mean (a) Gas produced attributable
to lands outside the area depicted on Exhibit "A" attached hereto, (b) Gas that
is dedicated to pre-effective date commitments for Gas required to fulfill
Seller's obligations under (i) the take-in-kind royalty provisions of its oil,
Gas and mineral leases (provided that Seller shall not actively encourage any
lessor to take its royalty share of Gas in-kind and shall not agree to remarket
any Gas taken in-kind by a lessor), (ii) agreements to which Seller is a Party
including obligations pursuant to calls on production, rights of first refusal,
reversionary rights to convert retained overriding royalties into working
interests and similar rights in favor of third Persons for those times and to
the extent third parties have exercised their rights to enforce such
obligations, (c) Gas subject to the operational reservations set forth in
Section 3.6.1; (d) Gas sold to a third party in accordance with Section 14.5
hereof but only during the continuance of the event of Force Majeure; and (e)
such other Gas as Seller proposes to exclude and Buyer agrees in writing, in
Buyer's sole discretion, may be excluded.
1.1.16 The term "Sellers Nomination" shall mean, as to any Contract
Month, the quantity of Seller's Gas nominated by Seller pursuant to Section 3.3
not to exceed the Delivery Capacity.
1.1.17 The term "Monthly Contract Quantity" shall mean, as to any
Contract Month, the total monthly quantity, expressed in MMBtu identified in
Seller's Nomination.
1.1.18 The term "Point(s) of Delivery" shall mean a point of
interconnection between the Seller's Facilities and, at Buyer's election, either
(a) Pacific Gas and Electric Company's gas gathering or transmission system
("PG&E's System"), (b) another utility's or co-op's gas gathering or
transmission system ("Third Party's System"), or (c) the Calpine Pipeline. The
Points of Delivery as of the Effective Date are listed on Exhibit "C."
1.1.19 The term "Facilities" shall mean any and all facilities required
to be constructed and installed in order to enable Seller to deliver Seller's
Gas to Buyer at the Point of Delivery herein in the quantities and at the
pressure requirements and quality specifications provided herein. Facilities
shall be maintained by Seller at its sole cost and expense. The costs of
constructing Facilities shall be determined as provided in Section 2.2 hereof.
1.1.20 The term "Transporter" shall mean any pipeline system that
transports Gas, including Calpine's Pipeline, PG&E's System or a Third Party's
System.
1.1.21 The term "Well" shall mean an oil and gas well subject to this
Agreement.
2. FILINGS WITH REGULATORY
AUTHORITIES AND CONSTRUCTION OF FACILITIES
2.1 Each of the parties hereto agrees to file promptly, at its own
expense, any applications for governmental permits, licenses and authorizations
which, in its sole discretion, it deems necessary in order to perform its
obligations from time to time under this Agreement. Such applications, if any,
will be prosecuted diligently and in good faith, provided that neither party
shall be obligated to accept any authorizations which would materially and
adversely affect such party.
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2.2 Seller will provide Buyer with notice of the Facilities required to be
constructed in order to deliver Seller's Gas to a designated Point of Delivery.
If the designated Point of Delivery is other than that location on the PG&E
System to which the costs of construction of Facilities would be the least
expensive (the "Preferred Location"), Seller's notice to Buyer shall include the
estimated cost of constructing Facilities necessary to connect to the Preferred
Location on the PG&E System and an estimate of the cost of connecting to the
designated Point of Delivery. Seller shall bear the cost of constructing
Facilities necessary to deliver Seller's Gas to the designated Point of Delivery
up to the amount of the estimate of the cost of connecting to the Preferred
Location on the PG&E System. Seller and Buyer will enter into good faith
negotiations to reach a definitive written agreement on which party shall bear
any costs of connecting to the designated Point of Delivery which exceed the
estimated cost of connecting to the Preferred Location on the PG&E System.
Should the parties be unable to agree within a period of ten (10) days from
receipt of Buyer's notice to Seller on the sharing of such excess costs, the
designated Point of Delivery shall become, by default, the Preferred Location on
the PG&E System, and Seller shall proceed with installing Facilities necessary
to connect to the Preferred Location on the PG&E System. Notwithstanding any
provision hereof to the contrary, Seller shall be under no obligation whatsoever
to construct Facilities, even to connect to a Preferred Location, to the extent
Seller reasonably determines that to do so is uneconomic to Seller. The phrase
"uneconomic to Seller" as used herein shall mean that the reasonably estimated
cost of constructing the Facilities in question could not reasonably be expected
to be recovered (together with any of Seller's unrecovered costs of drilling and
completing the well or xxxxx in question) from Seller's net revenue interest in
the well or xxxxx in question.
2.3 Upon execution of this Agreement and from time to time throughout the
term hereof, each of the parties shall timely file with the Governmental
Authority and other applicable regulatory bodies having jurisdiction all
notices, acceptances or other filings required by such regulatory bodies in
connection with the sale of Seller's Gas hereunder and shall promptly provide
copies of such to the other party.
3. QUANTITY
3.1 Subject to the other terms and provisions hereof, Buyer hereby agrees
to purchase and take from Seller during each Contract Month, and Seller hereby
agrees to sell and deliver to Buyer during each Contract Month, the Monthly
Contract Quantity. Seller will exercise all commercially reasonable efforts (a)
to cancel or terminate any and all gas purchase agreements in force and effect
on the Effective Date with any third party purchaser of Seller's Gas except any
such Gas Purchase Agreement which Buyer and Seller agree in writing to keep in
force (a "Continued Existing Agreement"), and (b) provide notice to take in kind
any and all Seller's Gas for any working interest in any gas unit or field.
Seller shall pay to Buyer or credit to Buyer's account the amount of 5c per
MMBtu for all Seller's Gas sold after the Effective Date under any Continued
Existing Agreement, in accordance with Section 4.4.1 hereof. Seller will not
extend, amend or otherwise increase any of Seller's obligations under any gas
sales agreements in force and effect on the Effective Date without first
obtaining Buyer's written consent.
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3.2 Any Hydrocarbon Liquids or Liquefiable Hydrocarbons which Seller
has failed to recover prior to delivery to a Point of Delivery on the Calpine
Pipeline and which Buyer or Buyer's affiliate extracts to provide for efficient
operations shall become the sole property of Buyer upon such extraction.
3.2.1 On or before the earlier of (i) the NYMEX closing for gas futures
contracts or (ii) the 25/th/ day of each Contract Month, Seller shall advise
Buyer of the quantity of Seller's Gas estimated to be delivered each day during
the next Contract Month.
3.2.2 The parties shall confer at either party's initiative during each
Month to reforecast the daily quantities of Seller's Gas scheduled to be
delivered or purchased pursuant to Seller's Nomination. Without limiting the
generality of the foregoing, Seller shall promptly notify Buyer of any changes
in the quantities of Seller's Gas scheduled to be delivered or taken pursuant to
Seller's Nomination, as well as any condition that is reasonably likely to
change such quantities estimated to be delivered in Seller's Nomination. Such
changes shall be deemed timely delivered for purposes of determining liability
for imbalance charges pursuant to this Agreement if delivered to Buyer by not
later than 9:00 a.m. on the day before revised nominations are due to be
delivered by Buyer to downstream Transporters pursuant to such Transporter's
respective Tariffs.
3.2.3 Without limiting the generality of Section 3.2.1, the parties
recognize that additional quantities of Seller's Gas not included in Seller's
Nominations may become available for delivery to Buyer at various times after
the first day of an applicable Contract Month. At least two (2) business days
before the day that Seller wishes to begin deliveries of such additional
quantities of Seller's Gas, Seller shall provide Buyer with a written notice
setting forth (i) the Points of Delivery at which Seller wishes to make such
deliveries, (ii) the additional monthly quantities that Seller estimates will be
delivered to such Points of Delivery during the Month, and (iii) the index(es)
applicable to such Point(s) of Delivery. The contract price for the additional
monthly quantities shall be determined in accordance with Section 4, and Buyer
shall purchase such additional monthly quantities in accordance with Section
3.1.
3.2.4 For any of Seller's Gas delivered to a Point of Delivery on
PG&E's System or on a Third Party's System, Buyer shall make all daily or other
nominations to PG&E or the Third Party as may be required by them, consistent
with Seller's Nominations hereunder, and shall provide copies of all such
nominations to PG&E or the Third Party, at the same time, to Seller. Seller
shall confirm such nominations to PG&E or the Third Party, as required.
3.3 A "Buyer Take Default" shall occur if, during any Contract Month,
Buyer fails for any reason (other than Force Majeure) to take the Monthly
Contract Quantity (less any Seller's Gas released pursuant to any provision of
this Agreement), in which event Seller may sell any such Gas not so taken by
Buyer to other buyers provided that such Gas shall not be committed under
agreements with such buyers for a term of greater than 30 days without Buyer's
prior written consent, and as the sole and exclusive remedy for such Buyer Take
Default, Buyer shall pay Seller in accordance with the provisions of Section 12,
an amount equal to the difference, if any, between the
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price received by Seller from such third party or parties, if lower than the
following index price, and the first-of-the-month index price for Gas delivered
to the PG&E City Gate as reported in Natural Gas Intelligence, less PG&E's then
current firm transportation rate (including fuel) for "Silverado" backbone
transportation capacity, plus $0.05 per MMBtu. Nothing herein shall relieve
Buyer from any imbalance charges for which it is liable hereunder.
3.3.1 A "Material Buyer Take Default" shall occur if during any two
consecutive years Buyer fails to take at least 90% of the sum of the Monthly
Contract Quantities for each contract year. Seller may, in its discretion,
terminate this Agreement if a Material Buyer Take Default occurs and Seller
gives Buyer written notice of Seller's intention to terminate this Agreement
within sixty (60) days after the last day of the contract year in which a
Material Buyer Take Default occurs, such termination to be effective on the last
day of the month following the month in which such termination notice is
delivered to Buyer. Seller's right to terminate this Agreement for a Material
Buyer Take Default shall be waived if Seller fails to deliver to Buyer the
notice described in the proceeding grammatical sentence of this Section within
the 60-day period set forth therein. After the occurrence of a Material Buyer
Take Default, Seller's sole and exclusive remedies shall be (i) the recovery of
any accrued and unpaid amounts due from Buyer through the date of such Material
Buyer Take Default, plus interest accrued thereon in accordance with Section 12
and (ii) termination of this Agreement pursuant to this Section.
3.3.2 A "Seller Delivery Default" shall occur if, during any Contract
Month, Seller fails for any reason (other than Force Majeure) to deliver the
Monthly Contract Quantity (less any Seller's Gas released pursuant to any
provision of this Agreement), in which event Buyer may purchase replacement Gas
from a third party or parties and, as the sole and exclusive remedy for such
Seller Delivery Default, Seller shall pay Buyer in accordance with the
provisions of Section 12 an amount equal to the difference, if any, between the
price paid by Buyer to such third party or parties, if higher than the following
index price, and the first-of-the-month index price for Gas delivered to the
PG&E City Gate as reported in Natural Gas Intelligence, less PG&E's then current
firm transportation rate (including fuel) for "Silverado" backbone
transportation capacity, plus $0.05 per MMBtu. Nothing herein shall relieve
Seller from any imbalance charges for which it is liable hereunder.
3.3.3 A "Material Seller Take Default" shall occur if, during any two
consecutive years, Seller fails to deliver at least 90% of the sum of the
Monthly Contract Quantities during each contract year. Buyer may, in its
discretion, terminate this Agreement if a Material Seller Delivery Default
occurs and Buyer gives Seller written notice of Buyer's intention to terminate
this Agreement within sixty (60) days after the last day of the contract year in
which a Material Seller Delivery Default occurs, such termination to be
effective on the last day of the month following the month in which such
termination notice is delivered to Seller. Buyer's right to terminate this
Agreement for a Material Seller Take Default shall be waived if Buyer fails to
deliver to Seller the notice described in the preceding grammatical sentence of
this Section within the 60-day period set forth therein. After the occurrence
of a Material Seller Take Default, Buyer's sole and exclusive remedies shall be
(i) the recovery of any accrued and unpaid amounts due from Seller through the
date of such Material Seller Take Default, plus interest accrued thereon in
accordance with Section 12, and (ii) termination of this Agreement pursuant to
this Section.
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3.4 The parties acknowledge that deliveries of Seller's Gas hereunder may
increase or decrease significantly from Contract Month to Contract Month as a
consequence of the routine conduct of the parties' operations and a variety of
factors affecting the market for Gas generally. Accordingly, the parties agree
that (a) the obligations of Seller (i) to sell and deliver the Monthly Contract
Quantity and (ii) of Buyer to purchase and receive the Monthly Contract Quantity
and (b) the methods used by the parties to estimate the quantities of Seller's
Gas to be sold by Seller and purchased by Buyer from Contract Month to Contract
Month hereunder, are all commercially reasonable means, arrived at by both
parties, acting in good faith, to minimize the severity of such increases and
decreases in deliveries, consistent with the commercial realities of producing
and marketing the Seller's Gas and the realities of Gas markets generally. The
parties agree that Section 2.306 of the Uniform Commercial Code, or any
provision of any law with similar provisions (collectively, "Output Contract
Laws"), is inapplicable to this Agreement and the transactions hereby
contemplated. To the extent that any Output Contract Laws are held to apply to
this Agreement and the transactions hereby contemplated, the parties hereby
WAIVE AND RELINQUISH any defenses to the enforcement of this Agreement arising
from such Output Contract Laws, and any claims that may be asserted by either
party arising from such Output Contract Laws.
3.5 Buyer shall manage balancing of Gas volumes on all Transporters'
Systems (including PG&E's System and Third Party's Systems), and Buyer and
Seller shall cooperate in avoiding and correcting imbalances as follows:
a. Seller shall provide Buyer once every week by facsimile a
statement of the current meter reading at the Facility;
b. Seller shall adjust Seller's Nomination upward or downward on a
temporary basis if the currently effective Seller's Nomination
does not reasonably correspond to Seller's production, as
provided in Section 3.2.2.
3.5.1 Buyer shall assume responsibility for trading of imbalances under
PG&E's tariff schedules G-BAL and Producer Balancing Agreements, and Seller will
designate Buyer as Seller's agent pursuant to such balancing agreements, or if
another Transporter is involved, pursuant to the tariff of that Transporter (or
any successor tariff, or agreement in the case of an unregulated entity). If
imbalance penalties or costs associated with such imbalances should occur,
including costs associated with Operational Flow Orders or Emergency Flow Orders
levied by PG&E, the cause of such imbalance shall be determined by the parties.
If it is determined that the imbalances arose as a result of Seller's failure to
deliver Seller's estimates of deliveries, or amendments thereto, pursuant to
Sections 3.2.1, 3.2.2 or 3.2.3 hereof, then Seller shall reimburse Buyer for
such imbalance charges or costs associated with such imbalances. Under all other
circumstances, Buyer shall pay such imbalance charges or costs associated with
such imbalances.
3.5.2 If PG&E adopts more strict gas balancing procedures than exist on
the Effective Date hereof, Seller agrees to meet with Buyer immediately
following receipt of a written request therefor from Buyer to renegotiate the
gas balancing provisions and quantity provisions of this Agreement
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so as to enable Buyer to comply with such stricter procedures without penalty or
incremental cost to Buyer.
3.6 Seller reserves to itself, its successors, assigns and
affiliates, the following rights (together with quantities of Gas sufficient to
satisfy such rights):
3.6.1 To operate Seller's leaseholds, lands and/or interests therein,
free from any control by Buyer, in such manner as Seller deems advisable for the
development and operation of Seller's leases (or on any unit, including, without
limitation, field-wide units), including the right (but never the obligation) to
drill new xxxxx, enhance production, to repair and rework Seller's xxxxx, to
renew and extend (in whole or in part) any lease, to abandon any well or
surrender any lease (in whole or in part) for any reason, to abandon, modify,
extend or dispose of any production facilities owned or installed (in whole or
in part) by Seller, to treat Gas, to use Gas as compressor fuel, for ethane
injection and recovery operations, to generate power in connection with
leasehold operations, to lift oil by repressuring, recycling or pressure
maintenance operations and to otherwise operate such leases and fields free from
any control by Buyer;
3.6.2 To remove from the Seller's Gas all liquids, liquid hydrocarbons,
oil and/or condensate and any other non-methane constituents, both by lease
separation and/or by processing plant, prior to delivery of the Gas to the
Point(s) of Delivery;
3.6.3 To produce Gas without waste and in accordance with prudent oil
and gas field practices, it being understood and agreed that Seller shall not be
required to produce any well at a rate in excess of the rate fixed by law or
regulation or in excess of the rate of flow which Seller determines, in its
discretion, exercised in good faith as a prudent operator, should be produced
from such well;
3.6.4 To pool or unitize Seller's leases with other leases of Seller or
others located in the field in which Seller's xxxxx are located (it being
understood that the Gas attributable or allocated to Seller's interest in the
pool or unit so created will remain Seller's Gas unless otherwise provided in
this Agreement);
3.6.5 To deliver Gas required to be delivered to Third Persons under
the common law governing relationships between co-tenants, or under Gas
balancing agreements existing as of the Effective Date or similar arrangements
affecting any of Seller's xxxxx or oil, gas and mineral leases.
3.6.6 Notwithstanding anything stated herein to the contrary, Seller
shall in no way be prohibited or precluded from assigning or granting a security
interest, lien or other encumbrance (collectively, referred to as "Liens") to
secure the repayment of obligations that Seller owes to commercial banks,
insurance companies or other financial or trade creditors (collectively,
"Lenders") on any of the properties owned by Seller from which Seller's Gas is
produced; that any person succeeding to the rights of Seller to the properties
subject hereto shall take such properties subject in all respect to the terms
and conditions hereof.
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4. PRICE
4.1 The price Buyer shall pay for the Seller's Gas delivered to a
Point of Delivery at the Calpine Pipeline in compliance with this Agreement
shall be equal to the first-of-the-month index price for gas delivered to the
PG&E City Gate as reported in Natural Gas Intelligence, less PG&E's then current
------------------------
firm transportation rate (including fuel) for "Silverado" backbone
transportation capacity, plus $0.05 per MMBtu.
4.2 The price Buyer shall pay for the Seller's Gas delivered to a
Point of Delivery at either PG&E's System or a Third Party's System in
compliance with this Agreement shall be equal to the first-of-the-month index
price for gas delivered to the PG&E City Gate as reported in Natural Gas
-----------
Intelligence, less PG&E's then current firm transportation rate (including fuel)
------------
for "Silverado" backbone transmission capacity.
4.3 In addition, during the term hereunder and notwithstanding the
Point of Delivery or any price redetermination hereunder, the price for Seller's
Gas shall be reduced by $0.05 per MMBtu to compensate Buyer for its obligation
to take all of Seller's Gas. This reduction shall not be subject to or affected
by any redetermination otherwise provided herein or be taken into account in the
calculation of any such other adjustment.
4.4 Either party may provide the other party with written notice to
redetermine the price of Seller's Gas to the extent any of the following occur:
(i) The reference index price is no longer published; or (ii) regulatory events
change or alter the cost or value of firm backbone transmission capacity, local
transmission and/or distribution on the PG&E System. In such event the parties
hereto shall meet reasonably promptly and attempt in good faith to negotiate a
new price leaving the parties in the same relative economic position they were
in prior to the event requiring redetermination. The redetermined price shall
be applied retroactively to the date of the notice requesting redetermination.
4.4.1 For any Seller's Gas sold by Seller to a third party, Seller
shall pay to Buyer or credit to Buyer against future Gas purchases by Buyer a
sum equal to the amount of 5c per MMBtu per month of Gas so sold to a third
party.
4.5 If the parties are unable to agree upon a new price within a
period of thirty (30) days, a new price shall be determined by arbitration in
accordance with the terms hereof. This agreement to arbitrate shall be
specifically enforceable. Either party may request arbitration by submitting a
written notice to the other. The notice shall name the noticing Party's
arbitrator and shall contain a statement of the issue(s) presented for
arbitration. Within fifteen (15) days of receipt of a notice of arbitration, the
other party shall name its arbitrator by written notice and may designate any
additional issue(s) for arbitration. The two named arbitrators shall select the
third
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arbitrator within fifteen (15) days after the date on which the second
arbitrator was named. Should the two arbitrators fail to agree on the selection
of the third arbitrator, either party shall be entitled to request the Senior
Judge of the United States District Court of the Northern District of California
to select the third arbitrator. If the Senior Judge fails or refuses to appoint
a third arbitrator within fifteen (15) days of a request to do so, then either
party may request any California Chapter of the American Arbitration Association
to select the third arbitrator. All arbitrators shall be qualified by education
or experience within the natural gas industry to decide the issues presented for
arbitration. No arbitrator shall be a current or former director, officer or
employee of either party, or its affiliates; an attorney (or member of a law
firm) that has rendered legal services to either party or its affiliates within
the past three years; or a consultant (or member of a consulting firm) that has
rendered services to either party over the past three years.
4.5.1 Each party shall deliver to the other party and to the
arbitrators, within ten (10) business days of the appointment, a written
proposal stating such party's proposed outcome, together with supporting
materials and documentation. Each party shall submit its response to the other
party's proposal within ten (10) business days after the arbitrators' and other
party's receipt of such proposal. The arbitrators, in their discretion, may
request the submission of additional information, and may conduct a hearing on
the subject matter of the dispute. Within forty-five (45) days after the
selection and appointment of the arbitrators, a majority of the arbitrators
shall select and adopt either Seller's proposal or Buyer's proposal, without
modification or compromise. The arbitrators shall make their decision as
follows: (i) in any price dispute over an index, the arbitrators shall decide
which of the proposed indexes presented to the arbitrators best represents the
market price for Gas of like quantities and quality at the applicable Point(s)
of Delivery and (ii) in all other price disputes, the arbitrator shall consider
the terms and conditions of this Agreement and the redetermined price shall be
reflective of and based upon the fair market value of natural gas of similar
quantity and quality, sold between a similarly situated buyer and seller,
purchased under a similar Gas Purchase Contract within the same geographic area,
which leaves the parties in the same relative economic position they were in
prior to the redetermination. The applicable contract price during the
arbitration shall be the contract price being paid on the day before the date
arbitration was begun hereunder (the "Arbitration Commencement Date"). Upon the
conclusion of the arbitration, such Contract Price, if it has changed as a
result of the arbitrators' decision, shall be adjusted retroactive to the
Arbitration Commencement Date.
4.5.2 The arbitration shall be concluded within 180 days of the
Arbitration Commencement Date. The arbitration shall be subject to the rules of
the American Arbitration Association, except to the extent such rules conflict
with the provisions of Article 4.5 and under no circumstances shall the American
Arbitration Association be appointed as the administrator of such arbitration
proceeding. Any decision by the arbitrators shall be final and binding upon the
parties and shall be enforceable in any court having jurisdiction over the
parties and/or the subject matter of this Agreement. The arbitrators shall have
the power to award recovery of all costs and fees to the prevailing party.
Until the date of such award, each party shall bear the expense and cost of its
own arbitrator, and one-half of the cost of the third arbitrator.
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5. POINT OF DELIVERY
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5.1 Seller shall make deliveries of Seller's Gas hereunder through
Facilities to Buyer at the Point(s) of Delivery. The parties may agree to add
or to delete Point(s) of Delivery after the Effective Date subject to the other
terms of this Agreement.
6. TITLE, POSSESSION AND CONTROL
6.1 Title to the Seller's Gas sold hereunder shall pass from Seller to
Buyer at the Point of Delivery. As between the parties hereto, Seller shall be
deemed to be in exclusive control, and possession of the Seller's Gas,
deliverable hereunder and responsible for any injuries, claims, liabilities or
damages caused thereby prior to delivery at the Points of Delivery; upon receipt
of the Seller's Gas at the Points of Delivery, Buyer shall be deemed to be in
exclusive control and possession thereof and responsible for any injuries,
claims, liabilities or damages caused by Buyer's possession and control. The
party in control and possession of such Seller's Gas shall indemnify and hold
harmless the other party with respect to any injuries, claims, liabilities, or
damages occurring while the Seller's Gas is in the indemnifying party's control
and possession.
7. DELIVERY PRESSURE
7.1 All of Seller's Gas purchased hereunder shall be delivered by Seller
at pressure sufficient to effect delivery into the designated Point of Delivery
pipeline against the pressure prevailing therein from time to time at each Point
of Delivery. For deliveries of Seller's Gas to Calpine Pipeline Seller shall
not be required to exceed a maximum of 900 psig. As to any Seller's Gas which
fails to meet the pressure specifications required herein, Buyer shall have the
right to refuse to accept delivery thereof. During the periods of such refusal
by Buyer, Seller may deliver the Gas to other buyers; provided that such Gas
shall not be committed under agreements with such buyers for a term of greater
than 30 days without Buyer's prior written consent until Buyer is willing to
accept Seller's Gas, or permanently release said Gas to Seller. Notwithstanding
any provision hereof to the contrary, it is understood and agreed that Seller
shall not be required to acquire or install facilities or equipment for
compression, processing, treating or other operations conducted with respect to
Seller's Gas pursuant to this Agreement to the extent Seller reasonably
determines that to do so is uneconomic to Seller. The phrase "uneconomic to
Seller" as used herein shall mean that the reasonably estimated cost to acquire
or install the facilities or equipment in question could not reasonably be
expected to be recovered (together with any of Seller's unrecovered costs of
drilling and completing the well or xxxxx and gathering Facilities in question)
from Seller's net revenue interest in the well or xxxxx in question.
8. TAXES
8.1 Seller shall pay all federal, state and local production, gathering,
severance or similar taxes now or hereafter levied with respect to Seller's Gas
delivered hereunder prior to the Point of Delivery and Buyer shall be
responsible for any taxes imposed upon the Seller's Gas or the transportation
thereof at and after the Point of Delivery. It is further agreed that should
any taxing agency require that any taxes for which either party is responsible
hereunder be paid by the other
12
party directly to the taxing agency, said payment will be made and deducted from
the gross payment to the other party owing the tax after written notice thereof
to Seller. In addition, if either party is required by law to collect any such
taxes from the other party and such other party claims an exemption from such
taxes, the party alleged to owe the tax shall, upon the other party's request,
furnish such other party with the applicable exemption certificate, or other
reasonably satisfactory evidence of such exemption.
8.2 With respect to all other taxes, assessments or fees which may be
imposed with respect to possession, ownership, processing or other activity
related to the Seller's Gas, each party hereto shall bear such taxes,
assessments or fees arising on account of its possession, ownership, processing
or other activities. Further, nothing herein shall be construed to obligate
either party to reimburse the other for any federal, state or local ad valorem,
capital stock, income, windfall or excess profits taxes, general franchise taxes
imposed on corporations on account of their corporate existence or on their
right to do business within the state as a foreign corporation, or similar
taxes.
9. TERM OF AGREEMENT; DEFAULTS AND REMEDIES
9.1 This Agreement shall be in force and effect from the Effective Date of
this Agreement until the first to occur of: (i) 7:00 a.m. Pacific Time on the
tenth (10/th/) anniversary of such Effective Date (it being understood that,
subject to the terms and conditions of this Agreement, this Agreement shall be
automatically extended from year to year after such tenth anniversary, unless
terminated by either party upon written notice delivered to the other party at
least thirty (30) days prior to the last day of the then-effective term); (ii)
termination of this Agreement by Seller for a Material Take Default; (iii)
termination of this Agreement by either party for Defaults enumerated in Section
9.3.
9.2 No termination of this Agreement shall release or be construed as
releasing either party from any liability or obligation to indemnify or pay
damages to the other party arising prior to termination out of, in connection
with, or otherwise relating to, directly or indirectly, the provisions of this
Agreement, or the defaulting party's material breach, material default or
material failure in the performance of any of the defaulting party's covenants,
agreements, duties or obligations arising hereunder, or any misrepresentations
or breach of a warranty contained herein. Any imbalances in receipts or
deliveries shall be corrected to zero within ninety (90) days after such date.
9.3 Each of the following shall be deemed a "Buyer Default": (i) Buyer's
failure to pay or cause to be paid any amount owing under this Agreement when
due (including, without limitation, payments due from Buyer in respect of a
Buyer Default or Material Buyer Take Default and any interest accrued on any
amounts payable hereunder in accordance with Section 12) for a period of ten
(10) business days after the due date, subject in all respects to Buyer's rights
under Section 12 (a "Buyer Payment Default"); (ii) a Material Buyer Take
Default; (iii) the occurrence of one or more of the following Defaults with
respect to Buyer: (A) the entry of a decree or order for relief against Buyer by
a court of competent jurisdiction in any involuntary case brought against Buyer
under any bankruptcy insolvency or other similar law (collectively, "Debtor
Relief Laws") generally affecting
13
the rights of creditors and relief of debtors now or hereafter in effect, (B)
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar agent under applicable Debtor Relief Laws for
Buyer or for any substantial part of its assets or property, (C) the ordering of
the winding up or liquidation of the Buyer's affairs, (D) the filing of a
petition in any such involuntary bankruptcy case, which petition remains
undismissed for a period of 180 days or which is not dismissed or suspended
pursuant to Section 305 of the Federal Bankruptcy Code (or any corresponding
provision of any future United States bankruptcy law), (E) the commencement by
Buyer of a voluntary case under any applicable Debtor Relief Law now or
hereafter in effect, (F) the consent by Buyer to the entry of an order for
relief in any involuntary case under any law or to the appointment of or the
taking of possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar agent under any applicable Debtor Relief Laws for
Buyer or for any substantial part of its assets or property, of (G) the making
by Buyer of any general assignment for the benefit of its creditors (the
Defaults referred to in clauses (A) through(G) being collectively referred to as
a "Buyer Bankruptcy Default"); or (iv) Buyer's failure to perform any covenant
or other obligation in this Agreement (other than those specified in clauses (i)
through (iii) of this Section 9.3), and if such failure is susceptible of cure
before Seller suffers any costs or losses as a result thereof, such failure is
not remedied within thirty (30) days of Buyer's receipt of a written notice
describing the particulars of such failure in reasonable detail (such failure
being herein called a "Buyer Covenant Default").
9.3.1 Each of the following shall be deemed a "Seller Default": (i)
Seller's failure to pay or cause to be paid any amount owing under this
Agreement when due for a period of ten (10) days after the due date (a "Seller
Payment Default"); (ii) the occurrence of one or more of the following Defaults
with respect to Seller: (A) the entry of a decree or order for relief against
Seller by a court of competent jurisdiction in any involuntary case brought
against Seller under any Debtor Relief Laws generally affecting the rights of
creditors and relief of debtors now or hereafter in effect, (B) the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or other
similar agent under applicable Debtor Relief Laws for Seller or for any
substantial part of its assets or property, (C) the ordering of the winding up
or liquidation of Seller's affair, (D) the filing of a petition in any such
involuntary bankruptcy case, which petition remains undismissed for a period of
180 days or which is not dismissed or suspended pursuant to Section 305 of the
Federal Bankruptcy Code (or any corresponding provision of any future United
States bankruptcy law), (E) the commencement by Seller under any such law or to
the appointment of or the taking of possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar agent under any
applicable Debtor Relief Laws for Seller or for any substantial part of its
assets or property, or (G) the making by Seller of any general assignment for
the benefit of its creditors (the Defaults referred to in clauses (A) through
(G) being collectively referred to as a "Seller Bankruptcy Default"); or
Seller's failure to perform any covenant or other obligation in this Agreement
(other than those specified in clauses (i) and (ii) of this Section 9.3.1), and
if such failure is susceptible of cure before Buyer suffers any costs or losses
as a result thereof, such failure is not remedied within thirty (30) days of
Seller's receipt of a written notice describing the particulars of such failure
in reasonable detail (such failure being herein called a "Seller Covenant
Default").
14
9.3.2 Except as explicitly provided elsewhere in this Agreement, and
subject in all respects to the other terms and conditions hereof, the party not
in Default (herein referred to as an "Unaffected Party") may take such actions
as it may be permitted to take under applicable law in consequence of a Default,
including, without limitation in the case of Seller, the right to sell all or
any part of the Seller's Gas to third Persons; provided, however, that the right
to terminate this Agreement shall only be applicable (A) upon occurrence of a
Buyer Bankruptcy Default or a Seller Bankruptcy Default (whereupon this
Agreement shall terminate automatically and immediately, (B) upon occurrence of
a Buyer Payment Default or a Seller Payment Default (whereupon this Agreement
shall immediately terminate, at the Unaffected Party's election if the
Unaffected Party had previously given at least ten (10) days' prior written
notice to the Defaulting Party of the Unaffected Party's intent to terminate
this Agreement), (C) upon occurrence of a Material Buyer Take Default, as
provided in Section 3.3 or (D) upon occurrence of a Buyer Credit Default under
Section 9.3, upon ten (10) days' prior written notice to Buyer.
9.3.3 An Unaffected Party shall use commercially reasonable efforts to
mitigate costs or losses as a result of a Default, including, without
limitation, exercising commercially reasonable efforts to find alternative
markets for Seller's Gas or alternative supplies of Gas, as applicable.
Similarly, a Defaulting Party shall exercise commercially reasonable efforts to
minimize the harm suffered by an Unaffected Party in consequence of such
Default, including providing the Unaffected Party with prompt notice of such
Default so as to facilitate cover for Gas not delivered or the resale of Gas not
taken hereunder.
9.3.4 Unless explicitly indicated to the contrary in this Agreement, the
remedies provided for in this Section 9.3 (including, without limitation,
termination of this Agreement) are cumulative of, and may be exercised without
prejudice to, any other remedies, whether at law or in equity to which an
Unaffected Party may be entitled under this Agreement for any Default.
9.3.5 All payments will be made without setoff or counterclaim; provided,
however, that upon a Defaulting Party's failure to make payment of undisputed
amounts on the due date, the Unaffected Party may, at its option and in its
discretion, setoff against any amounts owed to the Defaulting Party under this
Agreement or otherwise. The obligations of the Unaffected Party to the
Defaulting Party shall be deemed satisfied and discharged to the extent of any
such setoff.
10. MEASUREMENT
10.1 The measurement of gas quality and volume shall be determined as
follows:
(a) The temperature of the Seller's Gas delivered will be
determined by a continuous method or by an arithmetic average of frequent, not
less than once per hour, temperature readings obtained during each chart period
from a recorder installed separately from the flow recorder.
15
(b) The specific gravity of the Seller's Gas delivered shall be
determined by the use of a recording gravitometer, or by the use of periodic
sampling and laboratory measurement.
(c) The Heating Value of the Seller's Gas delivered shall be
determined by one of the following methods as elected by Buyer, or any other
method mutually agreed upon:
(1) A gas sampler, which samples proportional to flow,
analyzing the sample collected by gas chromatography and calculating the Heating
Value; or
(2) by the use of a recording calorimeter.
10.2 Tests to determine the quality of the Seller's Gas shall be made
using standard methods approved in the natural gas industry. Tests shall be
performed at least quarterly, unless otherwise mutually agreed, provided that in
no event will more than twelve (12) consecutive months elapse between tests for
any Point of Delivery. The party making the quality test shall notify the other
party at least seven (7) days prior to making the quality test and shall allow
the other party an opportunity to witness all tests.
10.3 The quantity of Seller's Gas delivered by Seller shall be measured
in cubic feet in accordance with the provisions of American National Standard
Institute/American Petroleum Institute Report 2530 (ANSI/API 2530) or any
subsequent revisions thereof acceptable to the parties hereto.
10.4 Buyer shall install and maintain, at its sole expense, one suitable
orifice meter and necessary related gauges (as generally adopted and used in the
natural gas industry) at the Point of Delivery for the purpose of measuring the
Seller's Gas delivered hereunder. Buyer, at its sole expense, shall calibrate
the meter at least once every 90 days. Buyer shall afford Seller an opportunity,
through prior notice, to witness all meter tests.
10.5 Seller shall have access to said meter or meters at any reasonable
time, and shall be allowed to inspect and check or test same, and also all
gauges, charts and records of measurement, at such time as it may desire.
Seller shall give Buyer reasonable notice to provide Buyer an opportunity to
have a representative present when any check or test is made. If an inaccuracy
is discovered, then the amount of Seller's Gas which shall have been delivered
shall be recalculated and corrected where the magnitude of the inaccuracy can be
determined for any period definitely known or agreed upon. In the event such
periods are unknown and cannot be agreed upon, the period of inaccuracy will be
deemed for a period equal to the lesser of (i) one half the time since the last
test or (ii) 30 days.
10.6 Seller shall obtain for Buyer, at Buyer's cost, any necessary
easements or rights of way on the land covered by the Seller's leases for
Buyer's metering facilities, as described herein.
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11. QUALITY
11.1 Seller's Gas shall meet all PG&E gas quality standards as
identified in CPUC tariffs as they exist from time to time for all deliveries
into the PG&E system. For deliveries to other pipeline(s) other than PG&E, and
not affiliated with Buyer, Seller's Gas shall meet the quality specifications
required by such other pipelines as they exist from time to time. For deliveries
directly to Calpine Pipeline, Seller's Gas shall meet all PG&E gas quality
standards as identified in CPUC tariffs as they exist from time to time, except
that the gas may have a gross heating value of not less than seven hundred and
fifty (750) Btu per cubic foot. If at any xxxx Xxxxxx'x Gas has a gross heating
value of less than 900 Btu per cubic foot and is directly connected to Calpine
Pipeline, and acceptance of such gas which when considered with all other gas
flowing on the Calpine Pipeline, reduces the Btu quality to levels unacceptable
for the operation of any plant or facility owned or operated by Buyer or any
affiliate of Buyer; then Buyer shall have the right to refuse to accept delivery
thereof. Buyer may resume acceptance of such lower Btu quality Gas at any time.
Seller may deliver the Gas to other buyers; provided that such gas shall not be
committed under agreements with such buyers for a term greater than 30 days
without Buyer's prior written consent, until Buyer is willing to accept Seller's
Gas, or permanently release said Gas to Seller.
11.2 If necessary to meet the quality specifications in this Section 11,
but subject in all respects to the provisions of Section 2.2, Seller shall
install and maintain a suitable separator and any necessary dehydration
equipment through which the Seller's Gas shall pass before delivery to Buyer
which shall be sufficiently adequate to separate and remove free liquids and
other impurities from the gas stream.
11.3 As to any Seller's Gas which fails to meet the quality
specifications required herein, Buyer shall have the right to refuse to accept
delivery thereof, and upon such refusal Seller shall be entitled to sell such
Gas to a third party, subject to the obligation to pay 0x XXXxx to Buyer under
Section 4.4.1 hereof.
12. XXXXXXXX AND PAYMENTS
12.1 On or before the last business day of each Contract Month after
deliveries of Seller's Gas are commenced, Buyer shall render to Seller a
statement along with payment by wire transfer for the amount due for Seller's
Gas delivered during the preceding Contract Month. Payment and statements may
be based on estimated quantities and prices if actual quantities and prices are
not available in time to prepare the statement and make payment. In such event,
Buyer shall make an adjustment in succeeding statements and payments to account
for any difference between actual quantities and prices and estimated quantities
and prices. All payments by Buyer hereunder shall be to the order of Seller and
Seller shall be responsible for properly distributing the payment among the
individuals and entities entitled to a portion of such payment.
12.2 If Buyer fails to pay any amount when due or Buyer pays an amount
disputed in good faith and it is ultimately determined that such amount was not
due, interest shall be paid to the other
17
party on any amount finally determined to be due which interest shall accrue
until paid at the rate equal to the lesser of (a) the prime rate available from
time to time at Bank of America, Los Angeles, California plus two (2) percentage
points, or (b) the maximum non-usurious rate permitted by applicable law. The
rate of interest described in the preceding sentence shall be referred to as the
"Reference Rate."
12.3 Each party shall keep and maintain true and correct books, records,
files and accounts of all information available to such party and reasonably
related to the transactions contemplated by this Agreement, including, as
applicable, all measurement records, all information used to determine prices
and all Transporter invoices, imbalance statements and payment records. Each
party shall have the right to audit and examine at all reasonable times the
records and charts of the other party pertaining to the performance of this
Agreement during the term hereof and for a period of twenty-four (24) months
after the termination hereof, to the extent necessary to determine compliance
hereof. If any overcharge or undercharge in any amount whatsoever shall at any
time be found and the xxxx therefor has been paid, Seller shall refund the
amount of the overcharge or Buyer shall pay the amount of the undercharge, plus
interest at the Reference Rate, within thirty (30) days after the final
determination thereof; provided, however, that no retroactive adjustment will be
made for any overcharge or undercharge beyond a period of twenty-four (24)
months from the date the discrepancy was first discovered. Notwithstanding the
foregoing, if a party provides written notice to the other party of an
overcharge or undercharge within the 24-month period set forth in the preceding
sentence, such claim shall survive such 24-month period for the maximum time
prescribed by applicable law.
12.4 If in any two consecutive Contract Months the cumulative total
amount payable by Buyer to Seller for Gas sold by Seller to Buyer hereunder
exceeds the sum of $5,400,000.00, Seller may, by written notice to Buyer,
require that Buyer cause Calpine Corporation to reissue its guarantee of Buyer's
payment obligations to Seller hereunder with an aggregate Calpine Corporation
liability in an amount equal to such two consecutive Contract Months' cumulative
total until such time as a succeeding such two consecutive Contract Months'
cumulative total is equal to or less than $5,400,000.00, whereupon Calpine
Corporation may reissue such guarantee with an aggregate Calpine Corporation
liability of $5,400,000.00. Whenever Calpine Corporation reissues its guarantee
hereunder, the guarantee being replaced by the reissued guarantee shall be
returned to Calpine Corporation.
13. WARRANTY OF TITLE TO SELLER'S GAS
13.1 Seller warrants title to, or the right to sell, all Gas delivered
to Buyer under this Agreement. Seller also warrants that all such Gas shall be
free from all liens, encumbrances and adverse claims of every kind, including
but not limited to liens to secure payment of production, severance and other
taxes. Seller shall pay, or cause to be paid, all royalties, taxes and other
sums due on production, gathering, severance or handling of the Seller's Gas
delivered by Seller to Buyer, and Seller shall timely make or cause to be made
payments to all other parties, if any, having interest in the Seller's Gas sold
or to be sold hereunder. Seller agrees to hereby indemnify Buyer, and its
18
successors, assigns, and holds them harmless against all suits, actions, claims,
debts, accounts, prices, loss damage and expense of every kind and character on
account of title claims of any and all entities arising out of or in connection
with the Seller's Gas delivered by it, including without limitation, all
royalties, taxes, payments or other charges thereon applicable before or upon
delivery to Buyer. If Seller's title is questioned or involved in any action or
if Seller fails to satisfy timely and promptly its obligations hereunder, Buyer
may thereafter refuse without penalty to accept further deliveries from Seller
and/or Buyer may withhold payment of sums due hereunder (without interest
thereon) up to the amount of the claim or obligations accrued until title is
free from such question, or such action is finally determined, or such
obligations are satisfied, or until such time as Seller furnishes a bond, in
form and substance acceptable to Buyer, conditioned to save Buyer harmless with
sureties satisfactory to Buyer, or, with respect to title claims, unless Seller
gives an opinion of independent legal counsel that the title claim is without
merit.
13.2 Seller warrants that, to its knowledge, all Seller's Gas delivered
hereunder will have been produced and delivered in accordance with all valid and
applicable laws and all regulations, rules and orders of any regulatory body
having jurisdiction and control over the production of natural gas or the
operation of natural gas properties in California.
14. FORCE MAJEURE
14.1 If either party is rendered unable by Force Majeure to carry out,
wholly or in part, any of its obligations under this Agreement, except for the
payment of money owed for prior periods, then upon that party's giving written
notice (or oral notice followed promptly by written notice) and full particulars
of the Force Majeure, the obligations of both parties under this Agreement shall
be suspended without liability to the extent and for the period of such event of
Force Majeure which, so far as possible, shall be remedied with all reasonable
dispatch. If the party claiming Force Majeure notwithstanding such Force
Majeure may partially carry out such obligations, then only such obligations as
are affected by the event of Force Majeure shall be suspended as aforesaid.
14.2 Subject to the other provisions of this Section 14, the term "Force
Majeure" or "Force Majeure Event" as used herein shall mean an event that (i)
was not within the control of the party claiming its occurrence and (ii) could
not have been prevented or avoided by such party through the exercise of due
diligence. Events of Force Majeure shall include, by way of example rather than
of enumeration, acts of God; strikes, lockouts or other industrial disturbances;
inability to obtain pipe or other material, equipment, or labor, wars; riots;
insurrections; epidemics; landslides; lightning; earthquakes; fires; storms;
floods; washouts; arrests and restraint of rulers and people; interruptions by
government or court orders; present or future orders of any regulatory body
having proper jurisdiction over all or any part of the arrangements made under
this Agreement; civil disturbances; explosions; breakage or accident to
machinery or lines of pipe; freezing of xxxxx or pipelines; and any other cause
beyond the reasonable control of the parties, whether of the kind herein
enumerated or otherwise. Nothing contained herein, however, shall be construed
to require either party to settle a labor dispute against its will.
19
14.3 For such portion of Seller's Gas for which the only Point of
Delivery is or only Points of Delivery are the Calpine Pipeline, the parties
agree that the term "Force Majeure" or "Force Majeure Event" shall also include
(i) events that render the Plants unable, wholly or in part, to operate at a
profit, as determined in the reasonable judgment, exercised in good faith, of
the owners of the Plants acting as a reasonable and prudent owner, (ii) any
reduction, curtailment, or interruption of the taking of electric energy from
the Plants under the power sales agreements under which power is sold therefrom
or of the transmission of electric energy from the Plants under transmission
service agreements related thereto, and (iii) scheduled and unscheduled
maintenance and repairs. Such term likewise includes (i) in those instances
where either party hereto is required to obtain easements, rights-of-way grants,
permits, exceptions or licenses to enable such party to fulfill its obligation
hereunder, the inability of such party to acquire, or the delays on the part of
such party in acquiring at reasonable cost and after the exercise of reasonable
diligence, such easements, rights-of-way grants, permits, exceptions or
licenses, and (ii) in those instances where either party hereto is required to
furnish materials and supplies for the purpose of constructing or maintaining
facilities or is required to secure permits or permission from any governmental
agency (federal, state or municipal, civil or military) to enable such party to
fulfill its obligations hereunder, the inability of such party to acquire or the
delays on the part of such party in acquiring, at reasonable cost and after the
exercise of reasonable diligence, such material and supplies, permits and
permissions. Lack of financial resources, loss of markets for Gas or changes in
market prices for Gas shall not be a cause of Force Majeure nor constitute a
Force Majeure Event.
14.4 An event that would otherwise constitute a Force Majeure Event
shall not relieve the party claiming Force Majeure from any of its obligations
hereunder in the event such party fails to use reasonable diligence to remedy
the situation of Force Majeure in an adequate manner and with all reasonable
dispatch.
14.5 If Buyer is unable to take Seller's Gas from any Point(s) of
Delivery due to the occurrence of Force Majeure, Seller, acting in a
commercially reasonable manner, may market and sell such Seller's Gas from the
affected Point(s) of Delivery to any third parties otherwise free from this
Agreement and without any obligation otherwise to Buyer during the continuance
of the Force Majeure. As soon as the Force Majeure that rendered Buyer unable
to take Seller's Gas is remedied or terminated, Seller's obligation to
thereafter commence selling the Seller's Gas to Buyer shall commence following
the expiration of any agreement between Seller and third person for the purchase
of Seller's Gas that Buyer was unable to take and that Seller subsequently
marketed and sold to such parties as permitted by this Section 14.5. It is
specifically understood and agreed that any such agreement between Seller and
third persons shall be terminable without penalty to Seller on not more than
thirty (30) days' notice, and Seller shall use commercially reasonable efforts
to terminate any such agreement within a shorter period once the event of Force
Majeure has been remedied or terminated.
14.6 If any condition of Force Majeure affecting Buyer or Seller shall
continue for a period in excess of six (6) months duration, each party shall
each have the right, effective immediately upon
20
delivering written notice to the other party, to terminate this Agreement; but,
in the event of such termination the parties shall settle their accounts as
provided in Section 9.2.
15. REGULATORY BODIES
15.1 This Agreement shall be subject to all valid and applicable State
and Federal laws and orders, directives, rules and the regulations of any
governmental body or official having jurisdiction, and this Agreement is
conditioned upon the parties hereto obtaining all requisite certificates and
authorizations acceptable to the parties directly affected thereby from any
governmental agency, organization or body having jurisdiction.
15.2 It is mutually understood that neither Buyer nor Seller considers
itself a public utility. Neither party intends, by this Agreement or by its
performance of its obligations hereunder, to dedicate to public or quasi-public
use or purpose any of the pipelines or other facilities which it or any of its
affiliates operates, and the parties agree that the execution of this Agreement
shall not, nor shall any performance or partial performance hereunder, be or
ever be deemed or urged by either party to be a dedication to public or quasi-
public use of any pipelines or facilities of the other party or any of its
affiliates, or as subjecting either party or any of its affiliates to
regulations of any character, description or degree. If, at any time, the CPUC,
the Federal Energy Regulatory Commission or any other public body or third party
should initiate any action claiming or asserting jurisdiction over either party
or any of its affiliates as a public utility, a natural gas company or a
pipeline company under the laws of the State of California, or as a natural gas
company or utility under Federal law, as the case may be, or shall take
jurisdiction in any proceeding whereby any third person should assert or claim
that either party or any of its affiliates is a public utility, a natural gas
company or a pipeline company because of the purchase and/or sale of the
Seller's Gas which is the subject of this Agreement, or the production,
gathering, processing or transporting of such Seller's Gas, either party shall
have the right to terminate this Agreement at any time thereafter by giving
thirty (30) days' written notice to the other party of its intention to do so
and such termination shall relieve both parties of all further obligations and
liabilities under this Agreement, except as provided in Section 9.2.
16. CONFIDENTIALITY
16.1 The parties incorporate by reference the confidentiality provisions
of the Stockholders' Agreement, with all necessary changes being made.
17. INDEMNITY
17.1 Seller and Buyer, respectively, as indemnitor, will each indemnify
the other as indemnitee and save it harmless from any and all loss, damage,
expense and liability resulting from injuries to or death of persons, including
but not limited to employees of either party hereto, and damage to or
destruction of property, including but not limited to the property of either
party hereto,
21
arising out of, or in anyway connected with, the indemnitor's own performance of
this Agreement, or any operations hereunder by indemnitor, its agents or
employees.
18. MISCELLANEOUS
18.1. No waiver by Buyer or Seller of any default of the other under this
Agreement shall operate as a waiver of any future default, whether of a like or
different character.
18.2 Every notice, request, statement or xxxx provided for in this
Agreement shall be in writing or sent by confirmable electronic means and
directed to the party to whom given, made or delivered at such party's address
as follows:
BUYER:
Calpine Fuels Corporation
00 Xxxx Xxx Xxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention:__________
Fax No.:____________
SELLER:
Sheridan California Energy, Inc.
0000 Xxxxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxxx
Fax No.: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxxxx Xxxxxxxx & Xxxxxx P.C.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Fax No: (000) 000-0000
or at such other post office address as such party shall from time to time
designate as the address for such purpose.
18.3 Buyer and Seller agree that this Agreement shall be construed
according to the laws of the State of California.
22
18.4 Except as specifically provided elsewhere in this Agreement, this
Agreement shall not be assigned without the express written consent of the other
party, except to wholly owned subsidiaries and affiliates of the assigning
party, in which case the assigning party shall not be relieved of responsibility
for any of its obligations under this Agreement. Notwithstanding the foregoing,
Seller shall have the right to convey its interest in oil and gas leases from
which Seller's Gas is produced (a "Subject Interest") to a Person who is not an
affiliate pursuant to this Section 18.4. At Seller's option, the affected
Subject Interest shall either remain subject to this Agreement, and Gas produced
from that Subject Interest shall be deemed Seller's Gas for all purposes under
this Agreement, or shall remain Seller's Gas pursuant to a separate agreement
executed by Buyer and Seller's successor in interest and containing terms and
conditions substantially identical to this Agreement. If Seller elects to convey
the Subject Interest subject to this Agreement, the documents evidencing the
conveyance of the Subject Interest shall specifically identify this Agreement
and obligation to Seller's successor in interest to ratify and adopt this
Agreement insofar as it applies to the Subject Interest acquired by Seller's
successor in interest. If Seller elects to require its successor in interest to
execute an agreement substantially identical to this Agreement, such agreement
shall be executed contemporaneously with the documents evidencing the conveyance
of the Subject Interest. Notwithstanding the foregoing, Seller shall have the
right to convey a Subject Interest to a Person who is not an affiliate free and
clear of this Agreement if the Subject Interest, when combined with any other
Subject Interest contemporaneously conveyed to such Person, produced in total an
average of 000 XXXxx per day, or less, over the six month period ending ninety
(90) days prior to the effective date of the conveyance.
18.5 Notwithstanding the provisions of Section 18.4, Buyer, in connection
with certain transactions, may grant a lender or other third party ("Lender") a
security interest in Buyer's interest in this Agreement and the quantity of
Seller's Gas delivered to Buyer hereunder. Buyer will give Seller prompt written
notice of the granting of a security interest and Seller hereby consents to the
creation of the liens described above.
18.6 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
PUNITIVE, SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS.
18.7 Seller shall, to the extent it is assignable without breach of
contract and without subjecting Seller to regulatory requirements that would not
otherwise be applicable, assign to Buyer or any affiliate of Buyer designated by
Buyer, without warranty, any rights which Seller may have or acquire in any
option to purchase PG&E's gas gathering system in the Rio Vista Unit area. If
any such option is not so assignable, Seller shall at Buyer's written request
and at Buyer's expense exercise such option or cause it to be exercised and
thereafter assign such gas gathering system to Buyer or an affiliate of Buyer
designated by Buyer, without warranty, subject, however, to applicable
regulatory requirements.
All payments to Seller shall be made in accordance with the Wire Transfer
Instructions attached hereto as Exhibit "D."
23
IN WITNESS WHEREOF, the parties hereto have executed, or caused this
Agreement to be executed by their duly authorized officers, as of the Effective
Date.
SELLER:
SHERIDAN CALIFORNIA ENERGY, INC.
By: /s/ X.X. Xxxxxxxx
-----------------------------------------
Printed Name: X.X. Xxxxxxxx
-------------------------------
Title: President and Chief Executive Officer
--------------------------------------
BUYER:
CALPINE FUELS CORPORATION
By: /s/ Xxxx X. Xxxx
----------------------------------------
Printed Name: Xxxx X. Xxxx
------------------------------
Title: Agent
-------------------------------------
24
EXHIBIT "A"
TO GAS PURCHASE AND SALES AGREEMENT BY AND BETWEEN
CALPINE FUELS CORPORATION, AS BUYER, AND SHERIDAN CALIFORNIA
ENERGY, INC., AS SELLER, DATED EFFECTIVE JANUARY 25, 1999
1. Those certain lands which comprise the "AHC Properties" and the
"Sheridan Properties" as defined and described in that certain Agreement
Regarding Formation of Corporation by and between Sheridan Energy, Inc.,
Sheridan California Energy, Inc., Calpine Corporation, and CPN Production
Company, dated effective January 25, 1999; and
2. Those lands depicted on the map attached hereto as Exhibit "A-1"
designated as the seismic area.
EXHIBIT "B"
SELLER'S NOMINATION
Selling Party:__________________ Receipt Point:___________________
Month of Gas Flow:______________ _________________________________
SCHEDULE OF GAS FLOW
--------------------
DAY QUANTITY (MMBTU/DAY) DAY QUANTITY (MMBTU/DAY)
--- ---------------------- --- --------------------
01 16
02 17
03 18
04 19
05 20
06 21
07 22
08 23
09 24
10 25
11 26
12 27
13 28
14 29
15 30
31
Total Month_____________________ Average Btu_____________________
EXHIBIT "C"
BUYER'S NOMINATION AND MONTHLY CONTRACT QUANTITY
Selling Party:_______________ Receipt Point:____________________
Month of Gas Flow____________ __________________________________
SCHEDULE OF GAS FLOW
--------------------
DAY QUANTITY (MMBTU/DAY) DAY QUANTITY (MMBTU/DAY)
--- -------------------- --- -------------------
01 16
02 17
03 18
04 19
05 20
06 21
07 22
08 23
09 24
10 25
11 26
12 27
13 28
14 29
15 30
31
Total Month (Monthly Contract Quantity)_______ Average Btu_________________
EXHIBIT "D"
WIRE TRANSFER INSTRUCTIONS
--------------------------
Bank One Texas, N.A.
Houston, TX
ABA # 000000000
Bank Contact: Xxxxx Lenders
Bank No.: 000-000-0000
Bank Fax: 000-000-0000
Account Name: Sheridan California Energy, Inc.
Account Number: 000-0000-000
Tax ID Number: 00-0000000