Exhibit 10.3

Pinnacle Gas Resources, Inc.

MANAGEMENT INCENTIVE PLAN

I.              BACKGROUND AND OBJECTIVES

The overall executive compensation strategy of Pinnacle Gas Resources, Inc.
(“Pinnacle” or “the Company”) is to compensate all executives in a manner that
rewards them based on the Company’s strategic, operating and financial success
and to create value for the Company’s stockholders.  Pinnacle provides key
executives with targeted total compensation opportunities that generally are
competitive with median total compensation opportunities at energy companies of
similar size.  The two primary elements of the Pinnacle compensation program are
base salary and the Management Incentive Plan (the “MIP”).  Pinnacle base
salaries generally are competitive with industry standards and are used to
reward an executive’s sustained job performance over time.  All awards under the
MIP are paid at the sole discretion of the Pinnacle Board of Directors and may
consist of cash or awards under the Company’s Amended and Restated Stock
Incentive Plan (the “Stock Plan”). Pinnacle believes that stock awards align the
interests of Pinnacle’s executives with those of Pinnacle’s stockholders.

The MIP provides an annual incentive compensation opportunity for key executives
tied to the achievement of critical strategic, operating and financial goals of
Pinnacle.  The following document describes MIP eligibility, the size of the
potential award opportunities, performance measurement, the form and timing of
award payments, and the administrative guidelines and definitions for ongoing
MIP management.

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II.            ELIGIBILITY

MIP award eligibility will be proposed by the Chief Executive Officer (the
“CEO”) and approved by the Compensation Committee of the Pinnacle Board of
Directors (the “Compensation Committee”) at the beginning of each
performance/award period.  Generally, MIP participants will be selected from the
key executives who  are primarily responsible for the annual growth and success
of Pinnacle, i.e., the senior officers and managers of the Company.  The number
of eligible MIP participants may expand or contract in future years, as key
executive employment agreements are amended and as the Company’s executive
compensation strategy and programs are further refined.

III.           AWARD OPPORTUNITIES

At the beginning of each fiscal year, each MIP participant will be assigned
goals and objectives that can increase or decrease the amounts awarded under the
MIP, based on the actual achievement (or lack thereof) of such goals and
objectives.    MIP goals and objectives may be re-defined from time to time, as
modifications are made in Pinnacle’s executive compensation strategy.  For
purposes of illustration, MIP goals and objectives may be tied to the following:

·              Annual net production volume;

·              Daily net production volume;

·              Proved reserve additions;

·              Lease operating expenses;

·              General and administrative expenses;

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·              Adjusted EBITDA;

·              Lost time due to injuries;

·              Investor relations;

·              Capital financing;

·              Timely reporting;

·              Cash management; and/or

·              Business development and acquisitions.

Within  2 ½ months after the end of each fiscal year, each participant’s Base
Salary Rate at the end of the fiscal year (just ended) will be multiplied by the
actual MIP award percentage earned to determine the dollar value of the award
for the prior performance cycle.

The MIP performance goals and objectives will be proposed by the CEO and
approved by the Compensation Committee as soon as possible (but not later than
90 days) after the beginning of each fiscal year.

Subject to Section VI(d), MIP awards may include a discretionary component,
which will be based on the Compensation Committee’s subjective evaluation of the
degree to which the executive has mastered the primary duties and
responsibilities of his/her present job.  Any such component will not qualify as
performance based compensation described in Section 162(m) of the Internal
Revenue Code of 1986, as amended (the “Code”), and, as a result, will be
separate from any other component hereunder that is intended to qualify as
performance

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based compensation described in Section 162(m) of the Code and shall not be a
substitute for any such other component or otherwise increase or decrease any
such other component hereunder.

The determination of whether an executive has achieved his or her MIP
performance goals and objectives shall exclude extraordinary items, which will
be defined at the sole discretion of the Compensation Committee.  Performance
goals and objectives for MIP awards may be equal to or exceed the goals or
targets in the Pinnacle business plan.  Such goals and objectives may be
adjusted during the year if a major change occurs in the Company’s capital
structure, e.g., an acquisition or merger.

In addition to the target level of achievement for each goal and objective, the
Compensation Committee and the CEO will jointly establish a range of levels of
achievement for each  goal and objective as follows:

·              Minimum Threshold  — The level at or below which no incentive
will be paid;

·              Fair  — The level  at which the MIP adjustment factor will be
0.5X, with “X” equal to the target incentive payment;

·              Target — The level at which the MIP adjustment factor will be 1X,
with “X” equal to the target incentive payment;

·              Good  — The level  at which the MIP adjustment factor will be
1.5X, with “X” equal to the target incentive payment; and

·              Outstanding — The level at or above which the MIP adjustment
factor will be 2X, with “X” equal to the target incentive payment.

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IV.           FORM AND TIMING OF AWARDS

MIP award calculations will be finalized within 2 ½ months after fiscal
year-end.  All MIP awards will be paid annually within 2 ½ months after the end
of the fiscal year to which the MIP award relates, with cash awards to be paid
in a lump sum; provided, however, that the Company will deduct from all MIP
awards payable under the MIP any taxes required to be withheld by the federal or
any state or local government.

V.            ADMINISTRATIVE GUIDELINES AND DEFINITIONS

Once the Compensation Committee approves MIP participants, award targets and
performance goals and objectives, the CEO and Chief Financial Officer jointly
shall administer the MIP. All administrative decisions made by the CEO shall be
final and binding.

·              Employee Termination—To receive an award, a participant must be
an employee of the Company on the day the MIP award is paid, unless waived by
the Compensation Committee.

·              New Hires—Employees must have a minimum of six months of service
to be eligible for an award, unless waived by the CEO.  MIP awards for new hires
are earned on a pro-rata basis, based on their date of employment.

·              Base Salary Rate—Base salary for MIP award calculations shall be
the annualized base rate in effect at the end of the applicable performance
cycle.

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·              Support Documentation—The Chief Financial Officer shall be
responsible for maintaining all necessary support documentation regarding
performance and award calculations under the MIP.

VI.           MISCELLANEOUS

(a)           Rights of Participants.  Nothing in the MIP shall be construed to:

(i)            Give the participant any rights whatsoever with respect to any
MIP award until such award becomes vested, nonforfeitable and distributable in
accordance with the terms of the MIP;

(ii)           Limit in any way the right of the Company to terminate the
participant’s employment by the Company at any time;

(iii)          Give the participant or any other person any interest in any fund
or in any specific asset or assets of the Company;

(iv)          Give the participant or any other person any interest or right
other than those of any unsecured general creditor of the Company; or

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(v)           Be evidence of any agreement or understanding, express or implied,
that the Company will employ the participant in any particular position or at
any particular rate of remuneration.

(b)           Nonalienation of Benefits.  No right or benefit under the MIP
shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void.  No right to interest
hereunder shall in any manner be liable for or subject to any debts, contracts,
liabilities, or torts of the person entitled to such right or interest.

(c)           Prerequisites to Benefits.  Neither the participant, nor any
person claiming through the participant, shall have any right or interest in the
MIP, or any MIP award hereunder, unless and until all the terms, conditions, and
provisions of the MIP which affect the participant or such other person shall
have been complied with as specified herein.

(d)           Section 162m Compliance.  Should any participant in the MIP be or
become a “covered employee” as such term is defined in section 1.162-27(c)(2) of
the Treasury Regulations or other regulatory guidance issued under section
162(m) of the Code, then notwithstanding anything herein to the contrary, with
respect to any action taken under the MIP by the Compensation Committee in
respect of any such covered employee whose annual incentive compensation under
the MIP is intended to qualify as performance based compensation described in
section 162(m) of the Code and the regulations

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promulgated pursuant thereto, the Compensation Committee shall be comprised
solely of two or more “outside directors” of the Company as such term is defined
in section 1.162-27(e)(3) of the Treasury Regulations, the material terms of the
MIP shall be disclosed to and approved by the stockholders of the Company prior
to the payment of any MIP awards and the MIP shall, in all other respects, meet
the requirements of section 162(m) of the Code and the regulations promulgated
pursuant thereto, prior to any payments hereunder.  In furtherance of the above
provisions of this Section VII(d), the Compensation Committee shall bifurcate
the MIP so as to restrict, limit or condition the use or application of any
provision of the MIP to participants who are covered employees without so
restricting, limiting or conditioning the MIP with respect to other
participants, unless the Compensation Committee, in its sole discretion,
determines to apply such restrictions, limitations or conditions to participants
who are not covered employees.

(e)           Bonus Arrangement.  The MIP is intended to be a bonus program that
is designed to provide an on-going, pecuniary incentive for the participant to
produce the participant’s best efforts to increase the value of the Company. 
The MIP is not intended to provide retirement income or to defer the receipt of
payments hereunder to the termination of the participant’s covered employment or
beyond.  The MIP is strictly an incentive bonus program (as described in U.S.
Department of Labor Regulation Section 2510.3-2(c) or any successor thereto),
and not a pension or welfare benefit plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”).  All
interpretations and

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                determinations hereunder shall be made on a basis consistent
with the status of the MIP as a bonus program.

(f)            Amendment.  The MIP may be modified or terminated by the Company
at any time; provided, however, that no such modification or termination shall
affect any right to any MIP awards that are vested at the time of such
modification or termination except with the written consent of the affected
participant.

(g)           Powers of the Company.  The existence of outstanding and unpaid
contingent interests under the MIP shall not affect in any way the right or
power of the Company to make or authorize any adjustments, recapitalization,
reorganization or other changes in the Company’s capital structure or in its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, common or preferred stock, if applicable, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other act or proceeding, whether of a similar
character or otherwise.

(h)           Waiver.  A waiver by the Company, or the participant, of any of
the terms or conditions contained in the MIP shall not be construed as a general
waiver by such party of any other terms or conditions contained in the MIP.

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(i)            Separability.  If any provision or provisions of the MIP shall be
found to be invalid, illegal, or unenforceable in any respect, such invalid,
illegal, or unenforceable provision shall be severed from the MIP and shall not
affect the validity, legality and enforceability of the remainder of the MIP.

(j)            Gender, Tense and Headings.  Whenever the context requires, words
of the masculine gender used herein shall include the feminine and neuter, and
words used in singular shall include plural.  Headings of Articles and Sections,
as used herein, are inserted solely for convenience and reference and constitute
no part of the MIP.

(k)           Governing Law.  The MIP shall be subject to and governed by the
laws of the State of Wyoming and, to the extent applicable, the laws of the
United States.

(l)            Notice.  Any notice required or permitted to be given under the
MIP shall be sufficient if in writing and hand delivered, or sent by registered
or certified mail, to the Compensation Committee, the Company, participant or
beneficiary, as applicable, at the address last furnished by such person.  Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the dates shown on the postmark on the receipts for registration
or certification.

(m)          Effective Date.  The MIP is effective as of January 1, 2007 and any
amendment of the MIP shall be effective as of the date provided therein.

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