**Exhibit 10.1**

 

**GAS PURCHASE AND SALE AGREEMENT**

 

**BETWEEN**

 

**COPANO FIELD SERVICES/UPPER GV LF COAST, LP. (“BUYER”)**

 

**AND**

 

**EVOLUTION OPERATING CO., INC. (“SELLER”)**

 

 

February 1, 2009

Grimes County, Texas

Copano Meter #SH2-1 0122

 

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**TABLE OF CONTENTS**

 
| ** **         | **PAGE** |
|--------------------|----------|
| ARTICLEDESCRIPTION |     |
|               |     |
| I.                 |     | Dedication | 2 |
| II.                |     | Point(s) of  Delivery and Title | 2 |
| III.               |     | Facilities | 3 |
| IV.                |     | Price | 3 |
| V.                 |     | Fees | 4 |
| VI.                |     | Term | 5 |
| VII.               |     | Notices | 5 |
| VIII.              |     | General  Terms and Conditions | 6 |
| IX.                |     | Signatures | 6 |
|               |     |   |   |
| SECTION            |     | EXHIBIT  “A” |   |
| 1.                 |     | Definitions | 7 |
| 2.                 |     | Gas  Quality | 8 |
| 3.                 |     | Pressures | 9 |
| 4.                 |     | Gas  Measurement | 9 |
| 5.                 |     | Operating  Provisions | 11 |
| 6.                 |     | Billing  and Payment | 12 |
| 7.                 |     | Information  and Audit | 12 |
| 8.                 |     | Liability  and Warranties | 13 |
| 9.                 |     | Force  Majeure | 14 |
| 10.                |     | Confidentiality | 15 |
| 11.                |     | Taxes | 15 |
| 12.                |     | Laws  and Regulations | 15 |
| 13.                |     | Miscellaneous | 15 |
|               |     |   |   |
|               |     | EXHIBIT  “B” — Dedication and Point(s) of Delivery | 17 |

 

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**GAS PURCHASE AND SALE AGREEMENT**

 

**THIS GAS PURCHASE AND SALE AGREEMENT**(the “Agreement”)is made and entered into effective as of the 1st day of February 2009 byand between **COPANO FIELD SERVICES/UPPER GULFCOAST, L.P., a**Texas limited partnership (“Buyer”), and **EVOLUTION OPERATING CO. INC.,**(“Seller”).Buyer and Seller are sometimes referred to collectively as “Parties” orsingularly as a “Party.”

 

**WITNESSETH****:**

 

**WHEREAS**, Seller owns and/or controls Gas to beproduced from well(s) and acreage located in Grimes County, Texas, anddesires to deliver and sell to Buyer quantities of such Gas as provided herein;and

 

**WHEREAS**, Buyer desires to purchase and receiveSeller’s Gas subject to the terms and conditions contained herein.

 

**NOW, THEREFORE**,****in consideration of the premises and of the mutual covenantsand agreements herein contained, the Parties hereto covenant and agree asfollows:

 

**I.****                                       ****Dedication**

 

(a)                                  Subject to theterms and conditions of this Agreement, Seller dedicates and commits to theperformance of this Agreement (i) 100 percent of its owned and/orcontrolled Gas produced from the well(s) described on the attached Exhibit “B,”and (ii) the acreage assigned to such well(s).

 

(b)                                 Buyer shallpurchase 100% of the gas delivered from the well(s) described on Exhibit “B”up to the MDQ. The maximum daily quantity of Gas that Buyer agrees to purchaseunder this Agreement (the “MDQ”) shall be 3,000 MMBtu per Day.

 

(c)                                  Subject to theterms and conditions hereof, Buyer agrees to purchase Seller’s Gas as providedunder this Agreement except in those cases where failure to do so is due to (i) causeswithin the control of the Seller, (ii) Force Majeure as defined in theGeneral Terms and Conditions attached hereto as Exhibit “A” (the “GT&C”),(iii) any quantity of Gas not meeting the quality specifications set forthin the GT&C, or (iv) Buyer’s compliance with applicable laws of theState of Texas or rules and regulations of the Railroad Commission ofTexas.

 

**II.****                                   ****Point(s) of Delivery and Title**

 

(a)                                  The point(s) ofdelivery for all Gas purchased hereunder shall be at the point(s) describedon Exhibit “B” (the “Point(s) of Delivery”). Seller shall beresponsible for all necessary arrangements to deliver Gas into Buyer’spipeline. Buyer shall operate metering and tap facilities necessary to receiveand measure Seller’s Gas at the Point(s) of Delivery.

 

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(b)                                 Nothing in thisAgreement shall obligate Buyer or Seller to install any facilities to receiveor deliver Seller’s Gas other than those facilities specifically provided forhereunder.

 

(c)                                  Title to Seller’sGas delivered hereunder shall pass to Buyer at the Point(s) of Delivery.

 

**Ill.****                               ****Facilities**

 

Buyerand Seller have entered into a Facility Agreement dated January 9, 2009that covers the responsibility for the installation, if any, ownership,operation and maintenance of the pipeline, tap and meter facilities necessaryto receive Gas hereunder. Additional Facility Agreements may be entered into bythe Parties from time to time in the event additional delivery points are addedto this Agreement.

 

**IV.****                              ****Price**

 

(a)                                  Subject to allof the terms, conditions and provisions hereof, Buyer shall pay Seller for allGas purchased hereunder each Month a price per MMBtu equal to 91 percent of theIF HSC Index. However, notwithstanding the forgoing, in the event the qualityof Gas delivered by Seller to Buyer hereunder during any three (3) consecutivecalendar Month period averages less than 200 MMBtu per Day, then effective onthe first Day of the following calendar Month the price for all gas purchasedhereunder shall be 89 percent of the IF HSC Index. The price shall remain at 89percent of the IF HSC Index until such time as Seller delivers to Buyerhereunder a quantity of Gas equal to or in excess of an average of 200 MMBtuper Day during any three (3) consecutive calendar Month period, at whichtime the price shall be 91 percent of the IF HSC Index effective on the firstDay of the following calendar Month.

 

TheIF HSC Index is defined as the price published by Platts, a Division of theMcGraw-Hill Companies, in the first issue of Inside F.E.R.C.’s *Gas Market Report***during the Month of production under theheading *Market Center Spot-Gas Prices,*subheadingEast Texas, Houston Ship Channel Index.

 

(b)                                 In the event (i) CopanoPipelines/Upper Gulf Coast, L.P., an affiliate of Buyer, establishes thedelivery point with Tennessee Gas Pipeline Company in Harris County, Texasbeing contemplated as of the date hereof, and (ii) Seller delivers underthis Agreement at least 1,000 MMBtu per day on a consistent basis, then Sellershall have the right and option to elect from time to time after April 1,2009, to have the price provided in paragraph (a) above based on eitherthe IF Tennessee Index or the IF HSC Index. Seller shall provide Buyer withwritten notice at least five (5) Business Days prior to the first day ofthe Month for which the election is to take effect, and each such electionshall remain in effect for a minimum of three (3) calendar Months.

 

TheIF Tennessee Index is defined as the price published by Platts in the firstissue of Inside F.E.R.C.’s *Gas MarketReport*during the Month of production under the heading *Market Center Spot-Gas  Delivered to  Pipelines,  *subheading  Tennessee Gas

 

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PipelineCo., Texas, Zone 0.

 

(c) Notwithstandingparagraphs (a) and (b) above, should initial deliveries from a wellor increased deliveries from a workover well begin after the first Day of theMonth, the price to be paid by Buyer to Seller for such quantities of Seller’sGas delivered each Day from that well during said partial Month shall be equalto either 89 or 91 percent of the Gas Daily HSC Index, based on whether the 89or 91 percent price in effect under paragraph (a), or 91 percent of the GasDaily Tennessee Index, based on Seller’s election under paragraph (b) above.

 

TheGas Daily HSC Index is defined as the daily midpoint price published each Dayof Gas flow in Platt’s Gas Daily under the heading *Daily Price Survey,*subheadingEast-Houston-Katy, Houston Ship Channel Index.

 

TheGas Daily Tennessee Index is defined as the daily midpoint price published eachDay of Gas flow in Platt’s Gas Daily under the heading *Daily Price Survey,*subheading TennesseeZone 0 South Corpus Christi Index.

 

(d)                                 Any fees duefrom Seller to Buyer hereunder shall be deducted from Buyer’s payment to Sellerfor Gas purchased each Month.

 

(e)                                  The pricepayable by Buyer to Seller for Gas purchased hereunder is inclusive ofreimbursement to Seller for (i) 100 percent of Texas State severancetaxes, and (ii) Seller’s cost to conform such Gas to the quality andpressure specifications set forth herein.

 

**V.****                                  ****Fees**

 

(a)                                  Treating Fee. If at anytime Seller’s Gas at any Point of Delivery exceeds the maximum carbon dioxide(C02) contentprovided in Section 2 of the GT&C, Seller shall pay the appropriatetreating fees for removal or blending of CO2 for such Point of Delivery as follows:

 
| **CO****2****Limit** | ** ** | **Fee/Mcf**        |   |
|----------------------|------------|--------------------|--------|
| >3.0%             |       | $                  | .05    |   |
| >4.0%             |       | $                  | .07    |   |
| >5.0%             |       | $                  | .09    |   |
| >6.0%             |       | $                  | .11    |   |
| >7.0%             |       | Mutually agreed to |   |

 

(b)                                 Compressor andDehydration Fuel. Seller shall provide in-kind at no expense to Buyerits pro rata share of compressor and dehydration fuel used in the operation ofBuyer’s Pipeline System.

 

(c)                                  Low QuantityFee. During any Month after the Month of initial deliveries hereunder, ifGas quantities  delivered to Buyerby  Seller at any Point of  Delivery are

 

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lessthan 50 MMBtu per Day averaged over the Month, then Seller shall pay Buyer alow quantity fee of $350.00 per Month for such Point of Delivery.

 

**VI.****                              ****Term**

 

Theprimary term of this Agreement shall commence on and become effective as of February 1.2009 and shall remain in full force and effect until March 1, 2014, (the “PrimaryTerm”), and shall continue from Month to Month thereafter, unless terminated byeither Party upon at least 30 Days’ written notice given to the other Partyprior to the end of the Primary Term or any Month thereafter. However, suchtermination shall not discharge obligations theretofore incurred by the Partieshereunder, including any payment obligations.

 

**VII.****                          ****Notices**

 

Allnotices provided for herein shall be in writing at the addresses listed belowor to such other address either Party shall designate by written notice fromtime to time. Such notices shall be sent by certified U.S. mail, return receiptrequested, postage prepaid, by facsimile, or by courier. Notices sent bycertified mail or courier shall be deemed provided upon delivery as evidencedby the receipt of delivery. Notices sent by facsimile shall be deemed to havebeen provided upon the sending Party’s receipt of its facsimile machine’sconfirmation of successful transmission. However, if the Day on which suchfacsimile is received is not a Business Day or such facsimile is received afterfive p.m. on a Business Day, then notice provided by such facsimile shallbe deemed to have been provided on the next following Business Day.

 

**Buyer****:**

 

**For Notices, Correspondence and Nominations:**

COPANOFIELD SERVICES/UPPER GULF COAST, L.P.

2727AlIen Parkway, Suite 1200

Houston,Texas 77019

Attn:                    Contract Services

Telephone:                                    (713) 621-9547

Facsimile:                                          (713) 737-9047

E-Mail:                                                       contracts@copanoenergy.com

 

**Seller****:**

 

**For Correspondence, Invoices, Payments and Notices:**

EVOLUTIONOPERATING CO., INC.

2500City West Blvd., Suite 1300

Houston,TX 77042

Attn:                    Daryl Mazzanti

Telephone:                                    (713) 935-0122

Facsimile:                                          (713) 935-0199

E-mail:dmazzanti@evolutionpetroleum.com

TaxID:                                                  

 

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**VIII.****                    ****General Terms and Conditions**

 

TheGeneral Terms and Conditions attached hereto as Exhibit “A” (“GT&C”)have been approved and accepted by both Parties hereto and they are hereby madean integral part of this Agreement; provided, however, that if there shouldexist any conflict or discrepancy between anything contained in the main bodyof this Agreement and in the GT&C, then the provisions in the main body ofthis Agreement shall at all times and in all cases govern and control.

 

**IX.****                            ****Signatures**

 

**IN WITNESS WHEREOF,**this Agreement is executedin duplicate counterparts, each of which shall be an original as of the datefirst hereinabove written, and shall be binding on each party that executessame.

 

 
| ** ** | **COPANO FIELD SERVICES/UPPER GULF COAST, L.P.** |
|------------|--------------------------------------------------|
| ** ** | **“BUYER”**                            |
|       |                                             |
|       | By:                                              | Copano  Field Services GP, L.L.C. |
|       |                                             | its  Managing General Partner |
|       |                                             |   |
|       |                                             |   |
|       | By:                                              | /s/  Brian D. Eckhart |
|       |                                             | Brian  D. Eckhart |
|       |                                             | Senior  Vice President, Transportation and Supply |
|       |                                             |   |
|       |                                             |   |
| ** ** | **EVOLUTION OPERATING CO., INC.**                |
| ** ** | **“SELLER”**                           |
|       |                                             |   |
|       |                                             |   |
|       | By:                                              | /s/  Daryl Mazzanti |
|       |                                             | Daryl  Mazzanti |
|       |                                             | Vice  President, Operations |

 

**IF SELLER AGREES THAT SECTION 10, CONFIDENTIALITY, INTHE GENERAL TERMS AND CONDITIONS ATTACHED HERETO AS EXHIBIT “A”, SHALL BEINCLUDED IN THIS AGREEMENT FOR THE PRIMARY TERM AND ANY EXTENSION THEREOF,PLEASE INITIAL IN THE SPACE PROVIDED BELOW MARKED “YES”, OTHERWISE INITIAL THESPACE MARKED “NO”.**

 

**o****YES, SECTION 10, CONFIDENTIALITY, IS INCLUDED IN THIS AGREEMENT**

**o****NO, SECTION 10 IS NOT INCLUDED IN THIS AGREEMENT**

 

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**Exhibit “A”**

 

**to Gas Purchase and Sales Agreement dated February 1,2009, between**

**Copano Field Services/Upper Gulf Coast, LP. and**

**Evolution Operating Co., Inc.**

**(the “Agreement”)**

** **

**GENERAL TERMS AND CONDITIONS**

 

**1.****                                    ****DEFINITIONS**

 

Thefollowing terms shall have the meanings stated below for purposes of theAgreement and these General Terms and Conditions:

 

**1.1****                              ****AGA—**the AmericanGas Association. “AGA standards” means any current manual, pamphlet orrecommended practice published by or under the auspices of the AGA applicableto the type of measurement equipment used hereunder, whether or not it has beenaccepted as an American National Standard.

 

**1.2****                              ****Btu—** the quantityof heat required to raise the temperature of one pound avoirdupois pure waterfrom 58.5 degrees to 59.5 degrees Fahrenheit, as defined in the American GasAssociation (AGA) Gas Measurement Manual and any subsequent revisions.

 

**1.3****                              ****BusinessDay—**any day except Saturday, Sunday or Federal Reserve Bank holidays.

 

**1.4****                              ****Cubic Foot** or **Standard Cubic Foot**—the volume of Gas thatwould occupy one cubic foot of space when the Gas is at a base temperature of60°F and a base pressure of 14.65   psia using an assumed average atmospheric(barometric) pressure of 14.7 psia. **Mcf—**1,000 Cubic Feet.

 

**1.5****                              ****Day—**a period of 24consecutive hours beginning at 9:00 a.m. Central Time.

 

**1.6****                              ****Gas—**natural gas,including all hydrocarbon and non-hydrocarbon components, whether casingheadgas produced from oil wells, gas well gas, or other sources of production.

 

**1.7****                              ****GPA—**the GasProcessors Association. “GPA Standards” means any current manual, pamphlet orrecommended practice published by or under the auspices of the GPA applicableto the type of measurement equipment used hereunder, whether or not it has beenaccepted as an American National Standard.

 

**1.8****                              ****GrossHeating Value—**the gross number of Btu that would be produced bythe complete combustion of one standard cubic foot of Gas with air at the sametemperature and pressure, when saturated with water vapor at 60°F and aconstant pressure of 14.65 psia, and when the products of combustion are cooledto the initial temperature of the Gas and air, and the water formed by suchcombustion is condensed to a liquid state. The Gross Heating Value of the Gasshall be corrected for the water vapor content of the Gas being delivered;provided, however, that if the water vapor content of the Gas is seven (7) poundsor less per 1,000,000 cubic feet, the Gas shall be assumed to be dry and nocorrection will be made.

 

**1.9****                              ****Month—**a calendarmonth beginning on the first Day of the month.

 

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**1.10****                       ****Persons—**any naturalperson, corporation, partnership, joint venture, association, cooperative, orother entity.

 

**1.11****                       ****PipelineSystem—**the Gas pipelines and other facilities used by Buyer for receivingSeller’s Gas covered by this Agreement.

 

**1.12 Psia—**pressure expressed in poundsper square inch absolute.

 

**1.13****                       ****ThermallyEquivalent—**an equal number of MMBtu.

 

Termsnot otherwise defined herein are as defined in the Agreement.

 

**2.****                                    ****GAS QUALITY**

 

**2.1****                              ****Specifications.**Seller shall deliver at the Point(s) of Delivery merchantablepipeline quality Gas that conforms to the following quality specifications:

 

(a)                                  has a totalHeating Value of not less than 950 Btu per Cubic Foot;

 

(b)                                 is commerciallyfree from dust, hydrocarbon liquids, free water, suspended matter, all gums andgum forming constituents and any other substance that might become separatedfrom the Gas in the Pipeline System;

 

(c)                                  does notcontain more than 1/4 grain of hydrogen sulfide (H2S) or more than one (1) grain of total Sulfur(S) per100 Standard Cubic Feet;

 

(d)                                 is free ofoxygen;

 

(e)                                  does notcontain more than three (3) percent CO2 by volume;

 

(f)                                    not containmore than seven pounds (7#) of water vapor per one million cubic feet of Gas;

 

(g)                                 does notcontain more than one (1) percent Nitrogen by volume; and

 

(h)                                 has atemperature of not more than 120°F, and not less than 40°F.

 

**2.2****                             ****Failure toMeet Specifications.**  If the Gastendered by Seller to Buyer at the Point of Delivery shall fail at any time toconform to any of the specifications set forth herein, then upon prior writtennotice by Buyer to Seller, Buyer may, at its option, either refuse to acceptsuch Gas or take any necessary action to bring such Gas into conformity. If thequality specifications of any downstream pipeline to which Seller’s Gas isdelivered hereunder are more stringent than those set forth in Section 2.1,Buyer shall use reasonable efforts to treat, blend or condition Seller’s Gas tomeet such quality specifications. If Buyer incurs expenses directly related toSeller’s failure to meet the specifications set forth in Section 2.1, orif Buyer treats, blends or conditions Seller’s Gas to meet the downstreampipeline’s specifications, Seller shall reimburse Buyer for its reasonablyincurred allocable expenses, except with respect to CO2 content in which event the fees described in Article Vshall apply.

 

**2.3****                             ****CorrosionInhibition Program.**For each Point of Delivery that the Parties havemutually agreed to allow Gas to be delivered containing more than three (3) percentC02, a 

 

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corrosioninhibition program shall be conducted by Seller at its expense by continuousinjection of inhibitor chemical upstream of each such Point of Delivery. Selleragrees to inject such chemicals specified by Buyer and at injection ratesrequested by Buyer, provided such requirements represent reasonable industrypractice, and shall allow Buyer access to such injection facilities atreasonable times to monitor operation. Seller shall install and maintain suchinjection facilities and shall be responsible for the cost of such inhibitorchemicals injected.

 

**3.****                                    ****PRESSURES**

 

**3.1****                              ****DeliveryPressure.**Seller shall deliver Gas to Buyer at the Point(s) ofDelivery at pressures sufficient to allow the Gas to enter the Pipeline System,but not at pressures in excess of the maximum allowable operating pressure ofthe Pipeline System (“MAOP”) as it may exist from time to time, at the Point(s) ofDelivery. Buyer is under no obligation to modify pipeline pressures to permitthe entry of Seller’s Gas into the Pipeline System. If Seller is required tocompress Gas to overcome operating pressure, then Seller shall equip itscompression and production equipment (i) with overpressure relief orshut-off devices to prevent delivery to Buyer in excess of the MAOP, (ii) withGas cooling equipment to prevent discharge temperatures above 120°F into thePipeline System, and (iii) with pulsation dampening equipment acceptableto Buyer to minimize pulsation induced measurement errors.

 

**3.2****                              ****Rates ofFlow.** The Gas purchased hereunder shall be delivered and received as nearlyas practicable at uniform hourly and daily rates of flow. Seller shall haveagents or employees available at all reasonable times to receive from Buyer’sdispatcher advice and requests for changes in the rates of delivery of Gashereunder as requested by Buyer from time to time. Seller agrees to adviseBuyer as soon as possible of any changes in rates of flow of Gas.

 

**4.****                                    ****GAS MEASUREMENT**

 

**4.1****                              ****Unit ofVolume.**The unit of volume for the purpose of measurementshall be one Cubic Foot of Gas. Measured volumes shall be multiplied by theGross Heating Value, and the product thereof shall be divided by 1000 tocompute the MMBtu purchased and received hereunder.

 

**4.2****                              ****Computationof Volume.** The volumes of Gas measured hereunder shall becalculated in accordance with specifications prescribed by AGA Report No. 3,Third Edition, dated 1992, “Orifice Metering of Natural Gas and Other RelatedHydrocarbon Fluids,” including all appendices where applicable, as supplementedand modified from time to time (‘AGA Report No. 3”).

 

**4.3****                              ****Meters.** Buyer shallprovide transfer measurement by use of an orifice meter and chart-recorded orelectronic flow measurement, at Buyer’s option. Measurement equipment shall beinstalled and operated in accordance with AGA Report No. 3 as it existedat the time of installation. Metering equipment will be deemed to adhere toindustry standards providing that it met industry standards at the time ofinstallation. Seller shall have the right to inspect equipment installed orfurnished by Buyer and the charts and other measurement or testing data ofBuyer at all times during normal business hours of Buyer, but the reading,calibration and adjustment of such equipment and changing of charts shall bedone only by Buyer.

 

**4.4****                              ****GasMeasurement Computation Factors.** The following measurementfactors shall be observed.

 

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(a)                                  Buyer shalldetermine the specific gravity of the Gas to the nearest one-thousandth (.001)by calculation according to GPA Standard 2172. The specific gravity shall bedetermined in conjunction with the determination of Gross Heating Value andcomposition based on the Gas composition analysis.

 

(b)                                 Buyer shalldetermine the total Gross Heating Value of the Gas, at base conditions, at eachPoint of Delivery according to GPA Standard 2172.

 

(c)                                  Except asprovided below, the deviation of the Gas from Boyle’s Law shall be determinedfrom the AGA Transmission Measurement Committee Report No. 8, entitled “Compressibilityand Super Compressibility for Natural Gas and Other Hydrocarbon Gases,” (“ReportNo. 8”) as amended from time to time, in conjunction with thedetermination of Heating Value.

 

**4.5****                              ****Notice ofMeter and Equipment Tests.** At least quarterly ifSeller’s Gas averages less than 1,000 MMBtu per Day, or Monthly if Seller’s Gasaverages more than 1,000 MMBtu per Day, Buyer shall give notice to Seller andto the operator of the well of the time and location of all tests of Gasdelivered hereunder, or of any equipment used in measuring or determining thenature or quality of the Gas, so that Seller may conveniently have its representativepresent. As between Buyer and Seller, if Seller in the exercise of itsreasonable discretion is unsatisfied with any test, it shall so notify Buyer,and Buyer shall perform retests as necessary to assure an accurate test. Thecost of a retest shall be borne by Seller if the difference between theoriginal test and the retest is equal to or less than one (1) percent. Theone (1) percent accuracy standard referred to in this Section 4.5 andin Section 4.7 below shall mean the difference determined through testingbetween the readings of the recording device of the measurement equipment beingtested and the readings of the recording device on the test instrument.

 

**4.6****                              ****CheckMeters and Non-Interference.** Seller may, at its optionand expense, install and operate check meters to verify the accuracy of Buyer’sprimary measurement equipment, but Buyer shall measure Seller’s Gas with themeasurement equipment. Check meters shall be installed so as not to interferewith the operation of the measurement equipment. The Parties shall exercisecare in the installation, maintenance, and operation of check measuringequipment, pressure regulating equipment, and Gas compressors so as to preventany inaccuracy in the determination of the quantity or quality of Gas beingmeasured. Buyer may require installation of pulsation filters if unacceptablesquare root error or gauge line error shift occurs. The Party responsible forthe source of unacceptable pulsation shall also be responsible for theinstallation cost of remedial devices or filtering equipment to eliminatepulsation. If the Parties disagree on the source of pulsation, the Partiesshall select a mutually agreeable consulting organization for the purposes ofresolving the disagreement. The Party responsible for the source of thepulsation causing the square root error or gauge line error shift shall bearthe full costs associated with any consulting fees. In the event that thedetermination by the consultant is inconclusive, the costs shall be borneequally by the Parties.

 

**4.7****                             ****Adjustmentof Inaccuracies.**Upon any test, if the percentage of inaccuracy of (i) anelectronic flow measurement is greater than one (1) percent, or (ii) achart-recorded meter is greater than two (2) percent, then the meterregistration shall be corrected for any period definitely known or agreed. Ifthe period of time is not definitely known or agreed upon, then the correctionshall be for a period extending back 1/2 of the time elapsed since the date ofthe 

 

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lastcalibration. Buyer shall immediately restore as closely as possible to acondition of accuracy any measurement equipment found inaccurate. If anymeasurement equipment is out of service or out of repair for any reason so thatthe amount of Gas delivered cannot be estimated or computed from the readingthereof, the amount of Gas delivered through the meter during the period it isout of service or out of repair shall be estimated and agreed upon by Buyer andSeller upon the basis of the best data available using the first of thefollowing methods that is feasible:

 

(a)                                  by using theregistration of Seller’s check meter if installed and accurately registering;

 

(b)                                 by correctingthe error if the percentage of error is ascertainable by calibration, test, ormathematical calculation; or

 

(c)                                  by estimatingthe quantity of deliveries by comparison with deliveries during precedingperiods under similar conditions when the meter was registering accurately.

 

Noretroactive adjustment will be made for inaccuracies unless they exceed (i) one(1) percent of affected volumes if measured by electronic flowmeasurement, or (ii) two (2) percent of affected volumes if measuredby recording charts, but in no event shall any adjustment be made for inaccuraciesless than 100 Mcf per Month.

 

**5.****                                    ****OPERATING PROVISIONS**

 

**5.1****                              ****OperationalControl.**Buyer shall retain full operational control of thePipeline System and shall at all times be entitled to schedule deliveries andto operate its facilities in a manner consistent with its obligations and withoperating conditions, inclusive of normal and routine maintenance, as they mayexist from time to time on the Pipeline System, and that will allow Buyer tooptimize the use of the Pipeline System now and in the future, consistent withthe terms of this Agreement. This right includes but is not limited to theright to interrupt the receipt of Gas as necessary to test, alter, modify,enlarge, maintain or repair any facility or property comprising a part of or anappurtenance to the Pipeline System. Buyer shall not be required to addcompression to compress Seller’s Gas into the Pipeline System, lower itsPipeline System operating pressure, alter the direction of Gas flow, alterother operation or use of its facilities, or otherwise change its normaloperations to receive Seller’s Gas hereunder, except as specifically set forthin this Agreement.

 

**5.2****                              ****Reservationsof Seller.** Seller reserves the following rights:

 

(a)                                  To operateSeller’s property free from any control by Buyer in such manner as Seller, inSeller’s sole discretion, may deem advisable, including without limitation, theright to drill new wells, to repair and rework old wells and to abandon anywell or surrender any lease or portion thereof.

 

(b)                                 To use gasproduced from the leases for drilling, gas-lifting, developing and operatingSeller’s leases subject hereto, for the operation of Seller’s pipelines, waterstations, compressors, camps and other miscellaneous uses incident to theoperation of Seller’s leases and to fulfill obligations to the lessor thereof,or as to royalty obligations, if any.

 

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(c)                                  To unitize anyof Seller’s leases with other properties of Seller and of others in which eventthis Agreement will cover the interest owned or controlled by Seller in suchunit attributable to the leases and wells in the field. It is, however, agreedand understood that in exercising such reserved and discretionary rights,Seller will act as a reasonably prudent operator would act under the same orsimilar circumstances.

 

**5.3****                              ****Rights-of-Wayand Access.**Seller shall grant, and does hereby grant, to Buyerthe use of all requisite easements and rights-of-way, lease service rights, andother rights of access, regardless of form, over, across, and under any landwhere Seller has the right to grant use, and the right to perform there anyacts necessary or convenient in carrying out the terms of this Agreement andBuyer’s obligations hereunder. Rights of access and use shall include but notbe limited to those under Seller’s or its suppliers’ mineral leases toconstruct, operate, and maintain pipelines and appurtenant facilities for thepurpose of receiving Gas from the leaseholds. Any property of Buyer placed inor upon any of the lease(s) or easement(s) shall remain the personalproperty of Buyer, subject to removal by it at any time for any reason.

 

**5.4****                              ****OtherPipeline Requirements.**The Pipeline System is connected to thefacilities of other pipelines. As a result, Buyer may from time to time besubject to certain requirements imposed by those pipelines. Buyer shall havethe right under this Agreement to require Seller to comply with the same thirdparty pipeline requirements with which Buyer must comply. **SELLER AGREES TO INDEMNIFY, DEFEND, AND HOLD BUYERHARMLESS FROM SELLER’S FAILURE TO COMPLY WITH THOSE REQUIREMENTS, PROVIDEDBUYER HAS PROVIDED SELLER REASONABLE NOTICE OF THE REQUIREMENTS.**

 

**6.****                                    ****BILLING AND PAYMENT**

 

**6.1****                              ****Statement.**On or****before the 15th Day of each Month followingthe Month of deliveries, Buyer shall mail or transmit electronically to Sellerits statement reflecting calculations of total quantities of Seller’s Gas,expressed in Mcf and in MMBtu, measured and purchased during the previousMonth, amounts payable to Seller for Gas purchased, and any fees payable bySeller and deducted from Seller’s payment under this Agreement for such Month.

 

**6.2****                              ****Payment.**On or beforethe last Day of each Month, Buyer shall make payment to Seller by check for theamounts due to Seller as shown on its statement.

 

**6.3****                              ****DisputedStatements.**If Seller in good faith disputes any statement,Seller shall, within the period for payment set out in Section 6.2, notifyBuyer in writing of the amounts in dispute. As soon thereafter as the Seller mayreasonably assemble documentation demonstrating the basis for the dispute,Seller shall furnish such documentation to Buyer. Buyer shall have noobligation to pay interest on the disputed amount until the dispute isresolved. Any invoice tendered pursuant to this Section 6, or themeasurement data associated therewith, shall be contested, if at all, withintwo (2) years from the date of the invoice; otherwise the statement shallconclusively be deemed correct.

 

**7.****                                    ****INFORMATION AND AUDIT**

 

**7.1****                              ****Information.**Seller will furnish Buyer upon request with copies of any and all formspertinent to this Agreement filed by Seller or its agent with any state orfederal regulatory agency covering Gas delivered under this Agreement.Additionally, Buyer and Seller  shall  each preserve all  records applicable  to this Agreement,  including  all test  and 

 

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measurementdata and charts, for a period of at least 24 Months following the end of eachcalendar year, or such longer periods as shall be required under law orregulation.

 

**7.2****                              ****Audit.** Either Party,upon notice in writing to the other Party and upon execution of aconfidentiality agreement with the other Party, shall have the right atreasonable hours to audit the accounts and records relating to any invoiceunder this Agreement within the 24 Month period following the date of suchinvoice; provided however, that the auditing Party must make a claim in writingto the other Party for all discrepancies disclosed by said audit within said 24Months. Any audit shall be conducted by the auditing Party or itsrepresentative at the auditing Party’s expense. Any invoices shall be final asto all Parties unless questioned within 24 Months after the date of theinvoice.

 

8.                                      **LIABILITY AND WARRANTIES**

 

**8.1****                              ****Seller’sLiability for Possession and Control of Gas.**As between Seller and Buyer,Seller shall be in control and possession of the Gas deliverable hereunderuntil it is delivered at the Point(s) of Delivery. Seller shall be fullyresponsible and liable for any and all Gas loss, damages, claims, actions,expenses, liabilities, including reasonable attorney’s fees, injury to anddeath of Persons, property damage claims, and penalties for environmentaldamage, pollution, and contamination, caused or resulting from Seller’s Gaswhile in its control and possession or Seller’s operation of its facilities. **SELLER SHALL DEFEND, INDEMNIFY, AND HOLD BUYERHARMLESS FROM AND AGAINST ANY AND ALL DAMAGES, CLAIMS, LOSSES, COSTS, EXPENSESAND LIABILITIES RELATED TO THE MATTERS FOR WHICH SELLER IS RESPONSIBLE ABOVE,AND FOR BUYER’S LOSSES, COSTS, DAMAGES, LIABILITIES AND EXPENSES, INCLUDING BUTNOT LIMITED TO REASONABLE ATTORNEY’S FEES, RESULTING FROM SELLER’S GAS THATDOES NOT CONFORM TO THE QUALITY SPECIFICATIONS CONTAINED IN SECTION 2HEREOF, REGARDLESS OF POSSESSION AND CONTROL.**

 

**8.2****                              ****Buyer’sLiability for Possession and Control of Gas.**As between Buyer and Seller,Buyer shall be in control and possession of the Gas after the time the Gas isreceived at the Point(s) of Delivery. Buyer shall be fully responsible andliable for any and all damages, claims, actions, expenses, liabilities,including reasonable attorney’s fees, injury to and death of Persons, propertydamage claims, and penalties for environmental damage, pollution, andcontamination caused or resulting from the operation of the Pipeline System orBuyer’s handling of the Gas while in its control and possession. **BUYER SHALL DEFEND, INDEMNIFY, AND HOLD SELLERHARMLESS FROM AND AGAINST ANY AND ALL DAMAGES, CLAIMS, LOSSES, COSTS, EXPENSESAND LIABILITIES RELATED TO THE MATTERS FOR WHICH BUYER IS RESPONSIBLE ABOVE,EXCEPT FOR BUYER’S LOSSES, COSTS, DAMAGES, LIABILITIES AND EXPENSES RELATING TOGAS RECEIVED FROM SELLER THAT DOES NOT CONFORM TO THE QUALITYSPECIFICATIONS CONTAINED IN SECTION 2 HEREOF.**

 

**8.3****                              ****Limitationof Liability.**Neither Party shall be****liable to the other for consequential damages, indirectdamages, loss of profits, punitive damages nor other similar damages.

 

**8.4****                              ****Warranty ofTitle.**Seller warrants that it has good, merchantable title to all Gasdelivered by it hereunder, that it has the right to deliver such Gas, free andclear of all liens, encumbrances and claims whatsoever. Title to Seller’s Gasshall transfer from Seller to Buyer at the Point(s) of Delivery. **SELLER SHALL INDEMNIFY, SAVE, AND HOLD BUYER, ITSSUBSIDIARIES AND AFFILIATES, AND ITS DIRECTORS, OFFICERS, EMPLOYEES,**

 

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**AND AGENTS, FREE AND HARMLESS FROM ALL SUITS, ACTIONS, DEBTS,ACCOUNTS, DAMAGES, COSTS, LOSSES, EXPENSES AND LIABILITIES, INCLUDING BUT NOTLIMITED TO REASONABLE ATTORNEY’S FEES, ARISING FROM OR OUT OF A BREACH OF THEWARRANTIES CONTAINED IN THIS SECTION 8.4.**

 

**8.5****                              ****OwnershipPayments.**Seller shall be responsible and liable for any andall payments to working, royalty and other interest owners with respect to theGas delivered hereunder. **BUYER SHALL****NOT HAVE ANY RESPONSIBILITY OR LIABILITY FORANY PAYMENTS TO INTEREST OWNERS RELATIVE TO SELLER’S GAS, AND SELLER SHALLDEFEND, INDEMNIFY, AND HOLD BUYER HARMLESS FROM AND AGAINST ANY AND ALL SUCHPAYMENTS, AND ANY RELATED COSTS AND LIABILITIES.**

 

**8.6****                              ****AdverseClaims. IN THE EVENT ANY ADVERSE CLAIM IS ASSERTED WITH RESPECT TO ANY OF SAIDGAS, BUYER MAY WITHHOLD THE PURCHASE PRICE THEREOF UP TO THE AMOUNT OF ANDFROM THE DATE OF SUCH CLAIM WITHOUT INTEREST UNTIL SUCH CLAIM HAS BEEN FINALLYDETERMINED OR UNTIL SELLER FURNISHES BUYER A BOND, IN FORM AND WITHSURETIES REASONABLY ACCEPTABLE TO BUYER, CONDITIONED TO HOLD BUYER HARMLESSFROM ANY SUCH CLAIMS.**

 

**8.7****                              ****Seller’sSecurity Interest.**Nothing in this Agreement shall operate to waive,release or otherwise limit the rights of Seller to the security interestprovided to Seller under Section 9.343 of the Texas Uniform CommercialCode, which rights are expressly reserved by Seller.

 

**9.****                                    ****FORCE MAJEURE**

 

Inthe event either Party is rendered unable, wholly or in part, by force majeureto carry out its obligations under this Agreement, other than to make paymentswhen due hereunder, it is agreed that upon such Party giving notice andreasonably full particulars of such force majeure in writing or by electronicmeans to the other Party within a reasonable time after the occurrence of thecause relied on, then the obligations of the Party giving such notice, so faras they are affected by such force majeure, shall be suspended during thecontinuance of any inability so caused, but for no longer period, and suchcause shall be remedied so far as possible with all reasonable dispatch ifeconomically justifiable. The term “force majeure” as employed herein and forall purposes relating hereto shall mean acts of God, strikes, lockouts or otherindustrial disturbances, acts of the public enemy, acts of terrorism, wars,blockades, insurrections, riots, epidemics, landslides, lightning, earthquake,fires, storms, hurricane warnings, crevasses, floods, washouts, arrests andrestraints of government and people, civil disturbance, explosions, breakage oraccident to machinery or lines of pipe, the necessity for making repairs oralterations to machinery or lines of pipe, freezing of wells or lines of pipe,partial or entire failure of wells, inability of any party hereto to obtainnecessary materials, supplies, or permits due to existing or future rules,regulations, orders, laws or proclamations of governmental authorities (bothfederal and state), including both civil and military, any failure by thirdparties to deliver Seller’s Gas to Buyer’s facilities or thereafter totransport Gas received from Buyer, and any other causes of a similar naturewhether of the kind herein enumerated or otherwise, not within the control ofthe party claiming suspension and which by the exercise of due diligence suchparty is unable to prevent or overcome. The term Force Majeure shall alsoinclude (a) the inability of such party to acquire, or the delays on thepart of such party in acquiring, at reasonable cost and after the exercise ofdue diligence, any necessary servitudes, right-of-way grants, permits or licenses,and (b)  the  inability  of each party to  acquire,  or the delays  of such  party in  acquiring  at reasonable cost and after

 

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theexercise of due diligence, any necessary materials and supplies, permits andpermissions. Notwithstanding anything to the contrary herein, the Parties agreethat settlement of strikes, lockouts, and other industrial disturbances shallbe within the sole discretion of the Party experiencing such disturbance.

 

**10.****                             ****CONFIDENTIALITY**

 

Duringthe Primary Term and any extension thereof, the provisions of this Agreementincluding, but not limited to, the MDQ and the price payable by Buyer toSeller, shall not be disclosed to any third party (excluding the affiliates ofthe parties) without the prior written consent of the other Party, whichconsent shall not be unreasonably withheld, except to the extent disclosure isrequired by laws, rules, regulations or orders of any governmental orregulatory authority. **A CONFIDENTIALITYPROVISION CAN NOT BE UNILATERALLY REQUIRED IN A GAS SALE, TRANSPORTATION ORGATHERING AGREEMENT TO WHICH A PRODUCER IS A PARTY AND THIS SECTION 10WILL NOT BECOME A PART OF THIS AGREEMENT UNLESS SELLER’S AUTHORIZEDREPRESENTATIVE HAS INITIALED THE LINE MARKED “YES, SECTION 10,CONFIDENTIALITY, IS INCLUDED IN THIS AGREEMENT,” PROVIDED UNDER SELLER’SSIGNATURE BLOCK.**

 

**11.****                             ****TAXES**

 

**11.1****                       ****TaxResponsibility.**Seller shall bear sole responsibility and liabilityfor payment of all municipal, tribal, state, and federal taxes and charges (andpenalties and interest thereon) applicable to Seller’s Gas or to Buyer as theresult of purchasing Seller’s Gas hereunder, as such taxes are or may in thefuture be constituted, including, but not limited to, any energy or Btu taxes,but excluding ad valorem, franchise, and income taxes of Buyer. If Buyer isrequired to pay any municipal, tribal, state, or federal taxes, fees, orcharges (or penalties or interest thereon) relative to Seller’s Gas or as theresult of purchasing Gas hereunder, Seller shall reimburse Buyer therefor, inaddition to the other rates and charges provided for herein.

 

**11.2****                       ****Limitationon****Tax Responsibility.**NeitherParty shall be responsible or liable for the other Party’s income taxes or forany taxes or other statutory charges levied or assessed against any of thefacilities of the other Party used for the purpose of carrying out theprovisions of this Agreement.

 

**12.****                             ****LAWS ANDREGULATIONS**

 

ThisAgreement is subject to all valid legislation and all valid present or futurelaws, orders, rules, and regulations of duly constituted authorities now orhereafter having jurisdiction or control over the Parties, the servicescontemplated herein, or the facilities used to provide those services. Each ofSeller and Buyer warrants to the other that, at the time of any Gas purchasetransaction, it will have all requisite authority under applicable statutes andregulations to conduct such transaction. Each of Seller and Buyer shallindemnify the other against any damages or costs, including attorneys’ fees,incurred as a result of any breach by it of this provision.

 

**13.****                             ****MISCELLANEOUS**

 

**13.1****                       ****Waiver. A**waiver byeither Party of any one or more defaults by the other Party hereunder shall notoperate as a waiver of any future default or defaults, whether of a like or ofa different character.

 

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**13.2****                       ****GoverningLaw. THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED, AND GOVERNED BY THE LAWSOF THE STATE OF TEXAS, WITHOUT REFERENCE TO THOSE THAT MIGHT REFER TO THE LAWOF ANOTHER JURISDICTION.**

 

**13.3****                       ****Counterparts.**This Agreement may be executed in multiple counterparts, each of whichwhen so executed and delivered shall be an original, and the counterpartstogether shall constitute one instrument.

 

**13.4****                       ****Assignment.**Either Party may assign this Agreement, but no assignment shall relieveeither Party of its obligations under to this Agreement without the writtenconsent of the other Party, which consent shall not be unreasonably withheld. Notwithstandingthe foregoing sentence, nothing contained in this Paragraph shall in any wayprevent either party from pledging or mortgaging its rights hereunder forsecurity of indebtedness.

 

**13.5****                       ****Third PartyBeneficiaries.** This Agreement is intended to be for the solebenefit of Buyer and Seller, and there are no third party beneficiaries to thisAgreement. No third party shall have any right to enforce the terms of thisAgreement against Buyer or Seller.

 

**13.6****                       ****Severability.** Should anysection, paragraph, subparagraph, or other portion of this Agreement be foundinvalid or be required to be modified as a matter of law by a court orgovernment agency, then only that portion of this Agreement shall be invalid ormodified. The remainder of this Agreement that is still valid and unaffectedshall remain in force. If the absence of the part that is held to be invalid,illegal, or unenforceable, or modification of the part required to be modified,substantially deprives a Party of material economic benefits under thisAgreement, the Parties shall negotiate in good faith reasonable and validprovisions to restore the economic benefit to the affected Party.

 

**13.7****                       ****EntireAgreement.** This Agreement contains the entire agreement ofBuyer and Seller with respect to the matters addressed herein, and shall beamended only by an instrument in writing signed by both Parties. Amendments byelectronic media are prohibited, but this Agreement when executed, and signedamendments to it, may be delivered via facsimile. This Agreement shall beconsidered for all purposes as prepared through the joint efforts of theParties, and shall not be construed against one Party or the other as a resultof its preparation, submittal, or other event or negotiation, drafting, orexecution.

 

***END OF EXHIBIT “A”***

 

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**EXHIBIT “B”**

 

**to Gas Purchase and Sales Agreement dated February 1,2009, between**

**Copano Energy Services/Upper Gulf Coast, L.P. and**

**Evolution Operating Co., Inc.**

**(the “Agreement”)**

 

**DEDICATION**

 

**Pearson #1RE Well located in Grimes County, Texas.**

 

**POINT(S) OF DELIVERY**

 

**Copano Meter #SH2-10122 located in Grimes County, Texas.**

 

***END OF EXHIBIT “B”***

 

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