NAESB 101: Natural Gas and Natural Gas Liquids - PowerPoint Presentation

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NAESB 101: Natural Gas and Natural Gas LiquidsInternational Energy Credit Association, Spring 2016

Nicole W. Russell, Director and Trading Counsel (o) 1 (877) 667-0594nrussell@tradingcounselsolutions.com (m) (917) 715-3524Tradingcounselsolutions.comSlide2

The ROADMAP Slide3

What is Natural Gas?Naturally occurring hydrocarbon gas mixture consisting primarily of methane.Odorless, colorless gas.Uses: fuel power plants, industrial products, in heating and cooling systems, residential fuel.Must be processed to remove impurities, including water, to meet marketable natural gas standards (pipeline grade).By-products of natural gas processing include: Natural Gas Liquids (NGLs): ethane, propane, butanes, isobutene and natural gasoline.In order to be transported globally, Natural Gas must be cooled to create a clear, colorless and non-toxic liquid, 600 times smaller than Natural Gas which is Liquefied Natural Gas (LNG).Slide4

What are Natural Gas Liquids?By-Products of Natural Gas Production - five discrete products which have separate uses and markets.Upon initial processing of Natural Gas the product is y-grade which must be fractionated to create the discrete NGL productsY-grade is fractionated at fractionation centers such as Mont Belvieu, TX and Conway, KSEthane (C2): Light and highly flammable. Uses: refrigerant, in the production of ethane.Propane (C3): Light and flammable. Uses: fuel for engines, portable stove and central heating. Normal Butane (NC4): Heavy NGL product. Uses: petrochem feedstock, isobutene feedstock, blending agent in motor gasoline.Isobutane (IC4): Medium grade NGL. Uses: aerosol propellant, refinery alkylate to even out engine combustion.Natural Gasoline (C5/pentane/naptha/drip gas): Heaviest of the NGL products. Uses: motor gasoline blending, petrochem feedstock, denaturant to ethanol, diluent for high viscosity bitumen.Slide5

Natural Gas – The Basics Upstream and midstreamSlide6

Natural Gas DistributionSlide7

NGL DistributionSlide8

Downstream -Natural Gas AND NGL TradingHistory of Natural Gas in the United StatesPipelines act as both transporter and merchant of natural gas, monopoly power. FERC Order 636(1992) creates equal access to the pipelines for all natural gas merchants.Hub TradingNatural gas traded at interconnections of interstate and intrastate pipelines such as Henry Hub creating a liquid market for purchases and sale of Natural Gas.NGLs traded at storage facilities near fractionation plants (Mont Belvieu and Conway) and transported via various means throughout the country for end-use.Slide9

History of the NAESBGISB 1996 – Gas Industry Standard Board – predecessor to the NAESB – designed for short term natural gas transactions 30 days or fewer in durationNAESB 2002 published by the North American Energy Standard Board on April 19, 2002 – designed for longer term transactions up to one year.NAESB 2006 published by the North American Energy Standard Board on September 5, 2006 – includes more standardized energy terms than 2002.NAESB Master Agreement for Purchase, Sale or Exchange of Liquid Hydrocarbons (NGLs) (2012)Slide10

Standard Contract MechanismSlide11

Section 1 - Confirmations ProceduresOral:Telephone Conversation or EDI creates a binding obligation.Confirming party sends a Transaction Confirmation within 3 Business Days; failure to send not an invalidation.Additional non-commercial terms in a Transaction Confirmation are deemed not accepted unless expressly agreed but additional terms do not invalidate the transaction.Written:A written Transaction Confirmation is sent by the close of the Business Day following the date of the agreement. Not binding until either the exchange of non-conflicting Transaction Confirmations or the passage of the Confirm Deadline without objection.Slide12

Section1 - Additional Confirmation ConsiderationsMust Specify Confirm Deadline in the CoversheetDate by which the receiving party must object to the Transaction Confirmation or it is deemed accepted. For an exchange of Transaction Confirmations with material differences between the Transaction Confirmations, none shall be binding until the conflict is resolved.Each party consents to recording and will obtain necessary consent of its agents and employees to such recordings.Where Oral Transaction Procedure is elected, the parties agree not to contest the validity or enforceability of the telephone recordings.Slide13

Section 3 – Failure to take or deliver - Remedies If a Seller fails to deliver a contracted quantity or a Buyer fails to take a contracted quantity it is not an Event of Default – Separate Section 3 RemedyFor Natural Gas only applicable to Firm obligations. Firm Gas: a party may not interrupt its performance unless, such performance is prevented for reasons of Force Majeure.CONTRAST TO:Interruptible Gas: either party may interrupt its performance at any time, for any reason, with no liability.For Natural Gas Transactions, Parties may agree in a Transaction Confirmation to Alternate Damages and/or a Termination Option.Slide14

Remedies for Failure to Take or Deliver – Section 3Cover StandardCover Standard: if Buyer fails to take, sell product or if Seller fails to deliver, buy product, at a price reasonable for the Delivery Location consistent with the 1) amount of notice, 2) immediacy of consumption need or sales requirement, 3) quantities involved, and 4) anticipated length of failure. Seller pays Buyer (for failure to deliver) the positive difference Cover Price – Price (adjusted for differences in transportation) x the undelivered quantity Buyer Pays Seller (for failure to take) the positive difference Price – Cover Price (adjusted for differences in transportation) x the undelivered quantity If Cover is not available – default to Spot StandardSlide15

Remedies for Failure to Take or Deliver – Section 3Spot StandardSpot Standard: The index price for the publication listed in the Coversheet or for NGLs OPIS for the geographic location closest to the Delivery Point or if no single price is published for a relevant day the average of the high and low prices. If no price is published for a day then the average of the preceding day price and the following day price. Seller pays Buyer (for failure to deliver) the positive difference Spot Price – Price x the undelivered quantity Buyer Pays Seller (for failure to take) the positive difference Price – Spot Price x the undelivered quantity Slide16

Pipeline Transportation DefinitionsImbalance Charges: fees and penalties assessed by a Transporter for failure to satisfy the Transporter’s capacity and/or nomination requirements.Transporter: Gas gathering or pipeline companies, or local distribution companies acting as a carrier to transport Gas to the Delivery Point.Nomination: The process by which a party requests space on the pipeline from the pipeline company.Scheduling: each party is required to work with the Transporter to establish a time/date when the quantity of product can be transported and delivered at the Delivery Point. If the parties’ schedules don’t match, an imbalance occurs on the transportation system and penalties may result.Slide17

Section 4 –Transportation, Nominations and ImbalancesSeller transports to the Delivery Point, Buyer transports from the Delivery Point.Parties must coordinate nomination activities with sufficient time to meet transporter(s) deadlines.Each Party will give notice of the quantities of Gas to be delivered and purchased each day with sufficient notice to meet Transporter requirements.Imbalance charges: The parties will use commercially reasonable efforts to avoid imbalances but when imposed will work together to determine if caused by Buyer’s receipt or Seller’s Delivery of quantities greater or less than the Scheduled Gas. Imbalance Charges will then be paid by the responsible party.Slide18

Section 5 - Quality and Measurement/Section 6 - Taxes Quality and Measurement: All Gas will meet the specifications of the Receiving Transporter (pipeline/terminal) and measurement is MMBTU dry and in accordance with procedures of Receiving Transporter.Taxes: Coversheet Election focused on who pays at the Delivery Point:Buyer Pays at and after the Delivery Point; orSeller Pays before and at the Delivery PointA responsible party shall make reimbursement for taxes paid by the other party.Any party entitled to tax exemption must provide the other party with the requisite documentation supporting the exemption.Slide19

Section 7 - Billing Payment and AuditBilling is on actual delivered amounts or, if not known, by Scheduled Gas amounts and trued-up the next Month.Payment date is specified in the Coversheet as either the 25th day of the month following the month of Delivery or another specified day of the Month following the Month of delivery. If Payment Date is not a Business Day then the Payment Date is the following Business Day.Payment is made the later of 10 days following the receipt of invoice by Buyer or the Payment date.For disputed payment amounts, the disputing party must pay the undisputed amount.Interest accrues on unpaid amounts at the lower of prime plus 2% per annum or the maximum lawful rate.Parties have 2 years after the Month of Gas Delivery to object invoices/billings or claims are deemed waived.Party’s have the right to audit

the other party to verify accuracy of statements and charges under the Contract.Netting of payments applies, unless specified as inapplicable on the Coversheet.Must also specify ACH, Wire or Check payment on Coversheet.Slide20

Section 8 - Title, Warranty and Indemnity Title passed from Seller to Buyer at the Delivery Point unless otherwise specified. Only warranty in the NAESB is Seller’s warranty of good and merchantable title, all other warranties disclaimed.Reciprocal indemnities from all losses, liabilities or claims including reasonable attorney’s fees and court costs arising from claims of title, personal injury including death, property damage or other charges. Buyer’s indemnity obligation arises after title passes to Buyer, Seller’s obligation arises before title passes to Buyer.All deliveries will occur in the Customs Territory of the United States, if outside of such territory, Seller is the importer of record into the U.S. and responsible for filings, duties, taxes, fees and recordkeeping.Notwithstanding the above indemnity obligation, in all instances, the Seller will be liable for all Claims arising from the failure of Gas to meet the quality requirements of Section 5.Slide21

Section 9 - Notices All notices must be made in writing and may be sent by fax, mutually acceptable electronic means, overnight courier service, first class mail or hand-delivered.Notice is given when received on a Business day by the addressee.The following presumptions apply in absence of proof of actual receipt:Fax, on sending parties receipt of fax confirmation of successful transmission or, if sent after 5pm on a Business Day, deemed received on the next following Business day;Overnight mail or courier, received on the next Business Day after it is sent or such earlier time as confirmed by the receiving partyFirst class mail, 5 Business Days after mailing.Party receiving a payment instruction or information change has 10 days from receipt to implement.Slide22

Section 10 - Financial Responsibility – Adequate AssuranceAdequate Assurance:If a party has reasonable grounds for insecurity;regarding performance of an obligation under the Contract;that party may request Adequate Assurance of Performance (cash, standby irrevocable letter of credit, prepayment, asset security interest or guaranty, in form, amount and term acceptable to the requesting party);the posting party must provide the Adequate Assurance of Performance within 48 hours (but at least one Business Day) of the request;failure to provide Adequate Assurance within the time period ripens to an Event of Default.The posting party grants the requesting party a security interest in the Adequate Assurance of Performance which is then released automatically upon the return to the posting party.Slide23

Section 10 - Financial Responsibility – Events of Default BankruptcyGeneral Rule in Bankruptcy: Executory contracts (where performance remains due by both parties) may not be terminated and setoffs do not apply.Exception: Forward Contracts – allows for termination and set-off (See Section 10.5)“Bankruptcy” type events:Make a general assignment or arrangement for the benefit of creditorsFile a petition, acquiesce to the commencement of a proceeding, or have filed against it a proceeding under bankruptcy or similar law Otherwise become bankrupt or insolventHave a receiver/liquidator appointedSlide24

Section 10 - Financial ResponsibilityNon-Bankruptcy Events of Default Fail to perform a Credit Support Obligation to provide or establish credit supportObligation of a party to provide cash, irrevocable standby letter of credit, a margin agreement, a prepayment, a security interest in an asset or a guaranty.Failure to pay on or before 2 days after receipt of written noticeAn Additional Events of Default (Specified on the Cover Sheet)Transactional Cross DefaultIndebtedness Cross DefaultSlide25

Section 10 - Additional Events of Default Transactional Cross Default:Allows for a default under this Contract if there is a default under another agreement for the purchase, sale or exchange of Gas as between the parties or under another agreement between the parties specified in the Coversheet as a Specified Transaction (i.e., power Transactions under an EEI or swaps under an ISDA).Indebtedness Cross Default:A default by a party with respect to borrowed money which exceeds a threshold amount specified in the Coversheet.Under the NAESB, the event of default must have ripened under the lending arrangement such that all the outstanding money owed is immediately due and payable. This is the concept of Cross Acceleration.Sometimes Parties will add the words “or becoming capable of becoming declared due and payable” which has the effect of creating a cross-default where the lenders may not yet have acted on the lending arrangement event of default but the NAESB can be defaulted.Slide26

Section 10 - Results of Event of DefaultThe Non-Defaulting Party may:Withhold or suspend delivery or payment.Exercise any and all remedies at law.Terminate and liquidate the transactions by giving notice of an Early Termination Date not earlier than the date of notice and not later than 20 days after notice.On the Early Termination Date all transactions will be terminated except Excluded Transactions.Excluded Transactions are transactions that cannot be terminated immediately under Applicable Law. Excluded Transactions will be liquidated as soon as legally permissible and upon termination will be valued as any other transaction under the Contract.Slide27

Section 10.3.1 - Early termination damagesEarly Termination Damages Do Not Apply: Non-Defaulting Party determines unpaid amounts including:Amounts owed for all Gas delivered or receivedAny other applicable charges relating to deliveries or receiptsAny amounts owed as remedies for failure to deliver or take under Section 3Early Termination Damages Apply: Unpaid Amounts plusThe Market Value of each Terminated TransactionSlide28

Section 10.3.1 - Early Termination Damages Apply Contract Value: Contract Price x the amount of Gas remaining to be delivered or purchased. Market Value: Market Price for a similar transaction at the Delivery Point determined by the Non-Defaulting Party in a commercially reasonable manner x the amount of Gas remaining to be delivered or purchased.settlement prices of NYMEX Gas Futures contracts;quotations from leading dealers in swap or physical gas markets;similar sales or purchases; andany other bona fide third party offers.All adjusted for the length of the term and difference in transportation costs.Replacement Transactions are not required.The parties may not consider a term extension to which the parties are not bound in determining Early Termination Damages but may consider a unilateral option to extend the term. Non- Defaulting Party determines interest on net present value in a commercially reasonable manner.Slide29

Section 10.3.2 - Setoff Amounts Other Agreement Setoffs Do Not Apply:Determine Net Settlement Amount: aggregate all Early Termination Damage amounts to one amount owing from one party to the other.Non-Defaulting Party may setoff any contractual margin or collateral.Bilateral Setoff Option:Determine Net Settlement Amount.Non-Defaulting Party may setoff any contractual margin or collateral.Other agreement amounts (including margin or collateral).Triangular Setoff OptionSlide30

Section 10.3.2 - Triangular Set-Off(Discretionary Non-Defaulting Party Affiliate Setoff)30 $10,000 internal transfer $5,000 $5,000Non-Defaulting Party Pays Defaulting Party $5,000 Non-Defaulting Party

Non-Defaulting Party AffiliateDefaulting PartySlide31

Section 10.3.2- Triangular Set-Off(Discretionary Non-Defaulting Party Affiliate Setoff)31 $10,000 internal transfer $5,000 $5,000Defaulting Party Pays Non-Defaulting Party $5,000 Non-Defaulting Party

Non-Defaulting Party AffiliateDefaulting PartySlide32

Section 10.3.2 - Setoff Amounts Other Agreement Setoffs Do Not ApplyBilateral Setoff OptionTriangular Setoff OptionNet Settlement AmountXXX

Contractual Margin/CollateralXXXOther AgreementsXXNon-Defaulting Party Affiliate Amounts

XSlide33

Section 10 - Other Setoff Provisions Unascertained amounts: Good faith estimate by the Non-Defaulting Party followed by a true-up.Present Value: Amounts not due by the Non-Defaulting Party in a commercially reasonable manner.Notice: Non-Defaulting Party to the Defaulting Party of amount due either to or from the Non-Defaulting Party.Reasonable Details: of the Non-Defaulting Party calculation.Failure to give Detail: does not affect the validity or enforceability of the liquidation or give rise to claims.Payment of the Settlement Amount and Setoffs: on the 2nd Business Day following the Notice (not earlier than the Early Termination Date).Interest: the lower of Prime plus 2% per annum or the maximum effective lawful interest rate.Sole and Exclusive Remedy: Remedies hereunder are the sole and exclusive remedy for Early Termination.Slide34

Section 11 - Force Majeure Force Majeure is a complete excuse of performance.Cause not reasonably within the control of the party claiming suspensionNon-Exclusive list: Acts of god, weather related events, interruption and curtailment of Firm Transportation, strikes and lock-outs and governmental actions.Party claiming Force Majeure is required to use reasonable Efforts to avoid adverse impactsExclusions from Force Majeure:Curtailment of interruptible or secondary Firm transportation unless primary in-path Firm Transportation is curtailedClaiming party failed to remedy timelyEconomic hardshipLoss of Buyer’s market or inability of Buyer to use or resell GasLoss of Seller’s gas supply or depletion of reservesSlide35

Section 11 - Claiming Force Majeure Notice:Initial notice is oralFollowed by written notice with reasonably full particulars of the event as soon as reasonably possibleRight to suspend performance of the affected party is effective upon notice and continues for the duration of the Force Majeure.Slide36

Section 12 - Term and Section 13 - Limitations Term: 30 days notice to terminate but all existing transactions continue until the end of the last Delivery Period under the transaction.Continuing Rights: Audits and overpayments/underpayments, Financial Responsibility, Limitations, payment, indemnification.Limitations:Sole Remedies:Express Remedies.Direct Actual Damages – no punitive, incidental, consequential, etc.Slide37

Section 14 - Market DisruptionMechanism to determine the Floating Price in a transaction when a Market Disruption Event occurs:Index doesn’t announce or publishParties agree that a material change in the formula or method of determining the Floating price has occurredMarket Disruption waterfallParties negotiate the price;No agreement by 2nd Business Day following the Market Disruption Event then each party obtains 2 quotes from dealers and price is the average of the 4 quotes; andIf one party doesn’t obtain quotes then the average of the 2 quotes obtained.Quotes are obtained for the geographical location closest in proximity to the Delivery Point.Quotes from Non-affiliated market participants.Slide38

NGL Specific TermsSection 2.25 - Exchange transaction PropaneFirst PartySecond PartyMont Belvieu1st of the month

Natural GasolineSecond Party

First Party

Conway

15

th

day of the monthSlide39

NGL Specific TermsPipeline/Facility Delivery DefinitionsFirm: Delivery obligation may only be interrupted by Force Majeure or by an Event of Default of the other party.Standard: Delivery obligation may also be interrupted, in addition to the above, for Supply Shortage.Supply Shortage: If Seller does not have sufficient quantities of Product available at the Delivery Location to satisfy aggregate sales commitments due to loss or failure of Product supplies, depletion of reserves, or the inability to transport Product to the Delivery location for any reason, including, Allocation. Does not include unavailability due to Seller entering into transactions at a higher or more advantageous price.Allocation: Applies to Product on a pipeline or a processing/storage/fractionation facility where the carrier is unable to service the shippers due to a pipeline/facility issue and apportions the capacity in accordance with its tariff. Slide40

Section 3 - NGL Specific Performance ObligationsExchange Transactions: A failure to deliver on one side of an exchange entitles the other party to Spot or Cover damages (as elected in the Coversheet).Standard v. Firm: If multiple Transactions exist at a Delivery Location between the Parties for a particular Delivery Period, all Firm Transactions are deemed delivered before any Standard Transaction.Effect of a Supply Shortage: The Seller reduces it deliveries at the Delivery Location on a pro rata basis;has no obligation to purchase product from other sources to supply the Buyer; andSeller has no liability for any damage under a Standard Transaction for failure arising from a Supply Shortage. Slide41

Section 3/Section 4Railcar/Tank Car/Barge Specific NGL termsRail and Tank Car Product Shortages: Seller pays damages only for 1) shortages over 1% of the total loaded quantity, 2) Buyer promptly notifies of shortage by telephone followed by written notice, 3) Buyer provides summary of all loaded quantities during the relevant month, 4) Buyer submits sworn affidavit of the Carrier/ destination railroad agent of Product shortage – all within the greater of 5 Business Days of Product Delivery or the time under Applicable Law or the claim is waived.Rail Car Transportation Specific Operational Requirements: Depends on whether the Seller or the Buyer provide the rail cars.Terminal Access Agreement: A party may be required to sign prior to delivering at a facility owned by the other party or its Affiliate.Rejection: A party may reject a rail car, tank car, barge, vessel or container for loading or unloading for any conditions it deems unsafe utilizing a claim of Force Majeure.Slide42

Section 5 - NGL Quality and MeasurementQuality: Product must meet the Specifications in the Contract or if none, GPA specifications and may contain no deleterious substances/containments that may make the Product commercially unacceptable in general industry applicationMeasurement: Method dependent on transportation type.Sampling: For all transportation types but pipeline, the Buyer may obtain a sample of the Product within 5 Business Days of arrival at the destination. Product Rejection: Buyer must provide Product Rejection Notice and supporting documentation within the greater of 5 Business Days or the minimum time required by Applicable Law or the Product is deemed accepted.Effect of Rejection: Buyer retains possession of Product up until 10 days following the Project Rejection Notice without unloading until Seller can inspect and test. If product is On-spec, Buyer pays damages to Seller. If Product is unloaded by Buyer prior to expiration of 10 Day period, Product is deemed accepted. If Seller fails to take possession after 10 day period, Buyer may dispose of the Product. Seller pays Carrier assessed costs.Slide43

Section 5 - NGL Pipeline Quality Pipeline Quality: Product must meet specifications of receiving CarrierNotice: Buyer must provide Seller notice specifying the defect and containing supporting documentation within 5 Business Days of its notice from the Carrier of the Off-spec Product.Suspension: If Buyer meets its notice requirements it may suspend obligations until Product is On-spec.Waiver: If Buyer fails to meet its notice requirements Product is deemed accepted.Correction: Seller must correct the Product to bring it to On-spec Product Buyer Liability: Buyer is liable for damages if rejection is wrongful.Seller Liability: Seller is responsible for amounts assessed by the Pipeline, costs of return or disposal of Off-spec Product and Buyer’s costs to mitigate including costs of handling, treating, refractionating or processing of products contaminated by the Off-spec Product. Slide44

Section 6 - NGL Taxes, Section 7 - Exchange Billing and imbalances, Section 8 - Title and Risk of Loss and MSDSTax: Buyer pays at or after the Delivery Location. Each party indemnifies the other for any claims with respect to taxes for which it is liable.Exchange Transaction Imbalances: At the close of each Month each party provides an exchange statement-invoice covering the Exchange differentials. Exchange quantities will be balanced throughout the term of the Exchange but small imbalances may be carried forward as agreed by the parties. At the end of the term, the party owing any remaining volume will continue to deliver until volumes are as equal as possible given the transportation mode. Any remaining small volume will be cash settled at an agreed market price.Title and Risk of Loss: Is dependent upon Delivery Location and transportation mode.Adequate Warning: Seller provides Buyer an MSDS sheet and Buyer acknowledges it has been adequately warned of the risks of handling, using, transporting, storing and disposing of the Product.Slide45

NGL Specific Indemnity IssuesTax Indemnity - Section 6Warning Indemnity – Section 8.3: Buyer indemnifies Seller for any claims brought against Seller arising from Buyer’s failure to pass on the necessary warnings regarding the Product.Off-spec Indemnity – Section 8.5: If Seller delivers Buyer Off-spec Product Seller will indemnify Buyer unless Buyer accepts or is deemed to have accepted the Off-spec Product.Propane Indemnity – Section 14: Section 14 of the NGL NAESB (Discussed below)Limitation on Section 8 Indemnities: no requirement to indemnify if the Claims arise from the negligence, gross negligence or willful misconduct of the other party.Slide46

Section 10 - NGL Specific Events of DefaultMaterial representation or warranty failure if not remedied within 5 Business Days after Notice.Seller Failure to deliver or Buyer Failure to Receive for 2 consecutive Delivery Months or 3 cumulative Delivery Months in any 12 Month period which is not excused by Force Majeure.A failure to perform or a breach of a material obligation (unless a separate Event of Default or failure to deliver or receive with Section 3 remedies) if not cured within 3 Business Days after receipt of Notice.Remedy of suspension of performance not available for more than 10 Business days unless an Early Termination Date has been declared.Slide47

Section 11 - NGL - Exchange - Force Majeure termsThe non-affected party must continue to perform its Exchange deliveriesThe affected party must deliver the Imbalance Volume as soon as practicable after the Imbalance Month and will endeavor to cause volumes confirmed by the 20th day of the Month to be delivered in the following Month and if after the 20th day of the Month by the 2nd month after the Imbalance Month.If the Imbalance Volume has not be delivered before the end of the 2nd Month after the Imbalance Month the under-delivering party must deliver the same Product at the same Delivery Location during the 3rd Month at the same Price as applicable to the Product during the Imbalance Month.Imbalance Volume pricing shall otherwise beFor fixed price or formula based on a date or date range, then such price regardless of the date of actual delivery.For a formula price based on non specific date or date range (i.e., bill of lading date) the actual Month the Imbalance Volume is delivered. Slide48

Section 14 - NGL Terms – Propane OdorizationPropane is odorless and therefore odorant must be added under law.Section 14 of the NGL NAESB provides the Seller must deliver Product that meets legal minimum odorant levels and any documentation confirming such odorization upon request of the Buyer.Buyer may test for odorization and may reject the propane until corrected by Seller.The Product Rejection Notice mechanism for odorization is the same as other Off-spec Product under Section 5.The Seller has no responsibility for ensuring the Propane remains properly odorized after delivery except to the extent that Seller maintains possession of the Propane subject to the Product Rejection Notice mechanism.Buyer may purchase unodorized propane as permitted by Applicable law. A Buyer who knowingly accepts under-odorized Propane or fails to inspect and test shall have full responsibility for Claims arising from Transportation, Use and Sale of the Propane. Buyer represents that Buyer will not use the Propane for fuel or resell it for fuel without adding odorizing agents.Buyer will indemnify Seller for Claims if it fails to inspect, fails to maintain documentation of inspection and testing or blends odorized propane after delivery except to the extent the Claims arise from the gross negligence/intentional acts of the Seller.Slide49

NAESB Practice Notes Use Contract rather than Agreement;Use Transaction Confirmation rather than Confirmation;The term “party” is not capitalized;The product under the natural gas NAESB is Gas, under the NGL NAESB is Product;The term transactions is not a defined and therefore capitalized term under the Natural Gas NAESB but Transactions is defined and therefore capitalized under the NGL NAESB;NGL NAESB used Delivery Location, Natural Gas NAESB uses Delivery Point.Slide50

Contact:Nicole W. Russell, Director and Trading Counsel

Nrussell@tradingcounselSolutions.com(O) 1 (877) 668-0594(m) (917) 715-3524