Exhibit 10.2


 


SPECIFIC TERMS IN THIS EXHIBIT
HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN
REQUESTED.  THE REDACTED MATERIAL


HAS BEEN SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION,


AND THE TERMS HAVE BEEN MARKED AT
THE APPROPRIATE PLACE WITH


TWO ASTERISKS (**).


 


 


GAS GATHERING AGREEMENT


 


THIS GAS GATHERING
AGREEMENT (this “Agreement”) is made and entered into as of this 1st day of May
2006 (the “Effective Date”), by and between Chesapeake Exploration Limited Partnership,
hereinafter referred to as “Producer”, and MarkWest Pinnacle L.P. hereinafter
referred to as “Gatherer”.


 


W I T N E S S E T H


 


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


(1)                            The Natural Gas Purchase Agreement dated
April 1, 2002 between Chesapeake Exploration Limited Partnership, formerly BRG
Petroleum Corporation, and MarkWest Pinnacle L.P.


(2)                            The Natural Gas Purchase Agreement dated
December 1, 2002 between Chesapeake Exploration Limited Partnership, previously
EXCO Resources, and MarkWest Pinnacle L.P.


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


(4)                            The Gas Purchase Agreement dated January
20, 2004 between Chesapeake Exploration Limited Partnership, formerly EXCO
Resources, and MarkWest Pinnacle L.P.


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


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


 


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


 


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


 


NOW, THEREFORE, in
consideration of the premises and the mutual covenants and agreements contained
herein, Gatherer and Producer hereby agree as follows:


 


Article I.


DEFINITIONS


 


Except as otherwise
provided, the following terms as used herein shall have the meaning set forth
below:


 

















 


 


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 to
raise the temperature of one (1) pound avoirdupois of pure water from
fifty-eight and five tenths degrees Fahrenheit (58.5°F) to
fifty-nine and five tenths degrees Fahrenheit (59.5°F) at
standard pressure.


 


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


 


1.4           “Gas” or “Natural Gas” includes gas
well gas produced from wells classified as gas wells by any governmental
authority having jurisdiction, casinghead gas produced from oil wells so
classified, and flash gas vaporized from crude oil and condensate therefrom
after production.


 


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


 


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


 


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


 


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


 


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


 


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


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


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


 


2

















 


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


 


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


 


1.12         “Standard
Base Conditions” shall mean a pressure of fourteen and sixty five hundredths
pounds per square inch absolute (14.65 psia) at a temperature of sixty degrees
Fahrenheit (60°F).


 


1.13     “Inferior
Liquids” shall mean mixed crude
oil, slop oil, salt water, nuisance liquids, and other liquids recovered by
Gatherer in its System.  Revenues from
Inferior Liquids, drips, and other gathering system liquids will be retained by
Gatherer to defray costs of treating and handling; Gatherer will not allocate
or pay for those liquids.


 


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


 


 


Article II.


SCOPE
OF 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 Gas
from Producer at the Receipt Point(s) and deliver a thermally equivalent
quantity 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 sole
responsibility for construction, maintenance, and operation of its System
consistent with performing its obligations wherein Gatherer can extend the
System, add to or remove components from the System, and operate the System in
the manner Gatherer determines to be in its best interest. Gatherer shall
operate the System or cause it to be operated, as the System may exist from
time to time, in a manner consistent with general industry practice, but shall
not be prevented thereby from being innovative or achieving cost efficiencies
as it may deem necessary. Gatherer shall be responsible for carrying out all
obligations stated in this Agreement; provided, however, if Producer believes
Gatherer is in default of any obligation contained herein, Producer shall so
notify Gatherer in writing giving full particulars thereof. Except as otherwise
noted herein, Gatherer shall have thirty (30) days after receipt of notice from
Producer in which to cure such default, if any.


 


2.3           Producer shall dedicate all of
Producer’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 and
related facilities to enable the Gas from the Wells to be collected at
production batteries located within each Gas Unit and delivered to Gatherer’s
Receipt Point(s).  Producer shall select
the location of Receipt Points to utilize as it connects future Wells.  Producer shall provide estimates to Gatherer
as to the expected maximum flow and timing of such flow at each Receipt Point
to assist Gatherer in selecting the proper pipeline size required for the
connection.


 


2.5           **


 


2.6           **


 


3

















 


2.7           Prior to October 1, 2006, Gatherer
shall assist Producer in connecting Wells to Gatherer’s System or to Producer’s
central battery(ies).  The connection
location shall be mutually agreed upon prior to Gatherer beginning
construction.  Producer shall reimburse
Gatherer 100% for all Well connect costs incurred after May 1, 2006 and prior
to October 1, 2006.  The only exception
to the foregoing being, Producer shall be responsible for all well connects
which were or would have been associated with that certain Gas Transportation
Agreement dated April 1, 2004 between Chesapeake Exploration Limited
Partnership, formerly Kaiser Francis Oil Company and MarkWest Pinnacle
L.P.  On October 1, 2006 and through the
term of this Agreement, Producer shall be responsible for all well connects and
Gatherer shall only be responsible for the Receipt Point connections.


 


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


 


Article III.


RECEIPT AND DELIVERY OF GAS


 


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


 


3.2           Delivery Point shall be at the outlet
flange of Gatherer’s measurement facilities at the point of interconnection
between Gatherer and NGPL pipeline at either of the two delivery points into
NGPL, as follows:


 


	
  NGPL
  PIN 902922 “Cornerstone”

  	
   

  	
  Nacogdoches
  County, Texas

  
	
  NGPL
  PIN 900523 “Hunter”

  	
   

  	
  Nacogdoches
  County, Texas

  



 


Or
any other future delivery points on Gatherer’s System that Gatherer and
Producer mutually agree upon.


 


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


 


 


Article IV.


OPERATIONAL IMBALANCE AND CASH BALANCING


 


4.1           All gas quantities shall be delivered
to Gatherer at the Receipt Point(s) and redelivered to Producer (or on behalf
of Producer) at the Delivery Point(s) as nearly as practicable at uniform
hourly and daily rates of flow.  The parties recognize that certain gas imbalances
may occur between the quantity of gas received by Gatherer for the account of Producer
and the quantity of gas redelivered by Gatherer for the account of
Producer.  During each month the parties
agree to cooperate with each other and with any interconnecting pipeline to
remedy any imbalance as soon as either party becomes aware of an
imbalance.  At the end of each
month, any imbalance in MMBTU between the quantity of gas received by Gatherer
hereunder from all Receipt Point(s), less the applicable fuel and loss as
outlined 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 payment
to Gatherer from Producer, as applicable, valued at the Cash-out price.  To 


 


4

















 


the
extent that Producer’s Receipt Point(s) quantities, less the applicable fuel
and loss, are greater than Producer’s Delivery Point(s) quantities (“Due
Producer”), Gatherer will make a payment to Producer for the imbalance based on
the difference between Receipt Point(s) quantities, less the applicable fuel
and loss, and the Delivery Point(s) quantities multiplied by the Cash-out
price.  To the extent that Producer’s
Receipt Point(s) quantities are less than Producer’s Delivery Point(s)
quantities (“Due Gatherer”), Gatherer will invoice Producer for the imbalance
based on the difference between Receipt Point(s) quantities, less the
applicable fuel and loss, and the Delivery Point(s) quantities multiplied by
the Cash-out price.  The Cash-out price
shall be determined using the month’s pricing in which the imbalance was
generated.  The Cash-out price shall be
equal to the month’s arithmetic average of the monthly posted average price as
published in Platts Gas Daily  Price Guide for the month in which the imbalance was
generated, in the section entitled “Monthly averages of daily midpoints” for
NGPL-Texok. Should the information necessary to calculate the Cash-out price
cease to be available, Gatherer and Producer will work in good faith to
determine a comparable substitute publication and/or daily posting(s) providing
equivalent data.


 


4.2           Producer
shall be solely responsible for submitting appropriate nominations for
redelivery of Gas, less the applicable fuel and loss, at the Delivery Point and
for any and all delivery imbalances occurring with respect to Producer’s Gas
which is moving under Producer’s pipeline transportation agreement to the
extent that such imbalances are caused by Producer’s failure to make proper and
timely nominations. Producer shall indemnify and hold Gatherer harmless from
any and all costs, expense, liabilities, or damages (including without
limitation, pipeline imbalances, penalties, court costs, and attorney fees)
arising due to any such pipeline imbalances on Producer’s pipeline
transportation agreement(s) caused by Producer’s failure to make proper and
timely nominations. Gatherer shall indemnify and hold Producer harmless from
and against any and all costs, expense, liabilities, or damages (including
without limitation, pipeline imbalances, penalties, court costs, and attorney
fees) arising due to any such pipeline imbalances under Producer’s pipeline
transportation agreement caused by Gatherer’s failure to properly and timely
give effect to Producer’s nominations, however, Gatherer shall not be
responsible for eliminating any imbalances between Producer and any third
party. Furthermore, Gatherer shall not be obligated to deviate from its
standard operating and accounting procedures to reduce or eliminate any such
imbalances.


 


Article V.


ADDITIONAL RECEIPT POINTS


 


5.1           Gatherer shall use commercially
reasonable efforts to construct pipelines and measurement equipment to connect
and 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 completed
and ready to flow.  Producer agrees to
provide to Gatherer, Producer’s battery locations and drilling and completion
schedule sufficiently in advance to allow Gatherer to acquire rights-of-way and
to order and install the necessary facilities to be prepared to receive
Producer’s gas.


 


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


 


5.3           In the event Producer plans to
construct a new central battery that is greater than ** feet from Gatherer’s
System, Producer shall notify Gatherer in writing of the additional Receipt
Point, and Gatherer shall begin the right-of-way acquisition process to help
expedite the flow of production.  In
consideration of Gatherer beginning to acquire right-of-way prior to completion
of the central battery, Producer shall fully indemnify Gatherer for all
reasonable costs incurred by Gatherer in obtaining the 


 


5

















 


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


 


5.4           In the event Producer deems the
central battery, that is greater than ** feet from Gatherer’s System, to be
economically productive, Producer and Gatherer shall discuss Producer’s
potential offset drilling locations, plans and schedule, and production
profiles so that Gatherer may endeavor to properly size the extension of
Gatherer’s System to accommodate such future drilling.  Upon completion of the discussion, Gatherer
shall construct, or cause to be constructed with reasonable promptness and
diligence the extension of the System.


 


Article VI.


RECEIPT PRESSURE


 


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


 


6.2           (a) Gatherer agrees to maintain a
Monthly Average Receipt Point pressure (hereinafter, the “MARP”) for each
Receipt 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 the
MARP for that Receipt Point of not greater than ** at each Receipt Point.  Gatherer’s agreement to maintain the MARP
below ** will commence October 1, 2006. 
The MARP shall commence to be calculated for the October 2006
production.


 


                (b)           The average daily Receipt Point
pressure and number of days for a Receipt Point, whose operation on a given day
is affected by a force majeure condition, shall not be used in calculating the
MARP.


 


                (c)           In the event a Receipt Point’s
pressure exceeds the MARP for any given month, Gatherer will calculate an
amount equal to ** times the MMBtu’s that were delivered at that affected
Receipt 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 applied
within 45 days of the end of each given production month.


 


                (d)           If the MARP is greater than ** on
more than ** of Producer’s Receipt Points, then Gatherer shall also calculate
an amount equal to ** times the MMBtu’s that were delivered at all Receipt
Point(s) that are not Affected Receipt Point(s) (the “Non-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 applied within 45 days of the end of each given
production month.


 


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


 


                (f)             Notwithstanding any other provision of this Section, if
Producer’s operations result in delivery of free liquids at any Receipt Point,
then based upon notice as set forth in Article XVII and confirmation that
Producers Receipt Point flowed free liquid into the System, then the Receipt
Point’s pressure obligation set forth in this Article is suspended for the
relevant month and Producer shall reimburse Gatherer the reasonable cost to
dispose 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 to
Gatherer, permanently deliver its Gas from that Receipt 


 


6

















 


Point
to an alternate party for transportation and/or processing and will be released
from further obligation to make deliveries for that impacted Receipt Point
under this agreement.


 


6.3           **


 


6.4           Should
Chesapeake Exploration Limited Partnership sell its oil and gas leasehold
interests covered by this agreement, and wish to assign this Agreement to an
unaffiliated third party as a result of a segregated asset sale, transfer or
trade, **.  All other terms and
conditions of this Agreement shall survive any such assignment.  **.


 


Article VII.


COMPRESSOR STATION INLET
PRESSURE


 


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


 


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


 


(b)           The MASP consists of the following
values: (i) the sum of daily average inlet separator pressure at each
individual Compressor Facility divided by (ii) the number of days in the
subject month, with the final result equaling the MASP for such month for that
Compressor Facility.  The average daily
inlet separator pressure and number of days for a Compressor Facility whose
operation on a given day is affected by a force majeure condition shall not be
used in calculating the MASP.


 


 (c)          If
the MASP of a Compressor Facility is greater than **, then Gatherer will
calculate an amount equal to ** times the portion of Producer’s MMBTU’s that
ratably flowed through the affected Compressor Facility (the “Affected
Compressor Station”) 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 applied within 45 days of the end
of each given production month.  The ** less per MMBtu penalty shall be
ratably allocated to Producer’s MMBTU’s based upon the nameplate horsepower of
the two (2) Compressor Facilities.  An elaboration of the calculation is as
follows:  The total horsepower of the
Affected Compressor Station shall be divided by the total horsepower of the
Compressor Facilities from which that percentage result shall be multiplied by
the summed volume of all of Producer’s Receipt Points.  The calculated quantity shall then be
multiplied by the ** Fees reduction to equate to the invoice reduction.


 


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


 


 


 


Article VIII.


MEASUREMENT


 


7

















 


8.1           Gatherer shall measure the Gas delivered
by Producer hereunder using electronic flow meters, which Gatherer has
installed or caused to be installed at the Receipt Point(s). Measurement shall
be made by Gatherer in accordance with the requirements of applicable
provisions in ANSI/API 2530, “Orifice Metering of
Natural Gas” (American Gas Association Gas Measurement Committee
Report No. 3) of the Natural Gas Department of the American Gas
Association, as amended from time to time, or by any other method commonly used
in the industry and mutually acceptable to the parties.  EFM equipment will be designed and installed
in accordance to the procedures set forth in the Manual of Petroleum Standards,
Chapter 21.1 (Latest Revision).  Producer
will have access to Gatherer’s metering equipment and information received from
such 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 Inlet
Separators, and (3) Delivery Point(s) - including the right to install Producer’s
check measurement equipment on the Gatherer’s meter tube(s).  All such check measurement equipment shall be
installed so such equipment will not interfere with the operations of Gatherer’s
equipment.


 


8.2           The accuracy of Gatherer’s measuring
equipment shall be verified by test, and a chromatographic analysis shall be
conducted, using means and methods generally acceptable in the gas industry
once 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 to
read accurately. Gatherer shall give Producer two (2) days notice of upcoming
tests. If Producer fails to have a representative present, the results of the
test shall nevertheless be considered accurate until the next test. Gatherer
shall, upon written request of Producer, conduct a test of Gatherer’s measuring
equipment, provided that in no event shall Gatherer be required to test its
equipment more frequently than once a month. All tests of such measuring
equipment shall be made at Gatherer’s expense, except that Producer shall bear
the expense of tests made at Producer’s request.


 


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


 


(i.)                                  By
using the registration of any check measuring equipment installed and
accurately registering; or


 


(ii.)                               By
using a percentage factor to correct the error, if the percentage of error is
ascertainable by calibration, test, or mathematical calculations; or


 


(iii.)                            By
comparing deliveries made during preceding periods under similar delivery
conditions when the meter was registering accurately.


 


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


 


8.5           Each party shall have the right to
inspect the other party’s equipment, charts, and other measurement or test data
during business hours; but the reading, calibration, and adjustment of such
equipment and changing of charts shall be done by the party installing and
furnishing same. Unless the parties agree otherwise, each party shall preserve
all its original test data, charts, and other similar records for a period of
two (2) years.


 


8

















 


Article IX.


GAS QUALITY AND SPECIFICATIONS


 


9.1           All Gas tendered to Gatherer at the
Receipt Point(s) shall be commercially free of dust, rust, gum and gum forming
constituents, dirt, paraffin, impurities, and other solid or liquid matter
which might interfere with its merchantability or cause injury to or
interference with the proper operation of the lines, meters, regulators and
other appliances through which it flows and shall conform to the following
specifications (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 of
this Agreement, either party ascertains that such Gas fails to meet the
Specifications, such party shall immediately notify the other of the extent of
the deviation from the Specifications. Producer shall determine the expected
duration of such failure and notify the Gatherer of the efforts Producer is
undertaking to remedy such deficiency. In the event Producer cannot (or elects
not to) remedy such deficiency, Gatherer may, as its sole remedy, refuse to
accept delivery of such Gas. In such case, Producer may immediately terminate
this Agreement as to the affected Gas.


 


9.3           If Gatherer can blend Gas failing to
meet the specifications (vii.) Carbon Dioxide and (viii.) Nitrogen with other
Gas across the gathering system and such blending causes the composite Gas
composition to meet the Specifications; Gatherer agrees to do so, as long as
such 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 Gatherer
hereunder, Producer shall pay Gatherer a gathering, compression, hydrocarbon
dew point processing, and dehydration fee (“Fees”) for each MMBTU of Gas
delivered to Gatherer by Producer at the Receipt Point(s) as set forth below.


 


9

















 




	
  Tiers

  	
   

  	
  Quantity (MMBTU/d)

  	
   

  	
  Fee ($ per MMBTU)

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  






                                An elaboration
of the Fee structure set forth above, is as follows: The aggregated monthly
quantity of all of the Producer’s Receipt Points shall be summed and divided by
the number of days for the given production month.   From the calculation, a MMBTU per day
quantity 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 remaining
quantities greater than **Mmbtu/day shall be assessed **.


 


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


 


10.3         Gatherer shall assess a deemed fuel and
line loss charge of ** on all volumes of Gas delivered by Producer to Gatherer
during each Month at each Receipt Point, calculated on a MMBTU basis. The
volume of Gas attributable to such deemed fuel and line loss charge shall be
deducted from, and shall not be included in, the imbalance volumes being cashed
out 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 preceding
Month. Gatherer shall provide Producer with information to support Gatherer’s
invoice identified as to Producer’s Receipt Point(s) and showing the total
quantity of Gas delivered hereunder, the amount due therefore, and information
sufficient to explain and support any adjustments made by Gatherer in
determining the amount billed. Producer shall pay Gatherer or Gatherer shall
pay Producer, as the case may be, at the address shown hereunder within 30 days
of receipt of invoice. If the correct amount is not paid when due, interest on
any unpaid and undisputed portion shall accrue at an interest rate equal to two
percent (2%) plus the prime rate as quoted by the Wall Street Journal, or at
the highest rate permitted by applicable law, whichever is lower, from due date
until date paid. If default with respect to undisputed charges continues after
thirty (30) days written notice from Gatherer to Producer, Gatherer may suspend
receipt of Gas hereunder without prejudice to any other available remedies at
law or in equity.


 


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


 


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


 


Article XII.


TAXES


 


12.1         Producer shall pay or cause to be paid
all production taxes imposed with respect to the Gas delivered and gathered
hereunder.


 


10

















 


12.2         Gatherer shall pay all ad valorem or
other similar taxes, fees, or assessments imposed by any state or federal
authority 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 or
federal authority with respect to the Gas delivered hereunder. Further, Producer
represents that it has timely filed, or shall timely file, any and all reports
which it is required to file with respect to production or severance taxes to
be paid hereunder. Producer shall indemnify and hold Gatherer harmless with
respect to Producer’s failure to file any and all such reports or with respect
to Producer’s failure to pay any and all taxes which Producer is obligated to
pay pursuant to the terms of this Agreement.


 


 


Article XIII.


CONTROL, POSSESSION, AND TITLE


 


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


 


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


 


13.3         Gatherer shall be entitled to and shall
own all condensate and pipeline drip collected on the System. Producer shall
not have any right, title, or interest in liquid hydrocarbons extracted from
the Gas. Producer represents that the Gas delivered under this Agreement is
free of rights to extract liquid hydrocarbons in favor of Producer or any other
third party. Further, all Gas purchased, sold, gathered, or transported under this
Agreement shall not be subjected to processing for extraction of liquid
hydrocarbons (other than by conventional mechanical separation) prior to
delivery 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 this
Agreement, then the obligations of the affected party, except for payment due,
so far as they are affected by such Force Majeure, shall be suspended during
the continuance of any inability so caused, but for no longer period. Such
cause shall, to the extent possible, be remedied with all reasonable dispatch.
The affected party shall give notice and full particulars of such Force Majeure
in writing by mail or telecopy or other electronic facility to the other party
as soon as practicable after the occurrence of the cause relied on.


 


14.2         The term Force Majeure as employed
herein shall mean acts of God; strikes, lockouts, or other industrial
disturbances; 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 any
compression or processing facilities located on the System); the necessity for
testing or making repairs or alterations to machinery or lines of pipe;
freezing of wells or lines of pipe; inability to obtain 


 


11

















 


easements
and/or rights-of-way; inability of any party hereto to obtain necessary
materials, supplies, or permits due to existing or future rules, regulations,
orders, laws, or proclamations of governmental authorities (both Federal and
State) including both civil and military; and any other causes whether of the
kind herein enumerated or otherwise, and whether caused or occasioned by or
happening on account of the act or omission of one of the parties hereto or
some persons or concern not a party hereto, not within the control of the party
claiming suspension and which, by the exercise of due diligence, such party is
unable to prevent or overcome.


 


14.3         It is understood and agreed that the
settlement of strikes or lockouts shall be entirely within the discretion of
the party having the difficulty, and that the above requirement that any Force
Majeure shall be remedied with all reasonable dispatch 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 discretion of the party having the
difficulty.


 


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


 


14.5         Should an event of Force Majeure render
Gatherer unable to take delivery of any of Producer’s Gas at any of the Receipt
Point(s) for a period exceeding thirty (30) consecutive calendar days, then
unless Gatherer reimburses Producer, within 5 days of receipt of an invoice
from Producer, for all out of pocket third party costs incurred by Producer to
purchase and construct the required facilities to move Producer’s gas to an
alternate market during the Force Majeure event, Producer may, upon not less
than three (3) days prior written notice to Gatherer, permanently deliver its
Gas to an alternate party for transportation and/or processing for those
Receipt Point(s) impacted by the Force Majeure event and will be released from
further obligation to make deliveries for those impacted Receipt Points under
this agreement.


 


 


Article XV.


TERM 


 


15.1         This
Agreement shall be effective May 1,
2006, and shall continue in full force and effect until April 30, 2016 (“Primary
Term”), whereupon Producer shall have the option to exercise one of three
options by giving notice prior to January 1, 2016.  Producer may elect to i) terminate this
agreement by providing ** written notice, ii) extend the term until ** (“Extended
Term”), after which this Agreement shall be automatically renewed for
successive renewal terms of one (1) month each, unless terminated by either
party with at least thirty (30) days prior written notice or iii) **.


 


 


 


Article XVI.


ASSIGNMENTS


 


16.1         This Agreement shall extend to and be
binding upon the parties hereto, their successors, and assigns. The rights of
the 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 prior
written consent of the other party which consent shall not be unreasonably
withheld. All assignments and conveyances shall be subject to this Agreement
and shall not relieve the assignor of its duties hereunder. No transfer of, or 


 


12

















 


succession
to, the interest of any party hereto, either in whole or partially, shall
affect or bind the other party until the first Day of the Month following the
Month in which the other party shall have received written notification
thereof.  Finally, the conditions
addressed 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 for
in this Agreement or any notice which either party may desire to give to the
other shall be in writing and mailed by registered mail or ordinary mail to the
post office address of the party intended to receive the same, as the case may
be, as follows or to such other address as either party shall designate by
written notice to the other party.


 


If
to 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


                6100
North Western Avenue


                Oklahoma City, Oklahoma 73118


 


If
to GATHERER:


 


                For Notices and Requests


 


                MARKWEST
PINNACLE L.P.


                2500 City West, Ste. 740


                Houston, Texas 77042


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


 


                For Statements, Bills, or
Invoices


 


                MARKWEST
PINNACLE L.P.


                6655 S. Lewis, Ste. 350


                Tulsa OK 74136


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


 


                For Payments


 


                Wire:


                MARKWEST PINNACLE L.P.


                **


 


13

















 


Article XVIII.


MISCELLANEOUS


 


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


 


18.2         This Agreement contains the entire
understanding of the parties superseding all other agreements, whether oral or
written, express or implied. As a result of the parties entering into this
Agreement, the Original Agreements have been terminated and replaced by this
Agreement.  This Agreement may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension, or discharge
is sought. Every covenant, term, and provision of the Agreement shall be
construed simply according to its fair meaning and not strictly for or against
any party. Any waiver of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by Producer or
Gatherer.


 


18.3         Fees
as specified in Section 10.1 and Penalties as specified in Section 6.2 and 7.2
shall be subject to an annual adjustment. The annual adjustment shall be equal
to 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 (along
with the right to ingress and egress) Producer’s leaseholds, properties, and
premises underlying the System in order to carry out the provisions of this
Agreement with the right to remove same before or after the expiration of this
Agreement and the right to free access at all reasonable times to any part of
said leaseholds, properties, and premises.


 


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


 


(i.)                                  This
Agreement was prepared jointly by the parties hereto and not by any party to
the exclusion of the other;


 


(ii.)                               Failure
to exercise any right or rights hereunder shall not be considered a waiver of
such right or rights in the future.


 


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


 


14

















 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in several counterparts, each of which is an original, as of the date
first 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

  	
   

  



 


15





















 


 


EXHIBIT A


 


 


**


 


16





















 


GAS
GATHERING AGREEMENT


EXHIBIT “B”
(Page 1 of 2)


BY AND
BETWEEN


CHESAPEAKE
EXPLORATION LIMITED PARTNERSHIP


AND


MARKWEST
PINNACLE L.P.


 


 


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


 


**


 


17