SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH FIVE ASTERISKS (*****). PROPYLENE SUPPLY CONTRACT

Contract Categories: Business Operations - Supply Agreements
EX-10.5 4 a2204929zex-10_5.htm EX-10.5

Exhibit 10.5

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH FIVE ASTERISKS (*****).

 

PROPYLENE SUPPLY CONTRACT

 

This Propylene Supply Contract (“Contract”) is effective as of August 12, 2009, between PL Propylene LLC, a Delaware limited liability company (“Seller”), and The Dow Chemical Company, a Delaware corporation, with its principal offices located at 2030 Dow Center, Midland, Michigan 48674 (“Buyer”; Seller and Buyer are collectively referred to herein as the “Parties”). Seller agrees to sell and deliver and Buyer agrees to purchase and accept delivery of the product described below, in the quantities and during the period set forth in this Contract.

 

Contract Term:

 

The term of deliveries under this Contract shall commence on the Commencement Date and will continue until December 31, 2014 (“Contract Term”) and thereafter will continue year to year unless a Party provides at least eighteen (18) Months prior written notice.  Any such termination shall only be effective as of December 31 of the year in which this Contract is being terminated.

 

 

 

 

 

If the Contract Term is extended beyond December 31, 2014, then the “Contract Term” shall include such extended period of time; and for each additional year all of the terms and conditions set forth herein shall remain the same, including, without limitation, the Purchase Price and the Quantity of Product Seller shall sell and Buyer agrees to purchase.

 

 

 

Commencement Date:

 

The “Commencement Date” shall occur on the date specified by Seller in written notice to Buyer.  Seller shall keep Buyer informed of (i) Seller’s projected completion date for the propylene production facility and (ii) the estimated Commencement Date.  If the Commencement Date is not on or before March 31, 2011, Buyer has the right to terminate this Contract without notice.  Seller must give Buyer ninety (90) days written notice if Seller knows or has reasonable grounds to know that the Commencement Date will not be on or before March 31, 2011; for sake of clarity, such notice must he given on or before January 1, 2011.

 

 

 

Product(s):

 

A combination of Polymer Grade Propylene (“PGP”), meeting the specifications set forth in Attachment A-1 attached hereto, and Chemical Grade Propylene (“CGP”), meeting the specifications set forth in Attachment A-2 attached hereto.

 


 

Quantity:

 

During the Contract Term, Seller agrees to sell and Buyer agrees to purchase and pay for the following quantity of Product(s):

 

 

 

 

 

Subject to variance during the Start-Up Period (as set forth below in the Special Provisions), Buyer anticipates purchasing a nominal amount of 600,000,000 pounds of Combined Propylene (defined below) on an annual basis throughout the Contract Term, subject to the minimum and maximum Monthly quantity requirements set forth herein.

 

 

 

 

 

For each calendar month (“Month”) during the Contract Term, the minimum Monthly quantity of Combined Propylene that Buyer shall purchase is 42,500,000 (“Minimum Monthly quantity”) pounds and the maximum Monthly quantity of Combined Propylene that Buyer may purchase is 57,500,000 pounds (“Maximum Monthly quantity”).

 

 

 

 

 

For each twelve (12) Month period during the Contract Term, the minimum annual quantity of Combined Propylene that Buyer shall purchase is 510,000,000 (“Minimum Annual Quantity”) pounds and the maximum annual quantity of Combined Propylene that Buyer may purchase is 690,000,000 pounds (“Maximum Annual Quantity”).

 

 

 

 

 

As a result of a material mechanical impairment, idling or permanent shutdown of its propylene consuming plant or plants, Buyer may purchase less than the Minimum Monthly quantity by up to 15,000,000 pounds (“Permitted Reduction”). Subject to the foregoing, the provisions of this Section allowing Buyer to purchase less than the Minimum Monthly quantity may be used by Buyer to optimize capacity utilization and manufacturing operations in its own propylene producing and consuming facilities.  However, Buyer acknowledges that the rights provided in this paragraph shall not be used by Buyer to replace Minimum Monthly quantities of Product required to be purchased from Seller hereunder with other Product obtained from other third parties.  If in any Month Buyer elects to purchase less than the Minimum Monthly quantity as provided herein, then (i) Buyer shall provide Seller with as much advance notice as possible of such pending election and (ii) Seller’s sole remedy shall be to collect from Buyer $0.045 per pound as liquidated damages and not as a penalty, on a Product quantity equal to the difference between the Minimum Monthly quantity and the quantity actually purchased by Buyer in such Month.  In calculating Buyer’s purchases for the purposes of determining liquidated damages, the applicable Minimum Monthly quantity shall be deemed reduced by any quantities not purchased or delivered hereunder as a result of (i) a suspension of deliveries

 

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pursuant to Section 4 in the attached Terms and Conditions; (ii) non-performance or a delay in performance within the scope of Section 8 in the attached Terms and Conditions; or (iii) Seller’s failure to deliver Product conforming to the specifications set forth in Attachments A-1 and A-2 to this Agreement (collectively, the “Excluded Quantities”).

 

 

 

 

 

If pursuant to the preceding paragraph Buyer purchases less than the Minimum Monthly quantity for 6 Months in any 12 Month period (“Shortfall Event”), then Seller will have the right to reduce the Minimum and Maximum Monthly quantity by the Average Shortfall (or a portion thereof).  The “Average Shortfall” shall equal one sixth of the sum of the Actual Shortfall for each of the six Months in which Buyer purchased less than the Minimum Monthly quantity.  The “Actual Shortfall” shall be calculated for each Month in which Buyer purchased less than the Minimum Monthly quantity and shall equal the Minimum Monthly quantity less the actual quantity of Product purchased by Buyer during such Month.  Seller must exercise this right, if at all, by sending written notice (“Reduction Notice”) to Buyer within ninety (90) days after the occurrence of the Shortfall Event.  Within ten (10) days after receipt of the Reduction Notice, the Parties shall enter into an amendment to this Agreement reflecting the reduction to the Minimum and Maximum Monthly quantity.  Such amendment shall also reflect that the “Permitted Reduction” as set forth above shall also be reduced by the quantity set out in the Reduction Notice.  Under no circumstances can the Minimum Monthly quantity as provided for in this Contract ever be reduced below 27,500,000 pounds.  For the purposes of this paragraph and the calculations provided for herein, the Minimum Monthly quantity used for calculating the “Actual Shortfall” for each Month shall be reduced by an amount equal to the Excluded Quantities, if any, applicable to such Month.

 

 

 

 

 

The Monthly quantity will be comprised of quantities of CGP and/or quantities of PGP (as combined, “Combined Propylene”) as specified by Buyer totaling the respective required quantities; provided, however, Buyer shall purchase at least 100,000,000 pounds of PGP per calendar year.

 

 

 

 

 

The Quantity of Product for the month in which the Start-Up Period ends will be prorated for that month based on the number of days remaining in the month, from the end of the Start-Up Period divided by the number of days in such month.

 

 

 

 

 

All quantities of Product shall be purchased and paid for on a stream basis.

 

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Purchase Price:

 

A. Price for PGP. The per pound PGP net price after discounts (“PGP Price”) will be the “PGP Contract Price”, as defined below, less a discount of ***** ($*****) per pound.

 

 

 

 

 

(i) PGP Contract Price.  The Parties intend for the PGP Contract Price to approximately represent the prevailing undiscounted term contract prices being offered or reasonably anticipated to be offered in the U.S. Gulf Coast region for PGP of equal quality, sold under contractual commitments of at least two years, for a similar Monthly quantity, and made available for shipment or shipped via a like mode of transportation and on freight terms equal to those provided hereunder.

 

 

 

 

 

(ii) PGP Price Nomination.  Prior to the start of each Month.  Seller shall nominate a non-binding price that it believes is representative of the price as provided for in Section (A)(i) for the upcoming Month.  The Parties shall then negotiate in good faith to agree upon a price that reflects the price conditions set forth in A(i) above as promptly as market conditions allow.  If the Parties agree upon a price, then that agreed upon price will be the “PGP Contract Price” and the agreed upon price will be reported to CMAI for inclusion in CMAI’s Monomers Market Report for the Month of delivery.

 

 

 

 

 

(iii) PGP Contract Reference Price Substitute.  If, despite good faith negotiations, either Party determines that they will not be able to agree on a PGP Contract Price as set forth in A(ii) above by the date the Monomers Market Report covering such delivery Month is published, then for that particular delivery Month (a) the Parties shall substitute a reference price which will equal the final undiscounted U.S. Gulf Coast region Polymer Grade Propylene contract price for the Month of delivery as published in the applicable issue of CMAI’s Monomers Market Report (“PG Propylene Contract Benchmark”) and (b) the substituted reference price shall constitute the “PGP Contract Price”.

 

 

 

 

 

B. Price for CGP. The per pound CGP net price after discounts (“CGP Price”) will be the “CGP Contract Price”, as defined below, less a discount of ***** ($*****) per pound.

 

 

 

 

 

(i) CGP Contract Price.  The Parties intend for the CGP Contract Price to approximately represent the prevailing undiscounted term contract prices being offered or reasonably anticipated to be offered in the U.S. Gulf Coast region for CGP of equal quality, sold under contractual commitments of at least two years, for a similar Monthly quantity, and made available for shipment or

 

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shipped via a like mode of transportation and on freight terms equal to those provided hereunder.

 

 

 

 

 

(ii) CGP Price Nomination.  Prior to the start of each Month, Seller will nominate a non-binding price that it believes is representative of the price as provided for in Section (B)(i) for the upcoming Month.  The Parties shall then negotiate in good faith to agree upon a price that reflects the price conditions set forth in B(i) above as promptly as market conditions allow.  If the Parties agree upon a price, then that agreed upon price will be the “CGP Contract Price” and the agreed upon price will be reported to CMAI for inclusion in CMAI’s Monomers Market Report for the Month of delivery.

 

 

 

 

 

(iii) CGP Contract Reference Price Substitute.  If, despite good faith negotiations, either Party determines that they will not be able to agree on a CGP Contract Price as set forth in B(ii) above by the date the Monomers Market Report covering such delivery Month is published, then for that particular delivery Month (a) the Parties shall substitute a reference price which will equal the final undiscounted U.S. Gulf Coast region Chemical Grade Propylene contract price for the Month of delivery as published in the applicable issue of CMA1’s Monomers Market Report (“CGP Propylene Contract Benchmark”) and (b) the substituted reference price shall constitute the “CGP Contract Price”.

 

 

 

 

 

C. Notwithstanding anything to the contrary contained herein, unless otherwise expressly agreed by the Parties, if for any particular Month the Parties are unable to mutually agree on an applicable Contract Price as provided for in subsections A(ii) and B(ii) above and CMAI fails to report the necessary price in the Monomers Market Report, then the Product purchased during that Month will initially be priced on the basis of applicable price of the immediately preceding Month.  Once the appropriate Monthly price is reported by CMAI in the Monomers Market Report, Seller shall promptly reissue the invoice for the Month in question, which invoice shall provide for the appropriate adjustment to reflect changes from the initial invoice.  Any additional amounts owing by Buyer shall be paid within 15 days of the receipt of such invoice and any credits owing to Buyer shall be applied to the next invoice delivered by Seller.

 

 

 

 

 

D. If, and for the purposes of subsections A(iii) and B(iii) above, in any given Month a range of prices is reported by CMAI for Product purchased hereunder, then the applicable CMAI price to be used hereunder for calculating the Purchase Price shall equal the

 

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arithmetic average of the CMAI listed prices for the applicable Product.

 

 

 

 

 

E. For each Month, the Parties shall reflect the PGP Contract Price or CGP Contract Price agreed upon pursuant to subsections A(ii) and B(ii) above via a written statement confirmed by each Party.

 

 

 

Delivery Point:

 

The following points:  (1) for CGP (a) the inlet of the first flange of Seller’s custody meter to be located at the Rohm and Haas facility located at 1900 Tidal Road, Deer Park, Texas (“Deer Park Facility”) or (b) the outlet of the first flange of Seller’s custody meter to the Shell CGP pipeline system; (ii) for PGP, the inlet of the first flange of Seller’s custody meter to be located at the Deer Park Facility, or (iii) such other locations mutually agreed upon in writing by the Parties.

 

 

 

 

 

In the event Buyer requests Seller to deliver Product to a location other than the Deer Park Facility and Seller agrees to deliver Product to such other location, Buyer agrees to reimburse Seller for all third party transportation fees Seller incurs in connection with the delivery of Product to such other location.  Buyer shall be required to reimburse Seller for any such fees no later than fifteen (15) days after Buyer’s receipt of Seller’s invoice for such fees and expenses.

 

 

 

Delivery/Title Transfer:

 

Deliveries of Product will be made to Buyer at the Delivery Point.  Title to, risk of loss for, and possession and control of the Product will pass from Seller to Buyer at the Delivery Point.

 

 

 

Invoicing/Payment Terms:

 

Seller shall provide Buyer with a Monthly consolidated invoice (by electronic means or facsimile) for the prior Month shipments on or before the fifth (5th) day of the Month following the immediately previous Month.  All amounts due hereunder with respect to any Month shall be due and payable by wire transfer to an account designated by Seller in immediately available United States funds no later than fifteen (15) days after Buyer’s receipt of Seller’s invoice.

 

 

 

Special Provisions:

 

Notwithstanding anything to the contrary contained herein, from the Commencement Date until March 31, 2011 (“Start-up Period”), in lieu of the quantities and provisions set out in the Quantity Section above.  Seller shall have the right during each Month to deliver to Buyer, and cause Buyer to purchase, a quantity of

 

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Product specified by Seller from zero up to 50 million pounds of Product on the terms set forth herein.

 

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This Contract includes (i) the foregoing terms, (ii) the Terms and Conditions attached hereto, and (iii) the Attachments attached hereto.  THE TERMS AND CONDITIONS AND ATTACHMENTS ATTACHED HERETO ARE INTEGRAL PARTS OF THIS CONTRACT.

 

Accepted and agreed to by the Parties as of the date hereof.

 

SELLER

 

BUYER:

 

 

 

PL PROPYLENE LLC

 

THE DOW CHEMICAL COMPANY

 

 

 

 

 

By:

 

 

By:

 

 

 

 

 

 

Title:

 

 

Title:

 

 

 

 

 

 

Date:

 

 

Date:

 

 

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TERMS AND CONDITIONS

 

1.                                       Purchase and Sale.  Each Month, Buyer shall pay Seller an amount equal to the product of (a) the applicable Purchase Price for each Product multiplied by (b) the quantity in pounds of each Product delivered by Seller to Buyer hereunder.  Any amounts due and payable by Buyer hereunder that have not been timely paid shall accrue interest at a rate equal to the lesser of (a) the prevailing prime rate plus two percent (2%) per annum, or (b) the maximum interest rate which may be charged pursuant to applicable law.

 

2.                                       Taxes and Governmental Charges.  Any tax, fee, excise or governmental charge or other extraction or any increase in or any additional such tax, fee charge or extraction imposed after the execution date of this Contract upon the sale of any Product sold hereunder that Seller may be required to pay and that are customarily paid by buyers of the type of products described herein, shall be paid by Buyer to Seller in addition to the Purchase Price, except such taxes shall not include any income or franchise tax measured by Seller’s net income (including taxes on capital or net worth that are imposed as an alternative to a tax based on net income or taxes in lieu of net income taxes).  Buyer shall provide Seller with a valid and properly completed exemption certificate for any tax, fee, charge or extraction upon the sale of any Product sold hereunder from which Buyer claims exemption.

 

3.                                       Limited Warranties.

 

3.1.                              Seller warrants that at the time of delivery to Buyer at the Delivery Point:  (i) the Product shall meet the applicable specifications for such Product set forth on Attachments A-1 and A-2, as applicable, attached hereto (the “Specifications”), (ii) Seller has title to such Product, and (iii) the Product is free from any encumbrances, liens or similar claims or charges.

 

3.2.                              EXCEPT AS EXPRESSLY SET FORTH IN SECTION 3.1, ABOVE, SELLER DOES NOT MAKE, AND EXPRESSLY DISCLAIMS, AND BUYER EXPRESSLY WAIVES, ANY OTHER WARRANTIES, ORAL, WRITTEN, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE PRODUCT, ALLEGEDLY ARISING FROM ANY USAGE OF ANY TRADE OR FROM ANY COURSE OF DEALING, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

4.                                       Quality.

 

4.1.                              All Products delivered hereunder by Seller to Buyer at the Delivery Point shall meet the applicable Specifications for such Product.

 

4.2.                              Seller shall not be responsible for any liability or loss resulting from Product that fails to meet the applicable Specifications unless Buyer gives Seller written notice of a claim of such failure within sixty (60) days after receipt of such Product.  Buyer’s failure to give timely notice to Seller of any such claim will constitute an unqualified acceptance of the Product and a waiver by Buyer of all claims with respect thereto.

 

4.3.                              SELLER’S TOTAL LIABILITY ARISING FROM THE DELIVERY OF PRODUCT THAT FAILS TO MEET THE APPLICABLE SPECIFICATIONS, WHETHER

 

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BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, CONTRIBUTION, STRICT LIABILITY OR OTHERWISE, WILL NOT EXCEED THE PURCHASE PRICE OF THE PORTION OF THE PRODUCT IN RESPECT OF WHICH SUCH SPECIFICATIONS WERE NOT MET AND FOR WHICH A CLAIM WAS PROPERLY MADE IN ACCORDANCE WITH SECTION 4.2. THE LIMITATION ON LIABILITY SET FORTH IN THIS SECTION 4.3 CONSTITUTES THE MAXIMUM AMOUNT THAT BUYER MAY RECEIVE AS A RESULT OF ANY LOSS OR LIABILITY ARISING FROM SUCH FAILURE BY SELLER TO DELIVER PRODUCT THAT MEETS THE APPLICABLE SPECIFICATIONS AND IN NO EVENT SHALL BUYER BE ENTITLED TO ANY ADDITIONAL AMOUNTS OR OTHER REMEDIES, INCLUDING, WITHOUT LIMITATION, ANY LOSS OR LIABILITY ARISING AS A RESULT OF THE MIXING OR COMMINGLING OF THE NONCONFORMING PRODUCT WITH OTHER MATERIALS OR USE OF THE NONCONFORMING PRODUCT IN SPECIALIZED EQUIPMENT.

 

5.                                       Quantity and Nominations.

 

5.1.                              Subject to the terms and conditions of (i) the Start-up Period set forth above in the Special Provisions section, and (ii) Attachment B attached hereto, Buyer shall nominate to Seller in writing (by electronic means or facsimile) the quantity of each Product for delivery by Seller to Buyer at the Delivery Point specified by Buyer at least seven (7) days prior to the beginning of each Month during the Contract Term.  To the extent practicable and unless otherwise mutually agreed upon between Seller and Buyer, Seller shall deliver Product to the Delivery Point at a uniform hourly delivery rate consistent with Buyer’s applicable nomination.  During the Month, Buyer may request reasonable modifications to its nomination by providing Seller with prior written notice.  Seller shall use reasonable efforts to accommodate any such proposed modifications but Seller shall have no liability in the event it determines it is unable to comply in whole or in part with any such proposed modification.

 

5.2.                              Contemporaneously with the delivery of the nomination provided for in Section 5.1, Buyer shall provide Seller with a written rolling 90 day forecast setting out its Monthly estimated total propylene purchase needs for the 90 days commencing with the Month following the Month covered by the nomination delivered in accordance with Section 5.1.

 

6.                                       Measurement.  All Product delivered hereunder by Seller to Buyer shall be measured at the Delivery Point and analyzed in accordance with the measurement procedures set forth on Attachment B attached hereto.

 

7.                                       Indemnities and Liabilities.

 

7.1.                              SELLER AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW AND REGARDLESS OF THE PRESENCE OR ABSENCE OF INSURANCE, TO:  DEFEND, INDEMNIFY AND HOLD BUYER, ITS DIRECTORS, OFFICERS, EMPLOYEES, BORROWED SERVANTS AND AGENTS HARMLESS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, COSTS AND EXPENSES (INCLUDING COURT COSTS, ANY COST OR EXPENSE OF INCIDENT INVESTIGATION AND REASONABLE ATTORNEY’S FEES), ARISING FROM OR ON ACCOUNT OF INJURY, DEATH OR

 

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DAMAGE OF ANY PERSON OR PROPERTY RELATED TO, ARISING OUT OF OR ATTRIBUTABLE TO (i) THE OWNERSHIP, POSSESSION. CONTROL, OPERATION OR USE OF ANY PRODUCT PRIOR TO THE DELIVERY OF SUCH PRODUCT BY SELLER TO THE DELIVERY POINT AND (ii) SUBJECT TO SECTION 4, ANY BREACH BY SELLER OF THIS CONTRACT:  PROVIDED, HOWEVER, NOTWITHSTANDING THE FOREGOING, SELLER’S INDEMNITY OBLIGATION SHALL NOT APPLY TO THE EXTENT THAT BUYER’S NEGLIGENCE OR WILLFUL MISCONDUCT IS DETERMINED TO BE THE CAUSE OF SUCH INJURIES OR DAMAGES.

 

7.2.                              BUYER AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW AND REGARDLESS OF THE PRESENCE OR ABSENCE OF INSURANCE, TO:  DEFEND, INDEMNIFY AND HOLD SELLER, ITS DIRECTORS, OFFICERS, EMPLOYEES, BORROWED SERVANTS AND AGENTS HARMLESS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, COSTS AND EXPENSES (INCLUDING COURT COSTS, ANY COST OR EXPENSE OF INCIDENT INVESTIGATION AND REASONABLE ATTORNEY’S FEES), ARISING FROM OR ON ACCOUNT OF INJURY, DEATH OR DAMAGE OF ANY PERSON OR PROPERTY RELATED TO, ARISING OUT OF OR ATTRIBUTABLE TO (i) THE OWNERSHIP, POSSESSION, CONTROL, OPERATION OR USE OF ANY PRODUCT ON OR AFTER THE DELIVERY OF SUCH PRODUCT BY SELLER TO THE DELIVERY POINT OR (ii) ANY BREACH BY BUYER OF THIS CONTRACT; PROVIDED, HOWEVER, BUYER’S INDEMNITY OBLIGATION (A) WITH RESPECT TO A BREACH OF CONTRACT CLAIM FROM SELLER RELATED TO PRODUCT THAT FAILS TO SATISFY THE SPECIFICATIONS, IF EVER MADE, SHALL BE LIMITED TO THE PURCHASE PRICE OF THE PRODUCT THAT IS THE SUBJECT OF THE CLAIM AND (B) SHALL NOT APPLY TO THE EXTENT THAT SELLER’S NEGLIGENCE OR WILLFUL MISCONDUCT IS DETERMINED TO BE THE CAUSE OF SUCH INJURIES OR DAMAGES.

 

7.3.                              IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOST PROFITS OR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, CONTINGENT, EXEMPLARY OR PUNITIVE DAMAGES.

 

8.                                       Force Majeure.

 

8.1.                              “Force Majeure Event” means:  any cause beyond the reasonable control of the party concerned including but not limited to breakdown of machinery; fire; explosions; hurricane; named storms; war; riots; labor disturbance, whether or not involving the employees of the party concerned or otherwise, and whether or not the disturbance could be settled by acceding to the demands of a labor group; compliance with a request or order of a person purporting to act on behalf of any government or governmental department or agency (including but not limited to EPA and OSHA); or shortage in raw material, transportation, power, manufacturing capacity, etc., or Product itself from a party’s then-contemplated source of supply.

 

8.2.                              If either Seller or Buyer is rendered unable by a Force Majeure Event to carry out, in whole or part, its obligations under this Contract and the party affected by the Force Majeure Event gives notice and full details of the event to the other party as soon as practicable after the occurrence of the Force Majeure Event (such notice to be confirmed in writing), then during the

 

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pendency of such Force Majeure Event, but for no longer period, the obligations of the party affected by the Force Majeure Event (other than obligations to make payments for Product delivered and accepted) shall be suspended to the extent required by the Force Majeure Event.  The party whose performance is suspended by the Force Majeure Event shall use all reasonable commercial efforts to remedy the Force Majeure Event with all reasonable dispatch; provided, however, that this provision shall not require Seller to deliver, or Buyer to receive, the Product at points other than the Delivery Point.

 

8.3.                              Whenever Seller’s performance is so affected by a Force Majeure Event, Seller may reduce deliveries in a reasonable manner that fairly apportions the consequences of the Force Majeure Event among Seller’s customers (including, without limitation, Seller’s affiliates or internal needs).  Under no circumstances will Seller be required to purchase the Product in question from third parties in order to comply with its Product delivery obligations set forth herein but may do so, in its sole discretion, provided the substitute product meets the Specifications.  Whenever Buyer is acquiring Product from multiple sources, its supply requirements need to be reduced due to a Force Majeure Event, and Buyer elects to reduce the quantity of Product to be purchased under this Contract, then Buyer, in a reasonable manner, shall fairly apportion the consequences of the Force Majeure Event among all of Buyer’s required Product suppliers.

 

8.4.                              Any Quantities affected by a Force Majeure Event shall be eliminated from the Contract without liability and shall not be required to be delivered or purchased hereunder, but the Contract shall remain otherwise unaffected.

 

9.                                       Duty to Warn, Material Safety Data Sheets.

 

9.1.                              Buyer acknowledges that the Product may be or become hazardous, and it is familiar with the handling, receipt, transportation, storage and use of such Product, and will take all steps necessary to inform, warn, and familiarize its employees, agents, customers, and contractors who may handle the Product, of all hazards pertaining to and proper procedures for safe use of the Product and of the containers or equipment in which the Product may be handled, shipped, or stored.  Buyer also agrees to label as appropriate any materials which it makes or resells that include Product.

 

9.2.                              Buyer acknowledges receipt of Seller’s Material Safety Data Sheet for each Product delivered hereunder and Buyer’s awareness of the hazards or risks in handling or using the Product.  Buyer shall take steps as are reasonable and practicable to inform its employees, agents, contractors and customers of any hazards or risks associated with the Product, including but not limited to dissemination of pertinent information contained in the Material Safety Data Sheet, as appropriate.

 

10.                                 Disputes.  The Parties hereby irrevocably consent to the exclusive jurisdiction of the courts of the State of Texas in and for Harris County and the United States District Court for the Southern District of Texas, Houston Division in connection with any disputes or litigation arising out of this Contract or any of the transactions contemplated thereby.  Each party waives any objection which it may have pertaining to improper venue or forum non-convenience to the conduct of any proceeding in the foregoing courts.  Each party agrees that any and all process

 

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directed to it in any such litigation may be served upon it outside of the State of Texas with the same force and effect as if such service had been made within Texas.  SELLER AND BUYER HEREBY VOLUNTARILY AND IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT IN CONNECTION WITH THIS CONTRACT.

 

11.                                 Financial Assurances.  Notwithstanding anything to the contrary in this Contract, if in the reasonable judgment of Seller the financial strength of Buyer becomes impaired or unsatisfactory, Seller may require Buyer to advance cash payments to Seller for future Product deliveries or provide Seller with acceptable security (including but not limited to a letter of credit in a form acceptable to the Seller from a financial institution acceptable to Seller), and if Buyer fails to provide such payment or security, Seller may, without waiving any rights or remedies:  (i) withhold further deliveries until such payment or security is received; or (ii) terminate this Contract, without prejudice to any rights or remedies it may have hereunder or by law.  Buyer’s duty to provide the specified credit assurance if requested by Seller under this section shall be a condition precedent to Seller’s continued obligation to perform under this Contract.  Seller’s right of strict performance of Buyer’s obligations shall not be affected by any previous waiver, forbearance or course of dealing.

 

12.                                 Delivery Pipeline.  Seller shall construct the delivery pipelines to the Deer Park Facility for the purpose of the delivering PGP and CGP into the site and in connection therewith Buyer agrees to grant to Seller, at no cost or expense to Seller, an easement over the Deer Park Facility pursuant to an Easement Agreement (“Easement Agreement”) in form and substance reasonably satisfactory to the Parties, providing Seller with sufficient access to construct and operate its delivery pipelines from a location on the Deer Park Facility fence line specified by Seller to the Delivery Points.

 

13.                                 Legal and Miscellaneous.

 

13.1.                        This Contract supersedes all prior understandings, drafts, discussions, or statements, whether oral or in writing, express or implied, dealing with the same subject matter.  It constitutes a final written expression of all the terms of this Contract and is a complete and exclusive statement of those terms.  It may not be amended or modified in any manner except by a written agreement signed by both Parties that expressly amends this Contract.  Further, the provisions of this Contract will take precedence over, govern and control any purchase order, sales acknowledgement, invoice or other writing between the Seller and Buyer unless such written agreement expressly reflects an intent to amend or modify the terms of this Contract, it being agreed and understood, without limitation, that any pre-printed terms and conditions appearing on any other writing, communication or transmittal between Seller and Buyer pertaining to the subject matter of this Contract will he null and void and have no force or effect.

 

13.2.                        With the exception of payment obligations, if the last day of any time period under this Contract, or the last day for performance of any obligation, or for giving any notice, or for taking any other action under this Contract falls on a day that is not a Business Day, then such day shall be extended to the first day thereafter that is a Business Day.  Notwithstanding anything to the contrary contained herein, if the last day for any payment obligation falls on a:  (i) Saturday, then such payment shall be due and payable on the immediately preceding Business

 

13


 

Day, (ii) Sunday, then such payment shall be due and payable on the immediately following Business Day, or (iii) day that is not a Business Day (other than a Saturday or Sunday), then such payment shall be due and payable on the Business Day immediately preceding such non-Business Day. “Business Day” means, as to any party, any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close.  A Business Day shall open at 8:00 a.m. and close at 5:00 p.m. Central Time (or Central Daylight Time, as applicable).

 

13.3.                        ANY QUESTIONS CONCERNING THE INTERPRETATION AND ENFORCEMENT OF THIS CONTRACT WILL BE GOVERNED BY THE DOMESTIC LAW OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF THE CONFLICT OF LAWS.

 

13.4.                        Neither party may give any director, employee or representative of the other party any commission, fee, rebate, gift or entertainment of significant cost or value in connection with this Contract or enter into any other business arrangement with any director, employee, or representative of the other, without prior written notification to the other party.

 

13.5.                        The obligations of the Parties under Sections 3, 4.3, 7, 10, and 13 will survive termination, cancellation or expiration of this Contract.

 

13.6.                        Should any provision of the Contract be or become illegal or unenforceable; such provision will be considered separate and severable from this Contract and the remaining provisions will remain in force and be binding upon Seller and Buyer as though such provision had never been included.  Any waiver by either party of any breach or condition of this Contract will not be construed as or be deemed to be a waiver of any future breach of such term or condition.

 

13.7.                        The Section headings of this Contract have been inserted only to facilitate reference and will have no bearing on the construction and interpretation of this Contract.

 

13.8.                        This Contract shall extend to and be binding upon the Parties, their successors and permitted assigns, but it is expressly agreed that neither party shall assign this Contract without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, Buyer acknowledges that Seller intends to obtain third-party financing for its plant and Buyer consents to the assignment of this Contract and the Easement Agreement in connection with such financing and contemporaneously with the execution of this Contract Buyer has executed a consent to the collateral assignment of this Contract.  Further, in connection with the execution of the Easement Agreement, Buyer will execute a consent to the collateral assignment of the Easement Agreement, which consent shall contain customary terms and conditions and be in a form reasonably acceptable to Buyer.

 

13.9.                        Each Party hereby represents and warrants to the other Party the following:  (i) such Party is duly formed, validly existing, and in good standing under the laws of the State of its organization, (ii) such Party is duly qualified, authorized to do business, and in good standing in each other jurisdiction where the character of its properties or the nature of its activities makes such qualification necessary, (iii) such Party has the power and authority to enter into and carry out its obligations under this Contract, (iv) such Party has taken all necessary action on its part to

 

14


 

be taken in order to authorize the execution, delivery and performance of this Contract, (v) the execution, delivery and performance of this Contract does not cause such Party to violate applicable law, any applicable order or judgment, or its organizational documents or constitute a breach or default of any material contract to which such Party is a party, and (vi) this Contract constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.

 

13.10.                  Any and all notices, requests, consents or other communications permitted or required to be given under the terms of this Contract shall be in writing and shall be deemed received (i) if given by electronic transmission, when transmitted if transmitted on a Business Day and during normal business hours of the recipient, and otherwise on the next Business Day following transmission, (ii) if given by certified mail, return receipt requested, postage prepaid, three (3) Business Days after being deposited in the United States mails, and (iii) if given by Federal Express or other overnight carrier service, then one (1) Business Day after deposit.  The mailing address, email address, and facsimile number of each of the Parties is as follows, (which address and number may be changed by notice given in the manner provided in this Section 13.10):

 

If to Seller:

PL Propylene LLC

 

Attention:  Senior Vice-President

 

Two Houston Center

 

909 Fannin, Suite 2630

 

Houston, TX 77010

 

Facsimile:  (713) 789-8148

 

Email: ***@***

 

 

If to Buyer:

The Dow Chemical Company

 

Attention:  Commercial Manager

 

1254 Enclave Parkway

 

Houston, Texas 77077

 

Facsimile:  (281) 966-4870

 

Email: ***@***

 

13.11.                  THE PARTIES CERTIFY THAT THEY ARE NOT “CONSUMERS” WITHIN THE MEANING OF THE TEXAS DECEPTIVE TRADE PRACTICES (CONSUMER PROTECTION) ACT, SUBCHAPTER E OF CHAPTER 17, SECTIONS 17.41.  ET SEQ., OF THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED (“DTPA”). THE PARTIES COVENANT FOR THEMSELVES AND FOR AND ON BEHALF OF ANY SUCCESSOR OR ASSIGNEE THAT IF THE DTPA IS APPLICABLE TO THIS CONTRACT:  (1) THE PARTIES ARE “BUSINESS CONSUMERS” AS THAT TERM IS DEFINED IN THE DTPA; (2) OTHER THAN SECTION 17.555 OF THE TEXAS BUSINESS AND COMMERCE CODE, EACH PARTY HEREBY WAIVES AND RELEASES ALL OF ITS RIGHTS AND REMEDIES THEREUNDER AS APPLICABLE TO THE OTHER PARTY AND ITS SUCCESSORS AND ASSIGNS; AND (3) EACH PARTY SHALL DEFEND AND INDEMNIFY THE OTHER PARTY FROM AND AGAINST ANY AND ALL CLAIMS OF OR BY THE INDEMNIFYING PARTY OR ANY OF ITS SUCCESSORS AND ASSIGNS OR ANY OF ITS OR THEIR AFFILIATES OR SUBSIDIARIES BASED IN WHOLE OR IN

 

15


 

PART ON THE DTPA AND ARISING OUT OF OR IN CONNECTION WITH THIS CONTRACT.

 

13.12.                  Each Party agrees to comply with applicable laws in the performance of this Contract.

 

13.13.                  If any index or publication referred to in this Contract is being used to calculate the Purchase Price and such index or publication is discontinued or ceases to be published, or ceases to provide the referenced prices (subject to the provisions for a delay in publishing a necessary price as set out in the Purchase Price Section set out above), the Parties shall promptly agree upon a replacement publication or reference price that is substantially similar to the index, publication or price in question.

 

If either Buyer or Seller in good faith believe that the “PG Propylene Contract Benchmark” price or the “CG Propylene Contract Benchmark” price, as applicable, has ceased to accurately represent the reference price generally accepted by buyers and sellers of large volume pipeline delivered Product in the Gulf Coast region, then either party shall have the right to propose an alternative reference price by providing the other Party with written notice.  Upon receipt of such written notice, Buyer and Seller agree to engage in good faith negotiations to determine if a new reference price is appropriate and if so what the new reference price shall be.  Until such time that Buyer and Seller mutually agree on the new reference price, the reference price shall continue to be the “PG Propylene Contract Benchmark” price or the “CG Propylene Contract Benchmark”, as applicable.

 

13.14.                  This Contract may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the Parties may execute this Contract by signing any such counterpart.

 

13.15.                  Each of the Parties agrees that (i) any consent or signed document transmitted by electronic transmission shall be treated in all manner and respects as an original written document, (ii) any such consent or document shall be considered to have the same binding and legal effect as an original document and (iii) at the request of any party hereto, any such consent or document shall be re-delivered or re-executed, as appropriate, by the relevant party or Parties in its original form.  Each of the Parties further agrees that they will not raise the transmission of a consent or document by electronic transmission as a defense in any proceeding or action in which the validity of such consent or document is at issue and hereby forever waives such defense.  For purposes of this Contract, the term “electronic transmission” means any form of communication not directly involving the physical transmission of paper, that creates a record that may he retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

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ATTACHMENT A-1

 

PL Propylene LLC Product Specification

 

Name of Product

Polymer Grade Propylene (high purity)

Date:  October 21. 2008

 

Test

 

Units

 

Test Method

 

Specification

Propylene

 

Wt % Min

 

ASTM D2712*

 

99.5

Propane

 

ppm wt Max

 

ASTM D2712*

 

4000

Methane

 

ppm wt Max

 

ASTM D2712*

 

300

Ethane

 

ppm wt Max

 

ASTM D2712*

 

1000

Hydrogen

 

ppm WE Max

 

ASTM D2504*

 

1.0

Isobutane

 

ppm wt Max

 

ASTM D2712*

 

100

Ethylene

 

ppm wt Max

 

ASTM D2712*

 

10

Normal Butane

 

ppm wt Max

 

ASTM D2712*

 

100

1, 3 Butadiene

 

ppm wt Max

 

ASTM D2712*

 

3.0

Butene (1)

 

ppm wt Max

 

ASTM D2712*

 

10

C5 & Heavier (2)

 

ppm wt Max

 

ASTM D-2504*

 

10

Acetylene

 

ppm wt Max

 

ASTM D2712*

 

2.0

Methyl Acetylene

 

ppm wt Max

 

ASTM D2712(8)

 

2.0

Propadiene

 

ppm wt Max

 

ASTM D2712*

 

3.0

CO2

 

ppm wt Max

 

ASTM D2504*

 

1.0

CO

 

ppm wt Max

 

ASTM D2504*

 

0.1

Total Oxygenates

 

ppm wt Max

 

ASTM D4864*

 

10

H2O

 

ppm wt Max

 

Online Analyzer

 

2.0

Oxygen

 

ppm wt Max

 

ASTM D2504*

 

2.0

Total Sulfur

 

ppm wt Max

 

ASTM D-4045(8)

 

0.5

COS

 

ppm wt Max

 

LYON 5971

 

20

H2S

 

ppm wt Max

 

ASTM D3246*

 

0.5

Arsine

 

ppm wt Max

 

LYON 5971

 

20

Phosphine

 

ppm wt Max

 

LYON 5971

 

20

Ammonia

 

ppm wt Max

 

ASTM D3431(8)

 

0.2

Methanol

 

ppm wt Max

 

Gas Chromatograph

 

5.0

 

* Any GC method capable of meeting or exceeding the quality criteria outlined in the relevant ASTM method.

Note 1:  Butenes include 1-butene, 2-butene, and iso-butylene.

Note 2:  C5 + includes C5 — C9 hydrocarbons and is certified by periodic lab samples or configuration analysis.

 

A-1


 

ATTACHMENT A-2

 

PL Propylene LLC Product Specification

 

Name of Product
Polymer Grade Propylene

Date:  October 21. 2008

 

Test

 

Units

 

Test Method

 

Specification

Propylene

 

Wt % Min

 

ASTM D2712*

 

93.0

Propane

 

Wt % Max

 

ASTM D2712*

 

7.0

Methane + Ethane

 

ppm wt Max

 

ASTM D2712*

 

1000

Ethylene

 

ppm wt Max

 

ASTM D2712*

 

50

1,3 Butadiene

 

ppm wt Max

 

ASTM D2712*

 

15

Total C4’s (1)

 

ppm wt Max

 

ASTM D2712*

 

225

Butenes (2)

 

ppm wt Max

 

ASTM D2712*

 

100

MA + PD + acetylene

 

ppm wt Max

 

ASTM D2712*

 

20

H2 + CO2 + CO + 02

 

ppm wt Max

 

ASTM D2504 & D2505*

 

100

H20

 

ppm wt Max

 

Online Analyzer

 

30

Total Sulfur

 

ppm wt Max

 

D-4045

 

1.0

Total Chlorides (3)

 

ppm wt Max

 

Microcoulometry or Equivalent (3)

 

1.0

C5 & Heavier (4)

 

ppm wt Max

 

D-2712

 

25

CO & CO2

 

ppm wt Max

 

ASTM D2504 & D2505*

 

50

Oxygen

 

ppm wt Max

 

D-2504

 

15

 

Note 1:  Total C4’s include normal butane, butene 1, butene 2, isobutylene, 1,3 Butadiene and iso-butane.

Note 2:  Butenes include 1-butene,2-butene, and iso-butylene.

Note 3:  Total Chlorides include both inorganic and organic chlorides (methyl chloride, ethyl chloride and vinyl chloride) and is certified by periodic lab samples or configuration analysis.

Note 4:  C5 + includes C5 — C9 hydrocarbons and is certified by periodic lab samples or configuration analysis.

 

A-2


 

ATTACHMENT B

 

PROPYLENE MEASUREMENT

 

CUSTODY TRANSFER/MASS MEASUREMENT PROTOCOL
PROPYLENE TURBINE METER WITH DENSITOMETER

 

Polymer Grade Propylene and Chemical Grade Propylene

 

SECTION I - METERING EQUIPMENT

 

Polymer Grade Propylene and Chemical Grade Propylene delivered or received by Seller shall be measured by MASS MEASUREMENT PROCEDURES using a turbine meter.

 

Polymer Grade Propylene shall be measured by Mass measurement procedures in accordance with AGA-3, MPMS, GPA standards and/or procedures agreed to by both parties.  The determination of the flowing density of the polymer grade propylene shall be calculated by the flow computer using the API density table as found in API MPMS Chapter 11.3.3.2.

 

Chemical Grade Propylene shall be measured by Mass measurement procedures in accordance with AGA-3, MPMS, GPA standards and/or procedures agreed to by both parties.  The determination of the flowing density of the chemical grade propylene shall be calculated by the use of a densitometer.

 

Each metering station shall be equipped with:  a flow computer capable of calculating mass; temperature and pressure transmitters.  Additionally, each chemical grade propylene meter shall be equipped with a densitometer for measuring product density.

 

The metering station shall be installed in such a manner that a minimum back-pressure of 1.5 times the product vapor pressure at maximum operating temperature is maintained at all times.  Measurement accuracy shall not be impeded by the effects of pulsation created by pumps or other sources.

 

All equipment employed in metering and sampling shall be approved as to the type, materials of construction, method of installation, and maintenance by all parties involved in the custody transfer of products.  Due consideration shall be given to the operating pressure, temperature, and characteristics of the product being measured.

 

Turbine Meters shall be installed and operated in accordance with the MPMS, Chapter 5, “Metering”, Sections 3 & 4. Each turbine meter shall be proved Monthly or when accuracy is in question using a ball or piston-type or small volume prover in accordance with the MPMS, Chapter 4, “Proving Systems.” The meter shall be repaired or replaced anytime the meter shift is greater than +/- 0.0050 from its established historical meter factor for that flow rate, or anytime the factor shifts by more than 0.0025 from one proving to the next.  The meter shall be reproved anytime the current operating flow rate would cause a change in meter factor greater than +/¬0.0010 from the meter factor being used.  A copy of all meter curves, meter provings, and prover certification data shall he provided to the customer.

 

B-1


 

Densitometers with frequency output shall he installed and proved in accordance with the MPMS. Chapter 14, Section 6, “Continuous Density Measurement.” The frequency output may be driven directly into a flow computer capable of internally converting frequency to corrected flowing density in gm/cc (preferred), or, to a separate frequency converter and into the flow computer as a 4-20 mA signal (not preferred).  Proving the densitometer is to be by entrapping a sample of the flowing stream at system conditions in a high-pressure vessel known as a pycnometer.  The connections for the pycnometer shall be installed in the same manner as those of the densitometer.  Thermowells shall be installed to allow monitoring of the inlet and outlet temperature.  Accuracy of the densitometer shall be verified Monthly or when accuracy is in question and shall be within +/- 0.001 gm/cc over its entire range and repeatable within +/¬0.0005 gm/cc.

 

Temperature and Pressure Transmitters shall be verified Monthly using a certified thermometer and reference gage respectively to ensure current readings are within +/-0.2 degree F and +/- 1 psi.  A full five (5) point calibration shall be performed at least once quarterly.  All verification and calibration data shall be supplied to Buyer.  Accuracy of these devices shall be +1- 0.05% of scale.

 

Flow Computers shall be installed and operated in accordance with MPMS, Chapter 21.2, “Flow Measurement Using Electronic Metering Systems” and shall be capable of accepting turbine pulses and signals from the pressure, temperature, and density transmitters.  The computer shall convert, as required, and totalize these signals into daily mass values.

 

Meters, instruments, and check metering systems shall be calibrated or proved at least once each Month.  Sufficient notice shall be given to all parties to permit a representative of each to be present.  Reference to any API, ASTM, GPA, or similar publication shall be deemed to encompass the latest edition, revision, or amendments thereof.

 

SECTION II - ACCOUNTING AND MEASUREMENT PROCEDURES

 

I.                                         CUSTODY TRANSFER TICKETS

 

Seller shall furnish to Buyer daily custody transfer tickets, unless otherwise provided for by contract, for products measured.  The ticket will identify the product and state the Total Mass to the nearest 1.0 pound-mass.  An unfinished batch shall be closed out at 2400 hours on the last day of the month unless otherwise provided for by contract.

 

II.                                     MEASUREMENT BASIS

 

A.                                    MASS MEASUREMENT

 

Mass measurement shall be accomplished utilizing a, turbine meter, densitometer for chemical grade propylene or API table for chemical grade propylene, and flow computer to convert volume and density at flowing conditions to total pounds mass according to the following formula:

 

Total Mass = Volume at flowing conditions X MCF X Density at flowing conditions X DCF = Pounds

 

B-2


 

Volume is in gallons

 

Density is in pounds per gallon

 

MCF is meter correction factor

 

DCF is densitometer correction Factor

 

For polymer grade propylene the DCF will not apply or be 1.0.

 

III.                            PROVINGS AND TOLERANCES

 

Provings shall meet the recommendations of API Chapters 14.6 and the appropriate sections of API Chapter 4.

 

A.                                    General

 

1.                                       Meter provings, calibration of instruments, and maintenance of measurement equipment will normally be performed by Sellers personnel or may be delegated to responsible third-party contractors under the direction of Sellers representative.

 

2.                                       A Buyers witness signature does not constitute the approval of the use of out-of-tolerance equipment, but said signature does attest to the validity of the proving report.  Note that a valid report may say the system performance was satisfactory or unsatisfactory, as appropriate.

 

B.                                    Proving Intervals

 

Each meter shall be proven when initially placed into service.  Subsequent provings shall be made every thirty (30) days, unless in accordance with the MPMS, Chapter 4.8.2.10, the consistency of the meter factor allows the proving interval to be extended.  The Statistical Quality Control (SQC) tracking of the meter factor may allow extension of the interval between provings to sixty (60) days with written approval of Buyer.  The meter shall be proven as soon as possible after any meter maintenance is performed.

 

C.                                    Meter Factor

 

1.                                       Meter proving calculations shall he in accordance with API Standards.  The average of five (5) consecutive prover runs shall be taken to establish an initial or new meter factor, provided that the five (5) proving runs are within 0.0005 (0.05%) of each other and the meter factor is within 0.0025 (0.25%) of the previous meter factor under like operating conditions.

 

2.                                       The new meter factor shall be used after each successful proving if it meets the above proving criteria.

 

3.                                       If the new meter factor deviates from the previous meter factor under like operating conditions by more than plus or minus 0.0025, then one half (1/2) of the volume measured since the previous proving shall be corrected using the new meter factor.  If the time of malfunction can be determined by historical data, then the volume measured since that point in time shall be

 

B-3


 

corrected using the new meter factor.  The new meter factor shall not be used to correct volumes measured more than 31 days prior to the new proving.

 

4.                                       No work shall be performed on the measuring element of a turbine meter without 24 hour notice being given to Buyer except in case of an emergency and proving the meter.  If any work is performed, a new meter factor shall be established.

 

5.                                       If the new meter factor deviates 0.0025 or more, the element shall be removed and inspected.  If there is build-up on the internals, then the element shall be cleaned and the meter re-proved.  If excessive wear is found, then the element shall be repaired or replaced and the meter re-proved to establish a new initial meter factor.  After a 24-hour wear-in period, the meter shall be re-proved and if the meter factor changes more than +/- 0.0015 from the new initial meter factor, then one-half (1/2) of the volume measured shall be corrected using the latest meter factor.

 

6.                                       The measurement technician shall record all required corrections to measured volumes and shall describe the findings, method of repair, and calculations used in making the correction on the meter proving report.  A correction ticket for the amount of the correction shall be issued.

 

D.                                    Density Factor

 

The average of two (2) successive pycnometer provings shall establish product flowing density, provided the two (2) successive provings agree within 0.0005 (0.05%).  The new factor should agree with the old factor within 0.0025 (0.25%), if it does not, the density meter should be cleaned and/or repaired as required.

 

IV.                           CUSTODY MEASUREMENT STATION FAILURE

 

If a failure occurs on a custody measurement station or the station is out of service while product is being delivered, then the volume shall be determined or estimated by one of the following methods in the order stated:

 

1.                                       By using data recorded by any check measuring equipment that was accurately registering; or

 

2.                                       By correcting the error if the percentage error can be ascertained by calibrations, tests, or mathematical calculations; or

 

3.                                       By comparison with deliveries made under similar conditions when the measurement station was registering accurately; or

 

4.                                       By using historical pipeline gain/loss.

 

B-4


 

DEFINITIONS

 

A.                                   “Day” shall mean a period of twenty-four (24) consecutive hours commencing at a local time agreed on by all parties involved.

 

B.                                     “Gallon” shall mean an U.S. Gallon of 231 cubic inches of liquid at sixty degrees (60 °F) Fahrenheit and at the equilibrium vapor pressure of the liquid.

 

C.                                     “Barrel” shall mean forty-two (42) U.S. Gallons.

 

D.                                    Pound shall mean a unit of weight equivalent to 16 ounces avoirdupois.

 

TECHNICAL PUBLICATIONS

 

1.                                       Manual of Petroleum Measurement Standards.  American Petroleum Institute, Washington.  D. C.:

 

(a)                                  Chapter 1, “Definitions”

 

(b)                                 Chapter 4, “Proving System”

 

(c)                                  Chapter 5.3, “Turbine Meters”

 

(d)                                 Chapter 5.4, “Instruments or Accessory Equipment of Liquid Hydrocarbon Metering Systems”

 

(e)                                  Chapter 9.2, “Pressure Hydrometer Test Method for Density or Relative Density”

 

(f)                                    API Table 24A, Volume reduction to 60°F.6110 - .7785 S.G.

 

(g)                                 Chapter 11.2.2, “Compressibility Factors for Hydrocarbons 0.350 - .637 Relative Density Range and -50°F to +140°F.”

 

(h)                                 API 11.2.1 Compressibility Tables 0-90° API gravity

 

(i)                                     Chapter 12.2, “Calculations of Petroleum Quantities”

 

(j)                                     Chapter 14.6, “Continuous Density Measurement”

 

(k)                                  API Chapter 14.4, “Converting Mass of Natural Gas Liquids and Vapors to Equivalent Liquid Volumes”

 

(l)                                     Chapter 14.8, “Liquified Petroleum Gas Measurement”

 

(m)                               Chapter 14.7, “Mass Measurement of Natural Gas Liquids”

 

(n)                                 Chapter 21.2, “Flow Measurement Electronic’s Liquid Measurement”

 

ASTM-D-1250 (Table 24), “Volume Corrected to 60°F and equilibrium vapor pressure”

 

B-5


 

Gas Processors Association

 

(a)                                  GPA Standard 2140 “Liquified Petroleum Gas Specifications and Test Methods”

 

(b)                                 GPA Standard 2145 “Table of Physical Constants of Paraffin Hydrocarbons and Other Components of Natural Gas”

 

(c)                                  GPA Standard 2174 “Method of Obtaining Hydrocarbon Fluid Samples Using a Floating Piston Cylinder”

 

(d)                                 GPA Standard 2177 “Method for the Analysis of Demethanized Hydrocarbon Mixtures Containing Nitrogen and Carbon Dioxide by Gas Chromatography”

 

(f).                                 GPA Standard 8182 “Tentative Standard for the Mass Measurement of Natural Gas Liquids”

 

References to any API, GPA or ASTM shall be deemed to encompass the latest edition, revision or amendment, thereof.

 

B-6