Duke Energy Natural Gas Corporation - Page 4

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               Generally, natural gas emerges from a well as a mixture of             
          gas and liquids, and the gas is separated from the liquids by               
          passing through a separator near the well or at a central                   
          gathering point.  After separation, the gas continues to contain            
          entrained natural gas liquids (NGL's) which interfere with                  
          domestic or commercial use of the gas as an energy source.  A               
          processing plant is needed to remove the NGL's from the gas and             
          to condition the gas in order to produce processed (dry) gas.               
          Approximately 81 percent of the gathering systems deliver raw gas           
          directly to petitioner's processing plants or to processing                 
          plants owned by unrelated third parties.  The other gathering               
          systems dehydrate raw gas and deliver it directly to intrastate             
          and interstate transmission pipelines without processing.                   
          Regardless of whether or not the gas is processed before                    
          delivery, title to the gas usually transfers to petitioner at the           
          point where petitioner's gathering system connects with a                   
          producer's separation facilities.  Title to the gas also passes             
          to petitioner in some cases at a common field point where raw gas           
          from two or more wells has been gathered.                                   
               The majority of the natural gas that flows through                     
          petitioner's systems is purchased by petitioner under long-term             
          contracts with producers.  Most of these contracts are                      
          "percentage of proceeds" contracts under which the parties                  
          thereto share revenues from sales of dry gas and NGL's that occur           

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Last modified: May 25, 2011