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HomeMy WebLinkAboutResolution - 2972 - Agreement - Choctaw Partners - Oil & Gas Leases, & Gas Purchase - 12_08_1988Resolution #2972 December 8, 1988 Item #4 JCR:da RESOLUTION BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock BE and is hereby authorized and directed to execute for and on behalf of the City of Lubbock a Purchase Contract for Oil & Gas Leases and Gas Purchase Contract by and between the City of Lubbock and Choctaw Partners, attached herewith, which shall be spread upon the minutes of the Council and as spread upon the minutes of this Council shall constitute and be a part of this Resolution as if fully copied herein in detail. Passed by the City Council this 8th day of December , 1988. By:aL "t- Mayor Pro Tem for .C. McMINN, MAYOR ATTEST: , city secretary APPROVED AS TO CONTENT: aat�'� CJ2.-- Robert Massengale, AssIstant City Manager for Financial Services APPROVED AS TO FORM: Z.— G . Ross, Jr. Resolution #2972 GAS_ PURCHASE_ CONTRACT THIS CONTRACT, made and entered into this 8th day of December 1988, by and betveezi CHOCTAW PARTNERS, a Texas general partnership composed of JOE J. REYNOLDS and DAVID TURRENTINE, hereinafter called "CHOCTAW" or "SELLER" and the CITY OF LUBBOCK, hereinafter referred to as "CITY" or "BUYER". N I T N E S S E T H: WHEREAS, Seller owns an oil and gas leasehold estate located in Labors 4, 5, 6, and 7, League 134, Armstrong County School Lard, and Labors 1 and 10, League 151, Randall County School Land, Cochran County, Texas, from the surface to 5,000 feet or the base of the San Andres formation, whichever is deeper, the Seller's interest under said oil and gas leases being equal to 79.625% of 8/8 of production, said leasehold estate being hereinafter referred to as the "DEDICATED PROPERTY", and WHEREAS, Seller is the operator of three (3) existing oil or gas wells located on the Dedicated Property, which Seller has determined are capable of producing natural gas in paying quantities, said wells being Hereinafter referred to as the "EXISTING WELLS", and WHEREAS, the Seller intends to drill additional oil or gas wells on the Dedicated Property capable of producing natural gas in paying quantities, and WHEREAS, the Seller desires to sell and the Buyer desires to -1- purchase certain quantities of the net gas reserves (as that term is hereinafter defined) attributable to the Seller's interest in the Dedicated Property upon the terms and conditions set out in this agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, Buyer agrees to purchase and Seller agrees to sell, pursuant to the terms and conditions of this Contract, the Seller's interest in the net gas reserves in the Dedicated Property, or other sources, both existing and to be established in the future, to the extent set out below. ARTICLE I DEFINITIONS Except where this Contract states another meaning, the following terms are defined as follows: 1.1 "Net_ Gas_ Reserves" - The term "net gas reserves" as used in this Contract shall mean the proven reserves of natural gas capable of being produced from existing or additional wells on the Dedicated Property at any given time during the term of this Contract, with such gas being of the quality required by this Contract deliverable to designated locations of the Buyer in Lubbock, Texas. 1.2 "BTU" - The term "Btu", as used in this Contract, means British Thermal Unit. 1.3 "MMbtu" - The term "MMbtu" means a quantity of natural gas -2- capable of producing one million British Thermal Units of heating value. 1.4 "Mcf" The term "mcf" means one thousand cubic feet of natural gas capable of producing MMbtu measured as provided in this Contract. 1.5 "Heating -Value" - The term "heating value", as used in this Contract, means the number of Btu's produced by combustion at constant pressure of an amount of gas which would occupy one (1) cubic foot at a temperature of sixty degrees (600F) Fahrenheit and at a pressure of fourteen and sixty-five (14.65) psis and saturated with water vapor. ARTICLE II DEDICATION -OF -GAS 2.1 Initial Sale: Subject to the terms and conditions of this Contract, Seller hereby commits, dedicates and sells to the Buyer, and Buyer commits and obligates itself to purchase from Seller, 338,000 MMbtu of the net gas reserves owned or to be acquired by the Seller, including Seller's interest in the existing wells. 2.2 Subsequent -Net Gas Reserves: Upon the completion of additional wells on the Dedicated Property by the Seller and the establishment of the net gas reserves, which are proven by such well or wells, calculated as provided in this Contract, the Seller hereby commits, dedicates -3- J and sells to the Buyer, and Buyers commits and obligates itself to purchase from Seller, subject to the terms and conditions of this Contract, such additional gas reserves so that the total sales to Buyer from the existing wells and the additional wells shall be 2,000,000 MMbtu. 2.3 Determination of Net Gas Reserves: ---------------------------------- The net gas reserves shall be determined by engineering calculation, acceptable to the Buyer and Seller, utilizing the quality standards and assumptions set out in this Contract. As each additional or subsequent well is drilled or completed on the Dedicated Property, Buyer shall determine the net gas reserves attributable to Seller's interest in each such well, and, within sixty (60) days from the date of such determination, pay to Seller a portion of the purchase price for 90% of such reserves from each such well at the price set forth in Paragraph 3.2 below. ARTICLE III PRICE 3.1 Initial Sale: The price to be paid by the Buyer to the Seller for the 338,000 MMbtu of gas produced as a part of the initial sale, as set out above, shall be calculated on the basis of $1.56 per MMbtu, with such sum to be paid to the Buyer at the closing of this transaction. -4- 3.2 Subsequent -Net Gas Reserves: The price to be paid by the Buyer to the Seller for the subsequent net gas reserves as described in Paragraph 2.2 above shall be calculated on the basis of $1.56 per MMbtu, with one-half (1/2) of said sum or $ .78 (seventy-eight cents) per MMbtu being paid upon the determination of the net gas reserves included in this Contract as provided in Paragraph 2.3 above, and with the balance of the purchase price for such gas being paid by the Buyer to the Seller upon the delivery of such gas to the Buyer as provided in this Contract. 3.3 Adjustment -for Failure -to -Deliver Subsequent -Net Gas -------------------- ---- Reserves: In the event the Buyer should, following the completion of a well or wells and the payment for subsequent net gas reserves pursuant to Paragraphs 2.3 and 3.2 of this Contract, and the Seller should fail, within ten (10) years from the date of payment for the reserves in each well, to have delivered at least seventy-five percent (75%) of the gas for which partial payment was made in connection with the net gas reserves from such well, then, beginning at the end of such ten-year period, the Buyer shall be entitled to receive the gas contracted to be delivered to it from such well or wells without further payment to the Seller until an amount of gas has been delivered to the Buyer representing the total payment made by the Buyer to the Seller in connection with the net gas -5- J reserves from such well or wells at a price of $1.56 per MMbtu. It is understood that the calculation of the amount of gas delivered for purposes of the adjustment provided in this paragraph is to be made on a well by well basis. Nothing in this paragraph shall excuse the Seller from delivering to the Buyer the total volume of gas to be delivered to it from subsequent net gas reserves in accordance with Paragraph 2.2 of this Contract. ARTICLE IV DELIVERY POINT - TITLE ---------------------- 4.1 Transportation —Responsibility_ Arranging the transportation of gas from the Seller's wells to the Buyer's locations in Lubbock, Texas, shall be the sole responsibility of the Seller. Title shall pass to the Buyer at the gate of the Power -Tex Adobe gas line interconnection to which such gas is delivered by the Seller. All costs necessary for the transportation and compression of the gas from the tailgate of said plant to Buyer's location in Lubbock, Texas, shall be borne solely by the Buyer. 4.2 Title: Seller guarantees that it has good and merchantable title to the gas reserves, which are the subject of this Contract, and that it has and will continue to have full authority to deliver good and marketable title to all gas produced pursuant to this Contract to the Buyer, free and clear of all encumbrances. -6- ARTICLE V DELIVERY_ PRESSURE The Gas purchased hereunder shall be delivered at a pressure sufficient to effect delivery into Buyer's designated pipeline transportation system at the delivery point or points against the pressure prevailing therein from time to time; provided, however, Seller shall not be required to deliver gas against a pressure in excess of 1,000 psi. ARTICLE VI QUALITY Buyer shall not be obligated to take and give credit against the obligation of the Seller (but shall give credit if taken) for any gas tendered to it hereunder, unless the same meets the following requirements as to quality. (a) Oxygen - The gas shall not, at any time, have an oxygen content in excess of two -tenths of one percent (0.2%) and every reasonable effort shall be made to keep the gas tendered free of oxygen. (b) Liquids - The gas shall be free of water and hydrocarbons in liquid form at the temperature and pressure at which the gas is delivered. The gas shall in no event contain water vapor in excess of seven (7) pounds per million cubic feet. (c) HYdro.aen_Sulfide - The gas shall not contain more than -7- one -quarter (1/4) grain of hydrogen sulfide per one hundred (100) cubic feet. (d) Total_Sulphur - The gas shall not contain more than five (5) grains of total sulphur per one hundred (100) cubic feet. (e) Carbon Dioxide - The gas shall not have a carbon dioxide content in excess of one percent (1%) by volume. (f) Heating Value - The gas shall have a gross heating value of not more than one thousand, one hundred, twenty (1,120) nor less than nine hundred fifty (950) Btu's per cubic foot. BTU values exceeding 1,120 may be accepted at the option of the Buyer. (g) Temperature - The gas shall be delivered at a temperature not in excess of one hundred twenty degrees Fahrenheit (1200F). ARTICLE VII WARRANTY OF TITLE ----------------- Seller hereby warrants title to all gas sold hereunder and that all such gas which is attributable to Seller's interest in the Dedicated Property is free from any and all liens and adverse -8- claims. Seller shall, at all times, have the obligation to pay all royalties due and payable to the mineral and royalty owners under the Leases. Seller agrees to indemnify Buyer and save Buyer harmless from all suits, actions, debts, accounts, damages, costs, losses and expenses arising from or out of adverse claims of any or all persons to the gas or to royalties, taxes which Seller is obligated to pay hereunder, license fees, or charges thereon which are applicable before the title to the gas passes to Buyer. ARTICLE VIII OPERATIONS 8.1 Seller_ to_Op!rate_ During the term of this Contract, the Seller or such other party as may be acceptable to Buyer shall be obligated to continue to act as Operator of the Dedicated Property, unless Seller or said other party shall resign as Operator with the express written approval of the Buyer and with Buyer having the right to approve any successor operator. Such approval of Buyer shall not be unreasonably withheld. 8.2 Seller shall be responsible for paying all expenses, both tangible and intangible, related to the operation of the leasehold estate covering the subject property. Seller shall hold the Buyer harmless from any claims, expenses, and liabilities of every description arising our of or in connection -9- with the operation of the Seller's wells and the production of gas from such wells during the term of this Contract. 8.3 It is expressly understood and agreed that Buyer reserves no right to exercise control over the details of the performance of the Seller's duties as operator, and the Seller shall, at all times, operate as an independent contractor. The Seller shall have no authority to incur any expense, obligation or liability on behalf of the Buyer. ARTICLE IX TAXES Seller shall pay or cause to be paid all severance, production or similar taxes applicable to the Gas hereafter required by law to be paid to governmental authorities without reimbursement from Buyer. Seller will pay or cause to be paid all ad valorem taxes attributable to the gas without reimbursement from Buyer. ARTICLE X GOVERNMENTAL RULES AND REGULATIONS ---------------------------------- 10.1 This Contract shall be subject to all valid, applicable State and Federal laws, orders, directives, rules and regulations of a governmental body or official having jurisdiction. 10.2 Seller, to the best of its knowledge, warrants and agrees that Seller has not caused the gas hereunder to be dedicated in interstate commerce. -10- 1 ARTICLE XI RIGHT_ OF FIRST_ REFUSAL 11.1 In the event the Seller should drill or acquire additional wells which result in proven net gas reserves exceeding 2,000,000 MMbtu, then, and in that event, Seller shall, prior to dedicating or selling said gas to any other buyer, notify the Buyer of the availability of such gas, and Buyer shall, within sixty (60) days of the receipt of such notice, be entitled to purchase 90% of such excess net gas reserves up to 2,000,000 MMbtu at the same price and upon the same terms as provided in Paragraph 3.2 of this Contract. This option expires December 31, 1990. 11.2 In the event that any additional wells owned or acquired by Seller should result in proven net gas reserves exceeding 4,000,000 MMbtu, then, and in that event, Seller shall, prior to dedicating or selling such gas in excess of 4,000,000 MMbtu to any other buyer, notify the Buyer of the availability of such gas and of the price the Seller has been offered by a ready, willing and able buyer for such gas, and Buyer shall, within sixty (60) days of the receipt of such notice, be entitled to purchase 90% of such excess net gas reserves, up to a total of 2,000,000 MMbtu, at the same price and upon the same terms as offered by said ready, willing and able purchaser. If Seller has received no such offer, Buyer shall be entitled to purchase such gas at a price negotiated between Seller and Buyer. J ARTICLE XII SECURITY FOR PERFORMANCE AND RECALCULATION OF RESERVES ------------------------------------------------------ 12.1 As security for the performance of Seller's obligations to produce and deliver to the Buyer the 338,000 MMbtu of gas covered by.the initial sale as set out in Paragraph 2.1 of this Contract, JOE J. REYNOLDS has agreed to pledge to the Buyer negotiable securities acceptable to the Buyer to assure Seller's delivery of said 338,000 MMbtu within five (5) years of the closing of this transaction. At the closing, JOE J. REYNOLDS shall execute and deliver to Buyer a Security Agreement and such other documentation as may be necessary to perfect Buyer's security interest in said securities, and in the event Seller should fail to deliver the quantities of gas required under the initial sale to the Buyer within five (5) years from the closing date, then Buyer shall be entitled to all rights and remedies of a Secured Party under the Uniform Commercial Code as adopted in the State of Texas to recover, from the pledged securities, the amount of any deficiency, calculated at the price provided in this Contract, with interest at 10% per annum from the closing date . It is understood that JOE J. REYNOLDS shall have no personal obligation to pay any deficiency and the Buyer shall look solely to the collateral pledged for the recovery of such deficiency. Upon delivery of the initial 338,000 MMBtu of gas to Buyer, it shall release its security interest and said collateral. 12.2 As security for the performance of the Seller's obligations to pay all operating expenses in connection with the leases -12- e comprising the Dedicated Property, it is agreed that Buyer may, in its discretion, pay any operating expenses which are not paid by the Seller, in order to protect the interest of the Buyer in the gas which is the subject of this Contract, and in the event of any such payment, Buyer shall be entitled to credit, with interest from the date of payment at 10% per annum, against the purchase price of any gas delivered to the Buyer pursuant to this Contract subsequent to such payment. 12.3 At closing, Seller shall execute and deliver to Buyer a Deed of Trust, Security Agreement and Assignment of Production in form and substance acceptable to the Buyer, covering the Dedicated Property, for the purpose of securing Seller's performance of all obligations imposed on the Seller under this Contract. Upon delivery to Buyer of all gas to which it is entitled and for which it has previously paid under the terms of this contract, Buyer will execute and deliver to Seller a release of lien required herein. ARTICLE XIII NOTICES Until otherwise notified in writing, any notice, request, demand, payment, statement or other communication provided for in this Contract shall be addressed as set forth below: SELLER: CHOCTAW PARTNERS 2333 - 50th Street Suite 4 Lubbock, Texas 79412 BUYER: CITY OF LUBBOCK LUBBOCK POWER & LIGHT P. 0. Box 2000 Lubbock, Texas 79457 -13- ARTICLE XIV CLOSING This transaction shall be closed on or before November ----, 1988. At the closing, the Seller shall deliver to the Buyer documents evidencing the sale to Buyer of the net gas reserves, pursuant to this contract, acceptable to counsel for the Buyer, and the Buyer shall pay to the Seller the cash consideration as provided herein. The closing of this transaction by the Buyer is conditioned upon the Buyer being satisfied as to the existence of the net gas reserves as represented in this agreement and the Seller's title to such net gas reserves. ARTICLE XV SURVIVAL OF AGREEMENTS ---------------------- All agreements, warranties and covenants contained in this Contract shall survive the closing and remain in full force and effect until the full performance thereof. ARTICLE XVI MAXIMUM TERM OF CONTRACT ------------------------ Notwithstanding anything to the contrary herein, this agreement and all obligations thereunder (except accrued and unperformed obligations) shall terminate upon the expiration of twenty (20) years from the date of closing. -14- Resolution #2972 ARTICLE XVII BINDINGEFFECT This agreement shall be binding on the parties hereto, their heirs, legal representatives, successors and assigns. EXECUTED this 8t h d a y of December ----------- , 1988. ATTEST: THE CITY OF LUBBOCK y B� Mayor Pro Tem �.� — -- -- — --- — ----------------------------- Ran tte Boyd, Cit Secretary for C. McMINN, Mayor "BUYER" CHOCTAW PARTNERS, A Texas Limited Pert er hip a "S-ELLER" APPROVED AS TO FORM: Zj, S). jk vo ri -- -� APPROVED AS TO CONTENT: y THE STATE OF TEXAS ¢ COUNTY OF LUBBOCK ¢ This instrument was acknowledged before me on the f-- day -15- of 1988, by Joan.Baker, Mayor ProTem of the CITY OF LUBBOCK; en_behalf of said CITY OF LUBBOCK. ------------ R--L- Notary Public State of Texas THE STATE OF TEXAS ¢ COUNTY OF LUBBOCK ¢ My Commission Expires: MY COMAINSSION EXPIRES NOVEMBER 30, 1939 OLIVIA R. SOLIS This instrument was acknowledged before me on the .s 4 day of ____1,,�( ______ , 1988, by �,�_ ���t�--z ---, Partner of CHOCTAW PARTNERS, a Texas General Part&ership on behalf of said partnership. NOTARY PUBLIC ----------- State of Texas My Commission Expires:-- -16- CITY OF LUBBOCK LUBBOCK, TEXAS LUBBOCK TEXAS B. C. °PECK" McMINN MAYOR June 28, 1990 Choctaw Partners Attn: Joe Reynolds 2124 Broadway Lubbock, Texas Dear Sir: In accordance with Article XI, Section 11.1 of the Gas Purchase Contract dated December 8, 1988 between Choctaw Partners and the City of Lubbock, the City has the option until December 31, 1990, to purchase up to 2,000,000 MMbtu of additional gas from Choctaw Partners under the same terms and conditions as the original purchase. This letter is to inform you of the City of Lubbock's intent to exercise the option to purchase additional gas on a well by well basis. Prior to Choctaw Partners drilling or acquiring future wells, Choctaw would notify the City, and the City would have the option of purchasing gas from said well. Upon acceptance, payment would be made as provided in the Gas Purchase Contract. Subject to availability of funding, the City expects to acquire the entire 2,000,000 MMbtu of additional gas, however, if the City decides, in its sole judgement, not to accept additional gas, then an amount less than the 2,000,000 MMbtu would be added to the original purchase amount. If you concur with the concepts presented above, please indicate your understanding by signing this letter in the space provided and return it to my office. We look forward to continuing the purchase of this gas. Sincerely, B.C. McMinn Mayor We cor3Kr with � e uy(ders�andings presented in this letter. :tt7iA1�1 " - 3..pate, Time, ►dumber and Filing Office(Filing Officer's Use Only) .. 1 I Ali j I r E 1 jj 1. Debtor(s) Name and Mailing Address: (Do not abbreviate) E 8 JOEl Jack Reynolds '2333 -' 56Ch treet Mic film indexll4umb. ya er (FIlirig Officer's Use Only)'!.,: { j Lutibock, Tex' s -79412 I 2.: Secured Party(ies) Name and Mailing Address. _ 4. Assignee Nome bnd Man' Address: 'the;. City of tutibock Lubbock Patdet Light j P. 0. Box Z 01 I Lubbock:, Texts'', 79457 i 5. Thit.Financiitg Statement cove}s the following f ypes (or items) of property. WARll If is.cr fixtures, timber or instructions € I bo ) ! I IN(,( ; cdHaterat ps minerals, read !•�. .. j i i -.; �. .-may..,, ! n • >�... ,-r.+{-{.+..�. _..."". ._.. 1 . _F All contract r9 ghts .Of . the Debtor in future coimstisisioris ;and des under ally Agency Agreement 16: iween the Debtor and Massachusetts' Mutual' alnsurande Company, or its I S11CCesSOiti. p 1 , i j Check only Products of collateral are also covered. i ? I ! i If applicable : ThFi ancing Statement Is to be filed for record ! i at f ' l q,. in a �eal estate records. Number of.additional sheets jaresente"J 61-This Financing State me is� signed by the Secured Party Instead of the ebtdr to perfe in collateral I +a security�� 0 already Ci aIre sbiect a sublect to a security interest in another jurisdiction when i was I i to finpndng statement filed M another county, 1 rolught Into tl �Brest state, or.wher the debtor's location was clanged to this state, or� Check appropriafe box winch y s ptoceeds p of the original collateral described above in w feh a I l oyrNy, Interes wos perfeete],or : 0 a # to ich the. Poing hasioplsed, or ! l� atquir, d }after a change of home, identity or corporate structure f the Idebtor. fl TQ JACK RT?YN0T;'D-q .j-"; �T25 Use whid:aver signatu a line �T Ili is applicable 1.jjBR nC-k - Signa re(s) of Deb sJ I I kII ( ignal're s) of Secured Party(iea) I Is C I Financing Statement is ;6res me i to a Filing Officer for filing pursuant to the Uniform Comr iereI'at ode1, k o fl 168t RT GRAPHICS. P. Q BOX M AUSTIN, TEXAS 79W %is filing Officer coot' 8TANDA cknorvledgment FO M RM �F ,: t Rev 9!t)6) 1 1988 OFFICE OF THE SECRETARY OF STATE OF TEXAS' 3: Date, Time, Number and Filing Office. (Filing Officer's -Use Only) �r. . 1. c .-CY OF TEXAS I _ 1. Debtor(s) Name and Mailing' Address: (Do not abbreviate) n(� iiulT j5 J®E JACK REYNOLDS Microfilm Index Nurrlber (Filing Pff er's Use Only) 2333-50th Street Lubbock, TeAs 79412 4. This statement refers to original Financing Statement No. M482.5 2. Secured Party of Record and Mailing Address: Date filed January 9. 198 9 ,1g THE CITY OF LUBBOCK LUBBOCK POWER & LIGHT Pr O. Box 2000 Check only ❑ This Financing Statement Change is to be filed for Lubbock, Texas 79457 if applicable record in the real estate records. Number of additional sheets presented A AMENDMENT —The Financing Statement bearing the file number shown above in Item 4 is amended as set forth below in Item 6 below. See instruction ❑ 2 on back of form for additional information. I B. ❑TOTAL ASSIGNMENT —All of Secured Party's rights under the Financing Statement have been assigned to the Assignee whose name and address are set forth in Item 6 below. I PARTIAL ASSIGNMENT —Some of Secured Party's rights under the Financing Statement have been assigned to the Assignee whose name and address C. are set forth in Item 6 below. A description of the collateral subject to the assignment is also set forth in Item 6 below. f D CONTINUATION —The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number and date shown above is continued. A Continuation Statement may be filed by #kq-Secured Party within six months prior to .the expiration date. i E. ❑PARTIAL RELEASE —The Secured Party releases the following, collateral described in Item 6 below which is described in the Financing Statement bearing the file number shown above. 4 F. TERMINATION —The Secured Party(es)of record no longer, claims a security -interest under the Financing Statement bearing the file number. shown g above. is i., This Statement is presented to a Filing Officer for filing pursi Ot to the iWiform Oominercial Code —The Odee Company, P.O. sox 550488, Dallas, Texas 75355 aw t (2) ]Filing Officer Copy—Acknowledgliont STANDARD , ORM— FORM UCC-3 (Rev. 811/87) 01986 OFFICE OF THE SECRETARY OF STATE OF1TEXA: A - NEW UQG3 PROCESSING PROCEDURE Effective July 2, 1990, the Uniform Commercial Code Section began applying amendment numbers to UCC-3 filings for inteMal filing and control 1uWoses only, Filings must continue ' to reference the original financing statement to which the UCC-3 relates. Wallis N. Bogus, Director Uniform Commercial Code Section August 1, 1990