Gas Gathering Agreement - Enhanced Drafting Prompt

You are tasked with drafting a comprehensive Gas Gathering Agreement, a critical regulatory document that governs the relationship between a gathering company and a producer for the collection, compression, and transportation of natural gas. This agreement must comply with applicable energy regulations, industry standards, and best practices in oil and gas law.

Document Overview and Context

Begin by understanding that a Gas Gathering Agreement is a specialized contract in the energy sector that establishes the terms under which a midstream company will gather natural gas from a producer's wells or production facilities and transport it through a gathering system to a designated delivery point. This document must balance commercial interests with regulatory compliance, operational requirements, and risk allocation between sophisticated parties in the energy industry.

Your draft should reflect current industry standards and incorporate provisions commonly found in agreements approved by organizations such as the American Association of Professional Landmen (AAPL) and state bar associations specializing in energy law. Consider the regulatory environment, including FERC regulations where applicable, state public utility commission requirements, and environmental compliance obligations.

Parties Identification and Capacity

Draft the opening section to clearly identify the gathering company (typically the midstream operator) and the producer (the upstream party). Include complete legal names, state of organization or incorporation, principal places of business, and any relevant regulatory identifiers such as operator numbers or FERC designations. Ensure that the party identification reflects the capacity in which each entity is entering the agreement, whether as owner, operator, or in another representative capacity. Include appropriate recitals establishing each party's authority to enter into the agreement and confirming that all necessary corporate or organizational approvals have been obtained.

Recitals and Background

Compose detailed recitals that establish the factual and legal foundation for the agreement. These should describe the producer's ownership or control of gas reserves, the location and description of the wells or production facilities, the gathering company's ownership or operation of the gathering system, and the mutual intent to establish a gathering relationship. Reference any relevant dedications of acreage, existing infrastructure, or prior agreements that provide context. The recitals should also acknowledge the regulatory framework governing gas gathering operations in the applicable jurisdiction and confirm that both parties intend to comply with all applicable laws and regulations.

Definitions Section

Create a comprehensive definitions section that establishes precise meanings for all technical, commercial, and legal terms used throughout the agreement. At minimum, define critical terms including:

• "Gas" or "Natural Gas" with specifications for quality, composition, heating value, and any contaminants or constituents that affect gathering operations
• "Gathering System" describing the physical infrastructure including pipelines, compressors, meters, and related facilities
• "Point of Receipt" and "Point of Delivery" establishing where custody and responsibility transfer
• "Gathering Services" detailing the scope of services to be provided
• "Dedicated Acreage" or "Contract Area" if applicable, describing the geographic scope

Ensure definitions align with industry standards found in model form agreements and incorporate measurement standards such as those established by the American Petroleum Institute (API) or the Gas Processors Association (GPA). Include definitions for pressure specifications, temperature corrections, and volume measurement protocols that will govern operations and billing.

Grant of Rights and Services Description

Draft provisions that clearly delineate the scope of gathering services to be provided and the rights granted to the gathering company. Specify whether the grant is exclusive or non-exclusive within the contract area, and detail the specific services included such as gathering, compression, dehydration, treating, and transportation. Establish the producer's obligation to deliver gas to designated receipt points and the gathering company's obligation to accept and transport such gas, subject to capacity limitations and quality specifications.

Address the gathering company's right to construct, operate, and maintain facilities on or across the producer's property, including necessary easements or rights-of-way. Include provisions regarding the gathering company's right to connect additional producers to the system and any corresponding obligations to maintain adequate capacity. Specify any minimum volume commitments, take-or-pay obligations, or ship-or-pay requirements that apply to either party. Establish protocols for scheduling, nominations, and operational communications between the parties.

Rates, Fees, and Payment Terms

Structure the economic provisions to clearly establish how the producer will compensate the gathering company for services rendered. Specify whether fees are structured as a per-unit gathering fee (typically per MMBtu or Mcf), a percentage of proceeds arrangement, or another commercial structure. Detail the initial rates and establish mechanisms for rate adjustments, whether through fixed escalation provisions, index-based adjustments tied to published indices, or periodic renegotiation.

Include comprehensive billing and payment terms specifying billing frequency (typically monthly), payment due dates, procedures for disputing invoices, and consequences of late payment including interest rates on overdue amounts. Address how volumes will be measured and allocated, referencing specific measurement standards and establishing rights to audit meters and measurement equipment. If the agreement involves any minimum revenue commitments, deficiency payments, or other complex commercial arrangements, detail the calculation methodologies and payment timing for these obligations.

Term, Renewal, and Termination Provisions

Establish the initial term of the agreement, which in gas gathering agreements typically ranges from five to twenty years given the capital-intensive nature of gathering infrastructure. Specify the commencement date and any conditions precedent to the agreement becoming effective, such as regulatory approvals or completion of construction.

Detail renewal provisions, including whether renewal is automatic, requires mutual consent, or occurs at the option of one party. If renewal is automatic, specify the renewal term length and any changes to commercial terms that occur upon renewal. Include comprehensive termination provisions addressing both termination for cause (such as material breach, bankruptcy, or regulatory prohibition) and termination for convenience if applicable. Specify notice requirements for termination, cure periods for breaches, and the parties' respective obligations upon termination including decommissioning, removal of facilities, and settlement of outstanding payments. Address the effect of termination on any dedications of acreage or long-term commitments.

Representations, Warranties, and Covenants

Draft mutual representations and warranties appropriate for a gas gathering relationship. The producer should represent and warrant its title to or right to produce the gas, the absence of conflicting agreements that would prevent performance, and compliance with all applicable laws and regulations governing production. Include representations regarding the quality and specifications of gas to be delivered, confirming it will meet the quality standards established in the definitions section.

The gathering company should represent and warrant its ownership or right to operate the gathering system, its authority to provide the gathering services, and its compliance with applicable regulatory requirements including any necessary permits or certifications. Both parties should represent their corporate authority, due organization, and that execution of the agreement does not violate any other agreements or legal requirements. Include ongoing covenants requiring both parties to maintain necessary permits, comply with environmental laws, and operate in accordance with prudent industry practices.

Indemnification and Insurance Requirements

Structure comprehensive indemnification provisions that allocate risk between the parties in accordance with industry standards for gas gathering agreements. Typically, these agreements employ mutual indemnification with each party indemnifying the other for claims arising from that party's negligence or willful misconduct. Address specific allocation of risk for environmental contamination, personal injury, property damage, and third-party claims.

Establish detailed insurance requirements specifying minimum coverage amounts for commercial general liability, automobile liability, workers' compensation, and pollution liability insurance. Require that each party maintain insurance with carriers rated at least A- by A.M. Best and include provisions requiring each party to name the other as an additional insured on applicable policies. Specify that insurance requirements survive termination for claims arising during the term, and establish procedures for providing certificates of insurance and notice of cancellation or material changes to coverage.

Force Majeure Provisions

Draft a force majeure clause that excuses performance when prevented by events beyond a party's reasonable control. Define force majeure events to include acts of God, wars, terrorism, strikes, governmental actions, fires, floods, earthquakes, epidemics, and other events that are unforeseeable and unavoidable. Specify that economic hardship, market changes, or lack of profitability do not constitute force majeure.

Establish notice requirements obligating a party claiming force majeure to promptly notify the other party and provide details of the event and its expected duration. Require the affected party to use reasonable efforts to mitigate the effects of the force majeure event and resume performance as soon as practicable. Address the effect of prolonged force majeure, typically providing that if force majeure continues for an extended period (such as six months to one year), either party may terminate the agreement without liability.

Governing Law and Dispute Resolution

Specify the governing law for the agreement, typically the law of the state where the gathering system is primarily located or where the majority of operations occur. Include a choice of law provision that is enforceable and appropriate for the transaction. Establish a dispute resolution mechanism that may include negotiation between senior executives, mediation, arbitration, or litigation in specified courts.

For arbitration provisions, specify the administering organization (such as the American Arbitration Association), the number of arbitrators, the location of arbitration, and whether arbitration is binding. Address the allocation of arbitration costs and whether the prevailing party is entitled to recover attorneys' fees. If litigation is the chosen forum, specify the exclusive jurisdiction and venue, typically in state or federal courts in a particular location, and include a waiver of jury trial if appropriate for the parties.

Miscellaneous Provisions

Include standard but essential miscellaneous provisions that govern the administration and interpretation of the agreement. Draft a comprehensive notices provision specifying how and where notices must be sent to be effective, including physical addresses, email addresses, and any requirements for confirmation of receipt. Include an assignment provision that typically prohibits assignment without consent but allows assignment to affiliates or in connection with a sale of substantially all assets, and addresses whether the agreement runs with the land or binds successors.

Incorporate an entire agreement clause confirming that the written agreement supersedes all prior negotiations and understandings, and specify that amendments must be in writing signed by both parties. Include a severability provision ensuring that if any provision is found unenforceable, the remainder of the agreement continues in effect. Add provisions addressing waiver (that no waiver is effective unless in writing), counterparts (allowing execution in multiple counterparts), and relationship of parties (confirming no partnership or joint venture is created).

Execution and Signature Blocks

Conclude the agreement with properly formatted signature blocks for each party that include spaces for authorized signatures, printed names, titles, and dates. Ensure the signature blocks reflect the type of entity signing (corporation, limited liability company, partnership, etc.) and include appropriate attestation or acknowledgment language if required by applicable law. If the agreement will be recorded in real property records, include notary acknowledgment blocks in the form required by the recording jurisdiction. Confirm that the execution formalities comply with electronic signature laws if the parties intend to execute electronically, and ensure that the signature process creates an enforceable agreement under applicable law.

Final Assembly and Review

Upon completing all sections, assemble the agreement in a logical order with appropriate formatting, section numbering, and cross-references. Include a table of contents if the agreement exceeds ten pages. Review the entire document for internal consistency, ensuring that defined terms are used consistently, cross-references are accurate, and the commercial terms align throughout. Verify that all regulatory requirements applicable to gas gathering agreements in the relevant jurisdiction have been addressed, and confirm that the agreement reflects current industry practices and standards for similar transactions.