UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware
(State or other jurisdiction of
incorporation)
Altus Midstream Company
(Exact name of registrant as specified in its charter)
001-38048
(Commission File Number)
81-4675947
(I.R.S. Employer Identification
No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(address of principal executive offices)
(713) 296-6000
(Registrant’s telephone number, including area code)
Kayne Anderson Acquisition Corp.
811 Main Street, 14th Floor
Houston, Texas 77002
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A common stock, $0.0001 par value
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g)of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-
accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
The registrant’s common units were not publicly traded as of the last business day of the registrant’s most recently completed second fiscal quarter.
Aggregate market value of the voting and non-voting common equity held by non-affiliates of registrant as of June 30, 2018
$
Number of shares of registrant’s Class A common stock, $0.0001 issued and outstanding as of January 31, 2019
Number of shares of registrant’s Class C common stock, $0.0001 issued and outstanding as of January 31, 2019
392,413,965
74,929,305
250,000,000
Portions of registrant’s proxy statement relating to registrant’s 2019 annual meeting of stockholders have been incorporated by reference in Part II and Part III of this annual report on Form 10-K.
Documents Incorporated By Reference
TABLE OF CONTENTS
Item
PART I
1. BUSINESS
1A. RISK FACTORS
1B. UNRESOLVED STAFF COMMENTS
2. PROPERTIES
3. LEGAL PROCEEDINGS
4. MINE SAFETY DISCLOSURES
PART II
5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
6. SELECTED FINANCIAL DATA
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
9A. CONTROLS AND PROCEDURES
9B. OTHER INFORMATION
PART III
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
11. EXECUTIVE COMPENSATION
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
16. FORM 10-K SUMMARY
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FORWARD-LOOKING STATEMENTS AND RISK
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by
reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues,
projected costs and plans, and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on
our examination of historical operating trends, production and growth forecasts of Apache Corporation’s Alpine High field development and other data in our
possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such
as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although we believe
that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been
correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about:
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the market prices of oil, natural gas, natural gas liquids (“NGLs”), and other products or services;
pipeline and gathering system capacity;
production rates, throughput volumes, reserve levels and development success of dedicated oil and gas fields;
economic and competitive conditions;
the availability of capital;
cash flow and the timing of expenditures;
capital expenditure and other contractual obligations;
weather conditions;
inflation rates;
the availability of goods and services;
legislative, regulatory, or policy changes;
terrorism or cyber attacks;
occurrence of property acquisitions or divestitures;
the integration of acquisitions;
a decline in oil, natural gas, and NGL production, and the impact of general economic conditions on the demand for oil, natural gas, and NGLs;
impact of environmental, health and safety, and other governmental regulations and of current or pending legislation;
environmental risks;
effects of competition;
our ability to retain key members of our senior management and key technical employees;
increases in interest rates;
our business strategy;
changes in technology;
the securities or capital markets and related risks such as general credit, liquidity, market, and interest-rate risks; and
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other factors disclosed under Item 1A — Risk Factors, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Item 7A — Quantitative and Qualitative Disclosures About Market Risk and elsewhere in this Form 10-K.
All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. We disclaim any obligation to update or revise these
statements unless required by securities law. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking
statements we make in this Annual Report on Form 10-K are reasonable, we can give no assurance that these plans, intentions or expectations will be
achieved.
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GLOSSARY OF TERMS
The following are abbreviations and definitions of certain terms used in this Annual Report on Form 10-K, and those which are commonly used in the
exploration, production and midstream sectors of the oil and natural gas industry:
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Bbl. One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.
Bbl/d. One Bbl per day.
Bcf. One billion cubic feet of natural gas.
Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.
Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or
stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive
formations.
Formation. A layer of rock which has distinct characteristics that differs from nearby rock.
• MBbl. One thousand barrels of crude oil, condensate or NGLs.
• Mcf. One thousand cubic feet of natural gas.
• Mcf/d. One Mcf per day.
• MMBbl. One million barrels of crude oil, condensate or NGLs.
• MMBtu. One million British thermal units.
• MMcf. One million cubic feet of natural gas.
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NGLs. Natural gas liquids. Hydrocarbons found in natural gas, which may be extracted as liquefied petroleum gas and natural gasoline.
Reserves. Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date,
by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there
will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to
market and all permits and financing required to implement the project.
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ITEMS 1. and 2. BUSINESS AND PROPERTIES
PART I
Unless the context otherwise requires, “we,” “us,” “our,” the “Company,” “ALTM” and “Altus” refers to Altus Midstream Company and its
consolidated subsidiaries. “Altus Midstream” refers to Altus Midstream LP and its consolidated subsidiaries.
Corporate History
We were originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (“KAAC”), for the purpose of
effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We
completed our public offering in the second quarter of 2017, after which our securities began separate trading on the NASDAQ Capital Market.
On August 8, 2018, KAAC and our then wholly-owned subsidiary, Altus Midstream LP, a Delaware limited partnership, entered into a contribution
agreement (the “Contribution Agreement”) with certain wholly-owned subsidiaries of Apache Corporation (“Apache”), including the Alpine High Entities.
The Alpine High Entities comprise four Delaware limited partnerships (collectively, “Alpine High Midstream”) and their general partner (Alpine High
Subsidiary GP LLC, a Delaware limited liability company), formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing,
and operating midstream oil and gas assets in the Alpine High resource play and surrounding areas (“Alpine High”).
On November 9, 2018 (the “Closing Date”) and pursuant to the terms of that certain Contribution Agreement, we acquired from Apache the entire equity
interests of the Alpine High Entities and options to acquire equity interests in five separate third-party pipeline projects (the “Pipeline Options”). We refer to
the acquisition of the entities and the Pipeline Options as the “Business Combination.” In exchange, the consideration provided to Apache included economic
voting and non-economic voting shares in KAAC, and limited partner interests in Altus Midstream.
Following the Closing Date and in connection with the closing of the Business Combination:
• KAAC changed its name to Altus Midstream Company;
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our wholly-owned subsidiary, Altus Midstream GP LLC, a Delaware limited liability company (“Altus Midstream GP”), is the sole general partner of
Altus Midstream;
• Altus Midstream Company holds a 23.1 percent controlling interest in Altus Midstream;
• Altus Midstream Company operates its business through Altus Midstream and its subsidiaries, which include Alpine High Midstream; and
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our Class A common stock, $0.0001 par value (“Class A Common Stock”), continued trading on the NASDAQ under the new symbol “ALTM.”
Whilst Altus (formerly KAAC) was the surviving legal entity, the Business Combination was accounted for as a reverse recapitalization. Under this
method of accounting, Altus was treated as the acquired company for financial reporting purposes. As a result, the historical operations of Alpine High
Midstream are deemed to be those of the Company. Thus, the financial statements and related information included in this Form 10-K reflect (i) the historical
operating results of Alpine High Midstream prior to the Closing Date (ii) the net assets of Alpine High Midstream at their historical cost (iii) the consolidated
results of Altus and Alpine High Midstream after the Closing Date and (iv) Altus’ equity structure for all periods presented.
For further information on our public offering, the Business Combination and our equity structure, refer to Note 2 —Recapitalization Transaction and
Note 11 — Equity set forth in Part IV, Item 15 of this Form 10-K.
Business Overview
We have no independent operations or material assets outside our partnership interests in Altus Midstream, which we report on a consolidated basis. Our
segment analysis and presentation is the same as that of Altus Midstream. Altus Midstream owns gas gathering, processing and transmission assets in the
Permian Basin of West Texas, anchored by midstream service contracts to service Apache’s production from Alpine High. Additionally, we own, or have
options to own, joint venture equity interests in a total of five Permian Basin pipelines, four of which go to various points along the Texas Gulf Coast,
providing the Company with additional access to fully integrated, wellhead-to-water connectivity. All of these operations are organized into a single operating
segment.
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Assets of Altus Midstream
As of December 31, 2018, Altus Midstream’s assets included approximately 111 miles of natural gas gathering pipelines, approximately 52 miles of
residue gas pipelines with three market connections (with a fourth market connection expected to be in-service by the end of the first quarter of 2019), and
approximately 26 miles of NGL Pipelines. Additionally, we own five rich gas processing facilities consisting of approximately 77,000 horsepower with 380
MMcf/d of rich gas processing capacity and two lean gas facilities consisting of 75,000 horsepower with 400 MMcf/d of lean gas treating capacity. Other
assets include an NGL truck loading terminal with six lease automatic custody transfer (“LACT”) units and eight NGL bullet tanks with 90,000 gallon
capacity per tank. Construction on the assets began in the fourth quarter of 2016, and operations commenced in the second quarter of 2017.
Joint Venture Equity Options
As part of the Business Combination, Apache contributed the Pipeline Options to Altus Midstream. The associated third-party pipeline projects are
expected to be placed into service in 2019 and 2020, and each will be operated by third-party limited liability companies, as further described below. For a
more in-depth discussion of the estimated capital resources, liquidity and timing associated with each joint venture equity option, please see Part II, Item 7 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part IV, Item 15, Note 9 — Joint Venture Equity Interest, set
forth in this Form 10-K.
Options Exercised
Gulf Coast Express Pipeline Project
On December 18, 2018 Altus Midstream exercised and closed the option with Kinder Morgan Texas Pipeline LLC (the “GCX Option”), thereby
acquiring a 15 percent equity interest in the Gulf Coast Express Pipeline Project (“GCX”). Altus Midstream may acquire an additional 1 percent equity
interest, provided that the Permian Highway Option has been exercised (as defined below) and certain other conditions are satisfied. This additional option
expires in September 2019. GCX is a long-haul natural gas pipeline that, upon completion, is expected to have capacity of approximately 2.0 Bcf/d and will
transport natural gas from the Waha area in northern Pecos County, Texas, to the Agua Dulce Hub near the Texas Gulf Coast. GCX will be operated by Kinder
Morgan Texas Pipeline LLC and is expected to be operational and in-service in the fourth quarter of 2019.
EPIC Crude Oil Pipeline
In February 2019, Altus Midstream announced the exercise of the option with EPIC Pipeline LP (the “EPIC Option”) to acquire a 15 percent equity
interest in the EPIC crude oil pipeline (the “EPIC Pipeline”). The transaction is anticipated to close in the first quarter of 2019.
Upon completion, the long-haul crude oil pipeline will extend from the Orla area in northern Reeves County, Texas to the Port of Corpus Christi, Texas,
and is expected to have Permian Basin initial throughput capacity of approximately 590 MBbl/d. The project includes terminals in Orla, Pecos, Saragosa,
Crane, Wink, Midland, Hobson and Gardendale, with Port of Corpus Christi connectivity and export access. It will service Delaware Basin, Midland Basin
and Eagle Ford Shale production.
The EPIC Pipeline will be operated by EPIC Consolidated Operations, LLC (“EPIC”) and is expected to be in service in the first quarter of 2020.
Options Outstanding
Certain Pipeline Options have not yet been exercised. These options facilitate our participation in the following third-party pipeline projects:
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Salt Creek NGL Pipeline;
Shin Oak Pipeline; and
Permian Highway Pipeline.
Salt Creek NGL Pipeline
We have an option to acquire a 50 percent equity interest in the Salt Creek NGL Pipeline - an intra-basin NGL pipeline. Upon completion, the pipeline is
expected to be capable of transporting approximately 445 MBbl/d from our Diamond cryogenic processing complex in southwest Reeves County, Texas, and
Salt Creek Midstream’s gas processing complex located in central Reeves County, Texas. The pipeline will transport NGLs to the Waha area in northern Pecos
County, Texas, and will be operated by ARM Midstream Management LLC. It is expected to be operational and in service in the first quarter of 2019 and we
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to exercise this option in the fourth quarter of 2019 or the first quarter of 2020.
Shin Oak Pipeline
We have an option to acquire up to a 33 percent equity interest in the Shin Oak Pipeline, a long-haul NGL pipeline that, upon completion, is expected to
be capable of transporting approximately 550 MBbl/d from the Orla area in northern Reeves County, Texas, through the Waha area in northern Pecos County,
Texas, and on to Mont Belvieu, Texas. The Shin Oak Pipeline will be operated by Enterprise Products Operating LLC (“Enterprise Products”) and is expected
to be operational and in service in the second quarter of 2019. We expect to exercise this option in the second half of 2019.
Permian Highway Pipeline
We have an option to acquire an approximate 27 percent equity interest in the Permian Highway Pipeline (the “Permian Highway Option”), a long-haul
natural gas pipeline that, upon completion, is expected to have capacity of approximately 2.1 Bcf/d and will transport natural gas from the Waha area in
northern Pecos County, Texas, to the Katy, Texas area, with connections to U.S. Gulf Coast and Mexico markets. The Permian Highway Pipeline will be
operated by Kinder Morgan Texas Pipeline LLC and is expected to be operational and in service during the fourth quarter of 2020. We expect to exercise this
option in the second half of 2019.
If the Permian Highway Pipeline is not placed into service, Apache will be required to assign to us the next option Apache executes for at least a 25
percent equity interest in an unidentified long-haul natural gas pipeline from the Permian Basin to the Texas Gulf Coast.
Altus’ Relationship with Apache
About Apache
Apache is an independent energy company that explores for, develops, and produces natural gas, crude oil, and NGLs. As a result of the Business
Combination, Apache is the largest single owner of our voting common stock and also has an approximate 76.9 percent noncontrolling interest in Altus
Midstream.
Additionally, as a result of the Business Combination, Apache received certain equity instruments, which may impact our ownership and the ownership
interest of Altus Midstream’s limited partners. For further information on the consideration received by Apache, please refer to Note 2 — Recapitalization
Transaction and Note 11 — Equity, within Part IV, Item 15 of this Form 10-K.
Apache’s Alpine High Resource Play
Our operated midstream infrastructure and facilities were built to service Apache’s production from Alpine High. Alpine High lies in the southern
portion of the Delaware Basin, primarily in Reeves County, Texas. The play contains a vertical column up to 6,000 feet encompassing five geologic
formations, with multiple target zones spanning the hydrocarbon phase window from dry gas to wet gas to oil. Apache has identified over 3,500 economic
drilling locations in a wet gas play and over 1,000 locations in a dry gas play at Alpine High. Over the past year, Apache focused on transitioning to full-field
development of the Alpine High play, optimizing spacing, patterns and completions, and building efficiencies to reduce drilling and lifting costs. During 2018,
Apache drilled 100 wells at Alpine High with a 96 percent success rate, including many concept test wells drilled to verify its understanding of the play. Using
data collected from strategic testing and delineation drilling, Apache is now optimizing wells drilled in Alpine High and focusing on rich gas development in
2019.
Apache has contracted takeaway capacity (through a combination of volume commitments and acreage/plant dedications) in the Permian Basin on the
following third-party pipelines that are currently under construction and expected to be in operation in 2019 and 2020 as further described below:
(i) 550,000 dekatherms per day of residue gas for a 10-year term on the Gulf Coast Express Pipeline;
(ii) 500,000 dekatherms per day of residue gas for a 10-year term on the Permian Highway Pipeline;
(iii) an acreage dedication of crude oil produced from Alpine High up to 75 MBbl/d of crude oil for a 10-year term on the EPIC Crude pipeline;
(iv) an acreage dedication to transport NGLs produced from Alpine High to Waha for a 10-year term on the Salt Creek NGL Pipeline; and
(v) an acreage dedication for a 10-year term on Enterprise Products’ Shin Oak NGL Pipeline to transport up to 205 MBbl/d of Alpine High produced
NGLs from the Salt Creek NGL Pipeline terminus in Waha to Mont Belvieu.
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This takeaway capacity will allow greater flexibility and market optionality for Apache’s Permian Basin production, including increasing volumes from
Alpine High.
Agreements with Apache
The Company and/or its consolidated subsidiaries have entered into certain agreements with Apache. Those material agreements are described in further
detail below.
Midstream Service Agreements
Apache has been our only customer since operations commenced in the second quarter of 2017, although we are pursuing third-party business, which
could be accommodated by existing and planned capacity. We have contracted to provide gas gathering, compression, processing, transportation, and NGL
transportation services pursuant to acreage dedications provided by Apache, comprising the entire Alpine High acreage discussed above. Our revenues under
these contracts are 100 percent fee-based, resulting in no direct commodity price exposure attributable to these contracts.
In addition, Apache agreed that any gas produced from Apache-operated wells located within the dedication area that is owned by other working interest
owners and royalty owners is dedicated to us, so long as Apache has the right to market such gas. The agreements are effective for primary terms beginning on
July 1, 2018 and ending March 31, 2032. The primary term will automatically extend for two five-year periods unless Apache provides at least nine months’
prior written notice of its election not to extend the primary term. The covenants under the agreements are intended to run with the land and will be binding on
any transferee of the interests within the dedicated area.
Operational Services Agreement
Prior to the Business Combination, Apache provided operations, maintenance and management services to the Alpine High Entities, pursuant to an
agreement hereby referred to as the “Services Agreement.” In accordance with the terms of that certain Services Agreement, Apache received a fixed fee per
month for its overhead and indirect costs incurred on behalf of the Alpine High Entities. The Alpine High Entities had no banking or cash management
activities prior to the Business Combination, and therefore all costs incurred by the Alpine High Entities were paid by Apache. In connection with the closing
of the Business Combination, the Services Agreement was superseded by the COMA (as defined below).
Construction, Operations and Maintenance Agreement
In connection with the closing of the Business Combination, we entered into a construction, operations and maintenance agreement with Apache (the
“COMA”), pursuant to which Apache will provide certain services related to the design, development, construction, operation, management and maintenance
of our assets, on our behalf. The COMA supersedes the Services Agreement, discussed above.
Under the COMA, we will pay fees to Apache of (i) $3.0 million from November 9, 2018 through December 31, 2019, (ii) $5.0 million for the period of
January 1, 2020 through December 31, 2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021 and (iv) $9.0 million annually, as
may be increased thereafter until terminated. In addition, Apache may be reimbursed for certain internal costs and third-party costs incurred in connection
with its role as service provider under the COMA.
The COMA will continue to be effective until terminated (i) upon the mutual consent of Altus and Apache, (ii) by either of Altus and Apache, at its
option, upon 30 days’ prior written notice in the event Apache or an affiliate no longer owns a direct or indirect interest in at least 50 percent of the voting or
other equity securities of Altus, or (iii) by Altus if Apache fails to perform any of its covenants or obligations due to willful misconduct of certain key
personnel and such failure has a material adverse financial impact on Altus.
Purchase Rights and Restrictive Covenants Agreement
At the closing of the Business Combination, we and Apache entered into a purchase rights and restrictive covenants agreement (the “Purchase Rights
and Restrictive Covenants Agreement”). Under the Purchase Rights and Restrictive Covenants Agreement, until the later of the five-year anniversary of the
Closing and the date on which Apache and its affiliates cease to own a majority of our voting common stock, Apache is obligated to provide us with (i) the
first right to pursue any opportunity (including any expansion opportunities) of Apache to acquire or invest, directly or indirectly (including equity
investments), in any midstream assets or participate in any midstream opportunities located, in whole or part, within an area covering approximately 1.7
million acres in Reeves, Pecos, Brewster, Culberson and Jeff Davis Counties in Texas, and (ii) a right of first offer on certain retained midstream assets of
Apache.
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Amended and Restated Agreement of Limited Partnership of Altus Midstream
At the closing of the Business Combination, the Company, Altus Midstream GP and Apache entered into the amended and restated limited partnership
agreement of Altus Midstream (the “LPA”). Altus Midstream GP is the sole general partner of Altus Midstream and is ultimately responsible for all
operational and administrative decisions of Altus Midstream including the day-to-day management of its business. Altus Midstream GP cannot be removed as
the general partner of Altus Midstream except by its election and, subject to limited exceptions, may not transfer or assign its general partner interest. The
LPA contains certain provisions intended to ensure that a one-to-one ratio is maintained, at all times and subject only to limited exceptions, between (i) the
number of outstanding shares of our Class A Common Stock, and the number of common units held by us and (ii) the number of outstanding shares of Class
C common stock $0.0001 par value (“Class C Common Stock”), and the number of common units held by Apache.
Lease Agreement
Concurrent with the closing of the Business Combination, Altus Midstream entered into an operating lease agreement with Apache, relating to the use of
certain office buildings, warehouse and storage facilities located in Reeves County, Texas (the “Lease Agreement”). Under the terms of the Lease Agreement,
Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s estimate of the
annual costs it shall incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. Unpaid amounts accrue interest until
settled. The initial term of the Lease Agreement is for four years and may be extended by Altus Midstream for three additional, consecutive periods of twenty-
four months.
Title to Properties
Our interest in the real property on which our assets are located derives from leases, easements, rights-of-way, permits, or licenses from landowners or
governmental authorities, permitting the use of such land for our operations. We believe that we have satisfactory interests in and to these lands. We have
leased or acquired easements, rights-of-way, permits, or licenses in these lands without any material challenge known to us relating to the title to the land upon
which our assets are located, and we believe that we have satisfactory interests in such lands. In certain situations, we elected to allow Apache to acquire
easements, rights-of-way, permits, and licenses from landowners to expedite the build-out of midstream infrastructure. Other than the aforementioned Apache
real property, we have no knowledge of any challenge to the underlying fee title of any material lease, easement, right-of-way, permit, or license held by us or
to our title to any material lease, easement, right-of-way, permit, or lease, and we believe that we have satisfactory title to all of our material leases, easements,
rights-of-way, permits, and licenses.
Seasonality
While the results of gathering, processing, and transportation are not materially affected by seasonality, from time to time our operations and
construction of assets can be impacted by inclement weather.
Competition
The business of providing gathering, compression, processing, and transportation services for natural gas and NGLs is highly competitive. We face
strong competition in obtaining natural gas and NGL volumes, including from major integrated and independent exploration and production companies,
interstate and intrastate pipelines, and other companies that gather, compress, treat, process, transport, or market natural gas and NGLs. Competition for
supplies is primarily based on geographic location of facilities in relation to production or markets, the reputation, efficiency, and reliability of the midstream
company, and the pricing arrangements offered by the midstream company. For areas where acreage is not dedicated to us, we will compete with similar
enterprises in providing additional gathering, compression, processing, and transportation services in our area of operation.
Regulation
Natural Gas Pipeline Regulation
Intrastate transportation of natural gas is largely regulated by the state in which such transportation takes place. To the extent that an intrastate natural
gas transportation system transports natural gas in interstate commerce, the rates, terms, and conditions of such services are subject to Federal Energy
Regulatory Commission (“FERC”) jurisdiction under Section 311 of the Natural Gas Policy Act of 1978 (“NGPA”). The NGPA regulates, among other things,
the provision of transportation services by an intrastate natural gas pipeline on behalf of a local distribution company or an interstate natural gas pipeline. The
rates, terms, and conditions of some transportation services provided on our intrastate pipeline are subject to FERC regulation pursuant to Section 311 of the
NGPA. Under Section 311 of the NGPA, rates charged for interstate transportation must be fair and equitable, and amounts collected in excess of fair and
equitable rates are subject to refund with interest. The terms and conditions of service set forth in the intrastate facility’s statement of operating conditions for
transportation service under Section 311 of the NGPA are also subject to FERC review and approval. Failure to observe the service limitations applicable to
transportation services under Section 311 of the NGPA, failure to comply with the rates approved by the FERC for Section 311 of the NGPA service, and
failure to comply with the terms
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and conditions of service established in the pipeline’s FERC-approved statement of operating conditions could result in an alteration of jurisdictional status
and/or the imposition of administrative, civil, and criminal remedies.
Intrastate natural gas operations in Texas are also subject to regulation by various agencies in Texas, principally the Railroad Commission of Texas
(“RRC”). Our intrastate pipeline operations in Texas are also subject to the Texas Utilities Code and the Texas Natural Resources Code, as implemented by the
RRC. Generally, the RRC is vested with authority to ensure that rates, operations, and services of gas utilities, including intrastate pipelines, are just and
reasonable and not discriminatory. The rates charged for transportation services are deemed just and reasonable under Texas law unless challenged in a
customer or RRC complaint. Failure to comply with the Texas Utilities Code or the Texas Natural Resources Code can result in the imposition of
administrative, civil, and criminal remedies.
Natural Gas Gathering Regulation
Section 1(b) of the Natural Gas Act (“NGA”) exempts natural gas gathering facilities from the jurisdiction of the FERC. It
is our belief that our natural gas pipeline system meets the traditional tests the FERC has used to establish a pipeline’s status as a gathering pipeline not
subject to FERC jurisdiction. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services has been
the subject of substantial litigation and varying interpretations, so the classification and regulation of our natural gas pipeline system could be subject to
change based on future determinations by the FERC and the courts. State regulation of gathering facilities generally includes various safety, environmental
and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation.
In Texas, our natural gas pipeline system is subject to regulation by the RRC under the Texas Utilities Code and the Texas Natural Resources Code in the
same manner as described above for intrastate pipeline transportation facilities. Our natural gas pipeline system is also subject to state ratable take and
common purchaser statutes in Texas. The ratable take statute generally requires gatherers to take, without undue discrimination, natural gas production that
may be tendered to the gatherer for handling. Similarly, the common purchaser statute generally requires gatherers to purchase without undue discrimination
as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of
supply over another source of supply.
Natural Gas Liquids Pipeline Regulation
Transportation services rendered by us are subject to the regulation of the RRC. The RRC has the authority to regulate our rates, though it generally has
not investigated the rates or practices of intrastate pipelines in the absence of shipper complaints.
Employee Safety
We comply with the requirements of the Occupational Safety and Health Administration (“OSHA”) and comparable state laws that regulate the
protection of the health and safety of workers. In addition, with respect to OSHA hazard communication standards, we believe that our operations are in
substantial compliance with OSHA requirements, including general industry standards, hazard communication, record keeping requirements, and monitoring
of occupational exposure to regulated substances.
Pipeline Safety Regulations
Some of our pipelines are subject to regulation by the U.S. Department of Transportation’s (“DOT”) Pipeline and Hazardous Materials Safety
Administration (“PHMSA”) pursuant to the Natural Gas Pipeline Safety Act of 1968 (“NGPSA”), with respect to natural gas, and the Hazardous Liquids
Pipeline Safety Act of 1979 (“HLPSA”), with respect to NGLs. Both the NGPSA and the HLPSA were amended by the Pipeline Safety Act, the Accountable
Pipeline Safety and Partnership Act of 1996, the Pipeline Safety Improvement Act of 2002 (“PSIA”), as reauthorized and amended by the Pipeline Inspection,
Protection, Enforcement and Safety Act of 2006, the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (“ 2011 Pipeline Safety Act”), and
the Pipelines and Enhancing Safety Act of 2016. The NGPSA and HLPSA regulate safety requirements in the design, construction, operation, and
maintenance of natural gas, crude oil, and NGL pipeline facilities, while the PSIA establishes mandatory inspections for all U.S. crude oil, NGL, and natural
gas transmission pipelines in high consequence areas (“HCAs”).
PHMSA has developed regulations that require pipeline operators to implement integrity management programs, including more frequent inspections
and other measures to ensure pipeline safety in HCAs. The regulations require operators to, among other things:
•
•
perform ongoing assessments of pipeline integrity;
identify and characterize applicable threats to pipeline segments that could impact a HCA;
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•
•
•
improve data collection, integration, and analysis;
repair and remediate pipelines as necessary; and
implement preventive and mitigating actions.
The 2011 Pipeline Safety Act, among other things, increased the maximum civil penalty for pipeline safety violations and directed the Secretary of
Transportation to promulgate rules or standards relating to expanded integrity management requirements, automatic or remote-controlled valve use, excess
flow valve use, leak detection system installation, and testing to confirm the material strength of pipe operating above 30 percent of specified minimum yield
strength in HCAs. Consistent with the act, PHMSA finalized rules that increased the maximum administrative civil penalties for violation of the pipeline
safety laws and regulations to $200,000 per violation per day, with a maximum of $2.0 million for a series of violations. Effective April 27, 2017, those
maximum civil penalties were increased to $209,002 per violation per day, with a maximum of $2.09 million for a series of violations, to account for inflation.
PHMSA has also issued a final rule applying safety regulations to certain rural low-stress hazardous liquid pipelines that were not covered previously by some
of its safety regulations.
PHMSA regularly revises its pipeline safety regulations. For example, in March 2015, PHMSA finalized new rules applicable to gas and hazardous
liquid pipelines that, among other changes, impose new post-construction inspections, welding, gas component pressure testing requirements, as well as
requirements for calculating pressure reductions for immediate repairs on liquid pipelines. Subsequently, in October 2015, PHMSA proposed new regulations
for hazardous liquid pipelines that would significantly extend and expand the reach of certain PHMSA integrity management requirements (i.e., periodic
assessments, leak detection, and repairs), regardless of the pipeline’s proximity to a HCA. The proposal also requires new reporting requirements for certain
unregulated pipelines, including all gathering lines. Additional future regulatory action expanding PHMSA jurisdiction and imposing stricter integrity
management requirements is likely. For example, in December 2015, the Senate Commerce Committee approved legislation that, among other things, requires
PHMSA to conduct an assessment of its inspections process and integrity management programs for natural gas and hazardous liquid pipelines. The
legislation would also require PHMSA to prioritize various rulemakings required by the 2011 Pipeline Safety Act and propose and finalize the rules mandated
by the act. In April 2016, pursuant to one of the requirements of the 2011 Pipeline Safety Act, PHMSA published a proposed rulemaking that would expand
integrity management requirements and impose new pressure testing requirements on currently regulated gas transmission pipelines. The proposal would also
significantly expand the regulation of gathering lines, subjecting previously unregulated pipelines to requirements regarding damage prevention, corrosion
control, public education programs, maximum allowable operating pressure limits, and other requirements.
In addition, on January 13, 2017, PHMSA issued a pre-publication final rule that included new hazardous liquid pipeline safety regulations extending
certain regulatory reporting requirements to all hazardous liquid gathering (including oil) pipelines. The final rule required additional event-driven and
periodic inspections, required the use of leak detection systems on all hazardous liquid pipelines, modified repair criteria, and required certain pipelines to
eventually accommodate in-line inspection tools. However, on January 24, 2017, PHMSA withdrew the final rule for further review in compliance with a
regulatory freeze implemented by the Trump Administration on January 20, 2017.
On January 23, 2017, PHMSA published in the Federal Register amendments to the pipeline safety regulations to address requirements of the 2011
Pipeline Safety Act and to update and clarify certain regulatory requirements regarding notifications of accidents and incidents. The final rule also adds
provisions for cost recovery for design reviews of certain new projects, renews existing special permits, and incorporates certain standards for in-line
inspections and stress corrosion cracking assessments. The effective date of the final rule would have been March 24, 2017; however, the rule was also subject
to the regulatory freeze implemented by the Trump Administration. PHMSA recently announced its intention to reissue both rules, with certain changes, in
2019.
States are largely preempted by federal law from regulating pipeline safety for interstate lines but most are certified by the DOT to assume responsibility
for enforcing federal intrastate pipeline regulations and inspection of intrastate pipelines. States may adopt stricter standards for intrastate pipelines than those
imposed by the federal government for interstate lines; however, states vary considerably in their authority and capacity to address pipeline safety. State
standards may include requirements for facility design and management in addition to requirements for pipelines. We believe that our pipeline operations are
in substantial compliance with applicable PHMSA and state requirements; however, due to the possibility of new or amended laws and regulations or
reinterpretation of existing laws and regulations, there can be no assurance that future compliance with PHMSA or state requirements will not have a material
adverse effect on our financial condition, results of operations, or cash flows.
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Environmental Matters
General
Many of the operations and activities of our pipelines, gathering systems, processing plants, and other facilities are subject to significant federal, state,
and local environmental laws and regulations, the violation of which can result in administrative, civil, and criminal penalties, including civil fines,
injunctions, or both. Compliance with existing and anticipated environmental laws and regulations increases our overall costs of doing business, including
costs of planning, constructing, and operating plants, pipelines, and other facilities, as well as capital expenditures necessary to maintain or upgrade equipment
and facilities. Similar costs are likely upon changes in laws or regulations and upon any future acquisition of operating assets.
Any failure to comply with applicable environmental laws and regulations, including those relating to equipment failures, and obtaining required
governmental approvals, may result in the assessment of administrative, civil, or criminal penalties, imposition of investigatory or remedial activities and, in
certain less common circumstances, issuance of temporary or permanent injunctions or construction or operation bans or delays. We regularly evaluate our
operations and routinely review and update governmental approvals as necessary.
The continuing trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and, thus,
there can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may
be different from the amounts currently anticipated. Moreover, risks of process upsets, accidental releases, or spills are associated with possible future
operations, and we cannot assure you that we will not incur significant costs and liabilities, including those relating to claims for damage to property and
persons as a result of any such upsets, releases, or spills. We may be unable to pass on current or future environmental costs to our customers. A discharge or
release of hydrocarbons, hazardous substances, or solid wastes into the environment could, to the extent losses related to the event are not insured, subject us
to substantial expense, including both the cost to comply with applicable laws and regulations and to pay fines or penalties that may be assessed and the cost
related to claims made by neighboring landowners and other third-parties for personal injury or damage to natural resources or property.
We believe that our operations are in substantial compliance with applicable environmental regulations, and we attempt to anticipate future regulatory
requirements that might be imposed and plan accordingly. While any new or amended laws and regulations or reinterpretation of existing laws and regulations
would not be expected to be any more burdensome to us than to other, similarly situated operators, there can be no assurance that future compliance with any
new environmental requirements will not have an adverse effect on our financial condition, results of operations or cash flows.
Hazardous Substances and Solid Waste
Environmental laws and regulations that relate to the release of hazardous substances or solid wastes into soils, sediments, groundwater, and surface
water and/or include measures to prevent and control pollution may pose the highest potential cost. These laws and regulations generally regulate the
generation, storage, treatment, transportation, and disposal of solid wastes and hazardous substances and may require investigatory and corrective actions at
facilities where such waste or substance may have been released or disposed. For instance, the Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”), also known as the federal “Superfund” law, and comparable state laws impose liability without regard to fault or the legality of
the original conduct on certain classes of persons that contributed to a release of a “hazardous substance” into the environment. Potentially responsible
persons include the owner or operator of the site where a release occurred and companies that disposed or arranged for the disposal of the hazardous
substances found at an off-site location, such as a landfill. Under CERCLA, these persons may be subject to joint and several liability for the costs of cleaning
up and restoring sites where hazardous substances have been released into the environment and for damages to natural resources. CERCLA also authorizes the
U.S. Environmental Protection Agency (“EPA”) and, in some cases, third parties to take actions in response to threats to public health or the environment and
to seek recovery of costs they incur from the potentially responsible classes of persons. It is not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly caused by hazardous substances or solid wastes released into the environment. Although
petroleum, natural gas, and NGLs are excluded from CERCLA’s definition of a “hazardous substance,” in the course of ordinary operations, we may generate
wastes that may fall within the definition of a “hazardous substance.” In addition, there are other laws and regulations that can create liability for releases of
petroleum, natural gas, or NGLs. Moreover, we may be responsible under CERCLA or other laws for all or part of the costs required to clean up sites at which
such substances have been released or disposed. We have not received any notification that the Company may be potentially responsible for cleanup costs
under CERCLA or any analogous federal, state, or local law.
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We also generate, and may in the future generate, both hazardous and nonhazardous solid wastes that are subject to the requirements of the Resource
Conservation and Recovery Act (“RCRA”) and/or comparable state statutes. From time to time, the EPA and state regulatory agencies have considered the
adoption of stricter disposal standards for nonhazardous wastes, including crude oil, condensate, and natural gas wastes. Moreover, it is possible that some
wastes we generate that are currently exempted from the definition of hazardous waste may in the future lose this exemption and be designated as “hazardous
wastes,” resulting in the wastes being subject to more rigorous and costly management and disposal requirements. Additionally, the Toxic Substances Control
Act (“TSCA”) and analogous state laws impose requirements on the use, storage, and disposal of various chemicals and chemical substances. Changes in
applicable laws or regulations may result in an increase in our capital expenditures or plant operating expenses or otherwise impose limits or restrictions on its
production and operations.
Solid waste disposal practices within the oil, natural gas and NGL industries have improved over the years with the passage and implementation of
various environmental laws and regulations. While we are not aware of any significant releases of hydrocarbons or other solid wastes on or under the various
properties owned, leased, or operated by us, such releases may nevertheless have occurred during the prior operating history of those properties. In addition, a
number of these properties may have been operated by third parties over whose operations and hydrocarbon and waste management practices we had no
control. These properties and any wastes disposed thereon may be subject to the Safe Drinking Water Act, CERCLA, RCRA, TSCA, and analogous state
laws. Under these laws, we could be required, alone or in participation with others, to remove or remediate previously disposed wastes or property
contamination, if present, including groundwater contamination, or to take action to prevent future contamination.
Air Emissions
Our current and future operations are subject to the Clean Air Act (“CAA”) and regulations promulgated thereunder and under comparable state laws
and regulations. These laws and regulations regulate emissions of air pollutants from various industrial sources, including our facilities, and impose various
control, monitoring, and reporting requirements. Pursuant to these laws and regulations, we may be required to obtain environmental agency pre-approval for
the construction or modification of certain projects or facilities expected to produce air emissions or result in an increase in existing air emissions, obtain and
comply with the terms of air permits, which include various emission and operational limitations, or use specific emission control technologies to limit
emissions. We likely will be required to incur certain capital expenditures in the future for air pollution control equipment in connection with maintaining or
obtaining governmental approvals addressing air emission-related issues. Failure to comply with applicable air statutes or regulations may lead to the
assessment of administrative, civil, or criminal penalties and may result in the limitation or cessation of construction or operation of certain air emission
sources or require us to incur additional capital expenditures. Although we can give no assurances, we believe such requirements will not have a material
adverse effect on our financial condition, results of operations, or cash flows, and the requirements are not expected to be more burdensome to us than to any
similarly situated company.
Effective May 15, 2012, the EPA promulgated rules under the CAA that established new air emission controls for oil and natural gas production,
pipelines, and processing operations under the New Source Performance Standards (“NSPS”) and National Emission Standards for Hazardous Air Pollutants
(“NESHAPs”) programs. These rules require the control of emissions through reduced emission (or “green”) completions and establish specific new
requirements regarding emissions from wet seal and reciprocating compressors, pneumatic controllers, and storage vessels at production facilities, gathering
systems, boosting facilities, and onshore natural gas processing plants. In addition, the rules revised existing requirements for volatile organic compound
(“VOC”) emissions from equipment leaks at onshore natural gas processing plants by lowering the leak definition for valves from 10,000 parts per million to
500 parts per million and requiring the monitoring of connectors, pumps, pressure relief devices, and open-ended lines. In October 2012, several challenges to
the EPA’s NSPS and NESHAPs rules for the industry were filed by various parties, including environmental groups and industry associations. In a January 16,
2013 unopposed motion to hold this litigation in abeyance, the EPA indicated that it may reconsider some aspects of the rules. The case remains in abeyance.
The EPA has since revised certain aspects of the rules and has indicated that it may reconsider other aspects of the rules. Depending on the outcome of such
proceedings, the rules may be further modified or rescinded or the EPA may issue new rules. The Company cannot predict the costs of compliance with any
modified or newly issued rules.
In partial response to the issues raised regarding the 2012 rulemaking, the EPA published new rules in June 2016 to regulate emissions of methane and
VOCs from new and modified sources in the oil and gas sector. However, in April 2017, the EPA announced that it will review this rule for new, modified, or
reconstructed facilities and will initiate reconsideration proceedings to potentially revise or rescind portions of the rule. Subsequently, on May 31, 2017, the
EPA issued a 90-day stay of certain requirements under the rule, but this stay was vacated by a three-judge panel of the U.S. Court of Appeals for the D.C.
Circuit on July 3, 2017 and again by an en banc D.C. Circuit on July 31, 2017. In the interim, on July 16, 2017, the EPA issued a proposed rule that would
provide a two-year extension of the initial 90-day stay, but the proposed rule was never finalized. Instead, in February 2018, the EPA finalized amendments to
some of the requirements, although the EPA’s reconsideration of other aspects of the rule is ongoing. Substantial uncertainty exists with respect to
implementation of this methane rule. The EPA has also finalized
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a rule regarding alternative criteria for aggregating multiple small surface sites into a single source for air quality permitting purposes. This rule could cause
small facilities, on an aggregate basis, to be deemed a major source, thereby triggering more stringent air permitting processes and requirements across the oil
and gas industry. During the Obama Administration, other federal agencies, including the Bureau of Land Management (“BLM”), PHMSA, and the
Department of Energy, proposed or finalized new or more stringent regulations for the oil and gas sector in order to further reduce methane emissions. For
example, the BLM adopted new rules on November 15, 2016, to reduce venting, flaring, and leaks during oil and natural gas production activities on onshore
federal and Indian leases. On June 15, 2017, the BLM postponed indefinitely compliance dates for certain aspects of these rules, pending judicial review, but a
court subsequently enjoined the postponement. In February 2018, the BLM proposed to repeal certain of the requirements of the 2016 methane rule. Several
states filed judicial challenges to the BLM’s proposed repeal. In April 2018, a federal court stayed the litigation pending finalization or withdrawal of the
BLM’s February 2018 proposal. As a result of this continued regulatory focus and other factors, additional air emissions regulation of the oil and gas industry
remains possible. Compliance with such rules could result in additional costs, including increased capital expenditures and operating costs for us and for other
companies in its industry. While we are not able at this time to estimate such additional costs, as is the case with similarly situated entities in the industry, such
costs could be significant. Compliance with such rules, as well as any new state rules, may also make it more difficult for our suppliers and customers to
operate, thereby reducing the volume of natural gas transported through our pipelines, which may adversely affect our business.
Climate Change
In December 2009, the EPA determined that emissions of certain gases, commonly referred to as “greenhouse gases” (“GHGs”) (which include methane,
the major component of natural gas), present an endangerment to public health and the environment based on a conclusion that emissions of such gases are
contributing to the warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA has adopted regulations under existing
provisions of the CAA that, among other things, establish Prevention of Significant Deterioration (“PSD”) construction and Title V operating permit reviews
for certain large stationary sources that emit GHGs. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best
available control technology” standards that will be established by the states or, in some cases, by the EPA on a case-by-case basis. In addition, the EPA has
adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore crude oil and natural gas production sources in the U.S. on an
annual basis. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or
protocols that would address global climate change issues. Because regulation of GHG emissions is relatively new, further regulatory, legislative, and judicial
developments are likely to occur. Such developments in GHG initiatives may affect us and other companies operating in the oil and gas industry. In addition to
these developments, certain tort claims alleging property damage have been brought against GHG emissions sources, which may increase our litigation risk
for such claims. In addition, in 2015, the United States participated in the United Nations Conference on Climate Change, which led to the creation of the
Paris Agreement. The Paris Agreement entered into force November 4, 2016, and requires countries to review and “represent a progression” in their intended
nationally determined contributions, which set GHG emission reduction goals every five years beginning in 2020. On June 1, 2017, President Trump
announced that the United States plans to withdraw from the Paris Agreement and to seek negotiations either to reenter the Paris Agreement on different terms
or to establish a new framework agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016,
which would result in an effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States
may reenter the Paris Agreement or a separately negotiated agreement are unclear at this time. Due to the uncertainties surrounding the regulation of and other
risks associated with GHG emissions, we cannot predict the financial impact of related developments.
Federal or state legislative or regulatory initiatives that regulate or restrict emissions of GHG in areas in which we conduct business could adversely
affect the availability of, or demand for, the products we store, transport, and process and, depending on the particular program adopted, could increase the
costs of our operations, including costs to operate and maintain our facilities, install new emission controls on our facilities, acquire allowances to authorize
our GHG emissions, pay any taxes related to our GHG emissions, and/or administer and manage a GHG emissions program. We may be unable to recover any
such lost revenues or increased costs in the rates we charge our customers, and any such recovery may depend on events beyond our control, including the
provisions of any final legislation or regulations. Reductions in our revenues or increases in our expenses as a result of climate control initiatives could have
adverse effects on our business, financial condition, results of operations, or cash flows.
Hydraulic Fracturing and Wastewater
The Federal Water Pollution Control Act (the “CWA”) and comparable state laws impose restrictions and strict controls regarding the discharge of
pollutants, including NGL-related wastes, into state waters or waters of the United States. In June 2015, the EPA and the United States Army Corps of
Engineers (the “Army Corps”) finalized a rule intended to clarify the meaning of the term “waters of the United States,” which establishes the scope of
regulated waters under the CWA (the “WOTUS rule”). The rule has been challenged and was stayed by federal courts. In February 2017, the Trump
Administration issued an Executive Order
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directing the EPA and the Army Corps to review and, consistent with applicable law, to initiate a rulemaking to rescind or revise the WOTUS rule. The EPA
and the Army Corps published a notice of intent to review and rescind or revise the rule in March 2017. In addition, the U.S. Department of Justice filed a
motion with the U.S. Supreme Court in March 2017 requesting that the U.S. Supreme Court stay the suit concerning which court should hear challenges to the
rule. The U.S. Supreme Court denied the motion in April 2017. In June 2017, the EPA and the Army Corps proposed a rule that would initiate the first step in
a two-step process intended to review and revise the definition of “waters of the United States” consistent with President Trump’s executive order. Under the
proposal, the first step would be to rescind the May 2015 final rule and put back into effect the narrower language defining “waters of the United States”
under the CWA that existed prior to the WOTUS rule. The second step would be a notice-and- comment rulemaking in which the agencies will conduct a
substantive reevaluation of the definition of “waters of the United States”. If upheld, the WOTUS rule will expand federal jurisdiction under the CWA and
could significantly expand federal control of land and water resources across the U.S., triggering substantial additional permitting and regulatory
requirements. Regulations promulgated pursuant to the CWA require that entities that discharge into federal and state waters obtain National Pollutant
Discharge Elimination System permits and/or state permits authorizing these discharges. The CWA and analogous state laws assess administrative, civil, and
criminal penalties for discharges of unauthorized pollutants into waters of the U.S. and impose substantial liability for the costs of removing spills from such
waters. In addition, the CWA and analogous state laws require that individual permits or coverage under general permits be obtained by covered facilities for
discharges of storm water runoff. We believe that we are in substantial compliance with CWA permitting requirements as well as the conditions imposed by
our permits and that continued compliance with such existing permit conditions will not have a material effect on financial condition, results of operations, or
cash flows.
It is common for our customers or suppliers to recover natural gas from deep shale formations through the use of hydraulic fracturing, combined with
sophisticated horizontal drilling. Hydraulic fracturing is an important and commonly used process in the completion of wells by oil and gas producers.
Hydraulic fracturing involves the injection of water, sand, and chemical additives under pressure into rock formations to stimulate gas production. Due to
public concerns raised regarding potential impacts of hydraulic fracturing on groundwater quality, legislative and regulatory efforts at the federal level and in
some states and localities have been initiated to require or make more stringent the permitting and other regulatory requirements for hydraulic fracturing
operations of our customers and suppliers. There are certain governmental reviews either underway or being proposed that focus on environmental aspects of
hydraulic fracturing practices. On December 13, 2016, the EPA released a study of the potential adverse effects that hydraulic fracturing may have on water
quality and public health, concluding that there is scientific evidence that hydraulic fracturing activities potentially can impact drinking water resources in the
United States under some circumstances. This study or similar studies could spur initiatives to further regulate hydraulic fracturing. In June 2016, the EPA
finalized rules prohibiting discharges of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants, but, in October 2017,
the U.S. Court of Appeals for the Third Circuit granted an EPA petition for voluntary remand. The rule is currently under review. The EPA has also issued an
advance notice of proposed rulemaking under the TSCA to gather information regarding the potential regulation of chemical substances and mixtures used in
oil and gas exploration and production. Also, effective June 24, 2015, BLM adopted rules regarding well stimulation, chemical disclosures, water
management, and other requirements for hydraulic fracturing on federal and Indian lands, which the BLM subsequently repealed in December 2017. The
BLM’s repeal has been challenged in court.
Additional regulatory burdens in the future, whether federal, state, or local, could increase the cost of or restrict the ability of our customers or suppliers
to perform hydraulic fracturing. As a result, any increased federal, state, or local regulation could reduce the volumes of crude oil and natural gas that our
customers move through our gathering and processing systems, which would materially adversely affect our financial condition, results of operations, or cash
flows.
Endangered Species and Migratory Birds
The Endangered Species Act of 1973 (“ESA”) and analogous state laws restrict activities that may affect endangered or threatened species or their
habitats. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act of 1918 (“MBTA”). Some of Altus Midstream’s pipelines may
be located in areas that are designated as habitats for endangered or threatened species or flightways for migratory birds, potentially exposing it to liability for
impacts on an individual member of a species or to habitat. The ESA can also make it more difficult to secure a federal permit for a new pipeline.
As a result of a 2011 settlement agreement, the U.S. Fish and Wildlife Service (“FWS”) is required to make a determination on listing of numerous
species as endangered or threatened under the ESA. The FWS agreed to complete the review by the end of the agency’s 2017 fiscal year. The agency missed
the deadline but continues to review species for listing under the ESA. On July 19, 2018, the FWS announced a series of proposed changes to the rules
implementing the ESA, including proposed revisions to the regulations governing interagency cooperation, listing species and delisting critical habitat, and
prohibitions related to threatened wildlife and plants. The proposed revisions are intended to streamline these processes and create more flexibility for the
FWS when making ESA-related decisions. It is not possible at this time to accurately predict how such changes, if adopted, would impact our operations. For
more information, please read Item 1A — Risk Factors of this Form 10-K.
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In addition, the federal government recently has issued indictments under the MBTA to several oil and natural gas companies after migratory birds were
found dead near their operations. However, in December 2017, the U.S. Department of the Interior issued a new opinion revoking its prior enforcement policy
and concluded that an incidental take is not a violation of the MBTA.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups (“JOBS”)
Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not “emerging growth companies” including, but not limited to, not being required to comply with the independent registered public accounting firm
attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading
market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We do not intend to take advantage
of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of
our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated
filer, which means the market value of our Class A Common Stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the
date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Employees
We have no employees. Per the terms of the COMA, Apache will operate, maintain and administer our operations, and Apache will also provide
management services.
Offices
We do not own any real estate or other physical properties materially important to our operation. Our executive office is located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. Concurrent with the closing of the Business Combination, Altus Midstream entered into
the Lease Agreement with Apache, relating to the use of certain office buildings, warehouse and storage facilities located in Reeves County, Texas. Under the
terms of the Lease Agreement, Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount
based on Apache’s estimate of the annual costs it shall incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. Unpaid
amounts accrue interest until settled. The initial term of the Lease Agreement is for four years and may be extended by Altus Midstream for three additional,
consecutive periods of twenty-four months.
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ITEM 1A. RISK FACTORS
RISK FACTORS
The following risk factors apply to our business and operations. These risk factors are not exhaustive and investors are encouraged to perform their
own investigation with respect to our business, financial condition and prospects. You should carefully consider the following risk factors in addition to the
other information included in this Annual Report on Form 10-K, including matters addressed in the section entitled “Forward-Looking Statements and Risk.”
We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business
or financial condition. The following discussion should be read in conjunction with our financial statements and notes to the financial statements included
herein.
Risks Related to the Business of Altus Midstream
Our business activities and the value of our securities are subject to significant hazards and risks, including those described below. If any of such
events should occur, our business, financial condition, liquidity, and/or results of operations could be materially harmed, and holders and purchasers of our
securities could lose part or all of their investments. Additional risks relating to our securities may be included in the prospectuses for securities we issue in
the future.
We derive a substantial portion of our revenue from Apache, and our plans for growth will heavily depend on Apache’s growth in Alpine High. If Apache
changes its business strategy in Alpine High, alters its current drilling and development plan on acreage dedicated to us, or otherwise significantly
reduces the volumes of natural gas or NGLs with respect to which we perform midstream services, our revenue would decline and our business, financial
condition, results of operations, and cash flows would be materially and adversely affected.
All of our current commercial agreements are with Apache, and, as a result, we derive substantially all of our revenue from Apache. Going forward, we
expect Apache to be a significant driver of any growth in our revenue. Accordingly, we will be subject to the operational and business risks of Apache, the
most significant of which include the following:
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a reduction in or slowing of Apache’s drilling and development plans for the acreage dedicated to the Company, which would directly and adversely
impact demand for our midstream services;
the price, and the volatility of the price, of crude oil, natural gas, and NGLs, which could have a negative effect on Apache’s drilling and
development plans for the acreage dedicated to the Company or Apache’s ability to finance its operations and drilling and completion costs relating
to the acreage dedicated to us;
the availability of capital on an economic basis to fund Apache’s exploration and development activities;
drilling and operating risks, including potential environmental liabilities, associated with Apache’s operations on the acreage dedicated to the
Company;
downstream processing and transportation capacity constraints and interruptions, including the failure of Apache to have sufficient contracted
transportation capacity; and
adverse effects of increased or changed governmental and environmental regulation or enforcement of existing regulation.
In addition, we will be indirectly subject to the business risks of Apache generally and other factors, including, among others:
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Apache’s financial condition, credit ratings, leverage, market reputation, liquidity, and cash flows;
Apache’s ability to maintain or replace its reserves;
adverse effects of governmental and environmental regulation on Apache’s upstream operations; and
losses, if any, from Apache’s pending or future litigation.
Further, we do not have control over Apache’s business decisions and operations, and Apache is under no obligation to adopt a business strategy that is
favorable to us. For example, Apache may decide to allocate capital that we expect to be spent in Alpine High to other parts of its business. Thus, we will be
subject to the risk of cancellation of planned development, nonperformance of commitments with respect to future dedications, and other nonpayment or
nonperformance by Apache, including with respect to our commercial agreements, which do not contain minimum volume commitments. Furthermore, we
cannot predict the extent to which Apache’s businesses would be impacted if conditions in the energy industry were to deteriorate nor can we estimate the
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impact such conditions would have on Apache’s ability to execute its drilling and development plan on the acreage dedicated to the Company or to perform
under our commercial agreements. Any material nonpayment or nonperformance by Apache under our commercial agreements would have a significant
adverse impact on our business, financial condition, results of operations, and cash flows.
The long-term commercial agreements between the Company and Apache have initial terms of approximately 14 years, through March 31, 2032, which
may be extended by Apache for two five-year periods. There is no guarantee that Apache will extend these agreements beyond the initial terms or that we will
be able to renew or replace these agreements on equal or better terms, or at all, upon their expiration. Our ability to renew or replace these commercial
agreements following their expiration at rates sufficient to maintain the current revenues and cash flows of the Company could be adversely affected by
activities beyond our control, including the activities of our competitors and Apache.
In addition to our commercial agreements with Apache, we may engage in significant business with new third-party customers or enter into material
commercial contracts with customers with whom we do not have material commercial arrangements or commitments today and who may not have investment
grade credit ratings. To the extent the Company derives substantial income from, or commits to capital projects to service, new or existing customers, each of
the risks indicated above would apply to such arrangements and customers.
Because we have a limited operating history and have generated minimal revenues and operating cash flows, it may be difficult to evaluate our business
and ability to successfully implement our business strategy.
Because of the Company’s limited operating history, the operating performance of our assets and business strategy are not yet proven. Construction of
our midstream assets began in the fourth quarter of 2016, and the Company has only generated minimal revenues and operating cash flows since such time.
As a result, it may be difficult for you to evaluate the Company’s business and results of operations to date and to assess our future prospects.
In addition, we may encounter risks and difficulties experienced by companies whose performance is dependent upon newly constructed assets, such as
our assets failing to function as expected, higher than expected operating costs, equipment breakdown or failures, and operational errors. We may be less
successful in achieving a consistent operating level capable of generating cash flows from our operations as compared to a company whose major assets have
had longer operating histories. In addition, we may be less equipped to identify and address operating risks and hazards in the conduct of our business than
those companies whose major assets have had longer operating histories.
If we are unable to exercise the outstanding joint venture equity options on economically acceptable terms, our future growth will be limited.
Our growth strategy includes acquiring joint venture equity interests in or benefiting from certain midstream pipeline projects pursuant to the options
contributed by Apache as part of the Business Combination. If the Company is unable to exercise one or more of the options, either because we do not have
adequate funds available or we are unable to obtain financing to fund the applicable exercise price on economically acceptable terms or at all, then our future
growth will be limited.
In addition, from time to time, we may evaluate and seek to acquire assets or businesses that we believe complement our existing business and related
assets. We may acquire assets or businesses that we plan to use in a manner materially different from their prior owners’ uses. Any acquisition involves
potential risks, including:
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the inability to integrate the operations of recently acquired businesses or assets, especially if the assets acquired are in a new business segment or
geographic area;
the failure to realize expected volumes, revenues, profitability, or growth;
the failure to realize any expected synergies and cost savings;
the coordination of geographically disparate organizations, systems, and facilities;
the assumption of unknown liabilities;
the loss of customers or key employees from the acquired businesses; and
potential environmental or regulatory liabilities and title problems.
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Any assessment of these risks will be inexact and may not reveal or resolve all existing or potential problems associated with an acquisition. Realization
of any of these risks could adversely affect our financial condition, results of operations, and cash flows. If we consummate any future acquisition, our
capitalization and results of operations may change significantly.
We own or operate a portion of our business with one or more joint venture partners or in circumstances where we are not the operator, which may
restrict our operational and corporate flexibility; actions taken by other partners or third-party operators may materially impact our financial position and
results of operations, and we may not realize the benefits we expect to realize from a joint venture.
As is common in the midstream industry, we own or operate one or more of our properties with one or more joint venture partners, or contract with a
third-party to control operations. These relationships require us to share operational and other control, or to defer to another party’s control, such that we do
not have the flexibility to control the development of these properties. If we do not timely meet our financial commitments in such circumstances, our rights to
participate may be adversely affected. If a joint venture partner is unable or fails to pay its portion of development costs or if a third-party operator does not
operate in accordance with our expectations, our costs of operations could be increased. We could also incur liability as a result of actions taken by a joint
venture partner or third-party operator. Disputes between us and the other party or parties in a joint venture may result in litigation or arbitration that would
increase our expenses, delay or terminate projects and distract our officers and directors from focusing their time and effort on our business.
If we are unable to exercise the outstanding joint venture equity options as planned, or if any of the underlying pipelines experience cost overruns or do
not generate the cash flows we expect after we exercise, our plans for growth will be impaired.
Our strategy to grow our business depends in part on our ability to exercise the outstanding joint venture equity options, and we can offer no assurance
that we will be able to exercise the outstanding options or that, for those that have been, or will be exercised, we will be able to finance the acquisition of the
underlying interests in the applicable pipelines or that those pipelines will perform as expected. Our joint venture equity interests and options pertain to
pipelines that are either under construction or have not yet commenced construction. The outstanding options have conditions precedent that must be satisfied
before we can exercise, some of which are outside of our control. The obligations of each of the parties to close on the exercise of the applicable option are
conditioned on (i) no proceeding having been instituted that seeks to restrain, enjoin, or otherwise prohibit or make illegal the closing of such option and
(ii) the exercise price having been determined in accordance with the terms of the agreement regarding such option (together, the “Option Closing
Conditions”). In addition:
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The obligations of each of the parties to close on the exercise of the Shin Oak Option are conditioned on (i) the NGL purchase agreement between
Apache and Enterprise Products Operating LLC not being terminated and (ii) Apache not being in material breach of any provision of such NGL
purchase agreement that has not been cured within the periods specified by such NGL purchase agreement.
The obligation of each of the parties to close on the exercise of the additional 1 percent GCX Option is conditioned on the unanimous approval of the
members of Gulf Coast Express Pipeline LLC and the waiver of the preferential purchase rights of such members with respect to the equity interest
associated with the additional 1 percent GCX Option. The obligation of Kinder Morgan Texas Pipeline LLC to close on the exercise of the additional
1 percent GCX Option is conditioned on (i) the exercise of the GCX Option in full and (ii) the exercise of the Permian Highway Option in full and,
following such exercise of the Permian Highway Option, us holding less than 30 percent of the equity interests in the joint venture operator of the
pipeline. In addition, the additional 1 percent GCX Option will terminate automatically upon the termination of certain transaction agreements
between Apache and Gulf Coast Express Pipeline LLC.
The Permian Highway Option will terminate automatically upon the termination of any of the transportation agreements between Apache and
Permian Highway Pipeline LLC.
There are no additional obligations of any of the parties to the Salt Creek NGL Pipeline Option to close other than the Option Closing Conditions. As
described above, some of such conditions precedent are within the control of Apache, and we will have no ability to ensure Apache’s satisfaction of such
conditions precedent. If applicable pipelines do not perform as expected, we may experience losses in relation to our joint venture equity interests or the
outstanding options (if exercised).
In addition, each of the pipelines is subject to risks associated with construction delays, cost over-runs, operational hazards, environmental matters,
regulatory matters, and legal matters, as well as other risks and uncertainties, many of which are beyond the control of the operator of the pipeline. If any of
these risks were to materialize, our financial condition, results of operations, and cash flows could be adversely affected.
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If we exercise the outstanding options, we will be required to make significant capital contributions to the owners of the pipelines for our share of the
capital expenditures spent through the date of exercise and may, from time to time, have to make additional capital contributions, both of which could
have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We currently own non-operating interests in certain joint ventures, and may own additional non-operating interests in joint ventures, if we are able to
exercise the outstanding options. We will be required to contribute our share of the capital expenditures spent through the date of exercise, including any
financing charges for certain of the outstanding options associated with our proportionate share of such capital prior to exercising the applicable option.
Thereafter, we will also be required to fund our share of any remaining capital expenditures required to complete construction of the applicable pipeline. Once
a pipeline is operational, as a non-operating, minority owner, we will have limited or no control over decisions to make maintenance and capital expenditures
on the pipeline. To the extent that the operator of one of the pipelines decides to make additional capital expenditures for the pipeline, we could be required to
contribute additional capital to maintain our ownership interest, which could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
We do not have any employees and rely entirely on services provided by Apache’s employees.
The Company does not have any employees and relies on Apache’s employees. We will rely on Apache’s employees to conduct our business and
activities pursuant to the COMA. Apache conducts businesses and activities of its own in which we will not have an economic interest. As a result, there
could be material competition for the time and effort of the officers and employees who provide services to us and Apache. If Apache’s employees who
provide services to us do not devote sufficient attention to the management and operation of our business and activities, our business, financial condition,
results of operations, and cash flows could be materially and adversely affected.
The COMA is subject to termination by us or Apache under certain circumstances, including if Apache and its affiliates no longer own a direct or
indirect interest in at least 50 percent of the voting or other equity securities of the Company. Should the COMA be terminated by us or Apache, we will be
required to attract and hire employees to perform the services currently performed by Apache’s employees under the COMA or otherwise contract with third
parties for the provision of such services, which, in either case, could subject us to substantial additional costs, could cause significant disruptions to our
business, may be on terms less favorable than the terms of the COMA, and, as a result, our financial condition, results of operations, and cash flows could be
adversely affected.
The services that the Company offers require laborers skilled in multiple disciplines, such as equipment operators, mechanics, and engineers, among
others. In the event that the COMA is terminated and the Company is required to attract and hire employees, our business will be dependent on our ability to
recruit, retain, and motivate employees. Certain circumstances, such as an aging workforce without appropriate replacements, a mismatch of existing skill sets
to future needs, competition for skilled labor, or the unavailability of contract resources, may lead to operating challenges, such as a lack of resources, loss of
knowledge, or a lengthy time period associated with skill development. Our costs, including costs for contractors to replace employees, productivity costs, and
safety costs, may rise. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and
expertise to the new employees, or the future availability and cost of contract labor may adversely affect our ability to manage and operate our business. If the
Company is unable to successfully attract and retain an appropriately qualified workforce, our financial condition, results of operations, or cash flows could be
adversely affected.
Our executive officers and directors may face potential conflicts of interest in managing our business.
Our executive officers and certain directors are also officers or employees of Apache. These relationships may create conflicts of interest regarding
corporate opportunities and other matters. The resolution of any such conflicts may not always be in our or our stockholders’ best interests. In addition, these
overlapping executive officers and directors allocate their time among us and Apache. These officers and directors face potential conflicts regarding the
allocation of their time, which may adversely affect our business, results of operations, and financial condition.
All of our gathering and processing operations are located in Alpine High, making us vulnerable to risks associated with having revenue-producing
operations concentrated in one geographic area.
Our revenue-producing operations are geographically concentrated in Alpine High of the Southern Delaware Basin of West Texas, causing us to be
disproportionately exposed to risks associated with regional factors. The concentration of the Company’s operations in this region increases our exposure to
unexpected events that may occur in this region, such as natural disasters. Furthermore, the Company may be exposed to increases in costs as a result of
regional economic conditions and availability of goods and services. For example, we are relying on temporary power sources until local utilities can install
permanent power. If
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availability of permanent power from local service providers is delayed, the Company’s results of operations could be adversely impacted. In addition, the
Company relies on the availability of a skilled labor force, which could become more expensive (or at certain times, unavailable) if the labor market in the
Permian Basin continues to tighten. Any one of these events has the potential to have a significant adverse impact on the Company’s operations and growth
plans, decrease cash flows, increase operating and capital costs, and prevent development within originally anticipated time frames. Any of these risks could
adversely affect our financial condition, results of operations, or cash flows.
We are dependent on the supply of natural gas and NGLs to our system, and any decrease in the supply of such commodities could adversely affect our
financial condition, results of operations, or cash flows.
We currently generate all of our revenues under agreements with Apache’s upstream development located in Alpine High. None of these agreements
contain minimum volume commitments, and, therefore, the Company’s cash flows will completely depend upon the volumes Apache produces in Alpine High
for so long as Apache is our sole customer. Further, the Company may not be able to obtain additional contracts for natural gas and NGL supplies. If the
Company is unable to maintain or increase the volumes on our system by accessing new supplies to offset the natural decline in our customers’ reserves, our
business and financial results could be adversely affected. In addition, the Company’s future growth will depend in part upon whether we can contract for
additional supplies at a greater rate than the rate of natural decline in our current supplies.
Fluctuations in energy prices can greatly affect production rates and investments by Apache and third parties in the development of new crude oil and
natural gas reserves. We could see downward pressure on future drilling activity in Alpine High if commodity prices decline below current levels, which may
result in lower volumes. Tax policy changes or additional regulatory restrictions on development could also have a negative impact on drilling activity,
reducing supplies of product available to the Company’s system and assets. We have no control over Apache or other producers and depend on them to
maintain sufficient levels of drilling activity. An ongoing decrease in the level of drilling activity or a material decrease in production in the Company’s area
of operation for a prolonged period, as a result of continued depressed commodity prices or otherwise, would adversely affect our financial condition, results
of operations, and cash flow.
If third-party pipelines or other facilities interconnected to our midstream systems become partially or fully unavailable, or if the volumes we gather or
treat do not meet the quality requirements of such pipelines or facilities, our business, financial condition, results of operations and cash flows could be
adversely affected.
Our midstream systems are connected to other pipelines or facilities, the majority of which are owned by third parties. The continuing operation of such
third-party pipelines or facilities is not within our control. If any of these pipelines or facilities becomes unable to transport, treat or process natural gas and/or
NGLs, or if the volumes we gather or transport do not meet the quality requirements of such pipelines or facilities, our business, financial condition, results of
operations, and cash flows could be adversely affected.
Any decrease in the volumes that we gather, process, or transport would adversely affect our financial condition, results of operations, or cash flows.
The Company’s financial performance depends to a large extent on the volumes of natural gas and NGLs gathered, processed, and transported on our
assets. Decreases in the volumes of natural gas and NGLs that we gather, processes, or transport would directly and adversely affect our financial condition,
results of operations, or cash flows. These volumes can be influenced by factors beyond our control, including:
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environmental or other governmental regulations;
weather conditions;
increases in storage levels of natural gas and NGLs;
increased use of alternative energy sources;
decreased demand for natural gas and NGLs;
continued fluctuation in commodity prices, including the prices of natural gas and NGLs;
economic conditions;
supply disruptions;
availability of supply connected to the Company’s systems; and
availability and adequacy of infrastructure to gather and process supply into and out of the Company’s systems.
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The volumes of natural gas and NGLs gathered, processed, and transported on the Company’s assets also depend on the production from the region that
supplies our systems. Supply of natural gas and NGLs can be affected by many of the factors listed above, including commodity prices, the decision to
recover or reject ethane from rich-gas processed through the Company’s rich-gas processing facilities, and weather. In order to increase throughput levels on
the Company’s system, the Company must obtain new sources of natural gas and NGLs. The primary factors affecting the Company’s ability to obtain new
sources of natural gas and NGLs includes (i) Apache’s drilling activity in our area of operations, (ii) the level of successful leasing, permitting, and drilling
activity in our area of operation, (iii) the Company’s ability to compete for volumes from new wells, and (iv) the Company’s ability to compete successfully
for volumes from sources connected to other pipelines. We have no control over the level of drilling activity in our area of operation, the amount of reserves
associated with wells connected to our system, or the rate at which production from a well declines. Furthermore, the Company does not have minimum
volume commitments in our current commercial agreements with Apache that would otherwise generate a minimum amount of cash in the event that
Apache’s production in Alpine High declines or ceases. Likewise, the Company has no control over producers or their drilling or production decisions, which
are affected by, among other things, commodity prices, the availability and cost of capital, levels of reserves, availability of drilling rigs, and other costs of
production and equipment.
Apache may suspend, reduce, or terminate its obligations under its commercial agreements with us in certain circumstances, which could have a material
adverse effect on our financial condition, results of operations, and cash flow.
Alpine High Gathering LP, Alpine High Processing LP, Alpine High NGL Pipeline LP, and Alpine High Pipeline LP are parties to a Gas Gathering
Agreement, a Gas Processing Agreement, a NGL TSA, and a Residue Gas TSA, respectively, with Apache. Each of these agreements includes provisions that
permit Apache to suspend, reduce, or terminate its obligations under the agreement if certain events occur. These events include force majeure events that
would prevent the Company from performing some or all of the required services under the applicable agreement. Apache, as the counterparty under these
commercial agreements, has the discretion to make such decisions, notwithstanding the fact that they may significantly and adversely affect the Company.
Any such reduction, suspension, or termination of Apache’s obligations under these agreements would have a material adverse effect on our financial
condition, results of operations, and cash flow.
While Apache has granted us a right of first offer to provide additional midstream services and acquire Apache’s retained midstream assets in Alpine
High, Apache does not have to accept our offer if a competitor provides more attractive economic terms.
Apache has granted us a right of first offer to provide additional midstream services and acquire Apache’s retained midstream assets in Alpine High.
Although Apache granted us this right of first offer, we can make no assurances that the economic terms that we offer Apache will be acceptable to Apache,
and another midstream service provider or a third party may be willing to make an offer to Apache on economic terms that we are unwilling or unable to offer.
Our inability to take advantage of the opportunities with respect to the right of first offer could adversely affect our growth strategy.
A significant amount of the revenue currently generated by us is from contracts with Apache that contain most favored nations rights and other consent
rights, limiting flexibility to offer certain capacity to new shippers.
All of our system’s current available capacity is provided to Apache under the Gas Gathering Agreement, the Gas Processing Agreement, the NGL
TSA, and the Residue Gas TSA. The Gas Gathering Agreement, the Gas Processing Agreement, and the NGL TSA contain most favored nations rights
(“MFNs”) that could result in lower rates being charged to Apache in the event that any of the rates being charged to other customers are less than the similar
rates charged to Apache. Triggering the MFNs in the Gas Gathering Agreement, the Gas Processing Agreement, or the NGL TSA could lead to a reduction in
revenue generated by the Company, which could adversely affect the Company’s financial condition, results of operations, or cash flows. These three
agreements also require Apache’s consent to offer third-party customers priority of service in the Company’s facilities that is at least equal to Apache’s
priority of service. If Apache refuses to grant such consent, the Company’s ability to attract third-party customers to our midstream facilities could be
negatively impacted, thereby adversely impacting our ability to grow as expected.
Without Apache’s consent, the MFNs effectively limit the Company’s flexibility in negotiating rates for some of our services with other shippers to fill
excess system capacity, because triggering the MFNs contained in the Gas Gathering Agreement, the Gas Processing Agreement, or the NGL TSA would lead
to a reduction in the rates that the Company charges to Apache, which would adversely affect our financial condition, results of operations, or cash flows.
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To maintain and grow our business, we are, and will be, required to make substantial capital expenditures.
In order to meet our contractual obligations under the Gas Gathering Agreement and the Gas Processing Agreement with Apache, we will have to make
substantial capital investments based on Apache’s forecasted development plans in order to have facilities available to provide services at the time Apache
commences production from new wells, or shortly thereafter. Apache’s plans are subject to change and there is no guarantee that facilities we build will be
utilized to provide services consistent with Apache’s forecast, or at all. As a result, we could potentially incur material capital expenses that generate no
return.
In order to maintain and grow our business, we will need to make substantial capital expenditures to fund growth capital expenditures as well as our
share of capital expenditures associated with any of the remaining Pipeline Options and the Additional Option we exercise, if any. If we do not make sufficient
or effective capital expenditures, we will be unable to maintain and grow our business, and, as a result, we may be unable to increase our cash flow over the
long term. To fund our capital expenditures, we will be required to use cash from our operations, incur debt, engage in structured financing transactions, or
sell additional shares of Class A Common Stock or other equity securities. Our ability to obtain bank financing or our ability to access the capital markets for
future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our then-current
debt agreements, as well as by general economic conditions, contingencies, and uncertainties that are beyond our control. Also, due to our relationship with
Apache, our ability to access the capital markets or the pricing or other terms of any capital markets transactions may be adversely affected by any impairment
to the financial condition of Apache or adverse changes in Apache’s credit ratings. Any material limitation on our ability to access capital as a result of such
adverse changes to Apache could limit our ability to obtain future financing under favorable terms, or at all, or could result in increased financing costs in the
future. Similarly, material adverse changes affecting Apache could negatively impact our share price, limiting our ability to raise capital through equity
issuances or debt financing, could negatively affect our ability to engage in, expand, or pursue our business activities, or could also prevent us from engaging
in certain transactions that might otherwise be considered beneficial to us.
Additionally, the capital and global credit markets have experienced volatility and disruption in the past. In many cases during these periods, the capital
markets have exerted downward pressure on equity values and reduced the credit capacity for certain companies. Much of our business is capital intensive,
and our ability to grow is dependent, in part, upon our ability to access capital at rates and on terms we determine to be attractive. Similar or more severe
levels of global market disruption and volatility may have an adverse effect on us or Apache resulting from, but not limited to, disruption of our or their access
to capital and credit markets, difficulty in obtaining financing necessary to expand facilities or acquire assets, increased financing costs and increasingly
restrictive covenants. If we or Apache are unable to access capital at competitive rates, our strategy of enhancing the earnings potential of our existing assets,
including through capital-growth projects and acquisitions of complementary assets or businesses, may be affected adversely. A number of factors could affect
adversely our ability to access capital, including: (i) general economic conditions; (ii) capital market conditions; (iii) market prices for natural gas, NGLs and
other hydrocarbons; (iv) the overall health of the energy and related industries; (v) ability to maintain investment-grade credit ratings; (vi) share price and (vii)
capital structure. If our ability to access capital becomes constrained significantly, our interest costs and cost of equity will likely increase and could affect
adversely our financial condition and future results of operations.
Even if we are successful in obtaining the necessary funds to support our growth plan, the terms of such financings could limit our ability to institute a
dividend to our stockholders in the future. In addition, incurring debt will cause us to incur interest expense and increase our financial leverage, and issuing
additional shares of Class A Common Stock or other equity interests may result in significant stockholder dilution, which could materially decrease our ability
to institute a dividend to our stockholders in the future. While the Company historically received funding from Apache, none of Apache or any of its affiliates
is committed to providing any direct or indirect financial support to fund our growth.
Construction of our assets subjects us to risks of construction delays, cost over-runs, limitations on our growth, and negative effects on our financial
condition, results of operations, or cash flows.
The Company is engaged in the construction of our assets, some of which will take a number of months before they begin commercial operation. The
construction of these assets is complex and subject to a number of factors beyond our control, including delays from third-party landowners, the permitting
process, complying with laws, unavailability or increased cost of materials, labor disruptions, labor availability, environmental hazards, financing, accidents,
weather, and other factors. Any delay in the completion of the assets could adversely affect the Company’s financial condition, results of operations, or cash
flows. The construction of pipelines and gathering and processing facilities requires the expenditure of significant amounts of capital, which may exceed the
Company’s estimated costs. Estimating the timing and expenditures related to these development projects is very complex and subject to variables that can
significantly increase expected costs. Should the actual costs of these projects exceed the Company’s estimates, our liquidity and capital position could be
adversely affected. We rely exclusively on Apache to provide certain services related to the design, development, construction, operation, management, and
maintenance of our midstream assets on our behalf pursuant to the COMA. Although the COMA provides for certain fixed annual limits on the support
services fee
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payable to Apache through 2022, there is no limit on such fees thereafter. As a result, after 2022, we may be required to pay Apache higher fees than would be
available from third parties. The COMA is subject to termination by us or Apache under certain circumstances, including if Apache and its affiliates no longer
own a direct or indirect interest in at least 50 percent of the voting or other equity securities of the Company. Should the COMA be terminated by us or
Apache, we may be forced to contract for services previously provided under the COMA, which may be disruptive to our operations and may be on terms less
favorable than the terms of the COMA, and, as a result, our financial condition, results of operations, and cash flows could be adversely affected. Additionally,
the COMA provides Apache with broad discretion to enter into contracts on our behalf.
Our construction of new assets may be more expensive than anticipated, may not result in revenue increases, and may be subject to regulatory,
environmental, political, legal, and economic risks that could adversely affect our financial condition, results of operations, or cash flows.
The construction of additions or modifications to the Company’s existing systems and the construction of new midstream assets (including the pipelines
to which the Pipeline Options relate) involves numerous regulatory, environmental, political, and legal uncertainties beyond our control, including potential
protests, tariffs on materials used in construction or operations (including steel used to construct pipelines), or legal actions by interested third parties, and
may require the expenditure of significant amounts of capital. Financing may not be available on economically acceptable terms or at all. If the Company
undertakes these projects, we may not be able to complete them on schedule, at the budgeted cost, or at all. Moreover, the Company’s revenues may not
increase due to the successful construction of a particular project. For instance, if the Company expands a pipeline or constructs a new pipeline, the
construction may occur over an extended period of time, and we may not receive any material increases in revenues promptly following completion of a
project or at all. Moreover, the Company may construct facilities to capture anticipated future production growth in an area in which such growth does not
materialize. As a result, new facilities may not be able to attract enough throughput to achieve our expected investment return, which could adversely affect
the Company’s financial condition, results of operations, or cash flows. In addition, the construction of additions to the Company’s existing gathering and
processing assets will generally require us to obtain new rights-of-way and permits prior to constructing new pipelines or facilities. The Company may be
unable to timely obtain such rights-of-way or permits to connect new product supplies to our existing gathering lines or capitalize on other attractive
expansion opportunities. Additionally, it may become more expensive for the Company to obtain new rights-of-way or to expand or renew existing rights-of-
way. If the cost of renewing or obtaining new rights-of-way increases, our cash flows could be adversely affected.
We may be unable to obtain or renew permits necessary for our operations, which could inhibit our ability to do business.
Performance of the Company’s operations require that we obtain and maintain a number of federal, state, and local permits, licenses, and approvals with
terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. All of these permits, licenses,
approval limits, and standards require a significant amount of monitoring, record keeping, and reporting in order to demonstrate compliance with the
underlying permit, license, approval limit, or standard. Noncompliance or incomplete documentation of the Company’s compliance status may result in the
imposition of fines, penalties, and injunctive relief. A decision by a government agency to deny or delay the issuance of a new or existing material permit or
other approval or to revoke or substantially modify an existing permit or other approval could adversely affect the Company’s ability to initiate or continue
operations at the affected location or facility or the Company’s financial condition, results of operations, or cash flows.
Additionally, in order to obtain permits and renewals of permits and other approvals in the future, the Company may be required to prepare and present
data to governmental authorities pertaining to the potential adverse impact that any proposed pipeline or processing-related activities may have on the
environment, individually or in the aggregate. Certain approval procedures may require preparation of archaeological surveys, endangered species studies, and
other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive
and significantly lengthens the time required to prepare applications and to receive authorizations.
We do not obtain independent evaluations of hydrocarbon reserves and rely on evaluations of hydrocarbon reserves obtained by our customers; therefore,
volumes that we service in the future could be less than anticipated.
The Company does not obtain independent evaluations of hydrocarbon reserves connected to our gathering systems or that we otherwise service, and we
rely on reserves reports if and when provided by our customers. Accordingly, the Company does not have independent estimates of total reserves serviced by
our assets or the anticipated life of such reserves. If the total reserves or estimated life of these reserves is less than the Company anticipates, in reliance on our
customers’ reports, and we are unable to secure additional sources, then the volumes transported on the Company’s gathering systems or that we otherwise
service in the future could be less than anticipated. A decline in such volumes could adversely affect the Company’s financial condition, results of operations,
or cash flows.
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Debt we incur may limit our flexibility to obtain financing and to pursue other business opportunities.
On November 9, 2018, Altus Midstream entered into a credit agreement, which provides for a five-year revolving credit facility for general corporate
purposes, with aggregate commitments of $450 million for an initial period until we have met certain requirements, following which, the aggregate
commitments will equal $800 million. After the initial period, Altus Midstream may increase commitments up to an aggregate $1.5 billion by adding new
lenders or obtaining the consent of any increasing existing lenders. Our future level of debt could have important consequences to us, including the following:
•
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•
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our ability to obtain additional financing, if necessary, for working capital, capital expenditures (including building additional gathering and
processing assets or exercising the Pipeline Options), or other purposes may be impaired or such financing may not be available on favorable terms;
our funds available for operations, future business opportunities, and dividends to our stockholders in the future, if any, will be reduced by that
portion of our cash flows required to make interest payments on our debt;
we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service any debt will depend upon, among other things, our future financial and operating performance, which will be affected by
prevailing economic conditions and financial, business, regulatory, and other factors, some of which are beyond our control. If our operating results are not
sufficient to service any future indebtedness, we will be forced to take actions such as not instituting a dividend (or reducing or eliminating a dividend, if
already instituted), reducing or delaying our business activities, investments, or capital expenditures, selling assets, or issuing equity. We may not be able to
effect any of these actions on satisfactory terms or at all.
Our exposure to commodity price risk may change over time.
We currently generate all of our revenues pursuant to fee-based contracts under which we are paid based on the volumes that we gather, process, and
transport, rather than the underlying value of the commodity. However, we may enter into contracts or may acquire or develop additional midstream assets in
a manner that increases our exposure to commodity price risk. Future exposure to the volatility of crude oil, natural gas, and NGL prices could adversely
affect our financial condition, results of operations, or cash flows.
If third-party pipelines or other midstream facilities interconnected to our gathering, processing, or transportation systems become partially or fully
unavailable or if the volumes we gather, process, or transport do not meet the quality requirements of the pipelines or facilities to which we connect, our
cash flows could be adversely affected.
The Company’s gathering, processing, and transportation assets connect to other pipelines or facilities owned and operated by unaffiliated third parties.
The Company’s continuing access to such third-party pipelines, processing facilities, and other midstream facilities are not within the Company’s control.
These pipelines, plants, and other midstream facilities may become unavailable because of testing, turnarounds, line repair, maintenance, reduced operating
pressure, lack of operating capacity, regulatory requirements, and curtailments of receipt or deliveries due to insufficient capacity or because of damage from
severe weather conditions or other operational issues. In addition, if the Company’s costs to access and transport on these third-party pipelines significantly
increase, our profitability could be reduced. If any such increase in costs occurs, if any of these pipelines or other midstream facilities become unable to
receive, transport, or process product, or if the volumes the Company gathers or transports do not meet the product quality requirements of such pipelines or
facilities, our cash flows could be adversely affected.
Our industry is highly competitive, and increased competitive pressure could adversely affect our financial condition, results of operations, or cash flows.
We compete with similar enterprises in our industry. The principal elements of competition are rates, terms of service, and flexibility and reliability of
service. Our competitors include large midstream companies that have greater financial resources and access to supplies of crude oil, natural gas, and NGLs
than the Company. Some of these competitors may expand or construct gathering, processing, transportation, and storage systems that would create additional
competition for the services the Company provides to our customers. In addition, potential customers may develop their own gathering systems instead of
using the Company’s systems. Excess pipeline capacity in the region served by the Company’s intrastate pipelines could also increase competition and
adversely impact our ability to renew or enter into new contracts with respect to our available capacity when existing contracts expire. The Company’s ability
to renew or replace existing contracts with our customers at rates sufficient to maintain or increase current revenues and cash flows could be adversely
affected by the activities of our competitors and customers. Further, natural
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gas utilized as a fuel competes with other forms of energy available to end-users, including electricity, coal, liquid fuels, and sources of alternative energy.
Increased demand for such other forms of energy at the expense of natural gas could lead to a reduction in demand for natural gas gathering, processing, and
transportation services. Although we do not have employees, Apache’s employees perform work for us pursuant to the COMA, and Apache still competes
with larger midstream companies in attracting and retaining personnel, including equipment operators, mechanics, engineers, and other specialists. All of
these competitive pressures could adversely affect the Company’s financial condition, results of operations, or cash flows.
In addition, competition could intensify the negative impact of factors that decrease demand for natural gas in the markets served by the Company’s
systems, such as adverse economic conditions, weather, higher fuel costs, and taxes or other governmental or regulatory actions that directly or indirectly
increase the cost or limit the use of natural gas.
Our ability to institute a dividend will depend on our ability to generate sufficient cash flow, which we may not be able to accomplish.
We may not generate sufficient cash flow to enable us to institute a dividend in the future. Our ability to institute a dividend will principally depend
upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things, the volumes of natural
gas and NGLs we gather and process, commodity prices, including for crude oil, and other factors impacting our financial condition, some of which are
beyond our control.
We may not be able to retain existing customers or acquire new customers, which would reduce our revenues and limit our future profitability.
The renewal or replacement of the Company’s existing contracts with our customers at rates sufficient to maintain or increase current revenues and cash
flows depends on a number of factors, some of which are beyond the Company’s control, including competition from other midstream service providers and
the price of, and demand for, crude oil, natural gas, and NGLs in the markets we serve. The inability of the Company to renew or replace our current or future
contracts as they expire and to respond appropriately to changing market conditions could have a negative effect on our profitability.
We are exposed to the credit risk of our customers and counterparties, including Apache, and the nonpayment or nonperformance by our customers or
counterparties could have an adverse effect on our financial condition, results of operations, or cash flows.
The Company is subject to risks of loss resulting from nonpayment or nonperformance by our customers or other counterparties, including Apache. Any
increase in the nonpayment or nonperformance by the Company’s customers or other counterparties could adversely affect our financial condition, results of
operations, or cash flows. Additionally, equity values for the Company’s customers or other counterparties may be low. The combination of a reduction of
cash flow resulting from lower commodity prices, a reduction in borrowing bases under reserve-based credit facilities, and the lack of availability of debt or
equity financing may result in a significant reduction in the liquidity of the Company’s customers or other counterparties and their ability to make payment or
perform on their obligations to the Company. Furthermore, some of the Company’s customers or other counterparties may be leveraged and subject to their
own operating and regulatory risks, which increases the risk that they may default on their obligations to the Company.
In the event Apache elects to sell acreage that is dedicated to us to a third party, the third party’s financial condition could be materially worse than
Apache’s, and we could be subject to the nonpayment or nonperformance by the third party.
In the event Apache elects to sell acreage that is dedicated to the Company to a third party, the third party’s financial condition could be materially
worse than Apache’s. In such a case, the Company may be subject to risks of loss resulting from nonpayment or nonperformance by the third party, which
risks may increase during periods of economic uncertainty. Furthermore, the third party may be subject to their own operating and regulatory risks, which
increases the risk that they may default on their obligations to the Company. Any material nonpayment or nonperformance by the third party could adversely
impact the business, financial condition, results of operations, and cash flows of the Company.
We are subject to regulation by multiple governmental agencies, which could adversely impact our business, results of operations, and financial condition.
The Company is subject to regulation by multiple federal, state, and local governmental agencies. Proposals and proceedings that affect the midstream
industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions, agencies, and courts. The
Company cannot predict when or whether any such proposals or proceedings
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may become effective or the magnitude of the impact changes in laws and regulations may have on our business. However, additions to the regulatory burden
on the midstream industry can increase the Company’s cost of doing business and affect our profitability.
Increased federal, state, and local legislation and regulatory initiatives, as well as government reviews relating to hydraulic fracturing, could result in
increased costs and reductions or delays in crude oil, natural gas, and NGL production by our customers, including Apache, which could adversely affect
our financial condition, results of operations, or cash flows.
Substantially all of the Company’s suppliers’ and customers’ crude oil, natural gas, and NGL production is developed from unconventional sources,
such as deep oil or gas shales, that require hydraulic fracturing as part of the completion process. State legislatures and agencies and other political
subdivisions have enacted legislation and promulgated rules to regulate hydraulic fracturing, require disclosure of hydraulic fracturing chemicals, temporarily
or permanently ban hydraulic fracturing, and impose additional permit requirements and operational restrictions in certain jurisdictions or in environmentally
sensitive areas. EPA and BLM have also issued rules, conducted studies, and made proposals that, if implemented, could either restrict the practice of
hydraulic fracturing or subject the process to further regulation. For instance, the EPA has issued final regulations under the CAA establishing performance
standards, including standards for the capture of air emissions released during hydraulic fracturing and adopted rules prohibiting the discharge of wastewater
from hydraulic fracturing operations to publicly owned wastewater treatment plants. The BLM also adopted new rules, effective on January 17, 2017, to
reduce venting, flaring, and leaks during oil and natural gas production activities on onshore federal and Indian leases. However, the status of recent and future
rules and rulemaking initiatives under the current presidential administration is uncertain. For example, in June 2017, the EPA published a proposed rule to
stay certain provisions of the performance standards, but elected not to finalize the stay, and instead, in February 2018, finalized amendments to some of the
requirements. In addition, in December 2017, the BLM temporarily suspended some of the new venting and flaring requirements, only to have a court
subsequently enjoin the suspension.
State and federal regulatory agencies also have recently focused on a possible connection between the operation of injection wells used for oil and gas
waste waters and an observed increase in induced seismicity, which has resulted in some regulation at the state level. As regulatory agencies continue to study
induced seismicity, additional legislative and regulatory initiatives could affect the injection well operations of the Company’s customers as well.
We cannot predict whether any additional legislation or regulations will be enacted and, if so, what the provisions would be. If additional levels of
regulation and permits were required through the adoption of new laws and regulations at the federal, state, or local level, that could lead to delays, increased
operating costs, and process prohibitions for the Company’s suppliers and customers that could reduce the volumes of natural gas and NGLs that move
through our gathering systems, which could materially adversely affect our revenue and results of operations.
Negative public perception regarding us and/or our industry could have an adverse effect on our operations.
Negative public perception regarding us and/or our industry resulting from, among other things, concerns raised by advocacy groups about hydraulic
fracturing, waste disposal, oil spills, and explosions of natural gas transmission lines may lead to increased regulatory scrutiny, which may, in turn, lead to
new state and federal safety and environmental laws, regulations, guidelines, and enforcement interpretations. These actions may cause operational delays or
restrictions, increased operating costs, additional regulatory burdens, and increased risk of litigation. Moreover, governmental authorities exercise
considerable discretion in the timing and scope of permit issuance, and the public may engage in the permitting process, including through intervention in the
courts. Negative public perception could cause the permits we require to conduct our operations to be withheld, delayed, or burdened by requirements that
restrict our ability to profitably conduct our business.
We may face opposition to the construction or operation of our pipelines and facilities from various groups.
We may face opposition to the construction or operation of our pipelines and facilities from environmental groups, landowners, tribal groups, local
groups and other advocates. Such opposition could take many forms, including organized protests, attempts to block or sabotage our construction activities or
operations, intervention in regulatory or administrative proceedings involving our assets, or lawsuits or other actions designed to prevent, disrupt or delay the
construction or operation of our assets and business. For example, repairing our pipelines often involves securing consent from individual landowners to
access their property; one or more landowners may resist our efforts to make needed repairs, which could lead to an interruption in the operation of the
affected pipeline or facility for a period of time that is significantly longer than would have otherwise been the case. In addition, acts of sabotage or terrorism
could cause significant damage or injury to people, property or the environment or lead to extended interruptions of our operations. Any such event that delays
or interrupts the construction of assets or revenues generated by our existing operations, or which causes us to make significant expenditures not covered by
insurance, could affect adversely our financial condition, results of operations, cash flows and our share price.
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If our assets (including assets acquired in the future pursuant to the Pipeline Options, if any) become subject to FERC regulation or federal, state, or
local regulations or policies change, our financial condition, results of operations, and cash flows could be materially and adversely affected.
The Company’s natural gas gathering facilities are exempt from regulation by the FERC under the NGA. Section 1(b) of the NGA exempts natural gas
gathering facilities from regulation by FERC under the NGA. Although FERC has not made any formal determinations with respect to any of the Company’s
facilities, our gathering facilities meet the traditional tests FERC has used to establish whether a pipeline is a gathering pipeline not subject to FERC
jurisdiction. The distinction between FERC-regulated transmission services and federally unregulated gathering services, however, has been the subject of
substantial litigation, and FERC determines whether facilities are gathering facilities on a case-by-case basis. Accordingly, the classification and regulation of
the Company’s gathering facilities may be subject to change based on future determinations by FERC, the courts, or Congress. If FERC were to consider the
status of an individual facility and determine that the facility or services provided by it are not exempt from FERC regulation under the NGA, then the rates
for, and terms and conditions of, services provided by such facility would be subject to regulation by FERC under the NGA and the rules and regulations
promulgated under that statute. Such regulation could decrease revenue, increase operating costs, and, depending upon the facility in question, could adversely
affect the Company’s results of operations and cash flows.
The Company’s natural gas gathering and transportation facilities are largely regulated by the RRC, and, to the extent that our intrastate natural gas
transportation systems transport natural gas in interstate commerce, the rates and terms and conditions of such services are subject to FERC jurisdiction under
Section 311 of the NGPA. The NGPA regulates, among other things, the provision of transportation services by an intrastate natural gas pipeline on behalf of a
local distribution company or an interstate natural gas pipeline. Under Section 311 of the NGPA, rates charged for interstate transportation must be fair and
equitable, and amounts collected in excess of fair and equitable rates are subject to refund with interest. The terms and conditions of service set forth in the
intrastate facility’s statement of operating conditions for transportation service under Section 311 of the NGPA are also subject to FERC review and approval.
Should the FERC determine not to authorize rates equal to or greater than our currently-approved rates under Section 311 of the NGPA, our business may be
adversely affected. Failure to observe the service limitations applicable to transportation services under Section 311 of the NGPA, failure to comply with the
rates approved by the FERC for service under Section 311 of the NGPA, and failure to comply with the terms and conditions of service established in the
pipeline’s FERC-approved statement of operating conditions could result in an alteration of jurisdictional status and/or the imposition of administrative, civil,
and criminal remedies. The Company’s natural gas transportation facilities and operations are also subject to the Texas Utilities Code and the Texas Natural
Resources Code, as implemented by the RRC. Generally, the RRC is vested with authority to ensure that rates, operations, and services of gas utilities,
including intrastate pipelines, are just and reasonable and not discriminatory. The rates the Company charges for transportation services are deemed just and
reasonable under Texas law unless challenged in a customer or RRC complaint. The Company cannot predict whether such a complaint will be filed against us
or whether the RRC will change its regulation of these rates. Failure to comply with the Texas Utilities Code or the Texas Natural Resources Code can result
in the imposition of administrative, civil, and criminal remedies.
The Company’s natural gas pipeline system is also subject to state ratable take and common purchaser statutes in Texas. The ratable take statute
generally requires gatherers to take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling. Similarly, the
common purchaser statute generally requires gatherers to purchase without undue discrimination as to source of supply or producer. These statutes are
designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply.
The Company’s NGL pipeline facilities do not provide interstate transportation service and are therefore not subject to FERC’s jurisdiction under
Interstate Commerce Act (“ICA”). Whether an NGL shipment is in interstate commerce under the ICA depends on the fixed and persistent intent of the
shipper as to the NGLs’ final destination, absent a break in the interstate movement. The Company’s NGL pipelines meet the traditional tests FERC has used
to determine that a pipeline is not providing transportation service in interstate commerce subject to FERC ICA jurisdiction. However, the determination of
the interstate or intrastate character of shipments on the Company’s NGL pipelines depends on the shipper’s intentions and the transportation of the NGLs
outside of the Company’s system and may change over time. If FERC were to consider the status of an individual facility and the character of an NGL
shipment and determine that the shipment is in interstate commerce, the rates for, and terms and conditions of, transportation services provided by such
facility would be subject to regulation by FERC under the ICA. Such FERC regulation could decrease revenue, increase operating costs, and, depending on
the facility in question, adversely affect the Company’s results of operations and cash flows.
If the Company fails to comply with applicable FERC-administered statutes, rules, regulations, and orders, it could be subject to substantial penalties
and fines. Under the Energy Policy Act of 1992 (the “EPAct”), for instance, FERC has civil penalty authority to impose penalties for current violations of the
NGA or NGPA of up to $1,213,503 per day for each violation. The maximum penalty authority established by statute has been and will continue to be
adjusted periodically for inflation. FERC also has the
24
power to order disgorgement of profits from transactions deemed to violate the NGA and the EPAct. In addition, if any of the Company’s facilities were found
to have provided services or otherwise operated in violation of the ICA, this could result in the imposition of administrative and criminal remedies and civil
penalties, as well as a requirement to disgorge charges collected for such services in excess of the rate established by FERC.
We may incur significant costs and liabilities resulting from compliance with pipeline safety regulations.
The pipelines the Company owns and operates are subject to stringent and complex regulation related to pipeline safety and integrity management, such
as regulation by the DOT, through PHMSA, pursuant to the NGSPA, with respect to natural gas, and the HLSPA, with respect to NGLs. For instance, the
DOT, through the PHMSA, has established a series of rules that require pipeline operators to develop and implement integrity management programs for
hazardous liquid (including oil) pipeline segments that, in the event of a leak or rupture, could affect high-consequence areas. In 2016, PHMSA proposed
rulemaking that would expand existing integrity management requirements to natural gas transmission and gathering lines in areas with medium population
densities. A final rule has yet to be issued, although PHMSA recently announced its intention to finalize the rulemaking in 2019. Additional action by
PHMSA with respect to pipeline integrity management requirements may occur in the future. At this time, the Company cannot predict the cost of such
requirements, but they could be significant. Moreover, violations of pipeline safety regulations can result in the imposition of significant penalties.
Several states have also passed legislation or promulgated rules to address pipeline safety. Compliance with pipeline integrity laws and other pipeline
safety regulations issued by state agencies such as the RRC could result in substantial expenditures for testing, repairs, and replacement. If the Company’s
pipelines fail to meet the safety standards mandated by the RRC or the DOT regulations, then the Company may be required to repair or replace sections of
such pipelines or operate the pipelines at a reduced maximum allowable operating pressure, the cost of which cannot be estimated at this time.
Due to the possibility of new or amended laws and regulations or reinterpretation of existing laws and regulations, there can be no assurance that future
compliance with PHMSA or state requirements will not have a material adverse effect on the Company’s results of operations or financial position. Because
certain of the Company’s operations are located around areas that may become more populated areas, such as Alpine High, the Company may incur expenses
to mitigate noise, odor, and light that may be emitted in our operations and expenses related to the appearance of our facilities. Municipal and other local or
state regulations are imposing various obligations including, among other things, regulating the location of the Company’s facilities, imposing limitations on
the noise levels of our facilities and requiring certain other improvements that increase the cost of our facilities. The Company is also subject to claims by
neighboring landowners for nuisance related to the construction and operation of our facilities, which could subject it to damages for declines in neighboring
property values due to the Company’s construction and operation of facilities.
Failure to comply with existing or new environmental laws or regulations or an accidental release of hazardous substances, hydrocarbons, or wastes into
the environment may cause us to incur significant costs and liabilities.
Many of the operations and activities of the Company’s pipelines, gathering systems, processing plants, and other facilities are subject to significant
federal, state, and local environmental laws and regulations, the violation of which can result in administrative, civil, and criminal penalties, including civil
fines, injunctions, or both. The obligations imposed by these laws and regulations include obligations related to air emissions and the discharge of pollutants
from the Company’s pipelines and other facilities and the cleanup of hazardous substances and other wastes that are or may have been released at properties
currently or previously owned or operated by us or locations to which we have sent wastes for treatment or disposal. These laws may impose strict, joint, and
several liability for the remediation of contaminated areas. Private parties, including the owners of properties near the Company’s facilities or upon or through
which our systems traverse, may also have the right to pursue legal actions to enforce compliance and to seek damages for non-compliance with
environmental laws for releases of contaminants or for personal injury or property damage.
Our business may be adversely affected by increased costs due to stricter pollution control requirements or liabilities resulting from non-
compliance with required operating or other regulatory permits. New environmental laws or regulations, including, for example, legislation relating to the
control of greenhouse gas emissions, or changes in existing environmental laws or regulations might adversely affect the Company’s products and activities,
including processing, storage, and transportation, as well as waste management and air emissions. Federal and state agencies could also impose additional
safety requirements, any of which could affect the Company’s profitability. Changes in laws or regulations could also limit the operation of the Company’s
assets or adversely affect our ability to comply with applicable legal requirements or the demand for crude oil, natural gas, or NGLs, which could adversely
affect our business and our profitability.
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Recent rules under the CAA imposing more stringent requirements on the oil and gas industry could cause us and our customers to incur increased
capital expenditures and operating costs as well as reduce the demand for our services.
We are subject to stringent and complex regulation under the CAA, implementing regulations, and state and local equivalents, including regulations
related to controls for oil and natural gas production, pipelines, and processing operations. For instance, in 2016, the EPA issued three final rules intended to
curb emissions of methane, volatile organic compounds, and toxic air pollutants (such as benzene) from new, reconstructed, and modified oil and gas sources,
including the rule affecting storage tanks constructed, modified, or reconstructed, (the so-called “OOOOa Rule”). In April 2017, the EPA announced its
intention to reconsider certain aspects of the 2016 rules for the oil and natural gas industry in response to several petitions for reconsideration and issued a 90-
day stay of the June 3, 2017 compliance deadline for the fugitive emissions monitoring requirements in the OOOOa Rule. Subsequently, on May 31, 2017, the
EPA issued a 90-day stay of certain requirements under the rule, but this stay was vacated by a three-judge panel of the U.S. Court of Appeals for the D.C.
Circuit on July 3, 2017 and again by an en banc D.C. Circuit on July 31, 2017. In the interim, on July 16, 2017, the EPA issued a proposed rule that would
provide a two-year extension of the initial 90-day stay. Most recently, on March 12, 2018, the EPA announced amendments to the fugitive emissions
monitoring requirements, although the agency’s reconsideration of other aspects of the 2016 rule remains ongoing. Accordingly, substantial uncertainty exists
with respect to implementation of this methane rule. The BLM also adopted new rules on November 15, 2016, to reduce venting, flaring, and leaks during oil
and natural gas production activities on onshore federal and Indian leases. On June 15, 2017, the BLM suspended indefinitely compliance dates for certain
aspects of these rules, pending judicial review, but a court subsequently enjoined the BLM’s suspension.
Additional regulation of GHG emissions from the oil and gas industry remains a possibility. These regulations could require a number of modifications
to the Company’s operations, and our natural gas exploration and production suppliers’ and customers’ operations, including the installation of new
equipment, which could result in significant costs, including increased capital expenditures and operating costs. The incurrence of such expenditures and costs
by the Company’s suppliers and customers could result in reduced production by those suppliers and customers and thus translate into reduced demand for our
services.
Climate change legislation and regulatory initiatives could result in increased operating costs and reduced demand for the natural gas and NGLs services
we provide.
Congress has from time to time considered adopting legislation to reduce emissions of GHGs, and there has been a wide-ranging policy debate, both
nationally and internationally, regarding the impact of these gases and possible means for their regulation. In addition, efforts have been made and continue to
be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues. In 2015, the
United States participated in the United Nations Conference on Climate Change, which led to the adoption of the Paris Agreement. The Paris Agreement
requires countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals,
every five years beginning in 2020. The Paris Agreement was signed by the United States in April 2016 and entered into force in November 2016; however,
the GHG emission reductions called for by the Paris Agreement are not binding. On June 1, 2017, the current presidential administration announced that the
United States plans to withdraw from the Paris Agreement and to seek negotiations either to reenter the Paris Agreement on different terms or to establish a
new framework agreement. The Paris Agreement provides for a four-year exit process beginning when it took effect in November 2016, which would result in
an effective exit date of November 2020. The United States’ adherence to the exit process and/or the terms on which the United States may reenter the Paris
Agreement or a separately negotiated agreement are unclear at this time. Moreover, at the federal regulatory level, both the EPA and the BLM have
promulgated regulations for the control of methane emissions, which also include leak detection and repair requirements, from the oil and gas industry,
although the current status of those regulations is uncertain under the current presidential administration.
The EPA has adopted regulations under existing provisions of the CAA that, among other things, establish PSD construction and Title V operating
permit reviews for certain large stationary sources that emit GHGs. Facilities required to obtain PSD permits for their GHG emissions also will be required to
meet “best available control technology” standards that will be established by the states or, in some cases, by the EPA on a case-by-case basis. These EPA rule
makings could adversely affect the Company’s operations and restrict or delay our ability to obtain air permits for new or modified sources. In addition, the
EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore crude oil and natural gas production sources in the
U.S. on an annual basis.
In addition, many states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission
inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of emissions, such as
electric power plants, or major producers of fuels, such as refineries and NGLs fractionation plants, to acquire and surrender emission allowances, with the
number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved.
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Although it is not possible at this time to predict whether future legislation or new regulations may be adopted to address GHG emissions or how such
measures would impact the Company’s business, the adoption of legislation or regulations imposing reporting or permitting obligations on, or limiting
emissions of GHGs from, our equipment and operations could require the Company to incur additional costs to reduce emissions of GHGs associated with our
operations, could adversely affect our performance of operations in the absence of any permits that may be required to regulate emission of GHGs, or could
adversely affect demand for the natural gas the Company gathers, processes, or otherwise handles in connection with our services.
The ESA and the MBTA govern our operations and additional restrictions may be imposed in the future, which could have an adverse impact on our
operations.
The ESA and analogous state laws restrict activities that may affect endangered or threatened species or their habitats. Similar protections are offered to
migratory birds under the MBTA. FWS and state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of
threatened or endangered species, which could materially restrict use of or access to federal, state, and private lands.
On July 19, 2018, the FWS announced a series of proposed changes to the rules implementing the ESA, including proposed revisions to the regulations
governing interagency cooperation, listing species and delisting critical habitat, and prohibitions related to threatened wildlife and plants. The proposed
revisions are intended to streamline these processes and create more flexibility for the FWS when making ESA-related decisions. It is not possible at this time
to accurately predict how such changes, if adopted, would impact the Company’s operations.
Some of the Company’s operations may be located in areas that are designated as habitats for endangered or threatened species or that may attract
migratory birds. In these areas, the Company may be obligated to develop and implement plans to avoid potential adverse impacts to protected species, and
we may be prohibited from conducting operations in certain locations or during certain seasons, such as breeding and nesting seasons, when our operations
could have an adverse effect on the species. It is also possible that a federal or state agency could order a complete halt to the Company’s activities in certain
locations if it is determined that such activities may have a serious adverse effect on a protected species. In addition, the FWS and state agencies regularly
review species that are listing candidates, and designations of additional endangered or threatened species or critical or suitable habitat under the ESA could
cause the Company to incur additional costs or become subject to operating restrictions or bans in the affected areas.
Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. The occurrence of a significant accident
or other event that is not fully insured could adversely affect our operations and financial condition.
The Company’s operations are subject to the many hazards inherent in the gathering, compressing, processing, and transporting of natural gas and
NGLs, including:
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damage to pipelines, related equipment, and surrounding properties caused by hurricanes, floods, fires, and other natural or anthropogenic disasters
and acts of terrorism;
leaks of natural gas, NGLs, and other hydrocarbons;
induced seismicity; and
fires and explosions.
These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment, and
pollution or other environmental damage and may result in curtailment or suspension of the Company’s related operations. The Company is not fully insured
against all risks incident to our business. In accordance with typical industry practice, we have appropriate levels of business interruption and property
insurance. We are not insured against all environmental accidents that might occur. If a significant accident or event occurs that is not fully insured, it could
adversely affect our financial condition, results of operations, or cash flows.
We do not own in fee any of the land on which our pipelines and facilities are located, which could result in disruptions to our operations.
The Company does not own in fee any of the land on which our midstream assets have been constructed. Our only interests in these properties are rights
granted under surface use agreements, rights-of-way, surface leases, or other easement rights (collectively, “Rights-of-Way”), which may limit or restrict our
rights or access to or use of the surface estates. Accommodating these competing rights of the surface owners may adversely affect the operations of the
Company. Apache and certain of its affiliates
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are party to certain of these Rights-of-Way. Furthermore, many of the Rights-of-Way on which the Company’s assets have been constructed are not perpetual
in duration and, upon the expiration of their terms, will require us to pay a renewal fee to the applicable surface owners in order to maintain access to such
Rights-of-Way. These Rights-of-Way also require compliance with certain terms and conditions in order to renew their terms, some of which may be outside
of our control.
The Company is subject to the possibility of more onerous terms or increased costs to retain necessary land use if we do not have valid Rights-of-Way
or if such usage rights lapse or terminate. The Company may obtain the rights to construct and operate our pipelines on land owned by third parties and
governmental agencies for a specific period of time. The loss of these rights, through the inability to renew Rights-of-Way or otherwise, could have a material
adverse effect on the business, financial condition, results of operations, and cash flows of the Company.
A failure in our computer systems or a terrorist or cyberattack on us or third parties with whom we do business may adversely affect our ability to operate
our business.
The Company is reliant on technology to conduct our business. The Company’s business is dependent upon our operational and financial computer
systems to process the data necessary to conduct almost all aspects of our business, including operating our pipelines and gathering and processing facilities,
recording and reporting commercial and financial transactions, and receiving and making payments. Any failure of the Company’s computer systems or those
of our customers, suppliers, or others with whom we do business, including Apache, could materially disrupt the Company’s ability to operate our business.
Unknown entities or groups have mounted so-called “cyberattacks” on businesses to disable or disrupt computer systems, disrupt operations, and steal funds
or data. Cyberattacks could also result in the loss of confidential or proprietary data or security breaches of other information technology systems that could
disrupt the Company’s operations and critical business functions. In addition, the Company’s pipeline systems may be targets of terrorist or environmental
activist group activities that could disrupt our ability to conduct our business and have a material adverse effect on our business and results of operations.
Strategic targets, such as energy-related assets, may be at greater risk of future terrorist attacks, environmental activist group activities, or cyberattacks than
other targets in the United States. The Company’s insurance may not protect us against such occurrences. Any such terrorist attack, environmental activist
group activity, or cyberattack that affects the Company or our customers, suppliers, or others with whom we do business could have a material adverse effect
on our business, cause it to incur a material financial loss, subject it to possible legal claims and liability, and/or damage our reputation.
Moreover, as the sophistication of cyberattacks continues to evolve, the Company may be required to expend significant additional resources to further
enhance our digital security or to remediate vulnerabilities. In addition, cyberattacks against us or others in our industry could result in additional regulations,
which could lead to increased regulatory compliance costs, insurance coverage cost, or capital expenditures. The Company cannot predict the potential impact
to our business or the energy industry resulting from additional regulations.
If we fail to maintain an effective system of internal controls, we may not be able to report accurately our financial results or prevent fraud. As a result,
current and potential holders of our equity could lose confidence in our financial reporting, which would harm our business and cost of capital.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. We
cannot be certain that our efforts to maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial
processes and reporting in the future or that we will be able to continue to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002.
Any failure to maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating
results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial
information, which would likely have a negative effect on the trading price of our equity interests.
We may become subject to the requirements of the Investment Company Act of 1940, which would limit our business operations and require us to spend
significant resources to comply with such act.
The Investment Company Act of 1940 (the “Investment Company Act”) defines an “investment company” as an issuer that is engaged in the business of
investing, reinvesting, owning, holding, or trading in securities and owns investment securities having a value exceeding 40 percent of the issuer’s
unconsolidated assets, excluding cash items and securities issued by the federal government. If one or more of our subsidiaries exercises all or any portion of
the remaining Pipeline Options, it is possible that some or all of those interests will be investment securities and that the value of those interests that are
investment securities over time may exceed 40 percent of such subsidiaries’ unconsolidated assets, excluding cash and government securities, in which case
such subsidiaries may meet this threshold definition of an investment company. The Investment Company Act provides certain exclusions from this definition.
However, if a subsidiary relies on any one or more of these exclusions from the definition of an
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investment company and such reliance is not correct, then the subsidiary may be in violation of the Investment Company Act, the consequences of which can
be significant. For example, investment companies that fail to register under the Investment Company Act are prohibited from conducting business in
interstate commerce, which includes selling securities or entering into other contracts in interstate commerce. Section 47(b) of the Investment Company Act
provides that a contract made in, or whose performance involves a, violation of the Investment Company Act is unenforceable by either party unless a court
finds that enforcement would produce a more equitable result than non-enforcement. Similarly, a court may not deny rescission to any party seeking to rescind
a contract that violates the Investment Company Act, unless the court finds that denial of rescission would produce a more equitable result than granting
rescission.
If in the future the nature of any of our subsidiaries’ businesses change such that no exception to the threshold definition of investment company is
available to such subsidiary, then such subsidiary may be deemed to be an investment company under the Investment Company Act. However, Rule 3a-2 of
the Investment Company Act provides that inadvertent or transient investment companies will not be treated as investment companies subject to the
provisions of the Investment Company Act, provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the issuer’s
business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement of the earlier of (1) the date on
which the issuer owns securities and/or cash having a value exceeding 50 percent of the value of such issuer’s total assets on either a consolidated or
unconsolidated basis or (2) the date on which an issuer owns or proposes to acquire investment securities (as defined in section 3(a) of the Investment
Company Act) having a value exceeding 40 percent of the value of such issuer’s total assets (exclusive of government securities and cash items) on an
unconsolidated basis. If any of our subsidiaries becomes an inadvertent investment company and fails to meet the requirements of the transient investment
company exemption under Rule 3a-2 of the Investment Company Act, then such subsidiary may be required to register as an investment company with the
SEC.
The ramifications of becoming an investment company, both in terms of the restrictions it would have on such subsidiary and the cost of compliance,
would be significant. For example, in addition to expenses related to initially registering as an investment company, the Investment Company Act also would
impose various restrictions with regard to the subsidiary’s ability to enter into affiliated transactions, the diversification of its assets, and its ability to borrow
money. If any of our subsidiaries became subject to the Investment Company Act at some point in the future, then the subsidiary’s ability to continue pursuing
its business plan would be severely limited.
Apache owns a majority of our outstanding voting shares and thus strongly influences all of our corporate actions.
Apache or an affiliate beneficially owns approximately 79 percent of our outstanding voting common stock. As long as Apache or an affiliate owns or
controls a significant percentage of our outstanding voting power, it will have the ability to strongly influence all corporate actions requiring stockholder
approval, including the election and removal of directors and the size of our board of directors, any amendment of our Charter or bylaws, or the approval of
any merger or other significant corporate transaction, including a sale of substantially all of our assets, and will be able to cause or prevent a change in the
composition of our board of directors or a change in control of the Company that could deprive stockholders of an opportunity to receive a premium for their
common stock as part of a sale of the Company. In addition, under the Stockholders Agreement, Kayne Anderson Sponsor, LLC is entitled to nominate two
directors to the board of directors of the Company until the earlier of the time that Kayne Anderson Sponsor, LLC and its affiliates own less than 1 percent of
the outstanding voting common stock of the Company or the second anniversary of the date of the Stockholders Agreement. Additionally, Apache is entitled
to nominate up to seven directors to our board of directors depending on its and its affiliates’ ownership of our outstanding voting common stock. In
connection with the Stockholders Agreement, Apache and Kayne Anderson Sponsor, LLC have agreed to vote for the directors nominated by the other. The
interests of Apache may not align with the interests of our other stockholders.
We are a “controlled company” within the meaning of the NASDAQ listing rules and, as a result, qualify for, and intend to rely on, exemptions from
certain corporate governance requirements.
Apache or an affiliate controls a majority, approximately 79 percent, of our outstanding voting common stock. As a result, we are a controlled company
within the meaning of the NASDAQ corporate governance standards. Under the NASDAQ listing rules, a company of which more than 50 percent of the
voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NASDAQ
corporate governance requirements, including the requirements that:
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a majority of the board of directors consist of independent directors;
the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose
and responsibilities; and
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•
the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities.
These requirements will not apply to us as long as we remain a controlled company, and we currently utilize and intend to continue to utilize some, if
not all, of these exemptions. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate
governance requirements of the NASDAQ.
Our only significant assets are ownership of the non-economic general partner interest and an approximate 23.1 percent limited partner interest in Altus
Midstream, and such ownership may not be sufficient for Altus Midstream to make distributions or loans to us to enable us to pay any dividends on our
Class A Common Stock or satisfy our other financial obligations.
We have no direct operations and no significant assets other than the ownership of the non-economic general partner interest and an approximate 23.1
percent limited partner interest in Altus Midstream. We depend on Altus Midstream for distributions, loans, and other payments to generate the funds
necessary to meet our financial obligations or to pay any dividends with respect to our Class A Common Stock. Subject to certain restrictions, Altus
Midstream generally will be required to (i) make pro rata distributions to its partners, including us, on a quarterly basis in an amount at least sufficient to allow
us to pay our taxes and make tax advances to its limited partners, other than us, in certain circumstances, and (ii) reimburse us for certain corporate and other
overhead expenses. However, legal and contractual restrictions in agreements governing future indebtedness of Altus Midstream, as well as the financial
condition and operating requirements of Altus Midstream, may limit our ability to obtain cash from Altus Midstream. The earnings from, or other available
assets of, Altus Midstream may not be sufficient to make distributions or loans to us to enable us to pay any dividends on our Class A Common Stock or
satisfy our other financial obligations.
We may be required to take write-downs, write-offs, or restructuring and impairment or other charges that could have a significant negative effect on our
financial condition, results of operations, and stock price, which could cause you to lose some or all of your investment.
Although we will conduct due diligence on the assets that we may acquire through the Pipeline Options, or other acquisitions that we may make from
time to time, we cannot assure you that this diligence will reveal all material issues that may be present in the businesses that we acquire, that it would be
possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our control will not later arise. As a result, we
may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if our
due diligence successfully identifies certain risks, unexpected risks may arise, and previously known risks may materialize in a manner not consistent with our
preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report
charges of this nature could contribute to negative market perceptions about the Company or our securities. In addition, charges of this nature may cause us to
be unable to obtain future financing on favorable terms or at all.
There is no guarantee that our warrants will ever be in the money prior to their expiration, and, as such, they may expire worthless.
The exercise price for our warrants is $11.50 per share of Class A Common Stock. There is no guarantee that the public warrants will ever be in the
money prior to their expiration, and, as such, the warrants may expire worthless.
Although we have registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act, such registration may
not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless
basis and potentially causing such warrants to expire worthless.
Although we have registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act, we may not be able
to maintain a current prospectus relating to the Class A Common Stock issuable upon exercise of the warrants until the expiration of the warrants in
accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which
represent a fundamental change in the information set forth in such registration statement or prospectus, the financial statements contained or incorporated by
reference therein are not current or correct, or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the
Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a
cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such
exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption is available. Notwithstanding the above, if our
Class A Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered
security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of warrants who exercise their warrants to do so on
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a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act, and, in the event we so elect, we will not be required to file or maintain in effect a
registration statement, but we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not
available. In no event will we be required to net cash settle any warrant or issue securities or other compensation in exchange for the warrants in the event that
we are unable to register or qualify the shares underlying the warrants under applicable state securities laws. If the issuance of the shares upon exercise of the
warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant,
and such warrant may have no value and expire worthless. If and when the warrants become redeemable by us, we may exercise our redemption right even if
we are unable to register or qualify the underlying shares of Class A Common Stock for sale under all applicable state securities laws.
We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 50 percent of the then-
outstanding public warrants. As a result, the exercise price of your public warrants could be increased, the exercise period could be shortened, and the
number of shares of our Class A Common Stock purchasable upon exercise of a public warrant could be decreased, all without your approval.
Our public warrants were issued in connection with our initial public offering in registered form under a warrant agreement between American Stock
Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of
any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50 percent of the then-outstanding
public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the public warrants
in a manner adverse to a holder if holders of at least 50 percent of the then-outstanding public warrants approve of such amendment. Although our ability to
amend the terms of the public warrants with the consent of at least 50 percent of the then-outstanding public warrants is unlimited, examples of such
amendments could be amendments to, among other things, increase the exercise price of the public warrants, shorten the exercise period, or decrease the
number of shares of our Class A Common Stock purchasable upon exercise of a public warrant.
We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.
We have the ability to redeem outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last reported
sales price of our Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period ending on the third
trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our
redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the
outstanding warrants could force the warrant holders (i) to exercise their warrants and pay the exercise price therefor at a time when it may be
disadvantageous for them to do so, (ii) to sell their warrants at the then-current market price when they might otherwise wish to hold their warrants, or (iii) to
accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market
value of their warrants. None of the private placement warrants issued to Kayne Anderson Sponsor, LLC (“Kayne Anderson Sponsor”) and Apache in
connection with the Business Combination will be redeemable by us so long as they are held by Kayne Anderson Sponsor or its permitted transferees, with
respect to Kayne Anderson Sponsor warrants, or Apache or its permitted transferees, with respect to the Apache warrants.
The Warrants are exercisable for our Class A Common Stock, which will, upon exercise, increase the number of shares eligible for future resale in the
public market and result in dilution to our stockholders.
We have outstanding public warrants to purchase 12,577,370 shares of Class A Common Stock and private placement warrants to purchase 6,364,281
shares of Class A Common Stock. To the extent such warrants are exercised, additional shares of our Class A Common Stock will be issued, which will result
in dilution to the then-existing holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of
substantial numbers of such shares in the public market could adversely affect the market price of our Class A Common Stock.
In the future, Apache may receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock upon the achievement of certain stock
price and operational goals, which would increase the number of shares eligible for future resale in the public market and result in dilution to our
stockholders.
Pursuant to the Contribution Agreement, Apache will have the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common
Stock if certain stock price and operational goals are achieved. To the extent such stock price or operational goals are achieved and Apache becomes entitled
to receive a portion or all of the earn-out consideration, additional shares of our Class A Common Stock will be issued, which will result in dilution to the
then-existing holders of our Class A
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Common Stock and increase the number of shares eligible for resale in the public market. The shares of Class A Common Stock issuable to Apache as earn-
out consideration have been registered for resale with the SEC. Sales of substantial numbers of such shares by Apache in the public market could adversely
affect the market price of our Class A Common Stock.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could
cause the market price of our Class A Common Stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A Common Stock. Additionally, after May
8, 2019, Apache will have the ability to redeem or exchange its 250,000,000 Common Units for shares of Class A Common Stock on a one-for-one basis,
subject to adjustments, and we have the ability to settle such redemption in cash. The Shares of Class A Common Stock issuable to Apache upon redemption
or exchange of Altus Midstream Common Units have been registered for resale with the SEC. Sales of substantial numbers of such shares by Apache in the
public market could adversely affect the market price of our Class A Common Stock.
If our Business Combination benefits do not meet the expectations of investors, stockholders, or financial analysts, the market price of our securities may
decline.
If the benefits of our Business Combination do not meet the expectations of investors or securities analysts, the market price of our securities may
decline from the prevailing level prior to the closing of our Business Combination.
In addition, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Prior to our Business Combination,
there was not a public market for equity securities of the Company and the assets it now operates, and trading in the shares of our Class A Common Stock was
not active. If an active market for our securities develops and continues, the trading price of our securities could be volatile and subject to wide fluctuations in
response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in
our securities, and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities
may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
changes in the market’s expectations about our operating results;
success of competitors;
our operating results failing to meet the expectation of securities analysts or investors in a particular period;
changes in financial estimates and recommendations by securities analysts concerning the Company or the market in general;
operating and stock price performance of other companies that investors deem comparable to the Company;
changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation involving the Company;
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
sales and issuances of additional equity securities in the future to fund our capital expenditures;
the volume of shares of our Class A Common Stock available for public sale;
any major change in our board of directors or management;
sales of substantial amounts of Class A Common Stock by our directors, executive officers, or significant stockholders or the perception that such
sales could occur; and
general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, and acts of war or
terrorism.
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Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in
general and NASDAQ have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the
particular companies affected. The trading prices and valuations of these stocks and of our securities may not be predictable. A loss of investor confidence in
the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of
our business, prospects, financial conditions, or results of operations. A decline in the market price of our securities also could adversely affect our ability to
issue additional securities and our ability to obtain additional financing in the future.
Changes in laws or regulations or a failure to comply with any laws or regulations may adversely affect our business, investments, and results of
operations.
We are subject to laws, regulations, and rules enacted by national, regional, and local governments. In particular, we are required to comply with certain
SEC, NASDAQ, and other legal or regulatory requirements. Compliance with and monitoring of applicable laws, regulations, and rules may be difficult, time
consuming, and costly. Those laws, regulations, and rules and their interpretation and application may also change from time to time, and those changes could
have a material adverse effect on our business, investments, and results of operations. In addition, a failure to comply with applicable laws, regulations, and
rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our
financial condition and results of operations.
We will be subject to income taxes in the United States, and our domestic tax liabilities may be subject to the allocation of expenses in differing
jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
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changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of any tax valuation allowances;
tax effects of stock-based compensation;
costs related to intercompany restructurings;
changes in tax laws, regulations, or interpretations thereof; or
lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in
jurisdictions where we have higher statutory tax rates.
In addition, we may be subject to audits of our income, franchise, sales, and other transaction taxes by U.S. federal and state authorities. Outcomes from
these audits could have an adverse effect on our financial condition and results of operations.
The Tax Cuts and Jobs Act (the “TCJA”) could adversely affect our financial condition and results of operations.
On December 22, 2017, the TCJA was signed into law, which significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among
other things, contains significant changes to corporate taxation, including a permanent reduction of the corporate income tax rate, a partial limitation on the
deductibility of net business interest expense, limitation of the deduction for certain net operating losses to 80 percent of current year taxable income, an
indefinite net operating loss carryforward, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and
modification or repeal of many business deductions and credits. The presentation of our financial condition and results of operations have been recorded in
accordance with GAAP, which requires the financial statement impact of the TCJA to be recorded in the period in which the TCJA was enacted. The financial
statement impact of the TCJA is based on our current interpretation of the provisions contained in the TCJA and the Treasury Regulations and administrative
guidance relating thereto. In the future, the Department of the Treasury and the Internal Revenue Service are expected to release additional Treasury
Regulations and administrative guidance relating to the TCJA. Any significant variance of our current interpretation of this law from any future Treasury
Regulations or administrative guidance could result in a change to the presentation of our financial condition and results of operations and could negatively
affect our business.
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The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to
other public companies that are not emerging growth companies.
We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”). As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies
that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor
attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-
on-pay, say-on-frequency, and say-on-golden parachute voting requirements, and (iii) reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an
emerging growth company until the earliest of (i) the last day of the fiscal year (a) following April 4, 2022, the fifth anniversary of our initial public offering,
(b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market
value of our Class A Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and
(ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or
revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth
company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act
provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth
companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a
standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or
revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public
company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period
difficult or impossible because of the potential differences in accountant standards used.
We cannot predict if investors will find our Class A Common Stock less attractive because we will rely on these exemptions. If some investors find our
Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock, and our stock price may be more
volatile.
Our charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that
may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers, employees, or agents.
The charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court
of Chancery”) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii)
any action asserting a claim against us or any of our directors, officers, or employees of ours arising pursuant to any provision of the DGCL, the charter, or our
bylaws, or (iv) any action asserting a claim against us or any of our directors, officers, or other employees that is governed by the internal affairs doctrine, in
each case except for such claims as to which (a) the Court of Chancery determines that it does not have personal jurisdiction over an indispensable party,
(b) exclusive jurisdiction is vested in a court or forum other than the Court of Chancery, or (c) the Court of Chancery does not have subject matter jurisdiction.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the
provisions of our charter described in the preceding sentence. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial
forum that the stockholder finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us
and such persons. Alternatively, if a court were to find these provisions of our charter inapplicable to, or unenforceable in respect of, one or more of the
specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely
affect our business, financial condition, or results of operations.
Our charter provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange
Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder. Accordingly, our charter provides that the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the
Exchange Act, the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction.
34
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2018, we did not have any unresolved comments from the SEC staff that were received 180 or more days prior to year-end.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any pending or threatened legal proceedings against us at the time of the filing of this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
None.
35
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our common units (“Units”), Class A Common Stock and warrants were each traded on the NASDAQ Capital Market (“NASDAQ”) under the symbols
“KAACU,” “KAAC” and “KAACW,” respectively, prior to the closing of the Business Combination. In connection with the closing of our Business
Combination, our Units ceased trading, and our Class A Common Stock and warrants began trading on the NASDAQ under the symbols “ALTM” and
“ALTMW,” respectively. Our Units commenced public trading on March 30, 2017, and our Class A Common Stock and warrants commenced public trading
on April 27, 2017.
Our warrants ceased trading on the NASDAQ at the opening of business on December 20, 2018 and, since December 20, 2018, are quoted on the over-
the-counter markets operated by OTC Markets Group under the symbol “ALTMW.” The warrants may still be exercised in accordance with their terms to
purchase shares of the Company’s Class A Common Stock. The table below sets forth the high and low prices of our warrants, as reported on the OTC
Marketplace, for the three-month period ended December 31, 2018. Our warrants commenced quotation on the OTC Markets on December 20, 2018, and, as a
result, the quarterly information reflects only a partial quarter. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2018
Warrants
High
Low
$
$
$
$
— $
— $
— $
0.74 $
—
—
—
0.63
On January 31, 2019, our Class A Common Stock had a closing price of $8.10 and our warrants had a closing price of $0.81.
Holders
On January 31, 2019, there were approximately 45 holders of record of our Class A Common Stock.
Dividends
We have not paid any cash dividends on our Class A Common Stock to date and do not intend to pay cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to our definitive proxy statement for our 2019 Annual Meeting of
Stockholders.
Recent Sales of Unregistered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
The following stock price performance graph is intended to allow review of stockholder returns, expressed in terms of the appreciation of the Company’s
common stock relative to both a broad equity market index and a published industry index. The information is included for historical comparative purposes
only and should not be considered indicative of future stock performance. The graph compares the yearly percentage change in the cumulative total
stockholder return on the Company’s common stock with the cumulative total return of both the NASDAQ Composite Index and the Alerian US Midstream
Energy
36
Index from April 30, 2017, through December 31, 2018. The stock performance graph and related information shall not be deemed “soliciting material” or to
be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act
of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN*
Among Altus Midstream Company, the NASDAQ Composite Index
and Alerian US Midstream Energy Index
* $100 invested on 5/2/17 in stock or 4/30/17 in index, including reinvestment of dividends.
Fiscal year ending December 31.
Altus Midstream Company……………………
NASDAQ Composite…………………………
Alerian US Midstream Energy
5/2/2017
2017
2018
$
100.00 $
100.10 $
100.00
100.00
114.59
93.29
79.69
110.42
83.11
37
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for the period ended December 31, 2016 and for the years ended December 2017
and 2018. This information should be read in connection with, and is qualified in its entirety by, the more detailed information in the Company’s consolidated
financial statements set forth in Part IV, Item 15 of this Form 10-K.
Income Statement Data
Total revenues and other
Net loss including noncontrolling interest
Net income attributable to noncontrolling interest
Net loss attributable to Class A common shareholders
Earnings per share
Basic
Diluted
Balance Sheet
Total assets
Total liabilities
Redeemable noncontrolling interest
Total equity
Cash Flow Data
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Non-GAAP Measures
Adjusted EBITDA (1)
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands, except per common share data)
$
78,358 $
(239)
4,149
(4,388)
15,142 $
(18,575)
—
(18,575)
$
(0.03) $
(0.03)
(0.30) $
(0.30)
—
—
—
—
—
—
$
1,857,319 $
130,533
1,940,500
(213,714)
705,751 $
149,701
—
556,050
155,967
96,626
—
59,341
$
661 $
(175,100)
624,374
— $
—
—
$
7,827 $
(5,543) $
—
—
—
—
(1) Adjusted EBITDA is not defined by accounting principles generally accepted in the United States (“GAAP”) and should not be considered an alternative to, or more meaningful than, net income
(loss), operating income (loss), net cash provided by (used in) operating activities or any other measures prepared under GAAP. For definitions and reconciliations of Adjusted EBITDA most
directly comparable GAAP measures, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial
Statements set forth in Part IV, Item 15 of this Form 10-K, and the risk factors and related information set forth in Part I, Item 1A and Part II, Item 7A of this
Form 10-K.
Unless the context otherwise requires, “we,” “us,” “our,” the “Company,” “ALTM” and “Altus” refers to Altus Midstream Company and its
consolidated subsidiaries. “Altus Midstream” refers to Altus Midstream LP and its consolidated subsidiaries.
Overview
Altus Midstream Company, through our ownership interest in Altus Midstream, owns gas gathering, processing and transmission assets in the Permian
Basin of West Texas, anchored by midstream service contracts to service Apache Corporation’s (“Apache”) production from its Alpine High resource play
(“Alpine High”). Additionally, we own, or have options to own, joint venture equity interests in a total of five Permian Basin pipelines (the “Pipeline
Options”), four of which go to various points along the Texas Gulf Coast, providing the Company with additional access to fully integrated, wellhead-to-water
connectivity. Our operations comprise one reportable segment.
We have no independent operations or material assets outside our ownership interest in Altus Midstream, which we report on a consolidated basis. As of
December 31, 2018, Altus Midstream’s assets included approximately 111 miles of natural gas gathering pipelines, approximately 52 miles of residue gas
pipelines with three market connections (with a fourth market connection expected to be in-service by the end of the first quarter of 2019), and approximately
26 miles of NGL Pipelines. Additionally, we own five rich gas processing facilities consisting of approximately 77,000 horsepower with 380 MMcf/d of rich
gas processing capacity and two lean gas facilities consisting of 75,000 horsepower with 400 MMcf/d of lean gas treating capacity. Other assets include an
NGL truck loading terminal with six lease automatic custody transfer (“LACT”) units and eight NGL bullet tanks with 90,000 gallon capacity per tank.
Construction on the assets began in the fourth quarter of 2016, and operations commenced in the second quarter of 2017.
Corporate History
We were originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (“KAAC”), for the purpose of
effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We
completed our public offering in the second quarter of 2017, after which our securities began separate trading on the NASDAQ Capital Market.
On August 8, 2018, KAAC and our then wholly-owned subsidiary, Altus Midstream LP, a Delaware limited partnership, entered into a contribution
agreement (the “Contribution Agreement”) with certain wholly-owned subsidiaries of Apache Corporation (“Apache”), including the Alpine High Entities.
The Alpine High Entities comprise four Delaware limited partnerships (collectively, “Alpine High Midstream”) and their general partner (Alpine High
Subsidiary GP LLC, a Delaware limited liability company), formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing,
and operating midstream oil and gas assets in Alpine High.
On November 9, 2018 (the “Closing Date”) and pursuant to the terms of that certain Contribution Agreement, we acquired from Apache, the entire
equity interests of the Alpine High Entities and Pipeline Options to acquire equity interests in five separate third-party pipeline projects. We refer to the
acquisition of the entities and the Pipeline Options as the “Business Combination.” In exchange, the consideration provided to Apache included economic
voting and non-economic voting shares in Altus Midstream Company and limited partner interests in Altus Midstream. At the time of the Business
Combination, we changed our name from Kayne Anderson Acquisition Corp. to Altus Midstream Company.
Presentation of Financial and Operating Information
Whilst Altus (formerly KAAC) was the surviving legal entity, the Business Combination was accounted for as a reverse recapitalization. Under this
method of accounting, Altus was treated as the acquired company for financial reporting purposes. As a result, the historical operations of Alpine High
Midstream are deemed to be those of the Company. Thus, the financial statements and related information included in this Form 10-K reflect (i) the historical
operating results of Alpine High Midstream prior to the Closing Date (ii) the net assets of Alpine High Midstream at their historical cost (iii) the consolidated
results of Altus and Alpine High Midstream after the Closing Date and (iv) Altus’ equity structure for all periods presented.
39
Altus Midstream Operational Assessment
We use a variety of financial and operational metrics to assess the performance of our operations and growth compared to expected plan estimates. These
metrics include:
• Throughput volumes and associated revenues;
• Operating expenses; and
• Adjusted EBITDA (as defined below).
Sources of Altus Midstream’s Revenues
Our results are driven primarily by the volume of natural gas gathered, processed, compressed, and/or transported. For the periods presented, all of our
revenues were generated through fee-based agreements with Apache, a related party. The volume of natural gas that we gather or process currently depends on
the production level of Apache’s assets in areas we service. Our assets have been, and continue to be, constructed to serve Apache’s development of Alpine
High. The amount and pace of upstream development activity by Apache will impact our aggregate gathering and processing volumes because the production
rate of natural gas wells declines over time. Additionally, other producers are also developing oil and gas plays in surrounding areas that may provide
attractive opportunities to enter into third-party processing and gathering agreements. Producers’ willingness to engage in new drilling is determined by a
number of factors, the most important of which are the prevailing and projected prices of oil, natural gas, and NGLs, the cost to drill and operate a well, the
availability and cost of capital, and environmental and government regulations. We believe that our midstream assets are positioned in a highly economic play
in one of the most active regions for oil and gas exploration and development activities in the United States.
Pursuant to the terms of existing agreements with Apache, we receive fees for gathering, processing, dehydration, compression, treating, conditioning,
and transportation from acreage dedications provided by Apache. Although our current contracts are supported by acreage dedications covering Alpine High,
we are pursuing new supplies of natural gas and processing arrangements with third parties to increase the throughput volume on our systems in addition to
Apache’s projected development of Alpine High. For more information about our relationship with Apache, please see the section entitled Altus’ Relationship
with Apache in Part I, Items 1 and 2 of this Form 10-K.
Operating expenses
Gathering, processing, and transmission
Our gathering, processing, and transmission (“GPT”) expenses primarily comprise those costs that are directly associated with the operations of our
assets. The most significant of these costs are associated with direct labor and supervision, power, repair and maintenance expenses, and equipment rentals.
Fluctuations in commodity prices impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs such as
power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry activity and
demand, thus indirectly impacting the cost of items such as labor and equipment rentals.
Depreciation and accretion
Depreciation on the capitalized costs incurred to acquire and develop our midstream assets is computed based on estimated useful lives and estimated
salvage values. Also included within this expense is the accretion associated with our estimated asset retirement obligations (“ARO”). Depreciation and
accretion expense is expected to increase over the next several years as additional infrastructure is built to facilitate expected volume growth.
General and administrative
General and administrative (“G&A”) expense represents indirect costs and overhead expenditures incurred by the Company, associated with managing
the midstream assets.
In connection with the closing of the Business Combination, the Company entered into a construction, operations and maintenance agreement with
Apache (the “COMA”), pursuant to which Apache will provide certain services related to the design, development, construction, operation, management and
maintenance of Altus Midstream assets, on the Company’s behalf.
40
Under the COMA, Altus Midstream will pay fees to Apache of (i) $3.0 million from November 9, 2018 through December 31, 2019, (ii) $5.0 million for
the period of January 1, 2020 through December 31, 2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021 and (iv) $9.0
million annually, as may be increased thereafter until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for
indirect costs of performing administrative corporate functions, including services for information technology, risk management, corporate planning,
accounting, cash management, and others.
In addition, Apache may be reimbursed for certain internal costs and third-party costs directly incurred in connection with its role as service provider
under the COMA. Apache records G&A costs directly associated with midstream activity, where substantially all the services are rendered for Altus
Midstream, to unique midstream G&A cost centers that are subsequently charged to Altus Midstream on a monthly basis.
Prior to entering into the COMA, to reimburse Apache for certain overhead and service costs incurred on behalf of its Alpine High Entities, a monthly
fee was charged to the midstream entities over the historical period upon commencement of operations. The monthly contract services fee was approximately
$0.3 million per month. The fee charged was calculated based on a variety of factors, such as the estimated percentage of time spent and costs incurred by
Apache to perform administrative services similar to those performed under the COMA.
Taxes other than income
Taxes other than income primarily comprise ad valorem taxes on our midstream assets. Management anticipates future increases in ad valorem taxes, in
line with the construction of its midstream assets. We are also subject to gas utility taxes payable to the Railroad Commission of Texas.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) including noncontrolling interest before interest expense, income taxes, depreciation, and accretion,
and also exclude (when applicable) impairments and other items affecting comparability of results to peers. Altus’ management believes Adjusted EBITDA is
useful for evaluating our operating performance and comparing results of its operations from period-to-period and against peers without regard to financing or
capital structure. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) or any other measure
determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are
significant components in understanding and assessing our financial performance, such as our cost of capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of Adjusted EBITDA. The presentation of Adjusted EBITDA should not be construed as an inference that
our results will be unaffected by unusual or non-recurring items. Additionally, our computation of Adjusted EBITDA may not be comparable to other
similarly titled measures of other companies.
Adjusted EBITDA is not defined in GAAP
The GAAP measures used by Altus that are most directly comparable to Adjusted EBITDA are net income (loss) including noncontrolling interest and
net cash provided by (used in) operating activities. Adjusted EBITDA should not be considered as an alternative to the GAAP measures of net income (loss)
including noncontrolling interest, net cash provided by (used in) operating activities or any other measure of financial performance presented in accordance
with GAAP. Adjusted EBITDA has important limitations as analytical tools because they exclude some, but not all, items that affect net income (loss)
attributable to Altus and net cash provided by (used in) operating activities. Adjusted EBITDA should not be considered in isolation or as a substitute for
analysis of Altus’ results as reported under GAAP. Altus’ definitions of Adjusted EBITDA may not be comparable to similarly titled measures of other
companies in Altus’ industry, thereby diminishing its utility.
Reconciliation of non-GAAP financial measures
Altus’ management compensates for the limitations of Adjusted EBITDA as an analytical tool, by reviewing the comparable GAAP measures,
understanding the differences between Adjusted EBITDA as compared to (as applicable) net income (loss) including noncontrolling interest and net cash
provided by (used in) operating activities, and incorporating this knowledge into its decision-making processes. Altus believes that investors benefit from
having access to the same financial measures that its management uses in evaluating operating results.
41
The following table presents a reconciliation of the GAAP financial measures of net income (loss) including noncontrolling interest and net cash
provided by (used in) operating activities to the non-GAAP financial measure of Adjusted EBITDA.
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands)
Reconciliation of Net loss including noncontrolling interest
Net loss including noncontrolling interest
$
(239) $
(18,575) $
Add:
Financing costs, net
Income tax (benefit) expense
Depreciation and accretion
Less:
Interest income
Adjusted EBITDA
Reconciliation of net cash provided by operating activities to adjusted EBITDA
Net cash provided by operating activities
Interest income
Current income tax benefit
Financing costs, net
Adjustment for non-cash transactions with Affiliate
Changes in working capital
Adjusted EBITDA
Cash Flow Data
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
107
(10,501)
20,068
—
7,041
5,991
1,608
7,827 $
—
(5,543) $
661 $
(1,608)
(1,041)
107
4,238
5,470
7,827 $
661 $
(175,100)
624,374
— $
—
—
—
(9,601)
4,058
(5,543) $
— $
—
—
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Items Affecting Comparability of Our Financial Condition and Results of Operations
Future financial data of Altus Midstream attributable to us may not be comparable to the historical results of our operations for the periods presented due
to the following reasons:
Construction of Assets
Since inception, we have invested capital to develop our assets in the Permian Basin of West Texas. Construction on the assets began in the fourth
quarter of 2016, and operations commenced in the second quarter of 2017. We anticipate additional investments in the continued capital development of our
midstream assets of approximately $325 million in 2019, approximately $185 million in 2020 and approximately $200 million in 2021. The investment will
primarily be directed toward the construction of additional gathering, compression, processing, and transportation facilities, including three forecasted
cryogenic processing plants expected to be in-service during 2019 with combined nameplate capacity of approximately 600 MMcf/d. Additional capacity will
be added over the next several years to facilitate production increases from Alpine High and potential third-party volumes.
42
Joint Venture Equity Options
As part of the Business Combination, we obtained the right, but not the obligation, to exercise the Pipeline Options. Our option to enter into a 15 percent
ownership stake in the Gulf Coast Express natural gas pipeline was exercised in December 2018 for $91.1 million. We expect to exercise the remaining four
Pipeline Options in 2019 and early 2020, resulting in approximately $1.6 billion of total anticipated capital spending for the exercise of these options and the
associated capital requirements required until the associated pipelines are in service. This includes approximately $1.3 billion in 2019 and approximately $340
million in 2020. These options provide Adjusted EBITDA upside potential as well as investment opportunity not reflected in historical results.
The following table provides additional information regarding the exercise of the Pipeline Options:
Expiration Date
Option Percentage
Estimated Exercise Price(3)
EPIC Option (1)
Salt Creek Option
Shin Oak Option
February 1, 2019
January 31, 2020
60 days following in-
service date
Permian Highway
Option (2)
September 4, 2019
15%
50%
33%
27%
$52 million
$51 million
$500 million
$232 million
(1) Subsequent to the balance sheet date, the EPIC Option was exercised on February 1, 2019.
(2) Upon exercising the Permian Highway Pipeline Option, the Company may acquire an additional 1 percent interest in GCX.
(3) Estimated exercise price represents our proportionate share of capital expenditures made with respect to the applicable project prior to such exercise, plus financing charges associated
with such capital expenditures (“exercise price”). There are no costs associated with exercising the Pipeline Options other than the exercise price. However, we will be required to fund
our pro rata share of capital expenditures after the exercise date.
Throughput of Volumes
We currently generate all of our revenues under fee-based agreements with Apache. These agreements are expected to result in cash flow consistency
and minimize our direct exposure to commodity price fluctuations because we generally do not engage in the selling, marketing, or trading of crude oil,
natural gas, or NGLs. Commodity price variances indirectly impact our activities and results of operations over the long term because prices can influence
production rates and investments by Apache and other third parties in the development of new crude oil and natural gas reserves. Generally, drilling and
production activity will increase as crude oil, NGL and natural gas prices increase. The throughput volumes will depend primarily on the volume of natural
gas produced by Apache in Alpine High. Despite projected producer economics in Alpine High, we cannot guarantee volume throughput, and our existing
commercial arrangements with Apache do not provide volume commitments. We believe the Alpine High acreage dedication from Apache is an attractive
alternative to a volume commitment due to the large acreage footprint containing stacked pay potential.
Operation of Assets
As assets are placed into service over the next several years, additional operating expenses are expected to trend higher given the increased capital
expenditures and number of facilities being utilized. The assets currently in service are new, and over time, as anticipated, we project that maintenance and
repair costs will increase as the assets age. We are also subject to operational issues caused by off-specification natural gas transported to our processing
plants.
Income Taxes
Alpine High Midstream is a group of entities that are disregarded as entities separate from their regarded owner, Apache. For U.S. federal income tax
purposes, Apache is a C-corporation under the Internal Revenue Code. As a result, federal taxable income associated with Alpine High Midstream has
historically been included in Apache’s consolidated federal income tax return. Alpine High Midstream is also subject to the Texas margin tax and the Alpine
High Midstream entities have historically been included in the Apache combined Texas margin tax return.
At the closing of the Business Combination, Apache contributed the Alpine High Entities and the Pipeline Options to Altus Midstream with the Alpine
High Midstream entities now treated as disregarded entities under Altus Midstream. Altus Midstream will not be subject to U.S. federal income tax and will
instead pass through its taxable income to its partners - being Apache and Altus - upon closing of the Business Combination. As a result of the change in
ownership structure, Altus will record net income or loss before income taxes attributable to both the controlling and noncontrolling interest; however, Altus
will only report an income tax provision associated with the Company’s investment in Altus Midstream and Altus’ corporate operations. Our management will
continue to assess the Company’s ability to realize any net deferred tax assets.
43
Public Company Expenses
The Company incurs direct, incremental G&A expense as a result of being a publicly traded company, including, but not limited to, costs associated
with preparing annual and quarterly reports to stockholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer
agent fees, incremental director and officer liability insurance costs, and other similar costs. These direct, incremental G&A expenses are expected to increase
in future periods, given the change in the Company’s capital structure upon the closing of the Business Combination.
44
Results of Operations
The following table presents the Company’s results of operations for the periods presented:
REVENUES AND OTHER:
Midstream services — affiliate
Other
Total revenues and other
OPERATING EXPENSES:
Gathering, processing, and transmission
General and administrative
Depreciation and accretion
Taxes other than income
Financing costs, net
Total operating expenses
NET LOSS BEFORE INCOME TAXES
Current income tax benefit
Deferred income tax (benefit) expense
NET LOSS INCLUDING NONCONTROLLING INTEREST
Net income attributable to noncontrolling interest
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
KEY PERFORMANCE METRICS:
Adjusted EBITDA (1)
OPERATING DATA:
Average throughput volumes of natural gas (MMcf/d)
Average volumes of natural gas processed (MMcf/d)
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands)
$
76,750 $
15,142 $
1,608
78,358
53,922
7,368
20,068
7,633
107
89,098
(10,740)
(1,041)
(9,460)
(239)
4,149
—
15,142
16,597
3,991
5,991
97
—
26,676
(11,534)
—
7,041
(18,575)
—
$
$
(4,388) $
(18,575) $
7,827 $
(5,543) $
333
333
69
69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Adjusted EBITDA is not defined by accounting principles generally accepted in the United States (“GAAP”) and should not be considered an alternative to, or more meaningful than, net income
(loss), operating income (loss), net cash provided by (used in) operating activities or any other measures prepared under GAAP. For definitions and reconciliations of Adjusted EBITDA most
directly comparable to GAAP measures, see the section entitled Adjusted EBITDA above.
For purposes of the following discussion, any increases or decreases “for the year ended December 31, 2018” refer to the comparison of “2018 vs.
2017,” and any increases or decreases “for the year ended December 31, 2017” refer to the comparison of “2017 vs. 2016.”
45
Midstream Revenues
The following table summarizes the Company’s revenues for the periods presented:
REVENUES AND OTHER:
Midstream services — affiliate
Other
Total revenues and other
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands)
$
$
76,750 $
1,608
78,358 $
15,142 $
—
15,142 $
—
—
—
2018 vs. 2017. Midstream services revenue from affiliate increased by $61.6 million to $76.8 million for the year ended December 31, 2018, as
compared to $15.1 million for the year ended December 31, 2017. The increase is solely attributed to activity ramp-up following the commencement of
operations on the midstream assets in the second quarter of 2017, resulting in increased throughput volumes as Apache increased production from Alpine
High. All midstream services revenues were generated through fee-based contractual arrangements with Apache. These services include gas gathering,
processing, and transmission. The revenue earned from these services is directly related to the volume of natural gas and NGLs that flow through our systems,
and we do not take ownership of the natural gas or NGLs handled for Apache. Other revenue is related to interest income.
2017 vs. 2016. Midstream services revenue from affiliate increased by $15.1 million for the year ended December 31, 2017, as compared to no
revenues for the period ended December 31, 2016, which is commensurate with the Company achieving its first sales in 2017. The increase is solely attributed
to the Company’s commencement of operations on the midstream assets in the second quarter of 2017, resulting in increased throughput volumes as Apache
increased production from Alpine High. All midstream services revenues were generated through fee-based contractual arrangements with Apache. These
services include gas gathering, transmission, and processing. The revenue earned from these services is directly related to the volume of natural gas and NGLs
that flow through the Company’s systems, and the Company does not take ownership of the natural gas handled for Apache.
Operating Expenses
The following table summarizes the Company’s operating expenses for the periods presented:
Period from May
26, 2016
(Inception)
through
December 31,
2016
Year Ended December 31,
2018
2017
(In thousands)
Gathering, processing, and transmission
$
53,922 $
16,597 $
General and administrative
Depreciation and accretion
Taxes other than income
Financing costs, net
Total operating expenses
Gathering, processing, and transmission expenses
7,368
20,068
7,633
107
3,991
5,991
97
—
$
89,098 $
26,676 $
—
—
—
—
—
—
2018 vs. 2017. GPT expenses increased by $37.3 million to $53.9 million for the year ended December 31, 2018, as compared to $16.6 million for the
year ended December 31, 2017, which is commensurate with activity ramp-up following the commencement of our initial operations in the second quarter of
2017. GPT expenses are expected to increase over the next several years as additional infrastructure is built to facilitate expected volume growth.
46
2017 vs. 2016. GPT expenses increased by $16.6 million to $16.6 million for the year ended December 31, 2017, as compared to no expense for the
period ended December 31, 2016, which is commensurate with the commencement of the Company’s initial operations in the second quarter of 2017.
General and administrative expense
2018 vs. 2017. G&A expense increased by $3.4 million to $7.4 million for the year ended December 31, 2018, as compared to $4.0 million for the year
ended December 31, 2017, which reflects the increase in overhead support services due to organizational growth, coupled with higher expenses incurred
related to insurance, audit and other public filing requirements.
2017 vs. 2016. G&A expense increased by $4.0 million to $4.0 million for the year ended December 31, 2017, as compared to no G&A expense for the
period ended December 31, 2016, which reflects the commencement of the Company’s operations in the second quarter of 2017.
Depreciation and accretion expense
2018 vs. 2017. Depreciation and accretion expense increased by $14.1 million to $20.1 million for the year ended December 31, 2018, as compared to
$6.0 million for the year ended December 31, 2017. The increase represents the timing of placing assets into service following construction activity over the
historical period. Depreciation and accretion expense is expected to increase over the next several years as additional infrastructure is built to facilitate
expected volume growth.
2017 vs. 2016. Depreciation and accretion expense increased by $6.0 million to $6.0 million for the year ended December 31, 2017, as compared to no
depreciation and accretion expense for the period ended December 31, 2016. The increase represents the timing of placing assets into service following
construction activity over the historical period.
Taxes other than income
2018 vs. 2017. Ad valorem taxes were first assessed in the second half of 2017 and were immaterial given the start-up nature of the midstream assets.
Ad valorem taxes increased by $7.5 million to $7.6 million for the year ended December 31, 2018, as compared to $0.1 million for the year ended December
31, 2017. This increase represents the higher tax assessment in the current year related to completion of construction of certain assets.
2017 vs. 2016. Ad valorem taxes were first assessed in the second half of 2017 and were immaterial given the start-up nature of the midstream assets.
Financing costs, net
Financing costs incurred during the period comprised the following:
Interest expense
Amortization of deferred facility fees
Capitalized interest
Total Financing costs, net
Period from May
26, 2016
(Inception)
through
December 31,
2016(1)
Year Ended December 31,
2017(1)
2018(1)
(In thousands)
$
$
8,412 $
107
(8,412)
107 $
7,100 $
—
(7,100)
— $
272
—
(272)
—
(1) Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a portion of interest on its corporate debt in
determining capitalized interest associated with the development of Alpine High infrastructure. Refer to Note 1 — Summary of Significant Accounting Policies and Note 3 — Transactions with
Affiliates in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K for further information.
2018 vs. 2017. Net financing costs increased $0.1 million from 2017, associated with the revolving credit facility entered into by Altus Midstream in
November 2018.
47
Provisions for Income Taxes
2018 vs. 2017. Income tax expense for the year ended December 31, 2018 and 2017 was a benefit of $10.5 million and an expense of $7.0 million,
respectively. Income tax benefit for the year ended December 31, 2018 was primarily impacted by the change in valuation allowance, state taxes, and federal
partnership income not subject to tax by the Company. Income tax expense for the year ended December 31, 2017 was primarily impacted by the change in
valuation allowance, state tax expense, and deferred tax expense associated with the reduction in U.S. income tax rate from 35 percent to 21 percent. Please
refer to Note 10 — Income Taxes set forth in Part IV, Item 15 of this Form 10-K for further discussion.
2017 vs. 2016. Income tax expense for the year ended December 31, 2017 was $7.0 million. There was no income tax provision in 2016. Income tax
expense for the year ended December 31, 2017 was primarily impacted by the change in valuation allowance, state tax expense, and deferred tax expense
associated with the reduction in U.S. income tax rate from 35.0 percent to 21 percent. Alpine High Midstream commenced operations in 2017. No income tax
expense was recorded for the period ended December 31, 2016. Please refer to Note 10 — Income Taxes set forth in Part IV, Item 15 of this Form 10-K for
further discussion.
Key Performance Metrics
2018 vs. 2017. Adjusted EBITDA increased by $13.4 million for the year ended December 31, 2018, primarily due to a $61.6 million increase in
midstream service revenue from affiliate. These amounts were partially offset by a $37.3 million increase in GPT expenses, a $7.5 million increase in ad
valorem taxes, and a $3.4 million increase in G&A expenses. Higher Adjusted EBITDA is primarily attributed to activity ramp-up following the
commencement of operations on the midstream assets in the second quarter of 2017, resulting in increased throughput volumes as Apache increased
production from Alpine High.
2017 vs. 2016. Adjusted EBITDA was a deficit of $5.5 million for the year ended December 31, 2017. Adjusted EBITDA was directly impacted by the
Company’s commencement of operations on the midstream assets in the second quarter of 2017, and the start-up nature of initial services. The Company had
no meaningful Adjusted EBITDA in 2016 as operations commenced in the second quarter of 2017.
Capital Resources and Liquidity
Altus Midstream Overview
Our plans for future infrastructure development and construction of our midstream assets, as well as the exercise of the Pipeline Options still
outstanding, will require significant capital expenditures in excess of current cash on hand and operational cash flow. To date, our primary use of capital has
been for the initial construction of assets. Historically, our primary source of liquidity has been capital contributions from Apache. As our operations
commenced in the second quarter of 2017, limited cash from operations has been generated. While our assets are being constructed, our ongoing sources of
liquidity are expected to be cash generated from operations which are anticipated to increase over time, cash on the balance sheet from the Business
Combination, and cash proceeds from raising capital (such as debt or equity). Management expects throughput and processing volumes to increase
considerably during this initial development phase given the production forecast for acreage that has been dedicated to us. Based on the current financial plan,
we believe our operations and capital program for midstream operations will begin to generate operating cash flows in excess of investment expenditures by
year-end 2021.
Altus Midstream and/or its subsidiaries anticipate using its cash position, revolving credit facility borrowing capacity (as further described below), and
reinvested operating cash flow to fund its near-term capital requirements, including the capital needs upon exercising the Pipeline Options. In addition, Altus
Midstream and/or its subsidiaries expect to evaluate additional sources of financing to facilitate its capital investments, including additional borrowings,
preferred equity, asset-level financing, and common equity.
If we are unable to obtain funds or provide funds as needed for the planned capital expenditure program, we may not be able to finance the capital
expenditures necessary to achieve our expansion plans, exercise the Pipeline Options outstanding, or maintain our business as currently conducted.
Altus Midstream Capital Requirements
During 2018, 2017, and 2016, capital spending for our assets totaled $568.5 million, $505.7 million, and $59.3 million. Prior to the Business
Combination, asset expenditures in 2018, 2017, and 2016 primarily comprise investments in infrastructure for Alpine High made by Apache that were
contributed to Altus Midstream.
We anticipate additional investments in the continued capital development of Altus Midstream’s assets of approximately $325 million in 2019,
approximately $185 million in 2020 and approximately $200 million in 2021.The investment will primarily
48
be directed toward the construction of additional gathering, compression, processing, and transportation facilities, including three forecasted cryogenic
processing plants expected to be in-service during 2019 with combined nameplate capacity of approximately 600 MMcf/d. Additional capacity will be added
over the next several years to facilitate production increases from Alpine High and potential third party volumes. Operating cash flows are not expected to
cover all of these capital investments.
As part of the Business Combination, we obtained the right, but not the obligation, to exercise the Pipeline Options. Our option to enter into a 15 percent
ownership stake in the Gulf Coast Express natural gas pipeline was exercised in December 2018 for $91.1 million. We expect to exercise the remaining four
Pipeline Options in 2019 and early 2020, resulting in approximately $1.6 billion of total anticipated capital spending for the exercise of these options and the
associated capital requirements required until the associated pipelines are in service. This includes approximately $1.3 billion in 2019 and approximately $340
million in 2020.
Liquidity
Cash and cash equivalents
At December 31, 2018, we had $449.9 million in cash and cash equivalents. The majority of the cash is invested in highly liquid, investment-grade
instruments with maturities of three months or less at the time of purchase.
Available credit facilities
In November 2018, Altus Midstream entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to
Altus Midstream’s two, one-year extension options). The agreement for this revolving credit facility provides aggregate commitments from a syndicate of
banks of $450.0 million until (i) the consolidated net income of Altus Midstream and its restricted subsidiaries, as adjusted pursuant to the agreement
(“EBITDA”), for three consecutive calendar months equals or exceeds $175.0 million on an annualized basis and (ii) Altus Midstream has raised at least
$250.0 million of additional capital (such period, the “Initial Period”). Following the Initial Period, the aggregate commitments equal $800.0 million. All
aggregate commitments include a letter of credit subfacility of up to $100.0 million and a swingline loan subfacility of up to $100.0 million. After the Initial
Period, Altus Midstream may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing
lenders. As of December 31, 2018, no borrowings or letters of credit were outstanding under this facility.
The Altus Midstream revolving credit facility is unsecured and is not guaranteed by the Company, Apache Corporation, or any of their respective
subsidiaries.
At Altus Midstream’s option, the interest rate per annum for borrowings under its 2018 credit facility is either a base rate, as defined, plus a margin, or
the London Inter-bank Offered Rate (“LIBOR”), plus a margin. Altus Midstream also pays quarterly a facility fee at a per annum rate on total commitments.
The margins and the facility fee vary based upon (i) the Leverage Ratio until Altus Midstream has a senior long-term debt rating and (ii) such senior long-term
debt rating once it exists. The “Leverage Ratio” is the ratio of (1) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (2)
EBITDA of Altus Midstream and its restricted subsidiaries for the 12-month period ending immediately before such date. At December 31, 2018, the base rate
margin was 0.05 percent, the LIBOR margin was 1.05 percent, and the facility fee was 0.20 percent. A commission is payable quarterly to lenders on the face
amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other
charges are payable to issuing banks.
The credit agreement for Altus Midstream’s revolving credit facility contains restrictive covenants that may limit the ability of Altus Midstream and its
restricted subsidiaries to, among other things, incur additional indebtedness or guaranty indebtedness, sell assets, make investments in unrestricted
subsidiaries, enter into mergers, make certain payments and distributions, incur liens on certain property securing indebtedness, and engage in certain other
transactions without the prior consent of the lenders. Altus Midstream also is subject to a financial covenant under the credit agreement, which requires it to
maintain one of the following financial ratios:
•
•
during the Initial Period, a debt-to-capital ratio of not greater than 30 percent at the end of any fiscal quarter, determined by reference to (i) the
consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (ii) (A) the consolidated partners’ equity of Altus Midstream and its
restricted subsidiaries plus (B) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries; and
after the Initial Period, a Leverage Ratio of not greater than 5.00:1.00 at the end of any fiscal quarter, except that for up to one year following a
qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of any fiscal quarter.
49
There are no clauses in the agreement for Altus Midstream’s 2018 revolving credit facility that permit the lenders to accelerate payments or refuse to
lend based on unspecified material adverse changes. The agreement has no drawdown restrictions or prepayment obligations in the event of a decline in credit
ratings. However, the agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and
other breaches, and if Altus Midstream or any of its restricted subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has
any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and
terminate lending and issuance commitments if Altus Midstream undergoes a specified change in control or has specified pension plan liabilities in excess of
the stated threshold. Altus Midstream was in compliance with the terms of its 2018 credit facility as of December 31, 2018.
There is no assurance that the financial condition of banks with lending commitments to Altus Midstream will not deteriorate. We closely monitor the
ratings of the banks in our bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its
lending commitment.
Off-Balance Sheet Arrangements
Other than the arrangements described herein, the Company has not entered into any transactions, agreements, or other contractual arrangements with
unconsolidated entities that are reasonably likely to materially affect our liquidity or capital resource positions.
At the close of the Business Combination, Apache was granted the right to receive contingent consideration of up to 37,500,000 shares of Class A
Common Stock as follows:
i. 12,500,000 shares if, during the calendar year 2021, the aggregate gathered gas from an area of dedication in Reeves, Pecos, Culberson, and Jeff
Davis Counties in Texas that are assessed a low pressure gathering fee pursuant to that certain Amended and Restated Gas Gathering Agreement,
dated August 8, 2018, between Apache and Alpine High Gathering, LP is equal to or greater than 574,380 million cubic feet.
ii. 12,500,000 shares if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-day-trading period ending
prior to the fifth anniversary of the Closing Date is equal to or great than $14.00 for any 20 trading days within such 30-trading-day period.
iii. 12,500,000 shares if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period ending
prior to the fifth anniversary of the Closing Date is equal to or greater than $16.00 for any 20 trading days within such 30-trading-day period.
For additional information regarding these arrangements, please see Note 11 — Equity in the Notes to the Consolidated Financial Statements set forth in
Part IV, Item 15 of this Form 10-K.
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of December 31, 2018. For additional information regarding these
obligations, please see Note 3 — Transactions with Affiliates, Note 5 — Debt and Financing Costs, and Note 8 — Commitments and Contingencies in the
Notes to the Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K.
Contractual Obligations (1)
COMA fee(2)
Credit facility fee(3)
Operating lease obligations(4)
Total Contractual Obligations
Note
Reference
Note 3
Note 5
Note 3
Total
2019
2020-2021
2022-2023
(In thousands)
2024 &
Beyond
$
23,626 $
2,626 $
12,000 $
9,000 $
7,918
2,060
1,638
534
3,275
1,068
3,005
458
$
33,604 $
4,798 $
16,343 $
12,463 $
—
—
—
—
(1) This table does not include the Company’s liability for dismantlement, abandonment, and restoration costs of midstream assets. For additional information regarding these liabilities, please
see Note 7 — Asset Retirement Obligations in the Notes to the Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K.
(2) Amounts represent annual general and administrative fees established under the COMA for payment to Apache for certain administrative and operational support services being provided to
Altus Midstream. The annual general and administrative fee cannot be increased until after the fourth anniversary of the Business Combination and will be redetermined annually thereafter.
50
(3) Facility fee obligations are associated with the revolving credit facility’s total aggregated commitments. The fee assumes unused total commitments of $800 million for all periods presented.
(4) Amounts include long-term lease payments to Apache under the Lease Agreement for office space, warehouse and storage facilities located in Reeves County, Texas. The obligation amount
is determined on the base rental charge. The initial term of the Lease Agreement is for four years and may be extended by Altus Midstream for three additional, consecutive periods of
twenty-four months.
As further described above under the section entitled Items Affecting Comparability of Our Financial Condition and Results of Operations, we obtained
the Pipeline Options from Apache at the closing of the Business Combination. Upon exercising each individual option, the Company may be required to fund
future capital expenditures for its equity interest share in the development of the pipeline as referenced. In December 2018, the Company exercised its option
for a 15 percent equity interest in the GCX LLC Pipeline. The Company estimates it will incur $175.3 million of additional capital contributions during 2019
for its equity interest associated with the remaining construction costs in this joint venture pipeline.
Additionally, Altus has other planned capital and investment projects that are discretionary in nature, with no substantial contractual obligations made in
advance of the actual expenditures. These expenditures align with the Company’s current infrastructure development plan and growth forecasts. The
Company’s midstream assets are anchored by Altus Midstream’s existing fee-based revenue agreements, which are underpinned by acreage dedications
covering Alpine High. There are no minimum volume or firm transportation commitments. Pursuant to these agreements, Altus Midstream is obligated to
perform low and high pressure gathering, processing, dehydration, compression, treating, conditioning, and transportation on all volumes produced from the
dedicated acreage, so long as Apache has the right to market such gas.
Altus Midstream may also be subject to various contingent obligations that become payable only if certain events or rulings were to occur. The inherent
uncertainty surrounding the timing of and monetary impact associated with these events or rulings prevents any meaningful accurate measurement, which is
necessary to assess settlements resulting from litigation or environmental matters. As of December 31, 2018, there were no accruals or loss contingencies. For
a detailed discussion of the Company’s environmental and legal contingencies, please see Note 8 — Commitments and Contingencies in the Notes to
Consolidated Financial Statements set forth in Part IV, Item 15 of this Form 10-K.
Insurance Program
The Company has the benefit of insurance policies that include coverage for physical damage to our assets, general liabilities, business interruption
insurance, sudden and accidental pollution, and other risks. Our insurance coverage is subject to deductibles or retentions that we must satisfy prior to
recovering on insurance. Additionally, our insurance is subject to policy exclusions and limitations. There is no assurance that our insurance will adequately
protect us against liability from all potential consequences and damages.
Future insurance coverage for our industry could increase in cost and may include higher deductibles or retentions. In addition, some forms of insurance
may become unavailable.
Critical Accounting Policies and Estimates
We prepare our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States,
which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the
accompanying notes. We identify certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition,
results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting
matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection,
and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Expenditures which extend the useful lives of existing property,
plant and equipment, maintain the long-term system operating capacity of our assets, or increase system throughput or capacity from current levels are
capitalized. We capitalize construction-related direct labor and incremental costs, while repair and maintenance costs are expensed as incurred.
When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are
reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts. Uncertainties that may impact
these estimates include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and
abandonment requirements, economic conditions,
51
and supply and demand in the area. Depreciation is computed over the asset’s estimated useful life using the straight line method based on estimated useful
lives and asset salvage values. The estimated lives are 30 years for plants and facilities and 40 years for pipelines.
When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any
profit or loss on disposition is recognized as gain or loss.
Impairment of Long-lived Assets
Long-lived assets used in operations, including gathering, processing, and transmission facilities, are evaluated for potential impairment when events or
changes in circumstances indicate that their carrying amounts may not be recoverable from expected undiscounted cash flows from the use and eventual
disposition of an asset. If the carrying amount of the asset is not expected to be recoverable from future undiscounted cash flows, an impairment may be
recognized. Any impairment is measured as the excess of the carrying amount of the asset over its estimated fair value.
In assessing long-lived assets for impairments, our management evaluates changes in our business and economic conditions and their implications for
recoverability of the assets’ carrying amounts. Currently all of our revenues arise from services provided to Apache. Therefore, significant downward
revisions in reserve estimates or changes in future development plans by Apache, to the extent they affect our operations, may necessitate assessment of the
carrying amount of our affected assets for recoverability.
Such assessment requires application of judgment regarding the use and ultimate disposition of the asset, long-range revenue and expense estimates,
global and regional economic conditions, including commodity prices and drilling activity by our customers, as well as other factors affecting estimated future
net cash flows. The measure of impairments to be recognized, if any, depends upon management’s estimate of the asset’s fair value, which may be determined
based on the estimates of future net cash flows or values at which similar assets were transferred in the market in recent transactions, if such data is available.
We have not recognized any impairments of long-lived assets since inception.
Income Taxes
Our operations are subject to U.S. federal and state taxation on income. We record deferred tax assets and liabilities to account for the expected future
tax consequences of events that have been recognized in our financial statements and our tax returns. We routinely assess the ability to realize our deferred tax
assets. If we conclude that it is more likely than not that some portion or all of the deferred tax assets will not be realized under accounting standards, the tax
asset would be reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the determination of future taxable income, including
factors such as future operating conditions.
The Company regularly assesses and, if required, establishes accruals for uncertain tax positions that could result from assessments of additional tax by
taxing jurisdictions where the Company operates. The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the
position will be sustained upon examination, based on the technical merits of the position. These accruals for uncertain tax positions are subject to a
significant amount of judgment and are reviewed and adjusted on a periodic basis in light of changing facts and circumstances considering the progress of
ongoing tax audits, case law, and any new legislation. The Company does not currently have any uncertain tax positions that would require recognition.
52
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to various market risks, including the effects of adverse changes in commodity prices and credit risk as described below.
Commodity Price Risk
Currently all of our midstream service agreements are fee-based, with no direct commodity price exposure to oil, natural gas, or NGLs. However, we are
indirectly exposed to adverse changes in commodity prices through Apache and potential third-party customers’ economic decisions to develop and produce
oil and natural gas from which we receive revenues for providing gathering, processing and transmission services.
Fluctuations in commodity prices also impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs
such as power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry
activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals. Management regularly reviews our potential exposure to
commodity price risk, and may periodically enter into financial or physical arrangements intended to mitigate potential volatility.
Credit Risk
We are subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, Apache or potential third-party
customers. Any increase in the nonpayment and nonperformance by, or the insolvency or liquidation of, our customers could adversely affect our results of
operations.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required to be filed under this Item 8 are presented on pages F-1 through F-31 in Part
IV, Item 15 of this Form 10-K and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 17, 2018, the board of directors of Altus Midstream Company, upon the recommendation of the Audit Committee of the board of
directors, unanimously resolved (i) to dismiss WithumSmith+Brown, PC (“Withum”) as its independent public accountants and (ii) to engage Ernst & Young
LLP (“EY”) to serve as the Company’s independent public accountants for the fiscal year ending December 31, 2018. This decision followed the
consummation of the Business Combination on November 9, 2018. Please refer to the Form 8-K filed on December 17, 2018 for additional information.
There have been no disagreements with the accountants during the periods presented.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and the Company’s Chief Financial Officer and
Treasurer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018, the end
of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure
controls and procedures were effective, providing effective means to ensure that the information we are required to disclose under applicable laws and
regulations is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and accumulated and
communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required
disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The management report called for by Item 308(a) of Regulation S-K is incorporated herein by reference to the “Report of Management on Internal
Control Over Financial Reporting,” included on Page F-1 in Part IV, Item 15 of this Form 10-K.
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act and is not required to
comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act. As such, this annual report
on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2018, we implemented changes to internal control over financial reporting related to the Business Combination
which closed on November 9, 2018. The modified and new controls have been designed to address risks associated with changes to the business after the
completion of the Business Combination, including modifications to accounting policies and contract review controls. There were no other changes in our
internal control over financial reporting during the quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
54
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information set forth under the captions “Election of Directors” and “Executive Officers of the Company” in the proxy statement relating to the
Company’s 2019 annual meeting of shareholders (the “Proxy Statement”) is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions “Executive Compensation” and “APPROVAL OF THE OMNIBUS COMPENSATION PLAN” in the Proxy
Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information set forth under the captions “Securities Ownership and Principal Holders,” “Securities Authorized for Issuance Under Equity
Compensation Plans” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See Note 3 — Transactions with Affiliates of our financial statements, under Item 8 above, for information regarding payments to Apache Corporation.
The information set forth under the captions “Certain Business Relationships and Transactions” and “Director Independence” in the Proxy Statement is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth under the caption “Ratification of Appointment of Independent Auditors” in the Proxy Statement is incorporated herein by
reference.
55
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents included in this report:
1. Financial Statements
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and Period Ended December 31, 2016
Consolidated Balance Sheets at December 31, 2018 and December 31, 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and Period Ended December 31, 2016
Consolidated Statements of Changes in Equity and Noncontrolling Interest for the Years Ended December 31, 2018, 2017 and Period
Ended December 31, 2016
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required, not applicable or the information
required to be presented is included in the Company’s financial statements and related notes.
F-1
F-2
F-3
F-4
F-5
F-6
F-7
3. Exhibits
See Index to Exhibits of this report.
ITEM 16. FORM 10-K SUMMARY
None
56
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
SIGNATURES
ALTUS MIDSTREAM COMPANY
/s/ Clay Bretches
Clay Bretches
Chief Executive Officer and President
Dated: February 28, 2019
The officers and directors of Altus Midstream Company, whose signatures appear below, hereby constitute and appoint Clay Bretches and Ben C.
Rodgers, and each of them (with full power to each of them to act alone), the true and lawful attorney-in-fact to sign and execute, on behalf of the
undersigned, any amendment(s) to this report and each of the undersigned does hereby ratify and confirm all that said attorneys shall do or cause to be done
by virtue thereof.
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Clay Bretches
Clay Bretches
/s/ Ben C. Rodgers
Ben C. Rodgers
/s/ Mark Borer
Mark Borer
/s/ Robert W. Bourne
Robert W. Bourne
/s/ Staci L. Burns
Staci L. Burns
/s/ C. Doug Johnson
C. Doug Johnson
/s/ D. Mark Leland
D. Mark Leland
/s/ Kevin S. McCarthy
Kevin S. McCarthy
/s/ W. Mark Meyer
W. Mark Meyer
/s/ Robert S. Purgason
Robert S. Purgason
/s/ Jon W. Sauer
Jon W. Sauer
Director, Chief Executive Officer, and President
February 28, 2019
(principal executive officer)
Director, Chief Financial Officer, and Treasurer
February 28, 2019
(principal financial officer)
Director
February 28, 2019
Director, Vice President, Business Development -
February 28, 2019
Midstream and Marketing
Director
Director
Director
Director
Director, Chairman of the Board, and Senior Vice
President, Energy Technology, Data Analytics &
Commercial Intelligence
Director
Director, Senior Vice President
57
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for the preparation and integrity of the consolidated financial statements appearing in this annual report on
Form 10-K. The financial statements were prepared in conformity with accounting principles generally accepted in the United States and include amounts that
are based on management’s best estimates and judgments.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control over financial
reporting is supported by a program of internal audits and appropriate reviews by management, written policies and guidelines, careful selection and training
of qualified personnel and a written code of business conduct adopted by our Company’s board of directors, applicable to all Company directors and all
officers of our Company.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be
effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013). Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of
December 31, 2018.
The Company’s independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit
Committee of the Company’s board of directors. Ernst & Young LLP have audited and reported on the consolidated financial statements of Altus Midstream
Company and its subsidiaries. The report of the independent auditors follows this report on page F-2.
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act and is not required to
comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act. As such, this annual report
on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
/s/ Clay Bretches
Chief Executive Officer and President
(principal executive officer)
/s/ Ben C. Rodgers
Chief Financial Officer and Treasurer
(principal financial officer)
/s/ Rebecca A. Hoyt
Senior Vice President, Chief Accounting Officer and Controller
(principal accounting officer)
F-1
Houston, Texas
February 28, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Altus Midstream Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Altus Midstream Company (the Company) as of December 31, 2018 and 2017, and
the related consolidated statements of operations, cash flows and changes in equity and noncontrolling interest for each of the two years in the period ended
December 31, 2018 and the period from inception (May 26, 2016) through December 31, 2016, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018
and the period from inception (May 26, 2016) through December 31, 2016, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Houston, Texas
February 28, 2019
F-2
ALTUS MIDSTREAM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands, except per common share data)
REVENUES AND OTHER:
Midstream services — affiliate (Note 3)
Other
Total revenues and other
OPERATING EXPENSES:
Gathering, processing, and transmission (1)
General and administrative (2)
Depreciation and accretion
Taxes other than income
Financing costs, net
Total operating expenses
NET LOSS BEFORE INCOME TAXES
Current income tax benefit
Deferred income tax (benefit) expense
NET LOSS INCLUDING NONCONTROLLING INTEREST
Net income attributable to noncontrolling interest
$
76,750 $
15,142 $
1,608
78,358
53,922
7,368
20,068
7,633
107
89,098
(10,740)
(1,041)
(9,460)
(239)
4,149
—
15,142
16,597
3,991
5,991
97
—
26,676
(11,534)
—
7,041
(18,575)
—
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
$
(4,388) $
(18,575) $
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS, PER
SHARE (3)
Basic
Diluted
WEIGHTED AVERAGE SHARES (3)
Basic
Diluted
$
(0.03) $
(0.03)
(0.30) $
(0.30)
173,125
173,125
62,259
62,259
6,293
6,293
(1)
Includes amounts of $9.1 million and $4.7 million to related parties for the year ended December 31, 2018 and 2017, respectively. Refer to Note 3 — Transactions with Affiliates.
(2)
Includes amounts of $6.5 million and $4.0 million to related parties for the year ended December 31, 2018 and 2017, respectively. Refer to Note 3 — Transactions with Affiliates.
(3) For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business
Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
ALTUS MIDSTREAM COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Revenue receivables (Note 3)
Inventories and other
Prepaid assets and other
PROPERTY, PLANT AND EQUIPMENT:
Gathering, processing and transmission facilities
Less: Accumulated depreciation and amortization
OTHER ASSETS:
Joint venture equity interest
Deferred tax asset
Deferred charges and other
Total assets
December 31,
2018
2017
(In thousands, except common share data)
$
449,935 $
10,914
5,802
1,379
468,030
—
5,422
743
—
6,165
1,251,217
(24,320)
1,226,897
705,166
(5,580)
699,586
91,100
67,558
3,734
162,392
—
—
—
—
$
1,857,319 $
705,751
LIABILITIES, NONCONTROLLING INTEREST, AND EQUITY
CURRENT LIABILITIES:
Accounts payable to Apache Corporation (Note 1)
Other current liabilities (Note 6)
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Asset retirement obligation
Deferred tax liability
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 8)
Redeemable noncontrolling interest
EQUITY:
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 74,929,305 shares issued and
outstanding at December 31, 2018 (1)
Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 250,000,000 shares issued and
outstanding at December 31, 2018 (1)
Additional paid-in capital
Accumulated deficit
$
13,595 $
84,926
98,521
29,369
2,643
32,012
130,533
1,940,500
7
25
—
(213,746)
(213,714)
Total liabilities, noncontrolling interest, and equity
$
1,857,319 $
—
124,471
124,471
18,189
7,041
25,230
149,701
—
—
14
574,611
(18,575)
556,050
705,751
(1) For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business
Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-4
ALTUS MIDSTREAM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from May
26, 2016
(Inception)
through
December 31,
2016 (1)
For the Year Ended December 31,
2018 (1)
2017 (1)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss including noncontrolling interest
Adjustments to reconcile net loss to net cash provided by operating activities:
$
(239) $
(18,575) $
Depreciation and accretion
Deferred income tax (benefit) expense
Adjustment for non-cash transactions with affiliate(1)
Changes in operating assets and liabilities:
(Increase) decrease in inventories
(Increase) decrease in prepayments and other
(Increase) decrease in revenue receivables (Note 3)
(Increase) decrease in interest receivable
Increase (decrease) in accrued expenses
Increase (decrease) in accounts payable to affiliate
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Joint venture equity interest
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Recapitalization transaction (Note 2)
Deferred facility fees
NET CASH PROVIDED BY FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Supplemental cash flow data:
Accrued capital expenditures (2)
$
$
20,068
(9,460)
(4,238)
(5,058)
(1,045)
(5,602)
(226)
1,977
4,484
661
(84,000)
(91,100)
(175,100)
628,154
(3,780)
624,374
449,935
—
449,935
$
5,991
7,041
9,601
(743)
—
(5,422)
—
2,107
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
89,810 $
122,364 $
96,626
(1)
In all periods prior to the Business Combination, the Company had no banking or cash management activities. Transactions with Apache and asset transfers to and from the Company were not
settled in cash and are therefore reflected as a component of equity and redeemable noncontrolling interests on the Consolidated Balance Sheet. In addition to the above, Apache contributed its
investments in gas gathering, processing and transmission facilities of approximately $484.5 million, $505.7 million, and $59.3 million that are included within equity and redeemable
noncontrolling interests for the year-ended December 31, 2018, 2017 and 2016 respectively. Refer to Note 3 — Transactions with Affiliates for more information.
(2)
Includes $9.1 million of capital expenditures due to Apache, pursuant to the terms of the Construction, Operations and Maintenance Agreement entered into at the closing of the Business
Combination. Refer to Note 3 — Transactions with Affiliates for more information.
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-5
ALTUS MIDSTREAM COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND NONCONTROLLING INTEREST
Redeemable
Noncontrolling
Interest
Class A Common Stock
Shares(1)
Amount(1)
Class C Common Stock
Amount(1)
Shares(1)
Additional
Paid-in Capital
Retained Earnings
(Accumulated
Deficit)
Total Equity
Balance at May 26, 2016
$
Issuance of shares
Net income (loss)
Balance at December 31, 2016
Issuance of shares
Net loss
Balance at December 31, 2017
Issuance of shares
Effect of reverse recapitalization
Net income (loss)
Change in redemption value of
noncontrolling interest
Balance at December 31, 2018
$
—
—
—
—
—
—
—
—
1,272,066
4,149
664,285
1,940,500
— $
423
—
423
3,542
—
3,965
3,348
67,616
—
—
74,929
$
(In thousands)
—
—
—
—
—
—
—
—
7
—
—
7
— $
14,464
—
14,464
121,075
—
135,539
114,461
—
—
—
250,000 $
— $
2
—
2
12
—
14
11
—
—
—
25 $
— $
59,338
—
59,338
515,273
—
574,611
480,283
(581,392)
—
(473,502)
— $
— $
—
—
—
—
(18,575)
(18,575)
—
—
(4,388)
—
59,340
—
59,340
515,285
(18,575)
556,050
480,294
(581,385)
(4,388)
(190,783)
(213,746) $
(664,285)
(213,714)
(1) For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business
Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
The accompanying notes to consolidated financial statements are an integral part of this statement.
F-6
ALTUS MIDSTREAM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless the context otherwise requires, “we,” “us,” “our,” the “Company,” “ALTM” and “Altus” refers to Altus Midstream Company and its
consolidated subsidiaries. “Altus Midstream” refers to Altus Midstream LP and its consolidated subsidiaries.
Nature of Operations
Through its consolidated subsidiaries, Altus Midstream Company owns gas gathering, processing and transmission assets in the Permian Basin of West
Texas. Construction on the assets began in the fourth quarter of 2016, and operations commenced in the second quarter of 2017. Additionally, we own, or have
options to own, joint venture equity interests in a total of five Permian Basin pipelines. The Company’s operations consist of one reportable segment.
Organization
Altus originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (“KAAC”), for the purpose of
effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The
Company closed its public offering in the second quarter of 2017.
On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and wholly-owned subsidiary of the Company. On August 8,
2018, KAAC and Altus Midstream LP entered into a contribution agreement (the “Contribution Agreement”) with certain wholly-owned subsidiaries of
Apache Corporation (“Apache”), including the Alpine High Entities. The Alpine High Entities comprise four Delaware limited partnerships (collectively,
“Alpine High Midstream”) and their general partner (Alpine High Subsidiary GP LLC, a Delaware limited liability company), formed by Apache between
May 2016 and January 2017 for the purpose of acquiring, developing, and operating midstream oil and gas assets in the Alpine High resource play (“Alpine
High”).
On November 9, 2018 (the “Closing Date”) and pursuant to the terms of that certain Contribution Agreement, KAAC acquired from Apache, the entire
equity interests of the Alpine High Entities and options to acquire joint venture equity interests in five separate third-party pipeline projects (the “Pipeline
Options”). The acquisition of the entities and the Pipeline Options is referred to herein as the “Business Combination.” In exchange, the consideration
provided to Apache included equity consideration, comprising economic voting and non-economic voting shares in KAAC, and limited partner interests in
Altus Midstream.
Following the Closing Date and in connection with the completion of the Business Combination:
• KAAC changed its name to Altus Midstream Company;
•
the Company’s wholly-owned subsidiary, Altus Midstream GP LLC, a Delaware limited liability company (“Altus Midstream GP”), is the sole
general partner of Altus Midstream;
• Altus Midstream Company holds a 23.1 percent controlling interest in Altus Midstream;
• Altus Midstream Company operates its business through Altus Midstream and its subsidiaries, which include Alpine High Midstream; and
•
the shares of Class A common stock, $0.0001 par value (“Class A Common Stock”) continued trading on the NASDAQ under the new symbol
“ALTM.”
Refer to Note 2 — Recapitalization Transaction, for further discussion of the ownership structure and the partnership structure of Altus Midstream.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
Principles of Consolidation
The consolidated financial results of Altus Midstream are included in Altus Midstream Company’s consolidated financial statements due to Altus
Midstream Company’s 100 percent ownership interest in Altus Midstream GP, and Altus Midstream GP’s
F-7
control of Altus Midstream. Altus Midstream Company has no independent operations or material assets other than its partnership interests in Altus
Midstream and related deferred tax asset. Altus Midstream Company’s financial statements differ from those of Altus Midstream primarily as a result of the
presentation of noncontrolling interest ownership attributable to the limited partner interests in Altus Midstream held by Apache (refer to Note 10 — Income
Taxes and Note 11 — Equity for further information).
Variable interest entity
Altus Midstream is a variable interest entity (“VIE”) because the partners in Altus Midstream with equity at risk lack the power, through voting or
similar rights, to direct the activities that most significantly impact Altus Midstream’s economic performance.
A reporting entity that concludes it has a variable interest in a VIE must evaluate whether it has a controlling financial interest in the VIE, such that it is
the VIE’s primary beneficiary and should consolidate. Altus Midstream Company is the primary beneficiary of, and therefore should consolidate Altus
Midstream because (i) Altus Midstream Company has the power to direct the activities of Altus Midstream that most significantly affect its economic
performance and (ii) Altus Midstream Company has the right to receive benefits or the obligation to absorb losses that could be potentially significant to Altus
Midstream.
Redeemable noncontrolling interest
Altus Midstream Company’s redeemable noncontrolling interest presented in the consolidated financial statements consist of common units representing
limited partner interests in Altus Midstream held by Apache. Pursuant to certain provisions of the partnership agreement of Altus Midstream (as amended in
connection with the Business Combination, the “LPA”), the limited partner interests held by Apache are equal to the number of shares of the Company’s Class
C common stock, $0.0001 par value (“Class C Common Stock”) held by Apache (see Note 2 — Recapitalization Transaction for further information).
The Company initially recorded the redeemable noncontrolling interest upon the issuance of the common units to Apache as part of the Business
Combination and based on the recapitalization value ascribed at the Closing Date to the limited partner interest. All, or a portion of the common units may be
redeemed at Apache’s option. The Company has the ability to settle the redemption option either (i) in shares of Class A Common Stock on a one-for-one
basis or (ii) in cash (based on the fair market value of the Class A Common Stock as determined pursuant to the Contribution Agreement), subject to
customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Upon the future redemption or exchange of common units held
by Apache, a corresponding number of shares of Class C Common Stock will be cancelled.
The Company’s policy is to record the redeemable noncontrolling interest represented by the common units held by Apache at the higher of (1) its initial
fair value plus accumulated earnings/losses associated with the noncontrolling interest or (2) the redemption value as of the balance sheet date.
See discussion and additional detail further discussed in Note 2 — Recapitalization Transaction and Note 11 — Equity.
Joint venture equity interests
The Company follows the equity method of accounting when it does not exercise control over the joint venture, but can exercise significant influence
over the operating and financial policies of the joint venture. Under this method, joint venture equity interests are carried originally at acquisition cost,
increased by the proportionate share of the joint venture’s net income and by contributions made, and decreased by the proportionate share of the joint
venture’s net losses and by distributions received. Please refer to Note 9 — Joint Venture Equity Interest, for further details of our equity interests.
Financial statement presentation
While Altus Midstream Company (formerly KAAC) was the surviving legal entity, the Business Combination was accounted for as a reverse
recapitalization. As such, Altus Midstream Company was treated as the acquired company for financial reporting purposes. This determination was primarily
based on the following facts and circumstances, immediately following the Closing Date:
• Alpine High Midstream operations comprise the ongoing operations of the combined entity;
• Alpine High Midstream’s ultimate parent company immediately preceding the Business Combination (Apache) is the largest single owner of Altus
Midstream Company voting common stock (see Note 11 — Equity); and
• Apache-nominated directors comprise a majority of the board of directors of the combined entity.
F-8
In accordance with guidance applicable to these circumstances, the Business Combination was considered to be a capital transaction in substance.
Accordingly, for accounting purposes, the transaction was treated as the equivalent of the Alpine High Entities issuing stock for the net assets of Altus
Midstream Company, accompanied by a recapitalization.
As a result of Alpine High Midstream being the accounting acquirer, the historical operations of Alpine High Midstream are deemed to be those of the
Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Alpine High Midstream prior to the Business
Combination; (ii) the net assets of Alpine High Midstream at their historical cost; (iii) the consolidated results of the Company and Alpine High Midstream
following the closing of the Business Combination; and (iv) the Company’s equity structure for all periods presented. No step-up in basis of the contributed
assets and no intangible assets or goodwill was recorded in the Business Combination.
Use of Estimates
Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from
other sources. Altus evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in
preparation of its financial statements and changes in these estimates are recorded when known.
Fair Value Measurements
The Company’s redeemable noncontrolling interest, as presented in the consolidated financial statements, is reported at fair value on a recurring basis
on the Company’s Consolidated Balance Sheet. Accounting Standards Codification (“ASC”) 820-10-35 - Fair Value Measurement (“ASC 820”), provides a
hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which
consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3
valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market
approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company
utilizes the market approach in recurring fair value measurement of the redeemable noncontrolling interest. The Company has classified this fair value
assessment as Level 1 in the fair value hierarchy. For further detail, please refer to Note 11 — Equity.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents.
These investments are carried at cost, which approximates fair value. As of December 31, 2018, Altus Midstream had $449.9 million of cash and cash
equivalents. Altus Midstream had no cash and cash equivalents as of December 31, 2017.
Revenue Receivable
For each period presented and upon commencement of operations, all revenues were generated from midstream services provided to Apache, which
included gathering, processing and transmission of natural gas. Revenue receivables represents revenues accrued which have been earned by Altus Midstream
but not yet invoiced to Apache.
Pursuant to the terms of the Contribution Agreement, all accounts receivable from Apache (including revenue receivables) on or prior to September 30,
2018 are for the account of Apache. No cash settlement of such balances was contemplated prior to September 30, 2018 and as such, revenue receivables
generated prior to this date were treated as a reduction to additional paid-in capital within equity.
Inventories
Inventories consist principally of equipment and material, stated at the lower of cost or net realizable value.
F-9
Property, Plant and Equipment
Property, plant and equipment consists of the costs incurred to acquire and construct midstream assets including capitalized interest. Property, plant and
equipment is stated at the lower of historical cost less accumulated depreciation, or fair value, if impaired.
Depreciation
Depreciation is computed over each asset’s estimated useful life using the straight-line method based on estimated useful lives and estimated asset
salvage values. Determination of depreciation expense requires judgment regarding the estimated useful lives and salvage values of property, plant and
equipment. As circumstances warrant, depreciation estimates are reviewed to determine if any changes in the underlying assumptions are necessary. The
estimated lives are 30 years for plants and facilities and 40 years for pipelines. For the twelve months ended December 31, 2018 and 2017 depreciation
expense totaled $18.7 million and $5.6 million, respectively. No depreciation expense was recorded during 2016 as the assets had not yet been placed in
service.
Asset Retirement Obligations and Accretion
The initial estimated asset retirement obligation related to property, plant and equipment and subsequent revisions are recorded as a liability at fair value,
with an offsetting asset retirement cost recorded as an increase to the associated property, plant and equipment on the consolidated balance sheet. Revisions in
estimated liabilities can result from changes in estimated inflation rates, changes in service and equipment costs, and changes in the estimated timing of an
asset’s retirement. Asset retirement costs are depreciated using a systematic and rational method similar to that used for the associated property, plant and
equipment. Accretion expense on the liability is recognized over the estimated productive life of the related assets and is included on the Consolidated
Statements of Operations under “Depreciation and accretion.” For the twelve months ended December 31, 2018 and 2017 accretion expense totaled $1.3
million and $0.4 million, respectively.
Capitalized Interest
Interest is capitalized as part of the historical cost of developing and constructing assets. Significant midstream development assets that have not
commenced operations qualify for interest capitalization. Capitalized interest is determined by multiplying Altus Midstream’s weighted-average borrowing
cost of debt by the average amount of qualifying midstream assets. The amount of capitalized interest cannot be greater than actual interest incurred. Once an
asset is placed into service, the associated capitalization of interest ceases and is expensed through depreciation over the asset’s useful life. Subsequent to the
Closing Date, the Company incurred approximately $0.2 million of interest expense, which was capitalized.
Accounts Payable to Apache Corporation
The accounts payable to Apache Corporation represents the net result of Altus Midstream’s monthly revenue, operating expenditures and other
transactions to be settled with Apache as provided under the Construction, Operations and Maintenance Agreement (the “COMA”). Generally, cash in this
amount will be transferred to Apache in the month after the Company’s transactions are processed and the net results of operations are determined. See
discussion and additional detail in Note 3 — Transactions with Affiliates.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (ASC 606),” using
the modified retrospective method. The Company elected to evaluate all contracts at the date of initial application. There was no impact to the opening
balance of retained earnings as a result of the adoption.
F-10
The following table presents a disaggregation of the Company’s midstream services revenue by service type.
MIDSTREAM SERVICES REVENUE — AFFILIATE:
Gas gathering
Gas processing
Transmission
NGL transmission
For the Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands)
$
7,656 $
820 $
53,108
15,848
138
11,037
3,285
—
$
76,750 $
15,142 $
—
—
—
—
—
The Company currently generates all its revenues by providing the above services, pursuant to separate agreements entered into with Apache. These
agreements have no minimum volume commitments or firm transportation commitments, instead they are underpinned by acreage dedications covering
Alpine High. Pursuant to these agreements, Altus Midstream is obligated to perform services on all volumes produced from the dedicated acreage, so long as
Apache has the right to market such gas. In exchange for the above services and in accordance with the terms of the services agreements, the Company
charges a fixed fee on a per unit basis.
These performance obligations are satisfied over time as Apache simultaneously receives and consumes the benefits of the services performed. Service
revenues are recognized when the right to invoice has been met, since the amount that we have the right to invoice (based upon the fixed fee and throughput
volumes) corresponds directly with the value received by Apache.
Pursuant to the terms of the Contribution Agreement, all accounts receivable from Apache (including revenue receivable) on or prior to September 30,
2018 are for the account of Apache. No cash settlement of such balances was contemplated prior to September 30, 2018 and as such, revenue receivables
generated prior to this date were treated as a reduction to additional paid-in capital within equity. In conjunction with the Business Combination, service
revenue invoices are provided to Apache on a monthly basis, pursuant to the terms of the COMA. Amounts owing to Apache under the terms of the COMA
are reduced by the amounts of these invoices. Net cash settlement is performed on a monthly basis. The net amount owing to Apache as of December 31, 2018
was $13.6 million. Additionally, the Company recognized services revenue earned but not yet invoiced to Apache of $10.9 million as of December 31, 2018.
Costs to obtain a contract with expected amortization periods of greater than one year will be recorded as an asset and will be recognized in accordance
with ASC 340, “Other Assets and Deferred Costs.” Currently, Altus Midstream does not have contract assets related to incremental costs to obtain a contract.
In addition, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less
or contracts for which variable consideration is allocated entirely to a wholly unsatisfied performance obligation.
General and Administrative Expense
General and administrative (“G&A”) expense represents indirect costs and overhead expenditures incurred by the Company, associated with managing
the midstream assets.
In connection with the closing of the Business Combination, the Company entered into the COMA, as described above, pursuant to which Apache will
provide certain services related to the design, development, construction, operation, management and maintenance of Altus Midstream assets, on the
Company’s behalf.
See discussion and additional detail further discussed in Note 3 — Transactions with Affiliates.
Income Taxes
The Company is subject to federal income tax and recognizes deferred tax assets and liabilities based on the difference between the financial statement
carrying value and tax basis of its investment in Altus Midstream. For federal income tax purposes, Altus Midstream is regarded as a partnership and not
subject to income tax. Income and deductions associated with Altus Midstream
F-11
and the Alpine High Entities flow through to the Company. As such, Altus Midstream and the Alpine High Entities do not record a federal income tax
provision.
The Company, Altus Midstream, and the Alpine High Entities are also subject to the Texas margins tax. The Texas margins tax is assessed on
corporations, limited liability companies, and limited partnerships. As such, each entity recognizes state deferred tax assets and liabilities based on the
differences between the financial statement carrying value and tax basis of assets and liabilities on the balance sheet.
Prior to the Closing Date, the Alpine High Entities were treated as disregarded subsidiaries of Apache Corporation, a C-corporation, for federal income
tax purpose. The Alpine High Entities recognized deferred tax assets and liabilities based on the differences between the financial statement carrying value
and tax basis of assets and liabilities on the balance sheet.
The Company routinely assesses the ability to realize its deferred tax assets. If the Company concludes that it is more likely than not that some or all of
the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the
determination of future taxable income, including factors such as future operating conditions and changing tax laws.
Maintenance and Repairs
Routine maintenance and repairs are charged to expense as incurred.
Recently Issued Accounting Standards Not Yet Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842),” requiring lessees to recognize lease
assets and lease liabilities for most leases classified as operating leases under previous GAAP. The guidance is effective for fiscal years beginning after
December 15, 2018. In January 2018, the FASB issued ASU 2018-01, which permits an entity an optional election to not evaluate under ASU 2016-02 those
existing or expired land easements that were not previously accounted for as leases prior to the adoption of ASU 2016-02. In July 2018, the FASB issued ASU
2018-11, which adds a transition option permitting entities to apply the provisions of the new standard at its adoption date instead of the earliest comparative
period presented in the consolidated financial statements. Under this transition option, comparative reporting would not be required, and the provisions of the
standard would be applied prospectively to leases in effect at the date of adoption. The Company elected both transitional practical expedients. As allowed
under the standard, the Company also applied practical expedients to carry forward our historical assessments of whether existing agreements contain a lease,
classification of existing lease agreements, and treatment of initial direct lease costs. The Company also elected to exclude short-term leases (those with terms
of 12 months or less) from the balance sheet presentation and will account for non-lease and lease components as a single lease component for all asset
classes.
The Company adopted this guidance as of January 1, 2019. In the normal course of business, Altus Midstream enters into various lease agreements for
real estate and equipment related to midstream activities that are accounted for as operating leases. To track these lease arrangements and facilitate compliance
with this ASU, the Company implemented a third-party lease accounting software solution and designed processes and internal controls to identify, track and
record applicable leases. The Company trained departments affected by the standard, implemented changes to the relevant business processes, and continues
to evaluate contracts. The Company’s adoption and implementation of this ASU resulted in an increase in both right of use assets and liabilities related to
leasing activities; however, the amount was immaterial upon adoption. Right of use assets and associated liabilities are expected to change subsequent to
adoption of this ASU for new leases entered into subsequent to year-end and amortization on existing lease assets. There was no impact to the Company’s
Consolidated Statements of Operations or Consolidated Statements of Cash Flows upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard changes the impairment model for most financial
assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new
forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018,
including interim periods within that fiscal year. We do not expect to adopt the guidance early. Entities will apply the standard’s provisions as a cumulative-
effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is evaluating the new
guidance and does not believe this standard will have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which
changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. ASU 2018-13 is effective for
financial statements issued for annual periods beginning after December 15,
F-12
2019, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU
on its related disclosures and does not expect it to have a material impact on its financial statements.
F-13
2. RECAPITALIZATION TRANSACTION
Background and Summary
On August 8, 2018, KAAC, the legal predecessor company, and its then wholly-owned subsidiary, Altus Midstream LP, entered into the Contribution
Agreement with certain wholly-owned subsidiaries of Apache, including the Alpine High Entities. The terms of that certain Contribution Agreement included
that Altus Midstream would acquire from Apache, 100 percent of the equity interests in each of the Alpine High Entities and the Pipeline Options to acquire
equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020.
The Company consummated the Business Combination and certain other transactions contemplated by the Contribution Agreement on the Closing Date.
At the Closing Date and following the completion of the Business Combination:
•
•
•
•
Altus Midstream and the Company issued to Apache (i) common units, representing limited partner interests in Altus Midstream, and (ii) an
equivalent number of shares of a newly-created class of voting-only common stock (Class C Common Stock), respectively.
The Company issued to Apache (i) newly-issued shares of Class A Common Stock, (ii) warrants exercisable for shares of Class A Common Stock,
and (iii) the right to receive additional shares of Class A Common Stock, based upon the achievement of certain price and operational thresholds.
The Company contributed $628.2 million in cash to Altus Midstream and in return, Altus Midstream issued to the Company (i) a number of common
units equal to the total number of shares of the Company’s Class A Common Stock outstanding as of the Closing Date.
Altus Midstream paid to Apache, $84.0 million, representing the capital expenditures incurred by or on behalf of the Alpine High Entities from and
including October 1, 2018 through and including the Closing Date.
The Company changed its name from KAAC to Altus Midstream Company, and our Class A Common Stock continued trading on the NASDAQ Capital
Market under the new symbol “ALTM.” For a detailed description of the types of class of our common stock, please see Note 11 — Equity.
Ownership of Altus
Upon the closing of the Business Combination and as December 31, 2018, Altus’ wholly-owned subsidiary, Altus Midstream GP, was the sole general
partner of Altus Midstream and the Company held an approximate 23.1 percent controlling interest in Altus Midstream. Altus Midstream’s other limited
partner (Apache) held the remaining 76.9 percent noncontrolling interest.
Additionally, as of the Closing Date and at December 31, 2018, Apache was the largest single holder of the Company’s voting common stock,
comprising 100 percent of newly-created, non-economic Class C Common Stock, and approximately 9.8 percent of economic, Class A Common Stock.
The LPA contains certain provisions intended to ensure that a one-to-one ratio is maintained, at all times and subject only to limited exceptions, between
(i) the number of outstanding shares of Class A Common Stock and the number of common units held by Altus and (ii) the number of outstanding shares of
Class C Common Stock and the number of common units held by Apache.
For further discussion of the earn-out consideration provided to Apache and outstanding equity instruments, that may impact ownership interests and the
limited partnership interests of Altus Midstream in future periods, please see Note 11 — Equity.
Cash Contribution to Altus Midstream
As illustrated in the table below, the cash contribution to Altus Midstream was funded primarily from (i) the private placement of shares of Class A
Common Stock to certain qualified institutional buyers and accredited investors, which closed immediately prior to the Business Combination, and (ii) the
funds remaining from the Company’s public offering, net of cash paid to shareholders who redeemed shares.
For further discussion of the significant transactions impacting the Company’s ownership structure throughout the historical period, including the private
placement, as well as the initial public offering and subsequent share redemptions, please see Note 11 — Equity.
F-14
Cash from private placement
Cash remaining from public offering (net of redemptions) (1)
Issuance of newly-created Class C Common Stock to Apache
Less: deferred underwriter fees
Less: closing fees and other (2)
Net cash received by Altus Midstream LP at the Closing Date
Net proceeds
(In thousands)
572,340
84,339
25
(13,206)
(15,344)
628,154
$
$
(1) Pursuant to the terms of KAAC’s amended and restated certificate of incorporation, public stockholders had the opportunity, in connection with the Business Combination, to redeem shares of
Class A Common Stock. A total of 29,469,858 shares were redeemed for an aggregate amount of approximately $298.8 million. Refer to Note 11 — Equity for further information.
(2)
Includes the repayment of a loan with a related party. Refer to Note 3 — Transactions with Affiliates for further information.
Number of Shares at the Closing Date
The number of shares issued and outstanding immediately following the closing of the Business Combination is summarized in the table below.
number of shares
Shares outstanding prior to the Business Combination
Less: redemption of public shares (2)
Add: shares issued in private placement
Total shares outstanding prior to the Business Combination
Shares, in connection with the Business Combination:
Forfeited (3)
Converted (1)
Total shares outstanding immediately prior to the Closing Date
Issued as consideration to Apache (4)
Total shares outstanding at the Closing Date
Class A Common
Stock
Class B Common
Stock(1)
Class C Common
Stock
37,732,112
(29,469,858)
57,234,023
65,496,277
—
2,120,000
67,616,277
7,313,028
74,929,305
9,433,028
—
—
9,433,028
(7,313,028)
(2,120,000)
—
—
—
—
—
—
—
—
—
250,000,000
250,000,000
(1) Shares of Class B Common Stock, $0.0001 par value (“Class B Common Stock”), were purchased by the Sponsor (as defined in Note 3 - Transactions with Affiliates) , upon the Company’s
incorporation in December 2016. Class B Common Stock is identical to Class A Common Stock except that they automatically converted to Class A Common Stock at the time of the Business
Combination.
(2) Pursuant to the terms of KAAC’s amended and restated certificate of incorporation, public stockholders had the opportunity, in connection with the Business Combination, to redeem shares of
Class A Common Stock. A total of 29,469,858 shares were redeemed for an aggregate amount of approximately $298.8 million. Refer to Note 11 — Equity for further information.
(3)
In connection with the Business Combination, the Sponsor agreed to forfeit shares of Class B Common Stock. As part of the consideration transferred in the Business Combination, 7,313,028
newly-issued shares of Class A Common Stock were issued to Apache, equivalent to the number of shares of Class B Common Stock forfeited by the Sponsor. Additionally, the Sponsor
forfeited a number of warrants originally issued simultaneously with the public offering.
(4) The equity structure of the Alpine High Entities (the accounting acquirer) has been restated to reflect the number of shares of Altus Midstream Company (the accounting acquiree) issued in the
recapitalization transaction. Please refer to the section below entitled “Basis of presentation of equity structure” for further discussion.
Basis of Presentation of Equity Structure
As discussed in Note 1 — Summary of Significant Accounting Policies, the Business Combination was accounted for as a reverse recapitalization, with
Altus Midstream Company treated as the acquired company, and the Alpine High Entities treated as the acquirer, for financial reporting purposes. Therefore,
the equity structure in the consolidated financial statements is that of the Company restated for all periods presented.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date,
to reflect the number of shares issued to Apache in connection with the recapitalization transaction. The value allocated to the shares issued to Apache reflect
the capital structure of the Alpine High entities prior to the Business Combination, which solely comprised capital contributions from Apache. Accordingly,
shares of common stock issued to Apache
F-15
in exchange for its ownership interests in the Alpine High Entities are retroactively restated from May 26, 2016 (inception), proportionate to the capital
contributions made by Apache to the Alpine High Entities up to the Closing Date.
3. TRANSACTIONS WITH AFFILIATES
Revenues
The Company has contracted to provide services including gas gathering, compression, processing, transportation, and NGL transportation, pursuant to
acreage dedications provided by Apache, comprising the entire Alpine High acreage. Pursuant to the terms of these agreements, the Company receives
prescribed fees based on the type and volume of product for which the services are provided. For all of the periods presented, the Company’s only customer
was Apache, although Altus Midstream is pursuing contracts with third-parties that could be accommodated by existing and planned capacity.
Revenues generated under these agreements are presented on the Consolidated Statements of Operations as “Midstream services — affiliate.” Revenues
earned that have not yet been invoiced to Apache are presented on the Consolidated Balance Sheet as “Revenue receivables.”
Operating Expenses
The Company has no employees and had no banking or cash management facilities prior to the Business Combination. As such, the Company has
contracted with Apache to receive certain operational, maintenance, and management services. In accordance with the terms of these agreements, the
Company incurred general and administrative (“G&A”) expenses of $6.5 million and $4.0 million and gathering, processing and transmission (“GPT”)
expenses of $9.1 million and $4.7 million in the year ended December 31, 2018 and 2017, respectively.
Further information on the related-party agreements in place during the period is provided below.
Operational Services Agreement
Prior to the Business Combination, Apache provided operations, maintenance and management services to the Alpine High Entities, pursuant to an
agreement hereby referred to as the “Services Agreement.” In accordance with the terms of the Services Agreement, Apache received a fixed fee per month
for its overhead and indirect costs incurred on behalf of Alpine High Midstream. All costs incurred by the Alpine High Entities were paid by Apache. The
total overhead fee paid by the Company and included in G&A expenses was $3.0 million and $2.3 million for the year ended December 31, 2018 and 2017,
respectively.
In connection with the closing of the Business Combination, the Services Agreement was superseded by the COMA.
Construction, Operations and Maintenance Agreement
At the closing of the Business Combination, the Company entered into the COMA with Apache, which superseded the Services Agreement. Under the
terms of the COMA, Apache will provide certain services related to the design, development, construction, operation, management and maintenance of certain
gathering, processing and other midstream assets, on behalf of the Company. In return, the Company will pay fees to Apache of (i) $3.0 million for the period
beginning on the execution of the COMA at the closing of the Business Combination through December 31, 2019, (ii) $5.0 million for the period of January 1,
2020 through December 31, 2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021 and (iv) $9.0 million annually, as may be
increased thereafter until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for indirect costs of performing
administrative corporate functions, including services for information technology, risk management, corporate planning, accounting, cash management, and
others.
In addition, Apache may be reimbursed for certain internal costs and third-party costs directly incurred in connection with its role as service provider
under the COMA. Apache records G&A costs directly associated with midstream activity, where substantially all the services are rendered for Altus
Midstream, to unique midstream G&A cost centers that are subsequently charged to Altus Midstream on a monthly basis.
The COMA stipulates that the Company shall provide reimbursement of amounts owing to Apache attributable to a particular month by no later than the
last day of the immediately following month. Unpaid amounts accrue interest until settled.
The COMA will continue to be effective until terminated (i) upon the mutual consent of Altus and Apache, (ii) by either of Altus and Apache, at its
option, upon 30 days’ prior written notice in the event Apache or an affiliate no longer owns a direct or indirect interest in at least 50 percent of the voting or
other equity securities of Altus, or (iii) by Altus if Apache fails to perform
F-16
any of its covenants or obligations due to willful misconduct of certain key personnel and such failure has a material adverse financial impact on Altus.
Lease Agreement
Concurrent with the closing of the Business Combination, Altus Midstream entered into an operating lease agreement with Apache (the “Lease
Agreement”) relating to the use of certain office buildings, warehouse and storage facilities located in Reeves County, Texas. Under the terms of the Lease
Agreement, Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s
estimate of the annual costs it shall incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. The Company incurred total
expenses of $0.1 million in 2018 in relation to this agreement, which are included within GPT expenses. Unpaid amounts accrue interest until settled. The
initial term of the Lease Agreement is for four years and may be extended by Altus Midstream for three additional, consecutive periods of twenty-four
months.
Capitalized Interest
Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a
portion of interest on its corporate debt in determining capitalized interest associated with the development of the Alpine High Entities. Commensurate with
Apache’s calculation, interest is capitalized as part of the historical cost of developing and constructing assets. Significant midstream development assets that
have not commenced operations qualify for interest capitalization. The associated capitalized interest was determined by multiplying Apache’s weighted-
average borrowing cost of debt by the average amount of qualifying midstream assets. The amount of interest allocated was $8.2 million, $7.1 million, and
$0.3 million for the year ended December 31, 2018, 2017, and 2016, respectively. Upon closing the Business Combination, capitalized interest is now
determined based on interest expense incurred by Altus Midstream.
Business Combination Agreements
Limited Partnership Agreement of Altus Midstream LP
In connection with the Business Combination, Altus Midstream Company, Altus Midstream GP, Altus Midstream LP and Apache, entered into the LPA.
This agreement sets forth, among other things, the rights and obligations of (i) Altus Midstream GP as general partner and (ii) Altus Midstream Company and
Apache as limited partners, of Altus Midstream LP. Altus Midstream GP is not entitled to reimbursement for its services as general partner. Refer to Note 1 —
Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction for further information.
Purchase Rights and Restrictive Covenants Agreement
At the closing of the Business Combination, the Company entered into a purchase rights and restrictive covenants agreement (the “Purchase Rights and
Restrictive Covenants Agreement”) with Apache. Under the Purchase Rights and Restrictive Covenants Agreement, until the later of the five-year anniversary
of the Closing and the date on which Apache and its affiliates cease to own a majority of the Company’s voting common stock, Apache is obligated to provide
(i) the first right to pursue any opportunity (including any expansion opportunities) of Apache to acquire or invest, directly or indirectly (including equity
investments), in any midstream assets or participate in any midstream opportunities located, in whole or part, within an area covering approximately 1.7
million acres in Reeves, Pecos, Brewster, Culberson and Jeff Davis Counties in Texas, and (ii) a right of first offer on certain retained midstream assets of
Apache.
Transactions Prior to the Business Combination
Prior to the Business Combination, the Company engaged in certain transactions with Kayne Anderson Sponsor LLC, a Delaware limited liability
company (the “Sponsor”). The Sponsor is a related party as during the periods presented, it owned more than 10 percent of the voting interests of the entity,
resulting from the purchase of the Company’s entire share capital upon incorporation in December 2016.
The nature of the majority of these transactions is associated with our incorporation, public offering and Business Combination, as further described in
Note 11 — Equity. Other transactions with the Sponsor during the periods presented relate to a loan from Sponsor and a separate administrative services
agreement.
Loan from Sponsor
F-17
On March 21, 2018, the Sponsor agreed to loan up to $0.5 million, as needed, to fund working capital needs pursuant to a promissory note. On August 24,
2018, the Company’s Sponsor agreed to increase such loan up to $1.0 million. These loans were non-interest bearing, and at the closing of the Business
Combination the outstanding borrowings totaling $0.7 million were repaid in full.
Administrative Services Agreement
Beginning April 2017, the Company agreed to pay an affiliate of the Sponsor a total of $5,000 per month for office space, utilities and secretarial and
administrative support. Effective January 1, 2018, the Sponsor’s affiliate agreed to waive the monthly fee until the termination of the agreement. The
agreement was terminated at the closing of the Business Combination.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, is as follows:
Gathering, processing and transmission systems and facilities
Construction in progress (1)
Other property and equipment
Total property, plant and equipment
Less: accumulated depreciation and accretion
Total property, plant and equipment, net
December 31,
2018
2017
(In thousands)
$
729,585 $
521,609
23
1,251,217
(24,320)
$
1,226,897 $
423,600
281,566
—
705,166
(5,580)
699,586
(1)
Included in the Company’s construction in progress is capitalized interest of $6.9 million and $3.4 million at December 31, 2018 and December 31, 2017, respectively.
The cost of property classified as “Construction in progress” is excluded from capitalized costs being depreciated. These amounts represent property that
is not yet available to be placed into productive service as of the respective balance sheet date.
F-18
5. DEBT AND FINANCING COSTS
In November 2018, Altus Midstream entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to
Altus Midstream’s two, one year extension options). The agreement for this facility provides aggregate commitments from a syndicate of banks of $450.0
million until (i) the consolidated net income of Altus Midstream and its restricted subsidiaries, as adjusted pursuant to the agreement (“EBITDA”), for three
consecutive calendar months equals or exceeds $175.0 million on an annualized basis and (ii) Altus Midstream has raised at least $250.0 million of additional
capital (such period, the “Initial Period”). Following the Initial Period, the aggregate commitments equal $800.0 million. All aggregate commitments include a
letter of credit subfacility of up to $100.0 million and a swingline loan subfacility of up to $100.0 million. After the Initial Period, Altus Midstream may
increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of December 31,
2018, no borrowings or letters of credit were outstanding under this facility.
The Altus Midstream credit facility is unsecured and is not guaranteed by the Company, Apache Corporation, or any of their respective subsidiaries.
At Altus Midstream’s option, the interest rate per annum for borrowings under this facility is either a base rate, as defined, plus a margin, or the London
Inter-bank Offered Rate (“LIBOR”), plus a margin. Altus Midstream also pays quarterly a facility fee at a rate per annum on total commitments. The margins
and the facility fee vary based upon (i) the Leverage Ratio until Altus Midstream has a senior long-term debt rating and (ii) such senior long-term debt rating
once it exists. The “Leverage Ratio” is the ratio of (1) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (2) EBITDA of Altus
Midstream and its restricted subsidiaries for the 12-month period ending immediately before such date. At December 31, 2018, the base rate margin was 0.05
percent, the LIBOR margin was 1.05 percent, and the facility fee was 0.20 percent. In addition, a commission is payable quarterly to the lenders on the face
amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other
charges are payable to issuing banks.
The credit agreement for Altus Midstream’s facility contains restrictive covenants that may limit the ability of Altus Midstream and its restricted
subsidiaries to, among other things, incur additional indebtedness or guaranty indebtedness, sell assets, make investments in unrestricted subsidiaries, enter
into mergers, make certain payments and distributions, incur liens on certain property securing indebtedness, and engage in certain other transactions without
the prior consent of the lenders. Altus Midstream also is subject to a financial covenant under the credit agreement, which requires it to maintain one of the
following financial ratios:
•
•
during the Initial Period, a debt-to-capital ratio of not greater than 30.0 percent at the end of any fiscal quarter, determined by reference to (i) the
consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (ii) (A) the consolidated partners’ equity of Altus Midstream and its
restricted subsidiaries plus (B) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries; and
after the Initial Period, a Leverage Ratio of not greater than 5.00:1.00 at the end of any fiscal quarter, except that for up to one year following a
qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of any fiscal quarter.
There are no clauses in the agreement for Altus Midstream’s 2018 credit facility that permit the lenders to accelerate payments or refuse to lend based on
unspecified material adverse changes. The agreement has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings.
However, the agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other
breaches, and if Altus Midstream or any of its restricted subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any
unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and
terminate lending and issuance commitments if Altus Midstream undergoes a specified change in control or has specified pension plan liabilities in excess of
the stated threshold. Altus Midstream was in compliance with the terms of its 2018 credit facility as of December 31, 2018.
F-19
Financing Costs, Net
The following table presents the components of Altus Midstream’s financing costs, net:
Interest expense
Amortization of deferred facility
Capitalized interest
Total Financing costs, net
Period from May
26, 2016
(Inception)
through
December 31,
2016 (1)
Year Ended December 31,
2017 (1)
2018(1)
(in thousands)
$
$
8,412 $
107
(8,412)
107 $
7,100 $
—
(7,100)
— $
272
—
(272)
—
(1) Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a portion of interest on its corporate debt in
determining capitalized interest associated with the development of Alpine High infrastructure. Refer to Note 1 — Summary of Significant Accounting Policies and Note 3 — Transactions with
Affiliates for further information.
6. OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities at December 31, 2018 and 2017:
Accrued capital costs
Accrued operating expenses
Accrued taxes other than income
Accrued interest
Other
Total other current liabilities
F-20
December 31,
2018
2017
(In thousands)
$
80,696 $
2,863
69
232
1,066
122,364
1,119
12
—
976
$
84,926 $
124,471
7. ASSET RETIREMENT OBLIGATION
The following table describes changes to the Company’s asset retirement obligation (“ARO”) liability for the years ended December 31, 2018 and 2017:
Asset retirement obligation, beginning balance
Liabilities incurred during the period
Accretion expense
Revisions in estimated liabilities
Asset retirement obligation, ending balance
December 31,
2018
2017
(In thousands)
$
18,189 $
13,816
1,328
(3,964)
—
17,779
410
—
$
29,369 $
18,189
ARO reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the
Company’s infrastructure assets which include central processing facilities, gathering systems and pipelines. Management utilizes independent valuation
reports and estimates of current costs to project expected cash outflows for retirement obligations. Management estimates the ultimate productive life of the
properties, a risk-adjusted discount rate, and an inflation factor in order to determine the current present value of this obligation. To the extent future revisions
to these assumptions impact the present value of existing ARO, a corresponding adjustment is made to the property, plant and equipment balance.
8. COMMITMENTS AND CONTINGENCIES
Accruals for loss contingencies arising from claims, assessments, litigation, environmental and other sources are recorded when it is probable that a
liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or
circumstances change. As of December 31, 2018 and December 31, 2017, there were no accruals for loss contingencies.
Litigation
We are subject to governmental and regulatory controls arising in the ordinary course of business. It is the opinion of management that any claims and
litigation involving the Company is not likely to have a material adverse effect on the reported position or results of operations.
Environmental Matters
As an owner of the infrastructure assets and with rights to surface lands, the Company is subject to various local and federal laws and regulations
relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the
Company for the cost of pollution clean-up resulting from operations and subject us to liability for pollution damages. In some instances, Altus Midstream
may be directed to suspend or cease operations. The Company maintains insurance coverage, which management believes is customary in the industry,
although insurance does not fully cover against all environmental risks. Additionally, there can be no assurance that current regulatory requirements will not
change or past non-compliance with environmental laws will not be discovered.
Contractual Obligations
Altus Midstream’s existing fee-based revenue agreements, which have no minimum volume or firm transportation commitments, are underpinned by
acreage dedications covering Alpine High. Pursuant to these agreements, Altus Midstream is obligated to perform low and high pressure gathering,
processing, dehydration, compression, treating, conditioning, and transportation on all volumes produced from the dedicated acreage, so long as Apache has
the right to market such gas.
Pursuant to the COMA with Apache, Altus Midstream will indirectly receive G&A support services including information technology, risk
management, corporate planning, accounting, cash management, human resources, and other general corporate services. The COMA established a fixed
annual support services fee to Apache of $3.0 million in 2019, $5.0 million in 2020, and $7.0 million in 2021. Beginning in 2022 through the term of the
COMA, the associated fee will be $9.0 million annually and may be adjusted upwards based on actual incurred costs.
F-21
Concurrent with the closing of the Business Combination, Altus Midstream entered into the Lease Agreement with Apache, relating to the use of certain
office buildings, warehouse and storage facilities located in Reeves County, Texas. Under the terms of the Lease Agreement, Altus Midstream shall pay to
Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s estimate of the annual costs it shall incur in
connection with the ownership, operation, repair, and/or maintenance of the facilities. The initial term of the Lease Agreement is for four years and may be
extended by Altus Midstream for three additional, consecutive periods of twenty-four months.
Additionally, upon exercising the contributed Pipeline Options to acquire equity interests in five separate third-party pipeline projects, the Company
may be required to fund future capital expenditures for their equity interest share in the development of the pipeline as referenced in Note 2 —
Recapitalization Transaction, Note 9 — Joint Venture Equity Interest and Note 13 — Subsequent Events.
At December 31, 2018 and December 31, 2017, there were no other material contractual obligations related to the entities included in the consolidated
financial statements other than the performance of asset retirement obligations as referenced in Note 7 — Asset Retirement Obligations and required credit
facility fees discussed in Note 5 — Debt and Financing Costs.
9. JOINT VENTURE EQUITY INTEREST
In December 2018, Altus Midstream exercised its option to acquire a 15 percent equity interest in Gulf Coast Express Pipeline LLC (“GCX LLC”), a
Delaware limited liability company for total cash consideration of approximately $91.1 million. GCX LLC is involved in the construction of a long-haul
natural gas pipeline that, upon completion, is expected to have capacity of approximately 2.0 Bcf/d and will transport natural gas from the Waha area in
northern Pecos County, Texas to the Agua Dulce Hub near the Texas Gulf Coast. The pipeline is expected to be operational and in-service in the fourth quarter
of 2019. Upon exercising the GCX LLC option, the Company has estimated it will incur an additional $175.3 million of capital contributions in 2019 for its
equity share associated with the remaining construction costs.
GCX LLC maintains separate accounts for each member to which each member’s share of profits and losses, contributions and distributions are directly
allocated. Certain business decisions, including, but not limited to, approval of annual budgets and decisions with respect to significant expenditures and
activities, contractual commitments, material financings and legal proceedings, require more than 50 percent approval of the members.
The joint venture equity interest balance at December 31, 2018, is $5.8 million less than Altus’ underlying equity in GCX LLC’s net assets. This balance
will be amortized over the estimated useful life of the pipeline, when placed into service.
F-22
10. INCOME TAXES
The total income tax provision (benefit) consists of the following:
Current income taxes:
Federal
State
Deferred income taxes:
Federal
State
Total
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
(In thousands)
$
(1,041) $
—
(1,041)
(10,464)
1,004
(9,460)
— $
—
—
5,413
1,628
7,041
$
(10,501) $
7,041 $
—
—
—
—
—
—
—
The total income tax provision (benefit) differs from the amounts computed by applying the U.S. statutory income tax rate to income (loss) before
income taxes. A reconciliation of the tax on the Company’s income (loss) from continuing operations before income taxes and total tax expense is shown
below:
Income tax expense (benefit) at U.S. statutory rate
Partnership income not subject to tax
State tax expense
Change in U.S. tax rate
Valuation allowance
All other, net
Income tax expense (benefit)
Year Ended December 31,
Period from May
26, 2016
(Inception)
through
December 31,
2018
2017
2016
$
(2,255) $
(4,037) $
(In thousands)
(891)
818
—
(8,177)
4
—
1,058
1,843
8,177
—
$
(10,501) $
7,041 $
—
—
—
—
—
—
—
F-23
The net deferred income tax liability reflects the net tax impact of temporary differences between the asset and liability amounts carried on the balance
sheet under GAAP and amounts utilized for income tax purposes. The net deferred income tax liability consists of the following:
Deferred tax assets:
Investment in partnership
Asset retirement obligation
Net operating losses
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Net deferred tax assets / (liabilities)
Net deferred tax assets and liabilities are included in the balance sheet as follows:
Assets:
Deferred tax asset
Liabilities:
Deferred tax liability
Net deferred tax assets (liabilities)
December 31,
2018
2017
(In thousands)
$
65,851 $
220
495
1,212
67,778
—
67,778
2,863
64,915 $
—
3,956
48,024
530
52,510
(8,177)
44,333
51,374
(7,041)
$
$
$
December 31,
2018
2017
(In thousands)
67,558 $
—
2,643
64,915 $
7,041
(7,041)
Prior to the Business Combination, the Alpine High Entities were treated as disregarded subsidiaries of Apache Corporation, a C-corporation, for federal
income tax purposes. As a result, federal taxable income associated with Alpine High Midstream has historically been included in Apache’s consolidated
federal income tax return. Prior to the Business Combination, Alpine High Midstream calculated its income tax provision as if it were a taxable C-corporation.
Pursuant to the Contribution Agreement, Apache contributed the Alpine High Entities and the Pipeline Options to Altus Midstream LP. Net operating
losses associated with Alpine High Midstream's operations prior to November 9, 2018 remained with Apache. After the Business Combination, the Alpine
High Entities continued to be treated as disregarded entities for federal income tax purposes. The entities' new regarded parent is Altus Midstream LP, a
partnership for federal income tax purposes. As such, Altus Midstream LP will not be subject to U.S. federal income taxes and will instead pass through its
taxable income or loss to its partners, Apache and Altus. As a result of the change in ownership structure, Altus is required to calculate a federal deferred tax
asset based on its investment in Altus Midstream LP. A $62.5 million increase in the Company’s net deferred tax asset was a direct result of the reverse
recapitalization and recorded as a component of equity.
From November 9, 2018 through December 31, 2018, the Company recorded a $0.9 million reduction in income tax provision associated with income
not subject to tax by Altus Midstream LP.
Altus is also subject to the Texas margin tax. Unlike federal income taxes, the Texas margins regime assesses taxes on corporations, limited liability
companies, limited partnerships, and disregarded entities. As such, the Company records deferred tax assets and liabilities for Texas margins tax based on the
differences between the financial statement carrying value and tax basis of assets and liabilities on the balance sheet. The reverse recapitalization did not have
a material impact on the Company’s
F-24
state income tax provision. The Texas margins tax associated with Apache's share of the liability is recorded as a component of the noncontrolling interest.
The Company has a federal net operating loss carryforward of $2.3 million which has an indefinite carryforward period.
Management assesses the available positive and negative evidence to evaluate the future realization of the Company’s deferred tax assets. Since the
formation of Alpine High Midstream, a significant element of objective negative evidence was historic losses associated with the formation of the business
and commencement of operations. In 2018, Alpine High Midstream has continued to see growth in revenue associated with midstream assets placed in service
during the year. In the third and fourth quarter of 2018, Alpine High Midstream recorded net income before income taxes. Management believes net income
before income taxes will continue to grow as new construction is placed in service. Accordingly, management has determined that there was sufficient
positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. As such, prior to the transaction the Company
recorded a deferred tax benefit of $8.2 million associated with the release of the valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Under the Act, the U.S. corporate income tax rate was reduced from
35 percent to 21 percent effective January 1, 2018. As a result of the decrease in the corporate income tax rate, the Company recorded a $1.8 million deferred
tax expense in 2017 related to the remeasurement of the Company’s December 31, 2017 deferred tax asset.
The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax
position must meet before being recognized in the financial statements. The Company records interest and penalties related to unrecognized tax benefits as a
component of income tax expense. Each quarter the Company assesses the amounts provided for and, as a result, may increase (expense) or reduce (benefit)
the amount of interest and penalties. As of December 31, 2018, Altus did not have any uncertain tax positions that would require recognition. Uncertain tax
positions may change in the next twelve months; however, we do not expect any possible change to have a significant impact on our results of operation or
financial position. If incurred, we will record income tax interest and penalties as a component of income tax expense. The contributor of Altus Midstream
LP’s operating assets, Apache Corporation, is currently under IRS audit for 2014, 2015, and 2016
F-25
11. EQUITY
Common Stock
The Company’s second amended and restated certificate of incorporation authorizes the issuance of 1,500,000,000 shares of Class A Common Stock,
$0.0001 par value and 1,500,000,000 shares of Class C Common Stock, $0.0001 par value. The Company’s shares of Class A Common Stock are listed on the
NASDAQ Capital Market under the symbol “ALTM.” As of December 31, 2018, there were 74,929,305 and 250,000,000 issued and outstanding shares of
Class A Common Stock and Class C Common Stock, respectively.
Holders of each of the Class A Common Stock and Class C Common Stock vote together as a single class on all matters submitted to a vote of our
stockholders, except as required by law. Only Class A shareholders are entitled to dividends or other liquidating distributions made by Altus Midstream
Company.
Shares of Class A Common Stock and outstanding warrants were originally issued in connection with the Company’s public offering, while shares of
Class C Common Stock were newly-issued in connection with the Business Combination, as further described below.
Public Offering
In the second quarter of 2017, KAAC completed the public offering of Company units. Each unit comprised one share of Class A Common Stock and
one third of one warrant (hereby referred to as the “Public Warrants”, and discussed in further detail below). In the aggregate, 37,732,112 units were sold at an
offering price of $10.00 per unit, including 2,732,112 units purchased pursuant to an over-allotment option granted to the underwriters.
Public Warrants
As noted above, each unit comprised one share of Class A Common Stock and one third of a Public Warrant. Each whole Public Warrant entitles the
holder to purchase one share of Class A Common Stock at a price of $11.50 per share. The Public Warrants will expire five years after closing of the Business
Combination or earlier upon redemption or liquidation. The Company may call the Public Warrants for redemption, in whole and not in part, at a price of
$0.01 per warrant with not less than 30 days’ notice provided to the Public Warrant holder. However, this redemption right can only be exercised if the last
sale price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days
before we send the notice of redemption to the Public Warrant holders.
As of December 31, 2018, there were 12,577,370 Public Warrants outstanding. Following the closing of the Business Combination, the Public Warrants
continued trading under the symbol “ALTMW.” On December 11, 2018, the Company received notice from the Staff of the NASDAQ of a delisting
determination with respect to our Public Warrants for failure to satisfy the NASDAQ’s minimum round lot holder listing requirement. The Public Warrants
ceased trading on the NASDAQ at the opening of business on December 20, 2018. The delisting of the Public Warrants did not impact the listing or trading of
the Company’s common stock.
Private Placement Warrants
Upon closing of the public offering in the second quarter of 2017, the Sponsor purchased an aggregate of 6,364,281 warrants at a price of $1.50 per
warrant (the “Private Placement Warrants”). Each Private Placement Warrant is exercisable for one share of Class A Common Stock at a price of $11.50 per
share.
In connection with the Business Combination, the Sponsor forfeited 3,182,140 Private Placement Warrants, and at the closing of the Business
Combination, the Company issued an equivalent number of warrants to Apache (the “Apache Warrants”). The Private Placement Warrants and the Apache
Warrants are identical to the Public Warrants discussed above, except (i) they will not be redeemable by the Company so long as they are held by the Sponsor,
Apache or their respective permitted transferees and (ii) they may be exercised by the holders on a cashless basis.
As of December 31, 2018, there were 3,182,141 Private Placement Warrants and 3,182,140 Apache Warrants outstanding.
F-26
Business Combination
At a special meeting held on November 6, 2018 (the “Special Meeting”) the Business Combination was approved by holders of a majority of the
outstanding shares of Class A and Class B Common Stock. Refer to Note 2 — Recapitalization Transaction for further detail of the Business Combination,
including the basis of presentation of the Company’s equity structure in the consolidated financial statements. The paragraphs below provide further detail of
the transactions that occurred in connection with the Special Meeting and the Business Combination:
Public Stockholder Redemptions
Pursuant to redemption rights granted to public stockholders by KAAC’s amended and restated certificate of incorporation, an aggregate of 29,469,858
shares of Class A Common Stock were redeemed.
Sponsor Forfeiture
Pursuant to an agreement dated as of August 8, 2018 between KAAC and the Sponsor, an aggregate of 7,313,028 shares of Class B Common Stock and
3,182,140 Private Placement Warrants were forfeited by the Sponsor to KAAC.
Conversion of Class B Common Stock
In accordance with the KAAC’s amended and restated certificate of incorporation, 2,120,000 shares of Class B Common Stock that remained outstanding
following the Sponsor forfeiture (described above) were converted into shares of Class A Common Stock on a one-for-one basis.
Private Placement
On November 9, 2018 KAAC issued and sold an aggregate of 57,234,023 shares of Class A Common Stock to certain qualified institutional buyers and
accredited investors (including certain funds and client accounts advised by Kayne Anderson Capital Advisors, L.P., together with its affiliates, and directors,
management and employees of KAAC, Kayne Anderson and Apache) at a price of $10.00 per share.
Creation of Class C Common Stock
An amendment to the Company’s first amended and restated certificate of incorporation was approved to create a new class of common stock - Class C
Common Stock, $0.0001 par value. A total of 1,500,000,000 shares were authorized pursuant to the amendment. Holders of Class C Common Stock, together
with holders of Class A Common Stock voting as a single class, will have the right to vote on all matters properly submitted to a vote of the stockholders, but
holders of Class C Common Stock will not be entitled to any dividends or liquidating distributions.
Contribution to Altus Midstream LP
At the closing of the Business Combination and in accordance with the Contribution Agreement, KAAC contributed to Altus Midstream LP $628.2
million of cash. In return, it received 74,929,305 common units in Altus Midstream LP, equivalent to the number of shares of Class A Common Stock
outstanding after consummation of the Business Combination.
Additionally, the Company received 18,941,651 Altus Midstream LP warrants (equivalent to the aggregate of the Public Warrants, Private Placement
Warrants and Apache Warrants outstanding upon consummation of the Business Combination). Each whole warrant entitles the Company to purchase one
common unit in Altus Midstream LP for an exercise price of $11.50 per common unit. These warrants are herein referred to as the (“Partnership Warrants”).
Consideration Received by Apache
In exchange for the equity interests in the Alpine High Entities and the Pipeline Options to acquire equity interests in five separate third-party pipeline
projects, the consideration received by Apache at the closing of the Business Combination on November 9, 2018, included the following:
Equity consideration
•
7,313,028 shares of Class A Common Stock, equivalent to the number of shares of Class B Common Stock forfeited by the Sponsor to KAAC, as
discussed above.
F-27
•
•
250,000,000 shares of Class C Common Stock, equivalent to the economic interest held by Apache in Altus Midstream LP at the closing of the
Business Combination as a result of the issuance of common units.
3,182,140 warrants, equivalent to the number of Private Placement Warrants forfeited by the Sponsor.
Earn-out consideration
• Apache was granted the right to receive earn-out consideration of up to 37,500,000 shares of Class A Common Stock as follows:
i.
12,500,000 shares if, during the calendar year 2021, the aggregate gathered gas from an area of dedication in Reeves, Pecos, Culberson and
Jeff Davis Counties in Texas that is assessed a low pressure gathering fee pursuant to that certain Amended and Restated Gas Gathering
Agreement, dated August 8, 2018, between Apache and Alpine High Gathering, LP (“Alpine High Gathering”) is equal to or greater than
574,380 million cubic feet.
ii. 12,500,000 shares if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period
ending prior to the fifth anniversary of the Closing Date is equal to or greater than $14.00 for any 20 trading days within such 30-trading-
day period.
iii. 12,500,000 shares if the per share closing price of the Class A Common Stock as reported by NASDAQ during any 30-trading-day period
ending prior to the fifth anniversary of the Closing Date is equal to or greater than $16.00 for any 20 trading days within such 30-trading-
day period.
Redeemable Noncontrolling Interest
In conjunction with the issuance of the Class C Common Stock, Apache also received 250,000,000 common units, representing an approximate 76.9
percent limited partner interest in Altus Midstream LP. The financial results of Altus Midstream LP and its subsidiaries are included in Altus Midstream
Company’s consolidated financial statements as detailed in Note 1— Summary of Significant Accounting Policies, under the section titled “Principles of
Consolidation.”
At any time subsequent to May 8, 2019 (180 days following the closing of the Business Combination), Apache has the right to cause Altus Midstream to
redeem all or a portion of the common units issued to Apache, in exchange for shares of the Company’s Class A Common Stock on a one-for-one basis or, at
Altus Midstream’s option, an equivalent amount of cash; provided that the Company may, at its option, effect a direct exchange of cash or Class A Common
Stock for such common units in lieu of such a redemption by Altus Midstream LP. Upon the future redemption or exchange of common units held by Apache,
a corresponding number of shares of Class C Common Stock held by Apache will be cancelled.
Apache’s limited partner interest associated with the common units issued with the Class C Common Stock is reflected as a redeemable noncontrolling
interest in Altus. The redeemable noncontrolling interest is recognized at the higher of (1) its initial fair value plus accumulated earnings/losses associated
with the noncontrolling interest or (2) the redemption value as of the balance sheet date. At December 31, 2018, the redeemable noncontrolling interest was
recorded based on the redemption value as of the balance sheet date of $1.9 billion. The redemption value is determined based on a 5 day volume weighted
average closing price of the Class A Common Stock as defined in the Altus Midstream LPA.
F-28
12. NET LOSS PER SHARE
Shares of Class A Common Stock and Class C Common Stock issued to Apache in exchange for its ownership interests in the Alpine High Entities were
retroactively restated from May 26, 2016 (inception) to the Closing Date, based on the proportionate value of the capital contributions made by Apache to the
Alpine High Entities. The calculation of the weighted averages shares outstanding from inception up to the Closing Date includes all shares issued to Apache,
in order to reflect Apache’s 100 percent economic interest in the Alpine High Entities until that time. Class C Common Stock is excluded from the weighted
average shares outstanding immediately following the Closing Date, as holders of Class C Common Stock are not entitled to any dividends or liquidating
distributions and are reflected as a redeemable noncontrolling interest.
For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant
Accounting Policies and Note 2 — Recapitalization Transaction.
A reconciliation of the components of basic and diluted net loss per share for the periods presented in the consolidated financial statements, is shown in
the table below.
For the Year Ended December 31,
Period from May 26, 2016 (Inception)
through December 31,
2018
2017
2016
(In thousands, except per common share data)
Basic:
Amount
Shares
Per Share
Amount
Shares
Per Share
Amount
Shares
Per Share
Net loss including noncontrolling interest
Net income attributable to noncontrolling
interest
Net loss attributable to Class A Common
Shareholders
Effect of Dilutive Securities:
Diluted:
Net loss including noncontrolling interest
Net income attributable to noncontrolling
interest
Net loss attributable to Class A Common
Shareholders
$
(239)
173,125
$
— $
(18,575)
62,259 $
(0.30) $
4,149
—
—
—
—
—
$
(4,388)
173,125
$
(0.03)
$
(18,575)
62,259 $
(0.30) $
$
(239)
173,125
$
— $
(18,575)
62,259 $
(0.30) $
4,149
—
—
—
—
—
$
(4,388)
173,125
$
(0.03)
$
(18,575)
62,259 $
(0.30) $
—
—
—
—
—
—
6,293 $
—
6,293 $
6,293 $
—
6,293 $
—
—
—
—
—
—
Earn-out consideration granting Apache the right to receive up to 37,500,000 shares of Class A Common Stock is not included in the earnings per share
calculation above, as the conditions for issuance were not satisfied as of the year-ended December 31, 2018. The outstanding warrants of the Company to
purchase an aggregate 18,941,641 shares of Class A Common Stock are not considered in the calculation of diluted since their inclusion would be antidilutive.
F-29
13. SUBSEQUENT EVENTS
Exercise of Option with EPIC Pipeline LP
On February 1, 2019, Altus Midstream exercised the option with EPIC Pipeline LP to acquire a 15.0 percent equity interest in the EPIC crude oil
pipeline (the “EPIC Pipeline”). The transaction is anticipated to close in the first quarter of 2019 for approximately $52 million.
Upon completion, the long-haul crude oil pipeline will extend from the Orla area in northern Reeves County, Texas to the Port of Corpus Christi, Texas
and is expected to have Permian Basin initial throughput capacity of approximately 590 MBbl/d. The project includes terminals in Orla, Pecos, Saragosa,
Crane, Wink, Midland, Hobson and Gardendale, with Port of Corpus Christi connectivity and export access. It will service Delaware Basin, Midland Basin
and Eagle Ford Shale production.
The EPIC Pipeline will be operated by EPIC Consolidated Operations, LLC and is expected to be in service in the first quarter of 2020.
Subsidiaries Legal Name Change
Effective February 14, 2019, the entities comprising the Alpine High Entities changed their legal names such that references to “Alpine High” within
each of the respective former legal names are superseded by “Altus Midstream.”
F-30
14. QUARTERLY FINANCIAL DATA (Unaudited)
The following table summarizes quarterly financial data for 2018 and 2017. Alpine High Midstream was identified as the accounting acquirer in the
Business Combination. As a result, the financial statements information provided in the table below reflects (i) the historical operating results of Alpine High
Midstream prior to the Business Combination; (ii) the consolidated results of the Company and Alpine High Midstream following the closing of the Business
Combination; and (iii) the Company’s equity structure for all periods presented.
For further information on the presentation of financial information, the Business Combination, and the calculation of earnings per share data, please refer
to Note 1 — Summary of Significant Accounting Policies, Note 2 — Recapitalization Transaction, and Note 12 — Net Loss Per Share.
Midstream service revenue - Affiliate and other
Net income (loss) before income taxes
Net income (loss) attributable to Class A common shareholders
Net income (loss) attributable to Class A common shareholders, per share:
First
Second
Third
Fourth
(In thousands, except per common share data)
2018
$
12,099 $
12,517 $
25,437 $
(7,570)
(12,607)
(7,468)
(11,621)
284
19,208
28,305
4,014
632
Basic
Diluted
$
(0.09) $
(0.09)
(0.06) $
(0.06)
0.09 $
0.09
0.004
0.004
Midstream service revenue - Affiliate
Net loss before income taxes
Net loss attributable to Class A common shareholders
Net loss attributable to Class A common shareholders, per share:
Basic
Diluted
2017
$
— $
1,570 $
5,368 $
(2,129)
(2,429)
(3,354)
(3,828)
8,204
(6,051)
(12,318)
(0.05) $
(0.05)
(0.05) $
(0.05)
(0.11)
(0.11)
—
—
— $
—
$
F-31
EXHIBIT
NO.
2.1***
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.8
10.1
10.2
10.3
10.5
10.6
10.7
10.8
INDEX TO EXHIBITS
DESCRIPTION
– Contribution Agreement, dated as of August 8, 2018, by and among Kayne Anderson Acquisition Corp., Altus Midstream LP, Apache
Midstream LLC, Alpine High Gathering LP, Alpine High Pipeline LP, Alpine High Processing LP, Alpine High NGL Pipeline LP and
Alpine High Subsidiary GP LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on
August 8, 2018, SEC File No. 001-38048).
– Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
on Form 8-K filed on November 13, 2018, SEC File No. 001-38048).
– Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 filed on March 7, 2017, SEC
File No. 333-216514).
– Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to Registration Statement on
Form S-1/A filed on March 16, 2017, SEC File No. 333-216514).
– Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Amendment No. 1 to Registration
Statement on Form S-1/A filed on March 16, 2017, SEC File No. 333-216514).
– Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Amendment No. 1 to Registration Statement
on Form S-1/A filed on March 16, 2017, SEC File No. 333-216514).
– Warrant Agreement, dated March 29, 2017, by and between American Stock Transfer & Trust Company, LLC and the Company
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 4, 2017, SEC File No. 001-
38048).
– Warrant Agreement, dated as of November 9, 2018, by and between American Stock Transfer & Trust Company, LLC and the Company
(incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No. 001-
38048).
– Stockholders Agreement, dated as of November 9, 2018, by and among Altus Midstream Company, Kayne Anderson Sponsor, LLC and
Apache Midstream LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 13,
2018, SEC File No. 001-38048).
– Amended and Restated Registration Rights Agreement, dated as of November 9, 2018, by and among Altus Midstream Company, Kayne
Anderson Sponsor, LLC, the other holders party thereto and Apache Midstream LLC (incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No. 001-38048).
– Letter Agreement, dated March 29, 2017, by and between the Company, the initial security holders and the officers and directors of the
Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 4, 2017, SEC File No.
001-38048).
– Form of Indemnity Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed on
March 7, 2017, SEC File No. 333-216514).
– Administrative Services Agreement, dated March 29, 2017, by and between the Company and KA Fund Advisors, LLC (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 4, 2017, SEC File No. 001-38048).
– Option Letter Agreement, dated as of August 8, 2018, by and among Kayne Anderson Acquisition Corp., Apache Midstream LLC and
Apache Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 8, 2018,
SEC File No. 001-38048).
– Form of Subscription Agreement, by and between Kayne Anderson Acquisition Corp. and the subscriber named therein (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 8, 2018, SEC File No. 001-38048).
– Sponsor Forfeiture Agreement, dated as of August 8, 2018, by and among Kayne Anderson Acquisition Corp., Kayne Anderson
Sponsor, LLC and Apache Midstream LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on August 8, 2018, SEC File No. 001-38048).
– Credit Agreement, dated as of November 9, 2018, among Altus Midstream, LP, the lenders party thereto, the issuing banks party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, Citibank, N.A.,
Bank of America, N.A., The Toronto-Dominion Bank, New York Branch, MUFG Bank Ltd., and The Bank of Nova Scotia, Houston
Branch, as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
November 13, 2018, SEC File No. 001-38048).
10.9
– Amended and Restated Agreement of Limited Partnership of Altus Midstream LP, dated as of November 9, 2018 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No. 001-38048).
10.10
– Construction, Operations and Maintenance Agreement, dated as of November 9, 2018, by and between Altus Midstream Company and
Apache Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 13,
2018, SEC File No. 001-38048).
F-32
10.11
– Purchase Rights and Restrictive Covenants Agreement, dated as of November 9, 2018, by and between Altus Midstream Company and
Apache Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 13,
2018, SEC File No. 001-38048).
10.12
– Lease Agreement, dated as of November 9, 2018, by and between Apache Corporation and Altus Midstream LP (incorporated by
reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No. 001-38048).
10.13
10.14
– Trademark License Agreement, dated as of November 9, 2018, by and between Apache Corporation and Altus Midstream LP
(incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No.
001-38048).
– Trademark License Agreement, dated as of November 9, 2018, by and between Apache Corporation and Kayne Anderson Acquisition
Corp. (n/k/a Altus Midstream Company) (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed
on November 13, 2018, SEC File No. 001-38048).
10.15*‡
– Intrastate Firm Natural Gas Transportation Service Agreement, dated April 1, 2017, by and between Apache Corporation and Alpine
High Pipeline LLC (n/k/a Altus Midstream Pipeline LP).
10.16*‡
– Gas Processing Agreement, dated July 1, 2018, by and between Apache Corporation and Alpine High Processing LP (n/k/a Altus
Midstream Processing LP).
10.17*‡
– Gas Gathering Agreement, dated July 1, 2018, by and between Apache Corporation and Alpine High Gathering LP (n/k/a Altus
Midstream Gathering LP).
10.18*‡
– Residue Gas Transportation Services Agreement, dated July 1, 2018, by and between Apache Corporation and Alpine High NGL
10.19*†
10.20*†
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
Pipeline LP (n/k/a Altus Midstream NGL Pipeline LP).
– Altus Midstream Company Restricted Stock Units Plan, dated December 17, 2018.
– Form of Director Grant Agreement, dated December 17, 2018.
– Subsidiaries of the Company.
Consent of Ernst & Young LLP.
– Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
– Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
– Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b) and 18 U.S.C. 1350.
– Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.INS*
– XBRL Instance Document.
101.SCH*
– XBRL Taxonomy Schema Document.
101.CAL*
– XBRL Calculation Linkbase Document.
101.DEF*
– XBRL Definition Linkbase Document.
101.LAB*
– XBRL Label Linkbase Document.
101.PRE*
– XBRL Presentation Linkbase Document.
* Filed herewith.
** Furnished herewith
*** Schedules and exhibits to this Exhibit have been omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a
copy of any omitted schedule or exhibit to the SEC upon request.
† Management contracts or compensatory plans or arrangements required to be filed herewith pursuant to Item 15 hereof.
‡ Portions have been omitted pursuant to a request for confidential treatment.
F-33
CONFIDENTIAL TREATMENT REQUESTED
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION IS MARKED
WITH “[***]”.
INTRASTATE FIRM NATURAL GAS TRANSPORTATION SERVICE AGREEMENT
CONTRACT NO: 1000-001-1
THIS INTRASTATE FIRM NATURAL GAS TRANSPORTATION SERVICE AGREEMENT (the “Service Agreement”) is entered
into effective April 1, 2017, (“Commencement Date”) by and between ALPINE HIGH PIPELINE LLC a Delaware limited liability
company (hereinafter referred to as “Transporter”), and Apache Corporation, a Delaware corporation (hereinafter referred to as
“Shipper”), both hereinafter collectively referred to as the “Parties”, and individually as a “Party”. In consideration of the mutual
covenants herein contained, the Parties agree as follows:
Shipper has requested a Service Agreement from Transporter pursuant to the provisions of Transporter’s Statement of Operating
Conditions Applicable to Intrastate Transportation Service (the “Statement of Operating Conditions”) incorporated herein by reference
and attached hereto as Appendix “A”.
Transporter has approved Shipper’s request for a Service Agreement and will provide firm transportation service for Shipper pursuant
to the terms of this Service Agreement and its Confirmation(s). The Shipper shall have the ability to transport under any Confirmation
then in effect under this Service Agreement.
The transportation service provided under this Service Agreement and its Confirmation(s) are subject to applicable Texas laws and the
rules and regulations TRC has promulgated with respect thereto, and the provisions of Transporter’s Statement of Operating Conditions,
which are incorporated herein by reference, as if fully set forth herein. The transportation service provided in this Service Agreement
and its Confirmations are not subject to the Federal Energy Regulatory Commission’s (“FERC”) regulations under the Natural Gas Act
of 1938, as amended (the “NGA”).
Shipper represents and warrants that (i) it has all lawful rights and/or title to all Gas delivered by it hereunder for its account, that it has
the right to deliver same hereunder, and that such Gas is free from liens and adverse claims of every kind; (ii) it has arranged for the
delivery and/or receipt by any necessary third party transporter(s) of the gas to be transported hereunder; and (iii) all Gas delivered to
Transporter hereunder will be produced in the State of Texas from reserves not dedicated or committed to interstate commerce, and that
the Gas which Shipper delivers or receives hereunder will not have been or be sold, consumed, transported or otherwise utilized in
interstate commerce at any point upstream of the Receipt Points or downstream of the Delivery Points, and that such Gas has not been
nor will it be commingled at any point upstream of the Receipt Points or downstream of the Delivery Points with other Gas which is or
may be sold, consumed, transported or otherwise utilized in interstate commerce, in such a manner which will subject the Gas
transported under this Service Agreement or Transporter’s or its designee’s pipeline system, or any portion thereof, to the jurisdiction of
the FERC or any successor authority under the NGA. Shipper hereby indemnifies and holds harmless Transporter from all suits,
actions, losses, expenses (including attorneys’ fees), and regulatory proceedings arising out of or in connection with a breach of the
representations and warranties made by Shipper above.
Service Level:
As shown in the applicable Confirmation
Gas received by Transporter hereunder will be received at the following Receipt Point(s):
As shown in the applicable Confirmation
Gas delivered by Transporter to Shipper will be delivered at the following Delivery Point(s):
As shown in the applicable Confirmation
Shipper’s Maximum Daily Contract Quantity:
1.
2.
3.
4.
5.
6.
7.
8.
CONFIDENTIAL TREATMENT REQUESTED
As shown in the applicable Confirmation
9.
Transportation Rate(s):
As shown in the applicable Confirmation
10.
Retention Volume:
As shown in the applicable Confirmation
11.
Term:
As shown in the applicable Confirmation
12.
Addresses for Notices and Payments:
TRANSPORTER:
For Notices/Correspondence:
Alpine High Pipeline LLC
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Email: CommercialOperations@apachecorp.com
For Accounting Matters:
Attn: Manager of Gas Accounting
2000 Post Oak Blvd, suite 100
Houston, Texas 77056-4400
Phone: 713-296-7147
Attn: Manager of Gas Accounting
For Payments:
c/o Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
SHIPPER:
Notices/Correspondence:
Apache Corporation
Attn: Gas Marketing Contract Administration
2000 Post Oak Blvd, Suite 100
Houston, Texas 77056-4400
Phone: 713-296-7147
Fax: 713-296-6473
For Accounting Matters:
Attn: Manager of Gas Accounting
2000 Post Oak Blvd, suite 100
Houston, Texas 77056-4400
Phone: 713-296-7147
For Payments by Check:
Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Payments by Wire Transfer:
Payments by Wire Transfer:
CONFIDENTIAL TREATMENT REQUESTED
c/o [***]
Bank: [***]
ABA No.: [***]
Account: [***]
Account No.: [***]
For Scheduling/Nominations:
Alpine High Pipeline LLC
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Phone: 210-447-5629
Bank: [***]
ABA No.: [***]
Account: [***]
Account No.: [***]
Attn: Manager of Commercial Operations Attn: Gas Scheduling Nominations
For Scheduling/Nominations:
Apache Corporation
2000 Post Oak Blvd, Suite 100
Houston, Texas 77056-4400
Phone: 713-296-6968
Fax: 713-296-7130
Email: CommercialOperations@apachecorp.com
Email: midcon.scheduling@apachecorp.com
For Gas Control:
Alpine High Pipeline LLC
Attn: Gas Control
210-447-5600 (24/7)
800-548-8090 (24/7)
For Gas Control:
Apache Corporation
Attn: Gas Control
Telephone: 713-296-6000
Fax: 713-296-7130
Email: fusioncenter.midstream@apachecorp.com Email: midcon.scheduling@apachecorp.com
13.
Other Provisions:
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
By: /s/ Bob W. Bourne By: /s/ Brian W. Freed
Name: Bob W. Bourne Name: Brian W. Freed
Title: VP, Business Development - Midstream & Marketing Title: SVP, Marketing and Midstream
CONFIDENTIAL TREATMENT REQUESTED
INTRASTATE CONFIRMATION
BASE AGREEMENT: Intrastate Firm Natural Gas Transportation Service Agreement
dated April 1, 2017
CONTRACT NUMBER: 1000-001-1
CONFIRMATION NUMBER: 1000-001-1-101
SHIPPER: APACHE CORPORATION
TRANSPORTER: ALPINE HIGH PIPELINE LLC
SERVICE LEVEL: Interruptible: _______ Firm: ___X_____
Authorized Overrun Service: ____X_____
This Confirmation constitutes part of and is subject to the Service Agreement and the Statement of Operating Conditions
(collectively, the “Agreement”). All capitalized terms not defined herein shall have the meaning ascribed to such terms in the
Statement of Operating Conditions and Service Agreement.
RECEIPT POINT(S): All existing and future interconnects between Transporter and (i) Alpine High Gathering LLP, (ii) Alpine
High Processing LLP, (iii) Comanche Trail Pipeline LLC, (iv) Oneok Roadrunner Pipeline LLC, (v) Trans-Pecos Pipeline LLC,
and (vi) any other intrastate pipelines.
DELIVERY POINT(S): All existing and future interconnects between Transporter and (i) Apache Corporation, (ii) Alpine High
Gathering LLP, (iii) Alpine High Processing LLP, (iv) Comanche Trail Pipeline LLC, (v) Oneok Roadrunner Pipeline LLC, (vi)
Trans-Pecos Pipeline LLC, (vii) Trans-Pecos Waha Header, (viii) Gulf Coast Express Pipeline, LLC, (ix) Whitewater Midstream
LLC, and (x) any other intrastate pipelines.
MAXIMUM DAILY CONTRACT QUANTITY: See Exhibit “A-I” attached hereto.
TRANSPORTATION RATE(S):
Transportation Service:
DEMAND FEE: Shipper shall pay Transporter a Demand Fee equal to $0.12 per MMBtu multiplied by the applicable MDCQ
times the number of days in the Month.
COMMODITY FEE: Shipper shall pay Transporter a Commodity Fee equal to $0.01 per MMBtu for all Gas up to
the MDCQ delivered at the Delivery Point(s).
CONFIDENTIAL TREATMENT REQUESTED
Authorized Overrun Service:
Authorized Overrun Service Rate:
COMMODITY FEE: Shipper shall pay Transporter a Commodity Fee equal to $0.13 per MMBtu for all Gas over
the MDCQ delivered at the Delivery Point(s).
RETENTION VOLUME: Transporter will retain from the volumes of Gas delivered by Shipper hereunder at each Receipt
Point(s) at no cost to Transporter, a volume of Gas allocated ratably to Shipper of all Gas used as fuel, flared, lost, and
unaccounted for Gas, associated with the operation, maintenance and repair of the Alpine High Pipeline System (all of the
foregoing, collectively, the “Retention Volume”).
TERM: This Confirmation is effective as of April 1, 2017, and shall continue through March 31, 2032 (the “Primary Term”) and
continue after the Primary Term on a Year-to-Year basis unless terminated at the end of the Primary Term or any Yearly extension
period thereafter by either Party giving at least six (6) Months prior written notice, provided however, Shipper shall have two (2)
successive options to extend the Primary Term by five (5) Years each by giving Transporter at least nine (9) Months prior written
notice and Transporter’s right to terminate this Confirmation at the end of the Primary Term or any Yearly extension period
thereafter shall be subject to, and limited by, Shipper’s options to extend the Primary Term. Unless otherwise agreed by Shipper
and Transporter in writing, the MDCQs during any Yearly extension periods will be the applicable MDCQ in effect on March 31,
2032.
OTHER PROVISIONS:
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
By: /s/ Bob W. Bourne By: /s/ Brian W. Freed
Name: Bob W. Bourne Name: Brian W. Freed
Title: VP, Business Development - Midstream & Marketing Title: SVP, Marketing and Midstream
CONFIDENTIAL TREATMENT REQUESTED
Month-Year MDCQ
Exhibit “A-1” to
Intrastate Firm Confirmation
(MMBtu/day)
[***] [5 PAGES OF TABLE OMITTED] [***]
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT TO
INTRASTATE FIRM NATURAL GAS TRANSPORTATION SERVICE AGREEMENT AND CONFIRMATION DATED APRIL 1, 2017,
CONTRACT NO: 1000-001-1
CONFIRMATION NO: 1000-001-1-102
THIS AMENDMENT is entered into as of April 25, 2018, by and between Apache Corporation (“Shipper”) and Alpine High Pipeline
LLC (“Transporter”).
WHEREAS, Shipper and Transporter entered into that Intrastate Firm Natural Gas Transportation Service Agreement, Contract
Number: 1000-001-1 (“Service Agreement”) and Intrastate Firm Confirmation, Confirmation Number 1000-001-1-101 (“Confirmation”), both
dated April 1, 2017; and
WHEREAS, on October 26, 2017, Transporter submitted a petition for rate approval for interruptible transportation services offered
under NGPA Section 311, with a proposed effective date of September 26, 2017 (“Petition”) to the Federal Energy Regulatory Commission
(“Commission”) in Docket No. PR18-4-000 and on January 9, 2018, Transporter submitted an amended Statement of Operating Conditions
(“311 SOC”), version 0.1.0, to be effective September 26, 2017; and
WHEREAS, on February 6, 2018 the Commission issued a letter order accepting Transporter’s amended 311 SOC with an effective
date of September 26, 2017, and
WHEREAS, the Shipper and Transporter desire to amend the Service Agreement and Confirmation to conform with certain changes to
the 311 SOC approved by the Commission.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Shipper and Transporter agree to amend the Service Agreement and Confirmation as
follows:
1. The word “flared” in the third line in the section entitled “Retention Volume” on page two of the Confirmation, is deleted.
2. Appendix “A” attached to and incorporated into the Service Agreement is deleted in its entirety and replaced with the new
Appendix “A” attached hereto and incorporated herein.
This Amendment shall be effective as of September 26, 2017.
Except as specifically amended herein, the terms and conditions of the Service Agreement and Confirmation shall remain in full force and
effect as written.
IN WITNESS WHEREOF, the parties have duly executed and exchanged duplicate originals of this Amendment to the Service Agreement and
Confirmation by their respective officers or other person duly authorized to do so.
CONFIDENTIAL TREATMENT REQUESTED
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
Accepted and Agreed Accepted and Agreed
This 25th day of April 2018 This 25th day of April 2018
By: /s/ Bob W. Bourne By: /s/ Brian W. Freed
Title: VP Business Development Title: SVP Midstream & Marketing
Date: April 25, 2018 Date: April 25, 2018
Signature page to Amendment to Intrastate Firm Natural Gas Transportation Service Agreement and Confirmation dated April 1, 2017 -
Contract No. 1000-001-1 and Confirmation No. 1000-001-1-101, effective September 26, 2017.
CONFIDENTIAL TREATMENT REQUESTED
APPENDIX “A”
ALPINE HIGH PIPELINE LLC
STATEMENT OF OPERATING CONDITIONS
FOR INTRASTATE SERVICE
IN TEXAS
EFFECTIVE September 26, 2017
CONFIDENTIAL TREATMENT REQUESTED
ALPINE HIGH PIPELINE LLC
STATEMENT OF OPERATING CONDITIONS
APPLICABLE TO INTRASTATE TRANSPORTATION SERVICE
TABLE OF CONTENTS
INTRODUCTION
REQUEST FOR SERVICE AGREEMENT
1.
2. DEFINITIONS
3.
4. GENERAL
5. QUANTITY
6. DELIVERY POINT(S) AND RECEIPT POINT(S)
7. NOMINATIONS AND BALANCING
RATES
8.
9.
TERM
10. QUALITY
11. ADDRESSES
12. PRESSURES AT DELIVERY AND RECEIPT POINT(S)
13. MEASUREMENT
14. BILLING, ACCOUNTING, AND REPORTS
15. RESPONSIBILITY
16. FORCE MAJEURE
17. LAWS AND REGULATIONS
18. MISCELLANEOUS
EXHIBIT “A” - Form of Service Agreement for Interruptible Service
EXHIBIT “B” - Form of Service Agreement for Firm Service
EXHIBIT “C” - Form of Confirmation
10
11
11
13
15
17
17
18
21
22
22
23
23
24
26
27
27
29
30
33
36
39
CONFIDENTIAL TREATMENT REQUESTED
ALPINE HIGH PIPELINE LLC
STATEMENT OF OPERATING CONDITIONS
APPLICABLE TO INTRASTATE TRANSPORTATION SERVICE
1. INTRODUCTION.
Alpine High Pipeline LLC (“Transporter”) owns an intrastate pipeline, with facilities located wholly within the State of
Texas, and is exempt from the jurisdiction of the Federal Energy Regulatory Commission (“FERC”) under the Natural Gas Act of
1938 (“NGA”). Transporter’s commercial operations relating to intrastate service within the State of Texas, including contracting,
scheduling, invoicing, payment, etc., will be provided subject to this Statement of Operating Conditions.
2. DEFINITIONS.
Except as otherwise specified, the following terms as used herein, in the Service Agreement and its applicable Confirmation will
be construed to have the following scope and meaning:
“Btu” means British thermal unit and, where appropriate, the plural thereof.
“Commencement Date” is defined in Section 9.1 of this Statement of Operating Conditions.
“Confirmation” means an effective and unexpired agreement documented by written means, including but not
limited to facsimile, e-mail, or other electronic means, evidencing an affirmative agreement between Transporter and Shipper on
all key terms and conditions, for a particular arrangement under a Service Agreement or transportation agreement, including
information materially similar to that contained on Exhibit “C”; Shipper’s submission of a nomination without an affirmative
agreement by Transporter to all terms of service shall not constitute a Confirmation.
(d)
“Day” means the period beginning at 9:00 a.m. central clock time (“CCT”) on each calendar day and ending at
9:00 a.m. CCT on the following calendar day.
“Delivery Point(s)” is defined in Section 6.1 of this Statement of Operating Conditions.
“Effective Date” means the first Day of the term of a Confirmation.
“Firm” or “Firm Service” means transportation service that is provided on a firm basis, is not subject to a prior
claim by another customer or class of service, and receives the same priority as any other firm Shipper in that it has the highest
priority of transportation service offered by Transporter as set forth in this Statement of Operating Conditions.
(h)
“Gas” means natural gas produced from gas wells, gas produced in association with oil (casinghead gas), and/or
the residue gas resulting from processing casinghead gas and/or gas well gas.
(i)
“Heating Value” means the total heating value expressed in Btu per cubic foot (gross heating value) of the Gas,
and will be determined at a temperature of 60 degrees Fahrenheit, saturated with water vapor and under a pressure equivalent to
that of 30 inches of mercury at 32 degrees Fahrenheit converted to base conditions of 60 degrees Fahrenheit and an absolute
pressure of 14.65 pounds per square inch and adjusted to reflect actual water vapor content.
(j)
“Interruptible” or “Interruptible Service” means Transporter may interrupt, curtail, or suspend the receipt,
transportation or delivery of Gas hereunder at any time and from time to time for any reason without notice, whether or not caused
by an event of Force Majeure, with Transporter having no liability to Shipper.
(k)
(l)
“Make-up Volumes” is defined in Section 7.4.1 of this Statement of Operating Conditions.
“Maximum Daily Contract Quantity” or “MDCQ” means the maximum quantity of Gas in MMBtu, exclusive of
applicable Retention Volume, that Shipper may nominate and deliver to Transporter each Day at a Receipt Point(s) or Delivery
Point(s) or an aggregate of Receipt Points or Delivery Points
11
(a)
(b)
(c)
(e)
(f)
(g)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
at a relatively uniform hourly rate over the course of such Day, as specified in a Confirmation.
(m)
(n)
“Mcf” means one thousand cubic feet, and “MMBtu” means one million Btu.
“Month” means that period of time beginning at 9:00 a.m. CCT on the first day of a calendar month and ending at
9:00 a.m. CCT on the first day of the following calendar month.
CONFIDENTIAL TREATMENT REQUESTED
“Monthly Imbalance” is defined in Section 7.4.1 of this Statement of Operating Conditions.
“Nomination” is defined in Section 7.1 of this Statement of Operating Conditions.
“Operational Flow Order” is defined in Section 7.3 of the Statement of Operating Conditions.
“Psia” means pounds per square inch absolute.
“Psig” means pounds per square inch gauge.
“Receipt Point(s)” is defined in Section 6.2 of the Statement of Operating Conditions.
“Retention Volume” is defined in Section 8.2 of the Statement of Operating Conditions.
“Scheduled Quantity” means the quantity of Gas, inclusive of any applicable Retention Volume, nominated and
scheduled by Shipper and confirmed by Transporter with the upstream and the downstream pipeline operators, subject to any
limitations of the MDCQ set forth in the Confirmation.
(w)
“Service Agreement” means the agreement between Transporter and Shipper, whereby Transporter will provide
transportation services for Shipper pursuant to the terms and provisions of this Statement of Operating Conditions and any
applicable Confirmation.
(x)
“Shipper” means the party that holds all lawful rights and/or title to the Gas that is being transported and who has
a fully executed Service Agreement and Confirmation with Transporter.
(y) “Transporter” means Alpine High Pipeline LLC.
(z) “TRC” means the Texas Railroad Commission or any successor agency.
3. REQUEST FOR SERVICE AGREEMENT.
3.1
Request for Service Agreement. A Service Agreement is required for all services hereunder and will be subject to
all terms and provisions of this Statement of Operating Conditions, and its applicable Confirmation. Any potential Shipper desiring
to obtain services from Transporter must request a Service Agreement from Transporter. The request may be in writing, by
telephone or electronic medium. Shipper shall provide documentation to demonstrate its creditworthiness to the satisfaction of the
Transporter in accordance with Section 3.3 hereof.
Requests for Service Agreement may be sent to:
Alpine High Pipeline LLC
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Email: CommercialOperations@apachecorp.com
3.2
Requirements of Request for Service. Each request for a specific transaction under an executed Service Agreement
must include the following information:
3.2.1
Shipper’s name, Service Agreement number and any applicable individual transaction confirmation
number;
Requested Receipt Point(s) or receipt point area and Delivery Point(s) or delivery point area;
3.2.2
3.2.3 Shipper’s requested Maximum Daily Contract Quantity;
3.2.4 The type and character of service requested; and
3.2.5 The term of the service requested.
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CONFIDENTIAL TREATMENT REQUESTED
3.3
Credit Approval. Transporter’s agreement to execute a Service Agreement or to engage in a specific transaction
under a Service Agreement is contingent upon a satisfactory appraisal of Shipper’s credit by Transporter.
3.3.1
If requested by Transporter, potential Shipper must provide a copy of its last two (2) fiscal years of
audited financial statements, including balance sheet, income statement, cash flow statement and accompanying footnotes.
If potential Shipper cannot provide the above information on itself, then potential Shipper must, if applicable, provide that
information for its parent company.
3.3.2
In the event Transporter determines Shipper’s credit to be unsatisfactory in Transporter’s sole opinion,
as tested in a commercially reasonable and in a not unduly discriminatory manner, at any time during the term of any
Service Agreement or applicable Confirmation, Transporter may demand “Adequate Assurance of Performance” which
shall mean sufficient security in a form, an amount and for the term reasonably specified by Transporter. Shipper at its
option may provide one of the following forms of security:
a.
Post an irrevocable standby letter of credit in a form, substance and from a bank satisfactory to
Transporter for services equal to or up to three (3) months of all fees and charges that would be due from Shipper if
Transporter were performing such service plus an amount for projected imbalances, unless a lesser amount is
reasonable to and agreed upon by Transporter based on Shipper’s financial condition; or
b.
Provide a prepayment or a deposit for services equal to or up to three (3) months of all fees and
charges that would be due from Shipper if Transporter were performing such service plus an amount for projected
imbalances, unless a lesser amount is reasonable to and agreed upon by Transporter based on Shipper’s financial
condition; or
c.
Provide a guaranty from a guarantor acceptable to Transporter. The demand for Adequate Assurance
of Performance can be satisfied with a guaranty issued on behalf of Shipper in a format, amount and term
acceptable to Transporter, but only for as long as the credit of Shipper’s guarantor continues to be acceptable to
Transporter, after which time only Adequate Assurance of Performance in the form of (a) and (b) will be acceptable
to Transporter.
3.3.3
Transporter shall have the right to suspend performance under any Service Agreement or any applicable
Confirmation in the event: (i) Shipper has voluntarily filed for bankruptcy protection under any chapter of the Bankruptcy
Code; (ii) Shipper is the subject of an involuntary petition of bankruptcy under any chapter of the Bankruptcy Code, and
such involuntary petition has not been settled or otherwise dismissed within ninety (90) Days of such filing; (iii) Shipper
otherwise becomes insolvent, whether by an inability to meet its debts as they come due in the ordinary course of business
or because its liabilities exceed its assets on a balance sheet test and/or however such insolvency may otherwise be
evidenced; or (iv) Shipper fails to timely pay any amounts due and payable under a Service Agreement or applicable
Confirmations.
3.3.4
Should Shipper fail to provide Adequate Assurance of Performance within two (2) business Days after
receipt of written demand for such assurance, then Transporter shall have the right to suspend performance under any
Confirmation until such time as Shipper furnishes Adequate Assurance of Performance and/or terminate any Service
Agreement or applicable Confirmation in addition to all other remedies available at law or in equity.
3.4
Transporter shall have the right to reject any request for Service Agreement or Confirmation that does not contain
the required information set forth herein and Transporter will have no liability to Shipper or any other entity in connection with
such rejection.
3.5
In addition to requiring Adequate Assurance of Performance to secure the Service Agreement and/or transactions
thereunder, Transporter may require additional or alternate security from
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CONFIDENTIAL TREATMENT REQUESTED
Shipper if Transporter’s service to Shipper is contingent upon Transporter’s construction of facilities. This provision shall also
apply to any assignment of a Service Agreement that was initially subject to this provision.
3.6
Service Agreements. After Shipper has requested a Service Agreement and after Transporter has determined that
Shipper is creditworthy, Transporter and Shipper will enter into a Service Agreement, which will incorporate by reference the
provisions of this Statement of Operating Conditions. Multiple transportation arrangements can be agreed to between the parties
and confirmed by Confirmations under a single Service Agreement. Neither Transporter nor Shipper will have any obligations to
one another until authorized representatives of both Transporter and Shipper have executed a Service Agreement and have agreed
to a Confirmation. Any applicable Confirmation(s) will contain specific details agreed to by Transporter and Shipper for a
particular service arrangement.
3.7
Additional Facilities. Transporter shall not be required to construct additional facilities, modify or expand
facilities, or acquire facilities to provide service. Any additional facilities (including meters) required to provide service to a
Shipper that Transporter agrees in its sole discretion to provide shall be paid for by such Shipper, unless otherwise agreed to in
writing by Shipper and Transporter.
4. GENERAL.
4.1
Transporter’s Obligations. Transporter will receive Gas up to the Scheduled Quantity at the Receipt Point(s) as
nominated and tendered by Shipper under the terms of this Statement of Operating Conditions, the Service Agreement, and its
applicable Confirmation, transport and deliver an equivalent quantity of Gas, in MMBtu, to Shipper at the Delivery Point(s), less
the Retention Volume as set forth in Section 8.2 of this Statement of Operating Conditions. Transporter’s obligations to receive,
transport, and deliver Gas to the Delivery Point(s) will be in accordance with the applicable character of service (i.e. Firm or
Interruptible), and are subject to: (i) available capacity, as determined by Transporter, upon its exercise of reasonable judgment; (ii)
an event of Force Majeure; (iii) Shipper’s failure or refusal to deliver Gas to or receive Gas from Transporter as required under this
Statement of Operating Conditions, the Service Agreement and any applicable Confirmation; (iv) any laws, rules, orders, or
requirements of any governmental or regulatory authorities that limit, prevent, or interfere with Transporter’s performance; and (v)
as otherwise provided under any other terms and conditions in this Statement of Operating Conditions, the Service Agreement, and
any applicable Confirmation. Shipper acknowledges that for those Receipt Point(s) and Delivery Point(s) at which Transporter has
operational balancing agreements, the Scheduled Quantity is deemed to have been received or delivered for the account of Shipper,
subject to the remaining terms and conditions of this Statement of Operating Conditions, the applicable Service Agreement, and
any applicable Confirmation. In the event of constraints at a Delivery Point(s) or on a downstream pipeline, Transporter will rely
on the downstream party’s allocation at the affected Delivery Point(s) and, to the extent Shipper’s nominations are reduced,
Shipper will be deemed to have failed to receive Gas from Transporter as required hereunder.
4.2
Interruption of Service. Transporter will endeavor to advise (by telephone or electronic medium) Shipper’s
dispatcher or authorized representative of an interruption as soon as practicable, either before or after interruption of service, but
Transporter will have no liability for any failure to give such notice. Transporter will not be liable for any loss or damage to any
person or property caused, in whole or in part, by any interruption of Interruptible service under any Service Agreement or its
applicable Confirmation. Should any third party with the right to control the Receipt Point(s), Delivery Point(s), or any other
facilities needed for the receipt, transportation, or delivery of Gas hereunder limit or fail to authorize the use of any such facilities
to perform services provided hereunder, Transporter will have no obligation hereunder to perform any transportation service, or
receive or deliver Gas hereunder at such facilities.
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CONFIDENTIAL TREATMENT REQUESTED
4.3
Shipper’s Obligations. Shipper will tender the Scheduled Quantity at the Receipt Point(s), and accept such Gas,
less the Retention Volume, at the Delivery Point(s). Shipper’s obligations set forth in the preceding sentence are subject to: (i) an
event of Force Majeure; (ii) Transporter’s failure or refusal to receive Gas from or deliver Gas to Shipper as required under this
Statement of Operating Conditions; (iii) any laws, rules, orders, or requirements of any governmental or regulatory authorities that
limit, prevent, or interfere with Shipper’s performance; and (iv) as otherwise provided under any other terms and conditions in this
Statement of Operating Conditions, the applicable Service Agreement, and its applicable Confirmation.
4.4
Priority of Service and Scheduling. From time to time, Transporter may not have sufficient capacity available to
accommodate all nominations through specific Receipt Point(s), specific Delivery Point(s), specific compression stations, and/or
specific segments of Transporter’s pipeline system (the “Impacted Location”). In such event, Transporter will schedule and
perform service through the Impacted Location in the following order of priority:
1.
2.
Firm transportation service shall receive the highest priority. To the extent there is capacity available to
accommodate some but not all of the Firm transportation nominations, capacity through the Impacted Location will
be allocated among the Firm customers such that the customer with the earliest Effective Date of a Confirmation
shall be the last curtailed. In the event one or more customers have the same Effective Date of a Confirmation, then
the available capacity, if any, will be awarded to the customer whose transaction provides the greatest economic
benefit to Transporter, in Transporter’s judgment.
Interruptible transportation service shall receive the next highest priority. To the extent there is sufficient capacity to
accommodate all Firm nominations and some, but not all, of the Interruptible nominations, capacity through the
Impacted Location will be allocated among the Interruptible customers on an economic basis. As such, Transporter
shall allocate capacity to the Shippers paying a higher rate per MMBtu before Shippers paying a lower rate. If two
or more Shippers are paying the same rate per MMBtu, Transporter shall schedule nominated service on a pro rata
basis.
4.5
Multiple Confirmations. If Shipper has multiple Confirmations, Shipper will not be permitted to combine services
available under such Confirmations. Specifically, Gas will be received under a particular Confirmation and will be delivered under
the same Confirmation.
4.6
Interstate Service. In addition to the intrastate transportation services that are subject to the exclusive jurisdiction
of the TRC and that are exempt from FERC’s regulation under the NGPA, Transporter may also be authorized to provide interstate
services pursuant to FERC’s rules and regulations and the NGPA Section 311 Statement of Operating Conditions that Transporter
may file with FERC. In that event and to provide Shippers with flexibility to access intrastate and/or interstate markets, Shippers
may contract for both intrastate and NGPA Section 311 service on mutually agreeable terms, including a limitation that Shipper’s
combined usage under the intrastate and NGPA Section 311 agreements cannot exceed the MDCQ. The description of available
NGPA Section 311 services that may be offered is provided for informational purposes only and shall not be construed to make
any intrastate services subject to FERC regulation.
4.7
Filings. Transporter shall file all necessary reports and/or notices required by any applicable governmental or
regulatory authority, and Shipper shall provide Transporter with any necessary compliance information requested by Transporter in
connection with preparing such reports.
5. QUANTITY.
5.1
Maximum Delivery and Receipt Quantities. The maximum quantity of Gas that Transporter is obligated to receive
hereunder at the Receipt Point(s) and deliver hereunder at the Delivery Point(s) during any given hour of any Day is 1/24th of the
Shipper’s Scheduled Quantity at an instantaneous
15
standard volumetric flow rate at any point in time during the hour, unless otherwise agreed to by Transporter as specifically
provided in the Confirmation. Transporter has no obligation to receive, transport, and deliver quantities of Gas hereunder in excess
of the Scheduled Quantity. Transporter has no obligation to receive or deliver Gas in quantities exceeding the physical capacity of
the Delivery Point(s) or Receipt Point(s).
CONFIDENTIAL TREATMENT REQUESTED
5.2
All Quantities in MMBtu. All quantities of Gas received and delivered under any Confirmation will be expressed
in terms of MMBtu, including, without limitation, calculation of payments, determination of imbalances, and determination of
Retention Volume.
5.3
Authorized Overrun Service.
5.3.1
Upon request of Shipper at the time it nominates Interruptible Service, Transporter may approve and
schedule for receipt or delivery a quantity of Gas greater than the MDCQ and Shipper’s Retention Volume (“Authorized
Overrun Service”). Authorized Overrun Service will be available only if (i) Transporter determines in its sole discretion
that it has sufficient capacity after first scheduling all Firm intrastate and Interruptible transportation service within the
limits of all Shippers’ MDCQs, and (ii) Shipper has a designated Authorized Overrun Service rate in its Service Agreement
or any applicable Confirmation. Authorized Overrun Service will be scheduled on a first-come, first-served basis, with the
priorities established in Section 4.4.
5.3.2
Authorized Overrun Service is Interruptible and Transporter has absolutely no liability whatsoever in
damages or otherwise for any interruption or cessation of Authorized Overrun Service.
6. DELIVERY POINT(S) AND RECEIPT POINT(S).
6.1
Delivery Point(s). Transporter will deliver Gas to Shipper, or its agent, under this Statement of Operating
Conditions, the Service Agreement, and its applicable Confirmation to the existing points of interconnection between Transporter’s
pipeline facilities and the pipeline or receipt facilities of other parties at the “Delivery Point(s)” or a pool consisting of an
aggregate collection of such points, as identified in the Confirmation. Except as set forth in the Service Agreement and/or
Confirmations, Delivery Point(s) may be modified, or additional Delivery Point(s) may be added to a Confirmation, by mutual
agreement of the parties. In the event Delivery Point(s) are added to a Confirmation, such additional Delivery Point(s) will be
prioritized, for purposes of Section 4.4, based on the effective date of the amended Confirmation, unless otherwise mutually
agreed.
6.2
Receipt Point(s). Shipper will tender Gas for delivery to Transporter under this Statement of Operating
Conditions, the Service Agreement, and its applicable Confirmation from the existing points of interconnection between
Transporter’s pipeline facilities and the pipeline or delivery facilities of other parties at the “Receipt Point(s)” or a pool consisting
of an aggregate collection of such points, as identified in the Confirmation. Except as set forth in the Service Agreement and/or
Confirmations, Receipt Point(s) may be modified, or additional Receipt Point(s) may be added to the Confirmation, by mutual
agreement of the parties. In the event Receipt Point(s) are added to a Confirmation, such additional Receipt Point(s) will be
prioritized, for purposes of Section 4.4, based on the effective date of the amended Confirmation, unless otherwise mutually
agreed.
6.3
Allocation at Receipt and Delivery Point(s). It is recognized that quantities of Gas may be transported through the
Receipt Point(s) and/or the Delivery Point(s) for one or more parties other than the Shipper. If that occurs, the measurement of Gas
under this Agreement may involve the allocation of Gas receipts or deliveries. As between Transporter and Shipper, and subject to
Section 4.1, Transporter will determine the allocation of all Gas deliveries hereunder.
6.4
Payment of Fees. Shipper must pay any and all transportation, measurement, testing, compression, or other fees or
charges imposed by any third party on deliveries at any Receipt Point(s) or
16
CONFIDENTIAL TREATMENT REQUESTED
Delivery Point(s). Notwithstanding the foregoing, in the event Transporter pays any such fees and charges, Shipper must reimburse
Transporter for any such fees or charges paid by Transporter with respect to Shipper’s Gas provided that Transporter has given
Shipper written notice of the amount of such fees and charges and Shipper has agreed in writing to reimburse Transporter for such
fees and charges. If Shipper has not given Transporter written notice of its agreement to reimburse Transporter for any such fees
and charges, Transporter will have no obligation to receive Gas for Shipper at any such Receipt Point(s) or deliver Gas for Shipper
at any such Delivery Point(s) that may be subject to such fees and charges.
7. NOMINATIONS AND BALANCING.
7.1
Nominations. Shipper shall submit the quantity of Gas in MMBtu Shipper expects to make available and deliver
at each Receipt Point each Day, or portion thereof, and receive at each Delivery Point each Day, or portion thereof (the
“Nomination”) via Transporter’s applicable form or Web-based online nomination system. Transporter, to the extent it is utilizing
for its own account any available unused capacity, shall submit a Nomination for such service in accordance with the same
provisions and shall be treated in the same manner, as all other Nominations pursuant to the nomination procedures set forth herein
and the scheduling and priority of service provisions of this Statement of Operating Conditions. Transporter will confirm Shipper’s
Nomination with upstream and downstream operators in accordance with the provisions of this Statement of Operating Conditions
and the applicable Confirmation. Shipper must have a Confirmation in place before a Nomination can be submitted. The deadline
for submitting Nominations for the first of each Month is 1:00 p.m. CCT, one business day prior to the beginning of each Month.
Shipper will use reasonable efforts to notify Transporter by no later than 1:00 p.m. CCT on the business day prior to the Day(s) of
the scheduled flow, of the capacity and path that the Shipper plans to utilize. The deadline for submitting daily nominations is 1:00
p.m. CCT the business day prior to the Day of the scheduled flow. Shipper has the right to nominate quantities up to Shipper’s
Maximum Daily Contract Quantity. Any initial nomination received after the deadline of 1:00 p.m. CCT on the business day prior
to the flow Day will be scheduled by Transporter when feasible. Transporter may, in its sole discretion, allow intraday Nomination
changes at the Receipt Point(s) and Delivery Point(s) as operating conditions permit.
7.2
Shipper’s Balancing Obligations. For each Confirmation, the maximum quantity of Gas that Transporter is
obligated to receive at the Receipt Point(s) and deliver at the Delivery Point(s) during any given hour of any Day is 1/24th of
Shipper’s Scheduled Quantity, unless otherwise agreed to by Transporter or as provided in the applicable Confirmation. Shipper
will use reasonable commercial efforts to balance, on an hourly and daily basis, between the Gas received by Transporter at the
Receipt Point(s), less the Retention Volume, and the Gas delivered at the Delivery Point(s). Shipper will use reasonable
commercial efforts to monitor and adjust its Nominations, deliveries, and receipts to maintain the hourly and daily balances
between the Receipt Point(s) and Delivery Point(s), and notify Transporter immediately of any imbalances or situations that may
cause imbalances. If Transporter is unable to receive the Scheduled Quantity at any Receipt Point(s) or deliver the Scheduled
Quantity, less the Retention Volume, at any Delivery Point(s), Transporter will notify Shipper as soon as practicable. Transporter
has no obligation to receive and deliver quantities of Gas that differ from the Scheduled Quantity.
7.3
Operational Flow Order. If, in Transporter’s sole discretion, it is necessary or desirable in order to preserve the
overall operational balance or integrity of Transporter’s system, Transporter may issue an “Operational Flow Order”.
7.3.1
An Operational Flow Order may be issued if Transporter determines that changes in receipts or deliveries are
necessary to maintain overall operational balance of Transporter’s system or to enable Transporter to provide the services set forth
in this Statement of Operating Conditions, the Service Agreement and/or its Confirmation. The Operational Flow Order will
identify with specificity the operational problem to be addressed, the action(s) Shipper must take, the time by which Shipper must
17
CONFIDENTIAL TREATMENT REQUESTED
take the specified action(s), and the period during which the Operational Flow Order will be in effect. Transporter will provide as
much prior notice as possible, but not less than three (3) hours, to Shipper of actions Shipper must take to comply with an
Operational Flow Order; provided that action by Shipper can be required on less than three (3) hours notice if the nature of the
Operational Flow Order is due to safety concerns or to protect the integrity of Transporter’s pipeline system.
7.3.2
An Operational Flow Order may require Shipper to take any of the following actions or similar actions:
(a)
Commence or increase supply inputs into Transporter’s pipeline system at specific Receipt Point(s) or,
alternatively, cease or reduce deliveries from Transporter’s pipeline system at specific Delivery Point(s), both as directed by
Transporter.
(b)
Cease or reduce supply inputs into Transporter’s pipeline system at specific Receipt Point(s) or,
alternatively, commence or increase deliveries of Gas from Transporter’s pipeline system at specific Delivery Point(s), both
as directed by Transporter.
(c)
(d)
(e)
(f)
Eliminate any transportation imbalances, as directed by Transporter.
Conform actual receipts and deliveries to nominated and scheduled receipts and deliveries.
Delay changes in deliveries up to twenty-four (24) hours to account for the molecular movement of Gas.
Such other actions that are within Shipper’s control that would tend to alleviate the operational situation to
be addressed.
7.3.3
Should Shipper fail to adjust its receipts and/or deliveries in compliance with an Operational Flow Order,
Shipper must pay Transporter a charge equal to the highest daily price of gas at the location closest to the applicable Receipt
Point(s) or Delivery Point(s) as stated in Gas Daily® (Platts, a division of The McGraw-Hill Companies, Inc.), or successor
publication, in the column “Daily Price Survey” (“Gas Daily”) plus two dollars ($2.00) or if Gas Daily is unavailable another
similar publication plus two dollars ($2.00), or ten dollars ($10.00), whichever is greater, for each MMBtu received or delivered
under the Confirmation at the Receipt Point(s) or Delivery Point(s) during each hour in which deliveries are greater than 110% or
less than 90% of the Scheduled Quantities at the Receipt Point(s) for such hour, less Retention Volume, while the Operational
Flow Order is in effect.
7.3.4
Should Shipper fail to abide by an Operational Flow Order issued pursuant to this Section 7.3, Shipper will
indemnify Transporter for any damages resulting from Shipper’s failure to comply with the Operational Flow Order.
7.4
7.4.1
Gas Imbalance Account.
Imbalance-related Definitions.
(a) An imbalance will exist hereunder when, during any designated time period during the term hereof, there is a
numerical difference between (i) the quantity of gas delivered by Transporter to Shipper at the Delivery Point(s) grossed up for
Retention Volume attributed to the volumes of Gas delivered by Transporter to Shipper at the Delivery Point(s), and (ii) the
quantity of gas received by Transporter from Shipper (or its designee) at the Receipt Point(s), exclusive of Make-up Volumes.
(b) “Make-up Volumes” means the volume of gas specifically and separately nominated by Shipper and confirmed by
Transporter to resolve any imbalance under the Service Agreement and any applicable Confirmation.
(c) “Monthly Imbalance” means the absolute value of the difference between the cumulative volumes of gas received at
the Receipt Point(s) during a given Month, less Retention Volume attributed to the volumes of Gas delivered by Transporter to
Shipper at the Delivery Point(s), and the cumulative volumes of gas delivered at the Delivery Point(s) during the same given
Month.
18
(d) For those Receipt Point(s) and Delivery Point(s) at which Transporter has operational balancing agreements, the
quantity of gas delivered by Transporter to Shipper at such Delivery Point(s) and the quantity of gas received by Transporter
from Shipper (or its designee) at such Receipt Point(s), shall be deemed in accordance with Section 4.1.
CONFIDENTIAL TREATMENT REQUESTED
7.4.2
As soon as actual measurement information for Gas receipts and deliveries at the Receipt Point(s) and Delivery
Point(s) is available, Transporter will provide Shipper with written notice of any imbalance in the prior Month.
7.4.3
Shipper’s Balancing Obligations. Shipper will monitor, and if necessary, adjust, or cause to be adjusted, (i)
deliveries of gas to Transporter at the Receipt Point(s) for transportation to the Delivery Point(s) and (ii) receipts of gas from
Transporter at the Delivery Point(s), in order to maintain a balance of receipts and deliveries at consistent flow rates throughout
each Day and Month. Shipper agrees to revise its Nominations as needed to reflect any adjustments to deliveries of gas and
receipts of gas. Shipper’s balancing requirements (i.e., daily and monthly) may be determined independently for each Delivery
Point(s) and corresponding Receipt Point(s), in Transporter’s reasonable discretion.
7.4.4
Transporter’s Balancing Obligations. Subject to the terms of the Service Agreement and any applicable
Confirmation, Transporter will deliver to Shipper at the Delivery Point(s), during each applicable time period, a volume of gas, on
a MMBtu basis, equivalent to the volume of gas, on an MMBtu basis, received by Transporter from Shipper (or its designee) at the
Receipt Point(s) during such applicable time period, exclusive of any Retention Volumes and Make-up Volumes. Transporter will
not be obligated to deliver to Shipper at the Delivery Point(s) volumes of gas in excess of those quantities received from Shipper at
the Receipt Point(s) exclusive of Retention Volumes and Make-up Volumes. Transporter’s obligation to receive or deliver Make-up
Volumes is wholly interruptible and subject to system operations in Transporter’s reasonable opinion.
7.4.5 Monthly Imbalance Correction. At the end of each Month, any Monthly Imbalance shall be corrected in-kind during
the immediately ensuing Month or within such longer period of time as Transporter and Shipper may mutually agree in writing.
7.4.6 Upon termination of a Service Agreement or its applicable Confirmation, Transporter and Shipper shall, within
thirty (30) Days thereafter, or such longer period of time as Transporter and Shipper may mutually agree in writing, eliminate any
remaining imbalance by correcting such imbalance in kind. If after the thirty (30) Days, or such longer period of time as Transporter
and Shipper may mutually agree in writing, the imbalance has not been corrected in kind, then the Transporter and Shipper will
eliminate any remaining imbalance by cash out on the following terms: (i) If Gas is owed to Transporter, Shipper will pay
Transporter a per MMBtu fee equal to the simple average of the weekly posted price “Regional Average” as published in the Energy
Intelligence’s publication Natural Gas Week under the section “Texas (West)” for the Month; (ii) If Gas is owed to Shipper,
Transporter shall pay a per MMBtu fee equal to the simple average of the weekly posted price “Regional Average” as published in
the Energy Intelligence’s publication Natural Gas Week under the section “Texas (West)” for the Month.
7.5
Transporter’s Right to Balance. Notwithstanding anything in this Statement of Operating Conditions to the
contrary, Transporter may, at any time and from time to time, with notice to Shipper, restrict, interrupt, or reduce its receipts or
deliveries of Gas at the Receipt Point(s) or Delivery Point(s), and direct Shipper to make adjustments in its receipts or deliveries, in
order to maintain a daily and/or hourly balance or to correct an imbalance. If Shipper fails or refuses to follow any such request
from Transporter, Transporter may, without liability to Shipper, cease accepting or delivering Gas under the Service Agreement and
any applicable Confirmation, until the conditions causing the imbalance are corrected.
19
CONFIDENTIAL TREATMENT REQUESTED
7.6
Upstream and Downstream Pipeline Penalties. Cash-out dollar amounts, if any, billed or paid to (or by)
Transporter by (or to) upstream or downstream pipelines and attributable to Shipper’s Gas shall be billed or credited (as applicable)
by Transporter to Shipper. Any penalties imposed by upstream or downstream pipelines on Shipper or Transporter with regard to
imbalances shall be the responsibility of Shipper to the extent caused by Shipper’s actions or inactions, and by Transporter to the
extent caused by Transporter’s actions or inactions. The responsible party shall reimburse the non-responsible party for any such
penalties paid by the non-responsible party.
8. RATES.
8.1 Transportation Rates. Each Month Shipper will, where applicable, pay Transporter the applicable rate as set forth in
the Confirmation(s) (“Transportation Rates”). Transportation Rates and other charges due under this Statement of Operating
Conditions, the Service Agreement, and its applicable Confirmation, will be invoiced and payable under Section 14 of this
Statement of Operating Conditions.
8.2 Retention Volume. In addition to the Transportation Rates and other charges payable under this Statement of Operating
Conditions, the Service Agreement or its applicable Confirmation, Transporter will retain from the volumes of Gas delivered by
Shipper hereunder at each Receipt Point(s) at no cost to Transporter, a volume of Gas allocated ratably to Shipper of all Gas used as
fuel, lost, and unaccounted for Gas, associated with the operation, maintenance and repair of the Alpine High Pipeline System (all
of the foregoing, collectively, the “Retention Volume”).
9. TERM.
9.1 The Service Agreement will be effective on the date listed in the Service Agreement as the “Commencement Date”,
and will, subject to the terms and provisions of this Statement of Operating Conditions, remain in full force and effect as set forth
in the applicable Confirmation; provided the Service Agreement shall continue to apply to all Confirmations then in effect until all
Confirmations are completed. Termination, cancellation, or expiration of the Service Agreement or any applicable Confirmation
will not extinguish any obligation that accrued before or as a result of the termination, cancellation, or expiration.
10. QUALITY.
10.1 Shipper represents and warrants that all Gas tendered for transportation at the Receipt Point(s) shall meet the Quality
Specifications. “Quality Specifications” means, for each constituent, the more stringent of (i) the quality specifications required for
the acceptance of Gas by any downstream pipeline, or (ii) Transporter’s quality specifications set forth below (or as modified from
time to time or as otherwise agreed to by Transporter as specifically provided in the Confirmation on a non-discriminatory basis):
10.1.1 Have a Heating Value of not less than nine hundred fifty (950) Btu per cubic foot nor more than eleven
hundred (1,100) Btu per cubic foot;
10.1.2 Be commercially free of dust, gum, gum-forming constituents, gasoline, liquid hydrocarbons, water, and
any other substance of any kind that may become separated from the Gas during the handling thereof or that may cause
injury to or interference with proper operation of the lines, meters, regulators, or other appliances through which it flows;
10.1.3 Not contain more than five (5) grains of total sulfur nor more than one- fourth (1/4) grain of hydrogen
sulfide per one hundred (100) standard cubic feet;
10.1.4 Not contain more than 10 parts per million of oxygen, and shall not contain more than three percent (3%) by
volume of carbon dioxide, not contain more than three percent (3%) by
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CONFIDENTIAL TREATMENT REQUESTED
volume of nitrogen or three percent (3%) by volume of total inert gases;
10.1.5 Have a temperature of not more than one hundred twenty degrees Fahrenheit (120°F) nor less than forty
degrees Fahrenheit (40°F);
10.1.6 Not contain more than seven (7) pounds of water vapor per one million (1,000,000) standard cubic feet; and
10.1.7 Have a hydrocarbon dew point below forty degrees Fahrenheit (40°F).
10.2 In the event that the Gas being received does not conform to the standards outlined above, Transporter may, in its sole
discretion and on a non-discriminatory basis, accept such Gas or restrict or refuse any volumes that are non-conforming or
deficient.
10.3 Shipper shall be responsible for odorizing any part of the Gas delivered hereunder at the Delivery Point(s) which is
diverted and/or used for any purpose for which odorization is required pursuant to regulations of the Texas Railroad Commission.
10.4 In the event that Shipper’s Gas fails to conform to any of the Quality Specifications set forth above, including, but
not limited to the hydrocarbon dew point or the gross heating value or any other specification set forth above or to a more restrictive
specification imposed by a downstream pipeline to which Shipper has nominated Gas, Transporter, in its discretion and on a non-
discriminatory basis, may accept such off-specification Gas for transportation and delivery to such downstream pipeline provided
that Shipper has made arrangements to ensure that such off-specification Gas is acceptable to the downstream pipeline and
conforms to their applicable specifications, including but not limited to any arrangements to treat, condition, or blend with other
Gas (prior to it reaching such downstream pipeline). Upon request from Transporter, Shipper shall provide documentation
acceptable to Transporter demonstrating that Shipper has made such contractual arrangements for such off-specification Gas on the
path for which Shipper has nominated Gas. This provision shall not be construed as a general waiver to Transporter’s specification
and is only available where physical blending, treatment and conditioning of Gas is contracted for and will take place prior to
reaching the downstream pipeline whose specifications are to be met and such acceptance and service by Transporter shall not
adversely impact markets on or downstream of Transporter’s system.
11. ADDRESSES.
11.1 Addresses of Parties. Except to the extent that oral notification is expressly permitted by this Statement of Operating
Conditions, all notices, requests, demands, statements and payments provided for in this Statement of Operating Conditions must be
given in writing at the addresses of the parties specified in the Service Agreement.
11.2 Change of Address. A party may change its address under the Service Agreement by giving thirty (30) Days prior
written notice. Notices and payments will be effective when they are delivered at the appropriate address specified in the Service
Agreement, during normal business hours on a business Day. Notices delivered after business hours or on a weekend or holiday will
be effective on the next business Day.
12. PRESSURES AT DELIVERY AND RECEIPT POINT(S).
12.1 Shipper (or its designee) will deliver Gas to Transporter at the Receipt Point(s) at pressures sufficient to enter
Transporter’s pipeline system at such points; provided, however, that Shipper’s delivery pressure into Transporter’s system at the
Receipt Point(s) may not exceed Transporter’s maximum allowable operating pressure, as such may vary from time to time, at any
such point or cause the pressure at any such point to exceed Transporter’s maximum allowable operating pressure. Unless otherwise
provided in the
21
applicable Confirmation, Transporter shall not have any obligations to alter its pipeline pressures, provide compression, or modify
its pipeline operations in order to effectuate the receipt or delivery of Gas.
12.2 Transporter will deliver Gas to Shipper or Shipper’s designee at Transporter’s operating pressure at the Delivery
CONFIDENTIAL TREATMENT REQUESTED
Point(s), as such may vary from time to time.
13. MEASUREMENT.
For the purposes of this Statement of Operating Conditions, the party metering the Gas, or whose designee meters the Gas,
at a particular Receipt Point(s) or Delivery Point(s) is referred to as the “Metering Party” and the other party is referred to as the
“Non-Metering Party”.
13.1 The measuring facilities shall be designed, installed, operated, and maintained by Transporter or its designee in
accordance with the recommendations contained in the following standards:
13.1.1 Orifice Measurement - American Gas Association Report Number 3 (herein referred to as AGA 3).
13.1.2 Turbine Measurement - American Gas Association Report Number 7 (herein referred to as AGA 7).
13.1.3 Positive Measurement - American National Standards Institute B109.2 (herein referred to as ANSI
B109.2).
13.1.4 Ultrasonic Measurement - American Gas Association Report Number 9 (herein referred to as AGA 9).
13.1.5 Coriolis Measurement - American Gas Association Report Number 11 (herein referred to as AGA 11).
13.2 If adequate metering facilities are already in existence at the Receipt Point(s) and Delivery Point(s), such existing
metering facilities will be used for so long as, in Transporter’s reasonable judgment, the facilities remain adequate. If the metering
facilities at any Receipt Point(s) or Delivery Point(s) are reasonably determined by Transporter to be inadequate, then the parties
will mutually agree with respect to the equipment that must be added at such point(s) and the responsibility for payment of such
equipment. If the parties are unable to agree upon the equipment to be added at any such point, or which party will be responsible to
pay for such equipment, then equipment shall not be added.
13.3 The Non-Metering Party may, at its option and expense, install and operate meters, instruments and equipment, in a
manner that will not interfere with the Metering Party’s equipment, to check the Metering Party’s meters, instruments, and
equipment, but the measurement for the custody transfer of Gas for the purpose of the Service Agreement and any applicable
Confirmation will be by the Metering Party’s meter only, except as hereinafter specifically provided. The meters, check meters,
instruments, and equipment installed by each party will be subject at all reasonable times to inspection or examination by the other
party (Non-Metering Party), but the calibration and adjustment thereof will be done only by the installing party.
13.4 All meters will be calibrated and/or proven on a schedule, but in no event will the calibration period be in excess of
ninety (90) Days. Notification of scheduled calibrations shall be made to all interested parties and reasonable effort will be made to
accommodate each party’s schedule; however, calibration will proceed at the scheduled time regardless of attendees. Records from
all measuring equipment are the property of the Metering Party who will keep all such records on file for a period of not less than
two (2) years. Upon request, the Metering Party will make available to the Non-Metering Party volume records from the measuring
equipment, together with calculations therefrom, for inspection and verification, subject to return within thirty (30) Days after
receipt thereof.
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CONFIDENTIAL TREATMENT REQUESTED
13.5 Either Party shall have the right to conduct such pulsation tests as they deem prudent, at their sole risk and expense. If
excessive pulsation is evident, mutually agreed modifications to operation or facility design will be made to reduce the effect of
such pulsation. If pulsation issues cannot be resolved in a mutually agreeable manner, either party shall have the right to refuse
delivery or receipt of Gas at the Receipt Point(s) or Delivery Point(s).
13.6 If the percentage of inaccuracy from the results of any test is greater than one percent (1%) volumetrically, the
registration of such meter shall be corrected at the rate of such inaccuracy for any period which is definitely known or agreed upon.
In the event the period is not definitely known or agreed upon, such correction shall be for a period extending back one-half (1/2) of
the time elapsed since the date of the last calibration. Following any test, measurement equipment found inaccurate shall be
immediately restored by Transporter as closely as possible to a condition of accuracy. If any measurement equipment is out of
service or out of repair for any reason so that the amount of Gas delivered cannot be estimated or computed from the reading
thereof, the amount of Gas delivered through such meter during the period such meter is out of service or out of repair shall be
estimated and agreed upon by Transporter and Shipper upon the basis of the best data available using the first of the following
methods which is feasible:
13.6.1 by using the registration of any check meters if installed and accurately registering;
13.6.2 by correcting the error if the percentage of error is ascertainable by calibration, test or mathematical calculation; or
13.6.3 by estimating the quantity of deliveries by comparison with deliveries during preceding period under similar
conditions when the meter was registering accurately.
13.7 Measurement Volume Computations
13.7.1 Units of measurement shall be determined in MMBtu derived from the calculation of gas volume (Mcf) and gas
heating value (Btu/ft³), both at identical base conditions of temperature and pressure. The unit of volume of Gas shall be one (1)
standard cubic foot at an absolute pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 Psia) and
at a temperature of sixty degrees Fahrenheit (60°F).
13.7.2 Atmospheric pressure shall be assumed to be the pressure value as reasonably determined by Transporter for the
county in which each of the Receipt Point(s) and Delivery Point(s) is located pursuant to generally accepted industry practices, but
not less than twelve and nine-tenths (12.9) Psia nor more than fourteen and seven-tenths (14.7) Psia irrespective of the actual
atmospheric pressure at such points from time to time.
13.7.3 All metered volumes shall be computed in accordance with the standards set forth in Section 13.1 above.
13.8 Records of calibration and or proving and data associated with the volume calculation are the property of the
Metering Party who will keep all such records and data on file for a period of not less than two (2) years. Upon request, the
Metering Party will make available to the Non-Metering Party records of calibration and or testing and data associated with the
volume calculation, subject to return within thirty (30) Days after receipt thereof.
13.9 Transporter shall sample and determine the Gross Heating Value, Relative Density and Compressibility received at
the Receipt Point(s) or Delivery Point(s) utilizing the following standards:
13.9.1 Gas Processors Association (GPA) 2166 - Obtaining Natural Gas Samples for Analysis by Gas.
13.9.2 Gas Processors Association (GPA) 2261 - Analysis for Natural Gas and Similar Gaseous
23
CONFIDENTIAL TREATMENT REQUESTED
Mixtures by Gas Chromatography.
13.9.3 Gas Processors Association (GPA) 2145 - Physical Constants for Paraffin Hydrocarbons and Other Components of
Natural Gas.
13.9.4 Gas Processors Association (GPA) 2172 - Calculation of Gross Heating Value, Relative Density, and
Compressibility of Natural Gas Mixtures from Compositional Analysis.
13.10 Transporter shall sample the flowing gas stream utilizing one of the following methods:
13.10.1 On-line Chromatography;
13.10.2 Accumulated Sample - If this method is utilized, the application of gas quality in the volume calculation will be
during the time period the gas sample was accumulated;
13.10.3 Spot Sample - If this method is utilized, the application of gas quality in the volume calculation will be the time
period beginning on the date the sample was obtained until the next sample is obtained.
14. BILLING, ACCOUNTING, AND REPORTS.
14.1 On or before the fifteenth (15th) Day of each Month, Transporter will render, a statement to Shipper setting forth, in
terms of MMBtu, the total volume and quantity of Gas received hereunder at the Receipt Point(s), the volume of Gas retained by
Transporter, and the quantity of Gas delivered hereunder at the Delivery Point(s) during the immediately preceding Month and the
amount payable therefore. Shipper agrees to pay Transporter by wire transfer in immediately available funds (identifying the
invoice number) the full amount payable according to such statement on or before the later of the twenty-fifth (25th) Day of the
Month in which the statement is rendered or ten (10) Days following the receipt thereof by Shipper. In the event such quantities are
estimated for any period, corrected statements shall be rendered by Transporter to Shipper and paid by Shipper or credited by
Transporter, as the case may be, in each instance in which the actual quantity received or delivered hereunder with respect to a
Month shall be determined to be at variance with the estimated quantity theretofore made the basis of billing and payment
hereunder. If an error is discovered in the amount billed in any statement rendered by Transporter, then such error will be adjusted
within thirty (30) Days of the discovery of the error.
14.2 If a bona fide dispute arises as to the amount payable in any statement rendered, then Shipper will nevertheless pay
the undisputed amount payable to Transporter under the statement rendered pending resolution of the dispute. Upon resolution of
such dispute, Shipper will pay any monies owed Transporter per the terms of this Section 14.
14.3 In addition to all other remedies available to Transporter, should Shipper fail to pay any amount when the same
becomes due, Shipper shall pay interest on outstanding balances accruing thereon at a rate equal to the prime rate from time to time
in effect and charged by the Citibank, N.A., New York, New York or its successor, plus two percent (2%) per annum, (but in no
event greater than the maximum rate of interest permitted by law) with adjustments in such rate to be made on the same Day as any
change in such prime rate, for any period during which the same shall be overdue, such interest to be paid when the amount past
due is paid. Each party hereto or its representative shall have the right at all reasonable times to examine and copy the books and
records of the other party to the extent necessary to confirm the performance of any obligation made under or pursuant to the
Service Agreement and any applicable Confirmation or verify the accuracy of any statement, charge, computation or demand made
under or pursuant to the Service Agreement and any applicable Confirmation. Any statement shall be final as to all parties unless
questioned within two (2) years after payment thereof has been made.
24
CONFIDENTIAL TREATMENT REQUESTED
15. RESPONSIBILITY.
15.1 Shipper shall be deemed to be in control and possession of the Gas prior to the receipt of the Gas by Transporter at
the Receipt Point and after its delivery to Shipper or for Shipper’s account at the Delivery Point(s). Transporter shall be deemed to
be in control and possession of the Gas after its receipt by Transporter at the Receipt Point and prior to its delivery to Shipper or for
Shipper’s account at the Delivery Point(s). The party in control and possession of the Gas will be responsible for and shall
indemnify the other party, including the party’s affiliates and their officers, directors, agents and employees, with respect to any
losses, injuries, claims, liabilities, demands, damages, expenses, reasonable attorneys’ fees and court costs caused thereby by
accident, incident or otherwise or on account of royalties, taxes, payments, or other charges applicable and occurring while the Gas
is deemed to be in its control or possession. Such indemnification shall not extend to claims made that are attributable to the
delivery by Shipper to Transporter of Gas that does not meet the Quality Specifications contained herein; provided however that in
any instance where Shipper, without prior written consent of Transporter, delivers Gas that does not meet the Quality Specifications
herein, Shipper shall indemnify Transporter for any claims, losses, or damages resulting from the delivery of such out of
specification Gas. Each party hereto covenants that with respect to the Gas delivered or redelivered by it hereunder, it will
indemnify and save the other party harmless from and against any and all suits, actions, causes of action, claims and demands
arising from or out of any adverse claims by third parties claiming ownership of or an interest in the Gas so delivered or
redelivered. Notwithstanding the foregoing, neither party shall be indemnified for its own negligence, and the parties acknowledge
and agree that Shipper shall at all times have all lawful right and/or title to all Gas transported hereunder. Subject to the other terms
and conditions of this Statement of Operating Conditions, the Service Agreement and any applicable Confirmation, each party has
the right to treat, process, and/or dehydrate the Gas prior to delivering said Gas to the other party.
15.2 Shipper agrees to reimburse Transporter upon invoice for the full amount of any taxes or charges (of every kind and
character except corporate franchise and excess profits taxes and taxes measured by net income) levied, assessed or fixed by any
municipal or governmental authority against Transporter or its business in connection with or attributable to the volumes, value or
gross receipts from the transportation of the Gas received from Shipper hereunder or against such Gas itself or the act, right or
privilege of ownership, production, severance, handling, transmission, compression, treating, distribution, sale, delivery or
redelivery of such Gas, whether such tax or charge is based upon the volume, value or gross receipts from the transportation of such
Gas or upon some other basis.
16. FORCE MAJEURE.
16.1 If either party is rendered unable, wholly or in part, by Force Majeure (defined below) or other causes herein
specified, to carry out its obligations under the Service Agreement and any applicable Confirmation, other than the obligation to
make payment of amounts due hereunder, it is agreed that on such party’s promptly giving notice and reasonably full particulars of
such Force Majeure in writing or facsimile or by email 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 such obligations are affected by such Force Majeure or other
causes herein specified, 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.
16.2 The term Force Majeure as employed herein means, to the extent not reasonably within the control of the party
claiming suspension and which, by the exercise of reasonable diligence, such party is unable to prevent or overcome: acts of God;
strikes, lockouts or other industrial disturbances; acts of the public enemy; sabotage; wars; blockades; insurrections; riots; acts of
terror; epidemics; landslides; lightning; earthquakes; fires; storms; storm warnings; hurricanes; floods; washouts; arrests and
restraints
25
CONFIDENTIAL TREATMENT REQUESTED
of the government and people, either federal or state, civil or military; civil disturbances; explosions; breakage; breakdown or
accident to machinery, equipment or lines of pipe; the necessity of altering, maintaining, inspecting, replacing, changing the size of,
substituting or removing pipelines or appurtenant facilities; freezing of wells or lines of pipe or other delivery facilities; electric
power unavailability or shortages; and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within
the control of the party claiming suspension, and which by the exercise of due diligence such party is unable, wholly or in part, to
prevent or overcome. Such term likewise includes (1) in those instances where either party hereto is required to obtain servitudes,
right-of- way grants, permits or licenses to enable such party to fulfill its obligations hereunder, the inability of such party to
acquire, or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such
servitudes, right-of-way grants or licenses, (2) in those instances where either party hereto is required to furnish materials and
supplies for the purpose of constructing or maintaining facilities or is required to secure permits or permission from any
governmental agency (federal, state or municipal, civil or military) to enable such party to fulfill its obligations hereunder, the
inability of such party to acquire or the delays on the part of such party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such materials and supplies, permits and permissions, (3) curtailment or interruption of deliveries, receipts or
services by third party purchasers, suppliers or customers as a result of an event of Force Majeure, or a breach by such third party
purchasers, suppliers or customers, and (4) failure of transportation or other facilities upstream of the Receipt Point(s) and/or failure
of transportation or other facilities downstream of the Delivery Point(s). 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 requirement that any Force
Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the
demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty.
16.3 Notwithstanding anything herein to the contrary, neither party shall be entitled to the benefits of Section 16.1 to the
extent the event of Force Majeure is caused or affected by any or all of the following circumstances: (i) the party claiming excuse
failed to remedy the condition and to resume the performance of its covenants or obligations with reasonable dispatch; or (ii)
economic hardship, to include, without limitation, Shipper’s ability to sell its Gas at a higher or more advantageous price to a
market not requiring the transportation services contracted for herein; or (iii) the loss of Shipper’s market or Shipper’s inability to
use or resell Gas transported hereunder (except as provided for under Section 16.2); or (iv) the loss or failure of Shipper’s Gas
supply (except as provided for under Section 16.2) or depletion of reserves; provided however such Force Majeure shall not relieve
Shipper from any obligations for dedications or commitments of Gas to Transporter made under or pursuant to the Service
Agreement or any applicable Confirmation.
16.4 Either party may partially or entirely interrupt its performance hereunder for the purpose of making necessary or
scheduled inspections, alterations and repairs which are described as a maintenance event, but only for such time as may be
reasonable and unavoidable; and the party requiring such relief shall give to the other party five (5) Days notice of its intention to
suspend its performance hereunder, except in cases of emergency where such notice is impracticable and shall endeavor to arrange
such interruption so as to inconvenience the other party as little as possible. Should a Force Majeure or maintenance event occur,
the volumes to be delivered and/or received at the Receipt Point(s) and Delivery Point(s) by Transporter must be balanced with the
hourly and daily nominated quantities.
17. LAWS AND REGULATIONS.
17.1 Transporter’s transportation services are subject to all present and future valid laws and lawful orders of all State and
Federal regulatory authorities now or hereafter having jurisdiction over the parties and the services or facilities used to provide
such services. The Service Agreement and any
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CONFIDENTIAL TREATMENT REQUESTED
applicable Confirmation are expressly made subject to any and all rate filings made by Transporter and approved by any state
regulatory body as such may be amended from time to time. Transporter will have the right to propose to the TRC or other
governing regulatory body such changes in its rates and terms of service at any time as it deems necessary, and Shipper’s Service
Agreement and any applicable Confirmation will be deemed to include any changes that are made effective pursuant to order or
regulation or provisions of law, without prejudice to Shipper’s right to protest the same. In the event of a conflict between (i) this
Statement of Operating Conditions and/or the rules and regulations of the TRC, (ii) the applicable Confirmation, and (iii) the
Service Agreement, the terms of the documents shall govern in the order listed in this sentence from (i) to (iii).
17.2. Shipper warrants that at all times during the term of the Service Agreement or any applicable Confirmation, Shipper
will commit no action or omission that will cause the transportation service provided to Shipper to fail to comply with all applicable
rules and regulations of the applicable regulatory agencies.
17.3 Law and Venue. THIS STATEMENT OF OPERATING CONDITIONS, THE SERVICE AGREEMENT, ANY
CONFIRMATIONS AND THE RIGHTS OF TRANSPORTER AND SHIPPER HEREUNDER AND THEREUNDER MUST BE
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT NO LAW, THEORY OR PUBLIC POLICY SHALL
BE GIVEN EFFECT WHICH WOULD UNDERMINE, DIMINISH OR REDUCE THE EFFECTIVENESS OF EACH PARTY’S
WAIVER OF SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES SET
FORTH IN SECTION 18.7, IT BEING THE EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES
THAT SUCH WAIVERS ARE TO BE GIVEN THE FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING
CONDITION OR THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL
MISCONDUCT, STRICT LIABILITY, OR OTHER LEGAL FAULT OF ANY PARTY HERETO, OR OTHERWISE.
TRANSPORTER AND SHIPPER AGREE TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS IN HARRIS
COUNTY, TEXAS AND AGREE THAT ANY ACTION, SUIT, OR PROCEEDING CONCERNING, RELATED TO, OR
ARISING OUT OF THIS STATEMENT OF OPERATING CONDITIONS OR THE SERVICE AGREEMENT OR
CONFIRMATION WILL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT IN HARRIS COUNTY, TEXAS AND
NEITHER TRANSPORTER NOR SHIPPER MAY RAISE ANY DEFENSE OR OBJECTION OR FILE ANY MOTION BASED
ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, INCONVENIENCE OF THE FORUM, OR THE LIKE, IN
ANY CASE FILED IN A FEDERAL OR STATE COURT IN HARRIS COUNTY, TEXAS.
18. MISCELLANEOUS.
18.1 Assignment and Transfer. This Statement of Operating Conditions, the Service Agreement and its applicable
Confirmation are binding upon and will inure to the benefit of the parties and their respective successors, assigns and legal
representatives. However, neither party may assign or transfer the Service Agreement and any applicable Confirmation, or any
benefit or obligation arising thereunder, without first obtaining the other party’s prior written consent, which consent will not be
unreasonably withheld or delayed; provided, either party may transfer its interests, rights and obligations under the Service
Agreement and any applicable Confirmation without the other party’s consent to (i) any parent, affiliate, or any successor in interest
to all or a portion of the assigning party’s assets, provided the assignee is creditworthy, as determined in the non-assigning party’s
reasonable commercial opinion and in a not unduly discriminatory
27
CONFIDENTIAL TREATMENT REQUESTED
manner, or (ii) any individual, bank, trustee, company, or corporation as security for any note, notes, bonds, or other obligations or
securities of such assignor. Any purported transfer or assignment without required consent will be a breach of the Service
Agreement and its applicable Confirmation.
18.2 Waiver of Breaches, Defaults, or Rights. No waiver by either party of any one or more breaches, defaults, or rights
under any provisions of the Statement of Operating Conditions, the Service Agreement, or any applicable Confirmation will operate
or be construed as a waiver of any other breaches, defaults, or rights, whether of a like or of a different character. By providing
written notice to the other party, either party may assert any right not previously asserted hereunder or thereunder or may assert its
right to object to a default not previously protested. Transporter reserves the right to vary its operations from this Statement of
Operating Conditions from time to time on a non-discriminatory basis, provided such variance does not impair, diminish or reduce
Transporter’s performance and its obligations to Shipper under the Service Agreement and any applicable Confirmation, and the
parties agree that if it does so it will not be deemed to have waived its right subsequently to enforce the provisions of the Statement
of Operating Conditions. Variances from the terms of the Statement of Operating Conditions, Service Agreement, or any applicable
Confirmation shall not be considered to amend or alter the construction or interpretation of the Service Agreement or any applicable
Confirmation. Except as specifically provided herein, in the Service Agreement or in any applicable Confirmation, in the event of
any dispute under this Statement of Operating Conditions, the Service Agreement, or any applicable Confirmation, the parties will,
notwithstanding the pendency of such dispute, diligently proceed with the performance of the Service Agreement and applicable
Confirmation without prejudice to the rights of either party.
18.3 Remedy for Breach. Except as otherwise specifically provided herein, if either party fails to perform any of the
material covenants or obligations imposed upon it in this Statement of Operating Conditions, the Service Agreement, or its
applicable Confirmation (except where such failure is excused under the Force Majeure or other provisions hereof or thereof), then
the other party may, at its option (without waiving any other remedy for breach hereof), by notice in writing specifying the default
that has occurred, indicate such party’s intention to terminate the Service Agreement and any applicable Confirmation by reason
thereof. The party in default will have thirty (30) Days from receipt of such notice to remedy such material default, and upon failure
to do so, the non-defaulting party may elect to immediately terminate the Service Agreement and its applicable Confirmation.
Notwithstanding the foregoing, Shipper’s failure to pay Transporter within a period of ten (10) Days following Shipper’s receipt of
written notice from Transporter advising of such failure to make payment in full within the time specified previously herein, will be
a default that gives Transporter the right to immediately terminate the Service Agreement and any applicable Confirmation, unless
such failure to pay such amounts is the result of a bona fide dispute between the parties regarding such amounts and Shipper timely
pays all amounts not in dispute. Termination will be an additional remedy and will not prejudice the right of the party not in default:
(i) to collect any amounts due it for any damage or loss suffered by it, and (ii) will not waive any other remedy to which the party
not in default may be entitled for breach of this Statement of Operating Conditions, the Service Agreement, or any applicable
Confirmation.
18.4 Entirety. This Statement of Operating Conditions, the Exhibits, each Service Agreement, and Confirmation constitute
the entire agreement between the parties covering the subject matter hereof, and there are no agreements, modifications, conditions,
or understandings, written or oral, express or implied, pertaining to the subject matter hereof that are not contained herein or
therein.
18.5 Headings. The captions or headings preceding the various parts of this Statement of Operating Conditions are
inserted and included solely for convenience and will never be considered or given any effect in construing this Statement of
Operating Conditions, or in connection with the intent, duties, obligations, or liabilities of Transporter and Shipper.
28
CONFIDENTIAL TREATMENT REQUESTED
18.6 Third Parties. Nothing contained in this Statement of Operating Conditions, the Service Agreement, or any
applicable Confirmation, either express or implied, confers any rights, remedies, or claims upon any person or entity not a party to
the Service Agreement or any applicable Confirmation, other than the successors or permitted assigns of the parties.
18.7 Limitation on Damages. NOTWITHSTANDING ANYTHING IN THIS STATEMENT OF OPERATING
CONDITIONS, SERVICE AGREEMENT OR ANY CONFIRMATION TO THE CONTRARY, IN NO EVENT WILL
TRANSPORTER OR SHIPPER BE LIABLE TO THE OTHER FOR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
EXEMPLARY, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO THE LOSS OF USE OR LOST
PROFITS, RESULTING FROM OR ARISING OUT OF THIS STATEMENT OF OPERATING CONDITIONS, THE SERVICE
AGREEMENT OR ANY CONFIRMATION, IRRESPECTIVE OF WHETHER CLAIMS OR ACTIONS FOR SUCH DAMAGES
ARE BASED ON CONTRACT, TORT, WARRANTY, NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT, OR
ACTIVE OR PASSIVE), GROSS NEGLIGENCE, STRICT LIABILITY, OR OTHER LEGAL FAULT OF SUCH PARTY,
UNDER ANY INDEMNITY PROVISION, OR OTHERWISE.
18.8 Counterparts. The Service Agreement and any applicable Confirmations, may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which will constitute one and the same agreement.
18.9 Exhibits. The following exhibits are attached to this Statement of Operating Conditions and are incorporated by this
reference:
Exhibit A Form of Service Agreement - Interruptible Service
Exhibit B Form of Service Agreement - Firm Service
Exhibit C Form of Confirmation
29
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT “A”
TO
STATEMENT OF OPERATING CONDITIONS
INTRASTATE INTERRUPTIBLE NATURAL GAS TRANSPORTATION SERVICE AGREEMENT
CONTRACT NO: ____________________
1.
2.
3.
4.
THIS INTRASTATE INTERRUPTIBLE NATURAL GAS TRANSPORTATION SERVICE AGREEMENT (the “Service
Agreement”) is entered into effective __________, 20__, (“Commencement Date”) by and between ALPINE HIGH
PIPELINE LLC a Delaware limited liability company (hereinafter referred to as “Transporter”), and ______________, a
____________ (hereinafter referred to as “Shipper”), both hereinafter collectively referred to as the “Parties”, and
individually as a “Party”. In consideration of the mutual covenants herein contained, the Parties agree as follows:
Shipper has requested a Service Agreement from Transporter pursuant to the provisions of Transporter’s Statement of
Operating Conditions Applicable to Intrastate Transportation Service (the “Statement of Operating Conditions”)
incorporated herein by reference and attached hereto as Appendix “A”.
Transporter has approved Shipper’s request for a Service Agreement and will provide interruptible transportation service for
Shipper pursuant to the terms of this Service Agreement and its Confirmation(s). The Shipper shall have the ability to
transport under any Confirmation then in effect under this Service Agreement.
The transportation service provided under this Service Agreement and its Confirmation(s) shall be subject solely to
regulation by TRC under the applicable Texas laws and the rules and regulations TRC has promulgated with respect thereto,
and the provisions of Transporter’s Statement of Operating Conditions, which are incorporated herein by reference, as if
fully set forth herein. The transportation service provided in this Service Agreement and its Confirmations are not subject to
the Federal Energy Regulatory Commission’s (“FERC”) regulations under the Natural Gas Act of 1938, as amended (the
“NGA”).
Shipper represents and warrants that (i) it has all lawful rights and/or title to all Gas delivered by it hereunder for its account,
that it has the right to deliver same hereunder, and that such Gas is free from liens and adverse claims of every kind; (ii) it
has arranged for the delivery and/or receipt by any necessary third party transporter(s) of the gas to be transported
hereunder; and (iii) all Gas delivered to Transporter hereunder will be produced in the State of Texas from reserves not
dedicated or committed to interstate commerce, and that the Gas which Shipper delivers or receives hereunder will not have
been or be sold, consumed, transported or otherwise utilized in interstate commerce at any point upstream of the Receipt
Points or downstream of the Delivery Points, and that such Gas has not been nor will it be commingled at any point
upstream of the Receipt Points or downstream of the Delivery Points with other Gas which is or may be sold, consumed,
transported or otherwise utilized in interstate commerce, in such a manner which will subject the Gas transported under this
Service Agreement or Transporter’s or its designee’s pipeline system, or any portion thereof, to the jurisdiction of the FERC
or any successor authority under the NGA. Shipper hereby indemnifies and holds harmless Transporter from all suits,
actions, losses, expenses (including attorneys’ fees), and regulatory proceedings arising out of or in connection with a
breach of the representations and
CONFIDENTIAL TREATMENT REQUESTED
5.
6.
7.
8.
warranties made by Shipper above.
Service Level:
As shown in the applicable Confirmation
Gas received by Transporter hereunder will be received at the following Receipt Point(s): As shown in the applicable
Confirmation
Gas delivered by Transporter to Shipper will be delivered at the following Delivery Point(s): As shown in the applicable
Confirmation
Shipper’s Maximum Daily Contract Quantity:
As shown in the applicable Confirmation
9.
Transportation Rate(s):
As shown in the applicable Confirmation
10.
Retention Volume:
As shown in the applicable Confirmation
11.
Term:
As shown in the applicable Confirmation
12.Addresses for Notices and Payments:
TRANSPORTER:
For Notices/Correspondence:
Alpine High Pipeline LLC
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Email: CommercialOperations@apachecorp.com
For Accounting Matters:
Attn: Manager of Gas Accounting
2000 Post Oak Blvd, suite 100
Houston, Texas 77056-4400
Phone: 713-296-7147
Attn: Manager of Gas Accounting
SHIPPER:
Notices/Correspondence:
For Accounting Matters:
CONFIDENTIAL TREATMENT REQUESTED
For Payments by Check:
Payments by Wire Transfer:
For Scheduling/Nominations:
For Gas Control:
For Payments:
c/o Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Payments by Wire Transfer:
c/o Apache Corporation
Bank: CITIBANK, N.A.
ABA No.: 021000089
Account: APACHE CORPORATION
Account No.: 3083-7389
For Scheduling/Nominations:
Alpine High Pipeline LLC
Attn: Manager of Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Phone: 210-447-5629
Email: CommercialOperations@apachecorp.com
For Gas Control:
Alpine High Pipeline LLC
Attn: Gas Control
210-447-5600 (24/7)
800-548-8090 (24/7)
Email: fusioncenter.midstream@apachecorp.com
13. Other Provisions:
ALPINE HIGH PIPELINE LLC INSERT SHIPPER NAME
By: ___________________________ By:__________________________
Name: Bob W. Bourne Name: _______________________
Title: VP, Business Development - Midstream & Marketing Title: ________________________
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT “B” TO
STATEMENT OF OPERATING CONDITIONS
INTRASTATE FIRM NATURAL GAS TRANSPORTATION SERVICE AGREEMENT
CONTRACT NO: __________________
1.
2.
3.
4.
THIS INTRASTATE FIRM NATURAL GAS TRANSPORTATION SERVICE AGREEMENT (the “ Service Agreement”)
is entered into effective ______, 20__, (“Commencement Date”) by and between ALPINE HIGH PIPELINE LLC a
Delaware limited liability company (hereinafter referred to as “Transporter”), and _______________, a ____________
(hereinafter referred to as “Shipper”), both hereinafter collectively referred to as the “Parties”, and individually as a “Party”.
In consideration of the mutual covenants herein contained, the Parties agree as follows:
Shipper has requested a Service Agreement from Transporter pursuant to the provisions of Transporter’s Statement of
Operating Conditions Applicable to Intrastate Transportation Service (the “Statement of Operating Conditions”)
incorporated herein by reference and attached hereto as Appendix “A”.
Transporter has approved Shipper’s request for a Service Agreement and will provide firm transportation service for Shipper
pursuant to the terms of this Service Agreement and its Confirmation(s). The Shipper shall have the ability to transport
under any Confirmation then in effect under this Service Agreement.
The transportation service provided under this Service Agreement and its Confirmation(s) are subject to applicable Texas
laws and the rules and regulations TRC has promulgated with respect thereto, and the provisions of Transporter’s Statement
of Operating Conditions, which are incorporated herein by reference, as if fully set forth herein. The transportation service
provided in this Service Agreement and its Confirmations are not subject to the Federal Energy Regulatory Commission’s
(“FERC”) regulations under the Natural Gas Act of 1938, as amended (the “NGA”).
Shipper represents and warrants that (i) it has all lawful rights and/or title to all Gas delivered by it hereunder for its account,
that it has the right to deliver same hereunder, and that such Gas is free from liens and adverse claims of every kind; (ii) it
has arranged for the delivery and/or receipt by any necessary third party transporter(s) of the gas to be transported
hereunder; and (iii) all Gas delivered to Transporter hereunder will be produced in the State of Texas from reserves not
dedicated or committed to interstate commerce, and that the Gas which Shipper delivers or receives hereunder will not have
been or be sold, consumed, transported or otherwise utilized in interstate commerce at any point upstream of the Receipt
Points or downstream of the Delivery Points, and that such Gas has not been nor will it be commingled at any point
upstream of the Receipt Points or downstream of the Delivery Points with other Gas which is or may be sold, consumed,
transported or otherwise utilized in interstate commerce, in such a manner which will subject the Gas transported under this
Service Agreement or Transporter’s or its designee’s pipeline system, or any portion thereof, to the jurisdiction of the FERC
or any successor authority under the NGA. Shipper hereby indemnifies and holds harmless Transporter from all suits,
actions, losses, expenses (including attorneys’ fees), and regulatory proceedings arising out of or in connection with a
breach of the representations and warranties made by Shipper above.
CONFIDENTIAL TREATMENT REQUESTED
Service Level:
As shown in the applicable Confirmation
Gas received by Transporter hereunder will be received at the following Receipt Point(s): As shown in the applicable
Confirmation
Gas delivered by Transporter to Shipper will be delivered at the following Delivery Point(s):
As shown in the applicable Confirmation
Shipper’s Maximum Daily Contract Quantity:
As shown in the applicable Confirmation
Transportation Rate(s):
As shown in the applicable Confirmation
5.
6.
7.
8.
9.
10.
Retention Volume:
As shown in the applicable Confirmation
11.
Term:
As shown in the applicable Confirmation
12.Addresses for Notices and Payments:
TRANSPORTER:
For Notices/Correspondence:
Alpine High Pipeline LLC
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Email: CommercialOperations@apachecorp.com
For Accounting Matters:
Attn: Manager of Gas Accounting
2000 Post Oak Blvd, suite 100
Houston, Texas 77056-4400
Phone: 713-296-7147
Attn: Manager of Gas Accounting
SHIPPER:
Notices/Correspondence:
For Accounting Matters:
CONFIDENTIAL TREATMENT REQUESTED
For Payments by Check:
Payments by Wire Transfer:
For Scheduling/Nominations:
For Gas Control:
For Payments:
c/o Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Payments by Wire Transfer:
c/o Apache Corporation
Bank: CITIBANK, N.A.
ABA No.: 021000089
Account: APACHE CORPORATION
Account No.: 3083-7389
For Scheduling/Nominations:
Alpine High Pipeline LLC
Attn: Manager of Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Phone: 210-447-5629
Email: CommercialOperations@apachecorp.com
For Gas Control:
Alpine High Pipeline LLC
Attn: Gas Control
210-447-5600 (24/7)
800-548-8090 (24/7)
Email: fusioncenter.midstream@apachecorp.com
13.Other Provisions:
ALPINE HIGH PIPELINE LLC INSERT SHIPPER NAME
By: ___________________________ By:__________________________
Name: Bob W. Bourne Name: _______________________
Title: VP, Business Development - Midstream & Marketing Title: ________________________
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT “C” TO
STATEMENT OF OPERATING CONDITIONS
FORM OF CONFIRMATION
INTRASTATE CONFIRMATION
BASE AGREEMENT: Intrastate Natural Gas Transportation Service Agreement dated __________
CONTRACT NUMBER:
CONFIRMATION NUMBER:
SHIPPER:
TRANSPORTER: ALPINE HIGH PIPELINE LLC
SERVICE LEVEL: Interruptible: _______ Firm: ________
Authorized Overrun Service: _________
This Confirmation constitutes part of and is subject to the Service Agreement and the Statement of Operating Conditions
(collectively, the “Agreement”). All capitalized terms not defined herein shall have the meaning ascribed to such terms in the
Statement of Operating Conditions and Service Agreement.
RECEIPT POINT(S):
DELIVERY POINT(S):
MAXIMUM DAILY CONTRACT QUANTITY:
TRANSPORTATION RATE(S):
RETENTION VOLUME: Transporter will retain from the volumes of Gas delivered by Shipper hereunder at each Receipt
Point(s) at no cost to Transporter, a volume of Gas allocated ratably to Shipper of all Gas used as fuel, lost, and unaccounted for
Gas, associated with the operation, maintenance and repair of the Alpine High Pipeline System (all of the foregoing, collectively,
the “Retention Volume”).
CONFIDENTIAL TREATMENT REQUESTED
TERM:
OTHER PROVISIONS:
ALPINE HIGH PIPELINE LLC INSERT SHIPPER NAME
By: ___________________________ By:__________________________
Name: Bob W. Bourne Name: _______________________
Title: VP, Business Development - Midstream & Marketing Title: ________________________
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT TO
INTRASTATE FIRM CONFIRMATION DATED APRIL 1, 2017
CONTRACT NO: 1000-001-1
CONFIRMATION NO: 1000-001-1-103
THIS AMENDMENT is entered into as of May 18, 2018, by and between Apache Corporation (“Shipper”) and Alpine High Pipeline
LLC (“Transporter”).
WHEREAS, Shipper and Transporter entered into that Intrastate Firm Natural Gas Transportation Service Agreement, Contract
Number: 1000-001-1, and Intrastate Firm Confirmation, Confirmation Number 1000-001-1-101, both dated April 1, 2017, as amended ( the
“Service Agreement” and “Confirmation” respectively); and
WHEREAS, the Shipper and Transporter desire to amend, restate, and replace the Confirmation.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Shipper and Transporter agree to amend, restate, and replace the Confirmation as follows:
1. The Confirmation is amended, restated, and replaced with the Confirmation attached hereto and incorporated herein as
Appendix “A”.
This Amendment shall be effective as of May 1, 2018.
Except as specifically amended herein, the terms and conditions of the Service Agreement and Confirmation shall remain in full force and
effect as written.
IN WITNESS WHEREOF, the parties have duly executed and exchanged duplicate originals of this Amendment to the Confirmation by their
respective officers or other person duly authorized to do so.
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
Accepted and Agreed Accepted and Agreed
This 18th day of May 2018 This 18th day of May 2018
By: /s/ Robert W. Bourne By: /s/ Brian W. Freed
Title: VP, Bus. Dev. - Midstream Title: SVP Midstream & Marketing
& Marketing
CONFIDENTIAL TREATMENT REQUESTED
INTRASTATE FIRM CONFIRMATION
Amended and Restated effective May 1, 2018
BASE AGREEMENT: Intrastate Firm Natural Gas Transportation Service Agreement
dated April 1, 2017
CONTRACT NUMBER: 1000-001-1
CONFIRMATION NUMBER: 1000-001-1-102
SHIPPER: APACHE CORPORATION
TRANSPORTER: ALPINE HIGH PIPELINE LLC
SERVICE LEVEL: Interruptible: _______ Firm: ___X_____
Authorized Overrun Service: ____X_____
This Confirmation constitutes part of and is subject to the Service Agreement and the Statement of Operating Conditions
(collectively, the “Agreement”). All capitalized terms not defined herein shall have the meaning ascribed to such terms in the
Statement of Operating Conditions and Service Agreement.
RECEIPT POINT(S): All existing and future interconnects between Transporter and (i) Alpine High Gathering LLP, (ii) Alpine
High Processing LLP, (iii) Comanche Trail Pipeline LLC, (iv) Oneok Roadrunner Pipeline LLC, (v) Trans-Pecos Pipeline, LLC,
and (vi) any other intrastate pipelines.
DELIVERY POINT(S): All existing and future interconnects between Transporter and (i) Apache Corporation, (ii) Alpine High
Gathering LLP, (iii) Alpine High Processing LLP, (iv) Comanche Trail Pipeline LLC, (v) Oneok Roadrunner Pipeline LLC, (vi)
Trans-Pecos Pipeline, LLC, (vii) Trans-Pecos Waha Header, (viii) Gulf Coast Express Pipeline, LLC, (ix) Whitewater Midstream
LLC, (x) Alpine High NGL Pipeline LLC, and (xi) any other intrastate pipelines.
MAXIMUM DAILY CONTRACT QUANTITY:
▪ Dedicated Area MDCQ - See Exhibit “A-2” attached hereto and incorporated herein.
▪ Non-Dedicated Area MDCQ - the amount of Gas from outside the Dedicated Area (defined below) that Transporter
determines it can transport on a Firm basis, such amount to be determined when Shipper submits a nomination to
Transporter.
APPENDIX "A" - 1
CONFIDENTIAL TREATMENT REQUESTED
TRANSPORTATION RATE(S):
▪
▪
For all Gas delivered at the Delivery Points (up to the Dedicated Area MDCQ) that was produced from the Dedicated Area
(defined below), Shipper shall pay Transporter a Commodity Fee equal to $0.13 per MMBtu for all such Gas delivered at a
the Delivery Point(s).
For all Gas delivered at the Delivery Points (up to the Non-Dedicated Area MDCQ) that was produced outside of the
Dedicated Area (defined below), Shipper shall pay Transporter (i) a Demand Fee equal to $0.12 per MMBtu multiplied by
the Non-Dedicated Area MDCQ times the number of Days in the Month and (ii) a Commodity Fee equal to $0.01 per
MMBtu for all such Gas delivered at the Delivery Point(s).
RETENTION VOLUME: Transporter will retain from the volumes of Gas delivered by Shipper hereunder at each Receipt
Point(s) at no cost to Transporter, a volume of Gas allocated ratably to Shipper of all Gas used as fuel, lost, and unaccounted for
Gas, associated with the operation, maintenance and repair of the Alpine High Pipeline System (all of the foregoing, collectively,
the “Retention Volume”).
TERM: This Confirmation is effective as of April 1, 2017, and shall continue through March 31, 2032 (the “Term”). The Term
shall automatically extend by five (5) years (the “First Extension”) unless Shipper, by the delivery of written notice to Transporter
no later than March 31, 2031, makes an irrevocable election not to extend the Term by five (5) years. If Shipper exercises the First
Extension (which, for certainty, shall be deemed to have been exercised automatically unless Shipper makes the irrevocable
election not to extend the Term as contemplated in the immediately preceding sentence), the Term shall automatically extend by an
additional five (5) years (the “Second Extension”) unless Shipper, by the delivery of written notice to Transporter no later than
March 31, 2036, makes an irrevocable election not to extend the Term by an additional five (5) years. For certainty, the Second
Extension shall be deemed to have been exercised automatically unless Shipper makes the irrevocable election not to extend the
Term as contemplated in the immediately preceding sentence. Following the end of any Second Extension, this Confirmation shall
continue in effect for successive extension terms of one (1) year each (each such extension, an “Evergreen Extension”), unless
either Party provides written notice of termination to the other Party not less than six (6) Months prior to the end of the Second
Extension or the relevant Evergreen Extension, as applicable, in which case this Confirmation shall terminate at the end of the
Second Extension or the relevant Evergreen Extension, as applicable. Unless otherwise agreed by Shipper and Transporter in
writing, the Dedicated Area MDCQs during any Extension periods will be the applicable Dedicated Area MDCQ in effect on
March 31, 2032.
OTHER PROVISIONS:
Subject to the terms and conditions of this Agreement, and solely for the performance of this Agreement, Shipper has agreed to
dedicate Gas produced from the Dedicated Area (defined below) for shipment on the Alpine High Pipeline System.
1. Additional Definitions. the following terms as used in this Confirmation will be construed to have the following scope and
meaning:
(i)
“Dedicated Area” means the lands more particularly described on Exhibit “B” attached hereto and incorporated herein.
APPENDIX "A" - 2
CONFIDENTIAL TREATMENT REQUESTED
(ii)
(iii)
“Interests” means any right, title, or interest in lands which gives the owner thereof the right to produce oil and/or Gas
therefrom, whether arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership,
farmout or other contractual arrangement or arising from any pooling, unitization, or communitization of any of the
foregoing rights.
“Prior Dedication” means, as to any Interests acquired by Shipper (or any of its successors or assigns under this
Agreement) within the Dedicated Area, whether before or after the Effective Date, any dedication or commitment for
some or all services burdening such Interests which is in effect as of the time of any such acquisition.
2.Dedication. Shipper hereby dedicates for transportation service under this Agreement, and shall deliver or cause to be delivered at
the Receipt Point(s) on Transporter’s pipeline system the following:
(i)
all Gas produced and saved from wells now or hereafter located in the Dedicated Area or on lands pooled or unitized
therewith, to the extent such Gas is attributable to Interests within the Dedicated Area now owned or hereafter acquired
by Shipper and not delivered or used as permitted pursuant to this Agreement; and
(ii) with respect to wells now or hereafter located within the Dedicated Area or on lands pooled or unitized therewith for
which Shipper is the operator, Gas from such wells that is owned by other working interest owners and royalty owners
(“Non-Op Gas”) but only to the extent and for the period that Shipper has the right or obligation to market such Non-
Op Gas;
provided, however, with respect to any such Gas that is subject to a Prior Dedication, such Gas shall not be subject to the dedication
hereunder until the expiration or termination of such Prior Dedication. Upon the expiration or termination of that Prior Dedication,
such additional Interests and such Gas attributable thereto will automatically be subject to the dedication hereunder without any
further actions by the Parties. Producer shall notify Processor in writing of any such expiration or termination.
3.Forecasts. Subject to Transporter’s compliance with the confidentiality and restricted use requirements set forth in Section 7
below, on or before October 1st of each year during the term of this Agreement, Shipper shall deliver to Transporter a 2-Year
Forecast with respect to Shipper’s Gas. “2-Year Forecast” shall mean Shipper’s good faith estimate (expressed in Mcf per Day)
and associated gas analysis of Shipper’s Gas to be produced from the Dedicated Area and delivered to existing or anticipated
Receipt Points for each month for the next two (2) years of the term of this Agreement, which forecast shall be based on Shipper’s
most recent engineering and planning data. For sake of clarity, Transporter acknowledges that Shipper shall not at any time be
required to deliver any of Shipper’s internal budget information to Transporter. Shipper shall use all commercially reasonable
efforts and information available to it to create the 2-Year Forecasts, but, given the inherent nature of the estimates involved in
creating such forecasts, Shipper cannot guarantee the accuracy of any 2-Year Forecast.
4.Shipper’s Reservations.
(i)
(ii)
Gas for Lessors or Royalty Owners. Shipper shall have the right to utilize Gas as may be required to be delivered to
lessors or royalty owners under the terms of leases or other agreements or as required for Shipper’s operations within
the Dedicated Area or lands pooled or unitized therewith, as determined by Shipper in its sole discretion.
Pooling or Units. Shipper may form, dissolve, and/or participate in pooling agreements or units encompassing all or any
portions of the Dedicated Area, as determined by Shipper in its sole discretion.
APPENDIX "A" - 3
CONFIDENTIAL TREATMENT REQUESTED
(iii) Operational Control of Wells. Shipper reserves the right to operate its leases and wells in any manner that it desires, as
determined by Shipper in its sole discretion and free of any control by Transporter, including without limitation,
(i) shutting-in, cleaning out, reworking, modifying, deepening, or abandoning any such wells, (ii) using any efficient,
modern, or improved method for the production of its wells, (iii) flaring, burning, or venting Gas (with no fees to be
associated with such Gas), and (iv) surrendering, releasing, or terminating its leases or Interests at any time; provided
that before any well is taken out of service for any reason, Shipper shall first shut-off the well’s connection to the
applicable Receipt Point.
(iv) Well Development and Operations. Shipper reserves the right to use Gas (including its components), above ground or
below, to develop and operate its leases and wells, including, without limitation, for Gas lift, fuel, pressure maintenance
or other re-injection purposes, secondary and tertiary recovery, drilling or cycling, operation of Shipper’s facilities,
and/or any other legitimate use in connection with the development and/or operation of its leases and wells that are now
or hereafter become subject to the terms of this Agreement. Additionally, for Gas used for fuel, Shipper has the right to
remove liquid hydrocarbons from such Gas by any means as it deems necessary, including via low temperature
separation.
(v) No Obligation to Develop. Notwithstanding anything else in this Agreement that may be construed to the contrary,
Shipper reserves the right to develop and operate its leases and wells as it sees fit, in its sole discretion, and Shipper
shall have no obligation to Transporter under this Agreement to develop or otherwise produce Gas or other
hydrocarbons from any properties owned by it, including any properties now or hereafter located within the Dedicated
Area or the lands pooled or unitized therewith.
(vi) Processing. Shipper reserves the right to process or not process Gas prior to delivering Gas to Transporter at the Receipt
Points.
5.Release from Dedication.
(i)
Immediate Temporary Release. If for any reason, including Force Majeure, Transporter does not transport all or any
portion of Shipper’s Gas delivered or otherwise available for delivery at a Receipt Point, Shipper shall be entitled to an
immediate temporary release from dedication of such volume of Gas not transported, and may dispose of such Gas in
any manner it sees fit, subject to Transporter’s right to resume receipts at a subsequent time when Transporter is able to
receive all of Shipper’s Gas available for delivery at the Receipt Point in accordance with the terms of this Agreement,
provided, however, if during such temporary release period Shipper secures a different temporary market, Transporter
may resume receipts only upon thirty (30) Days’ advance written notice and only as of the beginning of a Month,
unless otherwise agreed.
APPENDIX "A" - 4
CONFIDENTIAL TREATMENT REQUESTED
(ii)
Permanent Release. Notwithstanding Section 5(i), above, if, for a cumulative thirty (30) Days in any ninety (90) Day
period, Transporter does not transport or ceases transporting all or any portion of Shipper’s Gas for delivery at a
Receipt Point for any reason (but not including a failure to meet quality requirements, for which no permanent release
shall be available), then upon Shipper’s written notice to Transporter, Transporter shall have fifteen (15) Days from
receipt of such notice to propose a feasible plan to Shipper that shall resolve such issue, at Transporter’s sole cost and
expense, within sixty (60) Days after proposing such plan (the “Resolution Period”). Shipper, in its sole discretion,
may either accept or reject Transporter’s plan. If (A) Transporter fails to propose a resolution within the stated fifteen
(15) Days, (B) Shipper rejects Transporter’s proposed resolution, or (C) Shipper accepts Transporter’s proposed
resolution but Transporter does not complete such resolution within the Resolution Period, Shipper may elect, by giving
written notice to Transporter, to either (x) a permanent release from dedication as to the affected Receipt Point and the
portion(s) of the Dedicated Area associated with such Receipt Point (and such released portion(s) shall be stated in
terms of acreage) or (y) a fifteen percent (15%) reduction in the transportation rate for all Gas delivered under this
Agreement until the issue has been resolved. If Shipper elects a permanent release, the portion(s) of the Dedicated Area
to be released shall be designated by Shipper, acting reasonably and in good faith, provided that Shipper shall provide
to Transporter (subject to the confidentiality and non-use restrictions set forth in this Agreement) reasonable evidence
to support Shipper’s determination of the portion(s) of the Dedicated Area to be released, and as long as Shipper’s
determination of the areas to be released is reasonably supported, such determination shall be deemed conclusive.
6.No Election of Remedies. Shipper’s exercise of any right to a release from dedication under Section 5 shall not be deemed an
election of remedies for any unexcused failure of Transporter to perform any obligation under this Agreement, and Shipper shall
be entitled to any and all other remedies, including the right to sue for damages, specific performance, and injunctive relief
(without the need to post any bond).
APPENDIX "A" - 5
CONFIDENTIAL TREATMENT REQUESTED
7.Confidentiality. Shipper’s 2-Year Forecast delivered to Transporter pursuant to Section 3 above and all other information received
by Transporter pursuant to the terms of this Agreement which involves or in any way relates to Shipper’s production estimates,
development plans and/or other similar information shall be kept strictly confidential by Transporter, and Transporter shall not
disclose any such information to any third party or use any such information for any purpose other than performing under this
Agreement, provided, however, Transporter may disclose such information to those of its legal counsel, accountants and other
representatives with a specific need to know such information for purposes of Transporter’s performance under this Agreement or
enforcement of this Agreement or as required by applicable Law, provided such third parties have likewise agreed in writing to the
confidentiality and non-use restrictions set forth herein. In the event Transporter is required by Law to disclose any such
information, Transporter shall first notify Shipper in writing as soon as practicable of any proceeding of which it is aware that may
result in disclosure and shall use all reasonable efforts to prevent or limit such disclosure. Shipper’s confidential information shall
not include information that Transporter can satisfactorily demonstrate was: (a) rightfully in the possession of Transporter prior to
Shipper’s disclosure hereunder, (b) in the public domain prior to Shipper’s disclosure hereunder, (c) made public by any
Governmental Authority; (d) supplied to Transporter without restriction by a third party who is under no obligation to Shipper to
maintain such confidential information in confidence; or (e) independently developed by Transporter. The confidentiality
requirements and non-use restrictions set forth herein shall survive termination or expiration of this Agreement for five (5) Years
after such termination or expiration. Notwithstanding anything else in this Agreement, the Parties agree that there is not an
adequate remedy at law for any breach of these confidentiality and non-use restrictions and, therefore, Shipper shall be entitled
(without the posting of any bond) to specific performance and injunctive relief restraining any breach hereof, in addition to any
other rights and remedies which it may have or be entitled.
Limitation of Transporter’s Remedies. Notwithstanding anything contained in Sections 3.3.4, 18.3, and any other section or
provision of the Statement of Operating Conditions to the contrary, in no event shall Transporter have the right, and Transporter
hereby expressly waives any such right, to terminate Shipper’s Service Agreement or Confirmation on account of a breach or
default by Shipper under this Agreement.
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
By: /s/ Bob W. Bourne By: /s/ Brian W. Freed
Name: Bob W. Bourne Name: Brian W. Freed
Title: VP, Business Development - Midstream & Marketing Title: SVP, Marketing and Midstream
APPENDIX "A" - 6
CONFIDENTIAL TREATMENT REQUESTED
Exhibit “A-2” to
Firm Intrastate Confirmation
Amended and Restated effective May 1, 2018
Month-Year Dedicated Area
MDCQ
(MMBtu/day)
[***] [5 PAGES OF TABLES OMITTED] [***]
CONFIDENTIAL TREATMENT REQUESTED
Exhibit “B”
Dedicated Area
The Dedicated Area is depicted in the map below within the red border.
[***]
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT TO
INTRASTATE FIRM CONFIRMATION DATED APRIL 1, 2017
CONTRACT NO: 1000-001-1
CONFIRMATION NO: 1000-001-1-104
THIS AMENDMENT is entered into as of May 22, 2018, by and between Apache Corporation (“Shipper”) and Alpine High Pipeline
LLC (“Transporter”).
WHEREAS, Shipper and Transporter entered into that Intrastate Firm Natural Gas Transportation Service Agreement, Contract
Number: 1000-001-1, and Intrastate Firm Confirmation, Confirmation Number 1000-001-1-101, both dated April 1, 2017, as amended ( the
“Service Agreement” and “Confirmation” respectively); and
WHEREAS, the Shipper and Transporter desire to amend the Confirmation.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Shipper and Transporter agree to amend the Confirmation as follows:
1. Exhibit “A-2” shall be deleted in its entirety and replaced with Exhibit “A-3” attached hereto.
This Amendment shall be effective as of May 1, 2018.
Except as specifically amended herein, the terms and conditions of the Service Agreement and Confirmation shall remain in full force and
effect as written.
IN WITNESS WHEREOF, the parties have duly executed and exchanged duplicate originals of this Amendment to the Confirmation by their
respective officers or other person duly authorized to do so.
ALPINE HIGH PIPELINE LLC APACHE CORPORATION
Accepted and Agreed Accepted and Agreed
This 22nd day of May 2018 This 22nd day of May 2018
By: /s/ Robert W. Bourne By: /s/ Brian W. Freed
Title: VP Title: SVP
CONFIDENTIAL TREATMENT REQUESTED
Alpine High Pipeline LLC
Exhibit “A-3” to Firm Intrastate Confirmation
Effective May 1, 2018
Month-Year Dedicated Area MDCQ
(MMBtu/d)
[***]
CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT TO
INTRASTATE FIRM CONFIRMATION DATED APRIL 1, 2017
CONTRACT NO: 1000-001-1
CONFIRMATION NO: 1000-001-1-105
THIS AMENDMENT is entered into as of September _____, 2018, by and between Apache Corporation (“Shipper”) and Alpine High
Pipeline LP (“Transporter”).
WHEREAS, Shipper and Transporter entered into that Intrastate Firm Natural Gas Transportation Service Agreement, Contract
Number: 1000-001-1, and Intrastate Firm Confirmation, Confirmation Number 1000-001-1-101, both dated April 1, 2017, as amended ( the
“Service Agreement” and “Confirmation” respectively); and
WHEREAS, the Shipper and Transporter desire to amend the Confirmation.
NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Shipper and Transporter agree to amend the Confirmation as follows:
1. Effective October 1, 2018, the “TRANSPORTATION RATE(S)” section shall be deleted in its entirety and replaced with the
following:
TRANSPORTATION RATE(S):
Transportation Service:
▪
▪
For all Gas delivered at the Delivery Points (up to the Dedicated Area MDCQ) that was produced from the Dedicated
Area (defined below), Shipper shall pay Transporter a Commodity Fee equal to $0.0975 per MMBtu for all such Gas
delivered at the Delivery Point(s).
For all Gas delivered at the Delivery Points (up to the Non-Dedicated Area MDCQ) that was produced outside of the
Dedicated Area (defined below), Shipper shall pay Transporter (i) a Demand Fee equal to $0.0875 per MMBtu
multiplied by the Non-Dedicated Area MDCQ times the number of Days in the Month and (ii) a Commodity Fee equal
to $0.01 per MMBtu for all such Gas delivered at the Delivery Point(s).
Authorized Overrun Service:
Authorized Overrun Service Rate:
COMMODITY FEE: Shipper shall pay Transporter a Commodity Fee equal to $0.0975 per MMBtu for all Gas over
the Dedicated Area MDCQ and Non-Dedicated Area MDCQ delivered at the Delivery Point(s).
2. For the avoidance of doubt, the “RETENTION VOLUME” section is unchanged.
3. Effective May 1, 2018, the “Dedication” section in “OTHER PROVISIONS:” is amended by adding the following sentence to the end
of the section:
Notwithstanding the first sentence of this Section 2 “Dedication” to the contrary, Shipper shall have the option from time to
time to have all or any portion of the Gas produced from the Dedicated Area and Non-Dedicated Area transported by
Transporter under Shipper’s NGPA § 311 Natural Gas Transportation Service Agreement, Contract Number: 2000-002-1 dated
April 1, 2017, and any effective NGPA 311 Confirmations in effect thereunder from time to time. For any Dedicated Area
volumes Shipper elects to transport under Shipper’s NGPA 311 Service Agreement and Confirmations, Shipper shall pay the
transportation rate set forth in the applicable NGPA 311 Confirmation and for Dedicated Area volumes Shipper transports
under this Confirmation, Shipper shall pay the transportation rates set forth herein. For any Non-Dedicated Area volumes
Shipper elects to transport
CONFIDENTIAL TREATMENT REQUESTED
under Shipper’s NGPA 311 Service Agreement and Confirmations, Shipper will receive a credit against the Demand Fees under
this Confirmation equal to the product of (i) $0.0875/MMBtu and (ii) the lesser of (x) the volume of Non-Dedicated Area Gas
Shipper elects to transport under Shipper’s NGPA 311 Service Agreement and Confirmations and (y) the positive difference
between the Non-Dedicated Area MCDQ and the volume of Non-Dedicated Gas transported under this Confirmation; provided,
however, such credit shall not exceed the Demand Fees.
This Amendment shall be effective as of September 11, 2018.
Except as specifically amended herein, the terms and conditions of the Service Agreement and Confirmation shall remain in full force and
effect as written.
IN WITNESS WHEREOF, the parties have duly executed and exchanged duplicate originals of this Amendment to the Confirmation by their
respective officers or other person duly authorized to do so.
ALPINE HIGH PIPELINE LP APACHE CORPORATION
By: Alpine High Subsidiary GP LLC,
its general partner
Accepted and Agreed Accepted and Agreed
This 11th day of September 2018 This 11th day of September 2018
By: /s/ Robert W. Bourne By: /s/ Brian W. Freed
Title: VP Marketing Title: SVP Midstream & Marketing
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
Execution Version
GAS PROCESSING AGREEMENT
by and between
APACHE CORPORATION
and
ALPINE HIGH PROCESSING LP
dated
July 1, 2018
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
CONFIDENTIAL TREATMENT REQUESTED
1
7
14
16
16
20
21
21
22
23
24
25
25
27
28
28
29
30
31
GAS PROCESSING AGREEMENT
DEFINITIONS
DEDICATION AND SERVICES
DELIVERY POINTS AND PRESSURE
GAS QUALITY
MEASUREMENT
FEES, FUEL, AND CONSIDERATION
PRICE AND ALLOCATIONS
RESIDUE GAS REDELIVERY PROCEDURES
PLANT PRODUCTS REDELIVERY PROCEDURES
PAYMENTS
AUDIT RIGHTS
FORCE MAJEURE
INDEMNIFICATION
TITLE
ROYALTY AND TAXES
NOTICE AND PAYMENT INSTRUCTIONS
DISPUTE RESOLUTION
TERM
MISCELLANEOUS
ARTICLE I
ARTICLE II
ARTICLE III
ARTICLE IV
ARTICLE V
ARTICLE VI
ARTICLE VII
ARTICLE VIII
ARTICLE IX
ARTICLE X
ARTICLE XI
ARTICLE XII
ARTICLE XIII
ARTICLE XIV
ARTICLE XV
ARTICLE XVI
ARTICLE XVII
ARTICLE XVIII
ARTICLE XIX
EXHIBITS:
Exhibit A - Dedicated Area
Exhibit B - Delivery Points and Redelivery Points
Exhibit C - Fees and FL&U
Exhibit D - Gas Quality Specifications
Exhibit E - Take In-Kind Terms
Exhibit F - Allocation Methodologies
Exhibit G - Form of Memorandum of Agreement
Exhibit H - Form of Memorandum of Release
Exhibit I - Form of Transferee Agreement
Exhibit J - Form of Joinder Agreement
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LLC (Processor) and Apache Corporation (Producer)
CONFIDENTIAL TREATMENT REQUESTED
GAS PROCESSING AGREEMENT
This Gas Processing Agreement (this “Agreement”) is made and entered into to be retroactively effective July 1, 2018
(“Effective Date”), by and between Alpine High Processing LP, a Delaware limited partnership (“Processor”), and Apache
Corporation, a Delaware corporation (“Producer”). Processor and Producer are sometimes referred to in this Agreement
individually as a “Party” and collectively as the “Parties.”
Background:
Producer owns or controls volumes of Gas produced from certain oil and gas leases located in Reeves, Pecos, Jeff Davis,
and Culberson Counties, Texas, and Processor owns and operates natural gas and natural gas liquids processing facilities located in
Reeves County, Texas. The Parties desire for Processor to process certain volumes of Producer’s Gas at the Processor’s Facilities on
the terms and conditions set forth in this Agreement.
The Parties originally entered into that certain Gas Processing Agreement dated as of May 1, 2018 (the “Original
Processing Agreement”). This Agreement hereby amends, restates, supersedes and replaces the Original Processing Agreement in
its entirety.
In consideration of the premises and of the mutual covenants in this Agreement, together with other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by each Party, Processor and Producer agree as follows:
Agreement:
ARTICLE I
DEFINITIONS
Unless another definition is expressly stated or the context requires otherwise, the following terms, when used in this Agreement
and all exhibits and attachments to this Agreement, have the following meanings:
(a)
“2-Year Forecast” shall have the meaning set forth in Section 2.1.
(b)
“Affiliate” means any person that directly or indirectly controls, is controlled by, or is under common control
with another person through one more intermediaries or otherwise. The term “control” means having the power, directly or
indirectly, to direct or cause the direction of the management and policies of a person, whether through ownership, by contract, or
otherwise. A person is deemed to be an Affiliate of another specified person if such person owns 50% or more of the voting
securities of the specified person, or if the specified person owns 50% or more of the voting securities of such person, or if 50% or
more of the voting securities of the specified person and such person are under common control. Notwithstanding the foregoing, for
purposes of Article XIII, (1) Producer and Processor are deemed to not be Affiliates of one another, (2) Alpine High Gathering LP,
Alpine High Pipeline LP, Alpine High NGL Pipeline LP, and Alpine High Subsidiary GP are deemed Affiliates of Alpine High
Processing LP and not Affiliates of Apache Corporation, and (3) all other Affiliates of Apache Corporation are deemed to not be
Affiliates of Alpine High Processing LP.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 1
CONFIDENTIAL TREATMENT REQUESTED
(c)
(d)
(e)
“Affiliate Interests” As defined in Section 2.11.
“Audit” shall have the meaning set forth in Article XI.
“Btu” means a “British Thermal Unit,” which is the amount of heat required to raise the temperature of one
pound of water from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of 14.65 psia.
(f)
“Business Day” means any calendar day, other than a Saturday or Sunday, on which commercial banks in
Houston, Texas are open for business.
(g)
(h)
(i)
“Calendar Year” means the period from January 1st through December 31st of the same calendar year.
“Capacity Commitment” shall have the meaning set forth in Section 2.4.
“Central Conditioning Facility” means a facility used for dehydration, compression, treating, or any combination
of the foregoing for Non-Processable Gas.
(j)
“Central Processing Facility” means a refrigeration processing plant used for processing and for dehydration,
compression, treating, or any combination of the foregoing.
(k)
(l)
(m)
“Central Time” means Central Standard Time, as adjusted semi-annually for daylight savings time.
“Claim” means any lawsuit, claim, proceeding, investigation, or other similar action.
“Consequential Damages” shall have the meaning set forth in Section 19.9.
(n)
“Cryogenic Processing Facility” or “Cryo” means a cryogenic processing plant used for processing and for
dehydration, compression, treating or any combination of the foregoing. Each Cryo shall have a minimum design capacity of 200
MMcf per day.
(o)
“Cubic Foot” means a volume of Gas occupying a space of one cubic foot at a temperature of 60 degrees
Fahrenheit and at a pressure of 14.65 psia.
(p)
“Day” means the 24-hour period beginning at 9:00 a.m., Central Time, on a calendar day and ending at 9:00 a.m.,
Central Time, on the following calendar day (as Central Time is adjusted each calendar year for daylight savings time).
(q)
“Dedicated Area” means the lands located in Reeves, Pecos, Jeff Davis, and Culberson Counties, Texas, more
particularly described in Exhibit A.
(r)
(s)
(t)
Processing Fee.
“Delivery Point” or “Delivery Points” shall have the meaning set forth in Section 3.1.
“Ethane Rejection Option” shall have the meaning set forth in Section 2.5(b).
“Fees” shall mean, collectively, the Central Conditioning Fee, the Central Processing Fee, and the Cryogenic
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 2
CONFIDENTIAL TREATMENT REQUESTED
(u)
“Firm” means Processor’s obligation to receive and process Producer’s Gas, and Producer’s right to deliver and
have its Gas processed, shall not be subject to interruption, except as absolutely necessary as a result of Force Majeure or, after
reasonable prior notice, during periods of Processor’s Facilities maintenance or repair, and in the event of any such interruption or
in the event of excess Gas deliveries to the Processor’s Facilities (from Producer or a third party) over and above Plant Capacity,
Producer’s Gas shall have first priority rights and shall be the last curtailed, unless Producer otherwise provides consent.
(v)
“FL&U” means fuel and lost and unaccounted for Gas and fuel for Gas-Electric Equivalent that is deducted and
retained as fuel and/or system loss by Processor, which is used in and/or occurs in the operation of Processor’s Facilities.
state.
(w)
(x)
(y)
(z)
“Force Majeure” shall have the meaning set forth in Section 12.2.
“Gas” means any mixture of hydrocarbon gases or of hydrocarbon gases and non‑combustible gases in a gaseous
“Gas Electric Equivalent” shall have the meaning set forth in Exhibit C.
“Gas Price” shall have the meaning set forth in Exhibit C.
(aa)
“Governmental Authority” Any federal, state, municipal, local or similar governmental authority, regulatory or
administrative agency or court with jurisdiction over the Parties or either Party, this Agreement, any of the transactions
contemplated hereby, or Processor’s Facilities or any other facilities utilized by a Party for the performance of this Agreement.
(ab)
“Gross Heating Value” means the amount of energy transferred as heat per mass or mole from the complete,
ideal combustion of the Gas with oxygen (from air), at a base temperature in which all water formed by the reaction condenses to
liquid. If the gross heating value has a volumetric rather than a mass or molar basis, the standard conditions are deemed 14.65 psia
and 60 degrees Fahrenheit.
(ac)
(ad)
“Ideal Gas Laws” means the thermodynamic laws applying to perfect gases.
“Inert Constituents” means constituents other than Plant Products contained in Gas, including oxygen, carbon
dioxide, nitrogen, hydrogen sulfide, water vapor, ozone, nitrous oxide, and mercury.
(ae)
“Interests” means any right, title, or interest in lands which gives Producer the right to produce and market oil
and/or Gas therefrom, whether arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership,
farmout, or other contractual arrangement or arising from any pooling, unitization, or communitization of any of the foregoing
rights within the Dedicated Area, and any and all replacements, renewals, and extensions or amendments of any of the same.
(af)
“Law” or “Laws” Any of the following: laws, rules, regulations, decrees, judgments or orders of, or licenses or
permits issued by, any Governmental Authority, including, without limitation, any U.S. Bureau of Land Management requirement
that is applicable to any federal lease included in the Dedicated Area.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 3
CONFIDENTIAL TREATMENT REQUESTED
(ag)
“Loss” means any loss, cost, expense, liability, damage, sanction, judgment, lien, fine, or penalty, including
reasonable attorney’s fees, incurred, suffered or paid by the applicable indemnified Persons on account of: (i) injuries (including
death) to any Person or damage to or destruction of any property, sustained or alleged to have been sustained in connection with or
arising out of the matters for which the indemnifying Party has agreed to indemnify the applicable indemnified Persons, or (ii) the
breach of any covenant or agreement made or to be performed by the indemnifying Party pursuant to this Agreement.
(ah)
(ai)
(aj)
(ak)
(al)
“Material Measurement Error” shall have the meaning set forth in Section 5.4.
“Mcf” means one thousand Cubic Feet.
“Minimum Cryo Volume” shall have the meaning set forth in Section 2.4.
“MMBtu” means one million Btu.
“Month” means the period beginning at 9:00 a.m., Central Time, on the first Day of a calendar month and ending
at 9:00 a.m., Central Time, on the first Day of the succeeding calendar month.
(am)
“Monthly Statement” shall have the meaning set forth in Section 10.1.
(an)
(ao)
(ap)
(aq)
Facility.
(ar)
(as)
“Non-Conforming Plant Products” shall have the meaning set forth in Section 9.3.
“Non-Conforming Residue Gas” shall have the meaning set forth in Section 8.3.
“Non-Op Gas” shall have the meaning set forth in Section 2.1.
“Non-Processable Gas” means Producer’s Gas that Producer elects to have delivered to a Central Conditioning
“Off-Spec Gas” shall have the meaning set forth in Section 4.2.
“Operational” means in-service and ready to accept deliveries of Producer’s Gas under this Agreement.
(at)
“Person” An individual, a corporation, a partnership, a limited partnership, a limited liability company, an
association, a joint venture, a trust, an unincorporated organization, or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
(au)
“Processor’s Facilities” means any or all of the compressor stations, Central Conditioning Facilities, Central
Processing Facilities, and Cryogenic Processing Facilities owned by Processor, capable of receiving Producer’s Gas for
dehydration, compression, treating, and/or removal of Plant Products from time to time, and located in Reeves, Pecos, Jeff Davis,
and Culberson Counties, Texas.
(av)
(aw)
“Plant Capacity” shall have the meaning set forth in Section 2.4.
“Plant Products” means the mixture consisting primarily of ethane, propane, isobutane, normal butane, and
natural gasoline (and any incidental methane) that are extracted at the Processor’s
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 4
CONFIDENTIAL TREATMENT REQUESTED
Facilities and all other condensate in Producer’s Gas delivered to the Delivery Points or otherwise recovered at the Processor’s
Facilities.
(ax)
“Plant Products Price” means, for each component Plant Product, a price per gallon equal to 100% of the
Monthly average of Processor’s actual sales price for such component product sold from the Processor’s Facilities. It is understood
that the Plant Products Price shall be net of actual, third–party, commercially reasonable fees paid or incurred by Processor for the
transportation and fractionation directly related to Producer’s Plant Products but shall not in any circumstance include any (i)
marketing or broker fees, (ii) deficiency, take-or-pay, or demand charges, (iii) price adjustments relating to Y-grade product quality
specifications, (iv) imbalance fees and penalties, (v) line fill requirements, or (vi) requirements as to product working inventory of
Y-grade at a fractionation facility.
(ay)
“Plant Products Redelivery Points” means the upstream insulating flange of the applicable custody meter at
the discharge points downstream of the Processor’s Facilities, as applicable, as described on Exhibit B, in which Plant Products are
redelivered as raw mix to a takeaway pipeline or other transport mode for the account of Producer.
(az)
“Primary Term” shall have the meaning set forth in Section 18.1.
(ba)
“Prior Dedication” means, as to any Interests acquired by Producer (or any of its successors or assigns under
this Agreement) within the Dedicated Area, whether before or after the Effective Date, any dedication or commitment for some or
all Services burdening such Interests which is in effect as of the time of any such acquisition.
(bb)
“Processable Gas” means Producer’s Gas that Producer elects to have delivered to a Central Processing Facility
and/or a Cryogenic Processing Facility.
(bc)
(bd)
“Processor Indemnified Parties” shall have the meaning set forth in Section 13.1.
“Producer’s Gas” means all of the Gas owned or controlled by Producer that is produced from the Dedicated
Area and delivered to Processor under this Agreement.
(be)
(bf)
(bg)
“Producer Indemnified Parties” shall have the meaning set forth in Section 13.1.
“psia” means pounds per square inch absolute.
“psig” means pounds per square inch gauge.
(bh)
“Receipt Point” means the inlet flange of the upstream gatherer’s facilities at the point of interconnection
between the low pressure gathering system and Producer’s facilities or the inlet flange of the upstream gatherer’s facilities at the
point of interconnection between the high pressure gathering system and Processor’s compression facilities.
(bi)
“Redelivery Point Gas Quality Specifications” mean the Gas quality requirements of downstream pipelines or
other facility operators at the Residue Gas Delivery Points, as such requirements are in effect from time to time.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 5
CONFIDENTIAL TREATMENT REQUESTED
(bj)
“Residue Gas” means the portion of the Gas delivered to the Processor’s Facilities that remains after processing.
(bk)
“Residue Gas Price” means a price per MMBtu equal to 100% of the Monthly average of Processor’s actual
sales price for Residue Gas sold from the Processor’s Facilities. It is understood that the Residue Gas Price shall be net of actual,
third-party, commercially reasonable fees paid or incurred by Processor for the transportation directly related to Producer’s Residue
Gas but shall not in any circumstance include any (i) marketing or broker fees, (ii) take-or-pay, reservation, or demand charges, (iii)
imbalance fees and penalties, or (iv) line fill requirements.
(bl)
“Residue Gas Redelivery Points” means the upstream insulating flange of the applicable Residue Gas custody
meter at the discharge points downstream of the Processor’s Facilities, as applicable, as described on Exhibit B, where Residue Gas
is delivered to a takeaway pipeline for the account of Producer.
(bm)
“Resolution Period” shall have the meaning set forth in Section 2.2 or Section 3.5, as applicable.
(bn)
(bo)
“Services” shall have the meaning set forth in Section 2.4.
“Shrinkage” shall have meaning set forth in Exhibit F.
(bp)
“Similarly Situated Customers” means any assignee of Producer’s interests hereunder (whether total or partial)
pursuant to Section 19.6 or any third party customer for which Producer consents to Processor providing an equal level of service
priority pursuant to Section 2.7.
(bq)
“Tax” or “Taxes” Any federal, state or local taxes, fees, levies or other assessments, including all sales and use,
goods and services, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, value added,
capital stock, production, business and occupation, disability, employment, payroll, license, unemployment, social security,
Medicare, or withholding taxes or charges imposed by any Governmental Authority, and including any interest and penalties (civil
or criminal) on any of the foregoing.
(br)
(bs)
(bt)
(bu)
“Term” shall have the meaning set forth in Section 18.1.
“Third Party” Any Person that, as of any applicable determination date, is not a Party to this Agreement.
“Third Party Gas” means Gas other than Producer’s Gas.
“Transfer” means any direct or indirect transfer, conveyance, assignment, grant, or other disposition of any
rights, interests, or obligations.
(bv)
“Transferee Agreement” An agreement in the form as attached hereto as Exhibit I, which is to be signed by
Processor and a Third Party to which Producer partially assigns its Interests in the Dedicated Area.
(bw)
“Year” means a period of 365 consecutive Days, provided that any year containing the date of February 29 shall
consist of 366 consecutive Days.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 6
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE II
DEDICATION AND SERVICES
Section 2.1 Dedication; Producer Reservations; Release Rights.
(a)
Dedication. Subject to the terms and conditions of this Agreement, and solely for the purpose of this Agreement,
Producer hereby dedicates for the Services to be provided by Processor under this Agreement and shall deliver or cause to be
delivered at the Delivery Point(s) the following:
(i) all Gas owned by Producer that is produced and saved from wells now or hereafter located within the Dedicated
Area or on lands pooled or unitized therewith, to the extent such Gas is attributable to Interests within the Dedicated Area,
now owned or hereafter acquired by Producer and not otherwise delivered or used as permitted pursuant to this Agreement;
and
(ii) with respect to wells now or hereafter located within the Dedicated Area or on lands pooled or unitized
herewith for which Producer is the operator, Gas for such wells that is owned by other working interest owners and royalty
owners (“Non-Op Gas”) but only to the extent and for the period that Producer has the right or obligation to market such
Non-Op Gas;
provided, however, with respect to any such Gas that is subject to a Prior Dedication, such Gas shall not be subject to the dedication
hereunder until the expiration or termination of such Prior Dedication. Upon the expiration or termination of that Prior Dedication,
such additional Interests within the Dedicated Area and such Gas attributable thereto will automatically be subject to the dedication
hereunder without any further actions by the Parties. Producer shall notify Processor in writing of any such expiration or
termination.
(b)
Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the dedication in Section
2.1(a) is in effect, this Agreement and the dedication under Section 2.1(a) and all of the terms and provisions of this Agreement
collectively shall (i) be a covenant running with the Interests within the Dedicated Area and (ii) be binding on and enforceable by
Processor and its successors and assigns against Producer and its successors and assigns of the Interests within the Dedicated Area.
Each Party agrees to execute, acknowledge, and deliver to the other Party from time to time such additional agreements and
instruments as may be reasonably requested by such other Party to more fully effectuate the intention of the Parties set forth in the
immediately preceding sentence, including a memorandum of this Agreement in the form set forth on Exhibit G, and in the event of
a permanent release or partial assignment of the Interests dedicated hereunder, a memorandum of release in the form set forth on
Exhibit H. Producer shall cause any conveyance by it of all or any of the Interests within the Dedicated Area to be made expressly
subject to the terms of this Agreement. By January 31 of each year, Producer and Processor shall update Exhibit A to reflect any
Interests within the Dedicated Area (1) acquired by Producer, (2) permanently released by Processor, or (3) partially assigned by
Producer (and reflected in a Transferee Agreement) during the immediately preceding year, and, for the avoidance of doubt, any
such new Interests within the Dedicated Area shall be subject to this Agreement (including Section 2.1(a) and Section 2.1(b)).
Contemporaneously with any such update and supplement to this Agreement, Producer shall execute, acknowledge, and deliver to
Processor a supplement to each of the applicable memoranda of this Agreement previously filed for recording in the real property
records of each county in which any portion of such new Interests is located.
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(c)
Forecasts. On or before August 1st of each Year during the Term, Processor shall deliver to Producer a map
showing each current Processor’s Facilities. Subject to Processor’s delivery of such map and Processor’s compliance with the
confidentiality and restricted use requirements set forth in Section 19.1 on or before October 1st of each Year during the Term,
Producer shall deliver to Processor a 2-Year Forecast with respect to the Producer’s Gas. “2-Year Forecast” shall mean Producer’s
good faith estimate (expressed in Mcf per Day) and associated gas analysis of Producer’s Gas, to be produced from the Dedicated
Area, broken down by Processor’s Facilities, and delivered to the Delivery Points for each Month for the next two (2) years of the
Term of the Agreement, which forecasts shall be based on Producer’s most recent engineering and planning data. At Processor’s
request, but no more than once per quarter, Producer and Processor will meet to discuss changes in the forecast to ensure that
Processor will have adequate capacity in place to meet Producer’s requirements. For the sake of clarity, Processor acknowledges
that Producer shall not at any time be required to deliver any of Producer’s internal budget information to Processor. Producer shall
use all commercially reasonable efforts and information available to it to create the 2-Year Forecasts, but, given the inherent nature
of the estimates involved in creating such Forecasts, Producer cannot guarantee the accuracy of any 2-Year Forecast.
(d)
Producer’s Reservations.
(i) Gas for Lessors or Royalty Owners. Producer shall have the right to utilize Gas as may be required to be
delivered to lessors or royalty owners under the terms of leases or other agreements or as required for Producer’s operations
within the Dedicated Area or lands pooled or unitized therewith, as determined by Producer in its sole discretion.
(ii) Pooling or Units. Producer may form, dissolve, and/or participate in pooling agreements or units encompassing
all or any portions of the Dedicated Area, as determined by Producer in its sole discretion.
(iii) Operational Control of Wells. Producer reserves the right to operate its leases and wells in any manner that it
desires, as determined by Producer in its sole discretion and free of any control by Processor, including without limitation,
(i) shutting-in, cleaning out, reworking, modifying, deepening, or abandoning any such wells, (ii) using any efficient,
modern, or improved method for the production of its wells, (iii) flaring, burning, or venting Gas and (iv) surrendering,
releasing, or terminating its leases or Interests or allowing such leases or Interests to expire at any time.
(iv) Well Development and Operations. Producer reserves the right to use Gas (including the Plant Products in such
Gas), above ground or below, to develop and operate its leases and wells,
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including, without limitation, for Gas lift, fuel, pressure maintenance, or other re-injection purposes, secondary and tertiary
recovery, drilling or cycling, operation of Producer’s facilities, and/or any other legitimate use in connection with the
development and/or operation of its leases and wells that are now or hereafter become subject to the terms of this
Agreement. Additionally, for Gas used for fuel, Producer has the right to remove and dispose of liquid hydrocarbons from
such Gas by means it deems necessary, including via low temperature separation.
(v) No Obligation to Develop. Notwithstanding anything else in this Agreement that may be construed to the
contrary, Producer reserves the right to develop and operate its leases and wells as it sees fit, in its sole discretion, and
Producer shall have no obligation to Processor under this Agreement to develop or otherwise produce Gas or other
hydrocarbons from any properties owned by it, including any properties now or hereafter located within the Dedicated Area
or the lands pooled or unitized therewith.
Section 2.2 Release from Dedication.
(a)
Immediate Temporary Release. If for any reason including Force Majeure (but not including a pressure problem
which is addressed in Section 3.5), Processor does not take all or any portion of Producer’s Gas delivered or otherwise available for
delivery at a Delivery Point, Producer shall be entitled to an immediate temporary release from dedication of such volume of
Producer’s Gas, and may dispose of such Gas in any manner it sees fits, subject to Processor’s right to resume receipts at a
subsequent time when Processor is able to take all of Producer’s Gas available for delivery at the Delivery Point in accordance with
the terms of this Agreement, provided however if during such temporary release period Producer secures a different temporary
market, Processor may resume receipts only upon thirty (30) days’ advance written notice and only as of the beginning of a Month,
unless otherwise agreed.
(b)
Permanent Release. In addition to Section 2.2(a), above, if Processor does not take and process all or any portion
of Producer’s Gas for delivery at a Delivery Point for any reason (including a failure to meet quality requirements for nitrogen, but
not including (i) a failure to meet quality requirements other than for nitrogen as set forth above, for which no permanent release
shall be available, or (ii) a pressure problem, which is addressed in Section 3.5) for a cumulative thirty (30) Days in any ninety (90)
Day period, unless such failure is caused by Force Majeure, in which case a cumulative 180 Days in any 365-Day period, then upon
Producer’s written notice to Processor, Processor shall have fifteen (15) Days from receipt of such notice to propose a feasible plan
to Producer that shall resolve such issue, at Processor’s sole cost and expense, within sixty (60) Days after proposing such plan (the
“Resolution Period”). If (A) Processor fails to propose a resolution within the stated fifteen (15) Days, (B) the issue is not resolved
after completion of Processor’s resolution, or (C) Processor does not complete such resolution within the Resolution Period (but if
Processor’s completion is delayed or prevented by reason of Force Majeure, the Resolution Period shall be extended by an
additional 120 Days), Producer may elect within 30 days following Processor’s failure to propose a resolution, the completion of
such inadequate resolution or the expiration of such Resolution Period, as applicable, by giving written notice to Processor, a
permanent release from dedication as to the affected Delivery Point and the portion(s) of the Dedicated Area associated with such
Delivery Point (and such released portion(s) shall be stated in terms of acreage); provided, however, Producer shall
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not be entitled to the foregoing remedy to the extent that Producer’s good-faith estimate of the affected volumes exceeds the last 2-
Year Forecast Producer delivered to Processor in accordance with Section 2.1(c). If Producer elects a permanent release, the
portion(s) of the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith, provided that
Producer shall provide to Processor (subject to the confidentiality and non-use restrictions set forth in this Agreement) reasonable
evidence to support Producer’s determination of the portion(s) of the Dedicated Area to be released, and as long as Producer’s
determination of the areas to be released is reasonably supported, such determination shall be deemed conclusive.
(c)
Release by Upstream Gatherer. Delivery of Producer’s Gas to Processor hereunder is dependent upon the
performance of upstream gathering facilities to which Producer has made a dedication similar to the dedication under this
Agreement. To the extent that Producer’s dedication under such upstream contracts is released, Producer shall receive a
corresponding release from dedication under this Agreement.
Section 2.3 No Election of Remedies. Producer’s exercise of any right to a release from dedication under Section 2.2 shall
not be deemed as an election of remedies for any unexcused failure of Processor to perform any obligation under this Agreement,
and Producer shall be entitled to any and all other remedies, including specific performance and injunctive relief (without the need
to post any bond).
Section 2.4 Processing and Related Services. Subject to the terms and conditions of this Agreement, each Month during
the Term Processor shall provide, or cause to be provided the following services, each on a Firm Basis (collectively, the
“Services”):
(a) receive, or cause to be received, Producer’s Gas at the Delivery Points up to the capacity of the Processor’s Facilities
(“Plant Capacity”);
(b) receive, or cause to be received, condensate at the Delivery Points;
(c) dehydrate, compress, and/or treat all of Producer’s Non-Processable Gas at the Central Conditioning Facilities and
purchase or deliver for Producer’s account such Producer’s Non-Processable Gas;
(d) dehydrate, compress, treat, and/or remove Plant Products from all of Producer’s Processable Gas at Processor’s
facilities;
(e) for Processable Gas to be delivered to the Cryos, compress and redeliver such Producer’s Gas into a high pressure
gathering system and re-accepting such Producer’s Gas at the Cryos;
(f) purchase or deliver for Producer’s account all Producer’s Residue Gas and Plant Products for volumes attributable to
Producer’s Processable Gas;
(g) construct and place in operation at least three Cryogenic Processing Facilities by the following dates (subject to Force
Majeure provided that Force Majeure shall not extend any of the following deadlines by more than 3 months):
(i) Cryo #1 will be Operational on or before July 1, 2019;
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(ii) Cryo #2 will be Operational on or before October 1, 2019;
(iii)Cryo #3 will be Operational on or before January 1, 2020; and
(iv)Additional Cryos as required by Section 2.4(h)(ii) within 18 months of Producer’s notice that it has met the
criteria set forth in Section 2.4(h)(ii)
Upon the designated Operational dates above (including the permitted Force Majeure extensions), Processor shall be
obligated to deliver and process at the Cryogenic Processing Facilities a volume of Processable Gas from Producer and
Similarly Situated Customers equal to one hundred percent (100%) of the aggregate design capacity of all Cryos that are
or should then be Operational prior to processing the Gas of any non-Similarly Situated Customer at a Cryo. If a
Cryogenic Processing Facility is not Operational by the required deadline the design capacity of such Cryo shall be
deemed to be 200 MMcf per day for purposes of calculating the Minimum Cryo Volume. Notwithstanding Section 6.1, if
Processor delivers a volume of Processable Gas equal to less than [***] percent ([***]%) of the aggregate design
capacity of all Cryos that are or should be Operational (such volume, the “Minimum Cryo Volumes”) to Cryogenic
Processing Facilities, the portion of the Minimum Cryo Volume not processed at a Cryo and attributable to Producer’s
Processable Gas shall have [***]. Furthermore, In the event that Processor processes Gas from a non-Similarly Situated
Customer in a Cryo(s) prior to processing all of Producer’s Processable Gas in a Cryo(s), then Producer shall have [***]
with respect to the volume of Producer’s Processable Gas that should have been but was not processed at a Cryo(s).
(h)
subject to Section 18.3, expand its Facilities pursuant to the following requirements:
(i) Central Conditioning Facilities. Processor shall have available capacity at the Central Conditioning Facilities
to receive, and Processor shall receive, on a Firm basis, one hundred percent (100%) of Producer’s Non-
Processable Gas (“Capacity Commitment”). In order to satisfy the Capacity Commitment, Processor shall,
at Processor’s sole expense, undertake an expansion of existing infrastructure or construct and/or install new
Central Conditioning Facilities (i) if the then-existing throughput in existing Central Conditioning Facilities
exceeds eighty percent (80%) of the design capacity, and (ii) if Producer’s 2-Year Forecast plus Third Party
Gas for Similarly Situated Customers for Non-Processable Gas exceeds one hundred five percent (105%) of
the designated design capacity for existing Central Conditioning Facilities;
(ii) Cryos. Processor shall, at Processor’s sole expense, undertake an expansion of existing and currently planned
infrastructure or construct and/or install new infrastructure within a Cryo (i) if the then-existing throughput in
existing and currently planned Cryos exceeds eighty percent (80%) of the Cryos design capacity, and (ii) if
Producer’s 2-Year Forecast plus Third Party Gas for Similarly Situated Customers for Processable Gas
exceeds one hundred five percent (105%) of the designated design capacity for existing and currently
planned Cryos;
(i)
perform such other obligations and actions as are described under this Agreement.
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Processor shall perform all Services and operate Processor’s Facilities consistent with industry standard and in a prudent,
workmanlike manner.
Notwithstanding anything in this Agreement to the contrary, Producer shall not be entitled to Services on a Firm basis on any
Processor’s Facilities, or any portions of the Processor’s Facilities, that have been built by Processor exclusively to service Gas
volumes delivered by any Third Party customer.
Section 2.5 Recovery Rates and Take In-Kind Rights.
(a) Recovery Rates. Subject to Producer’s Ethane Rejection Option, Processor shall determine Producer’s share of Residue
Gas and Plant Products within the Processor’s Facilities based on actual recovery rates (including condensate fallout upstream of
the Processor’s Facilities) and the allocation methodology shown on Exhibit F.
(b) Ethane Rejection Mode. For Producer’s Gas allocated to a Cryogenic Processing Facility, Processor grants Producer an
option exercisable by giving Processor at least 5 Days’ notice prior to the beginning of a Month to have Processor operate its
Cryogenic Processing Facilities in ethane rejection mode (“Ethane Rejection Option”), and Producer’s election of the Ethane
Rejection Option shall continue to apply for successive Months until Producer provides notice otherwise to Processor at least 5
Days prior to the beginning of a Month. For each Month in which the Ethane Rejection Option applies, if Processor is prohibited by
the specifications of downstream pipelines from operating Processor’s Facilities in ethane rejection mode, Processor shall operate
the Cryos at the lowest ethane recovery rate allowed by the specifications of the downstream pipelines.
(c) Take In-Kind - Residue Gas. For each Calendar Year during the Term, Producer shall have the right to take its Residue
Gas in-kind. Producer elects to take its Residue Gas in-kind at the Residue Gas Redelivery Point as of the Effective Date of this
Agreement. This election shall remain in effect until Producer provides notice to Processor at least one hundred eighty (180) Days
prior to beginning of the Calendar Year that Producer no longer elects to take its Residue Gas in-kind, and such election to no
longer take in-kind shall continue for the remainder of the Term. For any Calendar Year the Producer elects to take its Residue Gas
in-kind, Processor shall not be required to pay the Residue Gas Price. Additionally, during any such Calendar Year, the “Take In-
Kind Terms” set forth in Article VIII and Exhibit E, as well as the applicable title, possession, and liability provisions of Article
XIII and Article XIV shall apply.
(d) Take In-Kind - Plant Products. For each Calendar Year during the Term, Producer shall have the right to take its Plant
Products in-kind. Producer elects to take its Plant Products in-kind at the Plant Products Redelivery Point as of the Effective Date of
this Agreement. This election shall remain in effect until Producer provides notice to Processor at least one hundred eighty (180)
Days period to the beginning of the Calendar Year that Producer no longer elects to take its Plant Products in-kind, and such
election to no longer take in-kind shall continue for the remainder of the Term. For any Calendar Year that Producer elects to take
its Plant Products in-kind, Processor shall not be required to pay the Plant Products Price. Additionally, during any such Calendar
Year, the “Take In-Kind Terms” set forth in Article IX and Exhibit E, as well as the applicable title, possession, and liability
provisions of Article XIII and Article XIV shall apply.
Section 2.6 Modification of System Capacity. Other than during periods of emergency and/or required Maintenance,
Processor shall not take, without Producer’s prior written consent, any action that
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could cause the Plant Capacity to be reduced in a manner that negatively affects Producer’s ability to deliver Gas to any Delivery
Point.
Section 2.7 Priority of Gas Services; Curtailment. Processor covenants that it shall not oversubscribe the Processing
Facilities or take additional production into the Processing Facilities if, as a result, Processor is unable to perform its Service
obligations under this Agreement. Processor agrees to not provide services of any kind for any Third Party Gas on a basis that has a
priority (i) higher than or (ii) equal to that to which Producer is entitled under this Agreement without Producer’s prior written
consent; provided, however, that in the case of (ii), such consent shall not be unreasonably withheld if the Third Party agreement
shall not be reasonably expected to impact Processor’s ability to perform its obligations to Producer under this Agreement. If for
any reason, including, without limitation, Force Majeure, maintenance, or constraints at Redelivery Point(s), Processor needs to
curtail receipt, processing or delivery of Gas at the Processor’s Facilities, the following procedures shall be followed:
(a) First, Gas deliveries from all customers other than Producer and Similarly Situated Customers shall be curtailed prior to
any curtailment or interruption of Producer’s Gas or Gas from Similarly Situated Customers; and
(b) Second, if additional curtailments are required beyond Section 2.7(a) above, Processor shall notify Producer and the
Similarly Situated Customers of such curtailment and require good faith estimates of expected gas volumes from Producer and
Similarly Situated Customers. Processor shall then allocate the Plant Capacity at the affected Delivery Point on a pro rata basis
based upon Producer’s and each Similarly Situated Customer’s respective good faith estimates for the affected point.
Section 2.8 Third Party Gas. Processor agrees that it shall not accept Third Party Gas into the Processor’s Facilities if such
Third Party Gas shall cause Producer’s Gas to not meet the Redelivery Point Gas Quality Specifications.
Section 2.9 Operation and Maintenance of Processor’s Facilities. Processor shall (i) be entitled to complete operational
control of the Processor’s Facilities and (ii) construct, install, own, operate, and maintain, at its sole cost, risk and expense, the
facilities in accordance with all applicable laws, as a reasonably prudent operator and, to the extent reasonably possible, in a cost-
efficient and effective manner for Producer.
Section 2.10 Commingling. The Parties agree that Producer’s Gas may constitute part of the supply of Gas from multiple
sources, and Processor shall have the right, subject to Processor’s obligations under this Agreement, to commingle Producer’s Gas
with other Gas, to deliver Residue Gas and Plant Products containing molecules different from those received at the Delivery
Points, and to handle the molecules delivered at the Delivery Points in any manner.
Section 2.11 Acquisitions by Affiliates of Producer. If any Affiliate of Producer acquires any fee ownership, working
interest ownership, mineral ownership, leasehold ownership, farmout, or other contractual arrangement or arising from any pooling,
unitization, or communitization of any of the foregoing rights within the Dedicated Area (“Affiliate Interests”), then Producer shall
use its best efforts to cause any applicable Affiliate of Producer who acquires such Affiliate Interests to execute and deliver to
Processor (i) a joinder to this Agreement in the form of Exhibit J attached hereto and (ii) a memorandum of this Agreement in the
form set forth on Exhibit G. In the event that an Affiliate of Producer becomes a Producer
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under this Agreement, the liabilities of Producer and each such Affiliate of Producer shall be several and not joint.
Section 2.12 Producer’s Right to Deliver Other Gas. Subject to the terms and conditions of this Agreement and
availability of capacity, Producer shall have the continuing right to deliver Producer’s equity Gas production and Gas that Producer
controls as operator on behalf of non-operating partners from outside of the Dedicated Area to Processor at any one or more
Delivery Point(s), and Processor shall provide the Services for such Gas at Processor’s Facilities; provided that such Gas shall not
be dedicated under this Agreement.
ARTICLE III
DELIVERY POINTS AND PRESSURE
Section 3.1 Delivery Points. The delivery points for all Producer’s Gas delivered by Producer under this Agreement shall
be the location where Producer’s Gas enters the inlet flange of the Processor’s Facilities located at the points identified on Exhibit B
of this Agreement (each, a “Delivery Point,” and together, the “Delivery Points”).
Section 3.2 Pressure at Delivery Points. Producer shall cause Producer’s Gas to be delivered to the Delivery Points at a
pressure sufficient to enter the Processor’s facilities, provided that Processor maintains the operating pressures at not more than
(a) [***] psig at the inlet flange of the on-skid compressor inlet suction scrubber of the Central Conditioning Facilities and (b) [***]
psig at the inlet flange of the on-skid compressor inlet suction scrubber of the Central Processing Facilities and at all other Delivery
Points other than the inlet to the Cryogenic Processing Facilities. Producer shall not deliver Gas at a pressure in excess of the
MAOP at the Delivery Point, as such MAOP may exist from time to time. As of the Effective Date, the MAOP at each Delivery
Point shall be listed on Exhibit B, and Processor shall give written notice to Producer at any time thereafter that the MAOP for any
Delivery Point changes and for each additional Delivery Point when it is added.
Section 3.3 Pressure at Residue Gas Redelivery Points. If Producer elects to take its Residue Gas in-kind, Processor shall
redeliver Residue Gas at a pressure sufficient to enter the receiving facilities at such Residue Gas Redelivery Point, but shall not
deliver such Gas at a pressure in excess of the MAOP of such receiving facilities, as such MAOP may exist from time to time.
Section 3.4 Pressure at Plant Product Redelivery Points. If Producer elects to take its Plant Products in-kind, Processor
shall redeliver Plant Products at a pressure sufficient to enter the receiving facilities at each Plant Product Redelivery Point, but
shall not deliver such Plant Products at a pressure in excess of MAOP of such receiving facilities, as such MAOP may exist from
time to time.
Section 3.5 Release Rights. At any time that the operating pressure at a Delivery Point is not in compliance with the
required operating pressure or is in excess of the MAOP for any reason, including Force Majeure, Producer shall be entitled to an
immediate temporary release from dedication and may immediately dispose of and/or deliver to any third Person any of Producer’s
Gas available for delivery at such Delivery Point. In the event the operating pressure is not in compliance with the required pressure
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for a cumulative thirty (30) Days in any ninety (90) Day period for reasons other than Force Majeure, then upon Producer’s written
notice to Processor, Processor shall have fifteen (15) Days from receipt of such notice to propose a feasible plan that shall, at
Processor’s sole cost and expense, resolve the pressure issue within sixty (60) Days after proposing such plan (the “Resolution
Period”) so that the pressure shall be maintained in compliance with the required pressure (including when all available Gas is
delivered to the Delivery Point(s), i.e., including all of Producer’s Gas that may have been temporarily released). If (a) Processor
fails to propose a resolution within the stated fifteen (15) Days, (b) the issue is not resolved after completion of Processor’s
resolution, or (c) Processor does not complete its proposed resolution within the Resolution Period for any reason (but if
Processor’s completion is delayed or prevented by reason of Force Majeure, the Resolution Period shall be extended by an
additional 120 Days), then Producer may elect, by giving written notice to Processor, to either (i) a permanent release from
dedication as to any affected Delivery Point(s) and the portion(s) of the Dedicated Area associated with such Delivery Point(s) (and
such released portion(s) may be stated in terms of wells and/or acreage) or (ii) until the pressure issue has been resolved, [***]
percent ([***]%) reduction in the then-existing applicable Fees for a volume of Gas equal to Producer’s good-faith estimate of the
volumes that would have been delivered to the affected Delivery Points under this Agreement; provided, however, Producer shall
not be entitled to the remedies set forth in either subsection (i) or subsection (ii) to the extent that (x) any Receipt Point(s) upstream
of the Delivery Point are in compliance with the Required Pressure (as defined in the Gas Gathering Agreement between Producer
and Alpine High Gathering LP dated July 1, 2018) for such Receipt Point(s) or (y) Producer’s good-faith estimate of volumes
exceeds the last 2-Year Forecast Producer delivered to Processor in accordance with Section 2.1(c). If Producer elects a permanent
release, the portion(s) of the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith,
provided that Producer shall provide to Processor (subject to the confidentiality and non-use restrictions set forth in this Agreement)
reasonable evidence to support Producer’s determination of the portion(s) of the Dedicated Area to be released, and as long as
Producer’s determination of the areas to be released is reasonably supported, such determination shall be deemed conclusive.
Producer’s right to a release from dedication or Fee reduction under this Section 3.5 shall not be deemed an election of remedies,
and Producer shall be entitled to any and all other remedies, including specific performance and injunctive relief (without the need
to post any bond).
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ARTICLE IV
GAS QUALITY
Section 4.1 Gas Quality Specifications. Producer’s Gas delivered to a Central Processing Facility or a Cryogenic
Processing Facility shall meet the Gas Quality Specifications set forth in Exhibit D-1. Producer’s Gas delivered to a Central
Conditioning Facility shall meet the Gas Quality Specifications set forth in Exhibit D-2. Producer, at its sole election, may [***].
Producer must provide Processor nine (9) Months’ advance written notice of its desire to [***]. Upon Processor’s receipt of such
election, the changes shall be effective on the 1st Day of the Month following the nine (9)-Month notice period.
Section 4.2 Non-Conforming Gas. If at any time Processor becomes aware that Producer’s Gas at a Delivery Point fails to
conform to the applicable Gas Quality Specifications set forth in Exhibit D-1, or Exhibit D-2 (“Off-Spec Gas”), then Processor
shall promptly give Producer written notice of the deficiency, and Producer shall take commercially reasonable steps to remedy the
deficiency. Processor shall use all commercially reasonable efforts to accept such Off-Spec Gas, as long as (i) Processor is able to
accept such Off-Spec Gas without unreasonable risk of harm to the Processor’s Facilities or to the Processor’s Facilities personnel,
(ii) the acceptance of such Off-Spec Gas does not render the Processor’s Facilities unable to meet the Redelivery Point Gas Quality
Specifications, and (iii) Processor’s receipt of the Off-Spec Gas shall not be construed as a change of requirements for future
volumes delivered to the Processor’s Facilities. Processor may immediately cease taking any Off-Spec Gas that Processor deems
would be harmful to the Processor’s Facilities or the Processor’s Facilities personnel.
Section 4.3 Reimbursement for Costs and Expenses. Producer shall reimburse Processor for actual, reasonable costs and
expenses directly resulting from damage to the Processor’s Facilities, or to other customers’ Gas therein, to the extent such damage
is directly caused by the delivery to the Processor’s Facilities of Producer’s Gas that is Off-Spec Gas, except when Processor
knowingly accepts such Off-Spec Gas into the Processor’s Facilities. Notwithstanding the above or anything else in this
Agreement, Producer’s responsibility under this Section 4.3 shall be for actual, direct damages only, and in no event shall this
Section 4.3 require Producer to pay or in any way be responsible for the Consequential Damages of any Person.
ARTICLE V
MEASUREMENT
Section 5.1 Equipment and Specifications. Producer’s Gas delivered to the Processor’s Facilities shall be measured by
Processor at each Receipt Point, each Delivery Point, and any point on the gathering system upstream of Processor’s Facilities
where buyback gas is redelivered to Producer, and the Residue Gas and Plant Products shall be measured at the meter(s) at the
applicable Redelivery Point(s). Additionally, Processor shall measure any gas consumed as fuel or flared at its facilities. The meters
and appurtenant facilities shall be installed, operated, and maintained by Processor in accurate working order and condition, in
accordance with the requirements set forth in this Article V, with good and workmanlike standards generally practiced by
reasonably prudent gas processing operators, and in accordance with all laws.
Section 5.2 Gas Meter Standards. Orifice meters installed in such measuring stations for Gas shall be constructed and
operated in accordance with ANSI/API 2530 API 14.3, AGA Report No. 3, Orifice
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Metering of Natural Gas and Other Related Hydrocarbon Fluids (including as it may be revised from time to time) and shall include
the use of flange connections and, where necessary, straightening vanes, flow conditioners and/or pulsation dampening equipment.
Ultrasonic meters or Coriolis meters installed in such measuring stations shall be constructed and operated in accordance with AGA
Report No. 9, Measurement of Gas by Ultrasonic Meters, First Edition, and AGA Report No. 11, Measurement of Natural Gas by
Coriolis Meter, respectively; and any subsequent modification and amendment thereof generally accepted within the Gas industry.
Electronic flow computers shall be used and the Gas shall have its volume, mass, and/or heat content computed in accordance with
the applicable AGA standards including, but not limited to, AGA Report Nos. 3, 5, 6, 7, 8 and API 21.1 “Flow Measurement Using
Electronic Metering Systems” and any subsequent modifications and amendments thereof generally accepted within the Gas
industry. When Gas chromatographs are used they shall be installed, operated, maintained, and verified according to industry
standards (GPA 2261, GPA 2145, GPA 2172, and GPA 2177).
Section 5.3 Notice of Measurement Equipment Inspection and Calibration. Each Party shall give seventy-two (72) hours’
notice to the other Party in order that the other Party may, at its option, have representatives present to observe any reading,
inspecting, testing, calibrating, or adjusting of measuring equipment used in measuring or checking the measurement of receipts or
deliveries of Gas under this Agreement. The official electronic data from such measuring equipment shall remain the property of
the measuring equipment owner, but copies of such records shall, upon written request, be submitted, together with calculations and
flow computer configurations therefrom, to the requesting Party for inspection and verification.
Section 5.4 Measurement Accuracy Verification. Each Party shall verify the accuracy of all transmitters, flow computers,
and other equipment used in the measurement of the Gas hereunder at intervals not to exceed one hundred eighty (180) Days and
cause such equipment to be adjusted or calibrated as necessary. Testing frequency shall be based upon each Delivery Point flow rate
(Mcf/Day). Any flow rate at a Delivery Point that is: (x) greater than 1,000 Mcf/Day shall be tested Monthly, (y) between 101 and
1,000 Mcf/Day shall be tested quarterly, and (z) less than 100 Mcf/Day shall be tested semi-annually. Neither Party shall be
required to cause adjustment or calibration of such equipment more frequently than once every Month, unless a special test is
requested pursuant to Section 5.5. If, upon testing, (i) no adjustment or calibration error is found that results in an incremental
adjustment to the calculated flow rate through each meter run in excess of two percent (2%) of the adjusted flow rate (whether
positive or negative and using the adjusted flow rate as the percent error equation denominator) or (ii) any quantity error is not
greater than two hundred fifty (250) Mcf per Month, then any previous recordings of such equipment shall be considered accurate
in computing deliveries but such equipment shall be adjusted or calibrated at once. If, during any test of the measuring equipment,
an adjustment or calibration error is found that results in (i) an incremental adjustment to the calculated flow rate through each
meter run in excess of two percent (2%) of the adjusted flow rate (whether positive or negative and using the adjusted flow rate as
the percent error equation denominator) and (ii) a quantity error greater than two hundred fifty (250) Mcf per Month (“Material
Measurement Error”), then any previous recordings of such equipment shall be corrected to zero error for any period during
which the error existed (and which is either known definitely or agreed to by the Parties) and the total flow for such period shall be
determined in accordance with the provisions of Section 5.6. If the period of error condition cannot be determined or agreed upon
between the Parties, such correction shall be for a period extending over the last one half (1/2) of the time elapsed since the date of
the last test.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 17
CONFIDENTIAL TREATMENT REQUESTED
Section 5.5 Special Tests. In the event a Party desires a special test (a test not scheduled by a Party under the provisions of
Section 5.4) of any measuring equipment, seventy-two (72) hours’ advance notice shall be given to the other Party and, after
providing such notice, such test shall be promptly performed. If no Material Measurement Error is found, the Party requesting the
test shall pay the costs of such special test including any labor and transportation costs pertaining thereto. If a Material
Measurement Error is determined to exist, the Party responsible for such measurement shall pay such costs and perform any
corrections required under Section 5.4.
Section 5.6 Metered Flow Rates in Error. If, for any reason, any measurement equipment is (i) out of adjustment, (ii) out
of service, or (iii) out of repair, and, in each case, a Material Measurement Error exists as a result thereof, the total quantity of Gas
delivered shall be determined in accordance with the first of the following methods which is feasible:
(a)
by using the registration of any mutually agreeable check metering facility, if installed and accurately registering
(subject to testing as provided for in Section 5.4);
(b)
where multiple meter runs exist in series, by calculation using the registration of such meter run equipment;
provided that they are measuring Gas from upstream and downstream headers in common with the faulty metering equipment, are
not controlled by separate regulators, and are accurately registering; or
(c)
by estimating the quantity, based upon deliveries made during periods of similar conditions when the meter was
registering accurately.
Section 5.7 Record Retention. Processor shall retain and preserve all test data, charts, and similar records for any Calendar
Year for a period of at least sixty (60) Months, unless any applicable Law requires a longer time period or Processor has received
written notification of a dispute involving such records, in which case all records shall be retained until the related issue is resolved.
Section 5.8 Correction Factors for Volume Measurement. The computations of the volumes of Gas measured shall be
made as follows:
(a)
The hourly orifice coefficient for each meter shall be calculated at the base pressure of fourteen and sixty-five
hundredths (14.65) psia and the base temperature of sixty (60) degrees Fahrenheit. All Gas volume measurements shall be based on
a local atmospheric pressure assumed to be thirteen and seven-tenths (13.7) psia.
(b)
The flowing temperature of the Gas shall be continuously measured. In the case of electronic metering, such
temperature measurement shall be used as continuous input to the flow computer for calculation of Gas volume, mass and/or energy
content in accordance with the applicable AGA or API 21.1 standards including, but not limited to, AGA Report Nos. 3, 5, 6, 7 and
8 and any subsequent modification and amendments thereof generally accepted within the Gas industry.
(c)
Measurements of inside diameters of pipe runs and orifices shall be obtained by means of a micrometer to the
nearest one-thousandth of an inch, and such measurements shall be used in computations of coefficients.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 18
CONFIDENTIAL TREATMENT REQUESTED
(d)
In determining the volume of Gas, when electronic transducers and flow computers are used, the Gas shall have
its volume, mass and/or energy content continuously integrated in accordance with the applicable AGA standards including, but not
limited to, AGA report Nos. 3, 5, 6, 7 and 8 and any subsequent modification and amendments thereof generally accepted within
the Gas industry.
(e)
In calculating the volume of Gas, deviation from Boyle’s Law at the pressure, specific gravity, and temperature
for each measurement shall be determined by use of AGA Report No. 8, Compressibility Factors for Natural Gas and Other Related
Hydrocarbon Gases, published by the AGA in conjunction with Gas Measurement Committee Report No. 3 and amendments
thereto generally accepted within the Gas industry.
(f)
Whenever the conditions of pressure and temperature differ from the standards described herein, conversion of the
volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws, corrected for
deviation by the methods set forth in the AGA Gas Measurement Committee Report No. 3, as said report may be amended from
time to time.
Section 5.9 Exception to Gas Measurement Basis. If at any time the basis of measurement set out in this Agreement
should conflict with any Law, then the basis of measurement provided for in such Law shall govern measurements hereunder.
Section 5.10 Gas Sampling. Receipt Point meters downstream of new wells or wells that have been changed due to a
workover or other well bore alteration that could alter the Gas composition shall be sampled Monthly until the analyses demonstrate
reasonable consistency. After such time, said meters shall then be sampled at the stated calibration frequency. Processor shall install
and maintain a Gas composite sampler at each of the Receipt Points.
(a)
Receipt Points and Delivery Points. The composition, specific gravity and Gross Heating Value of Producer’s Gas
shall be determined by the measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be
acquired through an on-line chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
(b)
Residue Gas Redelivery Points. The composition, specific gravity, and Gross Heating Value of Producer’s
Residue Gas shall be determined by the measuring party taking a sample at the same frequency as the meter calibration test. The
sample shall be acquired through either an on-line Gas chromatograph or a composite sampler. The analytical results shall be
applied at the beginning of the Month the sample is taken until a subsequent representative sample is applied.
(c)
The specific gravity of Gas at all applicable measurement points shall be determined by a Gas chromatographic
component analysis to the nearest one thousandth (0.001) of the samples of the Gas taken for test purposes as provided above, or by
such other method as shall be mutually agreed upon.
(d)
The Gross Heating Value shall be measured by Gas chromatographic analysis or component analysis of the
samples of the Gas taken for test purposes as provided above, or by such other method as shall be mutually agreed upon.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 19
CONFIDENTIAL TREATMENT REQUESTED
(e)
The Gas received by Processor at Delivery Points other than those at the inlet of a Cryogenic Processing Facility
shall be deemed as saturated with water and the Gas shall be measured and settled as saturated at base pressure and base
temperature.
Section 5.11 Modifications to Measurement Procedures. In the event the measurement procedures herein cease to be
reflective of actual operations or become inequitable in any respect, such measurement procedures shall be modified to reflect
actual operations and to remove such inequities, as long as such modified measurement procedures are consistently applied to
Producer and all other customers at the Processor’s Facilities.
Section 5.12 Substitute Measurement and Sampling. Notwithstanding anything in this Article V to the contrary, for any of
the Receipt Point(s) where Producer has installed a meter in accordance with the standards set forth in Section 5.2, Processor shall
not be obligated to install its own meter and may use the measurements and samples taken by Producer at the Receipt Point(s).
Additionally, notwithstanding anything in this Article V to the contrary, Processor is not obligated to install its own meter at a
Delivery Point and may use aggregate measurements and samples taken at all Receipt Points upstream of such Delivery Point.
When relying on Producer’s Receipt Point meters, Processor shall have the right to witness meter provings and have access to raw
measurement data collected. For the avoidance of doubt, if Processor installs its own Receipt Point meters or any upstream gatherer
installs a Receipt Point meter and makes it available to Processor, then Processor shall use such meters, as appropriate, for custody
transfer measurement under this Agreement.
ARTICLE VI.
FEES, FUEL, AND CONSIDERATION
Section 6.1 Fees.
(a) Non-Processable Gas. Producer shall pay to Processor the Central Conditioning Fee, set forth in Exhibit C, for all
Producer’s Non-Processable Gas.
(b) Processable Gas. Producer shall pay to Processor the applicable Fees, set forth in Exhibit C, for all Producer’s
Processable Gas, illustrated by the following formula.
PF = (CPF x A) + (CRO x B)
Where:
PF = Total Processing Fees
CPF = Producer’s CPF Volumes (as defined in Exhibit F, Paragraph 3)
CRO = Producer’s Cryo Volumes (as defined in Exhibit F, Paragraph 4)
A = Central Processing Fee
B = Cryogenic Processing Fee
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 20
CONFIDENTIAL TREATMENT REQUESTED
Section 6.2 FL&U. For Services provided at the Central Conditioning Facility, Central Processing Facility, or Cryogenic
Processing Facility to which Producer’s Gas is delivered, Producer shall bear responsibility for FL&U, as set forth on Exhibit C.
Section 6.3 Fee Adjustment. On each anniversary of the Effective Date, all Fees shall each be automatically adjusted
upward or downward by the percentage change in the Chained Consumer Price Index for All Urban Consumers, all items less food
and energy, as and when published and considered final by the U.S. Department of Labor Bureau of Labor Statistics calculated for
the twelve (12) Months immediately preceding the date of escalation; provided, however, no Fee shall ever be adjusted below its
original amount as of the Effective Date; and, provided, further, that the amount of adjustment for each year shall not exceed [***]
percent ([***]%) per annum.
Section 6.4 Most Favored Nations. If, any time during the Term of this Agreement, Processor agrees to provide Services to
any Third Party customer on Processor’s Facilities for any individual Fees that are less than any of Producer’s Fees, then Processor
will immediately notify Producer in writing of such agreement with a description of the applicable processing fees, treating fees,
product allocation percentages (including allocations of drip or condensate), and fuel (such commercial terms and only such terms,
collectively, the “Proposed Commercial Terms”). Within thirty (30) Days of Producer’s receipt of such notice, Producer shall
notify Processor in writing if Producer wishes to amend this Agreement to incorporate the Proposed Commercial Terms for the
remainder of the Term, and in such case the Parties will enter into an amendment to this Agreement to incorporate the Proposed
Commercial Terms.
ARTICLE VII
PRICE AND ALLOCATIONS
Section 7.1 Residue Gas and Plant Products Purchases. Except to the extent that Producer has elected to take its Residue
Gas and/or its Plant Products in-kind pursuant to Sections 2.5(c) and 2.5(d), as full consideration for Producer’s Residue Gas and
Producer’s Plant Products attributable to Producer’s Gas and all its components delivered to Processor each month at the Delivery
Point, Processer shall pay Producer: (i) the Residue Gas Price for each MMBtu of Producer’s Residue Gas and (ii) the Plant
Products Price for each gallon of each component contained in Producer’s Plant Products. No separate payment is due under this
Agreement for helium, sulfur, CO2, or other non-hydrocarbons.
Section 7.2 Allocation of Residue Gas and Plant Products. Processor shall determine, on a Monthly basis, the Residue Gas
and Plant Products attributable to Producer’s Gas on a proportional basis by component using the allocation methodologies set forth
in Exhibit F. From time to time Processor may make changes and adjustments in its allocation methods to improve accuracy,
provided that Processor provides written notice, evidencing the reasons for the necessary changes and adjustments, to Producer
prior to making such changes or adjustments.
ARTICLE VIII
RESIDUE GAS REDELIVERY PROCEDURES
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 21
CONFIDENTIAL TREATMENT REQUESTED
Section 8.1 Procedure for Residue Gas Disposition. When Producer has elected to take its Residue Gas in-kind, Processor
shall return to Producer, or for Producer’s account, Producer’s Residue Gas at the Residue Gas Redelivery Points.
Section 8.2 Disposition of Producer’s Residue Gas. Producer shall arrange for the disposition and sale of Producer’s
Residue Gas actually delivered to Producer or for Producer’s account. If Producer fails to provide for the disposition and sale of that
Residue Gas (i.e., Producer fails to nominate on a downstream pipeline), Processor shall, in a commercially reasonable manner,
arrange for disposition and sale of that Residue Gas and shall remit the net proceeds to Producer after deductions for all reasonable
transportation charges, a marketing fee of $0.05 per MMBtu, and other actual, reasonable costs associated with the disposition and
sale of Producer’s Residue Gas. Processor’s remittance of such net proceeds to Producer shall include the gross sales proceeds at
which such Residue Gas was sold and reasonably detailed documentation of all such costs and charges deducted from such gross
sales proceeds.
Section 8.3 Quality. The Residue Gas delivered by Processor from the Processor’s Facilities to Producer or for Producer’s
account at the Residue Gas Redelivery Point(s) must meet all quality specifications of the Producer’s designated receiving
pipeline(s), as such quality specifications are in effect as of the Effective Date, and if at any time after the Effective Date the
applicable receiving pipeline changes its quality specifications to be more stringent, Processor shall have the right to make
corresponding revisions to the quality specifications set forth in Exhibit D in amounts consistent with the receiving pipeline’s
changes. Any Residue Gas redelivered by Processor which does not conform with all of the aforesaid quality requirements is
referred to herein as “Non-Conforming Residue Gas”. If Processor fails to redeliver Residue Gas on behalf of Producer that meets
all quality specifications of the receiving pipeline, in addition to any other remedy available to Producer at law or in equity,
Processor shall be responsible for, and shall indemnify, defend, and hold harmless Producer Indemnified Parties and its and their
officers, agents, employees, and contractors, and all third parties located downstream of Processor’s facilities, from and against any
and all damages, losses, fines, penalties, fees, charges, claims, demands, suits, actions, causes of action, obligations, liabilities
(including, without limitation, for injury, death or damage to property), contractual liabilities, and reasonable expenses and costs
(including, without limitation, court costs, reasonable attorney’s fees, and all other reasonable costs and expenses incurred in
investigating and defending any of the above) to the extent directly arising from Processor’s delivery of Non-Conforming Residue
Gas. Further, Processor shall be responsible for all reasonable costs and expenses incurred by Producer in order to avoid any fees or
fines charged by any downstream transporter for so long as Processor delivers Non-Conforming Residue Gas and so long as such
fees or fines are charged.
ARTICLE IX
PLANT PRODUCTS REDELIVERY PROCEDURES
Section 9.1 Procedure for Plant Product Disposition. When Producer has elected to take its Plant Products in-kind,
Processor shall return to Producer, or for Producer’s account, Producer’s Plant Products at the Plant Products Redelivery Points in
the form of raw mix of natural gas liquids.
Section 9.2 Disposition of Producer’s Plant Products. Producer shall arrange for the disposition and sale of its share of
Plant Products actually delivered to Producer or for Producer’s account. If Producer fails to provide for the disposition and sale of
its share of Plant Products actually delivered to it, Processor may arrange for disposition and sale of those Plant Products and
Processor shall remit the net proceeds to
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 22
CONFIDENTIAL TREATMENT REQUESTED
Producer after deductions for all actual, reasonable transportation and fractionation charges, a marketing fee of $0.005 per Gallon,
and other actual, reasonable costs associated with the disposition and sale of such Plant Products. Processor’s remittance of such net
proceeds to Producer shall include the price at which each Plant Product was sold and reasonably detailed documentation of all such
costs and charges deducted from such sale price.
Section 9.3 Quality. The Plant Products delivered by Processor to Producer or for Producer’s account at the Plant Products
Redelivery Points must meet all quality requirements of the Producer’s designated receiving pipeline(s), as such quality
specifications are in effect as of the Effective Date, and if at any time after the Effective Date the applicable receiving transporter
changes its quality specifications to be more stringent, Processor shall have the right to make corresponding revisions to the quality
specifications set forth in Exhibit D in amounts consistent with the receiving transporter’s changes. Any Plant Products redelivered
by Processor which do not conform with all of the aforesaid quality requirements is referred to herein as “Non-Conforming Plant
Products”. If Processor fails to redeliver Plant Products on behalf of Producer that meet all quality specifications of the receiving
transporter, in addition to any other remedy available to Producer at law or in equity, Processor shall be responsible for, and shall
indemnify, defend, and hold harmless Producer Indemnified Parties and its and their officers, agents, employees, and contractors,
and all third parties located downstream of Processor’s facilities, from and against any and all damages, losses, fines, fees, charges,
penalties, claims, demands, suits, actions, causes of action, obligations, liabilities (including, without limitation, for injury, death or
damage to property), contractual liabilities, and reasonable expenses and costs (including, without limitation, court costs, reasonable
attorney’s fees, and all other reasonable costs and expenses incurred in investigating and defending any of the above) to the extent
directly arising from Processor’s delivery of Non-Conforming Plant Products. Further, Processor shall be responsible for all
reasonable costs and expenses incurred by Producer in order to avoid any fees or fines charged by any downstream transporter for
so long as Processor delivers Non-Conforming Plant Products and so long as such fees or fines are charged.
ARTICLE X
PAYMENTS
Section 10.1 Payments and Invoices. Processor shall provide Producer with a detailed statement and supporting
documentation for the net amount of all consideration due from Producer to Processor under the terms of this Agreement (net of
any amounts due from Processor to Producer under this Agreement), not later than the last Day of the Month immediately following
the Month for which the consideration is due (such statement, the “Monthly Statement”); provided that if measurements are based
on those of Producer at the Receipt Point(s)as permitted in Section 5.12, then Processor is not required to provide the Monthly
Statement until at least ten (10) Days after Producer provides its measurements at the Receipt Point(s). Not later than thirty (30)
Days following Producer’s receipt of a Monthly Statement, Producer shall pay to Processor all net amounts due and owing from
Producer to Processor under the Monthly Statement. If a good faith dispute arises as to a Monthly Statement, Producer shall provide
Processor a written notice of dispute on or before the date payment is due for same, setting forth, in reasonable detail, the grounds
for such dispute. Notwithstanding the delivery of a dispute notice, Producer shall pay to Processor the undisputed portions of each
Monthly Statement in accordance with the terms of this Agreement. Any amounts owing by Processor to Producer shall be paid
simultaneously with delivery of the Monthly Statement. Payments to either Party shall be according to the applicable payment
instructions
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 23
set forth in Article XVI. If any payment due date falls on a non-Business Day, the payment shall be due on the first Business Day
thereafter.
CONFIDENTIAL TREATMENT REQUESTED
Section 10.2 Netting, Offset of Amounts Due. Either Party shall have the right to offset any undisputed amounts due by it
under this Agreement against any undisputed amounts due to it under this Agreement and pay the net amount due to the other Party.
Section 10.3 Interest on Late Payments. In the event either Party fails to make timely payment of any amount when due
under this Agreement (including any disputed amount which is later found to have been correct when payment was first requested),
interest shall accrue, from the date payment was due until the date payment is made, at an annual rate equal to the lower of: (a) the
prime rate as published in the “Money Rates” section of The Wall Street Journal, plus two percent (2%), or (b) the maximum rate of
interest allowed under applicable Laws.
ARTICLE XI
AUDIT RIGHTS
Section 11.1 Audit Rights.
(a)
Each Party shall have the right, at its own expense, upon thirty (30) Days’ written notice and during reasonable
working hours to perform an audit of the other Party’s books and records (“Audit”). The Audit provides the Parties the right to
obtain access to and copies of the relevant portion of the books and records which includes, but is not limited to, financial
information, reports, charts, calculations, measurement data, allocation support, third-party support, telephone recordings, and
electronic communications of the other Party to the extent reasonably necessary to verify performance under the terms and
conditions of this Agreement including the accuracy of any statement, allocation, charge, payment calculation or determination
made pursuant to the provisions contained herein for any Calendar Year within the twenty-four (24) Month period next following
the end of such Calendar Year. The Party subject to the Audit shall respond to all exceptions and claims of discrepancies within
ninety (90) Days of receipt thereof.
(b)
Either Party has the right to Audit any agents of the other Party or any third Person performing services related to
this Agreement. Either Party shall have the right to make and retain copies of the books and records to the extent necessary to
support the audit work papers and claims resulting from the Audit. Additionally, the Parties reserve the right to perform site
inspections or carry out field visits of the assets and related measurement being audited.
(c)
The accuracy of any statement, allocation, charge, payment calculation, or determination made pursuant to the
provisions of the Agreement shall be conclusively presumed to be correct after the twenty-four (24) Month period next following
the end of the Calendar Year in which the statement, allocation, charge, payment calculation, or determination was generated or
prepared, if not challenged (claimed) in writing prior thereto. For the avoidance of doubt, all claims shall be deemed waived unless
they are made in writing within the twenty-four (24) Month period next following the end of the Calendar Year in which the
statement, allocation, charge, payment calculation, or determination was generated or prepared.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 24
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE XII
FORCE MAJEURE
Section 12.1 Suspension of Obligations. In the event a Party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to indemnify and/or to make payments due hereunder, and
such Party gives notice and reasonably full particulars of such Force Majeure in writing to the other Party promptly after the
occurrence of the cause relied on, then the obligations of the Party giving such notice, so far as and to the extent 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 by the Party claiming Force Majeure. A Force Majeure event affecting
the performance of a Party shall not relieve it of liability in the event of its gross negligence, where such gross negligence was the
cause of, or a contributing factor in causing, the Force Majeure event, or in the event of its failure to use commercially reasonable
efforts to remedy the situation and remove the cause with all reasonable dispatch. Additionally, it is specifically understood that a
Force Majeure shall in no way terminate each Party’s obligation to balance those volumes of Gas received and delivered hereunder.
Section 12.2 Definition of Force Majeure. “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation, any of the following that meets the foregoing criteria: acts of God, acts and/or delays in
action of any Governmental Authority, strikes, lockouts, work stoppages or other industrial disturbances, acts of a public enemy,
sabotage, wars, blockades, insurrections, riots, acts of terror, epidemics, landslides, lightning, earthquakes, fires, storms, storm
warnings, floods, washouts, extreme cold or freezing weather, arrests and restraints of governments and people, civil or criminal
disturbances, explosions, mechanical failures, breakage or accident to equipment installations, machinery, compressors, or lines of
pipe and associated repairs, freezing of wells or lines of pipe, partial or entire failure of wells, pipes, facilities, or equipment,
electric power unavailability or shortages, failure of third party pipelines, gatherers, or processors to deliver, receive, or transport
Gas, and, in those instances where a Party is required to secure permits from any Governmental Authority to enable such Party to
fulfill its obligations under this Agreement, the inability of such Party, at reasonable costs and after the exercise of all reasonable
diligence, to acquire such permits. 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 requirement that a Force Majeure be remedied with all reasonable
dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of Persons striking when such course is
inadvisable in the sole discretion of the Party having the difficulty.
ARTICLE XIII
INDEMNIFICATION
Section 13.1 Definitions. The following terms are defined as follows.
(a)
“Processor Indemnified Parties” Processor and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors and agents.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 25
CONFIDENTIAL TREATMENT REQUESTED
(b)
“Producer Indemnified Parties” Producer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors and agents.
Section 13.2 PRODUCER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND PROCESSOR UNDER
THIS AGREEMENT, PRODUCER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
BEFORE SUCH GAS IS DELIVERED TO PROCESSOR AT THE DELIVERY POINT, (II) WHEN PRODUCER HAS
ELECTED TO TAKE ITS RESIDUE GAS IN-KIND, PRODUCER’S RESIDUE GAS AFTER SUCH RESIDUE GAS IS
REDELIVERED TO PRODUCER AT THE RESIDUE GAS REDELIVERY POINT, AND (III) WHEN PRODUCER HAS
ELECTED TO TAKE ITS PLANT PRODUCTS IN-KIND, PRODUCER’S PLANT PRODUCTS AFTER SUCH PLANT
PRODUCTS HAVE BEEN DELIVERED TO THE PLANT PRODUCTS REDELIVERY POINT. WHEN PRODUCER’S GAS,
RESIDUE GAS, OR PLANT PRODUCTS ARE IN THE CONTROL AND POSSESSION OF PRODUCER AS DESCRIBED
ABOVE, PRODUCER SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND
RELEASE PROCESSOR INDEMNIFIED PARTIES FROM ANY ACTUAL LOSS OR DAMAGE OR ACTUAL INJURY
CAUSED BY PRODUCER’S GAS, RESIDUE GAS, OR PLANT PRODUCTS WHILE IN A PRODUCER INDEMNIFIED
PARTY’S CONTROL AND POSSESSION EXCEPT TO THE EXTENT CAUSED BY THE BREACH OF THIS AGREEMENT
BY PROCESSOR OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR OTHER FAULT OF ANY
OF THE PROCESSOR INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT COVERED BY SECTION 13.4.
PRODUCER’S INDEMNIFICATION, HOLD HARMLESS, DEFENSE, AND RELEASE OBLIGATIONS UNDER THIS
SECTION 13.2 SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES AND THE WAIVER OF REMEDIES IN
ARTICLE XIX.
Section 13.3 PROCESSOR’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND PROCESSOR UNDER
THIS AGREEMENT, PROCESSOR SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
AFTER SUCH GAS IS DELIVERED TO PROCESSOR AT THE DELIVERY POINT, (II) PRODUCER’S RESIDUE GAS
UNLESS AND UNTIL SUCH RESIDUE GAS HAS BEEN REDELIVERED TO PRODUCER AT THE RESIDUE GAS
REDELIVERY POINT, AND (III) PRODUCER’S PLANT PRODUCTS UNLESS AND UNTIL SUCH PLANT PRODUCTS
HAVE BEEN REDELIVERED TO PRODUCER AT THE PLANT PRODUCTS REDELIVERY POINT. WHEN PRODUCER’S
GAS, RESIDUE GAS, OR PLANT PRODUCTS ARE IN THE CONTROL AND POSSESSION OF PROCESSOR AS
DESCRIBED HEREIN, PROCESSOR SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY, HOLD HARMLESS,
DEFEND, AND RELEASE PRODUCER INDEMNIFIED PARTIES FROM ANY ACTUAL LOSS OR DAMAGE OR ACTUAL
INJURY CAUSED BY PRODUCER’S GAS, RESIDUE GAS, OR PLANT PRODUCTS WHILE IN A PROCESSOR
INDEMNIFIED PARTY’S CONTROL AND POSSESSION, EXCEPT TO THE EXTENT CAUSED BY THE BREACH OF THIS
AGREEMENT BY PRODUCER OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR OTHER
FAULT OF ANY OF THE PRODUCER INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT COVERED BY SECTION
13.4. PROCESSOR’S INDEMNIFICATION, HOLD HARMLESS, DEFENSE, AND RELEASE OBLIGATIONS UNDER THIS
SECTION 13.3 SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES AND THE WAIVER OF REMEDIES IN
ARTICLE XIX.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 26
CONFIDENTIAL TREATMENT REQUESTED
Section 13.4 Personal Injury Claims of Producer Indemnified Parties and Processor Indemnified Parties. PRODUCER
SHALL BE RESPONSIBLE FOR, AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND RELEASE PROCESSOR
INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES FOR OR RESULTING FROM ANY BODILY
INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PRODUCER INDEMNIFIED PARTIES ARISING OUT OF OR
RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH INJURY IS
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH PROCESSOR INDEMNIFIED
PARTIES. PROCESSOR SHALL BE RESPONSIBLE FOR, AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND
RELEASE PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES FOR OR RESULTING
FROM ANY BODILY INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PROCESSOR INDEMNIFIED PARTIES
ARISING OUT OF OR RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE
EXTENT SUCH INJURY IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH
PRODUCER INDEMNIFIED PARTIES.
Section 13.5 Insurance. In support of the liability and indemnity obligations assumed by the Parties in this Agreement,
each Party agrees to obtain and maintain, at its own expense, insurance coverages in the types and amounts which are comparable
with its peers and that is generally carried by companies performing the same or similar activities as the Parties in this Agreement.
In addition, each Party shall comply with all statutory insurance requirements determined by governmental laws and regulations, as
applicable. To the extent of the Parties’ indemnity obligations or liabilities assumed under this Agreement, (i) each Party’s
insurance coverage shall be primary to and shall receive no contribution from any insurance maintained by the Indemnified Parties,
and (ii) any insurance of each Party shall waive rights of subrogation against the Indemnified Parties and include the Indemnified
Parties as additional insured under any applicable coverages. Failure to obtain adequate insurance coverage shall in no way relieve
or limit any indemnity or liability of either Party under this Agreement.
ARTICLE XIV
TITLE
Section 14.1 Producer’s Warranty. Producer warrants that it owns, or has the right to deliver, Producer’s Gas to the
Delivery Points for the purposes of this Agreement, free and clear of all liens, encumbrances, and adverse claims. If the title to
Producer’s Gas delivered hereunder is disputed or is involved in any legal action in any material respect, Processor shall have the
right to withhold payment (without interest), or cease receiving such Gas, to the extent of the interest disputed or involved in legal
action, during the pendency of the action or until title is freed from the dispute or until Producer furnishes, or causes to be
furnished, indemnification to save Processor harmless from all Claims or Losses arising out of the dispute or action, with surety
reasonably acceptable to Processor. Subject to Sections 19.9 and 19.10, Producer agrees to indemnify the Processor Indemnified
Parties from and against all Claims or Losses suffered by the Processor Indemnified Parties, to the extent such Claims or Losses
arise out of a breach of the foregoing warranty.
Section 14.2 Processor’s Warranty. Processor warrants that it has the right to accept Gas at the Delivery Points and to
deliver the Residue Gas to the Residue Gas Redelivery Points and the Plant Products to the Plant Products Redelivery Points free
and clear of all liens, encumbrances, and adverse claims. If the Processor’s Facilities are involved in any legal action in any material
respect, Producer shall have the
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 27
CONFIDENTIAL TREATMENT REQUESTED
right to withhold payment (without interest), or cease delivering Gas, to the extent of the interest disputed or involved in legal
action, during the pendency of the action or until Processor furnishes, or causes to be furnished, indemnification to save Producer
harmless from all Claims or Losses arising out of the dispute or action, with surety reasonably acceptable to Producer. Subject to
Sections 19.9 and 19.10, Processor agrees to indemnify the Producer Indemnified Parties from and against all Claims or Losses
suffered by the Producer Indemnified Parties, to the extent such Claims or Losses arise out of a breach of the foregoing warranty.
Section 14.3 Title. Except to the extent that Producer has elected to take any Residue Gas and/or Plant Products in-kind in
accordance with Section 2.5, title to Producer’s Gas (including Plant Products and Inert Constituents contained in Producer’s Gas)
delivered to Processor under this Agreement shall pass to Processor at the tailgate of the Processor’s Facilities, and Producer
conveys Producer’s Gas (and the Plant Products and Inert Constituents in the Producer’s Gas) to Processor, free and clear of any
claims, liens or encumbrances of any nature. In the event that Producer has elected to take its Residue Gas and Plant Products in-
kind in accordance with Section 2.5, title to the Inert Constituents contained in Producer’s Gas and extracted by Processor at the
Processor’s Facilities shall pass to Processor at the tailgate of the Processor’s Facilities.
ARTICLE XV
ROYALTY AND TAXES
Section 15.1 Proceeds of Production. Producer shall have the sole and exclusive obligation and liability for the payment of
all Persons due any proceeds derived by Producer from Producer’s Gas (including all constituents and products thereof) delivered
under this Agreement, including, without limitation, royalties, overriding royalties, and similar interests, in accordance with the
provisions of the leases or agreements creating those rights to such proceeds.
Section 15.2 Producer’s Taxes. Producer shall pay and be responsible for all gross production and severance Taxes levied
against or with respect to Producer’s Gas delivered under this Agreement, all ad valorem Taxes levied against the property of
Producer, all income, excess profits, and other Taxes measured by the income or capital of Producer, and all payroll Taxes related to
employees of Producer.
Section 15.3 Processor’s Taxes. Processor shall pay and be responsible for all Taxes levied with respect to the providing
of Services under this Agreement, all ad valorem Taxes levied against the property of Processor, all income, excess profits, and
other Taxes measured by the income or capital of Processor, and all payroll Taxes related to employees of Processor.
Section 15.4 Severance Tax Reimbursement. Producer and Processor agree that the price paid by Processor for Residue
Gas and associated Plant Products purchased hereunder is inclusive of all severance tax reimbursements which are levied on the
production of such Residue Gas and Plant Products and which are measured by the quantity of Residue Gas and Plant Products or
by the revenues received by Producer for the sale of such Residue Gas and Plant Products.
ARTICLE XVI
NOTICE AND PAYMENT INSTRUCTIONS
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 28
CONFIDENTIAL TREATMENT REQUESTED
Except as specifically provided elsewhere in this Agreement, any notice or other communication provided for in this
Agreement shall be in writing and shall be given (i) by depositing in the United States mail, postage paid and certified with return
receipt requested, (ii) by depositing with a reputable overnight courier, (iii) by delivering to the recipient in person by courier, or
(iv) by facsimile or email transmission, in each of the foregoing cases addressed to the applicable Party as set forth below, and
payments required under this Agreement shall be made to the applicable Party according to the payment instructions set forth
below. A Party may at any time designate a different address or payment instructions by giving written notice to the other Party.
Notices, invoices, allocation statements, claims, or other communications shall be deemed received when delivered to the addressee
in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by
the addressee after such notice has either been delivered to an overnight courier or deposited in the United States mail, as the case
may be.
NOTICES:
Producer Processor
Apache Corporation Alpine High Processing LLC
Attn: Marketing Contract Administration Attn: Commercial Operations
2000 Post Oak Blvd., Suite 100 17802 IH-10 West
Houston, Texas 77056-4400 San Antonio, Texas 78257
Telephone: (713) 296-6000 Telephone: 210-447-5629
Fax: (713) 296-6473 Email: CommercialOperations@apachecorp.com
Email: contract.administration@apachecorp.com
PAYMENT INSTRUCTIONS:
Producer Processor
Bank: [***] c/o [***]
ABA: [***] Bank: [***]
[***] ABA: [***]
Acct: [***] [***]
Acct: [***]
ARTICLE XVII
DISPUTE RESOLUTION
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 29
CONFIDENTIAL TREATMENT REQUESTED
Section 17.1 Negotiation. Prior to submitting any dispute for resolution by a court, a Party shall provide written notice of
such dispute to the other Party. If the Parties fail to resolve the dispute within fifteen (15) Business Days after such notice is given,
the Parties shall seek to resolve the dispute by negotiation between senior management personnel of each Party. Such personnel
shall endeavor to meet and attempt to amicably resolve the dispute. If the Parties are unable to resolve the dispute for any reason
within thirty (30) Business Days after the original notice of dispute was given, then either Party shall be entitled to pursue any
available remedies; provided, however, this Section 17.1 shall not limit a Party’s right to initiate litigation prior to the expiration of
the time periods set forth in this Section 17.1 if application of such limitations would prevent a Party from filing a Claim within the
applicable period for filing lawsuits (e.g. statutes of limitation, prescription, etc.) or would otherwise prejudice or harm a Party.
Section 17.2 Jurisdiction and Venue.
(a) Each Party agrees that the appropriate, exclusive and convenient forum for any disputes between the Parties arising out
of this Agreement or the transactions contemplated hereby shall be in any state or federal court in Houston, Texas, and each of the
Parties irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding arising out of or related to this
Agreement or the transactions contemplated hereby. The Parties further agree that the Parties shall not bring suit with respect to any
disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above
specified courts.
(b) Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any
objection (including, without limitation, the defense of inconvenient forum) which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any
court referred to in paragraph (a) above.
ARTICLE XVIII
TERM
Section 18.1 Primary Term; Producer’s Right to Extension. This Agreement is effective as of the Effective Date and shall
continue in full force and effect until March 31, 2032 (the “Primary Term”); provided that Producer shall have two (2) successive
options to extend the Primary Term by five (5) Years each. Each five (5)-Year Primary Term extension shall occur automatically
unless Producer gives Processor at least nine (9) Months’ prior written notice that it does not wish to extend the Primary Term.
Unless terminated at the end of the Primary Term by either Party giving at least six (6) Months’ prior written notice, this Agreement
shall continue after the Primary Term on a Year-to-Year basis unless terminated at the end of any Yearly extension period by either
Party giving at least six (6) Months’ prior written notice. For purposes of this Agreement, the period during which this Agreement
continues in full force and effect prior to any termination pursuant to this Agreement is referred to herein as the “Term”.
Section 18.2 Termination of Gathering Agreement. Notwithstanding anything to the contrary in this Article XVIII,
Producer shall have the right to terminate this Agreement upon the termination or expiration of that certain Gas Gathering
Agreement between Producer and Alpine High Gathering LP dated July 1, 2018.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 30
Section 18.3 Processor’s Facilities Expansion. In the event that Processor is required to undertake an expansion pursuant
to Section 2.4(h) and the Agreement is within the final two (2) Years of the Term or is on a Year-to-Year basis, Processor shall not
be obligated to undertake an expansion unless Producer agrees to a Term extension such that at least two (2) Years remain in the
Term.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE XIX
MISCELLANEOUS
Section 19.1 Confidentiality. Producer’s 2-Year Forecast delivered to Processor pursuant to Section 2.1(b) and all other
information received by Processor pursuant to the terms of this Agreement which involves or in any way relates to Producer’s
production estimates, development plans, and/or other similar information, and information related to Producer’s actual production
at any individual Receipt Point, including, without limitation, information relating to production rates, volumes, composition,
heating value, or other similar or dissimilar information, shall be kept strictly confidential by Processor, and Processor shall not
disclose any such information to any third Person or use any such information for any purpose other than performing under this
Agreement, provided, however, Processor may disclose such information to those of its legal counsel, accountants, and other
representatives with a specific need to know such information for purposes of Processor’s performance under this Agreement or
enforcement of this Agreement or as required by applicable Law, provided such third Persons have likewise agreed in writing to the
confidentiality and non-use restrictions set forth herein. In the event Processor is required by Law to disclose any such information,
Processor shall first notify Producer in writing as soon as practicable of any proceeding of which it is aware that may result in
disclosure and shall use all reasonable efforts to prevent or limit such disclosure. Producer’s confidential information shall not
include information that Processor can satisfactorily demonstrate was: (a) rightfully in the possession of Processor prior to
Producer’s disclosure hereunder, (b) in the public domain prior to Producer’s disclosure hereunder, (c) made public by any
Governmental Authority; (d) supplied to Processor without restriction by a third party who is under no obligation to Producer to
maintain such confidential information in confidence; or (e) independently developed by Processor. The confidentiality
requirements and non-use restrictions set forth herein shall survive termination or expiration of this Agreement for two (2) Years
after such termination or expiration. Notwithstanding anything else in this Agreement, the Parties agree that there is not an adequate
remedy at law for any breach of these confidentiality and non-use restrictions and, therefore, Producer shall be entitled (without the
posting of any bond) to specific performance and injunctive relief restraining any breach hereof, in addition to any other rights and
remedies which it may have or be entitled.
Section 19.2 Independent Contractor. Notwithstanding anything else in this Agreement, Processor undertakes its
obligations under this Agreement as an independent contractor, at its sole risk, and all Persons carrying out any of Processor’s
obligations set forth herein for or on behalf of Processor are or shall be deemed employees, contractors, subcontractors, agents,
and/or representatives of Processor, subject to the direction and control of Processor. Processor is to determine the manner, means,
and methods in which such Persons shall carry out their work to attain the results contemplated by this Agreement, consistent with
the general coordinative efforts and suggestions of Producer with respect to the work. Nothing in this Agreement or inferred from
any action of either Party shall be taken to establish the relationship of master and servant or principal and agent between Producer
and Processor.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
Section 19.3 Rights; Waivers. The failure of either Party to exercise any right granted hereunder shall not impair nor be
deemed a waiver of that Party’s privilege of exercising that right at any subsequent time or times. No waiver by either Party of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless expressly provided.
Section 19.4 Applicable Laws. This Agreement is subject to all valid present and future Laws of any Governmental
Authority(ies) now or hereafter having jurisdiction over the Parties, this Agreement, or the Services performed or the facilities
utilized under this Agreement.
Section 19.5 Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the Laws
of the State of Texas, without regard to any choice of law principles that would require the application of the Laws of any other
jurisdiction, PROVIDED, HOWEVER, THAT NO LAW, THEORY, OR PUBLIC POLICY SHALL BE GIVEN EFFECT
WHICH WOULD UNDERMINE, DIMINISH, OR REDUCE THE EFFECTIVENESS OF EACH PARTY’S WAIVER OF
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, AND EXEMPLARY DAMAGES SET FORTH IN SECTION
19.9 OR WAIVER OF THE RIGHT TO CERTAIN REMEDIES SET FORTH IN SECTION 19.10, IT BEING THE
EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE
GIVEN THE FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING CONDITION OR THE NEGLIGENCE
(WHETHER SOLE, JOINT, OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT
LIABILITY, OR OTHER LEGAL FAULT OF ANY PARTY HERETO, OR OTHERWISE.
Section 19.6 Assignments. This Agreement, including any and all renewals, extensions, and amendments hereto, and all
rights, title, and interests contained herein, shall be binding upon and inure to the benefit of the Parties hereto and their respective
heirs, successors, and assigns, the assigns of all or any part of Processor’s right, title, or interest in the Processor’s Facilities, and the
assigns of all or any part of Producer’s Interests in the Dedicated Area, and each Party’s respective obligations hereunder shall be
covenants running with the lands underlying or included in any such assets. Neither Party shall Transfer any of its rights or
obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably
withheld, delayed, or conditioned; provided, however, that either Party may Transfer any of its rights or obligations under this
Agreement to any Affiliate of such Party without the prior written consent of the other Party and that, in connection with a Transfer
of all or any portion of the Dedicated Area, Producer shall Transfer its corresponding rights and obligations under this Agreement
without the need for the prior written consent of Processor; provided, further, that if Producer Transfers a portion but not all of the
Dedicated Area, instead of acquiring this Agreement, the transferee of such Interests shall execute an agreement in the form
attached hereto as Exhibit I (the “Transferee Agreement”), Processor shall likewise execute such Transferee Agreement, and such
Transferred portion of the Dedicated Area shall be removed from dedication under this Agreement. Any Transfer of this Agreement
shall expressly require that the assignee assume and agree to discharge the duties and obligations of its assignor under this
Agreement, and the assignor shall be released from the duties and obligations arising under this Agreement which accrue after the
effective date of such Transfer. Processor shall not Transfer its rights and interests in the Processor’s Facilities, in whole or in part,
unless the transferee of such interests agrees in writing to be bound by the terms and conditions of this Agreement. No Transfer of
this Agreement or of any interest of either Party shall be binding on the other Party until such other Party
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 32
CONFIDENTIAL TREATMENT REQUESTED
has been notified in writing of such Transfer and furnished with reasonable evidence of same. No such Transfer of this Agreement
or of any interests of either Party shall operate in any way to enlarge, alter, or modify any obligation of the other Party hereto. Any
Person that succeeds by purchase, merger, or consolidation with a Party hereto shall be subject to the duties and obligations of its
predecessor in interests under this Agreement or a Transferee Agreement, as applicable.
Section 19.7 Entire Agreement. This Agreement constitutes the entire agreement of the Parties and supersedes all prior
understandings, agreements, representations, and/or warranties by or among the Parties, written or oral, with respect to the subject
matter hereof. No other representations, warranties, understandings, or agreements shall have any effect on this Agreement.
Section 19.8 Amendments. This Agreement may not be amended or modified in any manner except by a written
document signed by both Parties that expressly amends this Agreement.
Section 19.9 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES (COLLECTIVELY, “CONSEQUENTIAL DAMAGES”)
RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF OR UNDER ANY
OTHER THEORY OF LIABILITY, WHETHER NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT OR
WARRANTY, OR OTHERWISE. IN FURTHERANCE OF THE FOREGOING, EACH PARTY RELEASES THE OTHER
PARTY AND WAIVES ANY RIGHT OF RECOVERY FOR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH
PARTY, REGARDLESS OF WHETHER ANY SUCH DAMAGES ARE CAUSED BY THE OTHER PARTY’S
NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE, JOINT, CONCURRENT,
ACTIVE, PASSIVE, OR GROSS), FAULT, OR LIABILITY WITHOUT FAULT. PROCESSOR UNDERSTANDS THAT
PRODUCER IS RELYING ON PROCESSOR’S PERFORMANCE UNDER THIS AGREEMENT TO ENABLE
PRODUCER TO MEET ITS OBLIGATIONS UNDER DOWNSTREAM CONTRACTS, AND PROCESSOR EXPRESSLY
AGREES THAT ANY DAMAGES SUFFERED BY PRODUCER UNDER ANY SUCH DOWNSTREAM CONTRACT AS
A RESULT OF PROCESSOR’S UNEXCUSED FAILURE TO PERFORM UNDER THIS AGREEMENT SHALL BE
CONSIDERED DIRECT DAMAGES.
Section 19.10 RIGHTS AND REMEDIES. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
THAT MAY BE CONSTRUED TO THE CONTRARY, A PARTY’S SOLE REMEDY AGAINST THE OTHER PARTY
FOR NON-PERFORMANCE OR BREACH OF THIS AGREEMENT OR ANY OTHER CLAIM OF WHATSOEVER
NATURE ARISING OUT OF THIS AGREEMENT OR OUT OF ANY ACTION OR INACTION BY A PARTY IN
RELATION HERETO SHALL BE IN CONTRACT AND EACH PARTY EXPRESSLY WAIVES ANY OTHER REMEDY
IT MAY HAVE IN LAW OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY REMEDY IN TORT.
Section 19.11 Replacement Indices. In the event a published index or rate required hereunder is not available, the Parties
shall promptly agree upon an alternative index or rate to be utilized, upon either Party giving written notice to the other that an
alternative index or rate is needed. Such alternative index or rate shall be effective retroactively to the date on which the original
index or rate ceased to be available. If the Parties have not agreed on an alternative index or rate by the end of the fifth (5th)
Business Day after
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 33
CONFIDENTIAL TREATMENT REQUESTED
notice was given, then each Party shall, by the end of the fifteenth (15th) Business Day after the notice was given, prepare a list of
three alternative published and industry recognized indices or rates to replace the index or rate that has become unavailable. The
first common item that appears on each of the lists shall be the alternative index or rate. If there is more than one common item on
both lists, the one appearing first on both lists, giving priority to the list first submitted by one Party to the other, shall be the
alternative index or rate. If no common item appears on the lists, each Party may strike in turn, one item from the other Party’s list
until only one item remains on each list. The alternative index or rate will then be determined from the two remaining items by coin
flip. If either Party fails to deliver a list, the first item appearing on the submitting Party’s list will govern and prevail to determine
the alternative index or rate.
Section 19.12 No Partnership. Nothing contained in this Agreement shall be construed to create an association, trust,
partnership, or joint venture or impose a trust, fiduciary, or partnership duty, obligation, or liability on or with regard to either Party.
Section 19.13 Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this
Agreement;
(b) the headings and captions in this Agreement have been inserted for convenience of reference only and shall not define
or limit any of the terms and/or conditions hereof;
(c) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(d) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding syntactical
variant expressions; and
(e) the plural shall be deemed to include the singular and vice versa, as applicable.
Section 19.14 No Third Party Beneficiaries. Except for Persons expressly indemnified hereunder, this Agreement is for
the sole benefit of the Parties and their respective successors and permitted assigns, and shall not inure to the benefit of any other
Person, it being the intention of the Parties that no third Person shall be deemed a third-party beneficiary of this Agreement.
Section 19.15 Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be
reasonably required to effectuate the purposes of this Agreement.
Section 19.16 No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee,
rebate, gift, or entertainment of significant cost or value in connection with this Agreement.
Section 19.17 Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which
shall be considered an original, and all of which shall be considered one and the same instrument.
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 34
CONFIDENTIAL TREATMENT REQUESTED
Section 19.18 Survival. The terms of this Agreement which by their nature should reasonably be expected to survive
termination or expiration of this Agreement shall survive, including, without limitation, Article XI (Audit Rights), Article XIII
(Indemnification), Article XVII (Dispute Resolution), Section 19.1 (Confidentiality), Section 19.5 (Governing Law), Section 19.9
(Limitation of Liability), Section 19.10 (Rights and Remedies), this Section 19.18 (Survival), and the obligations of either Party
under any provision of this Agreement to make payment hereunder.
Section 19.19 Financial Assurance. If either Party has reasonable grounds for insecurity regarding the performance of any
payment obligation under this Agreement (whether or not then due) by the other Party or that other Party’s guarantor, if any,
including, without limitation, the occurrence of a material adverse change in the creditworthiness of the other Party, a Party may
demand Adequate Assurance of Performance. A demand by a Party seeking Adequate Assurance of Performance shall be in
writing and shall include an explanation in reasonable detail of the calculation of the Adequate Assurance of Performance demand.
“Adequate Assurance of Performance” shall mean sufficient security in the form, amount, and for a term, and from an issuer, all
reasonably acceptable to the Party seeking assurance, including, but not limited to, a standby irrevocable letter of credit, a
prepayment, a security interest in an asset, or a guaranty. If either Party does not give Adequate Assurance of Performance in
accordance with the terms of this Agreement within - ten (10) Business Days of a written request by the other Party, the Party
making a reasonable request for Adequate Assurance of Performance has the right to immediately suspend deliveries or receipts, as
applicable, under this Agreement with immediate effect until such time sufficient security is provided.
Section 19.20 Exhibits. The following exhibits are attached to this Agreement and are incorporated herein by this
reference:
Exhibit A - Dedicated Area
Exhibit B - Delivery Points and Redelivery Points
Exhibit C - Fees and FL&U
Exhibit D - Gas Quality Specifications
Exhibit E - Take In-Kind Terms
Exhibit F - Allocation Methodologies
Exhibit G - Form of Memorandum of Agreement
Exhibit H - Form of Memorandum of Release
Exhibit I - Form of Transferee Agreement
Exhibit J - Form of Joinder Agreement
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 35
IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
CONFIDENTIAL TREATMENT REQUESTED
PROCESSOR:
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC,
its general partner
By: /s/ Brian W. Freed
Name: Brian W. Freed
Title: Senior Vice President
PRODUCER:
APACHE CORPORATION
By: /s/ Stephen J. Riney
Name: Stephen J. Riney
Title: Chief Financial Officer and
Executive Vice President
Gas Processing Agreement dated July 1, 2018
Between Alpine High Processing LP (Processor) and Apache Corporation (Producer)
Page 36
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
DEDICATED AREA
“Dedicated Area” shall mean the following lands as further described in the map (the area within the red border) and table below,
as the same may be updated annually pursuant to Section 2.1(b). In the event of a conflict between the map and the table, the map
shall control.
[***]
Exhibit A – Page 1
Section
Block
Survey
County
State
Dedicated Interest as of the
Effective Date
CONFIDENTIAL TREATMENT REQUESTED
[***] [22 PAGES OF TABLE OMITTED] [***]
Exhibit A – Page 2
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
to
Gas Processing Agreement dated July 1, 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
Processor shall update Exhibit B on January 1, April 1, July 1, and October 1 of each Year to include any additional points that have
been placed into service
DELIVERY POINTS AND REDELIVERY POINTS
LOW PRESSURE DELIVERY POINTS
Delivery Point Name
Location
[***]
MAOP
Required Pressure
HIGH PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
MAOP
[***]
HIGH PRESSURE DELIVERY POINTS
Delivery Point Name
Meter Number
MAOP
[***]
RESIDUE GAS REDELIVERY POINTS
Redelivery Point Name
Meter Number
[***]
PLANT PRODUCTS REDELIVERY POINTS
Redelivery Point Name
Meter Number
[***]
Exhibit B – Page 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
FEES AND FL&U
Fees:
1. Central Conditioning Fee: $[***] per Mcf of Producer’s Non-Processable Gas delivered to a Central Conditioning
Facility.
2. Central Processing Fee: (a) From the Effective Date through December 31, 2020, $[***] per Mcf of Producer’s
Processable Gas delivered only to a Central Processing Facility, and (b) from January 1, 2021, through the remainder of the Term,
$[***] per Mcf of Producer’s Processable Gas delivered only to a Central Processing Facility. [***]
3. Cryogenic Processing Fee: $[***] per Mcf of Producer’s Processable Gas delivered to a Cryogenic Processing Facility.
[***]
FL&U:
[***]
1. FL&U at Central Conditioning Facilities: Producer will be allocated its proportionate share of actual FL&U but not to
exceed [***]% of Producer’s Non-Processable Gas in MMBtu (the “Non-Processable Gas FL&U Cap”).
a)
Fuel for electric power that Processor purchases shall be determined each Month by the following equation:
GEE (CCF) = (MEUCC x EPRCC)/GPCC
Where:
GEE (CCF) = Gas Electric Equivalent at the Central Conditioning Facilities, which means an amount of
MMBtus that may be included as the electric power component of FL&U.
MEUCC = Measured Electrical Use, means Producer’s pro rata share of electricity usage expressed in kilowatt-
hours, used in lieu of gas-driven equipment, limited only to motors used for compression.
EPRCC = The electric power rate actually paid by Processor for electricity at Central Conditioning Facilities, in
$/kWh.
Exhibit C – Page 1
CONFIDENTIAL TREATMENT REQUESTED
GPCC = Gas Price, means the greatest of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”, (ii) 98.7% of Inside
F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices of Spot Gas Delivered to
Pipeline” for HSC less $0.46 per MMBtu, or (iii) Inside F.E.R.C’s Gas Market Report in its first publication of
the delivery month for “Prices of Spot Gas Delivered to Pipeline” for El Paso Permian.
Electric power that Processor generates shall not be considered in the calculation of FL&U.
b) FL&U for Gas shall be determined each Month by the following equation:
GF (CCF) = X-Y
Where:
GF (CCF) = Gas FL&U at the Central Conditioning Facilities, which means an amount of MMBtus retained as
fuel and/or system loss by Processor
X = Producer’s Non-Processable Gas in MMBtu delivered to applicable Receipt Points less buyback gas
redelivered to Producer upstream of the Delivery Points
Y = Producer’s Non-Processable Gas in MMBtu redelivered to the discharge of the Central Conditioning
Facilities
In the event that the sum of (i) GEE (CCF) and (ii) GF (CCF) exceeds the Non-Processable Gas FL&U Cap, then the FL&U
at Central Conditioning Facilities will be reduced to the Non-Processable Gas FL&U Cap.
2. FL&U at Central Processing Facilities and Cryogenic Processing Facilities: Producer will be allocated its proportionate
share of actual FL&U but not to exceed [***]% of Producer’s Processable Gas in MMBtu (the “Processable Gas FL&U Cap”);
provided that during periods when a Cryogenic Processing Facility is Operational, the Processable Gas FL&U Cap shall be [***]%
of Producer’s Processable Gas in MMBtu.
a) Fuel for electric power that Processor purchases shall be determined each Month by the following equation:
GEE (PF) = (MEUPF x EPRPF) /GPPF
Where:
GEE (PF) = Gas Electric Equivalent at the Central Processing Facilities and Cryos, which means an amount of
MMBtus that is included as the electric power component of FL&U
MEUPF = Measured Electrical Use, means Producer’s pro rata share of electricity usage expressed in kilowatt-
hours, used in lieu of gas-driven equipment, limited
Exhibit C – Page 2
CONFIDENTIAL TREATMENT REQUESTED
only to motors used for field compression, Cryo and Central Processing Facilities recompression, and Cryo
refrigeration recompression.
EPRPF = The electric power rate actually paid by Processor for electricity at Cryos and Central Processing
Facilities, in $/kWh.
GPPF = Gas Price, means the greatest of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”, (ii) 98.7% of Inside
F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices of Spot Gas Delivered to
Pipeline” for HSC less $0.46 per MMBtu, or (iii) Inside F.E.R.C’s Gas Market Report in its first publication of
the delivery month for “Prices of Spot Gas Delivered to Pipeline” for El Paso Permian. (iii).
Electric power that Processor generates shall not be considered in the calculation of FL&U.
b) FL&U for Gas shall be determined each Month by the following equation:
GF (PF) = CI - RG - S
Where:
GF (PF) = Gas FL&U means an amount of MMBtus retained as fuel and/or system loss by Processor
CI = All Producer’s Processable Gas in MMBtu delivered to applicable Receipt Points less buyback gas
redelivered to Producer upstream of the Delivery Points
RG = Producer’s Residue Gas at the Cryos and Central Processing Facilities, in MMBtu
S = Producer’s Cryo and Central Processing Facilities Shrinkage as defined in Exhibit F, Paragraph 5
In the event that the sum of (i) GEE (PF) and (ii) GF (PF) exceeds the Processable Gas FL&U Cap, then the FL&U at the Central
Processing Facilities and Cryos will be reduced to the Processable Gas FL&U Cap.
Exhibit C – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D-1
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
GAS QUALITY SPECIFICATIONS
(Central Processing Facility and Cryogenic Processing Facility)
1. The Gas shall be free of objectionable liquids and solids and other impurities, including, but not limited to, methanol, and
shall be commercially free from dust, gum, gum-forming constituents, free water, and other liquids and solids.
2. The Gas shall have zero (0) parts per million of oxygen.
3. The Gas shall not contain more than four (4) parts per million by volume of hydrogen sulfide. [***]
4. The Gas shall not have a carbon dioxide content in excess of two (2) percent by volume. [***]
5. The Gas shall not have nitrogen content in excess of two (2) percent by volume.
6. The Gas shall be received at a temperature not in excess of one hundred twenty (120) degrees Fahrenheit and not less than
thirty-five (35) degrees Fahrenheit.
[***]
Exhibit D – Page 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D-2
to
Gas Processing Agreement dated July 1, 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
GAS QUALITY SPECIFICATIONS
(Central Conditioning Facility)
1. The Gas shall be free of objectionable liquids and solids and other impurities, including, but not limited to, methanol, and
shall be commercially free from dust, gum, gum-forming constituents, free water, and other liquids and solids.
2. The Gas shall have zero (0) parts per million of oxygen.
3. The Gas shall not contain more than fifty (50) parts per million by volume of hydrogen sulfide.
4. The Gas shall not have a carbon dioxide content in excess of four (4) percent by volume.
5. The Gas shall not have nitrogen content in excess of two (2) percent by volume.
6. The Gas shall be received at a temperature not in excess of one hundred twenty (120) degrees Fahrenheit and not less than
thirty-five (35) degrees Fahrenheit.
Exhibit D – Page 2
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
TAKE IN-KIND TERMS
For any Calendar Year during which Producer elects under Section 2.5 of the Agreement to take its Residue Gas and/or Plant
Products in-kind, the following terms shall apply:
I. Nominations. Processor and Producer agree that scheduling and commencement of service shall be consistent with the
downstream receiving pipeline or transporter nomination requirements. Whenever Producer’s Residue Gas is to be scheduled or
nominated hereunder, each Party shall provide to the other Party all information required for such nominations and confirmations
with upstream and downstream pipelines or transporters. Producer may but shall not be required to provide Processor with Plant
Product nominations.
(a)
Delivery Point Nominations. Producer shall not be required to provide Processor with nominations of the
Producer’s Gas at the Delivery Point(s), however, Producer shall provide volume forecast information pursuant to Section 2.1(b) of
the Agreement, for Processor’s general capacity planning purposes by Delivery Point.
(b)
Operational Information. Processor shall use reasonable efforts to provide daily information related to Delivery
Point volume, Plant Product composition, and historical volume information in order to assist with Producer’s nominations below.
Processor shall use reasonable efforts to make nomination changes as necessary, based on the information provided by Producer, at
the Redelivery Points to minimize imbalances.
(c)
Redelivery Point Nominations.
i.
Producer shall make all necessary arrangements with pipelines or other third parties downstream of the
Residue Gas Redelivery Points in order to help manage Processor’s delivery of Producer’s Residue Gas. Those arrangements must
be coordinated with Processor, and Processor shall coordinate such arrangements with Producer and such downstream pipelines or
other third parties.
ii.
Residue Gas. No later than 12:00 PM on the fifth (5th) Business Day prior to the beginning of each Month, but
no later than one (1) Business Day prior to the nomination deadline each Month for the applicable downstream pipeline(s) receiving
Residue Gas at the Residue Gas Redelivery Points, Processor shall notify Producer of the estimated quantity of Producer’s Residue
Gas per Day for each Residue Gas Redelivery Point, provided that nominations at the Residue Gas
Exhibit E – Page 1
CONFIDENTIAL TREATMENT REQUESTED
Redelivery Points are subject to confirmation by the downstream pipeline. By 7:00 AM on the day prior to gas flow, Processor shall
notify Producer of the estimated quantity of Producer’s Residue Gas available for next day’s flow for each Residue Gas Redelivery
Point. By 10:30 AM on the day prior to gas flow, Producer shall provide a nomination form to Processor, indicating downstream
pipeline contract number, downstream delivery point and counterparty. If Producer does not provide a nomination form to
Processor, the prior nomination shall remain in effect until such time as when Producer provides notice to Processor to revise the
prior nomination. Processor will use reasonable efforts to confirm any nomination change requested by Producer after the
nomination deadline. Processor reserves the right, from time to time, to revise its nomination procedures, subject to Producer’s
consent which shall not be unreasonably withheld.
iii.
Producer will make all necessary arrangements with pipelines or other third parties downstream of the Plant
Products Redelivery Points in order to facilitate Processor’s delivery of Plant Products. No later than one (1) Business Day prior to
the nomination deadline each Month for the applicable downstream pipeline(s) receiving Plant Products, Producer will notify
Processor of the estimated quantity of Plant Products per Day, provided that nominations at each Redelivery Point are subject to
confirmation by the downstream pipeline. At any time, Producer may adjust its nomination prospectively for the remainder of such
Month by providing Processor notice prior to the nomination deadline of the applicable downstream pipeline.
(d)
Processor and Producer shall immediately inform each other of any discovered unanticipated changes in
deliveries at either the Delivery Point(s) or Redelivery Point(s). Nominations may be made by telephone, but shall be confirmed in
writing by e-mail, facsimile, or other electronic means to Processor’s Gas Control Department.
II.Balancing. Subject to the provisions of the Agreement, Processor shall accept at the Delivery Point a Daily quantity of Producer’s
Gas at the Delivery Points and redeliver Producer’s Residue Gas and Producer’s Plant Products allocated to such Producer’s Gas at
the Residue Gas Redelivery Points and Plant Products Redelivery Point, respectively. All quantities received in accordance with the
Agreement at the Delivery Points and all deliveries of Producer’s Residue Gas in accordance with this Agreement at the Residue
Gas Redelivery Point shall be balanced on a Btu basis, and all such quantities referred to in the Agreement shall be adjusted for the
Gross Heating Value thereof. Processor shall provide Producer reasonable flexibility in adjusting nominations provided however,
that providing Producer such flexibility in adjusting nominations shall be subject to Processor not incurring financial harm or loss
as a result of Producer’s actions. Processor shall use its best efforts to enter into, and maintain in good standing, operational
balancing agreements with the downstream receiving pipelines at each of the Residue Gas Redelivery Points and Plant Products
Redelivery Points. Processor shall not impose balancing guidelines on Producer that are more stringent than those imposed on
Processor under the operational balancing agreements with the applicable downstream receiving pipeline. When operational
balancing agreements are effective between Processor and an applicable downstream pipeline (and the applicable downstream
pipeline keeps
Exhibit E – Page 2
CONFIDENTIAL TREATMENT REQUESTED
Producer whole on its nominations each Month) and an imbalance is caused solely by Producer and Processor incurs a cash out,
penalty, or settlement due to said imbalance, then Producer shall reimburse Processor for such cash out, penalty or settlement
incurred by Processor pursuant to the terms of the applicable operational balancing agreement, to the extent such cash out, penalty,
or settlement is caused by Producer. Processor shall provide an invoice to Producer for same, along with reasonable documentation
evidencing same, and Producer shall reimburse Processor for same in accordance with the payment terms set forth in Article X of
the Agreement.
III.Imbalances. Because of dispatching and other causes outside of Processor’s reasonable control, imbalances may occur between
the total heating value of the Residue Gas delivered to downstream pipelines at the Residue Gas Redelivery Points for Producer’s
account and the allocated quantity of Residue Gas attributable to Producer’s Gas. Similarly, imbalances may occur between the
allocated volumes of Producer’s Plant Products that are delivered to downstream pipelines at the Plant Products Redelivery Points
for Producer’s account and the allocated Plant Products attributable to Producer’s Gas.
(a) Residue Gas Redelivery Point. For imbalance events at Residue Gas Redelivery Points where Processor does not have an
operational balancing agreement in place, the Parties agree to settle imbalances through a monthly cash out. The monthly cash out
price shall be the simple average of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices
of Spot Gas Delivered to Pipeline” for El Paso Permian and (ii) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”.
(b) Plant Products Redelivery Points. For imbalance events at Plant Products Redelivery Points where Processor does not have an
operational balancing agreement in place, the Parties agree to settle imbalances through a monthly cash out. The monthly cash out
price shall be based on Producer’s weighted average sales price for that month.
IV.Curtailment. Processor shall use reasonable efforts to provide timely notification to Producer by telephone, with subsequent e-
mail notification, of the potential size and duration of any unscheduled capacity disruption. If Producer does not adjust its
nomination within two hours after receiving notification from Processor, then Processor may adjust Producer’s nomination and/or
not confirm the nominations requested by Producer in the next nomination cycle. If Producer does not adjust its nomination as
reasonably requested by Processor, and such failure to adjust nominations could materially impact operations at the Processor’s
Facilities, Processor may curtail or shut in Gas for a reasonable period of time.
Exhibit E – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
ALLOCATION METHODOLGIES
(Central Processing Facility and Cryogenic Processing Facility)
1.
Plant Products Allocable to Producer. The quantity of each Plant Product component allocable to Producer’s
Processable Gas that was delivered to the Central Processing Facilities and the Cryogenic Processing Facilities shall be determined
by multiplying the total quantity of each Plant Product component recovered at all Central Processing Facilities and Cryogenic
Processing Facilities (including any condensate recovered from Producer’s Gas) by a fraction. The numerator shall be the
theoretical gallons of that Plant Product component contained in Producer’s Gas at the low pressure Receipt Point less any buyback
volumes redelivered to Producer upstream of the Delivery Point, measured pursuant to Section 5.10, and the denominator shall be
the total theoretical gallons of that component contained in all Gas at all receipt points where Gas was first gathered and delivered
to Processor and processed at the Central Processing Facilities and Cryogenic Processing Facilities.
2.
Residue Gas Allocable to Producer. The MMBtus of Residue Gas allocable to Producer’s Processable Gas that was
delivered to the Central Processing Facilities and the Cryogenic Processing Facilities shall be determined by multiplying the total
MMBtus of Residue Gas measured at all Central Processing Facilities and Cryogenic Processing Facilities by a fraction; provided
that in the event that Producer’s proportionate share of actual FL&U at the Central Processing Facilities and Cryos, as calculated
pursuant to Exhibit C, FL&U Paragraph 2, exceeds the Processable Gas FL&U Cap, the total MMBtus of Residue Gas measured at
all Central Processing Facilities and Cryogenic Processing Facilities shall be increased by an amount sufficient to acknowledge the
Processable Gas FL&U Cap. The numerator of such fraction shall be Producer’s Theoretical Residue Gas, as defined below, and the
denominator shall be the total theoretical MMBtus of Residue Gas contained in all Gas at all receipt points where Gas was first
gathered and delivered to Processor and processed at all Central Processing Facilities and Cryogenic Processing Facilities.
Producer’s Theoretical Residue Gas shall be determined by the following equation:
PTRG = A - S
where:
PTRG = Producer’s Theoretical Residue Gas in MMBtus
Exhibit F – Page 1
CONFIDENTIAL TREATMENT REQUESTED
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less
buyback gas redelivered to Producer upstream of the Delivery Point in MMBtu
S = Producer’s allocated share of Shrinkage as defined in Exhibit F, Paragraph 5
3.
Central Processing Facilities Inlet Volume (“Producer’s CPF Volumes”). The aggregate volume of Producer’s
Processable Gas delivered to all Central Processing Facility inlets shall be determined by the following equation:
CPFV = A – CI
where:
CPFV = Producer’s CPF Volumes
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less buyback
gas redelivered to Producer upstream of the Delivery Point in Mcf
CI = Producer’s Cryo Volumes, as defined in Exhibit F, Paragraph 4
4.
Cryogenic Processing Facilities Inlet Volume (“Producer’s Cryo Volumes”). The aggregate volume in Mcf of
Producer’s Gas delivered to all Cryo inlets shall be determined by the following equation:
CI = ((CD+CC) /CE) x A
where:
CI = Producer’s Cryo Volumes
CD = The aggregate volume of Processable Gas in Mcf metered at all high pressure Receipt Points entering the
high pressure gathering pipeline
Exhibit F – Page 2
CONFIDENTIAL TREATMENT REQUESTED
CC = The total compressor condensate volumes (converted to Mcf) metered at the discharge of the compressor
prior to entering the high pressure gathering pipeline
CE = The aggregate volume of Processable Gas in Mcf metered at all low pressure Receipt Points entering the
low pressure gathering pipeline
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less
buyback gas redelivered to Producer upstream of the Delivery Point in Mcf
5.
Central Processing Facilities and Cryogenic Processing Facilities Shrinkage (“Shrinkage”). Producer’s share of
shrinkage at the Central Processing Facilities and the Cryos will be determined by converting each individual component of
Producer’s Plant Products, extracted and allocated to Producer at the aggregate of all the Central Processing Facilities and all the
Cryos, to its respective heating value (as measured in MMBtu) by using the conversion factors published in the Gas Processor’s
Association GPA Publication 2145-16, or any subsequent revision thereof in effect at the time such calculation is performed, and
adjusted to a pressure base of 14.65 psia and a temperature of 60° Fahrenheit.
6.
Allocations of Plant Products and Residue Gas hereunder shall be based on the aggregate recoveries within all
Central Processing Facilities and Cryogenic Processing Facilities and not based on each individual Central Processing Facility or
Cryogenic Processing Facility.
Exhibit F – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
FORM OF MEMORANDUM OF AGREEMENT
State of Texas §
§
County of [____] §
This Memorandum of Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between
Alpine High Processing LP, a Delaware limited partnership (“Processor”) and Apache Corporation, a Delaware corporation
(“Producer”).
MEMORANDUM OF AGREEMENT
WHEREAS, Processor and Producer have entered into a certain Gas Processing Agreement dated July 1, 2018 (the
“Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for processing by Processor; and
WHEREAS, the Parties wish to file this Memorandum of Agreement to put third parties on notice as to the existence of the
RECITALS
Agreement.
1. Dedication.
Producer’s interests in the acreage and/or well(s) set forth on Exhibit A hereto (“Dedicated Area”) are dedicated to
Processor for processing. The Agreement is for an initial term ending on March 31, 2032, but subject to extension, renewal, and/or
termination as more particularly provided therein.
2. Incorporation of Agreement and Effect of Memorandum.
The sole purpose of this Memorandum of Agreement is to give notice to third parties of the existence of the Agreement and
the rights of Processor in and to Producer’s Gas from the Dedicated Area. This Memorandum shall not modify in any manner any
of the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall not be used to interpret the
Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Agreement as if set out fully
herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms
of the Agreement shall govern and control for all purposes.
3. Defined Terms.
Exhibit G – Page 1
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Agreement is executed by Processor and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
CONFIDENTIAL TREATMENT REQUESTED
PROCESSOR
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Name:
Title:
PRODUCER
APACHE CORPORATION
By: ________________________________
Name: ______________________________
Title: _______________________________
Exhibit G – Page 2
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Processing LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Apache
Corporation on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Exhibit G – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF AGREEMENT
DEPICTION OF DEDICATED AREA
Exhibit G – Page 4
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT H
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
FORM OF MEMORANDUM OF RELEASE
State of Texas §
§
County of [____] §
This Memorandum of Release is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine
High Processing LP, a Delaware limited partnership (“Processor”) and Apache Corporation, a Delaware corporation
(“Producer”).
MEMORANDUM OF RELEASE
RECITALS
WHEREAS, Processor and Producer have previously entered into a certain Gas Processing Agreement dated July 1, 2018
(the “Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for processing by Processor; and
WHEREAS, a Memorandum of Agreement dated [___], 2018 was executed by Processor and Producer to give notice to
third parties of the existence of the Agreement and the respective rights and obligations of Processor and Producer with respect
thereto and with respect to the dedication as set forth therein; and
WHEREAS, such Memorandum of Agreement was filed of record in Book ____, Page_____ of the real property records of
[___] County, Texas; and
WHEREAS, the Parties wish to file this Memorandum of Release to put third parties on notice as to the release of certain
Interests from the dedication.
1. Release from Dedication.
The following Interests in the following acreage and/or well(s) (“Released Interests”) are hereby released from the
dedication, as further set forth on Exhibit A hereto:
2. Incorporation of Agreement and Effect of Memorandum.
[Description of Released Interests]
The sole purpose of this Memorandum of Release is to give notice to third parties of the existence of the Agreement, the
rights of Processor in and to Producer’s Gas from the Dedicated Area, and the release of the Released Interests from the dedication.
This Memorandum shall not
Exhibit H – Page 1
CONFIDENTIAL TREATMENT REQUESTED
modify in any manner any of the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall
not be used to interpret the Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Release
as if set out fully herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the
Agreement, the terms of the Agreement shall govern and control for all purposes.
3. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Release is executed by Processor and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
PROCESSOR
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
APACHE CORPORATION
By: ________________________________
Name: ______________________________
Title: _______________________________
Exhibit H – Page 2
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Processing LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Apache
Corporation on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Exhibit H – Page 3
CONFIDENTIAL TREATMENT REQUESTED
Exhibit H – Page 4
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF RELEASE
DEPICTION OF RELEASED INTERESTS
Exhibit H – Page 5
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT I
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
FORM OF TRANSFEREE AGREEMENT
[attached]
Exhibit I – Page 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT J
to
Gas Processing Agreement dated July, 1 2018 between
Alpine High Processing LP (“Processor”) and
Apache Corporation (“Producer”)
FORM OF JOINDER AGREEMENT
JOINDER AGREEMENT
This Joinder Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine High
Processing LP, a Delaware limited partnership (“Processor”) and ____________________, a _____________ ______
(“Producer”).
WHEREAS, Processor and Apache Corporation have entered into a certain Gas Processing Agreement dated July 1, 2018,
as such agreement may be amended, modified or supplemented from time to time (the “Agreement”), pursuant to which Producer
dedicated gas produced from a certain geographic area as defined in the Agreement (the “Dedicated Area”) for processing by
Processor;
WHEREAS, Processor and Producer agree that all capitalized terms used in this Joinder Agreement and not defined herein
shall have the meanings set forth in the Agreement;
WHEREAS, Producer, an affiliate of Apache Corporation, has acquired certain oil and gas interests, which are described in
greater detail on Exhibit A hereto, within the Dedicated Area (the “Affiliate Interests”); and
WHEREAS, in accordance with Section 2.11 of the Agreement, Producer is entering into this Joinder Agreement in order
that the Affiliate Interests will become subject to the terms of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Processor and Producer hereby agree as follows:
Producer hereby absolutely, unconditionally and irrevocably agrees to be bound by the terms and provisions of the
Agreement, including, for the avoidance of doubt, Section 2.1(a) (Dedication) and Section 2.1(b) (Covenant Running with the
Land), with the same force and effect as if it were originally a party thereto, and to assume all of its rights and obligations under the
Agreement, including to perform, satisfy and timely discharge all of its obligations, duties and covenants that are required to be
performed, satisfied or discharged after the Effective Date in accordance with the terms thereof.
Producer acknowledges that it has been provided and has reviewed a full and complete copy of the Agreement.
This Joinder Agreement shall be governed by, construed, and enforced in accordance with the Laws of the State of Texas,
without regard to any choice of law principles that would require the application of the Laws of any other jurisdiction.
Exhibit J – Page 1
CONFIDENTIAL TREATMENT REQUESTED
This Joinder Agreement may be executed in any number of counterparts, each of which shall be considered an original, and
all of which shall be considered one and the same instrument. A signature delivered by facsimile or other electronic transmission of
a .pdf (including e-mail) will be considered an original signature.
IN WITNESS WHEREOF, this Joinder Agreement is executed by Processor and Producer as of the date of their
signatures, but is effective for all purposes as of the Effective Date stated above.
PROCESSOR
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
[_______________________]
By: ________________________________
Name: ______________________________
Title: _______________________________
Exhibit J – Page 2
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
EXHIBIT I
GAS PROCESSING AGREEMENT
by and between
[_________________]
and
ALPINE HIGH PROCESSING LP
dated
[_________________]
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
CONFIDENTIAL TREATMENT REQUESTED
GAS PROCESSING AGREEMENT
DEFINITIONS
DEDICATION AND SERVICES
DELIVERY POINTS AND PRESSURE
GAS QUALITY
MEASUREMENT
FEES, FUEL, AND CONSIDERATION
PRICE AND ALLOCATIONS
RESIDUE GAS REDELIVERY PROCEDURES
PLANT PRODUCTS REDELIVERY PROCEDURES
PAYMENTS
AUDIT RIGHTS
FORCE MAJEURE
INDEMNIFICATION
TITLE
ROYALTY AND TAXES
NOTICE AND PAYMENT INSTRUCTIONS
DISPUTE RESOLUTION
TERM
MISCELLANEOUS
ARTICLE I
ARTICLE II
ARTICLE III
ARTICLE IV
ARTICLE V
ARTICLE VI
ARTICLE VII
ARTICLE VIII
ARTICLE IX
ARTICLE X
ARTICLE XI
ARTICLE XII
ARTICLE XIII
ARTICLE XIV
ARTICLE XV
ARTICLE XVI
ARTICLE XVII
ARTICLE XVIII
ARTICLE XIX
EXHIBITS:
Exhibit A - Dedicated Area
Exhibit B - Delivery Points and Redelivery Points
Exhibit C - Fees and FL&U
Exhibit D - Gas Quality Specifications
Exhibit E - Take In-Kind Terms
Exhibit F - Allocation Methodologies
Exhibit G - Form of Memorandum of Agreement
Exhibit H - Form of Memorandum of Release
Gas Processing Agreement dated [______________]
Between Alpine High Processing LLC (Processor) and [_____________] (Producer)
1
7
15
16
17
21
22
23
24
25
26
26
27
29
30
31
32
33
33
CONFIDENTIAL TREATMENT REQUESTED
GAS PROCESSING AGREEMENT
This Gas Processing Agreement (this “Agreement”) is made and entered into to be effective [_________________]
(“Effective Date”), by and between Alpine High Processing LP, a Delaware limited partnership (“Processor”), and
[_________________], a [_________________] (“Producer”). Processor and Producer are sometimes referred to in this
Agreement individually as a “Party” and collectively as the “Parties.”
Background:
Producer owns or controls volumes of Gas produced from certain oil and gas leases located in Reeves, Pecos, Jeff Davis,
and Culberson Counties, Texas, and Processor owns and operates natural gas and natural gas liquids processing facilities located in
Reeves County, Texas. The Parties desire for Processor to process certain volumes of Producer’s Gas at the Processor’s Facilities on
the terms and conditions set forth in this Agreement.
In consideration of the premises and of the mutual covenants in this Agreement, together with other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by each Party, Processor and Producer agree as follows:
Agreement:
ARTICLE I
DEFINITIONS
Unless another definition is expressly stated or the context requires otherwise, the following terms, when used in this Agreement
and all exhibits and attachments to this Agreement, have the following meanings:
(a)
(b)
“2-Year Forecast” shall have the meaning set forth in Section 2.1.
“Adequate Assurance of Performance” shall have the meaning set forth in Section 19.19.
(c)
“Affiliate” means any person that directly or indirectly controls, is controlled by, or is under common control with
another person through one more intermediaries or otherwise. The term “control” means having the power, directly or indirectly, to
direct or cause the direction of the management and policies of a person, whether through ownership, by contract, or otherwise. A
person is deemed to be an Affiliate of another specified person if such person owns 50% or more of the voting securities of the
specified person, or if the specified person owns 50% or more of the
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
voting securities of such person, or if 50% or more of the voting securities of the specified person and such person are under
common control.
(d)
(e)
“Audit” shall have the meaning set forth in Article XI.
“Btu” means a “British Thermal Unit,” which is the amount of heat required to raise the temperature of one
pound of water from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of 14.65 psia.
(f)
“Business Day” means any calendar day, other than a Saturday or Sunday, on which commercial banks in
Houston, Texas are open for business.
(g)
(h)
“Calendar Year” means the period from January 1st through December 31st of the same calendar year.
“Central Conditioning Facility” means a facility used for dehydration, compression, treating, or any
combination of the foregoing for Non-Processable Gas.
(i)
“Central Processing Facility” means a refrigeration processing plant used for processing and for dehydration,
compression, treating, or any combination of the foregoing.
(j)
(k)
(l)
“Central Time” means Central Standard Time, as adjusted semi-annually for daylight savings time.
“Claim” means any lawsuit, claim, proceeding, investigation, or other similar action.
“Consequential Damages” shall have the meaning set forth in Section 19.9.
(m)
“Cryogenic Processing Facility” or “Cryo” means a cryogenic processing plant used for processing and for
dehydration, compression, treating or any combination of the foregoing. Each Cryo shall have a minimum design capacity of 200
MMcf per day.
(n)
“Cubic Foot” means a volume of Gas occupying a space of one cubic foot at a temperature of 60 degrees
Fahrenheit and at a pressure of 14.65 psia.
(o)
“Day” means the 24-hour period beginning at 9:00 a.m., Central Time, on a calendar day and ending at 9:00 a.m.,
Central Time, on the following calendar day (as Central Time is adjusted each calendar year for daylight savings time).
(p)
“Dedicated Area” means the lands located in [Reeves, Pecos, Jeff Davis, and Culberson Counties], Texas, more
particularly described in Exhibit A. [Insert all applicable counties in which any of the properties listed on Exhibit A are located.]
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(q)
“Delivery Point” or “Delivery Points” shall have the meaning set forth in Section 3.1.
(r)
Processing Fee.
“Fees” shall mean, collectively, the Central Conditioning Fee, the Central Processing Fee, and the Cryogenic
(s)
“Firm” means Processor’s obligation to receive and process Producer’s Gas, and Producer’s right to deliver and
have its Gas processed, shall not be subject to interruption, except as absolutely necessary as a result of Force Majeure or, after
reasonable prior notice, during periods of Processor’s Facilities maintenance or repair, and in the event of any such interruption or
in the event of excess Gas deliveries to the Processor’s Facilities (from Producer or a third party) over and above Plant Capacity,
Producer’s Gas shall have first priority rights and shall be the last curtailed, unless Producer otherwise provides consent.
(t)
“FL&U” means fuel and lost and unaccounted for Gas and fuel for Gas-Electric Equivalent that is deducted and
retained as fuel and/or system loss by Processor, which is used in and/or occurs in the operation of Processor’s Facilities.
state.
(u)
(v)
(w)
(x)
“Force Majeure” shall have the meaning set forth in Section 12.2.
“Gas” means any mixture of hydrocarbon gases or of hydrocarbon gases and non‑combustible gases in a gaseous
“Gas Electric Equivalent” shall have the meaning set forth in Exhibit C.
“Gas Price” shall have the meaning set forth in Exhibit C.
(y)
“Governmental Authority” Any federal, state, municipal, local or similar governmental authority, regulatory or
administrative agency or court with jurisdiction over the Parties or either Party, this Agreement, any of the transactions
contemplated hereby, or Processor’s Facilities or any other facilities utilized by a Party for the performance of this Agreement.
(z)
“Gross Heating Value” means the amount of energy transferred as heat per mass or mole from the complete,
ideal combustion of the Gas with oxygen (from air), at a base temperature in which all water formed by the reaction condenses to
liquid. If the gross heating value has a volumetric rather than a mass or molar basis, the standard conditions are deemed 14.65 psia
and 60 degrees Fahrenheit.
(aa)
“Ideal Gas Laws” means the thermodynamic laws applying to perfect gases.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(ab)
“Inert Constituents” means constituents other than Plant Products contained in Gas, including oxygen, carbon
dioxide, nitrogen, hydrogen sulfide, water vapor, ozone, nitrous oxide, and mercury.
(ac)
“Interests” means any right, title, or interest in lands which gives Producer the right to produce and market oil
and/or Gas therefrom, whether arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership,
farmout, or other contractual arrangement or arising from any pooling, unitization, or communitization of any of the foregoing
rights within the Dedicated Area, and any and all replacements, renewals, and extensions or amendments of any of the same.
(ad)
“Law” or “Laws” Any of the following: laws, rules, regulations, decrees, judgments or orders of, or licenses or
permits issued by, any Governmental Authority, including, without limitation, any U.S. Bureau of Land Management requirement
that is applicable to any federal lease included in the Dedicated Area.
(ae)
“Loss” means any loss, cost, expense, liability, damage, sanction, judgment, lien, fine, or penalty, including
reasonable attorney’s fees, incurred, suffered or paid by the applicable indemnified Persons on account of: (i) injuries (including
death) to any Person or damage to or destruction of any property, sustained or alleged to have been sustained in connection with or
arising out of the matters for which the indemnifying Party has agreed to indemnify the applicable indemnified Persons, or (ii) the
breach of any covenant or agreement made or to be performed by the indemnifying Party pursuant to this Agreement.
(af)
(ag)
(ah)
(ai)
“Material Measurement Error” shall have the meaning set forth in Section 5.4.
“Mcf” means one thousand Cubic Feet.
“MMBtu” means one million Btu.
“Month” means the period beginning at 9:00 a.m., Central Time, on the first Day of a calendar month and ending
at 9:00 a.m., Central Time, on the first Day of the succeeding calendar month.
(aj)
(ak)
(al)
“Monthly Statement” shall have the meaning set forth in Section 10.1.
“Non-Conforming Plant Products” shall have the meaning set forth in Section 9.3.
“Non-Conforming Residue Gas” shall have the meaning set forth in Section 8.3.
(am)
“Non-Op Gas” shall have the meaning set forth in Section 2.1.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(an)
“Non-Processable Gas” means Producer’s Gas that Producer elects to have delivered to a Central Conditioning
Facility.
(ao)
(ap)
“Off-Spec Gas” shall have the meaning set forth in Section 4.2.
“Operational” means in-service and ready to accept deliveries of Producer’s Gas under this Agreement.
(aq)
“Person” An individual, a corporation, a partnership, a limited partnership, a limited liability company, an
association, a joint venture, a trust, an unincorporated organization, or any other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
(ar)
“Processor’s Facilities” means any or all of the compressor stations, Central Conditioning Facilities, Central
Processing Facilities, and Cryogenic Processing Facilities owned by Processor, capable of receiving Producer’s Gas for
dehydration, compression, treating, and/or removal of Plant Products from time to time, and located in Reeves, Pecos, Jeff Davis,
and Culberson Counties, Texas.
(as)
“Plant Capacity” shall have the meaning set forth in Section 2.4.
(at)
“Plant Products” means the mixture consisting primarily of ethane, propane, isobutane, normal butane, and
natural gasoline (and any incidental methane) that are extracted at the Processor’s Facilities and all other condensate in Producer’s
Gas delivered to the Delivery Points or otherwise recovered at the Processor’s Facilities.
(au)
“Plant Products Price” means, for each component Plant Product, a price per gallon equal to 100% of the
Monthly average of Processor’s actual sales price for such component product sold from the Processor’s Facilities. It is understood
that the Plant Products Price shall be net of actual, third–party, commercially reasonable fees paid or incurred by Processor for the
transportation and fractionation directly related to Producer’s Plant Products but shall not in any circumstance include any (i)
marketing or broker fees, (ii) deficiency, take-or-pay, or demand charges, (iii) price adjustments relating to Y-grade product quality
specifications, (iv) imbalance fees and penalties, (v) line fill requirements, or (vi) requirements as to product working inventory of
Y-grade at a fractionation facility.
(av)
“Plant Products Redelivery Points” means the upstream insulating flange of the applicable custody meter at
the discharge points downstream of the Processor’s Facilities, as applicable, as described on Exhibit B, in which Plant Products are
redelivered as raw mix to a takeaway pipeline or other transport mode for the account of Producer.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(aw)
(ax)
“Primary Term” shall have the meaning set forth in Section 18.1.
“Processable Gas” means Producer’s Gas that Producer elects to have delivered to a Central Processing Facility
and/or a Cryogenic Processing Facility.
(ay)
(az)
“Processor Indemnified Parties” shall have the meaning set forth in Section 13.1.
“Producer’s Gas” means all of the Gas owned or controlled by Producer that is produced from the Dedicated
Area and delivered to Processor under this Agreement.
(ba)
(bb)
(bc)
“Producer Indemnified Parties” shall have the meaning set forth in Section 13.1.
“psia” means pounds per square inch absolute.
“psig” means pounds per square inch gauge.
(bd)
“Receipt Point” means the inlet flange of the upstream gatherer’s facilities at the point of interconnection
between the low pressure gathering system and Producer’s facilities or the inlet flange of the upstream gatherer’s facilities at the
point of interconnection between the high pressure gathering system and Processor’s compression facilities.
(be)
“Redelivery Point Gas Quality Specifications” mean the Gas quality requirements of downstream pipelines or
other facility operators at the Residue Gas Delivery Points, as such requirements are in effect from time to time.
(bf)
“Residue Gas” means the portion of the Gas delivered to the Processor’s Facilities that remains after processing.
(bg)
“Residue Gas Price” means a price per MMBtu equal to 100% of the Monthly average of Processor’s actual
sales price for Residue Gas sold from the Processor’s Facilities. It is understood that the Residue Gas Price shall be net of actual,
third-party, commercially reasonable fees paid or incurred by Processor for the transportation directly related to Producer’s Residue
Gas but shall not in any circumstance include any (i) marketing or broker fees, (ii) take-or-pay, reservation, or demand charges, (iii)
imbalance fees and penalties, or (iv) line fill requirements.
(bh)
“Residue Gas Redelivery Points” means the upstream insulating flange of the applicable Residue Gas custody
meter at the discharge points downstream of the Processor’s Facilities, as applicable, as described on Exhibit B, where Residue Gas
is delivered to a takeaway pipeline for the account of Producer.
(bi)
“Resolution Period” shall have the meaning set forth in Section 2.2 or Section 3.5, as applicable.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(bj)
(bk)
(bl)
“Services” shall have the meaning set forth in Section 2.4.
“Shrinkage” shall have meaning set forth in Exhibit F.
“Similarly Situated Customers” means any assignee of Producer’s interests hereunder (whether total or partial)
pursuant to Section 19.6 or any third party customer who has an equal level of service priority at Processor’s Facilities.
(bm)
“Tax” or “Taxes” Any federal, state or local taxes, fees, levies or other assessments, including all sales and use,
goods and services, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, value added,
capital stock, production, business and occupation, disability, employment, payroll, license, unemployment, social security,
Medicare, or withholding taxes or charges imposed by any Governmental Authority, and including any interest and penalties (civil
or criminal) on any of the foregoing.
(bn)
(bo)
(bp)
(bq)
“Term” shall have the meaning set forth in Section 18.1.
“Third Party” Any Person that, as of any applicable determination date, is not a Party to this Agreement.
“Third Party Gas” means Gas other than Producer’s Gas.
“Transfer” means any direct or indirect transfer, conveyance, assignment, grant, or other disposition of any
rights, interests, or obligations.
(br)
“Year” means a period of 365 consecutive Days, provided that any year containing the date of February 29 shall
consist of 366 consecutive Days.
ARTICLE II
DEDICATION AND SERVICES
Section 2.1 Dedication; Producer Reservations; Release Rights.
(a)
Dedication. Subject to the terms and conditions of this Agreement, and solely for the purpose of this Agreement,
Producer hereby dedicates for the Services to be provided by Processor under this Agreement and shall deliver or cause to be
delivered at the Delivery Point(s) the following:
(i) all Gas owned by Producer that is produced and saved from wells now or hereafter located within the Dedicated
Area or on lands pooled or unitized therewith, to the
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
extent such Gas is attributable to Interests within the Dedicated Area and not otherwise delivered or used as permitted
pursuant to this Agreement; and
(ii) with respect to wells now or hereafter located within the Dedicated Area or on lands pooled or unitized
herewith for which Producer is the operator, Gas for such wells that is owned by other working interest owners and royalty
owners (“Non-Op Gas”) but only to the extent and for the period that Producer has the right or obligation to market such
Non-Op Gas.
(b)
Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the dedication in Section
2.1(a) is in effect, this Agreement and the dedication under Section 2.1(a) and all of the terms and provisions of this Agreement
collectively shall (i) be a covenant running with the Interests within the Dedicated Area and (ii) be binding on and enforceable by
Processor and its successors and assigns against Producer and its successors and assigns of the Interests within the Dedicated Area.
Each Party agrees to execute, acknowledge, and deliver to the other Party from time to time such additional agreements and
instruments as may be reasonably requested by such other Party to more fully effectuate the intention of the Parties set forth in the
immediately preceding sentence, including a memorandum of this Agreement in the form set forth on Exhibit G, and in the event of
a permanent release or partial assignment of the Interests dedicated hereunder, a memorandum of release in the form set forth on
Exhibit H. Producer shall cause any conveyance by it of all or any of the Interests within the Dedicated Area to be made expressly
subject to the terms of this Agreement. By January 31 of each year, Producer and Processor shall update Exhibit A to reflect any
Interests within the Dedicated Area (1) permanently released by Processor or (2) partially assigned by Producer during the
immediately preceding year. Contemporaneously with any such update and supplement to this Agreement, Producer shall execute,
acknowledge, and deliver to Processor a supplement to each of the applicable memoranda of this Agreement previously filed for
recording in the real property records of each county in which any portion of such new Interests is located.
(c)
Forecasts. On or before August 1st of each Year during the Term, Processor shall deliver to Producer a map
showing each current Processor’s Facilities. Subject to Processor’s delivery of such map and Processor’s compliance with the
confidentiality and restricted use requirements set forth in Section 19.1 on or before October 1st of each Year during the Term,
Producer shall deliver to Processor a 2-Year Forecast with respect to the Producer’s Gas. “2-Year Forecast” shall mean Producer’s
good faith estimate (expressed in Mcf per Day) and associated gas analysis of Producer’s Gas, to be produced from the Dedicated
Area, broken down by Processor’s Facilities, and delivered to the Delivery Points for each Month for the next two (2) years of the
Term of the Agreement, which forecasts shall be based on Producer’s most recent engineering and planning data. At Processor’s
request, but no more than once per quarter, Producer and Processor
Gas Processing Agreement dated [______________]
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CONFIDENTIAL TREATMENT REQUESTED
will meet to discuss changes in the forecast to ensure that Processor will have adequate capacity in place to meet Producer’s
requirements. For the sake of clarity, Processor acknowledges that Producer shall not at any time be required to deliver any of
Producer’s internal budget information to Processor. Producer shall use all commercially reasonable efforts and information
available to it to create the 2-Year Forecasts, but, given the inherent nature of the estimates involved in creating such Forecasts,
Producer cannot guarantee the accuracy of any 2-Year Forecast.
(d)
Producer’s Reservations.
(i) Gas for Lessors or Royalty Owners. Producer shall have the right to utilize Gas as may be required to be
delivered to lessors or royalty owners under the terms of leases or other agreements or as required for Producer’s operations
within the Dedicated Area or lands pooled or unitized therewith, as determined by Producer in its sole discretion.
(ii) Pooling or Units. Producer may form, dissolve, and/or participate in pooling agreements or units encompassing
all or any portions of the Dedicated Area, as determined by Producer in its sole discretion.
(iii) Operational Control of Wells. Producer reserves the right to operate its leases and wells in any manner that it
desires, as determined by Producer in its sole discretion and free of any control by Processor, including without limitation,
(i) shutting-in, cleaning out, reworking, modifying, deepening, or abandoning any such wells, (ii) using any efficient,
modern, or improved method for the production of its wells, (iii) flaring, burning, or venting Gas and (iv) surrendering,
releasing, or terminating its leases or Interests or allowing such leases or Interests to expire at any time.
(iv) Well Development and Operations. Producer reserves the right to use Gas (including the Plant Products in such
Gas), above ground or below, to develop and operate its leases and wells, including, without limitation, for Gas lift, fuel,
pressure maintenance, or other re-injection purposes, secondary and tertiary recovery, drilling or cycling, operation of
Producer’s facilities, and/or any other legitimate use in connection with the development and/or operation of its leases and
wells that are now or hereafter become subject to the terms of this Agreement. Additionally, for Gas used for fuel, Producer
has the right to remove and dispose of liquid hydrocarbons from such Gas by means it deems necessary, including via low
temperature separation.
(v) No Obligation to Develop. Notwithstanding anything else in this Agreement that may be construed to the
contrary, Producer reserves the right to develop and operate its leases and wells as it sees fit, in its sole discretion, and
Producer shall have no obligation to Processor under this Agreement to develop or otherwise produce Gas or other
Gas Processing Agreement dated [______________]
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CONFIDENTIAL TREATMENT REQUESTED
hydrocarbons from any properties owned by it, including any properties now or hereafter located within the Dedicated Area
or the lands pooled or unitized therewith.
Section 2.2 Release from Dedication.
(a)
Immediate Temporary Release. If for any reason including Force Majeure (but not including a pressure problem
which is addressed in Section 3.5), Processor does not take all or any portion of Producer’s Gas delivered or otherwise available for
delivery at a Delivery Point, Producer shall be entitled to an immediate temporary release from dedication of such volume of
Producer’s Gas, and may dispose of such Gas in any manner it sees fits, subject to Processor’s right to resume receipts at a
subsequent time when Processor is able to take all of Producer’s Gas available for delivery at the Delivery Point in accordance with
the terms of this Agreement, provided however if during such temporary release period Producer secures a different temporary
market, Processor may resume receipts only upon thirty (30) days’ advance written notice and only as of the beginning of a Month,
unless otherwise agreed.
(b)
Permanent Release. In addition to Section 2.2(a), above, if Processor does not take and process all or any portion
of Producer’s Gas for delivery at a Delivery Point for any reason (including a failure to meet quality requirements for nitrogen, but
not including (i) a failure to meet quality requirements other than for nitrogen as set forth above, for which no permanent release
shall be available, or (ii) a pressure problem, which is addressed in Section 3.5) for a cumulative thirty (30) Days in any ninety (90)
Day period, unless such failure is caused by Force Majeure, in which case a cumulative 180 Days in any 365-Day period, then upon
Producer’s written notice to Processor, Processor shall have fifteen (15) Days from receipt of such notice to propose a feasible plan
to Producer that shall resolve such issue, at Processor’s sole cost and expense, within sixty (60) Days after proposing such plan (the
“Resolution Period”). If (A) Processor fails to propose a resolution within the stated fifteen (15) Days, (B) the issue is not resolved
after completion of Processor’s resolution, or (C) Processor does not complete such resolution within the Resolution Period (but if
Processor’s completion is delayed or prevented by reason of Force Majeure, the Resolution Period shall be extended by an
additional 120 Days), Producer may elect within 30 days following Processor’s failure to propose a resolution, the completion of
such inadequate resolution or the expiration of such Resolution Period, as applicable, by giving written notice to Processor, to
receive a permanent release from dedication as to the affected Delivery Point and the portion(s) of the Dedicated Area associated
with such Delivery Point (and such released portion(s) shall be stated in terms of acreage); provided, however, Producer shall not be
entitled to the foregoing remedy to the extent that Producer’s good-faith estimate of the affected volumes exceeds the last 2-Year
Forecast Producer delivered to Processor in accordance with Section 2.1(c). If Producer elects a permanent release, the portion(s) of
the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith, provided that Producer shall
provide to Processor
Gas Processing Agreement dated [______________]
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CONFIDENTIAL TREATMENT REQUESTED
(subject to the confidentiality and non-use restrictions set forth in this Agreement) reasonable evidence to support Producer’s
determination of the portion(s) of the Dedicated Area to be released, and as long as Producer’s determination of the areas to be
released is reasonably supported, such determination shall be deemed conclusive.
(c)
Release by Upstream Gatherer. Delivery of Producer’s Gas to Processor hereunder is dependent upon the
performance of upstream gathering facilities to which Producer has made a dedication similar to the dedication under this
Agreement. To the extent that Producer’s dedication under such upstream contracts is released, Producer shall receive a
corresponding release from dedication under this Agreement.
Section 2.3 No Election of Remedies. Producer’s exercise of any right to a release from dedication under Section 2.2 shall
not be deemed as an election of remedies for any unexcused failure of Processor to perform any obligation under this Agreement,
and Producer shall be entitled to any and all other remedies, including specific performance and injunctive relief (without the need
to post any bond).
Section 2.4 Processing and Related Services. Subject to the terms and conditions of this Agreement, each Month during
the Term Processor shall provide, or cause to be provided the following services, each on a Firm Basis (collectively, the
“Services”):
(a) receive, or cause to be received, Producer’s Gas at the Delivery Points up to the capacity of the Processor’s Facilities
(“Plant Capacity”);
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CONFIDENTIAL TREATMENT REQUESTED
(b) receive, or cause to be received, condensate at the Delivery Points;
(c) dehydrate, compress, and/or treat all of Producer’s Non-Processable Gas at the Central Conditioning Facilities and
purchase or deliver for Producer’s account such Producer’s Non-Processable Gas;
(d) dehydrate, compress, treat, and/or remove Plant Products from all of Producer’s Processable Gas at Processor’s
facilities;
(e) for Processable Gas to be delivered to the Cryos, compress and redeliver such Producer’s Gas into a high pressure
gathering system and re-accepting such Producer’s Gas at the Cryos;
(f) purchase or deliver for Producer’s account all Producer’s Residue Gas and Plant Products for volumes attributable to
Producer’s Processable Gas; and
(h)
perform such other obligations and actions as are described under this Agreement.
Processor shall perform all Services and operate Processor’s Facilities consistent with industry standard and in a prudent,
workmanlike manner.
Notwithstanding anything in this Agreement to the contrary, Producer shall not be entitled to Services on a Firm basis on any
Processor’s Facilities, or any portions of the Processor’s Facilities, that have been built by Processor exclusively to service Gas
volumes delivered by any Third Party customer.
Section 2.5 Recovery Rates and Take In-Kind Rights.
(a) Recovery Rates. Processor shall determine Producer’s share of Residue Gas and Plant Products within the Processor’s
Facilities based on actual recovery rates (including condensate fallout upstream of the Processor’s Facilities) and the allocation
methodology shown on Exhibit F.
(b) Take In-Kind - Residue Gas. For each Calendar Year during the Term, Producer shall have the right to take its Residue
Gas in-kind. Producer elects to take its Residue Gas in-kind at the Residue Gas Redelivery Point as of the Effective Date of this
Agreement. This election shall remain in effect until Producer provides notice to Processor at least one hundred eighty (180) Days
prior to beginning of the Calendar Year that Producer no longer elects to take its Residue Gas in-kind, and such election to no
longer take in-kind shall continue for the remainder of the Term. For any Calendar Year the Producer elects to take its Residue Gas
in-kind, Processor shall not be required to pay the Residue Gas Price. Additionally, during any such Calendar Year, the “Take In-
Kind Terms” set forth in Article VIII and Exhibit E, as well as the applicable title, possession, and liability provisions of Article
XIII and Article XIV shall apply.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
(c) Take In-Kind - Plant Products. For each Calendar Year during the Term, Producer shall have the right to take its Plant
Products in-kind. Producer elects to take its Plant Products in-kind at the Plant Products Redelivery Point as of the Effective Date of
this Agreement. This election shall remain in effect until Producer provides notice to Processor at least one hundred eighty (180)
Days period to the beginning of the Calendar Year that Producer no longer elects to take its Plant Products in-kind, and such
election to no longer take in-kind shall continue for the remainder of the Term. For any Calendar Year that Producer elects to take
its Plant Products in-kind, Processor shall not be required to pay the Plant Products Price. Additionally, during any such Calendar
Year, the “Take In-Kind Terms” set forth in Article IX and Exhibit E, as well as the applicable title, possession, and liability
provisions of Article XIII and Article XIV shall apply.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 13
CONFIDENTIAL TREATMENT REQUESTED
Section 2.6 Modification of System Capacity. Other than during periods of emergency and/or required Maintenance,
Processor shall not take, without Producer’s prior written consent, any action that could cause the Plant Capacity to be reduced in a
manner that negatively affects Producer’s ability to deliver Gas to any Delivery Point.
Section 2.7 Priority of Gas Services; Curtailment. Processor covenants that it shall not oversubscribe the Processing
Facilities or take additional production into the Processing Facilities if, as a result, Processor is unable to perform its Service
obligations under this Agreement. Processor agrees to not provide services of any kind for any Third Party Gas on a basis that has a
priority higher than that to which Producer is entitled under this Agreement without Producer’s prior written consent; provided,
however, that in the case of (ii), such consent shall not be unreasonably withheld if the Third Party agreement shall not be
reasonably expected to impact Processor’s ability to perform its obligations to Producer under this Agreement. If for any reason,
including, without limitation, Force Majeure, maintenance, or constraints at Redelivery Point(s), Processor needs to curtail receipt,
processing or delivery of Gas at the Processor’s Facilities, the following procedures shall be followed:
(a) First, Gas deliveries from all customers other than Producer and Similarly Situated Customers shall be curtailed prior to
any curtailment or interruption of Producer’s Gas or Gas from Similarly Situated Customers; and
(b) Second, if additional curtailments are required beyond Section 2.7(a) above, Processor shall notify Producer and the
Similarly Situated Customers of such curtailment and require good faith estimates of expected gas volumes from Producer and
Similarly Situated Customers. Processor shall then allocate the Plant Capacity at the affected Delivery Point on a pro rata basis
based upon Producer’s and each Similarly Situated Customer’s respective good faith estimates for the affected point.
Section 2.8 Third Party Gas. Processor agrees that it shall not accept Third Party Gas into the Processor’s Facilities if such
Third Party Gas shall cause Producer’s Gas to not meet the Redelivery Point Gas Quality Specifications.
Section 2.9 Operation and Maintenance of Processor’s Facilities. Processor shall (i) be entitled to complete operational
control of the Processor’s Facilities and (ii) construct, install, own, operate, and maintain, at its sole cost, risk and expense, the
facilities in accordance with all applicable laws, as a reasonably prudent operator and, to the extent reasonably possible, in a cost-
efficient and effective manner for Producer.
Section 2.10 Commingling. The Parties agree that Producer’s Gas may constitute part of the supply of Gas from multiple
sources, and Processor shall have the right, subject to Processor’s obligations under this Agreement, to commingle Producer’s Gas
with other Gas, to deliver Residue
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 14
Gas and Plant Products containing molecules different from those received at the Delivery Points, and to handle the molecules
delivered at the Delivery Points in any manner.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE III
DELIVERY POINTS AND PRESSURE
Section 3.1 Delivery Points. The delivery points for all Producer’s Gas delivered by Producer under this Agreement shall
be the location where Producer’s Gas enters the inlet flange of the Processor’s Facilities located at the points identified on Exhibit B
of this Agreement (each, a “Delivery Point,” and together, the “Delivery Points”).
Section 3.2 Pressure at Delivery Points. Producer shall cause Producer’s Gas to be delivered to the Delivery Points at a
pressure sufficient to enter the Processor’s facilities, provided that Processor maintains the operating pressures at not more than
(a) [***] psig at the inlet flange of the on-skid compressor inlet suction scrubber of the Central Conditioning Facilities and (b) [***]
psig at the inlet flange of the on-skid compressor inlet suction scrubber of the Central Processing Facilities and at all other Delivery
Points other than the inlet to the Cryogenic Processing Facilities. Producer shall not deliver Gas at a pressure in excess of the
MAOP at the Delivery Point, as such MAOP may exist from time to time. As of the Effective Date, the MAOP at each Delivery
Point shall be listed on Exhibit B, and Processor shall give written notice to Producer at any time thereafter that the MAOP for any
Delivery Point changes and for each additional Delivery Point when it is added.
Section 3.3 Pressure at Residue Gas Redelivery Points. If Producer elects to take its Residue Gas in-kind, Processor shall
redeliver Residue Gas at a pressure sufficient to enter the receiving facilities at such Residue Gas Redelivery Point, but shall not
deliver such Gas at a pressure in excess of the MAOP of such receiving facilities, as such MAOP may exist from time to time.
Section 3.4 Pressure at Plant Product Redelivery Points. If Producer elects to take its Plant Products in-kind, Processor
shall redeliver Plant Products at a pressure sufficient to enter the receiving facilities at each Plant Product Redelivery Point, but
shall not deliver such Plant Products at a pressure in excess of MAOP of such receiving facilities, as such MAOP may exist from
time to time.
Section 3.5 Release Rights. At any time that the operating pressure at a Delivery Point is not in compliance with the
required operating pressure or is in excess of the MAOP for any reason, including Force Majeure, Producer shall be entitled to an
immediate temporary release from dedication and may immediately dispose of and/or deliver to any third Person any of Producer’s
Gas available for delivery at such Delivery Point. In the event the operating pressure is not in compliance with the required pressure
for a cumulative thirty (30) Days in any ninety (90) Day
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
period for reasons other than Force Majeure, then upon Producer’s written notice to Processor, Processor shall have fifteen (15)
Days from receipt of such notice to propose a feasible plan that shall, at Processor’s sole cost and expense, resolve the pressure
issue within sixty (60) Days after proposing such plan (the “Resolution Period”) so that the pressure shall be maintained in
compliance with the required pressure (including when all available Gas is delivered to the Delivery Point(s), i.e., including all of
Producer’s Gas that may have been temporarily released). If (a) Processor fails to propose a resolution within the stated fifteen (15)
Days, (b) the issue is not resolved after completion of Processor’s resolution, or (c) Processor does not complete its proposed
resolution within the Resolution Period for any reason (but if Processor’s completion is delayed or prevented by reason of Force
Majeure, the Resolution Period shall be extended by an additional 120 Days), then Producer may elect, by giving written notice to
Processor, to receive a permanent release from dedication as to any affected Delivery Point(s) and the portion(s) of the Dedicated
Area associated with such Delivery Point(s) (and such released portion(s) may be stated in terms of wells and/or acreage); provided,
however, Producer shall not be entitled to a permanent release to the extent that (x) any Receipt Point(s) upstream of the Delivery
Point are in compliance with the Required Pressure (as defined in the Gas Gathering Agreement between Producer and Alpine High
Gathering LP dated July 1, 2018) for such Receipt Point(s) or (y) Producer’s good-faith estimate of volumes exceeds the last 2-Year
Forecast Producer delivered to Processor in accordance with Section 2.1(c). If Producer elects a permanent release, the portion(s) of
the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith, provided that Producer shall
provide to Processor (subject to the confidentiality and non-use restrictions set forth in this Agreement) reasonable evidence to
support Producer’s determination of the portion(s) of the Dedicated Area to be released, and as long as Producer’s determination of
the areas to be released is reasonably supported, such determination shall be deemed conclusive. Producer’s right to a release from
dedication or Fee reduction under this Section 3.5 shall not be deemed an election of remedies, and Producer shall be entitled to any
and all other remedies, including specific performance and injunctive relief (without the need to post any bond).
ARTICLE IV
GAS QUALITY
Section 4.1 Gas Quality Specifications. Producer’s Gas delivered to a Central Processing Facility or a Cryogenic
Processing Facility shall meet the Gas Quality Specifications set forth in Exhibit D-1. Producer’s Gas delivered to a Central
Conditioning Facility shall meet the Gas Quality Specifications set forth in Exhibit D-2.
Section 4.2 Non-Conforming Gas. If at any time Processor becomes aware that Producer’s Gas at a Delivery Point fails to
conform to the applicable Gas Quality Specifications set forth in Exhibit D-1, or Exhibit D-2 (“Off-Spec Gas”), then Processor
shall promptly give
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
Producer written notice of the deficiency, and Producer shall take commercially reasonable steps to remedy the deficiency.
Processor shall use all commercially reasonable efforts to accept such Off-Spec Gas, as long as (i) Processor is able to accept such
Off-Spec Gas without unreasonable risk of harm to the Processor’s Facilities or to the Processor’s Facilities personnel, (ii) the
acceptance of such Off-Spec Gas does not render the Processor’s Facilities unable to meet the Redelivery Point Gas Quality
Specifications, and (iii) Processor’s receipt of the Off-Spec Gas shall not be construed as a change of requirements for future
volumes delivered to the Processor’s Facilities. Processor may immediately cease taking any Off-Spec Gas that Processor deems
would be harmful to the Processor’s Facilities or the Processor’s Facilities personnel.
Section 4.3 Reimbursement for Costs and Expenses. Producer shall reimburse Processor for actual, reasonable costs and
expenses directly resulting from damage to the Processor’s Facilities, or to other customers’ Gas therein, to the extent such damage
is directly caused by the delivery to the Processor’s Facilities of Producer’s Gas that is Off-Spec Gas, except when Processor
knowingly accepts such Off-Spec Gas into the Processor’s Facilities. Notwithstanding the above or anything else in this
Agreement, Producer’s responsibility under this Section 4.3 shall be for actual, direct damages only, and in no event shall this
Section 4.3 require Producer to pay or in any way be responsible for the Consequential Damages of any Person.
ARTICLE V
MEASUREMENT
Section 5.1 Equipment and Specifications. Producer’s Gas delivered to the Processor’s Facilities shall be measured by
Processor at each Receipt Point, each Delivery Point, and any point on the gathering system upstream of Processor’s Facilities
where buyback gas is redelivered to Producer, and the Residue Gas and Plant Products shall be measured at the meter(s) at the
applicable Redelivery Point(s). Additionally, Processor shall measure any gas consumed as fuel or flared at its facilities. The meters
and appurtenant facilities shall be installed, operated, and maintained by Processor in accurate working order and condition, in
accordance with the requirements set forth in this Article V, with good and workmanlike standards generally practiced by
reasonably prudent gas processing operators, and in accordance with all laws.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 17
CONFIDENTIAL TREATMENT REQUESTED
Section 5.2 Gas Meter Standards. Orifice meters installed in such measuring stations for Gas shall be constructed and
operated in accordance with ANSI/API 2530 API 14.3, AGA Report No. 3, Orifice Metering of Natural Gas and Other Related
Hydrocarbon Fluids (including as it may be revised from time to time) and shall include the use of flange connections and, where
necessary, straightening vanes, flow conditioners and/or pulsation dampening equipment. Ultrasonic meters or Coriolis meters
installed in such measuring stations shall be constructed and operated in accordance with AGA Report No. 9, Measurement of Gas
by Ultrasonic Meters, First Edition, and AGA Report No. 11, Measurement of Natural Gas by Coriolis Meter, respectively; and any
subsequent modification and amendment thereof generally accepted within the Gas industry. Electronic flow computers shall be
used and the Gas shall have its volume, mass, and/or heat content computed in accordance with the applicable AGA standards
including, but not limited to, AGA Report Nos. 3, 5, 6, 7, 8 and API 21.1 “Flow Measurement Using Electronic Metering Systems”
and any subsequent modifications and amendments thereof generally accepted within the Gas industry. When Gas chromatographs
are used they shall be installed, operated, maintained, and verified according to industry standards (GPA 2261, GPA 2145, GPA
2172, and GPA 2177).
Section 5.3 Notice of Measurement Equipment Inspection and Calibration. Each Party shall give seventy-two (72) hours’
notice to the other Party in order that the other Party may, at its option, have representatives present to observe any reading,
inspecting, testing, calibrating, or adjusting of measuring equipment used in measuring or checking the measurement of receipts or
deliveries of Gas under this Agreement. The official electronic data from such measuring equipment shall remain the property of
the measuring equipment owner, but copies of such records shall, upon written request, be submitted, together with calculations and
flow computer configurations therefrom, to the requesting Party for inspection and verification.
Section 5.4 Measurement Accuracy Verification. Each Party shall verify the accuracy of all transmitters, flow computers,
and other equipment used in the measurement of the Gas hereunder at intervals not to exceed one hundred eighty (180) Days and
cause such equipment to be adjusted or calibrated as necessary. Testing frequency shall be based upon each Delivery Point flow rate
(Mcf/Day). Any flow rate at a Delivery Point that is: (x) greater than 1,000 Mcf/Day shall be tested Monthly, (y) between 101 and
1,000 Mcf/Day shall be tested quarterly, and (z) less than 100 Mcf/Day shall be tested semi-annually. Neither Party shall be
required to cause adjustment or calibration of such equipment more frequently than once every Month, unless a special test is
requested pursuant to Section 5.5. If, upon testing, (i) no adjustment or calibration error is found that results in an incremental
adjustment to the calculated flow rate through each meter run in excess of two percent (2%) of the adjusted flow rate (whether
positive or negative and using the adjusted flow rate as the percent error equation denominator) or (ii) any quantity error is not
greater than two hundred fifty (250) Mcf per Month, then any previous recordings of such equipment shall be considered accurate
in computing deliveries but such equipment shall be adjusted or calibrated at once. If, during any test of the measuring equipment,
an adjustment or calibration error is found
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
that results in (i) an incremental adjustment to the calculated flow rate through each meter run in excess of two percent (2%) of the
adjusted flow rate (whether positive or negative and using the adjusted flow rate as the percent error equation denominator) and (ii)
a quantity error greater than two hundred fifty (250) Mcf per Month (“Material Measurement Error”), then any previous
recordings of such equipment shall be corrected to zero error for any period during which the error existed (and which is either
known definitely or agreed to by the Parties) and the total flow for such period shall be determined in accordance with the
provisions of Section 5.6. If the period of error condition cannot be determined or agreed upon between the Parties, such correction
shall be for a period extending over the last one half (1/2) of the time elapsed since the date of the last test.
Section 5.5 Special Tests. In the event a Party desires a special test (a test not scheduled by a Party under the provisions of
Section 5.4) of any measuring equipment, seventy-two (72) hours’ advance notice shall be given to the other Party and, after
providing such notice, such test shall be promptly performed. If no Material Measurement Error is found, the Party requesting the
test shall pay the costs of such special test including any labor and transportation costs pertaining thereto. If a Material
Measurement Error is determined to exist, the Party responsible for such measurement shall pay such costs and perform any
corrections required under Section 5.4.
Section 5.6 Metered Flow Rates in Error. If, for any reason, any measurement equipment is (i) out of adjustment, (ii) out
of service, or (iii) out of repair, and, in each case, a Material Measurement Error exists as a result thereof, the total quantity of Gas
delivered shall be determined in accordance with the first of the following methods which is feasible:
(a)
by using the registration of any mutually agreeable check metering facility, if installed and accurately registering
(subject to testing as provided for in Section 5.4);
(b)
where multiple meter runs exist in series, by calculation using the registration of such meter run equipment;
provided that they are measuring Gas from upstream and downstream headers in common with the faulty metering equipment, are
not controlled by separate regulators, and are accurately registering; or
(c)
by estimating the quantity, based upon deliveries made during periods of similar conditions when the meter was
registering accurately.
Section 5.7 Record Retention. Processor shall retain and preserve all test data, charts, and similar records for any Calendar
Year for a period of at least sixty (60) Months, unless any applicable Law requires a longer time period or Processor has received
written notification of a dispute involving such records, in which case all records shall be retained until the related issue is resolved.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 19
CONFIDENTIAL TREATMENT REQUESTED
Section 5.8 Correction Factors for Volume Measurement. The computations of the volumes of Gas measured shall be
made as follows:
(a)
The hourly orifice coefficient for each meter shall be calculated at the base pressure of fourteen and sixty-five
hundredths (14.65) psia and the base temperature of sixty (60) degrees Fahrenheit. All Gas volume measurements shall be based on
a local atmospheric pressure assumed to be thirteen and seven-tenths (13.7) psia.
(b)
The flowing temperature of the Gas shall be continuously measured. In the case of electronic metering, such
temperature measurement shall be used as continuous input to the flow computer for calculation of Gas volume, mass and/or energy
content in accordance with the applicable AGA or API 21.1 standards including, but not limited to, AGA Report Nos. 3, 5, 6, 7 and
8 and any subsequent modification and amendments thereof generally accepted within the Gas industry.
(c)
Measurements of inside diameters of pipe runs and orifices shall be obtained by means of a micrometer to the
nearest one-thousandth of an inch, and such measurements shall be used in computations of coefficients.
(d)
In determining the volume of Gas, when electronic transducers and flow computers are used, the Gas shall have
its volume, mass and/or energy content continuously integrated in accordance with the applicable AGA standards including, but not
limited to, AGA report Nos. 3, 5, 6, 7 and 8 and any subsequent modification and amendments thereof generally accepted within
the Gas industry.
(e)
In calculating the volume of Gas, deviation from Boyle’s Law at the pressure, specific gravity, and temperature
for each measurement shall be determined by use of AGA Report No. 8, Compressibility Factors for Natural Gas and Other Related
Hydrocarbon Gases, published by the AGA in conjunction with Gas Measurement Committee Report No. 3 and amendments
thereto generally accepted within the Gas industry.
(f)
Whenever the conditions of pressure and temperature differ from the standards described herein, conversion of the
volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws, corrected for
deviation by the methods set forth in the AGA Gas Measurement Committee Report No. 3, as said report may be amended from
time to time.
Section 5.9 Exception to Gas Measurement Basis. If at any time the basis of measurement set out in this Agreement
should conflict with any Law, then the basis of measurement provided for in such Law shall govern measurements hereunder.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 20
CONFIDENTIAL TREATMENT REQUESTED
Section 5.10 Gas Sampling. Receipt Point meters downstream of new wells or wells that have been changed due to a
workover or other well bore alteration that could alter the Gas composition shall be sampled Monthly until the analyses demonstrate
reasonable consistency. After such time, said meters shall then be sampled at the stated calibration frequency. Processor shall install
and maintain a Gas composite sampler at each of the Receipt Points.
(a)
Receipt Points and Delivery Points. The composition, specific gravity and Gross Heating Value of Producer’s Gas
shall be determined by the measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be
acquired through an on-line chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
(b)
Residue Gas Redelivery Points. The composition, specific gravity, and Gross Heating Value of Producer’s
Residue Gas shall be determined by the measuring party taking a sample at the same frequency as the meter calibration test. The
sample shall be acquired through either an on-line Gas chromatograph or a composite sampler. The analytical results shall be
applied at the beginning of the Month the sample is taken until a subsequent representative sample is applied.
(c)
The specific gravity of Gas at all applicable measurement points shall be determined by a Gas chromatographic
component analysis to the nearest one thousandth (0.001) of the samples of the Gas taken for test purposes as provided above, or by
such other method as shall be mutually agreed upon.
(d)
The Gross Heating Value shall be measured by Gas chromatographic analysis or component analysis of the
samples of the Gas taken for test purposes as provided above, or by such other method as shall be mutually agreed upon.
(e)
The Gas received by Processor at Delivery Points other than those at the inlet of a Cryogenic Processing Facility
shall be deemed as saturated with water and the Gas shall be measured and settled as saturated at base pressure and base
temperature.
Section 5.11 Modifications to Measurement Procedures. In the event the measurement procedures herein cease to be
reflective of actual operations or become inequitable in any respect, such measurement procedures shall be modified to reflect
actual operations and to remove such inequities, as long as such modified measurement procedures are consistently applied to
Producer and all other customers at the Processor’s Facilities.
ARTICLE VI.
FEES, FUEL, AND CONSIDERATION
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 21
CONFIDENTIAL TREATMENT REQUESTED
Section 6.1 Fees.
(a) Non-Processable Gas. Producer shall pay to Processor the Central Conditioning Fee, set forth in Exhibit C, for all
Producer’s Non-Processable Gas.
(b) Processable Gas. Producer shall pay to Processor the applicable Fees, set forth in Exhibit C, for all Producer’s
Processable Gas, illustrated by the following formula.
PF = (CPF x A) + (CRO x B)
Where:
PF = Total Processing Fees
CPF = Producer’s CPF Volumes (as defined in Exhibit F, Paragraph 3)
CRO = Producer’s Cryo Volumes (as defined in Exhibit F, Paragraph 4)
A = Central Processing Fee
B = Cryogenic Processing Fee
Section 6.2 FL&U. For Services provided at the Central Conditioning Facility, Central Processing Facility, or Cryogenic
Processing Facility to which Producer’s Gas is delivered, Producer shall bear responsibility for FL&U, as set forth on Exhibit C.
Section 6.3 Fee Adjustment. On July 1st of each year, all Fees shall each be automatically adjusted upward or downward by
the percentage change in the Chained Consumer Price Index for All Urban Consumers, all items less food and energy, as and when
published and considered final by the U.S. Department of Labor Bureau of Labor Statistics calculated for the twelve (12) Months
immediately preceding the date of escalation; provided, however, no Fee shall ever be adjusted below its original amount as of the
Effective Date; and, provided, further, that the amount of adjustment for each year shall not exceed [***] percent ([***]%) per
annum.
ARTICLE VII
PRICE AND ALLOCATIONS
Section 7.1 Residue Gas and Plant Products Purchases. Except to the extent that Producer has elected to take its Residue
Gas and/or its Plant Products in-kind pursuant to Sections 2.5(b) and 2.5(c), as full consideration for Producer’s Residue Gas and
Producer’s Plant Products attributable to Producer’s Gas and all its components delivered to Processor each month at the Delivery
Point,
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
Processer shall pay Producer: (i) the Residue Gas Price for each MMBtu of Producer’s Residue Gas and (ii) the Plant Products
Price for each gallon of each component contained in Producer’s Plant Products. No separate payment is due under this Agreement
for helium, sulfur, CO2, or other non-hydrocarbons.
Section 7.2 Allocation of Residue Gas and Plant Products. Processor shall determine, on a Monthly basis, the Residue Gas
and Plant Products attributable to Producer’s Gas on a proportional basis by component using the allocation methodologies set forth
in Exhibit F. From time to time Processor may make changes and adjustments in its allocation methods to improve accuracy,
provided that Processor provides written notice, evidencing the reasons for the necessary changes and adjustments, to Producer
prior to making such changes or adjustments.
ARTICLE VIII
RESIDUE GAS REDELIVERY PROCEDURES
Section 8.1 Procedure for Residue Gas Disposition. When Producer has elected to take its Residue Gas in-kind, Processor
shall return to Producer, or for Producer’s account, Producer’s Residue Gas at the Residue Gas Redelivery Points.
Section 8.2 Disposition of Producer’s Residue Gas. Producer shall arrange for the disposition and sale of Producer’s
Residue Gas actually delivered to Producer or for Producer’s account. If Producer fails to provide for the disposition and sale of that
Residue Gas (i.e., Producer fails to nominate on a downstream pipeline), Processor shall, in a commercially reasonable manner,
arrange for disposition and sale of that Residue Gas and shall remit the net proceeds to Producer after deductions for all reasonable
transportation charges, a marketing fee of $0.05 per MMBtu, and other actual, reasonable costs associated with the disposition and
sale of Producer’s Residue Gas. Processor’s remittance of such net proceeds to Producer shall include the gross sales proceeds at
which such Residue Gas was sold and reasonably detailed documentation of all such costs and charges deducted from such gross
sales proceeds.
Section 8.3 Quality. The Residue Gas delivered by Processor from the Processor’s Facilities to Producer or for Producer’s
account at the Residue Gas Redelivery Point(s) must meet all quality specifications of the Producer’s designated receiving
pipeline(s), as such quality specifications are in effect as of the Effective Date, and if at any time after the Effective Date the
applicable receiving pipeline changes its quality specifications to be more stringent, Processor shall have the right to make
corresponding revisions to the quality specifications set forth in Exhibit D in amounts consistent with the receiving pipeline’s
changes. Any Residue Gas redelivered by Processor which does not conform with all of the aforesaid quality requirements is
referred to herein as “Non-Conforming Residue Gas”. If Processor fails to redeliver Residue Gas on behalf of Producer that meets
all quality specifications of the receiving pipeline, in addition to any other
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
remedy available to Producer at law or in equity, Processor shall be responsible for, and shall indemnify, defend, and hold harmless
Producer Indemnified Parties and its and their officers, agents, employees, and contractors, and all third parties located downstream
of Processor’s facilities, from and against any and all damages, losses, fines, penalties, fees, charges, claims, demands, suits,
actions, causes of action, obligations, liabilities (including, without limitation, for injury, death or damage to property), contractual
liabilities, and reasonable expenses and costs (including, without limitation, court costs, reasonable attorney’s fees, and all other
reasonable costs and expenses incurred in investigating and defending any of the above) to the extent directly arising from
Processor’s delivery of Non-Conforming Residue Gas. Further, Processor shall be responsible for all reasonable costs and expenses
incurred by Producer in order to avoid any fees or fines charged by any downstream transporter for so long as Processor delivers
Non-Conforming Residue Gas and so long as such fees or fines are charged.
ARTICLE IX
PLANT PRODUCTS REDELIVERY PROCEDURES
Section 9.1 Procedure for Plant Product Disposition. When Producer has elected to take its Plant Products in-kind,
Processor shall return to Producer, or for Producer’s account, Producer’s Plant Products at the Plant Products Redelivery Points in
the form of raw mix of natural gas liquids.
Section 9.2 Disposition of Producer’s Plant Products. Producer shall arrange for the disposition and sale of its share of
Plant Products actually delivered to Producer or for Producer’s account. If Producer fails to provide for the disposition and sale of
its share of Plant Products actually delivered to it, Processor may arrange for disposition and sale of those Plant Products and
Processor shall remit the net proceeds to Producer after deductions for all actual, reasonable transportation and fractionation
charges, a marketing fee of $0.005 per Gallon, and other actual, reasonable costs associated with the disposition and sale of such
Plant Products. Processor’s remittance of such net proceeds to Producer shall include the price at which each Plant Product was sold
and reasonably detailed documentation of all such costs and charges deducted from such sale price.
Section 9.3 Quality. The Plant Products delivered by Processor to Producer or for Producer’s account at the Plant Products
Redelivery Points must meet all quality requirements of the Producer’s designated receiving pipeline(s), as such quality
specifications are in effect as of the Effective Date, and if at any time after the Effective Date the applicable receiving transporter
changes its quality specifications to be more stringent, Processor shall have the right to make corresponding revisions to the quality
specifications set forth in Exhibit D in amounts consistent with the receiving transporter’s changes. Any Plant Products redelivered
by Processor which do not conform with all of the aforesaid quality requirements is referred to herein as “Non-Conforming Plant
Products”.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 24
CONFIDENTIAL TREATMENT REQUESTED
If Processor fails to redeliver Plant Products on behalf of Producer that meet all quality specifications of the receiving transporter, in
addition to any other remedy available to Producer at law or in equity, Processor shall be responsible for, and shall indemnify,
defend, and hold harmless Producer Indemnified Parties and its and their officers, agents, employees, and contractors, and all third
parties located downstream of Processor’s facilities, from and against any and all damages, losses, fines, fees, charges, penalties,
claims, demands, suits, actions, causes of action, obligations, liabilities (including, without limitation, for injury, death or damage to
property), contractual liabilities, and reasonable expenses and costs (including, without limitation, court costs, reasonable attorney’s
fees, and all other reasonable costs and expenses incurred in investigating and defending any of the above) to the extent directly
arising from Processor’s delivery of Non-Conforming Plant Products. Further, Processor shall be responsible for all reasonable
costs and expenses incurred by Producer in order to avoid any fees or fines charged by any downstream transporter for so long as
Processor delivers Non-Conforming Plant Products and so long as such fees or fines are charged.
ARTICLE X
PAYMENTS
Section 10.1 Payments and Invoices. Processor shall provide Producer with a detailed statement and supporting
documentation for the net amount of all consideration due from Producer to Processor under the terms of this Agreement (net of
any amounts due from Processor to Producer under this Agreement), not later than the last Day of the Month immediately following
the Month for which the consideration is due (such statement, the “Monthly Statement”). Not later than thirty (30) Days following
Producer’s receipt of a Monthly Statement, Producer shall pay to Processor all net amounts due and owing from Producer to
Processor under the Monthly Statement. If a good faith dispute arises as to a Monthly Statement, Producer shall provide Processor a
written notice of dispute on or before the date payment is due for same, setting forth, in reasonable detail, the grounds for such
dispute. Notwithstanding the delivery of a dispute notice, Producer shall pay to Processor the undisputed portions of each Monthly
Statement in accordance with the terms of this Agreement. Any amounts owing by Processor to Producer shall be paid
simultaneously with delivery of the Monthly Statement. Payments to either Party shall be according to the applicable payment
instructions set forth in Article XVI. If any payment due date falls on a non-Business Day, the payment shall be due on the first
Business Day thereafter.
Section 10.2 Netting, Offset of Amounts Due. Either Party shall have the right to offset any undisputed amounts due by it
under this Agreement against any undisputed amounts due to it under this Agreement and pay the net amount due to the other Party.
Section 10.3 Interest on Late Payments. In the event either Party fails to make timely payment of any amount when due
under this Agreement (including any disputed amount which is later found to have been correct when payment was first requested),
interest shall accrue, from the date payment was due until the date payment is made, at an annual rate equal to the lower of: (a)
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 25
the prime rate as published in the “Money Rates” section of The Wall Street Journal, plus two percent (2%), or (b) the maximum
rate of interest allowed under applicable Laws.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE XI
AUDIT RIGHTS
Section 11.1 Audit Rights.
(a)
Each Party shall have the right, at its own expense, upon thirty (30) Days’ written notice and during reasonable
working hours to perform an audit of the other Party’s books and records (“Audit”). The Audit provides the Parties the right to
obtain access to and copies of the relevant portion of the books and records which includes, but is not limited to, financial
information, reports, charts, calculations, measurement data, allocation support, third-party support, telephone recordings, and
electronic communications of the other Party to the extent reasonably necessary to verify performance under the terms and
conditions of this Agreement including the accuracy of any statement, allocation, charge, payment calculation or determination
made pursuant to the provisions contained herein for any Calendar Year within the twenty-four (24) Month period next following
the end of such Calendar Year. The Party subject to the Audit shall respond to all exceptions and claims of discrepancies within
ninety (90) Days of receipt thereof.
(b)
Either Party has the right to Audit any agents of the other Party or any third Person performing services related to
this Agreement. Either Party shall have the right to make and retain copies of the books and records to the extent necessary to
support the audit work papers and claims resulting from the Audit. Additionally, the Parties reserve the right to perform site
inspections or carry out field visits of the assets and related measurement being audited.
(c)
The accuracy of any statement, allocation, charge, payment calculation, or determination made pursuant to the
provisions of the Agreement shall be conclusively presumed to be correct after the twenty-four (24) Month period next following
the end of the Calendar Year in which the statement, allocation, charge, payment calculation, or determination was generated or
prepared, if not challenged (claimed) in writing prior thereto. For the avoidance of doubt, all claims shall be deemed waived unless
they are made in writing within the twenty-four (24) Month period next following the end of the Calendar Year in which the
statement, allocation, charge, payment calculation, or determination was generated or prepared.
ARTICLE XII
FORCE MAJEURE
Page 26
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
CONFIDENTIAL TREATMENT REQUESTED
Section 12.1 Suspension of Obligations. In the event a Party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to indemnify and/or to make payments due hereunder, and
such Party gives notice and reasonably full particulars of such Force Majeure in writing to the other Party promptly after the
occurrence of the cause relied on, then the obligations of the Party giving such notice, so far as and to the extent 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 by the Party claiming Force Majeure. A Force Majeure event affecting
the performance of a Party shall not relieve it of liability in the event of its gross negligence, where such gross negligence was the
cause of, or a contributing factor in causing, the Force Majeure event, or in the event of its failure to use commercially reasonable
efforts to remedy the situation and remove the cause with all reasonable dispatch. Additionally, it is specifically understood that a
Force Majeure shall in no way terminate each Party’s obligation to balance those volumes of Gas received and delivered hereunder.
Section 12.2 Definition of Force Majeure. “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation, any of the following that meets the foregoing criteria: acts of God, acts and/or delays in
action of any Governmental Authority, strikes, lockouts, work stoppages or other industrial disturbances, acts of a public enemy,
sabotage, wars, blockades, insurrections, riots, acts of terror, epidemics, landslides, lightning, earthquakes, fires, storms, storm
warnings, floods, washouts, extreme cold or freezing weather, arrests and restraints of governments and people, civil or criminal
disturbances, explosions, mechanical failures, breakage or accident to equipment installations, machinery, compressors, or lines of
pipe and associated repairs, freezing of wells or lines of pipe, partial or entire failure of wells, pipes, facilities, or equipment,
electric power unavailability or shortages, failure of third party pipelines, gatherers, or processors to deliver, receive, or transport
Gas, and, in those instances where a Party is required to secure permits from any Governmental Authority to enable such Party to
fulfill its obligations under this Agreement, the inability of such Party, at reasonable costs and after the exercise of all reasonable
diligence, to acquire such permits. 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 requirement that a Force Majeure be remedied with all reasonable
dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of Persons striking when such course is
inadvisable in the sole discretion of the Party having the difficulty.
ARTICLE XIII
INDEMNIFICATION
Page 27
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
CONFIDENTIAL TREATMENT REQUESTED
Section 13.1 Definitions. The following terms are defined as follows.
(a)
“Processor Indemnified Parties” Processor and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors and agents.
(b)
“Producer Indemnified Parties” Producer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors and agents.
Section 13.2 PRODUCER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND PROCESSOR UNDER
THIS AGREEMENT, PRODUCER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
BEFORE SUCH GAS IS DELIVERED TO PROCESSOR AT THE DELIVERY POINT, (II) WHEN PRODUCER HAS
ELECTED TO TAKE ITS RESIDUE GAS IN-KIND, PRODUCER’S RESIDUE GAS AFTER SUCH RESIDUE GAS IS
REDELIVERED TO PRODUCER AT THE RESIDUE GAS REDELIVERY POINT, AND (III) WHEN PRODUCER HAS
ELECTED TO TAKE ITS PLANT PRODUCTS IN-KIND, PRODUCER’S PLANT PRODUCTS AFTER SUCH PLANT
PRODUCTS HAVE BEEN DELIVERED TO THE PLANT PRODUCTS REDELIVERY POINT. WHEN PRODUCER’S GAS,
RESIDUE GAS, OR PLANT PRODUCTS ARE IN THE CONTROL AND POSSESSION OF PRODUCER AS DESCRIBED
ABOVE, PRODUCER SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND
RELEASE PROCESSOR INDEMNIFIED PARTIES FROM ANY ACTUAL LOSS OR DAMAGE OR ACTUAL INJURY
CAUSED BY PRODUCER’S GAS, RESIDUE GAS, OR PLANT PRODUCTS WHILE IN A PRODUCER INDEMNIFIED
PARTY’S CONTROL AND POSSESSION EXCEPT TO THE EXTENT CAUSED BY THE BREACH OF THIS AGREEMENT
BY PROCESSOR OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR OTHER FAULT OF ANY
OF THE PROCESSOR INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT COVERED BY SECTION 13.4.
PRODUCER’S INDEMNIFICATION, HOLD HARMLESS, DEFENSE, AND RELEASE OBLIGATIONS UNDER THIS
SECTION 13.2 SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES AND THE WAIVER OF REMEDIES IN
ARTICLE XIX.
Section 13.3 PROCESSOR’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND PROCESSOR UNDER
THIS AGREEMENT, PROCESSOR SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
AFTER SUCH GAS IS DELIVERED TO PROCESSOR AT THE DELIVERY POINT, (II) PRODUCER’S RESIDUE GAS
UNLESS AND UNTIL SUCH RESIDUE GAS HAS BEEN REDELIVERED TO PRODUCER AT THE RESIDUE GAS
REDELIVERY POINT, AND (III) PRODUCER’S PLANT PRODUCTS UNLESS AND UNTIL SUCH PLANT PRODUCTS
HAVE BEEN REDELIVERED TO PRODUCER AT THE PLANT PRODUCTS REDELIVERY POINT. WHEN PRODUCER’S
GAS, RESIDUE GAS, OR PLANT PRODUCTS ARE IN THE CONTROL AND POSSESSION OF PROCESSOR AS
DESCRIBED HEREIN, PROCESSOR SHALL BE RESPONSIBLE FOR AND SHALL INDEMNIFY, HOLD HARMLESS,
DEFEND, AND RELEASE PRODUCER INDEMNIFIED PARTIES FROM ANY ACTUAL LOSS OR DAMAGE OR ACTUAL
INJURY
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 28
CONFIDENTIAL TREATMENT REQUESTED
CAUSED BY PRODUCER’S GAS, RESIDUE GAS, OR PLANT PRODUCTS WHILE IN A PROCESSOR INDEMNIFIED
PARTY’S CONTROL AND POSSESSION, EXCEPT TO THE EXTENT CAUSED BY THE BREACH OF THIS AGREEMENT
BY PRODUCER OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR OTHER FAULT OF ANY
OF THE PRODUCER INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT COVERED BY SECTION 13.4.
PROCESSOR’S INDEMNIFICATION, HOLD HARMLESS, DEFENSE, AND RELEASE OBLIGATIONS UNDER THIS
SECTION 13.3 SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES AND THE WAIVER OF REMEDIES IN
ARTICLE XIX.
Section 13.4 Personal Injury Claims of Producer Indemnified Parties and Processor Indemnified Parties. PRODUCER
SHALL BE RESPONSIBLE FOR, AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND RELEASE PROCESSOR
INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES FOR OR RESULTING FROM ANY BODILY
INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PRODUCER INDEMNIFIED PARTIES ARISING OUT OF OR
RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH INJURY IS
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH PROCESSOR INDEMNIFIED
PARTIES. PROCESSOR SHALL BE RESPONSIBLE FOR, AND SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, AND
RELEASE PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES FOR OR RESULTING
FROM ANY BODILY INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PROCESSOR INDEMNIFIED PARTIES
ARISING OUT OF OR RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE
EXTENT SUCH INJURY IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH
PRODUCER INDEMNIFIED PARTIES.
Section 13.5 Insurance. In support of the liability and indemnity obligations assumed by the Parties in this Agreement,
each Party agrees to obtain and maintain, at its own expense, insurance coverages in the types and amounts which are comparable
with its peers and that is generally carried by companies performing the same or similar activities as the Parties in this Agreement.
In addition, each Party shall comply with all statutory insurance requirements determined by governmental laws and regulations, as
applicable. To the extent of the Parties’ indemnity obligations or liabilities assumed under this Agreement, (i) each Party’s
insurance coverage shall be primary to and shall receive no contribution from any insurance maintained by the Indemnified Parties,
and (ii) any insurance of each Party shall waive rights of subrogation against the Indemnified Parties and include the Indemnified
Parties as additional insured under any applicable coverages. Failure to obtain adequate insurance coverage shall in no way relieve
or limit any indemnity or liability of either Party under this Agreement.
ARTICLE XIV
TITLE
Section 14.1 Producer’s Warranty. Producer warrants that it owns, or has the right to deliver, Producer’s Gas to the
Delivery Points for the purposes of this Agreement, free and clear of
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 29
CONFIDENTIAL TREATMENT REQUESTED
all liens, encumbrances, and adverse claims. If the title to Producer’s Gas delivered hereunder is disputed or is involved in any legal
action in any material respect, Processor shall have the right to withhold payment (without interest), or cease receiving such Gas, to
the extent of the interest disputed or involved in legal action, during the pendency of the action or until title is freed from the
dispute or until Producer furnishes, or causes to be furnished, indemnification to save Processor harmless from all Claims or Losses
arising out of the dispute or action, with surety reasonably acceptable to Processor. Subject to Sections 19.9 and 19.10, Producer
agrees to indemnify the Processor Indemnified Parties from and against all Claims or Losses suffered by the Processor Indemnified
Parties, to the extent such Claims or Losses arise out of a breach of the foregoing warranty.
Section 14.2 Processor’s Warranty. Processor warrants that it has the right to accept Gas at the Delivery Points and to
deliver the Residue Gas to the Residue Gas Redelivery Points and the Plant Products to the Plant Products Redelivery Points free
and clear of all liens, encumbrances, and adverse claims. If the Processor’s Facilities are involved in any legal action in any material
respect, Producer shall have the right to withhold payment (without interest), or cease delivering Gas, to the extent of the interest
disputed or involved in legal action, during the pendency of the action or until Processor furnishes, or causes to be furnished,
indemnification to save Producer harmless from all Claims or Losses arising out of the dispute or action, with surety reasonably
acceptable to Producer. Subject to Sections 19.9 and 19.10, Processor agrees to indemnify the Producer Indemnified Parties from
and against all Claims or Losses suffered by the Producer Indemnified Parties, to the extent such Claims or Losses arise out of a
breach of the foregoing warranty.
Section 14.3 Title. Except to the extent that Producer has elected to take any Residue Gas and/or Plant Products in-kind in
accordance with Section 2.5, title to Producer’s Gas (including Plant Products and Inert Constituents contained in Producer’s Gas)
delivered to Processor under this Agreement shall pass to Processor at the tailgate of the Processor’s Facilities, and Producer
conveys Producer’s Gas (and the Plant Products and Inert Constituents in the Producer’s Gas) to Processor, free and clear of any
claims, liens or encumbrances of any nature. In the event that Producer has elected to take its Residue Gas and Plant Products in-
kind in accordance with Section 2.5, title to the Inert Constituents contained in Producer’s Gas and extracted by Processor at the
Processor’s Facilities shall pass to Processor at the tailgate of the Processor’s Facilities.
ARTICLE XV
ROYALTY AND TAXES
Section 15.1 Proceeds of Production. Producer shall have the sole and exclusive obligation and liability for the payment of
all Persons due any proceeds derived by Producer from Producer’s Gas (including all constituents and products thereof) delivered
under this Agreement, including,
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 30
CONFIDENTIAL TREATMENT REQUESTED
without limitation, royalties, overriding royalties, and similar interests, in accordance with the provisions of the leases or
agreements creating those rights to such proceeds.
Section 15.2 Producer’s Taxes. Producer shall pay and be responsible for all gross production and severance Taxes levied
against or with respect to Producer’s Gas delivered under this Agreement, all ad valorem Taxes levied against the property of
Producer, all income, excess profits, and other Taxes measured by the income or capital of Producer, and all payroll Taxes related to
employees of Producer.
Section 15.3 Processor’s Taxes. Processor shall pay and be responsible for all Taxes levied with respect to the providing
of Services under this Agreement, all ad valorem Taxes levied against the property of Processor, all income, excess profits, and
other Taxes measured by the income or capital of Processor, and all payroll Taxes related to employees of Processor.
Section 15.4 Severance Tax Reimbursement. Producer and Processor agree that the price paid by Processor for Residue
Gas and associated Plant Products purchased hereunder is inclusive of all severance tax reimbursements which are levied on the
production of such Residue Gas and Plant Products and which are measured by the quantity of Residue Gas and Plant Products or
by the revenues received by Producer for the sale of such Residue Gas and Plant Products.
ARTICLE XVI
NOTICE AND PAYMENT INSTRUCTIONS
Except as specifically provided elsewhere in this Agreement, any notice or other communication provided for in this
Agreement shall be in writing and shall be given (i) by depositing in the United States mail, postage paid and certified with return
receipt requested, (ii) by depositing with a reputable overnight courier, (iii) by delivering to the recipient in person by courier, or
(iv) by facsimile or email transmission, in each of the foregoing cases addressed to the applicable Party as set forth below, and
payments required under this Agreement shall be made to the applicable Party according to the payment instructions set forth
below. A Party may at any time designate a different address or payment instructions by giving written notice to the other Party.
Notices, invoices, allocation statements, claims, or other communications shall be deemed received when delivered to the addressee
in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by
the addressee after such notice has either been delivered to an overnight courier or deposited in the United States mail, as the case
may be.
NOTICES:
Producer Processor
______________________________ Alpine High Processing LLC
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 31
CONFIDENTIAL TREATMENT REQUESTED
______________________________ Attn: Commercial Operations
______________________________ 17802 IH-10 West
______________________________ San Antonio, Texas 78257
_________________________ Telephone: 210-447-5629
______________________________ Email: CommercialOperations@apachecorp.com
PAYMENT INSTRUCTIONS:
Producer Processor
Bank: _____________________ c/o [***]
ABA: _____________________ Bank: [***]
_____________________ ABA: [***]
Acct: _____________________ [***]
Acct: [***]
ARTICLE XVII
DISPUTE RESOLUTION
Section 17.1 Negotiation. Prior to submitting any dispute for resolution by a court, a Party shall provide written notice of
such dispute to the other Party. If the Parties fail to resolve the dispute within fifteen (15) Business Days after such notice is given,
the Parties shall seek to resolve the dispute by negotiation between senior management personnel of each Party. Such personnel
shall endeavor to meet and attempt to amicably resolve the dispute. If the Parties are unable to resolve the dispute for any reason
within thirty (30) Business Days after the original notice of dispute was given, then either Party shall be entitled to pursue any
available remedies; provided, however, this Section 17.1 shall not limit a Party’s right to initiate litigation prior to the expiration of
the time periods set forth in this Section 17.1 if application of such limitations would prevent a Party from filing a Claim within the
applicable period for filing lawsuits (e.g. statutes of limitation, prescription, etc.) or would otherwise prejudice or harm a Party.
Section 17.2 Jurisdiction and Venue.
(a) Each Party agrees that the appropriate, exclusive and convenient forum for any disputes between the Parties arising out
of this Agreement or the transactions contemplated hereby shall be in any state or federal court in Houston, Texas, and each of the
Parties irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding arising out of or related to this
Agreement or the transactions contemplated hereby. The Parties further agree that the Parties shall not bring suit with respect to any
disputes arising out of this Agreement or the transactions contemplated hereby in any court or jurisdiction other than the above
specified courts.
(b) Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any
objection (including, without limitation, the defense of
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 32
inconvenient forum) which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby in any court referred to in paragraph (a) above.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE XVIII
TERM
Section 18.1 Primary Term; Producer’s Right to Extension. This Agreement is effective as of the Effective Date and shall
continue in full force and effect until March 31, 2032 (the “Primary Term”); provided that Producer shall have two (2) successive
options to extend the Primary Term by five (5) Years each. Each five (5)-Year Primary Term extension shall occur automatically
unless Producer gives Processor at least nine (9) Months’ prior written notice that it does not wish to extend the Primary Term.
Unless terminated at the end of the Primary Term by either Party giving at least six (6) Months’ prior written notice, this Agreement
shall continue after the Primary Term on a Year-to-Year basis unless terminated at the end of any Yearly extension period by either
Party giving at least six (6) Months’ prior written notice. For purposes of this Agreement, the period during which this Agreement
continues in full force and effect prior to any termination pursuant to this Agreement is referred to herein as the “Term”.
Section 18.2 Termination of Gathering Agreement. Notwithstanding anything to the contrary in this Article XVIII,
Producer shall have the right to terminate this Agreement upon the termination or expiration of that certain Gas Gathering
Agreement between Producer and Alpine High Gathering LP dated [_________].
ARTICLE XIX
MISCELLANEOUS
Section 19.1 Confidentiality. Producer’s 2-Year Forecast delivered to Processor pursuant to Section 2.1(b) and all other
information received by Processor pursuant to the terms of this Agreement which involves or in any way relates to Producer’s
production estimates, development plans, and/or other similar information shall be kept strictly confidential by Processor, and
Processor shall not disclose any such information to any third Person or use any such information for any purpose other than
performing under this Agreement, provided, however, Processor may disclose such information to those of its legal counsel,
accountants, and other representatives with a specific need to know such information for purposes of Processor’s performance
under this Agreement or enforcement of this Agreement or as required by applicable Law, provided such third Persons have
likewise agreed in writing to the confidentiality and non-use restrictions set forth herein. In the event Processor is required by Law
to disclose any such information, Processor shall first notify Producer in writing as soon as practicable of any proceeding of which
it is aware that may result
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 33
CONFIDENTIAL TREATMENT REQUESTED
in disclosure and shall use all reasonable efforts to prevent or limit such disclosure. Producer’s confidential information shall not
include information that Processor can satisfactorily demonstrate was: (a) rightfully in the possession of Processor prior to
Producer’s disclosure hereunder, (b) in the public domain prior to Producer’s disclosure hereunder, (c) made public by any
Governmental Authority; (d) supplied to Processor without restriction by a third party who is under no obligation to Producer to
maintain such confidential information in confidence; or (e) independently developed by Processor. The confidentiality
requirements and non-use restrictions set forth herein shall survive termination or expiration of this Agreement for two (2) Years
after such termination or expiration. Notwithstanding anything else in this Agreement, the Parties agree that there is not an adequate
remedy at law for any breach of these confidentiality and non-use restrictions and, therefore, Producer shall be entitled (without the
posting of any bond) to specific performance and injunctive relief restraining any breach hereof, in addition to any other rights and
remedies which it may have or be entitled.
Section 19.2 Independent Contractor. Notwithstanding anything else in this Agreement, Processor undertakes its
obligations under this Agreement as an independent contractor, at its sole risk, and all Persons carrying out any of Processor’s
obligations set forth herein for or on behalf of Processor are or shall be deemed employees, contractors, subcontractors, agents,
and/or representatives of Processor, subject to the direction and control of Processor. Processor is to determine the manner, means,
and methods in which such Persons shall carry out their work to attain the results contemplated by this Agreement, consistent with
the general coordinative efforts and suggestions of Producer with respect to the work. Nothing in this Agreement or inferred from
any action of either Party shall be taken to establish the relationship of master and servant or principal and agent between Producer
and Processor.
Section 19.3 Rights; Waivers. The failure of either Party to exercise any right granted hereunder shall not impair nor be
deemed a waiver of that Party’s privilege of exercising that right at any subsequent time or times. No waiver by either Party of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless expressly provided.
Section 19.4 Applicable Laws. This Agreement is subject to all valid present and future Laws of any Governmental
Authority(ies) now or hereafter having jurisdiction over the Parties, this Agreement, or the Services performed or the facilities
utilized under this Agreement.
Section 19.5 Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the Laws
of the State of Texas, without regard to any choice of law principles that would require the application of the Laws of any other
jurisdiction, PROVIDED, HOWEVER, THAT NO LAW, THEORY, OR PUBLIC POLICY SHALL BE GIVEN EFFECT
WHICH WOULD UNDERMINE, DIMINISH, OR REDUCE THE EFFECTIVENESS OF EACH PARTY’S WAIVER OF
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, AND EXEMPLARY DAMAGES SET FORTH IN SECTION
19.9 OR WAIVER OF THE RIGHT TO CERTAIN REMEDIES SET FORTH IN SECTION 19.10, IT BEING THE
EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 34
CONFIDENTIAL TREATMENT REQUESTED
SUCH WAIVERS ARE TO BE GIVEN THE FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING
CONDITION OR THE NEGLIGENCE (WHETHER SOLE, JOINT, OR CONCURRENT), GROSS NEGLIGENCE,
WILLFUL MISCONDUCT, STRICT LIABILITY, OR OTHER LEGAL FAULT OF ANY PARTY HERETO, OR
OTHERWISE.
Section 19.6 Assignments. This Agreement, including any and all renewals, extensions, and amendments hereto, and all
rights, title, and interests contained herein, shall be binding upon and inure to the benefit of the Parties hereto and their respective
heirs, successors, and assigns, the assigns of all or any part of Processor’s right, title, or interest in the Processor’s Facilities, and the
assigns of all or any part of Producer’s Interests in the Dedicated Area, and each Party’s respective obligations hereunder shall be
covenants running with the lands underlying or included in any such assets. Neither Party shall Transfer any of its rights or
obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably
withheld, delayed, or conditioned; provided, however, that either Party may Transfer any of its rights or obligations under this
Agreement to any Affiliate of such Party without the prior written consent of the other Party and that, in connection with a Transfer
of all or any portion of the Dedicated Area, Producer shall Transfer its corresponding rights and obligations under this Agreement
without the need for the prior written consent of Processor. Any Transfer of this Agreement shall expressly require that the assignee
assume and agree to discharge the duties and obligations of its assignor under this Agreement, and the assignor shall be released
from the duties and obligations arising under this Agreement which accrue after the effective date of such Transfer. Processor shall
not Transfer its rights and interests in the Processor’s Facilities, in whole or in part, unless the transferee of such interests agrees in
writing to be bound by the terms and conditions of this Agreement. No Transfer of this Agreement or of any interest of either Party
shall be binding on the other Party until such other Party has been notified in writing of such Transfer and furnished with reasonable
evidence of same. No such Transfer of this Agreement or of any interests of either Party shall operate in any way to enlarge, alter,
or modify any obligation of the other Party hereto. Any Person that succeeds by purchase, merger, or consolidation with a Party
hereto shall be subject to the duties and obligations of its predecessor in interests under this Agreement.
Section 19.7 Entire Agreement. This Agreement constitutes the entire agreement of the Parties and supersedes all prior
understandings, agreements, representations, and/or warranties by or among the Parties, written or oral, with respect to the subject
matter hereof. No other representations, warranties, understandings, or agreements shall have any effect on this Agreement.
Section 19.8 Amendments. This Agreement may not be amended or modified in any manner except by a written
document signed by both Parties that expressly amends this Agreement.
Section 19.9 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES (COLLECTIVELY, “CONSEQUENTIAL DAMAGES”)
RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF OR UNDER ANY
OTHER THEORY OF LIABILITY, WHETHER NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT OR
WARRANTY, OR
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 35
CONFIDENTIAL TREATMENT REQUESTED
OTHERWISE. IN FURTHERANCE OF THE FOREGOING, EACH PARTY RELEASES THE OTHER PARTY AND
WAIVES ANY RIGHT OF RECOVERY FOR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH PARTY,
REGARDLESS OF WHETHER ANY SUCH DAMAGES ARE CAUSED BY THE OTHER PARTY’S NEGLIGENCE
(AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE, JOINT, CONCURRENT, ACTIVE, PASSIVE,
OR GROSS), FAULT, OR LIABILITY WITHOUT FAULT. PROCESSOR UNDERSTANDS THAT PRODUCER IS
RELYING ON PROCESSOR’S PERFORMANCE UNDER THIS AGREEMENT TO ENABLE PRODUCER TO MEET
ITS OBLIGATIONS UNDER DOWNSTREAM CONTRACTS, AND PROCESSOR EXPRESSLY AGREES THAT ANY
DAMAGES SUFFERED BY PRODUCER UNDER ANY SUCH DOWNSTREAM CONTRACT AS A RESULT OF
PROCESSOR’S UNEXCUSED FAILURE TO PERFORM UNDER THIS AGREEMENT SHALL BE CONSIDERED
DIRECT DAMAGES.
Section 19.10 RIGHTS AND REMEDIES. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
THAT MAY BE CONSTRUED TO THE CONTRARY, A PARTY’S SOLE REMEDY AGAINST THE OTHER PARTY
FOR NON-PERFORMANCE OR BREACH OF THIS AGREEMENT OR ANY OTHER CLAIM OF WHATSOEVER
NATURE ARISING OUT OF THIS AGREEMENT OR OUT OF ANY ACTION OR INACTION BY A PARTY IN
RELATION HERETO SHALL BE IN CONTRACT AND EACH PARTY EXPRESSLY WAIVES ANY OTHER REMEDY
IT MAY HAVE IN LAW OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY REMEDY IN TORT.
Section 19.11 Replacement Indices. In the event a published index or rate required hereunder is not available, the Parties
shall promptly agree upon an alternative index or rate to be utilized, upon either Party giving written notice to the other that an
alternative index or rate is needed. Such alternative index or rate shall be effective retroactively to the date on which the original
index or rate ceased to be available. If the Parties have not agreed on an alternative index or rate by the end of the fifth (5th)
Business Day after notice was given, then each Party shall, by the end of the fifteenth (15th) Business Day after the notice was
given, prepare a list of three alternative published and industry recognized indices or rates to replace the index or rate that has
become unavailable. The first common item that appears on each of the lists shall be the alternative index or rate. If there is more
than one common item on both lists, the one appearing first on both lists, giving priority to the list first submitted by one Party to
the other, shall be the alternative index or rate. If no common item appears on the lists, each Party may strike in turn, one item from
the other Party’s list until only one item remains on each list. The alternative index or rate will then be determined from the two
remaining items by coin flip. If either Party fails to deliver a list, the first item appearing on the submitting Party’s list will govern
and prevail to determine the alternative index or rate.
Section 19.12 No Partnership. Nothing contained in this Agreement shall be construed to create an association, trust,
partnership, or joint venture or impose a trust, fiduciary, or partnership duty, obligation, or liability on or with regard to either Party.
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 36
CONFIDENTIAL TREATMENT REQUESTED
Section 19.13 Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this
Agreement;
(b) the headings and captions in this Agreement have been inserted for convenience of reference only and shall not define
or limit any of the terms and/or conditions hereof;
(c) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(d) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding syntactical
variant expressions; and
(e) the plural shall be deemed to include the singular and vice versa, as applicable.
Section 19.14 No Third Party Beneficiaries. Except for Persons expressly indemnified hereunder, this Agreement is for
the sole benefit of the Parties and their respective successors and permitted assigns, and shall not inure to the benefit of any other
Person, it being the intention of the Parties that no third Person shall be deemed a third-party beneficiary of this Agreement.
Section 19.15 Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be
reasonably required to effectuate the purposes of this Agreement.
Section 19.16 No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee,
rebate, gift, or entertainment of significant cost or value in connection with this Agreement.
Section 19.17 Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which
shall be considered an original, and all of which shall be considered one and the same instrument.
Section 19.18 Survival. The terms of this Agreement which by their nature should reasonably be expected to survive
termination or expiration of this Agreement shall survive, including, without limitation, Article XI (Audit Rights), Article XIII
(Indemnification), Article XVII (Dispute Resolution), Section 19.1 (Confidentiality), Section 19.5 (Governing Law), Section 19.9
(Limitation of Liability), Section 19.10 (Rights and Remedies), this Section 19.18 (Survival), and the obligations of either Party
under any provision of this Agreement to make payment hereunder.
Section 19.19 Financial Assurance. If either Party has reasonable grounds for insecurity regarding the performance of any
payment obligation under this Agreement (whether or not then due) by the other Party or that other Party’s guarantor, if any,
including, without limitation, the occurrence of a material adverse change in the creditworthiness of the other Party, a Party may
demand Adequate Assurance of Performance. A demand by a Party seeking Adequate Assurance of Performance shall be in
writing and shall include an explanation in reasonable detail of the calculation of the Adequate Assurance of Performance demand.
“Adequate Assurance of
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
Page 37
CONFIDENTIAL TREATMENT REQUESTED
Performance” shall mean sufficient security in the form, amount, and for a term, and from an issuer, all reasonably acceptable to
the Party seeking assurance, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in
an asset, or a guaranty. If either Party does not give Adequate Assurance of Performance in accordance with the terms of this
Agreement within - ten (10) Business Days of a written request by the other Party, the Party making a reasonable request for
Adequate Assurance of Performance has the right to immediately suspend deliveries or receipts, as applicable, under this
Agreement with immediate effect until such time sufficient security is provided.
Section 19.20 Changes in Laws. If following the Effective Date there is a change in any Law or legal requirement
affecting the Services provided by Processor which, in the reasonable judgment of Processor, materially adversely affects the
economics for Processor of the Services provided under this Agreement, then, upon notice by Processor to Producer, the Parties will
as promptly as practicable meet to negotiate in good faith such changes to the terms of this Agreement as may be necessary or
appropriate to preserve and continue for the Parties the rights and benefits originally contemplated for the Parties by this
Agreement, with such amendment to this Agreement to be effective no later than the effective date of such new or amended
applicable Law. If the Parties cannot agree on replacement terms, then either party may terminate this Agreement by giving the
other party written notice of termination. Such termination will be effective no earlier than sixty (60) Days after the date of the
notice.
Section 19.21 Exhibits. The following exhibits are attached to this Agreement and are incorporated herein by this
reference:
Exhibit A - Dedicated Area
Exhibit B - Delivery Points and Redelivery Points
Exhibit C - Fees and FL&U
Exhibit D - Gas Quality Specifications
Exhibit E - Take In-Kind Terms
Exhibit F - Allocation Methodologies
Exhibit G - Form of Memorandum of Agreement
Exhibit H - Form of Memorandum of Release
IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
[____________]
By:
Name:
Title:
Gas Processing Agreement dated [______________]
Between Alpine High Processing LP (Processor) and [_____________] (Producer)
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Name:
Title:
Page 38
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
DEDICATED AREA
“Dedicated Area” shall mean the following lands as further described in the map (the area within the red border) and table below,
as the same may be updated annually pursuant to Section 2.1(b). In the event of a conflict between the map and the table, the map
shall control.
[Insert map with boundaries around each block containing any property assigned to
transferee producer]
[Insert description of property assigned to transferee producer]
Section
Block
Survey
County
WI%
Exhibit A – Page 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
Processor shall update Exhibit B on January 1, April 1, July 1, and October 1 of each Year to include any additional points that have
been placed into service
DELIVERY POINTS AND REDELIVERY POINTS
LOW PRESSURE DELIVERY POINTS
Delivery Point Name
Location
MAOP
Required Pressure
HIGH PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
MAOP
HIGH PRESSURE DELIVERY POINTS
Delivery Point Name
Meter Number
MAOP
RESIDUE GAS REDELIVERY POINTS
Redelivery Point Name
Meter Number
PLANT PRODUCTS REDELIVERY POINTS
Redelivery Point Name
Meter Number
Exhibit B - Page 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
FEES AND FL&U
Fees:
1. Central Conditioning Fee: [$[***]] per Mcf of Producer’s Non-Processable Gas delivered to a Central Conditioning
Facility.
2. Central Processing Fee: (a) From the Effective Date through December 31, 2020, [$[***]] per Mcf of Producer’s
Processable Gas delivered only to a Central Processing Facility, and (b) from January 1, 2021, through the remainder of the Term,
[$[***]] per Mcf of Producer’s Processable Gas delivered only to a Central Processing Facility.
3. Cryogenic Processing Fee: [$[***]] per Mcf of Producer’s Processable Gas delivered to a Cryogenic Processing Facility.
[Insert then effective fees under Alpine High/Apache anchor shipper form]
FL&U:
1. FL&U at Central Conditioning Facilities: Producer will be allocated its proportionate share of actual FL&U but not to
exceed [***]% of Producer’s Non-Processable Gas in MMBtu (the “Non-Processable Gas FL&U Cap”).
a)
Fuel for electric power that Processor purchases shall be determined each Month by the following equation:
GEE (CCF) = (MEUCC x EPRCC)/GPCC
Where:
GEE (CCF) = Gas Electric Equivalent at the Central Conditioning Facilities, which means an amount of
MMBtus that may be included as the electric power component of FL&U.
MEUCC = Measured Electrical Use, means Producer’s pro rata share of electricity usage expressed in kilowatt-
hours, used in lieu of gas-driven equipment, limited only to motors used for compression.
EPRCC = The electric power rate actually paid by Processor for electricity at Central Conditioning Facilities, in
$/kWh.
Exhibit C – Page 1
CONFIDENTIAL TREATMENT REQUESTED
GPCC = Gas Price, means the greatest of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”, (ii) 98.7% of Inside
F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices of Spot Gas Delivered to
Pipeline” for HSC less $0.46 per MMBtu, or (iii) Inside F.E.R.C’s Gas Market Report in its first publication of
the delivery month for “Prices of Spot Gas Delivered to Pipeline” for El Paso Permian.
Electric power that Processor generates shall not be considered in the calculation of FL&U.
b) FL&U for Gas shall be determined each Month by the following equation:
GF (CCF) = X-Y
Where:
GF (CCF) = Gas FL&U at the Central Conditioning Facilities, which means an amount of MMBtus retained as
fuel and/or system loss by Processor
X = Producer’s Non-Processable Gas in MMBtu delivered to applicable Receipt Points less buyback gas
redelivered to Producer upstream of the Delivery Points
Y = Producer’s Non-Processable Gas in MMBtu redelivered to the discharge of the Central Conditioning
Facilities
In the event that the sum of (i) GEE (CCF) and (ii) GF (CCF) exceeds the Non-Processable Gas FL&U Cap, then the FL&U
at Central Conditioning Facilities will be reduced to the Non-Processable Gas FL&U Cap.
2. FL&U at Central Processing Facilities and Cryogenic Processing Facilities: Producer will be allocated its proportionate
share of actual FL&U but not to exceed [***]% of Producer’s Processable Gas in MMBtu (the “Processable Gas FL&U Cap”);
provided that during periods when a Cryogenic Processing Facility is Operational, the Processable Gas FL&U Cap shall be [***]%
of Producer’s Processable Gas in MMBtu.
a) Fuel for electric power that Processor purchases shall be determined each Month by the following equation:
GEE (PF) = (MEUPF x EPRPF) /GPPF
Where:
GEE (PF) = Gas Electric Equivalent at the Central Processing Facilities and Cryos, which means an amount of
MMBtus that is included as the electric power component of FL&U
MEUPF = Measured Electrical Use, means Producer’s pro rata share of electricity usage expressed in kilowatt-
hours, used in lieu of gas-driven equipment, limited
Exhibit C – Page 2
CONFIDENTIAL TREATMENT REQUESTED
only to motors used for field compression, Cryo and Central Processing Facilities recompression, and Cryo
refrigeration recompression.
EPRPF = The electric power rate actually paid by Processor for electricity at Cryos and Central Processing
Facilities, in $/kWh.
GPPF = Gas Price, means the greatest of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”, (ii) 98.7% of Inside
F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices of Spot Gas Delivered to
Pipeline” for HSC less $0.46 per MMBtu, or (iii) Inside F.E.R.C’s Gas Market Report in its first publication of
the delivery month for “Prices of Spot Gas Delivered to Pipeline” for El Paso Permian. (iii).
Electric power that Processor generates shall not be considered in the calculation of FL&U.
b) FL&U for Gas shall be determined each Month by the following equation:
GF (PF) = CI - RG - S
Where:
GF (PF) = Gas FL&U means an amount of MMBtus retained as fuel and/or system loss by Processor
CI = All Producer’s Processable Gas in MMBtu delivered to applicable Receipt Points less buyback gas
redelivered to Producer upstream of the Delivery Points
RG = Producer’s Residue Gas at the Cryos and Central Processing Facilities, in MMBtu
S = Producer’s Cryo and Central Processing Facilities Shrinkage as defined in Exhibit F, Paragraph 5
In the event that the sum of (i) GEE (PF) and (ii) GF (PF) exceeds the Processable Gas FL&U Cap, then the FL&U at the Central
Processing Facilities and Cryos will be reduced to the Processable Gas FL&U Cap.
Exhibit C – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D-1
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
GAS QUALITY SPECIFICATIONS
(Central Processing Facility and Cryogenic Processing Facility)
1. The Gas shall be free of objectionable liquids and solids and other impurities, including, but not limited to, methanol, and
shall be commercially free from dust, gum, gum-forming constituents, free water, and other liquids and solids.
2. The Gas shall have zero (0) parts per million of oxygen.
3. The Gas shall not contain more than four (4) parts per million by volume of hydrogen sulfide.
4. The Gas shall not have a carbon dioxide content in excess of two (2) percent by volume.
5. The Gas shall not have nitrogen content in excess of two (2) percent by volume.
6. The Gas shall be received at a temperature not in excess of one hundred twenty (120) degrees Fahrenheit and not less than
thirty-five (35) degrees Fahrenheit.
Exhibit D – Page 1
CONFIDENTIAL TREATMENT REQUESTED
Exhibit D - Page 1
EXHIBIT D-2
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
GAS QUALITY SPECIFICATIONS
(Central Conditioning Facility)
1. The Gas shall be free of objectionable liquids and solids and other impurities, including, but not limited to, methanol, and
shall be commercially free from dust, gum, gum-forming constituents, free water, and other liquids and solids.
2. The Gas shall have zero (0) parts per million of oxygen.
3. The Gas shall not contain more than fifty (50) parts per million by volume of hydrogen sulfide.
4. The Gas shall not have a carbon dioxide content in excess of four (4) percent by volume.
5. The Gas shall not have nitrogen content in excess of two (2) percent by volume.
The Gas shall be received at a temperature not in excess of one hundred twenty (120) degrees Fahrenheit and not less than thirty-
five (35) degrees Fahrenheit.
Exhibit D – Page 2
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
TAKE IN-KIND TERMS
For any Calendar Year during which Producer elects under Section 2.5 of the Agreement to take its Residue Gas and/or Plant
Products in-kind, the following terms shall apply:
I. Nominations. Processor and Producer agree that scheduling and commencement of service shall be consistent with the
downstream receiving pipeline or transporter nomination requirements. Whenever Producer’s Residue Gas is to be scheduled or
nominated hereunder, each Party shall provide to the other Party all information required for such nominations and confirmations
with upstream and downstream pipelines or transporters. Producer may but shall not be required to provide Processor with Plant
Product nominations.
(a)
Delivery Point Nominations. Producer shall not be required to provide Processor with nominations of the
Producer’s Gas at the Delivery Point(s), however, Producer shall provide volume forecast information pursuant to Section 2.1(b) of
the Agreement, for Processor’s general capacity planning purposes by Delivery Point.
(b)
Operational Information. Processor shall use reasonable efforts to provide daily information related to Delivery
Point volume, Plant Product composition, and historical volume information in order to assist with Producer’s nominations below.
Processor shall use reasonable efforts to make nomination changes as necessary, based on the information provided by Producer, at
the Redelivery Points to minimize imbalances.
(c)
Redelivery Point Nominations.
i.
Producer shall make all necessary arrangements with pipelines or other third parties downstream of the Residue
Gas Redelivery Points in order to help manage Processor’s delivery of Producer’s Residue Gas. Those arrangements must be
coordinated with Processor, and Processor shall coordinate such arrangements with Producer and such downstream pipelines or
other third parties.
ii.
Residue Gas. No later than 12:00 PM on the fifth (5th) Business Day prior to the beginning of each Month, but no
later than one (1) Business Day prior to the nomination deadline each Month for the applicable downstream pipeline(s) receiving
Residue Gas at the Residue Gas Redelivery Points, Processor shall notify Producer of the estimated quantity of Producer’s Residue
Gas per Day for each Residue Gas Redelivery Point, provided that nominations at the Residue Gas
Exhibit E – Page 1
CONFIDENTIAL TREATMENT REQUESTED
Redelivery Points are subject to confirmation by the downstream pipeline. By 7:00 AM on the day prior to gas flow, Processor shall
notify Producer of the estimated quantity of Producer’s Residue Gas available for next day’s flow for each Residue Gas Redelivery
Point. By 10:30 AM on the day prior to gas flow, Producer shall provide a nomination form to Processor, indicating downstream
pipeline contract number, downstream delivery point and counterparty. If Producer does not provide a nomination form to
Processor, the prior nomination shall remain in effect until such time as when Producer provides notice to Processor to revise the
prior nomination. Processor will use reasonable efforts to confirm any nomination change requested by Producer after the
nomination deadline. Processor reserves the right, from time to time, to revise its nomination procedures, subject to Producer’s
consent which shall not be unreasonably withheld.
iii.
Producer will make all necessary arrangements with pipelines or other third parties downstream of the Plant
Products Redelivery Points in order to facilitate Processor’s delivery of Plant Products. No later than one (1) Business Day prior to
the nomination deadline each Month for the applicable downstream pipeline(s) receiving Plant Products, Producer will notify
Processor of the estimated quantity of Plant Products per Day, provided that nominations at each Redelivery Point are subject to
confirmation by the downstream pipeline. At any time, Producer may adjust its nomination prospectively for the remainder of such
Month by providing Processor notice prior to the nomination deadline of the applicable downstream pipeline.
(d)
Processor and Producer shall immediately inform each other of any discovered unanticipated changes in
deliveries at either the Delivery Point(s) or Redelivery Point(s). Nominations may be made by telephone, but shall be confirmed in
writing by e-mail, facsimile, or other electronic means to Processor’s Gas Control Department.
II.
Balancing. Subject to the provisions of the Agreement, Processor shall accept at the Delivery Point a Daily quantity of
Producer’s Gas at the Delivery Points and redeliver Producer’s Residue Gas and Producer’s Plant Products allocated to such
Producer’s Gas at the Residue Gas Redelivery Points and Plant Products Redelivery Point, respectively. All quantities received in
accordance with the Agreement at the Delivery Points and all deliveries of Producer’s Residue Gas in accordance with this
Agreement at the Residue Gas Redelivery Point shall be balanced on a Btu basis, and all such quantities referred to in the
Agreement shall be adjusted for the Gross Heating Value thereof. Processor shall provide Producer reasonable flexibility in
adjusting nominations provided however, that providing Producer such flexibility in adjusting nominations shall be subject to
Processor not incurring financial harm or loss as a result of Producer’s actions. Processor shall use its best efforts to enter into, and
maintain in good standing, operational balancing agreements with the downstream receiving pipelines at each of the Residue Gas
Redelivery Points and Plant Products Redelivery Points. Processor shall not impose balancing guidelines on Producer that are more
stringent than those imposed on Processor under the operational balancing agreements with the applicable downstream receiving
pipeline. When operational balancing agreements are effective between Processor and an applicable downstream pipeline (and the
applicable downstream pipeline keeps
Exhibit E – Page 2
CONFIDENTIAL TREATMENT REQUESTED
Producer whole on its nominations each Month) and an imbalance is caused solely by Producer and Processor incurs a cash out,
penalty, or settlement due to said imbalance, then Producer shall reimburse Processor for such cash out, penalty or settlement
incurred by Processor pursuant to the terms of the applicable operational balancing agreement, to the extent such cash out, penalty,
or settlement is caused by Producer. Processor shall provide an invoice to Producer for same, along with reasonable documentation
evidencing same, and Producer shall reimburse Processor for same in accordance with the payment terms set forth in Article X of
the Agreement.
III.
Imbalances. Because of dispatching and other causes outside of Processor’s reasonable control, imbalances may occur
between the total heating value of the Residue Gas delivered to downstream pipelines at the Residue Gas Redelivery Points for
Producer’s account and the allocated quantity of Residue Gas attributable to Producer’s Gas. Similarly, imbalances may occur
between the allocated volumes of Producer’s Plant Products that are delivered to downstream pipelines at the Plant Products
Redelivery Points for Producer’s account and the allocated Plant Products attributable to Producer’s Gas.
(a) Residue Gas Redelivery Point. For imbalance events at Residue Gas Redelivery Points where Processor does not have an
operational balancing agreement in place, the Parties agree to settle imbalances through a monthly cash out. The monthly cash out
price shall be the simple average of (i) Inside F.E.R.C’s Gas Market Report in its first publication of the delivery month for “Prices
of Spot Gas Delivered to Pipeline” for El Paso Permian and (ii) Inside F.E.R.C’s Gas Market Report in its first publication of the
delivery month for “Prices of Spot Gas Delivered to Pipeline” for West Texas “Waha”.
(b) Plant Products Redelivery Points. For imbalance events at Plant Products Redelivery Points where Processor does not have an
operational balancing agreement in place, the Parties agree to settle imbalances through a monthly cash out. The monthly cash out
price shall be based on Producer’s weighted average sales price for that month.
IV.
Curtailment. Processor shall use reasonable efforts to provide timely notification to Producer by telephone, with
subsequent e-mail notification, of the potential size and duration of any unscheduled capacity disruption. If Producer does not adjust
its nomination within two hours after receiving notification from Processor, then Processor may adjust Producer’s nomination
and/or not confirm the nominations requested by Producer in the next nomination cycle. If Producer does not adjust its nomination
as reasonably requested by Processor, and such failure to adjust nominations could materially impact operations at the Processor’s
Facilities, Processor may curtail or shut in Gas for a reasonable period of time.
Exhibit E – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
ALLOCATION METHODOLGIES
(Central Processing Facility and Cryogenic Processing Facility)
1.
Plant Products Allocable to Producer. The quantity of each Plant Product component allocable to Producer’s
Processable Gas that was delivered to the Central Processing Facilities and the Cryogenic Processing Facilities shall be determined
by multiplying the total quantity of each Plant Product component recovered at all Central Processing Facilities and Cryogenic
Processing Facilities (including any condensate recovered from Producer’s Gas) by a fraction. The numerator shall be the
theoretical gallons of that Plant Product component contained in Producer’s Gas at the low pressure Receipt Point less any buyback
volumes redelivered to Producer upstream of the Delivery Point, measured pursuant to Section 5.10, and the denominator shall be
the total theoretical gallons of that component contained in all Gas at all receipt points where Gas was first gathered and delivered
to Processor and processed at the Central Processing Facilities and Cryogenic Processing Facilities.
2.
Residue Gas Allocable to Producer. The MMBtus of Residue Gas allocable to Producer’s Processable Gas that was
delivered to the Central Processing Facilities and the Cryogenic Processing Facilities shall be determined by multiplying the total
MMBtus of Residue Gas measured at all Central Processing Facilities and Cryogenic Processing Facilities by a fraction; provided
that in the event that Producer’s proportionate share of actual FL&U at the Central Processing Facilities and Cryos, as calculated
pursuant to Exhibit C, FL&U Paragraph 2, exceeds the Processable Gas FL&U Cap, the total MMBtus of Residue Gas measured at
all Central Processing Facilities and Cryogenic Processing Facilities shall be increased by an amount sufficient to acknowledge the
Processable Gas FL&U Cap. The numerator of such fraction shall be Producer’s Theoretical Residue Gas, as defined below, and the
denominator shall be the total theoretical MMBtus of Residue Gas contained in all Gas at all receipt points where Gas was first
gathered and delivered to Processor and processed at all Central Processing Facilities and Cryogenic Processing Facilities.
Producer’s Theoretical Residue Gas shall be determined by the following equation:
PTRG = A - S
where:
PTRG = Producer’s Theoretical Residue Gas in MMBtus
Exhibit F – Page 1
CONFIDENTIAL TREATMENT REQUESTED
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less
buyback gas redelivered to Producer upstream of the Delivery Point in MMBtu
S = Producer’s allocated share of Shrinkage as defined in Exhibit F, Paragraph 5
3.
Central Processing Facilities Inlet Volume (“Producer’s CPF Volumes”). The aggregate volume of Producer’s
Processable Gas delivered to all Central Processing Facility inlets shall be determined by the following equation:
CPFV = A – CI
where:
CPFV = Producer’s CPF Volumes
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less buyback
gas redelivered to Producer upstream of the Delivery Point in Mcf
CI = Producer’s Cryo Volumes, as defined in Exhibit F, Paragraph 4
4.
Cryogenic Processing Facilities Inlet Volume (“Producer’s Cryo Volumes”). The aggregate volume in Mcf of
Producer’s Gas delivered to all Cryo inlets shall be determined by the following equation:
CI = ((CD+CC) /CE) x A
where:
CI = Producer’s Cryo Volumes
CD = The aggregate volume of Processable Gas in Mcf metered at all high pressure Receipt Points entering the
high pressure gathering pipeline
Exhibit F – Page 2
CONFIDENTIAL TREATMENT REQUESTED
CC = The total compressor condensate volumes (converted to Mcf) metered at the discharge of the compressor
prior to entering the high pressure gathering pipeline
CE = The aggregate volume of Processable Gas in Mcf metered at all low pressure Receipt Points entering the
low pressure gathering pipeline
A = The aggregate volume of Producer’s Processable Gas measured at all low pressure Receipt Points less
buyback gas redelivered to Producer upstream of the Delivery Point in Mcf
5.
Central Processing Facilities and Cryogenic Processing Facilities Shrinkage (“Shrinkage”). Producer’s share of
shrinkage at the Central Processing Facilities and the Cryos will be determined by converting each individual component of
Producer’s Plant Products, extracted and allocated to Producer at the aggregate of all the Central Processing Facilities and all the
Cryos, to its respective heating value (as measured in MMBtu) by using the conversion factors published in the Gas Processor’s
Association GPA Publication 2145-16, or any subsequent revision thereof in effect at the time such calculation is performed, and
adjusted to a pressure base of 14.65 psia and a temperature of 60° Fahrenheit.
6.
Allocations of Plant Products and Residue Gas hereunder shall be based on the aggregate recoveries within all
Central Processing Facilities and Cryogenic Processing Facilities and not based on each individual Central Processing Facility or
Cryogenic Processing Facility.
Exhibit F – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
FORM OF MEMORANDUM OF AGREEMENT
State of Texas §
§
County of [____] §
This Memorandum of Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between
Alpine High Processing LP, a Delaware limited partnership (“Processor”) and [____________], a [____________] (“Producer”).
MEMORANDUM OF AGREEMENT
WHEREAS, Processor and Producer have entered into a certain Gas Processing Agreement dated [____________] (the
“Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for processing by Processor; and
WHEREAS, the Parties wish to file this Memorandum of Agreement to put third parties on notice as to the existence of the
RECITALS
Agreement.
1. Dedication.
Producer’s interests in the acreage and/or well(s) set forth on Exhibit A hereto (“Dedicated Area”) are dedicated to
Processor for processing. The Agreement is for an initial term ending on March 31, 2032, but subject to extension, renewal, and/or
termination as more particularly provided therein.
2. Incorporation of Agreement and Effect of Memorandum.
The sole purpose of this Memorandum of Agreement is to give notice to third parties of the existence of the Agreement and
the rights of Processor in and to Producer’s Gas from the Dedicated Area. This Memorandum shall not modify in any manner any
of the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall not be used to interpret the
Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Agreement as if set out fully
herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms
of the Agreement shall govern and control for all purposes.
3. Defined Terms.
Exhibit G – Page 1
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Agreement is executed by Processor and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
CONFIDENTIAL TREATMENT REQUESTED
PROCESSOR
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Name:
Title:
PRODUCER
[____________]
By: ________________________________
Name: ______________________________
Title: _______________________________
Exhibit G – Page 2
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Processing LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of
[____________] on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Exhibit G – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF AGREEMENT
DEPICTION OF DEDICATED AREA
Exhibit G – Page 4
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT H
to
Gas Processing Agreement dated [____________] between
Alpine High Processing LP (“Processor”) and
[____________] (“Producer”)
FORM OF MEMORANDUM OF RELEASE
State of Texas §
§
County of [____] §
This Memorandum of Release is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine
High Processing LP, a Delaware limited partnership (“Processor”) and [____________], a [____________] (“Producer”).
MEMORANDUM OF RELEASE
RECITALS
WHEREAS, Processor and Producer have previously entered into a certain Gas Processing Agreement dated
[____________] (the “Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for processing
by Processor; and
WHEREAS, a Memorandum of Agreement dated [____________] was executed by Processor and Producer to give notice
to third parties of the existence of the Agreement and the respective rights and obligations of Processor and Producer with respect
thereto and with respect to the dedication as set forth therein; and
WHEREAS, such Memorandum of Agreement was filed of record in Book ____, Page_____ of the real property records of
[___] County, Texas; and
WHEREAS, the Parties wish to file this Memorandum of Release to put third parties on notice as to the release of certain
Interests from the dedication.
1. Release from Dedication.
The following Interests in the following acreage and/or well(s) (“Released Interests”) are hereby released from the
dedication, as further set forth on Exhibit A hereto:
2. Incorporation of Agreement and Effect of Memorandum.
[Description of Released Interests]
The sole purpose of this Memorandum of Release is to give notice to third parties of the existence of the Agreement, the
rights of Processor in and to Producer’s Gas from the Dedicated Area, and the release of the Released Interests from the dedication.
This Memorandum shall not
Exhibit H – Page 1
CONFIDENTIAL TREATMENT REQUESTED
modify in any manner any of the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall
not be used to interpret the Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Release
as if set out fully herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the
Agreement, the terms of the Agreement shall govern and control for all purposes.
3. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Release is executed by Processor and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
PROCESSOR
ALPINE HIGH PROCESSING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
[____________]
By: ________________________________
Name: ______________________________
Title: _______________________________
Exhibit H – Page 2
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Processing LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of
[____________] on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Exhibit H – Page 3
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF RELEASE
DEPICTION OF RELEASED INTERESTS
Exhibit H – Page 4
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
Execution Version
GAS GATHERING AGREEMENT
by and between
APACHE CORPORATION
and
ALPINE HIGH GATHERING LP
dated
July 1, 2018
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
CONFIDENTIAL TREATMENT REQUESTED
1
6
12
15
16
16
17
18
19
19
24
25
26
28
28
28
29
30
GAS GATHERING AGREEMENT
DEFINITIONS
DEDICATION AND SERVICES
RECEIPT POINTS, DELIVERY POINTS, AND PRESSURES
FEES
FUEL AND LOST & UNACCOUNTED FOR GAS
PAYMENTS
AUDIT RIGHTS
MAINTENANCE
GAS QUALITY
MEASUREMENT
FORCE MAJEURE
INDEMNIFICATION
TITLE
ROYALTY AND TAXES
NOTICE AND PAYMENT INSTRUCTIONS
DISPUTE RESOLUTION
TERM
MISCELLANEOUS
ARTICLE 1
ARTICLE 2
ARTICLE 3
ARTICLE 4
ARTICLE 5
ARTICLE 6
ARTICLE 7
ARTICLE 8
ARTICLE 9
ARTICLE 10
ARTICLE 11
ARTICLE 12
ARTICLE 13
ARTICLE 14
ARTICLE 15
ARTICLE 16
ARTICLE 17
ARTICLE 18
EXHIBITS:
Exhibit A - Dedicated Area
Exhibit B - Receipt Points; Delivery Points
Exhibit C - Addresses for Notices, Statements, and Payments
Exhibit D - Form of Memorandum of Agreement
Exhibit E - Form of Memorandum of Release
Exhibit F - Form of Transferee Agreement
Exhibit G - Form of Joinder Agreement
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
CONFIDENTIAL TREATMENT REQUESTED
This Gas Gathering Agreement (“Agreement”) is entered into to be retroactively effective July 1, 2018 (“Effective Date”)
by and between APACHE CORPORATION, a Delaware corporation (together with its successors and permitted assigns,
“Producer”), and ALPINE HIGH GATHERING LP, a Delaware limited partnership (together with its successors and permitted
assigns, “Gatherer”). Producer and Gatherer may be referred to herein individually as “Party,” or collectively as the “Parties.”
GAS GATHERING AGREEMENT
A.
Gatherer owns and operates the high pressure and low pressure Gathering System (as defined in Article 1 below).
RECITALS
B. Producer owns or controls Gas production in the vicinity of the Gathering System.
C. Subject to the terms and conditions of this Agreement, Producer desires to deliver to Gatherer, and Gatherer desires to
receive from Producer, Gas owned and/or controlled by Producer at the Receipt Points for Gathering on the Gathering System. In
accordance with the terms and conditions of this Agreement, Gatherer shall provide the Services with respect to Producer’s Gas
delivered to Gatherer hereunder.
D. The Parties originally entered into that certain Gas Gathering Agreement dated as of May 1, 2018 (the “Original
Gathering Agreement”). This Agreement hereby amends, restates, supersedes and replaces the Original Gathering Agreement in its
entirety.
NOW THEREFORE, in consideration of the premises and mutual covenants set forth in this Agreement, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the following meanings:
“2-Year Forecast” As defined in Section 2.1.
“Additional Delivery Point” As defined in Section 3.8.
“Additional Receipt Point” As defined in Section 3.7.
“Affiliate” With respect to a Person, any other Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person through one or more intermediaries or otherwise. For purposes of this definition, with
respect to a Person: (a) “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of Voting Securities or interests, by contract or otherwise, and
the terms “controlling” and “controlled” have correlative meanings, and (b) “Voting Securities” means securities of any class of
such Person entitling the holders thereof to vote in the election of, or to appoint, members of the board of directors or other similar
governing
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
body of the Person; provided that if such Person is a limited partnership, Voting Securities of such Person shall be the general
partner interest in such Person. Notwithstanding the foregoing, for purposes of Article 12, (1) Producer and Gatherer are deemed to
not be Affiliates of one another, (2) Alpine High Processing LP, Alpine High Pipeline LP, Alpine High NGL Pipeline LP, and
Alpine High Subsidiary GP LLC are deemed Affiliates of Alpine High Gathering LP and not Affiliates of Apache Corporation, and
(3) all other Affiliates of Apache Corporation are deemed to not be Affiliates of Alpine High Gathering LP.
“Affiliate Interests” As defined in Section 2.1(g).
“Audit” As defined in Section 7.1.
“Btu” or “British Thermal Unit” The amount of heat required to raise the temperature of one (1) pound of water from
fifty-nine degrees Fahrenheit (59ºF) to sixty degrees Fahrenheit (60ºF) at a constant pressure of fourteen and sixty-five hundredths
(14.65) psia.
“Business Day” Any calendar day, other than a Saturday or Sunday, on which commercial banks in Houston, Texas are
open for business.
“Calendar Year” The period from January 1st through December 31st of the same calendar year.
“Central Clock Time” Central Standard time throughout the year, as may be adjusted semi-annually for Central Daylight
Savings time.
“Claim” Any lawsuit, claim, proceeding, investigation, or other similar action.
“Condensate” Hydrocarbons that have condensed from Gas downstream of a Receipt Point and are collected as a liquid in
the Gathering System, including all liquid hydrocarbons accumulating in drips, separators and/or pipelines downstream of a Receipt
Point.
“Consequential Damages” As defined in Section 18.9.
“Cubic Foot of Gas” The volume of Gas occupying one (1) cubic foot of space when such Gas is at a base pressure of
fourteen and sixty-five hundredths (14.65) psia and at a base temperature of sixty degrees Fahrenheit (60ºF). Whenever the
conditions of pressure and temperature differ from the foregoing standard, conversion from the foregoing standard conditions shall
be made in accordance with the Ideal Gas Laws.
“Day” or “Daily” A period of time commencing at 9:00 A.M., Central Clock Time, on a calendar day and ending at 9:00
A.M., Central Clock Time, on the next succeeding calendar day.
“Dedicated Area” The lands located in Reeves, Pecos, Jeff Davis, and Culberson Counties, Texas, more particularly
described in Exhibit A.
“Delivery Point” The outlet flange of Gatherer’s facilities at the point of interconnection between the low pressure
Gathering System and other facilities where Gas is delivered out of the low pressure Gathering System or the outlet flange of
Gatherer’s facilities at the point of interconnection between the high pressure Gathering System and other facilities where Gas is
delivered out of the
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 2 of 68
CONFIDENTIAL TREATMENT REQUESTED
Gathering System. The Delivery Points existing on the Effective Date, including the Gathering Subsystem to which such points
belong, are reflected on Exhibit B. Gatherer shall update Exhibit B on January 1, April 1, July 1, and October 1 of each Year to
include Additional Delivery Points that have been placed into service and, if necessary, to update the Gathering Subsystem of
existing points; provided that Gatherer may not change the Gathering Subsystem to which an existing Delivery Point is connected
without Producer’s consent.
“Delivery Point Gas Quality Specifications” The Gas quality requirements of downstream pipelines or other facility
operators at the Delivery Points, as such requirements are in effect from time to time.
“Effective Date” As defined in the preamble of this Agreement.
“Firm” The provision of Services hereunder shall not be subject to interruption, except as absolutely necessary as a result of
Force Majeure or, after reasonable prior notice, during periods of Maintenance, and in the event of any such interruption or in the
event of excess Gas deliveries to the Gathering System (from Producer or a Third Party) over and above the System Gas Capacity,
Producer’s Gas shall have first priority rights and shall be the last curtailed, unless Producer otherwise provides consent.
“Force Majeure” As defined in Section 11.2.
“Gas” Any mixture of hydrocarbons or of hydrocarbons and non-combustible gases in a gaseous state.
“Gather” or “Gathering” The receipt of Gas by Gatherer at the Receipt Points for the transportation and delivery of Gas to
the Delivery Point(s).
“Gatherer Indemnified Parties” As defined in Section 12.1.
“Gathering Fees” As defined in Section 4.1.
“Gathering System” The natural gas low pressure and high pressure gathering system owned by Gatherer and located in
Reeves and Pecos Counties, Texas, and the Receipt Points and Delivery Points listed on Exhibit B to the extent the facilities are
owned/leased and operated by Gatherer at such points, as such system may be expanded or modified from time to time. The
Gathering System shall be divided into a subsystem for all Processable Gas and a subsystem for Non-Processable Gas (each a
“Gathering Subsystem”) that do not commingle.
“Governmental Authority” Any federal, state, municipal, local or similar governmental authority, regulatory or
administrative agency or court with jurisdiction over the Parties or either Party, this Agreement, any of the transactions
contemplated hereby, or the Gathering System or any other facilities utilized by a Party for the performance of this Agreement.
“High Pressure Gathering Fee” As defined in Section 4.1.
“Ideal Gas Laws” The thermodynamic laws applying to perfect gases.
“Interests” Any right, title, or interest in lands which gives Producer the right to produce and market oil and/or Gas
therefrom, whether arising from fee ownership, working interest ownership,
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 3 of 68
CONFIDENTIAL TREATMENT REQUESTED
mineral ownership, leasehold ownership, farmout, or other contractual arrangement or arising from any pooling, unitization, or
communitization of any of the foregoing rights within the Dedicated Area, and any and all replacements, renewals, and extensions
or amendments of any of the same.
“Law” or “Laws” Any of the following: laws, rules, regulations, decrees, judgments or orders of, or licenses or permits
issued by, any Governmental Authority, including, without limitation, any U.S. Bureau of Land Management requirement that is
applicable to any federal lease included in the Dedicated Area.
“Loss” Any loss, cost, expense, liability, damage, sanction, judgment, lien, fine, or penalty, including reasonable attorney’s
fees, incurred, suffered or paid by the applicable indemnified Persons on account of: (i) injuries (including death) to any Person or
damage to or destruction of any property, sustained or alleged to have been sustained in connection with or arising out of the
matters for which the indemnifying Party has agreed to indemnify the applicable indemnified Persons, or (ii) the breach of any
covenant or agreement made or to be performed by the indemnifying Party pursuant to this Agreement.
“Low Pressure Gathering Fee” As defined in Section 4.1.
“Maintenance” As defined in Section 8.1.
“MAOP” The maximum allowable operating pressure.
“Material Measurement Error” As defined in Section 10.4.
“Mcf” One thousand (1,000) Cubic Feet of Gas.
“Mcf Volume” Gas as measured on an Mcf basis.
“Measurement Meter” The meter used to measure the Mcf Volume of Producer’s Gas delivered to the Gathering System at
a Receipt Point.
“MMBtu” One million (1,000,000) Btus.
“MMBtu Volume” Gas as measured on an MMBtu basis.
“MMcf” One million (1,000,000) Cubic Feet of Gas.
“Month” or “Monthly” A period commencing at 9:00 A.M., Central Clock Time, on the first Day of a calendar month and
extending until 9:00 A.M., Central Clock Time, on the first Day of the next succeeding calendar month.
“Monthly Invoice” As defined in Section 6.1.
“Non-Op Gas” As defined in Section 2.1.
“Non-Processable Gas” Producer’s Gas that Producer elects or has elected to not be bound for a downstream processing
facility.
“Off-Spec Gas” As defined in Section 9.2.
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 4 of 68
CONFIDENTIAL TREATMENT REQUESTED
“Person” An individual, a corporation, a partnership, a limited partnership, a limited liability company, an association, a
joint venture, a trust, an unincorporated organization, or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
“Primary Term” As defined in Section 17.1.
“Prior Dedication” As to any Interests acquired by Producer (or any of its successors or assigns under this Agreement)
within the Dedicated Area, whether before or after the Effective Date, any dedication or commitment for some or all Services
burdening such Interests which is in effect as of the time of any such acquisition.
“Processable Gas” Producer’s Gas that Producer elects or has elected to be bound for a downstream processing facility.
“Producer Indemnified Parties” As defined in Section 12.1.
“Producer’s Gas” All Gas now or hereafter owned or controlled by Producer and delivered to the Gathering System
pursuant to the terms of this Agreement.
“psia” Pressure expressed in pounds per square inch absolute.
“psig” Pressure expressed in pounds per square inch gauge.
“Receipt Point” The inlet flange of Gatherer’s facilities at the point of interconnection between the low pressure Gathering
System and Producer’s facilities or the inlet flange of Gatherer’s facilities at the point of interconnection between the high pressure
Gathering System and other facilities where Gas is received into the high pressure Gathering System. The Receipt Points existing
on the Effective Date, including the Gathering Subsystem to which such points belong, are listed on Exhibit B. Gatherer shall
update Exhibit B on January 1, April 1, July 1, and October 1 of each Year to include Additional Receipt Points that have been
placed into service and, if necessary, to update the Gathering Subsystem of existing points; provided that Gatherer may not change
the Gathering Subsystem to which an existing Receipt Point is connected without Producer’s consent.
“Receipt Point Mcf Volume” The actual Mcf Volume of Gas delivered by Producer and received by Gatherer at such
Receipt Point during a Month, as measured at the applicable Measurement Meter, net of buyback gas redelivered to Producer
pursuant to Section 3.9.
“Receipt Point Gas Quality Specifications” For each Receipt Point, the applicable downstream Delivery Point Gas Quality
Specifications.
“Required Pressure” For each Receipt Point, the pressure listed on Exhibit B for such Receipt Point; provided that for
Additional Receipt Points on the low pressure portion of the Gathering System, the Required Pressure shall not be higher than [***]
([***]) psig. For Additional Receipt Points on the high pressure portion of the Gathering System the Required Pressure shall not
exceed MAOP, as such MAOP may exist from time to time.
“Resolution Period” As defined in Section 2.1 or Section 3.6, as applicable.
“Services” As defined in Section 2.3.
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 5 of 68
CONFIDENTIAL TREATMENT REQUESTED
“Shipper” Any Person for whom Gatherer provides Services on the Gathering System.
“Similarly Situated Shipper” Any assignee of Producer’s interests hereunder (whether total or partial) pursuant to Section
18.6 or any Third Party Shipper for which Producer consents to Gatherer providing an equal level of service priority pursuant to
Section 2.5.
“System Gas Capacity” As of any determination time, the Gathering System throughput capacity as it exists as of such
time.
“Tax” or “Taxes” Any federal, state or local taxes, fees, levies or other assessments, including all sales and use, goods and
services, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, value added, capital stock,
production, business and occupation, disability, employment, payroll, license, unemployment, social security, Medicare, or
withholding taxes or charges imposed by any Governmental Authority, and including any interest and penalties (civil or criminal)
on any of the foregoing.
“Term” As defined in Section 17.1.
“Third Party” Any Person that, as of any applicable determination date, is not a Party to this Agreement.
“Third Party Gas” Gas other than Producer’s Gas.
“Transfer” Any direct or indirect transfer, conveyance, assignment, grant or other disposition of any rights, interests or
obligations.
“Transferee Agreement” An agreement in the form as attached hereto as Exhibit F, which is to be signed by Gatherer and a
Third Party to which Producer partially assigns its Interests in the Dedicated Area.
“Year” A period of three hundred sixty-five (365) consecutive Days; provided, however, any year that contains the date of
February 29 shall consist of three hundred sixty-six (366) consecutive Days.
Section 2.1 Dedication; Producer Reservations; Release Rights.
ARTICLE 2
DEDICATION AND SERVICES
(a) Dedication. Subject to the terms and conditions of this Agreement, and solely for the performance of this
Agreement, Producer hereby dedicates for Gathering and the other Services to be provided by Gatherer under this Agreement
and shall deliver or cause to be delivered at the Receipt Point(s) on the Gathering System the following:
(i) all Gas produced and saved from wells now or hereafter located within the Dedicated Area or on lands
pooled or unitized therewith, to the extent such Gas is attributable to Interests within the Dedicated Area, now owned
or hereafter acquired by Producer and not delivered or used as permitted pursuant to this Agreement; and
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 6 of 68
CONFIDENTIAL TREATMENT REQUESTED
(ii) with respect to wells now or hereafter located within the Dedicated Area or on lands pooled or unitized
therewith for which Producer is the operator, Gas from such wells that is owned by other working interest owners
and royalty owners (“Non-Op Gas”) but only to the extent and for the period that Producer has the right or
obligation to market such Non-Op Gas;
provided, however, with respect to any such Gas that is or becomes subject to a Prior Dedication, such Gas shall not be subject
to the dedication hereunder until the expiration or termination of such Prior Dedication. Upon the expiration or termination of
that Prior Dedication, such additional Interests within the Dedicated Area and such Gas attributable thereto will automatically
be subject to the dedication hereunder without any further action by the Parties. Producer shall notify Gatherer in writing of
any such expiration or termination.
(b) Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the dedication in Section
2.1(a) is in effect, this Agreement and the dedication under Section 2.1(a) and all of the terms and provisions of this
Agreement collectively shall (i) be a covenant running with the Interests within the Dedicated Area and (ii) be binding on and
enforceable by Gatherer and its successors and assigns against Producer and its successors and assigns of the Interests within
the Dedicated Area. Each Party agrees to execute, acknowledge, and deliver to the other Party from time to time such
additional agreements and instruments as may be reasonably requested by such other Party to more fully effectuate the
intention of the Parties set forth in the immediately preceding sentence, including a memorandum of this Agreement in the
form set forth on Exhibit D, and in the event of a permanent release or partial assignment of the Interests dedicated hereunder,
a memorandum of release in the form set forth on Exhibit E. Producer shall cause any conveyance by it of all or any of the
Interests within the Dedicated Area to be made expressly subject to the terms of this Agreement. By January 31 of each year,
Producer and Gatherer shall update Exhibit A to reflect any Interests within the Dedicated Area (1) acquired by Producer, (2)
permanently released by Gatherer, or (3) partially assigned by Producer (and reflected in a Transferee Agreement) during the
immediately preceding year, and, for the avoidance of doubt, any such new Interests within the Dedicated Area shall be
subject to this Agreement (including Section 2.1(a) and Section 2.1(b)). Contemporaneously with any such update and
supplement to this Agreement, Producer shall execute, acknowledge, and deliver to Gatherer a supplement to each of the
applicable memoranda of this Agreement previously filed for recording in the real property records of each county in which
any portion of such new Interests is located.
(c) Forecasts. Subject to Gatherer’s compliance with the confidentiality and restricted use requirements set forth in
Section 18.1, on or before October 1st of each Year during the Term of this Agreement, Producer shall deliver to Gatherer a 2-
Year Forecast with respect to Producer’s Gas. “2-Year Forecast” shall mean Producer’s good faith estimate (expressed in Mcf
per Day) and associated gas analysis of Producer’s Gas to be produced from the Dedicated Area, including the general
geographic location and anticipated Gathering Subsystem, for each Month for the next two (2) years of the Term of the
Agreement, which forecast shall be based
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on Producer’s most recent engineering and planning data. At Gatherer’s request, but no more than once per quarter, Producer
and Gatherer will meet to discuss changes in the forecast to ensure that Gatherer will have adequate capacity in place to meet
Producer’s requirements. For the sake of clarity, Gatherer acknowledges that Producer shall not at any time be required to
deliver any of Producer’s internal budget information to Gatherer. Producer shall use all commercially reasonable efforts and
information available to it to create the 2-Year Forecasts, but, given the inherent nature of the estimates involved in creating
such Forecasts, Producer cannot guarantee the accuracy of any 2-Year Forecast.
(d) Producer’s Reservations.
(i) Gas for Lessors or Royalty Owners. Producer shall have the right to utilize Gas as may be required to be
delivered to lessors or royalty owners under the terms of leases or other agreements or as required for Producer’s
operations within the Dedicated Area or lands pooled or unitized therewith, as determined by Producer in its sole
discretion.
(ii) Pooling or Units. Producer may form, dissolve, and/or participate in pooling agreements or units
encompassing all or any portions of the Dedicated Area, as determined by Producer in its sole discretion.
(iii) Operational Control of Wells. Producer reserves the right to operate its leases and wells in any manner
that it desires, as determined by Producer in its sole discretion and free of any control by Gatherer, including without
limitation, (i) shutting-in, cleaning out, reworking, modifying, deepening, or abandoning any such wells, (ii) using
any efficient, modern, or improved method for the production of its wells, (iii) flaring, burning, or venting Gas (with
no fees to be associated with such Gas), and (iv) surrendering, releasing, or terminating its leases or Interests or
allowing such leases or Interests to expire at any time; provided that before any well is taken out of service for any
reason, Producer shall first shut-off the well’s connection to the applicable Receipt Point.
(iv) Well Development and Operations. Producer reserves the right to use Gas (including its components)
above ground or below, to develop and operate its leases and wells, including, without limitation, for Gas lift, fuel,
pressure maintenance, or other re-injection purposes, secondary and tertiary recovery, drilling or cycling, operation
of Producer’s facilities, and/or any other legitimate use in connection with the development and/or operation of its
leases and wells that are now or hereafter become subject to the terms of this Agreement. Additionally, for Gas used
for fuel, Producer has the right to remove liquid hydrocarbons from such Gas by means it deems necessary, including
via low temperature separation.
(v) No Obligation to Develop. Notwithstanding anything else in this Agreement that may be construed to
the contrary, Producer reserves the right to develop
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and operate its leases and wells as it sees fit, in its sole discretion, and Producer shall have no obligation to Gatherer
under this Agreement to develop or otherwise produce Gas or other hydrocarbons from any properties owned by it,
including any properties now or hereafter located within the Dedicated Area or the lands pooled or unitized
therewith.
(e) Release from Dedication.
(i) Immediate Temporary Release. If for any reason, including Force Majeure (but not including a pressure
problem, which is addressed in Section 3.6), Gatherer does not Gather all or any portion of Producer’s Gas delivered
or otherwise available for delivery at a Receipt Point, Producer shall be entitled to an immediate temporary release
from dedication of such volume of Gas not Gathered, and may dispose of such Gas in any manner it sees fit, subject
to Gatherer’s right to resume receipts at a subsequent time when Gatherer is able to receive all of Producer’s Gas
available for delivery at the Receipt Point in accordance with the terms of this Agreement, provided, however, if
during such temporary release period Producer secures a different temporary market, Gatherer may resume receipts
only upon thirty (30) Days’ advance written notice and only as of the beginning of a Month, unless otherwise agreed.
(ii) Permanent Release. In addition to Section 2.1(e)(i), above, if Gatherer does not Gather or ceases
Gathering all or any portion of Producer’s Gas for delivery at a Receipt Point for any reason (but not including a
pressure problem, which is addressed in Section 3.6, or a failure to meet quality requirements, for which no
permanent release shall be available) for a cumulative thirty (30) Days in any ninety (90) Day period, unless such
failure is caused by Force Majeure, in which case a cumulative 180 Days in any 365-Day period, then upon
Producer’s written notice to Gatherer, Gatherer shall have fifteen (15) Days from receipt of such notice to propose a
feasible plan to Producer that shall resolve such issue, at Gatherer’s sole cost and expense, within sixty (60) Days
after proposing such plan (the “Resolution Period”). If (A) Gatherer fails to propose a resolution within the stated
fifteen (15) Days, (B) the issue is not resolved after completion of Gatherer’s resolution, or (C) Gatherer does not
complete such resolution within the Resolution Period for any reason (but if Gatherer’s completion is delayed or
prevented by reason of Force Majeure, the Resolution Period shall be extended by an additional 120 Days), Producer
may elect, by giving written notice to Gatherer, to either (x) a permanent release from dedication as to the affected
Receipt Point and the portion(s) of the Dedicated Area associated with such Receipt Point (and such released
portion(s) shall be stated in terms of acreage) or (y) until the issue has been resolved, [***] percent ([***]%)
reduction in the then-existing Low Pressure Gathering Fees for a volume of Gas equal to Producer’s good-faith
estimate of the affected volumes of Gas; provided, however, Producer shall not be entitled to the remedies set forth
in either subsection (x) or subsection (y) to the extent that Producer’s good-faith estimate of the affected volumes
exceeds the last 2-
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Year Forecast Producer delivered to Gatherer in accordance with Section 2.1(c). If Producer elects a permanent
release, the portion(s) of the Dedicated Area to be released shall be designated by Producer, acting reasonably and in
good faith, provided that Producer shall provide to Gatherer (subject to the confidentiality and non-use restrictions
set forth in this Agreement) reasonable evidence to support Producer’s determination of the portion(s) of the
Dedicated Area to be released, and as long as Producer’s determination of the areas to be released is reasonably
supported, such determination shall be deemed conclusive.
(iii) Release by Downstream Processor. Gatherer is providing Services in order to deliver Producer’s Gas to
downstream facilities in satisfaction of Producer’s dedication to such downstream facilities. To the extent that
Producer’s dedication under such downstream contracts is released, Producer shall receive a corresponding release
from dedication under this Agreement.
(f) No Election of Remedies. Producer’s exercise of any right to a release from dedication under Section 2.1(e) or
Section 3.6 shall not be deemed an election of remedies for any unexcused failure of Gatherer to perform any obligation under
this Agreement, and Producer shall be entitled to any and all other remedies, including specific performance and injunctive
relief (without the need to post any bond).
(g) Acquisitions by Affiliates of Producer. If any Affiliate of Producer acquires any fee ownership, working interest
ownership, mineral ownership, leasehold ownership, farmout, or other contractual arrangement or arising from any pooling,
unitization, or communitization of any of the foregoing rights within the Dedicated Area (“Affiliate Interests”), then Producer
shall use its best efforts to cause any applicable Affiliate of Producer who acquires such Affiliate Interests to execute and
deliver to Gatherer (i) a joinder to this Agreement in the form of Exhibit G attached hereto and (ii) a memorandum of this
Agreement in the form set forth on Exhibit D. In the event that an Affiliate of Producer becomes a Producer under this
Agreement, the liabilities of Producer and each such Affiliate of Producer shall be several and not joint.
Section 2.2 Producer’s Right to Deliver Other Gas. Subject to the terms and conditions of this Agreement and availability
of capacity, Producer shall have the continuing right to deliver Producer’s equity Gas production and Gas that Producer controls as
operator on behalf of non-operating partners from outside of the Dedicated Area to Gatherer at any one or more Receipt Point(s),
and Gatherer shall provide Services for such Gas on the Gathering System; provided that such Gas shall not be dedicated under this
Agreement.
Section 2.3 Gathering and Related Services. Subject to the terms and conditions of this Agreement, each Month during the
Term Gatherer shall provide, or cause to be provided, the following services, each on a Firm basis (collectively, the “Services”):
(a) receive, or cause to be received, Producer’s Gas at the low pressure Receipt Points;
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(b) gather Producer’s Gas on the low pressure Gathering System;
(c) deliver for Producer’s account all Producer’s Gas, less any Producer’s Gas required under Section 3.9, and
Condensate at the low pressure Delivery Point(s),
(d) receive, or cause to be received, Producer’s Gas at the high pressure Receipt Points;
(e) gather Producer’s Gas on the high pressure Gathering System;
(f) deliver for Producer’s account Producer’s Gas and Condensate at the high pressure Delivery Point(s); and
(g) perform such other obligations and actions as are described under this Agreement.
The Services described in subparts (d)-(f) above shall be at Producer’s direction and for a volume up to the capacity of Gatherer’s
high pressure Gathering System. Gatherer shall perform all Services and operate the Gathering System consistent with industry
standard and in a prudent, workmanlike manner.
Notwithstanding anything in this Agreement to the contrary, Producer shall not be entitled to Services on a Firm basis on any
facilities that have been built by Gatherer exclusively to service Gas volumes delivered by any Third Party customer.
Section 2.4 Modification of System Capacity. Other than during periods of emergency and/or required Maintenance,
Gatherer shall not take, without Producer’s prior written consent, any action that could cause the System Gas Capacity to be
reduced in a manner that negatively affects Producer’s ability to deliver Gas to any Receipt Point.
Section 2.5 Priority of Gas Services; Curtailment. Gatherer covenants that it shall not oversubscribe the Gathering System
(or any Gathering Subsystem) or take additional production into the Gathering System (or any Gathering Subsystem) if, as a result,
Gatherer is unable to perform its Service obligations under this Agreement. Gatherer agrees to not provide services of any kind for
any Third Party Gas on the Gathering System (or any Gathering Subsystem) on a basis that has a priority (i) higher than or (ii) equal
to that to which Producer is entitled under this Agreement without Producer’s prior written consent; provided, however, that in the
case of (ii), such consent shall not be unreasonably withheld if the Third Party agreement shall not be reasonably expected to impact
Gatherer’s ability to perform its obligations to Producer under this Agreement. If for any reason, including, without limitation,
Force Majeure, Maintenance, or constraints at Delivery Point(s), Gatherer needs to curtail receipt, Gathering or delivery of Gas on
any part of a Gathering Subsystem, the following procedures shall be followed:
(a) First, Gas deliveries from all Persons other than Producer and Similarly Situated Shippers shall be curtailed
prior to any curtailment or interruption of Producer’s Gas or Gas from Similarly Situated Shippers; and
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(b) Second, if additional curtailments are required beyond Section 2.5(a) above, Gatherer shall notify Producer and
Similarly Situated Shippers of such curtailment and require good faith estimates of expected gas volumes from Producer and
Similarly Situated Shippers. Gatherer shall then allocate the capacity of the applicable Gathering Subsystem at the affected
Receipt Point on a pro rata basis based upon Producer’s and each Similarly Situated Shipper’s respective good faith
estimates for the affected point.
Notwithstanding anything to the contrary contained in this Agreement, to the extent Gas deliveries from Persons other than
Producer or Similarly Situated Shippers cause or would reasonably be expected to cause Producer or a Similarly Situated Shipper to
reduce or curtail its Gas production, Gatherer shall curtail receipts of Gas deliveries from such Persons into the Gathering System.
Section 2.6 Third Party Gas. Gatherer agrees that it shall not accept Third Party Gas into the Gathering System if such
Third Party Gas shall cause Producer’s Gas to not meet the Delivery Point Gas Quality Specifications.
Section 2.7 Operation and Maintenance of Gathering System. Gatherer shall (i) be entitled to complete operational control
of the Gathering System, and (ii) construct, install, own, operate and maintain, at its sole cost, risk and expense, the Gathering
System in accordance with all applicable Laws, as a reasonably prudent natural gas gathering system operator and, to the extent
reasonably possible, in a cost-efficient and effective manner for Producer.
Section 2.8 Commingling. Although Producer shall retain title to Producer’s Gas (except as otherwise provided in this
Agreement), the Parties agree that Producer’s Gas may constitute part of the supply of Gas from multiple sources in the Gathering
System and Gatherer shall have the right, subject to Gatherer’s obligations under this Agreement, to commingle Producer’s Gas
with other Gas, to deliver molecules different from those received at the Receipt Points, and to handle the molecules delivered at the
Receipt Points in any manner.
ARTICLE 3
RECEIPT POINTS, DELIVERY POINTS, AND PRESSURES
Section 3.1 Receipt Points. Producer shall deliver Producer’s Gas to Gatherer at the Receipt Points.
Section 3.2 Delivery Points. Gatherer shall deliver Producer’s Gas and Condensate to the Delivery Points.
Section 3.3 Uniform Deliveries. Producer shall deliver Producer’s Gas to Gatherer, and Gatherer shall receive and
redeliver Producer’s Gas, as nearly as practicable at uniform hourly and daily rates of flow.
Section 3.4 Pressure at Receipt Points. Producer shall cause Producer’s Gas to be delivered to the Receipt Points at a
pressure sufficient to enter the Gathering System, provided that Gatherer maintains the operating pressure at low pressure Receipt
Points at no greater than the applicable
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Required Pressure. Producer shall not deliver Gas at any Receipt Point at a pressure in excess of the MAOP at the Receipt Point, as
such MAOP may exist from time to time. As of the Effective Date, the MAOP at each Receipt Point shall be listed on Exhibit B,
and Gatherer shall give written notice to Producer at any time thereafter that the MAOP for any Receipt Point changes and for each
Additional Receipt Point when it is added.
Section 3.5 Pressure at Delivery Points. Gatherer shall deliver Gas to each Delivery Point at a pressure sufficient to enter
the receiving facilities at such Delivery Point, but shall not deliver such Gas at a pressure in excess of the MAOP of such receiving
facilities, as such MAOP may exist from time to time.
Section 3.6 Release Rights. At any time the operating pressure at a Receipt Point or on any Gathering Subsystem is not in
compliance with the Required Pressure or in excess of the MAOP for any reason, including Force Majeure, Producer shall be
entitled to an immediate temporary release from dedication and may immediately dispose of and/or deliver to any third Person any
of Producer’s Gas available for delivery at Receipt Point(s) delivering to such Gathering Subsystem. In the event the operating
pressure at a Receipt Point or on a Gathering Subsystem is not in compliance with the Required Pressure for a cumulative thirty
(30) Days in any ninety (90) Day period for reasons other than Force Majeure, then upon Producer’s written notice to Gatherer,
Gatherer shall have fifteen (15) Days from receipt of such notice to propose a feasible plan that shall, at Gatherer’s sole cost and
expense, resolve the pressure issue within sixty (60) Days after proposing such plan (the “Resolution Period”) so that the pressure
shall be maintained in compliance with the Required Pressure (including when all available Gas is delivered to the Receipt Point(s),
i.e., including all of Producer’s Gas that may have been temporarily released). If (a) Gatherer fails to propose a resolution within the
stated fifteen (15) Days, (b) the issue is not resolved after completion of Gatherer’s resolution, or (c) Gatherer does not complete its
proposed resolution within the Resolution Period for any reason (but if Gatherer’s completion is delayed or prevented by reason of
Force Majeure, the Resolution Period shall be extended by an additional 120 Days), then Producer may elect, by giving written
notice to Gatherer, to either (i) a permanent release from dedication as to any Receipt Point(s) and the portion(s) of the Dedicated
Area associated with such Receipt Point(s) (and such released portion(s) shall be stated in terms of acreage) or (ii) until the issue
has been resolved, [***] percent ([***]%) reduction in the then-existing Low Pressure Gathering Fee for a volume of Gas equal to
Producer’s good-faith estimate of the affected volumes of Gas; provided, however, Producer shall not be entitled to the remedies set
forth in either subsection (i) or subsection (ii) to the extent that Producer’s good-faith estimate of affected volumes exceeds the last
2-Year Forecast Producer delivered to Gatherer in accordance with Section 2.1(c). If Producer elects a permanent release, the
portion(s) of the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith, provided that
Producer shall provide to Gatherer (subject to the confidentiality and non-use restrictions set forth in this Agreement) reasonable
evidence to support Producer’s determination of the portion(s) of the Dedicated Area to be released, and as long as Producer’s
determination of the areas to be released is reasonably supported, such determination shall be deemed conclusive.
Section 3.7 Additional Receipt Points.
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(a) Producer shall have the continuing right, at its option, at any time after the Effective Date, to designate
additional Receipt Point(s) (each, an “Additional Receipt Point”) pursuant to the terms of this Section 3.7. In each such
case, Producer shall, at its sole cost, install, own, and operate all necessary facilities upstream of the Additional Receipt
Point. Gatherer shall own and operate all necessary facilities downstream of such Additional Receipt Point.
(b) Producer shall be allowed, in its sole discretion, to designate (1) the location for the Additional Receipt Point as
long as the location is within the Dedicated Area and (2) the Gathering Subsystem to which the Additional Receipt Point
shall be connected, and Gatherer will connect the Additional Receipt Point in accordance with Producer’s notice in Section
3.7(c). If Producer requires a change in Gathering Subsystem after the initial connection by Gatherer, Producer may request
an Additional Receipt Point as provided for in Section 3.7(c) below; however, Producer shall reimburse Gatherer for its
actual and reasonable costs incurred to connect Additional Receipt Point to its facilities.
(c) When Producer desires to install an Additional Receipt Point, Producer shall provide written notice to Gatherer,
including a plat of the location of the proposed Additional Receipt Point and notice of whether the Additional Receipt Point
shall be connected to the Gathering Subsystem for Processable Gas or the Gathering Subsystem for Non-Processable Gas.
Subject to Section 3.7(b) above, within [***] ([***]) Days of Gatherer’s receipt of Producer’s notice which included
Producer’s proposed location for the Additional Receipt Point, each Party shall install and place in service its respective
facilities as required under Section 3.7(a) above. Thereafter, Producer may deliver Gas to such Additional Receipt Point, and
Gatherer shall receive and Gather such Gas from such point.
(d) If the Additional Receipt Point is not completed within [***] ([***]) Days after Gatherer’s receipt of
Producer’s notice as provided in Section 3.7(c) for any reason other than Force Majeure, or within [***] ([***]) Days if
Gatherer has encountered an event of Force Majeure, Producer may elect, by giving written notice to Gatherer to (i) a
permanent release from dedication as to such Additional Receipt Point (and the associated Dedicated Area) or (ii) [***]
percent ([***]%) reduction in the then-existing Low Pressure Gathering Fee for all Gas delivered under this Agreement
until the Additional Receipt Point has been connected. If Producer does not elect a permanent release and elects instead to
connect the Additional Receipt Point at Producer’s own cost, Producer will receive [***] percent ([***]%) reduction in the
then-existing Gathering Fees for all Gas delivered to the applicable Additional Receipt Point under this Agreement for the
Term.
Section 3.8 Additional Delivery Points.
(a) Producer shall have the continuing right, at its option, at any time after the Effective Date, to designate
additional Delivery Point(s) (each, an “Additional Delivery Point”) pursuant to the terms of this Section 3.8. In each such
case, Producer shall cause to be installed, owned, and operated all necessary facilities downstream of the Additional
Delivery
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Point. Gatherer shall own and operate all necessary facilities upstream of such Additional Delivery Point.
(b) Producer shall be allowed, in its sole discretion, to designate (1) the location for the Additional Delivery Point
as long as the facility at such Delivery Point services Producer’s Gas from the Dedicated Area and/or (2) the Gathering
Subsystem to which the Additional Delivery Point be connected.
(c) When Producer desires an Additional Delivery Point, Producer shall provide written notice to Gatherer,
including a plat of the location of the proposed Additional Delivery Point and/or notice of whether the Additional Delivery
Point shall be connected to the Gathering Subsystem for Processable Gas or the Gathering Subsystem for Non-Processable
Gas. Subject to Section 3.8(b) above, within [***] ([***]) Days of Gatherer’s receipt of Producer’s notice, Gatherer shall
have installed the facilities as required under Section 3.8(a). Thereafter, Gatherer may deliver Gas to such Additional
Delivery Point, and Producer shall have such Gas received for its account from such point.
(d) If the Additional Delivery Point is not completed within [***] ([***]) Days, after Gatherer’s receipt of
Producer’s notice as provided in Section 3.8(c) for any reason other than Force Majeure, or within [***] ([***]) Days if
Gatherer has encountered an event of Force Majeure, Producer may elect, [***] percent ([***]%) reduction in the then-
existing Low Pressure Gathering Fee for all Gas delivered under this Agreement until the Additional Delivery Point(s) has
been connected.
Section 3.9 Buyback Gas. Producer shall have the right to request installation of a buyback gas meter downstream of a
Receipt Point for Producer’s use as described in Section 2.1(d), subpart (iv), provided that Producer shall not withdraw volumes
that exceed what Producer delivers to the applicable Receipt Point. Producer shall pay Gatherer the actual and reasonable costs
incurred to install such meter. When Producer desires to have such meter installed, Producer shall provide written notice to the
Gatherer of the applicable Receipt Point and the date on which Producer desires to begin receiving buyback gas, which date shall
not be sooner than thirty (30) Days after the date of Producer’s notice, and Gatherer shall construct and install facilities necessary
within thirty (30) Days of Producer’s notice.
ARTICLE 4
FEES
Section 4.1 Gathering Fee. For each Month during the Term, and for each low pressure Receipt Point, Producer shall pay
to Gatherer an amount equal to: (i) the Monthly low pressure Receipt Point Mcf Volume, multiplied by (ii) $[***] per Mcf (the
“Low Pressure Gathering Fee”). For each high pressure Receipt Point, Producer shall pay to Gatherer an amount equal to: (i) the
Monthly high pressure Receipt Point Mcf Volume for each Month, multiplied by (ii) $[***] per Mcf (the “High Pressure
Gathering Fee”). Collectively, the Low Pressure Gathering Fee and the High Pressure
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Gathering Fee are the “Gathering Fees”, as such Gathering Fees are annually adjusted pursuant to Section 4.2.
Section 4.2 Fee Escalation. On each anniversary of the Effective Date, the Gathering Fees shall each be automatically
adjusted upward or downward by the percentage change in the Chained Consumer Price Index for All Urban Consumers, all items
less food and energy, as and when published and considered final by the U.S. Department of Labor Bureau of Labor Statistics
calculated for the twelve (12) Months immediately preceding the date of escalation; provided, however, the Gathering Fees shall
never be adjusted below their original amount as of the Effective Date; and, provided, further, that the amount of adjustment for
each year shall not exceed [***] percent ([***]%) per annum.
Section 4.3 Most Favored Nations. If, any time during the Term of this Agreement, Gatherer agrees to provide Services to
any Third Party customer on the Gathering System for Gathering Fees that are less than Producer’s Gathering Fees, then Gatherer
will (i) immediately notify Producer in writing of such agreement and (ii) offer Producer the same lower Gathering Fee as of the
date that Gatherer begins providing the lower Gathering Fee to the Third Party customer. This most favored nations provision shall
apply regardless of: (i) the classification of the Third Party customer offered the lower Gathering Fee(s) (e.g., similarly situated
customer or otherwise) or (ii) the duration of the term for the Third Party customer. The Gathering Fees hereunder shall
automatically be revised to match the fees offered to the Third Party customer (without regard to, and without altering, Gatherer’s
obligation to provide the Services to Producer pursuant to Section 2.3), and the Parties will enter into an amendment to this
Agreement to incorporate the lower Gathering Fee(s) in the Third Party agreement unless Producer notifies Gatherer within ten (10)
Business Days of Producer’s receipt of such offer that Producer does not wish to amend its Gathering Fees.
ARTICLE 5
FUEL AND LOST & UNACCOUNTED FOR GAS
Section 5.1 There is deemed to be no fuel or lost & unaccounted for Gas on the Gathering System.
ARTICLE 6
PAYMENTS
Section 6.1 Payments and Invoices. Gatherer shall provide Producer with a detailed statement and supporting
documentation for the net amount of all consideration due from Producer to Gatherer under the terms of this Agreement (net of any
amounts due from Gatherer to Producer under this Agreement), not later than the last Day of the Month immediately following the
Month for which the consideration is due (such statement, the “Monthly Invoice”); provided that if measurements are based on
those of Producer at the Receipt Points as permitted in Section 10.12, then Gatherer is not required to provide the Monthly Invoice
until at least ten (10) Days after Producer provides its measurements at the Receipt Points. Not later than thirty (30) Days following
Producer’s receipt of a Monthly Invoice, Producer shall pay to Gatherer all amounts due and owing from Producer to Gatherer
under the Monthly Invoice. Producer shall pay to Gatherer the undisputed portions of each Monthly Invoice in accordance with the
terms of this Agreement, and as to any disputed portions that Producer
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does not pay, Producer shall provide Gatherer a written notice of dispute setting forth, in reasonable detail, the grounds for such
dispute. Any amounts owing by Gatherer to Producer shall be deducted from amounts otherwise due Gatherer in the next ensuing
Monthly Invoice, or Producer may request payment for same, and Gatherer shall pay to Producer such amounts within thirty (30)
Days of Producer’s written request for same, subject to Gatherer’s good faith dispute of any such amounts, in which case Gatherer
shall pay the undisputed portions in accordance with the terms of this Agreement. Payments to either Party shall be according to the
applicable payment instructions set forth in Article 15. If any payment due date falls on a non-Business Day, the payment shall be
due on the first Business Day thereafter.
Section 6.2 Netting, Offset of Amounts Due. Either Party shall have the right to offset any undisputed amounts due by it
under this Agreement against any undisputed amounts due to it under this Agreement and pay the net amount due to the other Party.
Section 6.3 Interest on Late Payments. In the event either Party fails to make timely payment of any amount when due
under this Agreement (including any disputed amount which is later found to have been correct when payment was first requested),
interest shall accrue, from the date payment was due until the date payment is made, at an annual rate equal to the lower of: (a) the
prime rate as published in the “Money Rates” section of The Wall Street Journal, plus two percent (2%), or (b) the maximum rate of
interest allowed under applicable Laws.
Section 7.1 Audit Rights.
ARTICLE 7
AUDIT RIGHTS
(a) Each Party shall have the right, at its own expense, upon thirty (30) Days written notice and during reasonable
working hours to perform an audit of the other Party’s books and records (“Audit”). The Audit provides the Parties the right
to obtain access to and copies of the relevant portion of the books and records which includes, but is not limited to, financial
information, reports, charts, calculations, measurement data, allocation support, third-party support, telephone recordings,
and electronic communications of the other Party to the extent reasonably necessary to verify performance under the terms
and conditions of this Agreement including the accuracy of any statement, allocation, charge, payment calculation, or
determination made pursuant to the provisions contained herein for any Calendar Year within the twenty-four (24) Month
period next following the end of such Calendar Year. The Party subject to the Audit shall respond to all exceptions and
claims of discrepancies within ninety (90) Days of receipt thereof.
(b) Either Party has the right to Audit any agents of the other Party, or any third Person performing services related
to this Agreement. Either Party shall have the right to make and retain copies of the books and records to the extent
necessary to support the audit work papers and claims resulting from the audit. Additionally, the Parties reserve the right to
perform site inspections or carry out field visits of the assets and related measurement being audited.
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(c) The accuracy of any statement, allocation, charge, payment calculation, or determination made pursuant to the
provisions of the Agreement shall be conclusively presumed to be correct after the twenty-four (24) Month period next
following the end of the Calendar Year in which the statement, allocation, charge, payment calculation, or determination
was generated or prepared, if not challenged (claimed) in writing prior thereto. For the avoidance of doubt, all claims shall
be deemed waived unless they are made in writing within the twenty-four (24) Month period next following the end of the
Calendar Year in which the statement, allocation, charge, payment calculation, or determination was generated or prepared.
ARTICLE 8
MAINTENANCE
Section 8.1 Maintenance. Gatherer shall be entitled to interrupt Services hereunder to perform necessary or desirable
inspections, pigging, maintenance, testing, connections, repairs, or replacements to the Gathering System (“Maintenance”),
provided, however, that Gatherer shall use all commercially reasonable efforts to minimize the amount of time that Services are
interrupted and to cooperate with Producer to minimize any production shut-in or interruption of lease operations. On or before
December 1st of each Calendar Year, Gatherer shall provide Producer with written notice of the types of anticipated Maintenance,
with anticipated dates of performance, to be performed during the next Calendar Year. No prior written notice shall be required for
emergency Maintenance requirements, provided, however, in the event of any such emergency, Gatherer shall provide notice to
Producer as soon as practicable, including reasonable details as to the nature of the emergency and the anticipated date that the
related Service interruption shall cease.
Section 8.2 Maintenance Schedules.
(a) If Maintenance is scheduled for any Month, Gatherer shall send notice to Producer setting forth the
Maintenance that is to be performed during such Month in accordance with the notice requirements of Article 15, even if
Gatherer does not think that such Maintenance shall cause a Service interruption.
(b) No later than five working days prior to the beginning of the start of a Maintenance project, a volume
curtailment allocation shall be sent to Producer if capacity allocations are determined to be necessary by Gatherer.
Section 8.3 Access to Facilities. Subject to its safety rules, regulations and procedures, Gatherer shall provide reasonable
access to the Gathering System and related facilities to Producer for the purposes set forth in Section 7.1, provided that Producer
shall not unreasonably interfere with the operations of the Gathering System or any related facility.
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ARTICLE 9
GAS QUALITY
Section 9.1 Receipt Point Gas Quality Specifications. Producer’s Gas delivered to the Receipt Points shall meet the
applicable Receipt Point Gas Quality Specifications.
Section 9.2 Non-Conforming Gas. If at any time Gatherer becomes aware that Producer’s Gas at a Receipt Point fails to
conform to the applicable Receipt Point Gas Quality Specifications (“Off-Spec Gas”), then Gatherer shall promptly give Producer
written notice of the deficiency, and Producer shall take commercially reasonable steps to remedy the deficiency. Gatherer shall use
all commercially reasonable efforts to accept such Off-Spec Gas as long as (i) Gatherer is able to accept such Off-Spec Gas without
unreasonable risk of harm to the Gathering System or to Gatherer’s personnel, (ii) the acceptance of such Off-Spec Gas does not
render the Gathering System unable to meet the Delivery Point Gas Quality Specifications, and (iii) Gatherer’s receipt of the Off-
Spec Gas shall not be construed as a change of requirements for future volumes delivered to the Gathering System. Gatherer may
immediately cease taking any Off-Spec Gas that Gatherer deems would be harmful to the Gathering System or Gatherer’s
personnel.
Section 9.3 Reimbursement for Costs and Expenses. Producer shall reimburse Gatherer for all actual, reasonable costs and
expenses directly resulting from damage to the Gathering System, or to other Shippers’ Gas therein, to the extent such damage is
directly caused by the delivery to the Gathering System of Producer’s Gas that is Off-Spec Gas, except when Gatherer knowingly
accepts such Off-Spec Gas into the Gathering System. Notwithstanding the above or anything else in this Agreement, Producer’s
responsibility under this Section 9.3 shall be for actual, direct damages only, and in no event shall this Section 9.3 require
Producer to pay or in any way be responsible for the special, indirect, consequential, punitive or exemplary damages of any
Person.
ARTICLE 10
MEASUREMENT
Section 10.1 Equipment and Specifications. Producer’s Gas delivered into the Gathering System shall be measured by the
Measurement Meter(s) at the Receipt Point(s), the Delivery Point(s), and any point(s) redelivering buyback gas to Producer. The
Measurement Meter and appurtenant facilities shall be installed, operated, and maintained by Gatherer in accurate working order
and condition, and in accordance with the requirements set forth in this Article 10, with good and workmanlike standards generally
practiced by reasonably prudent gas pipeline operators, and in accordance with all Laws.
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Section 10.2 Gas Meter Standards. Orifice meters installed in such measuring stations for Gas shall be constructed and
operated in accordance with ANSI/API 2530 API 14.3, AGA Report No. 3, Orifice Metering of Natural Gas and Other Related
Hydrocarbon Fluids (including as it may be revised from time to time) and shall include the use of flange connections and, where
necessary, straightening vanes, flow conditioners, and/or pulsation dampening equipment. Ultrasonic meters or Coriolis meters
installed in such measuring stations shall be constructed and operated in accordance with AGA Report No. 9, Measurement of Gas
by Ultrasonic Meters, First Edition, and AGA Report No. 11, Measurement of Natural Gas by Coriolis Meter, respectively; and any
subsequent modification and amendment thereof generally accepted within the Gas industry. Electronic flow computers shall be
used and the Gas shall have its volume, mass, and/or heat content computed in accordance with the applicable AGA standards
including, but not limited to, AGA Report Nos. 3, 5, 6, 7, 8 and API 21.1 “Flow Measurement Using Electronic Metering Systems”
and any subsequent modifications and amendments thereof generally accepted within the Gas industry. When Gas chromatographs
are used they shall be installed, operated, maintained, and verified according to industry standards (GPA 2261, GPA 2145, GPA
2172, and GPA 2177).
Section 10.3 Notice of Measurement Equipment Inspection and Calibration. Each Party shall give at least seventy-two
(72) hours’ notice to the other Party in order that the other Party may, at its option, have representatives present to observe any
reading, inspecting, testing, calibrating, or adjusting of measuring equipment used in measuring or checking the measurement of
receipts or deliveries of Gas under this Agreement. The official electronic data from such measuring equipment shall remain the
property of the measuring equipment owner, but copies of such records shall, upon written request, be submitted, together with
calculations and flow computer configurations therefrom, to the requesting Party for inspection and verification.
Section 10.4 Measurement Accuracy Verification. Each Party shall verify the accuracy of all transmitters, flow computers,
and other equipment used in the measurement of the Gas hereunder at intervals not to exceed one hundred eighty (180) Days and
cause such equipment to be adjusted or calibrated as necessary. Testing frequency shall be based upon each Receipt Point flow rate
(Mcf/Day). Any flow rate at a Receipt Point that is: (x) greater than 1,000 Mcf/Day shall be tested Monthly, (y) between 101 and
1000 Mcf/Day shall be tested quarterly, and (z) less than 100 Mcf/Day shall be tested semi-annually. Neither Party shall be required
to cause adjustment or calibration of such equipment more frequently than once every Month, unless a special test is requested
pursuant to Section 10.5 of this Agreement. If, upon testing, (i) no adjustment or calibration error is found that results in an
incremental adjustment to the calculated flow rate through each meter run in excess of two percent (2%) of the adjusted flow rate
(whether positive or negative and using the adjusted flow rate as the percent error equation denominator) or (ii) any quantity error is
not greater than two hundred fifty (250) Mcf per Month, then any previous recordings of such equipment shall be considered
accurate in computing deliveries but such equipment shall be adjusted or calibrated at once. If, during any test of the measuring
equipment, an adjustment or calibration error is found that results in (i) an incremental adjustment to the calculated flow rate
through each meter run in excess of two percent (2%) of the adjusted flow rate (whether positive or negative and using the adjusted
flow rate as the percent error equation denominator) and (ii) a quantity error greater than two hundred fifty (250) Mcf per Month
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(“Material Measurement Error”), then any previous recordings of such equipment shall be corrected to zero error for any period
during which the error existed (and which is either known definitely or agreed to by the Parties) and the total flow for such period
shall be determined in accordance with the provisions of Section 10.6. If the period of error condition cannot be determined or
agreed upon between the Parties, such correction shall be for a period extending over the last one half (1/2) of the time elapsed
since the date of the last test.
Section 10.5 Special Tests. In the event a Party desires a special test (a test not scheduled by a Party under the provisions
of Section 10.4) of any measuring equipment, seventy-two (72) hours’ advance notice shall be given to the other Party and, after
providing such notice, such test shall be promptly performed. If no Material Measurement Error is found, the Party requesting the
test shall pay the costs of such special test including any labor and transportation costs pertaining thereto. If a Material
Measurement Error is determined to exist, the Party responsible for such measurement shall pay such costs and perform any
corrections required under Section 10.4.
Section 10.6 Metered Flow Rates in Error. If, for any reason, any measurement equipment is (i) out of adjustment, (ii) out
of service, or (iii) out of repair, and, in each case, a Material Measurement Error exists as a result thereof, the total quantity of Gas
delivered shall be determined in accordance with the first of the following methods which is feasible:
(a) by using the registration of any mutually agreeable check metering facility, if installed and accurately
registering (subject to testing as provided for in Section 10.4);
(b) where multiple meter runs exist in series, by calculation using the registration of such meter run equipment;
provided that they are measuring Gas from upstream and downstream headers in common with the faulty metering
equipment, are not controlled by separate regulators, and are accurately registering; or
(c) by estimating the quantity, based upon deliveries made during periods of similar conditions when the meter was
registering accurately.
Section 10.7 Record Retention. Gatherer shall retain and preserve all test data, charts, and similar records for any Calendar
Year for a period of at least sixty (60) Months following such Calendar Year, unless any applicable Law requires a longer time
period or Gatherer has received written notification of a dispute involving such records, in which case all records shall be retained
until the related issue is resolved.
Section 10.8 Correction Factors for Volume Measurement. The computations of the volumes of Gas measured shall be
made as follows:
(a) The hourly orifice coefficient for each meter shall be calculated at the base pressure of fourteen and sixty-five
hundredths (14.65) psia and the base temperature of sixty (60) degrees Fahrenheit. All Gas volume measurements shall be
based on a local atmospheric pressure assumed to be thirteen and seven-tenths (13.7) psia.
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(b) The flowing temperature of the Gas shall be continuously measured. In the case of electronic metering, such
temperature measurement shall be used as continuous input to the flow computer for calculation of Gas volume, mass,
and/or energy content in accordance with the applicable AGA or API 21.1 standards including, but not limited to, AGA
Report Nos. 3, 5, 6, 7, and 8 and any subsequent modification and amendments thereof generally accepted within the Gas
industry.
(c) Measurements of inside diameters of pipe runs and orifices shall be obtained by means of a micrometer to the
nearest one-thousandth of an inch, and such measurements shall be used in computations of coefficients.
(d) In determining the volume of Gas, when electronic transducers and flow computers are used, the Gas shall have
its volume, mass, and/or energy content continuously integrated in accordance with the applicable AGA standards including,
but not limited to, AGA report Nos. 3, 5, 6, 7, and 8 and any subsequent modification and amendments thereof generally
accepted within the Gas industry.
(e) In calculating the volume of Gas, deviation from Boyle’s Law at the pressure, specific gravity, and temperature
for each measurement shall be determined by use of AGA Report No. 8, Compressibility Factors for Natural Gas and Other
Related Hydrocarbon Gases, published by the AGA in conjunction with Gas Measurement Committee Report No. 3 and
amendments thereto generally accepted within the Gas industry.
(f) Whenever the conditions of pressure and temperature differ from the standards described herein, conversion of
the volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws, corrected
for deviation by the methods set forth in the AGA Gas Measurement Committee Report No. 3, as said report may be
amended from time to time.
Section 10.9 Exception to Gas Measurement Basis. If at any time the basis of measurement set out in this Agreement
should conflict with any Law, then the basis of measurement provided for in such Law shall govern measurements hereunder.
Section 10.10 Gas Sampling. Receipt Point meters downstream of new wells or wells that have been changed due to a
workover or other well bore alteration that could alter the Gas composition shall be sampled Monthly until the analyses demonstrate
reasonable consistency. After such time, said meters shall then be sampled at the stated calibration frequency. Gatherer shall install
and maintain a Gas composite sampler at each Receipt Point.
(a) Receipt Points. The composition, specific gravity, and Gross Heating Value of Gas shall be determined by the
measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be acquired through
either an on-line Gas chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
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(b) Delivery Points. The composition, specific gravity, and Gross Heating Value of Gas shall be determined by the
measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be acquired through
either an on-line Gas chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
(c) The specific gravity of Gas at all applicable measurement points shall be determined by a Gas chromatographic
component analysis to the nearest one thousandth (0.001) of the samples of the Gas taken for test purposes as provided
above, or by such other method as shall be mutually agreed upon.
(d) The Gross Heating Value shall be measured by Gas chromatographic analysis or component analysis of the
samples of the Gas taken for test purposes as provided above, or by such other method as shall be mutually agreed upon.
Section 10.11 Modifications to Measurement Procedures. In the event the measurement procedures herein cease to be
reflective of actual operations or become inequitable in any respect, such measurement procedures shall be modified to reflect
actual operations and to remove such inequities, as long as such modified measurement procedures are consistently applied to
Producer and all other Shippers utilizing the Gathering System.
Section 10.12 Substitute Measurement and Sampling. Notwithstanding anything in this Article 10 to the contrary, for any
Receipt Points where Producer has installed a Measurement Meter in accordance with the standards set forth in Section 10.2,
Gatherer shall not be obligated to install its own Measurement Meter at such Receipt Point(s) or at any Delivery Point(s)
downstream of such Receipt Point(s), and may use the measurements and samples taken by Producer.
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ARTICLE 11
FORCE MAJEURE
Section 11.1 Suspension of Obligations. In the event a Party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to indemnify and/or to make payments due hereunder, and
such Party gives notice and reasonably full particulars of such Force Majeure in writing to the other Party promptly after the
occurrence of the cause relied on, then the obligations of the Party giving such notice, so far as and to the extent 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 by the Party claiming Force Majeure. A Force Majeure event affecting
the performance of a Party shall not relieve it of liability in the event of its gross negligence, where such gross negligence was the
cause of, or a contributing factor in causing, the Force Majeure event, or in the event of its failure to use commercially reasonable
efforts to remedy the situation and remove the cause with all reasonable dispatch. Additionally, it is specifically understood that a
Force Majeure shall in no way terminate each Party’s obligation to balance those volumes of Gas received and delivered hereunder.
Section 11.2 Definition of Force Majeure. “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation, any of the following that meets the foregoing criteria: acts of God, acts and/or delays in
action of any Governmental Authority, strikes, lockouts, work stoppages or other industrial disturbances, acts of a public enemy,
sabotage, wars, blockades, insurrections, riots, acts of terror, epidemics, landslides, lightning, earthquakes, fires, storms, storm
warnings, floods, washouts, extreme cold or freezing weather, arrests and restraints of governments and people, civil or criminal
disturbances, explosions, mechanical failures, breakage or accident to equipment installations, machinery, compressors, or lines of
pipe and associated repairs, freezing of wells or lines of pipe, partial or entire failure of wells, pipes, facilities, or equipment,
electric power unavailability or shortages, failure of Third Party pipelines, gatherers, or processors to deliver, receive, or transport
Gas, and, in those instances where a Party is required to secure permits from any Governmental Authority to enable such Party to
fulfill its obligations under this Agreement, the inability of such Party, at reasonable costs and after the exercise of all reasonable
diligence, to acquire such permits; provided, however, that a Governmental Authority requiring Gatherer to provide gathering
services to Third Parties shall not constitute Force Majeure. 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 requirement that a Force Majeure be
remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of Persons
striking when such course is inadvisable in the sole discretion of the Party having the difficulty.
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Section 12.1 Definitions. The following terms are defined as follows.
ARTICLE 12
INDEMNIFICATION
(a) “Gatherer Indemnified Parties” Gatherer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors, and agents.
(b) “Producer Indemnified Parties” Producer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors, and agents.
Section 12.2 PRODUCER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND GATHERER UNDER
THIS AGREEMENT, PRODUCER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
BEFORE SUCH GAS IS DELIVERED TO GATHERER AT THE RECEIPT POINT, AND (II) PRODUCER’S GAS AND
CONDENSATE AFTER SUCH GAS AND CONDENSATE HAVE BEEN DELIVERED TO OR FOR PRODUCER’S ACCOUNT
AT THE DELIVERY POINT. WHEN PRODUCER’S GAS AND/OR CONDENSATE ARE IN THE CONTROL AND
POSSESSION OF PRODUCER AS DESCRIBED HEREIN, PRODUCER SHALL BE RESPONSIBLE FOR, AND SHALL
RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS GATHERER INDEMNIFIED PARTIES FROM ANY AND ALL
CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ACTUAL PHYSICAL LOSS OR
DAMAGE OR ACTUAL INJURY CAUSED BY PRODUCER’S GAS WHILE IN A PRODUCER INDEMNIFIED PARTY’S
CONTROL AND POSSESSION, EXCEPT TO THE EXTENT SUCH LOSS, DAMAGE, OR INJURY IS CAUSED BY A
BREACH OF THIS AGREEMENT BY GATHERER OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR OTHER FAULT OF ANY OF THE GATHERER INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT
COVERED BY SECTION 12.4. PRODUCER’S INDEMNIFICATION, DEFENSE, AND HOLD HARMLESS OBLIGATIONS
UNDER THIS SECTION SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES SET FORTH IN ARTICLE 18 AND
THE WAIVER OF CERTAIN REMEDIES IN ARTICLE 18.
Section 12.3 GATHERER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND GATHERER UNDER
THIS AGREEMENT, GATHERER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
AFTER SUCH GAS IS DELIVERED TO GATHERER AT THE RECEIPT POINT AND (II) PRODUCER’S GAS AND
CONDENSATE BEFORE SUCH GAS AND CONDENSATE HAVE BEEN DELIVERED TO OR FOR PRODUCER’S
ACCOUNT AT THE DELIVERY POINT. WHEN PRODUCER’S GAS AND/OR THE CONDENSATE ARE IN THE CONTROL
AND POSSESSION OF GATHERER AS DESCRIBED HEREIN, GATHERER SHALL BE RESPONSIBLE FOR, AND SHALL
RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL
CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ACTUAL PHYSICAL LOSS OR
DAMAGE OR ACTUAL INJURY CAUSED BY SUCH
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GAS AND/OR CONDENSATE WHILE IN A GATHERER INDEMNIFIED PARTY’S CONTROL AND POSSESSION, EXCEPT
TO THE EXTENT SUCH LOSS, DAMAGE, OR INJURY IS CAUSED BY A BREACH OF THIS AGREEMENT BY
PRODUCER OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR OTHER FAULT OF ANY OF
THE PRODUCER INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT COVERED BY SECTION 12.4. GATHERER’S
INDEMNIFICATION, DEFENSE, AND HOLD HARMLESS OBLIGATIONS UNDER THIS SECTION SHALL BE SUBJECT
TO THE LIMITATION OF DAMAGES SET FORTH IN ARTICLE 18 AND THE WAIVER OF CERTAIN REMEDIES IN
ARTICLE 18.
Section 12.4 Personal Injury Claims of Producer Indemnified Parties and Gatherer Indemnified Parties. PRODUCER
SHALL BE RESPONSIBLE FOR, AND SHALL RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS GATHERER
INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR
RESULTING FROM ANY BODILY INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PRODUCER
INDEMNIFIED PARTIES ARISING OUT OF OR RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT,
EXCEPT TO THE EXTENT SUCH INJURY IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
ANY GATHERER INDEMNIFIED PARTIES. GATHERER SHALL BE RESPONSIBLE FOR, AND SHALL RELEASE,
INDEMNIFY, DEFEND, AND HOLD HARMLESS PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS
OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ANY BODILY INJURY, DEATH, OR ILLNESS
SUFFERED BY ANY OF THE GATHERER INDEMNIFIED PARTIES ARISING OUT OF OR RELATING TO THE PARTIES’
ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH INJURY IS CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY PRODUCER INDEMNIFIED PARTIES.
Section 12.5 Insurance. In support of the liability and indemnity obligations assumed by the Parties in this Agreement,
each Party agrees to obtain and maintain, at its own expense, insurance coverages in the types and amounts which are comparable
with its peers and that is generally carried by companies performing the same or similar activities as the Parties in this Agreement.
In addition, each Party shall comply with all statutory insurance requirements determined by governmental laws and regulations, as
applicable. To the extent of the Parties’ indemnity obligations or liabilities assumed under this Agreement, (i) each Party’s
insurance coverage shall be primary to and shall receive no contribution from any insurance maintained by the Indemnified Parties,
and (ii) any insurance of each Party shall waive rights of subrogation against the Indemnified Parties and include the Indemnified
Parties as additional insured under any applicable coverages. Failure to obtain adequate insurance coverage shall in no way relieve
or limit any indemnity or liability of either Party under this Agreement.
Section 13.1 Producer’s Warranty. Producer warrants that it owns, or has the right to deliver, Producer’s Gas to the Receipt
Points for the purposes of this Agreement, free and clear of all liens, encumbrances, and adverse claims. If the title to Producer’s
Gas delivered hereunder is disputed or
ARTICLE 13
TITLE
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is involved in any legal action in any material respect, Gatherer shall have the right to cease receiving such Gas, to the extent of the
interest disputed or involved in legal action, during the pendency of the action or until title is freed from the dispute or until
Producer furnishes, or causes to be furnished, indemnification to save Gatherer harmless from all Claims or Losses arising out of
the dispute or action, with surety reasonably acceptable to Gatherer. Subject to Sections 18.9 and 18.10, Producer agrees to
indemnify the Gatherer Indemnified Parties from and against all Claims or Losses suffered by the Gatherer Indemnified Parties, to
the extent such Claims or Losses arise out of a breach of the foregoing warranty.
Section 13.2 Gatherer’s Warranty. Gatherer warrants that it has the right to accept Gas at the Receipt Points and to deliver
Gas to the Delivery Points free and clear of all liens, encumbrances, and adverse claims. If the Gathering System is involved in any
legal action in any material respect, Producer shall have the right to withhold payment (without interest), or cease delivering Gas, to
the extent of the interest disputed or involved in legal action, during the pendency of the action or until Gatherer furnishes, or
causes to be furnished, indemnification to save Producer harmless from all Claims or Losses arising out of the dispute or action,
with surety reasonably acceptable to Producer. Subject to Sections 18.9 and 18.10, Gatherer agrees to indemnify the Producer
Indemnified Parties from and against all Claims or Losses suffered by the Producer Indemnified Parties, to the extent such Claims
or Losses arise out of a breach of the foregoing warranty.
Section 13.3 Title. Title to Producer’s Gas delivered under this Agreement, including all constituents thereof, shall remain
with and in Producer or its designee at all times.
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ARTICLE 14
ROYALTY AND TAXES
Section 14.1 Proceeds of Production. Producer shall have the sole and exclusive obligation and liability for the payment of
all Persons due any proceeds derived by Producer from Producer’s Gas (including all constituents and products thereof) delivered
under this Agreement, including, without limitation, royalties, overriding royalties, and similar interests, in accordance with the
provisions of the leases or agreements creating those rights to such proceeds.
Section 14.2 Producer’s Taxes. Producer shall pay and be responsible for all gross production and severance Taxes levied
against or with respect to Producer’s Gas delivered under this Agreement, all ad valorem Taxes levied against the property of
Producer, all income, excess profits, and other Taxes measured by the income or capital of Producer, and all payroll Taxes related to
employees of Producer.
Section 14.3 Gatherer’s Taxes. Gatherer shall pay and be responsible for all Taxes levied with respect to the providing of
Services under this Agreement, all ad valorem Taxes levied against the property of Gatherer, all income, excess profits, and other
Taxes measured by the income or capital of Gatherer, and all payroll Taxes related to employees of Gatherer.
ARTICLE 15
NOTICE AND PAYMENT INSTRUCTIONS
Except as specifically provided elsewhere in this Agreement, any notice or other communication provided for in this
Agreement shall be in writing and shall be given (i) by depositing in the United States mail, postage paid and certified with return
receipt requested, (ii) by depositing with a reputable overnight courier, (iii) by delivering to the recipient in person by courier, or
(iv) by facsimile or email transmission, in each of the foregoing cases addressed to the applicable Party as set forth on Exhibit C,
and payments required under this Agreement shall be made to the applicable Party according to the payment instructions set forth
on such exhibit. A Party may at any time designate a different address or payment instructions by giving written notice to the other
Party. Notices, invoices, allocation statements, claims, or other communications shall be deemed received when delivered to the
addressee in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual
receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States mail, as
the case may be.
ARTICLE 16
DISPUTE RESOLUTION
Section 16.1 Negotiation. Prior to submitting any dispute for resolution by a court, a Party shall provide written notice of
such dispute to the other Party. If the Parties fail to resolve the dispute within fifteen (15) Business Days after such notice is given,
the Parties shall seek to resolve the dispute by negotiation between senior management personnel of each Party. Such personnel
shall endeavor to meet and attempt to amicably resolve the dispute. If the Parties are unable to resolve the dispute for any reason
within thirty (30) Business Days after the original notice of dispute was given, then
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CONFIDENTIAL TREATMENT REQUESTED
either Party shall be entitled to pursue any available remedies; provided, however, this Section 16.1 shall not limit a Party’s right to
initiate litigation prior to the expiration of the time periods set forth in this Section 16.1 if application of such limitations would
prevent a Party from filing a Claim within the applicable period for filing lawsuits (e.g. statutes of limitation, prescription, etc.) or
would otherwise prejudice or harm a Party.
Section 16.2 Jurisdiction and Venue.
(a) Each Party agrees that the appropriate, exclusive and convenient forum for any disputes between the Parties
arising out of this Agreement or the transactions contemplated hereby shall be in any state or federal court in Houston,
Texas, and each of the Parties irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding
arising out of or related to this Agreement or the transactions contemplated hereby. The Parties further agree that the Parties
shall not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any
court or jurisdiction other than the above specified courts.
(b) Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection (including, without limitation, the defense of inconvenient forum) which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby in any court referred to in paragraph (a) above.
ARTICLE 17
TERM
Section 17.1 Term. This Agreement is effective on the Effective Date and shall continue in full force and effect until
March 31, 2032 (the “Primary Term”); provided that Producer shall have two (2) successive options to extend the Primary Term
by five (5) Years each. Each five (5)-Year Primary Term extension shall occur automatically unless Producer gives Gatherer at least
nine (9) Months’ prior written notice that it does not wish to extend the Primary Term. Unless terminated at the end of the Primary
Term by either Party giving at least six (6) Months’ prior written notice, this Agreement shall continue after the Primary Term on a
Year-to-Year basis unless terminated at the end of any Yearly extension period by either Party giving at least six (6) Months’ prior
written notice. Notwithstanding anything to the contrary in this Section 17.1, Producer shall have the right to terminate this
Agreement upon the termination or expiration of that certain Gas Processing Agreement between Producer and Alpine High
Processing LP dated July 1, 2018. For purposes of this Agreement, the period during which this Agreement continues in full force
and effect prior to any termination is referred to herein as the “Term”.
Section 17.2 Obligations Upon Termination. Upon termination of this Agreement, unless the Parties agree to the terms of a
new gathering arrangement, the Parties shall reasonably cooperate with each other in (i) disconnecting their respective facilities
from each other’s facilities and (ii) to
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the extent that one Party has facilities located on the other Party’s property, allowing such Party to remove its facilities from such
other Party’s property.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 18
MISCELLANEOUS
Section 18.1 Confidentiality. Producer’s 2-Year Forecast delivered to Gatherer pursuant to Section 2.1 and all other
information received by Gatherer pursuant to the terms of this Agreement which involves or in any way relates to Producer’s
production estimates, development plans and/or other similar information, and information related to Producer’s actual production
at any individual Receipt Point, including, without limitation, information relating to production rates, volumes, composition,
heating value, or other similar or dissimilar information, shall be kept strictly confidential by Gatherer, and Gatherer shall not
disclose any such information to any third Person or use any such information for any purpose other than performing under this
Agreement, provided, however, Gatherer may disclose such information to those of its legal counsel, accountants and other
representatives with a specific need to know such information for purposes of Gatherer’s performance under this Agreement or
enforcement of this Agreement or as required by applicable Law, provided such third Persons have likewise agreed in writing to the
confidentiality and non-use restrictions set forth herein. In the event Gatherer is required by Law to disclose any such information,
Gatherer shall first notify Producer in writing as soon as practicable of any proceeding of which it is aware that may result in
disclosure and shall use all reasonable efforts to prevent or limit such disclosure. Producer’s confidential information shall not
include information that Gatherer can satisfactorily demonstrate was: (a) rightfully in the possession of Gatherer prior to Producer’s
disclosure hereunder; (b) in the public domain prior to Producer’s disclosure hereunder; (c) made public by any Governmental
Authority; (d) supplied to Gatherer without restriction by a Third Party who is under no obligation to Producer to maintain such
confidential information in confidence; or (e) independently developed by Gatherer. The confidentiality requirements and non-use
restrictions set forth herein shall survive termination or expiration of this Agreement for two (2) Years after such termination or
expiration. Notwithstanding anything else in this Agreement, the Parties agree that there is not an adequate remedy at law for any
breach of these confidentiality and non-use restrictions and, therefore, Producer shall be entitled (without the posting of any bond)
to specific performance and injunctive relief restraining any breach hereof, in addition to any other rights and remedies which it
may have or be entitled.
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CONFIDENTIAL TREATMENT REQUESTED
Section 18.2 Independent Contractor. Notwithstanding anything else in this Agreement, Gatherer undertakes its
obligations under this Agreement as an independent contractor, at its sole risk, and all Persons carrying out any of Gatherer’s
obligations set forth herein for or on behalf of Gatherer are or shall be deemed employees, contractors, subcontractors, agents,
and/or representatives of Gatherer, subject to the direction and control of Gatherer. Gatherer is to determine the manner, means, and
methods in which such Persons shall carry out their work to attain the results contemplated by this Agreement, consistent with the
general coordinative efforts and suggestions of Producer with respect to the work. Nothing in this Agreement or inferred from any
action of either Party shall be taken to establish the relationship of master and servant or principal and agent between Producer and
Gatherer.
Section 18.3 Rights; Waivers. The failure of either Party to exercise any right granted hereunder shall not impair nor be
deemed a waiver of that Party’s privilege of exercising that right at any subsequent time or times. No waiver by either Party of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless expressly provided.
Section 18.4 Applicable Laws. This Agreement is subject to all valid present and future Laws of any Governmental
Authority(ies) now or hereafter having jurisdiction over the Parties, this Agreement, or the Services performed or the facilities
utilized under this Agreement.
Section 18.5 Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the Laws
of the State of Texas, without regard to any choice of law principles that would require the application of the Laws of any other
jurisdiction, PROVIDED, HOWEVER, THAT NO LAW, THEORY, OR PUBLIC POLICY SHALL BE GIVEN EFFECT
WHICH WOULD UNDERMINE, DIMINISH, OR REDUCE THE EFFECTIVENESS OF EACH PARTY’S WAIVER OF
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, AND EXEMPLARY DAMAGES SET FORTH IN SECTION
18.9 OR WAIVER OF THE RIGHT TO CERTAIN REMEDIES SET FORTH IN SECTION 18.10, IT BEING THE
EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE
GIVEN THE FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING CONDITION OR THE NEGLIGENCE
(WHETHER SOLE, JOINT, OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT
LIABILITY, OR OTHER LEGAL FAULT OF ANY PARTY HERETO, OR OTHERWISE.
Section 18.6 Assignments. This Agreement, including any and all renewals, extensions, and amendments hereto, and all
rights, title, and interests contained herein, shall be binding upon and inure to the benefit of the Parties hereto and their respective
heirs, successors, and assigns, the assigns of all or any part of Gatherer’s right, title, or interest in the Gathering System, and the
assigns of all or any part of Producer’s Interests in the Dedicated Area, and each Party’s respective obligations hereunder shall be
covenants running with the lands underlying or included in any such assets. Neither Party shall Transfer any of its rights or
obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably
withheld, delayed, or conditioned; provided,
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CONFIDENTIAL TREATMENT REQUESTED
however, that either Party may Transfer any of its rights or obligations under this Agreement to any Affiliate of such Party without
the prior written consent of the other Party and that, in connection with a Transfer of all or any portion of the Dedicated Area,
Producer shall Transfer its corresponding rights and obligations under this Agreement without the need for the prior written consent
of Gatherer; provided, further, that if Producer Transfers a portion but not all of the Dedicated Area, instead of acquiring this
Agreement, the transferee of such Interests shall execute an agreement in the form attached hereto as Exhibit F (the “Transferee
Agreement”), Gatherer shall likewise execute such Transferee Agreement, and such Transferred portion of the Dedicated Area
shall be removed from dedication under this Agreement. Any Transfer of this Agreement shall expressly require that the assignee
assume and agree to discharge the duties and obligations of its assignor under this Agreement, and the assignor shall be released
from the duties and obligations arising under this Agreement which accrue after the effective date of such Transfer. Gatherer shall
not Transfer its rights and interests in the Gathering System, in whole or in part, unless the transferee of such interests agrees in
writing to be bound by the terms and conditions of this Agreement. No Transfer of this Agreement or of any interest of either Party
shall be binding on the other Party until such other Party has been notified in writing of such Transfer and furnished with reasonable
evidence of same. No such Transfer of this Agreement or of any interests of either Party shall operate in any way to enlarge, alter,
or modify any obligation of the other Party hereto. Any Person that succeeds by purchase, merger, or consolidation with a Party
hereto shall be subject to the duties and obligations of its predecessor in interests under this Agreement or a Transferee Agreement,
as applicable.
Section 18.7 Entire Agreement. This Agreement constitutes the entire agreement of the Parties and supersedes all prior
understandings, agreements, representations, and/or warranties by or among the Parties, written or oral, with respect to the subject
matter hereof. No other representations, warranties, understandings, or agreements shall have any effect on this Agreement.
Section 18.8 Amendments. This Agreement may not be amended or modified in any manner except by a written document
signed by both Parties that expressly amends this Agreement.
Section 18.9 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES (COLLECTIVELY, “CONSEQUENTIAL DAMAGES”)
RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF OR UNDER ANY
OTHER THEORY OF LIABILITY, WHETHER NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT OR
WARRANTY, OR OTHERWISE. IN FURTHERANCE OF THE FOREGOING, EACH PARTY RELEASES THE OTHER
PARTY AND WAIVES ANY RIGHT OF RECOVERY FOR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH
PARTY, REGARDLESS OF WHETHER ANY SUCH DAMAGES ARE CAUSED BY THE OTHER PARTY’S
NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE, JOINT, CONCURRENT,
ACTIVE, PASSIVE, OR GROSS), FAULT, OR LIABILITY WITHOUT FAULT. GATHERER UNDERSTANDS THAT
PRODUCER IS RELYING ON GATHERER’S PERFORMANCE UNDER THIS
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CONFIDENTIAL TREATMENT REQUESTED
AGREEMENT TO ENABLE PRODUCER TO MEET ITS DEDICATION OBLIGATIONS UNDER DOWNSTREAM
CONTRACTS, AND GATHERER EXPRESSLY AGREES THAT ANY DAMAGES SUFFERED BY PRODUCER UNDER
ANY SUCH DOWNSTREAM CONTRACT AS A RESULT OF GATHERER’S UNEXCUSED FAILURE TO PERFORM
UNDER THIS AGREEMENT SHALL BE CONSIDERED DIRECT DAMAGES.
Section 18.10 RIGHTS AND REMEDIES. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
THAT MAY BE CONSTRUED TO THE CONTRARY, A PARTY’S SOLE REMEDY AGAINST THE OTHER PARTY
FOR NON-PERFORMANCE OR BREACH OF THIS AGREEMENT OR ANY OTHER CLAIM OF WHATSOEVER
NATURE ARISING OUT OF THIS AGREEMENT OR OUT OF ANY ACTION OR INACTION BY A PARTY IN
RELATION HERETO SHALL BE IN CONTRACT AND EACH PARTY EXPRESSLY WAIVES ANY OTHER REMEDY
IT MAY HAVE IN LAW OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY REMEDY IN TORT.
Section 18.11 No Partnership. Nothing contained in this Agreement shall be construed to create an association, trust,
partnership, or joint venture or impose a trust, fiduciary, or partnership duty, obligation, or liability on or with regard to either Party.
Section 18.12 Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting
this Agreement;
(b) the headings and captions in this Agreement have been inserted for convenience of reference only and shall not
define or limit any of the terms and/or conditions hereof;
(c) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(d) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding
syntactical variant expressions; and
(e) the plural shall be deemed to include the singular and vice versa, as applicable.
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CONFIDENTIAL TREATMENT REQUESTED
Section 18.13 No Third Party Beneficiaries. Except for Persons expressly indemnified hereunder, this Agreement is for the
sole benefit of the Parties and their respective successors and permitted assigns, and shall not inure to the benefit of any other
Person, it being the intention of the Parties that no Third Party shall be deemed a third-party beneficiary of this Agreement.
Section 18.14 Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be
reasonably required to effectuate the purposes of this Agreement.
Section 18.15 No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee,
rebate, gift, or entertainment of significant cost or value in connection with this Agreement.
Section 18.16 Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which
shall be considered an original, and all of which shall be considered one and the same instrument.
Section 18.17 Survival. The terms of this Agreement which by their nature should reasonably be expected to survive
termination or expiration of this Agreement shall survive, including, without limitation, Article 7 (Audit Rights), Article 12
(Indemnification), Article 16 (Dispute Resolution), Section 18.1 (Confidentiality), Section 18.5 (Governing Law), Section 18.9
(Limitation of Liability), Section 18.10 (Rights and Remedies), this Section 18.17 (Survival), and the obligations of either Party
under any provision of this Agreement to make payment hereunder.
Section 18.18 Exhibits. The following exhibits are attached to this Agreement and are incorporated herein by this
reference:
Exhibit A - Dedicated Area
Exhibit B - Receipt Points; Delivery Points
Exhibit C - Addresses for Notices, Statements, and Payments
Exhibit D - Form of Memorandum of Agreement
Exhibit E - Form of Memorandum of Release
Exhibit F - Form of Transferee Agreement
Exhibit G - Form of Joinder Agreement
Gas Gathering Agreement dated July 1, 2018
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IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
CONFIDENTIAL TREATMENT REQUESTED
GATHERER:
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC, its general partner
By: /s/ Brian W. Freed
Name: Brian W. Freed
Title: Senior Vice President
PRODUCER:
APACHE CORPORATION
By: /s/ Stephen J. Riney
Name: Stephen J. Riney
Title: Chief Financial Officer and Executive Vice President
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
DEDICATED AREA
This Exhibit A is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
“Dedicated Area” shall mean the following lands as further described in the map (the area within the red border) and table below,
as the same may be updated annually pursuant to Section 2.1(b). In the event of a conflict between the map and the table, the map
shall control.
[***]
Gas Gathering Agreement dated July 1, 2018
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CONFIDENTIAL TREATMENT REQUESTED
Section
Block
Survey
County
State
Dedicated Interest as of the
Effective Date
[***] [22 PAGES OF TABLE OMITTED] [***]
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
RECEIPT POINTS; DELIVERY POINTS
This Exhibit B is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
LOW PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
Gathering Subsystem
MAOP
Required Pressure
[***]
LOW PRESSURE DELIVERY POINTS
Delivery Point Name
Location
[***]
Required Pressure
HIGH PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
MAOP
[***]
HIGH PRESSURE DELIVERY POINTS
Receipt Point Name
Meter Number
MAOP
[***]
Pg 38 of 68
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
ADDRESSES FOR NOTICES, STATEMENTS, AND PAYMENTS
Additional Delivery Point Outline
This Exhibit C is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
Notices:
Alpine High Gathering LP
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Telephone: 210-447-5629
Email: CommercialOperations@Apachecorp.com
Scheduling and Nominations:
Attn: Commercial Operations
Telephone: 210-447-5629
Email: CommercialOperations@Apachecorp.com
Gatherer
Payments by Check:
c/o Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Payments by Wire Transfer:
c/o [***]
Bank: [***]
ABA No.: [***]
Account: [***]
Account No.: [***]
Notices:
Apache Corporation
Attn: Marketing Contract Administration
2000 Post Oak Blvd., Suite 100
Houston, TX 77056-4400
Telephone: (713) 296-6000
Fax: 713-296-6473
Email: contract.administration@
apachecorp.com
Payments by Wire Transfer:
Bank: [***]
ABA No.: [***]
Account: [***]
Account No.: [***]
Producer
Invoices/Statements:
Apache Corporation
Attn: Gas Accounting
2000 Post Oak Blvd, Suite 100
Houston, TX 77056-4400
Telephone: (713) 296-6000
Fax: 713-296-6564
Email: gas.accounting@
apachecorp.com
Scheduling and Nominations:
Attn: Gas Control
Telephone: (713) 296-6000
Fax: (713) 296-7130
Email: midcon.scheduling@
apachecorp.com
Payments by Check:
Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Gas Gathering Agreement dated July 1, 2018
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EXHIBIT D
FORM OF MEMORANDUM OF AGREEMENT
This Exhibit D is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
CONFIDENTIAL TREATMENT REQUESTED
State of Texas §
§
County of [____] §
This Memorandum of Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between
Alpine High Gathering LP, a Delaware limited partnership (“Gatherer”) and Apache Corporation, a Delaware corporation
(“Producer”).
MEMORANDUM OF AGREEMENT
WHEREAS, Gatherer and Producer have entered into a certain Gas Gathering Agreement dated July 1, 2018 (the
“Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for gathering by Gatherer; and
WHEREAS, the Parties wish to file this Memorandum of Agreement to put third parties on notice as to the existence of the
RECITALS
Agreement.
1. Dedication.
Producer’s interests in the acreage and/or well(s) set forth on Exhibit A hereto (“Dedicated Area”) are dedicated to
Gatherer for gathering. The Agreement is for an initial term ending on March 31, 2032, but subject to extension, renewal, and/or
termination as more particularly provided therein.
2. Incorporation of Agreement and Effect of Memorandum.
The sole purpose of this Memorandum of Agreement is to give notice to third parties of the existence of the Agreement and
the rights of Gatherer in and to Producer’s Gas from the Dedicated Area. This Memorandum shall not modify in any manner any of
the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall not be used to interpret the
Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Agreement as if set out fully
herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms
of the Agreement shall govern and control for all purposes.
3. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
Gas Gathering Agreement dated July 1, 2018
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IN WITNESS WHEREOF, this Memorandum of Agreement is executed by Gatherer and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
CONFIDENTIAL TREATMENT REQUESTED
GATHERER
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Name:
Title:
PRODUCER
APACHE CORPORATION
By: ________________________________
Name: ______________________________
Title: _______________________________
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
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CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Gathering LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Apache
Corporation on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Gas Gathering Agreement dated July 1, 2018
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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF AGREEMENT
DEPICTION OF DEDICATED AREA
Gas Gathering Agreement dated July 1, 2018
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EXHIBIT E
FORM OF MEMORANDUM OF RELEASE
This Exhibit E is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
CONFIDENTIAL TREATMENT REQUESTED
State of Texas §
§
County of [____] §
This Memorandum of Release is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine
High Gathering LP, a Delaware limited partnership (“Gatherer”) and Apache Corporation, a Delaware corporation
(“Producer”).
MEMORANDUM OF RELEASE
RECITALS
WHEREAS, Gatherer and Producer have previously entered into a certain Gas Gathering Agreement dated July 1, 2018
(the “Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for gathering by Gatherer; and
WHEREAS, a Memorandum of Agreement dated [___], 2018 was executed by Gatherer and Producer to give notice to
third parties of the existence of the Agreement and the respective rights and obligations of Gatherer and Producer with respect
thereto and with respect to the dedication as set forth therein; and
WHEREAS, such Memorandum of Agreement was filed of record in Book ____, Page_____ of the real property records of
[___] County, Texas; and
WHEREAS, the Parties wish to file this Memorandum of Release to put third parties on notice as to the release of certain
Interests from the dedication.
4. Release from Dedication.
The following Interests in the following acreage and/or well(s) (“Released Interests”) are hereby released from the
dedication, as further set forth on Exhibit A hereto:
5. Incorporation of Agreement and Effect of Memorandum.
[Description of Released Interests]
The sole purpose of this Memorandum of Release is to give notice to third parties of the existence of the Agreement, the
rights of Gatherer in and to Producer’s Gas from the Dedicated Area, and the release of the Released Interests from the dedication.
This Memorandum shall not modify in any manner any of the terms and conditions of the Agreement, and nothing in this
Memorandum is intended to and shall not be used to interpret the Agreement. The provisions of the Agreement are hereby
incorporated into this Memorandum of Release as if set out fully herein.
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CONFIDENTIAL TREATMENT REQUESTED
In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms of the
Agreement shall govern and control for all purposes.
6. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Release is executed by Gatherer and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
GATHERER
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
APACHE CORPORATION
By: ________________________________
Name: ______________________________
Title: _______________________________
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 45 of 68
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Gathering LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Apache
Corporation on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 46 of 68
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF RELEASE
DEPICTION OF RELEASED INTERESTS
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
Pg 47 of 68
EXHIBIT F
FORM OF TRANSFEREE AGREEMENT
This Exhibit F is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
CONFIDENTIAL TREATMENT REQUESTED
Gas Gathering Agreement dated July 1, 2018
Between Alpine High Gathering LP (Gatherer) and Apache Corporation (Producer)
[attached]
Pg 48 of 68
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT G
FORM OF JOINDER AGREEMENT
This Exhibit G is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and Apache Corporation
(“Producer”) dated July 1, 2018, and is for all purposes made a part of said Agreement.
JOINDER AGREEMENT
This Joinder Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine High
Gathering LP, a Delaware limited partnership (“Gatherer”) and ____________________, a _____________ ______
(“Producer”).
WHEREAS, Gatherer and Apache Corporation have entered into a certain Gas Gathering Agreement dated July 1, 2018, as
such agreement may be amended, modified or supplemented from time to time (the “Agreement”), pursuant to which Producer
dedicated gas produced from a certain geographic area as defined in the Agreement (the “Dedicated Area”) for gathering by
Gatherer;
WHEREAS, Gatherer and Producer agree that all capitalized terms used in this Joinder Agreement and not defined herein
shall have the meanings set forth in the Agreement;
WHEREAS, Producer, an affiliate of Apache Corporation, has acquired certain oil and gas interests, which are described in
greater detail on Exhibit A hereto, within the Dedicated Area (the “Affiliate Interests”); and
WHEREAS, in accordance with Section 2.1(g) of the Agreement, Producer is entering into this Joinder Agreement in order
that the Affiliate Interests will become subject to the terms of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the Gatherer and Producer hereby agree as follows:
Producer hereby absolutely, unconditionally and irrevocably agrees to be bound by the terms and provisions of the
Agreement, including, for the avoidance of doubt, Section 2.1(a) (Dedication) and Section 2.1(b) (Covenant Running with the
Land), with the same force and effect as if it were originally a party thereto, and to assume all of its rights and obligations under the
Agreement, including to perform, satisfy and timely discharge all of its obligations, duties and covenants that are required to be
performed, satisfied or discharged after the Effective Date in accordance with the terms thereof.
Producer acknowledges that it has been provided and has reviewed a full and complete copy of the Agreement.
This Joinder Agreement shall be governed by, construed, and enforced in accordance with the Laws of the State of Texas,
without regard to any choice of law principles that would require the application of the Laws of any other jurisdiction.
CONFIDENTIAL TREATMENT REQUESTED
This Joinder Agreement may be executed in any number of counterparts, each of which shall be considered an original, and
all of which shall be considered one and the same instrument. A signature delivered by facsimile or other electronic transmission of
a .pdf (including e-mail) will be considered an original signature.
IN WITNESS WHEREOF, this Joinder Agreement is executed by Gatherer and Producer as of the date of their signatures,
but is effective for all purposes as of the Effective Date stated above.
GATHERER
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
[_______________________]
By: ________________________________
Name: ______________________________
Title: _______________________________
CONFIDENTIAL TREATMENT REQUESTED
Exhibit A
Affiliate Interests
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
EXHIBIT F
FORM OF
GAS GATHERING AGREEMENT
by and between
[_________________]
and
ALPINE HIGH GATHERING LP
dated
[________, 20__]
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
CONFIDENTIAL TREATMENT REQUESTED
GAS GATHERING AGREEMENT
DEFINITIONS
DEDICATION AND SERVICES
RECEIPT POINTS, DELIVERY POINTS, AND PRESSURES
FEES
FUEL AND LOST & UNACCOUNTED FOR GAS
PAYMENTS
AUDIT RIGHTS
MAINTENANCE
GAS QUALITY
MEASUREMENT
FORCE MAJEURE
INDEMNIFICATION
TITLE
ROYALTY AND TAXES
NOTICE AND PAYMENT INSTRUCTIONS
DISPUTE RESOLUTION
TERM
MISCELLANEOUS
ARTICLE 1
ARTICLE 2
ARTICLE 3
ARTICLE 4
ARTICLE 5
ARTICLE 6
ARTICLE 7
ARTICLE 8
ARTICLE 9
ARTICLE 10
ARTICLE 11
ARTICLE 12
ARTICLE 13
ARTICLE 14
ARTICLE 15
ARTICLE 16
ARTICLE 17
ARTICLE 18
EXHIBITS:
Exhibit A - Dedicated Area
Exhibit B - Receipt Points; Delivery Points
Exhibit C - Addresses for Notices, Statements, and Payments
Exhibit D - Form of Memorandum of Agreement
Exhibit E - Form of Memorandum of Release
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
1
6
12
14
15
15
16
17
17
18
22
23
25
26
26
27
28
29
CONFIDENTIAL TREATMENT REQUESTED
This Gas Gathering Agreement (“Agreement”) is entered into to be effective [___________] (“Effective Date”) by and
between [_______________], a [___________] (together with its successors and permitted assigns, “Producer”), and ALPINE
HIGH GATHERING LP, a Delaware limited partnership (together with its successors and permitted assigns, “Gatherer”).
Producer and Gatherer may be referred to herein individually as “Party,” or collectively as the “Parties.”
GAS GATHERING AGREEMENT
A.
Gatherer owns and operates the high pressure and low pressure Gathering System (as defined in Article 1 below).
RECITALS
B. Producer owns or controls Gas production in the vicinity of the Gathering System.
C. Subject to the terms and conditions of this Agreement, Producer desires to deliver to Gatherer, and Gatherer desires to
receive from Producer, Gas owned and/or controlled by Producer at the Receipt Points for Gathering on the Gathering System. In
accordance with the terms and conditions of this Agreement, Gatherer shall provide the Services with respect to Producer’s Gas
delivered to Gatherer hereunder.
NOW THEREFORE, in consideration of the premises and mutual covenants set forth in this Agreement, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the following meanings:
“2-Year Forecast” As defined in Section 2.1.
“Additional Receipt Point” As defined in Section 3.7.
“Affiliate” With respect to a Person, any other Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such specified Person through one or more intermediaries or otherwise. For purposes of this definition, with
respect to a Person: (a) “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of Voting Securities or interests, by contract or otherwise, and
the terms “controlling” and “controlled” have correlative meanings, and (b) “Voting Securities” means securities of any class of
such Person entitling the holders thereof to vote in the election of, or to appoint, members of the board of directors or other similar
governing body of the Person; provided that if such Person is a limited partnership, Voting Securities of such Person shall be the
general partner interest in such Person.
“Audit” As defined in Section 7.1.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 1 of 45
CONFIDENTIAL TREATMENT REQUESTED
“Btu” or “British Thermal Unit” The amount of heat required to raise the temperature of one (1) pound of water from
fifty-nine degrees Fahrenheit (59ºF) to sixty degrees Fahrenheit (60ºF) at a constant pressure of fourteen and sixty-five hundredths
(14.65) psia.
“Business Day” Any calendar day, other than a Saturday or Sunday, on which commercial banks in Houston, Texas are
open for business.
“Calendar Year” The period from January 1st through December 31st of the same calendar year.
“Central Clock Time” Central Standard time throughout the year, as may be adjusted semi-annually for Central Daylight
Savings time.
“Claim” Any lawsuit, claim, proceeding, investigation, or other similar action.
“Condensate” Hydrocarbons that have condensed from Gas downstream of a Receipt Point and are collected as a liquid in
the Gathering System, including all liquid hydrocarbons accumulating in drips, separators and/or pipelines downstream of a Receipt
Point.
“Consequential Damages” As defined in Section 18.9.
“Cubic Foot of Gas” The volume of Gas occupying one (1) cubic foot of space when such Gas is at a base pressure of
fourteen and sixty-five hundredths (14.65) psia and at a base temperature of sixty degrees Fahrenheit (60ºF). Whenever the
conditions of pressure and temperature differ from the foregoing standard, conversion from the foregoing standard conditions shall
be made in accordance with the Ideal Gas Laws.
“Day” or “Daily” A period of time commencing at 9:00 A.M., Central Clock Time, on a calendar day and ending at 9:00
A.M., Central Clock Time, on the next succeeding calendar day.
“Dedicated Area” The lands located in [Reeves, Pecos, Jeff Davis, and Culberson Counties], Texas, more particularly
described in Exhibit A. [Insert all applicable counties in which any of the properties listed on Exhibit A are located.]
“Delivery Point” The outlet flange of Gatherer’s facilities at the point of interconnection between the low pressure
Gathering System and other facilities where Gas is delivered out of the low pressure Gathering System or the outlet flange of
Gatherer’s facilities at the point of interconnection between the high pressure Gathering System and other facilities where Gas is
delivered out of the Gathering System. The Delivery Points existing on the Effective Date, including the Gathering Subsystem to
which such points belong, are reflected on Exhibit B. Gatherer shall update Exhibit B on January 1, April 1, July 1, and October 1
of each Year to include Additional Delivery Points that have been placed into service and, if necessary, to update the Gathering
Subsystem of existing points; provided that Gatherer may not change the Gathering Subsystem to which an existing Delivery Point
is connected without Producer’s consent.
“Delivery Point Gas Quality Specifications” The Gas quality requirements of downstream pipelines or other facility
operators at the Delivery Points, as such requirements are in effect from time to time.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 2 of 45
CONFIDENTIAL TREATMENT REQUESTED
“Effective Date” As defined in the preamble of this Agreement.
“Firm” The provision of Services hereunder shall not be subject to interruption, except as absolutely necessary as a result of
Force Majeure or, after reasonable prior notice, during periods of Maintenance, and in the event of any such interruption or in the
event of excess Gas deliveries to the Gathering System (from Producer or a Third Party) over and above the System Gas Capacity,
Producer’s Gas shall have first priority rights and shall be the last curtailed, unless Producer otherwise provides consent.
“Force Majeure” As defined in Section 11.2.
“Gas” Any mixture of hydrocarbons or of hydrocarbons and non-combustible gases in a gaseous state.
“Gather” or “Gathering” The receipt of Gas by Gatherer at the Receipt Points for the transportation and delivery of Gas to
the Delivery Point(s).
“Gatherer Indemnified Parties” As defined in Section 12.1.
“Gathering Fees” As defined in Section 4.1.
“Gathering System” The natural gas low pressure and high pressure gathering system owned by Gatherer and located in
Reeves and Pecos Counties, Texas, and the Receipt Points and Delivery Points listed on Exhibit B to the extent the facilities are
owned/leased and operated by Gatherer at such points, as such system may be expanded or modified from time to time. The
Gathering System shall be divided into a subsystem for all Processable Gas and a subsystem for Non-Processable Gas (each a
“Gathering Subsystem”) that do not commingle.
“Governmental Authority” Any federal, state, municipal, local or similar governmental authority, regulatory or
administrative agency or court with jurisdiction over the Parties or either Party, this Agreement, any of the transactions
contemplated hereby, or the Gathering System or any other facilities utilized by a Party for the performance of this Agreement.
“High Pressure Gathering Fee” As defined in Section 4.1.
“Ideal Gas Laws” The thermodynamic laws applying to perfect gases.
“Interests” Any right, title, or interest in lands which gives Producer the right to produce and market oil and/or Gas
therefrom, whether arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership, farmout, or
other contractual arrangement or arising from any pooling, unitization, or communitization of any of the foregoing rights within the
Dedicated Area, and any and all replacements, renewals, and extensions or amendments of any of the same.
“Law” or “Laws” Any of the following: laws, rules, regulations, decrees, judgments or orders of, or licenses or permits
issued by, any Governmental Authority, including, without limitation, any U.S. Bureau of Land Management requirement that is
applicable to any federal lease included in the Dedicated Area.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 3 of 45
CONFIDENTIAL TREATMENT REQUESTED
“Loss” Any loss, cost, expense, liability, damage, sanction, judgment, lien, fine, or penalty, including reasonable attorney’s
fees, incurred, suffered or paid by the applicable indemnified Persons on account of: (i) injuries (including death) to any Person or
damage to or destruction of any property, sustained or alleged to have been sustained in connection with or arising out of the
matters for which the indemnifying Party has agreed to indemnify the applicable indemnified Persons, or (ii) the breach of any
covenant or agreement made or to be performed by the indemnifying Party pursuant to this Agreement.
“Low Pressure Gathering Fee” As defined in Section 4.1.
“Maintenance” As defined in Section 8.1.
“MAOP” The maximum allowable operating pressure.
“Material Measurement Error” As defined in Section 10.4.
“Mcf” One thousand (1,000) Cubic Feet of Gas.
“Mcf Volume” Gas as measured on an Mcf basis.
“Measurement Meter” The meter used to measure the Mcf Volume of Producer’s Gas delivered to the Gathering System at
a Receipt Point.
“MMBtu” One million (1,000,000) Btus.
“MMBtu Volume” Gas as measured on an MMBtu basis.
“MMcf” One million (1,000,000) Cubic Feet of Gas.
“Month” or “Monthly” A period commencing at 9:00 A.M., Central Clock Time, on the first Day of a calendar month and
extending until 9:00 A.M., Central Clock Time, on the first Day of the next succeeding calendar month.
“Monthly Invoice” As defined in Section 6.1.
“Non-Op Gas” As defined in Section 2.1.
“Non-Processable Gas” Producer’s Gas that Producer elects or has elected to not be bound for a downstream processing
facility.
“Off-Spec Gas” As defined in Section 9.2.
“Person” An individual, a corporation, a partnership, a limited partnership, a limited liability company, an association, a
joint venture, a trust, an unincorporated organization, or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
“Primary Term” As defined in Section 17.1.
“Processable Gas” Producer’s Gas that Producer elects or has elected to be bound for a downstream processing facility.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 4 of 45
“Producer Indemnified Parties” As defined in Section 12.1.
“Producer’s Gas” All Gas now or hereafter owned or controlled by Producer and delivered to the Gathering System
CONFIDENTIAL TREATMENT REQUESTED
pursuant to the terms of this Agreement.
“psia” Pressure expressed in pounds per square inch absolute.
“psig” Pressure expressed in pounds per square inch gauge.
“Receipt Point” The inlet flange of Gatherer’s facilities at the point of interconnection between the low pressure Gathering
System and Producer’s facilities or the inlet flange of Gatherer’s facilities at the point of interconnection between the high pressure
Gathering System and other facilities where Gas is received into the high pressure Gathering System. The Receipt Points existing
on the Effective Date, including the Gathering Subsystem to which such points belong, are listed on Exhibit B. Gatherer shall
update Exhibit B on January 1, April 1, July 1, and October 1 of each Year to include Additional Receipt Points that have been
placed into service and, if necessary, to update the Gathering Subsystem of existing points; provided that Gatherer may not change
the Gathering Subsystem to which an existing Receipt Point is connected without Producer’s consent.
“Receipt Point Mcf Volume” The actual Mcf Volume of Gas delivered by Producer and received by Gatherer at such
Receipt Point during a Month, as measured at the applicable Measurement Meter, net of buyback gas redelivered to Producer
pursuant to Section 3.8.
“Receipt Point Gas Quality Specifications” For each Receipt Point, the applicable downstream Delivery Point Gas Quality
Specifications.
“Required Pressure” For each Receipt Point, the pressure listed on Exhibit B for such Receipt Point; provided that for
Additional Receipt Points on the low pressure portion of the Gathering System, the Required Pressure shall not be higher than
[______] psig. For Additional Receipt Points on the high pressure portion of the Gathering System the Required Pressure shall not
exceed MAOP, as such MAOP may exist from time to time. [Insert applicable number, to be agreed by Producer and its transferee,
which reflects an appropriate psig amount based on the pressure of the gas production from the transferred properties and the
operating pressure of the applicable portions of the System at the time of such transfer.]
“Resolution Period” As defined in Section 2.1 or Section 3.6, as applicable.
“Services” As defined in Section 2.2.
“Shipper” Any Person for whom Gatherer provides Services on the Gathering System.
“Similarly Situated Shipper” Any assignee of Producer’s interests hereunder (whether total or partial) pursuant to Section
18.6 or any Third Party Shipper who has an equal level of service priority on the Gathering System.
“System Gas Capacity” As of any determination time, the Gathering System throughput capacity as it exists as of such
time.
“Tax” or “Taxes” Any federal, state or local taxes, fees, levies or other assessments, including all sales and use, goods and
services, ad valorem, transfer, gains, profits, excise, franchise,
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 5 of 45
CONFIDENTIAL TREATMENT REQUESTED
real and personal property, gross receipt, value added, capital stock, production, business and occupation, disability, employment,
payroll, license, unemployment, social security, Medicare, or withholding taxes or charges imposed by any Governmental
Authority, and including any interest and penalties (civil or criminal) on any of the foregoing.
“Term” As defined in Section 17.1.
“Third Party” Any Person that, as of any applicable determination date, is not a Party to this Agreement.
“Third Party Gas” Gas other than Producer’s Gas.
“Transfer” Any direct or indirect transfer, conveyance, assignment, grant or other disposition of any rights, interests or
obligations.
“Year” A period of three hundred sixty-five (365) consecutive Days; provided, however, any year that contains the date of
February 29 shall consist of three hundred sixty-six (366) consecutive Days.
ARTICLE 2
DEDICATION AND SERVICES
Section 2.1 Dedication; Producer Reservations; Release Rights.
(a) Dedication. Subject to the terms and conditions of this Agreement, and solely for the performance of this
Agreement, Producer hereby dedicates for Gathering and the other Services to be provided by Gatherer under this Agreement
and shall deliver or cause to be delivered at the Receipt Point(s) on the Gathering System the following:
(i) all Gas produced and saved from wells now or hereafter located within the Dedicated Area or on lands
pooled or unitized therewith, to the extent such Gas is attributable to Interests within the Dedicated Area and not
delivered or used as permitted pursuant to this Agreement; and
(ii) with respect to wells now or hereafter located within the Dedicated Area or on lands pooled or unitized
therewith for which Producer is the operator, Gas from such wells that is owned by other working interest owners
and royalty owners (“Non-Op Gas”) but only to the extent and for the period that Producer has the right or
obligation to market such Non-Op Gas.
(b) Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the dedication in Section
2.1(a) is in effect, this Agreement and the dedication under Section 2.1(a) and all of the terms and provisions of this
Agreement collectively shall (i) be a covenant running with the Interests within the Dedicated Area and (ii) be binding on and
enforceable by Gatherer and its successors and assigns against Producer and its successors and assigns of the Interests within
the Dedicated Area. Each Party agrees to execute,
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 6 of 45
CONFIDENTIAL TREATMENT REQUESTED
acknowledge, and deliver to the other Party from time to time such additional agreements and instruments as may be
reasonably requested by such other Party to more fully effectuate the intention of the Parties set forth in the immediately
preceding sentence, including a memorandum of this Agreement in the form set forth on Exhibit D, and in the event of a
permanent release or partial assignment of the Interests dedicated hereunder, a memorandum of release in the form set forth
on Exhibit E. Producer shall cause any conveyance by it of all or any of the Interests within the Dedicated Area to be made
expressly subject to the terms of this Agreement. By January 31 of each year, Producer and Gatherer shall update Exhibit A to
reflect any Interests within the Dedicated Area (1) permanently released by Gatherer or (2) partially assigned by Producer
during the immediately preceding year. Contemporaneously with any such update and supplement to this Agreement,
Producer shall execute, acknowledge, and deliver to Gatherer a supplement to each of the applicable memoranda of this
Agreement previously filed for recording in the real property records of each county in which any portion of such new
Interests is located.
(c) Forecasts. Subject to Gatherer’s compliance with the confidentiality and restricted use requirements set forth in
Section 18.1, on or before October 1st of each Year during the Term of this Agreement, Producer shall deliver to Gatherer a 2-
Year Forecast with respect to Producer’s Gas. “2-Year Forecast” shall mean Producer’s good faith estimate (expressed in Mcf
per Day) and associated gas analysis of Producer’s Gas to be produced from the Dedicated Area, including the general
geographic location and anticipated Gathering Subsystem, for each Month for the next two (2) years of the Term of the
Agreement, which forecast shall be based on Producer’s most recent engineering and planning data. At Gatherer’s request, but
no more than once per quarter, Producer and Gatherer will meet to discuss changes in the forecast to ensure that Gatherer will
have adequate capacity in place to meet Producer’s requirements. For the sake of clarity, Gatherer acknowledges that Producer
shall not at any time be required to deliver any of Producer’s internal budget information to Gatherer. Producer shall use all
commercially reasonable efforts and information available to it to create the 2-Year Forecasts, but, given the inherent nature of
the estimates involved in creating such Forecasts, Producer cannot guarantee the accuracy of any 2-Year Forecast.
(d) Producer’s Reservations.
(i) Gas for Lessors or Royalty Owners. Producer shall have the right to utilize Gas as may be required to be
delivered to lessors or royalty owners under the terms of leases or other agreements or as required for Producer’s
operations within the Dedicated Area or lands pooled or unitized therewith, as determined by Producer in its sole
discretion.
(ii) Pooling or Units. Producer may form, dissolve, and/or participate in pooling agreements or units
encompassing all or any portions of the Dedicated Area, as determined by Producer in its sole discretion.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 7 of 45
CONFIDENTIAL TREATMENT REQUESTED
(iii) Operational Control of Wells. Producer reserves the right to operate its leases and wells in any manner
that it desires, as determined by Producer in its sole discretion and free of any control by Gatherer, including without
limitation, (i) shutting-in, cleaning out, reworking, modifying, deepening, or abandoning any such wells, (ii) using
any efficient, modern, or improved method for the production of its wells, (iii) flaring, burning, or venting Gas (with
no fees to be associated with such Gas), and (iv) surrendering, releasing, or terminating its leases or Interests or
allowing such leases or Interests to expire at any time; provided that before any well is taken out of service for any
reason, Producer shall first shut-off the well’s connection to the applicable Receipt Point.
(iv) Well Development and Operations. Producer reserves the right to use Gas (including its components)
above ground or below, to develop and operate its leases and wells, including, without limitation, for Gas lift, fuel,
pressure maintenance, or other re-injection purposes, secondary and tertiary recovery, drilling or cycling, operation
of Producer’s facilities, and/or any other legitimate use in connection with the development and/or operation of its
leases and wells that are now or hereafter become subject to the terms of this Agreement. Additionally, for Gas used
for fuel, Producer has the right to remove liquid hydrocarbons from such Gas by means it deems necessary, including
via low temperature separation.
(v) No Obligation to Develop. Notwithstanding anything else in this Agreement that may be construed to
the contrary, Producer reserves the right to develop and operate its leases and wells as it sees fit, in its sole discretion,
and Producer shall have no obligation to Gatherer under this Agreement to develop or otherwise produce Gas or
other hydrocarbons from any properties owned by it, including any properties now or hereafter located within the
Dedicated Area or the lands pooled or unitized therewith.
(e) Release from Dedication.
(i) Immediate Temporary Release. If for any reason, including Force Majeure (but not including a pressure
problem, which is addressed in Section 3.6), Gatherer does not Gather all or any portion of Producer’s Gas delivered
or otherwise available for delivery at a Receipt Point, Producer shall be entitled to an immediate temporary release
from dedication of such volume of Gas not Gathered, and may dispose of such Gas in any manner it sees fit, subject
to Gatherer’s right to resume receipts at a subsequent time when Gatherer is able to receive all of Producer’s Gas
available for delivery at the Receipt Point in accordance with the terms of this Agreement, provided, however, if
during such temporary release period Producer secures a different temporary market, Gatherer may resume receipts
only upon thirty (30) Days’ advance written notice and only as of the beginning of a Month, unless otherwise agreed.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 8 of 45
CONFIDENTIAL TREATMENT REQUESTED
(ii) Permanent Release. In addition to Section 2.1(e)(i), above, if Gatherer does not Gather or ceases
Gathering all or any portion of Producer’s Gas for delivery at a Receipt Point for any reason (but not including a
pressure problem, which is addressed in Section 3.6, or a failure to meet quality requirements, for which no
permanent release shall be available) for a cumulative thirty (30) Days in any ninety (90) Day period, unless such
failure is caused by Force Majeure, in which case a cumulative 180 Days in any 365-Day period, then upon
Producer’s written notice to Gatherer, Gatherer shall have fifteen (15) Days from receipt of such notice to propose a
feasible plan to Producer that shall resolve such issue, at Gatherer’s sole cost and expense, within sixty (60) Days
after proposing such plan (the “Resolution Period”). If (A) Gatherer fails to propose a resolution within the stated
fifteen (15) Days, (B) the issue is not resolved after completion of Gatherer’s resolution, or (C) Gatherer does not
complete such resolution within the Resolution Period for any reason (but if Gatherer’s completion is delayed or
prevented by reason of Force Majeure, the Resolution Period shall be extended by an additional 120 Days), Producer
may elect, by giving written notice to Gatherer, to receive a permanent release from dedication as to the affected
Receipt Point and the portion(s) of the Dedicated Area associated with such Receipt Point (and such released
portion(s) shall be stated in terms of acreage); provided, however, Producer shall not be entitled to a permanent
release to the extent that Producer’s good-faith estimate of the affected volumes exceeds the last 2-Year Forecast
Producer delivered to Gatherer in accordance with Section 2.1(c). If Producer elects a permanent release, the
portion(s) of the Dedicated Area to be released shall be designated by Producer, acting reasonably and in good faith,
provided that Producer shall provide to Gatherer (subject to the confidentiality and non-use restrictions set forth in
this Agreement) reasonable evidence to support Producer’s determination of the portion(s) of the Dedicated Area to
be released, and as long as Producer’s determination of the areas to be released is reasonably supported, such
determination shall be deemed conclusive.
(iii) Release by Downstream Processor. Gatherer is providing Services in order to deliver Producer’s Gas to
downstream facilities in satisfaction of Producer’s dedication to such downstream facilities. To the extent that
Producer’s dedication under such downstream contracts is released, Producer shall receive a corresponding release
from dedication under this Agreement.
(f) No Election of Remedies. Producer’s exercise of any right to a release from dedication under Section 2.1(e) or
Section 3.6 shall not be deemed an election of remedies for any unexcused failure of Gatherer to perform any obligation under
this Agreement, and Producer shall be entitled to any and all other remedies, including specific performance and injunctive
relief (without the need to post any bond).
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 9 of 45
CONFIDENTIAL TREATMENT REQUESTED
Section 2.2 Gathering and Related Services. Subject to the terms and conditions of this Agreement, each Month during the
Term Gatherer shall provide, or cause to be provided, the following services, each on a Firm basis (collectively, the “Services”):
(a) receive, or cause to be received, Producer’s Gas at the low pressure Receipt Points;
(b) gather Producer’s Gas on the low pressure Gathering System;
(c) deliver for Producer’s account all Producer’s Gas, less any Producer’s Gas required under Section 3.8, and
Condensate at the low pressure Delivery Point(s),
(d) receive, or cause to be received, Producer’s Gas at the high pressure Receipt Points;
(e) gather Producer’s Gas on the high pressure Gathering System;
(f) deliver for Producer’s account Producer’s Gas and Condensate at the high pressure Delivery Point(s); and
(g) perform such other obligations and actions as are described under this Agreement.
Gatherer shall perform all Services and operate the Gathering System consistent with industry standard and in a prudent,
workmanlike manner.
Notwithstanding anything in this Agreement to the contrary, Producer shall not be entitled to Services on a Firm basis on any
facilities that have been built by Gatherer exclusively to service Gas volumes delivered by any Third Party customer.
Section 2.3 Modification of System Capacity. Other than during periods of emergency and/or required Maintenance,
Gatherer shall not take, without Producer’s prior written consent, any action that could cause the System Gas Capacity to be
reduced in a manner that negatively affects Producer’s ability to deliver Gas to any Receipt Point.
Section 2.4 Priority of Gas Services; Curtailment. Gatherer covenants that it shall not oversubscribe the Gathering System
(or any Gathering Subsystem) or take additional production into the Gathering System (or any Gathering Subsystem) if, as a result,
Gatherer is unable to perform its Service obligations under this Agreement. Gatherer agrees to not provide services of any kind for
any Third Party Gas on the Gathering System (or any Gathering Subsystem) on a basis that has a priority higher than that to which
Producer is entitled under this Agreement without Producer’s prior written consent; provided, however, that in the case of (ii), such
consent shall not be unreasonably withheld if the Third Party agreement shall not be reasonably expected to impact Gatherer’s
ability to perform its obligations to Producer under this Agreement. If for any reason, including, without limitation, Force Majeure,
Maintenance, or constraints at Delivery Point(s),
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 10 of 45
CONFIDENTIAL TREATMENT REQUESTED
Gatherer needs to curtail receipt, Gathering or delivery of Gas on any part of a Gathering Subsystem, the following procedures shall
be followed:
(a) First, Gas deliveries from all Persons other than Producer and Similarly Situated Shippers shall be curtailed
prior to any curtailment or interruption of Producer’s Gas or Gas from Similarly Situated Shippers; and
(b) Second, if additional curtailments are required beyond Section 2.4(a) above, Gatherer shall notify Producer and
Similarly Situated Shippers of such curtailment and require good faith estimates of expected gas volumes from Producer and
Similarly Situated Shippers. Gatherer shall then allocate the capacity of the applicable Gathering Subsystem at the affected
Receipt Point on a pro rata basis based upon Producer’s and each Similarly Situated Shipper’s respective good faith
estimates for the affected point.
Notwithstanding anything to the contrary contained in this Agreement, to the extent Gas deliveries from Persons other than
Producer or Similarly Situated Shippers cause or would reasonably be expected to cause Producer or a Similarly Situated Shipper to
reduce or curtail its Gas production, Gatherer shall curtail receipts of Gas deliveries from such Persons into the Gathering System.
Section 2.5 Third Party Gas. Gatherer agrees that it shall not accept Third Party Gas into the Gathering System if such
Third Party Gas shall cause Producer’s Gas to not meet the Delivery Point Gas Quality Specifications.
Section 2.6 Operation and Maintenance of Gathering System. Gatherer shall (i) be entitled to complete operational control
of the Gathering System, and (ii) construct, install, own, operate and maintain, at its sole cost, risk and expense, the Gathering
System in accordance with all applicable Laws, as a reasonably prudent natural gas gathering system operator and, to the extent
reasonably possible, in a cost-efficient and effective manner for Producer.
Section 2.7 Commingling. Although Producer shall retain title to Producer’s Gas (except as otherwise provided in this
Agreement), the Parties agree that Producer’s Gas may constitute part of the supply of Gas from multiple sources in the Gathering
System and Gatherer shall have the right, subject to Gatherer’s obligations under this Agreement, to commingle Producer’s Gas
with other Gas, to deliver molecules different from those received at the Receipt Points, and to handle the molecules delivered at the
Receipt Points in any manner.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 11 of 45
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 3
RECEIPT POINTS, DELIVERY POINTS, AND PRESSURES
Section 3.1 Receipt Points. Producer shall deliver Producer’s Gas to Gatherer at the Receipt Points.
Section 3.2 Delivery Points. Gatherer shall deliver Producer’s Gas and Condensate to the Delivery Points.
Section 3.3 Uniform Deliveries. Producer shall deliver Producer’s Gas to Gatherer, and Gatherer shall receive and
redeliver Producer’s Gas, as nearly as practicable at uniform hourly and daily rates of flow.
Section 3.4 Pressure at Receipt Points. Producer shall cause Producer’s Gas to be delivered to the Receipt Points at a
pressure sufficient to enter the Gathering System, provided that Gatherer maintains the operating pressure at low pressure Receipt
Points at no greater than the applicable Required Pressure. Producer shall not deliver Gas at any Receipt Point at a pressure in
excess of the MAOP at the Receipt Point, as such MAOP may exist from time to time. As of the Effective Date, the MAOP at each
Receipt Point shall be listed on Exhibit B, and Gatherer shall give written notice to Producer at any time thereafter that the MAOP
for any Receipt Point changes and for each Additional Receipt Point when it is added.
Section 3.5 Pressure at Delivery Points. Gatherer shall deliver Gas to each Delivery Point at a pressure sufficient to enter
the receiving facilities at such Delivery Point, but shall not deliver such Gas at a pressure in excess of the MAOP of such receiving
facilities, as such MAOP may exist from time to time.
Section 3.6 Release Rights. At any time the operating pressure at a Receipt Point or on any Gathering Subsystem is not in
compliance with the Required Pressure or in excess of the MAOP for any reason, including Force Majeure, Producer shall be
entitled to an immediate temporary release from dedication and may immediately dispose of and/or deliver to any third Person any
of Producer’s Gas available for delivery at Receipt Point(s) delivering to such Gathering Subsystem. In the event the operating
pressure at a Receipt Point or on a Gathering Subsystem is not in compliance with the Required Pressure for a cumulative thirty
(30) Days in any ninety (90) Day period for reasons other than Force Majeure, then upon Producer’s written notice to Gatherer,
Gatherer shall have fifteen (15) Days from receipt of such notice to propose a feasible plan that shall, at Gatherer’s sole cost and
expense, resolve the pressure issue within sixty (60) Days after proposing such plan (the “Resolution Period”) so that the pressure
shall be maintained in compliance with the Required Pressure (including when all available Gas is delivered to the Receipt Point(s),
i.e., including all of Producer’s Gas that may have been temporarily released). If (a) Gatherer fails to propose a resolution within the
stated fifteen (15) Days, (b) the issue is not resolved after completion of Gatherer’s resolution, or (c) Gatherer does not complete its
proposed resolution within the Resolution Period for any reason (but if Gatherer’s completion is delayed or prevented by reason of
Force Majeure, the Resolution Period shall be extended by an additional 120 Days),
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 12 of 45
CONFIDENTIAL TREATMENT REQUESTED
then Producer may elect, by giving written notice to Gatherer, to receive a permanent release from dedication as to any Receipt
Point(s) and the portion(s) of the Dedicated Area associated with such Receipt Point(s) (and such released portion(s) shall be stated
in terms of acreage); provided, however, Producer shall not be entitled to a permanent release to the extent that Producer’s good-
faith estimate of affected volumes exceeds the last 2-Year Forecast Producer delivered to Gatherer in accordance with Section
2.1(c). If Producer elects a permanent release, the portion(s) of the Dedicated Area to be released shall be designated by Producer,
acting reasonably and in good faith, provided that Producer shall provide to Gatherer (subject to the confidentiality and non-use
restrictions set forth in this Agreement) reasonable evidence to support Producer’s determination of the portion(s) of the Dedicated
Area to be released, and as long as Producer’s determination of the areas to be released is reasonably supported, such determination
shall be deemed conclusive.
Section 3.7 Additional Receipt Points.
(a) Producer shall have the continuing right, at its option, at any time after the Effective Date, to designate
additional Receipt Point(s) (each, an “Additional Receipt Point”) pursuant to the terms of this Section 3.7. In each such
case, Producer shall, at its sole cost, install, own, and operate all necessary facilities upstream of the Additional Receipt
Point. Gatherer shall own and operate all necessary facilities downstream of such Additional Receipt Point.
(b) Producer shall be allowed, in its sole discretion, to designate (1) the location for the Additional Receipt Point as
long as the location is within the Dedicated Area and (2) the Gathering Subsystem to which the Additional Receipt Point
shall be connected, and Gatherer will connect the Additional Receipt Point in accordance with Producer’s notice in Section
3.7(c). If Producer requires a change in Gathering Subsystem after the initial connection by Gatherer, Producer may request
an Additional Receipt Point as provided for in Section 3.7(c) below; however, Producer shall reimburse Gatherer for its
actual and reasonable costs incurred to connect Additional Receipt Point to its facilities.
(c) When Producer desires to install an Additional Receipt Point, Producer shall provide written notice to Gatherer,
including a plat of the location of the proposed Additional Receipt Point and notice of whether the Additional Receipt Point
shall be connected to the Gathering Subsystem for Processable Gas or the Gathering Subsystem for Non-Processable Gas.
Subject to Section 3.7(b) above, within [***] ([***]) Days of Gatherer’s receipt of Producer’s notice which included
Producer’s proposed location for the Additional Receipt Point, each Party shall install and place in service its respective
facilities as required under Section 3.7(a) above. Thereafter, Producer may deliver Gas to such Additional Receipt Point, and
Gatherer shall receive and Gather such Gas from such point.
(d) If the Additional Receipt Point is not completed within [***] ([***]) Days after Gatherer’s receipt of
Producer’s notice as provided in Section 3.7(c) for any reason other than Force Majeure, or within [***] ([***]) Days if
Gatherer has encountered an event
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 13 of 45
CONFIDENTIAL TREATMENT REQUESTED
of Force Majeure, Producer may elect, by giving written notice to Gatherer, to receive a permanent release from dedication
as to such Additional Receipt Point (and the associated Dedicated Area).
Section 3.8 Buyback Gas. Producer shall have the right to request installation of a buyback gas meter downstream of a
Receipt Point for Producer’s use as described in Section 2.1(d), subpart (iv), provided that Producer shall not withdraw volumes
that exceed what Producer delivers to the applicable Receipt Point. Producer shall pay Gatherer the actual and reasonable costs
incurred to install such meter. When Producer desires to have such meter installed, Producer shall provide written notice to the
Gatherer of the applicable Receipt Point and the date on which Producer desires to begin receiving buyback gas, which date shall
not be sooner than thirty (30) Days after the date of Producer’s notice, and Gatherer shall construct and install facilities necessary
within thirty (30) Days of Producer’s notice.
ARTICLE 4
FEES
Section 4.1 Gathering Fee. For each Month during the Term, and for each low pressure Receipt Point, Producer shall pay
to Gatherer an amount equal to: (i) the Monthly low pressure Receipt Point Mcf Volume, multiplied by (ii) [insert then effective
Low Pressure Gathering Fee under Alpine High/Apache Anchor Shipper form] per Mcf (the “Low Pressure Gathering Fee”). For
each high pressure Receipt Point, Producer shall pay to Gatherer an amount equal to: (i) the Monthly high pressure Receipt Point
Mcf Volume for each Month, multiplied by (ii) [insert then effective Low Pressure Gathering Fee under Alpine High/Apache
Anchor Shipper form] per Mcf (the “High Pressure Gathering Fee”). Collectively, the Low Pressure Gathering Fee and the High
Pressure Gathering Fee are the “Gathering Fees”, as such Gathering Fees are annually adjusted pursuant to Section 4.2.
Section 4.2 Fee Escalation. On July 1st of each year, the Gathering Fees shall each be automatically adjusted upward or
downward by the percentage change in the Chained Consumer Price Index for All Urban Consumers, all items less food and energy,
as and when published and considered final by the U.S. Department of Labor Bureau of Labor Statistics calculated for the twelve
(12) Months immediately preceding the date of escalation; provided, however, the Gathering Fees shall never be adjusted below
their original amount as of the Effective Date; and, provided, further, that the amount of adjustment for each year shall not exceed
[***] percent ([***]%) per annum.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 14 of 45
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 5
FUEL AND LOST & UNACCOUNTED FOR GAS
Section 5.1 There is deemed to be no fuel or lost & unaccounted for Gas on the Gathering System.
ARTICLE 6
PAYMENTS
Section 6.1 Payments and Invoices. Gatherer shall provide Producer with a detailed statement and supporting
documentation for the net amount of all consideration due from Producer to Gatherer under the terms of this Agreement (net of any
amounts due from Gatherer to Producer under this Agreement), not later than the last Day of the Month immediately following the
Month for which the consideration is due (such statement, the “Monthly Invoice”). Not later than thirty (30) Days following
Producer’s receipt of a Monthly Invoice, Producer shall pay to Gatherer all amounts due and owing from Producer to Gatherer
under the Monthly Invoice. Producer shall pay to Gatherer the undisputed portions of each Monthly Invoice in accordance with the
terms of this Agreement, and as to any disputed portions that Producer does not pay, Producer shall provide Gatherer a written
notice of dispute setting forth, in reasonable detail, the grounds for such dispute. Any amounts owing by Gatherer to Producer shall
be deducted from amounts otherwise due Gatherer in the next ensuing Monthly Invoice, or Producer may request payment for
same, and Gatherer shall pay to Producer such amounts within thirty (30) Days of Producer’s written request for same, subject to
Gatherer’s good faith dispute of any such amounts, in which case Gatherer shall pay the undisputed portions in accordance with the
terms of this Agreement. Payments to either Party shall be according to the applicable payment instructions set forth in Article 15.
If any payment due date falls on a non-Business Day, the payment shall be due on the first Business Day thereafter.
Section 6.2 Netting, Offset of Amounts Due. Either Party shall have the right to offset any undisputed amounts due by it
under this Agreement against any undisputed amounts due to it under this Agreement and pay the net amount due to the other Party.
Section 6.3 Interest on Late Payments. In the event either Party fails to make timely payment of any amount when due
under this Agreement (including any disputed amount which is later found to have been correct when payment was first requested),
interest shall accrue, from the date payment was due until the date payment is made, at an annual rate equal to the lower of: (a) the
prime rate as published in the “Money Rates” section of The Wall Street Journal, plus two percent (2%), or (b) the maximum rate of
interest allowed under applicable Laws.
Section 6.4 Financial Assurance. If Gatherer has reasonable grounds for insecurity regarding payment, performance,
enforceability of any obligation under this Agreement (whether or not then due) by Producer or Producer’s guarantor, if any,
including, without limitation, the occurrence of a material adverse change in the creditworthiness of Producer, Gatherer may
demand Adequate Assurance of Performance. A demand by Gatherer seeking Adequate Assurance of Performance shall be in
writing and shall include an explanation in reasonable detail of the
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 15 of 45
calculation of the Adequate Assurance of Performance demand. “Adequate Assurance of Performance” shall mean sufficient
security in the form, amount, and for a term, and from an issuer, all reasonably acceptable to Gatherer seeking assurance, including,
but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset, or guaranty.
CONFIDENTIAL TREATMENT REQUESTED
Section 7.1 Audit Rights.
ARTICLE 7
AUDIT RIGHTS
(a) Each Party shall have the right, at its own expense, upon thirty (30) Days written notice and during reasonable
working hours to perform an audit of the other Party’s books and records (“Audit”). The Audit provides the Parties the right
to obtain access to and copies of the relevant portion of the books and records which includes, but is not limited to, financial
information, reports, charts, calculations, measurement data, allocation support, third-party support, telephone recordings,
and electronic communications of the other Party to the extent reasonably necessary to verify performance under the terms
and conditions of this Agreement including the accuracy of any statement, allocation, charge, payment calculation, or
determination made pursuant to the provisions contained herein for any Calendar Year within the twenty-four (24) Month
period next following the end of such Calendar Year. The Party subject to the Audit shall respond to all exceptions and
claims of discrepancies within ninety (90) Days of receipt thereof.
(b) Either Party has the right to Audit any agents of the other Party, or any third Person performing services related
to this Agreement. Either Party shall have the right to make and retain copies of the books and records to the extent
necessary to support the audit work papers and claims resulting from the audit. Additionally, the Parties reserve the right to
perform site inspections or carry out field visits of the assets and related measurement being audited.
(c) The accuracy of any statement, allocation, charge, payment calculation, or determination made pursuant to the
provisions of the Agreement shall be conclusively presumed to be correct after the twenty-four (24) Month period next
following the end of the Calendar Year in which the statement, allocation, charge, payment calculation, or determination
was generated or prepared, if not challenged (claimed) in writing prior thereto. For the avoidance of doubt, all claims shall
be deemed waived unless they are made in writing within the twenty-four (24) Month period next following the end of the
Calendar Year in which the statement, allocation, charge, payment calculation, or determination was generated or prepared.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 16 of 45
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 8
MAINTENANCE
Section 8.1 Maintenance. Gatherer shall be entitled to interrupt Services hereunder to perform necessary or desirable
inspections, pigging, maintenance, testing, connections, repairs, or replacements to the Gathering System (“Maintenance”),
provided, however, that Gatherer shall use all commercially reasonable efforts to minimize the amount of time that Services are
interrupted and to cooperate with Producer to minimize any production shut-in or interruption of lease operations. On or before
December 1st of each Calendar Year, Gatherer shall provide Producer with written notice of the types of anticipated Maintenance,
with anticipated dates of performance, to be performed during the next Calendar Year. No prior written notice shall be required for
emergency Maintenance requirements, provided, however, in the event of any such emergency, Gatherer shall provide notice to
Producer as soon as practicable, including reasonable details as to the nature of the emergency and the anticipated date that the
related Service interruption shall cease.
Section 8.2 Maintenance Schedules.
(a) If Maintenance is scheduled for any Month, Gatherer shall send notice to Producer setting forth the
Maintenance that is to be performed during such Month in accordance with the notice requirements of Article 15, even if
Gatherer does not think that such Maintenance shall cause a Service interruption.
(b) No later than five working days prior to the beginning of the start of a Maintenance project, a volume
curtailment allocation shall be sent to Producer if capacity allocations are determined to be necessary by Gatherer.
Section 8.3 Access to Facilities. Subject to its safety rules, regulations and procedures, Gatherer shall provide reasonable
access to the Gathering System and related facilities to Producer for the purposes set forth in Section 7.1, provided that Producer
shall not unreasonably interfere with the operations of the Gathering System or any related facility.
ARTICLE 9
GAS QUALITY
Section 9.1 Receipt Point Gas Quality Specifications. Producer’s Gas delivered to the Receipt Points shall meet the
applicable Receipt Point Gas Quality Specifications.
Section 9.2 Non-Conforming Gas. If at any time Gatherer becomes aware that Producer’s Gas at a Receipt Point fails to
conform to the applicable Receipt Point Gas Quality Specifications (“Off-Spec Gas”), then Gatherer shall promptly give Producer
written notice of the deficiency, and Producer shall take commercially reasonable steps to remedy the deficiency. Gatherer shall use
all commercially reasonable efforts to accept such Off-Spec Gas as long as (i) Gatherer is able to accept such Off-Spec Gas without
unreasonable risk of harm to the Gathering System or to Gatherer’s personnel, (ii) the acceptance of such Off-Spec Gas does not
render the Gathering System unable
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 17 of 45
CONFIDENTIAL TREATMENT REQUESTED
to meet the Delivery Point Gas Quality Specifications, and (iii) Gatherer’s receipt of the Off-Spec Gas shall not be construed as a
change of requirements for future volumes delivered to the Gathering System. Gatherer may immediately cease taking any Off-
Spec Gas that Gatherer deems would be harmful to the Gathering System or Gatherer’s personnel.
Section 9.3 Reimbursement for Costs and Expenses. Producer shall reimburse Gatherer for all actual, reasonable costs and
expenses directly resulting from damage to the Gathering System, or to other Shippers’ Gas therein, to the extent such damage is
directly caused by the delivery to the Gathering System of Producer’s Gas that is Off-Spec Gas, except when Gatherer knowingly
accepts such Off-Spec Gas into the Gathering System. Notwithstanding the above or anything else in this Agreement, Producer’s
responsibility under this Section 9.3 shall be for actual, direct damages only, and in no event shall this Section 9.3 require
Producer to pay or in any way be responsible for the special, indirect, consequential, punitive or exemplary damages of any
Person.
ARTICLE 10
MEASUREMENT
Section 10.1 Equipment and Specifications. Producer’s Gas delivered into the Gathering System shall be measured by the
Measurement Meter(s) at the Receipt Point(s), the Delivery Point(s), and any point(s) redelivering buyback gas to Producer. The
Measurement Meter and appurtenant facilities shall be installed, operated, and maintained by Gatherer in accurate working order
and condition, and in accordance with the requirements set forth in this Article 10, with good and workmanlike standards generally
practiced by reasonably prudent gas pipeline operators, and in accordance with all Laws.
Section 10.2 Gas Meter Standards. Orifice meters installed in such measuring stations for Gas shall be constructed and
operated in accordance with ANSI/API 2530 API 14.3, AGA Report No. 3, Orifice Metering of Natural Gas and Other Related
Hydrocarbon Fluids (including as it may be revised from time to time) and shall include the use of flange connections and, where
necessary, straightening vanes, flow conditioners, and/or pulsation dampening equipment. Ultrasonic meters or Coriolis meters
installed in such measuring stations shall be constructed and operated in accordance with AGA Report No. 9, Measurement of Gas
by Ultrasonic Meters, First Edition, and AGA Report No. 11, Measurement of Natural Gas by Coriolis Meter, respectively; and any
subsequent modification and amendment thereof generally accepted within the Gas industry. Electronic flow computers shall be
used and the Gas shall have its volume, mass, and/or heat content computed in accordance with the applicable AGA standards
including, but not limited to, AGA Report Nos. 3, 5, 6, 7, 8 and API 21.1 “Flow Measurement Using Electronic Metering Systems”
and any subsequent modifications and amendments thereof generally accepted within the Gas industry. When Gas chromatographs
are used they shall be installed, operated, maintained, and verified according to industry standards (GPA 2261, GPA 2145, GPA
2172, and GPA 2177).
Section 10.3 Notice of Measurement Equipment Inspection and Calibration. Each Party shall give at least seventy-two
(72) hours’ notice to the other Party in order that the other Party may, at its option, have representatives present to observe any
reading, inspecting, testing, calibrating,
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 18 of 45
CONFIDENTIAL TREATMENT REQUESTED
or adjusting of measuring equipment used in measuring or checking the measurement of receipts or deliveries of Gas under this
Agreement. The official electronic data from such measuring equipment shall remain the property of the measuring equipment
owner, but copies of such records shall, upon written request, be submitted, together with calculations and flow computer
configurations therefrom, to the requesting Party for inspection and verification.
Section 10.4 Measurement Accuracy Verification. Each Party shall verify the accuracy of all transmitters, flow computers,
and other equipment used in the measurement of the Gas hereunder at intervals not to exceed one hundred eighty (180) Days and
cause such equipment to be adjusted or calibrated as necessary. Testing frequency shall be based upon each Receipt Point flow rate
(Mcf/Day). Any flow rate at a Receipt Point that is: (x) greater than 1,000 Mcf/Day shall be tested Monthly, (y) between 101 and
1000 Mcf/Day shall be tested quarterly, and (z) less than 100 Mcf/Day shall be tested semi-annually. Neither Party shall be required
to cause adjustment or calibration of such equipment more frequently than once every Month, unless a special test is requested
pursuant to Section 10.5 of this Agreement. If, upon testing, (i) no adjustment or calibration error is found that results in an
incremental adjustment to the calculated flow rate through each meter run in excess of two percent (2%) of the adjusted flow rate
(whether positive or negative and using the adjusted flow rate as the percent error equation denominator) or (ii) any quantity error is
not greater than two hundred fifty (250) Mcf per Month, then any previous recordings of such equipment shall be considered
accurate in computing deliveries but such equipment shall be adjusted or calibrated at once. If, during any test of the measuring
equipment, an adjustment or calibration error is found that results in (i) an incremental adjustment to the calculated flow rate
through each meter run in excess of two percent (2%) of the adjusted flow rate (whether positive or negative and using the adjusted
flow rate as the percent error equation denominator) and (ii) a quantity error greater than two hundred fifty (250) Mcf per Month
(“Material Measurement Error”), then any previous recordings of such equipment shall be corrected to zero error for any period
during which the error existed (and which is either known definitely or agreed to by the Parties) and the total flow for such period
shall be determined in accordance with the provisions of Section 10.6. If the period of error condition cannot be determined or
agreed upon between the Parties, such correction shall be for a period extending over the last one half (1/2) of the time elapsed
since the date of the last test.
Section 10.5 Special Tests. In the event a Party desires a special test (a test not scheduled by a Party under the provisions
of Section 10.4) of any measuring equipment, seventy-two (72) hours’ advance notice shall be given to the other Party and, after
providing such notice, such test shall be promptly performed. If no Material Measurement Error is found, the Party requesting the
test shall pay the costs of such special test including any labor and transportation costs pertaining thereto. If a Material
Measurement Error is determined to exist, the Party responsible for such measurement shall pay such costs and perform any
corrections required under Section 10.4.
Section 10.6 Metered Flow Rates in Error. If, for any reason, any measurement equipment is (i) out of adjustment, (ii) out
of service, or (iii) out of repair, and, in each case, a Material
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 19 of 45
CONFIDENTIAL TREATMENT REQUESTED
Measurement Error exists as a result thereof, the total quantity of Gas delivered shall be determined in accordance with the first of
the following methods which is feasible:
(a) by using the registration of any mutually agreeable check metering facility, if installed and accurately
registering (subject to testing as provided for in Section 10.4);
(b) where multiple meter runs exist in series, by calculation using the registration of such meter run equipment;
provided that they are measuring Gas from upstream and downstream headers in common with the faulty metering
equipment, are not controlled by separate regulators, and are accurately registering; or
(c) by estimating the quantity, based upon deliveries made during periods of similar conditions when the meter was
registering accurately.
Section 10.7 Record Retention. Gatherer shall retain and preserve all test data, charts, and similar records for any Calendar
Year for a period of at least sixty (60) Months following such Calendar Year, unless any applicable Law requires a longer time
period or Gatherer has received written notification of a dispute involving such records, in which case all records shall be retained
until the related issue is resolved.
Section 10.8 Correction Factors for Volume Measurement. The computations of the volumes of Gas measured shall be
made as follows:
(a) The hourly orifice coefficient for each meter shall be calculated at the base pressure of fourteen and sixty-five
hundredths (14.65) psia and the base temperature of sixty (60) degrees Fahrenheit. All Gas volume measurements shall be
based on a local atmospheric pressure assumed to be thirteen and seven-tenths (13.7) psia.
(b) The flowing temperature of the Gas shall be continuously measured. In the case of electronic metering, such
temperature measurement shall be used as continuous input to the flow computer for calculation of Gas volume, mass,
and/or energy content in accordance with the applicable AGA or API 21.1 standards including, but not limited to, AGA
Report Nos. 3, 5, 6, 7, and 8 and any subsequent modification and amendments thereof generally accepted within the Gas
industry.
(c) Measurements of inside diameters of pipe runs and orifices shall be obtained by means of a micrometer to the
nearest one-thousandth of an inch, and such measurements shall be used in computations of coefficients.
(d) In determining the volume of Gas, when electronic transducers and flow computers are used, the Gas shall have
its volume, mass, and/or energy content continuously integrated in accordance with the applicable AGA standards including,
but not limited to, AGA report Nos. 3, 5, 6, 7, and 8 and any subsequent modification and amendments thereof generally
accepted within the Gas industry.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 20 of 45
CONFIDENTIAL TREATMENT REQUESTED
(e) In calculating the volume of Gas, deviation from Boyle’s Law at the pressure, specific gravity, and temperature
for each measurement shall be determined by use of AGA Report No. 8, Compressibility Factors for Natural Gas and Other
Related Hydrocarbon Gases, published by the AGA in conjunction with Gas Measurement Committee Report No. 3 and
amendments thereto generally accepted within the Gas industry.
(f) Whenever the conditions of pressure and temperature differ from the standards described herein, conversion of
the volume from these conditions to the standard conditions shall be made in accordance with the Ideal Gas Laws, corrected
for deviation by the methods set forth in the AGA Gas Measurement Committee Report No. 3, as said report may be
amended from time to time.
Section 10.9 Exception to Gas Measurement Basis. If at any time the basis of measurement set out in this Agreement
should conflict with any Law, then the basis of measurement provided for in such Law shall govern measurements hereunder.
Section 10.10 Gas Sampling. Receipt Point meters downstream of new wells or wells that have been changed due to a
workover or other well bore alteration that could alter the Gas composition shall be sampled Monthly until the analyses demonstrate
reasonable consistency. After such time, said meters shall then be sampled at the stated calibration frequency. Gatherer shall install
and maintain a Gas composite sampler at each Receipt Point.
(a) Receipt Points. The composition, specific gravity, and Gross Heating Value of Gas shall be determined by the
measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be acquired through
either an on-line Gas chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
(b) Delivery Points. The composition, specific gravity, and Gross Heating Value of Gas shall be determined by the
measuring party taking a sample at the same frequency as the meter calibration test. The sample shall be acquired through
either an on-line Gas chromatograph or a composite sampler. The analytical results shall be applied at the beginning of the
Month the sample is taken until a subsequent representative sample is applied.
(c) The specific gravity of Gas at all applicable measurement points shall be determined by a Gas chromatographic
component analysis to the nearest one thousandth (0.001) of the samples of the Gas taken for test purposes as provided
above, or by such other method as shall be mutually agreed upon.
(d) The Gross Heating Value shall be measured by Gas chromatographic analysis or component analysis of the
samples of the Gas taken for test purposes as provided above, or by such other method as shall be mutually agreed upon.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 21 of 45
Section 10.11 Modifications to Measurement Procedures. In the event the measurement procedures herein cease to be
reflective of actual operations or become inequitable in any respect, such measurement procedures shall be modified to reflect
actual operations and to remove such inequities, as long as such modified measurement procedures are consistently applied to
Producer and all other Shippers utilizing the Gathering System.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 11
FORCE MAJEURE
Section 11.1 Suspension of Obligations. In the event a Party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to indemnify and/or to make payments due hereunder, and
such Party gives notice and reasonably full particulars of such Force Majeure in writing to the other Party promptly after the
occurrence of the cause relied on, then the obligations of the Party giving such notice, so far as and to the extent 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 by the Party claiming Force Majeure. A Force Majeure event affecting
the performance of a Party shall not relieve it of liability in the event of its gross negligence, where such gross negligence was the
cause of, or a contributing factor in causing, the Force Majeure event, or in the event of its failure to use commercially reasonable
efforts to remedy the situation and remove the cause with all reasonable dispatch. Additionally, it is specifically understood that a
Force Majeure shall in no way terminate each Party’s obligation to balance those volumes of Gas received and delivered hereunder.
Section 11.2 Definition of Force Majeure. “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation, any of the following that meets the foregoing criteria: acts of God, acts and/or delays in
action of any Governmental Authority, strikes, lockouts, work stoppages or other industrial disturbances, acts of a public enemy,
sabotage, wars, blockades, insurrections, riots, acts of terror, epidemics, landslides, lightning, earthquakes, fires, storms, storm
warnings, floods, washouts, extreme cold or freezing weather, arrests and restraints of governments and people, civil or criminal
disturbances, explosions, mechanical failures, breakage or accident to equipment installations, machinery, compressors, or lines of
pipe and associated repairs, freezing of wells or lines of pipe, partial or entire failure of wells, pipes, facilities, or equipment,
electric power unavailability or shortages, failure of Third Party pipelines, gatherers, or processors to deliver, receive, or transport
Gas, and, in those instances where a Party is required to secure permits from any Governmental Authority to enable such Party to
fulfill its obligations under this Agreement, the inability of such Party, at reasonable costs and after the exercise of all reasonable
diligence, to acquire such permits; provided, however, that a Governmental Authority requiring Gatherer to provide gathering
services to Third Parties shall not constitute Force Majeure. 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 requirement that a Force Majeure be
remedied with all reasonable dispatch shall not require
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 22 of 45
the settlement of strikes or lockouts by acceding to the demands of Persons striking when such course is inadvisable in the sole
discretion of the Party having the difficulty.
CONFIDENTIAL TREATMENT REQUESTED
Section 12.1 Definitions. The following terms are defined as follows.
ARTICLE 12
INDEMNIFICATION
(a) “Gatherer Indemnified Parties” Gatherer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors, and agents.
(b) “Producer Indemnified Parties” Producer and its Affiliates, and its and their respective shareholders,
stockholders, members, partners, officers, directors, employees, contractors, subcontractors, and agents.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 23 of 45
CONFIDENTIAL TREATMENT REQUESTED
Section 12.2 PRODUCER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND GATHERER UNDER
THIS AGREEMENT, PRODUCER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
BEFORE SUCH GAS IS DELIVERED TO GATHERER AT THE RECEIPT POINT, AND (II) PRODUCER’S GAS AND
CONDENSATE AFTER SUCH GAS AND CONDENSATE HAVE BEEN DELIVERED TO OR FOR PRODUCER’S ACCOUNT
AT THE DELIVERY POINT. WHEN PRODUCER’S GAS AND/OR CONDENSATE ARE IN THE CONTROL AND
POSSESSION OF PRODUCER AS DESCRIBED HEREIN, PRODUCER SHALL BE RESPONSIBLE FOR, AND SHALL
RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS GATHERER INDEMNIFIED PARTIES FROM ANY AND ALL
CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ACTUAL PHYSICAL LOSS OR
DAMAGE OR ACTUAL INJURY CAUSED BY PRODUCER’S GAS WHILE IN A PRODUCER INDEMNIFIED PARTY’S
CONTROL AND POSSESSION, EXCEPT TO THE EXTENT SUCH LOSS, DAMAGE, OR INJURY IS CAUSED BY A
BREACH OF THIS AGREEMENT BY GATHERER OR THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL
MISCONDUCT OR OTHER FAULT OF ANY OF THE GATHERER INDEMNIFIED PARTIES OR EXCEPT TO THE EXTENT
COVERED BY SECTION 12.4. PRODUCER’S INDEMNIFICATION, DEFENSE, AND HOLD HARMLESS OBLIGATIONS
UNDER THIS SECTION SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES SET FORTH IN ARTICLE 18 AND
THE WAIVER OF CERTAIN REMEDIES IN ARTICLE 18.
Section 12.3 GATHERER’S CONTROL AND LIABILITY. AS BETWEEN PRODUCER AND GATHERER UNDER
THIS AGREEMENT, GATHERER SHALL BE DEEMED IN CONTROL AND POSSESSION OF: (I) PRODUCER’S GAS
AFTER SUCH GAS IS DELIVERED TO GATHERER AT THE RECEIPT POINT AND (II) PRODUCER’S GAS AND
CONDENSATE BEFORE SUCH GAS AND CONDENSATE HAVE BEEN DELIVERED TO OR FOR PRODUCER’S
ACCOUNT AT THE DELIVERY POINT. WHEN PRODUCER’S GAS AND/OR THE CONDENSATE ARE IN THE CONTROL
AND POSSESSION OF GATHERER AS DESCRIBED HEREIN, GATHERER SHALL BE RESPONSIBLE FOR, AND SHALL
RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL
CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ACTUAL PHYSICAL LOSS OR
DAMAGE OR ACTUAL INJURY CAUSED BY SUCH GAS AND/OR CONDENSATE WHILE IN A GATHERER
INDEMNIFIED PARTY’S CONTROL AND POSSESSION, EXCEPT TO THE EXTENT SUCH LOSS, DAMAGE, OR INJURY
IS CAUSED BY A BREACH OF THIS AGREEMENT BY PRODUCER OR THE NEGLIGENCE, GROSS NEGLIGENCE,
WILLFUL MISCONDUCT OR OTHER FAULT OF ANY OF THE PRODUCER INDEMNIFIED PARTIES OR EXCEPT TO
THE EXTENT COVERED BY SECTION 12.4. GATHERER’S INDEMNIFICATION, DEFENSE, AND HOLD HARMLESS
OBLIGATIONS UNDER THIS SECTION SHALL BE SUBJECT TO THE LIMITATION OF DAMAGES SET FORTH IN
ARTICLE 18 AND THE WAIVER OF CERTAIN REMEDIES IN ARTICLE 18.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 24 of 45
CONFIDENTIAL TREATMENT REQUESTED
Section 12.4 Personal Injury Claims of Producer Indemnified Parties and Gatherer Indemnified Parties. PRODUCER
SHALL BE RESPONSIBLE FOR, AND SHALL RELEASE, INDEMNIFY, DEFEND, AND HOLD HARMLESS GATHERER
INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR
RESULTING FROM ANY BODILY INJURY, DEATH, OR ILLNESS SUFFERED BY ANY OF THE PRODUCER
INDEMNIFIED PARTIES ARISING OUT OF OR RELATING TO THE PARTIES’ ACTIVITIES UNDER THIS AGREEMENT,
EXCEPT TO THE EXTENT SUCH INJURY IS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
ANY GATHERER INDEMNIFIED PARTIES. GATHERER SHALL BE RESPONSIBLE FOR, AND SHALL RELEASE,
INDEMNIFY, DEFEND, AND HOLD HARMLESS PRODUCER INDEMNIFIED PARTIES FROM ANY AND ALL CLAIMS
OR LOSSES (AS DEFINED IN ARTICLE 1) FOR OR RESULTING FROM ANY BODILY INJURY, DEATH, OR ILLNESS
SUFFERED BY ANY OF THE GATHERER INDEMNIFIED PARTIES ARISING OUT OF OR RELATING TO THE PARTIES’
ACTIVITIES UNDER THIS AGREEMENT, EXCEPT TO THE EXTENT SUCH INJURY IS CAUSED BY THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY PRODUCER INDEMNIFIED PARTIES.
Section 12.5 Insurance. In support of the liability and indemnity obligations assumed by the Parties in this Agreement,
each Party agrees to obtain and maintain, at its own expense, insurance coverages in the types and amounts which are comparable
with its peers and that is generally carried by companies performing the same or similar activities as the Parties in this Agreement.
In addition, each Party shall comply with all statutory insurance requirements determined by governmental laws and regulations, as
applicable. To the extent of the Parties’ indemnity obligations or liabilities assumed under this Agreement, (i) each Party’s
insurance coverage shall be primary to and shall receive no contribution from any insurance maintained by the Indemnified Parties,
and (ii) any insurance of each Party shall waive rights of subrogation against the Indemnified Parties and include the Indemnified
Parties as additional insured under any applicable coverages. Failure to obtain adequate insurance coverage shall in no way relieve
or limit any indemnity or liability of either Party under this Agreement.
ARTICLE 13
TITLE
Section 13.1 Producer’s Warranty. Producer warrants that it owns, or has the right to deliver, Producer’s Gas to the Receipt
Points for the purposes of this Agreement, free and clear of all liens, encumbrances, and adverse claims. If the title to Producer’s
Gas delivered hereunder is disputed or is involved in any legal action in any material respect, Gatherer shall have the right to cease
receiving such Gas, to the extent of the interest disputed or involved in legal action, during the pendency of the action or until title
is freed from the dispute or until Producer furnishes, or causes to be furnished, indemnification to save Gatherer harmless from all
Claims or Losses arising out of the dispute or action, with surety reasonably acceptable to Gatherer. Subject to Sections 18.9 and
18.10, Producer agrees to indemnify the Gatherer Indemnified Parties from and against all
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 25 of 45
CONFIDENTIAL TREATMENT REQUESTED
Claims or Losses suffered by the Gatherer Indemnified Parties, to the extent such Claims or Losses arise out of a breach of the
foregoing warranty.
Section 13.2 Gatherer’s Warranty. Gatherer warrants that it has the right to accept Gas at the Receipt Points and to deliver
Gas to the Delivery Points free and clear of all liens, encumbrances, and adverse claims. If the Gathering System is involved in any
legal action in any material respect, Producer shall have the right to withhold payment (without interest), or cease delivering Gas, to
the extent of the interest disputed or involved in legal action, during the pendency of the action or until Gatherer furnishes, or
causes to be furnished, indemnification to save Producer harmless from all Claims or Losses arising out of the dispute or action,
with surety reasonably acceptable to Producer. Subject to Sections 18.9 and 18.10, Gatherer agrees to indemnify the Producer
Indemnified Parties from and against all Claims or Losses suffered by the Producer Indemnified Parties, to the extent such Claims
or Losses arise out of a breach of the foregoing warranty.
Section 13.3 Title. Title to Producer’s Gas delivered under this Agreement, including all constituents thereof, shall remain
with and in Producer or its designee at all times.
ARTICLE 14
ROYALTY AND TAXES
Section 14.1 Proceeds of Production. Producer shall have the sole and exclusive obligation and liability for the payment of
all Persons due any proceeds derived by Producer from Producer’s Gas (including all constituents and products thereof) delivered
under this Agreement, including, without limitation, royalties, overriding royalties, and similar interests, in accordance with the
provisions of the leases or agreements creating those rights to such proceeds.
Section 14.2 Producer’s Taxes. Producer shall pay and be responsible for all gross production and severance Taxes levied
against or with respect to Producer’s Gas delivered under this Agreement, all ad valorem Taxes levied against the property of
Producer, all income, excess profits, and other Taxes measured by the income or capital of Producer, and all payroll Taxes related to
employees of Producer.
Section 14.3 Gatherer’s Taxes. Gatherer shall pay and be responsible for all Taxes levied with respect to the providing of
Services under this Agreement, all ad valorem Taxes levied against the property of Gatherer, all income, excess profits, and other
Taxes measured by the income or capital of Gatherer, and all payroll Taxes related to employees of Gatherer.
ARTICLE 15
NOTICE AND PAYMENT INSTRUCTIONS
Except as specifically provided elsewhere in this Agreement, any notice or other communication provided for in this
Agreement shall be in writing and shall be given (i) by depositing in the United States mail, postage paid and certified with return
receipt requested, (ii) by depositing with a reputable overnight courier, (iii) by delivering to the recipient in person by courier, or
(iv) by
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 26 of 45
CONFIDENTIAL TREATMENT REQUESTED
facsimile or email transmission, in each of the foregoing cases addressed to the applicable Party as set forth on Exhibit C, and
payments required under this Agreement shall be made to the applicable Party according to the payment instructions set forth on
such exhibit. A Party may at any time designate a different address or payment instructions by giving written notice to the other
Party. Notices, invoices, allocation statements, claims, or other communications shall be deemed received when delivered to the
addressee in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual
receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States mail, as
the case may be.
ARTICLE 16
DISPUTE RESOLUTION
Section 16.1 Negotiation. Prior to submitting any dispute for resolution by a court, a Party shall provide written notice of
such dispute to the other Party. If the Parties fail to resolve the dispute within fifteen (15) Business Days after such notice is given,
the Parties shall seek to resolve the dispute by negotiation between senior management personnel of each Party. Such personnel
shall endeavor to meet and attempt to amicably resolve the dispute. If the Parties are unable to resolve the dispute for any reason
within thirty (30) Business Days after the original notice of dispute was given, then either Party shall be entitled to pursue any
available remedies; provided, however, this Section 16.1 shall not limit a Party’s right to initiate litigation prior to the expiration of
the time periods set forth in this Section 16.1 if application of such limitations would prevent a Party from filing a Claim within the
applicable period for filing lawsuits (e.g. statutes of limitation, prescription, etc.) or would otherwise prejudice or harm a Party.
Section 16.2 Jurisdiction and Venue.
(a) Each Party agrees that the appropriate, exclusive and convenient forum for any disputes between the Parties
arising out of this Agreement or the transactions contemplated hereby shall be in any state or federal court in Houston,
Texas, and each of the Parties irrevocably submits to the jurisdiction of such courts solely in respect of any legal proceeding
arising out of or related to this Agreement or the transactions contemplated hereby. The Parties further agree that the Parties
shall not bring suit with respect to any disputes arising out of this Agreement or the transactions contemplated hereby in any
court or jurisdiction other than the above specified courts.
(b) Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection (including, without limitation, the defense of inconvenient forum) which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby in any court referred to in paragraph (a) above.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 27 of 45
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 17
TERM
Section 17.1 Term. This Agreement is effective on the Effective Date and shall continue in full force and effect until
March 31, 2032 (the “Primary Term”); provided that Producer shall have two (2) successive options to extend the Primary Term
by five (5) Years each. Each five (5)-Year Primary Term extension shall occur automatically unless Producer gives Gatherer at least
nine (9) Months’ prior written notice that it does not wish to extend the Primary Term. Unless terminated at the end of the Primary
Term by either Party giving at least six (6) Months’ prior written notice, this Agreement shall continue after the Primary Term on a
Year-to-Year basis unless terminated at the end of any Yearly extension period by either Party giving at least six (6) Months’ prior
written notice. Notwithstanding anything to the contrary in this Section 17.1, Producer shall have the right to terminate this
Agreement upon the termination or expiration of that certain Gas Processing Agreement between Producer and Alpine High
Processing LP dated [_______]. For purposes of this Agreement, the period during which this Agreement continues in full force
and effect prior to any termination is referred to herein as the “Term”.
Section 17.2 Obligations Upon Termination. Upon termination of this Agreement, unless the Parties agree to the terms of a
new gathering arrangement, the Parties shall reasonably cooperate with each other in (i) disconnecting their respective facilities
from each other’s facilities and (ii) to the extent that one Party has facilities located on the other Party’s property, allowing such
Party to remove its facilities from such other Party’s property.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 28 of 45
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 18
MISCELLANEOUS
Section 18.1 Confidentiality. Producer’s 2-Year Forecast delivered to Gatherer pursuant to Section 2.1 and all other
information received by Gatherer pursuant to the terms of this Agreement which involves or in any way relates to Producer’s
production estimates, development plans and/or other similar information shall be kept strictly confidential by Gatherer, and
Gatherer shall not disclose any such information to any third Person or use any such information for any purpose other than
performing under this Agreement, provided, however, Gatherer may disclose such information to those of its legal counsel,
accountants and other representatives with a specific need to know such information for purposes of Gatherer’s performance under
this Agreement or enforcement of this Agreement or as required by applicable Law, provided such third Persons have likewise
agreed in writing to the confidentiality and non-use restrictions set forth herein. In the event Gatherer is required by Law to disclose
any such information, Gatherer shall first notify Producer in writing as soon as practicable of any proceeding of which it is aware
that may result in disclosure and shall use all reasonable efforts to prevent or limit such disclosure. Producer’s confidential
information shall not include information that Gatherer can satisfactorily demonstrate was: (a) rightfully in the possession of
Gatherer prior to Producer’s disclosure hereunder; (b) in the public domain prior to Producer’s disclosure hereunder; (c) made
public by any Governmental Authority; (d) supplied to Gatherer without restriction by a Third Party who is under no obligation to
Producer to maintain such confidential information in confidence; or (e) independently developed by Gatherer. The confidentiality
requirements and non-use restrictions set forth herein shall survive termination or expiration of this Agreement for two (2) Years
after such termination or expiration. Notwithstanding anything else in this Agreement, the Parties agree that there is not an adequate
remedy at law for any breach of these confidentiality and non-use restrictions and, therefore, Producer shall be entitled (without the
posting of any bond) to specific performance and injunctive relief restraining any breach hereof, in addition to any other rights and
remedies which it may have or be entitled.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 29 of 45
CONFIDENTIAL TREATMENT REQUESTED
Section 18.2 Independent Contractor. Notwithstanding anything else in this Agreement, Gatherer undertakes its
obligations under this Agreement as an independent contractor, at its sole risk, and all Persons carrying out any of Gatherer’s
obligations set forth herein for or on behalf of Gatherer are or shall be deemed employees, contractors, subcontractors, agents,
and/or representatives of Gatherer, subject to the direction and control of Gatherer. Gatherer is to determine the manner, means, and
methods in which such Persons shall carry out their work to attain the results contemplated by this Agreement, consistent with the
general coordinative efforts and suggestions of Producer with respect to the work. Nothing in this Agreement or inferred from any
action of either Party shall be taken to establish the relationship of master and servant or principal and agent between Producer and
Gatherer.
Section 18.3 Rights; Waivers. The failure of either Party to exercise any right granted hereunder shall not impair nor be
deemed a waiver of that Party’s privilege of exercising that right at any subsequent time or times. No waiver by either Party of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless expressly provided.
Section 18.4 Applicable Laws. This Agreement is subject to all valid present and future Laws of any Governmental
Authority(ies) now or hereafter having jurisdiction over the Parties, this Agreement, or the Services performed or the facilities
utilized under this Agreement.
Section 18.5 Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the Laws
of the State of Texas, without regard to any choice of law principles that would require the application of the Laws of any other
jurisdiction, PROVIDED, HOWEVER, THAT NO LAW, THEORY, OR PUBLIC POLICY SHALL BE GIVEN EFFECT
WHICH WOULD UNDERMINE, DIMINISH, OR REDUCE THE EFFECTIVENESS OF EACH PARTY’S WAIVER OF
SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE, AND EXEMPLARY DAMAGES SET FORTH IN SECTION
18.9 OR WAIVER OF THE RIGHT TO CERTAIN REMEDIES SET FORTH IN SECTION 18.10, IT BEING THE
EXPRESS INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE
GIVEN THE FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING CONDITION OR THE NEGLIGENCE
(WHETHER SOLE, JOINT, OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT
LIABILITY, OR OTHER LEGAL FAULT OF ANY PARTY HERETO, OR OTHERWISE.
Section 18.6 Assignments. This Agreement, including any and all renewals, extensions, and amendments hereto, and all
rights, title, and interests contained herein, shall be binding upon and inure to the benefit of the Parties hereto and their respective
heirs, successors, and assigns, the assigns of all or any part of Gatherer’s right, title, or interest in the Gathering System, and the
assigns of all or any part of Producer’s Interests in the Dedicated Area, and each Party’s respective obligations hereunder shall be
covenants running with the lands underlying or included in any such assets. Neither Party shall Transfer any of its rights or
obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably
withheld, delayed, or
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 30 of 45
CONFIDENTIAL TREATMENT REQUESTED
conditioned; provided, however, that either Party may Transfer any of its rights or obligations under this Agreement to any Affiliate
of such Party without the prior written consent of the other Party and that, in connection with a Transfer of all or any portion of the
Dedicated Area, Producer shall Transfer its corresponding rights and obligations under this Agreement without the need for the
prior written consent of Gatherer. Any Transfer of this Agreement shall expressly require that the assignee assume and agree to
discharge the duties and obligations of its assignor under this Agreement, and the assignor shall be released from the duties and
obligations arising under this Agreement which accrue after the effective date of such Transfer. Gatherer shall not Transfer its rights
and interests in the Gathering System, in whole or in part, unless the transferee of such interests agrees in writing to be bound by the
terms and conditions of this Agreement. No Transfer of this Agreement or of any interest of either Party shall be binding on the
other Party until such other Party has been notified in writing of such Transfer and furnished with reasonable evidence of same. No
such Transfer of this Agreement or of any interests of either Party shall operate in any way to enlarge, alter, or modify any
obligation of the other Party hereto. Any Person that succeeds by purchase, merger, or consolidation with a Party hereto shall be
subject to the duties and obligations of its predecessor in interests under this Agreement.
Section 18.7 Entire Agreement. This Agreement constitutes the entire agreement of the Parties and supersedes all prior
understandings, agreements, representations, and/or warranties by or among the Parties, written or oral, with respect to the subject
matter hereof. No other representations, warranties, understandings, or agreements shall have any effect on this Agreement.
Section 18.8 Amendments. This Agreement may not be amended or modified in any manner except by a written document
signed by both Parties that expressly amends this Agreement.
Section 18.9 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES (COLLECTIVELY, “CONSEQUENTIAL DAMAGES”)
RESULTING FROM OR ARISING OUT OF THIS AGREEMENT OR THE BREACH THEREOF OR UNDER ANY
OTHER THEORY OF LIABILITY, WHETHER NEGLIGENCE, STRICT LIABILITY, BREACH OF CONTRACT OR
WARRANTY, OR OTHERWISE. IN FURTHERANCE OF THE FOREGOING, EACH PARTY RELEASES THE OTHER
PARTY AND WAIVES ANY RIGHT OF RECOVERY FOR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH
PARTY, REGARDLESS OF WHETHER ANY SUCH DAMAGES ARE CAUSED BY THE OTHER PARTY’S
NEGLIGENCE (AND REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE, JOINT, CONCURRENT,
ACTIVE, PASSIVE, OR GROSS), FAULT, OR LIABILITY WITHOUT FAULT. GATHERER UNDERSTANDS THAT
PRODUCER IS RELYING ON GATHERER’S PERFORMANCE UNDER THIS AGREEMENT TO ENABLE
PRODUCER TO MEET ITS DEDICATION OBLIGATIONS UNDER DOWNSTREAM CONTRACTS, AND
GATHERER EXPRESSLY AGREES THAT ANY DAMAGES SUFFERED BY PRODUCER UNDER ANY SUCH
DOWNSTREAM CONTRACT AS A RESULT OF
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 31 of 45
CONFIDENTIAL TREATMENT REQUESTED
GATHERER’S UNEXCUSED FAILURE TO PERFORM UNDER THIS AGREEMENT SHALL BE CONSIDERED
DIRECT DAMAGES.
Section 18.10 RIGHTS AND REMEDIES. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
THAT MAY BE CONSTRUED TO THE CONTRARY, A PARTY’S SOLE REMEDY AGAINST THE OTHER PARTY
FOR NON-PERFORMANCE OR BREACH OF THIS AGREEMENT OR ANY OTHER CLAIM OF WHATSOEVER
NATURE ARISING OUT OF THIS AGREEMENT OR OUT OF ANY ACTION OR INACTION BY A PARTY IN
RELATION HERETO SHALL BE IN CONTRACT AND EACH PARTY EXPRESSLY WAIVES ANY OTHER REMEDY
IT MAY HAVE IN LAW OR EQUITY, INCLUDING, WITHOUT LIMITATION, ANY REMEDY IN TORT.
Section 18.11 No Partnership. Nothing contained in this Agreement shall be construed to create an association, trust,
partnership, or joint venture or impose a trust, fiduciary, or partnership duty, obligation, or liability on or with regard to either Party.
Section 18.12 Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting
this Agreement;
(b) the headings and captions in this Agreement have been inserted for convenience of reference only and shall not
define or limit any of the terms and/or conditions hereof;
(c) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(d) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding
syntactical variant expressions; and
(e) the plural shall be deemed to include the singular and vice versa, as applicable.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 32 of 45
CONFIDENTIAL TREATMENT REQUESTED
Section 18.13 No Third Party Beneficiaries. Except for Persons expressly indemnified hereunder, this Agreement is for the
sole benefit of the Parties and their respective successors and permitted assigns, and shall not inure to the benefit of any other
Person, it being the intention of the Parties that no Third Party shall be deemed a third-party beneficiary of this Agreement.
Section 18.14 Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be
reasonably required to effectuate the purposes of this Agreement.
Section 18.15 No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee,
rebate, gift, or entertainment of significant cost or value in connection with this Agreement.
Section 18.16 Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which
shall be considered an original, and all of which shall be considered one and the same instrument.
Section 18.17 Survival. The terms of this Agreement which by their nature should reasonably be expected to survive
termination or expiration of this Agreement shall survive, including, without limitation, Article 7 (Audit Rights), Article 12
(Indemnification), Article 16 (Dispute Resolution), Section 18.1 (Confidentiality), Section 18.5 (Governing Law), Section 18.9
(Limitation of Liability), Section 18.10 (Rights and Remedies), this Section 18.17 (Survival), and the obligations of either Party
under any provision of this Agreement to make payment hereunder.
Section 18.18 Changes in Laws. If following the date of this Agreement there is a change in any Law or legal requirement
affecting the Services provided by Gatherer which, in the reasonable judgment of Gatherer, materially adversely affects the
economics for Gatherer of the Services provided under this Agreement, then, upon notice by Gatherer to Producer, the Parties will
as promptly as practicable meet to negotiate in good faith such changes to the terms of this Agreement as may be necessary or
appropriate to preserve and continue for the Parties the rights and benefits originally contemplated for the Parties by this
Agreement, with such amendment to this Agreement to be effective no later than the effective date of such new or amended
applicable Law. If the Parties cannot agree on replacement terms, then either party may terminate this Agreement by giving the
other party written notice of termination. Such termination will be effective no earlier than sixty (60) Days after the date of the
notice.
Section 18.19 Exhibits. The following exhibits are attached to this Agreement and are incorporated herein by this
reference:
Exhibit A - Dedicated Area
Exhibit B - Receipt Points; Delivery Points
Exhibit C - Addresses for Notices, Statements, and Payments
Exhibit D - Form of Memorandum of Agreement
Exhibit E - Form of Memorandum of Release
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 33 of 45
CONFIDENTIAL TREATMENT REQUESTED
IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
GATHERER:
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Printed Name:________________________
Title: _______________________________
PRODUCER:
[____________]
By:
Printed Name:____________________________
Title: ___________________________________
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 34 of 45
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
DEDICATED AREA
This Exhibit A is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and [__________]
(“Producer”) dated [___________], and is for all purposes made a part of said Agreement.
“Dedicated Area” shall mean the following lands as further described in the map (the area within the red border) and table below,
as the same may be updated annually pursuant to Section 2.1(b). In the event of a conflict between the map and the table, the map
shall control.
[Insert map with boundaries around each block containing any property assigned to transferee producer]
[Insert description of property assigned to transferee producer]
Section
Block
Survey
County
WI%
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 35 of 45
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
RECEIPT POINTS; DELIVERY POINTS
This Exhibit B is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and [___________]
(“Producer”) dated [_________], and is for all purposes made a part of said Agreement.
LOW PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
Gathering Subsystem
MAOP
Required Pressure
LOW PRESSURE DELIVERY POINTS
Delivery Point Name
Location
Required Pressure
HIGH PRESSURE RECEIPT POINTS
Receipt Point Name
Meter Number
MAOP
HIGH PRESSURE DELIVERY POINTS
Receipt Point Name
Meter Number
MAOP
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 36 of 45
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
ADDRESSES FOR NOTICES, STATEMENTS, AND PAYMENTS
Additional Delivery Point Outline
This Exhibit C is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and [_________]
(“Producer”) dated [___________], and is for all purposes made a part of said Agreement.
Notices:
Alpine High Gathering LP
Attn: Commercial Operations
17802 IH-10 West
Suite 300
San Antonio, TX 78257
Telephone: 210-447-5629
Email: CommercialOperations@Apachecorp.com
Scheduling and Nominations:
Attn: Commercial Operations
Telephone: 210-447-5629
Email: CommercialOperations@Apachecorp.com
Gatherer
Payments by Check:
c/o Apache Corporation
PO Box 840133
Dallas, TX 75284-0133
Payments by Wire Transfer:
c/o [***]
Bank: [***]
ABA No.: [***]
Account: [***]
Account No.: [***]
Producer
Notices:
Invoices/Statements:
Scheduling and Nominations:
Payments by Wire Transfer:
Payments by Check:
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 37 of 45
EXHIBIT D
FORM OF MEMORANDUM OF AGREEMENT
This Exhibit D is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and [___________]
(“Producer”) dated [___________], and is for all purposes made a part of said Agreement.
CONFIDENTIAL TREATMENT REQUESTED
State of Texas §
§
County of [____] §
This Memorandum of Agreement is entered into this __ day of ______________, 20__ (the “Effective Date”) between
Alpine High Gathering LP, a Delaware limited partnership (“Gatherer”) and [___________], a [___________] (“Producer”).
MEMORANDUM OF AGREEMENT
WHEREAS, Gatherer and Producer have entered into a certain Gas Gathering Agreement dated [___________] (the
“Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for gathering by Gatherer; and
WHEREAS, the Parties wish to file this Memorandum of Agreement to put third parties on notice as to the existence of the
RECITALS
Agreement.
1. Dedication.
Producer’s interests in the acreage and/or well(s) set forth on Exhibit A hereto (“Dedicated Area”) are dedicated to
Gatherer for gathering. The Agreement is for an initial term ending on March 31, 2032, but subject to extension, renewal, and/or
termination as more particularly provided therein.
2. Incorporation of Agreement and Effect of Memorandum.
The sole purpose of this Memorandum of Agreement is to give notice to third parties of the existence of the Agreement and
the rights of Gatherer in and to Producer’s Gas from the Dedicated Area. This Memorandum shall not modify in any manner any of
the terms and conditions of the Agreement, and nothing in this Memorandum is intended to and shall not be used to interpret the
Agreement. The provisions of the Agreement are hereby incorporated into this Memorandum of Agreement as if set out fully
herein. In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms
of the Agreement shall govern and control for all purposes.
3. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 38 of 45
IN WITNESS WHEREOF, this Memorandum of Agreement is executed by Gatherer and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
CONFIDENTIAL TREATMENT REQUESTED
GATHERER
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC, its general partner
By:
Name:
Title:
PRODUCER
[___________]
By: ________________________________
Name: ______________________________
Title: _______________________________
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 39 of 45
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Gathering LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of
[___________] on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 40 of 45
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF AGREEMENT
DEPICTION OF DEDICATED AREA
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 41 of 45
EXHIBIT E
FORM OF MEMORANDUM OF RELEASE
This Exhibit E is to the Gas Gathering Agreement between Alpine High Gathering LP (“Gatherer”) and [___________]
(“Producer”) dated [___________], and is for all purposes made a part of said Agreement.
CONFIDENTIAL TREATMENT REQUESTED
State of Texas §
§
County of [____] §
This Memorandum of Release is entered into this __ day of ______________, 20__ (the “Effective Date”) between Alpine
High Gathering LP, a Delaware limited partnership (“Gatherer”) and [___________], a [___________] (“Producer”).
MEMORANDUM OF RELEASE
RECITALS
WHEREAS, Gatherer and Producer have previously entered into a certain Gas Gathering Agreement dated [___________]
(the “Agreement”), pursuant to which Producer dedicated Gas produced from the Dedicated Area for gathering by Gatherer; and
WHEREAS, a Memorandum of Agreement dated [___], was executed by Gatherer and Producer to give notice to third
parties of the existence of the Agreement and the respective rights and obligations of Gatherer and Producer with respect thereto
and with respect to the dedication as set forth therein; and
WHEREAS, such Memorandum of Agreement was filed of record in Book ____, Page_____ of the real property records of
[___] County, Texas; and
WHEREAS, the Parties wish to file this Memorandum of Release to put third parties on notice as to the release of certain
Interests from the dedication.
4. Release from Dedication.
The following Interests in the following acreage and/or well(s) (“Released Interests”) are hereby released from the
dedication, as further set forth on Exhibit A hereto:
5. Incorporation of Agreement and Effect of Memorandum.
[Description of Released Interests]
The sole purpose of this Memorandum of Release is to give notice to third parties of the existence of the Agreement, the
rights of Gatherer in and to Producer’s Gas from the Dedicated Area, and the release of the Released Interests from the dedication.
This Memorandum shall not modify in any manner any of the terms and conditions of the Agreement, and nothing in this
Memorandum is intended to and shall not be used to interpret the Agreement. The provisions of the Agreement are hereby
incorporated into this Memorandum of Release as if set out fully herein.
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 42 of 45
CONFIDENTIAL TREATMENT REQUESTED
In the event of any irreconcilable conflict between the terms of this Memorandum and the terms of the Agreement, the terms of the
Agreement shall govern and control for all purposes.
6. Defined Terms.
All capitalized terms not defined herein shall have the same meaning assigned such terms in the Agreement.
IN WITNESS WHEREOF, this Memorandum of Release is executed by Gatherer and Producer as of the date of
acknowledgement of their signatures, but is effective for all purposes as of the Effective Date stated above.
GATHERER
ALPINE HIGH GATHERING LP
By: Alpine High Subsidiary GP LLC
By:
Name:
Title:
PRODUCER
[___________]
By: ________________________________
Name: ______________________________
Title: _______________________________
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 43 of 45
CONFIDENTIAL TREATMENT REQUESTED
STATE OF TEXAS §
COUNTY OF [___________] §
§
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of Alpine High
Subsidiary GP LLC, the general partner of Alpine High Gathering LP, on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
STATE OF TEXAS §
§
COUNTY OF [___________] §
This instrument was acknowledged before me this day of , 20__ by [___________], the [__________] of
[___________] on behalf of such entity.
In witness whereof I hereunto set my hand and official seal.
NOTARIAL SEAL: __________________________________________
Notary Public in and for the
State of Texas
My Commission Expires:
Commission No.:
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 44 of 45
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TO
MEMORANDUM OF RELEASE
DEPICTION OF RELEASED INTERESTS
Gas Gathering Agreement dated [__________]
Between Alpine High Gathering LP (Gatherer) and [__________] (Producer)
Pg 45 of 45
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
Execution Version
TRANSPORTATION SERVICES AGREEMENT
July 1, 2018
ALPINE HIGH NGL PIPELINE LP
“Carrier”
and
APACHE CORPORATION
“Shipper”
CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS Page
Article I
CERTAIN DEFINITIONS 1
Article II
TERM 6
2.1.
Term 6
Article III
CARRIER OBLIGATIONS 7
Provision of Services 7
Priority Service 7
3.1
3.2
3.3 Maintenance of Pipeline Capacity 7
3.4 Most Favored Nations 7
3.5
Pressure Commitments 8
3.6 Measurement 8
3.7
3.8
Standard of Performance 8
Additional Destination Points 8
Article IV
DEDICATION AND SHIPPER’S DELIVERY OBLIGATIONS 8
Dedication 8
Prior Dedications 9
Contemporaneous Dedications 9
Subsequently Acquired Subject Interests 10
Covenant Running with the Land 10
Releases from Dedication 11
Processing Obligations and Reservations from Dedication 12
Delivery Commitment 13
Unused Capacity 13
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
4.7.
4.8.
4.9.
4.10. Linefill 13
Article V
FEES 14
5.1.
5.2.
5.3.
5.4.
Shipper’s Priority Rate 14
Index Adjustment 14
Pipeline Loss Allowance 14
Third Party Rates 14
Article VI
DEFAULTS AND REMEDIES 14
6.1.
6.2.
6.3.
6.4.
Shipper Default 14
Remedies on Shipper Default 14
Carrier Default 15
Remedies on Carrier Default 15
Article VII WARRANTY OF TITLE; ROYALTIES 16
7.1.
7.2.
7.3.
7.4.
Shipper’s Warranty 16
Carrier’s Warranty 16
Proceeds of Production 16
Title 16
Article VIII WAIVER OF CERTAIN DAMAGES 16
i
CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS
(continued) Page
Article IX
FORCE MAJEURE 17
9.1.
9.2.
9.3.
9.4.
Suspension of Obligations 17
Definition of Force Majeure 17
Notification 18
Limitations 18
Article X
ASSIGNMENT 18
10.1. Assignments Not Requiring Consent 18
10.2. Assignment Requiring Consent 19
10.3. Conveyance of Interests 19
10.4. Compliance 19
10.5. Successors and Assigns 19
Article XI
TAXES 19
Article XII
NOTICE AND STATEMENTS 19
12.1. Notice 19
12.2. Change of Address 20
Article XIII MISCELLANEOUS 21
Jurisdiction and Venue 21
13.1. Entire Agreement; Amendments 21
13.2. Governing Law 21
13.3.
13.4. No Drafting Presumption 21
13.5. Waiver 21
13.6. No Third Party Beneficiaries 22
13.7. No Partnership 22
13.8. Survival 22
13.9. Headings 22
13.10. Rules of Construction 22
13.11. Severability 22
13.12. Further Assurances 23
13.13. No Inducements 23
13.14. Counterpart Execution 23
13.15. Confidentiality 23
13.16. Compliance with Laws 24
13.17. Arm’s Length Negotiations 24
13.18. Audit Rights 24
EXHIBITS
Exhibit A – Tariff
Exhibit B – Dedicated Area
Exhibit C – Raw Make Quality Specifications
Exhibit D– Prior Dedications
ii
CONFIDENTIAL TREATMENT REQUESTED
Exhibit E – Measurement Procedures
Exhibit F – Form of Transferee Agreement
SCHEDULES
Schedule A – Origin Points, Destination Points, and Rates
iii
TRANSPORTATION SERVICES AGREEMENT
CONFIDENTIAL TREATMENT REQUESTED
This Transportation Services Agreement (this “Agreement”) is made and entered into, effective as of this first day of July,
2018 (the “Effective Date”), by and between Alpine High NGL Pipeline LP, a Delaware limited partnership (“Carrier”), and
Apache Corporation, a Delaware corporation (“Shipper”). Shipper and Carrier may be referred to individually as a “Party,” or
collectively as the “Parties.”
WITNESSETH:
WHEREAS, Shipper has title to or the right to transport and/or sell Shipper Raw Make and desires for Carrier to transport
Shipper Raw Make on the Pipeline System; and
WHEREAS, Carrier desires to transport Shipper Raw Make on the Pipeline System; and
WHEREAS, Carrier and Shipper have engaged in good faith, arm’s length negotiations and are entering into this
Agreement as independent parties; and
WHEREAS, The Parties originally entered into that certain Transportation Services Agreement dated as of May 1, 2018
(the “Original TSA”). This Agreement hereby amends, restates, supersedes, and replaces the Original TSA in its entirety.
NOW THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, the Parties
hereby covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Unless otherwise required by the content, the terms defined in this Article I shall have, for all purposes of this Agreement,
the respective meanings set forth in this Article I:
“Actual Shipments” shall mean, for any period of time, the volumes of Shipper Raw Make that Shipper delivers to Carrier
hereunder at the Origin Points and that are ultimately delivered by Carrier to Shipper (or Shipper’s designee) hereunder at the
Destination Points.
“Additional Destination Point” shall have the meaning given to such term in Section 3.8 of this Agreement.
“Adjustment Date” shall mean the first anniversary of the Effective Date and each subsequent anniversary of the Effective
Date.
“Affiliate” shall mean any Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with another Person. The term “control” (including its derivatives and similar terms) shall mean
possessing the power to direct or cause the direction of the management and policies of a Person, whether through ownership, by
contract, or otherwise. A Person is deemed to be an Affiliate of another specified Person if such Person owns 50% or more of the
voting securities of the specified Person, or if the specified Person
1
CONFIDENTIAL TREATMENT REQUESTED
owns 50% or more of the voting securities of such Person, or if 50% or more of the voting securities of the specified Person and
such Person are under common control.
“Agreement” shall have the meaning given to such term in the preamble of this Agreement.
“Applicable Law” shall mean all applicable laws, statutes, directives, codes, ordinances, rules, regulations, municipal by-
laws, judicial, arbitral, administrative, ministerial, departmental or regulatory judgments, orders, decisions, rulings or awards,
consent orders, consent decrees and policies of any Governmental Authority.
“Barrel” or “bbl” shall mean forty-two (42) United States gallons of 231 cubic inches at sixty degrees Fahrenheit (60° F)
and equilibrium vapor pressure.
“BPD” shall mean Barrels per Day.
“Business Day” shall mean any day that is not a Saturday, Sunday, or a day on which federally chartered banks are required
or permitted to close in Houston, Texas.
“Carrier” shall have the meaning given to such term in the preamble of this Agreement.
“Carrier Default” shall have the meaning given to such term in Section 6.3 of this Agreement.
“Carrier Default Notice” shall have the meaning given to such term in Section 6.4 of this Agreement.
“Carrier Standard of Performance” shall mean Carrier’s obligation hereunder (i) to exercise its rights or powers under this
Agreement, in each case, in a reasonable manner and with the degree of skill and judgment normally exercised by a reasonably
prudent operator consistent with industry practices in the midstream oil and gas industry and in material compliance with this
Agreement, and (ii) to operate in a manner such that Shipper is not curtailed for reasons other than Force Majeure, planned or
scheduled maintenance, and/or shipper default, for an aggregate period exceeding six (6) Days within any Year.
“Central Clock Time” or “CCT” shall mean Central Standard Time, as adjusted for Central Daylight Time.
“Claims” shall mean any and all claims, demands and causes of action of any kind and all losses, damages, liabilities, costs
and expenses of whatever nature (including court costs and reasonable attorneys’ fees).
“CPPI” shall mean, with respect to each Adjustment Date, the PPI for the Month which is four (4) Months prior to such
Adjustment Date.
“Day” or “Daily” shall mean a period commencing at 7:00 a.m., CCT, on a calendar day and ending at 7:00 a.m., CCT, on
the next calendar day.
“Dedicated Area” shall mean lands and/or properties described on Exhibit B.
2
CONFIDENTIAL TREATMENT REQUESTED
“Dedicated Raw Make” shall have the meaning given to such term in Section 4.1 of this Agreement.
“Dedication” shall have the meaning given to such term in Section 4.1 of this Agreement.
“Deemed Volume Commitment” shall have the meaning given to such term in the Tariff.
“Destination Points” shall mean the destination points listed on Schedule A (attached hereto).
“Effective Date” shall have the meaning given to such term in the preamble to this Agreement.
“Evergreen Extension” shall have the meaning given to such term in Article II of this Agreement.
“Extended Carrier Force Majeure” shall have the meaning given to such term in Section 4.6(b) of this Agreement.
“Extension” shall mean the First Extension, the Second Extension, or an Evergreen Extension, as applicable.
“Fee Adjustment Multiplier” shall mean, with respect to any Adjustment Date, the percentage equal to the percentage of
change between (a) the PPPI applicable to such Adjustment Date and (b) the CPPI applicable to such Adjustment Date.
“First Extension” shall have the meaning given to such term in Article II of this Agreement.
“Force Majeure” shall have the meaning given to such term in Section 9.2 of this Agreement.
“Gas” shall mean any mixture of gaseous hydrocarbons, consisting essentially of methane and heavier hydrocarbons and
inert and noncombustible gases that are extracted from the subsurface of the earth.
“Governmental Authority” shall mean (i) the United States of America, (ii) any state, county, parish, municipality or other
governmental subdivision within the United States of America, and (iii) any court or any governmental department, commission,
board, bureau, agency or other instrumentality of the United States of America or of any state, county, municipality or other
governmental subdivision within the United States of America.
“Interests” shall mean any right, title, or interest in lands, wells or leases and the right to produce Gas therefrom whether
arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership, farm-out, contractual ownership
or arising from any pooling, unitization or communitization of any of the foregoing rights.
“Losses” shall mean any actual loss, cost, expense, liability, damage, demand, suit, sanction, claim, judgment, lien, fine or
penalty, including attorneys’ fees, asserted by a third party not Affiliated with the Party incurring such, and which are incurred by
the applicable indemnified Persons on account of injuries (including death) to any person or damage to or destruction of any
property, sustained or
3
CONFIDENTIAL TREATMENT REQUESTED
alleged to have been sustained in connection with or arising out of the matters for which the indemnifying party has indemnified the
applicable indemnified Persons.
“Month” shall mean a period commencing at 7:00 a.m., CCT, on the first day of a calendar month and ending at 7:00 a.m.,
CCT, on the first day of the next calendar month.
“Nomination” (including “Nominates” and the syntactical variants thereof) shall mean the written or electronic
communication from Shipper to Carrier, pursuant to and in accordance with the terms of this Agreement, including the Tariff,
requesting that Carrier transport for Shipper in a given Month a stated volume of Raw Make.
“Origin Point” shall mean any of the origin points listed on Schedule A (attached hereto) where Carrier accepts Raw Make
for transport on the Pipeline System.
“Parties” shall have the meaning given to such term in the preamble of this Agreement.
“Party” shall have the meaning given to such term in the preamble of this Agreement.
“Person” shall mean any individual, firm, corporation, trust, partnership, limited liability company, association, joint
venture, other business enterprise or Governmental Authority.
“Pipeline Capacity” shall mean the Pipeline System capacity expressed in BPD on a Pipeline Segment, as it exists from
time to time.
“Pipeline Design Capacity” shall mean 250,000 BPD on the Pipeline System.
“Pipeline Segment” shall mean any portion of the Pipeline System that runs from any given Origin Point to any given
Destination Point, or from one Destination Point to another Destination Point.
“Pipeline System” shall mean the Raw Make pipeline system to be constructed, owned and operated by Carrier that will
transport Raw Make from the Origin Points to the Destination Points.
“PPI” shall mean the Producer Price Index by Commodity for Final Demand: Finished Goods, Seasonally Adjusted (Series
Id: WPSFD49207).
“PPPI” shall mean, with respect to each Adjustment Date, the PPI for the Month which is sixteen (16) Months prior to such
Adjustment Date.
“Prior Dedications” shall mean (i) as to the Interests owned by Shipper and/or its Affiliates within the Dedicated Area as of
the Effective Date, all dedications or commitments for gathering or transportation services burdening such Interests as of the
Effective Date and (ii) as to any Interests acquired by Shipper and/or its Affiliates within the Dedicated Area after the Effective
Date, all dedications or commitments for gathering or transportation services burdening such Interests which are existing as of the
time of any such acquisition.
“Priority Rate” shall be the rate set forth in Schedule A, as it may be adjusted in the future per the terms of this Agreement.
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CONFIDENTIAL TREATMENT REQUESTED
“Priority Shipper” shall have the meaning given to such term in the Tariff.
“Proration Month” shall have the meaning given to such term in the Tariff.
“Raw Make” shall mean, until August 31, 2019, demethanized raw make mix with no minimum ethane by liquid volume
percentage, and thereafter demethanized raw make mix that contains an ethane component content equal to or greater than 10%
ethane and less than or equal to 65% ethane by liquid volume percentage. For the avoidance of doubt, Raw Make shall not include
condensate or other liquid hydrocarbons attributable to the Subject Gas that is not produced from processing of the Subject Gas.
“Raw Make Quality Specifications” shall mean the Raw Make specifications set forth in Exhibit C (attached hereto) as and
made a part hereof for all purposes.
“Release Notice” has the meaning given to such term in Section 4.6(c) of this Agreement.
“Release Notice Date” has the meaning given to such term in Section 4.6(c) of this Agreement.
“RRC” shall mean the Railroad Commission of Texas and any lawful successor agency having jurisdiction over the
intrastate transportation of Raw Make in Texas.
“Second Extension” shall have the meaning given to such term in Article II of this Agreement.
“Services” shall mean receipt and transportation on the Pipeline System of Raw Make for Shipper’s account from the Origin
Point(s) and delivery, on a ratable basis, to the Destination Point(s) specified in Shipper’s Nomination.
“Shipper” shall have the meaning given to such term in the preamble of this Agreement.
“Shipper Raw Make” shall mean Raw Make owned or controlled by Shipper.
“Shipper Default” shall have the meaning given to such term in Section 6.1 of this Agreement.
“Shipper Default Notice” shall have the meaning given to such term in Section 6.2 of this Agreement.
“Shipper’s Priority Rate” shall have the meaning given to such term in Section 5.1 of this Agreement.
“Significant Investment” shall mean, with respect to any Person, the ownership of equity interests in such Person that (a)
entitle the holder thereof to at least 19% of the profits and losses of, or distributions of assets from, such Person and (b) either (i)
constitute at least 19% of the voting securities of such Person or (ii) entitle the holder thereof to appoint or designate at least one
member of the board of directors, board of managers, or similar governing body of (A) such Person or (B) such Person’s general
partner, managing member, or similar Person having the ultimate authority to manage the business and affairs of such Person.
“Subject Gas” shall mean Gas produced from the Dedicated Area.
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CONFIDENTIAL TREATMENT REQUESTED
“Subject Interests” shall mean Interests covering lands located within the Dedicated Area.
“Subsequently Acquired Subject Interests” has the meaning given to such term in Section 4.4 of this Agreement.
“Tariff” shall mean Carrier’s rate, rules and regulations tariff for the Pipeline System on file and in effect with the RRC, as
such tariff may be amended or supplemented by Carrier from time to time, provided that any such amendment or supplement shall
not be inconsistent with this Agreement and Shipper’s rights and Carrier’s obligations under this Agreement, a pro forma copy of
such Tariff, materially in the form expected to be filed by Carrier with the RRC, as applicable, is attached hereto as Exhibit A.
“Taxes” shall mean any or all current or future taxes, fees, levies, charges, assessments and/or other impositions levied,
charged, imposed, assessed or collected by any Governmental Authority having jurisdiction.
“Term” shall have the meaning given to such term in Article II of this Agreement.
“Third Party Shipper” shall mean any customer on the Pipeline System other than Shipper.
“Transferee Agreement” shall mean an agreement in the form as attached hereto as Exhibit F, which is to be signed by
Carrier and a third party to which Shipper assigns its Interests in the Dedicated Area.
“Year” shall mean a period of three hundred sixty-five (365) consecutive Days, except for any Year that involves a leap year,
which will consist of three hundred sixty-six (366) consecutive Days.
ARTICLE II
TERM
2.1. Term. This Agreement is effective as of the Effective Date and shall continue through March 31, 2032 (the “Term”).
The Term shall automatically extend by five (5) Years (the “First Extension”) on March 31, 2032, unless Shipper, by the delivery
of written notice to Carrier no later than March 31, 2031, makes an irrevocable election not to extend the Term by five (5) Years.
The Term shall automatically extend by an additional five (5) Years (the “Second Extension”) from March 31, 2037, unless
Shipper, by the delivery of written notice to Carrier no later than March 31, 2036, makes an irrevocable election not to extend the
Term by an additional five (5) Years. Following the end of the Second Extension or the end of any subsequent Evergreen Extension
(as defined below), the Agreement shall continue in effect for successive extension one (1) Year terms commencing on March 31st
of every Year (each such extension, an “Evergreen Extension”), unless Shipper provides written notice of termination to Carrier no
later than July 31, 2041 in the case of the Second Extension, and July 31st of any subsequent Year subject to an Evergreen
Extension, as applicable, in which case this Agreement shall terminate at the end of the Second Extension or the relevant Evergreen
Extension, as applicable.
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CONFIDENTIAL TREATMENT REQUESTED
ARTICLE III
CARRIER OBLIGATIONS
3.1 Provision of Services. Subject to the terms and conditions of this Agreement, Carrier shall, commencing on the
Effective Date and continuing through the remainder of the Term of this Agreement, provide Services for Shipper Raw Make in
accordance with this Agreement, including the Tariff, which are incorporated herein by reference and constitutes part of this
Agreement, expressly including provisions in the Tariff relating to the charges and rules and regulations applicable to Shipper as a
party to this Agreement, provided that in the event of a conflict between the terms of this Agreement and the Tariff, the terms of this
Agreement shall prevail.
3.2 Priority Service. Shipper qualifies as a Priority Shipper and as such, Carrier agrees to have available Pipeline Capacity
to receive and transport one hundred percent (100%) of Shipper’s Deemed Volume Commitment. Carrier shall enter into no other
transportation arrangements with Third Party Shippers that would prevent Carrier from transporting Shipper’s Deemed Volume
Commitment. Without the consent of Shipper, Carrier agrees that it shall not enter into transportation service agreements such that
the total of Deemed Volume Commitments from Priority Shippers exceeds ninety percent (90%) of the Pipeline Capacity; provided,
however, that such consent shall not be unreasonably withheld if the Third Party agreement shall not be reasonably expected to
impact Carrier’s ability to perform its obligations to Shipper under this Agreement. In the event that Carrier provides transportation
services to any Third Party Shipper and Carrier receives more Nominations in a Month for transportation of Raw Make on Carrier’s
Pipeline System than Carrier is able to transport, then consistent with the Tariff, Carrier shall allocate to Shipper the lesser of
Shipper’s Nomination for the Proration Month or its Deemed Volume Commitment.
3.3 Maintenance of Pipeline Capacity. Other than during periods of emergency and/or required maintenance, Carrier shall
not take, without Shipper’s prior written consent, any action to reduce the Pipeline Design Capacity, reduce the Pipeline Capacity
below the Pipeline Design Capacity, or reduce Shipper’s ability to deliver Raw Make to any Origin Point.
3.4 Most Favored Nations. If, any time during the Term of this Agreement, Carrier agrees to provide any Third Party
Shipper rates on the Pipeline System or any expansion of the Pipeline System, and such rates are less than the Priority Rate, then
Carrier will (i) immediately notify Shipper in writing of such agreement and (ii) offer Shipper the same lower rates as of the date
that Carrier begins providing the lower rates to the Third Party Shipper. This most favored nations provision shall apply regardless
of: (i) whether the rates offered to the other Third Party Shipper are for intrastate or interstate service; (ii) the classification of the
Third Party Shipper offered the lower rates (e.g., Priority Shipper or otherwise); (iii) the duration of the term for the Third Party
Shipper; or (iv) the maximum delivery quantity to which the Third Party Shipper has agreed or the acreage that the Third Party
Shipper has dedicated. The rates hereunder shall automatically be revised to match the lower rates offered to the Third Party
Shipper (without regard to, and without altering, Carrier’s obligation to receive and transport one hundred percent (100%) of
Shipper’s Deemed Volume Commitment), and the Parties will enter into an amendment to this Agreement at the lower rates unless
Shipper notifies Carrier within ten (10) Business Days of Shipper’s receipt of such offer that Shipper does not wish to amend its
rates.
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CONFIDENTIAL TREATMENT REQUESTED
3.5 Pressure Commitments. Carrier shall operate the Pipeline System at an operating pressure sufficient to deliver to the
Destination Points at the prevailing pressure, up to 1,350 psig.
3.6 Measurement. Carrier, at its sole cost and expense, will measure or cause to be measured the Raw Make tendered at
each Origin Point and Destination Point, in each case as provided pursuant to measurement procedures set forth in Exhibit E
(attached hereto).
3.7 Standard of Performance. All Services and other obligations of Carrier under this Agreement will be performed in a
manner consistent with the Carrier Standard of Performance.
3.8 Additional Destination Points.
(a) Carrier shall install additional Destination Point(s) requested by the Shipper pursuant to the terms of this
Section 3.8. Shipper shall have the continuing right, at its option and its sole cost, to designate additional Destination Point(s) at any
time after the Effective Date (each, an “Additional Destination Point”).
(b) Shipper shall be allowed, in its sole discretion, to designate the location for the Additional Destination Point as
long as the facility at such Destination Point services the Subject Gas from the Dedicated Area.
(c) When Shipper desires to install an Additional Destination Point, Shipper shall provide written notice to Carrier,
including a plat of the location of the Additional Destination Point. Subject to Section 3.8(b) above, within [***] ([***]) Days of
Carrier’s receipt of Shipper’s notice, Carrier shall have installed the facilities as required under Section 3.8. Thereafter, Carrier may
deliver Raw Make to such Additional Destination Point, and Shipper shall have Raw Make received for its account from such point.
ARTICLE IV
DEDICATION AND SHIPPER’S DELIVERY OBLIGATIONS
4.1. Dedication. Subject to other terms and conditions of this Agreement, during the Term (including any Extension),
Shipper hereby dedicates to Carrier (and to the performance of this Agreement) and agrees to deliver, or cause to be delivered, to
Carrier, at the Origin Point all (i) Raw Make recovered or extracted from all Gas produced from, or otherwise attributable to, all
Subject Interests, other than Raw Make and/or Gas that is subject to a Prior Dedication as set forth in Section 4.2 below, and (ii)
with respect to wells now or hereafter located within the Dedicated Area for which Shipper and/or any of its Affiliates is the
operator, Raw Make recovered or extracted from Gas produced from such wells which is attributable to the Interests owned by
working interest, royalty and/or overriding royalty owners (other than Shipper and Affiliates of Shipper) that is not taken “in-kind”
by such owners and for which Shipper or its Affiliates has the right and/or obligation to market such Raw Make, but for only so
long as such Gas and/or Raw Make is not taken “in-kind”, in the case of (i) and (ii), up to Shipper’s Deemed Volume Commitment
(collectively, the “Dedication”, with the Raw Make that is the subject of the Dedication being herein referred to as the “Dedicated
Raw Make”). Additionally, Shipper shall have the right, but not the obligation, to tender at the Origin Points all Raw Make owned
and/or controlled, from time to time, by Shipper or its Affiliates or their
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CONFIDENTIAL TREATMENT REQUESTED
respective successors and assigns that is not recovered or extracted from Gas produced from, or otherwise attributable to, the
Subject Interests, up to Shipper’s Deemed Volume Commitment.
4.2. Prior Dedications. Except as set forth on Exhibit D, Shipper represents and warrants to Carrier that, as of the Effective
Date, none of the Dedicated Area owned by Shipper or its Affiliates as of the Effective Date, and no portion of the Dedicated Raw
Make attributable to such Dedicated Area, is subject to a Prior Dedication that conflicts with or infringes upon the Dedication under
this Agreement. With respect to any Dedicated Raw Make that is subject to a Prior Dedication (including Raw Make attributable to
Subsequently Acquired Subject Interests), Shipper shall have the right, subject to the additional terms and conditions of this Section
4.2 and Section 4.4, to comply with such Prior Dedication. Except as otherwise provided in this Section 4.2 or Section 4.4, unless
the Term is expiring in less than eight (8) Months, Shipper shall not (and shall cause any applicable Affiliates not to), with respect
to any Dedicated Raw Make that is the subject of a Prior Dedication (including Raw Make from Subsequently Acquired Subject
Interests), (i) affirmatively extend or increase any such Prior Dedication by its active election, beyond the term of such Prior
Dedication or (ii) allow any such Prior Dedication to extend beyond its primary or initial term pursuant to the operation of an
“evergreen” or other similar provision. With respect to any Dedicated Raw Make that is the subject of a Prior Dedication, unless the
Term is expiring within eight (8) Months of the last date of such Prior Dedication, in the event that at any time in the future Shipper
or any of its Affiliates determine that it can terminate any such Prior Dedication, then Shipper shall promptly terminate, or cause its
Affiliate to terminate, such Prior Dedication, and upon such termination, the Raw Make subject to such Prior Dedication shall, to
the extent not already subject to the Dedication and within the Dedicated Area, automatically be subject to the Dedication for all
purposes under this Agreement without any further actions by the Parties. Nothing herein shall obligate Shipper to terminate any
Prior Dedication to the extent that such termination would require Shipper to file suit, bring any arbitral or mediation proceeding, or
pay any termination fee or penalty; provided, however, that Shipper shall provide Carrier with reasonable notice of any option to
terminate a Prior Dedication upon payment of a termination fee or penalty and Carrier may, at its sole option, require Shipper to
terminate such Prior Dedication, provided that, Carrier shall reimburse Shipper for any fee or penalty (consistent with Shipper’s
prior notice to Carrier regarding the amount of such fee or penalty) actually incurred by Shipper in connection with such
termination, as evidenced by reasonable supporting documentation.
4.3. Contemporaneous Dedications. The Dedicated Raw Make and Dedicated Area may be subject to contemporaneous
dedications by Shipper or its Affiliates to downstream and/or upstream service providers, which contemporaneous dedications do
not conflict with or infringe upon the Dedications hereunder.
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CONFIDENTIAL TREATMENT REQUESTED
4.4. Subsequently Acquired Subject Interests. In the event that after the Effective Date, Shipper and/or any of its Affiliates
acquire, directly or indirectly (including through the acquisition of control of another Person), additional Interests in the Dedicated
Area (“Subsequently Acquired Subject Interests”), then the Raw Make recovered or extracted from all Gas produced from, or
otherwise attributable to, such Subject Interests shall automatically be included within the Dedication, and Shipper shall notify
Carrier of such Subsequently Acquired Subject Interest; provided, however, if any of such Raw Make is subject to a Prior
Dedication that conflicts with or infringes upon the Dedication under this Agreement, then such Raw Make shall be excluded from
the Dedication, to the extent and only to the extent of such Prior Dedication, until such Prior Dedication expires or terminates. In
the event that any such Prior Dedication expires or terminates, then the Raw Make subject to such Prior Dedication shall, to the
extent not already subject to the Dedication and within the Dedicated Area, automatically be included within the Dedication and be
subject to this Agreement without any further actions by the Parties. In the event that at any time in the future Shipper or any of its
Affiliates determines that it can terminate any such Prior Dedication, then, unless the Term is expiring in less than eight (8) Months,
Shipper shall promptly terminate, or cause its Affiliate to terminate, such Prior Dedication, and upon such termination, the Raw
Make subject to such Prior Dedication shall, to the extent not already subject to the Dedication, automatically be subject to the
Dedication for all purposes under this Agreement without any further actions by the Parties. Nothing herein shall obligate Shipper
to terminate any Prior Dedication to the extent that such termination would require Shipper to file suit, bring any arbitral or
mediation proceeding, or pay any termination fee or penalty; provided, however, that Shipper shall provide Carrier with reasonable
notice of any option to terminate a Prior Dedication upon payment of a termination fee or penalty and Carrier may, at its sole
option, require Shipper to terminate such Prior Dedication, provided that, Carrier shall reimburse Shipper for any fee or penalty
(consistent with Shipper’s prior notice to Carrier regarding the amount of such fee or penalty) actually incurred by Shipper in
connection with such termination, as evidenced by reasonable supporting documentation.
4.5. Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the Dedication is in effect,
this Agreement and the Dedication shall (i) be a covenant running with the Dedicated Area now owned by Shipper, its Affiliates
and their respective successors and assigns and (ii) be binding on and enforceable by Carrier and its successors and assigns against
Shippers, its Affiliates and their respective successors and assigns of Shipper’s Interests in the Dedicated Area. Each Party agrees to
execute, acknowledge and deliver to the other Party from time to time such additional agreements and instruments as may be
reasonably requested by such other Party to more fully effectuate the intention of the Parties set forth in the immediately preceding
sentence. Shipper shall cause any conveyance by it of all or any of Shipper’s Interests in the Dedicated Area to be made expressly
subject to the terms of this Agreement, but any such conveyance by Shipper of all or any of its Interests in the Dedicated Area shall
not relieve Shipper of any of its liabilities, obligations or duties hereunder, including, for the avoidance of doubt, the obligation to
cause Dedicated Raw Make attributable to such conveyed Interests in the Dedicated Area to be delivered to Carrier in accordance
with the terms and conditions of this Agreement. Shipper shall cause any successor or assign of such Interests in the Dedicated Area
to agree that it takes such Interests in the Dedicated Area subject to the terms and conditions of this Agreement, and that it will
cause any subsequent purchasers or assignees to do the same.
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CONFIDENTIAL TREATMENT REQUESTED
4.6. Releases from Dedication.
(a) If for any reason Carrier cannot receive at the Origin Point the entire volume of Dedicated Raw Make that
Shipper is ready, willing and able to deliver hereunder, including without limitation as a result of prorationing or scheduled
maintenance on the Pipeline System or any relevant upstream or downstream facilities, Force Majeure, operating pressure at the
Destination Point exceeding 1,350 psig, or if such Raw Make fails to meet the applicable Raw Make Quality Specifications, then
that portion of such Dedicated Raw Make that Carrier cannot so receive shall be temporarily released from the Dedication during
the period of time, and only to the extent, that Carrier cannot for any reason receive such Dedicated Raw Make, and Shipper shall
be free to sell such temporarily released Raw Make to third parties or to transport such temporarily released Raw Make via modes
of transportation other than Carrier. Notwithstanding the foregoing sentence, there shall be no such temporary release if Carrier fails
or is unable to receive the entire volume of Dedicated Raw Make as a result of a breach by Shipper or failure by Shipper or
Shipper’s Affiliate to use good faith efforts to cause Raw Make processed at a processing plant operated by Shipper or Shipper’s
Affiliate to meet the applicable Raw Make Quality Specifications. Carrier shall promptly provide written notice of any event that
could reasonably be expected to materially affect the Services under this Agreement, including without limitation any notices
regarding scheduled maintenance, matters that affect available capacity and Carrier’s ability to take the Dedicated Raw Make, and
with respect to construction or development work on such facilities as the necessity for making repairs, alterations, enlargements or
connections to, or performing maintenance on, machinery or facilities of production, manufacture, transportation, distribution,
processing or consumption. With respect to any notices received by Carrier regarding the anticipated unavailability of capacity,
facilities or Services upstream or downstream of the Pipeline System, the Parties shall coordinate in good faith in an effort to
mitigate any disruptions, delays or other effects of such facility actions or events on the Services contemplated by this Agreement.
(b) If a Force Majeure event renders Carrier unable to receive Dedicated Raw Make at the Origin Point for three (3)
consecutive Days or longer (an “Extended Carrier Force Majeure”), then (A) upon Carrier’s receipt of written notice from
Shipper, that portion of such Dedicated Raw Make that Carrier cannot either receive at the Origin Point because of such Extended
Carrier Force Majeure shall be temporarily released from the Dedication only to the extent that Carrier is unable to so receive such
Dedicated Raw Make because of such Extended Carrier Force Majeure, and (B) Shipper shall resume deliveries of Dedicated Raw
Make temporarily released pursuant to the immediately preceding clause (A) no later than the first Day of the Month following
thirty (30) Days after Carrier provides Shipper written notice it is capable of receiving such Dedicated Raw Make.
(c) Notwithstanding Section 4.6(a) and Section 4.6(b) above, other than in instances in which Shipper is in breach
or Raw Make fails to meet the applicable Raw Make Quality Specifications, if, for any one hundred eighty (180) consecutive Days
or for any cumulative one hundred eighty (180) Days in any three hundred sixty-five (365) Day period, Carrier does not receive or
ceases receiving any volume of Dedicated Raw Make delivered or otherwise made available for delivery to the Origin Point by
Shipper (or that would be made available at the Origin Point, but was not because of Carrier’s continuing failure to receive
Shipper’s Dedicated Raw Make for any reason), then upon Shipper’s written notice to Carrier (“Release Notice”, and the date of
delivery to Carrier, “Release Notice Date”), which shall be given within ninety (90) Days after the applicable one hundred
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CONFIDENTIAL TREATMENT REQUESTED
eighty (180) consecutive Days or one hundred eightieth (180th) cumulative Day, Shipper shall be entitled to a permanent release
from the Dedication for the average volume of Dedicated Raw Make that Carrier was not able to take at the Origin Point during the
subject period, and for a percentage of the Dedicated Area proportionate to the average volume of Dedicated Raw Make that Carrier
was not able to take compared to Shipper’s Deemed Volume Commitment, with such permanent release to be effective on the
thirtieth (30th) Day following the Release Notice Date; provided, however, if during the thirty (30) Day period following the
Release Notice Date, Carrier delivers to Shipper a written plan, to be implemented at Carrier’s sole cost and expense, that Carrier
reasonably and in good faith believes will enable it to receive all Dedicated Raw Make available for delivery at the Origin Point on
or before the ninetieth (90th) Day following the Release Notice Date, then Shipper’s right to the release shall be suspended during
such ninety (90) Day period, or, if Carrier’s failure to receive Dedicated Raw Make is a result of Force Majeure, Carrier shall have
one hundred eighty (180) Days to complete such plan and Shipper’s release right shall be suspended during such one hundred
eighty (180) Day period; provided, further, that if, by the ninety-first (91st) Day or one hundred eighty-first (181st) Day (as
applicable) following the Release Notice Date, Carrier for any reason does not receive all Dedicated Raw Make available for
delivery at the Origin Point, then Shipper’s permanent release shall be effective on such ninety-first (91st) Day or one hundred
eighty-first (181st) Day (as applicable).
4.7. Processing Obligations and Reservations from Dedication. Shipper shall cause all Subject Gas to be Processed for the
recovery of Raw Make subject to the Dedication so that the Raw Make recovered from such processing meets the applicable Raw
Make Quality Specifications, subject, however, to the following reservations from the Dedication:
(a)Subject Gas and Raw Make may be used for the operation of Shipper’s production facilities or as required to deliver Raw
Make to Carrier.
(b)Subject Gas and Raw Make may be used, above ground or below, for any purpose in connection with the development
and/or operation of Shipper’s leases and wells.
(c)Subject Gas and Raw Make may be delivered as may be required to lessors or royalty owners under the terms of leases or
other agreements or as required for Shipper’s operations within the Dedicated Area or lands pooled or
unitized therewith, as determined by Shipper in its sole discretion.
(d)Notwithstanding anything else in this Agreement that may be construed to the contrary, Shipper shall have no obligation
to Carrier under this Agreement to develop or otherwise produce Subject Gas or other hydrocarbons from
any properties owned by it or any of its Affiliates, including any properties now or hereafter located within
the Dedicated Area or the lands pooled or unitized therewith. Shipper reserves the right to develop and
operate its leases and wells in any manner that it desires, as determined by Shipper as it sees fit, in its sole
discretion and free of any control by Carrier, including, without limitation, (i) shutting-in, cleaning out,
reworking, modifying, deepening, or abandoning any such wells, (ii) using any efficient, modern, or
improved method for the production of its wells, (iii) surrendering, releasing, or terminating its leases or
Interests at any time, (iv) forming, dissolving, and/or participating in pooling
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CONFIDENTIAL TREATMENT REQUESTED
agreements or units; or (v) using any hydrocarbons other than Raw Make or Subject Gas, including for the avoidance
of doubt any condensate or liquids associated with Subject Gas, for any purpose or transporting and marketing the
same.
(e)Nothing herein shall require Shipper to Process Gas from central tank batteries measuring less than 1100 Btu/cf, and no
such Gas shall be deemed Subject Gas for any purposes hereunder.
Notwithstanding Shipper’s obligation set forth in the first sentence of this Section 4.7, Carrier shall use commercially
reasonable efforts to accept Dedicated Raw Make delivered hereunder that fails to meet the applicable Raw Make Quality
Specifications and either blend and/or treat and commingle such non-conforming Raw Make such that the commingled stream of
Raw Make in the Pipeline System meets the applicable Raw Make Quality Specifications, so long as such blending and/or treating
can be done in an operationally safe manner without harm to any persons, facilities, other shippers, or their Raw Make. If there are
costs associated with doing the foregoing, Carrier shall notify Shipper, and if Shipper agrees, Carrier shall perform such blending
and/or treating and commingling contemplated by the foregoing sentence, and Shipper shall reimburse Carrier for its proportionate
share (relative to other shippers, if applicable) of its reasonably incurred costs. If Shipper does not agree to bear such costs
described in the preceding sentence, Carrier shall have no obligation with respect to such blending, treating and commingling, and
such Shipper’s non-conforming Raw Make may be entitled to be temporarily released pursuant to the terms of Section 4.6.
4.8. Delivery Commitment. Commencing on the Effective Date and continuing thereafter during the Term, Shipper agrees
to tender (or cause to be tendered) at the Origin Points for Shipper set forth on Schedule A, Dedicated Raw Make to Carrier for
transportation on the Pipeline System, in accordance with the nomination and tender procedures set forth in the Tariff.
4.9. Unused Capacity. Shipper agrees, to the extent Shipper does not Nominate or tender up to Shipper’s Deemed Volume
Commitment on a Pipeline Segment in any Month, Carrier shall be free to utilize such unused capacity on such Pipeline Segment
for the provision of transportation services to other shippers in such Month, without impacting the payment obligations of Shipper,
including Shipper’s obligations pursuant to this Article IV or otherwise crediting or paying Shipper in any manner, provided that
other shippers using such capacity shall not build history or otherwise acquire or accrue entitlements for future use of such capacity
and any such use by Carrier or other shippers of unused capacity shall in no way limit or degrade Shipper’s rights to capacity under
this Agreement.
4.10. Linefill. Shipper shall provide 25,459 Barrels of Raw Make as its share of linefill. Carrier shall not be required to
provide the Services hereunder until Shipper provides its portion of linefill. Raw Make provided by Shipper for linefill may be
withdrawn thirty (30) Days after (i) this Agreement terminates or expires; (ii) shipments have ceased, and the Shipper has notified
Carrier in writing to discontinue shipments on the Pipeline System; and (iii) Shipper’s balances have been reconciled between any
other shippers and Carrier. Notwithstanding the foregoing, to the extent Shipper’s Deemed Volume Commitment is reduced
pursuant to this Agreement, Shipper may withdraw a percentage of the Raw Make it has tendered as linefill equal to the percentage
that Shipper’s
13
Deemed Volume Commitment has been reduced. Carrier reserves the right to charge a transport fee for Shipper’s linefill upon
withdrawal, which shall not exceed Shipper’s Priority Rate.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE V
FEES
5.1. Shipper’s Priority Rate. For Actual Shipments on the Pipeline Segment selected on Schedule A each Day during a
Month, Shipper shall pay to Carrier a per Barrel rate (“Shipper’s Priority Rate”) equal to the applicable base Priority Rate for such
Pipeline Segment corresponding to Shipper’s average Daily Actual Shipments during such Month on such Pipeline Segment, which
shall be, as of the Effective Date, the applicable base Priority Rate for such Pipeline Segment set forth in Schedule A (attached
hereto), and which may be increased by Carrier per Section 6.2.
5.2. Index Adjustment. On each anniversary of the Effective Date, Carrier shall adjust the Priority Rate by the Fee
Adjustment Multiplier in effect as of such date.
5.3. Pipeline Loss Allowance. Quantities of Raw Make tendered by Carrier to Shipper at the Destinations Points shall not
be adjusted to account for shrinkage, evaporation, measurement, interface losses and other physical losses, and Shipper shall not
otherwise be responsible for any such losses.
5.4. Third Party Rates. Without the prior written consent of Shipper, Carrier shall not provide interstate or intrastate
transportation service to any shipper on any Pipeline Segment or on the Pipeline System at rates less than the Shipper’s Priority
Rate for any level of service on the same Pipeline Segment or on the Pipeline System as provided to Shipper hereunder.
ARTICLE VI
DEFAULTS AND REMEDIES
6.1. Shipper Default. Subject to Section 9.1, the following events shall be a “Shipper Default”: the occurrence and
continuation of (i) a breach or default by Shipper of any of its payment obligations under this Agreement or the Tariff, or (ii) a
material breach or default by Shipper of any of its obligations under this Agreement or the Tariff, unless such breach or default, or
material breach or default, as applicable, occurs as a result of a breach or default by Carrier of its obligations under this Agreement
or the Tariff. For the avoidance of doubt, Shipper’s delivery of Raw Make that complies with the Raw Make Quality Specifications
shall not constitute a Shipper Default notwithstanding any claim by Third Party Shippers or downstream recipients of Raw Make
that the Raw Make stream tendered by Carrier fails to meet the quality specifications of the downstream recipient of Raw Make due
to an ethane composition lower than the minimum ethane percentage required by such downstream recipient of Raw Make and
Shipper shall bear no liability to Carrier or any third party for any Claims or Losses due to the Raw Make stream tendered by
Carrier to any downstream recipient having an ethane composition percentage lower than the minimum ethane composition
percentage in such downstream recipients’ quality specifications.
6.2. Remedies on Shipper Default. Upon the occurrence of a Shipper Default, Carrier may provide written notice to
Shipper, describing the Shipper Default in reasonable detail and requiring Shipper to cure the Shipper Default (the “Shipper
Default Notice”). If (a) a Shipper Default
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CONFIDENTIAL TREATMENT REQUESTED
comprising Shipper’s failure to make any payment due hereunder has not been cured within ten (10) Business Days following
receipt by Shipper of a Shipper Default Notice or (b) a Shipper Default comprising Shipper’s failure to comply with any obligation
under this Agreement or the Tariff, other than a payment obligation, has not been cured within thirty (30) Days after receipt by
Shipper of a Shipper Default Notice, or, if such failure is not reasonably capable of being cured within a thirty (30) Day period, but
Shipper expeditiously commences to cure the same following its receipt of a Shipper Default Notice and diligently proceeds with
such cure, within such longer period of time as shall be reasonably necessary to cure such failure, then in any such case, Carrier
may not terminate this Agreement on account of such Shipper Default, but Carrier may, by written notice to Shipper, inform
Shipper of its intention to suspend Services hereunder if such Shipper Default is not cured within a further thirty (30) Day period,
and if any such Shipper Default has not been cured within such further period of thirty (30) Days, Carrier may, by written notice to
Shipper, suspend Services hereunder, any such suspension to be effective upon receipt of such notice by Shipper, effective until the
applicable Shipper Default is cured.
The rights and remedies under this Section 6.2 shall be in addition to all of Carrier’s other rights and remedies under this
Agreement or the Tariff or which Carrier may otherwise have at law, in equity or by statute or regulation, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise by Carrier of other rights or remedies,
provided that Carrier may not terminate this Agreement on account of a Shipper Default.
6.3. Carrier Default. Subject to Section 9.1 hereof, the following events shall be a “Carrier Default”: the occurrence and
continuation of (i) a breach or default by Carrier of any of its payment obligations under this Agreement or the Tariff, (ii) a material
breach or default by Carrier of any of its obligations under this Agreement or the Tariff, unless such breach or default, or material
breach or default, as applicable, occurs as a result of a breach or default by Shipper of its obligations under this Agreement or the
Tariff, or (iii) a failure by Carrier to meet the Carrier Standard of Performance.
6.4. Remedies on Carrier Default. Upon the occurrence of a Carrier Default, Shipper may provide written notice to
Carrier, describing the Carrier Default in reasonable detail and requiring Carrier to cure the Carrier Default (the “Carrier Default
Notice”). If (a) a Carrier Default comprising Carrier’s failure to make any payment due hereunder has not been cured within ten
(10) Business Days following receipt by Carrier of a Carrier Default Notice, or (b) a Carrier Default comprising Carrier’s failure to
comply with any obligation under this Agreement or the Tariff, other than a payment obligation, has not been cured within thirty
(30) Days after receipt by Carrier of a Carrier Default Notice, or, if such failure is not reasonably capable of being cured within a
thirty (30) Day period, but Carrier expeditiously commences to cure the same following its receipt of a Carrier Default Notice and
diligently proceeds with such cure, within such longer period of time as shall be reasonably necessary to cure such failure, but such
longer period of time not to exceed sixty (60) Days, then in any such case, Shipper may not terminate this Agreement on account of
such Carrier Default, but Shipper may, by written notice to Carrier, inform Carrier of its intention to suspend this Agreement if such
Carrier Default is not cured within a further thirty (30) Day period, and if any such Carrier Default has not been cured within such
further period of thirty (30) Days, Shipper may, by written notice to Carrier, suspend this Agreement, any such suspension to be
effective upon receipt of such notice by Carrier, effective until the applicable Carrier Default is cured.
15
The rights and remedies under this Section 6.4 shall be in addition to all of Shipper’s other rights and remedies under this
Agreement (including, but not limited to, the rights and remedies described in Section 4.6) or the Tariff or which Shipper may
otherwise have at law, in equity or by statute or regulation, and the exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise by Shipper of other rights or remedies, provided that Shipper may not terminate this
Agreement on account of a Carrier Default.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE VII
WARRANTY OF TITLE; ROYALTIES
7.1. Shipper’s Warranty. Shipper represents and warrants to Carrier that Shipper has title to and/or the right to transport all
Raw Make delivered hereunder, and that except for Prior Dedications, said Raw Make is free from all liens, Claims and
encumbrances, including liens to secure payment of production taxes, severance taxes, and other taxes. Shipper agrees to indemnify
and hold Carrier harmless from any and all Claims and Losses incurred in connection with, or in any manner whatsoever relating to
any breach of the representations and warranties made by Shipper pursuant to this Section 7.1.
7.2. Carrier’s Warranty. Carrier represents and warrants to Shipper that Carrier has the right to receive all Raw Make
delivered hereunder and to deliver Shipper’s Raw Make to the Destination Points, free from all liens, Claims and encumbrances,
including liens to secure payment of production taxes, severance taxes, and other taxes. Carrier agrees to indemnify and hold
Shipper harmless from any and all Claims and Losses incurred in connection with, or in any manner whatsoever relating to any
breach of the representations and warranties made by Carrier pursuant to this Section 7.2.
7.3. Proceeds of Production. Shipper agrees to make payment of all royalties, overriding royalties, production payments,
and all other payments for interest attributable to Raw Make delivered hereunder due to any Person under any leases or other
documents in accordance with the terms thereof.
7.4. Title. Title to Shipper’s Raw Make delivered to the Pipeline System, including all constituents thereof, shall remain
with and in Shipper or its designee at all times.
ARTICLE VIII
WAIVER OF CERTAIN DAMAGES
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES, ANY SUCCESSORS IN INTEREST OR
ANY BENEFICIARY OR ASSIGNEE OF THIS AGREEMENT FOR ANY CONSEQUENTIAL, MULTIPLE,
INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR LOSS OF PROFITS OR
REVENUES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY BREACH HEREOF; PROVIDED,
HOWEVER, THE FOREGOING SHALL NOT BE CONSTRUED AS LIMITING (I) AN OBLIGATION OF A PARTY
HEREUNDER TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE OTHER PARTY AGAINST CLAIMS
ASSERTED BY UNAFFILIATED THIRD PARTIES, INCLUDING, BUT NOT LIMITED TO, THIRD PARTY CLAIMS
FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR
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CONFIDENTIAL TREATMENT REQUESTED
EXEMPLARY DAMAGES, OR (II) DAMAGES TO CARRIER’S PIPELINE SYSTEM OR OTHER FACILITIES
CAUSED BY SHIPPER’S DELIVERY OF RAW MAKE THAT FAILS TO SATISFY THE QUALITY SPECIFICATIONS
SET FORTH IN THE TARIFF; PROVIDED FURTHER, HOWEVER, THAT SHIPPER SHALL HAVE NO LIABILITY
TO ANY THIRD PARTY NOR SHALL SHIPPER HAVE ANY DUTY TO INDEMNIFY CARRIER FOR CLAIMS OR
LOSSES, INCLUDING PENALTIES OR OTHER CHARGES IMPOSED BY DOWNSTREAM RECIPIENTS OF RAW
MAKE, BY ANY THIRD PARTY, INCLUDING OTHER SHIPPERS OR DOWNSTREAM RECIPIENTS OF RAW
MAKE TENDERED BY CARRIER, WITH RESPECT TO RAW MAKE THAT SATISFIES THE RAW MAKE QUALITY
SPECIFICATIONS HEREUNDER NOTWITHSTANDING A FAILURE OF THE RAW MAKE TENDERED BY
CARRIER TO SATISFY THE RAW MAKE QUALITY SPECIFICATIONS OF A DOWNSTREAM RECIPIENT OF
RAW MAKE FROM CARRIER, INCLUDING WITH RESPECT TO THE MINIMUM ETHANE PERCENTAGE IN THE
RAW MAKE AND CARRIER SHALL INDEMNIFY SHIPPER, AND ITS AFFILIATES, ANY SUCCESSORS IN
INTEREST OR ANY BENEFICIARY OR ASSIGNEE OF THIS AGREEMENT FROM ANY SUCH CLAIMS OR
LOSSES. THIS ARTICLE VIII SHALL APPLY NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT
NEGLIGENCE, FAULT OR RESPONSIBILITY OF THE PARTY WHOSE LIABILITY IS WAIVED BY THIS
PROVISION, OR ANY OTHER EVENT OR CONDITION, WHETHER ANTICIPATED OR UNANTICIPATED, AND
REGARDLESS OF WHETHER EXISTING PRIOR TO THE DATE OF THIS AGREEMENT.
ARTICLE IX
FORCE MAJEURE
9.1. Suspension of Obligations. Subject to the limitations set forth in Section 9.4, if either Carrier or Shipper is unable to
perform any obligations, due to an event of Force Majeure, as defined in Section 9.2, such failure shall not be a Carrier Default or a
Shipper Default under this Agreement, insofar as such obligations are affected by such event of Force Majeure, for the duration of
such event of Force Majeure, and any additional period when Carrier or Shipper remains unable to perform such obligations as a
result of such event of Force Majeure.
9.2. Definition of Force Majeure. The term “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation by enumeration, acts of God, acts of Governmental Authorities, compliance with rules,
regulations or orders of any Governmental Authority, strikes, lockouts or other industrial disturbances, acts of the public enemy,
acts of terrorism, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, extreme cold, storms,
hurricanes, floods, or other adverse weather conditions, washouts, arrests and restraint of rulers and people, civil disturbances,
explosions, breakage or accident to machinery, equipment or pipelines, freezing of wells, pipelines or equipment, requisitions,
directives, diversions, embargoes, priorities or expropriations of government or Governmental Authorities, legal or de facto,
whether purporting to act under some constitution, decree, law or otherwise, failure of pipelines or other carriers to transport or
furnish facilities for transportation, failures, disruptions, or breakdowns of machinery or of facilities for production, manufacture,
transportation, distribution, processing or consumption (including, but not by way of limitation, the
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CONFIDENTIAL TREATMENT REQUESTED
Pipeline System), failure of gathering or processing facilities, machinery or equipment, allocation or curtailment by third parties of
upstream or downstream capacity, the necessity for making repairs, alterations, enlargements or connections to, or performing
maintenance on, machinery or facilities of production, manufacture, transportation, distribution, processing or consumption
(including, but not by way of limitation, the Pipeline System), inability to secure or delays in securing rights‑of‑way and permits,
transportation embargoes or failures or delays in transportation or poor road conditions, partial or entire failure of Raw Make supply
and downstream pipeline market constraints.
9.3. Notification. When seeking to rely on the provisions of this Article IX, a Party failing to perform due to an event of
Force Majeure shall:
(a) upon obtaining knowledge of the actual occurrence, or the reasonably likely future occurrence, of the event of
Force Majeure giving rise to the right to rely on Section 9.1, promptly give written notice to the other Party of such event of Force
Majeure and of the obligations expected to be affected thereby;
(b) commence and diligently pursue the taking of commercially reasonable steps to cause the discontinuance of,
and to minimize the effect of, the event of Force Majeure; and
(c) upon the occurrence of any significant development in the process of attempting to discontinue and minimize
the effect of the event of Force Majeure, notify the other Party thereof and provide documentation of such developments.
9.4. Limitations. Notwithstanding anything contained in this Article IX, lack of finances shall not be considered an event
of Force Majeure. The provisions of this Article IX shall not apply so as to suspend the performance of any obligation to make
payment of any amount payable under or in respect of this Agreement and shall not give rise to any extension of the Term. The
suspension of any obligations shall be of no greater scope and of no longer duration than is reasonably required due to the Force
Majeure event, and the affected Party shall use commercially reasonable efforts to overcome or mitigate the effects of such Force
Majeure event.
ARTICLE X
ASSIGNMENT
10.1. Assignments Not Requiring Consent. Either Party may, without the consent of the other Party, assign this Agreement
in whole or in part to (i) any of its Affiliates, (ii) a non-Affiliate in which the assigning Party has a Significant Investment, or
(iii) with respect to Shipper, a purchaser of Shipper’s Interests in the Dedicated Area (subject to Section 10.3), but any such
assignment shall not relieve the assigning Party of any of its liabilities, obligations or duties hereunder, provided, however, in the
case of an assignment of any of Shipper’s rights and obligations, Shipper shall have no further responsibility for the obligations so
assigned (subject to Section 10.3), nor shall the assignee have any responsibility for the responsibilities of Shipper that were not so
assigned. Further, in the event of a partial assignment pursuant to this Section 10.1, Shipper may, in its sole discretion, decide that
portion of the Deemed Volume Commitment (and corresponding linefill obligation) to be assigned, provided that the assignee has
reasonable capability to tender the Deemed Volume Commitment assigned to it and this Agreement shall apply to Shipper and its
assignee(s) severally; provided that in the event of a partial assignment in connection with an assignment of Shipper’s Interests in
the
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CONFIDENTIAL TREATMENT REQUESTED
Dedicated Area to a non-Affiliate in which Shipper does not have a Significant Investment, Carrier and the assignee shall execute a
Transferee Agreement rather than partially assigning this Agreement..
10.2. Assignment Requiring Consent. Except as provided in Section 10.1, neither Party may assign this Agreement or a
Party’s respective rights and obligations in whole or part under this Agreement without the prior written consent of the other Party,
which consent shall not be unreasonably withheld, delayed or conditioned.
10.3. Conveyance of Interests. Shipper shall cause any conveyance by it of all or any of Shipper’s Interests in the
Dedicated Area to be made expressly subject to the terms of this Agreement or a Transferee Agreement, as applicable. Shipper shall
cause any successor or assign of such Interests in the Dedicated Area to agree that it takes such Interests in the Dedicated Area
subject to the terms and conditions of this Agreement, and that it will cause any subsequent purchasers or assignees to do the same.
10.4. Compliance. Any purported assignment of this Agreement that does not comply with the requirements of this Article
X shall be null and void.
10.5. Successors and Assigns. Subject to the preceding subsections of this Article X, this Agreement shall extend to and
inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.
ARTICLE XI
TAXES
Carrier shall not be responsible for, and Shipper hereby agrees to be responsible for, pay and indemnify, defend and hold
harmless Carrier for, any and all Taxes, if any, levied on (i) Shipper Raw Make tendered under this Agreement, including property
Taxes on such Raw Make in the Pipeline System, (ii) the transportation of Shipper Raw Make, or (iii) the provision of Services
hereunder; provided, however, that Shipper shall not be liable hereunder for (x) Taxes (including ad valorem taxes) assessed against
Carrier based on Carrier’s income, revenues, gross receipts, net worth or ownership of the Pipeline System, and (y) state franchise,
license and similar Taxes required for the maintenance of Carrier’s corporate existence. In the event Carrier is required to pay any
Tax described in the first sentence of this Article XI for Shipper, Shipper shall reimburse Carrier for the same upon receipt of
invoice and supporting documentation provided by Carrier. The payment, indemnity, defense and hold harmless obligations set
forth in this Article XI shall survive the termination of this Agreement.
ARTICLE XII
NOTICE AND STATEMENTS
12.1. Notice. Any notice, statement, payment, Claim or other communication required or permitted hereunder shall be in
writing and shall be sent by: (i) facsimile transmission; (ii) delivered by hand; (iii) sent by United States mail with all postage fully
prepaid; or (iv) by courier with charges paid in accordance with the customary arrangements established by such courier. All notices
and communications hereunder shall also be copied by email to the relevant Party at the address set forth below for such Party, in
each of the foregoing cases addressed to the Party at the following addresses:
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CONFIDENTIAL TREATMENT REQUESTED
Carrier
NOTICES AND CORRESPONDENCE:
Alpine High NGL Pipeline LP
Attn: Commercial Operations
17802 IH-10 West, Suite 300
San Antonio, Texas 78257
Electronic Mail: CommercialOperations@apachecorp.com
PAYMENT INSTRUCTIONS:
Alpine High NGL Pipeline LP
c/o [***]
Bank: [***]
Account Name: [***]
ABA: [***]
Account Number: [***]
Shipper
NOTICES AND CORRESPONDENCE:
Apache Corporation
Attn: Marketing Contract Administration
2000 Post Oak, Suite 100
Houston, Texas 77056-4400
Fax: 713-296-6473
Electronic Mail: contract.administration@apachecorp.com
Such notices, statements, payments, Claims or other communications shall be deemed received as follows: (i) if delivered
personally, upon delivery; (ii) if sent by United States mail, whether by express mail, registered mail, certified mail or regular mail,
the day receipt is refused or is confirmed orally or in writing by the receiving Party; (iii) if sent by a courier service, upon delivery;
or (iv) if sent by facsimile, upon completion of the transmission thereof, except that if such transmission is on any day other than a
Business Day, or on or after 4:00 p.m., Central Clock Time, such notice shall be deemed to be received on the next Business Day.
12.2. Change of Address. Notices of change of address of either of the Parties shall be given in writing to the other Party in
the manner aforesaid and shall be observed in the giving of all future notices, statements, payments, Claims or other
communications required or permitted to be given hereunder.
ARTICLE XIII
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CONFIDENTIAL TREATMENT REQUESTED
MISCELLANEOUS
13.1. Entire Agreement; Amendments. This Agreement and the Exhibits and Schedules hereto constitute the entire
agreement and understanding between the Parties with respect to the subject matter hereof and thereof, supersede all prior
agreements and understandings with respect thereto, and may be amended, restated or supplemented only by written agreement of
the Parties. Notwithstanding the foregoing, the Tariff are subject to amendment by Carrier from time to time subject to Applicable
Law and subject the terms and conditions of this Agreement, provided, however, that the Tariff shall not be amended to degrade or
adversely affect Shipper’s rights under this Agreement or the Tariff.
13.2. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Texas
without giving effect to the conflict of law rules thereof, PROVIDED, HOWEVER, THAT NO LAW, THEORY OR PUBLIC
POLICY SHALL BE GIVEN EFFECT WHICH WOULD UNDERMINE, DIMINISH OR REDUCE THE EFFECTIVENESS OF
EACH PARTY’S WAIVER OF CONSEQUENTIAL, MULTIPLE, INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR
PUNITIVE DAMAGES, OR LOSS OF PROFITS OR REVENUES, SET FORTH IN ARTICLE VIII, IT BEING THE EXPRESS
INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE GIVEN THE
FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING CONDITION OR THE NEGLIGENCE (WHETHER SOLE,
JOINT OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT LIABILITY, OR OTHER LEGAL
FAULT OF ANY PARTY HERETO, OR OTHERWISE.
13.3. Jurisdiction and Venue. The Parties hereby irrevocably consent to the exclusive jurisdiction of the state or federal
courts located in Harris County, Texas and irrevocably and unconditionally waive, to the fullest extent they may legally and
effectively do so, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby in any federal or state court located in Harris
County, Texas.
13.4. No Drafting Presumption. No presumption will operate in favor of or against any Party as a result of any
responsibility that any Party may have had for drafting this Agreement. Shipper and Carrier acknowledge and mutually agree that
this Agreement and all contents herein were jointly prepared by the Parties.
13.5. Waiver. No waiver of any term, provision or condition of this Agreement shall be effective unless in writing signed
by the Parties, and no such waiver shall be deemed to be or construed as a further or continuing waiver of any such term, provision
or condition or as a waiver of any other term, provision or condition of the Agreement, unless specifically so stated in such written
waiver.
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CONFIDENTIAL TREATMENT REQUESTED
13.6. No Third Party Beneficiaries. Except for Persons indemnified hereunder, and only to that extent, this Agreement is
not for the benefit of any third party and nothing herein, expressed or implied, confers any right or remedy upon any Person not a
party hereto.
13.7. No Partnership. It is not the intention of the Parties to create, nor is there created hereby, a partnership, trust, joint
venture or association. The status of each Party hereunder is solely that of an independent contractor.
13.8. Survival. Notwithstanding the termination of this Agreement for any reason, (a) Article V, VI, VII, VIII, XI, XII and
XIII shall survive the termination of this Agreement, and (b) each Party to this Agreement will be liable for all of its accrued
obligations hereunder up to and including the date on which the termination becomes effective.
13.9. Headings. The headings and captions in this Agreement have been inserted for convenience of reference only and
shall not define or limit any of the terms and provisions hereof.
13.10. Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(b) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding
syntactical variant expressions;
(c) the plural shall be deemed to include the singular and vice versa, as applicable;
(d) all references in this Agreement to an “Article,” “Section,” “subsection,” or “Exhibit” shall be to an Article,
Section, subsection, or Exhibit of this Agreement, unless the context requires otherwise;
(e) unless the context otherwise requires, the words “this Agreement,” “hereof,” “hereunder,” “herein,” “hereby,”
or words of similar import shall refer to this Agreement as a whole and not to a particular Article, Section, subsection, clause or
other subdivision hereof; and
(f) each Exhibit and Schedule to this Agreement is attached hereto and incorporated herein as a part of this
Agreement, but if there is any conflict or inconsistency between the main body of this Agreement and any Exhibit or Schedule, the
provisions of the main body of this Agreement shall prevail, including as to any conflicts with the Tariff such that as between the
main body of this Agreement and the Tariff, the provisions of the main body of this Agreement shall prevail.
13.11. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, (i) the validity,
legality and/or enforceability of the remaining provisions shall not, in any way, be affected or impaired thereby and (ii) in lieu of
such invalid, illegal or unenforceable provision, there shall be automatically added to this Agreement a provision as similar to such
invalid, illegal or unenforceable provision as may be possible and be legal, valid and enforceable.
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CONFIDENTIAL TREATMENT REQUESTED
13.12. Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be reasonably
required to effectuate the purposes of this Agreement.
13.13. No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee, rebate,
gift, or entertainment of significant cost or value in connection with this Agreement.
13.14. Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which shall be
considered an original, and all of which shall be considered one and the same instrument. Neither Party shall be bound until both
Parties have executed a counterpart. Facsimile or other electronic copies of signatures shall constitute original signatures for all
purposes of this Agreement and any enforcement hereof.
13.15. Confidentiality.
(a) Standard of Care. Each Party agrees that it shall maintain all terms and conditions of this Agreement in
confidence, and that it shall not cause or permit disclosure thereof without the express written consent of the other Party, which
consent shall not be reasonably withheld, delayed, or conditioned. In addition, Carrier agrees that information relating to Raw Make
delivered to Shipper at any Destination Point, or Additional Destination Point, including, without limitation, information relating to
volumes, pressures, composition, rates, and Shipper’s use of such Raw Make, shall be confidential, and Carrier agrees to not cause
or permit disclosure of such information without the express written consent of Shipper. The standard of care to be employed by
each Party with respect to the other Party’s confidential information shall be the standard of care employed by a reasonable person
in protecting confidential information.
(b) Permitted Disclosures. Notwithstanding Section 13.15(a) of this Agreement, disclosures of any terms and
provisions of this Agreement otherwise prohibited may be made by a Party (i) to the extent necessary for such Party to enforce its
rights hereunder against the other Party; (ii) to the extent to which a Party is required to disclose all or part of this Agreement by a
statute or by the order or rule of a court, agency, or other governmental body exercising jurisdiction over the subject matter hereof,
by order, by regulations, or by other compulsory process (including, but not limited to, deposition, subpoena, interrogatory, or
request for production of documents); (iii) to the extent required by the applicable regulations of a securities or commodities
exchange; (iv) to a third Person in connection with a proposed sale or other transfer of a Party’s interest in this Agreement or to a
potential investor, provided such third Person agrees in writing to be bound by confidentiality terms no less restrictive than those set
forth in this Section 13.15; (v) to its own directors, officers, employees, agents and representatives; (vi) to an Affiliate; (vii) to a co-
working interest owner or royalty owner of Shipper Raw Make delivered hereunder, provided such co-working interest owner or
royalty owner agrees in writing to be bound by the terms of this Section 13.15; (viii) to the extent any such terms or provisions
become public information through no fault of any Party; or (ix) to a bank or other financial institution, and their agents and
representatives, in connection with a Party arranging for funding.
(c) Notification. If a Party is or becomes aware of a fact, obligation, or circumstance that has resulted or may result
in a disclosure of any of the terms and conditions of this
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CONFIDENTIAL TREATMENT REQUESTED
Agreement authorized by Section 13.15(b)(ii) above, it shall so notify in writing the other Party promptly and shall provide
documentation or an explanation of such disclosure as soon as it is available.
(d) Party Responsibility. Each Party shall be deemed solely responsible and liable for the actions of its directors,
officers, employees, agents, representatives and Affiliates for maintaining the confidentiality commitments of this Section 13.15.
(e) Public Announcements. The Parties agree that prior to making any public announcement or statement with
respect to this Agreement or the transaction represented herein, the Party desiring to make such public announcement or statement
shall provide the other Party with a copy of the proposed announcement or statement prior to the intended release date of such
announcement. The other Party shall thereafter consult with the Party desiring to make the release, and the Parties shall exercise
their reasonable best efforts to (i) agree upon the text of a joint public announcement or statement to be made by both such Parties
or (ii) in the case of a statement to be made solely by one Party, obtain approval of the other Party to the text of a public
announcement or statement, which approval shall not be unreasonably withheld, delayed or conditioned. Nothing contained in this
Section 13.15 shall be construed to require any Party to obtain approval of any other Party to disclose information with respect to
this Agreement or the transaction represented herein to any Governmental Authority to the extent required by Applicable Law or
necessary to comply with disclosure requirements of the Securities and Exchange Commission, New York Stock Exchange, or any
other regulated stock exchange.
13.16. Compliance with Laws. Both Parties shall, in carrying out the terms and provisions of this Agreement, abide by all
present and future laws of any Governmental Authorities.
13.17. Arm’s Length Negotiations. Each of the Parties acknowledges and agrees that this Agreement is the result of good
faith, arm’s length negotiations which have resulted in an agreement that is fair and equitable to Carrier and Shipper.
13.18. Audit Rights. Each Party, on not less than thirty (30) Days’ prior written notice to the other Party, will have the right
at all reasonable times during the Term of this Agreement, and for twenty-four (24) Months thereafter, to audit the books and
records of the other Party, including the ability to make and retain copies of the same, to the extent reasonably necessary to verify
performance under the terms and conditions of this Agreement, including, without limitation, the accuracy of any statement,
allocation, measurement, computation, charge, or payment made under or pursuant to this Agreement, provided that the auditing
Party will protect the confidentiality of the books and records made available by the other Party. Additionally, each Party shall have
the right to perform site inspections and carry out field visits of the assets and related measurement equipment being audited, upon
request to and in compliance with the safety and other reasonable requirements of the Party whose assets and related measurement
equipment are being audited. Each Party’s right to audit pursuant to this Section 13.18 may not be exercised more than twice a Year.
The Parties shall agree in good faith on a mutually-acceptable time and location to commence any audit initiated hereunder, and
such audit shall be performed in reasonable accommodations at the relevant offices or other work locations of the Party to be
audited. To the extent that the Parties are unable to reach agreement as to an acceptable time and location to commence such audit,
the Parties shall meet at Shipper’s corporate
24
offices in Houston, Texas, during normal business hours, on the third Monday that follows the notice provided by the Party who
requested the audit. The Party subject to the audit shall respond to all exceptions and claims of discrepancies within one hundred
eighty (180) Days of receipt thereof. Notwithstanding anything to the contrary in this Agreement, the audit rights set forth herein
shall survive termination or expiration of this Agreement for a period of twenty-four (24) Months following termination or
expiration.
CONFIDENTIAL TREATMENT REQUESTED
[Signature page follows]
25
CONFIDENTIAL TREATMENT REQUESTED
IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
CARRIER:
ALPINE HIGH NGL PIPELINE LP
By: Alpine High Subsidiary GP LLC, its general partner
By: /s/ Brian W. Freed
Name: Brian W. Freed
Title: Senior Vice President
SHIPPER:
APACHE CORPORATION
By: /s/ Stephen J. Riney
Name: Stephen J. Riney
Title: Chief Financial Officer and Executive Vice President
Signature page to the Transportation Services Agreement
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TARIFF
(See Attached)
Exhibit A - 1
CONFIDENTIAL TREATMENT REQUESTED
The Dedicated Area is depicted in the map below within the red border.
EXHIBIT B
DEDICATED AREA
[***]
Exhibit B - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
RAW MAKE QUALITY SPECIFICATIONS
COMPONENT
TEST METHOD
SPECIFICATION
Total Methane (See note 5)
Methane % of Ethane (See note 5)
Aromatics
Olefins
Vapor Pressure at 100 deg. F
Copper Strip Corrosion
Volatile Sulfur
Carbon Dioxide
Hydrogen Sulfide
Carbonyl Sulfide
Distillation End Point
Saybolt Color Number
Water Content
Prod. Temp. (>65 mole% Ethane)
Prod. Temp. (<65 mole% Ethane)
Halides (including Fluorides)
Methanol (see note 6)
GPA 2186
GPA 2186
GPA 2186
GPA 2186
ASTM D2598
ASTM D1838
0.5 Liq. Vol.% max.
1.5 Liq. Vol.% max.
10.0 Liq. Vol.% max. (of C5+)
1.0 Liq. Vol.% max.(See note 1)
600 psig max.
No. 1 (See notes 2 & 3)
ASTM D2784 or ASTM D5623
150 ppm wt. max.
GPA 2186
0.35 Liq. Vol. % max. (of C2)
ASTM D2420 or ASTM D5623
Pass
ASTM D5623
15 ppm wt. max. (of C3)
ASTM D-86
375 deg. F. max. (See note 4)
ASTM D156 or ASTM D6045
+27 min. (See note 4)
VISUAL
Thermometer
Thermometer
ASTM D7359
ASTM D7423
No Free Water @ 34 deg.F
90 deg. F. max.
110 deg. F. max.
1 ppm wt. max.(in nC4)
200 ppm wt. max
ON TEST METHODS: Method numbers listed above, beginning with the letter “D”, are American Society for Testing and
Materials (ASTM), Standard Test Procedures. The most recent year’s revision for the procedures will be used.
CONTAMINANTS: The specification defines only the basic purity for this product. The product is to be free of any contamination
that might render the product unusable for its commonly used applications. Specific contaminants include (but are not limited to)
dirt, rust, scale, and all other types of solid contaminants, caustic, amines, chlorides, heavy metals, oxygenates, inerts and any
component added to the product to enhance the ability to meet the specifications.
1. Propylene limited to 5.0 Liq. Vol. % max. of contained Propane, Butylene limited to 0.35 Liq. Vol. % max. of contained
Butanes, and Butadiene limited to 0.01 Liq. Vol. % max. of contained Butanes.
Exhibit C - 1
CONFIDENTIAL TREATMENT REQUESTED
2. Caution – Use a corrosion cylinder rated at a minimum of 1500 psig.
3. The use of corrosion masking agents is strictly prohibited.
4. Distillation and Color to be run on that portion of the mixture having a boiling point of 70 ° F and greater at atmospheric
pressure.
5.
Includes Nitrogen and Oxygen.
6. This is a component specification for product received from injectors to the Alpine High Plants.
Exhibit C - 2
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
PRIOR DEDICATIONS
[***]
Exhibit D - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
MEASUREMENT PROCEDURES
ARTICLE I
DEFINITIONS
Acronyms and capitalized terms used in this Exhibit, but not otherwise defined in the Agreement, have the following meanings:
“API” means the American Petroleum Institute.
“ASTM” means ASTM International.
“Base-Line Meter Factor” means the meter proving factor established after meter installation or maintenance that meets API
guidelines for uncertainty and is the reference prove from which subsequent meter proves are compared.
“Component” has the meaning given to such term in the Tariff.
“DCF” means the dimensionless number obtained by dividing the density as determined by the use of the Pycnometer (or such
similar device) by the density as measured by the densitometer.
“EVP” means the equilibrium vapor pressure.
“Flowing Day” means a Day during which the stream to be measured actually flows.
“g/cc” means grams per cubic centimeter.
“GPA” means GPA Midstream.
“Inferred Mass Combined Factor Shift” means the absolute value of the sum of the Meter Factor shift and the DCF factor shift
when used in inferred mass systems.
“Meter Factor” means a dimensionless term obtained by dividing the gross standard volume or mass of liquid passed through the
meter (as measured by a prover during proving) by the corresponding meter indicated volume at standard conditions. For
subsequent metering operations, the throughput or gross measured volume or mass is determined by multiplying the indicated
volume or mass registered by the meter times the Meter Factor.
“MPMS” means the Manual of Petroleum Measurement Standards as published by the API.
“psig” means pounds per square inch gauge.
“Pycnometer” means a double-walled, high-pressure vessel used to prove a densitometer.
“Requesting Party” means the Party requesting the applicable data.
Exhibit E - 1
CONFIDENTIAL TREATMENT REQUESTED
“Sending Party” means the Party providing the applicable data.
ARTICLE II
DESIGN AND INSTALLATION
Section 2.1 General
A. Carrier’s methods, standards, and measurement procedures shall at a minimum meet relevant industry standards.
B. Carrier’s intent is to design, operate, and maintain its custody transfer measurement facilities in a manner to meet or
exceed the criteria set out in the MPMS and to meet or exceed all pertinent governmental regulations.
C. Natural gas liquids, including non-refrigerated ethane, demethanized mix (y-grade), propane, ethane-propane mixes,
propylene, butanes, isomers of butene, and natural gasoline, delivered to or received by Carrier shall be measured by either
volumetric or mass measurement procedures, as determined solely by Carrier, using a flow meter described in MPMS
Chapter 5.
D. The measuring facility shall be operated at a pressure greater than the EVP of the fluid at flowing conditions to ensure
the stream is in a liquid state and contains no vapor, as determined by the appropriate chapter of the MPMS.
E. All equipment employed in metering and sampling, and all equipment upstream and downstream of the measurement
station, which might affect quantity and quality determinations, must be approved by Carrier as to the type, materials of
construction, method of installation, and maintenance. Due consideration shall be given to the operating pressure,
temperature, and characteristics of the Raw Make being measured.
F. References to any API, GPA, ASTM, or similar publications encompass the latest edition, revision, or amendment
thereof. From time to time, these chapters and sections are subject to change by their respective publishers, and such
changes will supersede the specific references contained herein.
Section 2.2 Measurement Equipment and Systems
A. Flow Meters. Flow meters shall be installed in accordance with MPMS Chapter 5.
B. Densitometers and Density Determination.
1.
Where required, densitometers, including Coriolis meters used for determining flowing density, shall be
installed and calibrated in accordance with MPMS, Chapter 14. The output shall be connected directly into a
flow computer capable of internally converting the densitometer’s output signal to corrected flowing density
in g/cc. Proving is to be by entrapping a sample of the flowing stream at system conditions in a Pycnometer.
The connections
Exhibit E - 2
CONFIDENTIAL TREATMENT REQUESTED
for the Pycnometer shall be installed in such manner as to ensure the same representative sample introduced
to the densitometer is captured by the Pycnometer. The accuracy of the densitometer shall be verified at the
time of the meter proving or when accuracy is in question. The accuracy of the densitometer must be within
+/- 0.001 g/cc over the required range and repeatable to +/- 0.0005 g/cc.
Thermowells shall be installed to allow monitoring of the inlet and outlet temperature of the Pycnometer
during calibration.
During a densitometer calibration, the difference between all outlet temperatures and pressures must be
within +/-0.2 °F and +/- 5.0 psi of each other during the proof test.
For polymer grade propylene measurement, a density calculated using MPMS Chapter 11.3.3.2 may be used
for density determination.
For chemical grade propylene measurement, a density calculated using MPMS Chapter 11.3.3.2 may be used
for density determination. When this calculated density is used, the Meter Factor shall be adjusted by a factor
of 0.99871 to account for the composition changes.
For High Purity Isobutylene measured by a mass meter producing a mass pulse output, and mass proved, the
meter does not need a densitometer.
Under no circumstances will a density measurement be utilized for transaction calculations without a proving
or verification of the function during the ticket period.
Verification and calibration data will be supplied to Shipper within ten (10) Days of the procedure.
The proving intervals, tolerances, repairs, and methods of correction are the same as those provided
elsewhere in this Exhibit, and the average of two (2) successive Pycnometer provings will establish Raw
Make flowing density, provided: (i) the two (2) successive provings agree within 0.0005, and (ii) the average
of the two (2) tests is within 0.0015 of the previously accepted calibration factor.
2.
3.
4.
5.
6.
7.
8.
9.
C. Temperature Transmitters. Temperature transmitters shall be verified at the time of the meter proving using a certified
thermometer or precision electronic temperature device. Temperature transmitters must exhibit a discrimination of at most
0.1o F, or better, and a variation from a certified electronic or mercury liquid-in-glass thermometer no greater than 0.5o F.
1 Based on the work of J.E. Gallagher, Shell Pipeline Corporation, “Chemical-Grade Propylene Density Measurement,” July, 1983.
Exhibit E - 3
CONFIDENTIAL TREATMENT REQUESTED
D. Pressure Transmitters. Pressure transmitters shall be verified at the time of meter proving using a reference gauge to
ensure current readings exhibit pressure discrimination of not more than 1.0 psig, and the variation from a certified test
gauge does not exceed 2.0 psig.
E. Flow Computers. Flow computers shall be capable of accepting pulses from the flow meter transmitter and signals from
the pressure, temperature, and density transmitters. The flow computer shall convert, as required, and totalize these signals
into flowing density, corrected flowing density, indicated volume, gross volume, mass, specific gravity at 60o F, and net
volume. The flow computer and its operation shall comply with MPMS Chapter 21. For net volume determinations (for
most Components), the flow computer shall utilize the latest ASTM, API, and GPA standards for temperature and pressure
corrections that are applicable to the Component being measured. The weight of water shall be as provided in the latest
version of GPA 2145.
F. Composite Sampling Systems. Composite sampling is required for Raw Make transacted on a Component Barrel basis
and for quality verification of any Raw Make. The composite sampling system shall be installed and operated in accordance
with GPA Standard 2174. The composite sampler shall be operated to collect flow-proportional samples, based on indicated
volume. These samples shall be accumulated in and removed from floating-piston cylinders with mixing capability.
ARTICLE III
ACCOUNTING
Section 3.1 Custody Transfer Tickets. Unless otherwise provided for by separate agreement, Carrier shall furnish Shipper with a
batch custody transfer ticket, where batch may denote either quantity or time. Further, the batch shall be closed out at the start of
Day on the first Day of the Month or such other period as Carrier, in its sole discretion, may deem appropriate. When provided,
Daily custody transfer tickets are for the period of one Day. For the purposes of determining whether Raw Make meets the
applicable Raw Make Quality Specifications, the composition shall be determined no more often than weekly.
Section 3.2 Volume-Basis Streams. Unless otherwise provided for by separate agreement, for streams transacted on a volume basis
the ticket shall identify the Raw Make and state the net volume in Barrels of Raw Make measured, and all factors associated with its
production.
Section 3.3 Mass-Basis Streams. Unless otherwise provided for by separate agreement, for streams that are transacted on a mass
basis the ticket shall identify the Raw Make, state the total mass measured in pounds, show Raw Make analysis, and show total
Component Barrels (if required). Where required, total pounds mass shall be converted to pounds of each Component based on its
weight fraction as determined by analysis. If required, the Component pounds shall then be converted to equivalent Barrels of each
Component utilizing the calculation procedure outlined in MPMS Chapter 14. The Component density in a vacuum shall be in
accordance to GPA Standard 2145. If required, the ticket shall identify the Raw Make and state the total mass, Raw Make analysis,
and total Component Barrels.
Exhibit E - 4
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE IV
MAINTENANCE AND OPERATIONS
Section 4.1 Measurement Basis
A. Mass Measurement
1.
2.
Inferred Mass: Inferred mass measurement is accomplished utilizing a flow-proportional composite sampler
(if required), volumetric flow meter, densitometer, and flow computer to convert gross volumetrically
measured Barrels using density in g/cc at flowing conditions, and corrected for instrument error, to total
pounds mass according to the following formula:
Total Pounds = Indicated Barrels x Meter Factor x Flowing Density (g/cc) x 350.5069 x DCF
Where:
350.5069 is a conversion factor for converting g/cc to pounds/Barrel.
Direct Mass: Coriolis measurement is accomplished by utilizing a Coriolis meter and a flow computer to
accumulate mass pulses from the flow meter transmitter and report in pounds. Measured pounds mass is
calculated according to MPMS Chapter 5.6.
B. Volumetric Measurement. Volumetric measurement may be accomplished utilizing a flow computer, a flow meter
outputting volume pulses, and temperature and pressure transmitters. Where applicable, a densitometer shall be installed. In
the case of purity products, Carrier reserves the right to use a fixed specific gravity at 60o F and 14.696 psia in lieu of a
densitometer for flow calculations. The proper API, ASTM, and GPA standards shall be used to calculate and totalize net
Barrels.
Section 4.2 Provings and Tolerances
A. General
1.
2.
3.
Meter provings, calibration of instruments, and maintenance of measurement equipment will normally be
performed by Carrier personnel, but these functions may be delegated to responsible third-party contractors
under the direction of an Carrier representative.
All provings shall be by the applicable MPMS standard.
For meters outputting a mass pulse:
Exhibit E - 5
CONFIDENTIAL TREATMENT REQUESTED
a.
b.
The prover shall be equipped with a densitometer installed and proved in accordance with MPMS
Chapter 14. However, for polymer and chemical grade propylene, MPMS Chapter 11.3.3.2 may be
used to determine flowing density.
The Coriolis meter shall be proved as an inferred mass proving in accordance with MPMS Chapter
5.6.
4.
For meters outputting a volume pulse:
a.
b.
A live flowing density signal shall be used in the proving calculations.
The density measurement, if present, shall be verified using standard practices as outlined in MPMS
Chapters 14.
5.
Unless otherwise impractical, and unless at least seventy-two (72) hours’ notice is first provided to Shipper to
allow a Shipper representative to be present, no work shall be performed on the measuring element of a meter
without first proving the meter.
B. Proving Intervals
1.
2.
3.
4.
Each meter shall be proven when initially placed into service and immediately prior to and after maintenance.
Subsequent provings shall be made at least every thirty-one (31) Flowing Days, not to exceed forty-five (45)
Flowing Days. However, if operational issues, weather, or unavailability of a prover or prover contractor
prevent the proving within thirty-one (31) Flowing Days, then the proving interval may be extended to forty-
five (45) Flowing Days.
If the consistency of the Meter Factor allows, and both Parties agree, the proving interval between provings
may be extended to up to six (6) Months.
If a Party requests an unscheduled prove, then such Party shall pay for all costs of the unscheduled prove
unless the prove determines the instrumentation is outside of the applicable tolerances. Each Party shall allow
the other Party to witness all provings made to measurement facilities. Proving will be conducted Monthly or
more frequently as the Parties may elect.
C. Meter Factor
1.
When a meter is proved after initially being placed in service, a Base-Line Meter Factor shall be established.
Exhibit E - 6
CONFIDENTIAL TREATMENT REQUESTED
2.
3.
If any maintenance is performed on a meter or a meter is replaced, a new Base-Line Meter Factor shall be
established.
The new Meter Factor shall be used after each successful proving if it meets the proving criteria herein.
D. Ticket Corrections. If the new Meter Factor deviates from the previous Meter Factor under like operating conditions by
more than plus or minus 0.0025, then 1/2 of the volume measured since the previous proving shall be corrected using the
new Meter Factor. If the time of malfunction can be determined by historical data, then the volume measured since that
point in time shall be corrected using the new Meter Factor. The new Meter Factor may not be used to correct volumes
measured more than thirty-one (31) Flowing Days prior to the new proving, unless the Flowing Days between proves
exceeds thirty-one (31) Flowing Days, in which case the correction shall be for the Flowing Days between proves. If a
correction is required, then a correction ticket shall be issued for the quantity corrected.
E. Inferred Mass Combined Factor Shift: The mass measurement objective for inferred mass meters is 0.25% accuracy. In
the inferred mass equation, both the Meter Factor and DCF are weighted equally. Therefore, a corrected meter ticket will
only be written when the absolute value of the sum of the Meter Factor shift and DCF shift is greater than 0.0025. The
following are examples:
1.
2.
Example 1: A meter exhibiting a shift in Meter Factor of 0.0024 combined with a densitometer exhibiting a
DCF shift of -0.0018, would not require a meter ticket correction, as the sum of these two shifts results in a
total factor shift of 0.0006.
Example 2: A meter exhibiting a shift in Meter Factor of -0.0024 combined with a densitometer exhibiting a
DCF shift of -0.0018, would require a meter ticket correction, as the sum of these two shifts results in a total
shift of 0.0042.
F. Corrective Actions
1.
2.
If, as a result of a meter proof, a new Meter Factor deviates more than 0.0025 from the previous Meter Factor
but less than 0.0050 from the Base-Line Meter Factor, then Carrier’s field representative shall determine the
corrective action, if any, to be taken.
If, as a result of a meter proof, the new Meter Factor deviates 0.0050 or more from the Base-Line Meter
Factor, then the Carrier field representative shall determine the corrective action, if any, to be taken, including
removal, inspection, cleaning of the internals, repairing, zero verification, and replacing. If there is build-up
on the internals, then the element or meter shall be cleaned and the meter re-proved. If physical repairs are
made (e.g., replacement of a turbine rotor), then the meter shall be re-proved to establish
Exhibit E - 7
CONFIDENTIAL TREATMENT REQUESTED
3.
4.
a new Base-Line Meter Factor, provided that at least seventy-two (72) hours’ notice is first provided to
Shipper to allow a Shipper representative to be present.
For mechanical flow meters requiring a wear-in period, after a twenty-four (24) hour wear-in period, the
meter shall be re-proved and if the Meter Factor changes more than plus or minus 0.0025 from the new Base-
Line Meter Factor, then half (1/2) of the volume measured shall be corrected using the latest Meter Factor.
For Coriolis meters, if the zero changes or the meter is cleaned, repaired, or replaced, then the meter shall be
re-proved to establish a new Base-Line Meter Factor. The meter shall be zero verified and, if necessary, re-
proved. If the Meter Factor changes more than plus or minus 0.0025 from the new Base-Line Meter Factor,
then 1/2 of the volume measured shall be corrected using the latest Meter Factor.
G. Carrier or its designee shall record all required corrections to measured volumes and shall describe the findings, method
of repair, and calculations used in making the correction on the meter proving report. A correction to the ticketed amount
shall be issued.
H. If Shipper’s representative is not present during the proving, then Carrier shall, if requested by Shipper, within two (2)
Business Days: (i) notify Shipper of the findings; (ii) provide Shipper with a meter proving report stating the findings,
method of repair, and calculations used in making the correction; and (iii) provide Shipper with a correction ticket for the
amount corrected.
Section 4.3 Custody Measurement Station Failure. If a failure occurs on a custody measurement station or the station is out of
service while Raw Make is being delivered, then the volume shall be determined or estimated by one of the following methods in
the order stated, unless the Parties otherwise agree:
A. by using data recorded by any accurately registering check measuring equipment; or
B. by correcting the error if the percentage error can be ascertained by calibrations, tests, or mathematical calculations.
Section 4.4 Sampling Procedures. For all sampling procedures and activities detailed below, at least seventy-two (72) hours’ prior
notice shall first be provided to Shipper to allow a Shipper representative to be present for any such procedures.
A. Flow proportional composite samples shall be removed from the composite sampler at the same time the meter is read
and a custody ticket issued.
Exhibit E - 8
CONFIDENTIAL TREATMENT REQUESTED
B. Samples shall be analyzed pursuant to the appropriate test method specified by the applicable Raw Make Quality
Specifications.
C. Three samples shall be taken from the composite sampler. One sample shall be retained by Carrier for analysis, the
second sample shall be retained by Shipper for analysis, and the third shall be held as a referee. If Carrier has taken custody,
then its sample shall be analyzed and the analysis used to account for transfer. If Shipper has taken custody, then its sample
shall be analyzed using the Carrier-specified test method and the analysis used to account for transfer.
D. If requested, the referee samples shall be held for a period as agreed upon by the connecting Party or a minimum of
thirty (30) Days from the date of sampling.
E. If a malfunction of the sampling occurs resulting in no sample being taken or in an unrepresentative sample being
obtained, then the following procedure shall be utilized in the order stated:
1.
2.
3.
4.
the sample collected by any on-stream, back-up sampling device that has extracted a sample in proportion to
the volume delivered shall be used;
an average of the composite samples taken over the previous three (3) Months of properly sampled deliveries
shall be used, unless the Parties otherwise agree;
Daily grab samples shall to be used for the time in question; or
such other method as the Parties may agree upon shall be used.
F. Quality Testing. Where multiple sampling methods are allowed, Carrier, in its sole discretion, will determine the
preferred method.
G. Cost of Referee Sample Analysis. If, as a result of the third-party laboratory analyzing the referee sample, the Carrier
analysis is used, then Shipper is responsible for the applicable third-party laboratory costs. If, as a result of the third-party
laboratory analyzing the referee sample, Shipper analysis is used, then Carrier is responsible for the applicable third-party
laboratory costs.
ARTICLE V
MEASUREMENT DISPUTE RESOLUTION
Section 5.1 Mass and Volume Metering. If both the Carrier metering facility and the Shipper metering facility are installed,
operated, and maintained according to their respective measurement standards, both of which shall meet or exceed API standards,
and the difference in measurement of mass or volume is less than or equal to 0.25%, then Carrier’s measurement of mass or
volume, whichever the case may be, will be deemed correct. If the difference is more than 0.25%, then Carrier and Shipper shall
resolve the dispute by working together, using the best available information.
Exhibit E - 9
CONFIDENTIAL TREATMENT REQUESTED
Section 5.2 Analytical. Analytical disputes must be based upon laboratory analysis, using the Carrier-specified test method, of
both the Carrier sample and the Shipper sample from the custody sampler (as described above). After analyzing their respective
samples according to the Carrier-specified test method, if Shipper and Carrier are in disagreement, then they shall each send the
other a copy of their respective sample results, and if the sample results differ by more than the GPA 2186/2177 reproducibility
limits for one or more components, then the referee sample shall be taken to Coastal Flow Measurement, which shall analyze the
sample in accordance with the Carrier-specified test method. If the third-party laboratory and Carrier analyses disagree by more
than the GPA 2186/2177 reproducibility limits for one or more Components, then the third-party lab results shall be accepted by
Shipper and Carrier as final and conclusive for the composition of the stream. If the third-party laboratory and Carrier analyses
agree within the reproducibility limits of GPA 2186/2177, then the Carrier analysis shall be accepted by Shipper and Carrier as final
and conclusive for the composition of the stream.
ARTICLE VI
WITNESSING
Section 6.1 Provings. Carrier and Shipper are each responsible for proving its respective measurement facilities. Each Party shall
allow the other Party to witness all provings. For scheduled measurement facilities provings, a Party shall give the other Party at
least seventy-two (72) hours’ advance written notice of the date and time of the scheduled prove.
Section 6.2 Use of out-of-tolerance equipment. A Shipper’s witness signature does not constitute the approval of the use of out-of-
tolerance equipment, but said signature does attest to the validity of the proving report.
ARTICLE VII
DATA ACCESS
Section 7.1 Data Access. Requesting Party may access Sending Party’s electronic measurement equipment to acquire certain data
as further described below. Requesting Party will only have access to such electronic measurement data in a format established by
Sending Party, which will not interfere with the operation of Sending Party’s facilities. Requesting Party recognizes that the data
acquired from any electronic equipment is “raw” data, subject to further refinement, correction, and/or interpretation. Sending Party
has no obligation to provide data to Requesting Party during times of maintenance, repair, or other activities by Carrier that
interrupt operations and/or due to events of Force Majeure. Sending Party has no obligation to advise Requesting Party of any such
interruptions, or otherwise to verify the integrity of such data at any time. Sending Party shall make necessary connections to its
electronic measurement equipment to provide Requesting Party with the following categories of data:
A. pressure;
B. temperature;
C. instantaneous flow;
Exhibit E - 10
CONFIDENTIAL TREATMENT REQUESTED
D. total flow today; and
E. such other data as the Parties may agree to in writing.
Section 7.2 Data Transfer. Data transfer will occur via a serial data link between Carrier and Shipper. Shipper is responsible for the
data and communications beyond this connection.
Section 7.3 SCADA. Flow and metering data gathered and sent via SCADA monitoring equipment will not be used to determine
Raw Make quality and quantity for custody transfer calculations.
ARTICLE VIII
RIGHT TO CHANGE
Carrier reserves the right, from time to time, to make: (1) non-substantive changes to this Exhibit; and (2) changes to this Exhibit
driven by industry practice, governmental regulations, or Carrier’s reasonable operational requirements. Such changes will be made
on a non-discriminatory basis to similarly situated shippers, and such changes will become effective thirty (30) Days after written
notice of the changes is sent to Shipper.
Exhibit E - 11
CONFIDENTIAL TREATMENT REQUESTED
SCHEDULE A
ORIGIN POINTS, DESTINATION POINTS,
DEEMED VOLUME COMMITMENT AND RATES
Note: The Priority Rate shall be subject to adjustment as set forth in Section 5.2 of this Agreement.
Pipeline Segment
Destination Point (place an X
in the column for the desired Destination Point)
Origin Point
[***]
[***]
[***]
Shipper’s Deemed
Volume Commitment
(BPD)
Priority Rate ($ per
Barrel)
[***]
Schedule A - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT F
FORM OF TRANSFEREE AGREEMENT
[ATTACHED]
Exhibit F - 1
CONFIDENTIAL TREATMENT REQUESTED
CERTAIN CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS AGREEMENT. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED INFORMATION, WHICH HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION
IS MARKED WITH “[***]”.
EXHIBIT F
TRANSPORTATION SERVICES AGREEMENT
dated [ ]
ALPINE HIGH NGL PIPELINE LP
“Carrier”
and
[ ]
“Shipper”
CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS Page
Article I
CERTAIN DEFINITIONS 1
Article II
TERM 6
2.1.
Term 6
Article III
CARRIER OBLIGATIONS 6
Provision of Services 6
Priority Service 7
3.1
3.2
3.3 Maintenance of Pipeline Capacity 7
3.4
3.5 Measurement 7
3.6
Standard of Performance 7
Pressure Commitments 7
Article IV
DEDICATION AND SHIPPER’S DELIVERY OBLIGATIONS 7
Dedication 7
Prior Dedications 8
Contemporaneous Dedications 8
Covenant Running with the Land 8
Releases from Dedication 9
Processing Obligations and Reservations from Dedication 10
Delivery Commitment 11
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
4.7.
4. 8. Unused Capacity 11
Linefill 12
9.
Article V
FEES 912
5.1.
5.2.
5.3.
Shipper’s Priority Rate 12
Index Adjustment 12
Pipeline Loss Allowance 12
Article VI
DEFAULTS AND REMEDIES 12
6.1.
6.2.
6.3.
6.4.
Shipper Default 112
Remedies on Shipper Default 13
Carrier Default 13
Remedies on Carrier Default 13
Article VII WARRANTY OF TITLE; ROYALTIES 14
7.1.
7.2.
7.3.
7.4.
Shipper’s Warranty 14
Carrier’s Warranty 14
Proceeds of Production 14
Title 14
Article VIII WAIVER OF CERTAIN DAMAGES 14
Article IX
FORCE MAJEURE 15
9.1.
9.2.
9.3.
Suspension of Obligations 15
Definition of Force Majeure 15
Notification 16
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TABLE OF CONTENTS
(continued) Page
9.4.
Limitations 16
Article X
ASSIGNMENT 16
10.1. Assignments Not Requiring Consent 16
10.2. Assignment Requiring Consent 17
10.3. Conveyance of Interests 17
10.4. Compliance 17
10.5. Successors and Assigns 17
Article XI
TAXES 17
Article XII
NOTICE AND STATEMENTS 18
12.1. Notice 18
12.2. Change of Address 19
Article XIII MISCELLANEOUS 19
Jurisdiction and Venue 19
13.1. Entire Agreement; Amendments 19
13.2. Governing Law 19
13.3.
13.4. No Drafting Presumption 19
13.5. Waiver 19
13.6. No Third Party Beneficiaries 20
13.7. No Partnership 20
13.8. Survival 20
13.9. Headings 20
13.10. Rules of Construction 20
13.11. Severability 21
13.12. Further Assurances 21
13.13. No Inducements 21
13.14. Counterpart Execution 21
13.15. Confidentiality 21
13.16. Compliance with Laws 22
13.17. Arm’s Length Negotiations 22
13.18. Audit Rights 22
EXHIBITS
Exhibit A – Tariff
Exhibit B – Dedicated Area
Exhibit C – Raw Make Quality Specifications
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Exhibit D– Prior Dedications
Exhibit E – Measurement Procedures
SCHEDULES
Schedule A – Origin Points, Destination Points, and Rates
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TRANSPORTATION SERVICES AGREEMENT
This Transportation Services Agreement (this “Agreement”) is made and entered into, effective as of this [ ] day of[ ], 20[ ]
(the “Effective Date”), by and between Alpine High NGL Pipeline, LP, a Delaware limited partnership (“Carrier”), and[ ], a [ ]
(“Shipper”). Shipper and Carrier may be referred to individually as a “Party,” or collectively as the “Parties.”
WITNESSETH:
WHEREAS, Shipper has title to or the right to transport and/or sell Shipper Raw Make and desires for Carrier to transport
Shipper Raw Make on the Pipeline System; and
WHEREAS, Carrier desires to transport Shipper Raw Make on the Pipeline System; and
WHEREAS, Carrier and Shipper have engaged in good faith, arm’s length negotiations and are entering into this
Agreement as independent parties.
NOW THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, the Parties
hereby covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Unless otherwise required by the content, the terms defined in this Article I shall have, for all purposes of this Agreement,
the respective meanings set forth in this Article I:
“Actual Shipments” shall mean, for any period of time, the volumes of Shipper Raw Make that Shipper delivers to Carrier
hereunder at the Origin Points and that are ultimately delivered by Carrier to Shipper (or Shipper’s designee) hereunder at the
Destination Points.
“Additional Destination Point” shall have the meaning given to such term in Section 3.8 of this Agreement.
“Adjustment Date” shall mean the first anniversary of the Effective Date and each subsequent anniversary of the Effective
Date.
“Affiliate” shall mean any Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with another Person. The term “control” (including its derivatives and similar terms) shall mean
possessing the power to direct or cause the direction of the management and policies of a Person, whether through ownership, by
contract, or otherwise. A Person is deemed to be an Affiliate of another specified Person if such Person owns 50% or more of the
voting securities of the specified Person, or if the specified Person owns 50% or more of the voting securities of such Person, or if
50% or more of the voting securities of the specified Person and such Person are under common control.
“Agreement” shall have the meaning given to such term in the preamble of this Agreement.
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“Applicable Law” shall mean all applicable laws, statutes, directives, codes, ordinances, rules, regulations, municipal by-
laws, judicial, arbitral, administrative, ministerial, departmental or regulatory judgments, orders, decisions, rulings or awards,
consent orders, consent decrees and policies of any Governmental Authority.
“Barrel” or “bbl” shall mean forty-two (42) United States gallons of 231 cubic inches at sixty degrees Fahrenheit (60° F)
and equilibrium vapor pressure.
“BPD” shall mean Barrels per Day.
“Business Day” shall mean any day that is not a Saturday, Sunday, or a day on which federally chartered banks are required
or permitted to close in Houston, Texas.
“Carrier” shall have the meaning given to such term in the preamble of this Agreement.
“Carrier Default” shall have the meaning given to such term in Section 6.3 of this Agreement.
“Carrier Default Notice” shall have the meaning given to such term in Section 6.4 of this Agreement.
“Carrier Standard of Performance” shall mean Carrier’s obligation hereunder (i) to exercise its rights or powers under this
Agreement, in each case, in a reasonable manner and with the degree of skill and judgment normally exercised by a reasonably
prudent operator consistent with industry practices in the midstream oil and gas industry and in material compliance with this
Agreement, and (ii) to operate in a manner such that Shipper is not curtailed for reasons other than Force Majeure, planned or
scheduled maintenance, and/or shipper default, for an aggregate period exceeding six (6) Days within any Year.
“Central Clock Time” or “CCT” shall mean Central Standard Time, as adjusted for Central Daylight Time.
“Claims” shall mean any and all claims, demands and causes of action of any kind and all losses, damages, liabilities, costs
and expenses of whatever nature (including court costs and reasonable attorneys’ fees).
“CPPI” shall mean, with respect to each Adjustment Date, the PPI for the Month which is four (4) Months prior to such
Adjustment Date.
“Day” or “Daily” shall mean a period commencing at 7:00 a.m., CCT, on a calendar day and ending at 7:00 a.m., CCT, on
the next calendar day.
“Dedicated Area” shall mean lands and/or properties described on Exhibit B.
“Dedicated Raw Make” shall have the meaning given to such term in Section 4.1 of this Agreement.
“Dedication” shall have the meaning given to such term in Section 4.1 of this Agreement.
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“Deemed Volume Commitment” shall have the meaning given to such term in the Tariff.
“Destination Points” shall mean the destination points listed on Schedule A (attached hereto).
“Effective Date” shall have the meaning given to such term in the preamble to this Agreement.
“Evergreen Extension” shall have the meaning given to such term in Article II of this Agreement.
“Extended Carrier Force Majeure” shall have the meaning given to such term in Section 4.6(b) of this Agreement.
“Extension” shall mean the First Extension, the Second Extension, or an Evergreen Extension, as applicable.
“Fee Adjustment Multiplier” shall mean, with respect to any Adjustment Date, the percentage equal to the percentage of
change between (a) the PPPI applicable to such Adjustment Date and (b) the CPPI applicable to such Adjustment Date.
“First Extension” shall have the meaning given to such term in Article II of this Agreement.
“Force Majeure” shall have the meaning given to such term in Section 9.2 of this Agreement.
“Gas” shall mean any mixture of gaseous hydrocarbons, consisting essentially of methane and heavier hydrocarbons and
inert and noncombustible gases that are extracted from the subsurface of the earth.
“Governmental Authority” shall mean (i) the United States of America, (ii) any state, county, parish, municipality or other
governmental subdivision within the United States of America, and (iii) any court or any governmental department, commission,
board, bureau, agency or other instrumentality of the United States of America or of any state, county, municipality or other
governmental subdivision within the United States of America.
“Interests” shall mean any right, title, or interest in lands, wells or leases and the right to produce Gas therefrom whether
arising from fee ownership, working interest ownership, mineral ownership, leasehold ownership, farm-out, contractual ownership
or arising from any pooling, unitization or communitization of any of the foregoing rights.
“Losses” shall mean any actual loss, cost, expense, liability, damage, demand, suit, sanction, claim, judgment, lien, fine or
penalty, including attorneys’ fees, asserted by a third party not Affiliated with the Party incurring such, and which are incurred by
the applicable indemnified Persons on account of injuries (including death) to any person or damage to or destruction of any
property, sustained or alleged to have been sustained in connection with or arising out of the matters for which the indemnifying
party has indemnified the applicable indemnified Persons.
“Month” shall mean a period commencing at 7:00 a.m., CCT, on the first day of a calendar month and ending at 7:00 a.m.,
CCT, on the first day of the next calendar month.
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“Nomination” (including “Nominates” and the syntactical variants thereof) shall mean the written or electronic
communication from Shipper to Carrier, pursuant to and in accordance with the terms of this Agreement, including the Tariff,
requesting that Carrier transport for Shipper in a given Month a stated volume of Raw Make.
“Origin Point” shall mean any of the origin points listed on Schedule A (attached hereto) where Carrier accepts Raw Make
for transport on the Pipeline System.
“Parties” shall have the meaning given to such term in the preamble of this Agreement.
“Party” shall have the meaning given to such term in the preamble of this Agreement.
“Person” shall mean any individual, firm, corporation, trust, partnership, limited liability company, association, joint
venture, other business enterprise or Governmental Authority.
“Pipeline Capacity” shall mean the Pipeline System capacity expressed in BPD on a Pipeline Segment, as it exists from
time to time.
“Pipeline Design Capacity” shall mean 250,000 BPD on the Pipeline System.
“Pipeline Segment” shall mean any portion of the Pipeline System that runs from any given Origin Point to any given
Destination Point, or from one Destination Point to another Destination Point.
“Pipeline System” shall mean the Raw Make pipeline system to be constructed, owned and operated by Carrier that will
transport Raw Make from the Origin Points to the Destination Points.
“PPI” shall mean the Producer Price Index by Commodity for Final Demand: Finished Goods, Seasonally Adjusted (Series
Id: WPSFD49207).
“PPPI” shall mean, with respect to each Adjustment Date, the PPI for the Month which is sixteen (16) Months prior to such
Adjustment Date.
“Prior Dedications” shall mean (i) as to the Interests owned by Shipper and/or its Affiliates within the Dedicated Area as of
the Effective Date, all dedications or commitments for gathering or transportation services burdening such Interests as of the
Effective Date and (ii) as to any Interests acquired by Shipper and/or its Affiliates within the Dedicated Area after the Effective
Date, all dedications or commitments for gathering or transportation services burdening such Interests which are existing as of the
time of any such acquisition.
“Priority Rate” shall be the rate set forth in Schedule A, as it may be adjusted in the future per the terms of this Agreement.
“Priority Shipper” shall have the meaning given to such term in the Tariff.
“Proration Month” shall have the meaning given to such term in the Tariff.
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“Raw Make” shall mean[, until August 31, 2019, demethanized raw make mix with no minimum ethane by liquid volume
percentage, and thereafter] demethanized raw make mix that contains an ethane component content equal to or greater than 10%
ethane and less than or equal to 65% ethane by liquid volume percentage. For the avoidance of doubt, Raw Make shall not include
condensate or other liquid hydrocarbons attributable to the Subject Gas that is not produced from processing of the Subject Gas.
“Raw Make Quality Specifications” shall mean the Raw Make specifications set forth in Exhibit C (attached hereto) as and
made a part hereof for all purposes.
“Release Notice” has the meaning given to such term in Section 4.6(c) of this Agreement.
“Release Notice Date” has the meaning given to such term in Section 4.6(c) of this Agreement.
“RRC” shall mean the Railroad Commission of Texas and any lawful successor agency having jurisdiction over the
intrastate transportation of Raw Make in Texas.
“Second Extension” shall have the meaning given to such term in Article II of this Agreement.
“Services” shall mean receipt and transportation on the Pipeline System of Raw Make for Shipper’s account from the Origin
Point(s) and delivery, on a ratable basis, to the Destination Point(s) specified in Shipper’s Nomination.
“Shipper” shall have the meaning given to such term in the preamble of this Agreement.
“Shipper Raw Make” shall mean Raw Make owned or controlled by Shipper.
“Shipper Default” shall have the meaning given to such term in Section 6.1 of this Agreement.
“Shipper Default Notice” shall have the meaning given to such term in Section 6.2 of this Agreement.
“Shipper’s Priority Rate” shall have the meaning given to such term in Section 5.1 of this Agreement.
“Subject Gas” shall mean Gas produced from the Dedicated Area.
“Subject Interests” shall mean Interests covering lands located within the Dedicated Area.
“Tariff” shall mean Carrier’s rate, rules and regulations tariff for the Pipeline System on file and in effect with the RRC, as
such tariff may be amended or supplemented by Carrier from time to time, provided that any such amendment or supplement shall
not be inconsistent with this Agreement and Shipper’s rights and Carrier’s obligations under this Agreement, a pro forma copy of
such Tariff, materially in the form expected to be filed by Carrier with the RRC, as applicable, is attached hereto as Exhibit A.
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“Taxes” shall mean any or all current or future taxes, fees, levies, charges, assessments and/or other impositions levied,
charged, imposed, assessed or collected by any Governmental Authority having jurisdiction.
“Term” shall have the meaning given to such term in Article II of this Agreement.
“Third Party Shipper” shall mean any customer on the Pipeline System other than Shipper.
“Year” shall mean a period of three hundred sixty-five (365) consecutive Days, except for any Year that involves a leap year,
which will consist of three hundred sixty-six (366) consecutive Days.
ARTICLE II
TERM
2.1. Term. This Agreement is effective as of the Effective Date and shall continue through March 31, 2032 (the “Term”).
The Term shall automatically extend by five (5) Years (the “First Extension”) on March 31, 2032, unless Shipper, by the delivery
of written notice to Carrier no later than March 31, 2031, makes an irrevocable election not to extend the Term by five (5) Years.
The Term shall automatically extend by an additional five (5) Years (the “Second Extension”) from March 31, 2037, unless
Shipper, by the delivery of written notice to Carrier no later than March 31, 2036, makes an irrevocable election not to extend the
Term by an additional five (5) Years. Following the end of the Second Extension or the end of any subsequent Evergreen Extension
(as defined below), the Agreement shall continue in effect for successive extension one (1) Year terms commencing on March 31st
of every Year (each such extension, an “Evergreen Extension”), unless Shipper provides written notice of termination to Carrier no
later than July 31, 2041 in the case of the Second Extension, and July 31st of any subsequent Year subject to an Evergreen
Extension, as applicable, in which case this Agreement shall terminate at the end of the Second Extension or the relevant Evergreen
Extension, as applicable.
ARTICLE III
CARRIER OBLIGATIONS
3.1 Provision of Services. Subject to the terms and conditions of this Agreement, Carrier shall, commencing on the
Effective Date and continuing through the remainder of the Term of this Agreement, provide Services for Shipper Raw Make in
accordance with this Agreement, including the Tariff, which are incorporated herein by reference and constitutes part of this
Agreement, expressly including provisions in the Tariff relating to the charges and rules and regulations applicable to Shipper as a
party to this Agreement, provided that in the event of a conflict between the terms of this Agreement and the Tariff, the terms of this
Agreement shall prevail.
3.2 Priority Service. Shipper qualifies as a Priority Shipper and as such, Carrier agrees to have available Pipeline Capacity
to receive and transport one hundred percent (100%) of Shipper’s Deemed Volume Commitment. Carrier shall enter into no other
transportation arrangements with Third Party Shippers that would prevent Carrier from transporting Shipper’s Deemed Volume
Commitment. In the event that Carrier provides transportation services to any Third Party Shipper and Carrier receives more
Nominations in a Month for transportation of Raw Make on Carrier’s Pipeline System than Carrier is able to transport, then
consistent with the Tariff, Carrier shall allocate
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CONFIDENTIAL TREATMENT REQUESTED
to Shipper the lesser of Shipper’s Nomination for the Proration Month or its Deemed Volume Commitment.
3.3 Maintenance of Pipeline Capacity. Other than during periods of emergency and/or required maintenance, Carrier shall
not take, without Shipper’s prior written consent, any action to reduce the Pipeline Design Capacity, reduce the Pipeline Capacity
below the Pipeline Design Capacity, or reduce Shipper’s ability to deliver Raw Make to any Origin Point.
3.4 Pressure Commitments. Carrier shall operate the Pipeline System at an operating pressure sufficient to deliver to the
Destination Points at the prevailing pressure, up to 1350 psig.
3.5 Measurement. Carrier, at its sole cost and expense, will measure or cause to be measured the Raw Make tendered at
each Origin Point and Destination Point, in each case as provided pursuant to measurement procedures set forth in Exhibit E
(attached hereto).
3.6 Standard of Performance. All Services and other obligations of Carrier under this Agreement will be performed in a
manner consistent with the Carrier Standard of Performance.
ARTICLE IV
DEDICATION AND SHIPPER’S DELIVERY OBLIGATIONS
4.1. Dedication. Subject to other terms and conditions of this Agreement, during the Term (including any Extension),
Shipper hereby dedicates to Carrier (and to the performance of this Agreement) and agrees to deliver, or cause to be delivered, to
Carrier, at the Origin Point all (i) Raw Make recovered or extracted from all Gas produced from, or otherwise attributable to, all
Subject Interests, other than Raw Make and/or Gas that is subject to a Prior Dedication as set forth in Section 4.2 below, and (ii)
with respect to wells now or hereafter located within the Dedicated Area for which Shipper and/or any of its Affiliates is the
operator, Raw Make recovered or extracted from Gas produced from such wells which is attributable to the Interests owned by
working interest, royalty and/or overriding royalty owners (other than Shipper and Affiliates of Shipper) that is not taken “in-kind”
by such owners and for which Shipper or its Affiliates has the right and/or obligation to market such Raw Make, but for only so
long as such Gas and/or Raw Make is not taken “in-kind”, in the case of (i) and (ii), up to Shipper’s Deemed Volume Commitment
(collectively, the “Dedication”, with the Raw Make that is the subject of the Dedication being herein referred to as the “Dedicated
Raw Make”).
4.2. Prior Dedications. Except as set forth on Exhibit D, Shipper represents and warrants to Carrier that, as of the Effective
Date, none of the Dedicated Area owned by Shipper or its Affiliates as of the Effective Date, and no portion of the Dedicated Raw
Make attributable to such Dedicated Area, is subject to a Prior Dedication that conflicts with or infringes upon the Dedication under
this Agreement. With respect to any Dedicated Raw Make that is subject to a Prior Dedication, Shipper shall have the right, subject
to the additional terms and conditions of this Section 4.2 and Section 4.4, to comply with such Prior Dedication. Except as
otherwise provided in this Section 4.2 or Section 4.4, unless the Term is expiring in less than eight (8) Months, Shipper shall not
(and shall cause any applicable Affiliates not to), with respect to any Dedicated Raw Make that is the subject of a Prior Dedication,
(i) affirmatively extend or increase any such Prior Dedication by its active election, beyond the term of such Prior Dedication or (ii)
allow any such Prior Dedication to extend beyond
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CONFIDENTIAL TREATMENT REQUESTED
its primary or initial term pursuant to the operation of an “evergreen” or other similar provision. With respect to any Dedicated Raw
Make that is the subject of a Prior Dedication, unless the Term is expiring within eight (8) Months of the last date of such Prior
Dedication, in the event that at any time in the future Shipper or any of its Affiliates determine that it can terminate any such Prior
Dedication, then Shipper shall promptly terminate, or cause its Affiliate to terminate, such Prior Dedication, and upon such
termination, the Raw Make subject to such Prior Dedication shall, to the extent not already subject to the Dedication and within the
Dedicated Area, automatically be subject to the Dedication for all purposes under this Agreement without any further actions by the
Parties. Nothing herein shall obligate Shipper to terminate any Prior Dedication to the extent that such termination would require
Shipper to file suit, bring any arbitral or mediation proceeding, or pay any termination fee or penalty; provided, however, that
Shipper shall provide Carrier with reasonable notice of any option to terminate a Prior Dedication upon payment of a termination
fee or penalty and Carrier may, at its sole option, require Shipper to terminate such Prior Dedication, provided that, Carrier shall
reimburse Shipper for any fee or penalty (consistent with Shipper’s prior notice to Carrier regarding the amount of such fee or
penalty) actually incurred by Shipper in connection with such termination, as evidenced by reasonable supporting documentation.
4.3. Contemporaneous Dedications. The Dedicated Raw Make and Dedicated Area may be subject to contemporaneous
dedications by Shipper or its Affiliates to downstream and/or upstream service providers, which contemporaneous dedications do
not conflict with or infringe upon the Dedications hereunder.
4.4. Covenant Running with the Land. It is the mutual intention of the Parties that, so long as the Dedication is in effect,
this Agreement and the Dedication shall (i) be a covenant running with the Dedicated Area now owned by Shipper, its Affiliates
and their respective successors and assigns and (ii) be binding on and enforceable by Carrier and its successors and assigns against
Shippers, its Affiliates and their respective successors and assigns of Shipper’s Interests in the Dedicated Area. Each Party agrees to
execute, acknowledge and deliver to the other Party from time to time such additional agreements and instruments as may be
reasonably requested by such other Party to more fully effectuate the intention of the Parties set forth in the immediately preceding
sentence. Shipper shall cause any conveyance by it of all or any of Shipper’s Interests in the Dedicated Area to be made expressly
subject to the terms of this Agreement, but any such conveyance by Shipper of all or any of its Interests in the Dedicated Area shall
not relieve Shipper of any of its liabilities, obligations or duties hereunder, including, for the avoidance of doubt, the obligation to
cause Dedicated Raw Make attributable to such conveyed Interests in the Dedicated Area to be delivered to Carrier in accordance
with the terms and conditions of this Agreement. Shipper shall cause any successor or assign of such Interests in the Dedicated Area
to agree that it takes such Interests in the Dedicated Area subject to the terms and conditions of this Agreement, and that it will
cause any subsequent purchasers or assignees to do the same.
4.5. Releases from Dedication.
(a) If for any reason Carrier cannot receive at the Origin Point the entire volume of Dedicated Raw Make that
Shipper is ready, willing and able to deliver hereunder, including without limitation as a result of prorationing or scheduled
maintenance on the Pipeline System or any relevant upstream or downstream facilities, Force Majeure, operating pressure at the
Destination Point
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CONFIDENTIAL TREATMENT REQUESTED
exceeding 1,350 psig, or if such Raw Make fails to meet the applicable Raw Make Quality Specifications, then that portion of such
Dedicated Raw Make that Carrier cannot so receive shall be temporarily released from the Dedication during the period of time,
and only to the extent, that Carrier cannot for any reason receive such Dedicated Raw Make, and Shipper shall be free to sell such
temporarily released Raw Make to third parties or to transport such temporarily released Raw Make via modes of transportation
other than Carrier. Notwithstanding the foregoing sentence, there shall be no such temporary release if Carrier fails or is unable to
receive the entire volume of Dedicated Raw Make as a result of a breach by Shipper or failure by Shipper or Shipper’s Affiliate to
use good faith efforts to cause Raw Make processed at a processing plant operated by Shipper or Shipper’s Affiliate to meet the
applicable Raw Make Quality Specifications. Carrier shall promptly provide written notice of any event that could reasonably be
expected to materially affect the Services under this Agreement, including without limitation any notices regarding scheduled
maintenance, matters that affect available capacity and Carrier’s ability to take the Dedicated Raw Make, and with respect to
construction or development work on such facilities as the necessity for making repairs, alterations, enlargements or connections to,
or performing maintenance on, machinery or facilities of production, manufacture, transportation, distribution, processing or
consumption. With respect to any notices received by Carrier regarding the anticipated unavailability of capacity, facilities or
Services upstream or downstream of the Pipeline System, the Parties shall coordinate in good faith in an effort to mitigate any
disruptions, delays or other effects of such facility actions or events on the Services contemplated by this Agreement.
(b) If a Force Majeure event renders Carrier unable to receive Dedicated Raw Make at the Origin Point for three (3)
consecutive Days or longer (an “Extended Carrier Force Majeure”), then (A) upon Carrier’s receipt of written notice from
Shipper, that portion of such Dedicated Raw Make that Carrier cannot either receive at the Origin Point because of such Extended
Carrier Force Majeure shall be temporarily released from the Dedication only to the extent that Carrier is unable to so receive such
Dedicated Raw Make because of such Extended Carrier Force Majeure, and (B) Shipper shall resume deliveries of Dedicated Raw
Make temporarily released pursuant to the immediately preceding clause (A) no later than the first Day of the Month following
thirty (30) Days after Carrier provides Shipper written notice it is capable of receiving such Dedicated Raw Make.
(c) Notwithstanding Section 4.6(a) and Section 4.6(b) above, other than in instances in which Shipper is in breach
or Raw Make fails to meet the applicable Raw Make Quality Specifications, if, for any one hundred eighty (180) consecutive Days
or for any cumulative one hundred eighty (180) Days in any three hundred sixty-five (365) Day period, Carrier does not receive or
ceases receiving any volume of Dedicated Raw Make delivered or otherwise made available for delivery to the Origin Point by
Shipper (or that would be made available at the Origin Point, but was not because of Carrier’s continuing failure to receive
Shipper’s Dedicated Raw Make for any reason), then upon Shipper’s written notice to Carrier (“Release Notice”, and the date of
delivery to Carrier, “Release Notice Date”), which shall be given within ninety (90) Days after the applicable one hundred eighty
(180) consecutive Days or one hundred eightieth (180th) cumulative Day, Shipper shall be entitled to a permanent release from the
Dedication for the average volume of Dedicated Raw Make that Carrier was not able to take at the Origin Point during the subject
period, and for a percentage of the Dedicated Area proportionate to the average volume of Dedicated Raw Make that Carrier was
not able to take compared to Shipper’s Deemed Volume Commitment, with such permanent release to be effective on the thirtieth
(30th) Day following the Release Notice Date; provided, however, if
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CONFIDENTIAL TREATMENT REQUESTED
during the thirty (30) Day period following the Release Notice Date, Carrier delivers to Shipper a written plan, to be implemented
at Carrier’s sole cost and expense, that Carrier reasonably and in good faith believes will enable it to receive all Dedicated Raw
Make available for delivery at the Origin Point on or before the ninetieth (90th) Day following the Release Notice Date, then
Shipper’s right to the release shall be suspended during such ninety (90) Day period, or, if Carrier’s failure to receive Dedicated
Raw Make is a result of Force Majeure, Carrier shall have one hundred eighty (180) Days to complete such plan and Shipper’s
release right shall be suspended during such one hundred eighty (180) Day period; provided, further, that if, by the ninety-first
(91st) Day or one hundred eighty-first (181st) Day (as applicable) following the Release Notice Date, Carrier for any reason does
not receive all Dedicated Raw Make available for delivery at the Origin Point, then Shipper’s permanent release shall be effective
on such ninety-first (91st) Day or one hundred eighty-first (181st) Day (as applicable).
4.6. Processing Obligations and Reservations from Dedication. Shipper shall cause all Subject Gas to be Processed for the
recovery of Raw Make subject to the Dedication so that the Raw Make recovered from such processing meets the applicable Raw
Make Quality Specifications, subject, however, to the following reservations from the Dedication:
(a)Subject Gas and Raw Make may be used for the operation of Shipper’s production facilities or as required to deliver Raw
Make to Carrier.
(b)Subject Gas and Raw Make may be used, above ground or below, for any purpose in connection with the development
and/or operation of Shipper’s leases and wells.
(c)Subject Gas and Raw Make may be delivered as may be required to lessors or royalty owners under the terms of leases or
other agreements or as required for Shipper’s operations within the Dedicated Area or lands pooled or
unitized therewith, as determined by Shipper in its sole discretion.
(d)Notwithstanding anything else in this Agreement that may be construed to the contrary, Shipper shall have no obligation
to Carrier under this Agreement to develop or otherwise produce Subject Gas or other hydrocarbons from
any properties owned by it or any of its Affiliates, including any properties now or hereafter located within
the Dedicated Area or the lands pooled or unitized therewith. Shipper reserves the right to develop and
operate its leases and wells in any manner that it desires, as determined by Shipper as it sees fit, in its sole
discretion and free of any control by Carrier, including, without limitation, (i) shutting-in, cleaning out,
reworking, modifying, deepening, or abandoning any such wells, (ii) using any efficient, modern, or
improved method for the production of its wells, (iii) surrendering, releasing, or terminating its leases or
Interests at any time, (iv) forming, dissolving, and/or participating in pooling agreements or units; or (v)
using any hydrocarbons other than Raw Make or Subject Gas, including for the avoidance of doubt any
condensate or liquids associated with Subject Gas, for any purpose or transporting and marketing the
same.
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CONFIDENTIAL TREATMENT REQUESTED
(e)Nothing herein shall require Shipper to Process Gas from central tank batteries measuring less than 1100 Btu/cf, and no
such Gas shall be deemed Subject Gas for any purposes hereunder.
Notwithstanding Shipper’s obligation set forth in the first sentence of this Section 4.7, Carrier shall use commercially
reasonable efforts to accept Dedicated Raw Make delivered hereunder that fails to meet the applicable Raw Make Quality
Specifications and either blend and/or treat and commingle such non-conforming Raw Make such that the commingled stream of
Raw Make in the Pipeline System meets the applicable Raw Make Quality Specifications, so long as such blending and/or treating
can be done in an operationally safe manner without harm to any persons, facilities, other shippers, or their Raw Make. If there are
costs associated with doing the foregoing, Carrier shall notify Shipper, and if Shipper agrees, Carrier shall perform such blending
and/or treating and commingling contemplated by the foregoing sentence, and Shipper shall reimburse Carrier for its proportionate
share (relative to other shippers, if applicable) of its reasonably incurred costs. If Shipper does not agree to bear such costs
described in the preceding sentence, Carrier shall have no obligation with respect to such blending, treating and commingling, and
such Shipper’s non-conforming Raw Make may be entitled to be temporarily released pursuant to the terms of Section 4.6.
4.7. Delivery Commitment. Commencing on the Effective Date and continuing thereafter during the Term, Shipper agrees
to tender (or cause to be tendered) at the Origin Points for Shipper set forth on Schedule A, Dedicated Raw Make to Carrier for
transportation on the Pipeline System, in accordance with the nomination and tender procedures set forth in the Tariff.
4.8. Unused Capacity. Shipper agrees, to the extent Shipper does not Nominate or tender up to Shipper’s Deemed Volume
Commitment on a Pipeline Segment in any Month, Carrier shall be free to utilize such unused capacity on such Pipeline Segment
for the provision of transportation services to other shippers in such Month, without impacting the payment obligations of Shipper,
including Shipper’s obligations pursuant to this Article IV or otherwise crediting or paying Shipper in any manner, provided that
other shippers using such capacity shall not build history or otherwise acquire or accrue entitlements for future use of such capacity
and any such use by Carrier or other shippers of unused capacity shall in no way limit or degrade Shipper’s rights to capacity under
this Agreement.
4.9. Linefill. Shipper shall provide [insert 10% of transferee’s Deemed Volume Commitment] Barrels of Raw Make as its
share of linefill. Carrier shall not be required to provide the Services hereunder until Shipper provides its portion of linefill. Raw
Make provided by Shipper for linefill may be withdrawn thirty (30) Days after (i) this Agreement terminates or expires; (ii)
shipments have ceased, and the Shipper has notified Carrier in writing to discontinue shipments on the Pipeline System; and (iii)
Shipper’s balances have been reconciled between any other shippers and Carrier. Notwithstanding the foregoing, to the extent
Shipper’s Deemed Volume Commitment is reduced pursuant to this Agreement, Shipper may withdraw a percentage of the Raw
Make it has tendered as linefill equal to the percentage that Shipper’s Deemed Volume Commitment has been reduced. Carrier
reserves the right to charge a transport fee for Shipper’s linefill upon withdrawal, which shall not exceed Shipper’s Priority Rate.
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CONFIDENTIAL TREATMENT REQUESTED
ARTICLE V
FEES
5.1. Shipper’s Priority Rate. For Actual Shipments on the Pipeline Segment selected on Schedule A each Day during a
Month, Shipper shall pay to Carrier a per Barrel rate (“Shipper’s Priority Rate”) equal to the applicable base Priority Rate for such
Pipeline Segment corresponding to Shipper’s average Daily Actual Shipments during such Month on such Pipeline Segment, which
shall be, as of the Effective Date, the applicable base Priority Rate for such Pipeline Segment set forth in Schedule A (attached
hereto), and which may be increased by Carrier per Section 6.2.
5.2. Index Adjustment. On July 1st of each year during the Term, Carrier shall adjust the Priority Rate by the Fee
Adjustment Multiplier in effect as of such date.
5.3. Pipeline Loss Allowance. Quantities of Raw Make tendered by Carrier to Shipper at the Destinations Points shall not
be adjusted to account for shrinkage, evaporation, measurement, interface losses and other physical losses, and Shipper shall not
otherwise be responsible for any such losses.
ARTICLE VI
DEFAULTS AND REMEDIES
6.1. Shipper Default. Subject to Section 9.1, the following events shall be a “Shipper Default”: the occurrence and
continuation of (i) a breach or default by Shipper of any of its payment obligations under this Agreement or the Tariff, or (ii) a
material breach or default by Shipper of any of its obligations under this Agreement or the Tariff, unless such breach or default, or
material breach or default, as applicable, occurs as a result of a breach or default by Carrier of its obligations under this Agreement
or the Tariff. For the avoidance of doubt, Shipper’s delivery of Raw Make that complies with the Raw Make Quality Specifications
shall not constitute a Shipper Default notwithstanding any claim by Third Party Shippers or downstream recipients of Raw Make
that the Raw Make stream tendered by Carrier fails to meet the quality specifications of the downstream recipient of Raw Make due
to an ethane composition lower than the minimum ethane percentage required by such downstream recipient of Raw Make and
Shipper shall bear no liability to Carrier or any third party for any Claims or Losses due to the Raw Make stream tendered by
Carrier to any downstream recipient having an ethane composition percentage lower than the minimum ethane composition
percentage in such downstream recipients’ quality specifications.
6.2. Remedies on Shipper Default. Upon the occurrence of a Shipper Default, Carrier may provide written notice to
Shipper, describing the Shipper Default in reasonable detail and requiring Shipper to cure the Shipper Default (the “Shipper
Default Notice”). If (a) a Shipper Default comprising Shipper’s failure to make any payment due hereunder has not been cured
within ten (10) Business Days following receipt by Shipper of a Shipper Default Notice or (b) a Shipper Default comprising
Shipper’s failure to comply with any obligation under this Agreement or the Tariff, other than a payment obligation, has not been
cured within thirty (30) Days after receipt by Shipper of a Shipper Default Notice, or, if such failure is not reasonably capable of
being cured within a thirty (30) Day period, but Shipper expeditiously commences to cure the same following its receipt of a
Shipper Default Notice and diligently proceeds with such cure, within such longer period of time as
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CONFIDENTIAL TREATMENT REQUESTED
shall be reasonably necessary to cure such failure, then in any such case, Carrier may not terminate this Agreement on account of
such Shipper Default, but Carrier may, by written notice to Shipper, inform Shipper of its intention to suspend Services hereunder if
such Shipper Default is not cured within a further thirty (30) Day period, and if any such Shipper Default has not been cured within
such further period of thirty (30) Days, Carrier may, by written notice to Shipper, suspend Services hereunder, any such suspension
to be effective upon receipt of such notice by Shipper, effective until the applicable Shipper Default is cured.
The rights and remedies under this Section 6.2 shall be in addition to all of Carrier’s other rights and remedies under this
Agreement or the Tariff or which Carrier may otherwise have at law, in equity or by statute or regulation, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise by Carrier of other rights or remedies,
provided that Carrier may not terminate this Agreement on account of a Shipper Default.
6.3. Carrier Default. Subject to Section 9.1 hereof, the following events shall be a “Carrier Default”: the occurrence and
continuation of (i) a breach or default by Carrier of any of its payment obligations under this Agreement or the Tariff, (ii) a material
breach or default by Carrier of any of its obligations under this Agreement or the Tariff, unless such breach or default, or material
breach or default, as applicable, occurs as a result of a breach or default by Shipper of its obligations under this Agreement or the
Tariff, or (iii) a failure by Carrier to meet the Carrier Standard of Performance.
6.4. Remedies on Carrier Default. Upon the occurrence of a Carrier Default, Shipper may provide written notice to
Carrier, describing the Carrier Default in reasonable detail and requiring Carrier to cure the Carrier Default (the “Carrier Default
Notice”). If (a) a Carrier Default comprising Carrier’s failure to make any payment due hereunder has not been cured within ten
(10) Business Days following receipt by Carrier of a Carrier Default Notice, or (b) a Carrier Default comprising Carrier’s failure to
comply with any obligation under this Agreement or the Tariff, other than a payment obligation, has not been cured within thirty
(30) Days after receipt by Carrier of a Carrier Default Notice, or, if such failure is not reasonably capable of being cured within a
thirty (30) Day period, but Carrier expeditiously commences to cure the same following its receipt of a Carrier Default Notice and
diligently proceeds with such cure, within such longer period of time as shall be reasonably necessary to cure such failure, but such
longer period of time not to exceed sixty (60) Days, then in any such case, Shipper may not terminate this Agreement on account of
such Carrier Default, but Shipper may, by written notice to Carrier, inform Carrier of its intention to suspend this Agreement if such
Carrier Default is not cured within a further thirty (30) Day period, and if any such Carrier Default has not been cured within such
further period of thirty (30) Days, Shipper may, by written notice to Carrier, suspend this Agreement, any such suspension to be
effective upon receipt of such notice by Carrier, effective until the applicable Carrier Default is cured.
The rights and remedies under this Section 6.4 shall be in addition to all of Shipper’s other rights and remedies under this
Agreement (including, but not limited to, the rights and remedies described in Section 4.6) or the Tariff or which Shipper may
otherwise have at law, in equity or by statute or regulation, and the exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise by Shipper of other rights or remedies, provided that Shipper may not terminate this
Agreement on account of a Carrier Default.
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ARTICLE VII
WARRANTY OF TITLE; ROYALTIES
7.1. Shipper’s Warranty. Shipper represents and warrants to Carrier that Shipper has title to and/or the right to transport all
Raw Make delivered hereunder, and that except for Prior Dedications, said Raw Make is free from all liens, Claims and
encumbrances, including liens to secure payment of production taxes, severance taxes, and other taxes. Shipper agrees to indemnify
and hold Carrier harmless from any and all Claims and Losses incurred in connection with, or in any manner whatsoever relating to
any breach of the representations and warranties made by Shipper pursuant to this Section 7.1.
7.2. Carrier’s Warranty. Carrier represents and warrants to Shipper that Carrier has the right to receive all Raw Make
delivered hereunder and to deliver Shipper’s Raw Make to the Destination Points, free from all liens, Claims and encumbrances,
including liens to secure payment of production taxes, severance taxes, and other taxes. Carrier agrees to indemnify and hold
Shipper harmless from any and all Claims and Losses incurred in connection with, or in any manner whatsoever relating to any
breach of the representations and warranties made by Carrier pursuant to this Section 7.2.
7.3. Proceeds of Production. Shipper agrees to make payment of all royalties, overriding royalties, production payments,
and all other payments for interest attributable to Raw Make delivered hereunder due to any Person under any leases or other
documents in accordance with the terms thereof.
7.4. Title. Title to Shipper’s Raw Make delivered to the Pipeline System, including all constituents thereof, shall remain
with and in Shipper or its designee at all times.
ARTICLE VIII
WAIVER OF CERTAIN DAMAGES
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES, ANY SUCCESSORS IN INTEREST OR
ANY BENEFICIARY OR ASSIGNEE OF THIS AGREEMENT FOR ANY CONSEQUENTIAL, MULTIPLE,
INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES, OR LOSS OF PROFITS OR
REVENUES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY BREACH HEREOF; PROVIDED,
HOWEVER, THE FOREGOING SHALL NOT BE CONSTRUED AS LIMITING (I) AN OBLIGATION OF A PARTY
HEREUNDER TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE OTHER PARTY AGAINST CLAIMS
ASSERTED BY UNAFFILIATED THIRD PARTIES, INCLUDING, BUT NOT LIMITED TO, THIRD PARTY CLAIMS
FOR SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, OR (II) DAMAGES TO
CARRIER’S PIPELINE SYSTEM OR OTHER FACILITIES CAUSED BY SHIPPER’S DELIVERY OF RAW MAKE
THAT FAILS TO SATISFY THE QUALITY SPECIFICATIONS SET FORTH IN THE TARIFF; PROVIDED FURTHER,
HOWEVER, THAT SHIPPER SHALL HAVE NO LIABILITY TO ANY THIRD PARTY NOR SHALL SHIPPER HAVE
ANY DUTY TO INDEMNIFY CARRIER FOR CLAIMS OR LOSSES, INCLUDING PENALTIES OR OTHER
CHARGES IMPOSED
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BY DOWNSTREAM RECIPIENTS OF RAW MAKE, BY ANY THIRD PARTY, INCLUDING OTHER SHIPPERS OR
DOWNSTREAM RECIPIENTS OF RAW MAKE TENDERED BY CARRIER, WITH RESPECT TO RAW MAKE THAT
SATISFIES THE RAW MAKE QUALITY SPECIFICATIONS HEREUNDER NOTWITHSTANDING A FAILURE OF
THE RAW MAKE TENDERED BY CARRIER TO SATISFY THE RAW MAKE QUALITY SPECIFICATIONS OF A
DOWNSTREAM RECIPIENT OF RAW MAKE FROM CARRIER, INCLUDING WITH RESPECT TO THE MINIMUM
ETHANE PERCENTAGE IN THE RAW MAKE AND CARRIER SHALL INDEMNIFY SHIPPER, AND ITS
AFFILIATES, ANY SUCCESSORS IN INTEREST OR ANY BENEFICIARY OR ASSIGNEE OF THIS AGREEMENT
FROM ANY SUCH CLAIMS OR LOSSES. THIS ARTICLE VIII SHALL APPLY NOTWITHSTANDING THE SOLE,
JOINT OR CONCURRENT NEGLIGENCE, FAULT OR RESPONSIBILITY OF THE PARTY WHOSE LIABILITY IS
WAIVED BY THIS PROVISION, OR ANY OTHER EVENT OR CONDITION, WHETHER ANTICIPATED OR
UNANTICIPATED, AND REGARDLESS OF WHETHER EXISTING PRIOR TO THE DATE OF THIS AGREEMENT.
ARTICLE IX
FORCE MAJEURE
9.1. Suspension of Obligations. Subject to the limitations set forth in Section 9.4, if either Carrier or Shipper is unable to
perform any obligations, due to an event of Force Majeure, as defined in Section 9.2, such failure shall not be a Carrier Default or a
Shipper Default under this Agreement, insofar as such obligations are affected by such event of Force Majeure, for the duration of
such event of Force Majeure, and any additional period when Carrier or Shipper remains unable to perform such obligations as a
result of such event of Force Majeure.
9.2. Definition of Force Majeure. The term “Force Majeure” shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of reasonable diligence, such Party is unable to prevent or
overcome, including, without limitation by enumeration, acts of God, acts of Governmental Authorities, compliance with rules,
regulations or orders of any Governmental Authority, strikes, lockouts or other industrial disturbances, acts of the public enemy,
acts of terrorism, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, extreme cold, storms,
hurricanes, floods, or other adverse weather conditions, washouts, arrests and restraint of rulers and people, civil disturbances,
explosions, breakage or accident to machinery, equipment or pipelines, freezing of wells, pipelines or equipment, requisitions,
directives, diversions, embargoes, priorities or expropriations of government or Governmental Authorities, legal or de facto,
whether purporting to act under some constitution, decree, law or otherwise, failure of pipelines or other carriers to transport or
furnish facilities for transportation, failures, disruptions, or breakdowns of machinery or of facilities for production, manufacture,
transportation, distribution, processing or consumption (including, but not by way of limitation, the Pipeline System), failure of
gathering or processing facilities, machinery or equipment, allocation or curtailment by third parties of upstream or downstream
capacity, the necessity for making repairs, alterations, enlargements or connections to, or performing maintenance on, machinery or
facilities of production, manufacture, transportation, distribution, processing or consumption (including, but not by way of
limitation, the Pipeline System), inability to secure or delays in securing rights‑of‑way
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CONFIDENTIAL TREATMENT REQUESTED
and permits, transportation embargoes or failures or delays in transportation or poor road conditions, partial or entire failure of Raw
Make supply and downstream pipeline market constraints.
9.3. Notification. When seeking to rely on the provisions of this Article IX, a Party failing to perform due to an event of
Force Majeure shall:
(a) upon obtaining knowledge of the actual occurrence, or the reasonably likely future occurrence, of the event of
Force Majeure giving rise to the right to rely on Section 9.1, promptly give written notice to the other Party of such event of Force
Majeure and of the obligations expected to be affected thereby;
(b) commence and diligently pursue the taking of commercially reasonable steps to cause the discontinuance of,
and to minimize the effect of, the event of Force Majeure; and
(c) upon the occurrence of any significant development in the process of attempting to discontinue and minimize
the effect of the event of Force Majeure, notify the other Party thereof and provide documentation of such developments.
9.4. Limitations. Notwithstanding anything contained in this Article IX, lack of finances shall not be considered an event
of Force Majeure. The provisions of this Article IX shall not apply so as to suspend the performance of any obligation to make
payment of any amount payable under or in respect of this Agreement and shall not give rise to any extension of the Term. The
suspension of any obligations shall be of no greater scope and of no longer duration than is reasonably required due to the Force
Majeure event, and the affected Party shall use commercially reasonable efforts to overcome or mitigate the effects of such Force
Majeure event.
ARTICLE X
ASSIGNMENT
10.1. Assignments Not Requiring Consent. Either Party may assign this Agreement to any of its Affiliates or, with respect
to Shipper, a purchaser of Shipper’s Interests in the Dedicated Area (subject to Section 10.3), without the consent of the other Party,
in whole or in part, but any such assignment shall not relieve the assigning Party of any of its liabilities, obligations or duties
hereunder, provided, however, in the case of a partial assignment of any of Shipper’s rights and obligations to an Affiliate, Shipper
shall have no further responsibility for the obligations so assigned (subject to Section 10.3), nor shall the assignee have any
responsibility for the responsibilities of Shipper that were not so assigned. Further, in the event of a partial assignment pursuant to
this Section 10.1, Shipper may, in its sole discretion, decide that portion of the Deemed Volume Commitment to be assigned,
provided that the assignee has reasonable capability to tender the Deemed Volume Commitment assigned to it and this Agreement
shall apply to Shipper and its assignee(s) severally.
10.2. Assignment Requiring Consent. Except as provided in Section 10.1, neither Party may assign this Agreement or a
Party’s respective rights and obligations in whole or part under this Agreement without the prior written consent of the other Party,
which consent shall not be unreasonably withheld, delayed or conditioned.
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CONFIDENTIAL TREATMENT REQUESTED
10.3. Conveyance of Interests. Shipper shall cause any conveyance by it of all or any of Shipper’s Interests in the
Dedicated Area to be made expressly subject to the terms of this Agreement, but any such conveyance by Shipper of all or any of
its Interests in the Dedicated Area shall not relieve Shipper of any of its liabilities, obligations or duties hereunder, including, for the
avoidance of doubt, the obligation to cause Dedicated Raw Make attributable to such conveyed Interests in the Dedicated Area to
be delivered to Carrier in accordance with the terms and conditions of this Agreement. Shipper shall cause any successor or assign
of such Interests in the Dedicated Area to agree that it takes such Interests in the Dedicated Area subject to the terms and conditions
of this Agreement, and that it will cause any subsequent purchasers or assignees to do the same.
10.4. Compliance. Any purported assignment of this Agreement that does not comply with the requirements of this Article
X shall be null and void.
10.5. Successors and Assigns. Subject to the preceding subsections of this Article X, this Agreement shall extend to and
inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.
ARTICLE XI
TAXES
Carrier shall not be responsible for, and Shipper hereby agrees to be responsible for, pay and indemnify, defend and hold
harmless Carrier for, any and all Taxes, if any, levied on (i) Shipper Raw Make tendered under this Agreement, including property
Taxes on such Raw Make in the Pipeline System, (ii) the transportation of Shipper Raw Make, or (iii) the provision of Services
hereunder; provided, however, that Shipper shall not be liable hereunder for (x) Taxes (including ad valorem taxes) assessed against
Carrier based on Carrier’s income, revenues, gross receipts, net worth or ownership of the Pipeline System, and (y) state franchise,
license and similar Taxes required for the maintenance of Carrier’s corporate existence. In the event Carrier is required to pay any
Tax described in the first sentence of this Article XI for Shipper, Shipper shall reimburse Carrier for the same upon receipt of
invoice and supporting documentation provided by Carrier. The payment, indemnity, defense and hold harmless obligations set
forth in this Article XI shall survive the termination of this Agreement.
ARTICLE XII
NOTICE AND STATEMENTS
12.1. Notice. Any notice, statement, payment, Claim or other communication required or permitted hereunder shall be in
writing and shall be sent by: (i) facsimile transmission; (ii) delivered by hand; (iii) sent by United States mail with all postage fully
prepaid; or (iv) by courier with charges paid in accordance with the customary arrangements established by such courier. All notices
and communications hereunder shall also be copied by email to the relevant Party at the address set forth below for such Party, in
each of the foregoing cases addressed to the Party at the following addresses:
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CONFIDENTIAL TREATMENT REQUESTED
Carrier
NOTICES AND CORRESPONDENCE:
Alpine High NGL Pipeline LP
Attn: Commercial Operations
17802 IH-10 West, Suite 300
San Antonio, Texas 78257
Electronic Mail: CommercialOperations@apachecorp.com
PAYMENT INSTRUCTIONS:
Alpine High NGL Pipeline LP
c/o [***]
Bank: [***]
Account Name: [***]
ABA: [***]
Account Number: [***]
Shipper
NOTICES AND CORRESPONDENCE:
Such notices, statements, payments, Claims or other communications shall be deemed received as follows: (i) if delivered
personally, upon delivery; (ii) if sent by United States mail, whether by express mail, registered mail, certified mail or regular mail,
the day receipt is refused or is confirmed orally or in writing by the receiving Party; (iii) if sent by a courier service, upon delivery;
or (iv) if sent by facsimile, upon completion of the transmission thereof, except that if such transmission is on any day other than a
Business Day, or on or after 4:00 p.m., Central Clock Time, such notice shall be deemed to be received on the next Business Day.
12.2. Change of Address. Notices of change of address of either of the Parties shall be given in writing to the other Party in
the manner aforesaid and shall be observed in the giving of all future notices, statements, payments, Claims or other
communications required or permitted to be given hereunder.
ARTICLE XIII
MISCELLANEOUS
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CONFIDENTIAL TREATMENT REQUESTED
13.1. Entire Agreement; Amendments. This Agreement and the Exhibits and Schedules hereto constitute the entire
agreement and understanding between the Parties with respect to the subject matter hereof and thereof, supersede all prior
agreements and understandings with respect thereto, and may be amended, restated or supplemented only by written agreement of
the Parties. Notwithstanding the foregoing, the Tariff are subject to amendment by Carrier from time to time subject to Applicable
Law and subject the terms and conditions of this Agreement, provided, however, that the Tariff shall not be amended to degrade or
adversely affect Shipper’s rights under this Agreement or the Tariff.
13.2. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Texas
without giving effect to the conflict of law rules thereof, PROVIDED, HOWEVER, THAT NO LAW, THEORY OR PUBLIC
POLICY SHALL BE GIVEN EFFECT WHICH WOULD UNDERMINE, DIMINISH OR REDUCE THE EFFECTIVENESS OF
EACH PARTY’S WAIVER OF CONSEQUENTIAL, MULTIPLE, INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY OR
PUNITIVE DAMAGES, OR LOSS OF PROFITS OR REVENUES, SET FORTH IN ARTICLE VIII, IT BEING THE EXPRESS
INTENT, UNDERSTANDING, AND AGREEMENT OF THE PARTIES THAT SUCH WAIVERS ARE TO BE GIVEN THE
FULLEST EFFECT, NOTWITHSTANDING ANY PRE-EXISTING CONDITION OR THE NEGLIGENCE (WHETHER SOLE,
JOINT OR CONCURRENT), GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT LIABILITY, OR OTHER LEGAL
FAULT OF ANY PARTY HERETO, OR OTHERWISE.
13.3. Jurisdiction and Venue. The Parties hereby irrevocably consent to the exclusive jurisdiction of the state or federal
courts located in Harris County, Texas and irrevocably and unconditionally waive, to the fullest extent they may legally and
effectively do so, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby in any federal or state court located in Harris
County, Texas.
13.4. No Drafting Presumption. No presumption will operate in favor of or against any Party as a result of any
responsibility that any Party may have had for drafting this Agreement. Shipper and Carrier acknowledge and mutually agree that
this Agreement and all contents herein were jointly prepared by the Parties.
13.5. Waiver. No waiver of any term, provision or condition of this Agreement shall be effective unless in writing signed
by the Parties, and no such waiver shall be deemed to be or construed as a further or continuing waiver of any such term, provision
or condition or as a waiver of any other term, provision or condition of the Agreement, unless specifically so stated in such written
waiver.
13.6. No Third Party Beneficiaries. Except for Persons indemnified hereunder, and only to that extent, this Agreement is
not for the benefit of any third party and nothing herein, expressed or implied, confers any right or remedy upon any Person not a
party hereto.
13.7. No Partnership. It is not the intention of the Parties to create, nor is there created hereby, a partnership, trust, joint
venture or association. The status of each Party hereunder is solely that of an independent contractor.
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CONFIDENTIAL TREATMENT REQUESTED
13.8. Survival. Notwithstanding the termination of this Agreement for any reason, (a) Article V, VI, VII, VIII, XI, XII and
XIII shall survive the termination of this Agreement, and (b) each Party to this Agreement will be liable for all of its accrued
obligations hereunder up to and including the date on which the termination becomes effective.
13.9. Headings. The headings and captions in this Agreement have been inserted for convenience of reference only and
shall not define or limit any of the terms and provisions hereof.
13.10. Rules of Construction. In construing this Agreement, the following principles shall be followed:
(a) examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(b) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding
syntactical variant expressions;
(c) the plural shall be deemed to include the singular and vice versa, as applicable;
(d) all references in this Agreement to an “Article,” “Section,” “subsection,” or “Exhibit” shall be to an Article,
Section, subsection, or Exhibit of this Agreement, unless the context requires otherwise;
(e) unless the context otherwise requires, the words “this Agreement,” “hereof,” “hereunder,” “herein,” “hereby,”
or words of similar import shall refer to this Agreement as a whole and not to a particular Article, Section, subsection, clause or
other subdivision hereof; and
(f) each Exhibit and Schedule to this Agreement is attached hereto and incorporated herein as a part of this
Agreement, but if there is any conflict or inconsistency between the main body of this Agreement and any Exhibit or Schedule, the
provisions of the main body of this Agreement shall prevail, including as to any conflicts with the Tariff such that as between the
main body of this Agreement and the Tariff, the provisions of the main body of this Agreement shall prevail.
13.11. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, (i) the validity,
legality and/or enforceability of the remaining provisions shall not, in any way, be affected or impaired thereby and (ii) in lieu of
such invalid, illegal or unenforceable provision, there shall be automatically added to this Agreement a provision as similar to such
invalid, illegal or unenforceable provision as may be possible and be legal, valid and enforceable.
13.12. Further Assurances. Each Party shall take such acts and execute and deliver such documents as may be reasonably
required to effectuate the purposes of this Agreement.
13.13. No Inducements. No director, employee, or agent of any Party shall give or receive any commission, fee, rebate,
gift, or entertainment of significant cost or value in connection with this Agreement.
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CONFIDENTIAL TREATMENT REQUESTED
13.14. Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which shall be
considered an original, and all of which shall be considered one and the same instrument. Neither Party shall be bound until both
Parties have executed a counterpart. Facsimile or other electronic copies of signatures shall constitute original signatures for all
purposes of this Agreement and any enforcement hereof.
13.15. Confidentiality.
(a) Standard of Care. Each Party agrees that it shall maintain all terms and conditions of this Agreement in
confidence, and that it shall not cause or permit disclosure thereof without the express written consent of the other Party, which
consent shall not be reasonably withheld, delayed, or conditioned. The standard of care to be employed by each Party with respect
to the other Party’s confidential information shall be the standard of care employed by a reasonable person in protecting
confidential information.
(b) Permitted Disclosures. Notwithstanding Section 13.15(a) of this Agreement, disclosures of any terms and
provisions of this Agreement otherwise prohibited may be made by a Party (i) to the extent necessary for such Party to enforce its
rights hereunder against the other Party; (ii) to the extent to which a Party is required to disclose all or part of this Agreement by a
statute or by the order or rule of a court, agency, or other governmental body exercising jurisdiction over the subject matter hereof,
by order, by regulations, or by other compulsory process (including, but not limited to, deposition, subpoena, interrogatory, or
request for production of documents); (iii) to the extent required by the applicable regulations of a securities or commodities
exchange; (iv) to a third Person in connection with a proposed sale or other transfer of a Party’s interest in this Agreement or to a
potential investor, provided such third Person agrees in writing to be bound by confidentiality terms no less restrictive than those set
forth in this Section 13.15; (v) to its own directors, officers, employees, agents and representatives; (vi) to an Affiliate; (vii) to a co-
working interest owner or royalty owner of Shipper Raw Make delivered hereunder, provided such co-working interest owner or
royalty owner agrees in writing to be bound by the terms of this Section 13.15; (viii) to the extent any such terms or provisions
become public information through no fault of any Party; or (ix) to a bank or other financial institution, and their agents and
representatives, in connection with a Party arranging for funding.
(c) Notification. If a Party is or becomes aware of a fact, obligation, or circumstance that has resulted or may result
in a disclosure of any of the terms and conditions of this Agreement authorized by Section 13.15(b)(ii) above, it shall so notify in
writing the other Party promptly and shall provide documentation or an explanation of such disclosure as soon as it is available.
(d) Party Responsibility. Each Party shall be deemed solely responsible and liable for the actions of its directors,
officers, employees, agents, representatives and Affiliates for maintaining the confidentiality commitments of this Section 13.15.
(e) Public Announcements. The Parties agree that prior to making any public announcement or statement with
respect to this Agreement or the transaction represented herein, the Party desiring to make such public announcement or statement
shall provide the other Party with a
21
CONFIDENTIAL TREATMENT REQUESTED
copy of the proposed announcement or statement prior to the intended release date of such announcement. The other Party shall
thereafter consult with the Party desiring to make the release, and the Parties shall exercise their reasonable best efforts to (i) agree
upon the text of a joint public announcement or statement to be made by both such Parties or (ii) in the case of a statement to be
made solely by one Party, obtain approval of the other Party to the text of a public announcement or statement, which approval shall
not be unreasonably withheld, delayed or conditioned. Nothing contained in this Section 13.15 shall be construed to require any
Party to obtain approval of any other Party to disclose information with respect to this Agreement or the transaction represented
herein to any Governmental Authority to the extent required by Applicable Law or necessary to comply with disclosure
requirements of the Securities and Exchange Commission, New York Stock Exchange, or any other regulated stock exchange.
13.16. Compliance with Laws. Both Parties shall, in carrying out the terms and provisions of this Agreement, abide by all
present and future laws of any Governmental Authorities.
13.17. Arm’s Length Negotiations. Each of the Parties acknowledges and agrees that this Agreement is the result of good
faith, arm’s length negotiations which have resulted in an agreement that is fair and equitable to Carrier and Shipper.
13.18. Audit Rights. Each Party, on not less than thirty (30) Days’ prior written notice to the other Party, will have the right
at all reasonable times during the Term of this Agreement, and for twenty-four (24) Months thereafter, to audit the books and
records of the other Party, including the ability to make and retain copies of the same, to the extent reasonably necessary to verify
performance under the terms and conditions of this Agreement, including, without limitation, the accuracy of any statement,
allocation, measurement, computation, charge, or payment made under or pursuant to this Agreement, provided that the auditing
Party will protect the confidentiality of the books and records made available by the other Party. Additionally, each Party shall have
the right to perform site inspections and carry out field visits of the assets and related measurement equipment being audited, upon
request to and in compliance with the safety and other reasonable requirements of the Party whose assets and related measurement
equipment are being audited. Each Party’s right to audit pursuant to this Section 13.18 may not be exercised more than twice a Year.
The Parties shall agree in good faith on a mutually-acceptable time and location to commence any audit initiated hereunder, and
such audit shall be performed in reasonable accommodations at the relevant offices or other work locations of the Party to be
audited. To the extent that the Parties are unable to reach agreement as to an acceptable time and location to commence such audit,
the Parties shall meet at Shipper’s corporate offices in Houston, Texas, during normal business hours, on the third Monday that
follows the notice provided by the Party who requested the audit. The Party subject to the audit shall respond to all exceptions and
claims of discrepancies within one hundred eighty (180) Days of receipt thereof. Notwithstanding anything to the contrary in this
Agreement, the audit rights set forth herein shall survive termination or expiration of this Agreement for a period of twenty-four
(24) Months following termination or expiration.
[Signature page follows]
22
CONFIDENTIAL TREATMENT REQUESTED
IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date.
CARRIER:
ALPINE HIGH NGL PIPELINE LLC
By:
Name:
Title:
Date:
SHIPPER:
[ ]
By:
Name:
Title:
Date:
Signature page to the Transportation Services Agreement
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
TARIFF
(See Attached)
Exhibit A - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
DEDICATED AREA
The Dedicated Area shall mean
[Insert description of property assigned to transferee producer]
Section
Block
Survey
County
WI%
Exhibit B - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
RAW MAKE QUALITY SPECIFICATIONS
COMPONENT
TEST METHOD
SPECIFICATION
Total Methane (See note 5)
Methane % of Ethane (See note 5)
Aromatics
Olefins
Vapor Pressure at 100 deg. F
Copper Strip Corrosion
Volatile Sulfur
Carbon Dioxide
Hydrogen Sulfide
Carbonyl Sulfide
Distillation End Point
Saybolt Color Number
Water Content
Prod. Temp. (>65 mole% Ethane)
Prod. Temp. (<65 mole% Ethane)
Halides (including Fluorides)
Methanol (see note 6)
GPA 2186
GPA 2186
GPA 2186
GPA 2186
ASTM D2598
ASTM D1838
ASTM D2784 or ASTM D5623
GPA 2186
ASTM D2420 or ASTM D5623
ASTM D5623
ASTM D-86
ASTM D156 or ASTM D6045
VISUAL
Thermometer
Thermometer
ASTM D7359
ASTM D7423
0.5 Liq. Vol.% max.
1.5 Liq. Vol.% max.
10.0 Liq. Vol.% max. (of C5+)
1.0 Liq. Vol.% max.(See note 1)
600 psig max.
No. 1 (See notes 2 & 3)
150 ppm wt. max.
0.35 Liq. Vol. % max. (of C2)
Pass
15 ppm wt. max. (of C3)
375 deg. F. max. (See note 4)
+27 min. (See note 4)
No Free Water @ 34 deg.F
90 deg. F. max.
110 deg. F. max.
1 ppm wt. max.(in nC4)
200 ppm wt. max
ON TEST METHODS: Method numbers listed above, beginning with the letter “D”, are American Society for Testing and
Materials (ASTM), Standard Test Procedures. The most recent year’s revision for the procedures will be used.
CONTAMINANTS: The specification defines only the basic purity for this product. The product is to be free of any contamination
that might render the product unusable for its commonly used applications. Specific contaminants include (but are not limited to)
dirt, rust, scale, and all other types of solid contaminants, caustic, amines, chlorides, heavy metals, oxygenates, inerts and any
component added to the product to enhance the ability to meet the specifications.
1. Propylene limited to 5.0 Liq. Vol. % max. of contained Propane, Butylene limited to 0.35 Liq. Vol. % max. of contained
Butanes, and Butadiene limited to 0.01 Liq. Vol. % max. of contained Butanes.
Exhibit C - 1
CONFIDENTIAL TREATMENT REQUESTED
2. Caution – Use a corrosion cylinder rated at a minimum of 1500 psig.
3. The use of corrosion masking agents is strictly prohibited.
4. Distillation and Color to be run on that portion of the mixture having a boiling point of 70 ° F and greater at atmospheric
pressure.
5.
Includes Nitrogen and Oxygen.
6. This is a component specification for product received from injectors to the Alpine High Plants.
Exhibit C - 2
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
PRIOR DEDICATIONS
Exhibit D - 1
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
MEASUREMENT PROCEDURES
ARTICLE I
DEFINITIONS
Acronyms and capitalized terms used in this Exhibit, but not otherwise defined in the Agreement, have the following meanings:
“API” means the American Petroleum Institute.
“ASTM” means ASTM International.
“Base-Line Meter Factor” means the meter proving factor established after meter installation or maintenance that meets API
guidelines for uncertainty and is the reference prove from which subsequent meter proves are compared.
“Component” has the meaning given to such term in the Tariff.
“DCF” means the dimensionless number obtained by dividing the density as determined by the use of the Pycnometer (or such
similar device) by the density as measured by the densitometer.
“EVP” means the equilibrium vapor pressure.
“Flowing Day” means a Day during which the stream to be measured actually flows.
“g/cc” means grams per cubic centimeter.
“GPA” means GPA Midstream.
“Inferred Mass Combined Factor Shift” means the absolute value of the sum of the Meter Factor shift and the DCF factor shift
when used in inferred mass systems.
“Meter Factor” means a dimensionless term obtained by dividing the gross standard volume or mass of liquid passed through the
meter (as measured by a prover during proving) by the corresponding meter indicated volume at standard conditions. For
subsequent metering operations, the throughput or gross measured volume or mass is determined by multiplying the indicated
volume or mass registered by the meter times the Meter Factor.
“MPMS” means the Manual of Petroleum Measurement Standards as published by the API.
“psig” means pounds per square inch gauge.
“Pycnometer” means a double-walled, high-pressure vessel used to prove a densitometer.
“Requesting Party” means the Party requesting the applicable data.
Exhibit E - 1
CONFIDENTIAL TREATMENT REQUESTED
“Sending Party” means the Party providing the applicable data.
ARTICLE II
DESIGN AND INSTALLATION
Section 2.1 General
A. Carrier’s methods, standards, and measurement procedures shall at a minimum meet relevant industry standards.
B. Carrier’s intent is to design, operate, and maintain its custody transfer measurement facilities in a manner to meet or
exceed the criteria set out in the MPMS and to meet or exceed all pertinent governmental regulations.
C. Natural gas liquids, including non-refrigerated ethane, demethanized mix (y-grade), propane, ethane-propane mixes,
propylene, butanes, isomers of butene, and natural gasoline, delivered to or received by Carrier shall be measured by either
volumetric or mass measurement procedures, as determined solely by Carrier, using a flow meter described in MPMS
Chapter 5.
D. The measuring facility shall be operated at a pressure greater than the EVP of the fluid at flowing conditions to ensure
the stream is in a liquid state and contains no vapor, as determined by the appropriate chapter of the MPMS.
E. All equipment employed in metering and sampling, and all equipment upstream and downstream of the measurement
station, which might affect quantity and quality determinations, must be approved by Carrier as to the type, materials of
construction, method of installation, and maintenance. Due consideration shall be given to the operating pressure,
temperature, and characteristics of the Raw Make being measured.
F. References to any API, GPA, ASTM, or similar publications encompass the latest edition, revision, or amendment
thereof. From time to time, these chapters and sections are subject to change by their respective publishers, and such
changes will supersede the specific references contained herein.
Section 2.2 Measurement Equipment and Systems
A. Flow Meters. Flow meters shall be installed in accordance with MPMS Chapter 5.
B. Densitometers and Density Determination.
1.
Where required, densitometers, including Coriolis meters used for determining flowing density, shall be
installed and calibrated in accordance with MPMS, Chapter 14. The output shall be connected directly into a
flow computer capable of internally converting the densitometer’s output signal to corrected flowing density
in g/cc. Proving is to be by entrapping a sample of the flowing stream at system conditions in a Pycnometer.
The connections
Exhibit E - 2
CONFIDENTIAL TREATMENT REQUESTED
for the Pycnometer shall be installed in such manner as to ensure the same representative sample introduced
to the densitometer is captured by the Pycnometer. The accuracy of the densitometer shall be verified at the
time of the meter proving or when accuracy is in question. The accuracy of the densitometer must be within
+/- 0.001 g/cc over the required range and repeatable to +/- 0.0005 g/cc.
Thermowells shall be installed to allow monitoring of the inlet and outlet temperature of the Pycnometer
during calibration.
During a densitometer calibration, the difference between all outlet temperatures and pressures must be
within +/-0.2 °F and +/- 5.0 psi of each other during the proof test.
For polymer grade propylene measurement, a density calculated using MPMS Chapter 11.3.3.2 may be used
for density determination.
For chemical grade propylene measurement, a density calculated using MPMS Chapter 11.3.3.2 may be used
for density determination. When this calculated density is used, the Meter Factor shall be adjusted by a factor
of 0.99871 to account for the composition changes.
For High Purity Isobutylene measured by a mass meter producing a mass pulse output, and mass proved, the
meter does not need a densitometer.
Under no circumstances will a density measurement be utilized for transaction calculations without a proving
or verification of the function during the ticket period.
Verification and calibration data will be supplied to Shipper within ten (10) Days of the procedure.
The proving intervals, tolerances, repairs, and methods of correction are the same as those provided
elsewhere in this Exhibit, and the average of two (2) successive Pycnometer provings will establish Raw
Make flowing density, provided: (i) the two (2) successive provings agree within 0.0005, and (ii) the average
of the two (2) tests is within 0.0015 of the previously accepted calibration factor.
2.
3.
4.
5.
6.
7.
8.
9.
C. Temperature Transmitters. Temperature transmitters shall be verified at the time of the meter proving using a certified
thermometer or precision electronic temperature device. Temperature transmitters must exhibit a discrimination of at most
0.1o F, or better, and a variation from a certified electronic or mercury liquid-in-glass thermometer no greater than 0.5o F.
1 Based on the work of J.E. Gallagher, Shell Pipeline Corporation, “Chemical-Grade Propylene Density Measurement,” July, 1983.
Exhibit E - 3
CONFIDENTIAL TREATMENT REQUESTED
D. Pressure Transmitters. Pressure transmitters shall be verified at the time of meter proving using a reference gauge to
ensure current readings exhibit pressure discrimination of not more than 1.0 psig, and the variation from a certified test
gauge does not exceed 2.0 psig.
E. Flow Computers. Flow computers shall be capable of accepting pulses from the flow meter transmitter and signals from
the pressure, temperature, and density transmitters. The flow computer shall convert, as required, and totalize these signals
into flowing density, corrected flowing density, indicated volume, gross volume, mass, specific gravity at 60o F, and net
volume. The flow computer and its operation shall comply with MPMS Chapter 21. For net volume determinations (for
most Components), the flow computer shall utilize the latest ASTM, API, and GPA standards for temperature and pressure
corrections that are applicable to the Component being measured. The weight of water shall be as provided in the latest
version of GPA 2145.
F. Composite Sampling Systems. Composite sampling is required for Raw Make transacted on a Component Barrel basis
and for quality verification of any Raw Make. The composite sampling system shall be installed and operated in accordance
with GPA Standard 2174. The composite sampler shall be operated to collect flow-proportional samples, based on indicated
volume. These samples shall be accumulated in and removed from floating-piston cylinders with mixing capability.
ARTICLE III
ACCOUNTING
Section 3.1 Custody Transfer Tickets. Unless otherwise provided for by separate agreement, Carrier shall furnish Shipper with a
batch custody transfer ticket, where batch may denote either quantity or time. Further, the batch shall be closed out at the start of
Day on the first Day of the Month or such other period as Carrier, in its sole discretion, may deem appropriate. When provided,
Daily custody transfer tickets are for the period of one Day. For the purposes of determining whether Raw Make meets the
applicable Raw Make Quality Specifications, the composition shall be determined no more often than weekly.
Section 3.2 Volume-Basis Streams. Unless otherwise provided for by separate agreement, for streams transacted on a volume basis
the ticket shall identify the Raw Make and state the net volume in Barrels of Raw Make measured, and all factors associated with its
production.
Section 3.3 Mass-Basis Streams. Unless otherwise provided for by separate agreement, for streams that are transacted on a mass
basis the ticket shall identify the Raw Make, state the total mass measured in pounds, show Raw Make analysis, and show total
Component Barrels (if required). Where required, total pounds mass shall be converted to pounds of each Component based on its
weight fraction as determined by analysis. If required, the Component pounds shall then be converted to equivalent Barrels of each
Component utilizing the calculation procedure outlined in MPMS Chapter 14. The Component density in a vacuum shall be in
accordance to GPA Standard
Exhibit E - 4
2145. If required, the ticket shall identify the Raw Make and state the total mass, Raw Make analysis, and total Component Barrels.
CONFIDENTIAL TREATMENT REQUESTED
ARTICLE IV
MAINTENANCE AND OPERATIONS
Section 4.1 Measurement Basis
A. Mass Measurement
1.
2.
Inferred Mass: Inferred mass measurement is accomplished utilizing a flow-proportional composite sampler
(if required), volumetric flow meter, densitometer, and flow computer to convert gross volumetrically
measured Barrels using density in g/cc at flowing conditions, and corrected for instrument error, to total
pounds mass according to the following formula:
Total Pounds = Indicated Barrels x Meter Factor x Flowing Density (g/cc) x 350.5069 x DCF
Where:
350.5069 is a conversion factor for converting g/cc to pounds/Barrel.
Direct Mass: Coriolis measurement is accomplished by utilizing a Coriolis meter and a flow computer to
accumulate mass pulses from the flow meter transmitter and report in pounds. Measured pounds mass is
calculated according to MPMS Chapter 5.6.
B. Volumetric Measurement. Volumetric measurement may be accomplished utilizing a flow computer, a flow meter
outputting volume pulses, and temperature and pressure transmitters. Where applicable, a densitometer shall be installed. In
the case of purity products, Carrier reserves the right to use a fixed specific gravity at 60o F and 14.696 psia in lieu of a
densitometer for flow calculations. The proper API, ASTM, and GPA standards shall be used to calculate and totalize net
Barrels.
Section 4.2 Provings and Tolerances
A. General
1.
Meter provings, calibration of instruments, and maintenance of measurement equipment will normally be
performed by Carrier personnel, but these functions may be delegated to responsible third-party contractors
under the direction of an Carrier representative.
2.
All provings shall be by the applicable MPMS standard.
Exhibit E - 5
CONFIDENTIAL TREATMENT REQUESTED
3.
For meters outputting a mass pulse:
a.
b.
The prover shall be equipped with a densitometer installed and proved in accordance with MPMS
Chapter 14. However, for polymer and chemical grade propylene, MPMS Chapter 11.3.3.2 may be
used to determine flowing density.
The Coriolis meter shall be proved as an inferred mass proving in accordance with MPMS Chapter
5.6.
4.
For meters outputting a volume pulse:
a.
b.
A live flowing density signal shall be used in the proving calculations.
The density measurement, if present, shall be verified using standard practices as outlined in MPMS
Chapters 14.
5.
Unless otherwise impractical, and unless at least seventy-two (72) hours’ notice is first provided to Shipper to
allow a Shipper representative to be present, no work shall be performed on the measuring element of a meter
without first proving the meter.
B. Proving Intervals
1.
2.
3.
4.
Each meter shall be proven when initially placed into service and immediately prior to and after maintenance.
Subsequent provings shall be made at least every thirty-one (31) Flowing Days, not to exceed forty-five (45)
Flowing Days. However, if operational issues, weather, or unavailability of a prover or prover contractor
prevent the proving within thirty-one (31) Flowing Days, then the proving interval may be extended to forty-
five (45) Flowing Days.
If the consistency of the Meter Factor allows, and both Parties agree, the proving interval between provings
may be extended to up to six (6) Months.
If a Party requests an unscheduled prove, then such Party shall pay for all costs of the unscheduled prove
unless the prove determines the instrumentation is outside of the applicable tolerances. Each Party shall allow
the other Party to witness all provings made to measurement facilities. Proving will be conducted Monthly or
more frequently as the Parties may elect.
C. Meter Factor
1.
When a meter is proved after initially being placed in service, a Base-Line Meter Factor shall be established.
Exhibit E - 6
CONFIDENTIAL TREATMENT REQUESTED
2.
3.
If any maintenance is performed on a meter or a meter is replaced, a new Base-Line Meter Factor shall be
established.
The new Meter Factor shall be used after each successful proving if it meets the proving criteria herein.
D. Ticket Corrections. If the new Meter Factor deviates from the previous Meter Factor under like operating conditions by
more than plus or minus 0.0025, then 1/2 of the volume measured since the previous proving shall be corrected using the
new Meter Factor. If the time of malfunction can be determined by historical data, then the volume measured since that
point in time shall be corrected using the new Meter Factor. The new Meter Factor may not be used to correct volumes
measured more than thirty-one (31) Flowing Days prior to the new proving, unless the Flowing Days between proves
exceeds thirty-one (31) Flowing Days, in which case the correction shall be for the Flowing Days between proves. If a
correction is required, then a correction ticket shall be issued for the quantity corrected.
E. Inferred Mass Combined Factor Shift: The mass measurement objective for inferred mass meters is 0.25% accuracy. In
the inferred mass equation, both the Meter Factor and DCF are weighted equally. Therefore, a corrected meter ticket will
only be written when the absolute value of the sum of the Meter Factor shift and DCF shift is greater than 0.0025. The
following are examples:
1.
2.
Example 1: A meter exhibiting a shift in Meter Factor of 0.0024 combined with a densitometer exhibiting a
DCF shift of -0.0018, would not require a meter ticket correction, as the sum of these two shifts results in a
total factor shift of 0.0006.
Example 2: A meter exhibiting a shift in Meter Factor of -0.0024 combined with a densitometer exhibiting a
DCF shift of -0.0018, would require a meter ticket correction, as the sum of these two shifts results in a total
shift of 0.0042.
F. Corrective Actions
1.
2.
If, as a result of a meter proof, a new Meter Factor deviates more than 0.0025 from the previous Meter Factor
but less than 0.0050 from the Base-Line Meter Factor, then Carrier’s field representative shall determine the
corrective action, if any, to be taken.
If, as a result of a meter proof, the new Meter Factor deviates 0.0050 or more from the Base-Line Meter
Factor, then the Carrier field representative shall determine the corrective action, if any, to be taken, including
removal, inspection, cleaning of the internals, repairing, zero verification, and replacing. If there is build-up
on the internals, then the element or meter shall be cleaned and the meter re-proved. If physical repairs are
made (e.g., replacement of a turbine rotor), then the meter shall be re-proved to establish
Exhibit E - 7
CONFIDENTIAL TREATMENT REQUESTED
3.
4.
a new Base-Line Meter Factor, provided that at least seventy-two (72) hours’ notice is first provided to
Shipper to allow a Shipper representative to be present.
For mechanical flow meters requiring a wear-in period, after a twenty-four (24) hour wear-in period, the
meter shall be re-proved and if the Meter Factor changes more than plus or minus 0.0025 from the new Base-
Line Meter Factor, then half (1/2) of the volume measured shall be corrected using the latest Meter Factor.
For Coriolis meters, if the zero changes or the meter is cleaned, repaired, or replaced, then the meter shall be
re-proved to establish a new Base-Line Meter Factor. The meter shall be zero verified and, if necessary, re-
proved. If the Meter Factor changes more than plus or minus 0.0025 from the new Base-Line Meter Factor,
then 1/2 of the volume measured shall be corrected using the latest Meter Factor.
G. Carrier or its designee shall record all required corrections to measured volumes and shall describe the findings, method
of repair, and calculations used in making the correction on the meter proving report. A correction to the ticketed amount
shall be issued.
H. If Shipper’s representative is not present during the proving, then Carrier shall, if requested by Shipper, within two (2)
Business Days: (i) notify Shipper of the findings; (ii) provide Shipper with a meter proving report stating the findings,
method of repair, and calculations used in making the correction; and (iii) provide Shipper with a correction ticket for the
amount corrected.
Section 4.3 Custody Measurement Station Failure. If a failure occurs on a custody measurement station or the station is out of
service while Raw Make is being delivered, then the volume shall be determined or estimated by one of the following methods in
the order stated, unless the Parties otherwise agree:
A. by using data recorded by any accurately registering check measuring equipment; or
B. by correcting the error if the percentage error can be ascertained by calibrations, tests, or mathematical calculations.
Section 4.4 Sampling Procedures. For all sampling procedures and activities detailed below, at least seventy-two (72) hours’ prior
notice shall first be provided to Shipper to allow a Shipper representative to be present for any such procedures.
A. Flow proportional composite samples shall be removed from the composite sampler at the same time the meter is read
and a custody ticket issued.
Exhibit E - 8
CONFIDENTIAL TREATMENT REQUESTED
B. Samples shall be analyzed pursuant to the appropriate test method specified by the applicable Raw Make Quality
Specifications.
C. Three samples shall be taken from the composite sampler. One sample shall be retained by Carrier for analysis, the
second sample shall be retained by Shipper for analysis, and the third shall be held as a referee. If Carrier has taken custody,
then its sample shall be analyzed and the analysis used to account for transfer. If Shipper has taken custody, then its sample
shall be analyzed using the Carrier-specified test method and the analysis used to account for transfer.
D. If requested, the referee samples shall be held for a period as agreed upon by the connecting Party or a minimum of
thirty (30) Days from the date of sampling.
E. If a malfunction of the sampling occurs resulting in no sample being taken or in an unrepresentative sample being
obtained, then the following procedure shall be utilized in the order stated:
1.
2.
3.
4.
the sample collected by any on-stream, back-up sampling device that has extracted a sample in proportion to
the volume delivered shall be used;
an average of the composite samples taken over the previous three (3) Months of properly sampled deliveries
shall be used, unless the Parties otherwise agree;
Daily grab samples shall to be used for the time in question; or
such other method as the Parties may agree upon shall be used.
F. Quality Testing. Where multiple sampling methods are allowed, Carrier, in its sole discretion, will determine the
preferred method.
G. Cost of Referee Sample Analysis. If, as a result of the third-party laboratory analyzing the referee sample, the Carrier
analysis is used, then Shipper is responsible for the applicable third-party laboratory costs. If, as a result of the third-party
laboratory analyzing the referee sample, Shipper analysis is used, then Carrier is responsible for the applicable third-party
laboratory costs.
ARTICLE V
MEASUREMENT DISPUTE RESOLUTION
Section 5.1 Mass and Volume Metering. If both the Carrier metering facility and the Shipper metering facility are installed,
operated, and maintained according to their respective measurement standards, both of which shall meet or exceed API standards,
and the difference in measurement of mass or volume is less than or equal to 0.25%, then Carrier’s measurement of mass or
volume, whichever the case may be, will be deemed correct. If the difference is more than 0.25%, then
Exhibit E - 9
CONFIDENTIAL TREATMENT REQUESTED
Carrier and Shipper shall resolve the dispute by working together, using the best available information.
Section 5.2 Analytical. Analytical disputes must be based upon laboratory analysis, using the Carrier-specified test method, of
both the Carrier sample and the Shipper sample from the custody sampler (as described above). After analyzing their respective
samples according to the Carrier-specified test method, if Shipper and Carrier are in disagreement, then they shall each send the
other a copy of their respective sample results, and if the sample results differ by more than the GPA 2186/2177 reproducibility
limits for one or more components, then the referee sample shall be taken to Coastal Flow Measurement, which shall analyze the
sample in accordance with the Carrier-specified test method. If the third-party laboratory and Carrier analyses disagree by more
than the GPA 2186/2177 reproducibility limits for one or more Components, then the third-party lab results shall be accepted by
Shipper and Carrier as final and conclusive for the composition of the stream. If the third-party laboratory and Carrier analyses
agree within the reproducibility limits of GPA 2186/2177, then the Carrier analysis shall be accepted by Shipper and Carrier as final
and conclusive for the composition of the stream.
ARTICLE VI
WITNESSING
Section 6.1 Provings. Carrier and Shipper are each responsible for proving its respective measurement facilities. Each Party shall
allow the other Party to witness all provings. For scheduled measurement facilities provings, a Party shall give the other Party at
least seventy-two (72) hours’ advance written notice of the date and time of the scheduled prove.
Section 6.2 Use of out-of-tolerance equipment. A Shipper’s witness signature does not constitute the approval of the use of out-of-
tolerance equipment, but said signature does attest to the validity of the proving report.
ARTICLE VII
DATA ACCESS
Section 7.1 Data Access. Requesting Party may access Sending Party’s electronic measurement equipment to acquire certain data
as further described below. Requesting Party will only have access to such electronic measurement data in a format established by
Sending Party, which will not interfere with the operation of Sending Party’s facilities. Requesting Party recognizes that the data
acquired from any electronic equipment is “raw” data, subject to further refinement, correction, and/or interpretation. Sending Party
has no obligation to provide data to Requesting Party during times of maintenance, repair, or other activities by Carrier that
interrupt operations and/or due to events of Force Majeure. Sending Party has no obligation to advise Requesting Party of any such
interruptions, or otherwise to verify the integrity of such data at any time. Sending Party shall make necessary connections to its
electronic measurement equipment to provide Requesting Party with the following categories of data:
A. pressure;
Exhibit E - 10
CONFIDENTIAL TREATMENT REQUESTED
B. temperature;
C. instantaneous flow;
D. total flow today; and
E. such other data as the Parties may agree to in writing.
Section 7.2 Data Transfer. Data transfer will occur via a serial data link between Carrier and Shipper. Shipper is responsible for the
data and communications beyond this connection.
Section 7.3 SCADA. Flow and metering data gathered and sent via SCADA monitoring equipment will not be used to determine
Raw Make quality and quantity for custody transfer calculations.
ARTICLE VIII
RIGHT TO CHANGE
Carrier reserves the right, from time to time, to make: (1) non-substantive changes to this Exhibit; and (2) changes to this Exhibit
driven by industry practice, governmental regulations, or Carrier’s reasonable operational requirements. Such changes will be made
on a non-discriminatory basis to similarly situated shippers, and such changes will become effective thirty (30) Days after written
notice of the changes is sent to Shipper.
Exhibit E - 11
CONFIDENTIAL TREATMENT REQUESTED
SCHEDULE A
ORIGIN POINTS, DESTINATION POINTS,
DEEMED VOLUME COMMITMENT AND RATES
Note: The Priority Rate shall be subject to adjustment as set forth in Section 5.2 of this Agreement.
Pipeline Segment
Destination Point (place an X
in the column for the desired Destination Point)
[***]
X
X
Origin Point
[ ]
[***]
Shipper’s Deemed
Volume Commitment
(BPD)
Priority Rate ($ per
Barrel)
[ ]
[ ]
[$[***] (insert then-
effective rate under
Apache anchor shipper
contract)]
[$[***] (insert then-
effective rate under
Apache anchor shipper
contract)]
Schedule A - 1
Exhibit 10.19
ALTUS MIDSTREAM COMPANY
RESTRICTED
STOCK UNITS PLAN
Section 1.
Establishment, Purpose and Effective Date of the Plan.
(a) Establishment. Altus Midstream Company, a Delaware corporation (hereinafter referred to, together with its Affiliates
(as defined below) as the “Company” except where the context otherwise requires), hereby establishes the Altus Midstream
Company Restricted Stock Units Plan (the “Plan”).
(b) Purpose. The purpose of the Plan is to provide Eligible Persons (as defined below) designated by the Committee (as
defined below) for participation in the Plan with equity-based incentives to: (i) encourage such individuals to continue in the long-
term service of the Company and its Affiliates, (ii) create in such individuals a more direct interest in the future success of the
operations of the Company, (iii) attract outstanding individuals, and (iv) retain and motivate such individuals. The Plan is intended
to provide Eligible Persons with the opportunity to acquire cash compensation related to the stock value of the Company and more
closely align the compensation of such individuals with the interests of the Company’s stockholders.
(c) Effective Date. The Effective Date of the Plan (the “Effective Date”) is ______________________________.
Section 2. Definitions. The following terms shall have the meanings set forth below:
(a) “Affiliate” means any entity other than the Company that is affiliated with the Company through stock or equity
ownership or otherwise and is designated as an Affiliate for purposes of the Plan by the Committee.
(b) “Award” means the grant of Restricted Stock Units or Divided Equivalents to a Participant under the Plan.
(c) “Board” means the Board of Directors of the Company.
(d) “Change of Control” shall mean a “Change of Control” of Apache Corporation and shall have the meaning assigned to
such term in Apache Corporation’s Income Continuance Plan; provided that, in any event in which compensation payable pursuant
to this Plan would be subject to the tax under Section 409A, then “Change of Control” means an event that satisfies both (i) the
requirements as stated in Apache Corporation’s Income Continuance Plan, and (ii) the requirements of a “change in control event”
within the meaning of Treasury Regulations § 1.409A-3(i)(5).
(e) “Committee” means the Compensation Committee of the Company.
(f) “Dividend Equivalent” means a right, granted to an Eligible Person, to receive cash equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic payments.
(g) “Eligible Persons” mean those employees of the Company or of any Affiliates, members of the Board, and members
of the board of directors of any Affiliates who are designated as Eligible Persons by the Committee.
(h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(i) “Fair Market Value” means the fair market value of a share of Stock as determined by the Committee by reasonable
application of a reasonable valuation method, consistently applied, as the Committee deems appropriate; provided, however, that if
the Committee has not made such determination, such fair market value shall be the per share closing price of the Stock as reported
on NASDAQ; provided further, however, that if on the date Fair Market Value is to be determined there are no transactions in the
Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock.
For purposes of the foregoing, a valuation prepared in accordance with any of the methods set forth in Treasury Regulation Section
1.409A-1(b)(5)(iv)(B)(2), consistently used, shall be rebuttably presumed to result in a reasonable valuation. This definition is
intended to comply with the definition of “fair market value” contained in Treasury Regulation Section 1.409A-1(b)(5)(iv) and
should be interpreted consistently therewith.
(j) “Internal Revenue Code” or “Code” means the Internal Revenue Code of 1986, as it may be amended from time to
time, and any successor thereto. Any reference to a section of the Internal Revenue Code or Treasury Regulation shall be treated as
a reference to any successor section.
(k) “Involuntary Termination” means the termination of employment of a Participant by the Company or its successor for
any reason; provided, that the termination does not result from an act of the Participant that constitutes common law fraud, a felony,
or gross malfeasance of duty.
(l) “Participant” means an Eligible Person designated by the Committee, from time to time during the term of the Plan, to
receive one or more Awards under the Plan.
(m) “Restricted Stock Unit” means a right, granted to an Eligible Person under Section 5 hereof, to receive the Fair Market
Value of a share of Stock in cash at the end of a specified vesting period or upon the occurrence of a specified event.
(n) “Restricted Stock Units Agreement” means an agreement providing for the Award of Restricted Stock Units.
(o) “Restriction Period” has the meaning set forth in subsection 5.2.
2
(p) “Section 409A” shall have the meaning set forth in subsection 5.2.
(q) “Specified Employee Payment Date” shall have the meaning set forth in subsection 17.2.
(r) “Stock” means the $0.0001 par value Class A common stock of the Company and or any security into which such
common stock is converted or exchanged upon merger, consolidation, or any capital restructuring (within the meaning of Section 6)
of the Company.
(s) “Voluntary Termination with Cause” occurs upon a Participant’s separation from service of his own volition and one or
more of the following conditions occurs without the Participant’s consent:
(i)
There is a material diminution in the Participant’s base compensation, compared to his/her rate of base
compensation on the date of the Change of Control.
(ii)
There is a material diminution in the Participant’s authority, duties, or responsibilities.
(iii)
There is a material change in the geographic location at which the Participant must perform his/her service,
including, for example the assignment of the Participant to a regular workplace that is more than 50 miles
from his regular workplace on the date of the Change of Control.
The Participant must notify the Company of the existence of one or more adverse conditions specified in clauses (i) through (iii)
above within 90 days of the initial existence of the adverse condition. The notice must be provided in writing to Altus Midstream
Company’s Senior Vice President, Human Resources or his/her delegate. The notice may be provided by personal delivery or it may
be sent by email, inter-office mail, regular mail (whether or not certified), fax, or any similar method. The Altus Midstream
Company’s Senior Vice President, Human Resources or his/her delegate shall acknowledge receipt of the notice within 5 business
days; the acknowledgement shall be sent to the Participant by certified mail. Notwithstanding the foregoing provisions of this
definition, if the Company remedies the adverse condition within 30 days of being notified of the adverse condition, no Voluntary
Termination with Cause shall occur.
(t) Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall
also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.
Section 3. Administration of the Plan.
3
3.1 Administration by the Committee. The Plan shall be administered by the Committee. In accordance with the
provisions of the Plan, the Committee shall, in its sole discretion, adopt rules and regulations for carrying out the purposes of the
Plan, including, without limitation, the authority to:
(a)
(b)
(c)
(d)
Grant Awards;
Select the Eligible Persons and the time or times at which Awards shall be granted;
Determine the type of Awards and number of Awards to be granted, the number of shares of Stock to which
an Award may relate and the terms, conditions, and restrictions relating to any Award;
Determine whether, to what extent, and under what circumstances an Award may be settled, canceled,
forfeited, exchanged, or surrendered;
(e) Construe and interpret the Plan and any Award;
(f)
Prescribe, amend, and rescind rules and procedures relating to the Plan;
(g) Determine the terms and provisions of Award agreements;
(h)
(i)
Appoint designees or agents (who need not be members of the Committee or employees of the Company) to
assist the Committee with the administration of the Plan;
Communicate the material terms of each Award to its recipient within a relatively short period of time after
approval; and
(j)
Make all other determinations deemed necessary or advisable for the administration of the Plan.
3.2 Committee Discretion. The Committee shall, in its absolute discretion, and without amendment to the Plan, have the power to
waive or modify, at any time, any term or condition of an Award that is not mandatory under this Plan.
3.3 Indemnification. No member of the Committee shall be liable for any action, omission, or determination made in good faith.
The Company shall indemnify (to the extent permitted under Delaware law) and hold harmless each member of the Committee and
each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the
Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission, or determination relating to the Plan, unless, in either
case, such action, omission, or determination was taken or made
4
by such member, director, or employee in bad faith and without reasonable belief that it was in the best interests of the Company.
The determination, interpretations, and other actions of the Committee pursuant to the provisions of the Plan shall be binding and
conclusive for all purposes and on all persons.
3.4 Committee Delegation. The Committee may from time to time adopt such rules and regulations for carrying out the purposes
of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an administrative agent,
who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan
and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any
dispute. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan, or in any Award
agreement entered into hereunder, in the manner and to the extent it shall deem expedient, and it shall be the sole and final judge of
such inconsistency.
Section 4. Participation.
4.1 Participant. Participants in the Plan shall be those Eligible Persons who, in the judgment of the Committee, are
performing, or during the term of their incentive arrangement will perform, vital services in the management, operation, and
development of the Company or an Affiliate, and significantly contribute, or are expected to significantly contribute, to the
achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or
more Awards; provided, however, that the grant of each such Award shall be separately approved by the Committee, and receipt of
one such Award shall not result in automatic receipt of any other Award. Upon determination that an Award is to be granted to a
Participant, as soon as practicable, written notice shall be given to such person, specifying the terms, conditions, rights, and duties
related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the
Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights, and
duties. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be
the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any
such agreement entered into hereunder, the provisions of the Plan shall govern.
Awards granted to members of the Board shall be recommended to the full Board by the Committee and approved by the full Board.
In the event the Committee does not consist of at least two “non-employee directors” (as defined in Rule 16b-3 under the Exchange
Act), Awards granted to Participants, other than members of the Board, who are subject to the reporting requirements of Section 16
of the Exchange Act shall be recommended to the full Board by the Committee and approved by the full Board.
4.2 Notification to Participants and Delivery of Documents. As soon as practicable after such determinations have been
made, each Participant shall be notified of (a) his/her designation as a Participant, (b) the date of grant, (c) the number and type of
5
Awards granted to the Participant, and (d) any other material terms or conditions imposed by the Committee with respect to the
Award.
4.3 Delivery of Award Agreement. This requirement for delivery of a written Award agreement is satisfied by electronic
delivery of such agreement provided that evidence of the Participant’s receipt of such electronic delivery is available to the
Company and such delivery is not prohibited by applicable laws and regulations.
Section 5. Restricted Stock Units.
5.1 Restricted Stock Unit Award Limits. In each calendar year, the aggregate number of Restricted Stock Units which may
be awarded to a Participant shall not exceed a number of Restricted Stock Units for which the aggregate Fair Market Value of the
underlying shares of Stock related to such Restricted Stock Units on the date of the Award is $300,000.00.
5.2 Restriction Period. At the time an Award of Restricted Stock Units is made, the Committee shall establish the terms
and conditions applicable to such Award, including the period of time (the “Restriction Period”) during which certain restrictions
established by the Committee shall apply to the Award. Each such Award, and designated portions of the same Award, may have a
different Restriction Period. Restricted Stock Units may or may not be subject to Section 409A of the Internal Revenue Code
(“Section 409A”). If they are subject to Section 409A, the grant of Restricted Stock Units must contain the provisions needed to
comply with the requirements of Section 409A, including but not limited to (i) the timing of any election to defer receipt of the cash
in an amount equal to the Fair Market Value of a specified number of shares of Stock covered by the Restricted Stock Units beyond
the date of vesting, (ii) the timing of any payout election, and (iii) the timing of the settlement of a Restricted Stock Unit. Restricted
Stock Units that are subject to Section 409A may be adjusted to reflect any Dividend Equivalent paid on the Stock covered by a
Restricted Stock Unit between the date of grant and the date the Restricted Stock Unit vests, but only to the extent permitted in IRS
guidance of general applicability.
5.3 Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to Participants, which are rights to
receive cash in an amount equal to the Fair Market Value of specified number of shares of Stock covered by the Restricted Stock
Units at the end of a specified deferral period. Settlement of an Award of Restricted Stock Units shall occur as specified for such
Restricted Stock Units by the Committee in the related Restricted Stock Units Agreement. In addition, Restricted Stock Units shall
be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose, if any, which restrictions may
lapse at the expiration of the vesting or deferral period, as the case may be, or at earlier specified times, separately or in
combination, in installments or otherwise, as the Committee may determine. Restricted Stock Units shall be satisfied by the
delivery of cash in the amount equal to the Fair Market Value of the specified number of shares of Stock covered by the Restricted
Stock Units.
5.4 Deferral of Receipt of Restricted Stock Units. With the consent of the Committee, a Participant who has been granted a
Restricted Stock Unit may, by compliance
6
with the then applicable procedures under the Plan, irrevocably elect in writing to defer receipt of all or any part of any distribution
associated with that Restricted Stock Unit Award in accordance with either the terms and conditions specified under the Restricted
Stock Units Agreement and related documents. The terms and conditions of any such deferral, including, but not limited to, the
period of time for, and form of, election; the manner of payout; and the use of Dividend Equivalents with respect to any Restricted
Stock Units shall be as determined by the Committee. The Committee may, at any time and from time to time, but prospectively
only except as hereinafter provided, amend, modify, change, suspend, or cancel any and all of the rights, procedures, mechanics,
and timing parameters relating to such deferrals. In addition, the Committee may, in its sole discretion, accelerate the payout of such
deferrals (and any earnings thereon), or any portion thereof, either in a lump sum or in a series of payments, but only to the extent
that the payment or the change in timing of the payment will not cause a violation of Section 409A.
Section 6. Reorganization of the Company and Adjustment in Number of Units.
6.1 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its
outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock
dividend or any other distribution upon such shares payable in Stock or rights to acquire Stock, or through a Stock split, reverse
Stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Stock (any of the foregoing
being herein called a “capital restructuring”), then in relation to the Stock that is affected by one or more of the above events, the
Committee, in its sole discretion, may equitably and proportionally adjust the number of Restricted Stock Units, previously awarded
to each Participant and the maximum number of Restricted Stock Units which may be awarded under the Plan to appropriately
reflect the occurrence of each event. Adjustments, if any, made by the Committee under this subsection 6.1 shall be final and
binding on all Participants, provided that no adjustment shall cause any award of Restricted Stock Units to be subject to Section
409A.
6.2 Other Changes in Stock. In the event there shall be any change, other than as specified in subsection 6.1 hereof, in the
number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which
it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an
adjustment in the number or kind of shares subject to outstanding Awards or which have been reserved for issuance pursuant to the
Plan but are not then subject to an Award, then such adjustments shall be made by the Committee and shall be effective for all
purposes of the Plan and on each outstanding Award that involves the particular type of stock for which a change was effected.
6.3 Reorganization or Liquidation. In the event that the Company is merged or consolidated with another corporation and the
Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding
voting stock of the Company is acquired by any other corporation, business entity, or person, or in case of a reorganization (other
than a reorganization under the United States Bankruptcy Code)
7
or liquidation of the Company, then the Committee, or the board of directors of any corporation assuming the obligations of the
Company, shall, as to the Plan and outstanding Awards make appropriate provision for the adoption and continuation of the Plan by
the acquiring or successor corporation and for the protection of any holders of such outstanding Awards by the substitution on an
equitable basis of appropriate stock of the Company or of the merged, consolidated, or otherwise reorganized corporation which
will be issuable with respect to the Stock.
6.4 Determination by the Committee, Etc. Adjustments under this Section 6 shall be made by the Committee, whose
determinations with regard thereto shall be final and binding upon all parties.
Section 7. Vesting and Forfeitures.
7.1 Change of Control. In the event of occurrence of a Change of Control and unless otherwise provided in an applicable
Restricted Stock Unit Agreement, without further action by the Committee or the Board, all unvested Restricted Stock Units shall
fully vest upon the Participant’s Involuntary Termination or Voluntary Termination with Cause occurring on or after a Change of
Control.
7.2 Termination of Employment. Except as provided herein, the treatment of an Award upon a termination of employment
or any other service relationship by and between a Participant and the Company or an Affiliate shall be specified in the agreement
controlling such Award.
7.3 Termination for Cause. If the employment of the Participant by the Company is terminated for cause, as determined by
the Committee, all Awards to such Participant shall thereafter be void for all purposes. As used in subsection 7.3 hereof, “cause”
shall mean an act of the Participant that constitutes common law fraud, a felony, or gross malfeasance of duty. The effect of this
subsection 7.3 shall be limited to determining the consequences of a termination and that nothing in this subsection 7.3 shall restrict
or otherwise interfere with the Company’s discretion with respect to the termination of any employee.
Section 8. Prohibition Against Assignment or Encumbrance. Except as set forth in Section 11 and as otherwise
provided in a Restricted Stock Units Agreement, no right, title, interest or benefit under a Restricted Stock Units Agreement shall
ever be transferable or liable for or charged with any of the torts or obligations of a Participant or any person claiming under a
Participant, or be subject to seizure by any creditor of a Participant or any person claiming under a Participant. No Participant or
any person claiming under a Participant shall have the power to anticipate or dispose of any right, title, interest or benefit under a
Restricted Stock Units Agreement in any manner until the benefit shall have been actually distributed free and clear of the terms of
the Plan.
Section 9. Nature of the Plan. The Plan and any Restricted Stock Units Agreement shall constitute an unfunded,
unsecured obligation of the Company to make payments in accordance with the provisions of the Plan and any Restricted Stock
Units
8
Agreement. Neither the establishment of the Plan, the awarding and vesting of Restricted Stock Units nor the determination of any
amounts to be paid under the Plan or any Restricted Stock Units Agreement shall be deemed to create a trust. No Participant shall
have any security or other interest in any assets of the Company, in Stock, or otherwise.
Section 10. Employment Relationship. For all purposes of the Plan, a Participant shall be considered to be in the
employment of the Company or its Affiliates as long as he or she remains employed on a full-time basis by the Company or its
Affiliates. Nothing in the adoption of the Plan or the awarding of Restricted Stock Units shall confer on any Participant the right to
continued employment by the Company or its Affiliates or affect in any way the right of the Company or its Affiliates to terminate
such employment at any time. Any question as to whether and when there has been a termination of a Participant's employment and
the cause of such termination shall be determined by the Committee, and its determination shall be final.
Section 11. Beneficiary Designation. Each Participant under the Plan may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the case of the
death or disability of the Participant before he or she receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during his or her lifetime. In the absence of any such designation, benefits remaining
unpaid at the Participant's death shall be paid to his or her estate.
Section 12. Amendment and Termination of the Plan. The Board in its sole discretion may terminate the Plan at any
time with respect to any Restricted Stock Units which have not theretofore been awarded to Participants. Notwithstanding the
foregoing and except as set forth in the last sentence below, the Plan shall terminate upon the tenth (10th) anniversary of the
Effective Date, and no Restricted Stock Units may be awarded under the Plan after such date. Notwithstanding any other provision
of the Plan, the Committee shall approve any and all Restricted Stock Units Agreements, any and all alterations or amendments to
the Plan and any Restricted Stock Units Agreement, who is to execute a Restricted Stock Units Agreement on behalf of the
Company, interpret the Plan and any Restricted Stock Units Agreement and prescribe and rescind rules with respect to the
administration of the Plan and any Restricted Stock Units Agreement. The Board shall have the right to alter or amend the Plan or
any part thereof from time to time, except that no alteration or amendment shall impair the rights of a Participant with respect to
Restricted Stock Units theretofore awarded to that Participant without that Participant's consent. The Plan shall remain in effect
until the earlier to occur of (i) the tenth (10th) anniversary of the Effective Date or (ii) all Restricted Stock Units awarded under the
Plan have been settled or expired.
Section 13. Tax Withholding. The Company is authorized to withhold from any payment related to a Restricted Stock
Unit under this Plan, amounts of withholding and other taxes or social security payments due or potentially payable in connection
with any transaction involving a Restricted Stock Unit, and to take such other action as the Committee may deem advisable to
enable the Company and Participants to satisfy obligations for the payment of
9
withholding taxes and other taxes or social security obligations relating to any Restricted Stock Unit. This authority shall include
authority to withhold cash payments under a Restricted Stock Units Agreement in satisfaction of a Participant’s tax obligations.
Section 14. Requirements of Law. The awarding of Restricted Stock Units shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
Section 15. Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed
by the laws of the State of Texas.
Section 16. Unfunded Plan. The Plan shall not be a "funded plan" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended. The Company shall not be required to establish any special or separate fund or to make
any other segregation of funds or assets to assure the payment of any amount hereunder.
Section 17. Code Section 409A.
17.1 General Compliance. This Plan and any related Restricted Stock Units Agreements are intended to comply with
Section 409A, or an exemption thereunder and shall be construed and administered in accordance with Section 409A or such
exemption. Notwithstanding any other provision of this Plan and any related Restricted Stock Units Agreement, payments provided
under this Plan and any related Restricted Stock Units Agreement may only be made upon an event and in a manner that complies
with Section 409A or an applicable exemption. Any payments under this Plan and any related Restricted Stock Units Agreement
that may be excluded from Section 409A, either as separation pay due to an involuntary separation from service or as a short-term
deferral, shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each payment
provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Plan and any related
Restricted Stock Units Agreement upon a termination of employment shall only be made upon a “separation from service” under
Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided
under this Plan and any related Restricted Stock Units Agreement comply with Section 409A and in no event shall the Company be
liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of
non-compliance with Section 409A.
17.2 Specified Employees. Notwithstanding any other provision of this Plan and any related Restricted Stock Units
Agreement, if any payment or benefit provided to a Participant in connection with his termination of employment is determined to
constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Participant is determined to be a
“specified employee” as defined under Section 409A, then such payment or benefit shall not be paid until the first payroll date to
occur following the six-month anniversary of the date of the Participant’s separation from service or, if earlier, on the Participant’s
death (the “Specified Employee Payment Date”). The aggregate of any payments that would otherwise have been paid before the
Specified Employee Payment Date
10
shall be paid to the Participant in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments
shall be paid without delay in accordance with their original schedule.
Section 18. Other Employee Benefits. The amount of any income deemed to be received by a Participant as a result of
the payment under an Award shall not constitute “earnings” or “compensation” with respect to which any other employee benefits
of such Participant are determined, including without limitation benefits under any pension, profit sharing, life insurance, or salary
continuation plan.
APPROVED by the Board of Directors of ALTUS MIDSTREAM COMPANY on this 17th day of December, 2018.
ALTUS MIDSTREAM COMPANY
/s/ Dominic J. Ricotta
Print Name: Dominic J. Ricotta
Print Title: Senior Vice President, Human Resources
11
ALTUS MIDSTREAM COMPANY
Non-Employee Directors’ Restricted Stock Units Plan
Restricted Stock Unit Award Agreement
Exhibit 10.20
This Agreement is made as of the [date], between Altus Midstream Company, a Delaware corporation (the “Company”),
and [Name] (the “Director”).
1. Grant of Restricted Stock Units. Pursuant to the Restricted Stock Units Plan (the “Plan”), the Company hereby
grants to the Director, as of the date of this Agreement, a Restricted Stock Unit award (an “RSU Award”) of
Restricted Stock Units (“RSUs”) the number of which is calculated by dividing $[______] by the Fair Market Value
(as defined in the Plan) of a share of Stock (as defined below) on the grant date. Each RSU is equivalent in value
to one share of the Company's Class A common stock, par value $0.0001 per share (the “Stock”). The number of
RSUs may be adjusted pursuant to the terms of the Plan, including, but not limited to the terms set forth in Sections
6.1 through 6.4 of the Plan.
2. Director Bound by Plan. Attached is a copy of the Plan which is incorporated herein by reference and made a part
hereof. The Director acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the
Plan.
3. Restrictions. The RSU Award is subject to the following restrictions:
(a) One hundred percent (100%) of this RSU Award shall vest on the third anniversary of the grant date, whether
the Director remains a member of the Board on such date or not.
4. Privileges of a Stockholder and Payment. The Director shall have no voting, dividend, liquidation, and other rights
of a stockholder of the Company with respect to any RSU. The RSU Award entitles the Director to receive an
amount of cash equal to the Fair Market Value of the number of shares of Stock underlying the RSUs and
comprising the RSU Award. Upon vesting, the applicable amount of cash, subject to required tax withholding, shall
be paid by the Company to the Director within thirty (30) days of the vesting date set forth in Section 3(a) above.
There are three situations that could change this payout schedule. First, if there is a Change of Control, the Director
will receive a full payout within thirty (30) days following a Change of Control. Second, if the Director dies, his
beneficiary or beneficiaries will be paid out four months after the Director’s death (in order to give each beneficiary
the opportunity to disclaim). Third, if the Director gets a divorce, some or all of the Director’s RSU Award may be
paid out to his or her former spouse, if the former spouse obtains an appropriate court order.
1
#5834549.2
Exhibit 10.20
6. Amendment, Modification, and Termination. The Board or the Committee may at any time terminate, and from time
to time may amend or modify this Agreement; provided however, if stockholder approval is required to enable the
Plan or this Agreement to satisfy any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary or desirable, then no amendment
or modification may become effective without approval of the amendment or modification by the stockholders of the
Company. No amendment, modification, or termination of the Plan shall in any manner materially adversely affect
the RSUs granted pursuant to this Agreement without the consent of the Director.
7. Administration. Any action taken or decision made by the Company, the Board, or the Committee or its delegates
arising out of or in connection with the construction, interpretation, or effect of the Plan or this Agreement shall lie
within its sole and absolute discretion, as the case may be, and shall be final, conclusive, and binding on the
Director and all persons claiming under or through the Director. By accepting this RSU Award, the Director and all
persons claiming under or through the Director shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken under the Plan by the Company, the Board, or the Committee or its
delegates.
8.
Investment Representation. The Director hereby acknowledges that the RSUs issued pursuant to this RSU
Award shall be acquired for investment without a view to distribution, within the meaning of the Securities
Act of 1933, as amended, and shall not be sold, transferred, assigned, pledged, or hypothecated.
9. No Right to Continue as Director. Nothing contained in the Plan or in this Agreement shall interfere with or limit in
any way the right of the stockholders of the Company to remove the Director from the Board pursuant to the bylaws
or the certificate of incorporation of the Company, nor confers upon the Director any right to continue in the service
of the Company.
10. Notices. Any notice hereunder to the Company shall be addressed to: Altus Midstream Company, One Post Oak
Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400, Attention: Corporate Secretary. Any
notice to the Director shall be addressed to the Director at the Director's last address on the records of the
Company, subject to the right of either party to designate at any time hereafter in writing some other address. Any
notice shall be deemed to have been duly given when delivered personally or enclosed in a properly sealed
envelope, addressed as set forth above, and deposited (with first class postage prepaid) with the United States
Postal Service.
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11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company
and all persons lawfully claiming under or through the Director.
12. Governing Law. The validity, construction, interpretation, administration, and effect of the Plan and this Agreement,
and of its rules and regulations, and rights relating to the Plan and to this Agreement, shall be governed by the
Internal Revenue Code or by the substantive laws, but not the choice of law rules, of the State of Texas.
IN WITNESS WHEREOF, the Company and the Director have executed this Agreement as of the date first set forth
above.
Exhibit 10.20
ALTUS MIDSTREAM COMPANY
By:
Dominic J. Ricotta
Senior Vice President, Human Resources
DIRECTOR
[Director Name
#5834549.2
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Altus Midstream Company (a Delaware corporation) Exhibit 21.1
Listing of Subsidiaries as of December 31, 2018
Exact Name of Subsidiary and Name Jurisdiction of
under which Subsidiary does Business Incorporation or Organization
Altus Midstream GP LLC Delaware
Altus Midstream LP Delaware
Alpine High Subsidiary GP LLC Delaware
Alpine High Gathering LP Delaware
Alpine High Processing LP Delaware
Alpine High NGL Pipeline LP Delaware
Alpine High Pipeline LP Delaware
1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-228467) of Altus Midstream Company and in
the related Prospectus of our report dated February 28, 2019, with respect to the consolidated financial statements of Altus Midstream
Company, included in this Annual Report (Form 10-K) for the year ended December 31, 2018.
Exhibit 23.1
/s/ Ernst & Young LLP
Houston, Texas
February 28, 2019
I, Clay Bretches, certify that:
1.
I have reviewed this annual report on Form 10-K of Altus Midstream Company;
CERTIFICATIONS
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ Clay Bretches
Clay Bretches
Chief Executive Officer and President (Principal
Executive Officer)
Date: February 28, 2019
CERTIFICATIONS
EXHIBIT 31.2
I, Ben C. Rodgers, certify that:
1.
I have reviewed this annual report on Form 10-K of Altus Midstream Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
/s/ Ben C. Rodgers
Ben C. Rodgers
Chief Financial Officer and Treasurer
(principal financial officer)
Date: February 28, 2019
ALTUS MIDSTREAM COMPANY
Certification of Principal Executive Officer and
Principal Financial Officer
EXHIBIT 32.1
I, Clay Bretches, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the annual report on Form 10-K of Altus Midstream Company for the period ending December 31, 2018, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §78o (d)) and that information contained in such report fairly represents, in
all material respects, the financial condition and results of operations of Altus Midstream Company.
/s/ Clay Bretches
By:
Title:
Date: February 28, 2019
Clay Bretches
Chief Executive Officer and President (Principal
Executive Officer)
ALTUS MIDSTREAM COMPANY
Certification of Principal Executive Officer and
Principal Financial Officer
EXHIBIT 32.2
I, Ben C. Rodgers, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the annual report on Form 10-K of Altus Midstream Company for the period ending December 31, 2018, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §78o (d)) and that information contained in such report fairly represents, in
all material respects, the financial condition and results of operations of Altus Midstream Company.
/s/ Ben C. Rodgers
By:
Title:
Date: February 28, 2019
Ben C. Rodgers
Chief Financial Officer and Treasurer
(Principal Financial Officer)