Exhibit 10.1
 
GAS GATHERING AGREEMENT
 
THIS GAS GATHERING AGREEMENT (this “Agreement”), dated November 16, 2009, is by
and between (i) Hilltop Resort GS, LLC, a Delaware limited liability company
(“Gatherer”) and (ii) Gastar Exploration Texas, LP, a Delaware limited
partnership (“Producer”).  Gatherer and Producer are sometimes referred to
herein individually as a “Party” and collectively as the “Parties.”
 
Recitals:
 
A.           Gatherer owns and operates a natural gas gathering system and
related facilities in Leon and Robertson Counties, Texas.
 
B.           Producer owns or controls, and has the right to deliver, natural
gas for gathering on such gathering systems, and Gatherer desires to gather such
gas, on the terms and subject to the conditions in the Agreement.
 
Agreements:
 
NOW, THEREFORE, for good and valuable consideration, Gatherer and Producer agree
as follows:
 
Article 1
Definitions
 
1.1              Definitions The following capitalized terms used in this
Agreement and the attached exhibits and schedules shall have the meanings set
forth below:
 
“AAA” is defined in Section 13.3(ii).
 
“Agreement” is defined in the preamble.
 
“Affiliate” means, as to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person, whether by contract, voting power, or
otherwise.  As used in this definition, the term “control,” including the
correlative terms “controlling,” “controlled by,” and “under common control
with,” means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of an entity, whether through
ownership of voting securities, by contract, or otherwise.
 
“AMI” means the geographic area described in Schedule 6.
 
“Ancillary Agreements” means this Agreement, the Purchase and Sale Agreement,
dated of even date herewith, between Producer and Gatherer, and the other
agreements entered into by the Parties under the Purchase and Sale Agreement.
 
“Applicable Law” means any applicable law, statute, rule, regulation, ordinance,
order, or other pronouncement, action, or requirement of any Governmental
Authority.
 
“Bcf” means one million Mcf’s.
 
“Btu” means the amount of energy required to raise the temperature of one pound
of pure water one degree Fahrenheit (1˚F) from fifty-nine degrees Fahrenheit
(59˚F) to sixty degrees Fahrenheit (60˚F).
 
“Business Day” means any day except Saturday, Sunday, or Federal Reserve Bank
holidays.
 
“Co-Owners” means Presco, Inc. and Navasota Resources Ltd., LLP.
 

 
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“Co-Owners’ Gas” means all Gas owned or controlled by Co-Owners or their
Affiliates and their successors and assigns and gathered on the Gathering
System.
 
“Cumulative Volumetric Commitment” means 91,250,000 Mcf’s of Gas.
 
“Day” means a period of 24 consecutive hours, coextensive with a “day” as
defined by the Receiving Transporter.
 
“Dedicated Reserves” means the interests of Producer and its Affiliates in all
Gas reserves in and under, and all Gas owned or controlled by Producer or its
Affiliates and produced or delivered from, (i) the Subject Leases and (ii) any
other lands located within the AMI, whether now owned or hereafter acquired by
Producer or its Affiliates.
 
“Delivery Points” means (i) the points identified in Schedule 4 at which Gas is
delivered to a Receiving Transporter by Gatherer and (ii) any additional
delivery point that, from time to time, may be added by Gatherer and Producer to
the Gathering System after the Effective Date to permit delivery of Gas to other
Receiving Transporters or other local Gas users such as central treating or
compression facilities operated by Gatherer or Producer.
 
“Dispute” is defined in Section 13.3(i).
 
“Equivalent Quantity” means, on any Day, a quantity of Gas (in MMBtu’s) that is
thermally equivalent to the quantity of Producer’s Gas received from Producer at
the Receipt Points on the Gathering System on that Day less Producer’s allocated
share of Fuel Gas and Lost and Unaccounted for Gas.
 
“Effective Date” means November 1, 2009.
 
“ETC Contract” means, collectively (i) the Agency Agreement between and among
ETC Pipeline, Ltd., and ETC Katy Pipeline, Ltd and Oasis Pipeline, L.P. and
Gastar Exploration Texas, L.P., effective September 1, 2007; (ii) the Gathering
and Natural Gas Services Agreement between Gastar Exploration Texas, L.P. and
ETC Texas Pipeline, LTD., dated September 1, 2007 [Contract No. 8885-100]; (iii)
the Individual Transaction Confirmation to Gathering and Natural Gas Services
Agreement between Gastar Exploration Texas, L.P. and ETC Texas Pipeline, LTD.
dated September 1, 2007 [Individual Transaction No. 8885-101]; (iv) the
Intrastate Natural Gas Transportation Service Agreement dated September 1, 2007
by and between Oasis Pipeline, L.P. and Gastar Exploration Texas, L.P. [Contract
No. 028-31434-02-100]; (v) the Service Agreement Confirmation to the Intrastate
Natural Gas Transportation Service Agreement [Contract No. 028-31434-02-101];
and (vi) the Intrastate Natural Gas Transportation Service Agreement dated
September 1, 2007 by and between ETC Katy Pipeline Ltd., and Gastar Exploration
Texas L.P. [Contract No. 150-31434-02-100]
 
“Force Majeure Event” is defined in Section 9.2.
 
“Fuel Gas” means (i) necessary amounts of Gas used by Gatherer for operation of
the Gathering System but excluding any fuel used by Gatherer to operate treating
and compression equipment on the Gathering System, or (ii) Gas used upstream of
the Receipt Points by Producer to operate compressors, dehydrators, and related
equipment and facilities in regards to well operations.
 
“Gas” means any mixture of hydrocarbons and noncombustible gases in a gaseous
state consisting primarily of methane.
 
“Gatherer” is defined in the preamble.
 
“Gathering Fees” means the gathering fees shown in Schedule 1.

 
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“Gathering System” means the gas gathering system described in Schedule 2,
together with any modifications, alterations, replacements, extensions, or
expansions made by Gatherer, from time to time, to such gathering system.
 
“Governmental Authority” means any court, government (federal, state, local, or
foreign), department, political subdivision, commission, board, bureau, agency,
official, or other regulatory, administrative, or governmental authority.
 
“Gross Heating Value” is defined and determined in strict accordance with Gas
Processors Association (GPA) Standard 2172 – “Calculation of Gross Heating
Value, Relative Density, and Compressibility of Natural Gas Mixtures from
Compositional Analysis.”
 
“Independent Engineer” means Netherland, Sewell and Associates, Inc. or such
other qualified independent third party engineer that Gatherer and Producer
mutually agree upon.
 
“Losses” means all losses, liabilities, damages, claims, fines, penalties,
costs, or expenses, including reasonable attorneys’ fees and court costs.
 
“Lost and Unaccounted for Gas” means the volumetric losses in Gas that occur on
the Gathering System, other than Gas used for Fuel Gas.
 
“Maximum Daily Volume” means the maximum volume of Producer’s Gas that Gatherer
is obligated to receive on any Day at a Receipt Point, as shown in Schedule 3.
 
“Mcf” means one thousand cubic feet of Gas at a temperature of 60 oF and a
pressure of 14.65 pounds per square inch absolute.
 
“Mcf’s/d” means Mcf’s per Day.
 
“Minimum Reserve Limit” means, for a well or wells to be connected to the
Gathering System, gross proved developed gas reserves attributable to Producer’s
and Co-Owners’ working interests in such wells and committed by Producer and
Co-Owners to Gatherer for gathering on the Gathering System of not less than 1
Bcf for each mile of new gathering line to be constructed by Gatherer to connect
such well or wells to the Gathering System, as such reserves are determined by
the Independent Engineer.
 
“Minimum Volume Period” means the period beginning on the Effective Date and
ending on the 5th anniversary of the Effective Date.
 
“MMBtu” means one million Btu’s, which is equivalent to one dekatherm.
 
“Month” means the period beginning on the first Day of the calendar month and
ending immediately prior to the commencement of the first Day of the next
calendar month.
 
“Notice” is defined in Section 12.1.
 
“Party” and “Parties” are defined in the preamble.
 
“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association (whether incorporated or unincorporated),
joint-stock company, trust, Governmental Authority, unincorporated organization,
or other entity.
 
“Producer” is defined in the preamble.
 
“Producer’s Gas” means all Gas owned or controlled by Producer or its Affiliates
and produced from or otherwise attributable to the Dedicated Reserves.

 
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“Producer’s Quarterly Deficit Volumes” means, for a calendar quarter, the volume
(in Mcf”s), if any, by which (i) a volume equal to 35,000 Mcf’s per Day
multiplied by the number of Days in such calendar quarter exceeds (ii) the
volume of Producer’s Gas gathered on the Gathering System in such calendar
quarter, as such deficit volume is reduced by (x) any Quarterly Third Party
Credit Volumes gathered in such calendar quarter and (y) any Quarterly Excess
Volumes gathered in prior calendar quarters but only to the extent such
Quarterly Excess Volumes have not been previously applied.
 
“Producer’s Quarterly Excess Volumes” means, for a calendar quarter, the amount
(in Mcf”s), if any, by which (i) the volume of Producer’s Gas gathered on the
Gathering System in such calendar quarter exceeds (ii) a volume equal to 35,000
Mcf’s per Day multiplied by the number of Days in such calendar quarter.
 
“Quarterly Minimum Volume” means, for each calendar quarter in the Minimum
Volume Period, a minimum volume of Gas equal to 50,000 Mcf’s per Day multiplied
by the number of Days in each such calendar quarter.
 
“Quarterly Third Party Credit Volumes” means, for a calendar quarter, 70% of the
volume (in Mcf’s) of Third Party Gas gathered on the Gathering System in such
calendar quarter.
 
“Receipt Points” means (i) the receipt points described in Schedule 3 and (ii)
any new receipt points that may, from time to time, be added by Gatherer to the
Gathering System after the Effective Date to permit Producer to deliver
Producer’s Gas to the Gathering System.
 
“Receiving Transporter” means the intrastate or interstate pipeline company,
local distribution company, or other party taking delivery or custody of
Producer’s Gas at, or immediately downstream of, the Delivery Points.
 
“Rules” is defined in Section 13.3(ii).
 
“Scheduled Gas” means, for a specified period of time, the quantity of
Producer’s Gas scheduled by Producer and confirmed by Gatherer for delivery and
gathering on the Gathering System.
 
“Subject Leases” means the oil, gas, and mineral leases, deeds, conveyances, and
other instruments described in Schedule 5.
 
“Third Party Gas” means all Gas gathered on the Gathering System from wells
within the AMI, other than Producer’s Gas and Co-Owners’ Gas.
 
“Year” means the period of time beginning on one Day and ending on the same Day
the following year.
 
1.2              Attachments Each exhibit, schedule, or other attachment to this
Agreement is a part of this Agreement and incorporated herein for all
purposes.  When the term “Agreement” is used herein, it means this Agreement and
all of the exhibits, schedules, and other attachments hereto. A list of the
exhibits, schedules, and other attachments to this Agreement is attached behind
the signature page.
 
Article 2
Term
 
2.1              Term Unless terminated sooner as provided below, the term of
this Agreement shall commence on the Effective Date and continue in effect
through the close of the last Day of the Month following the fifteenth (15th)
anniversary of the Effective Date and shall continue in effect for so long
thereafter as Producer’s Gas can be produced in commercial quantities from the
Dedicated Reserves.
 
2.2              Termination This Agreement may be terminated as follows:

 
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(i)
by either Party if the other Party fails to perform any of its material
obligations under this Agreement and such failure is not (x) excused by a Force
Majeure Event under Article 9 or (y) cured by the defaulting Party within 30
Days after written Notice thereof by the non-defaulting Party to the defaulting
Party; or

 
 
(ii)
by either Party if the other Party fails to pay any amount when due under this
Agreement if such failure is not remedied within ten (10) Business Days after
Notice of such failure is given by the non-defaulting Party to the defaulting
Party (other than amounts disputed in good faith pursuant to Section 8.3);

 
 
(iii)
by either Party by Notice to the other Party if the other Party (1) makes an
assignment or any general arrangement for the benefit of creditors, (2) files a
petition or otherwise commences, authorizes, or acquiesces in the commencement
of a proceeding or cause under any bankruptcy or similar law for the protection
of creditors or have such petition filed or proceeding commenced against them,
or (3) otherwise becomes bankrupt or insolvent (however evidenced).

 
2.3              Damages for Early Termination If either Party terminates this
Agreement under Section 2.2 above, then the terminating Party may pursue any and
all remedies at law or in equity against the non-terminating Party for its
Losses resulting from such termination.  Upon termination of this Agreement, the
Parties shall retain all other rights and remedies available at law or in
equity, and termination of this Agreement shall not relieve the Parties from any
obligation accruing or accrued prior to the date of such termination.
 
Article 3
Gathering of Producer’s Gas
 
3.1              Dedicated Reserves.  Subject only to Producer’s Reservations,
Producer (i) exclusively dedicates and commits to the performance of this
Agreement the Dedicated Reserves, (ii) represents that the Dedicated Reserves
are not otherwise subject to any other gas gathering agreement or commitment,
except as provided in the ETC Contract, and (iii) agrees not to deliver any Gas
produced from the Dedicated Reserves and owned or controlled by Producer or
their Affiliates to any other gas gatherer or gas gathering system.  Producer
agrees to cause any existing or future Affiliates of Producer to be bound by,
and to execute and join as a party, this Agreement.  The dedication and
commitment made by Producer and their Affiliates under this Agreement is a
covenant running with the land.
 
3.2              Producer’s Reservations.  Producer reserves the following
rights (and reasonable quantities of Gas to satisfy same) (“Producer’s
Reservations”):  (i) to operate wells producing from the Dedicated Reserves as a
reasonably prudent operator, (ii) to separate or process Gas using only
mechanical equipment located at surface production facilities on or near wells
producing from the Dedicated Reserves, (iii) to use Gas produced from the
Dedicated Reserves for lease operations, (iv) to pool, communitize, or unitize
Producer’s interests in the Dedicated Reserves, and (v) to pay lessors’
royalties in kind.  Producer shall pay Gathering Fees for any volumes of Gas
reserved to pay lessors’ royalties in kind if said volumes are transported to
market on Gatherer’s Gathering System.  If Producer should commence Gas flow
from any new well or if Producer repairs, reworks, curtails, or plugs and
abandons any existing well, notice thereof shall be given to Gatherer as soon as
is reasonably practicable prior to delivering or curtailing deliveries of Gas
from such well to a Receipt Point.
 
3.3              Memorandum.  Producer shall enter into and deliver to Gatherer,
at Gatherer’s request, a fully recordable memorandum of this Agreement.
 
Article 4
Gathering Fees
 
4.1              Gathering Fees.  As consideration for gathering Producer’s Gas
hereunder, Producer shall pay Gatherer the Gathering Fees for Producer’s Gas
delivered to the Delivery Points each Month, as provided herein.

 
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4.2              Payment Payment of the Gathering Fees shall be made in
accordance with the procedures set forth in Article 8.
 
Article 5
Gas Delivery and Allocation
 
5.1              Receipt and Delivery.  Producer agrees to tender, or cause to
be tendered, to the Receipt Points, Producer’s Gas, each Day, and Gatherer
agrees to accept Producer’s Gas at the Receipt Points,  and redeliver Producer’s
Gas, to the Delivery Points, subject to the terms hereof.  Producer’s Gas shall
be delivered to the Receiving Transporter under the ETC Contract at the Delivery
Points.  Producer and Gatherer may mutually agree to deliver Producer’s Gas to
other available Delivery Points in the future if capacity is available at such
Delivery Points and on the Gathering System as then configured.  Such redelivery
is subject to any additional compression, treating, and dehydration charges and
fees that may be required to effect such redelivery.
 
5.2              Minimum Volume Commitment.
 
 
(i)
Producer's Obligation.  Producer commits to deliver to Gatherer for gathering on
the Gathering System in each calendar quarter during the Minimum Volume Period a
volume of Gas, which when added to the volume of Co-Owners' Gas and Third Party
Gas delivered in such calendar quarter, is not less than the Quarterly Minimum
Volume.

 
 
(ii)
Producer’s Quarterly Deficit Volumes.  If the volume of Gas (in Mcf’s) delivered
to and gathered on the Gathering System (including Producer’s Gas, Co-Owners’
Gas and Third Party Gas) in a calendar quarter of the Minimum Volume Period is
less than the Quarterly Minimum Volume, then Producer shall pay Gatherer in
cash, no later than 30 days following the end of such calendar quarter, an
amount equal to the Producer’s Quarterly Deficit Volume, if any, for such
calendar quarter (in Mcf’s) multiplied by the Gathering Fee for such calendar
quarter, as its share of liquidated and agreed damages for the Quarterly Minimum
Volume not being delivered to the Gathering System in such calendar quarter.

 
 
(iii)
Quarterly Excess Volumes.  Any Producer’s Quarterly Excess Volumes delivered in
a calendar quarter will accumulate as a positive balance to be used by Gatherer
in subsequent calendar quarters without limitation during the term to determine
and remedy any Producer’s Quarterly Deficit Volumes.

 
 
(iv)
Cumulative Volumetric Commitment.  Producer’s obligation hereunder to deliver
its share of the Quarterly Minimum Volume shall terminate upon the delivery to
the Gathering System of a volume of Producer’s Gas, Co-Owner’s Gas and Third
Party Gas equal in the aggregate to the Cumulative Volumetric Commitment.

 
 
(v)
No Suspension. Producer’s obligations to make payments under this Section
5.2 shall not be suspended or affected by the occurrence of Force Majeure Events
affecting Producer’s or Co-Owners’ Gas, or the production or delivery thereof,
upstream of the Receipt Points.

 
 
(vi)
First Quarter.  The calculations under this Section 5.2 for the first calendar
quarter in the term of this Agreement shall be made only for the Months of
November and December 2009 (and will exclude October 2009).

 
5.3              Scheduling.  Producer shall Notify Gatherer not less than 3
Business Days before the last day of each Month of the total volume of Gas (in
Mcf’s/d and MMBtu’s) that Producer expects to deliver in the following Month,
specifying the volumes to be delivered to or by Gatherer at each of the Receipt
Points and at the Delivery Points.  Producer may modify its nominations at any
time upon at least 24 hours advance Notice.  The Parties shall coordinate their
nomination activities, giving sufficient time to meet the deadlines of the
Receiving Transporter.  Each Party shall give the other Party timely prior
Notice, sufficient to meet the requirements of the Receiving Transporter
involved in the transaction, of the quantities of Producer’s Gas to be delivered
to the Delivery Points each Day. If either Party becomes aware that actual
deliveries of Producer’s Gas at the Receipt Points or Delivery Points are
greater or less than by 5 per cent or more the quantities of Scheduled Gas, then
such Party shall promptly Notify the other Party.  Throughout the term of this
Agreement, the Parties agree to work together to refine and improve the
scheduling, nominating, and balancing procedures applicable to Producer’s Gas to
accommodate the Receiving Transporter’s nomination procedures (or changes to
such procedures) and the operational requirements of both Gatherer and
Producer.  Except in cases where Gatherer is unable to accept delivery of
Producer’s Gas, and unless Gatherer’s liability, costs or expenses are incurred
as a result of the Gatherer failing to take any action or give any notice
required under this Agreement, if Gatherer incurs any liabilities, costs, or
expenses as a result of Producer not scheduling deliveries of Producer’s Gas at
the Delivery Points in accordance with the Receiving Transporter’s requirements,
then Producer shall promptly reimburse Gatherer for such liabilities, costs, or
expenses, including all imbalance charges assessed in respect of the delivery of
Producer’s Gas to the Receiving Transporter.

 
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5.4              Thermally Equivalent Volumes.  Subject to this Agreement,
Gatherer shall, as nearly as practicable each Day, deliver for Producer’s
account Equivalent Quantities of Gas at the Delivery Points.  Fuel Gas shall be
rendered to Gatherer by Producer for Gatherer’s use at no cost to Gatherer;
except Gatherer agrees to  reimburse Producer for landowner  royalties actually
paid by Producer on Fuel Gas used by Gatherer, if any.  All receipts and
deliveries of Producer’s Gas hereunder shall be balanced on an MMBtu basis, less
Producer’s allocated share of Fuel Gas and Lost and Unaccounted For Gas.  No
Gathering Fee shall be paid on Fuel Gas.
 
5.5              Equal Receipt and Delivery.  Notwithstanding anything herein to
the contrary, as long as Producer’s Gas is the only Gas being gathered by
Gatherer, on the Gathering System then Gatherer will not reduce or discontinue
receipt or delivery of  any of Producer’s Gas at any Receipt Points or Delivery
Points unless required by the Receiving Transporter or as the result of the
occurrence of a Force Majeure Event or other limitations in the capacity of the
Gathering System.  If requested by a Receiving Transporter, receipt of Producers
gas will be reduced as directed by such Receiving Transporter along with all
nominated volumes from other shippers if any using the Delivery Point affected
by the Receiving Transporter’s requirements, and any subsequent imbalance
charges from Receiving Transporter attributable to Producer’s Gas will be the
responsibility of and paid by Producer.  Further, in the event of Gatherer
reducing or discontinuing Producer’s Gas under this Section 5.5, then Gatherer
shall first notify Producer prior to taking any actions to reduce receipts of
Producers Gas under this Section 5.5.
 
5.6              Information.  Each Party will furnish or cause to be furnished
to the other Party hereto all data required to accurately account for all
Producer’s Gas received and delivered hereunder.
 
5.7              Upstream and Downstream Arrangements.  Producer shall make, or
cause to be made, all necessary arrangements with other pipelines or third
parties at or upstream of the Receipt Points and at or downstream of the
Delivery Points to effect Gatherer’s receipt and delivery of Producer’s
Gas.  Such arrangements must be coordinated with Gatherer. As of the date
hereof, Producer’s Gas will be delivered by Gatherer on behalf of Producer at
the Delivery Points under the ETC Contract.   Gatherer agrees to cause
Producer’s Gas to be delivered at the Delivery Points in a manner that does not
violate the provisions of Sections 4.1, 5.1, 6.1, 6.2 and 6.5 of the ETC
Contract (as described in clause (ii) of the definition), and if Producer’s Gas
meets the specifications requirements of this Agreement, Section 7.1 of the ETC
Contract (as described in clause (ii) of the definition).
 
5.8              Commingling.  Although Producer shall retain title to
Producer’s Gas delivered to Gatherer at the Receipt Points hereunder, Producer’s
Gas received by Gatherer shall constitute part of the supply of Gas from all
sources in the Gathering System, and as such Gatherer shall, subject to its
obligation to deliver an Equivalent Quantity as provided in Section 5.4 and to
comply with the quality specifications herein have the absolute and unqualified
right to commingle Producer’s Gas and to deliver molecules different from those
received and to handle the molecules received in any manner.
 
5.9              Lost and Unaccounted for Gas.  Gatherer agrees to use ordinary
care in gathering Producer’s Gas from the Receipt Points to the Delivery
Points.  However, Producer acknowledges that certain volumetric losses in
Producer’s Gas will occur, and such losses attributable to Lost and Unaccounted
For Gas shall be shared and allocated among the Producer and other  parties
whose Gas is gathered on the Gathering System in the proportion that each such
party delivers Gas to the Gathering System.
 

 
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5.10            Notice of New Connections.  Producer and Gatherer agree to work
together to connect  new wells drilled by Producer within the AMI as soon as
practical to the Gathering System upon completion of any such well by
Producer.  This may include laying a connection before a well can be practically
assessed or completed.  Under normal conditions, Producer shall provide Gatherer
no less than 3 Months’ Notice of the expected date of first production for each
new well or wells in the AMI operated by Producer that Producer desires to
connect to the Gathering System.  Such Notice to Gatherer shall include the
location of the well or wells to be connected to the Gathering System, the
projected date of final completion and testing of such well or wells, Producer’s
good faith estimate of the Gas reserves for each such well, the projected
monthly production profile for the first 5 Years after initial production for
each such well or wells, and all other information or data reasonably requested
by Gatherer.  If the projected Gas reserves for such well or wells equal or
exceed the Minimum Reserve Limit, as determined by the Independent Engineer,
then such well or wells shall be connected to the Gathering System by Gatherer
as soon as reasonably practicable and Producer’s gas delivered through such
connection shall be gathered under the terms of this Agreement.  Such connection
shall be constructed by Gatherer at its sole cost.  All Producer’s Gas delivered
through a connection constructed by Gatherer shall be gathered by Gatherer on
the Gathering System under the terms of this Agreement.  If the projected Gas
reserves for such well or wells cannot be reasonably determined in advance or do
not equal or exceed the Minimum Reserve Limit, as determined by the Independent
Engineer, then Gatherer and Producer may mutually agree to elect one of two
alternate courses:
 
 
i.
Producer may request that Gatherer complete the connection as if the Gas
Reserves for such well or wells equals or exceeds the Minimum Reserve
Limit.  Producer’s working interest share of all costs incurred by Gatherer to
complete such connection shall be charged to the account of the Producer.  When
any such well is completed, a new determination will be made by the Independent
Engineer to assess if the completed well or wells meets or exceeds the Minimum
Reserve Limit.  If the Minimum Reserve Limit, as determined by the Independent
Engineer, is met, Producer shall have no obligation for the costs of Gatherer to
construct and complete such connection and Gatherer shall promptly reimburse
Producer for any such costs charged to Producer.  If the completed well or wells
does not meet the Minimum Reserve Limit as determined by the Independent
Engineer, Producer shall promptly reimburse Gatherer for its working interest
share of Gatherer’s costs to construct and complete such connection.  In that
event all production from such well or wells shall be gathered by Gatherer  on
the Gathering System under the terms of this Agreement, except the Gathering fee
shall not exceed $.20 per Mcf  per day.  The costs of the Independent Engineer,
if used, will be added to the construction costs for such connection.

 
ii.
By mutual agreement with the Gatherer, such mutual agreement on the part of the
Gatherer not to be unreasonably withheld, Producer may complete such connection
to the Gathering System, at Producer’s sole cost.  All facilities constructed by
Producer to complete such connection shall meet or exceed the reasonable design
and operating standards of Gatherer for the Gathering System.  All Producer’s
Gas delivered through a connection constructed by Producer shall be gathered by
Gatherer on the Gathering System under the terms of this Agreement, except the
Gathering Fee shall not exceed $0.20 per Mcf.  This option may not be elected by
the Producer unless Gatherer has waived in writing its right to provide the
connection as otherwise described in this Section 5.10, such waiver shall not be
unreasonably withheld after reserve information has been provided and assessed
by the Independent Engineer.

 
5.11              Pressures.  Producer’s Gas shall be delivered at the Receipt
Points at pressures sufficient to effect delivery into Gatherer’s facilities at
the Receipt Points, but not to exceed the maximum allowable operating pressure
of the Gathering System from time to time.  Gatherer shall cause Producer’s Gas
to be redelivered at the Delivery Points at pressures sufficient to effect
delivery into Receiving Transporter’s facilities at the Delivery Points, but not
to exceed the maximum allowable operating pressure of such facilities from time
to time.
 
5.12              Allocation Of Volumes Delivered.  Producer shall be credited
with its allocated portion of volumes of Gas received at the  Delivery Points by
the Receiving Transporters.  So long as no Third Party Gas is received by
Gatherer on the Gathering System, all delivered volumes shall be credited to
Producer and Co-Owners, as applicable.  Gathering Fees shall be calculated based
on volumes of Producer’s Gas delivered to the Delivery Points.  Allocation of
volumes and Gathering Fees among Receipt Points shall be the responsibility of
Producer based on measurement made by its measurement equipment at the Receipt
Points.  If Gas is delivered by shippers other than Producer and Co-Owners to
the Gathering System , Gatherer shall allocate total delivered volumes among all
shippers and calculate the Gathering Fees based on metering and equipment
installed and operated by Gatherer.  Gatherer may elect to install area metering
covering multiple wells for purposes of such allocations.  Allocations by
Gatherer will not be based on meters operated by Producer unless check metering
and equipment is installed by Gatherer.

 
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Article 6
Taxes and Warranties
 
6.1              Taxes.  Producer shall pay or cause to be paid, and agrees to
indemnify and hold harmless Gatherer from and against the payment of, all
excise, gross production, severance, sales, occupation, and all other taxes,
charges, or impositions of every kind and character required by statute or by
any Governmental Authority with respect to Producer’s Gas and the handling
thereof prior to receipt thereof by Gatherer at the Receipt Points.  Gatherer
shall pay or cause to be paid, and agrees to indemnify and hold harmless
Producer from and against the payment of, all taxes and assessments, if any,
imposed upon Gatherer for the activity of gathering of Producer’s Gas after
receipt and prior to redelivery thereof by Gatherer at the Delivery
Points.  Neither Party shall be responsible or liable for any taxes or other
statutory charges levied or assessed against the facilities of the other Party
used for the purpose of carrying out the provisions of this Agreement.
 
6.2              Title and No Liens Producer warrants to Gatherer good title to
Producer’s Gas delivered to the Receipt Points, free from all liens, charges,
and other adverse claims or encumbrances (other than liens in favor of
Producer’s lenders).  Producer shall indemnify, defend, and hold harmless
Gatherer from and against all Losses arising from all such liens, charges, and
adverse claims and encumbrances, including Losses arising from claims (i) by
co-working interest owners, royalty or overriding royalty owners, Producers
lenders,or other purported owners of interests or rights in Producer’s Gas or in
the Dedicated Reserves or (ii) by Persons from whom Producer purchased or
otherwise acquired Producer’s Gas prior to the Receipt Points.
 
6.3              Other Warranties EXCEPT AS SET FORTH IN THIS ARTICLE 6 AND THE
OTHER PROVISIONS OF THIS AGREEMENT AND ITS ATTACHMENTS, NEITHER PARTY MAKES ANY
OTHER WARRANTIES, EXPRESSED OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT
TO THE GAS DELIVERED AND REDELIVERED HEREUNDER.
 
Article 7
Control, Possession, and Waiver
 
7.1              Control and Possession As between the Parties, Producer shall
be deemed to be in exclusive control and possession of Producer’s Gas delivered
hereunder and responsible for any damage or injury caused thereby prior to the
time Producer’s Gas shall have been delivered to Gatherer at the Receipt Points
and after Producers Gas is redelivered to or on behalf of Producer at Delivery
Points.  After delivery of Producer’s Gas to Gatherer at the Receipt Points,
Gatherer shall be deemed to be in exclusive control and possession thereof and
responsible for any injury or damage caused thereby until redelivered to or on
behalf of Producer at the Delivery Points.
 
7.2              Indemnity Producer agrees to indemnify, defend, and hold
harmless Gatherer and its Affiliates from any and all Losses arising from or out
of (i) personal injury or property damage attributable to Producer’s Gas when
Producer shall be deemed to be in control and possession of Producer’s Gas as
provided in Section 7.1 and (ii) the delivery by Producer of Producer’s Gas that
does not meet the quality specifications in Section 3 of Exhibit A of this
Agreement.  Except to the extent a Loss (or Losses) is covered by the indemnity
in the preceding sentence, Gatherer agrees to indemnify, defend, and hold
harmless Producer and their Affiliates from all Losses arising from or out of
personal injury or property damage attributable to Producer’s Gas when Gatherer
shall be deemed to be in control and possession of Producer’s Gas as provided in
Section 7. THE INDEMNITIES SET FORTH IN THIS SECTION 7.2 ARE TO BE CONSTRUED
WITHOUT REGARD TO THE CAUSES THEREOF, INCLUDING THE NEGLIGENCE OF ANY
INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT, OR CONCURRENT, OR
ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF ANY INDEMNIFIED PARTY OR OTHER
PERSON.

 
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7.3              Waiver of Damages A PARTY’S LIABILITY HEREUNDER SHALL BE
LIMITED TO DIRECT ACTUAL DAMAGES ONLY.  SUCH DIRECT ACTUAL DAMAGES SHALL BE THE
SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY
ARE WAIVED.  NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES
FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES, LOST
PROFITS, OR OTHER BUSINESS INTERRUPTION OR SIMILAR DAMAGES, BY STATUTE, IN TORT,
OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE.  IT IS THE INTENT OF
THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF
DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE
STRICT LIABILITY OR NEGLIGENCE OF ANY PARTY, WHETHER SUCH STRICT LIABILITY OR
NEGLIGENCE BE SOLE, JOINT, OR CONCURRENT, OR ACTIVE OR PASSIVE.  TO THE EXTENT
ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES
ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR
OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE DAMAGES
CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR
LOSS.  DAMAGES OWING BY PRODUCER UNDER THE ETC CONTRACT CAUSED BY A FAILURE BY
GATHERER TO PERFORM ITS OBLIGATIONS UNDER SECTION 5.7 OF THIS AGREEMENT SHALL BE
CONSIDERED DIRECT ACTUAL DAMAGES.
 
Article 8
Billing and Payments
 
8.1              Billing. As soon as practicable each Month, Gatherer shall
invoice Producer for volumes of Producer’s Gas received and gathered hereunder
in the preceding Month and for any other applicable charges and provide a
statement setting forth (i) the volumes and quantities (in Mcf’s and MMBtu’s) of
Producer’s Gas delivered to each Delivery Point, (ii) any adjustments for prior
periods, (iii) any amount that may be due for a calendar quarter under Section
5.2, and (iv) all other amounts due hereunder.  Any amount owing by Producer
under Section 5.2 for a calendar quarter shall be paid by Producer as provided
in Section 8.2 below, except amounts owing in excess of $350,000 may be paid by
Producer in two equal monthly installments. If actual measurements of volumes of
Producer’s Gas are not available in any Month, Gatherer may prepare and submit
its invoice based on estimated volumes, which estimated volumes shall be
corrected to actual volumes in the Month in which actual volumes are determined.

 
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8.2              Payment. Producer shall remit to Gatherer the amount due under
Section 8.1, in immediately available funds, by the 25th Day of each Month or 10
Days from the date of Gatherer’s invoice, whichever is later.  If such due date
is not a Business Day, payment is due on the next Business Day following such
date.
 
8.3              Dispute If Producer, in good faith, disputes the amount of any
such invoice or any part thereof, Producer will pay such amount as it concedes
to be correct. If Producer disputes the amount due, it must provide supporting
documentation acceptable in industry practice to support the amount disputed
within 20 Days of the date of such invoice.  If the Parties are unable to
resolve such dispute, either Party may pursue any remedy available at law or in
equity to enforce its rights under this Agreement.
 
8.4              Late Payments If Producer fails to pay the amount of any
invoice rendered by Gatherer hereunder when such amount is due, interest thereon
shall accrue from, but excluding, the due date to, and including, the date
payment thereof is actually made at the lesser of the “Prime Rate” plus 4%,
computed on an annualized basis and compounded Monthly, or the maximum rate of
interest permitted by Applicable Law, not to exceed the maximum legal
rate.  “Prime Rate” means the prime rate on corporate loans at large U.S. money
center commercial banks as set forth in the Wall Street Journal “Money Rates”
table under the Heading “Prime Rate,” or any successor thereto, on the first
date of publication for the Month in which payment is due.  Gatherer shall
render a late payment charge invoice and Producer shall make payment within 10
Days of the date of such invoice.
 
8.5              Audit A Party shall have the right, at its own expense, upon
reasonable Notice and at reasonable times, to examine and audit and to obtain
copies of the relevant portion of the books, records, and telephone recordings
of the other Party to the extent reasonably necessary to verify the accuracy of
any statement, charge, payment, or computation made under this Agreement.  This
right to examine, audit, and to obtain copies shall not be available with
respect to proprietary information not directly relevant to transactions under
this Agreement.  All invoices and billings shall be conclusively presumed final
and accurate and all associated claims for underpayments or overpayments shall
be deemed waived unless such invoices or billings are objected to in writing,
with adequate explanation and/or documentation, within 2 Years after the date of
the invoice or billing.  All retroactive adjustments under this Section 8.5
shall be paid in full by the Party owing payment within 30 Days of Notice and
substantiation of such inaccuracy.
 
8.6              Financial Responsibility.  If Producer fails to pay any amounts
when due under this Agreement for any two consecutive months, then Gatherer
shall notify Producer in writing. Producer shall then have a 30 day period to
remedy payments owed in full.  After the second failure to pay for two
consecutive months, in the event Producer fails to remedy within 30 days
following notice, Gatherer may require Producer to post security reasonably
satisfactory to Gatherer, provided that payment in cash in advance by Producer
for Gathering of Producer’s Gas hereunder shall be deemed to satisfy that
requirement.
 
Article 9
Force Majeure
 
9.1              Non-Performance If a Party is rendered unable, wholly or in
part, by reason of a Force Majeure Event to perform its obligations under this
Agreement, other than a Party’s obligations to make payments when due hereunder,
then such Party’s obligations shall be suspended to the extent affected by the
Force Majeure Event.  A Party claiming a Force Majeure Event shall use
commercially reasonable efforts to remove such Force Majeure Event, shall give
prompt written notice to the other Party of the termination of such Force
Majeure Event, and shall resume performance of any suspended obligation promptly
after termination of such Force Majeure Event.
 
 
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9.2              Definition “Force Majeure Event” means any cause or event not
reasonably within the control of the Party whose performance is sought to be
excused thereby; including acts of God, strikes, lockouts, or other industrial
disputes or disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
tornadoes, hurricanes, storms, and warnings for any of the foregoing which may
necessitate the precautionary shut-down of wells, plants, pipelines, gathering
systems, or other related facilities, floods, washouts, arrests and restraints
of governments and people, civil disturbances, explosions, sabotage, breakage or
accidents to equipment, machinery, gathering systems, plants, facilities or
lines of pipe, the making of repairs or alterations to lines of pipe, gathering
systems, plants or equipment, inability to secure labor or materials, freezing
of wells or lines of pipe, partial or entire failure of wells or lines of pipe,
partial or entire failure of gas supply, electric power shortages, necessity for
compliance with any court order, or any law, statute, ordinance, regulation or
order promulgated by a Governmental Authority having or asserting jurisdiction
prohibiting a Party from discharging its obligations under this Agreement,
inclement weather that necessitates extraordinary measures and expense to
construct facilities or maintain operations and any other causes, whether of the
kind enumerated herein or otherwise, not reasonably within the control of the
Party claiming suspension. Such term shall likewise include, in those instances
where either Party is required to obtain servitudes, rights-of-way, grants,
permits, or licenses to enable such Party to fulfill its obligations hereunder,
the inability of such Party to acquire, or delays on the part of such Party in
acquiring, at reasonable cost and after the exercise of reasonable diligence,
such servitudes, rights-of-way, grants, permits or licenses, and in those
instances where either Party hereto is required to furnish materials and
supplies for the purpose of constructing or maintaining facilities or is
required to secure permits or permissions from any Governmental Authority to
enable such Party to fulfill its obligations hereunder, the inability of such
Party to acquire, or delays on the part of such Party in acquiring, at
reasonable cost and after the exercise of reasonable diligence, such materials,
supplies, permits, and permissions.  “Force Majeure Event” also includes any
event of force majeure occurring with respect to the facilities or services of
either Party’s Affiliates or service providers providing a service or providing
any equipment, goods, supplies or other items necessary to the performance of
such Party’s obligations hereunder, to the extent such force majeure event
renders a Party unable to perform its obligations under this Agreement and to
the extent such event is not reasonably within the control of such Party.
 
9.3              Strikes. The settlement of strikes or lockouts shall be
entirely within the discretion of the Party having the difficulty, and any
obligation hereunder to remedy a Force Majeure Event shall not require the
settlement of strikes or lockouts by acceding to the demands of the opposing
Party when such course is inadvisable in the sole discretion of the Party having
the difficulty.
 
9.4              Notice The Party whose performance is affected by a Force
Majeure Event must provide Notice to the other Party.  Initial notice may be
given orally, but written Notice with reasonably full particulars of the Force
Majeure Event is required as soon as reasonably possible after the occurrence of
the Force Majeure Event.
 
9.5              Maintenance and Other Operations Gatherer may interrupt its
performance hereunder for the purpose of making necessary or desirable
inspections, alterations, and repairs and Gatherer shall give to Producer
reasonable notice of its intention to suspend its performance hereunder, except
in cases of emergency where such notice is impracticable or in cases where the
operations of Producer will not be affected.  Gatherer shall endeavor to arrange
such interruptions so as to inconvenience Producer as little as
possible.  Service interruptions on the part of either Party that are covered by
this provision are included within the definition of “Force Majeure Event” for
the purpose of this Agreement.
 
Article 10
Assignment
 
10.1           Restriction on Assignment Neither Party may assign or delegate
any of its rights or obligations under this Agreement, by operation of law,
change of control, or otherwise, without the prior written consent of the other
Party which consent shall not be unreasonably withheld, delayed or conditioned,
except as provided in Section 10.2 below.
 
10.2           Permitted Assignments.  Producer may assign its rights under this
Agreement, without consent, to a Person that is acquiring an interest in or all
or part of the Dedicated Reserves contemporaneous with such assignment if such
assignment expressly provides that (i) it is subject to the terms of this
Agreement and (ii) the Dedicated Reserves will remain committed to this
Agreement.  Gatherer may assign its rights under this Agreement, without
consent, to a Person that is acquiring an interest in or all or a part of a
Gathering System contemporaneous with such assignment.  Each Party also (x) may
pledge this Agreement (or pledge any of its rights under this Agreement
including the right to receive payments due hereunder) to secure any credit
facility or indebtedness of such Party or its Affiliates for borrowed money
without the consent of the other Party and (y) may assign any of its rights, or
delegate any of its obligations, under this Agreement to one or more of its
Affiliates without the consent of the other Party; provided, no such pledge or
assignment shall relieve the assignor Party from any of its obligations
hereunder.
 
 
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10.3           Inurement Subject to Section 10.1 and 10.2,  this Agreement binds
and inures to the benefit of the Parties and their respective successors and
assigns.
 
Article 11
Jurisdiction
 
This Agreement is subject to, and each Party will comply with, all Applicable
Laws of any Governmental Authority now or hereafter having jurisdiction over
either or both Parties or their facilities.
 
Article 12
Notices
 
12.1           Notice All notices, invoices, payments, and other communications
made under this Agreement (“Notice”) shall be in writing and sent to the
addresses shown in Exhibit B.
 
12.2           Method All Notices required hereunder may be sent by facsimile or
mutually acceptable electronic means, a nationally recognized overnight courier
service, first class mail, or hand delivered.
 
12.3           Delivery Notice shall be given when received on a Business Day by
the addressee.  In the absence of proof of the actual receipt date, the
following presumptions will apply.  Notices sent by facsimile shall be deemed to
have been received upon the sending Party’s receipt of its facsimile machine’s
confirmation of successful transmission.  If the Day on which such facsimile is
received is not a Business Day or is after five p.m. on a Business Day, then
such facsimile shall be deemed to have been received on the next following
Business Day.  Notice by overnight mail or courier shall be deemed to have been
received on the next Business Day after it was sent or such earlier time as is
confirmed by the receiving Party.  Notice by first class mail shall be
considered delivered 5 Business Days after mailing.
 
Article 13
Other Provisions
 
13.1            Additional Terms The measurement terms and conditions set forth
in Exhibit A are incorporated herein by reference.
 
13.2            Governing Law This Agreement shall be construed, enforced, and
interpreted according to the laws of the State of Texas, without regard to the
conflicts of law rules thereof.
 
 
13.3
Arbitration Agreement to Arbitrate.  Any claim, counterclaim, demand, cause of
action, dispute, or any other controversy arising out of or relating in any way
to this Agreement, the subject matter of this Agreement, or the relationship
between the Parties created by this Agreement (each a “Dispute”), shall be
resolved by binding arbitration in accordance with the terms of this Section
13.3.  A Dispute must be resolved through arbitration regardless of whether the
Dispute involves claims that the Agreement is unlawful, unenforceable, void, or
voidable or involves claims sounding in tort, contract, statute or common
law.  The validity, construction and interpretation of this agreement to
arbitrate, and all other procedural aspects of the arbitration conducted
pursuant hereto, shall be decided by the arbitral tribunal.

 
 
(ii)
Rules and Applicable Law.  Any arbitration of a Dispute shall be administered by
the American Arbitration Association (“AAA”) and conducted in accordance with
the Commercial Arbitration Rules (the “Rules”) of the AAA in existence at the
time of the arbitration.  In resolving any Dispute, the arbitral tribunal shall
refer to the governing law as specified in Section 13.2, provided that legal
issues relating to arbitration procedure or the scope or enforceability of the
arbitration agreement shall be governed by the Federal Arbitration Act.  The
arbitral tribunal shall not be empowered to award exemplary, punitive, indirect,
consequential, remote, speculative, treble, multiple or special damages, and the
Parties waive any right they may have to recover such damages from one another.

 
 
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(iii)
Location of the Proceeding.  The seat (or legal place) and venue of the
arbitration shall be in Houston, Texas.

 
 
(iv)
Parties.  This shall apply to any Dispute between the Parties, and it shall also
apply to any (a) Dispute between a Party and any Affiliate of the other Party,
and (b) Dispute between an Affiliate of one Party and an Affiliate of the other
Party. With regard to any Dispute, the Affiliates of the Parties are intended
third party beneficiaries of the agreement to arbitrate set out in this Section
13.3.

 
 
(v)
Selection of the Arbitral Tribunal.  The Dispute shall be decided by a panel of
three neutral arbitrators.  The claimant shall nominate an arbitrator at the
time it serves its request for arbitration.  The respondent shall nominate an
arbitrator at the time it serves its response to the request for
arbitration.  If a Party fails to appoint an arbitrator, then that arbitrator
shall be appointed in accordance with the Rules.  The two arbitrators shall
together agree upon a third arbitrator to recommend to the AAA to chair the
arbitration.  If the two party-appointed arbitrators are unable to agree upon an
arbitrator within 15 days of the respondent’s appointment of an arbitrator, then
the chairman shall be chosen according to the Rules.

 
 
(vi)
Interim Measures and Provisional Remedies. The arbitral tribunal is authorized
to award interim measures, provisional remedies or injunctive relief, which may
be enforced by the arbitral tribunal or by a court of law.  In the event of an
emergency or if one of the arbitrators is unavailable, then the chairman is
authorized to award interim measures or injunctive relief, which may upon the
request of a Party be reviewed by the entire arbitral tribunal.

 
 
(vii)
The Award.  The award shall be final and binding.  The award shall be required
to be in writing, stating the award and the reasons therefor.

 
 
(viii)
Enforcement of Award by a Court.  Any arbitration award may be enforced by the
courts sitting in Houston, Texas or any other court of competent subject matter
jurisdiction (including any jurisdiction in which a Party holds or keeps
assets).  The Parties further agree that any action to challenge, vacate or set
aside the Award in whole or in part must be brought in the courts sitting in
Houston, Texas.  The Parties agree to waive any objections they may have to
personal jurisdiction, venue, or forum non-conveniens for any action brought to
enforce the award in the courts sitting in Houston, Texas or any other
jurisdiction where a Party holds or keeps assets.

 
 
(ix)
Costs and Attorneys Fees.  The arbitral tribunal is authorized to award costs of
the arbitration in its award and to allocate costs between the Parties,
including (a)  the fees and expenses of the arbitrators; (b) the costs of
assistance required by the tribunal, including the fees and expenses of its
experts; (c) the fees and expenses of the AAA; (d)  the reasonable costs for
legal representation of a successful Party, including attorneys’ fees, expert
witness fees, out of pocket costs and other expenses; and (e) any such costs
incurred in connection with an application for interim or emergency measures.

 
 
(x)
Severability.  If any provision of this arbitration provision is found by a
court to be unenforceable or unlawful, then it shall be severed from this
Agreement and the remaining terms shall be enforced as written.

 
 
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13.4            Representations Each Party represents to the other Party during
the term hereof as follows:  (i) there are no suits, proceedings, judgments, or
orders by or before any governmental authority that materially adversely affect
its ability to perform this Agreement or the rights of the other Parties
hereunder, (ii) it is duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its formation, and it has the legal right,
power and authority and is qualified to conduct its business, and to execute and
deliver this Agreement and perform its obligations hereunder, (iii) the making
and performance by it of this Agreement is within its powers, and has been duly
authorized by all necessary action on its part, (iv) this Agreement constitutes
a legal, valid, and binding act and obligation of it, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, reorganization and
other laws affecting creditor’s rights generally, and with regard to equitable
remedies, to the discretion of the court before which proceedings to obtain same
may be pending, and (v) there are no bankruptcy, insolvency, reorganization,
receivership or other arrangement proceedings pending or being contemplated by
it.  .  Producer and Gatherer jointly acknowledge and agree that (a) the
movement of Gas on the Gathering System under this Agreement constitutes (and is
intended to constitute for purposes of all Applicable Laws) a movement of
Producer’s Gas that is not subject to the jurisdiction of the Federal Energy
Regulatory Commission under the Natural Gas Act or Section 311 of the Natural
Gas Policy Act, (b) the Gathering Fees have been freely negotiated and agreed
upon as a result of good faith negotiations and are not discriminatory or
preferential, but are just, fair, and reasonable in light of the Parties’
respective covenants and undertakings herein during the term of this Agreement,
and (c) neither Producer nor Gatherer had an unfair advantage over the other
during the negotiation of this Agreement.
 
13.5            Integrated Transaction This Agreement is being executed and
delivered by the Parties contemporaneous with, and as a condition precedent to,
the execution and delivery of the Ancillary Agreements by the Persons that are
party thereto.  The Parties acknowledge that the execution and delivery of this
Agreement and the rights and obligations of the Parties hereto are part of an
integrated transaction being affected pursuant to the terms of this Agreement
and the Ancillary Agreements.
 
13.6            Waiver No waiver of any breach of this Agreement shall be held
to be a waiver of any other or subsequent breach.
 
13.7            Rules of Construction In construing this Agreement, the
following principles shall be followed:
 
 
(i)
no consideration shall be given to the fact or presumption that one Party had a
greater or lesser hand in drafting this Agreement;

 
 
(ii)
examples shall not be construed to limit, expressly or by implication, the
matter they illustrate;

 
 
(iii)
the word “includes” and its syntactical variants mean “includes, but is not
limited to” and corresponding syntactical variant expressions;

 
 
(iv)
a defined term has its defined meaning throughout this Agreement, regardless of
whether it appears before or after the place in this Agreement where it is
defined;

 
 
(v)
the plural shall be deemed to include the singular, and vice versa; and

 
 
(vi)
each gender shall be deemed to include the other genders.

 
13.8            No Third Party Beneficiaries Except as provided in Section
13.3(iv), there is no third party beneficiary to this Agreement.
 
13.9            Headings The headings and subheadings contained in this
Agreement are used solely for convenience and do not constitute a part of this
Agreement between the Parties and shall not be used to construe or interpret the
provisions of this Agreement.
 
[Signature pages follow.]

 
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.
 
Producer:
 
GASTAR EXPLORATION TEXAS, LP
 
BY: GASTAR EXPLORATION TEXAS LLC, its general partner
   
By:
/s/ Michael A. Gerlich
Name: Michael A. Gerlich
Title: Secretary and Treasurer

 
Signature Page to Gas Gathering Agreement

 
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Gatherer:
 
HILLTOP RESORT GS, LLC
   
By:
/s/ Gilbert Burciaga
Name: Gilbert Burciaga
Title: Chief Executive Officer

Signature Page to Gas Gathering Agreement

 
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List of Exhibits and Schedules

Exhibit A
-
Additional Terms and Conditions.
Exhibit B
-
Addresses for Notice.
     
Schedule 1
-
Gathering Fees.
Schedule 2
-
Gathering System Description.
Schedule 3
-
Receipt Points.
Schedule 4
-
Delivery Points.
Schedule 5
-
Subject Leases.
Schedule 6
-
Description of AMI.

 
List of Exhibits and Schedules
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Exhibit A
ADDITIONAL TERMS AND CONDITIONS
 
The following terms and conditions shall apply to the gathering of Producer’s
Gas on the Gathering System.
 
1.            Measurement and Testing.
 
(a)           Receiving Transporters.  The ultimate custody transfer point for
Producer’s Gas will be at the interconnection between the facilities of Gatherer
and the Receiving Transporter and therefore the volume attributable to Producer
will be an allocated volume based on Producer’s pro rata portion of all Gas
delivered to the Receiving Transporter less Producer’s allocated share of Fuel
Gas and Lost and Unaccounted For Gas.
 
(b)           Meters.  Gatherer purchased the Gathering System  from Producer
and Co-owners, but Producer shall continue to own, and Producer or its designee
shall operate, the existing meters at the Receipt Points.   Existing check
measuring stations and measuring equipment at the Delivery Points shall be owned
and operated by Gatherer.  Both Producer and Gatherer may install, maintain, and
operate, at their own expense, such additional check measuring equipment as
desired and where appropriate on meters owned by the other Party.  Such
equipment shall be installed so as not to interfere with the operation of the
owning Party’s or its designee’s measuring equipment.  Where no  check measuring
equipment is installed by the Party that does not own existing meters, the
owning Party agrees to provide the non-owning Party with immediate on-line
access to flow information from such meters.  Ownership and operation of new
metering on future Receipt Points and Delivery Points shall be determined on a
case by case basis by mutual agreement between Gatherer and Producer.
 
(c)           Practices.  All existing Delivery Point meters and future Receipt
Point and Delivery Point meters installed by Producer or Gatherer shall be
constructed, installed, and operated in accordance with the following standards
depending on the type of meters used.
 
(1)           Orifice Meters - In accordance with American Gas Association
Report Number 3, dated 2000 or the most recent edition as agreed to by Gatherer
and Producer.  If Gas pulsation problems occur upstream of the Receipt Points or
downstream of the Delivery Points, Producer, or their designee, shall take
whatever steps necessary to mitigate such pulsation.
 
(2)           Positive Meters - In accordance with American National Standards
Institute B109.2, dated 2000 or the most recent edition as agreed to by Gatherer
and Producer.
 
(3)           Turbine Meters - In accordance with American Gas Association
Report Number 7, dated 1996 or the most recent edition as agreed to by Gatherer
and Producer.
 
(4)           Electronic Transducers and Flow Computers (solar and otherwise) -
in accordance with the applicable American Gas Association standards, including
but not limited to American Gas Association Measurement Committee Report Nos. 3,
5, 6 and 7 and any subsequent amendments, revisions, or modification thereof.
 
(5)           Ultrasonic Meters - In accordance with American Gas Association
Report Number 9, dated 2003 or the most recent edition as agreed to by Gatherer
and Producer.
 
Notwithstanding anything contained in this Section 1(c) to the contrary,
Gatherer shall not be required to replace or make any alterations to its
measuring equipment as a result of any subsequent amendments, revisions, or
modifications of the American Gas Association Reports cited in Subparagraphs (1)
through (5) of this Section 1(c), unless the Parties mutually agree to such
replacement or alteration.
 
(d)           Testing.  Owners of meters on the Gathering System at Receipt
Points and Delivery Points shall give reasonable Notice to the other Party of
any cleaning, changing, repairing, inspecting, testing, calibrating, or
adjusting of the owning Party’s meters or the measurement equipment at Receipt
Points and Delivery Points to permit the non-owning Party to have a
representative present.  The official records from the measurement equipment
shall remain the property of the owner.  Upon request, Gatherer will submit its
records from the Delivery Points, together with calculations therefrom, to
Producer for inspection and verification, subject to return to Gatherer or its
designee within 30 Days after receipt thereof.

Exhibit A
Page 1

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(e)           Accuracy of Meters.  All meters shall be verified (and calibrated)
at the following intervals: (i) if the deliveries of Gas through the meter
average less than 100 Mcf’s/d, at least once each Year, (ii) if the deliveries
of Gas through the meter average between 100 Mcf’s/d and 500 Mcf’s/d, at least
once every 6 Months, (iii) if the deliveries of Gas through the meter average
between 500 Mcf’s/d and 5,000 Mcf’s/d, at least once every 3 Months, or (iv) if
the deliveries of Gas through the meter average more than 5,000 Mcf’s/d, at
least once each Month.  If, upon any test, the measuring equipment is found to
be inaccurate by 1% or less, previous readings of such equipment will be
considered correct in computing the deliveries of Producer’s Gas hereunder, but
such equipment shall immediately be adjusted to record accurately.  If, upon any
test, the measuring equipment is found to be inaccurate by more than 1% of the
average flow rate since the last test, then any previous recordings of such
equipment shall be corrected to zero (0) error for any period which is known
definitely or agreed upon, using the procedure set forth in Section 1(f).  If
such period is not known or agreed upon, such correction shall be made for a
period covering 1/2 of the time elapsed since the date of the latest test, but
not to exceed 16 Days when the equipment is tested every Month and not to exceed
45 Days when the equipment is tested every 3 months.  If Producer desires a
special test of any measuring equipment owned by Gatherer, at least 72 hours
advance notice shall be given to Gatherer by Producer, and both Parties shall
cooperate to secure a prompt test of the accuracy of such equipment.  If the
measuring equipment so tested is found to be inaccurate by 1% or less, Gatherer
shall have the right to bill Producer for the costs incurred due to such special
test, including any labor and transportation cost, and Producer shall pay such
costs promptly upon invoice thereof.
 
(f)           Adjustments.  If, for any reason, any measurement equipment is out
of adjustment, out of service, or out of repair and the total calculated hourly
flow rate through each meter run is found to be in error by an amount of the
magnitude described in Section 1(e), the total quantity of Producer’s Gas
delivered shall be redetermined in accordance with the first of the following
methods which is feasible:
 
(1)           by using the registration of any check meters, if installed and
accurately registering (subject to testing as described in Section 1(e)), or
 
(2)           where parallel multiple meter runs exist, by calculation using the
registration of such parallel meter runs; provided that they are measuring
Producer’s Gas from upstream headers in common with the faulty metering
equipment, are not controlled by separate regulators, and are accurately
registering; or
 
(3)           by correcting the error by straightforward application of a
correcting factor to the quantities recorded for the period (if the net
percentage of error is ascertainable by calibration, tests, or mathematical
calculation); or
 
(4)           by estimating the quantity, based upon deliveries made during
periods of similar conditions when the meter was registering accurately.
 
(g)           Meter Records Retention.  Gatherer shall retain and preserve for a
period of at least 2 years all measurement results, test data and other similar
records.
 
2.           Measurement Specifications.
 
(a)           Units.  The unit of volume for measurement shall be one (1) cubic
foot.  Such measured volumes shall be multiplied by their Gross Heating Value
per cubic foot and divided by 1,000,000 to determine MMbtu’s delivered
hereunder.
 
(b)           Practices.  Computations for Gas measurement shall be made in
accordance with the following depending on the type of meters used:

Exhibit A 
Page 2

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(1)           Orifice Meters - In accordance with American Gas Association
Report Number 3, dated 2000 or the most recent edition as agreed to by Gatherer
and Producer.
 
(2)           Positive Meters - In accordance with American National Standards
Institute B109.2,  dated 2000 or the most recent edition as agreed to by
Gatherer and Producer.
 
(3)           Turbine Meters - In accordance with American Gas Association
Report Number 7, dated 1996 or the most recent edition as agreed to by Gatherer
and Producer.
 
(4)           Electronic Transducers and Flow Computers (solar and otherwise) -
in accordance with the applicable American Gas Association standards, including
but not limited to American Gas Association Measurement Committee Report Nos. 3,
5, 6 and 7 and any subsequent amendments, revisions, or modification thereof.
 
(5)           Ultrasonic Meters - In accordance with American Gas Association
Report Number 9, dated 2003 or the most recent edition as agreed to by Gatherer
and Producer.
 
(c)           Temperature.  The temperature of Producer’s Gas typically shall be
determined by a temperature measurement device installed as part of the selected
meter and flow computer combination, or such other means of recording
temperature as may be mutually agreed upon by the Parties.  The temperature so
recorded, obtained while Producer’s Gas is being delivered, shall be the
applicable flowing Gas temperature for purposes of calculating the actual gas
flow.
 
(d)           Composition of Producer’s Gas.  Gatherer may elect to obtain a
continuous flow monthly composite sample or a monthly spot sample of the Gas
delivered by Producer hereunder while the Gas is being produced under normal
operating conditions.  Analysis of such sample shall be made by Gatherer, at
Gatherer’s election, by gas chromatography or other industry approved method,
and the results reported as mol percent along with other composition parameters.
 
(e)           Pressure.  For purposes of measurement and meter calibration, the
atmospheric pressure for each of the Receipt Points and Delivery Points shall be
assumed to be the pressure value determined by Gatherer, or its designee, for
the county elevation in which such point is located pursuant to generally
accepted industry practices irrespective of the actual atmospheric pressure at
such points from time to time.  For the purposes herein, such atmospheric
pressure will be assumed to be 14.65 pounds per square inch absolute.
 
(f)           Gross Heating Value, Specific Gravity, and Compressibility.  The
Gross Heating Value, Specific Gravity, and Compressibility of the Gas delivered
at the Receipt Points and Delivery Points shall be determined from compositional
analysis as described in Section 2(d) above as outlined in Gas Processors
Association Standard 2172 Calculation of Gross Heating Value, Relative Density,
and Compressibility of Natural Gas Mixtures from Compositional Analysis.
 
(g)           Other Contaminants.  Other tests to determine water content,
sulfur, hydrogen sulfide, inert gases, and other impurities in Producer’s Gas
shall be conducted whenever requested by either Party and shall be conducted in
accordance with standard industry testing procedures.
 
3.           Quality Specifications.
 
(a)           Producer’s Gas.  All Producer’s Gas delivered at the Receipt
Points shall meet all quality specifications imposed by the Receiving
Transporter as follows:
 
(1)           Water Vapor:  Producer’s Gas shall not have a water vapor content
in excess of 7 pounds of water vapor per 1,000,000 standard cubic feet of Gas.
 
(2)           Hydrogen Sulfide:  Producer’s Gas shall not contain more than ¼
grain of hydrogen sulfide per 100 standard cubic feet of Gas at the Receipt
Points.

Exhibit A 
Page 3

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(3)           Total Sulfur:  Producer’s Gas shall not contain more than 5 grains
of total sulfur per 100 standard cubic feet of Gas at the Receipt Points.
 
(4)           Temperature:  Producer’s Gas shall not have a temperature less
than 40ºF or more than 120 ºF.
 
(5)           Carbon Dioxide:  Producer’s Gas shall not contain more than 2% by
volume of carbon dioxide.
 
(6)           Oxygen:  Producer’s Gas shall contain no oxygen.
 
(7)           Nitrogen:  Producer’s Gas shall not contain more than 2% by volume
of nitrogen.
 
(8)           Total Inert Gas: Producer’s Gas shall not contain more than 3% by
volume of total inert gases.
 
(9)           Objectionable Liquids and Solids and Dilution:  Producer’s Gas
shall be commercially free of dust, gum, gum-forming constituents, gasoline,
liquid hydrocarbons, water, and any other substance of any kind that may become
separated from the Gas during the handling thereof or that may cause injury to
or interference with proper operation of the lines, meters, regulators, or other
appliances through with it flows.
 
(10)         Gross Heating Value:  Producer’s Gas shall not have a Gross Heating
Value less than 950 Btu’s per cubic foot of Gas or more than 1050 Btu’s per
cubic foot of Gas.
 
(11)         Hydrocarbon Dewpoint:  Producer’s Gas shall have a hydrocarbon
dewpoint below 40 degrees Fahrenheit (40 oF).
 
(b)           Treating and Dehydration by Receiving Transporter: Notwithstanding
the Gas specifications above for carbon dioxide and hydrogen sulfide, Producer
may deliver Producer’s Gas at the Receipt Points with up to 6% by volume carbon
dioxide and up to 24 ppm(v) hydrogen sulfide if Producer has made suitable
arrangements for delivering such non-specification Producer’s Gas under the ETC
Contract, at no cost to Gatherer. These higher limits are intended to mirror the
specifications contained in the Treating Option in the ETC Contract, and shall
be determined at the Delivery Points into such  Receiving Transporter.  Blended
H2S content at the Delivery Points up to 40 ppm(v) will be reduced to below 24
ppm(v) by injection of suitable scavenger at the Delivery Points by Gatherer at
no cost to the Producer.  Therefore, H2S content at the Delivery Point above 40
ppm(v) shall be the responsibility of the Producer, who will be required in that
event to reduce the aggregate H2S content below 40 ppm(v) by treating at
selected well sites or curtailment of high H2S well flow at the Receipt
Points.   If the blended CO2 content of Producer’s Gas exceeds 6% in the
aggregate at the Delivery Points, but does not exceed 8% in the aggregate at
Delivery Points, Gatherer shall accept and gather such non-specification
Producer’s Gas if such non-specification Producer’s Gas is accepted under the
ETC Contract, at no cost to Gatherer.  Shut in of the Producer’s Gas due to CO2
content above 6% at the Delivery Points shall be the sole responsibility of the
Producer.   Producer’s Gas may also be delivered with water in excess of 7
pounds per 1,000,000 standard cubic feet, up to complete water saturation but
with no free liquid water, so long as Producer has made suitable arrangements
for delivering Producer’s Gas with this water content by payment of the
Dehydration Fee under the ETC Contract, and at no cost to Gatherer.  Gatherer
warrants that any Third Party Gas received on the Gathering System shall meet
specifications at least as stringent as those then in effect by the Receiving
Transporter, including relaxed specifications for the Treating and Dehydrations
Options, if applicable, and that such Third Party Gas will meet the quality
specifications at the Delivery Points.  Gatherer shall meter Third Party Gas and
measure its quality using procedures substantially similar to those set forth in
this Agreement, and Gatherer shall notify Producer on a monthly basis of the
results of such metering and measurement.  Anything herein to the contrary
notwithstanding, Gatherer may refuse to accept Producer’s Gas that does not meet
the specifications in Section 3(a) above if Gatherer reasonably determines that
receipt of such non-specification Producer’s Gas will cause material damage the
Gathering System.

Exhibit A 
Page 4

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(c)           Change in Receiving Transporter’s Specifications.  Notwithstanding
the Gas specifications above, if a Receiving Transporter notifies Gatherer or
Producer of different or additional quality specifications required at the
Delivery Points and different from those outlined in Section 3(a) or (b) above,
Gatherer will notify Producer of any such different or additional specifications
as soon as practicable after being notified of such specifications.  Gatherer
may, at its sole option, retain the original specifications as outlined above or
choose to adopt such revised specifications as the quality specifications for
Producer’s Gas under this Agreement for as long as required by the Receiving
Transporter.
 
(d)           Failure to Meet Specifications.  If Producer’s Gas delivered
hereunder fails to meet any of the quality specifications stated in Section
3(a), (b) or (c) above, Gatherer (i) may install equipment, at Producer’s
expense, on the Gathering System to treat such nonconforming Producer’s Gas or
(ii) may refuse to accept such Producer’s Gas for so long as Producer is unable
to deliver Producer’s Gas conforming to such specifications.  If Gatherer, in
its sole discretion, accepts Producer’s Gas that fails to meet any of the
quality specifications stated above, Gatherer shall not be deemed to have waived
Gatherer’s right to refuse to accept non-specification Gas at a subsequent
time.  In addition, if Producer continues to flow any Gas that fails to meet the
quality specifications under this Section 3, Producer shall be responsible for
(i) any fees charged by any Receiving Transporter and (ii) any costs, expenses,
damages incurred by Gatherer or caused by such non-specification Producer’s Gas.
 
4.           Easements.
 
(a)           Access.  To the extent that Producer may contractually or lawfully
do so under its leasehold interests and other property rights in the Subject
Leases, Producer hereby grants, convey, assign, and transfer to Gatherer a right
of way and easement across the Subject Leases, and across adjoining lands in
which Producer may have an interest, for the purposes of installing, using,
inspecting, repairing, operating, replacing, and removing Gatherer’s facilities
(including installation of new custody transfer meters and other equipment) used
or useful in the performance of this Agreement.  Any property of Gatherer placed
in or on any of such land shall remain the property of Gatherer, subject to
removal by Gatherer when necessary or desirable, in Gatherer’s sole judgment, or
upon the expiration or termination of this Agreement.  Gatherer shall have a
reasonable time after the expiration or termination of this Agreement to remove
its property.
 
(b)           Further Assurances.  Producer shall execute and deliver such
additional instruments and other documents, and shall take such further actions
as may be reasonably necessary or appropriate, to effectuate, carry out, and
comply with the terms of this Section 4.
 
(c)           Uneconomic Systems.  If total deliveries of Producer’s Gas to
Gatherer at a Receipt Point fall below an average daily quantity of 50 Mcf’s of
Gas for any ninety (90) consecutive Day period, then Gatherer may, in its sole
discretion, assign and convey to Producer, for a mutually acceptable price, the
uneconomic portion of the Gathering System and all related equipment, and
Producer shall assume responsibility for the operation and maintenance of and
measurement at the applicable Receipt Point (including all costs related
thereto), subject to the provisions of a Gas measurement and operation agreement
between Producer and Gatherer, and subject to compliance with the provisions of
this Agreement regarding measurement. If Producer and Gatherer cannot agree on a
mutually acceptable price, the Parties agree to negotiate in good faith to
remedy the uneconomic operation.  Such remedies may include special agreements
for increased Gathering Fees for the uneconomic connection, supplemental
payments by Producer to Gatherer to cover extraordinary costs, or other means as
might be appropriate.  Gatherer reserves the right to shut in, or to permit
Producer to operate and maintain, at Producer’s sole risk, cost, and expense,
any part of the Gathering System that is uneconomic for which a mutually
agreeable solution cannot be agreed to between the Parties.
 
Exhibit A 
Page 5

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Exhibit B
ADDRESSES FOR NOTICES
 
Gastar Exploration Ltd.
 
Mr. Michael A. Gerlich
Chief Financial Officer
1331 Lamar, Suite 1080
Houston, Texas 77010
Telephone: (713) 739-0455
Fax: (713) 739-0458
mgerlich@gastar.com

Mr. Henry Hansen
Vice President Land
1331 Lamar, Suite 1080
Houston, Texas 77010
Telephone: (713) 739-0443
Fax: (713) 739-0458
hhansen@gastar.com

Hilltop Resort GS, LLC

500 North Capital of Texas Highway
Building #3, Suite 100
Austin, Texas 78746
Attn: Elias F. Urbina
Telephone: (512) 415-9090
Facsimile: (512) 328-9410

500 North Capital of Texas Highway
Building #3, Suite 100
Austin, Texas 78746
Attn: Gilbert Burciaga
Telephone: (512) 415-9090
Facsimile: (512) 328-9410

Exhibit B
Page 1

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Schedule 1
 
GATHERING FEES

 
Cumulative Receipt of Producer’s Gas and Quarterly
Third Party Credit Volumes Equals 70% of the
Following Volumes**
 
Gathering Fee (in $/Mcf)
                 
0-25
Bcf
  $ 0.325                  
25-50
Bcf
  $ 0.300                  
50-100
Bcf
  $ 0.275                  
100-200
Bcf
  $ 0.275                  
200-300
Bcf
  $ 0.250                  
300-600
Bcf
  $ 0.225  

 
**The volume thresholds in this column will be met (and the reduced Gathering
Fee will become applicable) when the sum of (i) the volume of Producer’s Gas
delivered to, and gathered on, the Gathering System and (ii) Quarterly Third
Party Credit Volumes equals or exceeds 70% of the volumes shown in this column.

Schedule 1
Page 1

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