Contract For Construction And Lease Of Plant

CONTRACT FOR CONSTRUCTION AND LEASE
OF BOLDMAN PLANT


THIS AGREEMENT made this 24th day of December, 1990, between COLUMBIA GAS TRANSMISSION CORPORATION ("Columbia"), and MARXWEST HYDROCARBON PARTNERS, LTD. ("MarkWest").


Columbia and MarkWest agree as set forth below:


ARTICLE I. EXTENT OF CONTRACT


MarkWest agrees to furnish the engineering, procurement, fabrication, construction, commissioning and start-up services set forth herein for the construction and installation of a natural gas liquids extraction plant ("the Plant") near Columbia's Boldman compressor facilities, and agrees to furnish acceptable industry practice business administration and superintendence, and agrees to complete the Plant in accordance with the terms hereof.


1.1 Definitions:


A. "Plant" means the total equipment, materials, machinery, labor and all other items and services necessary for the proper design, procurement, construction, and installation required for the proper operation of a natural gas liquids extraction facility as more fully described on Exhibit "A" attached hereto.


B. "Work" means the design, procurement, construction, fabrication, erection, commissioning, labor and other services required to be performed by MarkWest for the construction, installation and proper operation of a natural gas liquids extraction facility.


C. Unless otherwise specifically designated, "Day" means calendar day; "Month" means calendar month; and "Year" means calendar year.


ARTICLE II. MARKWEST'S RESPONSIBILITIES


2.1 Design. (a) MarkWest shall be responsible for furnishing the design
------ of the Plant. The detailed design shall include, but not be limited to, the process and facilities described on Exhibit "A".


(b) MarkWest shall submit to Columbia copies of drawings, plans and specifications for the Plant. Requests for changes by Columbia will be made within ten (10) working days following receipt by Columbia or earlier if specifically required to maintain project scheduling and requested by MarkWest on the


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respective documents on which changes are requested. Requests may be subject to Lease Fee adjustments provided in Article VII.


2.2 Construction and Installation. (a) MarkWest will provide, or cause
----------------------------- to be provided, all construction supervision, inspection, labor, materials, tools, construction equipment and subcontracted items necessary for the completion of the Plant, together with the procurement and/or fabrication of all equipment and components required for the proper operation of the Plant, including, but not limited to, that which is specified on Exhibit "A", in Columbia's NGL Plant Specifications, dated January 11, 1990, and T. H. Russell Co.'s Technical Proposal, dated June 19, 1990.


(b) MarkWest will give all notices and comply with all laws and ordinances, legally enacted at the date of execution of this Contract, or thereafter during the course of the construction and installation.


2.3 Responsibilities for Performance Testing. (a) MarkWest shall notify
---------------------------------------- Columbia when the Plant is ready for the running of a performance test, and Columbia will commence that test within seven (7) days following that notice, and will give MarkWest notice of when that test will commence.


(b) Columbia shall have complete responsibility for conducting a performance test to verify the proper functioning of the Plant, including the ability of the Plant to accept raw feedstock and perform its specified functions. Records of the performance test(s) shall be submitted by Columbia to MarkWest regardless of whether MarkWest attends or does not attend the test.


(c) The plant will be deemed to have satisfactorily completed the performance test when the plant successfully comes on line from a "cold start", operates at the guaranteed product recovery efficiencies as specified in T. H. Russell Co.'s Technical Proposal dated June 19, 1990 and liquid specifications as set forth in paragraph 4(d) of the Natural Gas Liquids Purchase Agreement (Boldman Plant) for the available inlet gas conditions for a continuous 16 hour period, and completes an orderly, automatic shutdown. This performance test procedure is detailed in Exhibit "D" attached hereto.


2.4 Acceptance. (a) Acceptance of the Plant means and occurs on February
---------- 15, 1991, if by that date MarkWest has successfully demonstrated -that the Plant has satisfactorily completed a performance test(s); and, if not, then upon the date the Plant satisfactorily completes a performance test. Provided, however, should the failure to satisfactorily complete a performance test by February 15, 1991 be due to delays of Columbia in providing any of its requirements under Article III, or be due to any other delays


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or circumstances within the control of Columbia, then Acceptance shall be deemed to have occurred on February 15, 1991.


2.5 Warranties. (a) MarkWest shall assign to Columbia any warranties or
------------ guarantees, including process warranties and guarantees and mechanical warranties and guaranties it obtains from its General Contractor, Subcontractors, and Vendors, and shall assist Columbia in Columbia's enforcement thereof. To the extent any warranties cannot be assigned, MarkWest shall, during the term hereof, hold and enforce those warranties for the benefit of Columbia.


(b) All warranties and guarantees are conditioned upon proper operation and maintenance of the Plant.


ARTICLE III. COLUMBIA'S RESPONSIBILITIES


3.1 Columbia shall provide the following items at its sole cost and expense, except as otherwise expressly provided:


(a) a Plant site reasonably level and accessible by an all weather
road; and, the real property constituting the Plant site shall
remain the property of Columbia;


(b) all requisite permits from governmental authorities having
jurisdiction over the premises as may be necessary to construct
and operate the Plant, including, without limitation, all
necessary air quality permits, and other environmental permitting
requirements;


(c) design, engineer, construct and install, by January 14, 1991, a
power substation capable of taking power for the plant from the
34.5 kv feed and converting to the 4,160 voltage service and 480
voltage service, the actual cost of which shall be reimbursed by
MarkWest to Columbia, and which costs shall be utilized in
adjusting the Base Lease Fee as provided in Article VII, below;


(d) a suitable area for parking, temporary construction facilities
and equipment storage;


(e) all initial process plant charge materials. MarkWest will, by
January 1, 1991, notify Columbia in writing of the specific
materials, types and quantities, required;


(f) block valves to connect the Plant to Columbia's gas pipeline
system; which block valves shall be


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located within 600 feet of the Plant inlet and residue
connections;


(g) electrical power for construction;


(h) purchase and furnish to MarkWest, by December 1, 1990, the motor
controls specified on Exhibit "C", the actual cost of which shall
be reimbursed by MarkWest to Columbia, and which costs shall be
utilized in adjusting the Base Lease Fee as provided in Article
VII, below.


3.2 Columbia shall designate a representative who shall be fully acquainted with the Plant and has authority to approve changes in the scope of the Plant, to render decisions promptly and to furnish information expeditiously. All changes in the scope of the Plant from Columbia's Boldman NGL Plant Specifications, T. H. Russell Co.'s Technical Specifications, and Exhibit "A" shall be subject to the procedures of Article VII.


3.3 Columbia has furnished or will furnish for the Plant Site all existing surveys, in Columbia's custody, if any, describing the physical characteristics, subsurface characteristics, zoning requirements, utility locations, and the legal description of the Plant Site.


3.4 Columbia shall make available to MarkWest and its General Contractor and its Subcontractors the use of the Site for purposes required in performing this Contract.


3.5 The services and information required to be provided by Columbia in the above paragraphs of this Article III shall be furnished with reasonable promptness at Columbia's expense.


ARTICLE IV. GENERAL CONTRACTOR


4.1 All portions of the Work that MarkWest does not perform with its own employees and resources shall be performed by its General Contractor, its Contractors or by their Subcontractors.


4.2 A Subcontractor means a person or entity who has a direct contract with MarkWest's Contractor or MarkWest's General Contractor, to perform work in connection with the Plant. The term Subcontractor does not include any separate contractor employed by Columbia.


4.3 No direct contractual relationship shall exist between Columbia and MarkWest's General Contractor, Contractors or Subcontractor for the Work at the Plant. MarkWest shall be responsible for the management of General Contractor, Contractors and Subcontractors in the performance of their work.


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ARTICLE V: LEASE


5.1 Commencement and Lease. Commencing upon Acceptance, as defined in
---------------------- Article II, above, MarkWest shall lease to Columbia, and Columbia agrees to accept the premises, and lease from MarkWest the Boldman Plant, in accordance with the terms of this Contract.


5.2 Operation. During the term of the Lease, Columbia shall have the
--------- exclusive responsibility for the operation of the Plant, and shall be deemed to have complete custody, control and possession of the Boldman Plant.


5.3 Operating Costs. Columbia shall be responsible for all operating
--------------- costs of the Plant, except those costs to load out the natural gas liquids at the Plant site loading out station into MarkWest's transportation vehicles, and Columbia shall be solely responsible for all obligations undertaken by Columbia in connection with its operation of the Plant. Columbia shall be responsible for all maintenance expenditures related to the Plant, and shall have the obligation to maintain the Plant in good repair, and shall maintain it at all times in a condition at least as good as the condition of the Plant upon Acceptance, except for normal wear and tear. Columbia shall not be entitled. to any credit against the amounts it is required to pay MarkWest hereunder for any expenditures it incurs in operating or maintaining the Plant. MarkWest will be responsible for the costs of loading out natural gas liquid products.


5.4 Replacements, Modifications or Alterations. Columbia shall not
------------------------------------------ undertake to make any replacements, additions, modifications, or alterations to the Plant without first obtaining MarkWest's written consent, which consent shall not be unreasonably withheld. It is understood that without regard to which party pays for replacements, additions, modifications or alterations of the Plant, they will, nevertheless, become the property of MarkWest. Improvements, replacements, additions, modifications, or alterations paid for by Columbia shall not act to increase the Lease Fee under the provisions of Article VII, below; and, further, unless reimbursed by MarkWest, those expenditures shall not be included in calculating the purchase price under the purchase option contained in Article VIII, below. In the event either party hereto desires to cause an improvement, replacement, addition, modification, or alteration to the Plant, it shall notify the other party in writing. Should the other party elect not to participate in the improvement, replacement, addition, modification or alteration activity, then the proposed activity will not be pursued. If both parties agree to the proposed activity then they will mutually agree on how to implement the proposal.


5.5 Taxes. Columbia shall remain responsible, at all times, for all real
------- property tax assessed with respect to the Plant site; and shall reimburse MarkWest for any real property taxes assessed on the Plant; and, upon the commencement of the Lease, Columbia


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shall thereafter reimburse MarkWest for all personal property tax assessed with respect to the Plant and shall also reimburse MarkWest for any sales taxes applicable to the Lease Fees. All sales taxes on the Lease Fee will be billed with the Lease Fee and payable with the Lease Fee, and as to all other reimbursable taxes, Columbia shall pay MarkWest within 15 days of invoice.


ARTICLE VI: LEASE FEE


6.1 Base Lease Fee. The Base Lease Fee, payable by Columbia to MarkWest,
-------------- during the term of the Lease, shall be Forty Thousand Dollars per month ($40,000.00), payable on the first day of each month in advance.


6.2 Operating Fee. It is understood that the Base Lease Fee, provided
------------- above, is premised upon monthly production of liquids from the Plant (conforming to the specifications contained in the Natural Gas Liquids Purchase Agreement (Boldman Plant)) of 769,230 gallons, regardless of whether or not the Plant is operated during the applicable month. Should Columbia fail, during any month, to produce and deliver to MarkWest at the Plant 769,230 gallons, then Columbia shall pay MarkWest an operating fee equal to 2.6 Cents, multiplied by the remainder of 769,230 gallons, minus the actual number of gallons produced and delivered (conforming to the specifications contained in the Natural Gas Liquids Purchase Agreement (Boldman Plant)) that month. The Operating Fee is in addition to and not in lieu of any portion of the Base Lease Fee.


6.3 Operating Bonus Fee. In the event Columbia, during any month, produces
------------------- and delivers liquids (conforming to the specifications contained in the Natural Gas Liquids Purchase Agreement (Boldman Plant)) at the Plant exceeding 769,230 gallons, then MarkWest shall pay to Columbia an Operating Bonus Fee equal to 2.6 Cents, multiplied by the remainder of the actual gallons of liquids produced and delivered that month, minus 769,230 gallons.


6.4 Payments and Billings. (a) Columbia shall pay the Base Lease Fee to
--------------------- MarkWest on or before the first business day of each calendar month. Timely payments requires receipt by MarkWest of the Base Lease Fee by that day; and, in the event that any Base Lease Fee is not timely paid, it shall accrue interest at the rate of Twelve Percent (12%) per annum until paid. Payment may be made via wire transfer, Federal Express, or other manner at Columbia's option.


(b) By the fifteenth (15th) day of each month, MarkWest shall render to Columbia a statement indicating the amount of liquids produced and delivered (conforming to the specifications contained in the Natural Gas Liquids Purchase Agreement (Boldman Plant)) from the Plant during the immediately preceding month, together with a statement indicating whether an Operating Fee is due MarkWest from Columbia, or whether an Operating Bonus Fee is due from MarkWest to Columbia, and the amount thereof. Within


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fifteen (15) days following the rendering of that statement, Columbia shall pay to MarkWest the Operating Fee, or MarkWest shall pay to Columbia the Operating Bonus Fee, as applicable.


(c) Should Acceptance occur under Section 2.4 prior to the performance test under Section 2.3, then should the Plant fail to satisfactorily complete the performance test when conducted, then the parties shall negotiate reduced fees hereunder based upon the extent to which the performance specifications were met, to be applicable until the Plant satisfactorily completes a performance test. Except for the foregoing, or in the event of a default by MarkWest or a material breach of this Contract, it is understood that in no event will Columbia be entitled to any abatement or set-off of any Lease payments due hereunder.


ARTICLE VII: CHANGE ORDERS AND ADJUSTMENTS TO BASE FEE


7.1 Change Orders. This Contract and the Base Fee, specified above, are
------------- premised upon the construction and installation of the Plant in accordance with the specifications described on Exhibit "A", attached hereto. Either party hereto may request changes in the construction and installation of the Plant from those specifications, and upon the mutual agreement of the parties, those changes shall be implemented by MarkWest. All changes as agreed upon shall be in writing, and shall state, with particularity, the nature of the change and the increase or decrease, as the case may be, in the capital expenditure to be incurred by MarkWest in constructing the Plant, from the capital expenditures as represented by the specifications. The parties acknowledge that they have already executed two certain letters dated July 26, 1990, and December 21, 1990 (attached as Exhibit "E") to act as Change Orders and that the effect of those Change Orders have been included in the Base Lease Fee under 6.1, above.


7.2 Adjustments to Base Fee. (a) Upon the execution of a Change Order,
----------------------- the parties agree the Base Fee hereunder shall be adjusted. In the event that the Change Order requires additional capital expenditures, then the monthly Base Lease Fee amount shall be increased by an amount equal to 1.9% of the amount of those additional capital expenditures. Likewise, in the event that the Change Order results in a reduction of capital expenditures which will be incurred by MarkWest, versus the capital expenditures represented by the Plant specifications, then the monthly Base Lease Fee shall be reduced by an amount equal to 1.9% of the reduction in capital expenditures.


(b) The Base Lease Fee shall not exceed Forty-seven Thousand Dollars ($47,000.00) per month. Accordingly, MarkWest shall not be required to agree to or implement any Change Orders which, when taken in conjunction with all other Change Orders, would result in an aggregate increase in capital expenditures of more than Three Hundred Sixty-eight Thousand Four Hundred Twenty-


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one Dollars ($368,421.00) above the capital expenditures represented by the specifications.


ARTICLE VIII: LEASE TERM AND PURCHASE OPTION


8.1 (a) The term of this Lease shall run for a period of ten (10) years following the date of Acceptance hereunder.


(b) Upon written notice from Columbia to MarkWest, at least ninety (90) days prior to the expiration of the 10-year term, specified in (a), above, the parties agree that they shall meet to negotiate Lease terms and conditions for an extension of the Lease through April 30, 2003. Those Lease terms and conditions shall take into account the age and condition of the Plant; provided, however, in no event shall the renegotiated Lease provisions be less favorable to Columbia than those in effect prior to the expiration of the 10-year term.


8.2 Purchase Option. (a) During the term of the Lease, or upon the
----------------- expiration of the Lease, Columbia shall have a right to purchase the Plant from MarkWest. If the purchase option is to be exercised upon the expiration of the Lease, then Columbia shall notify MarkWest, in writing, of Columbia's election to exercise the purchase option, at least sixty (60) days prior to the termination of the Lease. Following that notification, the parties shall meet to determine the fair market value of the Plant, which the parties agree shall equal salvage value of the plant equipment; and, in failing to agree upon that value, within thirty (30) days following the date of Columbia's notice, then the parties shall subject the determination of salvage value to an appraiser mutually acceptable to the parties, with experience in appraising equipment of the type at the Plant. The appraised value shall be the purchase price upon the expiration of the Lease, and within ten (10) days following the expiration of the Lease, Columbia shall deliver the purchase price to MarkWest, and upon receipt of the purchase price, MarkWest shall execute and deliver to Columbia a Bill of Sale conveying all of the Plant to Columbia.


(b) Columbia shall have the option, at the end of each year hereunder, to purchase the Plant from MarkWest. Should Columbia elect to exercise its option, Columbia shall notify MarkWest of its intention by providing MarkWest with written notice at least thirty (30) days prior to the end of that year. The purchase price which the parties agree represents the fair market value at the Plant at the time of the sale shall be established by the following schedule; subject only to changes as specified in Paragraph 5.4, above:


End of Year Price
----------- -----

1991 $3,920,000
1992 $3,640,000
1993 $3,360,000


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1994 $3,080,000
1995 $2,800,000
1996 $2,520,000
1997 $2,240,000
1998 $1,960,000
1999 $1,680,000


Columbia shall have ten (10) days following its notice in which to tender the purchase price to MarkWest, and upon the tendering of that purchase price, MarkWest shall execute and deliver to Columbia a Bill of Sale conveying the Plant to Columbia with an effective date of the last day of the year in which the notice to purchase was submitted. Upon the execution and delivery of that Bill of Sale, this Lease shall be deemed terminated and of no further force and effect, except with respect to any amounts or liabilities which accrued prior to that date.


(c) The purchase option shall, at MarkWest's option, be deemed exercised by Columbia in the event of a foreclosure or similar proceedings being commenced concerning the Plant site.


ARTICLE IX: INSURANCE AND INDEMNITY


9.1 (a) During the construction and installation of the Plant, MarkWest agrees that it shall obtain and maintain Builder's Risk insurance; and further agrees that its General Contractor, or other contractors, other than Subcontractors to the General Contractor or to those contractors, shall indemnify Columbia in accordance with the "Public Liability Insurance and Performance and Payment Bonds" provisions attached hereto as Exhibit "B", and incorporated herein by this reference; and MarkWest additionally agrees to use its reasonable efforts to have its Contractors' subcontractors, indemnify Columbia through the same or similar provisions as those contained in Exhibit "B"; provided, that Columbia has reviewed a current insurance certificate for T.H. Russell Co. and agrees it is satisfactory.


(b) During the term of this Contract, MarkWest will maintain Workers Compensation coverage, Automobile Liability coverage and General Liability coverage in amounts equivalent to those specified on the Insurance Certificate dated July 16, 1990, previously furnished to Columbia by MarkWest; with the same or similar endorsements as specified on Exhibit "B", to the extent applicable to the operations or activities of MArkWest in connection with the Plant.


(c) Columbia shall be responsible for all costs of insurance necessary to insure the Plant against property damage and for general liability on and after the commencement of the Lease, which insurance shall be:


(i) All risk property insurance for the replacement cost of the
Boldman Plant and (ii)


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Comprehensive general liability for $1,000,000 covering bodily injury
and property damage liability. Such insurance shall be in a form and
with a carrier acceptable to MarkWest, which approval shall not be
unreasonably withheld. These insurance policies shall name MarkWest as
an additional insured party, and Columbia will furnish proof of this
insurance prior to the commencement of the lease.


(d) The foregoing limits shall not act as limitations on the applicable party's indemnifications provided in this Contract.


9.2 (a) Columbia shall indemnify and hold harmless MarkWest from and against any and all loss, damage, and liability, and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained, or claimed to be sustained by any person, including the employees of Columbia, MarkWest's General Contractor, Contractors and of any Subcontractor or Columbia, and from and against any and all damages to property, and including property of MarkWest, caused by or arising out of, or claimed to have been caused by or to have arisen out of, an act or omission of Columbia or its agents, or employees in connection with Columbia's operation of the plant or other conduct with respect to the plant, whether or not insured against; provided, however, that the foregoing indemnification will not cover loss, damage or liability arising from the sole negligence or willful misconduct of MarkWest, its agents and employees; and Columbia shall, at its own cost and expense, defend any claim, suit, action, or proceeding, whether groundless or not, which may be commenced against MarkWest by reason thereof or in connection therewith, and Columbia shall pay any and all judgments which may be recovered in any such action, claim, proceeding, or suit, following all appeals as may be pursued by Columbia, and defray any and all expenses, including costs and attorneys' fees, which may be incurred in or by reason of such actions, claims, proceedings, or suits.


(b) MarkWest shall indemnify and hold harmless Columbia from and against any and all loss, damage, and liability and from any and all claims for damages on account of or by reason of bodily injury, including death, which may be sustained or claimed to be sustained by any person, including the employees of MarkWest, its General Contractor, Contractors and of any Subcontractor or MarkWest, and from and against any and all damages to property, and including property of Columbia, caused by or arising out of, or claimed to have been caused by or to have arisen out of an act or omission of MarkWest or its agents, employees, General Contractor, Contractors or Subcontractors in connection with MarkWest's design, procurement, fabrication, construction, installation and ownership of the plant or other conduct with respect to the plant, whe ...