# Appendix — Federal Energy Regulatory Commission v. Shell Oil Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1038%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1978 - **Citation:** 439 U.S. 817 ## Text APPENDIX Iu the Syren Court nf the yirtteh ae OCTOBER TERM, 1978 No. 77-1652 FEDERAL ENERGY REGULATORY COMMISSION, Petitioner, —> 2 Minimum Purchase Obligations ......... ? Dedication and Determination of Reserves 10 Quality... ccc ccc ceeceeeeesseeeeees: 12 Delivery Pressure ......-5sssseeeeee 1s Meters ........5> er 18 Units of Volume ...... 3 NEGREOES . ccc ccc cccccecesssesesssssess 3s Successors and Assigns ......... repues mean any well completion located on Seller's properties classified as a gas well by the Rail- road Commission of Texas or other governmental authori- ty having jurisdiction. 34 [187] Section 4. oun Se or the term “natural gas” Section 5. The term “day” tly pati a ta shall mean a period of twenty-four (24) consecutr beginning at seven (7:00) o'clock A.M. Section 6. The term “month” as used in this agree- ment shall mean the period beginning at seven (7:00) o'clock A.M. on the first day of a calendar month and ending at seven (7:00) o'clock A.M. on the first day of the next succeeding calendar month. Section 7. The term “year” as used in this agreement shall mean the period beginning at seven (7:00) o'clock A.M. on the first day of a calendar year and ending at seven (7:00) o'clock A.M. on the first day of the next succeeding calendar year; provided, however, that the from the date of first deliveries of gas hereunder shall be deemed to be a year, and the period from seven (7:00) o'clock A.M. on the first day of the last calendar ee on at cae ARTICLE Il Preliminary Requirements Section 1. Buyer represents that it holds a Certificate 35 [188] of Public Convenience and Necessity tesnsd by the Federal on the part of Seller in order to procure such Ttificat as may be necessary in order for Seller to effect delivery of gas under the provisions of this agreement or to other- wise perform its obligations hereunder. Seller further es 4 ae Aen ee ission with respect to the 36 [189] pursuant to the provisions of this section neither Buyer nor Seller shall thereafter have any further liability under this agreement to the other, except as to obligations therefore accrued hereunder. Section 3. If Seller shall receive and accept the Cer- tificate of Public Convenience and Necessity referred to in Section 1 of this article prior to any termination of this greement pursuant to the provisions of Section 2 of this article, Buyer shall promptly thereafter proceed, at its sole cost and expense, to obtain the necessary rights-of-way and tant and to Gesign, ecquie materiel Ser ant comme tificate of Public Convenience and Necessity referred to in Section 1 of this article; whichever date is earlier. ARTICLE Ill Quantities in as of the date of the firm do hereof, Geller shell eal and deliver to Buyer from Selles’s properties, and Buyer shall [190] purchase and receive from Seller from said properties and 37 pay for, or pay for whether or not received, during each year, subject to the further provisions of this Article III, >a ee ee Ceo vided in Article IV of this agreement. Such n the provisions of Section | of this / during the year 39 [192] ARTICLE IV Minimum Purchase Obligations Section 1. For the period commencing on the date of first delivery of gas hereunder and continuing until Jan- wary 1, 1970, the minimum daily quantity of gas aver- aged over each year to be purchased by Buyer from Seller hereunder shall be Seller’s interest in fifty million (50,000,000) cubic feet of gas per day from wells located on the lands described in Exhibit “A” hereto. Section 2. Commencing on January 1, 1970 and con- tinuing for the remainder of the term hereof, the minimum daily quantity of gas averaged over each year to be to the formula set out in Section 3 of Article V hereof. Section 3. During any year when the production of gas from Seller’s properties is subject to allocation under the laws, orders, rules and regulations of governmental authority based on nominations made by pipeline pur- chasers and Buyer has nominated to such authority a volume of gas averaged over such year equal to or greater than the minimum daily quantities as determined pursuant to Section 1 and/or Section 2 of this article for such year, then the minimum daily quantities of gas Buyer is ob- ligated to take and pay for, or pay for though not received for such year, shall be the lesser of (1) the volumes of gas so allocated to Seller's properties by governmental authority, or (2) said minimum daily quantities of gas determined pursuant to Section 1 and/or Section 2 of this article. 40 In the event Buyer’s nominations averaged over such year are less than the minimum daily quantities of gas as determined [193] pursuant to Section 1 and/or Section 2 of this article, Buyer’s minimum obligation to take and pay for, or pay for though not received for such year, shall be that volume of gas which would have represented Buyer's obligation if Buyer’s nominations had been equal to the minimum daily quantity of gas as determined pursuant to Section | and/or Section 2 of this article. Section 4. Anything herein contained to the contrary notwithstanding, but subject to the provisions of Article XXI hereof, Buyer agrees to accept delivery (during each month following the month during which first de- liveries of gas occur) from Seller’s properties quantities of gas from each and every one of the wells located on said properties and connected to Buyer’s gathering sys- tem having a value of not less than five hundred dollars ($500.00) (such amount to be reduced proportionately if Seller owns less than one hundred per cent (100%) of the working interest in said properties); provided, how- ever, that such quantities meet the pressure and quality requirements of this agreement and are available and tendered to Buyer by Seller at the delivery point or points hereunder. Section 5. Buyer agrees that its takes of gas from Seller’s wells will be at least ratable with the production of gas from wells belonging to others and completed in the same reservoir in which Seller’s wells are completed, whether such other wells be connected to Buyer's gather- fois 2 ies —— 41 ing system or to the system of another purchaser. Deter- mination of whether or not production is ratable shall be in accordance with the applicable rules and regulations [194] established by duly constituted governmental authorities having jurisdiction thereof. Section 6. Commencing (1) on the first day of the month following the month in which Seller shall have received and accepted the Certificate of Public Con- venience and Necessity referred to in Section 1 of Article II hereof, or (2) July 1, 1966, whichever date is earlier, and continuing as to each subsequent month @ payment on or before the tenth (10) day of the follow- ing month shall be made to Seller at the rate set forth in Article XIII hereof for such month for a volume of gas determined as follows: A minimum daily quantity of gas as determined in accordance with the provisions of Sec- tions 1 and/or 2 of this Article IV; subject to such quan- tities being available from Seller’s well or wells, in accord- ance with applicable rules and regulations of the Rail- road Commission of Texas. Such quantities shall be then multiplied by the applicable number of calendar days to determine the minimum monthly quantities of gas for which payment shall be made to Seller pursuant to this section. The provisions of Article XXI shall not be ap- plicable to excuse the payments required under this Sec- tion 6. Monthly payments made Seller pursuant to this Section 6 shall terminate on the date of actual deliveries of gas hereunder. At such time as actual deliveries of gas commence hereunder, all such payments shall be consid- ered as payments for gas not taken, within the meaning 42 of Section 2 of Article III hereof, and Buyer's rights of make-up as respect to such quantities of gas shall be available pursuant to said Section 2. [195] In the event this agreement is terminated pursuant to the provisions of Section 2 of Article il hereof, payments made by Buyer to Seller under this Section 6 shall be refunded by Seller to Buyer without interest. ARiICLE V Dedication and Determination of Reserves Section 1. Seller hereby dedicates to the performance of this agreement Seller's interest in all recoverable gas reserves underlying Seller’s properties. Section 2. Not less than thirty (30) nor more than sixty (60) days prior to January |, 1970, and thereafter not less than thirty (30) nor more than sixty (60) days prior to each biennial anniversary of such date, Buyer shall furnish Seller its estimate of the reserves of re- coverable gas then remaining which can thereafter be pro- duced from then existing wells on Seller's properties in satisfaction of the delivery obligations of Seller under this agreement. If Seller shall fail during the thirty (30) day period following receipt of such estimates to give written notice to Buyer taking exception to the quantities shown therein, Buyer’s estimates shall prevail for all purposes of this agreement. If Seller shall give Buyer written notice within such thirty (30) day period taking exception to the quantities estimated by Buyer, represent- atives of the parties shall promptly meet for the purpose 43 of reconciling their respective estimates, but if no agree- ment with respect thereto is reached within thirty (30) days after Seller’s notice to Buyer, then [196] such quantities shall be determined independently in the manner set forth in Section 4 of this Article V. To the quantity of reserves of recoverable gas deter- mined as to Seller's properties by the last such study there Shall be added the quantity of gas theretofore delivered to Buyer from said properties under this agreement. Such quantity of gas is hereinafter in this article called the “contract reserves”. Section 3. The number of billions of cubic feet of gas found by the last reserve study to constitute the contract reserves as to Seller's properties shall be divided by eight (8) and the quotient so obtained shall be multiplied by one million (1,000,000). The product of such multipli- cation shall be the number of cubic feet of gas as to Sel- ler’s properties which represents the daily quantity of gas referred to in Section 2 of Article IV hereof. Section 4. If any of the reserve determinations re- quired to be made under the provisions of Section 2 of this Article V shall result in disagreement between Buyer and Seller, they shall select a competent geologist or reservoir engineer to determine such quantity of reserves by his independent calculation, and the results of his find- ings shall be binding upon both parties. The appointment shall be made in the following manner: Either party may, within thirty (30) days after completion of a joint study, notify the other of its disagreement with the conclusions 44 of such other party and nominate the independent geolo- gist or reservoir engineer. Within ten (10) days after the notice is given, the other party shall accept such nomina- tion or make its own nomination. [197] If within ten (10) days of the date of such reply the parties are unable to agree on a nomination, the appoint- ment of the independent geologist or reservoir engineer may be made upon written request of either party by the Judge of the United States District Court, senior in service, in the district in which the gas is being sold. All expenses in connection with such determination, includ- ing reasonable compensation to such geologist or reser- voir engineer, shall be divided equally between the parties hereto, with the exception of the expenses of counsel, wit- nesses and employees of the parties hereto, which will be borne by the party incurring them. Section 5. Seller shall, from time to time, at Buyer's re- quest, make available to Buyer such geological, engineer- ing and production data, not considered as confidential by Seller, as may be reasonably obtained by Seller and which are needed by Buyer for a study of the gas re- serves covered hereby and the deliverability thereof, in- cluding, but not limited to, shut-in pressure data in the event such pressure data are not otherwise available to Buyer. ARTICLE VI Quality Section 1. The gas to be delivered by Seller to Buyer under the terms of this agreement shall be natural gas as 45 produced in its natural state from Seller's wells and shall conform to the following specifications (determination as to conformity of the gas with these specifications shall be made in accordance with the generally accepted pro- cedures of the industry): (a) Liquids: The gas shall be free from hydrocarbons [198] and water in their liquid state at the temperature and pressure at which delivered. Seller shall install, at its sole cost and expense, all separators and/or other devices which may be found necessary to prevent hydrocarbons and water in their liquid state from entering Buyer's gathering line at the points of delivery hereunder. (b) Diluent Content: The gas shall not contain more than twenty per cent (20%) by volume diluent (herein defined as carbon dioxide and total sulphur). In the event all of the gas being delivered to Buyer from Seller's prop- erties, taken in the aggregate and considered as a com- mingled stream, shall contain in excess of five per cent (5%) by volume diluent, the price shall be adjusted as specified in Article XIII hereof. (c) Oxygen: The gas shall not at any time have an oxygen content in excess of two-tenths (0.2) of one per cent (1%) by volume, and Seller shall make every rea- sonable effort to keep the gas free of oxygen. (d) Dust, Gums, etc.: The gas shall be commercially free of dust, gums and other solid matter. (e) Temperature: The temperature of the gas shall not exceed one hundred twenty degrees (120°) Faren- heit. (f) Heating Value: The total gross heatin: thousand (1,000) British thermal per = Section 2. If the gas from any well located on Seller's properties shall at any time fail to meet the quality speci- fications set forth in Section 1 of this article, and if at ies option, refuse t0 accept deliveries of gas from each well; provided, however, that Seller shall have the right, yo te cage eee eet trek -pheonatig b—~dhpeair-ordgaenadh mr be culensed teem the provisions of Gils agpecment if Soller shall give Buyer written notice of Seller's desire to obtain ii Hiei HAH an 47 such release and Buyer shall not within sixty (60) days Sos Sore cette i tat Ge a el Ee 8 ee ee (a) of The point of delivery for all gas to be sold and delivered or wells or at the outlet of Seller's T of delivery. ARTICLE VIll Delivery Pressure seuno tech guess. Gap Gall te euendieaaete> coming the natural decline in reservoir pressure and shall (subject to the further provisions of this Article VIII) at minimum quantities of gas which Buyer is obligated to purchase from time to time hereunder as determined in accordance with Article IV hereof. Section 2. Buyer shall have the right to refuse to ac- cept delivery of gas from any well producing at a natural wellhead flowing pressure at the point of delivery for such soe Go da bn egden, at ep [201] hin ninety (90) days after Buyer refuses to ac- paca tenafcorepie va nennadindiral construction of compression facilities necessary to deliver such gas at a pressure of at least two hundred fifty pounds (250%) per square inch gauge, in which event Buyer right granted Buyer pursuant to Article XVIII hereof) from such weil hereunder so long as such pressure is main- tuned and the gus otherwise mects the requirements of deliveries from any such well and Seller shall not elect to install compression facilities as above provided, the gas thereafter produced from such well from the reservoir in which it 1s then completed and the gas reserves contained in said reservoir underlying the acreage attributable to said well as determined pursuant to Article V hereof shall be released from the provisions of this agreement if Seller shall give Buyer written notice of Seller's desire to obtain such release and Buyer shall not within sixty (60) days thereafter agree to accept delivery of such gas at pressures 49 fifty pounds (2502) per square inch gauge. Section 3. Dane a coe ee therin system which is incapable of pro- per day at a aateral well Sowing pressure at the point of Gelivery of twelve hundred pounds (1200%) per square ana cunans Goes eae a Seller shall have the right, at its option, at any time within ninety (90) days after Buyer refuses to connect any such well, to pro- ceed to necting line from such well to a 7 cxining guibaring eyiem, i whic vech well is then completed undetiying the aceeage st tributabie to such well, as determined pursuant to Article V hereof, shall be released from the provisions of this agreement. ARTICLE IX Buyer shall not be responsible for the gas prior to its has been delivered to Buyer at the delivery point or points specified in Article VII hereof, after which delivery Buyer shall be deemed in exclusive control and possession there- of and responsible for said gas and {203} caused thereby. eanel Oo ante tak me n htt tha thes Gansiians agities any dine tor demas arising out of its respective operations and/or facilities installed hereunder. ARTICLE X Meters Section 1. Buyer, at its sole cost and expense, shall install, maintain and operate at each delivery point a neue Gee ise tie ae ate Se Ge aanentng shall be installed and operated in accordance with the Report No. 3, dated April, 1955, of the Netural Ges Department of the American Gas Association, as sup- 51 cause the chests on euch esters to be changed cach eight (8) days and at the end of cach month, or at such other times as may be agreed upon by the parties hereto. The cessible at all reasonable times to inspection and examir tion by Seller. Section 2. From time to time and at least once im each ur sah dail be called tex anti as Gh Gtnnian a6 Se an tt colar coil os ame Gio Gael ook Uo ie Se it desires a special test of any meter, the other party shall curacy of such meter and joint observation of any adjust- ments. If any such test shall be requested by Seller and upon such test, the measuring equipment shall be found charged to [204] Seller, otherwise the cost of all such tests shall be borne by Buyer. Buyer shall give notice to Seller of the time of all Oe ee j ment of Buyers mete and changing of chars nin k Geen Gee acy shall be two per cent (2%) or more, the registration of such meter shall be corrected at the rate of such inac- curacy for any period which is definitely known or agreed upon, but in case the period is not definitely known or agreed upon, then for a period extending back one-half 52 (2) of the time elapsed since the date of the last calibra- a2 puis © 0 aaaesal a If, for any reason, any meter is out of service or out of repair so that the amount of gas delivered cannot be estimated or computed from the reading thereof, the amount of gas delivered through the period such meter is out of service or out of hereto upon the basis of the best data available, using the first of the following methods which is feasible: a. By using the registration of Seller's check meter if installed and accurately registering. & SS eS eee and operate check meters to check Buyer's meters, but reasurem cei gu i © pS Se seule t the cuamel Sach chock metens ond eu a ee eS eee eration of the meters to be installed and maintained by Buyer at or near the points of delivery. 53 ARTICLE Xl Units of Volume Section 1. The unit of volume for all purposes here- under (except as otherwise specified in Sections 2 and 3 of this Article XI) shall be one thousand (1,000) cubic feet at an absolute pressure of fourteen and sixty-five hun- dredths pounds (14.654) per square inch at a tempera- ture of sixty (60) degrees Fahrenheit. Section 2. The unit of volume for the determination of the gross heating value under subparagraph (f) of Section 1 of Article VI hereof shall be the amount of gas, on a dry basis, which would occupy a volume of one (1) cubic foot at a temperature of sixty (60) degrees Fahrenheit and under a pressure equivalent to thirty (30) inches of mercury at thirty-two (32) degrees Fahrenheit. Section 3. The unit of volume for determination of qual- ity values under subparagraphs (b) and (c) of Article VI hereof shall be one (1) cubic foot at a temperature of sixty (60) degrees Fahrenheit and under a pressure equiv- alent to thirty (30) inches of mercury at thirty-two (32) degrees Fahrenheit. [206] ARTICLE XII Gas Measurement Section 1. The volumes of gas delivered hereunder shall be computed in accordance with the specifications in Gas Measurement Committee Report No. 3, dated April, 1955, of the Natural Gas Department of the American Gas Association, as supplemented and modified 54 from time to time, applied in a practical and appropriate manner, and appropriate correction shall be made for de- viation of the gas from Boyle’s Law in accordance with said Gas Measurement Committee Report No. 3. Section 2. For the purpose of measurement, the aver- age absolute atmospheric (barometric) pressure shall be assumed to be thirteen and twotenths pounds (13.24) to the square inch, regardless of the actual elevation or location of the delivery point above sea level or of varia- tions in such barometric pressure from time to time. For meters of the orifice type, the following factors shall be given due consideration: a. The temperature of the gas flowing through Buyer's meters shall be obtained by the use of a recording ther- mometer so installed by Buyer that it may properly re- cord the temperature of such gas. The arithmetical aver- age of the hourly temperature during the period gas passed shall be used to make proper computations of volume hereunder. b. The specific gravity of the natural gas shall be de- termined by Buyer each six (6) months on or as near the first of each six (6) months’ period as practicable, by means of an [207] Edwards Balance or by such other method as may be agreed upon by the parties hereto. Such test shall determ- ine the specific gravity to be used in computations for the measurement of gas delivered during such six (6) months’ period. — oreo 55 Section 3. Buyer shall give notice to Seller of the time of all tests of gas delivered hereunder or of any equip- ment used in measuring or determining the nature or qual- ity of such gas, in order that Seller may conveniently have its representative present. Should Seller not be satisfied with any such tests, it shall so notify Buyer and Buyer shall perform such retests as may be necessary to assure an accurate test. Section 4. Determination of the gross heating value of the gas delivered hereunder shall be made upon the basis of tests of the metered stream corrected to eliminate the diluent content thereof. ARTICLE XIll Price Section 1. Buyer shall pay Seller for gas purchased hereunder in accordance with the following schedule: (1) For the period commencing on the date of first delivery of gas hereunder and continuing until January 1, 1968, sixteen and one-half cents (164%2¢) per one thou- sand (1.000) cubic feet. (2) For the five (5) year period commencing January 1, 1968, seventeen and one-half cents (174%2¢) per one thousand (1,000) cubic feet. (3) For the next five (5) year period and for each succeeding five (5) year period thereafter, the price to be paid by Buyer to Seller for all gas delivered hereunder shall be increased one cent (1¢) per one thousand (1,000) cubic feet over the price in effect during the pre- ceding five (5) year period. 56 For gas with diluent content in excess of five per cent (5%) by volume, taken in the aggregate and considered as a commingled stream, the above specified prices shall be reduced by an amount [208] calculated by multiplying such price by the decimal equiv- alent of the difference between the actual per cent diluent content of such gas and five per cent (5%). Section 2. If the Federal Power Commission, or any successor governmental authority having jurisdiction in the premises, shall at any time hereafter prescribe, for the area in which Seller’s properties are situated, a higher just and reasonable area rate for the purchase of gas than the price herein provided to be paid, then the price to be paid by Buyer to Seller for gas delivered under the provisions of this agreement shall be increased, effective as of the date such higher price is prescribed, to equal such higher rate; provided, however, that Buyer shall have the right, at its option, to intervene in any area rate pro- ceeding held to give consideration to any area rate higher than those provided for herein, to oppose any such higher area rate, and in the case of any such higher area rate, to seek relief from any regulatory agency or any court having jurisdiction, but such relief, if obtained, shall not result in a price hereunder which is less than the price set out in this Article XIII. The provisions of this Section 2 shall be null and void and of no force or effect unless and until the same shall be held to be a “permissive” contract provision under Section 154.93, Subchapter E, Chapter I, Title 18 of the ieee "-* PER CM ne 57 Code of Federal Regulations, by action of the Federal Power Commission in its proposed rule making in Docket R-298, notice of which was issued on January 26, 1966, or in other appropriate proceeding. ARTICLE XIV Billing and Payment Section 1. On or before the tenth (10th) day of each calendar month, Buyer shall render to Seller a statement showing the amount of gas purchased by Buyer hereunder during the preceding calendar month, and payment for such gas less all applicable taxes paid by Buyer for Seller's account (no taxes shall be paid by Buyer [209] for Seller's account except by agreement between the parties, unless such payment shall be required by law) shall be made by Buyer to Seller on or before the twenty- fifth (25th) day of the calendar month in which such Statement is rendered. Section 2. Upon request, Buyer shall furnish Seller the measurement charts applicable to any monthly state- ment. Seller shall return to Buyer all charts after a thirty (30) day period. Section 3. Any error or discrepancy in charts or state- ments furnished pursuant to the above shall be promptly reported to Buyer and Buyer shall make proper adjust- ment thereof within thirty (30) days after final determina- tion of the correct volumes or values involved; provided, however, that if no such errors or discrepancies are re- ported to Buyer within two (2) years from the date of 58 such chart or statement the same shall be conclusively deemed to be correct. Section 4. Seller shall have access to Buyer's records and books at all reasonable hours so far as they affect measurement and settlement for gas sold hereunder. ARTICLE XV Taxes Section 1. Subject to the other provisions of this article, Seller shall pay or cause to be paid all taxes and assessments imposed on Seller with respect to the gas delivered hereunder prior to its delivery to Buyer, and Buyer shall pay or cause to be paid all taxes and assess- ments imposed upon Buyer with respect to gas delivered hereunder after its receipt by Buyer. Neither party shall be responsible or liable for any taxes or other statutory charges levied or assessed against any of the facilities of the other party used for the purpose of carrying out the provisions of this agreement. Section 2. Any sales, transaction, occupation, service, production, severance, gathering, transmission, export or excise tax, assessment or fee levied, assessed or fixed by the United States, the State of Texas, or other govern- mental authority and taxes of a similar nature or equiva- lent in effect (not including income, excess profits, capital stock, franchise or general property [210] taxes) in respect of or applicable to the gas delivered hereunder to Buyer in addition to or greater than those, if any, being levied, assessed or fixed on the date of this ee ed ne cn ee 59 agreement in respect of or applicable to such gas and which Seller may be liable for, either directly or indirectly, or through any obligation to reimburse others, are here- inafter collectively referred to as an “additional tax”. It is expressly understood and agreed between the parties hereto that Buyer shall, subject to the conditions herein- after set forth, pay to Seller three-fourths (34ths) of any such additional tax. Should Seller so become liable for any such additional tax, Seller shall notify Buyer immediately. Within ninety (90) days after the end of each calendar month, Seller shall prepare and submit to Buyer a state- ment setting forth the amount of any such additional tax that Seller has paid during such calendar month, and within thirty (30) days after submission of such statement, adjustment between the parties hereto shall be made by Buyer reimbursing Seller to the extent of three-fourths (%ths) of the amount of any such additional tax which Seller shall have so paid. The tax reimbursement herein provided for shall apply to the total amount of money Seller is required to pay by virtue of any such additional tax but shall not apply to any delinquent interest or pen- alty payments that may be applicable to any such ad- ditional tax. Taxes applicable to any royalty, overriding royalty, production payment or similar interest shall be considered to be covered by the provisions of this Section 2 only if the reimbursement made by Buyer to Seller with respect thereto is passed on by Seller to the owner of such royalty, overriding royalty, [211] production payment or similar interest. ARTICLE XVI Term This agreement shall be effective from the date hereof ah a on on a ARTICLE XVII Connection of Wells mn accordance with the provisions heveof, Buyer shell gas wells then situated on Seller's properties. Thereafter, as each additional gas well is completed or recompleted on Seller's properties, Seller shall nouf y Buyer in wnting of the completion or recompiction thereof, and Buyer shall, within ninety (90) days after receipt of such notice, Connect such well to its gathering system. Buyer's obligation to connect wells to its gathering system shall be subject to the provisions of Section 3 of Article VIII of this agreement. ARTICLE XVIII Regulation of Flow ge era anne late the flow of gas at the delivery points ~ actuating demands, subject. however, pate “ control to the extent necessary to pr = rates of withdrawal as in Seller's opinion may result in well or reservoir damage. aie: Reeiy gaat and anign t Sayer, teeter a Seller has the right so to do, all requisite cascments and par of Buyers pipcines, exer stanons, and other equip taxes and other taxes. As between Buyer and Seller, Seller shall at all umes have the obiigation to make settlement for all royalnes, overriding royalties and other payments due to the owners of the mineral, royalty and other in- terests under Seller's [213] leases, as modified by such assignments, unitizati aguements oud ties Gotimants on exep eqgeen of canned or otherwise be binding upon Seller, and to make scttie- ments with all other persons having any interest in the gas (or the proceeds of the sale thereof) sold by Seller hereunder. Seller shall save and hold Buyer free and harm- less from all suits, actions, debts, accounts, damages, costs, losses and expenses arising from or out of adverse claims of any and all persons to the gas sold by it here- under or to royalties, overriding royalties or other pay- ments with respect thereto, or to taxes, licenses, fees or the gas passes to Buyer or which may be levied and assessed upon the sale thereof to Buyer, subject, however. to the other provisions of this agreement. In case of any asus ein to Ge Gis of any gus bengit and suid agreement, retain the purchase price thereof up to the amount of such claim, without interest, until such claim bond, in form and with sureties acceptable to Buyer, conditioned to save Buyer harmless. ARTICLE XXI Force Majeure Except for Buyer's obligations to make payment for gas delivered hereunder, neither party hereto shall be liable custadaen, tontngy or antiten @ undies artes pipe, freezing of wells or pipelines, the making of repairs or alterations to pipelines or plants, or any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming “force majeure”. Upon the occurrence of an event con- stituting “force majeure”, the same shall, so far as possible, be remedied with all reasonable dispatch. The settlement of strikes or lockouts or industrial disputes or disturbances shall be entirely within the discretion of the party having the difficulty, and the above requirement that any “force majeure” shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts or industrial disputes or disturbances by acceding to the demands of any opposing party therem when such course is inadvisable im the discretion of the party having the difficulty. m4 ARTICLE XXII Rights of Seller [215] assigns, the following prior rights with respect to the gas subject hereto: (a) The right to deliver to lessors under any of the eames culiject Lteste, gus soquised in kind to mest tee dunt gm tenth tonen. enees (b) The mght to use gas reasonably required to de- velop and operate Seller's propertics, including, but not acluding, however, te gas fing of ol and for presur operations. (c) ne eee ene Canine Speen ot of first deliveries of gas hereunder. (d) Subject to the other provisions of this | subject to this agreement shall be and remain the ex- clusive right of Seller. Seller may, in its sole uncontrolled discretion and as it deems advisable, drill new wells. re- pair or rework old wells, renew or extend in whole or in part any lease or unit, and abandon any well or sur- render, terminate or release all or any part of any lease which im Seller's sole opinion is i production methods of producing gas in payi — wi +e or eDpre ae (e) The right from time to time to alter any gas uni by imcreasing or decreasing the acreage contained therein or to pool or combine any lease or unit or any part thereof with other aa ae aoe ae ce ubr ohs (a) and (b) above shall be taken upstream from Buyer's metering faciliues. ARTICLE XXIll Rules and Regulations 79701, or to Buyer at P. O. Box 1492, El Paso, Texas 79999, as the case may be, or to such other address as either party shall respectively hereafter designate in true copy of such conveyance or transfer; provided, fur- ther, that either Buyer or Seller, or both, may assign its oe, Oe one ees eee ) il Sra ey bonds oe comtso te © companion, eliieat ie ae the parties hereto to qualify to do business in the State of Tanes, Ret £9 Ca Ss ee ee eee ming party of its obligations hereunder. 67 ARTICLE XXVI Topical Headings The topical headings used herein are inserted for con- venience only and shall not be construed as having any substantive significance or meaning whatsoever or an in- dicating that all of the provisions of this agreement rela- ting to any particular topic are to be found in any par- [218] IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed in duplicate originals, on this the day and year first above written. “BUYER” El Paso Natural Gas Company By: V. M. PLUMMER V. M. Plummer Attorney-in-Fact “SELLER” Shell Oil Company By: C. P. BRISTOL Vice President 68 [219] EXHIBIT “A” This Exhibit “A” is attached to and made a part of agreement between EL PASO NATURAL GAS COM- PANY and SHELL OIL COMPANY, dated February 3, 1966: SELLER'S PROPERTIES: Lease Acres Number Description Gross Net J. D. BODKINS All of Section 2, PSL, Lease UN-33, et al Block C-4, Reeves County, Texas 627 472.65 J. M. RAPE NE/4 of Section 12 and all Leases WT-4619, of Section 13 and Section WT-4601 and 14, PSL, Block C-3, Reeves WT-4602 County, Texas 1440 1085.51 O. P. BECKEN All of Section 11, Leases WT-4613, PSL, Block C-3 WT-4672, et al Reeves County, Texas 640 361.84 Total - - - - 2707 1920.00 [220] APPENDIX A SCHEDULE 2 SOUTH MARSH ISLAND BLOCK 6 CONTRACT WITH MICHIGAN WISCONSIN Factors affecting gas delivery and take obligations: Provisions PAGE(S) Reservations of gas 3-4 Plant fuel and shrinkage 6 Reservations of control over operations 7-8 Reserve redeterminations 8-9 Lack of Buyer’s capacity 9-10 Whether contract is in its first 36 months 12-13 Daily minimum take 13 Whether it is oil well or gas well gas 13 Allowables 13 Deliverability reduction 13-14 Deliverability restoration 14-15 Ratable withdrawals 15 Credit for over-takes 16 Mak 16 Btu iency 20 Non-specification gas 20 Government orders 30 Force majeure 30-31 EE EEE EL 70 [221] GAS SALES CONTRACT THIS AGREEMENT, made and entered into as of the 3rd day of May, 1968, by and between SHELL OIL COMPANY, a corporation of the State of Delaware (hereinafter referred to as “Seller”) and MICHIGAN WISCONSIN PIPE LINE COMPANY, a corporation of the State of Delaware (hereinafter referred to as “Buy- er”); WITNESSETH: WHEREAS, Buyer desires to obtain an additional sup- ply of natural gas to supplement and augment the supply now committed to Buyer; and WHEREAS, Seller owns or controls certain gas reserves underlying lands and leaseholds located in the South Marsh Island Area, Offshore, Louisiana, from which Seller desires to sell gas to Buyer under the terms and conditions hereinafter set forth: NOW, THEREFORE, in consideration of the mutual covenants hereof, the parties agree together as follows: ARTICLE I DEFINITIONS 1. The term “gas well gas” shall mean that part of the effluent produced from a well classified as a gas-well by the regulatory agency having jurisdiction in such mat- ters, which remains in the vapor phase after passing such well effluent through a conventional mechanical separator or separators for the separation of liquids and gas. ee ae ee eam 71 2. The term “oil well gas” shall mean that part of the effluent produced from a well classified as an oil-well by the regulatory agency having jurisdiction in such matters which remains in the vapor phase after passing such well effluent [222] through a conventional mechanical separator or separators for the separation of liquids and gas. 3. The term “gas”, unless the context otherwise re- quires, shall mean gas well gas, oil well gas, the combina- tion of both, and shall include the residue gas resulting from processing of gas well gas and/or oil well gas. 4. The term “reserves” shall mean the estimated quan- tities of recoverable gas to be delivered hereunder that re- mains, as of the date of initial delivery hereunder, in reservoirs which underlie the lands and leaseholds owned or controlled by Seller subject to this Agreement and in which a flowing gas test or a wire line test (Schlumberger Formation Tester or equivalent) in each segment thereof has been made indicating commercial quantities of gas are available. 5. The term “accounting year” shall mean each calen- dar year or portion thereof, during the term of this Agree- ment. 6. The term “annual contract quantity” shall mean a quantity of gas equal to the sum of the daily contract quantities in effect during an accounting year. 7. The term “day” shall mean the 24-hour period com- mencing at seven o’clock (7:00) a.m. Central Time. 72 8. The term “month” shall mean a calendar month or portion thereof. 9. The unit of volume for all purposes hereunder, un- less otherwise herein specified, shall be one cubic foot of gas at a base temperature of sixty (60) degrees Fahrenheit and at an absolute pressure of fifteen and twenty-five one-thousandths (15.025) pounds per square inch and as otherwise provided by the Standard Gas Measurement Law of the State of Louisiana. [223] ARTICLE Il CERTIFICATION AND RIGHT OF TERMINATION 1. Both Seller and Buyer agree, upon the execution of this Agreement, to file within thirty (30) days with the Federal Power Commission and to prosecute with due diligence applications for Certificates of Public Conveni- ence and Necessity or such other authorizations as may be necessary to authorize Seller to initiate and carry or the sale of gas contemplated hereunder and to authorize Buyer to construct and operate the facilities necessary to accept and transport the quantities of gas to be pur- chased hereunder. 2. If either party shall fail to obtain such Certificate or other necessary authorization from the Federal Power Commission containing terms and conditions acceptable to the party to whom issued by August 1, 1968, or if an unacceptable authorization is issued prior to such date, either party may cancel this Agreement by giving written notice thereof to the other party at any time prior to the issuance of acceptable authorizations to both 73 parties. Each party hereto shall promptly notify the other party in writing when such party has received a Certificate or authorization and whether or not it is ac- ceptable. It is agreed and understood that a determina- tion as to whether or not such Certificate or authoriza- tion is acceptable shall be made in the sole and exclusive discretion of the party to whom such Certificate or au- thorization is issued. ARTICLE III RESERVATIONS OF SELLER 1. Seller hereby expressly reserves and excepts from the terms of this Agreement such portion of the gas now underlying the lands and leaseholds subject to this Agree- ment as may be required in Seller's opinion as a prudent [224] operator for processing plant fuel and shrinkage, lease fuel, drilling, deepening, reworking, compression, operat- ing, and gas lifting. Seller also reserves the right to use gas committed hereunder for cycling, repressuring and secondary recovery purposes. Such reservations (except for drilling, deepening and/or reworking) shall be limited to uses associated with Seller's leases hereunder. 2. In addition, Seller hereby expressly reserves and excepts from the terms of this Agreement all gas pro- duced including gas sold to others than Buyer, prior to the date on which Buyer initially takes gas hereunder; provided, however, that any such sales shall be termi- nated prior to such date. 74 3. Seller shall have the right to process or have pro- cessed at an onshore location all or a portion of the gas deliverable to Buyer hereunder for the removal of lique- fiable hydrocarbons. Such processing shall be at the same point on Buyer’s 20” lateral line (or loops thereof) which extends from Eugene Island Block 199 to Buyer's 20” mainline in the Patterson Field Area, St. Mary Parish, Louisiana at which Seller processes gas delivered under the Gas Sales Contract dated July 18, 1967 between Buyer and Seller. Such processing shall be under conditions acceptable to both parties. Seller shall exercise the right reserved by this Section 3 by giving notice to Buyer within three (3) years from the date of initial delivery hereunder. Title to all products so removed shall remain vested in Seller. Nothing con- tained herein shali be construed so as to prevent Seller from using conventional separation equipment (which shall include low temperature well head separation units) prior to delivery to Buyer. If Seller elects to process gas deliverable to Buyer hereunder such processing shall be in a plant owned by Seller or by Seller and others. Seller agrees that gas owned by others than Buyer will not be commingled in such processing plant with gas owned by Buyer (except for minor volumes of flash gas). Seller, to [225] the extent it has the right to do so, further agrees that all other producers selling gas to Buyer and delivered by Buyer or such other producer to such plant shall be given the opportunity to participate in such plant on an eee a AMS AaB NN MS, 1048 TRE PSO I ce Ne i OO OIE 81a LOFT OM IIRLIT ABE ARIEL 75 equitable basis. Such processing shall be for recovery and disposition solely by Seller (and other plant owners or plant suppliers) of liquefiable hydrocarbons, helium gas to the extent that Seller has the right to extract helium and other constituents of the raw gas stream other than methane (except methane necessarily removed in such processing), it being understood that Buyer shall not acquire any right, title or interest in any products resulting from such processing. Buyer agrees to install measuring facilities and other facilities necessary to permit the tie-in and the delivery and redelivery of the gas. Buyer’s materials and installa- tion of such facilities (including overheads) shall be re- imbursed by Seller and Seller (as to its share) shall re- store in kind gas vented by Buyer in making tie-in con- nections. Buyer agrees that in the event Buyer delivers a portion of the gas flowing in its 20” offshore pipeline or loops thereof to be processed by others than Seller such gas after being processed will not be redelivered into the 20” offshore pipeline or loops thereof prior to the delivery of Seller’s gas to Seller for processing. Seller’s right to process its gas for extraction of lique- fiable hydrocarbons is subject to the following general conditions: (i) Residue gas shall be returned to Buyer without cost to Buyer; [226] (ii) Such processing shall not cause a plant volume reduction (consisting of shrinkage resulting from extraction of liquefiable hydrocarbons, plant fuel 76 and other uses or losses of gas in the plant) of more than ten (10) per cent; (iii) Such processing shall not render the gas so pro- cessed incapable of meeting the quality specifica- tions contained in Article VII of this Agreement; and (iv) Seller agrees to restore any pressure decline great- er than fifty (50) psig resulting from such process- ing. Gas processed by Seller in Seller’s plant shall be de- livered, redelivered, measured and accounted for in ac- cordance with procedures mutually satisfactory to Buyer and Seller. Seller's plant volume reduction shall be subtracted from the volume delivered at the delivery point, or points, here- under and the net volume thus obtained shall be used for purposes of computing Buyer’s payments hereunder for gas delivered and in determining whether Buyer and Seller have met their delivery and purchase obligations under this Agreement; however, it is agreed that Seller shall have the right to deliver to Buyer, at the delivery point, or points, hereunder, a volume of gas in excess of that volume requested by Buyer equal to the total volume reduction resulting from processing. All plant operations conducted by Seller shall be at its sole cost and expense and Seller agrees to indemnify and save Buyer harmless from all losses, damages and expenses which may occur or be asserted by reason of accident or occurrences resulting from Seller’s exercising its processing rights as provided hereunder. - Pe pee 77 [227] In the event gas other than gas delivered under this Agreement is being transported through Buyer’s facilities at the point at which Buyer makes delivery of gas to Seller from processing, or in the event Seller's gas de- livered to Buyer under this Agreement at some future date is transported through a line other than Buyer's 20” offshore pipeline, or loops thereof, Seller shall have the right to process a quantity of the commingled gas in Buyer’s line referred to above, having a liquefiable hydro- carbon content equal to the total liquefiable hydrocarbon content of the gas delivered by Seller to Buyer under this Agreement. Buyer agrees that the pressure of the gas at the point at which Buyer makes delivery of gas to Seller for process- ing shall not be in excess of 1050 psig. If Seller exercises the right to process its gas as reserved by the first paragraph of this Section 3 of Article III, Buyer shall reduce the amount of its payments for gas deliveries by an amount obtained by multiplying Seller’s plant volume reduction by 1.5 cents per Mcf as compen- sation for transporting the plant volume reduction to the plant delivery point from the point of delivery. It 1s under- stood that the foregoing provision of this paragraph shall not be applicable if and to the extent that Seller restores such plant volume reduction in kind from other gas at the plant or such other onshore point or points as may be mutually agreeable to the parties hereto. 4. The obligations of Seller hereunder are subject to the ability of Seller’s wells to produce without waste and in accordance with prudent oil and gas field practice, and ee 78 Seller shall not be required to produce any well in excess of the maximum rate of flow fixed by law or regulatory body or in excess [228] of the maximum efficient rate of flow of such well. The control and operation of Seller’s lands and leaseholds producing gas to be sold to Buyer hereunder shall remain the exclusive right of Seller. Seller may also, at its sole discretion, abandon or shut-in any well or surrender, re- lease or terminate any lease. 5. It is understood that certain of Seller’s properties subject hereto are now or may hereafter be subject to agreements with other producers providing for the pooling, joint operation and/or unitization of said properties and all or a portion of the gas to be delivered by the Seller to Buyer hereunder shall be the gas attributable and allocated to Seller under the terms of said agreement or agreements as a result of the leases committed thereto. ARTICLE IV COMMITMENT OF GAS 1. Subject to the provisions of Article III hereof, Seller commits to the performance of this Agreement Seller’s interest now owned or hereafter acquired in all gas which underlie the lands and leaseholds within the areas out- lined in Exhibit “A” and which is recoverable from said lands and leaseholds pursuant to the terms and provisions of this Agreement from and after the date hereof. Seller and Buyer agree that the reserves of Seller available for delivery from the lands and leaseholds subject to this OEE LAR LTRS LT OEE DEE LOLA EOE IY OTIS ic ERI 79 Agreement are 75 billion cubic feet which shall constitute the initial determination of reserves for the purpose of this Agreement. 2. Seller may request in writing one or more re- determinations of reserves hereunder prior to September 1, 1971. Thereafter either Seller or Buyer may request in writing a redetermination of reserves provided, how- ever, such requests shall not be made more often than once each year. Any request for such reserve redetermina- tion must be based upon significant new or different data than that used in the previous determination or redeter- mination. [229] If upon any redetermination of reserves the volume of reserves is less than the volume last previously determined, Seller shall have the right, but not the obligation, to commit within ninety (90) days after the completion of the redetermination such additional gas reserves for de- livery at the then existing, points of delivery, or at mutu- ally agreed points of delivery on Buyer’s pipeline system onshore in the State of Louisiana or in the Gulf of Mexico offshore therefrom, as may be necessary to make available to Buyer reserves from such combined committed reserves equal to the volume last previously determined. Buyer shall notify Seller in writing, within thirty (30) days after the redetermination of reserves, of the date such redetermination shall become effective, provided that, subject to the provisions of Section 3 of this Article IV, such date shall not be later than sixty (60) days after the completion of the redetermination. 80 3. If Buyer requires additional authority to enable it to transport or sell all or a portion of the gas committed to the performance of this Agreement following a re- determination of reserves, as provided in Section 2 of this Article IV, Buyer shall notify Seller within thirty (30) days after such redetermination that Buyer will apply to the Federal Power Commission for requisite authority to take such gas, whereupon the effective date of the re- determination shall be postponed pending decision by the Federal Power Commission and construction of any neces- sary facilities. Thereupon Buyer shall, within ninety (90) days after the date of redetermination of reserves, file with the Federal Power Commission and thereafter prose- cute with due diligence an application for such authoriza- tion as may be necessary to enable Buyer to take the additional gas. Upon receipt of such authorization, Buyer Shall proceed with due diligence to construct [230] such facilities as may be required. The redetermination of reserves provided in Section 2 of this Article IV shall be effective as of the first day of the month following the date of completion of the facilities authorized. If Buyer shall fail to obtain such authorization from the Federal Power Commission within twelve (12) months after the date of redetermination of reserves, then at Seller’s written request to Buyer, at any time prior to the issuance of such authorization, Buyer shall release such excess re- serves. 4. If Buyer and Seller shall be unable to agree on a redetermination of the reserves as provided in Section 2 of this Article IV, the same upon written notice by either 81 party to the other shall be determined by an independent engineer or geologist (including a member of an inde- pendent firm) mutually acceptable to Seller and Buyer. Within fifteen (15) days after the independent engineer or geologist is appointed pursuant to the foregoing pro- visions of this Section 4 the independent engineer or geologist shall meet, hear the parties hereto with respect to the matter of said reserves, and within thirty (30) days after his appointment he shall arrive at a redeter- mination of said reserves. Any determination made by such independent engineer or geologist shall be final and binding on the parties hereto. The fee and expenses of such independent engineer or geologist shall be equally divided between Buyer and Seller. In the event Buyer and Seller cannot agree upon an independent engineer or geologist or any such party selected shall fail to submit a written reserve determination as above provided, either party may request in writing that the matter be arbitrated, and within ten (10) days after such request, the same shall be determined by arbitration in the following man- ner: Buyer shall appoint one arbitrator and Seller shall appoint one arbitrator and the two [231] arbitrators so appointed shall select a third arbitrator. If either Buyer or Seller shall fail to appoint an arbitrator within ten (10) days after a request for such appoint- ment is made by the other party in writing, then the party making request for such appointment shall name the second arbitrator. If the two arbitrators so appointed shall fail within ten (10) days after the appointment of the second of them to agree on a third arbitrator, the ——~ Fa ae 82 arbitrator necessary to complete a board of three arbitra- tors shall be appointed upon application by either party therefor by the Judge, senior in point of service, of the United States District court for the Eastern District of Louisiana. In the event such Judge should fail or refuse to act within ten (10) days after application has been made, then either party hereto may request the American Arbitration Association to select the arbitrator to com- plete the Board of three. Within fifteen (15) days after the third arbitrator is appointed pursuant to the fore- going provisions of this section, the arbitrators shall meet, hear the parties with respect to the matter of said reserves, and within thirty (30) days after the selection of the third arbitrator the arbitrators shall arrive at a redetermination of said reserves. Any redetermination agreed to in writing by at least two of said arbitrators shall be final and bind- ing on the parties hereto. All arbitrators appointed pur- suant to this Section 4 shall be qualified independent engineers or geologists experienced in the oil and gas industry and competent to pass on the matter of said reserves. Each party hereto shall pay the fees and ex- penses of the arbitrator selected by it. The fees and ex- penses of the third arbitrator shall be borne equally by the parties hereto. 5. Upon request, Seller shall promptly furnish Buyer copies of such information as Seller may possess with respect to the lands and leaseholds subject to this Agree- menty including but not limited to legal description of such lands and [232] leaseholds, gas and liquid production, tests relating to the 83 ability of wells to produce, pressures, flow characterisics, completion reports, electric logs, core analyses, gas and other fluid analyses, and any and all other information relating to such wells provided, however, that Seller shall not be required to disclose anything which in Seller’s sole discretion is of a confidential nature. Seiler upon request of Buyer will furnish Buyer each month with copies of all reports filed with the Louisiana Department of Conservation or other regulatory bodies having juris- diction over such wells and gas committed to this Agree- ment, including but not limited to production, well test, completion and recompletion reports. ARTICLE V QUANTITY 1. Subject to the following provisions of this Agree- ment, commencing with the date of first delivery here- under and continuing for a period of thirty-six (36) months, the daily contract quantity of gas hereunder shall be equal to one hundred-fifty (150) per cent of one million (1,000,000) cubic feet for each seven and three- tenths billion (7,300,000,000) cubic feet of reserves, as established under Article IV hereof. If the volume of committed reserves should either increase or decrease as a result of any redetermination made in accordance with Article IV hereof, or Seller is unable to maintain a daily delivery equal to the volumes requested by Buyer up to Seller's maximum delivery obligation, said daily contract quantity of gas shall be adjusted in accordance with the provisions of Section 1, Section 4 or Section 5 of this Article V, whichever is applicable. 2. Subject to the following provisions of this Agree- OR tN rt eae 84 fent, commencing at the end of the first thirty-six (36) month period and continuing during the [233] remaining term of this Agreement, the daily contract quantity of gas hereunder shall be equal to one million (1,000,000) cubic feet for each seven and three-tenths billion (7,300,000,000) cubic feet of reserves, as estab- lished under Article IV hereof. If the volume of com- mitted reserves should either increase or decrease as a result of any redetermination made in accordance with Article IV hereof, or Seller is unable to maintain a daily delivery equal to the volumes requested by Buyer up to Seller’s maximum delivery obligation, said daily contract quantity of gas shall be adjusted in accordance with the provisions of Section 2, Section 4, or Section 5 of this Article V, whichever is applicable. 3. Buyer agrees that its take of gas hereunder during any one day shall never be less than sixty-five (65) per cent of the applicable daily contract quantity hereunder nor less than the volume of oil well gas tendered by Seller, and Seller agrees to deliver such quantity of gas per day as Buyer may from day to day elect to purchase, up to the maximum efficient rate of flow permitted by Seller's wells and facilities. Seller shall not be required to produce wells in excess of the maximum rate of flow fixed by law or regulatory body. 4. Should Seller fail on any day for any reason other than force majeure to deliver the daily volume requested by Buyer hereunder up to one hundred twenty-five (125) per cent of the daily contract quantity, then the daily contract quantity for that day shall be reduced to eighty ; © ; 4 3 4 i 3 ERA AGL TE eS whee sie a ETI CROP ho hoc BE gs 85 (80) per cent of the volume which Seller delivered on any such day, provided, that Seller shall he allowed a daily variation in deliveries of five (5) per cent of the daily quantity requested by Buyer, provided further, that the aggregate daily deliveries during each month are within one (1) per cent of the aggregate daily volumes requested by Buyer for such month. 5. In the event Seller fails for any reason other than force majeure to deliver the volumes requested by Buyer up to one hundred twenty-five (125) per cent of the daily contract quantity for five (5) consecutive days, then at [234] Buyer’s option, commencing with the first day of the month following the end of the fifth day of such failure to deliver and continuing thereafter until adjusted as hereinafter provided, the daily contract quantity shall be reduced to eighty (80) per cent of the average daily volume delivered during such five day period. In the event the daily contract quantity is adjusted downward as provided in this Section 5, then Seller shall have the opportunity to restore all or a portion of the daily contract quantity determinable under Sections 1 or 2 of this Article V, whichever is applicable, in the following manner. In not more than seven (7) days after Seller has notified Buyer in writing that the inability to deliver gas hereunder has been remedied, Buyer shall, upon twenty-four (24) hours notice by Buyer to Seller, commence a five day test period during which time Seller will deliver and Buyer will purchase the maximum volumes deliverable by Seller, but not to exceed one hundred twenty-five (125) per cent of the maximum daily con- i a tite Wt miei ol “ 86 tract quantity determinable under Sections 1 or 2 of this Article V, whichever is applicable. Commencing with the first day of the month following the last day of such test period, the daily contract quantity shall be deemed to be eighty (80) per cent of the average daily volume delivered by Seller during such five day test period. If, as a result of such test the daily contract quantity is not restored, Seller shall not be permitted until three (3) months following the completion of such test to again request Buyer to conduct a subsequent test unless a reason- able amount of additional development or remedial work has been performed by Seller since that last test, in which case, evidence of such work shall be sufficient to permit a subsequent test. [235] Upon receipt of notice from Seller that the inability to deliver has been remedied, Buyer may, in lieu of con- ducting such test, notify Seller that commencing with the first day of the month following receipt of said notice from Seller, the downward adjustment in daily contract quantity as provided in Section 5 hereof, shall no longer be effective. 6. If withdrawals by others from a reservoir or com- mon source of supply containing reserves committed here- under cause drainage of Seller’s reserves, Buyer shall be obligated upon written notice from Seller to Buyer ac- companied by sufficient proof of such drainage, to in- crease, within the limits of the physical and certificated capacity of its facilities, its receipt of gas therefrom to the extent necessary to equalize withdrawals and prevent such drainage. In the event such capacity of Buyer’s a: eevee at. ts — Se eee! EOS ORES tl Pp BLES Pt EPPS Bi id nl Ee FL. 87 facilities is not sufficient to handle the increase in volume necessary to prevent drainage of Seller’s reserves and Buyer does not desire to construct the necessary addi- tional capacity, then Seller reserves the right to sell and dispose of such gas which Seiicr deems necessary in order to equalize its withdrawals with withdrawals of gas by others so as to prevent drainage of gas by others. Buyer agrees that in the event that such capacity of Buyer's facilities is not sufficient to handle the increase in volume necessary to prevent drainage of Seller’s reserves ana Seller does not elect to sell and dispose of gas in order to equalize its withdrawals with withdrawals of gas by others, tnen Buyer will include as a part of its next appli- cation to the Federal Power Commission for onshore or offshore Louisiana facilities a request for such authoriza- tion as may be necessary to accept and transport the quantities of gas necessary to prevent such drainage. Buyer shall not be obligated to purchase and receive in excess of its desired quantities if Seller without jeopardiz- ing its leaseholds or [236] reserves committed hereunder is able to decrease its with- drawals from other sources delivering gas hereunder and increase its withdrawals from such reservoir or source of supply to the extent necessary to prevent such drainage. 7. At the end of each accounting year the parties shall promptly determine (a) the annual contract quan- tity, (b) the cumulative annual contract quantity from the date of first delivery under this Agreement to the end of the accounting year in question, (c) the total quantity of gas taken under this Agreement by Buyer from the PE te orn iy oust. 88 date of first delivery hereunder to the end of the account- ing year in question, and (d) the total quantity of gas previously paid for by Buyer but not taken, for which Buyer has not taken credit under the makeup provision hereinafter provided. If the volume computed under (b) above exceeds the sums of the volumes computed under (c) and (d), Buyer shall within thirty (30) days after such computation pay Seller an amount determined by multiplying such excess volume by the price per Mcf applicable at the end of the accounting year in question. If in any accounting year during the first five accounting year period following an accounting year for which Buyer paid Seller for gas not taken, Buyer takes gas in excess of the annual contract quantity, Buyer shall deduct, as recoupment for gas previously paid for but not taken, from future payments for gas delivered under this Agreement. The deduction for recoupment volumes shall apply to the first volumes of gas in the earliest accounting year in which Buyer is entitled to receive recoupment and shall continue in order by accounting years until the total recoupment volumes of prepaid gas equals the lesser of the volume of gas taken in excess of the annual contract quantity or the total recoupment Buyer is entitled to receive. The amount of the payments to be deducted shall be computed on the same basis for which Buyer prepaid for an equivalent volume of gas. [237] 8. Notwithstanding anything to the contrary contained herein, on any day when deliveries or takes are affected by force majeure and the volumes delivered are less than the applicable daily contract quantity, the daily contract quantity hereunder, or portion thereof, shall be deemed to be the actual volume delivered and purchased during the effective period of such force maieure. 9. Deliveries of gas by Seller to Buyer hereunder will be at more than one point thus from time to time as required Buyer and Seller, after giving consideration to the ability of wells to produce and facilities to handle gas, will agree as to the volume of gas Seller can deliver and Buyer can transport from each point of delivery. ARTICLE VI INITIAL DELIVERY AND TERM 1. After Buyer and Seller notify each other that their respective Certificates of Public Convenience and Neces- sity or such other authorizations issued by the Federal Power Commission are acceptable, both parties agree to commence and proceed with reasonable diligence to con- struct the lines and facilities required to deliver and re- ceive gas under this Agreement so that the facilities shall be completed and placed in operation by November 1, 1968, or four (4) months after the notification referred to above, whichever is later, and commencing on Novem- ber 1, 1968, or four (4) months after such notification, whichever is later, Buyer shall be obligated to take or pay for gas hereunder. [238] 2. This Agreement shall become effective as of the date hereof and shall remain effective for a period of twenty (20) years from the date of initial delivery hereunder and 90 from year to year thereafter until cancelled by written notice given by either party to the other not less than six (6) months prior to the end of such twenty (20) year period or any subsequent anniversary date thereof. If Seller uses gas co hereunder for repressuring or secondary recov perations and during such time the daily contract Qmantity is adjusted downwards in accordance with the provisions of Sections 4 and 5 of Article V hereof, the primary term of this Agreement shall be extended for a period of time sufficient for Buyer to purchase a volume of gas equivalent to that volume which Buyer would have been entitled to receive if the repressuring or secondary recovery operation had not been conducted. ARTICLE VII QUALITY OF GAS 1. All gas delivered by Seller under the terms of this Agreement shall conform to the following specifications: (a) The gas shall be commercially free from dust, gum, gumforming constituents, gasoline and other liquids and solids which may become separated from the gas. (b) The gas shall not at any time have an oxygen content in excess of one(1) per cent by volume and Seller shall make every reasonable effort to keep the gas free of oxygen. (c) The gas shall not contain more than one grain of hydrogen sulphide per one hundred (100) cubic feet. This purity requirement shall be considered as satisfied if a strip of white filter paper recently moistened OM WOK so. OSM 91 [239] with a solution of one hundred (100) grains of lead accetate in one hundred (100) cc. of water be ex- posed to the gas for one and one-half (14%) minutes in an apparatus previously purged through which gas is flowing at a rate of approximately five (5) cubic feet per hour, the gas not impinging from a jet upon the test paper and after this exposure the test paper is not found distinctly darker than a second paper freshly moistened with the solution and not exposed to the gas. If the gas does not meet the purity re- quirements determined in the above test, the hydrogen sulphide content shall be determined by a cadmium sul- phide quantitative test. (d) The gas shall not contain more than twenty (20) grains of total sulphur (including the sulphur in any hy- drogen sulphide and mercaptans) per one hundred (100) cubic feet. (e) The gas shall have a total heating value per cubic foot of not less than one thousand (1,000) British thermal units. The term “total heating value per cubic foot” shall mean the number of British thermal units, pro- duced by the combustion at constant pressure, of the amount of gas, saturated with water vapor, which would occupy a volume of one (1) cubic foot at a temperature of sixty (60) degrees Fahrenheit and under pressure equivalent to that of thirty (30) inches of mercury at thirty-two (32) degrees Fahrenheit and under the standard gravitational force with air of the same temperature and pressure as the gas, when the products of combustion are cooled to the initial temperature of gas in air and when the water formed by combustion is condensed to a liquid stage. 92 » (f) The water content of the gas shall not be more than six (6) pounds per million cubic feet of gas meas- ured at a pressure of 14.7 pounds per square inch absolute and sixty (60) degrees Fahrenheit temperature; provided, however, so long as the gas hereunder is pro- cessed subject to the provisions of Article III, Section 3 hereof, Seller shall be permitted to deliver gas at [240] \ the points of delivery hereunder containing up to seven (7) pounds of water per million cubic feet of gas meas- ured at a pressure of 14.7 pounds per square inch absolute and sixty (60) degrees Fahrenheit temperature. (g) The gas shall be delivered at a temperature not in excess of one hundred thirty (130) degrees Fahren- heit. 2. Should the heating value of the gas be found to average less than one thousand (1,000) British thermal units per cubic foot during any given month, Buyer shall have the option to suspend the portion of the deliveries hereunder causing such condition without obligation here- under, or to reduce the total amount payable as the purchase price to be paid for gas by an amount determined by multiplying such total amount ordinarily payable by a fraction whose numerator is the deficiency of British thermal units below one thousand (1,000) and its de- nominator one thousand (1,000). Nothing herein con- tained shall be construed as to allow Seller to reduce the heating value of the gas below one thousand (1,000) British thermal units by processing methods. 3. Should the gas offered for sale to Buyer fail at any time to conform to any of the specifications of this Article, 93 Buyer shall notify Seller of any such failure and Seller shall make a diligent effort to correct such failure so as to deliver gas conforming to the above specifications. if Seller is unable to deliver gas conforming to the above specifica- tions by treatment consistent with prudent operations and by means which are economically feasible in Seller's opinion, Buyer may at its option suspend purchase of all or a portion of such gas, and it shall be relieved of its obligations hereunder, for the duration of such time as the gas does not meet such specifications. Failure of Buyer ‘Oo accept gas not meeting specifications for a period of thirty (30) consecutive days, where such failure is not occasioned by default of Seller, shall give Seller or Buyer the right to cancel and terminate this Agreement upon ten (10) days’ written notice, only insofar as it relates to the reserves relative to the gas not meeting such specif- cations. * * * [241] year from the rendition thereof. ARTICLE XIV REGULATION 1. This Agreement, insofar as it is affected thereby, shall be subject to all applicable and valid laws, ordi- nances, rules and regulations of Federal, State, Parochial and Municipal Governments and authorities having juris- diction, and in the event this Agreement or any provisions hereof shall be found contrary to, or in conflict with any such law, ordinance or regulation, the latter shall be deemed to control. 94 ARTICLE XV WARRANTY 1. Seller warrants generally the title to all gas delivered hereunder and agrees to indemnify Buyer from all suits, actions, debts, acts, damages, costs, losses and expenses arising from or out of adverse claims of any or all persons to said gas and to royalties or charges thereon incurred prior to the delivery thereof. ARTICLE XVI LIABILITY 1. As between the parties hereto, Seller shall be in control and possession of the gas deliverable hereunder and responsible for any damage or injury thereby until same shall have been delivered to Buyer at the points of delivery, after which del:very Buyer shall be in exclusive control and possession thereof and responsible for any injury or damage thereby. ARTICLE XVII FORCE MAJEURE 1. If either Buyer or Seller is rendered unable, wholly or in part, by force majeure or any other cause of any kind not reasonably within [242] such party’s control to perform or comply with any obli- gation or condition of this Agreement, upon giving notice and reasonably full particulars to the other party such obligation or condition shall be suspended during the continuance of the inability so caused and such party shall be relieved of liability and shall suffer no prejudice 95 for failure to perform the same during such period; provided, obligations to make payments then due for gas delivered hereunder shall not be suspended and the cause of suspension (other than strikes or lockouts) shall be reme- died so far as possible with reasonable dispatch if, in the sole discretion of the party unable to perform its obliga- tions, it is economically feasible to remedy such cause of suspension. Settlement of strikes and lockouts shall be wholly within the discretion of the party having the difficulty. The term “force majeure” shall include, without limitation by the following enumeration, acts of God and the public enemy, the elements, fire, accidents, break- downs, shut-downs for purposes of necessary repairs, relocation, or construction of facilities, breakage or acci- dent to machinery or lines of pipe, the necessity of making repairs or alterations to machinery, or lines or pipe, in- ability to obtain materials, supplies, permits, or labor to perform or comply with any obligation or condition of this Agreement, strikes and any other industrial, civil or public disturbances, any act or omission (including failure to take gas) of a purchaser of gas from Buyer which is excused by any event or occurrence of the character herein defined as constituting force majeure, and any laws, orders, rules, regulations, acts or restraints of any govern- ment or govenmental body or authority, civil or military. ARTICLE XVIII ASSIGNMENT The terms, covenants, and conditions hereof shall be binding on the parties hereto, their successors and assigns It is provided, however, that no assigninent of this Agreement shall 96 [243] APPENDIX A SCHEDULE 3 GRAND ISLE BLOCK 76 CONTRACT WITH FLORIDA GAS Provisions Limitation of dedication Reservation of control over operations Reservations of Gas Oil well gas take Gas well gas take Favored nations on take Failure to deliver daily volume Extended failure to deliver Deliverability determinations Minimum daily take Minimum monthly take Make-up Ratable take Limit on deliveries Prudent operations Allowables Excess pressure in Buyer’s line Election not to install compression Discontinuance of compression Incapable wells Non-specification gas Government orders Plant fuel and shrinkage Limit on plant fuel and shrinkage Restoration of plant fuel and shrinkage Force majeure Factors affecting gas delivery and take obligations: PAGE(S) > fon COC MIIVAAAUUUALWYWND 97 [244] GAS PURCHASE AND SALE CONTRACT THIS CONTRACT, made and entered into as of Au- gust 21, 1975, by and between SHELL OLL COMPANY, herein called “Seller”, and FLORIDA GAS TRANS- MISSION COMPANY, herein called “Buyer”; WITNESSETH; WHEREAS, Seller desires to sell and deliver to Buyer and Buyer desires to purchase and receive from Seller natural gas, in the quantities and upon the terms and conditions hereinafter set forth, from the reservoirs here- inafter described. NOW THEREFORE, for and in consideration of the premises and the mutual benefits and covenants herein contained, Seller and Buyer hereby covenant and agree as follows: ARTICLE I — DEFINITIONS 1.1 Except where the context otherwise indicates another different meaning or intent, the following words and terms as used herein shall be construed to have the meanings indicated: - (a) The word “day” shall mean a period of twenty- four (24) consecutive hours beginning at 7:00 a.m. (local time). The date of a day shall be that of its beginning. (b) The word “month” shall mean a period beginning at 7:00 a.m. (local time) on the first day of a Se Tt AB a om 98 calendar month and ending at 7:00 a.m. (local time) on the first day of the next succeeding calendar menth. (c) “Contract Year” shall mean a calendar year ex- (d) (e) cept that the first Contract Year shall mean a period beginning on January 1, 1976, or on the date of first delivery of gas hereunder, whichever is the earlier date, and continuing to the end of the last day of the calendar year during which such date occurred. [245] “Oil Well Gas” shall mean gas produced from a well classified as an oil well under the laws or rulings of the regulafory body having jurisdiction of production allowables of the well, and, in the absence of such classification, such term shall mean gas which is associated or blended with crude oil at the time of its production. “Gas Well Gas” shall mean gas other than Oil Well Gas. (f) The word “gas” shall mean both Oil Well Gas (g) and Gas Well Gas. “Mcf” shall mean one thousand (1,000) cubic feet of gas. (h) The term “psig” shall mean pounds per square (i) (j) inch gauge. “Btu” shall mean British thermal units. “Delivery Capacity” shall mean the maximum daily. 99 quantity of Gas Well Gas Which, in the course of prudent operation (as determined in the sole discretion of Seller, exercised in good faith), can be delivered to Buyer from Seller’s interest in the properties covered hereunder. ARTICLE Il — GAS SUBJECT TO CONTRACT 2.1 Subject to all of the terms, conditions, and limita- tions herein set forth, Seller agrees to sell and deliver or cause to be delivered to Buyer, and Buyer agrees to purchase and receive from Seller, during the term hereof, gas attributable to twenty-five percent (25% ) of Seller's interest in gas to be produced from the reservoirs identi- fied or described below, but only to the extent that such reservoirs underlie the acreage outlined on Exhibit “A”: The Nos. 9, 10 and 12 sands, the “A” series sands, the B. sand, the “C” series sands and the “D” series sands existing within the stratigraphic interval be- tween electric log measured depths of 3200 feet and 9450 feet in OCS-G 2161 Well No. 1. [246] ARTICLE III — RESERVATIONS 3.1 Seller expressly reserves unto itself, its successors and assigns, the following rights with respect to gas sub- ject to this Contract and a quantity of gas sufficient to satisfy such rights: (a) To operate Seller’s leaseholds, lands and/or in- terests therein, free from any control by Buyer, in such manner as Seller deems advisable, including Pa ts ae 7 (b) (c) (d) (e) (f) 100 the right (but never the obligation) to driil new wells, to repair and rework old wells, 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, and to abandon, modify, extend or dispose of any facilities owned or in- stalled (in whole or in part) by Seller. To deliver gas to lessors in quantities sufficient to fulfill Seller’s lease obligations. To use gas for the development and operation of the properties subject hereto and properties which Seller operates for itself and others in the vicinity of the properties subject hereto, including (bu! not limited to) the use of gas for fue’, drilling (including gas drilling), deepening, reworking. compressing, gas lifting, processing and treating. and to use gas on the properties subject hereto for cycling, repressuring or other supplementat recovery operations. To sell gas to others for drilling (including gas drilling) in the vicinity of Seller’s properties which: are subject hereto. To process gas as hereinafter provided. To form or participate in formation of any uni! or units, including (but not limited to) any field. wide unit or units, which may include all or part of the reservoirs subject hereto; provided, that this Contract shall apply to the interest of Seller in such unit or units to the extent that such interes! is attributable to the reservoirs subject hereto. 101 [247] ARTICLE IV — QUANTITIES 4.1 Commencing on January 1, 1976, or on the date of first delivery of gas hereunder, whichever is the earlier date, and continuing throughout the term hereof, Seller shall sell and deliver to Buyer and Buyer shall purchase and take from Seller, during each day, all of the Oil Well Gas made available for sale by Seller from the reservoirs subject hereto. If, for any reason, Buyer fails to take Oil Well Gas tendered to it by Seller, Buyer shall pay Seller therefor as if such gas had been actually taken by Buyer without any right to make up Oil Well Gas; provided, that Buyer’s failure to take Oil Well Gas for reasons of force majeure shall be excused from and after the date of first delivery hereunder. 4.2 Commencing on January 1, 1976, or on the date of first delivery of gas hereunder, whichever is the earlier date, Seller shall sell and deliver to Buyer and Buyer shall purchase and take from Seller [248] hereunder or, if available and not taken, Buyer shall pay Seller for, during each Contract Year, a daily contract quantity of Gas Well Gas equal to ninety percent (90% ) of Delivery Capacity. Delivery Capacity shall be deemed to be sixteen thousand six hundred seventy (16,670) Mcf until a determination of Delivery Capacity has been made. The daily contract quantity provided for in this paragraph Shall be subject to change or adjustment in accordance with the provisions of Paragraph 4.3. Buyer shall give Seller reasonable notice of any change in the daily quan- ee 102 tity Gas Well Gas which Buyer elects to take hereunder. Selle: shall change the rate of Gas Well Gas to conform as closely as practicable to each such notice. 4.3 If, at any time during the term of this Contract, Buyer purchases or agrees to purchase from properties within the States of Texas or Louisiana (including the federal offshore), from any party, daily quantities of Gas Well Gas equal to a percentage of delivery capacity greater than that provided in Paragraph 4.2, Buyer shall promptly notify Seller of such purchase. Seller may then, by notice to Buyer, elect to have the daily contract quan- tity hereunder determined by use of such higher per- centage, effective as of the first day of the month next following Buyer’s receipt of such notice. 4.4 If on any day, for any reason other than force majeure, Seller fails to deliver the volume of Gas Well Gas requested hereunder up to Delivery Capacity, then the daily contract quantity for that day shall be reduced to the volume of Gas Well Gas which Seller delivered on that day. [249] 4.5 If for thirty (30) consecutive days, for any reason other than force majeure, Seller fails to deliver the vol- umes of Gas Well Gas requested by Buyer up to Delivery Capacity, then, commencing on the first day of the month following the end of the thirtieth (30th) day of such failure to deliver and continuing thereafter until further adjusted, the daily contract quantity shall be reduced to ninety percent (90%) of the average volume of Gas Well Gas delivered during such thirty (30) day period. 103 4.6 Delivery Capacity shall be determined in the fol- lowing manner at the request of either party, provided, however, such requests shall not be made more often than once each thfee (3) months unless Seller has per- formed a reasonable\ amount of additional development or remedial work since the last determination: Within seven (7) days after Buyer has received Seller’s request, Buyer shall, with twenty-four (24) hours’ notice to Seller, commence a seventy-two (72) hour test period during which Seller shall deliver and Buyer shall take the maxi- mum volumes of Gas Well Gas deliverable by Seller. Commencing on the day following the last day of such test period, the daily contract quantity shall be deemed to be ninety percent (90% ) of the average daily volume of Gas Well Gas delivered by Seller during such seventy- two (72) hour period. 4.7 Buyer agrees to purchase and take during each day after deliveries have commenced hereunder a quan- tity of Gas Well Gas equal to at least seventy-five percent (75%) of the daily contract quantity in effect. Buyer further agrees to purchase and take during each month after deliveries have commenced hereunder a quantity of Gas Well Gas equal to at least ninety [250] percent (90%) of the sum of the daily contract quan- tities in effect during such month. 4.8 If, for any reason other than force majeure, Buyer shall fail to take during any Contract Year a quantity of Gas Well Gas equal to the sum of the daily contract quantities in effect for such year, Buyer shall, within sixty 104 (60) days after the end of such year, pay Seller for a quantity of Gas Well Gas equal to the difference between such sum and the quantity taken during such year. The price to be paid for such gas not taken shall be the price in effect at the end of the Contract Year during which the gas was not taken. 4.9 If Buyer pays for a quantity of Gas Well Gas not received by it, Buyer shall thereafter be entitled to re- ceive, without payment, such quantity of Gas Well Gas in any one or more of the five (5) Contract Years next following the Contract Year in which Buyer failed to take such Gas Well Gas and in which Buyer shall have first taken the applicable sum of the daily contract quantities in effect for each such Contract Year; provided, however, (a) that this provision shall not operate to extend the term of this Contract, and (b) that Buyer shall pay any increase in price between that upon which payments were made and that applicable at the time of taking. If, at the end of such five (5) Contract Years, Buyer has not made up such quantity of Gas Well Gas, Buyer shall have no further right to receive such quantity without payment, and Seller shall have no liability to Buyer on account of Buyer's failure to have made up such quantity. 4.10 Buyer and Seller shall make such nominations and/or forecasts for Gas Well Gas allowables as are required to permit Seller to produce and [251] Buyer to receive the quantities of Gas Well Gas which Buyer is obligated to take or pay for whether taken or not hereunder. Buyer’s failure to make such nominations 105 when required shai! excuse Seller’s inability to deliver gas because of the lack of a proper allowable, but such ex- cused inability to deliver shall not reduce Buyer’s obli- gation to take or pay for the daily contract quantity of Gas Well Gas then in effect pursuant to the foregoing provisions of this Article. 4.11 Buyer agrees that its takes of Gas Well Gas from pony wells will be at least ratable with takes by Buyer or others, of Gas Well Gas from each of th subject to this Contract. epinti sal 4. 12 If on January 1, 1976, Seller is capable of com- mencing deliveries but Buyer is unable to commence the taking of gas hereunder, then, effective as of such date. Buyer shall make monthly payments to Seller as though deliveries had commenced. For each month for which payment is due under this paragraph, Buyer shall pay Seller on or before the tenth (10th) day of the following month at the price in effect for such month pursuant to Article V hereof. Such payment shall be the total of (a) an amount calculated by multiplying such price by the estimated volumes of Oil Well Gas produced and flared or vented in such month and (b) an amount calculated by multiplying such price by the sum of the daily contract quantities of Gas Well Gas for such month as provided for in Paragraph 4.2 hereof. Monthly payments made by Buyer pursuant to this paragraph shall continue until the end of the month during which actual deliveries of gas commence hereunder. The force majeure provisions of Article XVII hereof shall not be applicable to excuse the payments required under this Paragraph. 106 [252] 4.13 If Buyer makes payments for Gas Well Gas pur- suant to Paragraph 4.12, Buyer shall have the right to make up the volumes of Gas Well Gas pursuant to Para- graph 4.9. If this Contract is terminated pursuant to the provisions of Article XIII hereof, payments made by Buyer pursuant to Paragraph 4.12 for Gas Well Gas not taken shall be promptly refunded, without interest, by Seller to Buyer. 4.14 If, in any month, Seller is not permitted by any governmental authority to produce any oil weil solely because of Buyer’s failure to provide a market for Oil Well Gas, and if Buyer’s said failure is not excused for reason of force majeure from and after the date of first delivery hereunder, then the payments to be made by Buyer to Seller for Oil Well Gas pursuant to Paragraphs 4.1 or 4.12, whichever is applicable, shall be calculated by using a volume of 6,000 Mcf times the number of completed oil wells which Seller was not permitted to produce in the month. 4.15 Nothing in this Contract shall require Seller to deliver on any day a quantity of Gas Well Gas greater than one hundred and ten percent (110%) of the daily contract quantity in effect hereunder from time to time. 4.16 Seller’s obligations hereunder are subject to the ability of Seller’s wells to produce without waste and in accordance with prudent oil and gas field practice. Seller shall not be required to produce any well at a rate in excess of a maximum rate of flow fixed by law or regula- tory body or in excess of the maximum efficient rate of flow of such well. 107 ARTICLE V — PRICE 5.1 Subject to the further provisions of this Article, Buyer agrees to pay Seller for each Mcf of gas delivered or for which payment is [253] of any injuries, claims, liabilities or damages occurring while the gas is in the former's possession. ARTICLE VIII — PRESSURES 8.1 Except as otherwise provided in this Article, Seller Shall deliver gas hereunder at a pressure: sufficient to permit the gas to enter Buyer's facilities, but Buyer shall never operate its facilities at a working pressure in excess of 1050 psig, nor shall Seller ever be obligated to deliver gas at a pressure in excess of 1050 psig. If Buyer does not operate the pipeline facilities used to take gas hereunder, and if Buyer is required by the operator of such facilities to have gas delivered at a pressure in excess of 1050 psig, Seller agrees to deliver gas at the required pressure, up to 1275 psig. If Seller compresses gas to so deliver at a pressure in excess of 1050 psig, Buyer agrees to pay Seller a fee of seven-tenths cents (0.7¢) per Mcf of gas com- pressed and further agrees to furnish the fuel used for such compression, free of cost to Seller. Seller may dis- continue compression at any time Seller deems it un- economic. 8.2 Either party may, but neither shall be obligated to, install and operate compression facilities for the de- livery of gas hereunder, it being understood that either party may discontinue the operation of such facilities if, 4 108 in the sole judgment of such party, such operation is or becomes uneconomical. 8.3 If any well covered by this Contract is or be- comes incapable of delivering gas against the working pressures maintained in Buyer's line, and if neither party elects to install a compressor, then Buyer shall, upon request from Seller, release such well and the gas to be produced therefrom from the [254] terms and provisions of this Contract. ARTICLE 1X — MEASUREMENT 9.1 A “cubic foot of gas” for all purposes hereunder, except where specifically provided to the contrary, is the amount of gas necessary to fill a cubic foot of space at a base pressure of fifteen and twenty-five thousandths (15.025) pounds per square inch absolute and at a base temperature of sixty degrees (60°) Fahrenheit. 9.2 The atmospheric pressure at each Delivery Point shall be assumed to be fourteen and seven tenths (14.7) pounds per square inch. 9.3 The gas delivered hereunder shall be measured with orifice meters constructed and installed, and whose computations of volume are made, in accordance with the provision of Gas Measurement Committee Report No. 3 of the American Gas Association, as revised and reprinted September, 1969, with any subsequent amendments or revisions which may be mutually acceptable to Seller and Buyer. 109 9.4 The temperature of the gas shall be determined by a continuously recording thermometer so installed that it may record the temperature of the gas flowing through the meters. The average of the record, to the nearest one degree (1°) Fahrenheit, obtained while gas is being delivered shall be the applicable flowing gas temperature or the period under consideration. 9.5 The specific gravity of the gas shall be determined by spot tests made with an Edwards or other standard type specific gravity instrument, or by a continuously recording gravitometer so installed that it may record the specific gravity of the gas flowing through the meters. If the spot test method is used, the tests shall be made quarterly or at such wther interval as [255] 10.5 The charts and records from Buyer’s meas: ing equipment shall remain the property of Buyer and shall be kept by Buyer on file for a period of not less than three (3) years. At any time within such period, Buyer shall, upon request of Seller, submit to Seller records and charts from its measuring equipment, together with calcu- lations therefrom, for Seller’s inspection and verification, subject to return by Seller within thirty (30) days from receipt therefor. ARTICLE XI — QUALITY 11.1 The gas delivered to Buyer hereunder shall meet the following specifications, which herein are collectively called “Quality Specifications”: (a) (b) (c) (d) (e) 110 Water. The gas shall in no event have a water content in excess of seven (7) pounds of water per one million (1,000,000) cubic feet of gas. Hydrogen Sulphide. The gas shall not contain more than one (1) grain of hydrogen sulphide per one hundred (100) cubic feet. Total Suiphur. The gas shall not contain more than twenty (20) grains of total sulphur per one hundred (100) cubic feet of gas. Temperature. The gas shall not have a tempera- ture of more than one hundred and twenty de- grees (120°) Fahrenheit. Carbon Dioxide. The gas shall not contain in excess of three percent (3%) by volume of car- bon dioxide. (f) Oxygen. The gas shall not contain in excess of (g) (h) three percent (3%) by volume of oxygen. Objectionable Liquids and Solids. The gas shall (i) be free of objectionable liquids and solids and (ii) be commercially free from dust, gums, gum- forming constituents, or other liquid or solid mat- ter which might become separated from the gas in the course of transportation through pipelines. [256] Heating Value. The gas shall have a gross heat- ing value of at least one thousand (1,000) Btu’s per cubic foot. The gross heating value of the gas shall be determined by adjusting the heating value obtained from a mutually acceptable test of 111 one cubic foot of gas at a temperature of sixty degrees (60°) Fahrenheit and at a pressure of fifteen and twenty-five thousandths (15.025) pounds per square inch absolute to compensate for differences between the water vapor content under testing conditions and the average water vapor content of the gas being delivered. The gross heating value so determined shall be ex- pressed in Btu for all purposes hereunder. Tests for such determination of heating value shall be conducted at least once each month, and the re- sult of any test shall be used until the results of a subsequent test shall be known. 11.2 All tests required by this Article shall be con- ducted by Buyer and at Buyer’s expense and shall be made as often as reasonably required by approved stand- ard methods in general use by the gas industry. Buyer shall give Seller reasonable notice of all such tests in _ order that Seller may have its representatives present, if Seller so desires. 11.3 If the gas subject hereto when produced fails to meet the Quality Specifications, Buyer shall have to waive such failure and to continue to receive such gas. If Buyer refuses to receive such gas and Seller does not elect to process the gas so as to cause the same to meet the Quality Specifications because Seller does not deem it economically feasible to do so, then Seller shall stop the delivery of gas from the well or wells which are pro- ducing the gas which. is causing the gas tendered for delivery to fail to meet such Quality Specifications. At the election of Seller, the well or wells from which Buyer so refuses to receive the production and the gas to be pro- 112 duced therefrom shall be released from the terms and pro- visions of this Contract. * * * {257} cost, damage or expense resulting or arising from Seller’s failure to install, maintain and inspect such controls and devices in accordance with such laws, regulations and or- ders, or arising from the failure of any such control or de- vice. 12.4 Buyer covenants and agrees to fully protect, in- demnity and hold Seller, its successors and assigns, harm- less from and against each and every claim, demand, or cause of action, and any liability, cost, expense, damage or loss in connection therewith which may be made on account of personal injury or death, or on account of property damage, resulting from or arising out of the in- stallation, presence, maintenance and operation of Buy- er’s facilities on Seller’s properties, platforms, lands and leases, except for those damages or losses caused by Sel- ler’s negligence. ARTICLE XIII — REGULATORY AUTHORITIES 13.1 This Contract, insofar as it is affected thereby, shall be subject to all present and future valid and applic- able laws and to the valid and applicable present and fu- ture rules, regulations or orders of any regulatory agency or authority. 13.2 Seller and Buyer agree to seek promptly any governmental permits, licenses and authorizations which they individually deem necessary to carry out their re- 113 spective obligations under this Contract. Seller and Buyer also agree to file promptly with the Federal Power Com- mission for such Certificates of Public Convenience and Necessity authorizing the performance by each party of its obligations under this Contract as they individually deem necessary, but Seller shall not be required to apply for a temporary [258] certificate if, in the exercise of its sole discretion, it be- lieves a permanent certificate to be the oniy satisfactory form of authorization. Upon the issuance of a certificate, the party receiving such certificate agrees promptly to furnish the other party with a copy of the certificate issued to it and to notify the other in writing of its acceptance of such certificate or to furnish such party with a copy of its rejection notice sent to the Federal Power Commission. 13.3 Immediately upon the acceptance by Seller and Buyer of all such governmental authorizations as may be required for each party to perform its respective obliga- tions under this Contract, and such authorizations becom- ing final and no longer subject to judicial review, Buyer and Seller shall commence such action as may be required for the performance of this Contract and diligently prose- cute same to completion. 13.4 If Seller has not obtained a Certificate of Public Convenience and Necessity from the Federal Power Com- mission, if required, which is satisfactory to Seller within six (6) months after the date of Seller’s application there- for, then either party may terminate this Contract at any time after such period by giving written notice of such termination to the other party. If Buyer has not obtained 114 a Certificate of Public Convenience and Necessity from the Federal Power Commission, if required, which is satisfactory to Buyer within twelve (12) months after the date of Buyer’s application therefor, then either party may terminate this Contract at any time after such period by giving written notice of such termination to the other party. If this Contract is cancelled under the provisions of this paragraph, neither party [259] shall be under any obligation, or liable for any damages, to the other by reason thereof, except for payments to be refunded pursuant to Paragraph 4.13. ARTICLE XIV — PROCESSING 14.1 Seller reserves the right at any time to process the gas to be delivered hereunder for the extraction of substances contained therein other than methane (except such methane necessarily removed in such processing). Seller may process gas hereunder individually, jointly with others, or by assignment of such right to one or more parties. Seller reserves the right to process gas hereunder at any mutually agreeable point on Buyer’s pipeline sys- tem downstream from any Delivery Point. Buyer agrees it will not permit any other party to process its gas on Buyer’s pipeline system at a point on such system or de- liver processed gas into such system upstream of such mutually agreeable point. All substances extracted from gas in the processing thereof by Seller shall be owned by Seller (and other plant owners and plant suppliers, if any), and Buyer shall not acquire any right, title or in- terest in any substances so extracted. 115 14.2 If Seller elects to process gas at a point on Buy- er’s pipeline system, the remaining paragraphs of this Article shall apply to such processing and the facilities used to process gas shall be referred to herein as the “Plant”. 14.3 Buyer agrees to install, at no cost to Seller, main line block valves and bypasses, Plant inlet and outlet valves and all other facilities necessary to permit the tie- in and operation of the Plant and the safe and satisfactory operation of Buyer’s pipeline system, including but not limited [260] to, measuring facilities, blowdown connections and scraper traps. 14.4 Buyer agrees to deliver to the Plant, at no cost to Seller (except that Seller shall pay such charges im- posed by reason of any valid and applicable law, order or rule of any governmental authority having jurisdiction), a volume of gas containing the same number of gallons of propane and heavier hydrocarbons as are delivered to Buyer by Seller at the Delivery Points. If gas other than gas delivered hereunder is being transported through Buyer’s facilities at the Plant, Seller shall have the right to process a quantity of such other gas as contains a quan- tity of propane and heavier hydrocarbons equal to the propane and heavier hydrocarbons contained in the gas delivered at the Delivery Points hereunder. If Seller is processing gas at the Plant and there is gas in Buyer’s pipe- line system upstream of the Piant the processing rights for which are owned by Buyer, then Buyer shall also deliver 116 a proportionate part of such gas to the Plant, and Buyer hereby grants to Seller all its right, title and interest in all substances extracted at the Plant from such propor- tionate part of such gas. The volume of such proportionate part of such gas shall be in the ratio that volumes of gas delivered by Seller into Buyer’s pipeline system during the preceding month bears to the volume of gas delivered by all other parties into said system during such month. 14.5 All gas delivered to the Plant shall be delivered at operating pressures between 700 and 1000 psig and at temperatures not in excess of 100°F. [261] 14.6 Seller shall deliver to Buyer all volumes of residue gas remaining after processing the gas delivered here- under in the Plant. Such residue gas shall conform to the Quality Specifications hereia provided except that the temperature shall be as hereinafter further provided. Seller shall be obligated to provide such compression as may be necessary to make up any pressure drop in excess of a drop of 35 pounds per square inch which may occur in the Plant. If recompression is required at the Plant, the temperature of the residue gas shall not be in excess of ten degrees Fahrenheit (10°F) above the temperature of the gas delivered to the Plant nor more than one hun- dred degrees Fahrenheit (100°F). 14.7 Gas processed in the Plant and the residue gas therefrom shall be delivered, redelivered, measured and accounted for in accordance with procedures mutually satisfactory to Buyer and Seller. 14.8 Seller shall account to Buyer for the Plant volume 117 reduction, which shall include Plant fuel, shrinkage and incidental losses in the Plant. The Plant volume reduction shall not exceed ten percent (10%) of the volume of Seller’s gas processed in the Plant. Seller shall also ac- count to Buyer for the difference in heating value between the gas delivered to the Plant and the residue gas re- delivered to Buyer to the extent that Seller has been compensated for such heating value. At Seller’s option, such accounting shall be by one or more of the follow- ing methods; provided, that no such method shall inflict any cost on Buyer by reason of the Plant volume reduc- tion or the reduction in heating value at the Plant: (a) By payment to Buyer for the purchase cost of the Plant volume reduction as adjusted for the differ- ence in heating value. (b) By reducing Buyer’s payments hereunder by the purchase cost of the Plant volume reduction as adjusted for the difference in heating value. [262] (c) By Seller’s restoration of the Plant volume reduc- tion by delivery to Buyer from other sources of gas meeting the Quality Specifications hereof at the Plant and/or at a point on Buyer's pipeline system downstream of the Plant. 14.9 Buyer reserves the right to use such gas from Buyer's pipeline upstream of the Plant as is required for the reasonable and prudent operation of Buyer’s facilities and the right to make nominal sales of gas to others for drilling fuel, lease operations, pumping stations and other 118 similar purposes. It is also recognized that some losses of gas volumes may occur in the operation of such fa- cilities. Seller’s proportionate part of such gas so used or lost shall be deducted from the quantity of gas other- wise deliverable to Seller for processing hereunder. 14.10 All Plant overations conducted by or on behalf of Seller shall be at its sole cost, risk and expense, and, as between Seller and Buyer, Seller shall be responsible for the safe handling of the gas while it is in Selier’s custody (or the custody of another on Seller's behalf) for processing. ARTICLE XV — ACCOUNTING 15.1 Buyer shall furnish Seller, on or before the fifth (5th) day of each month, a statement showing the total quantity of gas received by Buyer during the preceding month at each Delivery Point hereunder. If the allocation statement referred to in Paragraph 15.2 of this Article XV is not then applicable to a Delivery Point, Buyer shall make payment to such address as Seller may designate from time to time, by check on or before the twenty-fifth (25th) day of the month following the month in which gas was delivered to Buyer at such Delivery Point. 15.2 During any period Buyer purchases gas at any Delivery Point from Seller and from other parties, Seller shall furnish or cause to be furnished to * * * [263] to may request the American Arbitration Association to select the arbitrator or arbitrators to complete the 119 board of three. After three arbitrators are appointed pursuant to the foregoing provisions of this Para- graph 16.1, they shall meet, hear the parties with respect to the matter to be arbitrated, and issue a decision thereon. Any decision agreed to in writing by at least two of the said arbitrators shall be final and binding on the parties hereto. 16.2 All arbitrators appointed hereunder shall be qualified by training and experience to decide the matter to be arbitrated. Buyer and Seller shall each bear its own costs of arbitration hereunder, including the costs of appointing its own arbitrator. The fees and expenses of all arbitrators not appointed by either Buyer or Seller shall be borne equally by the parties. ARTICLE XVII — FORCE MAJEURE 17.1 If either party is unable, wholly or in part, by force majeure to carry out its obligations (except financial obligations) under this Contract, it is agreed that, on such party’s giving notice and reasonable full particulars of such force majeure in writing or by telegraph to the other party within a reasonable time after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch. The term “force majeure,” as em- ployed herein, shall mean acts of God, strikes, lockouts or other industrial disturbances, acts 120 [264] of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, high water, washouts, arrests and restraints of gov- ernment and people, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, freez- ing of wells or lines of pipe, partial or entire failure of wells, and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension; such term shall like- wise include (a) in those instances where any party here- to is required to obtain servitudes, rights of way grants, permits or licenses to enable such party to fulfill its ob- ligations 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 dili- gence, such servitudes, rights of way grants, permits or licenses, and (b) in those instances where any party here- to is required to furnish materials and supplies for the purpose of constructing or maintaining facilities or is re- quired to secure permits or permissions from any govern- mental agency to enable such party to fulfill its obliga- tions 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 dili- gence, such materials and supplies, permits and permis- sions. 17.2 It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty, and that the above re- quirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of — 121 [265] strikes or lockouts by acceding to the demands of an op- posing party when such course is inadvisable in the dis- cretion of the party having the difficulty. ARTICLE XVIII—WARRANTY 18.1 Seller hereby warrants title to the gas delivered hereunder, the right to sell the same, and that it is free from all liens and adverse claims, and agrees, if notified there- of by Buyer, to indemnify Buyer against lawsuits, actions, debts, accounts, damages, costs (including attorneys’ fees), losses and expenses arising from or out of any ad- verse legal claims of any and all persons to, or against, said gas prior to delivery thereof to Buyer. 18.2 Seller agrees to pay or cause to be paid to the parties entitled thereto all royalties, overriding royalties, paymenis out of production, and other like charges applicable to all gas prior to its delivery to Buyer. ARTICLE XIX—NOTICES 19.1 All notices to be given hereunder shali be in writ- ing and shall be sent by prepaid mail or telegram ad- dressed to the respective parties at the addresses stated below or to such other addresses as they shall respectively designate hereafter in writing from time to time: To Seller: Shell Oil Company Post Office Box 60193 New Orleans, Louisiana 70160 Attention Natural Gas Marketing 122 To Buyer Florida Gas Transmission Company 2240 The 1100 Milam Building a Houston, Texas 77002 Attention Gas Contracts Department 19.2 From time to time, Buyer may notify Seller (or such representative Seller may designate from time to time, in writing, by telegram or orally 1261 2161 C61 oi61 123 [266] APPENDIX B PAGE 1 OF 2 SHELL O/L COMPANY WEST WAHA FIELD REEVES COUNTY, TEXAS eee DAILY AVERAGE PRODUCTION FROM AVERAGE OF SIX MONTH CUMULATIVE PRODUCTION DELIVERABILITY FROM SEMI ANNUAL TESTS ee Aa ee = od —+—- T — 1 | i ® oa | ' = — Boe _o! | | . | > | wh aoe | | a | | -— 2 “T | Bai | a: t A = 124 [267] APPENDIX B Page 2 of 2 The graph attached hereto shows the way that the de- liverability provision actually works as a producing gas field declines. The example is an actual producing field in Reeves County, Texas, the West Waha Field. A copy of the Gas Sales Contract is attached as Appendix A, Part 3. The circles show the actual de’iverability of the field, as determined by deliverability «sts taken every six months by the pipeline purchaser, ‘1 Paso Natural Gas Company. The solid line is the amount of gas actual- ly taken by El Paso. During the early stage of the field's depletion cycle, the deliverability of the wells greatly exceeded the ability of El Paso’s facilities to take the gas. Beginning in about 1972, the deliverability of the field had declined, so that from that time on, the take was restricted by the capacity of the wells to deliver. Under Section of the Contract, the deliverability require- ment was adjusted accordingly. This is the usual and normal situation as the ability of a reservoir to deliver gas declines. 125 [310] UNITED STATES OF AMERICA FEDERAL POWER COMMISSION Policy With Respect To Enforcement ) Of Deliverability And Rendition Of ) Docket No. Natural Gas Services Under Certifi- _) RM76-8 cated Arrangements ) JOINT PETITION FOR STAY? I. On October 14, 1975, the Commission issued Order No. 539 in this docket. Order No. 539 deals generally with producers’ delivery obligations under certificates of public convenience and necessity authorizing sales of gas for resale in interstate commerce under standard pro- ducer contracts. Order No. 539 promulgated Section 2.83 of the Com- mission’s General Policy and Interpretations. The lan- guage of Section 2.83 has created uncertainty as to the rate of delivery obligation that will be imposed under certificates authorizing the sale of gas for resale in in- terstate commerce. Specifically, a question exists as to whether such certificates will impose on producers an obligation to deliver a specific volume of gas at a spe- cific rate. If such a warranty obligation is contemplated, Petitioners view it as unreasonable and unlawful. Conse- quently, Petitioners are filing simultaneously herewith a petition seeking clarification and rehearing of Order No. 539 in an attempt to establish as expeditiously as possible the nature of the delivery obligation contemplated. In view of the critical nationwide shortage of gas, however, * This petition is joined in and submitted on behalf of Tenneco Oil Company, Tenneco Exporation, Ltd., Pennzoil Company, Pennzoil heme Batre mals Tons Of = yo oe exas Off: rte A shore, Inc., hereinafter referred os 126 it is imperative that Petitioners not be required to oper- ate under such uncertain and possibly unlawful condi- tions. [311] Issuance of the stay will allow the continuance of nor- mal operations while at the same time avoiding the irre- parable injury to Petitioners that would result from the imposition of what Petitioners deem to be an unlawful delivery obligation until such time as the true nature and validity of that obligation can be determined. Il. Under the standard set forth in Virginia Petroleum Jobbers v. FPC, 259 F.2d 291 (D.C. Cir. 1958), a stay is appropriate in this case so long as there is a sub- stantial probability that (1) Petitioners will prevail on appeal, (2) Petitioners will suffer irreparable harm ab- sent a stay, (3) the stay will not cause injury to other parties, and (4) the public interest favors a stay. Al- though it is not essential that the Commission find that each of these elements is present in order to issue a stay,” each is present in this case and therefore a stay is ap- propriate. A. Petitioners Will Prevail On Review Section 2.83 provides, in essence, that the rate of de- divery is to be determined in accord with the terms of the contract between seller and purchaser.* The standard producer contract provides that the producer will sell and deliver to the purchaser the gas produced from the dedi- cated acreage at a rate the producer determines does not exceed the volume which can be produced consistent 2 See Amoco Production Company, RI71-691, et al. (Order Grant- ing Motion for Stay, December 30, 1974. 3 Section 2.83(d) also provides that express conditions contained in the certificate will control over contrary contract provisions. 127 with [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1038%3A02. Public record. Not legal advice.