OPERATIONS AND MAINTENANCE
AGREEMENT
Piñon Gathering Company,
LLC
SandRidge Midstream, Inc.
|
|
|
|
|
|
|
|
|
PAGE
|
|
|
|
|
1
|
|
ARTICLE II ENGAGEMENT OF OPERATOR
|
|
|
6
|
|
|
|
|
|
6
|
|
2.2 Independent Contractor
|
|
|
6
|
|
|
|
|
|
6
|
|
ARTICLE III TERM; RESIGNATION OR REMOVAL OF
OPERATOR
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
|
|
|
|
7
|
|
3.4 Cooperation with Owner or Successor
Operator
|
|
|
8
|
|
3.5 Effect of Termination
|
|
|
8
|
|
|
|
|
|
8
|
|
ARTICLE IV DUTIES AS OPERATOR
|
|
|
9
|
|
|
|
|
|
9
|
|
4.1.1 Operation and Maintenance of the Gathering
System
|
|
|
9
|
|
4.1.2 Purchase of Material and
Supplies
|
|
|
9
|
|
|
|
|
|
9
|
|
4.1.4 Payment of Operating Expenses
|
|
|
9
|
|
4.1.5 Proposed Operating Expense
Budget
|
|
|
10
|
|
|
|
|
|
10
|
|
|
|
|
|
11
|
|
4.1.8 Reporting By Operator
|
|
|
11
|
|
4.1.9 Commercial Activities
|
|
|
12
|
|
4.1.10 Regulatory Affairs
|
|
|
12
|
|
|
|
|
|
12
|
|
|
|
|
|
12
|
|
4.3 Limitation of Authority
|
|
|
13
|
|
|
|
|
|
13
|
|
|
|
|
|
13
|
|
4.3.3 Material Alteration of Owner’s
Business
|
|
|
13
|
|
|
|
|
|
|
|
ARTICLE V COST REIMBURSEMENT
|
|
|
13
|
|
5.1 Responsibility for Costs and
Expenses
|
|
|
13
|
|
|
|
|
|
13
|
|
i
|
|
|
|
|
|
|
|
|
PAGE
|
5.2.1 Invoicing and Payment
|
|
|
13
|
|
|
|
|
|
14
|
|
|
|
|
|
14
|
|
ARTICLE VI ACCOUNTING; REPORTS;
RECORDS
|
|
|
14
|
|
|
|
|
|
14
|
|
|
|
|
|
14
|
|
6.3 Accounting and Taxation
|
|
|
15
|
|
6.3.1 Maintenance of Accounts
|
|
|
15
|
|
6.3.2 Preparation of Tax Returns
|
|
|
15
|
|
6.3.3 Owner to Supply Information
|
|
|
16
|
|
|
|
|
|
16
|
|
|
|
|
|
16
|
|
|
|
|
|
17
|
|
ARTICLE VII FORCE MAJEURE
|
|
|
18
|
|
|
|
|
|
18
|
|
|
|
|
|
18
|
|
ARTICLE VIII INSURANCE AND
INDEMNIFICATION
|
|
|
18
|
|
|
|
|
|
18
|
|
|
|
|
|
19
|
|
|
|
|
|
20
|
|
8.4 Mutual Release and
Indemnification
|
|
|
20
|
|
8.4.1 Owner’s Indemnification
|
|
|
20
|
|
8.4.2 Operator’s
Indemnification
|
|
|
20
|
|
ARTICLE IX GENERAL PROVISIONS
|
|
|
21
|
|
|
|
|
|
21
|
|
|
|
|
|
21
|
|
|
|
|
|
22
|
|
9.4 Rules of Construction
|
|
|
22
|
|
|
|
|
|
22
|
|
|
|
|
|
22
|
|
|
|
|
|
22
|
|
9.6.2 Jurisdiction and Venue
|
|
|
22
|
|
|
|
|
|
23
|
|
|
|
|
|
23
|
|
9.7 Limitation of Liability
|
|
|
23
|
|
ii
|
|
|
|
|
|
|
|
|
PAGE
|
9.8 Entirety of Agreement, Amendments
|
|
|
23
|
|
|
|
|
|
24
|
|
|
|
|
|
24
|
|
|
|
|
|
24
|
|
|
|
|
|
24
|
|
|
|
|
|
24
|
|
|
|
|
|
24
|
|
9.15 No Third Party Beneficiary
|
|
|
24
|
|
|
|
|
|
25
|
|
EXHIBIT A —
DUTIES AND RESPONSIBILITIES OF OPERATOR
EXHIBIT B —
FORM OF MONTHLY OPERATING AND FINANCIAL REPORT
iii
OPERATIONS AND MAINTENANCE
AGREEMENT
This OPERATIONS
AND MAINTENANCE AGREEMENT dated June 30, 2009 (the “
Effective Date ”), is made and entered into by
and between Piñon Gathering Company, LLC, a Delaware limited
liability company (“ Owner ”), with
offices at 333 Clay Street, Suite 4150, Houston, Texas 77002,
and SandRidge Midstream, Inc., a Texas corporation (“
Operator ”), with offices at 123 Robert S. Kerr
Avenue, Oklahoma City, Oklahoma 73102.
A. Pursuant
to that certain Membership Interest Purchase Agreement between
Operator and TCW Pecos Midstream, L.L.C., a Texas limited liability
company (“ TCW Pecos Midstream ”) dated
as of even date herewith (the “ Membership Interest
Purchase Agreement ”), TCW Pecos Midstream has
purchased from Operator all issued and outstanding membership
interests in Owner, which owns the Gathering System (as hereinafter
defined).
B. Owner
wishes to retain Operator to maintain and operate the Gathering
System and advance the commercial interests of Owner through the
negotiation and execution of agreements relative to the commercial
offerings provided by Owner, as well as administering the business
and regulatory affairs of Owner relating to the Gathering System,
all in accordance with the terms and conditions set forth
below.
NOW, THEREFORE, in
consideration of the premises and of the mutual covenants and
agreements contained herein, Operator and Owner hereby agree as
follows:
Except as
otherwise defined in this Article I, capitalized terms used in
this Agreement shall have the meanings assigned to them in the
Gathering Agreement.
“
Adjustment Claims ” shall have the meaning set
forth in Section 6.5.
“
Affiliate ” means, with respect to any Person,
any other Person that, directly or indirectly, controls, is
controlled by, or is under common control with, such specified
Person through one or more intermediaries or otherwise. For the
purposes of this definition, “control” means, where
used with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of Voting Securities or interests, by contract or
otherwise, and the terms “controlling” and
“controlled” have correlative meanings.
“
Agreement ” means this Operations and
Maintenance Agreement (including all exhibits), as amended from
time to time in accordance with the terms hereof.
“
Audit Costs ” shall have the meaning set forth
in Section 6.5.
“
Business Day ” means any calendar day, other
than a Saturday or Sunday, on which commercial banks in Dallas,
Texas are open for business.
“
Calendar Year ” means the time period from
January 1 through December 31 of the same calendar
year.
“
Capital Project ” means any capital expenditure
to repair, maintain, construct, expand, or modify the Gathering
System.
“
Capital Project Proposal ” shall have the
meaning set forth in Section 4.1.6.
“
Claim ” means any lawsuit, claim, proceeding,
investigation, review, audit or other cause of action of any
kind.
“
Company Conveyance ” means that certain
Assignment of Membership Interests dated as of June 30, 2009,
between Operator and TCW Pecos Midstream, together with all
amendments, modifications or waivers thereto.
“
Confidentiality and Disclosure Agreement ”
means that certain Confidentiality and Disclosure Agreement dated
as of June 30, 2009, between SandRidge Energy, Inc., TCW Asset
Management Company, and Piñon Gathering Company, LLC,
together with all amendments, modifications or waivers
thereto.
“
Constituent of Concern ” means any substance
defined as a hazardous substance, hazardous waste, hazardous
material, toxic substance, solid waste, pollutant or contaminant by
an Environmental Law.
“
Dedicated Gas ” shall have the meaning ascribed
to such term in the Gathering Agreement.
“
Effective Date ” shall have the meaning set
forth in the preamble to this Agreement.
“
Emergency ” means a sudden or unexpected event
that causes, or risks causing, imminent material damage to the
Gathering System, death or injury to any Person, or material damage
to property or the environment.
“
Emergency Work ” shall have the meaning set
forth in Section 4.1.7.
“
Enterprise Gathering Agreement ” means that
certain Gas Gathering Agreement dated as of June 26, 2009,
between Enterprise Products Operating, LLC and Operator, together
with all amendments, modifications or waivers thereto.
“
Environmental Law ” means all applicable Laws
and Environmental Permits of any Governmental Authority relating to
the environment, natural resources, or the protection thereof,
including, without limitation: (a) all requirements pertaining
to liability for reporting, management, licensing, permitting,
investigation, and remediation of emissions, discharges, releases,
or threatened releases of a Constituent of Concern; and
(b) CERCLA, the Hazardous Materials Transportation Act, 49
U.S.C. § 5101 et seq. the Federal Clean Water Act, the
Federal
2
Clean Air Act,
the Federal Solid Waste Disposal Act (which includes the Resource
Conservation and Recovery Act), the Federal Toxic Substances
Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.,
and the Safe Drinking Water Act, 42 U.S.C. § 300f et seq. and
any applicable Law relating to health, safety, the environment,
natural resources or the protection thereof, each as amended from
time to time, including any regulations promulgated pursuant
thereto, and any state or local counterparts.
“
Environmental Permits ” all permits, licenses,
registrations, authorizations, certificates and approvals, and any
other similar items, of Governmental Authorities required by
Environmental Laws and necessary for or held in connection with the
ownership and/or operation the Gathering System or any of the
transactions contemplated hereby.
“
Force Majeure ” means any cause or causes not
reasonably within the control of the Party claiming suspension and
which, by the exercise of reasonable diligence, such Party is
unable to prevent or overcome, including, without limitation, acts
of God, acts, omissions to act, and/or delays in action of federal,
state, or local government or any agency thereof, strikes,
lockouts, work stoppages, or other industrial disturbances, acts of
a public enemy, sabotage, wars, blockades, insurrections, riots,
acts of terror, epidemics, landslides, lightning, earthquakes,
fires, storms, storm warnings, floods, washouts, extreme cold or
freezing weather, arrests and restraints of governments and people,
civil or criminal disturbances, interruptions by governmental or
court orders, present and future valid orders of any regulatory
body having jurisdiction, explosions, mechanical failures,
breakage, or accident to equipment installations, machinery,
compressors, or lines of pipe, and associated repairs, freezing of
wells or lines of pipe, partial or entire failure of wells, pipes,
facilities, or equipment, electric power unavailability or
shortages, failure of pipelines or carriers to transport, partial
or entire failure or refusal of operators of upstream or downstream
pipelines or facilities to receive gas, governmental regulations,
and inability to obtain or timely obtain, or obtain at a reasonable
cost, after exercise of reasonable diligence, pipe, materials,
equipment, rights-of-way, servitudes, governmental approvals, or
labor, including those necessary for the facilities provided for in
this Agreement.
“
GAAP ” means generally accepted accounting
principles, consistently applied.
“
Gathering Agreement ” means that certain Gas
Gathering Agreement dated as of even date herewith by and between
SandRidge Exploration and Production, LLC, as
“Shipper,” and Owner, as “Gatherer,” as
amended, restated or otherwise modified from time to
time.
“
Gathering System ” shall have the meaning
ascribed to such term in the Gathering Agreement.
“
Governmental Authority ” means any federal,
state, municipal, local or similar governmental authority,
regulatory or administrative agency, court or arbitral body with
jurisdiction over the Parties, this Agreement, any of the
transactions contemplated hereby or the Gathering
System.
“
Guaranty Agreements ” means, collectively, that
certain (a) Guaranty Agreement dated as of June 30, 2009,
by SandRidge Energy, Inc. in favor of TCW Pecos Midstream,
(b) Guaranty
3
Agreement dated
as of June 30, 2009, by SandRidge Energy, Inc. in favor of
Owner, (c) Guaranty Agreement dated as of June 30, 2009,
by SandRidge Exploration and Production, LLC in favor of Owner, and
(d) Guaranty Agreement dated as of June 30, 2009, by
Operator in favor of Owner, in each case, together with all
amendments, modifications or waivers thereto.
“
Intercompany Conveyance ” means that certain
Assignment, Bill of Sale and Conveyance dated as of June 30,
2009, between Operator and Owner, together with all amendments,
modifications or waivers thereto.
“
Law ” means any statute, writ, law, common law,
rule, regulation, ordinance, order, judgment, injunction, award,
determination or decree of a Governmental Authority, or any
requirement under the common law.
“ LLC
Agreement ” means that certain Amended and Restated
Limited Liability Company Agreement of Piñon Gathering
Company, LLC, together with all amendments, modifications or
waivers thereto.
“
Liability Claim ” means a Claim arising out of
the administration, operation, or maintenance of the Gathering
System, or arising out of or incidental to the activities carried
on or work performed or required by this Agreement.
“
Loss ” means any loss, cost, expense,
liability, damage, sanction, judgment, lien, fine, or penalty,
including reasonable attorney’s and consultant’s fees
and expenses, incurred, suffered or paid by, or resulting to, the
applicable indemnified Persons on account of (i) injuries
(including death) to any Person or damage to or destruction of any
property, sustained or alleged to have been sustained in connection
with or arising out of the matters for which the indemnifying Party
has indemnified the applicable indemnified Persons, (ii) any
failure of any representation or warranty made by Operator in this
Agreement to be true and correct when made, or (iii) the
breach of any covenant or agreement made or to be performed by the
indemnifying Party pursuant to this Agreement.
“
Material Overpayment ” shall have the meaning
set forth in Section 6.5.
“
Membership Interest Purchase Agreement ” shall
have the meaning set forth in the first recital of this
Agreement.
“
Operator ” shall have the meaning set forth in
the preamble to this Agreement.
“
Operator Change of Control ” means the
occurrence of an event where upon (i) at least seventy-five
percent (75%) of the equity interests in Operator and (ii) at
least seventy-five percent (75%) of the monthly volumes of
Dedicated Gas projected to be produced during the period extending
from the date of calculation to the estimated date of the Trigger
Event shall cease to be owned, directly or indirectly, by the same
Person.
“
Operator Indemnified Parties ” means,
collectively, Operator, its successors and permitted assigns, and
their respective Affiliates, shareholders, members, partners,
officers, directors, employees, and agents.
4
“
Operator Parties ” means, collectively,
Operator, Operator’s Affiliates, and their respective
successors and assigns; “ Operator Party
” means any such Person individually.
“
Owner ” shall have the meaning set forth in the
preamble to this Agreement.
“
Owner Indemnified Parties ” means,
collectively, Owner, its successors and permitted assigns, and
their respective Affiliates, shareholders, members, partners,
officers, directors, employees, and agents.
“
Owner Operating Expense Account ” means the
bank account designed by Owner as its operating expense
account.
“
Owner Revenue Account ” means the bank account
designed by Owner as its revenue account.
“
Party ” means either Owner or Operator, as
applicable, and “ Parties ” means both
Owner and Operator.
“
Person ” means an individual, a corporation, a
partnership, a limited partnership, a limited liability company, an
association, a joint venture, a trust, an unincorporated
organization, or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
“
Preventing Factors ” shall have the meaning set
forth in Section 6.3.1.
“
Proposed Operating Expense Budget ” means, with
respect to each period, the Proposed Operating Expense Budget
established pursuant to the Gathering Agreement for such
period.
“
Shipper ” shall have the meaning set forth in
the Gathering Agreement.
“
Subject Gathering Agreements ” means,
collectively, the Gathering Agreement, the Enterprise Gathering
Agreement and any gathering agreements entered into in accordance
with Section 4.1.9.
“
Tax ” or “ Taxes ”
means any (i) federal, state, provincial, county, local or
foreign taxes, charges, fees, levies or other assessments,
including all sales and use, goods and services, ad valorem,
transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, value added, capital stock, production,
business and occupation, disability, employment, payroll, license,
estimated, stamp, custom duties, severance, unemployment, social
security, Medicare, alternative minimum or withholding taxes or
charges imposed by any Governmental Authority, and including any
interest and penalties (civil or criminal) on or additions to any
such taxes, but expressly excluding any income tax or tax based on
income, such as, without limitation, the franchise tax set forth in
V.T.C.A. Tax Code Section 171.0001 et. seq., as the same may
be amended or recodified from time to time, and (ii) liability
for items in (i) of any other Person by contract, operation of
Law (including Treasury Regulation 1.1502-6) or
otherwise.
5
“ Tax
Returns ” means any return, report, election,
declaration, statement, notice, information return, schedule, or
other document (including any related or supporting information)
filed or required to be filed with any Governmental Authority in
connection with the determination, assessment, collection or
administration of any Taxes or any income tax or tax based on
income, such as, without limitation, the franchise tax set forth in
V.T.C.A. Tax Code Section 171.0001 et. seq., as the same may
be amended or recodified from time to time, or the administration
of any laws, regulations or administrative requirements relating to
any Taxes or any amendment thereof.
“
Transaction Documents ” means, collectively,
this Agreement, the Gathering Agreement, the Membership Interest
Purchase Agreement, the Intercompany Conveyance, the Company
Conveyance, the Guaranty Agreements, the Confidentiality and
Disclosure Agreement and the LLC Agreement.
“
Trigger Event ” shall have the meaning ascribed
to such term in

|