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Exhibit 10.6

 

OPERATIONS AND MAINTENANCE AGREEMENT

Between

Piñon Gathering Company, LLC

And

SandRidge Midstream, Inc.

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

PAGE

ARTICLE I DEFINITIONS

 

 

1

 

ARTICLE II ENGAGEMENT OF OPERATOR

 

 

6

 

2.1 Engagement

 

 

6

 

2.2 Independent Contractor

 

 

6

 

2.3 Owner Cooperation

 

 

6

 

ARTICLE III TERM; RESIGNATION OR REMOVAL OF OPERATOR

 

 

7

 

3.1 Term

 

 

7

 

3.2 Owner Default

 

 

7

 

3.3 Operator Default

 

 

7

 

3.4 Cooperation with Owner or Successor Operator

 

 

8

 

3.5 Effect of Termination

 

 

8

 

3.6 No Breach

 

 

8

 

ARTICLE IV DUTIES AS OPERATOR

 

 

9

 

4.1 Duties as Operator

 

 

9

 

4.1.1 Operation and Maintenance of the Gathering System

 

 

9

 

4.1.2 Purchase of Material and Supplies

 

 

9

 

4.1.3 Personnel

 

 

9

 

4.1.4 Payment of Operating Expenses

 

 

9

 

4.1.5 Proposed Operating Expense Budget

 

 

10

 

4.1.6 Capital Projects

 

 

10

 

4.1.7 Emergencies

 

 

11

 

4.1.8 Reporting By Operator

 

 

11

 

4.1.9 Commercial Activities

 

 

12

 

4.1.10 Regulatory Affairs

 

 

12

 

4.1.11 Devotion of Time

 

 

12

 

4.2 Standard of Care

 

 

12

 

4.3 Limitation of Authority

 

 

13

 

4.3.1 Binding Owner

 

 

13

 

4.3.2 Asset Sales

 

 

13

 

4.3.3 Material Alteration of Owner’s Business

 

 

13

 

4.3.4 Debt 13

 

 

 

 

ARTICLE V COST REIMBURSEMENT

 

 

13

 

5.1 Responsibility for Costs and Expenses

 

 

13

 

5.2 Procedure

 

 

13

 

i


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

PAGE

5.2.1 Invoicing and Payment

 

 

13

 

5.2.2 Disputes

 

 

14

 

5.3 Setoff

 

 

14

 

ARTICLE VI ACCOUNTING; REPORTS; RECORDS

 

 

14

 

6.1 Accounting Methods

 

 

14

 

6.2 Financial Statements

 

 

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

 

6.4 Banking

 

 

16

 

6.5 Independent Audits

 

 

16

 

6.6 Credit Inquiries

 

 

17

 

ARTICLE VII FORCE MAJEURE

 

 

18

 

7.1 Procedure

 

 

18

 

7.2 Strikes

 

 

18

 

ARTICLE VIII INSURANCE AND INDEMNIFICATION

 

 

18

 

8.1 Operator Insurance

 

 

18

 

8.2 Contractors

 

 

19

 

8.3 Notice of Claims

 

 

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

 

9.1 Notices

 

 

21

 

9.2 Rights

 

 

21

 

9.3 Applicable Laws

 

 

22

 

9.4 Rules of Construction

 

 

22

 

9.5 Governing Law

 

 

22

 

9.6 Dispute Resolution

 

 

22

 

9.6.1 Negotiation

 

 

22

 

9.6.2 Jurisdiction and Venue

 

 

22

 

9.6.3 Jury Waiver

 

 

23

 

9.6.4 Costs and Expenses

 

 

23

 

9.7 Limitation of Liability

 

 

23

 

ii


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

PAGE

9.8 Entirety of Agreement, Amendments

 

 

23

 

9.9 Waivers

 

 

24

 

9.10 Exhibits

 

 

24

 

9.11 Headings

 

 

24

 

9.12 Assignment

 

 

24

 

9.13 Rights and Remedies

 

 

24

 

9.14 Counterparts

 

 

24

 

9.15 No Third Party Beneficiary

 

 

24

 

9.16 Further Assurances

 

 

25

 

EXHIBITS :

     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.

RECITALS

     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:

ARTICLE I
DEFINITIONS

     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


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