GAS SUPPLY AND TRANSPORTATION TERM SHEET Parties: Purpose: Facilities: Terms: T gas Pipeline Company ( Transporter ), C Energy Resources, L.P. ( Seller ) and IS Cogeneration Limited Partnership ( Buyer ), Seller, Buyer and Transporter are herein referred to as the Parties. The Parties intend to execute a natural gas supply agreement ( GSA ) and a natural gas transportation agreement ( GTA ) to effect the sale and transportation of the quantity and quality of gas required for the operation of a 440 MW combined cycle cogeneration plant to be located on Buyer s property in IS, Texas (the Plant ). Transporter will construct, own and operate a 24-mile, 16 diameter connecting pipeline (the IS Pipeline ) from its existing 30 /36 mainline system to a site provided by Buyer located near Chemical Corporation s ( ChemCorp ) existing IS Plant. At the site, Transporter will install metering and related facilities capable of delivering and measuring 1-130,000 MMBtu/D of natural gas at 400 psig, including separate metering facilities at the Delivery Point (as described below) to serve the existing ChemCorp plant. The GSA shall have a primary term of fifteen (15) years, beginning with commercial operations of the Plant. At Buyer s option, the GSA may be extended by Buyer for an additional term of five (5) years. The GTA shall have a primary term of twenty (20) years and extend year to year thereafter until terminated by Buyer or Transporter upon sixty (60) days prior notice of the GTA anniversary date. Quantity/ Nominations: Seller will provide gas on a firm basis meeting the quality specifications described herein in quantities sufficient to satisfy 100% of the requirements of the proposed IS, Texas cogeneration plant owned by Buyer. Seller will provide gas on an as needed basis to Buyer and as requested by Buyer during testing and commissioning of the Plant. Buyer will nominate monthly contract purchase and transport quantities on or before the fifth (5 th ) business day prior to the beginning of each month. Buyer shall nominate at least 50% of its gas requirements as sales volumes and the remainder as transport volumes. On any such day during such month, Buyer may vary its purchases from the monthly nominated quantity by ± 10% without affecting the price (the Daily Operational Swing Quantity ); provided, however, during any contract year during the first ten (10) years of the term of the GSA, if Buyer fails, for any reason to take as either sales or transport volumes at least an average of 80,000 MMBtu/D, Buyer will reimburse Transporter for the short fall as follows.
$0.02/MMBtu times the short fall volume. The short fall volume shall be defined as the positive differences between the annual volume (80,000 MMBtu/D times the number of days in the contract year) less the actual volume purchased as either sales or transport volumes in such contract year. Performance By Seller: Delivery Point: Price: In the event Seller and Transporter fail to make available for delivery properly nominated volumes of natural gas as outlined above, for any reason other than Force Majeure or Buyer s failure to accept delivery of natural gas, (i) Transporter will make its pipeline facilities available for transportation by third party suppliers and (ii) Seller will reimburse Buyer for its incremental cost of obtaining an alternate supply, whichever case applies. The delivery point ( Delivery Point ) for gas sold hereunder will be at the inlet flange of Buyer s receiving facilities located downstream of the proposed metering station at or on the Plant premises. Title and risk of loss will pass at the Delivery Point. Sales: The price for gas delivered during any given month of the primary term will be the Index price which is defined as the Delivery Spot Gas Price per MMBtu, Houston Ship Channel/Beaumont, Texas Index (Large Packages Only) as reported in the first issue each month of Inside F.E.R.C. s Gas Market Report published by McGraw Hill, less $0.02/MMBtu (the Contract Price ). The price during the five year extension period will be as mutually agreed between Buyer and Seller. For quantities taken on any day in excess of the Daily Operational Swing Quantity, the sales price shall be the price posted the following day as the Houston Ship Channel Midpoint as reported in Gas Daily in the Daily Price Survey, East-Houston-Katy, by Pasha Publications, Inc. ( Daily Price ). On any day Buyer does not purchase 90% of the monthly nomination quantity, Buyer shall reimburse Seller the positive difference, if any, between the Contract Price and the Daily Price times the difference in MMBtu) between 90% of the monthly nomination quantity and the quantity actually purchased that day. During the commissioning and testing of the Plant prior to commercial operations, the price for gas sold shall be the Daily Price. From time to time Seller and Buyer may wish to fix the gas price. The fixed price will be based upon financial market transactions at the time and shall include a set price, volume and time period. 2
Transport: For gas received on Transporter s main line from third-party pipeline interconnects from Agua Dulce to Katy and delivered to the Delivery Point, the transport fee shall be $0.03/MMBtu for the first 5 years following the commercial operations date of the Plant, $0.04/MMBtu for years 6-10, $0.05/MMBtu for years 11-15, and $0.06 per MMBtu for years 16-20. For gas received on the IS Pipeline from third party pipeline interconnections and delivered to Buyer at the Delivery Point in years 1-10 following the commercial operations date of the Plant, the transport fee shall be 60% of the foregoing rate, but in any event at least $0.02/MMBtu. For years 11-20 following the commercial operations date of the Plant, Buyer will have preferential transportation capacity rights in the IS Pipeline to transport up to 13000 MMBtu/D from third party Pipeline interconnections to the Delivery Point for a fee of $0.015 per MMBtu. Taxes: Quality: All ad valorem, excise, reverence, production and other taxes assessed at or upstream of the Delivery Point will be borne by Seller or Transporter. All such taxes assessed downstream of the Delivery Point will be borne by Buyer. The quality of gas delivered under the GSA at the Delivery Point will meet or exceed the quality specifications (including minimum and maximum delivery pressure) described in Annex A attached hereto. If within 30 days of Buyer s notification to Seller that gas fails to meet such quality specifications Seller is unable to cure the non-conforming gas, Buyer may terminate the GSA. Default, Suspension And Termination If Buyer defaults in the payment of undisputed amounts for more than 30 days beyond the due date thereof, Transporter or Seller, as the case may be, may upon 30 days notice suspend transportation or deliveries of gas, until Buyer remits all such sums. Force Majeure: In the case of a voluntary insolvency proceeding, or in the case of an involuntary insolvency proceeding or material default under the GSA or GTA not cured within thirty(30) days of notice thereof, the non-defaulting Party may terminate the applicable agreement on thirty (30) days notice, whereupon the other agreement shall automatically terminate as well. Seller and Transporter agree to provide Buyer s lenders, concurrently with Buyers, notice of any Buyer default, and to afford lender opportunity to cure such default. The GSA and GTA definitions of Force Majeure will include typical risks such as acts of God, civil disturbances, wars and riots, natural disasters, breaking or freezing of wells or pipelines, explosions and breakdown of 3
machinery at the Plant. Force Majeure will not include changes in market conditions, Force Majeure conditions not affecting a majority of delivery points in Seller s supply area, and failure of Seller s gas suppliers for reasons other than Force Majeure. The Party claiming Force Majeure must provide prompt notification, confirm in writing, and an estimate of the cure period, and a summary of steps being taken to cure. The claiming Party shall diligently cure the Force Majeure conditions, but shall not be obligated to settle strikes or other labor disturbances. Assignment and Financing: The GSA and GTA will not be assignable to a non-affiliated company without the consent of the other Party thereto, not to be unreasonably withheld. Buyer may assign, pledge or otherwise burden its interest in the GSA and GTA in connection with a financing or purchase of the Plant. In connection with the financing of the Plant, Seller and/or Transporter will execute or otherwise provide GSA or GTA amendments, consents, opinions, certificates and other documentations which are reasonably requested by the lenders. Conditions Precedent: Guaranty: The effectiveness of the GSA and the GTA will be subject to Buyer obtaining financing for the Plant. T Gas Corporation, parent of Seller and Transporter, will guarantee the obligations for Seller and Transporter under the GSA and GTA. Non-Recourse Obligations: Notwithstanding any other provision of the GSA or GTA to the contrary, the obligations for Buyer thereunder are intended to be recourse only to the assets of Buyer, and neither the partners thereof nor any shareholders, officers, or agent of any partners or any affiliate thereof shall have any personal responsibility or liability for any breach in performance or observance of the covenants, representatives or obligations under the GSA or GTA. Certification: The undersigned hereby certify that the above terms and conditions have been negotiated in good faith, represent the mutual understanding that will be the basis for the GTA and GSA to be entered into by the Parties hereto, and that performance of any term or condition outlined above is subject to the final approval of the parties respective Board of Directors or general partners and the execution by the Parties of the GTA and GSA. The above terms and conditions shall be assigned to Buyer by the undersigned ChemCorp following the formation of Buyer, and ChemCorp shall have not liability for such terms and conditions hereunder. Notwithstanding the above ChemCorp shall guarantee (i) any outstanding 4
balances for gas purchased by Buyer from Seller and (ii) the payment to Transporter for the short fall as provided hereinabove. 5