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Crude Oil Supply Agreement, Dated March 3, 2003

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Exhibit 10.1


INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED PURSUANT TO RULE 24(b)(2) OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, IS OMITTED AND IS NOTED WITH **. A COPY OF THIS AGREEMENT, INCLUDING ALL INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.


Crude Oil Supply Agreement


Between


Morgan Stanley Capital Group Inc.


And


The Premcor Refining Group Inc.


dated March 3, 2003


TABLE OF CONTENTS


Page No. ARTICLE 1 DEFINITIONS AND CONSTRUCTION .................................................................... 2 ARTICLE 2 CONDITIONS TO CLOSING AND MSCG'S PERFORMANCE .................................................... 7 ARTICLE 3 TERM OF AGREEMENT ............................................................................... 10 ARTICLE 4 MSCG SALES OF CRUDE OIL TO PREMCOR .............................................................. 10 ARTICLE 5 ADDITIONAL PROVISIONS APPLICABLE TO PURCHASES OF FOREIGN-ORIGIN CARGOES ......................... 13 ARTICLE 6 PRICE OF AND PROVISIONAL PAYMENT FOR CRUDE OIL .................................................. 15 ARTICLE 7 MONTHLY TRUE-UP PAYMENT ......................................................................... 17 ARTICLE 8 COLLATERAL REQUIREMENTS ......................................................................... 18 ARTICLE 9 TAXES ........................................................................................... 20 ARTICLE 10 INSURANCE ...................................................................................... 20 ARTICLE 11 COMPLIANCE WITH APPLICABLE LAWS ................................................................ 21 ARTICLE 12 FORCE MAJEURE .................................................................................. 21 ARTICLE 13 MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS ............................................... 22 ARTICLE 14 DEFAULT AND TERMINATION ........................................................................ 24 ARTICLE 15 FINAL SETTLEMENT AT TERMINATION ................................................................ 27 ARTICLE 16 INDEMNIFICATION AND CLAIMS ..................................................................... 28 ARTICLE 17 LIMITATION ON DAMAGES .......................................................................... 28 ARTICLE 18 AUDIT RIGHTS ................................................................................... 29 ARTICLE 19 CONFIDENTIALITY ................................................................................ 29 ARTICLE 20 GOVERNING LAW .................................................................................. 29 ARTICLE 21 ASSIGNMENT ..................................................................................... 30 ARTICLE 22 NOTICES ........................................................................................ 30 ARTICLE 23 NO WAIVER, CUMULATIVE REMEDIES ................................................................. 31 ARTICLE 24 NATURE OF THE TRANSACTION AND RELATIONSHIP OF PARTIES .......................................... 32 ARTICLE 25 MISCELLANEOUS .................................................................................. 32


Crude Oil Supply Agreement


Between


Morgan Stanley Capital Group Inc.


And


The Premcor Refining Group Inc.


This Crude Oil Supply Agreement (this "Agreement") is entered into effective as of March 3, 2003, between Morgan Stanley Capital Group Inc., a company incorporated under the laws of Delaware and located at 1585 Broadway, New York, New York 10036 ("MSCG") and The Premcor Refining Group Inc., a company incorporated under the laws of Delaware and located at 1700 East Putnam Avenue, Suite 500, Old Greenwich, CT 06870 ("Premcor") (each referred to individually as a "Party" or collectively as "Parties").


WHEREAS on the Closing Date Premcor is purchasing the Refinery pursuant to that certain Asset Purchase and Sale Agreement dated November 25, 2002 (the "APSA") by and among Williams Refining & Marketing, L.L.C., Williams Generating Memphis, L.L.C., Williams Memphis Terminal, Inc., Williams Petroleum Pipeline Systems, Inc., Williams Mid-South Pipelines, LLC and The Williams Companies (collectively referred to as "Williams"), Premcor and Premcor Inc.; and


WHEREAS Premcor desires to have MSCG supply Crude Oil for processing at the Refinery beginning on the Closing Date and throughout the term of this Agreement and MSCG is willing to supply Crude Oil to the Refinery;


NOW, THEREFORE, in consideration of the premises and the respective promises, conditions, terms and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, MSCG and Premcor do hereby agree as follows:


ARTICLE 1
DEFINITIONS AND CONSTRUCTION


1.1 Definitions.


For purposes of this Agreement, including the foregoing recitals, the following terms shall have the meanings indicated below:


"Affiliate" means, in relation to any Person, any entity controlled, directly or indirectly, by such Person, any entity that controls, directly or indirectly, such Person, or any entity directly or indirectly under common control with such Person. For this purpose, "control" of any entity


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or Person means ownership of a majority of the issued shares or voting power or control in fact of the entity or Person. For purposes of this Agreement, the term "Affiliate" excludes Morgan Stanley Derivative Products Inc.


"Agreement" or "this Agreement" means this Crude Oil Supply Agreement, as may be amended, modified, supplemented, extended, renewed or restated from time to time in accordance with the terms hereof, including any Exhibits hereto.


"API" means the American Petroleum Institute.


"Applicable Law" means (i) any law, statute, regulation, code, ordinance, license, decision, order, writ, injunction, decision, directive, judgment, policy, decree and any judicial or administrative interpretations thereof, (ii) any agreement, concession or arrangement with any Governmental Authority or (iii) any applicable license, permit or compliance requirement applicable to either Party, including Environmental Laws.


"Bankrupt" means a Person that (i) is dissolved, other than pursuant to a consolidation, amalgamation or merger, (ii) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due, (iii) makes a general assignment, arrangement or composition with or for the benefit of its creditors, (iv) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditor's rights, or a petition is presented for its winding-up or liquidation, (v) has a resolution passed for its winding-up, official management or liquidation, other than pursuant to a consolidation, amalgamation or merger, (vi) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for all or substantially all of its assets, (vii) has a secured party take possession of all or substantially all of its assets, or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its assets, (viii) causes or is subject to any event with respect to it which, under Applicable Law, has an analogous effect to any of the events specified in clauses (i) through (vii) above, inclusive, or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in any of the foregoing acts.


"Barrel" means forty-two (42) net U.S. gallons, measured at 60(degree) F.


"Base Interest Rate" means **________________.


____________________ ** This information is confidential and has been omitted and separately filed with the Securities and Exchange Commission.


"Business Day" means a 24-hour period ending at 5:00 p.m. EST on a weekday on which banks are open for general commercial business in New York.


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"Capline Pipeline System" means the crude oil pipeline transportation system and related facilities located between St. James, Louisiana and Patoka, Illinois that are owned and operated by Marathon-Ashland, Shell, BP and Unocal, including the land, pipeline, injection stations, breakout storage tanks, crude oil receiving and delivery facilities and any associated or adjacent facility.


"Cash Collateral" means cash delivered by Premcor to MSCG pursuant to Article 8.


"Closing Date" means the Closing Date on which Premcor purchases the Refinery from Williams pursuant to the APSA.


"Collateral" means Cash Collateral, Letters of Credit and any other form of credit enhancement acceptable to MSCG in its sole discretion.


"Commitment Fee" means the initial non-refundable commitment fee in the amount of $1,500,000 paid by Premcor to MSCG and any future commitment fee paid by Premcor to MSCG in connection with renewal of this Agreement.


"Counterparty" has the meaning specified in Section 4.2(b).


"Crude Oil" means the domestic grades of crude oil deliverable at the U.S. Gulf Coast and any foreign-origin cargoes that MSCG may sell to Premcor pursuant to this Agreement.


"Crude Oil Purchase Costs" means the costs incurred by MSCG in purchasing the Crude Oil sold to Premcor and the net costs of balancing MSCG's WTI position, as described in Section 6.2.


"Default" or an "Event of Default" means an occurrence of the events or circumstances described in Article 14.


"Default Interest Rate" means **_____________.


____________________ ** This information is confidential and has been omitted and separately filed with the Securities and Exchange Commission.


"Delivery Point" means (i) for domestic grades of Crude Oil delivered into the pipeline, the intake flange of the meter where the Crude Oil is injected into a Pipeline System, (ii) for foreign-origin Crude Oil vessel cargoes sold FOB loadport, as the Crude Oil passes the vessel's permanent intake flange of the vessel, and (iii) for foreign-origin Crude Oil vessel cargoes sold DES, the last permanent flange connection between the cargo discharge manifold of the vessel and the receiving hose at the LOOP or St. James.


"Effective Date" means the date first written above, upon which this Agreement becomes binding upon and enforceable against the Parties.


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"Environmental Law" means any existing or past Applicable Law, policy, judicial or administrative interpretation thereof or any legally binding requirement that governs or purports to govern the protection of persons, natural resources or the environment (including the protection of ambient air, surface water, groundwater, land surface or subsurface strata, endangered species or wetlands), occupational health and safety and the manufacture, processing, distribution, use, generation, handling, treatment, storage, disposal, transportation, release or management of solid waste, industrial waste or hazardous substances or materials.


"Force Majeure" means any cause or event reasonably beyond the control of a Party, including fires, earthquakes, lightning, floods, explosions, storms, adverse weather, landslides and other acts of natural calamity or acts of God; navigational accidents or maritime peril; vessel damage or loss; strikes, grievances, actions by or among workers or lock-outs (whether or not such labor difficulty could be settled by acceding to any demands of any such labor group of individuals and whether or not involving employees of Premcor or MSCG); accidents at, closing of, or restrictions upon the use of mooring facilities, docks, ports, pipelines, harbors, railroads or other navigational or transportation mechanisms; disruption or breakdown of, explosions or accidents to wells, storage plants, terminals, machinery or other facilities; acts of war, hostilities (whether declared or undeclared), civil commotion, embargoes, blockades, terrorism, sabotage or acts of the public enemy; any act or omission of any Governmental Authority; good faith compliance with any order, request or directive of any Governmental Authority; curtailment, interference, failure or cessation of supplies reasonably beyond the control of a Party; or any other cause reasonably beyond the control of a Party, whether similar or dissimilar to those above and whether foreseeable or unforeseeable, which, by the exercise of due diligence, such Party could not have been able to avoid or overcome. For purposes of this Agreement, the term "Force Majeure" expressly excludes any event, howsoever caused, that interrupts, impairs, prevents or shuts down crude oil processing at the Refinery, or the receipt of Crude Oil at the Refinery or at any terminal facilities utilized in conjunction with operation of the Refinery.


"Governmental Authority" means any federal, state, regional, local, or municipal governmental body, agency, instrumentality, authority or entity established or controlled by a government or subdivision thereof, including any legislative, administrative or judicial body, or any person purporting to act therefor.


"Letter of Credit" means an originally signed or telex of an irrevocable standby letter of credit issued in favor of MSCG in a format satisfactory to MSCG by a bank acceptable to MSCG and delivered to MSCG in an amount acceptable to MSCG which has an expiration date of not less than fifteen (15) days, for which all costs incurred in the issuance thereof have been or will be paid by Premcor.


"Liabilities" means any losses, claims, charges, damages, deficiencies, assessments, interests, penalties, costs and expenses of any kind (including reasonable attorneys' fees and other fees, court costs and other disbursements), directly or indirectly arising out of or related to any suit, proceeding, judgment, settlement or judicial or administrative order, including any Liabilities with respect to Environmental Laws.


"LOOP" means Louisiana Offshore Oil Port.


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"Material Adverse Effect" means a result or consequence that would materially impair a Party's ability to perform its obligations and covenants under this Agreement or to consummate any of the transactions contemplated by this Agreement or would materially impair the usual, regular and ordinary operations of the Refinery as a whole.


"Minimum Collateral" means the minimum amount of Collateral that Premcor is required to deliver to MSCG and to maintain pursuant to Section 8.1 while this Agreement is in effect.


"Monthly True-Up Payment" means the monthly payment made by one Party to the other Party as provided in Article 7.


"NYMEX" means the New York Mercantile Exchange.


"Pipeline System" means the Capline Pipeline System and any other U.S. Gulf Coast pipeline system where MSCG sells Crude Oil to Premcor at the Delivery Point.


"Person" means an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, joint stock company or any other private entity or organization, Governmental Authority, court or any other legal entity, whether acting in an individual, fiduciary or other capacity.


"Potential Event of Default" means any Event of Default with which notice or the passage of time would constitute an Event of Default.


"Refinery" means the Memphis, Tennessee crude oil refinery and all of the related facilities acquired from Williams and owned and operated by Premcor, including the processing, storage, receiving, loading and delivery facilities, piping, marine facilities and related facilities, together with existing or future modifications or additions.


"St. James" means the Capline or the Sugarland oil terminals located at St. James, Louisiana.


"Supply Service Fee" means the fee that Premcor pays MSCG pursuant to Section 6.5.


"Taxes" means any and all foreign, federal, state and local taxes (other than taxes on income), duties, fees and charges of every description on or applicable to the Crude Oil, including all gross receipts, environmental, spill, ad valorem and sales and use taxes, however designated, paid or incurred directly or indirectly with respect to the ownership, purchase, exchange, use, transportation, resale, importation or handling of the Crude Oil or WTI, including for any Tax, any interest, penalties or additions to tax attributable to any such Tax, including penalties for the failure to file any tax return or report.


"Terminal Operator" means Oil Distribution Services ("ODS") or any other entity that schedules and tracks Crude Oil in a Pipeline System.


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"Termination Date" means the date that is designated in a notice under Section 3.4 or Section 14.2 on which termination of this Agreement is to be effective.


"Trade Date" means the date when the Parties have agreed upon the material economic terms of a Crude Oil sale from MSCG to Premcor or a WTI Transaction between MSCG and Premcor, or when Premcor has agreed upon the material economic terms of a Crude Oil purchase or WTI Transaction between MSCG and a Counterparty.


"UCC" means the New York Uniform Commercial Code.


"Variation Margin" means, on any calculation date, the margin that the Parties exchange pursuant to Section 8.2 based on changes in the market value of Crude Oil purchased by MSCG for resale to Premcor at a fixed price.


"WTI" means West Texas Intermediate crude oil and any crude oil meeting the specifications of the NYMEX WTI futures contract for delivery at Cushing, Oklahoma.


"WTI Transactions" means purchases and sales of physical WTI or WTI NYMEX futures contracts entered into by MSCG or by Premcor on MSCG's behalf in order to balance MSCG's Crude Oil position.


1.2 All references in this Agreement to Exhibits, Articles and Sections refer to the corresponding Exhibits, Articles and Sections of or to this Agreement unless expressly provided otherwise. All headings herein are intended solely for convenience of reference and shall not affect the meaning or interpretation of the provisions of this Agreement.


1.3 All Exhibits to this Agreement are attached hereto and by this reference incorporated herein for all purposes.


1.4 Unless expressly provided otherwise, the words "this Agreement," "herein," ""hereby," "hereunder" and "hereof," and words of similar import, refer to this Agreement as a whole and not to any particular Section. The words "this Article," and "this Section" and words of similar import, refer only to the Article or Section hereof in which such words occur. The word "including" as used herein means "including without limitation" and does not limit the preceding words or terms.


1.5 The Parties acknowledge that they and their counsel have reviewed and revised this Agreement and that no presumption of contract interpretation or construction shall apply to the advantage or disadvantage of the drafter of this Agreement.


ARTICLE 2
CONDITIONS TO CLOSING AND MSCG'S PERFORMANCE


2.1 The respective obligations of each Party contemplated under this Agreement shall be subject to the satisfaction of the following conditions precedent on or prior to the Closing Date, each as determined by a Party in its sole discretion.


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(a) Consummation of the purchase and sale of the Refinery pursuant to
the APSA.


(b) No action or proceeding shall have been instituted nor shall any
action by a Governmental Authority be threatened, nor shall any order,
judgment or decree have been issued or proposed to be issued by any
Governmental Authority as of the Closing Date to set aside, restrain,
enjoin or prevent the transactions and performance of the obligations
contemplated by either Party under this Agreement.


(c) The Refinery shall not have been affected adversely or threatened
to be affected adversely by any loss or damage, other than to the extent
covered by insurance, unless such loss or damage would not have a Material
Adverse Effect on the Refinery.


(d) The representations and warranties of each Party set forth in this
Agreement shall be true and correct on and as of the Closing Date.


2.2 The obligations of MSCG contemplated under this Agreement shall be subject to Premcor's satisfaction of the following conditions precedent on or prior to the Closing Date, as determined by MSCG in its sole discretion.


(a) Premcor shall have delivered to MSCG a certificate signed by the
Controller of Premcor and dated the Effective Date, certifying as to the
truth and accuracy of Premcor's representations and warranties set forth in
this Agreement as of the Effective Date.


(b) Premcor shall have delivered to MSCG an accurate certificate dated
as of the Effective Date, in form and substance satisfactory to MSCG and
signed by the Secretary or an Assistant Secretary of Premcor certifying (i)
the incumbency and specimen signature of the officer of Premcor executing
this Agreement and (ii) that Premcor has obtained all requisite approvals
under its constitutional documents in respect of Premcor's execution,
delivery and performance of this Agreement.


(c) Premcor shall have provided to MSCG a letter agreement (in a format
satisfactory to MSCG at its sole discretion) duly executed by ODS, MSCG and
Premcor wherein Premcor agrees that MSCG unilaterally may instruct ODS to
cease scheduling any deliveries of Crude Oil from MSCG to Premcor upon the
occurrence of an Event of Default by Premcor and ODS agrees to comply with
such instructions from MSCG without prior notice to or consent from
Premcor.


(d) Premcor shall have delivered to MSCG the Minimum Collateral
required by Section 8.1(a).


2.3 Effect of Termination for Failure of Conditions Precedent.


(a) MSCG shall not be obligated to refund to Premcor the Commitment Fee
that Premcor paid to it on November 29, 2002 if either Party terminates
this Agreement pursuant to Section 2.1 or 2.2.


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(b) If either Party terminates this Agreement pursuant to Section 2.1
or 2.2, neither Party shall have any further obligation under this
Agreement to the other Party except that a Party shall remain liable to the
other Party for any damages incurred as a result of a breach by a Party of
its representations, warranties or obligations hereunder occurring prior to
such termination.


2.4 Condition Subsequent.


(a) Premcor shall make reasonable commercial efforts to cause to
deliver to MSCG, on or before March 14, 2003, a letter agreement (in a
format satisfactory to MSCG in its sole discretion) duly executed by each
of the owners of the Capline Pipeline System wherein Premcor and each owner
agrees to Premcor's assignment to MSCG of Premcor's nominated shipping
capacity on the Capline Pipeline System for shipment of Crude Oil that ODS
has scheduled for delivery from MSCG to Premcor but that MSCG will not
deliver to Premcor due to an Event of Default by Premcor without prior
notice to or any additional consent from Premcor.


(b) If the foregoing letter is not provided by March 31, 2003, Premcor
shall (i) deliver to MSCG a duly executed assignment to MSCG of that
portion of its nominated shipping capacity on the Capline Pipeline System
required to ship crude oil to the Refinery (in a format satisfactory to
MSCG in its sole discretion), which shall become effective upon an Event of
Default by Premcor, and (ii) transmit copies of the assignment executed by
both Parties to each of the owners of the Capline System. MSCG shall be
entitled to terminate this Agreement if Premcor does not deliver the
assignment by March 31, 2003.


2.5 Reimbursement of Fees.


Premcor agrees to reimburse MSCG for reasonable legal fees and reasonable out-of-pocket expenses and costs that it incurred in connection with the drafting, execution and delivery of this Agreement upon receipt of copies of invoices for such fees, costs and expenses.


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ARTICLE 3
TERM OF AGREEMENT


3.1 Initial Term.


This Agreement shall become effective on the Effective Date and shall continue for two years from the Closing Date ("Initial Term").


3.2 Renewal.


Subject to the Parties' mutual agreement on the terms and conditions of renewal in their respective sole discretion, this Agreement may be renewed for successive two-year terms or for such other period as may be agreed upon by the Parties (each such renewal period, a "Renewal Term"). No later than ninety (90) days prior to expiration of the Initial Term or a Renewal Term, either Party may notify the other Party of the terms or conditions upon which it desires to renew this Agreement. If the Parties do not agree upon the terms and conditions of renewal, this Agreement shall terminate effective as of the conclusion of Initial Term or Renewal Term, as the case may be; provided, however, that the Parties shall perform their obligations relating to termination pursuant to Article 15.


3.3 Renegotiation of Terms.


Within sixty (60) days prior to each one-year anniversary of this Agreement during the Initial Term and any Renewal Term, a Party may notify the other Party of any terms and conditions of this Agreement that it wishes to renegotiate. The Parties may agree to amend any of the terms and conditions of this Agreement effective as of the anniversary date, but neither Party shall be obligated to do so.


3.4 Early Termination Option.


Either Party may terminate this Agreement upon one (2) Business Days' notice to the other Party if the long term senior unsecured unsubordinated debt rating of Morgan Stanley (f/k/a Morgan Stanley Dean Witter & Co.) assigned by Moody's Investors Service, Inc. falls at or below Baa2 or such rating assigned by Standard & Poor's Ratings Services falls at or below BBB. Such early termination shall be effective upon the Termination Date designated in such notice (not earlier than the date of such notice) and neither Party shall have any further obligations to the other Party or shall have responsibility for any Liabilities to the other Party as of the Termination Date, except as provided in
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