Pipeline Construction And Operating Agreement

Exhibit 10.1


PIPELINE CONSTRUCTION

AND OPERATING AGREEMENT


BY AND BETWEEN


ATMOS PIPELINE - TEXAS,


a division of

ATMOS ENERGY CORPORATION

AND


ENERGY TRANSFER FUEL, LP

DATED


NOVEMBER 30, 2005


TABLE OF CONTENTS

Page


ARTICLE I MANAGEMENT COMMITTEE 2

1.1 General 2

1.2 Meetings 2

1.3 Organizational Matters 3

1.4 Quorum 3

1.5 Voting, Action 3

1.6 Sub-Committees 4

1.7 Notices 4

1.8 Poll of Committee Members 4

ARTICLE II CONTRIBUTIONS AND OWNERSHIP 5

2.1 Atmos Contributions 5

2.2 ETF Contributions 6

2.3 System Ownership 6

2.4 Valuation of Atmos Contribution and Final True-up 6

ARTICLE III OPERATIONAL CONTROL OF THE NSL PIPELINE 7

3.1 Operational Control 7

3.2 Insurance 7

3.3 Voluntary Withdrawal of the Constructor or Operator 7

3.4 Removal of the Constructor or Operator 8

ARTICLE IV NSL PIPELINE CONSTRUCTION 9

4.1 Construction 9

4.2 Scope of Construction 9

4.3 Construction Related Contracts 11

4.4 Management Committee To Be Kept Informed 12

4.5 Construction Expenses 13

4.6 Accounting for Construction Costs 14

4.7 Construction-Related Work Performed by Employees of ETF 14

4.8 Construction-Related Work Performed by Atmos 15

4.9 Changes 15

4.10 Operational Capacity 16

4.11 Procedure for Certification of Completion 16

4.12 Line Pack 17

4.13 Title to the NSL Pipeline 17

4.14 Ad Valorem Assessment 18

ARTICLE V PIPELINE OPERATIONS 18

5.1 General Duties of the Operator 18


i

5.2 Responsibilities of the Operator 18

5.3 Reports to the Management Committee 20

5.4 Operating Budget 20

5.5 Access 22

ARTICLE VI OPERATING ACCOUNT 22

6.1 Operating Account 22

6.2 Payment of Operating Expenses 22

6.3 Advances 22

6.4 Interest on Late Payments 23

6.5 Other Effects of Late Payment 23

6.6 Payment Disputes 23

6.7 Books and Records, Audit 24

ARTICLE VII GAS TRANSPORTATION 24

7.1 Atmos Use of the NSL Pipeline 24

7.2 NSL Pipeline Zone 25

7.3 Marketing Capacity 26

ARTICLE VIII ADDITIONS OR EXPANSIONS 26

8.1 Projects 26

8.2 Other Additional Construction 28

8.3 Provisions Applicable to all Projects and Additional Construction 28

8.4 Construction of Additions or Expansions Not Approved by the Management Committee 28

ARTICLE IX TERM, TERMINATION AND DISPOSITION OF INTEREST 29

9.1 Term, Effect of Termination 29

9.2 Liquidation Upon Termination 29

9.3 Dispute Resolution 30

9.4 Restrictions on Transfer of Party Interests 30

ARTICLE X INDEMNITY PROVISIONS 31

10.1 General Indemnity 31

10.2 Damage to NSL Pipeline or Property of Either Party 32

10.3 Liability for Damages 33

ARTICLE XI RELATIONSHIP OF PARTIES 33

11.1 No Partnership 33

11.2 Tax Matters 33

11.3 Waiver of Partition 34


ii

ARTICLE XII DISPUTE RESOLUTION 34

12.1 Disputes 34

12.2 Arbitration Panel 34

12.3 Submission to Arbitration 34

12.4 Procedure 35

12.5 Replacement Arbitrator 35

12.6 Exclusivity 35

12.7 Privileges 36

ARTICLE XIII MISCELLANEOUS 36

13.1 Representations and Warranties 36

13.2 No Liens 36

13.3 Interpretation 37

13.4 No FERC Jurisdiction 37

13.5 Regulatory Compliance 37

13.6 Force Majeure 38

13.7 Notices 38

13.8 Waiver of Defaults or Rights 38

13.9 Choice of Law and Venue 39

13.10 Entire Agreement 39


iii


LIST OF SCHEDULES


Schedule of Definitions

Insurance Schedule


LIST OF EXHIBITS

Exhibit A Accounting Procedure Exhibit B Operational Specifications Exhibit C Certificate of Completion Exhibit D Gas Quality, Measurement and Testing Exhibit E Capacity Recall and Exchange Provisions Exhibit F Assignment to ETF Exhibit G Assignment to Atmos Exhibit H Recording Memorandum


iv


PIPELINE CONSTRUCTION & OPERATING AGREEMENT


THIS PIPELINE CONSTRUCTION & OPERATING AGREEMENT (this " Agreement" ) is made and entered into on this 30 day of November, 2005, by and between ATMOS PIPELINE - TEXAS, a Division of Atmos Energy Corporation, a Texas and Virginia corporation (" Atmos" ) and ENERGY TRANSFER FUEL, LP, a Delaware limited partnership (" ETF" ). Atmos and ETF may sometimes be referred to collectively as " Parties" or individually as a " Party."

PURPOSE


The Parties have agreed to construct a natural gas pipeline to serve gas distribution customers in developing areas of North Texas and to provide gas producers and other shippers in the Fort Worth Basin area of Texas with pipeline capacity to reach markets on both the Atmos and ETF pipeline systems. The Parties have agreed to construct a pipeline and to contribute portions of the capacity on each Party' s respective existing pipeline systems in order to achieve that purpose.


RECITALS


1. The Parties have agreed to construct, operate and own a 30-inch pipeline approximately 45 miles in length, running from an interconnection with Atmos' Line W near Justin in Denton County, Texas to a point at or near the ETF Collin Line and the Atmos D17-9 pipeline, both of which are in Collin County, Texas (together with all appurtenances, real property interests and associated compression at or near Justin, Texas and Howard, Texas, the " NSL Pipeline" ).


2. Each Party will own a 50% undivided interest in the NSL Pipeline.


3. This Agreement sets forth the terms and conditions governing the rights and relationship of the Parties in and to the NSL Pipeline.


4. Capitalized terms used in this Agreement, when not defined in context, are defined in the Accounting Procedures or other Schedules and Exhibits to this Agreement. The Schedule of Definitions attached hereto lists terms defined in this Agreement and the Section number where the definition may be found.


Pipeline Construction and

Operating Agreement - Page 1

Therefore, in consideration of the mutual agreements hereinafter set forth, together with other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:


ARTICLE I

MANAGEMENT COMMITTEE 1.1 General .

(a) Within 15 days from the effective date of this Agreement, the Parties must form a committee (the " Management Committee" ), composed of 4 members (each, a " Member" ), 2 of whom will be appointed by Atmos, and 2 of whom will be appointed by ETF.

(b) The Management Committee must hold its initial meeting within 15 days from the effective date of this Agreement.

(c) If a Party makes a permitted transfer of all of its interest in the NSL Pipeline, the transferee of the interest is entitled to immediately assume the transferor' s membership on the Management Committee and vote on any issue, including replacement of the Constructor or Operator (as such terms are defined in Sections 3.1(b) and 3.1(d), respectively).


(d) Each Party has the power to replace, or substitute for, its respective member representatives, or either of them, as Members of the Management Committee, at will, by letter or facsimile to the other Party.

(e) The Operator, Constructor or any Party required or permitted to act may (but unless expressly so stated, is not required to) request instructions and guidance from the Management Committee and except in an emergency, may defer action pending receipt of instructions or guidance from the Management Committee.


(f) Unless otherwise specifically provided, wherever in this Agreement the consent or approval of the Parties is required or contemplated or referred to, such consent or approval may be evidenced by action of the Management Committee, and any action taken by the Management Committee will be binding upon each of the Parties hereto under this Agreement.

1.2 Meetings .

(a) The Management Committee must hold meetings no less than once in each successive 6 month period beginning on the date of the initial meeting required under Section 1.1(b) above. The Management Committee will determine the time and place for its regular meetings and establish procedures for calling special meetings.


(b) The Management Committee must hold special meetings:

(i) upon the request of the Chairman or the Vice Chairman; or

(ii) upon the request of either Party.


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Operating Agreement - Page 2

(c) Meetings may be conducted by means of conference telephone or similar communications equipment, if so desired, so long as all Members participating in the meeting are able to hear each other.

1.3 Organizational Matters .

(a) The Management Committee must:

(i) elect a Chairman and Vice Chairman; and

(ii) must appoint a Secretary who is required to:

1. keep reasonably detailed minutes of all meetings;

2. keep a record of all other Management Committee actions; and

3. perform other duties commonly incident to the office of Secretary.

(b) The Management Committee must:

(i) establish any other necessary procedures incident to its purpose and function under this Agreement; and

(ii) establish the methods by which it will take the actions required of it under this Agreement.

1.4 Quorum .

(a) The Management Committee will be entitled to transact business at a meeting (will have a " quorum" ) if at least one of the Members appointed by each Party is present.


(b) A Member may appoint a proxy to attend, and have voting rights at, any meeting which the Member is unable to attend.


(c) Action may be taken without a meeting, if each Member consents thereto in writing.

1.5 Voting, Action .

(a) Any action taken by the Management Committee must be unanimous to be effective and binding upon the Parties.

(b) If only one of a Party' s Members is present at a Management Committee meeting, the Member may cast votes on behalf of both of that Party' s Members.


(c) In the event the Management Committee is not able to approve of any action by unanimous consent, such dispute shall be, if requested by either of the Parties, resolved in accordance with the dispute resolution procedures set forth in Article XII.


Pipeline Construction and

Operating Agreement - Page 3 1.6 Sub-Committees .

(a) The Management Committee may create one or more sub-committees (each, a " Sub-Committee" ) to perform certain of the Management Committee' s duties and responsibilities.


(b) A Sub-Committee may have any number of members.


(c) If the Management Committee delegates a responsibility to a Sub-Committee, the Sub-Committee must report back to the Management Committee with its recommendation within the designated period of time. If the Sub-Committee' s recommendation is not unanimous, the report must so state. The Management Committee has discretion to accept or reject the recommendation of the Sub-Committee.

(d) The Management Committee will, at its first meeting, appoint an Engineering Sub-Committee (the " Engineering Sub-Committee" ). The Engineering Sub-Committee must:

(i) perform the tasks designated by the Management Committee; and

(ii) during Construction, report weekly to the Management Committee concerning the progress of Construction.

1.7 Notices .

(a) The Secretary must notify each Member of the time and place of each meeting of the Management Committee, not later than 10 days before the date of the meeting.


(b) Any notice required by this Article must be addressed to the Member as provided in Section 13.7.


(c) A written waiver of any required notice, signed by a Member, whether before or after the time the notice was required, will be deemed to be the equivalent of notice.

1.8 Poll of Committee Members .

(a) The Constructor or Operator is authorized to poll the Management Committee if:

(i) a circumstance requires Management Committee approval, but is too urgent to be delayed until the next scheduled Management Committee meeting; or (ii) a circumstance arises which requires Management Committee approval, but the Chairman, the Constructor or the Operator believe it may be disposed of by poll.


(b) A poll of the Management Committee:

(i) may be by telephone or other electronic means;


Pipeline Construction and

Operating Agreement - Page 4 (ii) must be recorded in writing by the Secretary; and

(iii) must be submitted by written report to all Management Committee Members immediately after the poll is taken.

ARTICLE II

CONTRIBUTIONS AND OWNERSHIP


2.1 Atmos Contributions .


(a) As its contribution under this Agreement, Atmos will:

(i) contribute:

1. the rights to utilize certain pipeline line rights-of-way that are owned by it, and that are described on the exhibit to Exhibit F hereto, to facilitate Construction;

2. all engineering and other work completed to date concerning pipeline routing and design;

3. any work performed by Atmos pursuant to Section 4.8; and

4. the cost of outside legal counsel reasonably acceptable to both Parties, in connection with the review and negotiation of easements and rights-of-way by ETF under Section 4.2(a)(iv) and 4.2(b), below, with the exception of costs under Section 4.2(a)(iv)4 (which costs shall remain the responsibility of ETF).

(ii) provide an amount of money that is equal to:

1. 50% of that portion of the Construction Costs described in Section 4.5(a), for Construction of the pipeline portion of the NSL Pipeline. This portion of Atmos' contribution is limited to a total of $42,500,000.00; and

2. 50% of that portion of the Construction Costs described in Section 4.5(b), for constructing compression, without regard to the limit set forth in sub-paragraph 2.1(a)(ii)1 above.


(b) The Management Committee will, no later than January 10, 2006, determine:

(i) the portion of the NSL Pipeline that was in service and capable of flowing gas as of December 31, 2005, based upon any Segment Certificate of Completion issued pursuant to Section 4.11(d) or by issuing a Segment Certificate of Completion effective as of December 31, 2005; and


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Operating Agreement - Page 5 (ii) the portion of the Construction Costs attributable to any such Segment (the " Segment Cost" ).


(c) In order to make the contribution set forth in paragraph (a)(ii), above, Atmos will pay: (i) 50% of Atmos' share of the Segment Cost. This payment will be made no later than 10 days following Atmos' receipt of ETF' s invoice setting forth the Segment Cost as determined by the Management Committee; and

(ii) subject to being " trued-up" pursuant to Section 2.4(a), 50% of the balance of Atmos' portion of the Construction Costs, no later than 10 days following the Operational Date.

2.2 ETF Contributions . As its contribution under this Agreement, ETF will provide an amount of money that is equal to the difference between:

(a) the Construction Costs (as defined in Section 4.5(c)); and


(b) Atmos' contribution under Section 2.1.

2.3 System Ownership . Subject to the provisions of this Agreement, Atmos and ETF shall each have and own an undivided 50% ownership interest in the NSL Pipeline.

2.4 Valuation of Atmos Contribution and Final True-up .

(a) As soon as reasonably practicable following the Operational Date, but not later than 60 days following the Operational Date, the Management Committee will assign a monetary value to the portion of Atmos' contribution that is described in Section 2.1(a)(i).

(b) No later than 90 days following the Operational Date, the Management Committee will perform an audit to " true-up" Atmos' portion of the actual Construction Costs against the contributions made by Atmos pursuant to Section 2.1.

(c) Upon such " true-up," 50% of the agreed-upon value will be credited toward payment of Atmos' share of the Construction Costs as determined pursuant to paragraph (b) of this Section 2.4. For example, if the Management Committee determines that the value of 100% of such contribution is $5,000,000 and the Management Committee determines, pursuant to the audit performed under the terms of paragraph (a), that Atmos owes ETF $10,000,000, Atmos will only be required to pay ETF $7,500,000 ($10,000,000, less 50% of $5,000,000 or $2,500,000 equals $7,500,000).

(d) No later than 10 days following the release of the results of the audit performed pursuant to paragraph (b) of this Section 2.4, the Party owing the greater amount, according to the results of the audit, will pay the other Party the net amount.


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Operating Agreement - Page 6

ARTICLE III

OPERATIONAL CONTROL OF THE NSL PIPELINE

3.1 Operational Control .

(a) Subject to the direction of the Management Committee as herein provided, ETF will construct, and exercise control over, the NSL Pipeline until the Operational Date (as defined in Section 4.11(c)).


(b) The Party constructing, and exercising control over, the NSL Pipeline prior to the Operational Date may sometimes be referred to herein as the " Constructor."


(c) Upon the Operational Date, the Parties will cooperate to have Atmos designated to the Railroad Commission of Texas as the Operator of the NSL Pipeline and Atmos will assume, subject to the direction of the Management Committee as herein provided, actual operational control of the NSL Pipeline.


(d) The Party exercising operational control of the NSL Pipeline after the Operational Date (as defined in Section 4.11(c)), will be known as the " Operator."


(e) If there are one or more Segment Operational Dates (as defined in Section 4.11(d)), Atmos will exercise operational control over any Segment (as defined in Section 4.11(d)) that is operational, and ETF will construct and exercise control over the remaining portions of the NSL Pipeline until the Segment Operational Date or the Operational Date, whichever is applicable.

3.2 Insurance .

(a) The Parties will comply with the terms of the Insurance Schedule at all times during the term of this Agreement.

(b) Notwithstanding the above, it is the Parties' intent that each Party has an insurable interest in the NSL Pipeline at all times during the term of this Agreement.

3.3 Voluntary Withdrawal of the Constructor or Operator .

(a) The Constructor or Operator will be discharged and its powers, rights, and duties terminated upon the selection of a successor Constructor or Operator by the Management Committee if the Constructor or Operator:

(i) resigns; or

(ii) transfers its interest in the NSL Pipeline pursuant to the provisions of Article IX, other than a transfer: 1. to an Affiliate;


Pipeline Construction and

Operating Agreement - Page 7 2. as a result of merger, corporate reorganization, consolidation or conversion; or

3. in connection with the sale of substantially all of a Party' s gas transmission assets located in the State of Texas.

(b) From the date the Constructor or Operator notifies the Management Committee in writing of its intention to do either of items (i) or (ii), above, the Management Committee will have 120 days in which to select a successor Constructor or Operator. The current Constructor, or Operator, as applicable, will continue to serve in that capacity until the Management Committee has selected a successor.


(c) The Constructor' s or Operator' s withdrawal under this Section 3.3 does not affect a Party' s, or its permitted assignee' s, right to vote as a Member of the Management Committee.

3.4 Removal of the Constructor or Operator .

(a) The Constructor or Operator will be discharged and its powers, rights, and duties terminated if the Constructor or Operator: (i) becomes insolvent as defined in a7101.32 of the U.S. Bankruptcy Code.;

(ii) is unable to pay its debts as they fall due;

(iii) voluntarily has or is subject to an order requiring a receiver, provisional liquidator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets, or one is appointed involuntarily and the receiver is not removed within 30 days;

(iv) terminates its legal existence, other than as a result of a merger, share exchange, corporate reorganization, consolidation or conversion; (v) forfeits its right to transact business within the State of Texas and fails to promptly prosecute remedial actions to restore such right within a reasonable time; or

(vi) fails to construct or operate the NSL Pipeline in accordance with the material terms and provisions of this Agreement.

Each of (i) through (vi) being a " Default Event."


(b) If a Party states its intention to remove the Constructor or Operator under this Section 3.4 as the result of the occurrence of a Default Event, and the Management Committee does not approve the removal, the dispute must be submitted to the dispute resolution procedures of Article XII. The Constructor or Operator may not be discharged before the final resolution of the dispute once submitted to the dispute resolution procedures of Article XII.


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Operating Agreement - Page 8

(c) Upon the decision of the Management Committee to remove the Constructor or Operator, or upon the decision of the dispute resolution panel under the dispute resolution procedures of Article XII to remove the Constructor or Operator, as the case may be:

(i) the Management Committee must immediately select a successor Constructor or Operator (who may be a Party or any other competent person, firm or corporation); and

(ii) unless the current Constructor or Operator has terminated its legal existence or forfeited its right to transact business (as stated above), the current Constructor or Operator must continue to serve as the Constructor or Operator until the Management Committee appoints a successor.


ARTICLE IV

NSL PIPELINE CONSTRUCTION 4.1 Construction . Subject to the supervision and direction of the Management Committee, the Constructor will perform or cause to be performed, in a good and workmanlike manner, in accordance with good industry practice for transmission pipelines, standard engineering practices and in compliance with all applicable laws, rules and regulations of all governmental authorities having jurisdiction, all the tasks required in connection with the Construction of the NSL Pipeline.

4.2 Scope of Construction .

(a) At the direction of the Management Committee, the Constructor will perform, or cause to be performed, the Construction of the NSL Pipeline, including all of the following tasks:

(i) design, supervise and perform or cause to be performed all work necessary to make the NSL Pipeline operational; (ii) conduct and supervise a route survey for the NSL Pipeline such that the route of the NSL Pipeline is as efficient and advantageous as reasonably possible in order to accommodate the interconnections set forth in item (viii);

(iii) draft, or cause the drafting, of alignment sheet drawings and plats;

(iv) in compliance with all applicable laws, rules, orders and regulations of governmental authorities having jurisdiction, perform all work required to obtain the necessary real property rights (other than those real property rights, rights-of-way and easements contributed by Atmos as set forth in Section 2.1) for the NSL Pipeline, including:

1.

obtaining all necessary rights-of-way, easements and other interests in land for all above and below ground facilities, including any temporary construction easements that may be


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Operating Agreement - Page 9

required and any other land and access related services necessary or advisable during the Construction; 2. conducting negotiations with landowners, including settling right of way damage claims;

3. using commercially reasonable efforts to acquire easements and right of way agreements providing for multiple line rights and a minimum right-of-way width of 50 feet;

4. arranging for and conducting all condemnation and other legal proceedings in accordance with applicable law and pay all related court costs and fees; 5. submitting reports to keep the Management Committee informed of the progress of the real property work and condemnation proceedings; 6. placing of record in the appropriate counties all rights-of-way, easements and other documents that are customarily so recorded; and 7. providing the other Party with copies of all recorded right of way documents as well as copies of any other agreements and documents which are not customarily recorded (e.g., railroad permits, licenses and road crossing permits);

(v) specify and procure all materials and supplies to be used in the Construction;

(vi) secure all necessary licenses, permits, franchises and other authorizations or approvals necessary for Construction; (vii) provide all necessary supervisory, administrative, technical and other services required for Construction, and doing all other things that are necessary or appropriate to the accomplishment of the purposes of this Agreement;

(viii) construct interconnections with the following pipelines:

1. Atmos' Line W near Justin, Texas;

2. ETF' s Collin Line near Frisco, Texas (the " Collin Point" );

3. Atmos' Line D17-9 near Frisco, Texas;


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Operating Agreement - Page 10 4. construct an interconnection between Atmos Line V North and the Bethel Howard Pipeline, near Howard Texas (the " Howard Point" ); and 5. other points determined by the Management Committee; and

(ix) create and maintain engineering and construction files, drawings, alignment maps and similar records, and, upon completion of Construction, turn over such files, drawings, maps and records (or copies thereof) to Operator.


(b) At the direction and discretion of the Management Committee, the Constructor will perform, or cause to be performed, the construction of compression required to make the NSL Pipeline function in connection with the pipeline systems of the Parties, as determined by the Management Committee, including all of the following tasks:

(i) acquiring the real property rights required in connection with compressor sites (substantially according to the applicable procedures set forth in (a)(iv), above);

(ii) constructing compression at the interconnection of Atmos' Line W and the NSL Pipeline at or near Justin, Texas and at the Howard Point; (iii) constructing any other compression determined by the Management Committee; and

(iv) performing that portion of any of the tasks set forth in paragraph (a), above required to accomplish the purposes of this paragraph (b).

(c) The tasks set forth in this Section 4.2 collectively comprise the " Construction."

4.3 Construction Related Contracts .

(a) The Management Committee may authorize Atmos or ETF employees to p ...