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There is insufficient evidence in the record to find
whether or not such Release Agreement was ever executed.
The Settlement Agreement further provides that any
part of the prepayment which is not recouped from
deliveries of natural gas shall be refunded to Arkla upon
the happening of any one of three events. The Settlement
Agreement provides as follows:
Seller [Malibu] shall refund to Buyer [Arkla] the
unrecouped balance of the Prepayment, if any, at
the earlier of such time as (i) the Contract is
cancelled or otherwise terminated by Seller, (ii)
the Contract's primary term expires and the
Contract is terminated by Seller or (iii) the
wells subject to the Contract substantially
deplete.
In summary, the underlying premise of the settlement
is that Arkla would continue as the principal purchaser of
gas produced from Malibu's interest in the Contract wells.
Based upon the agreements forming the settlement, we agree
with respondent's contention that Arkla's payment of
$1,850,000 is a prepayment for the purchase of natural gas
under the Contract. The agreements contemplate that Arkla
would recoup the prepayment from its purchases of natural
gas under the Contract. The refund provision quoted above
is in the nature of a guaranty, to the effect that any
unrecouped balance of the settlement payment will be
returned to Arkla in the event that Malibu terminates the
Contract, or the wells became substantially depleted. None
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