1998 08 26 BAWA MinutesMINUTES OF THE REGULAR MEETING
OF THE BOARD OF DIRECTORS
OF THE BAYTOWN AREA WATER AUTHORITY
August 26, 1998
The Board of Directors of the Baytown Area Water Authority, Harris County,
Texas, met in regular session on Wednesday, August 26, 1998, at 7425 Thompson
Road, in the BAWA Conference Room with the following in attendance:
Robert L. Gillette, President
Dan Mundinger, Vice President
Knox Beavers, Board Member
*Roy L. Fuller, Board Member
Absent: Peter R. Buenz, Secretary
The meeting opened with a quorum present, and the following business was
conducted.
Consider Approval of Minutes for the Regular Meeting on July 15, 1998
Board Member Fuller moved for approval of the minutes for the regular meeting
held on July 15, 1998. Board Member Beavers seconded the motion. The vote follows:
Ayes:
Nays:
Board Members Beavers, Fuller, Gillette, and Mundinger
None
Consider Award of Engineering Contract to Camp, Dresser and McKee (CDM) to
Prepare Plans and Specifications for Sludge Removal Modifications to Plant
Sedimentation Basin
Fred Pack, Director of Utilities for the City of Baytown, requested approval of an
engineering contract in the amount of $76,550 with Camp, Dresser and McKee (CDM)
to develop plans and specifications for sludge removal modifications to the plant
sedimentation basin. The existing system is obsolete. CDM has extensive experience
with not only engineering plants, but also retrofitting and this will be a retrofit of new
technology into the existing facility. The estimated construction cost is $625,000.
Plans and specifications will be brought back to the board for approval and
authorization to advertise for bids.
980826-2
Minutes of the BAWA Meeting — August 26, 1998
Board Member Fuller moved to approve the engineering contract with Camp,
Dresser and McKee to prepare plans and specifications for sludge removal
modifications to the plant sedimentation basin. Board Member Mundinger seconded
the motion. The vote follows:
Ayes:
Nays:
Board Members Beavers, Fuller, Gillette, and Mundinger
None
Consider Authorization of an Assignment to the Contract with Wayne Smith &
Associates to Prepare Plans and Specifications for the Installation of an Automatic High
Pressure Control System.
The proposed assignment authorizes Wayne Smith & Associates in the amount
of $9,900 to perform design phase services as required for preparation of plans and
specifications for the conversion of an existing butterfly valve into a high pressure
control valve. The estimated construction cost is approximately $100,000.
Board Member Beavers moved to authorize assignment of the contract with
Wayne Smith & Associates to prepare plans and specifications for the conversion of an
existing butterfly valve into a high pressure control valve. Board Member Fuller
seconded the motion. The vote follows:
Ayes:
Nays:
Board Members Beavers, Fuller, Gillette, and Mundinger
None
Consider Approval of the Proposed 1998/99 Budget
The administration reviewed the proposed 1998/99 Budget with the board. A
copy of said budget is "Attachment A" to the minutes.
Monte Mercer, Director of Finance for the City of Baytown, explained that the
debt service payment for fiscal year 1999 is $1,680,874 with a peak of $1,705,874 in
2000. Expected payoff of existing debt is fiscal year 2008. Payments from 2004
through 2008 average approximately $263,000 annually. Due to the short duration of
the existing debt, plans are to use reserves established for debt service to supplement
current funding of $1,500,518, rather than increase rates for treated water.
In order to maintain fiscal stability governmental entities maintain a working
capital balance to meet daily liquidity needs. The goal for working capital is 45 to 60
days operating capital. Projected working capital is estimated to be 81 days as of
September 1998.
980826-3
Minutes of the BAWA Meeting — August 26, 1998
Bobby Rountree, General Manager, emphasized that with BAWA debt
decreasing in 2004, plans can be made to issue debt in 2000-2001 for plant expansion,
pay interest only until 2003-2004, with principal payments beginning at that point.
Herb Thomas, Plant Manager, stressed that the debt issued in 1994 and 1997
has provided funding to effect improvements to existing plant facilities. The $200,000
expended toward rehab of the filters enabled the excess flow through the plant this
summer. The plant is rated for 13 mgd but produced 21 mgd this summer which
generated approximately $200,000 extra revenue. These dollars will go into working
capital for use in future years.
Mr. Rountree reiterated that the staff has been discussing the need to expand
the plant and provide another transmission line from the plant to the city. Probably the
design phase will be done in 1999 with construction in 2000, but all of these plans must
coincide with additional growth.
Board Member Fuller moved for adoption of the proposed Budget; Board
Member Mundinger seconded the motion. The vote follows:
Ayes:
Nays:
Board Members Beavers, Fuller, Gillette, and Mundinger
None
*Board Member Fuller absent.
Manager's Report
Planergy Program Through Houston Lighting & Power — The Planergy Program
is effective from June 1 through September 3. BAWA receives revenue through
curtailing use of electricity. There were eight total curtailments. For the first two
curtailments the computer that monitors use of electricity was malfunctioning indicating
91% of compliance the first time and 95% the second time for payment of $4,000. The
remaining six curtailments indicated up to 130% compliance which will produce bonus
payments. This has been a good program for BAWA and Houston Lighting & Power.
BAWA has the option to refuse curtailment with no penalty.
Adjourn
There being no further business to be transaaccted, the meeting was adjourned.
Robert L. Gillette
President
Attachment "A"
•
BA YTOWN AREA
WATER
A (ITHORI T Y
Baytown Area Water Authority, "BAWA", is a water authority created by Texas
Legislature to purchase and distribute surface and/or underground supplies for the City and
surrounding communities. The City accounts for approximately 90% of BAWA's annual sales.
BAWA is considered a component unit of the City of Baytown.
•
• BAYTOWN AREA WATIHJR
AUTHORITY
(BAWA)
ORGANIZATIO\ CHART
Board of
Directors
General Manager
Plant Manager
Director of
Utilities
Superintendent
Water
Treatment
Baytown
Area Water
Authority
•
•
MAJOR BUDGET ISSUES
Fiscal Year 1998-99
BAYTOWN AREA WATER AUTHORITY
This fund accounts for the Baytown Area Water Authority (BAWA). BAWA is a water authority created by the Texas
Legislature to supply water for the City of Baytown (City) and surrounding communities. The City accounts for
approximately 90% of BAWA's annual sales, BAWA is a separate legal entity, however, it is considered a component unit of
the City. Total proposed expenditures for the 1999 budget are S4,828,102, an increase of S49,194.
I. REVENUES
A. Water Volume
The 1998/99 budget projects sales of 54,835,982 or 11.2 million gallons per day (mgd) based upon average rainfall
years. Fluctuations to average rainfall can significantly impact actual sales. There is no proposed increase in
BAWA rates.
II. EXPENDITURES
A. Raw Water Supply Cost
BAWA purchases raw water from the City of Houston. The raw water supply contract with the City of Houston is
in effect through the year 2020 and sets the maximum amount of raw water to be delivered to the BAWA plant at
11.9 mgd without penalties. BAWA anticipates no rate increase from the City of Houston for next year; therefore,
there will be no pass through increase to the cost of raw water for the 1999 fiscal year.
B. Capital Projects Program
A 51.3 million bond issue in 1997 provided funds for capital projects through the year 2001. These funds were not
identified for increasing plant capacity.
C. Debt Service
The debt service payment for fiscal year 1999 is S1,680,S74. The average debt service is approximately SSS0,000
million with a peak of S1,705,874 million in the year 2000 and final payoff of existing debt in fiscal year 200S.
Payments from 2004 through 200S average approximately S263,000. Due to the short duration of the existing debt,
plans arc to use reserves established for debt service to supplement current funding of S 1,300,5 1 S.
III. WORKING CAPITAL
A. In order to maintain fiscal stability governmental entities maintain a working capital balance to meet daily liquidity
needs. Appropriate levels of working capital vary from entity to entity based on the relative impact of particular
circumstances or financial conditions. The goal for working capital is 45 to 60 days operating capital. Working
capital is defined as current assets (e.g. cash, investments, accounts receivable) less current liabilities (c.g. accounts
payable). Projected working capital is estimated to be S 1 days as of September 1998.
3
•
•
CITY OF BAYTOWN
BAYTOWN AREA WATER AUTHORITY FUND 510
BUDGET SUMMARY BY FUND
Actual Budget Estimated Proposed
1996-97 1997-98 1997-98 1998-99
Revenues
Sale of Water - Baytown S 4,072,767 S 4,261,777 3 4,262,207 S 4,346,280
Sale of Water - Other 486,991 488,023 522,686 489,702
Miscellaneous 21,374 29,108 22,286 22,300
Total Revenues 4,581,132 4,778,908 4,807,179 4,858,282
Expenditures
Personnel Services 564,211 583,096 599,715 606,480
Supplies 1,867,273 2,049,800 2,030,400 2,032,000
Maintenance 127,151 164,000 163,000 159,500
Services 412,144 435,440 399,250 433,550
Total Operating 2,970,779 3,232,336 3,192,365 3,281,530
Capital Outlay 27,859
Transfers Out 1,547,618 1,500,518 1,500,518 1,500,518
Contingency 46,054 - 46,054
Total Expenditures 4,546,256 4,778,908 4,692,883 4,828,102
Excess (Deficit) Revenues
Over Expenditures
Working Capital - Beginning
34,876 114,296 30,180
1,042,620 1,077,496 1,077,496 1,191,792
Working Capital - Ending S 1,077,496 S 1,077,496 S 1,191,792 S 1,221,972
Proposed Budget 1998-99
by Expenditure Type
Personnel Services
l3/
Raw Water Purchases
32;.
Operating Expenses
24
•
CITY OF BAYTOWN
BAYTOWN AREA WATER AUTHORITY FUND 510
OPERATING RESULTS
Actual
1996-97
Budget Estimated
1997-98 1997-93
Proposed
1998-99
Operating Revenues
Sale of Water - Baytown
Sale of Water - Other
Total Revenues
Operating Expenses
Personnel Services
Raw Water Purchases
Supplies
Maintenance
Services
Depreciation
Total Expenditures
Operating Income (Loss)
Non -operating
Interest Revenue and Other
Interest Expenses and Other
Total Non -operating Expenses
Net Income (Loss)
S 4,072,767 S 4,261,777 S 4,262,207 $ 4,346,280
486,991 488,023 522,686 489,702
4,559,758 4,749,800 4,784,893 4,835,982
564,211
1,461,421
405,853
127,149
412,144
426,723
583,096
1,550,000
499,800
164,000
481,494
418,539
599,715
1,530,000
500,400
163,000
399,250
418,539
606,480
1,550,000
332,000
159,500
479,604
460,393
3,397,501 3,696,929 3,610,904 3,787,977
1,162,257 1,052,871 1,173,939 1,048,005
21,374 29,10S 22,286 22,300
(-197,619) (350,518) (350.51S) (250,51S)
(476,245) (321,410) (328.232) (228.218)
S 636,012 S 731,461 5 845.757 5 S19.787
Reconciliation of Net Income
oss) to Revenues Over (Under) Expenses:
Net Income (Loss)
Principal Dcbt Retirement
Capital Outlay
Depreciation
Revenues Over (Under) Expenditures
686,012
(1,050,000)
(27,859)
426,723
731,461 845,757 319,787
(1,150,000) (1,150,000) (1,250,000)
418,539 418.539 460,393
34.876 S
114.296 S 30.IS0
5
•
•
CITY OF BAYTOWN
PROGRAM SUMMARY
3070 BAYTOWN AREA WATER AUTHORITY
Program Description
Operate and maintain a 13.5 MGD design capacity
surface water treatment facility with a projected flow of
11.2 MGD in fiscal year 1998-99 and a certified
bacteriological laboratory. Following and complying
with the TNRCC Rules and Regulations for Public Water
Supplies adopted 1992, National Primary Drinking Water
Regulations, Safe Drinking Water Act, Surface Water
Treatment Rule, and the Criteria for Certified
Bacteriological Laboratories. Providing BAWA's
customers with high quality, safe drinking water and
consistent water pressure for fire protection.
tf[ajor Goals
• Maintain water quality necessary to be classified as
"Meeting Optimum Corrosion Control" by TNRCC.
• Maintain "Superior Public Water System" status.
• Develop and adopt Optimization Standards as
classified by TNRCC.
Workload Measures
1997
Actual
• Operate the bacteriological laboratory in a manner
that exceeds the requirements as set fourth by Texas
Department of Health.
• Develop and maintain a staff of highly trained water
professionals to better serve customers.
Major Objectives
• Produce 11.2 MGD of water.
• Maintain finished water turbidity consistently less
than 0.1 NTU.
• Provide QA/QC, and mathematical training for
personnel.
• Meet the lead/copper rule for the seventh year of
monitoring.
• Increase public relations by working with the
educational system in the arca to provide more tours
of the facility.
1998
Budget
1998
Estimated
1999
Projected
1. Customers Served
2. Number of customer connections
3. Bacteriological Samples received
4. Customer water quality calls
5. .Average MGD of water produced
Performance :Measures
7
21,500
1,164
50
11
7
21,500
1,165
50
11
7
21,500
1,165
50
11
7
21,600
1,170
50
11
I. Days without interruption of service
2. Days finished water <0.5
3. Bacteriological samples analyzed
4. Customer water quality calls investigated
365
365
1,164
50
365
365
1,160
50
365
365
1,165
50
365
365
1,170
50
CITY OF BAYTOWN
SERVICE LEVEL BUDGET
5101 BAYTOWN AREA WATER AUTHORITY
Acct# Acct Description
1997 1998 1998 1999
Actual Budget Estimated Proposed
7100 Personal Services
71031 Contract Personnel BAWA • S 564,211 S 583,096 5 599,715 $ 606,4S0
Total Personal Services 564,211 583,096 599,715
7200 Supplies
72001 Office 2,457 2,300 2,300 2,500
72002 Postage 386 700 700 800
72007 Wearing Apparel 4,130 6,000 6,000 7,000
72016 Motor Vehicle 2,832 3,200 3,500 3,500
72021 Minor Tools 857 2,000 2,000 2,000
72026 Cleaning & Janitorial 1,459 2,000 2,300 2,500
72031 Chemical 363,115 450,000 450,000 480,000
72032 Medical 437 600 600 600
72041 Educational 791 1,000 1,000 1,100
72045 Computer Software Supplies 73S
72051 Untreated Water 1,461,421 1,550,000 1,530,000 1,550,000
72052 Treated Water 24,162
72055 Laboratory Supplies 4,489 32,000 32,000 32,000
Total Supplies 1,867,274 2,049,800 2,030,400 2,0S2,000
7300 tMaintenance
73011 Buildings 2,941 3,000 3,000 3,000
73021 Filtration Plants 24,000 24,000 20,000
73025 Streets Sidewalks & Curbs 773 500 500 500
73027 Heating & Cooling System 491 3,000 3,000 3,000
7302S Electrical Maintenance 45,134 50,000 50,000 50,000
73041 Office Furn & Equip - 1,500 1,500 1,500
73042 Machinery & Equipment 65,771 75,000 75,000 75.000
73043 Motor Vehicles 9,794 6,000 6,000 6,000
73045 Radio & Testing Equipment 76S 1,000 500
73061 Miscellaneous 1,477
Total Maintenance 127.149 164,000 163,000 159,500
7400 Services
74001 Communication S,455 9,240 10,000 11,200
74002 Electric Service 301,000 320,000 315,000 320,000
74011 Hire Of Equipment 19,362 12,000 12,000 12.000
74012 Insurance 24,047 56,000 24,000 24,000
74021 Special Services 38,413 12,000 12,000 3S,000
74022 Audits S,010 8,500 S,500 9,000
74036 Advertising 444 600 600 600
74041 Travel & Reimbursable 3,516 4,000 4,000 4,000
606,480
7
•
CITY OF BAYTOWN
SERVICE LEVEL BUDGET
5101 BAYTOWN AREA WATER AUTHORITY
Acct# Acct Description
1997 1998 1998 1999
Actual Budget Estimated Proposed
74042
74051
74071
Education And Training
Rents
Association Dues
Total Services
Total Operating
8000 Capital Outlay
84041 Furniture & Fixtures
84042 Machinery And Equipment
84043 Motor Vehicles
Total Capital Outlay
9000 Other Financing Uses
91511 To Bawa Debt Service
Total Other Financing Uses
9900 Contingencies
99001 Unforeseen Expenses
Total Contingencies
3,899
4,578
416
7,800
4,450
850
7,800 8,800
4,500 5,000
850 950
412,145 435,440
399,250 433,550
2,970,779 3,232,336
2,702
13,314
11,843
3,192,365 3,281,530
27,859
1,547,61S 1,500,518
I,500,5 18 1,500,518
1,547,6IS 1,500,51S
1,500,518 1,500,518
46,054 46,054
46,054 46,054
TOTAL DEPARTMENT S 4,546,256 S 4,778,903 S 4,692,SS3 S 4,828,102
CITY OF BAYTOWN
BAYTOWN WATER AUTHORITY REVENUE BONDS
LONG TERM DEBT AMORTIZATION SCHEDULES
Revenue
Bonds
Series, 1978
Series, 1979
Series, 1994
Series, 1997
Amount of
Issue
Amount
Outstanding
October, 1998
11,850,000 S
2,500,000
815,000
1,350,000
2,600,000
2,500,000
815,000
1,350,000
S 7,265,000
Requirements
Fiscal Year 1998-99
Principal
Interest
Total
S 1,250,000 S 156,000 S 1,406,000
159,376 159,376
48,492 48,492
67,006 67,006
S 1,250,000 S 430,874 S 1.680,874
Arniount
Outstanding
Sept., 1999
S 1,350,000
2,500,000
815,000
1,350,000
S 6.015,000
Combined BAWA Debt, All Scrics
Dcbt Requirements to Maturity
Fiscal
Year
Principal
5/01
Total
Interest
Total
Requirement
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1,250,000
1,350.000
1,250,000
1.250,000
1,015.000
205,000
215,000
230.000
245,000
255.000
430,874
355,874
274,874
195,179
33,877
47.772
33,504
28.483
17,621
5.992
1,680,874
1.705.874
1.524,874
1,445,179
1,098.877
252.772
253,504
253,488
262,621
260.992
S 7,265,000 S 1.479.055 S 3.744.055
500
1 600
1 400
1.200
1.000
-"="0.1100
0.600
0 400
0 200
0.000
IaunhineJ 13A\\",. Debt, ,\Il Series
Petit Requirement to Nfaturih
4
1999 2000 22001
2002
20')3 2004
Fiscal
2005
2M1
0 lr:ccrc:t
0 r:.ncip.rl
9
CITY OF BAYTOWN
BAYTOWN WATER AUTHORITY REVENUE BONDS
DETAIL DEBT AMORTIZATION SCHEDULES
Fiscal Interest Principal Interest Interest Annual Principal
Year Rate Duc 5/01 Duc 5/01 Due 11/01 Requirement Outstanding
Revenue Bond, Series
1978 Date of Issue - September 1, 1991
Term - 22 Years
1995
1996
1997
1998
S 5,775,000
5.75% S 975,000 S 170,406 S 170,406 S 1,315,812 4,800,000
5.80% 1,050,000 142,375 142,375 1,334,750 3,750,000
5.90% 1,150,000 1 1 1.925 1 1 1,925 1,373,850 2,600,000
1999 6.00% 1,250,000
78,000 78.000
1406,000 1,350,000
2000 6.00% 1,350,000 40,500 40,500 1431,000
S 5,775,000 S 543,206 S 543 206 S 6,861412
Revenue Bond, Series
1979 Date of Issue - September 1, 1979
Term - 23 Years
1995
1996
1997
1993
6.38% S
7.30%
7.30%
S 2,500,000
S 79,688 S 79,633 S 159,376 2,500,000
79,633 79,633 159,376 2,500,000
79,633 79,683 159,376 2,500.000
1999 7.30°6
79,683 79.638
159.376 2.500,000
2000
2001
2002
7.30%
7.30%
7.30%
79,6SS 79,633 159.376 2.500,000
1,250,000 79,633 79,633 1.409,376 1,250,000
39,341 39.840 1.329.631
1,2 50.000
S 2,500.000 S 517,969 S 517.96S S 3.535,937
Revenue Bond, Series
1994 Date of Issue - November 1, 1994 Term - 9 Years
1994
1995
1996
1997
I99S
5.95% S
5.95°.0
5.95%
5.95%
S 24,247
24,247
24.246
24,246
$ 24.247
24.247
24.246
24 246
S-13.494
45,494
43.492
43.492
S 315.000
815.000
315,000
S 15,000
S 15.000
1999 5.95%
24,246 24.2-16
43,492 8I5.000
2000
2001
2002
2003
5.95%
5.95%
5.95%
5.95%
815,000
24,246 24.246 43,492 8I5,000
24,246 24,245 43,492 S 15,000
24,246 24 246 48,492 S 15.000
24.246 339.246
S 815.000 S 213.216 S 193.970 S 1.227, 136
Resenuc I1ond, Series
1997 D:rtc of Issue - Dcccmhcr 4, 1997
Tenn - 111 Years
1993
S
S 33.503 S 33.503 S
67.006 S
.350.00(3
1999
33,503
33.503
67.006
.350.000
2000 33.503 33.503 67.006
2001 33,503 33.503 67.006
2002 33,503 33.503 67,006
2003 7.375% 200.000 33.503 26.123 259.631
2004 4.375% 205,000 26,123 21.641 252.772
2005 4.450% 215.000 21,64-! 16.360 253.50-1
2006 4.550.° 230,000 16,360 11.623 253.433
2007 4.600% 245,000 11,623 5.993 262,621
2003 4.700°4 255,000 5,992 - 260.992
S 1.350.000 S 233.270 S 249.763 S 1.333,033
.350.000
.350.000
.350.000
.150,000
94 5.000
730.000
500,000
255.000
I0
•
OIL, GAS AND MINERAL LEASE
THIS AGREEMENT made this day of August, 1998, between the Baytown Area Water Authority
Lessor, whose address is P.O. Box 424, Baytown, Texas 77522 and Sanchez Oil & Gas Corporation whose address
is 5847 San Felipe, Suite 1900, Houston, Texas 77057, Lessee WITNESSETH:
1. Lessor, in consideration of THIRTY-ONE THOUSAND EIGHT HUNDRED TWENTY-THREE
AND 58/100 DOLLARS ($ 31,823.58), in hand paid receipt of which is hereby acknowledged, and in consideration
of the royalties provided in this lease, and in consideration of the agreement of Lessee contained in this lease, hereby
grants, leases, and lets exclusively unto Lessee for the purpose of investigating, exploring, prospecting, mining, and
drilling for and producing oil, gas, and all other minerals, conducting exploration geologic and geophysical surveys
by seismograph, core test, gravity and magnetic methods, injecting gas, water and other fluids, and air into
subsurface strata, laying pipelines, building roads, tanks, power stations, telephone lines, and other structures
thereon and over and across lands owned or claimed by Lessor adjacent or contiguous to the leased land, to
produce, save, take care of, treat, transport, and own the products, and for the purpose of housing and otherwise
caring for its employees, the following described land in Harris County, Texas, to wit:
68.1447 acres, more or less, out of the Nathaniel Lynch Survey, Abstract No. 44, Harris County,
Texas; being the same lands described in that certain Oil, Gas and other Minerals dated January
18, 1989, between THE BAYTOWN AREA WATER AUTHORITY, as Lessor and EXXON
CORPORATION, as Lessee, recorded in County Clerk's File No. M179930, Film Code 148-66-
1463 of the Official Public Records of Real Property of Harris County, Texas.
However, there is expressly excepted from this lease and reserved to Lessor, its successors and assigns, all
vanadium, uranium, plutonium, thorium, fissionable minerals and materials and all other minerals except as
hereafter provided; it is understood and expressly provided that the terms "mineral," minerals," "other mineral" and
"other minerals" whenever and wherever used in this lease shall not refer to and shall not include vanadium,
uranium, plutonium, thorium, fissionable minerals and materials or other minerals or materials other than oil, gas
and sulfur.
2. This is a paid up lease and subject to the other provisions herein contained, this lease shall be for a
term of three years from this date (called "primary term") and as long thereafter as oil, gas or other mineral is
produced from this land or land with which this land is pooled.
3. As royalty, Lessee covenants and agrees:
(a) To deliver to the credit of Lessor, in the pipelines to which Lessee may connect its wells,
the equal one -fifth part of all oil produced and saved by Lessee from said land, or from
time to time at the option of Lessee, to pay Lessor the market price prevailing for the
field where produced of such one -fifth part of such oil at the wells as of the day it is run
to the pipeline or storage tanks, Lessor's interest, in either case, to bear one -fifth of the
cost of treating oil to render it marketable pipeline oil;
(b) To pay Lessor for gas, including casinghead gas or other gaseous substance produced
from the land
(1) when sold by Lessee, one -fifth of the amount realized by Lessee, computed at
the mouth of the well, or
(2) when used by Lessee off the land or in the manufacture of gasoline or other
products, one -fifth of the amount realized from the sale of gasoline or other
products extracted therefrom and one -fifth the amount realized from the sale of
residue gas after deducting the amount used from plant fuel and/or compression;
(c) to pay Lessor on all other minerals mined and marketed or utilized by Lessee from said
land, one -tenth either in kind or value that the well or mine at Lessee's election, except
that on sulfur mined and marketed the royalty shall be one dollar ($1.00) per long ton.
Oil, Gas and Mineral Lease, Page I
•
•
If at the expiration of the primary term or any time or times thereafter, there is any well on the land or on land which
the land or any portion thereof has been pooled, capable of producing oil or gas and all such wells are shut-in, this
lease shall nevertheless, continue in force as though operations were being conducted on said land for so long as said
wells are shut-in and thereafter this lease may be continued in force as if no shut-in had occurred. Lessee covenants
and agrees to use reasonable diligence to produce, utilize or market the minerals capable of being produced from
said well, but in the exercise of such diligence, Lessee shall not be obligated to install or furnish facilities other than
well facilities and ordinary lease facilities of flow lines separator and lease tank, and shall not be required to settle
labor trouble or to market gas upon terms unacceptable to Lessee. If any time or times after the expiration of the
primary term, all such wells are shut-in for a period of 90 consecutive days, and during such time there are no
operations on said land then, at or before the expiration of said 90-day period, Lessee shall pay or tender, by check
or draft of Lessee, as royalty a sum equal to two dollars ($2.00) for each acre of land then covered hereby. Lessee
shall make like payments or tenders at or before the end of each anniversary of the expiration of said 90-day period
if upon such anniversary this lease is being continued in force solely by reason of the provisions of this paragraph.
Each such payment or tender shall be made to the parties who at the time of payment would be entitled to receive
the royalties which would be paid under this lease if the wells were producing and may be deposited in the Baytown
State Bank, a Texas Chartered Bank located at 1 Bay Plaza, Baytown, Texas 77520, or its successors, which shall
continue as the depositories regardless of changes in the ownership of shut-in royalty. If at any time that Lessee
pays or tenders shut-in royalty, two or more parties are, or claim to be entitled to receive same, Lessee may, in lieu
of any other method of payment herein provided, pay or tender shut-in royalty, in the manner above specified either
jointly to such parties or separately to each in accordance with their respective ownership thereof as Lessee may
elect. Any payment hereunder may be made by check or draft of Lessee deposited in the mail or delivered to the
party entitled to receive payment or to a depository bank provided for above on or before the last date for payment.
In the event of assignment of this lease in whole or in part, liability for payment hereunder shall rest on the then
owners of this lease, severally as to acreage owned by each if, and only if, Lessee provides in writing the names,
addresses and telephone numbers of all the owners of the lease prior to the effective date of the assignment
otherwise, both such owners and Lessee whose name is subscribed hereinbelow shall be liable.
4. Lessee, at its option, is given the right and power to pool or combine the acreage covered by this
lease, or any portion of this acreage, as to oil or gas, or either of them, with any other land covered by this lease
and/or with any other land, lease or leases in the immediate vicinity of this lease to the extent stipulated in this lease,
when in Lessee's judgment it is necessary or advisable to do so in order properly to explore or to develop and
operate the leased premises in compliance with the spacing rules of the Railroad Commission of Texas or other
lawful authority, or when to do so would, in the judgment of Lessee, promote the conservation of oil and gas in and
under and that may be produced from the premises. Units pooled for oil under this lease shall not substantially
exceed 40 acres each in area, and units pooled for gas under this lease shall not substantially exceed an area 640
acres each plus a tolerance of ten percent (10%) of that acreage, provided that should governmental authority having
jurisdiction prescribe or permit the creation of units larger than those specified, units thereafter created may conform
substantially in size with those larger units. Lessee under these provisions may pool or combine acreage covered by
this lease, or any portion of this acreage, as to oil or gas in any one or more strata. The units formed by pooling as to
any strata or stratum need not conform in size or area with the unit or units into which the lease is pooled or
combined as to any other strata or stratum, and oil units need not conform as to area with gas units. The pooling in
one or more instances shall not exhaust the rights of Lessee to pool this lease or portions of it into other units. Lessee
shall file for record in the appropriate records of the county in which the leased premises are situated, an instrument
describing and designating the pooled acreage as a pooled unit; and upon such recordation the unit shall be effective
as to all parties hereto, their heirs, successors and assigns, irrespective of whether or not the unit is likewise effective
as to all other owners of surface, mineral, royalty or other rights in land included in such unit. Lessee may at its
election exercise its pooling option before or after commencing operations for or completing an oil or gas well on
the leased premises, and the pooled unit may include, but is not required to include, land or leases upon which a well
capable of producing oil or gas in paying quantities has previously been completed or upon a well capable of
producing oil or gas in paying quantities has previously been completed or upon which operations for the drilling of
a well for oil or gas have previously been commenced. In the event of operations for drilling or producing oil or gas
from any part of a pooled unit which includes all or a portion of the land covered by this lease, regardless of whether
such operations for drilling were commenced or such production was secured before or after the execution of this
instrument or the instrument designating the pooled unit, such operations shall be considered as operations for
drilling on or production of oil or gas from land covered by this lease, whether or not the well or wells are located on
the premises covered by this lease and in such event operations for drilling shall be deemed to have commenced on
Oil. Gas and Mineral Lease, Page 2
•
•
said land within the meaning of paragraph 5 of this lease; and the entire acreage constituting such unit or units, as to
oil or gas, or either of them as provided in this lease, shall be treated for all purposes, except the payment of
royalties on production from the pooled unit, as if the same were included in this lease. For the purpose of
computing the royalties to which owners of royalties and payments out of production and each of them shall be
entitled on production of oil and gas or either of them, from the pooled unit there shall be allocated to the land
covered by this lease and included in the unit (or to each separate tract within the unit if this lease covers separate
tracts within the unit), a pro rata portion of the oil and gas, or either of them, produced from the pooled unit after
deducting that used for operations on the pooled unit. Such allocation shall be on an acreage basis -- that is to say,
there shall be allocated to the acreage covered by this lease and included in the pooled unit (or to each separate tract
within the unit if this lease covers separate tracts within the unit) that pro rata portion of the oil and gas, or either of
them, produced from the pooled unit which the number of surface acres covered by this -lease (or in each such
separate tract) and included in the pooled unit bears to the total number of surface acres included in the pooled unit.
Royalties under this lease shall be computed on the portion of such production, whether it be oil or gas, so allocated
to the land covered by this lease and included in the unit just as though this production were from such land. The
production from an oil well will be considered as production from the lease or oil pooled unit from which it is
producing and not as production from a gas pooled unit; and production from a gas well will be considered as
production from the lease or gas pooled unit from which it is producing and not as production from an oil pooled
unit. The formation of any unit hereunder shall not have the effect of changing the ownership of any shut-in
production royalty which may become payable under this lease. If this lease now or hereafter covers separate tracts,
no pooling or unitization of royalty interest as between any such separate tracts is intended or shall be implied or
result merely from the inclusion of such separate tracts within this lease but Lessee shall nevertheless have the right
to pool as provided above with consequent allocation of production as above provided. As used in this paragraph 4,
the words "separate tract" mean any tract with royalty ownership differing, now or hereafter, either as to parties or
amounts, from that as to any other part of the leased premises.
Notwithstanding anything herein contained to the contrary, it is agreed that should Lessee exercise his
option to pool or combine any portion of the land covered hereby with other lands, lease or leases, as hereinbefore
provided, then such operations and production on and in such pooled unit as herein provided shall continue this lease
in force and effect during or after the primary term as to that portion of the lands covered by this lease, included in
such unit or units as hereinabove provided, but not as to such portion of said lands covered by this lease and not
included in any such unit. This lease may be kept in force and effect as to such remainder in any manner elsewhere
provided in this lease not inconsistent with this paragraph.
5. If at the expiration of the primary term, oil, gas or other mineral is not being produced on said
land, or from the land pooled therewith, but Lessee is then engaged in drilling or reworking operations thereon, or
shall have completed a dry hole thereon within 60 days prior to the end of the primary term, the lease shall remain in
force so long as operations on said well or for drilling or reworking of any additional well are prosecuted with no
cessation of more than 60 consecutive days, and if they result in the production of oil, gas or other mineral, so long
thereafter as oil, gas or other mineral is produced from said land or from land pooled therewith. If after the
expiration of the primary term of this lease and after oil, gas or other mineral is produced from said land, or from
land pooled therewith the production thereof should cease from any cause, this lease shall not terminate if Lessee
commences operations for drilling or reworking within 60 days after the cessation of such production, but shall
remain in force and effect so long as such operations are prosecuted with no cessation of more than 60 consecutive
days, and if they result in the production of oil, gas or other mineral, so long thereafter as oil, gas or other mineral is
produced from said land or from land pooled therewith. Any pooled unit designated by Lessee in accordance with
the terms hereof may be dissolved by Lessee by instrument filed for record in the appropriate records of the county
in which the leased premises are situated at any time after the completion of a dry hole or the cessation of production
on said unit. In the event a well or wells producing oil or gas in paying quantities should be brought in or adjacent
land and within 330 feet of and draining the leased premises, or land pooled therewith. Lessee agrees to drill such
offset well or wells as reasonably prudent operator would drill under the same or similar circumstances. Lessee may
at any time execute and deliver to Lessor or place of record a release or releases covering any portion or portions of
the above described premises and thereby surrender this lease as to such portion or portions and be relieved of all
obligations as to the acreage surrendered.
6. Lessee shall have the right during the term of this lease and the duty, if ordered in writing by the
General Manager of Lessor, within 30 days after the expiration or termination of this lease to remove all property
Oil. Gas and Mineral Lease, Page 3
•
and fixtures placed by Lessee upon the above -described land, including the right to draw and remove all casing.
However, prior to all removal of property and fixtures, Lessee shall schedule such removal with the Lessor at a time
convenient with the Lessor so as not to interfere with the Lessor's operations. When required by Lessor, Lessee will
bury all pipelines below ordinary plow depth, and no well shall be drilled within two hundred (200) feet of any
building, structure or other improvement located on or under the property Lessee expressly agrees that in no event
will any property or fixtures be placed above -ground on the Lessor's premises and should any provision hereof
appear to indicate to the contrary, the prohibition of above -ground placement of property and improvements
contained in this sentence shall control. Lessee understands that Lessor treats untreated water at its facilities and
provides drinking water to its customers. As such, the health and safety issues surrounding the operations of the
Lessee are of utmost importance; and Lessee agrees that at all times its operations affecting Lessor's property shall
be pursued with utmost care and diligence so as not to disturb, interfere or adversely affect Lessor's operations.
7. The rights of either party under this lease may be assigned in whole or in part, and the provisions
of this lease shall extend to their heirs, successors, and assigns; but no change or division in ownership of the land,
rentals, or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessee;
and no change or division in such ownership shall be binding on Lessee until thirty (30) days after Lessee shall have
been furnished by registered U.S. Mail at Lessee's principal place of business with a certified copy of the recorded
instrument or instruments evidencing the same. In the event of assignment of this lease, in whole or in part, liability
for breach of any obligation under the lease shall rest exclusively upon the owner of this lease, or portion thereof
who commits such breach. If six or more parties become entitled to royalty payments under this lease, lessee may
withhold payments unless and until furnished with a recordable instrument executed by all such parties designating
an agent to receive payment for all.
8. The breach by Lessee of any obligation arising under this lease shall not work a forfeiture or termination
of this lease nor cause a termination or reversion of the estate created by the lease nor be grounds for cancellation of
the lease in whole or in part; provided that Lessee cures any such breach determined by the Lessor within 60 days
after receipt of written notice of such default as determined by Lessee. However, should the default not be cured
within the 60-day period, the lease shall terminate at the option of the Lessor, who shall make such election in
writing. Lessee shall have the obligation to reasonably develop the leased premises at all times while this lease is in
effect. Should oil, gas, or other mineral in paying quantities be discovered on the premises, then after the expiration
of the primary term, Lessee shall develop the acreage retained under the lease as a reasonably prudent operator, but
in discharging this obligation it shall in no event be required to drill more than one well per 40 acres of the area
retained under the lease and capable of producing oil in paying quantities and one well per 640 acres, plus an
acreage tolerance not to exceed 10% of 640 acres of the area retained under the lease and capable of producing gas
or other mineral in paying quantities.
9. Lessor hereby warrants and agrees to defend the title to the land and agrees that Lessee at its
option may discharge any tax, mortgage, or other lien upon the land, either in whole or in part, and in the event
Lessee does so, it shall be subrogated to such lien with the right to enforce it and apply royalties accruing under the
lease toward satisfying it. Without impairment of Lessee's rights under the warranty in the event of failure of title, it
is agreed that if this lease covers a less interest in the oil, gas, sulfur or other minerals in all or any part of the land
than the entire and undivided fee simple estate (whether Lessor's interest in this lease is specified or not) or no
interest therein, then the royalties and other monies accruing from any part as to which this lease covers less than
such full interest, shall be paid only in the proportion which the interest therein, if any, covered by this lease bears to
the whole and undivided fee simple estate therein. Should any one or more of the parties named above as Lessors
fail to execute this lease, it shall nevertheless be binding upon the party or parties executing the same.
10. Should Lessee be prevented from complying with any express or implied covenant of this lease,
from conducting, drilling, or reworking operations on the premises or from producing oil, gas or other minerals
therefrom by reason of scarcity of or inability to obtain or to use equipment or material, or by operation of force
majeure, and Federal or state law or any order, rule, or regulation of governmental authority, then while so
prevented, Lessee's obligation to comply with any such covenant shall be suspended, and Lessee shall not be liable
in damages for failure to comply therewith; and this lease shall be extended so long as Lessee is prevented by any
such cause from conducting, drilling or reworking operations on or from producing oil or gas from the leased
premises; and the time while Lessee is so prevented shall not be counted against Lessee, anything in this lease to the
contrary notwithstanding.
Oil. Gas and Mineral Lease, Page 4
•
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I I. By acceptance hereof, Lessee agrees that no drilling, prospecting or mining operations will be
conducted, nor any pipelines or any structure or any type of facilities will be constructed upon the surface of the
herein leased premise without the written consent of the Lessor herein, which consent shall not be unreasonably
withheld, but Lessee shall have the right to prospect, drill, mine and produce said minerals from said land by
operations, which it may conduct of adjoining or nearby lands though the drilling, operating and maintaining or
directional wells on such adjoining or nearby lands or by operations which may be conducted upon lands with which
the herein leased premises or any part may be pooled.
12. By acceptance hereof, Lessee is bound by the rules of both the Railroad Commission of Texas and
the City of Baytown and will comply with any governmental authority having jurisdiction.
13.
Lessee covenants and agrees to indemnify, and does hereby indemnify, hold harmless and
defend, the Lessor, its agents, servants or employees, from and against any and all claims for
damages or injuries to persons or property of whatsoever kind or character, whether real or
asserted, arising out of or incident to this lease and all other operations arising under or
otherwise incident to the provisions of this lease. Lessee hereby assumes all liability and
responsibility for injuries, claims, or suits for damages to person or property, of whatever kind
or character, whether real or asserted, occurring during the term of this lease, arising out of or
by reason of this lease and all other operations arising under or otherwise incident to the
provisions of this lease. It is the expressed intention of the parties hereto, both the Lessee and the
Lessor, that the indemnity provided for in this paragraph is indemnity by Lessee to indemnify
and protect the Lessor from the consequences of the Lessor's own negligence, whether that
negligence is the sole or a concurring cause of the injury, death or damage, as well as the
negligence of the Lessee, whether that negligence is the sole or concurring cause of the injury,
death or damage.
In the event that any action or proceeding is brought against Lessor by reason of any of the above,
Lessee further agrees and covenants to defend the action or proceeding by legal counsel acceptable to the
Lessor. The indemnity provisions of this lease shall not terminate at the termination or expiration of the lease but
shall survive such termination or expiration and shall remain in full force and effect from and after the effective date
of this lease.
Id. Throughout the term of this lease, the Lessee at its own expense shall purchase, maintain and keep
in force and effect insurance against claims for injuries to or death of persons or damages to property which may
arise out of or result from the Lessee's operations and/or performance of the work under this Agreement, whether
such operations and/or performance be by the Lessee, its agents, representatives, volunteers, employees or
sublessees or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them
may be liable.
The Lessee's insurance coverage shall be primary insurance with respect to the BAWA, its officers, agents and
employees. Any insurance or self-insurance maintained by the BAWA, its officials, agents and employees shall be
considered in excess of the Lessee's insurance and shall not contribute to it. Further, the Lessee shall include all
sublessees as additional insureds under its commercial general liability policies or shall furnish separate certificates
and endorsements for each sublessee. All coverage for sublessees shall be subject to all of the requirements stated
herein.
The following is a list of standard insurance policies along with their respective minimum coverage
amounts required in this lease:
•
Oil, Gas and Mineral Lease, Page 5
•
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Commercial General Liability (CGL)
General Aggregate: $2,000,000
Products & Completed Operations: $2,000,000
Personal & Advertising Injury: $1,000,000
Per Occurrence: $1,000,000
Fire Damage: $50,000
a. Coverage shall be at least as broad as ISO CG 00 01 10 93
b. No coverage shall be excluded from standard policy without notification of individual exclusions being
attached for review and acceptance.
c. Endorsement(s) is/are needed for pollution exposure(s) related the drilling operations. Drilling operations
and a description of the endorsement(s) will be shown on or attached to certificate of insurance.
Endorsement(s) is/are subject to approval by BAWA.
Business Automobile Policy (BAP)
Combined Single Limits: $1,000,000
a. Coverage for "Any Auto."
Upon execution of this lease, Lessee shall file with the BAWA valid Certificates of Insurance and
endorsements acceptable to the BAWA. Such Certificates shall contain a provision that coverage afforded under the
policies will not be canceled, suspended, voided, or reduced until at least thirty (60) days' prior written notice has
been given to the BAWA via certified mail, return receipt requested.
The Lessee shall also file with the BAWA valid Certificates of Insurance covering all sublessees.
The following general requirements are applicable to all policies:
a. AM Best Rating of A:VII or better.
b. Insurance carriers licensed and admitted to do business in State of Texas will be accepted.
c. BAWA, its officials and employees are to be added as Additional Insured to liability policies.
d. Upon request of and without cost to BAWA, certified copies of all insurance policies and/or certificates of
insurance shall be furnished to BAWA's representative. Certificates of insurance showing evidence of
insurance coverage shall be provided to BAWA's representative prior to execution of this lease.
e. Upon request of and without cost to BAWA, loss runs (claims listing) of any and/or all insurance coverage
shall be furnished to BAWA's representative.
f. BAWA reserves the right to reject any proposal that does not meet the minimum insurance requirements
outlined above.
15. All notices required to be given hereunder shall be given in writing either by telecopier, overnight,
or facsimile transmission, certified or registered mail at the respective addresses of the parties set forth herein or at
such other address as may be designated in writing by either party. Notice given by mail shall be deemed given
three (3) days after the date of mailing thereof to the following addresses:
LESSEE
Sanchez Oil & Gas Corporation
Attn: Vice President, Land
5847 San Felipe, Suite 1900
Houston, TX 77057
Fax: (713) 783-3523
LESSOR
Baytown Area Water Authority
Attn: General Manager
P.O. Box 424
Baytown, TX 77522
Fax: (281) 420-6586
Oil, Gas and Mineral Lease, Page 6
•
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16. Failure of either party hereto to insist on the strict performance of any of the agreements herein or
to exercise any rights or remedies accruing thereunder upon default or failure of performance shall not be considered
a waiver of the right to insist on and to enforce by an appropriate remedy, strict compliance with any other
obligation hereunder to exercise any right or remedy occurring as a result of any future default or failure of
performance.
17. This lease shall in all respects be interpreted and construed in accordance with and governed by
the laws of the State of Texas, regardless of the place of its execution or performance. The place of making and the
place of performance for all purposes shall be Baytown, Harris and Chambers Counties, Texas.
18. All parties agree that should any provision of this lease be determined to be invalid or
unenforceable, such determination shall not affect any other term of this lease, which shall continue in full force and
effect.
19. This lease contains all the agreements of the parties relating to the subject matter hereof and is the
full and final expression of the agreement between the parties. This lease shall not be amended or modified without
the express written consent of both parties hereto.
20. The officers executing this lease on behalf of the parties hereby represent that such officers have
full authority to execute this lease and to bind the party he/she represents.
In Witness Whereof, this instrument is executed on the date first above written.
BAYTOWN AREA WATER AUTHORITY
Signature
Printed Name
Title
SANCHEZ OIL & GAS CORPORATION
Signature
Printed Name
Title
Oil. Gas and Mineral Lease, Page 7
•
•
STATE OF TEXAS
COUNTY OF HARRIS
Before me, , the undersigned notary public, on this day
personally appeared , the
of Baytown Area Water Authority, known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed that instrument for the purposes and consideration therein
expressed.
Given under my hand and seal of office this day of August, 1998.
Notary Public in and for the State of Texas
STATE OF TEXAS §
COUNTY OF HARRIS §
Before me, , the undersigned notary public, on this day
personally appeared , the
of Sanchez Oil & Gas Corporation,
(Check one)
known to me;
proved to me on the oath of ; or
proved to me through his/her current
{description of identification card or other document issued by the federal government or any state
government that contains the photograph and signature of the acknowledging person)
to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she
executed that instrument for the purposes and consideration therein expressed.
Given under my hand and seal of office this day of August, 1998.
c:k1h94\Contracts\Oil&GasLease\Oil&GasLease2SanchezOil&GasCorporation
Notary Public in and for the State of Texas
Oil, Gas and Mineral Lease, Page 8
