-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iBOJlwxTmqNlK/eXk/QLCjr/KaZa/qVTW8lss+jQfKgOWN6dp5LUCrK+sOvNBKXT deh6YqfK8tB9cqYFqYNxJw== 0000890566-95-000267.txt : 19950516 0000890566-95-000267.hdr.sgml : 19950516 ACCESSION NUMBER: 0000890566-95-000267 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MESA ROYALTY TRUST/TX CENTRAL INDEX KEY: 0000313364 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 746284806 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07884 FILM NUMBER: 95538523 BUSINESS ADDRESS: STREET 1: 712 MAIN STREET CITY: HOUSTON STATE: TX ZIP: 77210 BUSINESS PHONE: 7132165100 MAIL ADDRESS: STREET 1: P O BOX 4717 CITY: HOUSTON STATE: TX ZIP: 77210 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 03/31/95 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________ COMMISSION FILE NUMBER 1-7884 MESA ROYALTY TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-6284806 (STATE OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) TEXAS COMMERCE BANK NATIONAL ASSOCIATION CORPORATE TRUST DIVISION 712 MAIN STREET HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 216-5100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of May 10, 1995 -- 1,863,590 Units of Beneficial Interest in Mesa Royalty Trust. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MESA ROYALTY TRUST STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, ---------------------------- 1995 1994 ------------- ------------- Royalty income....................... $ 2,102,914 $ 2,362,870 Interest income...................... 23,962 16,386 General and administrative expenses........................... (7,533) (6,174) ------------- ------------- Distributable income............. $ 2,119,343 $ 2,373,082 ------------- ------------- ------------- ------------- Distributable income per unit.... $ 1.1372 $ 1.2734 ------------- ------------- ------------- ------------- STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS MARCH 31, DECEMBER 31, 1995 1994 ------------ ------------ (UNAUDITED) ASSETS Cash and short-term investments...... $ 2,095,381 $ 1,244,208 Interest receivable.................. 23,962 13,859 Net overriding royalty interest in oil and gas properties............. 42,498,034 42,498,034 Accumulated amortization............. (21,160,549) (20,515,993) ------------ ------------ $ 23,456,828 $ 23,240,108 ------------ ------------ ------------ ------------ LIABILITIES AND TRUST CORPUS Distributions payable................ $ 2,119,343 $ 1,258,067 Trust corpus (1,863,590 units of beneficial interest authorized and outstanding)........ 21,337,485 21,982,041 ------------ ------------ $ 23,456,828 $ 23,240,108 ------------ ------------ ------------ ------------ (The accompanying notes are an integral part of these financial statements.) 1 MESA ROYALTY TRUST STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------------------ 1995 1994 -------------- -------------- Trust corpus, beginning of period.... $ 21,982,041 $ 24,250,937 Distributable income............. 2,119,343 2,373,082 Distributions to unitholders..... (2,119,343) (2,373,082) Amortization of net overriding royalty interest............... (644,556) (826,957) -------------- -------------- Trust corpus, end of period.......... $ 21,337,485 $ 23,423,980 ============== ============== (The accompanying notes are an integral part of these financial statements.) 2 MESA ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- TRUST ORGANIZATION The Mesa Royalty Trust (the "Trust") was created on November 1, 1979 when Mesa Petroleum Co. conveyed to the Trust a 90% net profits overriding royalty interest (the "Royalty") in certain producing oil and gas properties located in the Hugoton field of Kansas, the San Juan Basin field of New Mexico and Colorado and the Yellow Creek field of Wyoming (collectively, the "Royalty Properties"). Mesa Petroleum Co. was the predecessor to Mesa Limited Partnership ("MLP") which was the predecessor to MESA Inc. On April 30, 1991, MLP sold its interests in the Royalty Properties located in the San Juan Basin field to Conoco Inc. ("Conoco"), a wholly-owned subsidiary of E. I. duPont de Nemours & Company. Conoco sold the portion of its interests in the San Juan Basin Royalty Properties located in Colorado to MarkWest Energy Partners, Ltd. (effective January 1, 1993) and Red Willow Production Company (effective April 1, 1992). MarkWest Energy Partners, Ltd. and Red Willow Production Company are referred to collectively herein as "MarkWest". On October 26, 1994, MarkWest Energy Partners, Ltd. sold substantially all of its interest in the Colorado San Juan Basin Royalty Properties to Amoco Production Company ("Amoco"), a subsidiary of Amoco Corp. The Hugoton Royalty Properties are operated by Mesa Operating Co., a subsidiary of MESA Inc., and MESA Inc.'s interest in such properties is owned by Hugoton Capital Limited Partnership, another MESA Inc. subsidiary. The San Juan Basin Royalty Properties located in New Mexico are operated by Conoco. The San Juan Basin Royalty Properties located in Colorado were operated by MarkWest for periods prior to October 26, 1994 and by Amoco for periods beginning on or after such date. As used in this report, the term "Mesa" generally refers to the operator of the Hugoton Royalty Properties, Conoco refers to the operator of the San Juan Basin Royalty Properties, other than the portion of such properties located in Colorado, MarkWest refers to the operator of the Colorado San Juan Basin Royalty Properties prior to October 26, 1994 and Amoco refers to the operator of the Colorado San Juan Basin Royalty Properties on or after October 26, 1994, unless otherwise indicated. The terms "working interest owner" and "working interest owners" generally refer to the operators of the Royalty Properties as described above, unless the context in which such terms are used indicates otherwise. NOTE 2 -- BASIS OF PRESENTATION The accompanying unaudited financial information has been prepared by Texas Commerce Bank National Association (Trustee) in accordance with the instructions to Form 10-Q, and the Trustee believes such information includes all the disclosures necessary to make the information presented not misleading. The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented. The financial information should be read in conjunction with the financial statements and notes thereto included in the Trust's 1994 Annual Report on Form 10-K. The Mesa Royalty Trust Indenture was amended in 1985, the effect of which was an overall reduction of approximately 88.56% in the size of the Trust; therefore, the Trust is now entitled each month to receive 90% of 11.44% of the net proceeds for the preceding month. Generally, net proceeds means the excess of the amounts received by the working interest owners from sales of oil and gas from the Royalty Properties over operating and capital costs incurred. 3 MESA ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) The financial statements of the Trust are prepared on the following basis: (a) Royalty income recorded for a month is the amount computed and paid by the working interest owners to the Trustee for such month rather than either the value of a portion of the oil and gas produced by the working interest owners for such month or the amount subsequently determined to be the Trust's proportionate share of the net proceeds for such month; (b) Interest income, interest receivable, and distributions payable to unitholders include interest to be earned from the balance sheet date through the next distribution date; (c) Trust administration expenses are recorded in the month they accrue; (d) Amortization of the net overriding royalty interests, which is calculated on a unit-of-production basis, is charged directly to trust corpus since such amount does not affect distributable income; and (e) Distributions payable are determined on a monthly basis and are payable to unitholders of record as of the last business day of each month or such other day as the Trustee determines is required to comply with legal or stock exchange requirements. However, cash distributions are made quarterly in January, April, July and October, and include interest earned from the monthly record dates to the date of distribution. This basis for reporting royalty income is thought to be the most meaningful because distributions to the unitholders for a month are based on net cash receipts for such month. However, these statements differ from financial statements prepared in accordance with generally accepted accounting principles in several respects. Under such principles, royalty income for a month would be based on net proceeds for such month without regard to when calculated or received and interest income would include interest earned during the period covered by the financial statements and would exclude interest from the period end to the date of distribution. 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY OF ROYALTY INCOME AND AVERAGE PRICES (UNAUDITED) Royalty income is computed after deducting the Trust's proportionate share of capital costs, operating costs and interest on any cost carry forward from the Trust's proportionate share of "Gross Proceeds," as defined in the Royalty conveyance. The following unaudited summary illustrates the net effect of the components of the actual Royalty computation for the periods indicated.
THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------- 1995 1994 ---------------------------- ---------------------------- OIL, OIL, CONDENSATE CONDENSATE NATURAL AND NATURAL NATURAL AND NATURAL GAS GAS LIQUIDS GAS GAS LIQUIDS ------------- ------------ ------------- ------------ The Trust's proportionate share of Gross Proceeds(1).................. $ 2,128,678 $ 748,126 $ 2,721,174 $ 494,292 Less the Trust's proportionate share of: Capital costs recovered(2)....... (28,957) -- (97,613) -- Operating costs.................. (690,566) (46,117) (710,102) (37,705) Interest on cost carry forward... (8,250) -- (7,176) -- ------------- ------------ ------------- ------------ Royalty income....................... $ 1,400,905 $ 702,009 $ 1,906,283 $ 456,587 ============= ============ ============= ============ Average sales price.................. $ 1.58 $ 11.20 $ 1.96 $ 9.75 ============= ============ ============= ============ (Mcf) (Bbls) (Mcf) (Bbls) Net production volumes attributable to the Royalty..................... 882,461 62,814 970,270 46,943 ============= ============ ============= ============
- --------- (1) Gross Proceeds attributable to natural gas liquids for the Hugoton and San Juan Basin Properties are net of a volumetric in kind processing fee retained by Mesa and Conoco, respectively. (2) Capital costs recovered represents capital costs incurred during the current or prior periods to the extent that such costs have been recovered by the working interest owners from current period Gross Proceeds. Cost carry forward represents capital costs incurred during the current or prior periods which will be recovered from future period Gross Proceeds. The cost carry forward resulting from the Fruitland Coal drilling program was $471,923 and $407,986 at March 31, 1995 and March 31, 1994, respectively. The cost carry forward at March 31, 1995 and 1994 relate solely to the San Juan Basin Colorado properties. 5 THREE MONTHS ENDED MARCH 31, 1995 AND 1994 The distributable income of the Trust for each period includes the royalty income received from the working interest owners during such period, plus interest income earned to the date of distribution. Trust administration expenses are deducted in the computation of distributable income. Distributable income for the quarter ended March 31, 1995 was $2,119,343, representing $1.1372 per unit, compared to $2,373,082, representing $1.2734 per unit, in the first quarter of 1994. Based on 1,863,590 units outstanding for the quarters ended March 31, 1995 and 1994, respectively, the per unit distributions were as follows: 1995 1994 ---------- ---------- January.............................. $ .3334 $ .3248 February............................. .4520 .4523 March................................ .3518 .4963 ---------- ---------- $ 1.1372 $ 1.2734 ========== ========== HUGOTON FIELD Mesa's principal natural gas purchaser in the Hugoton field is Western Resources, Inc., previously the Kansas Power and Light Company ("WRI"). Mesa sells gas from the Hugoton field to WRI pursuant to a contract entered into effective January 1, 1990 (the "WRI Contract"). The WRI Contract will automatically terminate on May 31, 1995, and Mesa has advised the Trust that commencing June 1, 1995 gas previously subject to the WRI Contract will be sold under short-term contracts at market clearing prices to multiple purchasers including WRI. The WRI Contract provides for WRI to purchase from 12.7 to 19.5 billion cubic feet of gas per year (approximately 1.3 to 2.0 billion cubic feet of gas per year net to the Trust subject to the effect of operating expenses and capital costs) at market prices for a total of at least 92.4 billion cubic feet of gas (approximately 10 billion cubic feet of gas net to the Trust subject to the effect of operating expenses and capital costs) during the term of the agreement as amended. Under the WRI Contract, WRI pays market clearing prices as determined monthly based on a price index published by a third party. The WRI Contract also contains take-or-pay provisions requiring WRI to purchase and receive, or pay for if not taken, 85% of the nominated contract quantities during each seasonal period. The WRI Contract provides WRI with a limited right during the term of such contract to make up any volumes previously paid for but not received, PROVIDED that WRI is already taking 100% of volumes nominated and deliverabilities are in excess of the then current allowable amounts of production. WRI also has certain additional make-up rights during the one-year period following termination of the WRI Contract. With respect to gas that is the subject of make-up rights, WRI is required to pay the higher of (i) a market clearing price determined by reference to prices in effect when the make-up obligation is incurred or (ii) a market clearing price determined by reference to prices in effect when the make-up gas is taken. It is anticipated that WRI will incur a take-or-pay deficiency of approximately 2.0 billion cubic feet of gas for the seasonal period ending May 31, 1995 and that WRI will pay Mesa for such deficiency during the second quarter of 1995. Mesa expects that WRI will make up such deficiency during the second and third quarters of 1995 although contractually WRI has the right to make up such deficiency at any time during the one-year period ending May 31, 1996. The Trust will receive its proportionate share of any take-or-pay money received from WRI by Mesa when WRI makes up the gas. Any available gas not taken by WRI may be sold by Mesa to third parties. During the first quarter of 1995, Mesa sold certain volumes of gas not taken by WRI to third parties under short-term contracts at market clearing prices. Overall market prices received for natural gas from the Hugoton Royalty Properties were lower in the first quarter of 1995 compared 6 to the first quarter of 1994. In addition, under the WRI Contract, WRI agreed to provide certain transportation services and Mesa agreed to pay certain capital costs and transportation charges. In June 1994, Mesa entered into a Gas Transportation Agreement with WRI ("Gas Transportation Agreement") for a primary term of five contract years commencing June 1, 1995 and ending June 1, 2000, but which may be continued in effect year-to-year thereafter. Pursuant to the Gas Transportation Agreement WRI has agreed to compress and transport up to 160 MMcf per day of gas and redeliver such gas to Mesa at the inlet of the Satanta Plant. Mesa will pay WRI a fee of $0.06 per Mcf, escalating 4% annually beginning June 1, 1996. Royalty income attributable to the Hugoton Royalty decreased to $1,534,706 in the first quarter of 1995, from $1,746,784 in the first quarter of 1994 primarily due to decreased gas production and lower prices received for production of natural gas from the Hugoton Royalty Properties. The average price received in the first quarter of 1995 for natural gas and natural gas liquids sold from the Hugoton Royalty Properties was $1.64 per Mcf and $11.11 per barrel, respectively, compared to $1.96 per Mcf and $9.68 per barrel, respectively, in the first quarter of 1994. Net production attributable to the Hugoton Royalty was 569,902 Mcf of natural gas and 54,524 barrels of natural gas liquids in the first quarter of 1995 as compared to 692,962 Mcf of natural gas and 40,142 barrels of natural gas liquids in the first quarter of 1994. Allowable rates of production in the Hugoton field are set by the Kansas Corporation Commission (the "KCC") based on the level of market demand. The KCC has set the Hugoton field allowable for the period April 1, 1995 through September 30, 1995, at 244 billion cubic feet of gas, compared with 240 billion cubic feet of gas during the same period last year. The KCC held hearings from August 1992 to September 1993 to consider regulatory changes to the manner in which fieldwide allowables are allocated among individual wells within the Hugoton field. Specifically, the KCC considered proposals from various producers to amend calculations of well deliverability, the allocation of allowables based on acreage and infill wells and the makeup of underages. On February 2, 1994, the KCC issued an order that was substantially effective as of April 1, 1994. Under the order, the Hugoton Royalty Properties' percentage of the field and the total allowable assigned to the wells was increased. Mesa estimates that the gross allowable production from the Hugoton Royalty Properties in 1995 will be 44 billion cubic feet of gas, an increase of approximately five percent over 1994 production. This anticipated production increase is primarily attributable to the increased field allowables and the regulatory changes discussed above. These regulatory changes significantly increased the Hugoton Royalty Properties' share of the field allowable after having been restricted by the KCC. In the first quarter of 1995, MESA Inc. informed the Trust that it began a sealed bid auction process to sell all or a portion of its interests in the Hugoton field, including the Hugoton Royalty Properties. Upon any sale of the Hugoton Royalty Properties, it is expected that the purchaser may replace Mesa as the operator of the properties, the properties would continue to be burdened by the Royalty, and the Trust, in general, would continue to operate without change. SAN JUAN BASIN Royalty income from the San Juan Basin Royalty Properties is calculated and paid to the Trust on a state-by-state basis. The Royalty income from the San Juan Basin Royalty Properties located in the state of New Mexico was $568,208 during the first quarter of 1995 as compared with royalty income of $616,086 in the first quarter of 1994. No royalty income was received from the San Juan Basin Royalty Properties located in Colorado for the first quarter of 1995 or 1994, as costs associated with the Fruitland Coal drilling on such properties have not been fully recovered. Net production 7 attributable to the San Juan Basin Royalty was 312,559 Mcf of natural gas and 8,290 barrels of natural gas liquids in the first quarter of 1995, compared to 277,308 Mcf of natural gas and 6,801 barrels of natural gas liquids in the first quarter of 1994. The average price received in the first quarter of 1995 for natural gas sold from the San Juan Basin was $1.51 per Mcf, compared to $1.95 per Mcf during the same period in 1994. The Trust's interest in the San Juan Basin was conveyed from Mesa's working interest in 31,328 net producing acres in northwestern New Mexico and southwestern Colorado. The San Juan Basin-New Mexico reserves represent approximately 20% of the Trust's reserves. Mesa completed the sale of its underlying interest in the San Juan Basin Royalty Properties to Conoco on April 30, 1991. Conoco subsequently sold its underlying interest in the Colorado portion of the San Juan Basin Royalty Properties to MarkWest Energy Partners, Ltd. (effective January 1, 1993) and Red Willow Production Company (effective April 1, 1992). On October 26, 1994, MarkWest Energy Partners, Ltd. sold substantially all of its interest in the Colorado San Juan Basin Royalty Properties to Amoco. The San Juan Basin Royalty Properties located in Colorado account for less than 5% of the Trust's reserves. In April 1990, the working interest owner began drilling for coalbed methane gas in the Fruitland Coal formation of the San Juan Basin. The Fruitland Coal formation has been identified as one of the most prolific sources of U.S. coalbed methane reserves. The Trust owns an interest in 26,700 gross acres and 25,400 net acres with Fruitland Coal potential. The working interest owner has advised the Trust that it operates 40 (22.9 net) Fruitland Coal wells on Trust properties. Of such wells, 37 (21.7 net) are producing at a combined rate of 66.3 (35.8 net) MMcf per day. The gas that is currently being produced from the San Juan Basin Royalty Properties is being sold primarily on the spot market. Conoco has advised the Trust that it will also consider selling some of the gas produced from these wells pursuant to longer term contracts at spot market prices. Conoco has informed the Trust that it believes the production from the Fruitland Coal formation will generally qualify for the tax credits provided under Section 29 of the Internal Revenue Code of 1986, as amended. The Trust believes that such tax credits should be available to Trust unitholders on their individual tax returns. PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS (Asterisk indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.) SEC FILE OR REGISTRATION EXHIBIT NUMBER NUMBER ------------- ------- 4(a) * Mesa Royalty Trust Indenture between Mesa Petroleum Co. and Texas Commerce Bank National Association, as Trustee, dated November 1, 1979............................................................... 2-65217 1(a) 4(b) * Overriding Royalty Conveyance between Mesa Petroleum Co. and Texas Commerce Bank, as Trustee, dated November 1, 1979.................. 2-65217 1(b) 4(c) * First Amendment to the Mesa Royalty Trust Indenture dated as of March 14, 1985 (Exhibit 4(c) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust).................................... 1-7884 4(c) 8 ------------- ------- 4(d) * Form of Assignment of Overriding Royalty Interest, effective April 1, 1985, from Texas Commerce Bank National Association, as Trustee, to MTR Holding Co. (Exhibit 4(d) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust)........................... 1-7884 4(d) 4(e) * Purchase and Sale Agreement, dated March 25, 1991, by and among Mesa Limited Partnership, Mesa Operating Limited Partnership and Conoco, as amended on April 30, 1991 (Exhibit 4(e) to Form 10-K for year ended December 31, 1991 of Mesa Royalty Trust)................ 1-7884 4(e) 10(b) * Peaking Period Gas Purchase Agreement dated July 27, 1987, between Mesa Operating Limited Partnership and Kansas Power and Light Company (Exhibit 10(b) to Form 10-K for year ended December 31, 1987 of Mesa Royalty Trust)........................................ 1-7884 10(b) 10(c) * Letter Agreement dated December 21, 1987, between Mesa Operating Limited Partnership and Kansas Power and Light Company (Exhibit 10(c) to Form 10-K for year ended December 31, 1987 of Mesa Royalty Trust)............................................................. 1-7884 10(c) 10(d) * Letter Agreement dated July 21, 1988, between Mesa Operating Limited Partnership and Kansas Power and Light Company, amending the July 27, 1987 Peaking Period Gas Purchase Agreement (Exhibit 10(d) to Form 10-K for year ended December 31, 1988 of Mesa Royalty Trust)............................................................. 1-7884 10(d) 10(e) * Gas Purchase Contract, dated as of January 1, 1990, between Mesa Operating Limited Partnership, Seller and the Kansas Power & Light Company, Buyer, (Exhibit 19(a) to Form 10-Q for quarter ended June 30, 1989 of Mesa Royalty Trust).................................... 1-7884 19(a) 10(f) * Amendment No. 3 to Hugoton (MTR) Gas Purchase Contract, dated December 19, 1991, by and between Hugoton Capital Limited Partnership, as partial successor in interest to Mesa Operating Limited Partnership, and the Kansas Power and Light Company (Exhibit 10(f) to Form 10-K for year ended December 31, 1991 of Mesa Royalty Trust)................................................ 1-7884 10(f) 10(g) * Amendment No. 1 to Settlement and Interim Release Agreement, dated December 19, 1991, by and between Hugoton Capital Limited Partnership, as partial successor in interest to Mesa Operating Limited Partnership, and the Kansas Power and Light Company (Exhibit 10(g) to Form 10-K for year ended December 31, 1991 of Mesa Royalty Trust)................................................ 1-7884 10(g) 10(h) Gas Transportation Agreement dated as of June 14, 1994 by and between Mesa Operating Co. and Western Resources, Inc.............. 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed with the Securities and Exchange Commission by the Trust during the first quarter of 1995. 9 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. MESA ROYALTY TRUST TEXAS COMMERCE BANK By NATIONAL ASSOCIATION TRUSTEE By MICHAEL J. ULRICH MICHAEL J. ULRICH VICE PRESIDENT & TRUST OFFICER Date: May 12, 1995 The Registrant, Mesa Royalty Trust, has no principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly, no additional signatures are available and none have been provided. 10 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 10(h) Gas Transportation Agreement dated as of June 14, 1994 by and between Mesa Operating Co. and Western Resources, Inc.............. 27 Financial Data Schedule EX-10.H 2 GAS TRANSPORTATION AGREE. EXHIBIT 10(h) GAS TRANSPORTATION AGREEMENT THIS AGREEMENT, made and entered into as of this 14th day of June, 1994, by and between MESA Operating Co., a Delaware corporation, acting on behalf of itself and as agent for Hugoton Capital Limited Partnership (HCLP) hereinafter collectively referred to as "Shipper," and WESTERN RESOURCES, INC., a Kansas corporation, hereinafter referred to as WR." WITNESSETH WHEREAS, Shipper desires that certain volumes of gas be delivered to WR, and WHEREAS, WR is willing on behalf of Shipper to compress and transport such gas through WR's facilities and deliver such gas for Shipper's account at the interconnect point(s) specified herein or at such other interconnect point(s) as may be mutually agreed to between the parties with such compression and transportation to take place pursuant to this Agreement between WR and Shipper and with WR to be paid for such compression and transportation by Shipper as hereinafter set forth; and WHEREAS, WR is agreeable to compressing and transporting such gas on a firm basis, in accordance with the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and premises set forth herein, the parties hereto agree as follows: 1 ARTICLE I DEFINITION OF TERMS Except where the content expressly states another meaning, the following terms, when used in this Agreement shall have the following meanings: 1.1 The term "day" shall mean a period of twenty-four (24) consecutive hours beginning and ending at 8:00 a.m. local time. 1.2 The term "month" shall mean the period of time beginning at 8:00 a.m. local time on the first day of the calendar month and ending at 8:00 a.m local time on the first day of the next succeeding calendar month. 1.3 The term "quarter" shall mean a three-month period beginning January 1st, April 1st, July 1st or October 1st. 1.4 The term "contract year" shall mean a period of twelve (12) consecutive months beginning on the first day of the month during the occurrence of initial deliveries of gas hereunder. The last contract year of this Agreement shall end at the termination hereof as provided in Article XI of this Agreement. 1.5 The term "cubic foot" shall mean the volume of gas which occupies one cubic foot when such gas is at a temperature of sixty degrees Fahrenheit (60 degrees F), and at a pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 psia) dry and corrected for deviation from ideal gas behavior. 1.6 The term "MCF" shall mean one thousand (1,000) cubic feet of gas; the term "MMCF" shall mean one million (1,000,000) cubic feet of gas; and the term "BCF" shall mean one billion (1,000,000,000) cubic feet of gas. 2 1.7 The term "British Thermal Unit (BTU)" shall mean the amount of heat required to raise the temperature of one pound of water from fifty-nine degrees Fahrenheit (59 degrees F) to sixty degrees Fahrenheit (60 degrees F) at a pressure of fourteen and sixty-five hundredths pounds per square inch (14.65 psia). The term "MMBTU" shall mean one million (1,000,000) BTU. 1.8 The term "gross heating value" means the total calorific value, expressed as BTU per cubic foot, and obtained pursuant to Paragraph 7.11 of ARTICLE VII of the amount of gas which would occupy the volume of one cubic foot on a dry basis. 1.9 The term "gas" shall mean natural gas or a mixture of hydrocarbons or of hydrocarbons and noncombustible gases, helium and other inerts, in a gaseous state, consisting predominantly of methane. ARTICLE II DELIVERY AND REDELIVERY 2.1 Subject to the further provisions of this Agreement, Shipper agrees to deliver or cause to be delivered to WR at the point(s) of interconnect as set forth on Exhibit "A," attached hereto and made a part hereof, hereinafter called the "Delivery Point(s)," or at such other points as the parties may mutually agree and place on Exhibit "A," and WR agrees to accept, compress, transport and redeliver, (i) up to one hundred thirty (130) MMCF per day of gas on a firm basis during the months of April through October and up to an additional (thirty) (30) MMCF per day of gas on an interruptible basis, and (ii) up to one hundred forty-five (145) MMCF per day of gas on a firm basis during the months of November through March and up to an 3 additional fifteen (15) MMCF per day of gas on an interruptible basis. Except for events of force majeure and scheduled maintenance, WR cannot refuse to accept, compress, transport or redeliver gas delivered by Shipper on a firm basis up to the maximum firm quantities specified above. WR shall redeliver volumes of gas, containing the same number of BTU's, equivalent gallons of ethane and heavier hydrocarbon products, and equivalent cubic feet of helium as the gas contained when accepted by WR, except for any reduction for any natural gas liquids which may occur as a result of natural condensation in the compression or transportation process, to the point(s) of interconnect as set forth on Exhibit "B," attached hereto and made a part hereof, hereinafter called the "Redelivery Point(s)," or at such other points as the parties may mutually agree and place on Exhibit "B." The acceptance and inclusion of additional Delivery and Re-delivery Points under this Agreement shall be at WR's sole discretion. 2.2 Shipper shall separately deliver to WR at the outlet of the Satanta Plant a daily volume of residue gas equivalent to the volume of fuel actually incurred in providing the services hereunder at WR's Ulysses compressor station and in WR's pipeline facilities between the Delivery and Redelivery Point(s), up to a maximum of two and thirty-eight hundredths percent (2.38%) of the volumes accepted from Shipper by WR for compression and transportation at the Intermediate Delivery Point hereunder. On July 1, 1996, and each succeeding July 1st during the remaining term of this Agreement, at WR's option, said maximum percentage may be redetermined by WR. WR shall use its best judgement in redetermining said percentage based on 4 actual fuel consumption incurred in providing the services hereunder at WR's Ulysses compressor station and in WR's pipeline facilities between the Delivery and Redelivery Point(s). 2.3 Commencing on the date of first acceptance by WR of gas at the Delivery Point(s), and continuing thereafter during the term hereof, WR shall redeliver at the Redelivery Point(s), volumes of gas containing the same number of BTU's, equivalent gallons of ethane and heavier hydrocarbon products, and equivalent cubic feet of helium as the gas contained when accepted by WR, except for any reduction for any natural gas liquids which may occur as a result of natural condensation in the compression or transportation process, from Shipper under said Paragraph 2.1 at the Intermediate Delivery Point. Measurement of gas at the Redelivery Point(s) shall be through facilities installed, operated and maintained by the party owning such facility or as new delivery points may be added, by WR or others as may be designated. 2.4 Delivery and redelivery may be at points through which other volumes of gas are being measured; therefore, the measurement of the volumes of gas delivered and redelivered under this Agreement shall be considered as part of the total volumes measured through the meter. Each party hereto will furnish or cause to be furnished to the other party hereto all data required to accurately account for all gas delivered and redelivered hereunder. 2.5 Nothing in this contract shall require WR to increase the capacity of the existing compressor station or pipeline system. WR shall sustain the capacity of the 5 existing compressor station and pipeline system at current levels and shall maintain such facilities in good working order. ARTICLE III SCHEDULING, REPORTING AND BALANCING DELIVERIES 3.1 At least ten (10) days prior to the first day of each quarter of each calendar year, or at such other times as may be mutually agreeable to the parties hereto, Shipper shall furnish to WR a written schedule showing the estimated daily quantity of gas it desires WR to transport hereunder during each month of the following four quarterly periods. This schedule is prepared only to allow the parties hereto to schedule maintenance on compressors and other facilities. Both parties understand and agree that this schedule reflects estimates only and such estimates may change from time to time. WR agrees to use its best efforts to schedule and reasonable commercial efforts to perform maintenance on its compressors and other facilities in a manner which would allow Shipper to produce the estimated quantities of gas provided pursuant to this Section 3.1, as such estimates may change from time to time. 3.2 Shipper shall on a daily basis by nine o'clock (9:00) a.m. or on some other mutually agreeable basis, verbally advise WR's Gas Control Department as to the volumes and estimated BTU content of the gas by delivery point which Shipper desires transported hereunder. 3.3 Either party or its designee owning the measurement facilities will report or cause to be reported to the other party on a daily basis, the volumetric activity 6 regarding that delivery or redelivery point. Such reported volumes will be a field approximation and not of accounting accuracy. 3.4 Notwithstanding the quarterly estimate discussed in Paragraph 3.1 above, Shipper may nominate, in writing, a transport volume by the 20th of each month specifying the daily volumes to be transported, and WR shall notify Shipper, in writing by the 25th of its acceptance of such original nomination (the Original Nomination). When such Original Nomination is subsequently modified by both parties, in writing, then such nomination, as changed, shall nevertheless be deemed the Original Nomination for the applicable transport month. 3.5 Whenever during any month, Shipper desires to change its transportation nomination for the remaining day(s) in that month or desires to change its transportation nomination on a daily basis or for any hour(s) on any particular day(s), it may do so provided (i) Shipper requests such a change(s), in writing, at least four hours prior to such change being effective and (ii) WR accepts such change(s), in writing, within two hours of Shipper's requested change(s) in its nominations(s). WR shall charge the rate provided for herein on the actual monthly transport volume. If the actual monthly transport volume is less than ninety percent (90%) of the Original Nomination, Shipper shall nevertheless pay WR as though ninety (90%) of the Original Nomination had been transported if (1) such shortfall was not the result of force majeure, (2) such shortfall was not caused by WR and (3) WR demonstrates to Shipper that WR was unable to transport such volumes for other parties for the month as a result of Shipper's Original Nomination. 7 3.6 While it is the intent of the parties hereto that gas delivered to WR hereunder be redelivered concurrently, it is recognized that due to operating conditions, the volumes of gas delivered may not be equal to the volume of gas redelivered on any one particular day. The parties shall use their best efforts to keep such variances to a minimum, and therefore agree to undertake to balance deliveries and redeliveries monthly on a BTU basis. Any monthly BTU imbalance shall be eliminated within the next thirty (30) days or some other mutually agreeable time period. Upon termination of this Agreement, any party owing gas hereunder shall tender for delivery or redelivery at the point herein designated the amount of such deficiency within sixty (60) days from the date of such termination. It is understood and agreed that there will be complete balancing upon or following termination of this Agreement and that the provisions of this Paragraph shall survive the termination of the other portions of this Agreement until such time as such balancing is attained. Should, after a period of sixty (60) days, Shipper be unable to eliminate a balance of gas residing in WR's system due to Shipper's failure to provide for the redelivery of said gas, then WR shall purchase said gas from Shipper at the spot market price discussed below, expressed in dollars per MMBTU dry, in effect for the month said gas is purchased. Should, after a period of sixty (60) days, Shipper not deliver gas to make-up a shortage in its account on WR's system, Shipper shall pay WR for each MMBTU required to eliminate said shortage at one hundred five percent (105%) of the spot market price discussed below, expressed in dollars per MMBTU dry, in effect for the month in which such shortage is eliminated. Said spot market price shall be equal 8 to the arithmetic average of the five (5) "Index" MMBTU price postings representing deliveries into the pipeline systems of ANR Pipeline Co. (Oklahoma region), Natural Gas Pipeline Co. of America (Oklahoma and Kansas region), Northern Natural Gas Co. (Texas, Oklahoma and Kansas region), Panhandle Eastern Pipeline Co. (Texas and Oklahoma region) and the Williams Natural Gas Co. (Texas, Oklahoma and Kansas region) as reported in the first issue of Inside FERC Gas Market Report for the month in which said gas is purchased by WR or said shortage is eliminated by Shipper, respectively. 9 ARTICLE IV QUANTITY 4.1 Shipper shall deliver to WR each contract year a minimum quantity of twenty (20) BCF at the Delivery Point(s), with daily quantities delivered to and accepted by WR at the Delivery Point(s) up to the maximum quantities as specified in Section 2.1. 4.2 It is understood that WR is currently obligated to transport up to thirteen (13) MMCF per day on a firm basis for other customers from the Initial Delivery Point to the Final Redelivery Point. In the event insufficient firm capacity is available to transport both the quantities specified in Section 2.1 and the firm quantity stated above which WR is currently obligated to serve, the total available firm capacity will be allocated among WR's firm customers based on the ratio between each customer's firm (MDQ's) WR is obligated to serve. Notwithstanding the above, the total available firm capacity allocated to Shipper will not be less than ninety-one and eight tenths percent (91.8%) of the total available firm capacity in the months of November through March and will not be less than ninety and nine tenths percent (90.9%) of the total available firm capacity in the months of April through October. 10 ARTICLE V QUALITY 5.1 All natural gas delivered and redelivered under the terms of this Agreement shall be of merchantable quality and conform to the following specifications: (a) Oxygen - the gas shall be free of oxygen (b) Hydrogen Sulfide - the hydrogen sulfide content shall not exceed one-quarter (1/4) grain per one hundred (100) cubic feet. (c) Carbon Dioxide - the carbon dioxide content shall not exceed five hundred (500) parts per million. (d) 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 delivered at the Intermediate Delivery Point and the Final Redelivery Point shall in no event contain water vapor in excess of seven pounds (7#) per million cubic feet. (e) Dust, Gums and Solid Matter - the gas shall be commercially free of dust, gum and other solid matter. (f) Heating Value - the gas shall have a heating content of not less than nine hundred and fifty (950) BTU per cubic foot at fourteen and seventy-three hundredths pounds per square inch absolute (14.73 psia) saturated. 11 (g) Total Sulphur - the gas shall not contain more than twenty (20) grains of total sulphur per one hundred (100) cubic feet of gas as determined by a method generally acceptable for use in the gas industry. (h) Temperature - the gas shall not be delivered at a temperature of more than one hundred twenty degrees (120 degrees) Fahrenheit. 5.2 If, at any time, gas tendered for delivery and/or redelivery hereunder shall fail to conform to any of the quality specifications set forth above, the receiving party may, at its option, refuse to accept delivery and/or redelivery and be absolved of any further obligation to perform, pending correction of the deficiency by the delivering party. The receiving party shall notify the delivering party of the deficiency as soon as possible after its occurrence. However, if Shipper delivers to WR gas which conforms to all of the quality specifications set forth above, then WR must redeliver to Shipper gas which conforms to all of the quality specifications set forth above and WR will perform whatever work is required to cause the gas to meet such quality specifications. ARTICLE VI PRESSURES 6.1 Shipper shall deliver gas to WR at the Initial Delivery Point at a pressure of not less than one hundred (100) psig. After compression by WR, the gas shall be delivered to Shipper at the Intermediate Redelivery Point at a pressure not more than six hundred (600) psig nor less than five hundred (500) psig. After dehydration or processing by Shipper, the pressure of the gas or residue gas redelivered to WR at 12 the Intermediate Delivery Point shall not decline by more than ten (10) psi if dehydrated only, or more than twenty-five (25) psi if dehydrated and processed from the pressure such gas was delivered at the Intermediate Redelivery Point. WR shall deliver gas dehydrated by Shipper, back to Shipper at the inlet to the Satanta Processing Plant at a pressure not less than four hundred ninety (490) psig. ARTICLE VII MEASUREMENT AND HEATING VALUE DETERMINATION 7.1 Gas delivered to WR under this Agreement shall be measured at prevailing meter pressures and the volumes thereof shall be calculated and accounted for as between the parties hereto on the basis of a standard cubic foot of gas at a pressure of fourteen and sixty-five hundredths pounds per square inch absolute (14.65 psia) and a temperature of sixty degrees Fahrenheit (60 degrees F), computed in accordance with Boyle's Law governing pressure and volume of gases (with correction for deviation as hereinafter provided). 7.2 Gas redelivered under this Agreement by WR shall be measured and calculated by the party owning said measurement facilities or his designee at the point(s) of redelivery as described in Exhibit "B." The basis of measurement shall be as described in Paragraph 7.1 above. All delivery and re-delivery measurement shall be expressed or re-expressed on the same pressure base for balancing and billing purposes as provided for herein. 7.3 Gas volumes and BTU/CF measurements shall be corrected to reflect the actual water vapor content of the gas as delivered or redelivered. Any gas which 13 contains water vapor of seven pounds (7#) per MMCF or less shall be deemed "dry". 7.4 The specific gravity of the gas delivered and redelivered hereunder shall be determined by the party currently operating the measurement facilities as often as is found necessary in practice and in accordance with an approved method, provided that such test shall be preceded by reasonable notice to the other parties in order that they may have a representative present. 7.5 The temperature of the gas delivered and redelivered hereunder shall be determined by means of recording thermometers of standard manufacture so installed that they may properly record the temperature of the gas delivered and redelivered through the meters. The arithmetical average of the hourly temperature recorded for each period shall be used in correcting the volume of gas measured during said period to the standard provided in Paragraph 7.1 and 7.2 above. 7.6 The deviation of the gas from Boyle's Law at the pressure and temperatures at which the gas is measured shall be by tests and analyses performed as often as the parties hereto deem necessary. The method of making such tests or analyses shall be determined by mutual agreement. 7.7 It is assumed and agreed that the values of the Reynolds number factor and the expansion factor are ONE (1). 7.8 The pressure and uncorrected volumes of gas delivered and redelivery hereunder shall be measured by standard type metering equipment constructed as required by WR, at the Point(s) of Delivery and Redelivery hereunder. Orifice metering facilities shall be constructed in accordance with Gas Measurement Committee Report 14 No. 3, dated April 1955 of the Natural Gas Department of the American Gas Association and any subsequent amendments thereof which are mutually agreeable to the parties hereto, and volumes shall be calculated in accordance with said Gas Measurement Committee Report No. 3, or as hereafter amended. 7.9 Either party shall have access to the metering equipment at all reasonable times, but calibrations and adjustments thereof and changing of charts shall be done by the employees or agents of the owning party and such party shall change the charts in accordance with good practice and shall keep said meters accurate and in good repair. The meters shall be tested and calibrated by the owning party monthly, or as often as is found necessary in practice, provided that such tests shall be preceded by reasonable notice to the parties in order that the parties may have representatives present. Either party may challenge the accuracy of any meter and if, after testing, such meter is found by the owning party to be inaccurate by an amount exceeding one percent (1%), high or low, then said party shall repair the meter and make the necessary volume corrections, based on the extent of the inaccuracy and adjusting back to zero percent (0%), for the time the meter has been inaccurate, provided that in no event shall corrections extend back beyond the date of the preceding tests. If the meter, when challenged, is found to be accurate within one percent (1%), high or low, then the cost of the test shall be borne by the requesting party and the meter shall be repaired to measure accurately. If for any reason any meter shall be out of service or repair so that the amount of gas delivered cannot be ascertained or computed from the reading thereof, the gas delivered during the period 15 the meter is out of service or repair shall be estimated and agreed upon by the parties upon the basis of the best data available using the first of the following methods which is feasible: (1) By using the registration of any check meter(s) installed and accurately registering; (2) By correcting the error if the percentage of error is ascertainable by calibration, test or mathematical calculation; (3) By estimating the quantity of delivery by deliveries during preceding periods under similar conditions when the meter was registering accurately. If the period that the meter is out of service or repair is not known or agreed upon, the correction shall be made for a period equal to one half (1/2) the time since the date of the last test, but not exceeding thirty (30) days. 7.10 The charts and records from the metering equipment shall remain the property of the owning party but, upon request of the other party, the owning party shall submit same to the other party together with calculations therefrom, for such party's inspection and verification, subject to return within twenty (20) days from receipt thereof, after which the charts and records shall be kept on file by the owning party for a period of time not less than specified by Kansas law and may then, at the owning party's option, be destroyed. 7.11 The gross heating value of the gas delivered and redelivered hereunder shall be determined monthly by gas chromatography from a continuous sample of the gas taken at the Intermediate Delivery Point. From this analysis, a determination of the gross heating value will be made in accordance with the latest published procedures by the Gas Processors Association. The continuous sample will be taken such that 16 the monthly measured volume and monthly BTU/CF content are for the same period and will be used together in payment calculations for the gas delivered to WR and redelivered by WR. 7.12 In the event daily BTU calculations are required, the monthly BTU/CF determination derived from the analysis of the monthly continuous or periodic sample would be applicable to each and every daily volume in the given month. As an alternative to gas chromatography, WR may determine the gross heating value of the monthly continuous or periodic sample by a calorimeter employing the Thomas Principle of Calorimetry described in Research Paper #519 published by the U.S. Department of Commerce. In the event a continuous sample is lost or inadvertently destroyed, the previous month's gross heating value will be applied unless a mutually agreeable alternate source of accurate data is available for that month. All tests and analyses of samples shall be preceded by reasonable notice to the other party in order that such party may have a representative present. 7.13 If during the term hereof, any new and improved method or technique is developed for gas measurement or for determination of factors used in gas measurement, such new and improved method or technique may be substituted for the gas measurement described herein by mutual agreement of the parties. ARTICLE VIII RATES 8.1 For gas transported on behalf of Shipper hereunder, Shipper shall pay WR a transportation rate equal to six cents ($.06) for each MCF of gas transported 17 from the Initial Delivery Point to the Final Redelivery Point based on the volumes of gas actually delivered by WR for Shipper's account at the Final Redelivery Point. The transportation rate shall escalate at four percent (4%) on each annual anniversary date beginning June 1, 1996. 8.2 The parties hereto agree that transportation of gas hereunder shall not include storage service. 8.3 Should it appear to WR that it will be required to incur additional costs of any kind, excluding property, ad valorem, franchise and income taxes and costs of administering this agreement or operating, maintaining, or replacing existing capacity, equipment, pipelines, or facilities used and useful in the performance of this Agreement and not otherwise identified in this Agreement, WR shall advise Shipper of its estimate of such costs with supporting workpapers, the reasons such costs are expected to be incurred to provide service, and the changes required in Shipper's nominations and scheduling of gas transportation needed to avoid incurrence of such costs in writing before WR incurs such costs. Shipper shall have the right to alter its nominations and schedules to avoid the necessity for WR to incur such additional costs. The notice provided for in this Section 8.3 will allow Shipper a reasonable time, not less than thirty (30) business days, in which to take action to avoid the incurrence of such costs by WR. If Shipper does not take appropriate action in the period specified in the notice, WR will be authorized to increase the rates and charges to Shipper hereunder in an amount sufficient to allow it to recover such additional costs over the then-remaining term of this agreement. 18 8.4 In each contract year during the term of this Agreement, Shipper shall purchase or pay for an annual quantity of natural gas transportation service equal to the minimum annual quantity specified in Article IV (20 BCF per contract year) at the then effective transportation rate. If Shipper transports less than the annual minimum amount and such deficiency was not caused by WR, WR shall, in its first invoice after the end of the applicable contract year, invoice Shipper for the difference between Shipper's actual annual transportation quantity and such minimum annual quantity in the applicable contract year at the transportation rate in effect in the last month of the applicable contract year and Shipper shall be obligated to pay such charges. In any contract year after Shipper has, by virtue of this Paragraph 8.4, been required to pay transportation charges for volumes not transported, Shipper may transport such deficient volumes on an interruptible basis by providing WR written notice of the volume to be transported hereunder and subject to the availability of capacity to transport such volumes. Shipper may not transport such deficient volumes hereunder in any contract year until it shall have first transported under this Agreement the minimum annual quantity Specified in Article IV for that contract year. In connection with the transportation of such deficient volumes, Shipper shall, in addition to the charges previously paid to WR, pay WR the difference between the transportation rate in effect hereunder when such volumes are actually transported and the rate which was in effect and applied to such deficient volumes at the time such deficiency was incurred. Shipper shall have six (6) months after termination of the Agreement to make up any deficient volumes that may have previously occurred. 19 ARTICLE IX BILLING AND PAYMENT 9.1 Following the commencement of deliveries and redeliveries pursuant to Paragraph 2.1 and 2.3 herein, WR shall on or before the tenth (10th) day of each month submit to Shipper a statement of the total MCF and MMBTU of gas delivered and redelivered pursuant to this Agreement during the preceding months as well as a billing for the transportation fee as determined in accordance with Article VIII herein. 9.2 Shipper shall pay WR the amount shown as due by such billing within fifteen (15) days from the date of receipt of said statement, or by the twenty-fifth (25th) day of the month, whichever is later. 9.3 Each party shall have the right at all reasonable times to examine the books, records, and charts of the other party to the extent necessary to verify the accuracy of any statement, charge, computation or demand made under or pursuant to any of the provisions of this contract. 9.4 If an error should be discovered in any billing, such error shall be adjusted within thirty (30) days of the determination thereof, provided that claim therefor shall have been made in writing within twenty-four (24) months from the date of such billing. ARTICLE X INDEMNIFICATION 10.1 As between the parties hereto, Shipper shall be deemed to be in control and possession of the gas deliverable hereunder and responsible for any loss, 20 claim, demands, expenses, damages or injuries caused thereby, except for those occasioned solely by the negligence of WR, until the same shall have been delivered to WR at the points of delivery provided for herein, and Shipper fully indemnifies and holds WR harmless with respect thereto. As between the parties hereto, after delivery of such gas, WR shall be deemed to be in exclusive control and possession of the gas and responsible for any loss, claims, demands, expenses, injuries or damages caused thereby, except for those occasioned solely by the negligence of Shipper, and WR fully indemnifies and holds Shipper harmless with respect thereto. 10.2 Shipper warrants the gas delivered to WR for redelivery shall be free from all adverse claims, liens and encumbrances. The party having control and possession of the gas shall do all things necessary to prevent and avoid any adverse claims, liens or encumbrances on the gas and shall indemnify and save harmless the other party from and against all suits, action, 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 which is delivered or for the account of the other party under this Agreement, and which are caused by the failure to so protect clear title to the gas. ARTICLE XI TERM 11.1 The term of this agreement shall be for a primary period of five (5) contract years from June 1, 1995, and shall continue in effect from year-to-year thereafter; provided, however, after the primary period, either party, by giving twelve (12) months' written notice to the other party prior to an anniversary date may cancel 21 and terminate this agreement without further liability hereunder, except as to any then existing imbalance, outstanding bill and the warranties expressed in Section 10.2. 22 ARTICLE XII PROCESSING RIGHTS 12.1 Shipper shall retain all processing rights associated with the gas to be transported hereunder. WR will not process any gas delivered to it by Shipper. WR will redeliver to Shipper a volume of gas containing the same number of BTU's, equivalent gallons of ethane and heavier hydrocarbon components and equivalent cubic feet of helium as the gas contained when accepted by WR, except for any reduction for any natural gas liquids which may occur as a result of natural condensation in the compression or transportation process. Such natural gas liquids recovered shall be delivered for Shipper's account to MESA's Satanta Plant facilities. ARTICLE XIII DISPUTE RESOLUTION 13.1 DISPUTE RESOLUTION. No party to this Agreement shall be entitled to take legal action with respect to any dispute relating hereto until it has complied in good faith with the following alternative dispute resolution procedures. This Section 13.1 shall not apply if it is deemed necessary to take legal action immediately to preserve a party's adequate remedy. 13.2 Negotiation. The parties shall attempt promptly and in good faith to resolve any dispute arising out of or relating to this Agreement, through negotiations between representatives who have authority to settle the controversy. Any party may give the other party(ies) written notice of any such dispute not resolved in the normal course of business. Within twenty (20) days after delivery of the notice, 23 representatives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonable deem necessary, to exchange information and to attempt to resolve the dispute, until the parties conclude that the dispute cannot be resolved through unassisted negotiation. Negotiations extending sixty (60) days after notice shall be deemed at an impasse, unless otherwise agreed by the parties. 13.3 If a negotiator intends to be accompanied at a meeting by an attorney, the other negotiator(s) shall be given at least three (3) working days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of the Federal and State Rules of Evidence. 13.4 ADR Procedure. If a dispute with more than twenty thousand dollars ($20,000.00) at issue has not been resolved within sixty (60) days of the disputing party's notice, a party wishing resolution of the dispute ("Claimant") shall initiate assisted Alternative Dispute Resolution (ADR) proceedings as described in this Section 13.4. Once the Claimant has notified the other ("Respondent") of a desire to initiate ADR proceedings, the proceedings shall be governed as follows: By mutual agreement, the parties shall select the ADR method they wish to use. The ADR method may include arbitration, mediation, mini-trial, or any other method which best suits the circumstances of the dispute. The parties shall agree in writing to the chosen ADR method and the procedural rules to be followed within thirty (30) days after receipt of notice of intent to initiate ADR proceedings. To the extent the parties 24 are unable to agree on procedural rules in whole or in part, the current Center for Public Resources (CPR) Model Procedure for Mediation of Business Disputes, CPR Model Mini-trial Procedure, or CPR Commercial Arbitration Rules--whichever applies to the chosen ADR method--shall control, to the extent such rules are consistent with the provisions of this Section 13.4. If the parties are unable to agree on an ADR method, the method shall be arbitration. 13.5 The parties shall select a single Neutral third party to preside over the ADR proceedings, by the following procedure: Within fifteen (15) days after an ADR method is established, the Claimant shall submit a list of five (5) acceptable Neutrals to the Respondent. Each Neutral listed shall be sufficiently qualified, including demonstrated neutrality, experience and competence regarding the subject matter of the dispute. A Neutral shall be deemed to have adequate experience if an attorney or former judge. None of the Neutrals may be present or former employees, attorneys or agents of either party. The list shall supply information about each Neutral, including address, and relevant background and experience (including education, employment history and prior ADR assignments). Within fifteen (15) days after receiving the Claimant's list of Neutrals, the Respondent shall select one Neutral from the list, if at least one individual on the list is acceptable to the Respondent. If none on the list are acceptable to the Respondent, the Respondent shall submit a list of five (5) Neutrals, together with the above background information, to the Claimant. Each of the Neutrals shall meet the conditions stated above regarding the Claimant's Neutrals. Within fifteen (15) days after receiving the Respondent's list of Neutrals, the Claimant 25 shall select one Neutral, if at least one individual on the list is acceptable to the Respondent. If none of the list are acceptable to the Claimant, then the parties shall request assistance from the Center for Public Resources, Inc., to select a Neutral. 13.6 The ADR proceeding shall take place within thirty (30) days after the Neutral has been selected. The Neutral shall issue a written decision within thirty (30) days after the ADR proceeding is complete. Each party shall be responsible for an equal share of the costs of the ADR proceeding. The parties agree that any applicable statute of limitations shall be tolled during the pendency of the ADR proceedings, and no legal action may be brought in connection with this agreement during the pendency of an ADR proceeding. 13.7 The Neutral's written decision shall become final and binding on the parties, unless a party objects in writing within thirty (30) days of receipt of the decision. The objecting party may then file a lawsuit in any court allowed by this Agreement. The Neutral's written decision shall be admissible in the objecting party's lawsuit. 26 ARTICLE XIV REGULATORY AUTHORIZATIONS 14.1 The transportation of gas hereunder is made pursuant to the authority under WR's certificate of convenience and necessity granted by the Kansas Corporation Commission. If at any time during the term of this Agreement, any governmental authority shall take action as to WR, excluding however, any action relating to the rates prescribed under Article VIII or the costs of providing the services hereunder, and/or Shipper whereby the sale/purchase or transportation of gas hereunder is prescribed or subject to conditions or restraint that, in the sole judgment of the party affected is unacceptable, such party, upon written notice to the other, may cancel and terminate this Agreement without further liability hereunder, except as to any then existing imbalance, outstanding bill and the warranties expressed in Section 10.2 herein. Any obligations of Shipper under Section 8.4 herein shall automatically cease for that contract year and any subsequent contract year. 14.2 The parties hereto shall respectively proceed with diligence in the preparation, filing and prosecution of any applications, filings and notices with federal and/or other governmental agencies as may be required. Each party shall promptly provide the other with a copy of all applications, filings, notices, and approvals. Shipper agrees to reimburse WR for any filing fees imposed by regulatory agencies upon such filing. 14.3 If required, WR shall, pursuant to the rules and regulations promulgated by the regulatory agency having authority, promptly file for approval of the rates 27 prescribed under Article VIII. In the event any such filing is not approved within sixty (60) days of the execution of this Agreement, WR or Shipper shall have the right to terminate this Agreement effective upon written notice given to one by the other. 14.4 If at any time during the term of this Agreement, WR and Shipper mutually agree upon changes in the rates prescribed under Article VIII, WR shall promptly file for the approval of such revised rates. In the event any such filing shall be disapproved, WR and Shipper shall attempt to agree upon new rates. Should WR and Shipper be unable to agree upon new rates within a period of sixty (60) days after the disapproval of such rates by the regulatory agency having jurisdiction, then either party, by giving twelve (12) months written notice to the other party, may cancel and terminate this Agreement. Absent approval of revised rates, the existing (old) rates shall remain in effect while this Agreement remains effective. 28 ARTICLE XV NOTICES 15.1 Any formal notice, request or demand which either party may desire to give to the other respecting this Agreement, shall be in writing and shall be considered as duly delivered when mailed by registered or certified mail by said party to the other party hereto, as follows: NOTICES AND PAYMENTS: MESA Operating Co. 5205 N. O'Connor Blvd, Suite 1400 Irving, Texas 75039-3746 Attn: Marketing Department Facsimile: (214) 444-4394 NOTICES: WESTERN RESOURCES, INC. P. O. Box 889 Topeka, Kansas 66601 Attn.: Gas Supply Gas Control Facsimile: 913-575-8137 PAYMENTS: WESTERN RESOURCES, INC. P.O. Box 758500 Topeka, KS 66675-8500 29 or to such other address as either party shall designate by formal written notice. Routine communications shall be considered as duly delivered as of the postmarked date when mailed by ordinary mail. Nominations and confirmations thereof may be made by facsimile. Operating communications by telephone or other mutually agreeable means shall be considered as duly delivered without subsequent written confirmation, unless written confirmation is requested by either party. ARTICLE XVI FORCE MAJEURE 16.1 Neither party shall be liable for failure of performance (other than to make payments due hereunder) due to labor controversies, fires, strikes, floods, lack of water, winds, lightning, accidents, required maintenance and repair of equipment and lines of pipe, the inability of any party hereto to obtain right-of-way grants necessary to enable such party to fulfill any obligation hereunder, or the delay or failure on the part of such party in acquiring such right-of-way grants due to cost, which in the opinion of such party is unreasonable or excessive, or any other circumstances beyond the control of the party failing to perform, whether of similar or dissimilar nature. Settlement of strikes and lockouts shall be wholly within the discretion of the party involved in any such strike or lockout. Failure by Shipper or WR to meet the quality, reliability and measurement standards provided herein shall not constitute force majeure. 30 Immediately upon becoming aware of the occurrence or termination of an event of force majeure, the party claiming force majeure shall give notice thereof to the other party describing such event. ARTICLE XVII LAWS AND REGULATIONS 17.1 This Agreement shall be subject to all valid statutes and valid rules and regulations of any duly constituted Federal or State regulatory body having jurisdiction herein. ARTICLE XVIII NONWAIVER OF FUTURE DEFAULT 18.1 No waiver by any party of any one or more defaults by the other in performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any other existing or future default or defaults, whether of a like or of a different character. ARTICLE XIX SUCCESSORS AND ASSIGNS 19.1 Any company which shall succeed by purchase, merger or consolidation to the properties or which shall take title, at the wellhead, of the gas transported hereunder, substantially as an entirety, shall be subject to the obligations of its predecessor in title under this Agreement. No other assignment of this Agreement or any of the rights or obligations hereunder shall be made unless there first shall have been obtained the consent thereto of the other party, which such 31 consent shall not be unreasonably withheld. Furthermore, either party may assign the interest in and to and under this Agreement to a trustee or trustees, individual or corporate, as security for bonds or other obligations or securities without the necessity of any such assignee becoming in any respect obligated to perform the obligation of the assignor under this Agreement and, if any such trustee be a corporation, without its being required to qualify to do business in any state in which performance of this Agreement may occur. ARTICLE XX DEHYDRATION FUEL AGREEMENT 20.1 This Agreement does not modify the obligations of WR or HCLP under the terms of the Dehydration Fuel Agreement dated April 16, 1993. ARTICLE XXI COMPRESSION OF GAS BY SHIPPER 21.1 In the event WR's compression capacity is being fully utilized, Shipper may provide compression services on an interruptible basis for gas being transported by WR. Shipper may stop providing compression services in whole or in part at any time for any reason. WR shall pay Shipper five cents ($0.05) plus fuel for each MCF of gas compressed by Shipper and delivered to the Intermediate Redelivery Point. Such gas compressed by Shipper shall be measured at the inlet to Shipper's 32 compression facilities in accordance with the measurement procedures set forth in Article VII herein. ARTICLE XXII MISCELLANEOUS 22.1 Any modification of terms or amendment of provisions of this agreement shall become effective only by supplemental written agreement between the parties hereto. 22.2 As to all matters of construction and interpretation, this Agreement shall be interpreted, construed and governed by the laws of the State of Kansas. 22.3 Transportation hereunder shall be effected pursuant to any and all applicable regulations, of the regulatory agency having authority, and the parties hereto agree to comply with all said regulations in their performance of this Agreement. 33 IN WITNESS WHEREOF, the parties hereto have caused two (2) originals of this Agreement to be executed, by their officers duly authorized, as of the day and year first hereinabove written. WITNESS: LARRY G. WILLER WESTERN RESOURCES, INC. By: R. H. TANGEMAN -------------------------------- R. H. Tangeman Assistant Vice President, Gas Supply WITNESS: D'NARD A. HEMPHILL MESA OPERATING CO. acting on behalf of itself and as agent for Hugoton Capital Limited Partnership By: PAUL W. CAIN -------------------------------- Paul W. Cain Title: President 34 Exhibit "A" to Gas Transport Agreement Dated June 14, 1994 between Western Resources, Inc. and MESA Operating Co. acting on behalf of itself and as agent for Hugoton Capital Limited Partnership DELIVERY POINTS Initial Delivery Point- Interconnect between Shipper and WR at the inlet of WR's Ulysses compressor station located in Grant County, Kansas (Sec. 10-T30S-R37W). Intermediate Delivery Point- Interconnect between Shipper and WR at the outlet of Shipper's Ulysses Processing Plant located in Grant County, Kansas (Sec. 10-T30S-R37W). Exhibit "B" to Gas Transport Agreement Dated June 14, 1994 between Western Resources, Inc. and MESA Operating Co. acting on behalf of itself and as agent for Hugoton Capital Limited Partnership REDELIVERY POINTS Intermediate Redelivery Point- Interconnect between WR and the inlet of Shipper's Ulysses Processing Plant located in Grant County, Kansas (Section 10-T30S-R37W). Final Redelivery Point- Interconnect between WR and the inlet to Shipper's Satanta Processing Plant in Grant County, Kansas (Sec. 5-T30S-R35W). EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS AS OF MAR-31-1995 AND THE STATEMENT OF DISTRIBUTABLE INCOME FOR THE THREE MONTHS ENDED MAR-31-1995 AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS DEC-31-1995 MAR-31-1995 2,095,381 0 23,962 0 0 2,095,381 42,498,034 21,160,549 23,456,828 2,119,343 0 0 0 0 21,337,485 23,456,828 0 2,102,914 0 0 7,533 0 0 2,119,343 0 0 0 0 0 2,119,343 1.137 1.137
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