STEPHENS ENERGY CORP. - The Railroad Commission of Texas

STEPHENS ENERGY CORP. 

RANDAL M. STEPHENS 

Presidenr 

- 

A ~ T N : Asset . ~anager 

Re: Contract 

Dear Mr. 

February 27, 2005 

Thank you for responding on February 27,2005 to my letter to you dated January 5,2005. 

You did not mention my following letter to Enbridge dated February 2,2005, so I am 

enclosing a copy. I wouid appreciate full responses-to both. I want clarify a couple of 

points as there seems to be confusion at Enbridge, and I want to bring up even newer 

problems. 

1. As you noted, I spoke by phone on January 3 1,2005, with Mr.- the Enbridge 

Accounting Supervisor. Mr. certainly said he was going to recommend adjusting 

volumes as a way to solve your improperly taking of my November 2004 gas at a cheap 

price. You are incorrect in stating I agreed to that. I told Mr.-that I wanted a check 

fiom Enbridge for $4182.90 to fix that particular issue. I repeated that position clearly in 

my second letter to you dated February 2,2005. 

2. I will repeat what I said in the February 2,2005, letter to you that I want a check 

fiom Enbridge for $632.40 to fix the issue similar to the one above for my December 2004 

gas. 

3. I additionally disagree with your assertion that this is a volume issue under our 

contract which requires a remedy of later volume adjustments. This particular issue is not 

about volumes, although I have other volume complaints below. My contract clearly 

requires you to deliver my gas to your plant outlet where I can sell to anyone I choose. My 

complaints above are a price issue. My gas should have been sold at the outlet at a high 

price. Instead, Enbridge improperly bought some of the gas at a low price. Therefore, the 

error is an error of price and Enbridge should correct that error by sending me the two 

checks detailed above. 

4. Your typical monthly curtailment letters plead essentially a force majeure that 

prevent you from following our contract terms. I do not agree that a force rnajeure event 

has occurred in any month since Enbridge purchased this gathering system from Cantera. A

force majeure event is something unexpected, out of the control of Enbridge. When 

Enbridge bought this system h m Cantera, Enbridge was fully aware of the terms of the 

many gas gathering contracts which it assumed. Enbridge was also fully aware that it 

needed adequate transportation agreements with TXU Lone Star to move the gas for which 

it was contractually obligated. Enbridge never rhade those necessary transportation 

arrangements, as far as I can tell. If it ha4 Enbridge would not be curtailed by TXU Lone 

Star. Therefore, Enbridge assumed all these gas gathering contracts knowing h m day one 

that it would not be able to move the gas reliably and fulfill its contractual obligations. That 

is not force majeure. 

Here is how I interpret these monthly curtailment letten h m Enbridge: There is no 

force majeure. Enbridge is simply choosing to break our gathexing contract for that month. 

I can accept or be shut in. It's a hell of a way to run a business. 

5. Concerning the issue of excessive deductions for fuel and Lost and Unaccounted 

Gas (LUG), I have now written you about the 18% you deducted h m my November 2004 

Springtown gas. In my last letter, I wrote you about the 24% you deducted h m my 

December 2004 Springtown gas. I am now protesting the obviously excessive 25% of my 

January Springtown gas which you deducted for fuel and LUG. 

You stated in your letter of February 22,2005, that any excessive losses would 

cause a loss for both Enbridge i d Stephens. That is not hue. Enbridge deducts lost gas 

h m the gas producer and never pays the gas producer for that gas. Enbridge only pays for 

gas it claims actually makes it all the way to the plant tailgate. Lost gas costs the producer 

money. Lost gas does not cost Enbridge a dime. 

And that is only talking about actual, real lost gas. We have been in this business 

for over 50 years and have run our own, small gathering lines and compressors. Gas 

deductions for fuel should not be over 3-5%. Real, actual LUG should not be over 1-2%. 

You cannot tell me that Enbridge has gas leaks in its gathering system losing 20% of its gas 

volume to the air. Impossible. 

I repeat what I wrote in my last letter. I believe that your actual, real fuel and LUG 

totals about 6%. I have that number in writing tiom a previous owner of this gathering 

system. I believe you are allocating this 6% in an arbihary fashion between the various 

producers on your gathering system. I believe that you have a better, more profitable deal 

with some gas producers than others. I believe that you may allocate very low fuel+LUG to 

your most profitable gas, thus maximizing the amount of this most profitable gas each 

month. I believe you may then allocate a very high fuel+LUG deduction to the gas which is 

less profitable to Enbridge. The total fuel+LUG may be the actual roughly 6%, but very 

little deduction is made to some producers and a very high deduction is made to other 

producers, such as my company. 

If I am wrong, and Enbridge really is losing 25% of the gas it gathers to fuel and 

LUG, then Enbridge has a problem. If I am right, and my 25% fuel+LUG deduction is 

simply because Enbridge has improperly allocated excessive losses to me, then that is a 

contract volume violation remedied by extra gas to me next month. 

6. Our contract, page A9, says I can only go back 25 months in having contract 

volume violations corrected. I believe that my fuel+LUG deductions have been excessive 

for those 25 months. Without detailed justification from Enbridge, I have to believe that all 

those deductions h m January 2003 through January 2005 over 6% for both my 

Springtown and Gordon gas were in error. I ask that Enbridge immediately correct those 25

months of excessive fuel+LUG deductions by allocating extra gas to me at the tailgate of 

your plants. 

Your prompt reply will be appreciated 

- 

Cc: Texas Alliance of Energy Producers 

Railroad Commission of Texas 

Rep- 

Rep. 

*

- 

RWAL M. STEPHENS 

Prcrident 

RE: Springtown EPI C o n t r a c v 

Gentlemen, 

February 2,2005 

It pains me to write you in this way, however, the improper gas gathering practices of Enbridge 

are putting me out of business, slowly but surely. 

First, you have not responded in writing to my letter to you dated January 5,2005. Instead, 1 

received a phone call from your gas accounting department which was non-committal and 

inconclusive. I repeat my demand that you immediately pay me $4182.90 to make up for your 

improper taking of my November 2004 gas at a ridiculously low price. I had that gas sold at a 

much higher price until you grabbed it for yourself without my agreement. 

In my January 5 letter to you, I reminded you that you were not authorized to take any of my 

December gas for yourselves as you had not ever notified me of any contract changes. You 

took my gas anyway, as noted on my gas payment paperwork. This is a contract violation of 

which you were warned in advance. 1 demand $632.40 from Enbridge to make me whole for 

your December contract violation. 

LUG: short for Lost and Unaccounted Gas. Each month, Enbridge subtracts some percentage 

of my gas gathered through your Springtown Plant for fuel use and LUG. Together, this is gas 

for which I receive nothing. It is by far the largest component of what it costs me to get my gas 

past Enbridge and to a free market. 

For my December gas at your Springtown Plant, you (Enbridge) subtracted 24% of my 

wellhead gas for fuel and LUG combined. My experience is that fuel by itself cannot be more 

than 3-5%. This means that approximately 20% of my gas just disappeared into thin air. Who 

are you kidding? I believe there are three possible explanations. 

1. Perhaps you really are losing 20% of the gas in your gathering system, as you claim. 

That would require huge leaks and would be an environmental disaster requiring state or 

federal intervention. 

2. Perhaps you just made up that 20% LUG number. That would be fraud and require an 

investigation by either the RRC or Attorney General. 

3. My guess is that your actual Springtown system LUG is much lower, perhaps 1-3%. 

My guess is that you allocate zero or very low LUG to gas where it is advantageous for you, 

and then pile all the remainder LUG on the rest of us producers. In which case you are not

allocating LUG proportionately as required by your contracts and are in violation of the RRC 

Gas Gatherers Code of Conduq in my opinion. I would certainly appreciate a RRC opinion of 

this. 

Just 4 years ago, combined he1 and LUG on the Springtown gathering system was 7.5%. 

Cantera raised it to 12% over a 3 year period. Now Enbridge has raised it to 24% in just a year. 

This is highway robbery. Stop this practice immediately. 

w 

Randal M Stephen 

Cc: Texas Alliance of Energy Producers 

Railroad Commission of Texas

3.1(e): Canp.cYw (ud h not .Q1.l, buts stated pmmt. Shrhkago b 

not sdu8l. but Veetne8 the lheoratical cbmivatbn, whlch wl( be 

hlPh. YortPOPan(rrcb..rna(sd~.amMm~barisd 

&mt&a~ product Thir m u m 

b ahby. 

3.1(1): ~canakart should be mutwl. 

32 (b): The floord .0425/gaL k mreasonable. Tff h o d be actual. 

32(q:&~tadrbovc,thasmciencytaclonseamkw~a~tbn 

plam I would not agme to those factom unhu I txw dual dab. This k 

6.3:Thkbe.WmnsIwcllMno(budcprsg~h SoOlheb~t 

wnlnoc d 8.1. Yow dent will be lodtd. tf a well onnot no1 buck 

preaum, and nclthcr puty b wUhg lo lnrbll the nsces~cy aunpressbn. 

then the Sew should get a mbase as to the wells In quedon. similar b 

me quamy won. 8.1: 1 rmu# be my ucrpidous dlhh dnuw if Mibhsl has mheml 

hiemththe~1neP-7mmNoir. k~.MitcheLIIdiihaw 

S U hiW6Si. ~ could the pmvlrrion, in pad to dnkr resmves. Thk can 

bO~by~mSph~~d'daDyolbwobbgwRh.dplby,fuU 

prontsd ollovobla'. AND by the W e take obGgation on a 

monuly.mmtoa"~W, baris 

8.1: See comment abovs on section 5.3. 

8.3: lhii promhion should be dclekd. Then b no purpose (w under tho 

ambactibr~tolszthtudlc.ond.as~.thaemavbo 

qwsUde motivw for Mlleh.1 doing &. Also. the tMn. %inergen*. 

needs to be dehd. if we puml the clause. 

10.2: Industry by mk will k upheld in couR 'Loss or dedlne of 

recob miuk& Is a red hming. Don? &fee to this. N.go(iota a 

bke-orickase amepl In the quantity pmridan hslead. 

1 1.1 : No possiWi of rklItlng a 80 dbburvement cyde 1 yow client b 

no( ths mpremtatiue. 

11.3: Thm b not a nlM roaron fa suspendlng payment MLtcheP, If 

anything. should be indemnified frwn paylng tho known r epmsen~. 

13.4: Ywr client Lt giving up lb Mhts under Texas revenue standards 

legblabion by exdudlng Interest 

13.8: hrduaby standard on Witions h 2 ysen VS 1 year. 

16.7: As noted above, this needs to be deleted. Thls Just aids Miichelfs 

wlnpwveeffwb. 

16.8: It may be well to insert a clause precluding punitive and exernplay 

dam%-. 

.

CONTRACT REVIEW BELOW 

OmnlCManenb 

~ba~y~.~YHomba&imnW~pohldview. YoatPOPr 

- 

uuduU Thh one '&uns-amanUal shdnkaad Qdudbnc Thh 

b rsr~ ukual. and (he way t h with. It scnrwa theimducar. 

~ m ~ h ~ h i ~ i & i n t h e t m d p l a n t d n d . s ~ a r n ~ 

(a. ~L~mbebbam~el~uonth.TIF. povoucpnbesumthal 

bm b high. ~h'sun thir niel and treating ~ c t&d o iks have padding. 

m wdl. 

TMm b sumd.nt infamution in lhe conbad to cakuhb price I you 

haw a gas maws. l you want me to esUmale pfka. I usl nced Ute gns 

Thorn M aavernl Lypm m aposbuphen, &. 

SpccMc Ccmmcnta 

22: Them Is no aidala a procedum se! out br addim a nlestine nw 

web. W you have a rpr(tai dedica(bn, you will wanl ekd#h &IS? 

~wm~MlCchcDrrcbout(heal(ecis(oraddlnarrkn1b~ 

ob(.h~leosed~n~cPb*n~~ntheevsntUdidnalmstl 

UiChe(h amnutbn cn(uia L(Ychd has a &we In 18.7 to pmvide 

e)c. THIS SHOUU) ONLY BE IN CONNECTION WTH NEW COMPLETIONS ON 

OEDlCATEO ACREAGE. Keen in mind U~al Mhd~d. as a omdurn. rnav be tn 

onnpailbn wilh your den(. 0isdowre of wch infofktbnishuld mly iK 

In wnnsction with a speck purpose germane to a buyeffselkr 

mhtionchip. 

3.l(b). (d) and (e): Residue ir pricsd a, a saturated basts. The indax 6 

onadfybass. Yowdientleaveraboul1.7csnbarU1et.Mahere. 

Tuesday, April 01.2003 Amcrica Online: WMAFshr

Much 1 S. 2003 

Mr. . .. . .- 

Texas 76450 

Cantera Resources, Inc., suwcssor to Industrial Natural Gas Company. hereby notifies 

berating Company that it is terminating on April 30.2003, in accordance with 

Article 2. the Natural Gas Purchase Agrtemmt executed Deecmbu 11. 1996 for residue 

gas purchased at the tailgate of Dynegy's Chico plant. 

Due lo changes n~ade to the mnnl~er in which Saginaw Pipeline is operated, Cmam 

Resources. Inc. can no lorigel. purchase this gas fromOperating Company. 

Please call me. 972-367-2626. if you have any questions. 

Sincerely, 

~a&er, Gar Supply

- 

cM@#&g& 

May 29,2003 

P.O. Box 1JC 

-m- 

Re: Gas Purchase Contract u 

Dated June 1,1W7 

Ac I am rttm yna an. :lware, wc Are currently expericncinc wliat some have called a "crisis of 

confidence" concorning the monlhly Index Prices publirhed nr of the firs( of mrh month for the 

aluuiag 11tu11111's gas busil~ess by organizatio~ xuch as PIULIS ("Indcx Prices"). Them have been 

ntllllCrOuS reccllt Mlclts dl6CUSSlng rhls lnduy-wldc WIIWU. Sullrr: ill llrc Ldushy haw ~vcn 

ihc fcderal go~cmmmt should play a role in rcporling of gas prices and creating pdcc 

su~ycsled 

indices. On numerous occasions since October 2002. questions 11me been miscd conccming 

lnrida FERCi Katy and Hourton Ship Clulrncl ("HSC") Index Prices. Keccntly Pub stated. 

"Plaur has not bccn ablc lo uso ita catnbliohd methodology based exclucivcly on concummated 

dcals fbr many of thc prlciq points is tl~c FG~I.ULUY (iu~vey'' rind ''~itl~out a eignific~t 

lu nporhng ol'physic. deal making to Platts. ..a retun1 lo the ~rndltlohal reliance on rudl lrudi~# 

will not be poible." 

~II~C~IC 

Wliile Platts does nnl wnnant lnda Pticu Tor filness for any particular purposc. it is obvious 

(ha! even Plottr itoolf no longer har confideuw in its own reported Index PC&. L>ae to nnnleyu~lil~g, 

thot indices have -tially failcd ihcir purpo and an no longer bo muonably 

rclicd upon is an oped upon Bandud fbr prlcine pufposcs. The FERC i~llb 1wettUy dcscrlhl 

Uls currrr~l 8iluwtiuc1 811 ''cpid~luit" of 61r price rcpodnting. In its wont whitepaper entitle4 

Rernmmtv~durlotu fir Restoring Tml and l).ansparency: A Call lo Acrion. Platts slates Ihd 

recent evenu hnvc "undermined confidence in indcpendrn~ prier: knchrnarks. and to a d m , 

thc marka ibclf!' 

Other aaon hnvc also cnntrihutd tu 0s hilure uC Ute HSC ispo~tcd Index Rim and thc 

inability to use 11 as a basis for pricing in iht NoHh Tcxas producing area, including: 

1) si@~lficant dccrecrse in IIlc numbcrof crcdil-wohy gno purchoaaro; 

1) huse incmnws in Nnrlh itx~u area gas production resulting in at ovasupply 

situation; uld 

3) inadequate ymwth in pipclinc Iru~spodation capacity out of Norih Tcxu to the 

mnjor gas marke~r

hGy 29,2003 

Page 2 

bltcla's IWWI~ gm 111~ keti~lg ~xpwiu~w cur~flnna Ulc Mlm uf these lndrx Prices as a basis 

for establishing a reasonable mnrkct price. Even in the absence of the proven flaws in the 

publisllod lndcx Prices, the Nonh Texas gur market is now independent of and substantially 

diITmt from Ule HSC md the Wok lndex Mces. 

Section 5.1 (b) of the referenced contract cctnblishcs rho Residue Gnc Value each month boood 

on the Indcx Price published in the firsl-opthe-nionth edition of Inslde F.E.RC 's GUJ Market 

Xeporr, tbr "Dcllvcrcd Spot Gas Prices, Houston Ship ChannelBcaumont, Texas" (HSC lnda 

Pricc) under the heading "index (Large packages only)" per MMBTU. This dcfined price tam in 

the conlroct has failed due to tlie ohvioucly unrclinhlc nahlrc of p~ihlish~A HSC. Tndsx Prices and 

the tart there Index Prices no lollgcr rcfiect the North Texas gas nirul;etr. In these 

circumstances, Section 5.1 @) further provides Buyer, in IS sole discretion, shdl be entitled to 

uoc u outstiluls illdc~. 

Bccause the HSC lndex Yncc has becon~c umliablc and thcrc is no alternative published 

Index Price which accurately rcflects the North Tcxa gas market. Canlen proposes sibstitutiryl 

Cultera's Weichtcd - Avcmc - Sales Price received each month for North Texas sales C'WASP'I. . 

which wit1 bo not of all omtc inourrd in oelling the gas. Cnncsm proporor to make thia o h ~ o 

cffwtivc as of Junq 1 2003. This WASP reflects Cantera's pod faith cffort lo cstnblidr a new 

benchmurk lbr the pricing under thls conuact and wc bclicvc It provides the mosl ccrmmmiPly 

reasonable priw we can establish for Konh Tcxas gas production. 

Cantera valua its continued busincss relationship with your company and hnpea thd the 

fongoing is accqtablc to you. Enclosed, please find two (2) originals of the Amendmeat To 

GPI Puroha$c Contracl rcflccting this changc. Plcarc: cxccutc both originals, retain one (1) 

original for your records ad rehM ono (I) original tc Cnntao al the uddrcs6 d d d bolow. Rr 

further discussion concerning them maim, please contact me at (972-367.2639). 

Robed Shiplay 

Senior Gar Buyer 

-

Re: - 

Due lo the changing industry and rnarltet mnditions as wdl as changing 

regulatory and operating environments, it has become imponant for TXU Gas Company 

f-TXlJ GAS'') to er~nblish a contractual relationship with operators connecled to nur 

pipeline systcm. The purpose of the Operating Ab~~~nIent is to facilitate contractual 

pmvisions relating lo gas quality specifications, allocations and opaalional cost. 

TXU Gas Company ("TXU GAS") recently conducted a system-wide wiew ol' 

reccipl point Opmting Ageanen&. Our review indicates that Now Dcvelopmmt 

Company. Inc. does not have an Agrermml in placs with TXU GAS that would dcfinc /U/L 

thc nperating responsibilities at slation 03904005. In order lor Now Development \ 9 

Company, Ine., to continue dellvcring gas hto TXU GAS' system at station 

03904005, i tmxecate and return the enelo,cd two (2) Operating Agrecmentr, by 

Ortnlbcr 1. LOW. 

IF you are not the operator of one or more of the point(s) listed in the enclosed Operating 

Agrvmcnt please notify us as soon ar possible. 

If you should have any questions, please contact Sheny Richardson at 214-875-5153. 

Your cooperation is greatly apprccia~ed. 

3- & fij..lfll Sincerely. 

Enclosure I 

.gj. 5/41 

Russell H. Brown 

Manager. Pipeline Marketing Administration

Gentlemen: 

Re: I11I) 

Openling Agreement 

Memuring Station # 

Freenone County, Texas 

agmment ("Agreemml") is lo sd f0Rh lhc agmment between I 

.. ("Point Dcsipd"', and T N Gas Company ('TXU GAS'), conarninp gas 

qual~ty, routing. alloca~ion&a associated with gas sources deliwing into TXU GAS syrtem a thc 

Yuinl(s) of' Dclivcry lisled on the ntachcd Enhibit "A" (the "Receipt Poinl(s)"). Thc parlies l~rcla~ 

mmize - thrl Point Dcsimcc delivers go6 - from vuioru well sourccs into mch Receipt Point metcr which 

--ires rhe perform-~~e~ofy&us o~erotions. which may include, but uc not limi.tod to. musurcment 

of war - .. ~rrhcur=tml. tnnsvonatioa of gas and quality - . analysis by TXU GAS for Pod Designer. - thc 

snk of gas at 11be ~seipi ~ o imeter i to various mskcts. or th;do&marn pooling ofgal. 

Effeclive October I, 2004, in order to clKify requkmcnls associated with vuious opentionu at 

the Rcceip Point. and in C~~ide~ti~n of the mulusl covenants ad agreements maiaed hmln. thc 

adcquuy and sufIiciency of which arc hereby acbowkdged, the parties hcmo agree as follows: 

I. Thc mlunl ps flowing Lhmugh thc Receipt Point into TXU GAS' systun must: (a) IK nf 

-Qualttv @) k con&rcially fm of dutr, gum, gum-forming wnrtitmts. p~)lmc. 

liquid hydnxrrhons. water a;d my other subflancc of any kind tha may become separated from tl~c 

gas 'luring t k hnndling th-f or that may cause injuy to or interference with p&pcr operation &,I' 

the lines, meters. reguhtors or other appliances through which it flows; (e) contain not more than % 

grain of hydrogen sulfde p a 100 cubic fcn of gas; (d) m ain not more than 5 grains of total vrlhr. 

including not more than 1 p in of macaptan sulfur, per 100 cuhie feet of gas (e) conlain not rnm 

[tun 2% by volumc of cubon dioxide; and contain not more than a total of 4% by volume of non- 

hydrocarbon gases; (0 conlain not more than 0.05% oxygen: (g) contain a lgou heating value of ;II 

lead 950 British Thnmd Units ("Btu") per cubic foot and not more than 1.100 Bfu per cubic fool: (h) 

contain rmc mar than 7 poundr of wata vapor pu million cubic feet of gas; (i) have a temperalure of 

not nmre than 120 degrees Fahenheit, nor less than 40 degrees Fahrenheit; (i) have r hydmcarba 

dew point below 40 degrees Fabrcnheit at the delivery pressure; and (k) have an intcrchnngeabilily 

faclur (calculotcd by dividing uch Btu of gas, saluntd wllh water vapor al a tcmpsraturc nl' 0 

degrees Fahrenl~eit and a a plcsaure of 14.65 psi., by the square mot of the specific gravity ofllle 

gas) ctut deviates no more than 7% from the interchangeability factor of the gas contained in 'TXU 

GAS' plpelinc nystcm at the Rcocipt Point. Notwilhstmndi& the foregoing, TXU GAS may waive 

Point Designee's uhligatims with reprd to maximum Bru content, hydrocarbon dew point and

inmhangubitity, subjc* to TXU GAS' continuing 

hturc. TXU GAS nurvtc the right, at anyimc r 

quality specifications set fod~ abovc on a nondi 

30 days prlw wnnen notice of such changes. 

2. If at any lime the gas delivcrcd into the TXU GAS syrtun or rereivcd into thc TXU GAS sys~cni XI 

tk Receipt Puinl fails to meo the qualily specificatitnu enumerated hmin TXU GAS will nolib 

I'olnt Designee and Point Designee will immediately wmct such failure. 

- 

If Point kipnee is o~~nhlc 

or uriwillii to deliver gas according to such specifications, D(U GAS may r e h to ecccpt delivery 

of Ens h m u k for so long as such condition exists. 

3. All oflhe gns drlivmd to TXU LiAS at the Receipt hinl by Point Designee must be lransponcd .In 

TXII GAS' ryrtem punuant to agreements between TXU GAS and the p ny that own$ or coinrols 

the gas at the Keeeipt Point 

4. TXU GAS will be solely responsible for all daily opmtional activities performed md costs with 

=card to the Rescipt Point described herein, including. but not limited to. operation, tcning. 

calibration, adjusting and routine maintenance necessary for the utilization of the Receipt R~inl. 

Point Dcsigwc will be responsible for all repair or replacement cons ofeach Receipt Point l'acililic* 

(including. bur nM limited to lhox paN that typically equirr periodic repair or replacement unds 

accepcd burinw practices for mtu and regulator operation). Any individual rcpair(s) tir 

replacc~ncnt(s) costing S1.000.00 a kss. and my emeremcy repaids) or rcplacmcn(r) ex=edi~tx 

5I,utMJ.(W. may be nia& by lXU GAS within its discretion, but if TXU GAS determines that :~ny 

nmrraw regir or replacement of equipmcnl will s x d SI, en TXU GAS will scck 11) 

obtain writtm approval f m Pold Designee prior to tnakuy-r or replacement, unlur tk 

npnir or replacement is considued m emergency repair or replacement in TXU GAS' rcaronablc 

upin~on. Anu TXU GAS mker my rcpair or replacanent of cquipmcnt pursuant w the tvmr ul'lliis 

hragraph. TXU GAS will forward to Point Designee a statement setting fonh the total costr 

anrihvrable lo such repair or rrplxunent, and Point Designee will pay to TXUOA~ the lull an~c)unl 

of any such statement as provided in Paragraph 8. If Point Designee refuses lo agm to any necessary 

rcpatr or qlaccment that exceeds S 1000.0. TXU GAS is nuthorizrd to ceau receivink en:; antt 

prevent rhc delivery of gar ch refusal cominucs for 'HI 

days. Pninl Daiyec will nd removal of facilities at 

Receipt Point as provid 3.61. Shipper agrms to ' 

minihur~ Transporter for my Taxer as defined in pngraph 13 of this ~~ruemeni. . 

5. If. in TXU GAS' reasonable opinion. the flow turndown or range on the existing meter is insutliclcnl 

for awuralr muwnment on 8 day-tc-day or an hour-tohour basis. TXU GAS may purchase and 

inaall promptly. at I'oint Designee's sole cod and expcnce, an altcmac mctn that meets TXU (;AS 

standards fa accuracy at the flow turndown oc my experienced at the hhsunng Station. 

6. As be~wccn TXU GAS md Point Designee, each assumes full responsibility for its own itcls 

psrlbnncd pununnl lo thr tcnns and conditions ofthu Agreement and uch parry agrees to indenlll~fy 

and hold harntlas ib 0 t h pany from all liebilitin. losses. claims, costr (including dorncy's fccr 

and coun costs), damages or expenses of whatever nature that may result from injury to or death ol 

persons, or damage, loss or drstruction of property arising out of or in w~axion with thc 

indenlniqin~ party's aclions under or brcach of this Agrcemcnt, eacspl to he cxtcnr rht any n~ch 

liahtlity. Iw, claim. damage, cost or expensc n caused by the negligence or other fault dthe utllur 

party. 'Thb Parapraph will survive the tmnination ofthir Apmcnt.

7. For caeb Raeipc Point listed in Exhibit "A', Point Derignce agms to pay TXU GAS a mdrr 

maintenance fee of $300.00 per month. If Poinl Designee exceeds 100 MMBtu/d.y lor a period of90 

days and ndities TXU GAS in writing of such incysed volume; TXU GAS will suspend !he futbrc 

WA~ 

meter fee upon nn'ftution of he increased volume. If the volume through the&ccipt Point shouhl 

subsequently a-8~ less Unan 100 MMBnJday during any Way period. 'DN GAS will have tk 

option, upon 30 days prior notice to Point Designee, to reinstate (he meter mainterne fee ol' 5300 

per month This meter maintenance fee shall be exclusiw of any 0th Iran)~~mtion fee that may bc 

charged by TXU GAS for volumes tendemd it the Receipt Point. Upon termination c.f 

agretment. TXU GAS will have the option. upon 30 days prim Dolice to Point 

discunna andlor ranove the facilities and Point Designcc hercby consents to such diwonmoios as 

prclvided in 16 Texas Administration Codc. Section 3.68. Shipper agrees to reimbum Transponcr lirr 

any Taxes as defined in paragraph 13 of lbis Agrccrncnt. 

8. (a) On approxhtely the 15th day of each month, TXU GAS shall render to Point Wtpnee it 

statement for the p ding monl showing the mcter maintenance fa; the amount of compensatio~t 

due lo TXU GAS hereunder. and other rcrsonable and pcninent inlormation which is necessary L, 

explam and suppon same and my adjustments made by TXU GAS in dctcnnining the amount billcd. 

ny statement in the United States mail. 

AS he W1 amount of such statentent. 

TXU GAS haeby awes. howevcr, rbn Point Designee may pay any such statcrncnt by bank vim 

transfer by directing the bank wire transfer to TXU Gs Company at Chase Texas Bank. Dallas. 

Tears. ABA No. 113000609, A-t No. 08805016795. To assure prop credit. Point Des~gna 

rhoutd designate the company name, invoice number and amount king psid in thc Fcdwirc l'ch 

Section. If the amount of any mtmKm is not paid when due, interen on a11 unpaid amounts twill 

accrue at the rate OFAM per m o d r the bighen talc allowed by law, whichever is les. fmm tllc 

dare such amount is due TXU GAS; provided. however, no intmst will accrue on unpaid amount* 

whcn failure to make payment is the rcsult of a bona fidc dispute between he pmlin regarding sac11 

uuouttts (and Point Designee timely pays all amounts not in displte), unlur and until it is ultim~fcly 

determined that Point Designee owes such disputed amounts, whermpon Point Designee will pay 

TXU GAS that amount, plus intcmt wmputcd back to \he original payment due date, immed~ately 

upln sucb detcrminotion. 

9. (a) EPch pay will have the right at all rcasonsble times ro examine the records of the olher puty, cn 

its a~cnlldesigncc if any, to tllc extent necessary to verify thc accuracy of any statement, cltargc. 

computation or demand made rndn a puwnt to any of the provisions in thi, Agtwmcnt. If any 

such cxamina~ion reveals any inamutcy in a statement or payment. the naersary adjustmertts to 

such statement or payment will bc made; provided, however. no adjurtrnento for any statement clr 

pymcm will be made for any inaccuracy claimed unless written notice of such claim for adjustnlen~ 

is furnished lo the other party within 25 months the rendition of the statement for which such 

adjos!mmt is rcqmted. 

@) All nniccs. rquestr. demands, sutemcnls and payments provided for in this Agreement must hc 

uivrn in writing dirccted to the party to whom given, and mailed to or delivered at such p;tny'r 

addms set forth below. md will be deemed properly and ruflicicn~ly given when: (i) delivered in 

prr~n with reee~pt acknowledged in writing by the rccciving pany; (ii) rent by reghered orccnilicd 

mail. refurn receipt requested, to the address specified helow; (iii) nceivcd a1 the electronic mil 

addws, if any. spcctfii below; or (iv) xnt by tcleplionic document trasRr to the teltcn17ic1 

number, if any. specified below:

"POINT DESIGNEE" 

(Nouca and invoices) 

Fax: 

E:mail: 

"TXU GAS" 

(Notices) 

TXU Gar Company 

301 S. Hwood Street. 801 Noah 

Dallas, Texas 75201 

Attention: Pipclinc Markcling Adminishnioa 

Fax: 214-875-5134 

E:mail- 

10. A waivcr by either party of any breach of this Agreemen!. or the failure of cithcs prly to cnfaa any 

pmvision of this Agrcemenl, wtll nd in any way affect, limit or waire that pslry's righ to cllfnrce 

and compel nrin compliance with Lbc rame or ntha provisions of this A8rcement. 

1 I. TXU GAS and Polnt Dcsiw aprec to keep rhc tcrms md provisions of chis Agrccmenl 

and mn to disclox the tenus of tbe same to any Ulird parties; provided howcvn: ach pa%y will have 

Ihe right to make such dhclosura. if any, to govcrnrnenlal agc~ics ad to its own attorneys. alulicnrx. 

accmunlanls, paflnffs. coowltmls d shucholdcrr a% may be reawnably necessary. 

12. Th~s Apeemem will be bidin# upon and inure to the bmcfit of the patties and their mpwin: 

successon and assigns; provided, however, that Poiat Designee may not assign any of ib right- cw 

obligations under this Apemmt without he cxpms, wrinen consent of 'IXU GAS. which cmrcnt 

wtll not be unrcaoonably withheld. Notwilhdanding the foregoing, Poiat Designee may assisn its 

righo and obligations under this Agreement to its afi1i.1~ that owns or contmls tk g ~ deliuml r 

into the Receip Points wilhout the prior, written urnrent of lhc TXU GAS. No pcrmittd aui~menl 

will mlicvc the assigning panr ofany of in obligations uudu this Agrccmcnl. 

13. 'the tmn '7un" a3 used henin, mean3 all taxer and fees levied upon andlor paid by Transporter 

nbn than ad valorem, cnpital dock. incomc or exccss pmfit tares (cxccp as provided herein). 

pntral fnnchiso taxes impowl on corporaions on amount of lhar corporate exiffence or on their 

right to dn brlsina within ihe slate as a forcia corporation and similar uxa, including. but IIU~ 

lim~ted to. gross receipts w, nn profits taq-. smer and alley trotal ftcs a p d upon in 

franchise ordinances or arm crossing agrccmmrs. licenser. fees and other charges levied, assetred or 

mule by any govvnmentd authority on tbc act, right nr privilege of tmspotting, hmdliltg or 

dtlivaing gas. which taxer or fcer m baxd upon the volumc, heat content, nlue or salcdw~hu~ prk of thegas. a tnnrp~ation fee paysble h-nda and applicable iedcsal income tea imioscd as 

a rcwh uiinstallation ofcquipmcnt at (he Heceipc Poim(s) andlor Delivery Pomt. 

14. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES MUST BE ENFORCED .AND 

INTERPRETED U N D TAE ~ LAWS OF THE STATE OF TEXAS wraovr REGARD 'ro 

ANY CONR.ICTS OF LAW PROVlSIOKS THAT WOULD REQUIRE THE APPLICATION 

-

OF THE LAWS OF ANOTHER JURISDICTION. THIS AGREEMENT IS -ED INTO, 

AND IS PEMORMABLE, IN PART, IN DA&LAS COUNIY, TEXAS. ANY SUIT OR 

ACl'ION ARISING IN ANY WAY FROM THIS AGREEMENT MUST BE Fll,EIl IN 

DALLAS COUNTY,TEXAS. 

15. Nwhing in this Agrcemenl will crcale, or be conmued as creating, any express or ~mplicd rights in 

any perron or entity other thD.TXU GAS and Point Designee. 

16. The Agrccmcst shall be cffecliw on Octobcr 1.2004, and have a primary term until. Oc~ober 1. 2tKlS. 

and monUi to month thnemltcr, unlcs~ laminated by either patty with thiny (30) &ys prior wriao~~ 

notlcc. 

17. Each and every term or obligation in this Agreement is sepantr and independent from cvcry other 

ten or obligation, and the breach of any term or obligation wiU ~JI no way or manner dischatgv or 

relicvr the performam of my ahcr term or obligation. Each and all of the rights and remedic. &' .IVCII 

to cilllcr partyby [his Agrccmcnt, or by low or in quily, ue cumulative, and the exercise of any suclt 

right or rcn~cdy by either patty will not impair such pmy's right to exercise any other right or rt:nicdy 

avsil.ablc in such party. undn lhis Agnncnt, or by law or in equity. 

18. If all). provision of this Agrccmcm is held innlid by any corn or regulalory aulhority, thcr~ swll 

prlrrision will bc deemed severable and the remainder of this Agrccmenr wiU continue in rull li~nv 

and EC~LTI. 

19. This Agrmcnt connituter the entire agrcmcnt kwocn the pmies cowring che subject itlaan 

hereof. and lhrre are no agreements, modifications, conditiomor undrrstudingr, writ& 01. or;ll. 

express=d or implied. pertaining w tho subjec~ matter kofwhich arc not conlained herein. 

If the foregoing s acceplable to Poicu Designee, plcasc indicate by signing this Agreemen1 III the 

s'xe provided below and return both originals to TXU GAS for exccu[mn before October 1, 2008. 11 

TXlJ CiAS docs not rcccive both nigbls, executed by Poi111 Desipec bY such date. TXU GAS' tdlicr 

wnt.iecd IYIC~II shall ~erminatc. and irlhereby withdrawn ctTrPtiveIa1 J:QO P.M. on such dm. 11-1s 

undmtoud and agreed that this Agreement is conditioned on the approval of TXU 

cvidencccl hy TXU GAS' excculion in the space provided below. Following TXU 

fully excculed original of this Agrccrncnt will be rstumcd for your tile. 

- 

fi. 4. 

TXU GAS COMPANY hW 

anager. P me Marketing Administration 

. . 

/ A?*'.

Auyst 13,2001 

Re: 4^ 

Opnating Agreement 

with TXU Gar Company 

Freestone County, ex& 

Due to Lhe changing industry and market conditions as well as changing 

regulatory and opmating environments, it has become imponant for TXU Gas Company 

("TXll GAS") to esinblish a contractual rclstionship with operators comccted to our 

pipclinc system. The purpose of the Operating Apemart is to facilitate contractu;~l 

pmvisions relating to gas quality specifications, allocations and operational cost. 

TXU Gas Company ("TXU GAS") recently conducted a system-wide review 01' 

receipt point Optrating Agreements. Our review indicates that Now Development 

Company. Inc. docs not have an Agrermcnt in place with TXU GAS that would define 

the operating responsibilitiw st station 03904005. In ordrr lor - 

to continue delivering pas Qto TXV GAS' system at station 

-mXicmk mad nturn the cn~lo~td two (2) Operating Agreements, by 

Orfnbcr I. 2004. 

If you are not the operator of one or more of the point(s) listed in the enclosed Operating 

Agr~m~nt 

please notify us soon as possible. 

If you should have any questions, please contact -1 w. 

Your cooperation is greatly appreciated. 

. dblddl\ f75-Jf=1 

. 9 d 

Enclosure 1 

Sincerely. 

7- E7j-51JI 

Russell H. Brown 

Manager. Pipeline Marketing Administration

August 1 3,2004 

.. Re: 

Opting Agtumcnt 

Mcwrin~ Station X 

Fmmone County, Tuus 

The purpose d his lctta agmment rAgramenl") is to set fonh the rgncmcm betwen 

- , 

("Point ~ u i and ~ TXU ~ ) Gas . Company (TXU GAS'). concuning 6as 

qmlrry. muting. allocalion- nuoeirtcd with gar sources delivering inlo TXU GAS system a! the 

Yuinl(s) of Delivery listed on she n~edrcd Exhibit "A" (the 'Rcceipc Poim(s)"). The parties lerett~ 

recognize thnt Point Dcsignee dclivm gas horn various well sources into sch Rceripl Poim mcter whlcl~ 

.rcauircr the prformance of varims mentions, which may include, but are not limited lo, measurt:ment 

or Ear, pressure control, I~nrp~~ation of gas and qudity analysis by TXU GAS for Point Designee. 11% 

sale of pas at tlu Receipt Point meto to various markets, or (he dDvrrvum pooling of 1.1. 

Effectivr October I. 2004, in ordcr to clarify requkrncnts associated with various openlic~ns at 

the Receipt Point. and in considention of ihe mutual covenants and slgrrmarlt conluncd hcrslr, thc 

adqurry and sumciency of which arc hmeby acknowledged, the padies hemto ape as follows: 

1. Thc natural gas flowing through tk Raeipt point into TXU GAS' synm must: (a) bc or 

men w I v (b) be connnncially fm of dun, guq sum-forming constiwe~s. pwlinc. 

wan &any ohm rubrtancc of any kind that may become scpanted ~MIII lllc 

pis during tk hnndlin~ thereof or that may cause injury to or interfcrewc with prom opention ot' 

thc linu, mdas. rcgula~orr or dkr appliances through which it flows; (c) contain not more then !r 

grain of hydrogen sulfide per 100 cubic feet of gar; (d) contain nd mom than 5 grains of tolal sslhr. 

including not more than I grain of mereapIan sulht, por 100 cuhic feet of gas; (c) conlain nol mtm 

than 2% by volume of carbon dioxide md conlain not more than a told of 4% by volume of ncmhydnx-arbon 

Bases. (0 comain not more tbnn 0.05% oxybm: (g) contain a gross heating valve of at 

kart 950 British Thenod Units ~BN'') per cubic fwt and not more than 1.100 Btu pa cubic foot: (h) 

contain not moru tlun 7 pounds of water vapor per million cubic feet of gas: (i) have a tunpcrature of 

not ntorc than 120 degrees Fahrenheit, nor less than 40 degrees Fahrenheit; 6) have r hydrocarbon 

dew poinl hclow 40 degrees Frbrrnheit a1 the dclivcry pressure; md (k) have an m~crchm~bility 

fmor (wlculatcd by dividing each Btu of gas. saturated with watcr npar at 1 tempenlure ol' 60 

dcgwrs Fahrcnl~cil and 11 a pmm of 14.65 psia. by the square mot of the specific gravity of the 

gas) that deviates no mom than 7% fmm the interchangeability factor of thc gas con~dned in 'TXU 

GAS' ptplinr rstnn at the Recrip Point. Notwithstanding the foregoing, TXU GAS may waivc 

Point Lksignee'z ohtigations with regard to maximum Btu content, hydrocarbon dew point itnd

Imcrchmgeabillty, subject to TXU GAS' continuing 

ham. TXU GAS ~~s the right, at rnycime an 

quality npccifications set fonh above on a mndiscn 

30 days prior written nottce of such changes. 

2. 11 a1 any time lhe gas deliwed into the YXU GAS system or raeivcd into thc TXU GAS syslcnl ;a 

tk Receipt Point fails to meet (he quality spccificalions enumerated hcrcin, TXU GAS will noti(y 

Polnl ~esignec and Point Derignee Gill immediately correct such failure. If Point Designee is ianahlc 

or ul~wllling lo deliver gs wording to such specifications, 'IXU GAS may rcfuSc to accept delivmy 

of gis hereunder for no iong as such condition &ins. 

- 

3. All of the gas delivered lo TXU GAS at the Receipt Point by Point Dosignee must bc trmrponed ~ III 

1'XIJ GAS' system pursuant to apmcnu bawcm TXU GAS and the parry that owns or coam~ls 

the gas at rhc Receipt Point 

4. TXU GAS will k solely mpmsihle for all daily opcmional activitieo performed and colt, wit11 

ngard to the R&pr Point described huein, including, but mn limited to. operation, testing. 

calihmion, adjusting and rwti~e mamtenancs nmvlary for the utilization of the Receipt R~int. 

Point Desigwu will be responsible for all qair or replacement costs of uch Receipt Point Incilitic* 

(including. but no1 limited to those putts that typically muin periodic npair a rcplacemcnl i~ndcr 

accepted businus pacticu far ma and regulanr operation). Any individual rcpair(n) or 

rcplacclrcnt(s) costing S1.000.00 (K less, and any emergency repair(s) LW n$rennmt(s) eicscdillg 

i1.MMj.W. may be made by IXU GAS wilhin its discrelion. but if TXV GAS damnines that ;In? 

nccusaw ir or rcplccmenl of equipmaN will at TXU GAS will seek 11, 

=in writzappmval f m Polm Designee prior or rcplaament, unlc~s the 

repair or replacement is considered M emergency npsir or replament in TXU OAT reasonable 

opinion. Anu TXU GAS makes any repair or rrptacrment of cquipncnt pusuanl to tk tcms 0I'tl)is 

hrapnph, TXU GAS will fonvard to Point Duigna a rtatemnr setting fdh the toral canr 

attrihutabk to such repair M rrplacemmt, and Point Designee will pay to TXU%AS tbc hrn mnioun1 

of my such statement as provided in Puagnph 8. If Point Designee nhwr to o we to any neccrsr? 

repair or rcplaccm~enl that exceeds 51000.00, TXU GAS is nuthorizcd to cease rerrivine E21i ar~d - 

prevent [ha &livery of gar gmc at such Receipt Point. lf such rrfusal continues for Wt 

days, Point Daignec will aycFonsentedo diswMeuianand removal of fncilit~h. at 

Receipt Point as pmvid Adrninistnlion Code. Section 3 m p p c r agrms to 

rc~nihilne Trsmponer for any Taxes u defined in pangraph 13 of thts Agrcemeni. 

5. If. in TXU GAS rearonable opinion, the flow turndo~vn or range on the exisling meter is insutEciem 

for accurate mcammcnt on a day-today or an hour-to-hour basis, TXU GAS may purchauc: and 

innall promptly. at I'oinl Designee's sole cost and expense, an altema~e mu lhat meets TXU (;AS 

nhardr for accuracy a chc flow turndown or mgc cxprrioccd at the Mcuuring Sotion. 

6. As between TXU GAS md Point Designee, each assumes full rcsponsihility for its own .wts 

perlbmud pnnunnt lo tho terms and eoRditiOim ol(his Agrrcment and each pry agner to inden~ntfl 

and liold harntlcu the otha pony from all liabilities, losses. claims, costs (including attorney's ft%s 

ad coun costs), damages or upcnsa of whatever nature that may reovlt f m injury to or dealh 01' 

persons. or damfig.. loss or dealruction of propmy arising out of or in connection with the 

indmini$ing party's actions unda or brcach of this Agrecmcnt, except to the utcnt that any suett 

liability. loss. claim. damage, coa or expew is caused by the ncgligmce or olhcr fault of the otkr 

pafly. This Paracvnph will wmn the termination of this Ag~ccmmt. 

' 

#-

- 

sucn uammallon reveals any inaccuracy in a statanmt or payment. the necessary adjuammls lo 

such statement or payment will be made; proridcd, however, no adjur~mcntr for any slamcnt tn 

payment will k made for any inaccuracy claimed unless wilten notice of such claim for a~wlnmn 

ia furnished In the nther pmy within ZS months fran the ~dition of the ualcmml for whrh such 

rdjuE(mmt is requaled 

(b) M notices, rquesls, demands, nmmcnts md pymentr provided for in this Apemen1 must bc 

yivca in writing dinucd to the party lo whom liven, and mailed to or delivd ar such pnny's 

ddrurr set fmh bdow, and will be dmicd properly and suficien~ly given when: (i) delivered in 

pumm wAh recoipc acknwlcdpcd in writing by the mciving party; (ii) sent by regirtend or cenificd 

mail. mum necipl rcqucstd. lo lk addrsu specified klow: (iii) nceived st Ihe cl8dmnlc lMil 

U~WSK, if any. rpcciikd Mow; or (iv) sml by telephonic. docummr transfer to tbe tdempier 

numher, ifmy. rpciticd klow:

March 24, 2003 ~.06rmu 

B 1 T H b h 

Dear Pmducar hwbm 

nnn- 

Endod with this comqmndance is a notlce of unsanomlc condilkms (br me a mom of your conhds. The 

purpow of thii ewrrspondence is to dimes some of h masons that Devon Gas St?rvlc~s. LP. CDsvon') has 

~iven thii nolice. 

There have been a numbsr'of changes in the available markets and pipelines in Nccth Texas. Effective June 1. 

2002, a bog term premium conbad covering a eigdkant poction d the gas sauced from the Norlh Texas 

system expired. Gas previously associated with that cDnbecl must nmu be sdd into other markets at 

dramatically lower prices. 

The ability of the markets in the Fort Worth basin to absorb additional supply has changed as wall. The 

premium local markets (hat have been available for years are MI. As you are probably aware. the Lone Star 

WA' intrastate pipeline has been curlailing gas for a nmber of months. Fort Worth basin gas is being faced 

badc into the intrastate pipeline markets. Devon's North Texas system has connections with lwo intrastate 

pipelines (TXULone Star 'X' line and TXU-El Paso 3B line) near Morgan MiU. Wile c a w exists in those 

36' lines, the market price dative to the Houston Ship Channel Index has and mntinuas to deteriorate. For 

example. only a few years ago, the sales price we could expect for gas we der~ered at Morgan Mill was in the 

range of Houston Ship Channel index less $0.06-$0.08 cents. Today. that price can range anywhere from 

$0.21 to $0.35 cents om of the HSCI. 

Devon's North Texas gathering and processing system has been designed to indude the cost of cMdioning 

and preparing your gas f a delivery to a transmission pipeline. As you kow, il the gas is not ppnxzssed and 

conditioned. it can not be mwed infa the next market. Ccsk associated wkh the gathering, processing, and 

conditioning of your gas continue to rise. The resun is that Dem's North Texas system is and has been 

unprotitable under these condions for a number of months. In addition to determining ways of reducing our 

cost of operations. Devm must also take steps to inbure that the gas purchase contracts take into account the 

cost of gathering and preparing your gas for the malket h light of such conditions. 

We do wan1 to continue to purchase your gas. Enclosed with your notice and this correspondence is an 

amendment to Gas Purchase Agreemenl at a price which we are wilWng to continue to putchase the gas. 

Essentially, &ere are two awnponents of the new pricing structure- the resale market basis wmponent ('HSC 

- 50.213 end the gathering, umdrtioning, pepsreti, and hopehrlly, pmfit componenl (the % of HSC retained) 

This is a new pricing SUuchm, for us in North Taxas but il is a pieing structure that we, and many other 

purchase= have used for a number of years throughout Texas. 

We ewd that you may have other questiw regarding the change in price. In this regard. p!ease feel free to 

contact our gas buyer6 (toll ftw) aI1800.6!564533 or directly: 

Mlck~ ~imm&s. m&g& ~ asup* r 

(713) 3TIS162 

Bill Ward. Superviror Gas Supply. W t Turas (west of Pab Pmto Co.) (713) 377-6745 

Dam Md(eeva. Suwvkar Gas Supply. Narth Texas (713) 377-7232 

J~rn m m . Q= suw R-.. NO* T- nia 3775637 

- sncerely, 

DNON GAS SERVICES. L.P. 

- 

Donald F. McGee 

General Manager

- 

GPA No. LP-13-7281 

&MENDMEKT AND SUPPLEMENT TO GAS PURCHASE AGREEMENT 

THlS AGREEMENT, madc ulrl entered i..L3 to be effective ar of the I s day of 

Lkcmbcr. 2002, by and behween :-. !NC.. hcrcioaftcr &rd lo as 

'Sells', and DNON GAS SERVICES. L. Y, henmamr Rfd to as "Buyer', 

WITNESSETH THAT: 

WHEREAS, Buyer and Seller entered into a Gas Purchase Agreement datcd 

January 1. 2001, dating to he sale and purcbasc of gar Gom Sellds lands and leases 

located in Palo Pinto County, Texas; and 

WHEREAS. Buyer and Selkr now desk to amend and supplement the Gas 

Purchase Agrccmcntto dele and replace ARTICLE 3, entitled PRICE of above refucnctd 

Gas Purchase Agreement; 

NOW, TIEREFORE. in wnsidcration of the premises and of the mutual 

ilgrecmeots hcrein contnincd md other good and valunble comidmtion, Seller md Buycr 

hacby covenant and agrce as follows: 

Seller and Buyer agrce that ARnCLE 3, entitled PRICE of thc Gas Purchase 

.%ycrmenl shll b clelad wd rrplucd in ik entirety by tlu rollowi~~g. 

ARTICLE 3 

PRICE 

3.1 Subject to all otha applicable provisions of this Contract, ~encinp wilh 

delivaia of Gas incident to this Agrermentd continuing for the term of this Agrcunenl, 

Buys agrees to pay and Seller agrees to accept as full consideration for the Gas and all 

compomnls IbcmrpldwaJ by Buycrhuamder during eachMooth, a price pa MMBtu. 

equal to eighty-one pacent (R1%) multiplid times the Houston Ship Channel Index Pria 

(HSCI) l a twentyoncanw(S.21). [8I%(HSCI -S.21)] calculatadonaa~edbasis and 

inclusive of thc rcimbunaoent of one hundred percart (1 of state severance and Like 

taxes. The HSCI is listed under the schedule entided Mmkc~ Center *-Gar Prica (per 

MMBhr) t~ppcaring in the rust edition of ah month's INSIDE F.ER.C 's GAS MARKET 

REPORT. In thc event that thc HSCl cases lo be published. Buyer and Sellashall negotiate 

an alternative price within thirty (30) days acr such cessation to be effeclive upon the 

cessation of publication of said HSCI.

3.2 lbrthiagtothceon~bminconlaincdnotwitbsiand~inLhccventthatthc 

purchase of gas haevDdcr h any of Sdler's mlls nr Poinqs) of klivwy tecomes 

urwfollomical in Buya's d e opiniog Buyd. at its option may (I) &age the price to k 

paid under his Article by poviding Seller a~ *art ten (10) days writlen noth pior to the 

effcctive date of nrb chaDgc in price or (2) cease purchasing such Gar so long ar such 

condition exists. 

3.3 Upon &e henation of this Agreement or in he emt lhaf the Point@) of 

Delivuy rcmain(s) uneunomial far a pcriodof at least six (6) months, Ruya shall have the 

right to disconmrt the mem(r) nml move my or all i~ metering cquipmmi h m the 

PoinUs) of Delivery and it shall k convidcd for all purposa that Buyer and Seller shall 

have mutually agreed to such disconnection T( is hather agccd that if at any time fhe 

wlume andlor liquid hydrocarbon content of the Gas available lo Buycr, or any causckyond 

its contml, shall render the opnarion of Ihc Plant andlor gathaing system, or any ponion of 

Buyer's gathering systun utilized in the galhcringof Seller's Gas uneconomical in Buyer's 

sole opinion, then Buyer may uurel chis Agreement. as to such uneconomical Gas. by giving 

Seller thirty (30) days prior written nutice. 

In all other resptc~l the Gar Purchasc Agrcemcnt shall main in effect ar wrincn. 

- 

BUYER 

DEVON GAS SERVICES. L. P 

Ry: 

Title: Anomey-Jn-Fact 

SELLER 

M WITNESS WHEREOF, rhir Amendment has been executed in multiple originals ar of 

the day and year hereinabove witten. 

ATTFSTNflXESS: By: - . . -. -. . -. . . - 

Nmc:

RE: Gas Purchase Agreement B&-- 

-, L. P. Dated February 1,2004 

Dear M: 

February 9.2004 . 

Thank you for the recent second contract you sent me, which inchrdcs compcnsatiori for 

liquids. Between the time I called for that liquids contract, and the time I received it; I 

received a call from a gas marketer that specializes in putting together smaller volumes, 

and selling all those volumcs together at a premium price to industrial markets all o w 

the U. S. Thy said they watch well permits in North Texas and now want to specialize 

in the Barnett Shale, because it is so active. We told them we have a good well and 

might drill a few more. 

We would like to also consider their oKer. as well as yours. Thaeforc I propose a 

transport agreement of 14 cents per mcf to your Bridgeport Plant and delivered into 

NGPL there for our account. As a second option, I also propose 14 cents per mcf for 

delivery for our account into either of the big 36" lines (Lone StarIGulf Terra) where ever 

you can deliver to them. is it Morgan Mi117 We would pay your compression and other 

appropriate fees as you propose. Please send us a draft transport agreement as soon as 

you can so we can consider our options. 

Thanks so mucn. and we look forward to hearing from you soon. T 

807 8th Street Suite # l l 13 Wichita Falls. Texas 76301-3302 

rqbn I 177.n37n

RE: RoposedGasPmdmseAgrsmwt~CitoriOilCampcml,LLCaod~ 

m L P . 

Youo~ldmtbuydclephone~~Dcvonwwldmt~r(~aSfrnn~well. 

Agai4wc~ydcJmDcvaqadorih~1D~wrncw~(o 

Bridgqort NGPULone Star Pipeliae ador Moqam Min, TXUffiuIf Tenn a d Lone 

Star Pipdine. We would like to drill morc wells in the aca fuhac, i f d c . Wc 

Mdcrshud yw~mbtMspatcd~othas~~~:~purormafSlistcr. 

Wewouldliketohavetbcsawfku~ofmultipk&options,notjlst 

ondDevcm. We Ket think your refusal to kmqmt for a fee is to us. 

~~witbtbosfamiliiwith~R(nuaadTorsswcbetima 

tmqcml ntc of 14 to 20 cents per rncf is mae thsn fair to Devm I lmdermad the U.S. 

a~sgeforgstheringis 12~4atspcrNBhlnlGar W&L,sndtheTaca~av~isabout 

15- if~~ourgasisompldyauofthequcstionwcwouldrppedarc 

anexplanatton 

If we must ocll Lo D m to ga our gas mo- we want an index, minus a Yixcdcdcd 

nrrmbcr a @. A ~bgebscapment giva Dewrn mm money for no dditnnal 

cffartony~nparldisin~anrmaDdbcariDgovmidingintaenfamin 

krvaamcnt on pw very mhir. Si the Bridgeport PLnt ccmmds ioto NGPL 

and Lone Stm Pi* m believe aieiDn oENGPL is -1c We rrrs tdd bv 

w O--O~NGPL & pi& at ~ridgcpat is 05tk T& 

flu(*) indn. which is whae tbc gu is sold, nepr the Red Riw in Texas. mt Mid- 

807 8th Street Suite 11 113 Ulichita Falls.lbas 76301-3302 

fWJ 3220220

& little smsc to somame in our sihatiaq these wdls pmducc fa years aa pu well 

how. You already have many am~mic 

pmkhn ia your ageemcut 

Alrq we caumt aivision if'= sell to yw m an ink. kss 23 cents, how this can b&rrme 

~ncaLi~witbtbcgsn~yoa~fan~prmPchd~. SiyoumntthatoptioD 

dccowmico~h~soledhac(ioll,~snyoupl~~thttao~,~ 

prictisahmdrrmentalprovidmofray~? 

Yousrc~tprcrmtisgDevmChrScrviasL.P., ~bwtbcreisaSou(hwcstGa3 

Pipeline, the dd NOP& pA@0c dW was tmsfencd to Mitehcll, and maps moth 

system called cbc Nsnth Tcxu Systan, ad- ssvcnl mart (Aaci=), plus yrnu 

Bridgeport RacJsing Opmtk plw a Dcvon Mamting and Midskam Group, plus 

yom Ploduction a E aod P Campamy. In North T- they all sum "intarclaW in 

various ad cordusing ways Would you phsc cxpbin, dr6m and ckrify bow and who 

makestbeoe~cndaisiiora.andPudtywbatobjcctivc~acritcMee 

applieddusod.dwhatcompniaaeiddh~dai&n,anddo~bPrefull 

audit rim m this mat&, as we sbould We havc pamcm, landomas. bPolen. ad tbc 

nntttaiqg~to~m,~wsnsedcku,wrilrcll-radIcbcie~wraiad 

in this letter pkan We rlso e y don't want arbitdm we prefer dkcusionr. md 

thcntbe~cangoto~ifQsyfeclslmn~ycwughtogo~&that~ 

~i~but~anstillbc~dmaarwe~or~~ffthatisnotmmdor~b~c, 

pleast explain your imdast.adi?g of why a aew wdl bore is tcslcd and it bas volllw. 

BN. 0% MOL coot-t li.lalbolh .S-W and dm m thc same Obviously 

&gasl&m(yetktndebydrdd Asyoukn~wtlumtaodd&,(seeour~ 

sample) mavcnion &on me, 9826. 

UndaAmde5,oftbccanbaefifpu~tilkadbuy~garafthtdl~~ 

More, can yon arplain tbc logic of m being ehsrged or deducted for mmprcsdm nod 

fuel; is not your a ywr af6IiaIc's gas? 

htoArtide6.we~Doronmckarly~itwillldrc~.~prorata.ana~ 

badsaoduse~acciomtolreepourgasmrrvingdtbstyoudlmt@n 

Devon's own E & P or dber owncd pmhdcq ova om. We also need msbmmy audit 

rights We am asumiug aod dying that whcrr you state you will follow all +ation 

and kwq thai rpaifidy includes AU RRC. rules and ihc various burincn Laws, w%i&

--- 

mu- 

OUlg.mn1PMI 

~P-9gcofRwadsdP~cnrncof~(wellM)offslrmdctopu.retbeamco~ 

DGSLP lnrLa to similpr pPodueao of like qualily d qdty oCps m UK tra of your d. DGSLP 

hP.obo~m(tooffufa~~mihNorthTexa~ddoa~otmppkcc~ 

ad~rllaPtiollPad.dmioirtntiveproctdurrrrh*hMuldbcmcepprToriltooffa~h 

semkes. 

DGSLP~lhatitdoomco&thcPesviEcryousrcectLingbulranrhpcparadto 

pucbasc pur gas pumuat to a ~ c 

of arr prrviour offa 

vay d y pun. 

DWON GAS SERVICES. L9. 

Manager Natu~al Gu Mahhg B Supply

- - - - - .-. - 

I will give you a brief summar); of my problems with Cantcra along with a 

csaiption of the enclosed documentation. Should you wish to have an in-depth discussion 

of what all Ulese p a p a, I wodd be glad to visit- 

Srartiag at the beginning our gs was sold to Lone Star Gas for many years. Aftcr they 

spun o5Enserch Processing in the early 1990's, we sold our gas to Enserch for a yearly 

contract price and zero gathering fee. Everything changed inNovember 1995. At that time. 

Ensenh would no longer offer one-year contracts to anyone. Thcy would only pay 

whatever gas price they imposed each month. Additionally, they imposed a monthly 

gathering fce for the first time. A few rnonlhs later. I wrote to every gar producer 

coMected to the Enscrch gatbering system about the draslic conkact changes& 

This led to the RRC survey of gathering contract 

v n t c n t i o u RRC gas hearings in A&, d finally the 

toothless RRC Code of Conduct for gas gathering. 

Afta the Code of Conduct was published, we had our gas gathered and processed by 

Enserch. but we sold the gas to New Mexico Natural Gas at thc tailgate of the Enserch 

Gordon and Springlown processing plants. We had a set fce of 26 cents per wellhead 

MMBW at Gordon, and an 8000 processing deal at Springtown. Sometimes, one 

gathering fee was better, sometimes the other. 

1 have included a graph that summarizes the drastic incpcasc in effective gas gathering fees 

a thc.Gordon and Springtown p l ~ over b the last few years. You must understand that 

there an many terms in a gathering conmt that can &cct the bottom he. One with 

the amount of gas measured at the gathering company's gas meter at or near the gas well. 

This is called the wellhead gs actually delivered into the Cantera gathering system. 

measured in MMBTU. From tiie~wellhead MMBTU's. Canterasubmcts the fud gas 

used in its gas cornpresw. Which pump the gas from the low pressure gathering lines into 

the high pressure lines at'the processing plant. Then Cantera also subtracts Lost and

Unaccounted Gas (LUG), which is gas that leaks from its lines or otherwise disappeers into 

the etbu. Once at the plant, my remaining allocated gas is then pllocessod into liquids and 

dry gas. 

Under my Gordon gathering contract, Cantera delivered my allocated gas to the tailgate, 

whm I could sell it to the highest bidder. Cantera would charge me either so many cents 

per allocated MMBTU or 10% of my allocated MMBTU for gathering and processing, or a 

combination thereof. I have enclosed graphs showing how much of my gas was left after 

Canten! subuacted gas for fuel, LUG, and for gathering fees. 

Under my Springtown contract. Cantera kept 20% of both the dry gas and liquids after 

processing my allocated gas. 80% of the dry gas was delivered to the tailgate where I wuld 

sell it to the highest bidder. 80% of the liquids were sold for me by Cantera and Cantera 

paid me the proceeds. I have never been able to determine how or to whom these liquids 

I. 

are sold. 

So as you can see, there arc many terms in the equation, and Cantm has the oppomity to 

squeeze a little more profit out of every calculation. If 1 can get my MMBTU's to the 

tailgate of the Cantera plant, I can sell at true market price. It is getting there that is the 

mck. 

Because there are so many different variables in gathering contracts, I calculate the 

effective gathering charge in a very simple manner. I simply need thm numbers. I start 

with the net dollars received for my monthly gas and liquid (if any) sales through a 

particular gas plant and divide by the total wellhead MMBTU's. This gives me the 

effective wellhead price for my gas. i.e. what I actually received for each wellhead 

MMBTU. 

I then compare that effective wellhead price against the market price I received for the gas I 

sold at the plant tailgate.In a perfect world, there would be zero deductions for fuel gas or 

LUG or for low-priced liqyi$. hthlsjerfect world, I would sell 100% of my wellh;ad 

MMBTU's at the tailgate for.markct price and the effective gathering charges would be 

zero. However, in ~'d Texas, the difference between the tailgate S ce anh the effective 

wellhead price is the effective gathering fee which I have graphed. 

I suspect that Cantera has played with all these many factors in order to increase its profits. 

As you can see by the wpics of the force majeure letters it sent to all gas producers, it 

imposed whatever terms it wished. I complained to no avail. I think'thc graph of Cantera's 

combined deduction for fuel gas and LUG is especially illuminating. ~ oie the letter from 

Enserch in 1998 which says fuel and LUG combined at Sprin$itown would be about 6%. 

Cantera wqdcducting 1

TTEPHE~~S 

ENERGY CORP, 

RANDAL M. STEPHENS 

Pruiden~ - 

Re: Request for RRC Investigation of Enbridge Lost and Unaccounted Gas 

Dear Mr. 

March 7.2005 

In case you have not received this slrrady, I am attaching a copy of the 02/28/2005 

letter I received from-, Director of Enbridge Gathering (North Texas) L.P. 

In my opinion, Enbridge has dirstly challenged the authority, wmpetence, and 

determination of the Railmad Commission of Tcxas. If you will recall, I testified before the 

House Energy Resouras Committee on 03/02n005 concaning HB 821. In my testimony 

and in my previous lettm to Enbridge, I have said that 25% of my gas is going unpaid for 

because Enbridge is deducting 25% of my gas for fuel and Lost and Unaccounted Gar 

(LUG). I doubted that these huge gas losses were real, but instead suspected they were the 

result of creative allocation of both residue gas and lost gas by Enbridge for their financial 

advantage. 

You will note that some of the language explaining these mysterious gas losses by 

Mr. i r r o r s the language used by one of the gas lobbyists at the hearing. I 

suspect there has been a strategy session by the gathering companies because this issue cuts 

directly to their bottom line. 

I suspect that Enbridge and other gatherers have concluded that thcy have been 

painted into a wrner. If they admit that the 25% missing gas is fictitious, a result of their 

bookkeeping, they are liable for lriple damages and possibly criminal palties. So thcy are 

forced to take the position that they are indeed mysteriously losing 25% of the gas in their 

gathering systm. 

Mr.- is so confident that Enbridge can m~euvcr 

their way out of this tight 

spot, that he actually lays out their strategy for all to see. He clearly states that these 

mysterious huge gas losses cannot be measured and therefore will not be explained to 

anyone, including the RRC. He then states that Enbridge will in the near fuhlre make 

expensive, unspecified fixes. At that point, the huge mysterious gas losses will go away and 

Enbridge will begin charging us producers a fee to pay for these expensive fixes.

magically go away, and in& fa will be subrti'tutcd for thc &t LUG d&ction. 

Enbridge will be off the hodq while still making producm forthc same amount of cash 

monYy. You will raPll tbat in my testimony, I told thc cornmiltee tht thne were many 

ways for gathems to incrs~sc their income hm p produanr. Tbis new leakage 

rrmcdiation fa will be just the lata d puhsps, thc mosl clcva. 

As you how, it is beyond the moues of my company or man independent gas 

producers, to audit the Enbridge books in enougb derail to find the missing gap. 'Ihis will 

be a large undertaking, requiring a tcnm of auditors to verify every single number, 

allocation fomnrla, and calculation leading to Enbridge's monthly gas statements. 

However, the evidence is thm, buried in the computers at Enbridp. 

That is why I un not filing a formal or i nfo4 compliant by Stephens Energy 

Corp. against Enbridge. This cannot be merely a battle behvan my small company and 

Enbridge. I would be ovmrhetmed by their deep pockets. lleirpractiud affect a multitude 

of gas producers. It must be the RRC that carries tbc ball on thin investigation. 

Enbridge is counting on the RRC not having the courngc to forcefully dig into their 

books. I request that the Railroad Commission of Texas perfom a thorough and detailed 

investigation of these large and excessive gas losses claimed to be rral by Enbridge 

Gathering (North Texas) L.P. I believe you will find the^ the gas is not acnaally 10% but is 

instead being diverted to the benetit of Enbridge Gatheriog. 

Randal hi. Stephens 

President, Stephens Energy Corp. 

Cc: Alex Mills. Tcxas Alliance of Encrgy Pmducers


via Certifed Mail 

Re: Letter Dated February 2,2005; 

Dear Mr-: 

At the outset, let me say that we are always concerned abwt the fuel and lost 8 

unaccounted gas (FLUG) on every system Enbridge operates. We have, in fact added 

resources in recent years and collaborated to some extent with industry as this issue is a 

shared challenge among the industry. As you noted, the December 2004 FLUG 

percentage was 24%. approximately 5% and 2.5% of which was system fuel and 

condensate. respectively. 

The balance of the lost and unacoounted for gas is a function of many components. most 

of which are not measurable. Gathering systems consist of various Interconnects, 

pressure relief valves, fittings, block valves. meter installations, risen, compressor 

stations, dehydrators, processing plants, treating plants, just to name a few. Each of 

these locations is a potential source of gas loss. For example, a pressure change can 

trigger additional losses as relief valves protect the pipeline system. Free water delivered 

into our system by producer's faulty wellhead separation equipment introduces 

measurement error. Water entrained as vapor in the gas stream also contributes to 

inaccurate measurement on gathering systems. The thawing of line freezes and 

Mowdowns, gas sampllng and a host of other numerous items all can contribute to 

losses. Likewise. measurement variances due to the nature of measurement equipment 

operating in Beld conditions-, even within industry standards of a +I- 2% tderance. 

contribute to LUG. 

To further explore, and correct, the multitude of problems along the system that could be 

a contributing factor, we have long conducted on-the-ground leakage surveys' 

periodically, following industry common practices and standards. We recently initiated 

field trials of new technology using aerial surveillance coupled with the infrared 

technology which, if found reliable. would significantly enhance the detection of 

previously undiscovered losses. Along with other pipeline preventive maintenance and 

inspection progtams, we have a program of planned equipment upgrades and

a&essment of th-e bpe andlor Internal ins& using inslrumented smart pig 

technology where feasible. Thii will albw us additional ways to identi areas of potential 

mncern. We will continue to reset. replace andlor repalr faulty equipment when fwd. 

During the 2004-2005 period, we estimate our total expenditures to address leak 

detection and pipeline integrity programs in-the area of your production will reach nearly 

$1.7 million. We have already spent approximately $594.000 on pipeline replacement in 

the area and an estimated $211,500 on additional pipeline maintenance, repairs, and 

replacements. During 2005 we have budgeted $785.000 for additional plpaline 

replacements and $95.000 on redifier replacements and additional cathodic protection 

devices. 

A significant benefit of our recent acquisitions of nearby gathering systems in the area will 

help normalize LUG across larger volumes by integrating newer and more efficient assets 

with our other systems. We believe you will notice the benetit and this process should 

allow us to pmvide more reliable service by creating a more eflicient gathering system. 

One of the benefits should be a redudin of LUG experienced on small systems like 

some of the ones you are wnnected to and spread LUG across the wider network Our 

goal is to implement our integration measures this spring. with the noticeable benefits to 

the LUG issue apparent to you starting with spring of 2005. 

As YOU may or may not be aware, the supply and demand fundamentals of the No& 

Texas area have changed significantly In the last 4 years due to the significant gmwth of 

the Barnett Shale and lack of downstream pipeline infrastructure improvements. 

Although Enbridge does not buy your gas. please be assured that we are evaluating 

several options to enhance our system through a mix of new construction and 

downstream initiatives. As we estimate that these initiatives will cost us between $10 to 

$20 million, we are carefully evaluating all cost-effective options. If Enbridge proceeds 

with some or all of these initiatives, we will be axnmunicating to all our customers 

induding your marketing agent(s) the various ways they can participate in these 

enhancements. 

As you can perhaps tell from the above discussion. the factors mntributing to LUG and 

cost of enhancing facilities are complex I apologize for the time it took to respond. and 

as Bobby McGuire relayed in his response to you earlier. please address an 

correspondence to him or Dean Hoy to ensure your inquiries ere received by the pmpw 

person or department in our offrce. We look forward to working with you on these issues 

and welcome your comment. 

/ 

John Loiawno 

Director

cc: Texas Alliance of Energy Producers 

Railroad Commission of Texas 

Representative Jim Keffer 

Representative Ri Hardcastle 

Dean Hoy 

Bobby J. McGuire

March 2,2005 

Chairman 

Houde Energy Resources Committee 

14m MO~WMERY STREET 

FORZ WORTH, ZEUS 761#7-3116 

OIL AND GAS EYPLORA TIONAND PRODUCTION 

Re: Texas Competitive Natural Gas Act, H.B. 82 1 

1) Name: Marshall Tillman 

Company: Kornye-Tillman Company 

Position: President 

2) Background: 24 years in Oil and Gas industry, initially as a Petroleum 

Landman, a VP of Exploration and now as owner on an independent Exploration 

and Production Company with operations in Eastland, Palo Pinto and Stephens 

Counties (60 producing wells). 

3) Gas Contract Experience: Began in the mid 1980's. In those days 

things were relatively simple, the producer agreed to sell gas to the pipeline 

company at a fixed price and stated term. In the early 1990's contracts evolved 

into percentage contracts based on the Houston Ship Channel Index Price 

(HSCJP). These were generally 82%-87% of this Index without deductions of 

any kind. At one point Mitchell Gas Services dropped the HSCIP for another 

lower paying index (Mid-Continent). Next came, Percentage of Proceeds (POP) 

contracts with pricing based on the Houston Ship Channel Index. These contracts 

by and large paid less in percentage and were loaded with deductions. Today, 

most contract pricing is based on the Pipeline Company's weighted average sales 

price (WASP) and are complete with past deductions and now include line loss. 

Line loss is defined as gas lost or unaccounted for within their on pipeline 

systems (averaging 8% - 30% per month). Line loss in my field lines averages 

is less than 5%. How can a pipeline company have 30%? 

With each change producers have borne the brunt and are paid substantially less. 

It has taken a while but nearly every pipeline company offers the same contract 

terms.

Alliant Energy Desdemona, LP) have forced amendments in their contracts during 

the contracted term. When questioning these amendments I have been told "If 

you don't agree your contract will be terminated'and you can sell your 

product elsewhere or you can shut your well in". These companies know fill 

well there is no other alternative apd I, as with the majority of producers, are 

captive to their demands. The Raiiroad Commission of Texas told me my 

complaint is a civil contract matter and not within it's jurisdiction. 

I have been told numerous times that a transportation contract is not an 

option. 

Recently Komye-Tillman Company took over operations of several wells located 

in Eastland County. These are low volume wells that the RRC had shut in due to 

violations associated with the previous operator. All wells are now in fill 

compliance and are once again producing. The contract allows the Pipeline 

Company to pay 82% of their WASP less the following deductions: 

Fuel: 14+% 

Compression: 9.25 per MCF 

Dehydration: 9.05 per MCF 

The pipeline is retaining for itself 50% of the value of the gas produced. I 

can honestly say I will not put forth the effort nor incur the great expense of 

returning low volume wells to productive status only to give gas to a pipeline 

company. 

4) Severance Tax: Producers pay severance tax on the value of their 

production. Pipeline companies do not. How many tax dollars are not reaching 

the State? 

5) Mergers: In the last few years many mergers have taken place. The 

result of this is one company, Enbridge Gathering, LP, now owns and 

controls a majority of the pipdinw and gathering facilities within Eastland, 

Palo Pinto and Stephens Counties. This is of great concern as it could lead to 

further abuses. 

Very truly yours, < 

Marshall Tillman 

President 

Kornye-Tillman Company

New Horizon Investments, Ltd. 

P.O. Bor 1w 

Gnlrg WLYI, Teas no22 

(361) 449-1780 

Re Need hclp with abuses by iatrartatc giu gatkren (gipcb) gouging, producofi, royalty.@- a d SIC. 

11 b undetstdimg tbar n;change in the hws govuming inmrrtak pipekes willhove to take plaa before 

thCp~tmncc"rigpi-aff the~vohmrppducmam~~tochange~~.FVhileIhrtc 

md dro lawswtcd I don't klim n is possible orry other way. 

ECC 

WWe all intmtatc gap pipeljncs are mt to bhu=. "as 1 0p-h a fak shs gathering systemn there are thum 

, *h through dl ofthe byolds and mwpr~ of the pa fiw ysaq conhol a largo portion ofthc steta0 

gathering system and have adopted the stmtegm of holdig pmduoducus hnstagc to thm demMds and fixs. 

I know quite well, I hove (8). wlls in two counties shut-in sins May 1.2004 kcause tho pipeline system I 

was selling my g.m u, was bought-out by AEP and as soon as my conha came up fm renewal 1 1 told that 

b y mm gomg to start cwmg a monthly admbbtn~tivc fk off 1000.00 per slation per mr~th along 

dmpping me lo 70.h of Houston Ship Channel pricing and whous o h fees at their discretion Owe ant to 

mention that all of this wm non-negotiable. Needless to say I was in cfka ford to shut-in. The only 

pipclii within a fw mJes Enbridge i. doing almost rho identical way. I am ltn with the pr-t day oflions 

of either plugging the wh. which would produce mnomically bbr mmy nore yew or W l io ex+ of 

(14) miles of galluxkg line m get to another reusunablc rnarkd. 

1 find this appalling that we are bci forced to either take or lave ir witbut any negocia~ing w @ m . 1\11 

this h s time ofrtoord high prices fbr energy. Tbc pipalms mt only arc Bcfing many weP io 

through their covert @tics 4Y?y are causing the producur thm do stay on lii to not gal a firir w e t value for 

the gar along with bcii hammed by the multiple fees. I don't see how they even can bc makimg 2 profit! 

)Khcn the prod- can't get to a vaonable market end receive a foir madax value for rhe gas sold everyblU 

thc pwinc bo6%, " prqi~o~r, my* ownen, county texhg ditics, -a * entitiesnies 

I am sending you with this hter a copy ofrhc comspondcnce I sent to AEP in April 2004 befqt;~ fd 

. 

to shut+ for your infomtipn. If I can be of further help in any way. plcwc advise. 

. 

-+d!FLng 

New IIoriin Invutmcnts, Ltd

New Horizon Investme&, Ud. 

P.O. an 1607 

Gcqc wca. Tuu 7 m 

(361) 449-17W 

- tkso oatraEts ham taken away little by little the -it pIlrtpin to the paint nm 

ith~~CgdtpmAbi+i~. IbaW?~ird~kSkt~bldcPstsdonsrrd~\re 

rercrrenaed~meanrres~aNd&toreduathseostsofgathgcing,buttbse 

in-eitherarenotgetwtk-cn-'tm.Ctsybeintimem 

m~~U~t~)tfiataW~long~+yhbrttertfwaakathigfr 

rate. I ~ l y ~ m ' s ~ d a i s l c n v i n ~ t o s n a l l M 3 

ga.s,asmeof t h e ~ t I P L ~ g a 4774 s 1 ~ hsskeaactivealnust 

( 

cmthmsly dnoe tk idd 1940'6. 

Ia~tepxtinainthismatter, htI~Iuillhsvetofind~mare 

palatable market-for the gas at hard. 

?heamtraEt~t~veaisenclosedunsigned.

~ ~ 

f ,316 El Dorado Drive 

Fc t Worth, Texas 761 0 7 

(81 7) 738-1016 


- 

CERTIFIED MAIL- RETURN RECEIPT REOUESTED 

Dear Mr. Lentz: 

I am writing you at the I :quest, and on behalf of, of Moran, 

Texas. He has an existing gas : ales cantnet with you date I June 1.2003 for gas 

produced from the S.H. Post le sc. I sttach page one and tl e Exhibit page for your easy 

reference. 

Mr. has expresse I to me that he may have tc soon discontinue production 

horn these small volume, low I ressure wells because of el ~tricity cost, water hauling 

cost, and the effective well hca I price he receives from Ca itera. He has asked me to 

convey this to you, and is requl sting a fair and equitable p ice adjustment in his gas price 

from you, so he can keep prod1 cing. If you can work witt him on this. he can bring 

another well to you, if you can iet a metcr. He thinks then :w well can produce an 

additional 55 mcti'd, to what th : three S.H. Post wells are umntly producing. Mr.- 

is a 75 year old farmerlrancher md needs this money for v uious living expenses 

I have read your contra t and I have a few simple i leas for you to consider for 

these very modest volumes, to ry to keq, them on line. 

Sueeestion Om Let Mr. t ransport t .s gas to one of Lone Star's or 

TXU's lines ant he can sell to a marketer o . TXU fuels. We suggest a 

transport fee of !5# to 30# mcf, plus compl asion, would allow him to

- < . 

Page Two 

keep producing and Cantem to aceive positive revenue. \ Ie believe you allow, some 

. 

other customers to transport. 

Suggestion Two You continue to sell his g is at your WASP less 35 

cents; this wmp nsates you for marketing f cse volumes plus a profit. He 

will pay cohpre sion as needed. 

As I mentioned, if Cantera can or will work with him. he rill bring the new well to you. 

As you consider this ra uest, 1 want to relate some elcvant information, as I have 

spent 18 years of my carea wo king b r pipelines as an att Irney and later an executive. I 

was invited to Austin week bef re last by Commissioner C millo for the State of the 

Industry Report. Governor P u y, the LL Governor and all the Railroad Commissionm 

expressed there "deep concern' about future gas supply, ac d especially keeping our low 

pressure, low volume wells on br as long as possible. I bcliwe the R.R.C. plans a "new 

study" on this very issue soon. 

1 will also note that you .company is classified as P Common Purchaser under the 

Texas Natural Resources Code Chapter I I I (the '"RJRC'' .. Regardless of contracts, 

Common Purchasers are subjec t to R.R.C. Rule 73 and, su xhapier D of the TNRC. 

Common Purchasers' nsponsi ilities set out in these prov ;ions supersede contract 

provisions that conflict with R 3.C. rula or state or ftders . laws. 

I want to qectfully p lint out that Section I1 1.08 ! of the TNRC regulates 

Common Purchasers for the p~ pose offurther conserving the natural gas resources of 

this state. Your advisors may. Iso want to glance at sectic is 1 11.081(a)(l)(2), 11 1.083 

and 11 1.085 as well. 

These lype of gas pspurclasc contracts are also contr dlcd by the Texas Business 

and Commerce Code, as sever d minerals. I again refer yt .ur advisors to Section 2.306. 

and the U.C.C.'s various comr ~ents and cases, which requre the Buyer (Cantera) to use 

good faith, honesty in fact, co~ ~rnercial reasonableness, an 1 your best efforts to sell these 

severed minerals (natural gas).

The logic of all this is, a long as you are not actud y loosing money over the 

lo4 run, you should ~ U I C t r ~ transport , this gas, at a fai . and quitable price;to allow 

the production to wntirme, undc r the U.C.C. and Common Purchaser Act. Thcre is also 

RRC. precedent that states tlui . if a producer and a pipeli~ c cannot agne on a Lir price, 

the R.R.C. can set one. In a ga! conservatiodwaste case, 1 ce this one, that might well be 

an issue they think timely and it )portant. 

We have o ffd several oommercially reasonable r keinativcs. please carefully 

review our requesl and exercise yow honest good faith and best efforts on gm pricing or 

transportation and get back to u ; with your thoughts as sw I as possible. 

William D. Fisha

Texas fUbnce d Enqy Producas 

719 Scdt Avm, .Sum 500 

w m Falfs. TX 78301 

m: Mr. Akx Mils 

Re: Narurel Ga8 lssug 

WeBuppatyarrelkrtrtobringPautapenaoeesstotheTaxseMtualgasplpelineindusby.Weare 

awae d situaliaa vrherein operatws have nd been bea$d fai* by the gas purchaser in regarQr to 

gassalaocanbad~o.auHngnessbbanspatthegastoanolhermarketfora~fee., 

Thii seems to w marr dten in ereao where them is litlk, a no canpe(ibjon, anag the pipdnes. 

Opereton, wlth bw productiar vdunes cad suppat the cad of taking their gas to andher gas 

buyer. Oflen these operalas are hit wim kwer prices for their g a ~ in addm to hi@w 

lledi~eteri~e6ng feea 

We d l also suppat to chmge the current prevailing pridng pisiar lhat is based upon a 

percentage d proceeds (POP) concept A mom equitable pmvisiar migM be a relalion to a m@u 

index. nuch as ihe NYMU index. This would result in the eslablWment of ked handling fees end 

would lk? the producer incune b the artud market 

We believe the repated remrd pclils of purchasers are largely a mlt d the POP pmisian found in 

many gas purchase qlrecment9. These remrd puiis were nd earned by new ca#lbuction a better 

mirkeblng,pipelinea~anviceaWebelievetheasfundswarldbetlermTeransinthe~d 

thepmduwm, where hi- heeshonntheywildrillmore nmvwellsandlureworkolderwellsfor 

addi-1 reserves. 

Should you have any qumths concerning the &we, do nd hwitate Lo contad us 

~ R e p . J h l ~ 

Fax 5124788605

u 

RUSSOI N. TAYLOR 

am 

Texas Alliance of Energy Producers 

719 Scott Ave., Suite 500 

Wichita Falls, TI 76301 

Attm Mr. Alex Mib 

Re: Natural Gas Pipeline Issues 

Dear Sir: 

NORDAN OIL & GAS CORP. 

P.O. Box 789 

Abilene, TX 79604 

January 31,2005 

We support your efforts to bring about open access to the Texas natural gas pipeline 

industry and the natural gas producers. 

Our company has been a part of the natural gas producing indust~y since the mid 1960's. 

More recently, we have been a gns producer in RRC 7-C. Early in the hutory of this 

production, we were asked to commit our grs at 25 percent of oar proceeds, which we 

rejected. Under a later agreement, we agreed to a contract for 25 cents/MnIBTU, but we 

had to Compress (900#), dehydrate md gather the gas for which we charge ounelva 20 

centslMCF. Our present day charge is still 20 cents MMBTU, however the transportation 

charge today has risen to 78-80 cents per MMBTU. 

We feel this additional cost is part of the percentage of proceeds (POP) concept. It Is thb 

concept that we ask you to Ti. We believe the reported record profits of gas purchasers 

are largely a result of the POP provision found in many gas purchase agreements. In this 

case, the pipeline, although it has been sold a few ties, has not increased its capacity or 

invested in any new additional pipeline or plant services. 

Thi increase of 53 cents/MMBTU represents a loss of over2.5 million doUaro of risk 

capital that could provide future oil Or natural gas reservoirs. For a small independent 

operator this amount of money represents a significant number. 

Should you have any questions, please feel free'to contact us. 

Sincerely yours, 

J3mS. 14lh,Suilp3t2 

~.lY.78805 

TELEPHONE 

(915) 872-1 

FAX 1915) 672-B48U

James K Anderson 

Exploration and Production 

of 

Gude oil and Natural Gas 

President and CEO 

P.O. BOX 1188 November 21,2005 

Norman. OK 73070-1 188 

Mr. Alex Mills 

Texas Alliance of Energy Producers 

719 Scott Avenue, Suite 500 

Wichita Falls, Texas 76301 

Dear Alex, 

Thanks very much for trying to get fair treatment for the gas 

producers. Out in Runnels County where my little bit of gas production is 

located, there is only one gas buyer, and that is J.L. Davis. Since he is the 

only one, it's accept his terms or bust, and a little bit is better than nothing. 

Hang in there. 

Best regards, 

ad K. Anderson 

(405) 329-2992 Fax (405) 447-6445 E-mail jka@ionet.net

If -one hu read a Yn: eoatraec. h gets tbr picture. Ul% he 

you war r b d end ~iroully gets their vay by using all klda 

of &iJch., mically. thay take 22.5Z of g u rhich uas procebued 

at our apuua (the knd-ts get 12.5 to U1.752). P h 

girick in loss rod pricing. It's all bit one-sided.

STEPHENS ENERGY CORP. - The Railroad Commission of Texas

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