[Crown Asphalt Products Company Logo]
VIA FEDERAL EXPRESS
October 1, 1998
Xx. Xxxx X. Xxxxxxx
Santa Xxxxx Refining Corporation
0000 Xxxxxx Xxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Re: Processing Agreement Renewal
Dear Xx. Xxxxxxx:
Reference is made to the Processing Agreement dated May 1, 1995
between Santa Xxxxx Refining Corporation (SMRC), Saba Petroleum
Company and Petro Source Refining Corporation ("the Agreement").
Paragraph 1.a. of the Agreement provides that Xxxxx Source may
request an extension of the term of the Agreement by giving SMRC
written notice at least sixty (60) days prior to the end of the
Primary Term.
As you are aware, Crown Asphalt Distribution l.l.c. (CAD)
purchased all of the asphalt marketing and distribution assets of
Petro Source, including the Agreement, effective July 2, 1998.
CAD's business is managed and operated by Crown Asphalt Products
Company (CAPCO). This letter will serve as a written request that
the Agreement be extended for an additional one year term through
December 31, 1999.
If you have any questions please do not hesitate to contact me.
Sincerely,
Xxx Xxxxxx
Manager, Crown Asphalt Distribution l.l.c.
cc: Xxxxxx Xxxxxxxxx - Xxxx Petroleum Company
Xxxx Xxxxxxx - MCNIC
Xxxxx Xxxxxxxxx - Xxx Xxxxxxx & Xxxxxxx
PROCESSING AGREEMENT
This Processing Agreement ("Agreement") is made and entered
into on the 1st day of May, 1995, by and between PETRO
SOURCE REFINING CORPORATION, a Utah corporation ("Petro
Source") and SANTA XXXXX REFINING COMPANY, a California
corporation ("SMRC"), and SABA PETROLEUM COMPANY ("SABA") a
Colorado corporation.
R E C I T A L S
WHEREAS, SMRC is the owner and operator of the Santa Xxxxx
Refinery located in Santa Maria, California (the "Refinery"); and
WHEREAS, Petro Source is a marketer of crude oil and
refined products, with access from time to time to certain
volumes of crude oil which it desires that SMRC process at the
Refinery; and
WHEREAS, SMRC desires to process said crude oil on the
terms and conditions herein; and
WHEREAS, XXXX is the parent company and sole shareholder of
SMRC and desires to assure Xxxxx Source of SMRC's performance
hereunder; and
WHEREAS, SABA has or controls crude oil production, which
is either available for sale, or could become available for sale,
that SABA desires to sell to Petro Source and Petro Source
desires to purchase from SABA.
NOW THEREFORE in consideration of the mutual promises set
forth herein, and other good and valuable consideration, the
parties hereto agree as follows:
1. Term of The Agreement
a. This Agreement shall be effective as of the 1st day of May,
1995 (the "Effective Date'), and, subject to other provisions
contained herein, shall remain in effect until December 31, 1998
( the "Primary Term"). Xxxxx Source may request, by written
notice given at least sixty (60) days prior to the end of the
Primary Term or any subsequent renewal term, that this Agreement
remain in effect for an additional one (1) year term. If SMRC
denies Xxxxx Source's request for a renewal term at the end of
the Primary Term, and only for the denial of Petro Source's
request for a renewal at the end of the Primary Term, SMRC shall
pay Petro Source, on the date that this Agreement terminates,
$100,000.
b. In the event that this Agreement terminates or expires under
the provisions of paragraph I a. and Xxxxx Source has a
contractual commitment for refined product that had been entered
into prior to the termination or expiration of this Agreement
then, at Petro Source's request, SMRC shall hold the inventory
necessary to fulfill the contractual commitment until Petro
Source requests delivery of such inventory. Petro Source shall
pay, on a monthly basis, SMRC's operating expenses incurred for
handling, storage and delivery of the refined product for the
contractual commitment.
Xxxxx Source understands that SMRC may be required to
relocate the refined product to other tankage for
various reasons. Xxxxx Source's inventory will not
materially limit SMRC's use of the Refinery, however,
SMRC shall not commingle the retained Petro Source
inventory with third party inventories without Petro
Source's prior approval; such approval shall not be
unreasonably withheld.
2. Feedstock Processing
x. Xxxxx Source shall deliver, or caused to be delivered,
Feedstock to SMRC for processing at the Refinery. "Feedstock"
means crude oils or other liquid hydrocarbons of the types listed
in Exhibit "A", attached hereto and incorporated herein, which
may be amended from time to time upon the agreement of the
parties. The amended list of crude oil and other liquid
hydrocarbon types shall be set forth in writing and shall be
incorporated into this Agreement.
b. The amount of Feedstock delivered shall be at Petro Source's
sole discretion. SMRC agrees to process all quantities of
Feedstock delivered by Xxxxx Source for processing, up to the
maximum thruput capability of the Refinery. SMRC agrees to
dedicate 100% of the capacity of the Refinery to the processing
of the Feedstock delivered by Xxxxx Source. The parties
acknowledge that it is the intent of this Agreement to develop
opportunities for Local Sales (defined in paragraph 3) and to
satisfy that intent the parties agree that the asphalt produced
from 50% of the first 90,000 barrels of Feedstock, delivered each
month, shall be allocated to Local Sales ("Allocated Asphalt").
If Petro Source, after reasonable efforts to market the Allocated
Asphalt to Local Sales, and after consulting with SMRC, elects to
market Allocated Asphalt as Export Sales (defined in paragraph
3), then Petro Source may market the Allocated Asphalt as Export
Sales.
3. Processing Fee and Payment Thereof
a. SMRC shall be entitled to a monthly processing fee (the
"Processing Fee") which is the sum of 50% of Local Profit, plus
50% of Export Profit. Notwithstanding the foregoing to the
contrary, SMRC shall receive no portion of the profit from the
sale of Export Sales asphalt products which are modified or
blended with other materials by Petro Source, or its agents,
after the asphalt products are removed from the Refinery.
b. "Local Profit" means Local Sales Revenue less Local Cost(s)
as determined in accordance with generally accepted accounting
principles ("GAAP").
i. "Local Sales Revenues" means, on a process month basis, all
revenue received and retained (i.e., not subject to being
returned due to events such as, but not limited to, offsets,
accounting corrections, settlements and preference actions in
bankruptcy) from Local Sales.
ii. Local Sales" means sales of the following products: (1)
asphalt which was produced at the ' Refinery from Feedstock
supplied by Petro Source and delivered to an application site in
the State of California; (2) asphalt which was processed at the
Refinery from Feedstock supplied by Petro Source and which was
modified by polymiers at the Refinery, regardless of application
location, and (3) a prorated portion of the light products
attributable to the volume of Feedstock from which Local Sales
described in subparagraph (1) and (2) hereof were derived.
iii. "Local Cost(s)" means, the sum of Petro Source's Local
Marketing Cost(s), SMRC Reimbursable Variable Cost(s) (defined in
paragraph 5) allocable to Local Sales, SMRC Reimbursable Fixed
Cost(s) (as defined in paragraph 5), Local Inventory and
Receivable Carrying Cost(s); and Local Cost(s) Carry Forward.
iv. "Petro Source's Local Marketing Cost(s)" means on a process
month basis, all cost(s), losses (including hedging losses net of
gains) and expenses incurred by Xxxxx Source in making related
Local Sales Revenue, including, but not limited to, the direct
out-of-pocket cost(s) of selling, documenting, handling, storing,
developing, testing, transporting and installing product; cost(s)
associated with collection of receivables related to Local Sales
(including, but not limited to, demerits and bad debt), cost(s)
of goods sold, and any environmental excise tax, (including, but
not limited to, Superfund excise tax) on petroleum processing.
The parties hereto acknowledge that in accordance with the
regulations pertaining to the Superfund excise tax that SMRC, as
owner and operator of the Refinery, is required to remit the
Superfund excise tax to the federal government.
v. "Local Inventory and Receivable Carrying Cost(s)" means the
portion of interest, at the rate charged to Petro Source under
its bank credit facility, incurred to purchase and hold inventory
and receivables pending payment; and letters of credit cost(s)
which are reasonably allocable to Local Sales.
vi. If Local Sales Revenue less Local Cost(s) is a negative
number, that number will first be applied as a reduction to
Export Profit and if Export Profit is insufficient to absorb the
entire amount, any remaining amount will be carried forward and
treated as a Local Cost(s) in future months until it is
extinguished or until this Agreement expires or is terminated by
Petro Source ("Local Cost(s) Carry Forward").
c. "Export Profit" means Export Sales Revenue less Export
Cost(s) as determined in accordance with GAAP.
i. "Export Sales Revenue" means, on a process month basis, all
revenue received and retained from Export Sales, less $25 per ton
for each ton of processed asphalt sold. Notwithstanding the
foregoing to the contrary, if Xxxxx Source could have supplied an
Export Sale from another source, with such other source at a
lower cost(s) than the effective cost(s) Petro Source incurs by
supplying such sale with asphalt from the Refinery, such $25
shall be increased by the difference in the cost(s) of the two
sources of supply.
ii. "Export Sales" means sales of the following products: (1)
asphalt which was produced at the Refinery from Feedstock
supplied by Petro Source and delivered to an application site
outside of the State of California, except when such asphalt has
been modified with polymers at the Refinery, and (2) a prorated
portion of the light products attributable to the volume of
Feedstock from which Export Sales described in subparagraph (1)
hereof were derived.
iii. "Export Cost(s)" means, the sum of Petro Source's Export
Marketing Cost(s), SMRC Reimbursable Variable Cost(s) allocable
to Export Sales, Export Inventory and Receivable Carrying Cost(s)
and any Remote Terminal Cost(s).
iv. "Petro Sources Export Marketing Cost(s)" means on a process
month basis, all cost(s), losses (including hedging losses net of
gains) and expenses incurred by Petro Source in making related
Export Sales Revenue, including, but not limited to, the direct
out-of-pocket cost(s) of selling, documenting, handling, storing,
developing, testing, transporting and installing product; cost(s)
associated with collection of receivables related to Export Sales
(including, but not limited to, demerits and bad debt), cost(s)
of goods sold, and any environmental excise tax (including, but
not limited to, Superfund excise tax) on petroleum processing.
v. "Export Inventory and Receivable Carrying Cost(s)" means
portion of interest incurred to purchase and hold inventory and
receivables pending payment; and letters of credit cost(s) which
are reasonably allocable to Export Sales.
vi. "Remote Terminal Cost(s)" means a thruput cost(s) of $15.00
per ton for each ton of asphalt sold as an Export Sale to cover
use of asphalt terminaling facilities of Petro Source and its
affiliates only when such asphalt actually passes through such
terminaling facility. Such Remote Terminal Cost(s) is to be
adjusted for inflation on an annual basis using the percentage
increase in the U.S. Department of Commerce's Consumer Price
Index.
d. Within thirty-five (35) days after the end of a process
month, Petro Source shall provide SMRC a monthly statement (the
"Monthly Statement") identifying Local, Profit, Export Profit,
Local Inventory and Receivable Carrying Cost(s), Export Inventory
and Receivable Carrying Cost(s), Xxxxx Source's Local Marketing
Cost(s) and Petro Source's Export Marketing Cost(s); reflecting
how SMRC's compensation was calculated. Xxxxx Source shall pay
SMRC any Processing Fee due monthly, based upon the Monthly
Statement.
e. Within one hundred twenty (120) days of the date SMRC
receives the Monthly Statement, SMRC shall promptly notify Petro
Source of any dispute with the Monthly Statement or a portion
thereof. After that one hundred twenty (120) days has passed, the
Monthly Statement shall be deemed correct and final as to any
allocation or determination made by Xxxxx Source in the Monthly
Statement's preparation, and SMRC shall have rel6sed and waived
all rights concerning the undisputed portions of the Monthly
Statement concerning such allocations or determinations. Any
errors, omissions or changes in accruals not dependent on Petro
Source's judgment, or any adjustments made by third parties, may
be made at any time within a two (2) year period after the month
of delivery of the Monthly Statement, and all payments are
subject to subsequent adjustment for such items.
4. Reimbursable Cost(s)
a. SMRC shall pay all direct out-of-pocket cost(s) reasonably
and necessarily incurred by SMRC to process Feedstock, which may
be reimbursed by Xxxxx Source (the "Reimbursable Cost(s)"). For
all purposes hereunder, Reimbursable Cost(s) shall not include
capital cost(s), depreciation, amortization, environmental
remediation, administration, management higher than plant
manager, property damage to the refinery, or cost(s), if any,
which are the result of SMRC's or a third party's negligence.
b. "SMRC Reimbursable Variable Cost(s)" means the Variable
Cost(s) incurred by SMRC in carrying out SMRC's obligations under
this Agreement, which have been approved in advance of being
incurred. SMRC Reimbursable Variable Cost(s) shall be allocated
between Local Cost(s) and Export Cost(s) based upon the ratio of
Local Sales asphalt volume and Export Sales asphalt volume to the
total asphalt sales volume. "SMRC Reimbursable Fixed Cost(s)"
means those Reimbursable Cost(s) other than SMRC Reimbursable
Variable Cost(s).
c. SMRC shall prepare and present to Petro Source on the 15th
of each month an estimate of SMRC's Reimbursable Variable Cost(s)
and Reimbursable Fixed Cost(s) to be reasonably and necessarily
incurred by SMRC to process the Feedstock ("Monthly Budget").
Xxxxx Source shall review the Monthly Budget and shall advise
SMRC which items on the Monthly Budget Xxxxx Source agrees to
reimburse pursuant to this Agreement.
x. Xxxxx Source shall prepare and present to SMRC on the 15th
of each month an estimate of Xxxxx Source's Local Marketing
Cost(s) and Petro Source's Export Marketing Cost(s) to be
reasonably and necessarily incurred by Xxxxx Source to acquire
the Feedstock and to market the refined product processed
pursuant to the terms of this Agreement ("Monthly Marketing
Budget"). SMRC and Petro Source shall review the Monthly
Marketing Budget and shall determine jointly which items shall be
accepted as Petro Source's Local Marketing Cost(s) and Petro
Source's Export Marketing Cost(s), for purposes of this
Agreement.
e. SMRC shall submit to Petro Source each Monday a summary of
all Reimbursable Cost(s) which are due, payable, and shall be
paid by SMRC during the following seven days with the associated
documentation of the Reimbursable Cost(s). Petro Source shall
review the summary of Reimbursable Cost(s) and the associated
documentation and if the same is acceptable Petro Source shall
transfer to SMRC, by wire, an amount, as determined by this
Agreement,. equal to the accepted Reimbursable Cost(s).
f. SMRC shall provide Petro Source notice, as soon as
reasonably possible, of any SMRC's Reimbursable Fixed Cost(s)
account (e.g., contract labor, chemicals, etc.) which is expected
to exceed the amount shown for such cost(s) in the Monthly Budget
by more than 10% ("Fixed Cost(s) Over Budget"). Xxxxx Source,
upon review of Fixed Cost(s) Over Budget, shall have the sole
discretion to approve or disapprove the Fixed Cost(s) Over
Budget. Only those Fixed Cost(s) Over Budget which Xxxxx Source
receives notice of and approves shall be subject to reimbursement
by Xxxxx Source under this Agreement.
5. Taxes and Tariffs
SMRC shall be responsible for and pay or cause to be paid
all taxes and tariffs imposed upon SMRC with respect to the
performance by SMRC of its operations and obligations under
this Agreement and Petro Source shall be responsible for and
pay all taxes and tariffs imposed upon Petro Source with
respect to the performance of its operations and obligations
hereunder.
6. Discontinuance of Operations
a. Notwithstanding any provision contained herein to the
contrary, in the event and at any time that Petro Source
determines, in its sole judgment, that it would be more efficient
or economical to discontinue processing Feedstock Petro Source
shall give SMRC ten (10) days written notice to place the
Refinery in a Warm/ldle mode; or, thirty (30) days written notice
to place the Refinery in a Shutdown mode.
b. "Shutdown" means the Refinery is not staffed or operated for
processing any Feedstock, nor is it capable of processing
Feedstock without a delay, and no heat is being supplied to the
asphalt product tanks.
c. "Warm/Idle" means the Refinery is not currently processing
any Feedstock but is staffed and is capable of processing
Feedstock without delay and the asphalt product tanks are kept
hot and available for daylight loading in order to remove
inventory.
d. If Xxxxx Source requests that the Refinery be placed on a
Warm/Idle mode, then Petro Source will pay SMRC the Reimbursable
Cost(s) hereunder during the period the Refinery is in Warm/Idle
mode. If Xxxxx Source requests that the Refinery return to full
operation after being placed on Warm/Idle mode, SMRC shall have
at least ten (10) days to return the Refinery to full operation
after receipt of such notice. During the period in which the
Refinery has been placed on a Warm/Idle mode, liquidation of
inventory shall bear the same processing fee as the operating
mode.
e. If Xxxxx Source requests that the Refinery be placed on a
Shutdown mode, then Petro Source may pay SMRC a flat fee of
$20,000 per month, prorated as necessary from the date of notice,
("Shutdown Fee") to keep this Agreement in force and effect. The
Shutdown Fee shall be due and payable as of the 1st day of the
month following the month in which the request to place the
refinery in Shutdown mode was placed by Xxxxx Source and the
Refinery was actually placed in Shutdown mode. If Xxxxx Source
does not pay the Shutdown Fee, then SMRC shall have the right to
terminate this Agreement. If Xxxxx Source requests that the
Refinery return to full operation after being placed on Shutdown
mode, SMRC shall have at least thirty (30) days to return the
Refinery to full operation after receipt of such notice. During
the time in which the Refinery is in a Shutdown mode, SMRC shall
not be obligated to accept deliveries into the Refinery or be
required to deliver product to Petro Source from the Refinery.
f. If at any time Petro Source determines that the profit
margin for Local Sales on a per barrel basis is less than 75
cents per barrel, but more than 25 cents per barrel, based upon
forecast and estimates provided by SMRC and Petro Source, Petro
Source shall notify SMRC of the estimated profit margin and then
for the period for which the profit calculation is made, SMRC and
Petro Source shall share equally in the risk of the profit
margin. SMRC shall, after receiving a copy of the profit
calculation and notice from Petro Source that the profit margin
is less than 75 cents per barrel but more than 25 cents per
barrel, have three (3) days to reject its shared participation in
the risk of the profit margin for the period for which the.
profit calculation is made. If SMRC rejects participation the
Refinery shall be operated in a Shutdown mode. If SMRC does not
reject the participation, but Xxxxx Source later determines that
the profit margin calculated for the period has fallen below 25
cents per barrel, Petro Source shall notify SMRC of the change in
the estimated profit margin and SMRC shall move the Refinery
operations to the Warm/Idle or Shutdown mode as directed by Xxxxx
Source.
7. Refinery Operations
a. SMRC shall operate the Refinery during the term of this
Agreement in a prudent and workmanlike manner, and in accordance
with generally accepted industry standards. SMRC will provide
the capital necessary to ready the Refinery to a safe and
efficient operating condition. If the parties agree that capital
improvements at the Refinery are mutually advantageous, the
parties will negotiate to amend this Agreement to take into
account the mutually desired capital improvements. All capital
improvements at the Refinery shall remain the property of SMRC,
except and unless, Petro Source elects to pay for the capital
improvement and Petro Source demonstrates that such capital
improvement can be removed without damage to Refinery property.
SMRC shall have the option to purchase all capital improvements
paid for by Xxxxx Source at a mutually agreed upon price.
b. SMRC shall provide laboratory personnel which shall be
responsible for determining daily that products produced and
stored by SMRC for Petro Source under this Agreement comply with
product specifications as identified in Exhibit "B", as amended
from time to time. Should Petro Source desire to amend the
Exhibit "B", by adding a new product specification, Petro Source
shall first provide the specification to SMRC, with data on the
Feedstock Petro Source plans to provide in order to make the
product specified, and SMRC shall have up to fifteen (15) days to
inform Xxxxx Source as to SMRC's ability to produce the requested
products according to the specifications. If SMRC is unable to
produce the requested product according to the specification, it
shall notify Petro Source of such inability and SMRC shall have
no obligation to produce the requested products. If SMRC has
notified Petro Source that it can produce the specification, and
SMRC fails to produce products meeting the specifications in
Exhibit "B", Petro Source shall have the right to terminate this
Agreement upon thirty (30) days written notice. SMRC shall not be
reimbursed for any Reimbursable Cost(s) during any periods in
which it was unable to produce products meeting Exhibit "B"
specifications.
c. SMRC will, at all times, be the operator of and remain in
control of the Refinery. All actions with respect to the
operation of the Refinery shall be undertaken by SMRC. Petro
Source shall in no way operate or control the operation of the
Refinery.
8. Refinery Operation Reports
x. Xxxxx Source and SMRC recognize that Petro Source shall
require certain daily data and information on the performance of
the Refinery and quality and quantity of products produced so
that Petro Source can assess the continuing economic viability of
the processing arrangement contemplated in this Agreement. SMRC
will provide reasonable reports to Petro Source as to SMRC's
operations and production, including an inventory and laboratory
product quality report and other reports which allow Petro Source
to monitor variances from anticipated thruput during a month,
operating difficulties and other changes.
b. As soon as possible after the end of each calendar month,
but in no event later than the 10th day of each month, SMRC shall
prepare and furnish to Petro Source an inventory report for the
preceding month which sets out preceding month's quantity of
Feedstock received from Petro Source and type, quality and
quantity of refined products redelivered to Petro Source, and the
type, quality and quantity of refined products SMRC held in
storage for Petro Source at the end of the preceding month (the
"Inventory Report").
x. Xxxxx Source and SMRC shall develop mutually acceptable
accounting information and documentation procedures which allow
for the administration of this Agreement. These procedures may
include, but not be limited to, the exchange of daily receipt and
delivery tickets, of daily and monthly plant and product
performance data, and of necessary process and technical
information. Petro Source shall supply to SMRC refined products
delivery tickets for SMRC's use in the transfer of refined
products at the Refinery, and these receipt tickets are to be
forwarded to Petro Source on a daily basis. For receipt of
Feedstock at the Delivery Point (defined in paragraph 11), SMRC
shall use SMRC custody transfer tickets.
9. Nominations
On or before the 20th of each month, Xxxxx Source will
notify SMRC in writing of the following: (a) the anticipated
base thruput volume of Feedstock to be run during the
upcoming month; (b) whether the refined product therefrom is
expected to be "Local Sales" or "Export Sales"; and (c) the
anticipated profitability from Local Sales. SMRC understands
that these are estimates and forecasts and that Petro Source
is not warranting that the actual results will be as
forecasted. In a like manner, Petro Source may acquire
Feedstocks and sell products during a month for which such
acquisitions and sales had not been forecasted.
10. Refinery Access
SMRC hereby grants to Petro Source and its representatives
the continuing right of access to the Refinery for the
purpose of (a) reviewing and monitoring SMRC's performance
under this Agreement; (b) taking such security precautions
as Petro Source may deem advisable in an effort to minimize
any potential Feedstock or refined product losses; and (c)
performing any obligations Petro Source may have under the
terms of this Agreement.
11. Feedstock Delivery, Refined Products Re-Delivery and Risk of
Less
a. All deliveries of Feedstock by Xxxxx Source to SMRC
hereunder shall be made at the Delivery Point. "Delivery Point"
means the truck unloading flange at the Refinery or such other
delivery points as may be mutually agreed upon by Xxxxx Source
and SMRC. Xxxxx Source shall have custody and control of the
Feedstock, and shall be responsible for any loss or damage
thereto at all times prior to the passage of such Feedstock
through the Delivery Point at the Refinery. SMRC shall have
custody and control of, and bear all risk of loss for, and damage
by and to the Feedstock delivered by Xxxxx Source hereunder upon
passage of such Feedstock through the Delivery Point. SMRC shall
have custody and control of, and bear all risk of loss for, and
damage by and to the refined products delivered by Xxxxx Source
hereunder upon passage of such refined products through the
Delivery Point.
b. SMRC shall be responsible for any loss of, or damage or
injury to all refined, or partially refined product processed
from the Feedstock until the refined products are redelivered to
Petro Source at the Redelivery Point. "Redelivery Point" means
the outlet flange of the Refinery or such other redelivery point
as may be mutually agreed upon by Xxxxx Source and SMRC. Xxxxx
Source shall have custody and control of the refined products,
and shall be responsible for any loss or damage thereto, after
the passage of such refined products through the Redelivery
Point.
c. Notwithstanding the foregoing to the contrary, the parties
hereto acknowledge and agree that refineries, under normal
operations, experience loss of product due to the refining
process ("loss"). The parties, acknowledge and agree that the
"loss" can be influenced by the composition of feedstocks and the
methods used to process, blend and transport the feedstocks and
finished products. SMRC agrees to incorporate all loss control
procedures mutually acceptable to both parties. Any "loss" of
product or feedstock resulting from normal operations and
mutually accepted loss control procedures shall be shared equally
by both parties. SMRC shall be responsible for loss of feedstock
or finished product resulting from negligence or failure to
follow mutually acceptable loss control procedures. SMRC shall
submit to Petro Source by the 5th day of each calendar quarter,
commencing after the first full calendar quarter that this
Agreement is in effect, a report showing loss for the quarter.
SMRC shall within ten (10) days of the report, remit to Petro
Source a sum equal to the volume of loss due to negligence or
failure to follow mutually acceptable loss control procedures
times the weighted average feedstock cost(s) for the calendar
quarter.
12. Title to Feedstock, Plant Fill and Refined Products
Inventory
Xxxxx Source shall at all times retain full and complete
title and ownership of all of the Feedstock, Plant Fill and
refined products processed from Feedstock delivered
hereunder. SMRC will return to Petro Source such Feedstock,
Plant Fill and/or the refined product upon demand, without
right of set off. "Plant Fill" means inventory contained in
the process unit, process piping and tank bottoms.
13. Current Refinery Inventory
SMRC shall provide a gauge sheet which shall set forth a
description of the quantity tank heel level as of the
effective date of this Agreement. This gauge sheet shall be
attached hereto as Exhibit "C" and incorporated herein for
all purposes. Petro Source shall purchase the tank heels
shown in Exhibit "C" for $1 per barrel. At the expiration of
this Agreement and after Petro Source has removed all of its
inventory from the tanks located at the Refinery SMRC shall
purchase such quantity at $1 per barrel.
14. Representations and Warranties of Petro Source
Xxxxx Source represents and warrants with respect to the
Feedstock delivered to the Refinery hereunder, that such
Feedstock is of a type set forth in Exhibit "A" attached
hereto, including any amendments thereto. EXCEPT AS
PROVIDED BY THE FOREGOING, PETRO SOURCE DOES NOT MAKE ANY
REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, WITH
RESPECT TO THE FEEDSTOCK DELIVERED, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY AS TO FITNESS FOR A PARTICULAR
PURPOSE. SMRC shall have the right to reject any Feedstock
which it deems unsuitable due to refinery designs and
operating parameters, except where the Feedstock is of a
type set forth in Exhibit "A", however, all Feedstock
accepted by SMRC for processing shall be deemed to be of a
type set forth in Exhibit "A." Acceptance for processing
occurs when SMRC accepts delivery of the Feedstock at the
Delivery Point.
15. Representation and Warranties of Petro Source
a. SMRC represents and warrants to Petro Source that it has
operated and shall continue to operate the Refinery throughout
the term of this Agreement in a prudent, workmanlike manner in
accordance with generally accepted industry standards and in
compliance with all applicable federal, state and local laws,
rules, regulations and requirements, including, without
limitation, all federal, state and local laws; rules, regulations
and requirements.
b. SMRC represents and warrants that SMRC has, at its own
expense, repaired and otherwise brought the Refinery to a state
of operational readiness so that it can safely and efficiently
process the Feedstock.
c. SMRC represents and warrants that SMRC will hire, supervise,
and maintain a qualified staff of refinery operators, and will
operate the facility in a workmanlike, safe and economic manner
to refine Feedstock delivered to the refinery by Xxxxx Source.
d. SMRC represents and warrants that all Feedstock accepted by
SMRC for processing can be processed within the Refinery's design
and operating parameters.
e. SMRC represents and warrants that it will not (1) allow
either feedstock or refined products, owned by SMRC or third
parties, to be stored at the Refinery; (2) commingle Petro
Source's Feedstock or refined product inventory with any
inventory owned by SMRC or third parties; and (3) allow liens or
other encumbrances, other than those liens shown in Exhibit "U',
attached hereto and incorporated herein, to become affixed either
to Petro Source's Feedstock or refined product inventory.
f. SMRC represents and warrants that (1) SMRC is the lawful
owner of and has good and indefeasible title to the Refinery and
has the full right and authority to operate the same; (2) no
litigation is pending or, to the knowledge of SMRC, threatened,
wherein a claim of title is asserted to the Refinery adverse to
SMRC's title to the same; (3) all taxes assessed against the
Refinery and all liabilities incurred by SMRC have been paid; (4)
there are no liens or security interests, other than those liens
and security interests represented in Exhibit "D" hereto, of any
nature encumbering the Refinery; and (5) that no additional liens
or security interests shall be permitted without the express
written consent of Petro Source.
16. Indemnity and Insurance
a. SMRC shall be responsible for and shall defend, indemnify
and hold harmless Petro Source from and against any and all
claims, demands, losses, judgments, awards, liabilities,
expenses, clean-up orders and cost(s), and suits, whether
groundless or not, from environmental claims, damage, litigation,
penalties, or citations; for bodily injury, sickness, disease or
death; for contamination of, damage to, or destruction of
property (real or personal); and for loss of or damage to natural
resources, resulting directly or indirectly from the ownership
and/or operation of the Refinery by SMRC, whether such claims,
demands, losses, judgments, awards, liabilities, expenses, clean-
up orders and cost'(s), or suits arose before or after the
Effective Date.
b. SMRC agrees to obtain and furnish certificates of insurance
which will evidence to Petro Source public liability insurance
covering the Refinery and SMRCs activities therein contemplated
hereunder with limits of not less than FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00), with respect to bodily injury or death
to any person or persons for any one event or occurrence and not
less than FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) with
respect to property damage in any one event or occurrence. Xxxxx
Source agrees that the foregoing policy may be in the nature of
blanket coverage including the Refinery as one of several
properties covered thereby.
x. Xxxxx Source shall be responsible for and shall defend,
indemnify and hold harmless SMRC from and against any and all
claims, demands, losses, judgments, awards, liabilities,
expenses, clean-up orders and cost(s), and suits, whether
groundless or not, for bodily injury, sickness, disease or death
resulting solely from acts of negligence, gross negligence, or
willful misconduct on the part of Petro Source, its employees or
agents.
17. Purchases and Sales of SABA Crude
x. XXXX shall offer to sell to Petro Source all crude oil
produced in California within a twenty five (25) mile radius of
the Refinery,. which is owned or controlled by SABA which is
either available for sale or could become available for sale upon
notice to third parties. SABA shall provide Petro Source notice
of the availability of such crude oil thirty (30) days prior to
the availability of such for purchase. Whenever there is crude
oil production which is owned or controlled by SABA, such
production is either available for sale, or could become
available for sale with the giving of notice, Petro Source will
have the right, but not the obligation, to purchase such crude
oil.
b. With respect to SABA's heavy crude oil, Petro Source may
purchase such oil at the volumetric weighted average of third
party purchases of similar type and term, at the lease, adjusted
for gravity and quality differentials. If no third party
purchases exist, then the arithmetic average of Texaco, Unocal
and EOTT's posting for crude oil of a similar type and term
adjusted for gravity and quality differentials will be used. Such
purchase of heavy crude oil shall be based upon the terms and
conditions contained in the contract entered into between Petro
Source and SABA attached hereto and incorporated herein as
Exhibit "E."
c. With respect to XXXX's light crude oil, Petro Source will
have the right to purchase such crude oil by matching any bona
fide third party offer received by SABA for such production at
the time such production is available for purchase. Xxxxx Source
shall, within twenty (20) days, after receipt of SABA's notice of
a bona fide third party offer for SABA's light crude oil, inform
XXXX as to whether Petro Source will exercise its option to
purchase such light crude oil. Such purchase of light crude oil
shall be based upon Xxxxx Source's general terms and conditions.
18. Force Majeure
Each party shall be excused for delay in performance
hereunder when and to the extent that performance is delayed
(a) by any cause reasonably beyond such party's reasonable
control, or (b) by fire, explosion, riots, strikes, labor
disputes, breakdown of machinery or equipment, compliance,
voluntary or involuntary, with any law, order, rule,
regulation, recommendation or request, whether valid or
invalid, of any governmental agency or authority of person
purporting to act thereunder, shortage or failure of the
usual means of transportation of Feedstocks and/or products
to be delivered and/or received hereunder, inability for any
reason to obtain Feedstock and/or materials to be used in
the manufacture, transportation, refining, handling or
storage thereof, low or curtailment of Feedstock production
or loss or failure of product margin or markets.
19. Guaranty
SABA hereby guarantees to Petro Source, all payment and
performance obligations of SMRC hereunder.
20. Confidentiality
SMRC and Xxxxx Source both agree and acknowledge that Xxxxx
Source possesses considerable knowledge and information
about the Feedstock and refined products market which is
confidential and should remain confidential. SMRC agrees to
be bound by the terms contained in the Confidentiality
Agreement which is attached hereto and incorporated herein
as Exhibit "F."
21. Audits
Each party will maintain books and records evidencing their
performance hereunder. Such records shall be retained for at
least two (2) years following the date on which the books or
records are prepared. Upon seven (7) days written notice,
either party shall have the right, at its own expense and
during reasonable business hours, to audit the books and
records of .the other party to the extent necessary to
verify performance hereunder. Prior to commencing such
audit, the auditing party and its representatives shall
agree to maintain the confidentiality of any information
disclosed to the auditor during such audit.
22. Notices
Except as herein otherwise provided, any notice, request,
demand, statement or bill provided for in this Agreement, or
any notice which either party may desire to give to the
other, shall be in writing and shall be considered as duly
delivered when hand delivered or mailed by registered or
Certified Mail, Return Receipt Requested, to the post office
address of the parties hereto, as the case may be, as
follows:
Petro Source: Petro Source Refining Corporation
0000 Xxxxxxxxxx., Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxx XXX
Petro Source Refining Corporation
000 Xxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx Xxxxxxxxx
SMRC: Santa Xxxxx Refining Company
0000 Xxxxxx Xxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx
SABA: SABA Petroleum Company
00000 Xxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
or to such other address as either party shall designate by
formal written notice.
23. Assignment and Severability
This Agreement shall not be assignable by either party
hereto without the express written consent of the other,
which consent shall not be unreasonably withheld.
Otherwise, the terms and conditions hereof shall extend to
and be binding upon the parties and their respective
successors and assigns. The invalidity or unenforceability
of any provision of this Agreement shall not affect the
validity and enforceability of any other provision, and each
provision of this Agreement shall be enforced to the maximum
extent permitted by applicable law.
24. Choice of Laws, Jurisdiction and Venue
This Agreement shall be governed and construed in accordance
with the laws of the State of California, without regard to
any conflict of laws or provisions which might otherwise
cause another jurisdiction's laws to apply. The exclusive
jurisdiction and venue for any action brought in connection
with this Agreement shall be the state or federal courts
located in Orange County, California.
25. Relationship of Parties
It is not the purpose or intention of this Agreement to
create, and this Agreement should. never be construed as
creating, a joint venture, agency, partnership or other
relationship whereby either of the parties hereto shall be
liable for the acts, either of commission or omission, the
other party hereto.
26. Rules and Regulations
All of the terms and conditions of this Agreement shall be
subject to the applicable laws, statutes, directives,
orders, rules and regulations of all governmental
authorities having jurisdiction hereof.
27. Entirety of Contract
This Agreement contains all the terms and provisions between
the parties concerning the subject matter hereof, and any
prior or contemporaneous agreement or understanding, whether
written or oral, is void. All amendments or changes in this
Agreement shall be made only in writing by duly authorized
representatives of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day first above written.
PETRO SOURCE REFINING CORPORATION
Name: X. Xxxxxx XxXxxxxx
Title: Sr. Vice President
SANTA XXXXX REFINING COMPANY
Name: Xxxx X. Xxxxxx
Title: President
SABA PETROLEUM COMPANY
Name: Xxxxx Xxxxxxxxx
Title: President & CEO
