**Exhibit 10.2**

 

**SPECIFIC TERMS IN THIS EXHIBITHAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEENREQUESTED.  THE REDACTED MATERIAL**

**HAS BEEN SEPARATELY FILED WITHTHE SECURITIES AND EXCHANGE COMMISSION,**

**AND THE TERMS HAVE BEEN MARKED ATTHE APPROPRIATE PLACE WITH**

**TWO ASTERISKS (**).**

 

 

**GAS GATHERING AGREEMENT**

 

THIS GAS GATHERINGAGREEMENT (this “Agreement”) is made and entered into as of this 1st day of May2006 (the “Effective Date”), by and between Chesapeake Exploration Limited Partnership,hereinafter referred to as “Producer”, and****MarkWest Pinnacle L.P. hereinafterreferred to as “Gatherer”.

 

W I T N E S S E T H

 

WHEREAS, Producer andGatherer are parties to the following agreements, as amended, (the “OriginalAgreements”) which they desire to terminate and replace with this Agreement:

(1)                            The Natural Gas Purchase Agreement datedApril 1, 2002 between Chesapeake Exploration Limited Partnership, formerly BRGPetroleum Corporation, and MarkWest Pinnacle L.P.

(2)                            The Natural Gas Purchase Agreement datedDecember 1, 2002 between Chesapeake Exploration Limited Partnership, previouslyEXCO Resources, and MarkWest Pinnacle L.P.

(3)                            The Gathering Agreement dated April 1,1993, between Chesapeake Exploration Limited Partnership, previously EXCOResources, and MarkWest Pinnacle L.P.

(4)                            The Gas Purchase Agreement dated January20, 2004 between Chesapeake Exploration Limited Partnership, formerly EXCOResources, and MarkWest Pinnacle L.P.

(5)                            The Natural Gas Purchase Agreement datedApril 1, 2004 between Chesapeake Exploration Limited Partnership, formerlyKaiser Francis Oil Company and MarkWest Pinnacle L.P.

(6)                            The Gas Transportation Agreement datedApril 1, 2004 between Chesapeake Exploration Limited Partnership, formerlyKaiser Francis Oil Company and MarkWest Pinnacle L.P.

 

WHEREAS,Gatherer owns, operates, and maintains a gas gathering system, compressionfacilities and natural gas processing facilities, all such facilities in theaggregate hereinafter referred to as the “System” which System is located inRusk and Nacogdoches Counties, Texas and Gatherer has constructed or shallcause to be constructed gathering facilities to receive and gather Producer’sGas at the Receipt Point(s) and deliver gas to Producer or for Producer’saccount at the Delivery Point(s) under the terms and conditions herein; and

 

WHEREAS, Producerrepresents that it owns or controls certain Natural Gas produced or to beproduced and saved from the wells, lands, leaseholds and other sources withinthe bounded area depicted on Exhibit “A” attached hereto and made a part ofthis Agreement (“Area Dedication”) which Producer has requested Gatherer toreceive and gather at the Receipt Point(s) and deliver to Producer or forProducer’s account at the Delivery Point(s), subject to the provisions hereof;

 

NOW, THEREFORE, inconsideration of the premises and the mutual covenants and agreements containedherein, Gatherer and Producer hereby agree as follows:

 

**Article I.**

# **DEFINITIONS**

 

Except as otherwiseprovided, the following terms as used herein shall have the meaning set forthbelow:

 

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1.1           “MCF”shall mean one thousand (1,000) cubic feet of Gas.

 

1.2           “BTU”shall mean British thermal unit, which is the quantity of heat required toraise the temperature of one (1) pound avoirdupois of pure water fromfifty-eight and five tenths degrees Fahrenheit (58.5°F) tofifty-nine and five tenths degrees Fahrenheit (59.5°F) atstandard pressure.

 

1.3           “MMBTU” shall mean one millionBritish thermal units (1,000,000 BTU’s).

 

1.4           “Gas” or “Natural Gas” includes gaswell gas produced from wells classified as gas wells by any governmentalauthority having jurisdiction, casinghead gas produced from oil wells soclassified, and flash gas vaporized from crude oil and condensate therefromafter production.

 

1.5           “Gas Unit” shall mean a drilling unitor proration unit as defined by field rules and administrative processes of theTexas Railroad Commission.

 

1.6           “Day” shall mean a period oftwenty-four (24) consecutive hours commencing at 9:00 o’clock a.m. Central timeon one calendar day and ending at 9:00 o’clock a.m. Central time on thefollowing calendar day.

 

1.7           “Month”shall mean the period commencing on the first Day of a calendar month andending on the first Day of the next calendar month.

 

1.7           “Well” shall mean Producer’s ownedand/or controlled interest in any well productive of gas which is completedwithin the Area Dedicated.

 

1.8           “System”shall mean all delivery, compression, gathering, measurement, treating,processing, dehydration facilities, and other related facilities constructed byor used by Gatherer to receive Producer’s Gas at the Receipt Point(s) anddeliver gas for Producer’s account at the Delivery Point(s).  For the purposes of Sections 6.3 and 15.1herein, “System” shall also be construed to include all of Gatherer’s delivery,compression, gathering, measurement, treating, processing, dehydrationfacilities, and other related facilities constructed by or used by Gatherer toreceive Gas from other parties on pipelines contiguously connected to pipelinesused by Gatherer to receive Producer’s Gas.  Also for the purposes of Sections 6.3 and 15.1 herein, “System” shallalso be construed to include all of Gatherer’s associated and related GasGathering, Purchase, Transportation, Compressor Lease, Gas Sales, Right-of-Way,and real property Agreements and/or Contracts as well as all permits, imbalancepositions, and working capital adjustments necessary to operate the physicalassets of the system.

 

1.9           “ReceiptPoint(s)” shall mean the interconnect of Producer’s production battery(ies),where Producer shall deliver Producer’s Gas to Gatherer and Gatherer shallreceive Producer’s Gas in accordance with the terms of this Agreement. TheMMBTU of the gas measured at the Receipt Point(s) shall be determined on awater saturated basis at Standard Base Conditions.  From the Effective Date forward, thefollowing connection and Receipt Point guidelines will apply:

1.9.1                        For Gas Units that have existing Wellsand Receipt Point(s) located therein, Producer will be responsible for layingflowlines needed to connect future Wells behind existing Receipt Points.

1.9.2                        For Gas Units that do not have existingWells and Receipt Point(s), Gatherer will be responsible for extending andexpanding its system as needed to gather Gas at the initial Receipt Point forthe additional Gas Unit.  Once theinitial Receipt Point for a Gas Unit is established, Producer will beresponsible for laying flowlines needed to connect future Wells behind theinitial Gas Unit Receipt Point.

 

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1.10         “DeliveryPoint(s)” shall have the meaning prescribed in Article III, Paragraph 3.2herein. Gatherer shall redeliver Producer’s Gas to Producer or to Producer’sdesignee for Producer’s account to these meters on a dry MMBTU basis atStandard Base Conditions.

 

1.11         “AssumedAtmospheric Pressure for Measurement and Testing” shall mean fourteen and onehalf pounds per square inch absolute (14.5 psia) at the Receipt Point(s).

 

1.12         “StandardBase Conditions” shall mean a pressure of fourteen and sixty five hundredthspounds per square inch absolute (14.65 psia) at a temperature of sixty degreesFahrenheit (60°F).

 

1.13     “InferiorLiquids” shall mean mixed crudeoil, slop oil, salt water, nuisance liquids, and other liquids recovered byGatherer in its System.  Revenues fromInferior Liquids, drips, and other gathering system liquids will be retained byGatherer to defray costs of treating and handling; Gatherer will not allocateor pay for those liquids.

 

1.14         “NGPL” shall mean Natural Gas Pipelineof America, a subsidiary of Kinder Morgan Energy Partners, L.P.

 

 

**Article II.**

# **SCOPEOF AGREEMENT**

 

2.1           Gatherer agrees to construct,maintain, and operate (or cause others to construct, maintain, and operate)pipelines and related facilities required to enable Gatherer to receive Gasfrom Producer at the Receipt Point(s) and deliver a thermally equivalentquantity of Gas to Producer or for Producer’s account at the Delivery Point(s)in accordance with the terms of this Agreement within the Area Dedication.

 

2.2           Gatherer shall have soleresponsibility for construction, maintenance, and operation of its Systemconsistent with performing its obligations wherein Gatherer can extend theSystem, add to or remove components from the System, and operate the System inthe manner Gatherer determines to be in its best interest. Gatherer shalloperate the System or cause it to be operated, as the System may exist fromtime to time, in a manner consistent with general industry practice, but shallnot be prevented thereby from being innovative or achieving cost efficienciesas it may deem necessary. Gatherer shall be responsible for carrying out allobligations stated in this Agreement; provided, however, if Producer believesGatherer is in default of any obligation contained herein, Producer shall sonotify Gatherer in writing giving full particulars thereof. Except as otherwisenoted herein, Gatherer shall have thirty (30) days after receipt of notice fromProducer in which to cure such default, if any.

 

2.3           Producer shall dedicate all ofProducer’s owned and controlled Gas produced and saved from the Wells, lands,leaseholds and other sources within the bounded area depicted on Exhibit “A”.

 

2.4           Producer shall construct, maintain,and operate (or cause others to construct, maintain, and operate) pipelines andrelated facilities to enable the Gas from the Wells to be collected atproduction batteries located within each Gas Unit and delivered to Gatherer’sReceipt Point(s).  Producer shall selectthe location of Receipt Points to utilize as it connects future Wells.  Producer shall provide estimates to Gathereras to the expected maximum flow and timing of such flow at each Receipt Pointto assist Gatherer in selecting the proper pipeline size required for theconnection.

 

2.5           **

 

2.6           **

 

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2.7           Prior to October 1, 2006, Gatherershall assist Producer in connecting Wells to Gatherer’s System or to Producer’scentral battery(ies).  The connectionlocation shall be mutually agreed upon prior to Gatherer beginningconstruction.  Producer shall reimburseGatherer 100% for all Well connect costs incurred after May 1, 2006 and priorto October 1, 2006.  The only exceptionto the foregoing being, Producer shall be responsible for all well connectswhich were or would have been associated with that certain Gas TransportationAgreement dated April 1, 2004 between Chesapeake Exploration LimitedPartnership, formerly Kaiser Francis Oil Company and MarkWest PinnacleL.P.  On October 1, 2006 and through theterm of this Agreement, Producer shall be responsible for all well connects andGatherer shall only be responsible for the Receipt Point connections.

 

2.8           Gatherer shall operate a dewpointcontrol treating facility to meet the forty-five (45) degree hydrocarbon dewpoint required by NGPL.  Should thehydrocarbon dew point required by NGPL become less than forty-five (45)degrees, Gatherer and Producer shall work in good faith to determine a solutionto the new hydrocarbon dew point requirement. This solution shall include a change in Fees to offset the capitalexpenditure and operating costs that shall be born upon the Gatherer in meetingthe new hydrocarbon dew point specification as well as an agreed upon mechanismfor passing through the keep whole economics resulting from the additionalextraction of liquids from the Gas.

 

**Article III.**

**RECEIPT AND DELIVERY OF GAS**

 

                3.1           The Receipt Point(s) for Producer’s Gas delivered toGatherer shall be at the interconnection of Gatherer’s central delivery point(CDP) meter at or near Producer’s production battery facilities delivering Gasfrom the Wells located within Producer’s Gas Unit.

 

3.2           Delivery Point shall be at the outletflange of Gatherer’s measurement facilities at the point of interconnectionbetween Gatherer and NGPL pipeline at either of the two delivery points intoNGPL, as follows:

 
| NGPL  PIN 902922 “Cornerstone” |   | Nacogdoches  County, Texas |
|------------------------------------------|--------|----------------------------|
| NGPL  PIN 900523 “Hunter”      |   | Nacogdoches  County, Texas |

 

Orany other future delivery points on Gatherer’s System that Gatherer andProducer mutually agree upon.

 

3.3           Gatherer shall measure the quantityof gas received at each Receipt Point measured in MMBtu’s and shall redeliver athermally equivalent quantity of gas, less a **% fuel and loss allowance, forProducer’s account at the Delivery Point(s).

 

 

**Article IV.**

**OPERATIONAL IMBALANCE AND CASH BALANCING**

 

4.1           All gas quantities shall be deliveredto Gatherer at the Receipt Point(s) and redelivered to Producer (or on behalfof Producer) at the Delivery Point(s) as nearly as practicable at uniformhourly and daily rates of flow.  The parties recognize that certain gas imbalancesmay occur between the quantity of gas received by Gatherer for the account of Producerand the quantity of gas redelivered by Gatherer for the account ofProducer.  During each month the partiesagree to cooperate with each other and with any interconnecting pipeline toremedy any imbalance as soon as either party becomes aware of animbalance.  At the end of eachmonth, any imbalance in MMBTU between the quantity of gas received by Gathererhereunder from all Receipt Point(s), less the applicable fuel and loss asoutlined herein, and redelivered by Gatherer hereunder at the Delivery Point(s)shall be balanced by means of a payment to Producer from Gatherer or a paymentto Gatherer from Producer, as applicable, valued at the Cash-out price.  To 

 

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theextent that Producer’s Receipt Point(s) quantities, less the applicable fueland loss, are greater than Producer’s Delivery Point(s) quantities (“DueProducer”), Gatherer will make a payment to Producer for the imbalance based onthe difference between Receipt Point(s) quantities, less the applicable fueland loss, and the Delivery Point(s) quantities multiplied by the Cash-outprice.  To the extent that Producer’sReceipt Point(s) quantities are less than Producer’s Delivery Point(s)quantities (“Due Gatherer”), Gatherer will invoice Producer for the imbalancebased on the difference between Receipt Point(s) quantities, less theapplicable fuel and loss, and the Delivery Point(s) quantities multiplied bythe Cash-out price.  The Cash-out priceshall be determined using the month’s pricing in which the imbalance wasgenerated.  The Cash-out price shall beequal to the month’s arithmetic average of the monthly posted average price aspublished in *Platts Gas Daily**Price Guide* for the month in which the imbalance wasgenerated, in the section entitled “Monthly averages of daily midpoints” forNGPL-Texok. Should the information necessary to calculate the Cash-out pricecease to be available, Gatherer and Producer will work in good faith todetermine a comparable substitute publication and/or daily posting(s) providingequivalent data.

 

4.2           Producershall be solely responsible for submitting appropriate nominations forredelivery of Gas, less the applicable fuel and loss, at the Delivery Point andfor any and all delivery imbalances occurring with respect to Producer’s Gaswhich is moving under Producer’s pipeline transportation agreement to theextent that such imbalances are caused by Producer’s failure to make proper andtimely nominations. Producer shall indemnify and hold Gatherer harmless fromany and all costs, expense, liabilities, or damages (including withoutlimitation, pipeline imbalances, penalties, court costs, and attorney fees)arising due to any such pipeline imbalances on Producer’s pipelinetransportation agreement(s) caused by Producer’s failure to make proper andtimely nominations. Gatherer shall indemnify and hold Producer harmless fromand against any and all costs, expense, liabilities, or damages (includingwithout limitation, pipeline imbalances, penalties, court costs, and attorneyfees) arising due to any such pipeline imbalances under Producer’s pipelinetransportation agreement caused by Gatherer’s failure to properly and timelygive effect to Producer’s nominations, however, Gatherer shall not beresponsible for eliminating any imbalances between Producer and any thirdparty. Furthermore, Gatherer shall not be obligated to deviate from itsstandard operating and accounting procedures to reduce or eliminate any suchimbalances.

 

**Article V.**

**ADDITIONAL RECEIPT POINTS**

 

5.1           Gatherer shall use commerciallyreasonable efforts to construct pipelines and measurement equipment to connectand be prepared to receive gas from Producer’s well(s) at the Receipt Point(s)developed within the Area Dedication when Producer’s batteries are completedand ready to flow.  Producer agrees toprovide to Gatherer, Producer’s battery locations and drilling and completionschedule sufficiently in advance to allow Gatherer to acquire rights-of-way andto order and install the necessary facilities to be prepared to receiveProducer’s gas.

 

5.2           Gatherer shall construct, or cause tobe constructed with reasonable promptness and diligence at its sole risk, cost,and expense, such additions and/or extensions of the System as are necessaryand adequate to receive Gas from Producer. Producer agrees that it shallconstruct, or cause to be constructed with reasonable promptness and diligenceat its sole risk, cost, and expense, those of Producer’s facilities as arenecessary and adequate to deliver Producer’s Gas into the System.

 

5.3           In the event Producer plans toconstruct a new central battery that is greater than ** feet from Gatherer’sSystem, Producer shall notify Gatherer in writing of the additional ReceiptPoint, and Gatherer shall begin the right-of-way acquisition process to helpexpedite the flow of production.  Inconsideration of Gatherer beginning to acquire right-of-way prior to completionof the central battery, Producer shall fully indemnify Gatherer for allreasonable costs incurred by Gatherer in obtaining the 

 

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right-of-wayin the event the central battery is not installed.  Producer shall pay any such invoice toGatherer within fifteen (15) days after receipt thereof.

 

5.4           In the event Producer deems thecentral battery, that is greater than ** feet from Gatherer’s System, to beeconomically productive, Producer and Gatherer shall discuss Producer’spotential offset drilling locations, plans and schedule, and productionprofiles so that Gatherer may endeavor to properly size the extension ofGatherer’s System to accommodate such future drilling.  Upon completion of the discussion, Gatherershall construct, or cause to be constructed with reasonable promptness anddiligence the extension of the System.

 

**Article VI.**

**RECEIPT PRESSURE**

 

6.1           Producer shall deliver Gas toGatherer at the Receipt Point(s) at a pressure sufficient to effect deliveryinto Gatherer’s gathering system, against the pressure prevailing therein fromtime to time; provided, however, that Producer shall not be required to deliverGas at a pressure greater than **.

 

6.2           (a) Gatherer agrees to maintain aMonthly Average Receipt Point pressure (hereinafter, the “MARP”) for eachReceipt Point each month as follows: The MARP consists of the following values:(i) the sum of daily average individual Receipt Point pressures divided by (ii)the number of days in the subject month, with the final result equaling theMARP for that Receipt Point of not greater than ** at each Receipt Point.  Gatherer’s agreement to maintain the MARPbelow ** will commence October 1, 2006. The MARP shall commence to be calculated for the October 2006production.

 

                (b)           The average daily Receipt Pointpressure and number of days for a Receipt Point, whose operation on a given dayis affected by a force majeure condition, shall not be used in calculating theMARP.

 

                (c)           In the event a Receipt Point’spressure exceeds the MARP for any given month, Gatherer will calculate anamount equal to ** times the MMBtu’s that were delivered at that affectedReceipt Point(s) (the “Affected Receipt Point(s)”) for the month and deduct it(on a gross basis) from the next invoice that Gatherer sends to Producer.  At the latest, the deductions will be appliedwithin 45 days of the end of each given production month.

 

                (d)           If the MARP is greater than ** onmore than ** of Producer’s Receipt Points, then Gatherer shall also calculatean amount equal to ** times the MMBtu’s that were delivered at all ReceiptPoint(s) that are not Affected Receipt Point(s) (the “Non-Affected ReceiptPoint(s)”) for the month and deduct it (on a gross basis) from the next invoicethat Gatherer sends to Producer.  At thelatest, the deductions will be applied within 45 days of the end of each givenproduction month.

 

                (e)           In the event Producer believes thepenalties due per the terms of this section have been incorrectly calculated orapplied, Producer shall only have 90 days from the end of a given month tonotify Gatherer of the error and seek correction.

 

                (f)             Notwithstanding any other provision of this Section, ifProducer’s operations result in delivery of free liquids at any Receipt Point,then based upon notice as set forth in Article XVII and confirmation thatProducers Receipt Point flowed free liquid into the System, then the ReceiptPoint’s pressure obligation set forth in this Article is suspended for therelevant month and Producer shall reimburse Gatherer the reasonable cost todispose of any produced water which was inadvertently flowed into the system.

 

                (g)           Should the MARP at any Receipt Point exceed ** for **,then Producer may, upon not less than three (3) days prior written notice toGatherer, permanently deliver its Gas from that Receipt 

 

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Pointto an alternate party for transportation and/or processing and will be releasedfrom further obligation to make deliveries for that impacted Receipt Pointunder this agreement.

 

6.3           **

 

6.4           ShouldChesapeake Exploration Limited Partnership sell its oil and gas leaseholdinterests covered by this agreement, and wish to assign this Agreement to anunaffiliated third party as a result of a segregated asset sale, transfer ortrade, **.  All other terms andconditions of this Agreement shall survive any such assignment.  **.

 

**Article VII.**

**COMPRESSOR STATION INLETPRESSURE**

 

7.1           Gatherershall operate compression within normal operating range of pressures, volumes,and compression ratios for such compression facilities based on the volume ofgas available at each respective compressor facility.  Gatherer’s obligation to operate thecompression facilities shall be limited to Gatherer’s ability to do such withinnormal operating limitations, as determined by Gatherer, of such compressorsand the daily operating conditions of the System.

 

7.2           (a)Gatherer will maintain a Monthly AverageCompressor Station Inlet Separator Pressure (“MASP”) each month of not greaterthan fifty (55) psig as measured at the electronic pressure recorder located atthe compressor station inlet separator of each of the two (2) facilities usedto provide compression (each “Compressor Facility”).  Gatherer’s agreement to maintain the MASPshall commence October 1, 2006.

 

(b)           The MASP consists of the followingvalues: (i) the sum of daily average inlet separator pressure at eachindividual Compressor Facility divided by (ii) the number of days in thesubject month, with the final result equaling the MASP for such month for thatCompressor Facility.  The average dailyinlet separator pressure and number of days for a Compressor Facility whoseoperation on a given day is affected by a force majeure condition shall not beused in calculating the MASP.

 

 (c)          Ifthe MASP of a Compressor Facility is greater than **, then Gatherer willcalculate an amount equal to ** times the portion of Producer’s MMBTU’s thatratably flowed through the affected Compressor Facility (the “AffectedCompressor Station”) for the month and deduct it (on a gross basis) from thenext invoice that Gatherer sends to Producer. At the latest, the deductions will be applied within 45 days of the endof each given production month.  The ** less per MMBtu penalty shall beratably allocated to Producer’s MMBTU’s based upon the nameplate horsepower ofthe two (2) Compressor Facilities.  An elaboration of the calculation is asfollows:  The total horsepower of theAffected Compressor Station shall be divided by the total horsepower of theCompressor Facilities from which that percentage result shall be multiplied bythe summed volume of all of Producer’s Receipt Points.  The calculated quantity shall then bemultiplied by the ** Fees reduction to equate to the invoice reduction.

 

(d)           In the event Producer believes thepenalties due per the terms of this section have been incorrectly calculated orapplied, Producer shall only have 90 days from the end of a given month tonotify Gatherer of the error and seek correction.

 

 

 

**Article VIII.**

**MEASUREMENT**

 

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8.1           Gatherer shall measure the Gas deliveredby Producer hereunder using electronic flow meters, which Gatherer hasinstalled or caused to be installed at the Receipt Point(s). Measurement shallbe made by Gatherer in accordance with the requirements of applicableprovisions in ANSI/API 2530, *“Orifice Metering ofNatural Gas”* (American Gas Association Gas Measurement CommitteeReport No. 3) of the Natural Gas Department of the American GasAssociation, as amended from time to time, or by any other method commonly usedin the industry and mutually acceptable to the parties.  EFM equipment will be designed and installedin accordance to the procedures set forth in the Manual of Petroleum Standards,Chapter 21.1 (Latest Revision).  Producerwill have access to Gatherer’s metering equipment and information received fromsuch metering equipment at reasonable hours. In addition, Producer shall have the right to install check measurement/ monitoring equipment at the (1) Receipt Point(s), (2) Compressor Station InletSeparators, and (3) Delivery Point(s) - including the right to install Producer’scheck measurement equipment on the Gatherer’s meter tube(s).  All such check measurement equipment shall beinstalled so such equipment will not interfere with the operations of Gatherer’sequipment.

 

8.2           The accuracy of Gatherer’s measuringequipment shall be verified by test, and a chromatographic analysis shall beconducted, using means and methods generally acceptable in the gas industryonce every six (6) months for Receipt Points which make less than 500 mscfd,every three (3) months for Receipt Points which make between 501 — 1000 mscfd,and every one (1) month for Receipt Points that make 1001 mscfd or more.Measuring equipment found to be registering inaccurately shall be adjusted toread accurately. Gatherer shall give Producer two (2) days notice of upcomingtests. If Producer fails to have a representative present, the results of thetest shall nevertheless be considered accurate until the next test. Gatherershall, upon written request of Producer, conduct a test of Gatherer’s measuringequipment, provided that in no event shall Gatherer be required to test itsequipment more frequently than once a month. All tests of such measuringequipment shall be made at Gatherer’s expense, except that Producer shall bearthe expense of tests made at Producer’s request.

 

8.3           If for any reason, any measuringequipment is inoperative or inaccurate by more than two percent (2%) in themeasurement of Gas, then the volume of Gas delivered by Producer to Gathererduring the period of such inaccuracy shall be determined on the basis of thebest data available using the first of the following methods which is feasible:

 

(i.)                                  Byusing the registration of any check measuring equipment installed andaccurately registering; or

 

(ii.)                               Byusing a percentage factor to correct the error, if the percentage of error isascertainable by calibration, test, or mathematical calculations; or

 

(iii.)                            Bycomparing deliveries made during preceding periods under similar deliveryconditions when the meter was registering accurately.

 

8.4           An adjustment based on suchdetermination shall be made for such period of inaccuracy as may be definitelyknown or, if not known, then for one half (1/2) the period since the date ofthe last meter test. In no event, however, shall any adjustment extend backbeyond ninety (90) days from the date the error was first made known by oneparty hereunder to the other.

 

8.5           Each party shall have the right toinspect the other party’s equipment, charts, and other measurement or test dataduring business hours; but the reading, calibration, and adjustment of suchequipment and changing of charts shall be done by the party installing andfurnishing same. Unless the parties agree otherwise, each party shall preserveall its original test data, charts, and other similar records for a period oftwo (2) years.

 

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**Article IX.**

**GAS QUALITY AND SPECIFICATIONS**

 

9.1           All Gas tendered to Gatherer at theReceipt Point(s) shall be commercially free of dust, rust, gum and gum formingconstituents, dirt, paraffin, impurities, and other solid or liquid matterwhich might interfere with its merchantability or cause injury to orinterference with the proper operation of the lines, meters, regulators andother appliances through which it flows and shall conform to the followingspecifications (the “Specifications”) and shall be free of Inferior Liquids:

 
|   | (i.)    |   | Oxygen         |   | **                                                                                                   |
|--------|---------|--------|----------------|--------|------------------------------------------------------------------------------------------------------|
|   |    |   |           |   |                                                                                                 |
|   | (ii.)   |   | Free Water     |   | **                                                                                                   |
|   |    |   |           |   |                                                                                                 |
|   | (iii.)  |   | H2S            |   | No more than ** per one  hundred (100) cubic feet of gas                                             |
|   |    |   |           |   |                                                                                                 |
|   | (iv.)   |   | Heating Value  |   | No less than ** per  cubic foot                                                                      |
|   |    |   |           |   |                                                                                                 |
|   | (v.)    |   | Total Sulfur   |   | Including mercaptan  and hydrogen sulfide, not to exceed ** per one hundred (100) cubic feet of  gas |
|   |    |   |           |   |                                                                                                 |
|   | (vi.)   |   | Temperature    |   | No more than **  Fahrenheit (**°F) and no less than **  Fahrenheit (**°F)                  |
|   |    |   |           |   |                                                                                                 |
|   | (vii.)  |   | Carbon Dioxide |   | No more than ** by  volume                                                                           |
|   |    |   |           |   |                                                                                                 |
|   | (viii.) |   | Nitrogen       |   | No more than ** by  volume                                                                           |

 

9.2           If, at any time during the term ofthis Agreement, either party ascertains that such Gas fails to meet theSpecifications, such party shall immediately notify the other of the extent ofthe deviation from the Specifications. Producer shall determine the expectedduration of such failure and notify the Gatherer of the efforts Producer isundertaking to remedy such deficiency. In the event Producer cannot (or electsnot to) remedy such deficiency, Gatherer may, as its sole remedy, refuse toaccept delivery of such Gas. In such case, Producer may immediately terminatethis Agreement as to the affected Gas.

 

9.3           If Gatherer can blend Gas failing tomeet the specifications (vii.) Carbon Dioxide and (viii.) Nitrogen with otherGas across the gathering system and such blending causes the composite Gascomposition to meet the Specifications; Gatherer agrees to do so, as long assuch blending does not cause undue operational problems.

 

 

**Article X.**

**GATHERING and DEHYDRATION FEE, LINE LOSS,COMPRESSION, AND FUEL CHARGE**

 

10.1         For the services provided by Gathererhereunder, Producer shall pay Gatherer a gathering, compression, hydrocarbondew point processing, and dehydration fee (“Fees”) for each MMBTU of Gasdelivered to Gatherer by Producer at the Receipt Point(s) as set forth below.

 

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| **Tiers** | ** ** | **Quantity (MMBTU/d)** | ** ** | **Fee ($ per MMBTU)** |
|-----------|------------|------------------------|------------|----------------------------|
| **        |       | **                     |       | $**                        |
| **        |       | **                     |       | $**                        |
| **        |       | **                     |       | $**                        |

                                An elaborationof the Fee structure set forth above, is as follows: The aggregated monthlyquantity of all of the Producer’s Receipt Points shall be summed and divided bythe number of days for the given production month.   From the calculation, a MMBTU per dayquantity shall result and the first ** Mmbtu/day shall be assessed a Fee of **,the next **Mmbtu/day shall be assessed a Fee of **, and all remainingquantities greater than **Mmbtu/day shall be assessed **.

 

10.2         Additionally, Producer shall payGatherer a 2006 well connect recovery fee of $** per MMBTU of Gas delivered byProducer to Gatherer beginning May 1, 2006 **.

 

10.3         Gatherer shall assess a deemed fuel andline loss charge of ** on all volumes of Gas delivered by Producer to Gathererduring each Month at each Receipt Point, calculated on a MMBTU basis. Thevolume of Gas attributable to such deemed fuel and line loss charge shall bededucted from, and shall not be included in, the imbalance volumes being cashedout under the provisions of Article IV of this Agreement.

 

 

 

**Article XI.**

**BILLING, PAYMENT, AND REPORTING**

 

11.1         On or before the fifteenth (15th)of each Month, Gatherer shall render an invoice to Producer for the precedingMonth. Gatherer shall provide Producer with information to support Gatherer’sinvoice identified as to Producer’s Receipt Point(s) and showing the totalquantity of Gas delivered hereunder, the amount due therefore, and informationsufficient to explain and support any adjustments made by Gatherer indetermining the amount billed. Producer shall pay Gatherer or Gatherer shallpay Producer, as the case may be, at the address shown hereunder within 30 daysof receipt of invoice. If the correct amount is not paid when due, interest onany unpaid and undisputed portion shall accrue at an interest rate equal to twopercent (2%) plus the prime rate as quoted by the Wall Street Journal, or atthe highest rate permitted by applicable law, whichever is lower, from due dateuntil date paid. If default with respect to undisputed charges continues afterthirty (30) days written notice from Gatherer to Producer, Gatherer may suspendreceipt of Gas hereunder without prejudice to any other available remedies atlaw or in equity.

 

11.2         If any overcharge or undercharge in anyform whatsoever shall at any time be found relative to any invoice deliveredwhether outstanding or paid, Gatherer shall refund any amount of overcharge orProducer shall pay any amount of undercharge, as the case may be, within thirty(30) days after final determination thereof; provided, no retroactiveadjustment shall be made beyond a period of twenty-four (24) months from themonth of production for which the overcharge or undercharge was made.

 

11.3         Both parties hereto shall have theright at any and all reasonable times to examine the books and records of theother party to the extent necessary to verify the accuracy of any statement,charge, computation, or demand made pursuant to this Agreement. Prior to suchexamination, the party requesting it shall execute a mutually acceptableconfidentiality agreement if requested to do so.

 

**Article XII.**

**TAXES**

 

12.1         Producer shall pay or cause to be paidall production taxes imposed with respect to the Gas delivered and gatheredhereunder.

 

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12.2         Gatherer shall pay all ad valorem orother similar taxes, fees, or assessments imposed by any state or federalauthority with respect to the System and ownership thereof.  Producer shall pay all other severance,gathering or other similar taxes, fees, or assessments imposed by any state orfederal authority with respect to the Gas delivered hereunder. Further, Producerrepresents that it has timely filed, or shall timely file, any and all reportswhich it is required to file with respect to production or severance taxes tobe paid hereunder. Producer shall indemnify and hold Gatherer harmless withrespect to Producer’s failure to file any and all such reports or with respectto Producer’s failure to pay any and all taxes which Producer is obligated topay pursuant to the terms of this Agreement.

 

 

**Article XIII.**

**CONTROL, POSSESSION, AND TITLE**

 

13.1         Producer shall indemnify and holdGatherer harmless from liability with respect to Producer’s Gas or Producer’soperations to deliver such Gas prior to the Gas being delivered into theSystem. Gatherer shall indemnify and hold Producer harmless from liability withrespect to the Gas delivered into the System after receipt thereof by Gathererand prior to delivery thereof at the Delivery Point except for any suchliability relating to the title to such Gas that shall remain with Producer.

 

            13.2             Producer warrants title to or the right to deliver allGas delivered or caused to be delivered hereunder. Producer warrants that suchGas is free from all liens and adverse claims of every kind and agrees toindemnify Gatherer from all suits, actions, debts, accounts, damages, costs,losses, and expenses arising from or out of adverse claims of any or allpersons, including governmental entities, as to title to said Gas or as toroyalties or charges thereof. Title to the Gas delivered or caused to bedelivered by Producer to Gatherer hereunder at the Receipt Point(s) shallremain with Producer and shall not pass to nor vest in Gatherer.

 

13.3         Gatherer shall be entitled to and shallown all condensate and pipeline drip collected on the System. Producer shallnot have any right, title, or interest in liquid hydrocarbons extracted fromthe Gas. Producer represents that the Gas delivered under this Agreement isfree of rights to extract liquid hydrocarbons in favor of Producer or any otherthird party. Further, all Gas purchased, sold, gathered, or transported under thisAgreement shall not be subjected to processing for extraction of liquidhydrocarbons (other than by conventional mechanical separation) prior todelivery at the Receipt Point(s).

 

**Article XIV.**

**FORCE MAJEURE**

 

14.1         If either party is rendered unable,wholly or in part by Force Majeure, to carry out its obligations under thisAgreement, then the obligations of the affected party, except for payment due,so far as they are affected by such Force Majeure, shall be suspended duringthe continuance of any inability so caused, but for no longer period. Suchcause shall, to the extent possible, be remedied with all reasonable dispatch.The affected party shall give notice and full particulars of such Force Majeurein writing by mail or telecopy or other electronic facility to the other partyas soon as practicable after the occurrence of the cause relied on.

 

14.2         The term Force Majeure as employedherein shall mean acts of God; strikes, lockouts, or other industrialdisturbances; acts of the public enemy, wars, blockades, military action,earthquakes, fires, storms or storm warnings, crevasses, floods, or washouts;arrests and restraints of governments and people; civil disturbances;explosions, breakage or accident to machinery or lines of pipe (including anycompression or processing facilities located on the System); the necessity fortesting or making repairs or alterations to machinery or lines of pipe;freezing of wells or lines of pipe; inability to obtain 

 

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easementsand/or rights-of-way; inability of any party hereto to obtain necessarymaterials, supplies, or permits due to existing or future rules, regulations,orders, laws, or proclamations of governmental authorities (both Federal andState) including both civil and military; and any other causes whether of thekind herein enumerated or otherwise, and whether caused or occasioned by orhappening on account of the act or omission of one of the parties hereto orsome persons or concern not a party hereto, not within the control of the partyclaiming suspension and which, by the exercise of due diligence, such party isunable to prevent or overcome.

 

14.3         It is understood and agreed that thesettlement of strikes or lockouts shall be entirely within the discretion ofthe party having the difficulty, and that the above requirement that any ForceMajeure shall be remedied with all reasonable dispatch shall not require thesettlement of strikes or lockouts by acceding to the demands of the opposingparty when such course is inadvisable in the discretion of the party having thedifficulty.

 

14.4         Should an event of Force Majeure renderGatherer unable to take delivery of any of Producer’s Gas at the ReceiptPoint(s) for a period exceeding five (5) consecutive calendar days or greaterupon mutual agreement of both parties, then Producer may, upon not less thanthree (3) days prior written notice to Gatherer, temporarily deliver its Gas toa third party for transportation and/or processing; provided, however, that Producer’sGas shall be delivered to Gatherer upon the earlier of the end of the temporarysale or on the first Day of the Month following the Month that the ForceMajeure event is rectified.

 

14.5         Should an event of Force Majeure renderGatherer unable to take delivery of any of Producer’s Gas at any of the ReceiptPoint(s) for a period exceeding thirty (30) consecutive calendar days, thenunless Gatherer reimburses Producer, within 5 days of receipt of an invoicefrom Producer, for all out of pocket third party costs incurred by Producer topurchase and construct the required facilities to move Producer’s gas to analternate market during the Force Majeure event, Producer may, upon not lessthan three (3) days prior written notice to Gatherer, permanently deliver itsGas to an alternate party for transportation and/or processing for thoseReceipt Point(s) impacted by the Force Majeure event and will be released fromfurther obligation to make deliveries for those impacted Receipt Points underthis agreement.

 

 

**Article XV.**

**TERM**

 

15.1         ThisAgreement shall be effective May****1,2006, and shall continue in full force and effect until April 30, 2016 (“PrimaryTerm”), whereupon Producer shall have the option to exercise one of threeoptions by giving notice prior to January 1, 2016.  Producer may elect to i) terminate thisagreement by providing ** written notice, ii) extend the term until ** (“ExtendedTerm”), after which this Agreement shall be automatically renewed forsuccessive renewal terms of one (1) month each, unless terminated by eitherparty with at least thirty (30) days prior written notice or iii) **.

 

 

 

**Article XVI.**

**ASSIGNMENTS**

 

16.1         This Agreement shall extend to and bebinding upon the parties hereto, their successors, and assigns. The rights ofthe parties may be assigned or conveyed in whole or in part from time to time;provided, however, neither party shall assign this Agreement without the priorwritten consent of the other party which consent shall not be unreasonablywithheld. All assignments and conveyances shall be subject to this Agreementand shall not relieve the assignor of its duties hereunder. No transfer of, or 

 

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successionto, the interest of any party hereto, either in whole or partially, shallaffect or bind the other party until the first Day of the Month following theMonth in which the other party shall have received written notificationthereof.  Finally, the conditionsaddressed under paragraph 6.4 shall apply to any assignment made by Producer.

 

 

 

 

**Article XVII.**

**NOTICES**

 

17.1         Except as herein otherwise provided,any notice, request, demand, payment, invoice, statement, or bill provided forin this Agreement or any notice which either party may desire to give to theother shall be in writing and mailed by registered mail or ordinary mail to thepost office address of the party intended to receive the same, as the case maybe, as follows or to such other address as either party shall designate bywritten notice to the other party.

 

Ifto PRODUCER:

 

                For Notices and Requests:

 

                **CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP**

**                Attn:  Gas Contract Administration**

                6100 North Western Avenue

                Oklahoma City, Oklahoma 73118

 

                Statements, Bills, Invoices,or Payments:

 

                **CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP**

                **Attn:  Gas Control**

**               **6100North Western Avenue

                Oklahoma City, Oklahoma 73118

 

Ifto GATHERER:

 

                For Notices and Requests

 

                **MARKWESTPINNACLE L.P.**

**               **2500 City West, Ste. 740

                Houston, Texas 77042

                Attn: Bert Dillmann (email:bdillmann@markwest.com)

 

                For Statements, Bills, orInvoices

 

                **MARKWESTPINNACLE L.P.**

                6655 S. Lewis, Ste. 350

                Tulsa OK 74136

                Attn: Matt Daniel (email:mdaniel@markwest.com)

 

                For Payments

 

                **Wire**:

                MARKWEST PINNACLE L.P.

                **

 

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**Article XVIII.**

**MISCELLANEOUS**

 

18.1         The interpretation and performance ofthis Agreement shall be governed by and construed in accordance with the lawsof the State of Texas.

 

18.2         This Agreement contains the entireunderstanding of the parties superseding all other agreements, whether oral orwritten, express or implied. As a result of the parties entering into thisAgreement, the Original Agreements have been terminated and replaced by thisAgreement.  This Agreement may not bechanged orally, but only by an agreement in writing signed by the party againstwhom enforcement of any waiver, change, modification, extension, or dischargeis sought. Every covenant, term, and provision of the Agreement shall beconstrued simply according to its fair meaning and not strictly for or againstany party. Any waiver of a breach of any provision of this Agreement shall notoperate or be construed as a waiver of any subsequent breach by Producer orGatherer.

 

18.3         Feesas specified in Section 10.1 and Penalties as specified in Section 6.2 and 7.2shall be subject to an annual adjustment. The annual adjustment shall be equalto the lesser of:

 

(i.)                                  **

 

(ii.)                               **

 

The annual adjustment shall begin on January 1, 2007.

 

18.4         Producer,to the extent it can do so, hereby grants to Gatherer the right to use (alongwith the right to ingress and egress) Producer’s leaseholds, properties, andpremises underlying the System in order to carry out the provisions of thisAgreement with the right to remove same before or after the expiration of thisAgreement and the right to free access at all reasonable times to any part ofsaid leaseholds, properties, and premises.

 

18.5         The captions in this Agreement are forthe convenience of the parties in identification of the provisions hereof andshall not constitute a part of this Agreement nor be considered in theinterpretation of this Agreement, and the following shall apply:

 

(i.)                                  ThisAgreement was prepared jointly by the parties hereto and not by any party tothe exclusion of the other;

 

(ii.)                               Failureto exercise any right or rights hereunder shall not be considered a waiver ofsuch right or rights in the future.

 

18.6         Each party agrees that it shallmaintain this Agreement and the contents thereof in strict confidence, and thatit shall not cause or permit disclosure thereof to any third party without theexpress written consent of the other party; provided, however, that disclosureis permitted in the event and to the extent such party is required by a courtor agency exercising jurisdiction over the subject matter thereof, by order orby regulation.

 

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INWITNESS WHEREOF, the parties hereto have caused this Agreement to be dulyexecuted in several counterparts, each of which is an original, as of the datefirst written above.

 
| PRODUCER: |                                           |
|-----------|------------------------------------------------|
|      | ** **                                     |   |
|      | **CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP** |   |
|      |                                           |   |
| By:       | /s/  James C. Johnson                          |   |
|      | James  C. Johnson                              |   |
| Title:    | Vice  President - Marketing                    |   |
|      |                                           |   |
| GATHERER: |                                           |
|      |                                           |   |
|      | **MARKWEST  PINNACLE L.P.**                    |   |
|      |                                           |   |
| By:       | /s/  Frank Semple                              |   |
|      | Frank  Semple                                  |   |
| Title:    | President  and CEO                             |   |

 

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EXHIBIT A

 

 

**

 

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** **

**GASGATHERING AGREEMENT**

**EXHIBIT “B”(Page 1 of 2)**

**BY ANDBETWEEN**

**CHESAPEAKEEXPLORATION LIMITED PARTNERSHIP**

**AND**

**MARKWESTPINNACLE L.P.**

 

 

                Attached to andmade a part of Gas Gathering Agreement entered into as of May 1, 2006, by andbetween Chesapeake Exploration Limited Partnership (“Producer”), and MarkWestPinnacle, L.P. (“Gatherer”).

 

**

 

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