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HomeMy WebLinkAbout897767 ,q£0EIV£D AGREEMENT ~G~ING ROYALTY, ~QRT~NG, ~D CALCULATIONS This AO~E~NT ~OA~O ~OYaLTY, ~PO~0, X~¥~ALCULAT[ONS is made be~een ~OG Resources, ~c. ("EOG") and The Wyoming Board of Land Commissioners and the Wyoming Office of State Lands & Investments ("State") effective as of the first day of the first full production month a~er the calendar month in which the State has obtained all regulatory approvals ("Hffcctive Date"). WHEREAS, EOG is a working interest owner in producing and non-producing State of Wyoming oil and gas leases including, but not limited to, the oil and gas leases described in Exhibit A attached hereto and by this reference made a part hereof, and WHEREAS, the Parties desire to establish a royalty valuation, calculation and reporting methodology for royalties on natural gas produced from or attributable to the State of Wyoming oil and gas leases now owned or hereafter acquired by EOG. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: (1) Commencing with the Effective Date, the royalties to be paid by EOG as a working interest owner in any State of Wyoming oil and gas leases now owned or hereafter acquired by EOG on gas, including casinghead gas or other hydrocarbon substances, produced from said lease and saved and sold by EOG or used off the premises or in the manufacture of gasoline or other products therefrom ("EOG's Gas") shall be calculated as follows: (a) For gas sold by EOG and transported to the Opal Gas Processing Plant ("Opal Plant") on behalf of EOG or its purchaser, EOG's Gas shall be valued based upon the arithmetic average of the following three published index prices for monthly spot gas delivered to pipelines: Northwest Pipeline Corp. - Rocky Mountains, Kern River Gas Transmission 'Co. - Wyoming, and Colorado Interstate Gas Co. - Rocky Mountains - - as published in the first-of-the-month edition of Inside F.E.R.C.'s Gas Market Report for the production month (Index Price). In the event the Inside F.E.R.C.'s Gas Market Report subsequently only publishes two of the three index prices, then the value shall be based upon the arithmetic average of the remaining two index prices. In the event Inside F.E.R.C.'s Gas Market Report subsequently only publishes one of the index prices or ceases to be published, the parties shall determine an alternative publication and index price or arithmetic average of index prices to be used which represents the delivered to interstate pipeline spot gas price for residue gas at the outlet of the Opal Plant. In the event the parties cannot agree on an alternative publication and index price or arithmetic average of index prices, the Page 1 of 6 parties agree to submit to binding arbitration for the selection of an alternative publication and index price or arithmetic average of index prices which represent the delivered to interstate pipeline spot gas price for residue gas at the outlet of the Opal Plant. Payment shall be based on the product of (i) the Index Price (as determined above) times (ii) EOG's allocated share of the wellhead MMBtus calculated and reported to EOG by Williams Field Services or other receiving pipelines (allocated in the event of commingling prior to delivery to the receiving pipeline based upon each well's metered volume and tested Btu content). Each contributory well's volume must be measured by a meter calibrated no less than annually. Btu content must be established through periodic chromatographic analysis or other industry standard methodologies. In the event MMBtus are not reported to EOG, the MMBtus shall be determined based upon the product of the metered volume reported times the applicable Btu content. All payments shall be made without 'any deductions from the Index Price or total volumes attributed to EOG interest ownership in State leases. EOG also agrees to pay royalties for condensate at its first arm's-length sales price at the storage tanks (i.e., net of any actual, reasonable and direct costs of transportation of the condensate from the tanks to the point of sale). EOG shall not be required to pay any royalties on natural gas liquids sold by it. Attached hereto and by this reference made a part hereof is Exhibit C, which contains, at Part I, a sample calculation under this subparagraph (1)(a) for gas from a single well behind .the Opal Plant. (b) For gas sold by EOG but not transported to the Opal Plant on behalf of EOG or its purchaser, EOG's Gas shall be valued as provided in Paragraph (a) except that the value shall be based only upon the index or indices for the pipeline or pipelines to which the wells are connected. In' the situation described in Paragraph (a) where it becomes necessary to determine an alternative publication and index price or arithmetic average of index prices, the determination shall be based upon an alternative publication and' index price or arithmetic average which represent the applicable delivered to interstate pipeline spot gas price for gas produced from the vicinity where the gas covered by this Paragraph (b) is located. (c) In no event shall the State receive royalties from EOG on a wellhead MMBtu basis, under the methodology set forth in Paragraph (1)(a) above, which are less than the royalties received by the United States of America for its royalties from the same field. The royalties received by the United States of America from a particular field for a particular production month shall be the net amount paid to the United States of America for production from that field, after applicable deductions under federal gas valuation regulations, divided by the total wellhead MMBtu's produced from or attributable to the federal oil and gas leases in that field. For gas sold by EOG and transported to the Opal Plant on behalf of EOG or its purchaser, EOG may aggregate all of the .gas production from or attributable to federal oil and gas leases and treat such production as if it Page 2 of 6 had been produced from one field. Attached hereto and by this reference made a part hereof is Exhibit C which, at Part II, contains a sample calculation under this subparagraph (1)(c) for gas behind the Opal Plant. (d) The parties acknowledge that EOG needs to make system changes to accommodate the methodology set forth in Paragraph (a). For the first two production months after the Effective Date, EOG may pay according to its present methodology but shall make prior period adjustments on or before the first day of the fourth production month after the Effective Date to conform payments to the methodology set forth in Paragraph (1)(a). (2) In addition to the monthly electronic royalty reporting requirements of the State, EOG will make available on a monthly basis to the Wyoming Office of State Lands and Investments, a summary for all Gas sold by EOG from State oil and gas leases, by Lease and by well, showing gross wellhead Mcfs; gross MMBtu's (or Btu content and the product of the Btu content and gross Mcfs); the applicable Index Prices and, where permitted by applicable law, hardcopy support for the Index Prices; the total value (wellhead MMBtu's times applicable Index Price); and the State's royalty share (12.5% or other %). The Parties recognize that the current monthly electronic royalty reporting requirements of the State require volumetric reporting -of volumes and values and may otherwise differ from the methodology set forth in this Agreement. The Parties shall coordinate the monthly electronic royalty reporting requirements given the methodology set forth in this Agreement. (3) The State agrees that the payment and reporting byEOG of royalties on its share of production sold by EOG from State Leases according to the methodology set forth in Paragraph (1) above and reporting according to the provisions of Paragraph (2) above shall fully satisfy EOG's legal obligations to the State for State royalties under all leases, statutes, rules, regulations and case law, with respect to reporting, valuing and calculating royalties, subject to any claims arising out of any errors concerning volumes, price, Btu content, or decimal interest to (the "Reserved Claims"). The existence of Reserved Claims shall not be a basis for declaring a breach of this Agreement, provided, .however, that errors shall be corrected in a timely manner after EOG has notice of the existence of such errors. The provisions of this Paragraph (3) shall be appurtenant to and run with the interests of EOG in the minerals produced and sold by EOG from State oil and gas leases. (4) As to EOG's working interest in any State oil and gas leases now owned or hereafter acquired by EOG, the provisions of this Agreement shall be incorporated into all such leases and, during the term of this Agreement, the provisions of this Agreement shall be the sole and exclusive method by which royalties under the EOG Leases and the Future Leases are to be calculated and reported. To the extent of any inconsistency between the provisions of this Agreement and the provisions of any EOG Leases or Future Leases, the provisions of this Agreement shall control. Nothing in this Agreement shall affect the provisions of any existing or future State oil and gas leases regarding any right of the State to take in kind or provisions regarding the royalty free use of natural gas for operating purposes or for stimulating the production of oil or secondary recovery purposes. This Agreement shall be binding upon and inure to the benefit of EOG's successors and assigns. In the event all or any portion of EOG's working interest in any State lease is assigned, this Agreement shall be deemed to be a separate agreement as to the assignee and a default hereunder by one assignee shall not be deemed to be a default by EOG or any other assignee. Each Party represents to the other that it has full authority to bind such Party to the terms set forth herein. (5) In the event Inside F.E.R.C.'s Gas Market Report subsequently only publishes one of the index prices for the Rocky Mountain Region or ceases to be published, the parties shall negotiate in good faith an alternative publication and index price or arithmetic average of index prices which represent the applicable delivered to interstate pipeline spot gas price as described in Paragraphs (1) and (2) above. During the pendency of such negotiations, EOG shall continue to pay royalties pursuant to the pricing methodology in this Agreement based upon the last spot gas price published, subject to retroactive adjustment. If there is no applicable publication or index price(s), the parties shall negotiate in good faith an alternative objective formula which represents the applicable delivered to interstate pipeline spot gas price as described in Paragraphs (1) and (2) above. If the parties have not reached agreement within ninety days after the event triggering negotiation, then, upon the written request of a Party delivered to the other Party, the matter shall be referred to and finally determined by arbitration in accordance with the following provisions: (a) Within ten days after the delivery of a written request for arbitration under this provision, the State and EOG shall each appoint an arbitrator. The two arbitrators thus appointed shall select a third arbitrator. If either party fails to appoint an arbitrator as provided herein, the other party may apply to the United States District Court for the District of Wyoming for the appointment of such an arbitrator. If within ten days of the appointment of the second of them, the original two arbitrators are unable to agree upon a third arbitrator who will accept the appointment, either party may petition the United States District Court for the District of Wyoming for the appointment of a third arbitrator. Should any vacancy occur by reason of the resignation, death or inability of one or more of the arbitrators to serve, the vacancy shall be filled according to the procedure applicable to the appointment of the arbitrator whose death, disability, or other inability to serve, created the vacancy. The arbitrators shall be impartial and disinterested and shall be individuals generally acknowledged to have the professional credentials and experience in the Rocky Mountain area necessary for evaluation and resolution of the matter that is the subject of the arbitration. (b) Arbitration shall be held at a location to be mutually agreed to, and failing agreement, in Cheyenne, Wyoming. (c) Arbitration shall be limited to selection of an alternative publication and index price or arithmetic average of index prices which represent the applicabie delivered to interstate pipeline spot gas price as described in Paragraphs (1) and (2) above or, if there are none, then selection of an alternative objective formula which represents the applicable delivered to interstate pipeline spot gas price as described in Paragraphs (1) Page 4 of 6 and (2) above, and no other dispute under the Agreement shall be arbitrated, unless the parties agree otherwise. (d) Time shall be of the essence in any arbitration. The hearing shall be held as expeditiously as reasonably possible, but in no event shall it commence more than 90 days from the selection of the third arbitrator. The hearing shall be conducted pursuant to the provisions of the Wyoming Uniform Arbitration Act, Wyo. Stat. §1-36-101, et seq. and the Rules of the American Arbitration Association to the extent not inconsistent with this Agreement. The arbitrators' decision shall be rendered not more than 45 days following submission of the matter for decision. (e) Each party shall pay its own costs incurred in connection with arbitration proceedings except for the fees and expenses of the arbitrators, which shall be equally divided between the State and EOG. (f) EOG shall have a reasonable period of time of not less than two full production months to implement the arbitration decision as to royalties owed after the date of the arbitration award. EOG and the State, as the case may.be, shall have a reasonable period of time of not less than sixty (60) days to pay any additional royalties or refund any excess royalties paid prio? to implementation of the arbitration decision. (6) The scope of any royalty audits on EOG's gas production from State leases after the Effective Date, shall be limited to determining compliance with this Agreement. (7) This Agreement does not apply to any working interest shar~ of production owned bY EOG in State oil and gas leases that is marketed by the operator instead of by EOG unless EOG pays any State royalties attributable to such production. (8) This Agreement shall remain in full force and effect for so long as EOG owns a working interest in any State oil and gas leases, provided, however, that if' at any time after Decmnber 31, 2006, the State no longer wishes to continue with this Agreement, the State may give written notice to EOG of its election to opt out of this Agreement effective on the first day of the fourth full production month after the month in which such notice is given. For example, if such notice is given on January 15th, the election will be effective starting with the May production month. (9) The State of Wyoming; the Board of Land Commissioners, and the Office of State Lands and Investments do not waive sovereign immunity by entering into this Agreement and specifically retain immunity and .all defenses available to them as sovereigns pursuant to Wyo. Stat. §1,39-104(a) and all other state law, except as explicitly provided for in this agreement. IN WITNESS WHEROF, the parties by their duly authorized representatives have executed and entered into this AGREEMENT REGARDING ROYALTY, REPORTING, AND CALCULATIONS on the date first written above and certify that they have read, understood, and agreed to the terms and conditions of this Agreement. / By: Barry I~aS~ker, Jr./ Governor Dave Freudenthal Sr. V.P. and General Counsel President, Board of Land Commissioners Office of S21e Lands & Investments STATE OF WYOMiNG COUNTY OF LARAMIE The foregoing AGREEMENT REGARDING ROYALTY, REPORTING, AND CALCULATIONS was acknowledged before me this~ay-of,~, 2004, by2lx~ 4~,~j,.~ ~.} ~. L~ ~ ~c~-~mo, c,a,~e~__ Nota~ ~ublic ~ - My Commission Expires: ~ ~ 2- ~[ ~ ~~~ ~ STATE OF TE~S ) )SS. CO~TY OF H~S ) The foregoing AGREEMENT REGARDING ROYALTY, REPORTING, AND CALCULATIONS was acknowledged before me this ,2c] day of~a.t~-~)~ 2004, by {~)a. Cc,I ~,~ba_~,-{ ,'~'(. St. ~ .~. ~ C~,,~ Co~. Nota~ ~,blic ] ~~ My Co~ssion Expires: ~-~- ~oo~ }(~ ~~~ } ,a~rn.e~y Gen~er~(t's Office Approval as to Form: Step'ha~ie Ane~i, ~.ssistant Attorney General Date EOG's Counsel Approval as to Form: [Insert Name] Date Page 6 of 6