Crude Oil Joint Marketing Agreement

EXECUTION COPY


*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.


CRUDE OIL JOINT MARKETING AGREEMENT


This Crude Oil Joint Marketing Agreement (herein the "Agreement") is dated November 20, 2003 (herein the "Execution Date") by and between LINK ENERGY LIMITED PARTNERSHIP (herein "Link"), a Delaware limited partnership whose address is P.O. Box 4666, Houston, Texas 77210-4666 and CHEVRONTEXACO GLOBAL TRADING (herein "ChevronTexaco"), a division of Chevron U.S.A. Inc., a Pennsylvania corporation, whose address is 1111 Bagby, Suite 3200, Houston, Texas 77002.


DEFINITIONS:


"Acquisition Cost" shall be deemed to be $*** for West Texas Intermediate ("WTI") (sweet crude oil) and $*** for West Texas Sour ("WTS") (sour crude oil), adjusted for transportation to ***.


"Additional Business" shall mean contracts in the Geographic Area covering Equity Crude Oil and/or crude oil produced from new leases operated by third parties and made subject to this Agreement.


"Base Business" shall mean the crude oil marketing activity conducted by Link in the Geographic Area, which will be handled by ChevronTexaco after the Effective Date, as further described in Exhibit "H" and Exhibit "I", Section 1, each attached hereto.


"*** Acquisition Cost" shall mean the price at which ChevronTexaco pays for line fill when, and if, ChevronTexaco becomes the shipper on the *** pipeline segment, in accordance with Section 5 c of this Agreement.


"Effective Date" shall mean January 1, 2004.


"Equity Crude Oil" shall mean crude oil produced from leases operated or controlled by ChevronTexaco, or an affiliate of ChevronTexaco, in the Geographic Area.


"Excluded Contracts" shall mean contracts entered into by Link or Link and ChevronTexaco, described in Section 2.e (i through iv), which are not covered by this Agreement, by agreement of the parties.


"Execution Date" shall mean November 20, 2003 and shall be the date on which the parties are bound to this Agreement.


"Geographic Area" shall mean certain counties in West Texas and eastern New Mexico, as set forth on Exhibit "A" attached hereto.


"Net Margin" shall mean revenues less operating expenses, less crude oil acquisition costs, and excluding overhead and taxes.


"Tariff" shall mean the tariff charged to a shipper to move crude oil through a pipeline, excluding pipeline loss allowance or gravity adjustments.


REPRESENTATIONS AND WARRANTIES: Each party represents and warrants to the other party that on and as of the Effective Date hereof:


a. It is duly formed and validly existing and in good standing
under the laws of its state or jurisdiction of formation, with
power and authority to carry on the business in which it is
engaged and to perform its respective obligations under this
Agreement;


b. The execution and delivery of this Agreement has been duly
authorized and approved by all requisite corporate, limited
liability company, partnership, or similar action;


c. It has all the requisite corporate, limited liability company,
partnership, or similar power and authority to enter into this
Agreement and perform its obligations hereunder;


d. The execution and delivery of this Agreement does not, and
consummation of the transactions contemplated herein will not,
violate any of the provisions of organizational documents, any
agreement pursuant to which it or its property is bound or, to
its knowledge, any applicable Laws; and


e. This Agreement is valid, binding and enforceable against it in
accordance with its terms, subject to bankruptcy, moratorium,
insolvency, and other laws generally affecting creditors'
rights and general principles of equity (whether applied in a
proceeding in court of law or equity).


1. OVERVIEW


a. Link intends to enter into a crude oil marketing arrangement with ChevronTexaco in certain counties in West Texas and eastern New Mexico as listed on Exhibit "A" attached hereto (the "Geographic Area"). Pursuant to this Agreement, ChevronTexaco intends to either accept from Link an assignment of certain of Link's crude oil purchase, sale, and buy/sell contracts in the Geographic Area listed on Exhibit "B-1" attached hereto (hereinafter the "Link Crude Oil Contracts") or the parties will endeavor to have the Link Crude Oil Contracts re-executed directly with the counterparties and ChevronTexaco. The Link Crude Oil Contracts are identified on Exhibit "B-1" attached hereto and affect crude oil produced by third parties from certain counties in the Geographic Area. Any such Assignment shall be effective on January 1, 2004 (herein the "Effective Date"), and shall be made pursuant to the form set forth in Exhibit "B-2" attached hereto.


b. Within the Geographic Area, Link will continue to perform certain business activities including the transportation of the crude oil on Link's proprietary pipeline system pursuant to the Proprietary Pipeline Capacity Lease Agreement attached hereto as Exhibit "C", transportation of the crude oil by Link by truck pursuant to the Trucking Contract attached hereto as Exhibit "D", buy/sell arrangements as set forth in Exhibit "E", and certain associated services set forth in the agreement in Exhibit "F".


c. Certain Link Energy LLC employees will be interviewed for possible employment by ChevronTexaco. The list of employees available for interview and any employment transition is set forth in the Affected Employees Agreement attached hereto as Exhibit "G." Link employees hired by ChevronTexaco pursuant to this Agreement shall become ChevronTexaco employees as of December 1, 2003.


d. ChevronTexaco agrees to purchase Link's line fill inventory as of the Effective Date, in accordance with the Linefill Purchase Procedures set forth in Section 9 below.


2. INTENT


a. Crude oil marketing activity conducted by Link in the Geographic Area prior to the Effective Date is referred to as Link's Base Business (herein the "Base Business"). The scope of the Base Business includes Link's purchases and sales of crude oil and the use of proprietary pipelines and trucks within the Geographic Area.


b. After the Effective Date, within the Geographic Area, ChevronTexaco will be purchasing crude oil at the lease, trading crude oil purchased at the lease, scheduling, and accounting with respect to the Base Business formerly conducted by Link. All decisions regarding such functions will be performed by ChevronTexaco solely based on ChevronTexaco's independent business judgment.


c. On and after the Effective Date, the parties anticipate that ChevronTexaco will renew, extend or enter into new crude oil purchase, sale and buy/sell contracts affecting the same oil and gas leases as the original Link Crude Oil Contracts. For the purposes of this Agreement, any renewals, extensions and new crude oil purchase, sale and buy/sell contracts covering leases which were part of the Base Business and subject to this Agreement shall be deemed to be a part of the Base Business. Any other business between Link and ChevronTexaco not deemed to be part of the Base Business prior to the Effective Date shall not be included in the Base Business, except as specifically agreed to between the parties.


d. Likewise on and after the Effective Date, ChevronTexaco anticipates securing additional volumes of crude oil as Additional Business, as defined herein.


e. As of the Effective Date and for the term of this Agreement, Link will no longer purchase lease crude oil or be the shipper of record for crude oil produced within the Geographic Area, provided that this restriction shall not apply to: (i) ***; (ii) ***; (iii) ***; or (iv) any other arrangement agreed to be exempted from this restriction by agreement of Link and ChevronTexaco, with the parties not unreasonably willing to consider exceptions. The exceptions set forth in (i) through (iv) herein shall be referred to as the "Excluded Contracts". Accordingly, ChevronTexaco will assume the role of named shipper for all such volumes of crude oil previously shipped by Link, except for the Excluded Contracts on and after the Effective Date.


f. Link and ChevronTexaco may consider opportunities to expand this Joint Marketing Agreement concept into other regions in which Link currently engages in crude oil marketing and transportation. Neither party is under any obligation whatsoever to expand outside the Geographic Area and any such arrangements will be covered by a separate written agreement between the parties.


g. ChevronTexaco will review all transportation arrangements for Equity Crude Oil, pursuant to Section 5.b.


3. TERM, RE-OPENERS AND TERMINATION RIGHTS:


a. This Agreement will be binding on both parties as of the Execution Date and take effect on the Effective Date and remain in effect for ten (10) years, subject to the re-opener provisions and termination rights detailed below and continue from year to year thereafter. All agreements executed pursuant to Exhibits C, D and F attached hereto, will have terms contemporaneous with the term of this Agreement. All other agreements executed pursuant to this Agreement shall have the terms set forth in each agreement, not to exceed the term of this Agreement.


b. Either party may give notice to terminate this Agreement without cause at any time after nine years from the Effective Date, provided that the party desiring to terminate this Agreement shall provide at least *** days prior written notice to the other party.


c. Neither Party can exercise the re-opener provisions set forth in Section 3 e (i) or (ii) before ***.


d. Once a re-opener option is exercised by written notice, as set forth in Section 3.e below, the parties will have *** days from the date of such notice to mutually agree upon revised economic terms for the transactions contemplated herein. Such revised terms may include a cash settlement from one party to the other. If, during the *** period (the "Re-Opener Period"), mutual agreement has not been reached, the party exercising the re-opener option shall have the right to terminate this Agreement by giving written notice of termination (the "Termination Notice") to the other party within the *** period immediately following the Re-Opener Period. In such event, this Agreement shall terminate *** after the date of the Termination Notice to the other party, subject to any other terms of this Agreement. Any such termination of this


Agreement shall not relieve either party of any obligations incurred or accrued prior to such termination.


e. Subject to the restrictions in Section 3.c, either party shall have the right to exercise a re-opener option, from time to time by written notice to the other party, provided that a party desiring to exercise a re-opener option must give written notice of the exercise of such option to the other party within *** days after the occurrence of any one of the following events:


(i) *** paid by Link and ChevronTexaco to Link Energy
Pipeline Limited Partnership on volumes shipped on
Link Energy Pipeline Limited Partnership pipelines
fall below an average of $*** per month over a
rolling consecutive six (6) month period, using an
average of 30.4 days in a month; or


(ii) ChevronTexaco's *** accruing from its crude oil
marketing activities pursuant to this Agreement fall
below an average of $*** per month for a rolling
consecutive six (6) month period, using an average of
30.4 days in a month. The ChevronTexaco *** shall be
the total of the following:


- the *** from the Lease Economic Model set
forth in Exhibit "H" on the Base Business;


- the *** from the Lease Economic Model set
forth in Exhibit "H" on the Additional
Business;


- the *** to ChevronTexaco's transportation
rates and marketing differentials on the
Equity Crude Oil currently shipped on Link
or


Link affiliated transportation systems or
moved from other third party pipelines or
transportation systems to Link or Link
affiliated transportation systems as
calculated per the methodology in the Equity
Crude Economics Model set forth in Exhibit
"I";


- the *** on the WTI/WTS Buy/Sell agreements
entered into between the parties pursuant to
this Agreement, substantially in the form
set out in Exhibit "E-1"; and


- ChevronTexaco's total *** on inventory on
any storage plays plus ChevronTexaco's ***
on the Storage Buy/Sell Agreement,
substantially in the form set forth on
Exhibit "E-2"; or


(iii) Link and/or its affiliates divest all or
substantially all of Link's or Link's affiliated
transportation assets within the Geographic Area; or


(iv) Link (a) seeks the protection of the bankruptcy laws
or has a receiver appointed to manage its assets and
(b) is no longer able to perform its obligations
under this Agreement.


f. Any termination of this Agreement shall likewise terminate all agreements executed pursuant to this Agreement.


4. TERMINATION PAYMENTS


a. If this Agreement is terminated prior to January 1, 2006 pursuant to Section 3.e (iii) or (iv), Link shall pay ChevronTexaco within thirty (30) days after such termination date, a fee of $1,000,000 as reimbursement for ChevronTexaco's expenses associated with terminating this Agreement.


b. In the event Link intends to sell all or substantially of its assets within the Geographic Area during the term of this Agreement, then ***.


c. If ChevronTexaco determines that it will no longer be in the crude oil marketing business in the Geographic Area, Link shall have the option to have the contracts pertaining to the Base Business or Additional Business assigned to Link.


d. If this Agreement is terminated pursuant to a re-opener in Section 3.e, Link will re-purchase at the Acquisition Cost the then remaining volume of the original linefill volume sold by Link to ChevronTexaco, determined by the following schedule:


YEAR OF AGREEMENT CALCULATED FROM JANUARY 1, 2004 IN WHICH PERCENTAGE OF INVENTORY REPURCHASED BY
TERMINATION OCCURS LINK - ------------------------------------------------------------------------
1 *** - ------------------------------------------------------------------------
2 *** - ------------------------------------------------------------------------
3 *** - ------------------------------------------------------------------------
4 *** - ------------------------------------------------------------------------
5 *** - ------------------------------------------------------------------------


5. CHEVRONTEXACO EQUITY PRODUCTION AND BUY/SELL AGREEMENTS


a. Equity Production. On the Effective Date, Link will enter into a buy/sell agreement with ChevronTexaco with a *** term, using the form set out in Exhibit "E-3". If ChevronTexaco can obtain an ***, ChevronTexaco and Link will mutually agree to *** with *** becoming the named shipper on the ***. If the ***, Link will have the option, upon *** written notice, to enter into a buy/sell agreement for the remainder of the *** term, using the form set out in Exhibit "E-3".


b. Shipping. ChevronTexaco will use all commercially reasonable efforts to ship or cause to be shipped its Equity Crude Oil on Link's or Link's affiliated transportation assets and systems in the Geographic Area, provided that Link or Link's affiliate can provide such


transportation at rates ***. ChevronTexaco shall have the right to review all contracts subject to such market rates at any time throughout the term of the Agreement.


c. Third Party Base Business Transportation. Within *** days following the Effective Date, ChevronTexaco will have the option, upon giving *** days written notice, to enter into transportation buy/sell agreements with Link, using the form set out in Exhibit "E-4". During the term of this Agreement, *** for ChevronTexaco, including ***, is published by Link or its affiliates, ChevronTexaco and Link will mutually agree to ***, with *** becoming the named shipper. During the term of this Agreement, ***, ChevronTexaco will have the option, upon giving *** written notice, to enter into a buy/sell agreement with Link using the form set out in Exhibit "E-4", at economic terms consistent with Exhibit "H", adjusted annually pursuant to economic indicators agreed to by the parties. If this Agreement is terminated pursuant to the re-openers in Section 3 e while ChevronTexaco owns line fill in the *** pipeline segment, Link shall purchase such line fill from ChevronTexaco at the *** Acquisition Cost, prorated with Link paying ChevronTexaco the percentage of the *** Acquisition Cost using the chart below. Year 1 shall be the first year during this Agreement that ChevronTexaco purchases line fill in the *** pipeline segment.


Year 1 *** - ------------------------------------------ Year 2 *** - ------------------------------------------ Year 3 *** - ------------------------------------------ Year 4 *** - ------------------------------------------ Year 5 *** - ------------------------------------------


d. Other Buy/Sell Agreements. Throughout the term of the Agreement, the Parties may enter into other buy/sell arrangements as mutually agreed.


e. Pipeline Connections. If economically feasible for Link, Link shall pay any and all actual costs of connections to pipelines for shipping crude oil, or to any pipeline or transportation system designated by Link.


6. LEASE ECONOMICS MODEL


a. The Lease Economics Model in Exhibit "H" and Exhibit "I", Section 1, calculates the approximate net margin for the Base Business of $***. Link represents to ChevronTexaco that, to the best of its knowledge, the numbers used to calculate the Lease Economics Model are true and correct through September 2003.


b. During the first *** of this Agreement following the Effective Date, and if Link receives written notice from ChevronTexaco that such average monthly Net Margin has dropped below $*** per month for a rolling consecutive *** month period, Link shall adjust the fees charged to ChevronTexaco hereunder and/or make a performance payment to ChevronTexaco so that the overall ChevronTexaco monthly net margin is approximately $***, as calculated pursuant to the Lease Economics Model in Exhibit "H" and Exhibit "I", Section 1. Each economic adjustment shall only include the *** months in the notice period and shall not duplicate months. The total possible adjustments and performance payments by Link to ChevronTexaco under this Agreement shall only apply for the first *** (12) months of this Agreement, beginning on the Effective Date, and shall not exceed $***.


c. On and after the Effective Date, ChevronTexaco commits to purchase crude oil from the leases associated with the Link Crude Oil Contracts listed on Exhibit "B-1," using Link or Link affiliated pipelines and in accordance with the historical operations of Link, so long as *** remain unchanged. ***, Link shall have the ability to enter into transportation buy/sell agreements with ChevronTexaco before ChevronTexaco ***.


7. TRANSPORTATION SYSTEMS - LEASE AND TRUCKING AGREEMENTS


a. On and after the Effective Date, Link will lease to ChevronTexaco the total available capacity in its proprietary pipeline system in the Geographic Area, which is not less than ***% of the total capacity in its proprietary pipeline systems in the Geographic Area, pursuant to the Proprietary Pipeline Capacity Lease Agreement set out in Exhibit "C."


b. On and after the Effective Date, Link will transport or cause to be transported crude oil for ChevronTexaco pursuant to the Trucking Contract set forth in Exhibit "D" attached hereto.


8. EXISTING CRUDE OIL PURCHASE, SALE AND BUY/SELL CONTRACTS


a. For any Link Crude Oil Contracts listed in Exhibit "B-1" that are assigned from Link to ChevronTexaco on or after the Effective Date, any and all obligations incurred and revenues accrued up to the Effective Date shall be attributable to Link. This shall include all buy/sell imbalances. ChevronTexaco shall be responsible for obligations arising under and revenues attributable to the Link Crude Oil Contracts on and after the Effective Date and shall begin on the Effective Date with zero imbalances.


9. INVENTORY (LINEFILL) PURCHASE


On the Effective Date, ChevronTexaco will purchase from Link the amount of inventory (line fill) that is reflected on Link's pipeline statements as of the Effective Date for the contracts covered by the Base Business, except for those pipeline segments on which Link and ChevronTexaco mutually agree to enter into transportation buy/sell contracts. On these segments, Link will continue to own the line fill inventory. The price for the inventory shall be the Acquisition Cost times the number of barrels set forth on Link's pipeline statements relevant to this Agreement as of December 31, 2003, estimated to be approximately *** barrels, with a variance ...