exv10w1






Exhibit 10.1




GAS GATHERING AND PROCESSING AGREEMENT




          THIS GAS GATHERING AND PROCESSING AGREEMENT (this “Agreement”), effective March 1, 2010 (the
“Effective Date”), is by and between Monarch Natural Gas, LLC, a Delaware Limited Liability Company
whose address is 5445 DTC Parkway, Suite P-4, Greenwood Village, Colorado 80111 (“Gatherer”) and
(ii) Gasco Production Company, a Delaware Corporation whose address is 8 Inverness Drive East,
Suite 100, Englewood, Colorado 80112 (“Producer”). Gatherer and Producer are sometimes referred to
herein individually as a “Party” and collectively as the “Parties.”




Recitals:




          A. Gatherer owns and operates a natural gas gathering system and related facilities in Uinta
and Duchesne Counties, Utah.




          B. Producer has an interest in certain oil and gas leases and lands described in Schedule
3 (the “Leases”).




          C. Producer owns, and has the right to deliver to Gatherer’s gathering system, natural gas
produced and saved from wells located on the Leases and more particularly described in Schedule
2 (the “Wells”).




          D. Gatherer desires to gather, compress and process such gas, on the terms and subject to the
conditions in the Agreement.




Agreements:




          NOW, THEREFORE, for good and valuable consideration, Gatherer and Producer agree as follows:




Article 1

Definitions




     1.1 Definitions. The following capitalized terms used in this Agreement and the
attached exhibits and schedules shall have the meanings set forth below:




     “Agreement” is defined in the preamble.




     “Affiliate” means, as to any Person, any other Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is under
common control with such Person, whether by contract, voting power, or otherwise. As used
in this definition, the term “control,” including the correlative terms “controlling,”
“controlled by,” and “under



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common control with,” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of an entity, whether through
ownership of voting securities, by contract, or otherwise.




     “AMI” means the geographic area described in Schedule 1.




     “Ancillary Agreements” means the related agreements as listed on Schedule
4.




     “Applicable Law” means any applicable law, statute, rule, regulation,
ordinance, order, or other pronouncement, action, or requirement of any Governmental
Authority.




     “Bcf” means one million Mcf’s.




     “Btu” means the amount of heat energy needed to raise the temperature of one
pound of water from 58.5 degrees Fahrenheit to 59.5 degrees Fahrenheit at a constant
pressure of 14.65 pounds per square inch absolute.




     “Business Day” means any day except Saturday, Sunday, or Federal Reserve Bank
holidays.




     “Day” means a period of 24 consecutive hours, coextensive with a “day” as
defined by the Receiving Transporter.




     “Dedicated Reserves” means the working interest of Producer in all Gas
reserves in and under, and all Gas owned by Producer and produced or delivered from, (i)
the Leases and (ii) other lands within the AMI, whether now owned or hereafter acquired,
along with the processing rights and any and all additional right, title, interest, or
claim of every kind and character of Producer or its Affiliates in (x) the Leases or (y)
lands within the AMI, and Gas production therefrom, and all interests in any wells,
whether now existing or drilled hereafter, on, or completed on, lands covered by a Lease
or within the AMI. Dedicated Reserves shall include Gas under contract with Producer from
or otherwise attributable to (i) NFR Uinta Basin LLC under the Agreement dated July 25,
2007, and (ii) Halliburton Energy Services, Inc. under the Agreement dated May 1, 2005,
and (iii) MBG Trust under the Agreement dated August 1, 2008, as they currently exist.
Dedicated Reserves shall not include Gas acquired after the Effective Date of this
Agreement by Producer through other means including, but not limited to, marketing
arrangements or joint operating agreements.




     “Delivery Points” means (i) the points identified in Schedule 2 at
which Gas is delivered to a Receiving Transporter by Gatherer and (ii) any additional
delivery point that, from time to time, may be added by



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Gatherer to the Gathering System after the Effective Date to permit delivery of Gas
to other Receiving Transporters.




     “Drip Liquid” means that portion of the Gas that condenses in, and is removed
from, the Gathering System as a liquid by Gatherer.




     “Equivalent Quantity” means, on any Day, a quantity of Gas (in MMBtu’s) that
is thermally equivalent to the quantity of Producer’s Gas received from Producer at the
Receipt Points on the Gathering System on that Day.




     “Effective Date” is defined in the preamble.




     “Force Majeure” is defined in Article 10.2.




     “FL&U” shall mean the combination of Fuel Gas and Lost and Unaccounted For
Gas.




     “Fuel Gas” means Gas used by Gatherer to operate compressors, processing
plants, dehydrators, and related equipment and facilities on the Gathering System.




     “Gas” means any mixture of hydrocarbons and noncombustible gases in a gaseous
state consisting primarily of methane.




     “Gatherer” is defined in the preamble.




     “Gathering and Processing Fees” means the fees pursuant to Sections 4.1,
4.2, and 4.3.




     “Gathering System” means the gas gathering facilities of Gatherer extending
generally from the Receipt Points to the Delivery Points, including any facilities for
compression, treating, and processing, and all modifications, alterations, replacements,
extensions, or expansions made by Gatherer, from time to time.




     “Governmental Authority” means any court, government (federal, state, local,
or foreign), department, political subdivision, commission, board, bureau, agency,
official, or other regulatory, administrative, or governmental authority.




     “Gross Heating Value” means the total calorific value (expressed in
Btu’s) obtained by the complete combustion, at constant pressure, of the amount of Gas
which would occupy a volume of one cubic foot at a temperature of 60o F, if
saturated with water vapor and under a pressure equivalent to 14.65 psia and under
standard gravitational force (980.665 cm per second per second) with air of the same
temperature and pressure as the Gas, when the products of combustion are cooled to the
initial



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temperature of the Gas and air and when the water formed by combustion is condensed
to the liquid state.




     “High Pressure Line” is defined in Section 5.13.




     “Leases” is defined in the Recitals.




     “Losses” means all losses, liabilities, damages, claims, fines,
penalties, costs, or expenses, including reasonable attorneys’ fees and court costs.




     “Lost and Unaccounted for Gas” means the volumetric gains or losses in Gas
that occur on the Gathering System, including any system blowdowns for maintenance,
emergency, or repair, and losses through the emergency shutdown system and flare stack,
other than Gas used for Fuel Gas.




     “Market Price” shall mean, in the case of Residue Gas, the weighted average
commodity price per MMBtu, received by Producer for the amounts of Residue Gas (excluding
any storage amounts) sold and otherwise accounted for on substantially the same terms as
Producer sells its Gas and other Third Party Gas. “Market Price” shall mean, in the case
of Plant Products, the weighted average commodity price per gallon received by Gatherer
for the amounts of Plant Product (excluding any storage amounts) sold under arm’s-length
agreements at the best price then obtainable in Gatherer’s reasonable judgment and
discretion, less any allocated transportation, handling and storage fees incurred and paid
by Producer in association therewith.




     “Maximum Operating Pressure” is defined in Section 5.13.




     “Mcf” means one thousand cubic feet of Gas at a temperature of 60
oF and a pressure of 14.65 pounds per square inch absolute.




     “Mcf/d” means Mcf’s per Day.




     “Minimum Volume Period” means the period beginning on the Effective Date and
ending on the 5th anniversary of the Effective Date, as such date may be
adjusted pursuant to Section 5.2.




     “MMBtu” means one million Btu’s, which is equivalent to one dekatherm.




     “Month” means the period beginning on the first Day of the calendar month and
ending immediately prior to the commencement of the first Day of the next calendar month.




     “New Well Connection Expenditure” is defined in Section 5.11(i).



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     “Notice” is defined in Section 13.1.




     “Other Delay” is defined in Section 10.2.




     “Party” and “Parties” are defined in the preamble.




     “Person” means any individual, corporation, partnership, joint venture,
limited liability company, association (whether incorporated or unincorporated),
joint-stock company, trust, Governmental Authority, unincorporated organization, or other
entity.




     “Plant” means the Riverbend Gas Processing Plant, Section 36, Township 9
South, Range 18 East, Uintah County, Utah, together with any facilities connecting the
Plant to Questar.




     “Plant Products” means the raw mix of liquefiable hydrocarbons, including
without limitation, ethane, propane, butane, and natural gasoline, extracted and saved at
the Plant from all of Producer’s Gas delivered to and processed by Gatherer.




     “Plant Shrinkage” means the thermal content of Plant Products removed from
Gas as a result of processing at the Plant.




     “Producer” is defined in the preamble.




     “Producer’s Gas” means the Dedicated Reserves committed hereunder by
Producer.




     “Producer Price Index” means the index covering intermediate materials,
supplies and components; as determined and published by the United States Bureau of Labor
Statistics (“BLS”) or any successor agency thereto.




     “Producer’s Reservations” is defined in Section 3.4.




     “Quarterly Minimum Volume” means, for each calendar quarter in the Minimum
Volume Period, a minimum volume of Producer’s Gas equal to 22,800 Mcf per Day multiplied
by the number of Days in each such calendar quarter




     “Questar” means Questar Pipeline Company and any successor thereto.




     “Receipt Points” means the outlet flange of the metering facilities at each
of the existing receipt points as of the Effective Date, for which the Producer owns the
meters and which are described in Schedule 2 and (ii) the inlet flange of the
metering facilities for any new or existing receipt points that may, from time to time, be
added by Gatherer to the Gathering



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System after the Effective Date to permit Producer to deliver Producer’s Gas to the
Gathering System.




     “Receiving Transporter” means the intrastate or interstate pipeline company,
local distribution company, or other party taking delivery or custody of Producer’s Gas
at, or immediately downstream of, the Delivery Points.




     “Residue Gas” means that portion of Producer’s Gas remaining after processing
at the Plant, and of Producer’s Gas bypassed around the Plant.




     “Scheduled Gas” means, for a specified period of time, the quantity of
Producer’s Gas scheduled by Producer and confirmed by Gatherer for delivery and gathering
on the Gathering System.




     “Services” is defined in Section 3.1.




     “Term” is defined in Section 2.1.




     “Third Party Gas” means all Gas under contract with Gatherer from or
otherwise attributable to the Leases, other than Producer’s Gas.




     “Wells” is defined in the Recitals.




     “Year” means the period of time beginning on one Day and ending on the same
Day the following year.



     1.2 Attachments. Each exhibit, schedule, or other attachment to this Agreement is a
part of this Agreement and incorporated herein for all purposes. When the term “Agreement” is used
herein, it means this Agreement and all of the exhibits, schedules, and other attachments hereto. A
list of the exhibits, schedules, and other attachments to this Agreement is attached behind the
signature page.



Article 2

Term




     2.1 Term. The term of this Agreement (“Term”) shall commence on the Effective Date
and continue in effect through the close of the last Day of the Month following the 15th
anniversary of the Effective Date. For Wells already connected to the Gathering System on the last
Day of the Month following the 15th anniversary of the Effective Date, the Term as to those Wells
shall continue in effect for so long as Producer’s Gas can be produced in commercial quantities
from such Wells.



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Article 3

Gathering of Producer’s Gas




     3.1 Gatherer shall provide gathering, compression and processing services as further detailed
in this Agreement and as can be provided by the existing Gathering System (the “Services”) for
Producer’s Gas delivered by Producer to the Receipt Point(s) for receipt into the Gathering System.
Gatherer shall redeliver Producer’s Gas to Producer at the Delivery Point(s) and, subject to
Article 3 of Exhibit A hereto, Producer’s Gas so delivered will meet the dew point and other
quality specifications of the Downstream Transporter, as those quality specifications may change
from time to time.



     The Parties hereto acknowledge that Producer’s Gas produced in the Gate Canyon area does not
currently require processing, and is gathered in a separate gathering system that has no processing
facilities. Should processing be required in the future for such Gas, Gatherer may first choose to
process such Producer’s Gas pursuant to this Agreement. If Gatherer chooses to not process such
Producer’s Gas pursuant to this Agreement, the Parties agree to work in good faith to evaluate the
alternatives available to Gatherer, including construction of a new processing plant, connection of
the Gate Canyon system to the Plant, or a short-term processing arrangement on Questar. After
evaluation, if Gatherer elects not to provide processing, Producer may process Producer’s Gas, and
Gatherer shall continue to waive the fees under Sections 4.1 (ii) and (iii) for that Gas.



     3.2 Dedicated Reserves. Subject to Producer’s Reservations and to the other terms and
conditions of this Agreement, Producer (i) exclusively dedicates and commits to the performance of
this Agreement the Dedicated Reserves, (ii) represents that the Dedicated Reserves are not
otherwise subject to any other gas gathering agreement or commitment and (iii) agrees not to
deliver any Gas produced from the Dedicated Reserves and owned by Producer to any other gas
gatherer, processor, or gas gathering system. Producer possesses the right to deliver the Dedicated
Reserves to the Gathering System. Producer agrees to cause any existing or future Affiliates of
Producer holding Dedicated Reserves to be bound by, and to execute and join as a party, this
Agreement. The dedication and commitment made by Producer under this Agreement is a covenant
running with the land.



     3.3 Producer shall not tender for gathering any Gas other than Producer’s Gas, which is not
part of Producer’s working interest, whether controlled through a joint operating agreement,
marketing agreement, or the like, without first obtaining Monarch’s written approval.



     3.4 Producer’s Reservations. Producer reserves the following rights (and reasonable
quantities of Gas to satisfy same) (“Producer’s Reservations”): (i) to operate Wells producing
from the Dedicated Reserves as a reasonably prudent operator, (ii) to separate or process Gas using
only mechanical, ambient temperature equipment located at surface production facilities on or near
Wells producing from



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the Dedicated Reserves, (iii) to use Gas produced from the Dedicated Reserves for lease
operations, and (iv) to pool, communitize, or unitize Producer’s interests in the Dedicated
Reserves. If Producer should commence Gas flow from any new Well or if Producer repairs, reworks,
curtails, or plugs and abandons any existing Well, written Notice thereof shall be given to
Gatherer no later than 5 Business Days prior to delivering or curtailing deliveries of Gas from
such Well to a Receipt Point.




     3.5 Prudent Operator. Producer and Gatherer shall each perform their obligations
under this Agreement in a good, efficient and workmanlike manner, in their best judgment as prudent
operators, in conformity with the best practices of the industry and in accordance with all valid
and applicable laws, rules, and regulations of governmental authorities.



Article 4

Gathering and Processing Fees




     4.1 Gathering and Processing Fees. As consideration for the Services provided
hereunder by Gatherer, Producer shall pay Gatherer:




	 	(i)	 	$0.435 per MMBtu for Producer’s Gas received at the Receipt Points each
Month, as provided herein. Of the $0.435 per MMBtu fee, $0.25 shall represent
consideration for gathering service and $0.185 shall represent consideration for the
current two stages of compression service, however, in no event shall the fee for
Producer’s Gas received at the Receipt Points be less than $0.435 per MMBtu, as
adjusted in Section 4.3 herein; and
	 
	 	(ii)	 	For any of Producer’s Gas processed by Gatherer, 5% of the Residue Gas
revenues attributable to Producer’s Gas. Producer shall market, at no fee to
Gatherer, all Residue Gas, and shall make all arrangements, on a timely basis, for
the further transportation, marketing and disposition of such Residue Gas, which
shall be done and accounted for on substantially the same terms as Producer
transports, markets and disposes of its Gas and Third Party Gas; and
	 
	 	(iii)	 	For any of Producer’s Gas processed by Gatherer, 5% of the Plant Products
revenue attributable to Producer’s Gas. Gatherer shall market, at no fee to
Producer, all Plant Products, and shall make all arrangements, on a timely basis, for
further transportation, marketing and disposition of such Plant Product, and
	 
	 	(iv)	 	$250 per active meter per Month on the Gathering System; and
	 
	 	(v)	 	100% of the Drip Liquids attributable to Producer’s Gas (net of any royalty
thereon).




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     4.2 High-Volume Fee Discount. In any Month in which Gatherer receives an aggregate
volume of Producer’s Gas that exceeds a daily average rate of 35,000 Mcf, the fee charged for
Producer’s Gas pursuant to Section 4.1 (i) above shall be reduced to $0.30 per MMbtu for each Mcf
of Producer’s Gas gathered in excess of 35,000 Mcf per Day during such Month. Of the $0.30 per
MMBtu fee in this Section 4.2, $0.17 shall represent consideration for gathering service and $0.13
shall represent consideration for compression service. The Gathering and Processing Fees described
in Sections 4.1 (ii), (iii), (iv), and (v) shall remain unchanged.



     4.3 Adjustment of Fees. On each January 1 during the Term, the Gathering and
Processing Fees then in effect in Sections 4.1 (i) and (iv), and Section 4.2 of this Agreement,
shall be increased by multiplying the fees then in effect by the percentage increase in the
Producer Price Index as published by the U.S. Department of Labor for the prior 12-Month period.
If the change in the Producer Price Index shows a percentage decrease, the Gathering and Processing
Fees then in effect shall be reduced by such percentage change in the Producer Price Index, but in
no event shall the Gathering and Processing Fees drop below the fees in effect as of the Effective
Date. In no event shall the Gathering Fee in Section 4.1 (i) be adjusted, up or down, by greater
than 5% in any single Year, or exceed $0.65 per MMBtu during the Term. In no event shall the
metering fee be adjusted, up or down, by greater than 5% in any single Year, or exceed $375 during
the Term. If the Producer Price Index ceases publication, the parties hereto shall negotiate in
good faith a replacement index. For purposes of splitting out the gathering and compression
components of the Gathering and Processing Fees, any fee adjustment carried out pursuant to this
Section 4.3 or Section 5.13 (ii) will automatically establish a proportional adjustment of the
underlying gathering and compression components of the Gathering and Processing Fees.



     4.4 Payment. Payment of the Gathering and Processing Fees shall be made in accordance
with the procedures set forth in Article 9.



Article 5

Gas Delivery




     5.1 Receipt and Delivery. Producer agrees to tender, or cause to be tendered, to the
Receipt Points, Producer’s Gas, each Day, and Gatherer agrees to accept Producer’s Gas at the
Receipt Points and redeliver Producer’s Gas, to the Delivery Points, subject to the terms hereof.
Producer shall endeavor to deliver the daily quantities of Gas at each Receipt Point at a
reasonably constant rate.



     5.2 Minimum Volume Commitment.




     (a) Producer’s Obligation. Producer commits to deliver to Gatherer for gathering on
the Gathering System in each calendar quarter during the Minimum Volume Period no less than the
Quarterly Minimum Volume for each such calendar quarter. Such commitment shall be suspended by
events of Force



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Majeure (but not by events of Other Delay) and prorated during periods of high pipeline
pressure pursuant to Section 5.13. The Parties shall act in good faith such that the
Gathering System can be operated in a manner that will not unduly hinder Producer’s ability to so
tender such Quarterly Minimum Volumes to Gatherer, which good faith practices shall include prudent
maintenance and repair of the Gathering System, compliance with Gatherer’s Maximum Operating
Pressure obligations, and avoidance of free liquids being introduced into the Gathering System as
set out in Section 3(a)(1) of Exhibit A hereunder. To the extent that Producer
tenders, in accordance with the terms of this Agreement, Producer’s Gas at a Receipt Point during
any calendar quarter of the Minimum Volume Period, and Producer is unable to effect delivery of
such Gas due to Gatherer’s failure to comply with its Maximum Operating Pressure obligation, the
Minimum Volume Commitment applicable to each such calendar quarter shall be reduced by an amount
equivalent to the volume shortfall so caused.




     (b) Deficit Volumes. If the total aggregate volume of 1) Producer’s Gas, 2) Third
Party Gas, and 3) Gas from any Dedicated Reserves caused to be drilled by Producer either through
acreage farm-out or non-consent Wells, delivered to the Gathering System in a calendar quarter of
the Minimum Volume Period is less than the Quarterly Minimum Volume, then Producer shall pay
Gatherer in cash, no later than 30 Days following the end of such calendar quarter, an amount equal
to the shortfall quantity for such calendar quarter (in Mcf’s) multiplied by the then-current
Gathering and Processing Fees, as applicable (including any possible adjustment under Section
5.13 (ii)), for such calendar quarter, as liquidated and agreed damages for Producer’s failure
to deliver the Quarterly Minimum Volume in such calendar quarter.




     (c) Excess Volumes. If the volume of (i) Producer’s Gas, (ii) Third-Party Gas, and
(iii) Gas from any Dedicated Reserves caused to be drilled by Producer either through acreage
farm-out or non-consent Wells, delivered to the Gathering System in a calendar quarter of the
Minimum Volume Period is greater than the Quarterly Minimum Volume, then such excess volume will be
credited to the last volumes due during the Minimum Volume Period. Such crediting shall thereby
shorten the Minimum Volume Period by one Day for each 22,800 Mcf of excess volumes so credited.



     5.3 Ratable Takes. Producer acknowledges and understands that Gatherer may be
providing gathering, processing, and other services to third parties. In the event of a capacity
restriction, Gatherer shall treat each party ratably in its Gathering System, or any portion
thereof, and shall not grant to any third party a higher priority to capacity on the Gathering
System than the priority granted hereunder to Producer. In the event and to the extent that
Gatherer’s ratable takes prevent Producer from delivering its full Quarterly Minimum Volume
obligation in such calendar quarter, then the Quarterly Minimum Volume for that calendar quarter
shall be reduced by the amount of such shortfall.



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



     5.5 Thermally Equivalent Quantity. Subject to this Agreement, Gatherer shall, as
nearly as practicable each Day, receive at the Receipt Points and deliver for Producer’s account,
at the Delivery Points, an Equivalent Quantity of Producer’s Gas, less FL&U, Plant Shrinkage (as
applicable) and Drip Liquid shrinkage. Producer’s allocated share of Fuel Gas shall be rendered to
Gatherer by Producer for Gatherer’s use at no cost to Gatherer. All receipts and deliveries of
Producer’s Gas hereunder shall be balanced on an MMBtu basis, less Producer’s allocated share of
FL&U, Plant Shrinkage (as applicable) and Drip Liquid shrinkage.



     5.6 Equal Receipt and Delivery. The Parties intend that Producer’s Gas will be
received and delivered hereunder at the same rates, and Producer shall not, in any manner, use the
Gathering System for storage or peaking purposes. If, on any Day, Producer delivers a quantity of
Producer’s Gas in excess of the quantity of Producer’s Gas being concurrently redelivered by
Gatherer at the Delivery Points, Gatherer shall have the right to reduce or discontinue its
receipts of Producer’s Gas at the Receipt Points until such time as arrangements have been made by
Producer to balance such excess. If on any Day Producer delivers a quantity of Producer’s Gas less
than the quantity of Producer’s Gas being concurrently redelivered by Gatherer at the Delivery
Points, then Gatherer shall have the right to reduce or discontinue deliveries of Producer’s Gas to
the Receiving Transporter until arrangements have been made by Producer to balance such under
delivery. An exact daily balancing of receipts and deliveries may not be possible due to the
inability of the Parties to control precisely such receipts and



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deliveries. However, Gatherer, to the extent reasonably practicable, will deliver each Day an
Equivalent Quantity, less FL&U, Plant Shrinkage (as applicable) and Drip Liquids shrinkage, to the
Delivery Points.




     5.7 Information. Each Party will furnish or cause to be furnished to the other Party
hereto all data required to accurately account for all Producer’s Gas received and delivered
hereunder.



     5.8 Third Party Arrangements. Producer shall make, or cause to be made, all necessary
arrangements with other pipelines or third parties at or upstream of the Receipt Points and at or
downstream of the Delivery Points to effect Gatherer’s receipt and delivery of Producer’s Gas.
Such arrangements affecting Receipt and Delivery shall be coordinated between Producer and
Gatherer.



     5.9 Commingling. Although Producer shall retain title to Producer’s Gas delivered to
Gatherer at the Receipt Points hereunder, Producer’s Gas received by Gatherer shall constitute part
of the supply of Gas from all sources in the Gathering System, and as such Gatherer shall, subject
to its obligation to deliver an Equivalent Quantity, less FL&U, Plant Shrinkage (as applicable),
and Drip Liquids shrinkage, as provided in Section 5.4, have the absolute and unqualified right to
commingle Producer’s Gas and to deliver molecules different from those received and to handle the
molecules received in any manner.



     5.10 Lost and Unaccounted for Gas and Fuel Gas. Gatherer agrees to use ordinary care
in gathering Producer’s Gas from the Receipt Points to the Delivery Points. However, Producer
acknowledges that certain volumetric gains and losses in Producer’s Gas will occur, and such gains
and losses attributable to Lost and Unaccounted For Gas and Fuel Gas shall be shared and allocated
among the Producer and other third parties whose Gas is gathered on the Gathering System, on a Btu
basis, in the proportion that each party delivers Gas to the Gathering System and, consistent with
Gatherer’s facilities, in proportion to the Services provided.



     5.11 New Well Connections. For any Well located in Area “A” on Schedule 1, Producer
shall provide Gatherer with written Notice of any additional Well dedicated to this Agreement to be
connected to the Gathering System hereunder, including the Producer’s working interest, Well name,
Well location, and Producer’s best estimate of Well deliverability.




	 	(i)	 	Within 10 Days of receipt of such Notice, Gatherer shall provide Producer
with a written estimate of the cost of connecting such new Well to the Gathering
System, which shall include any necessary facilities to accommodate the Gas in the
Gathering System (“New Well Connection Expenditure”). Gatherer shall proceed with
connection of such new Well 10 Days after the estimate is received by Producer,
unless advised otherwise pursuant to this Section 5.11 (ii) below. Such New
Well




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	 	 	 	Connection Expenditure shall be subject to the Indemnity in Section 5.11
(iii).






	 	(ii)	 	Producer’s Option. If Producer’s estimate for the cost of the new
Well Connection Expenditure is less than Gatherer’s, Producer may, within 10 Days of
receipt of Gatherer’s estimate, give Notice to Gatherer to not proceed with such
connection, which Notice shall include Producer’s estimate of the New Well Connection
Expenditure, and Producer shall proceed with such construction. All facilities
constructed shall comply with Gatherer’s specifications. Upon completion of the
construction by Producer, Producer shall invoice Gatherer for the actual cost of the
New Well Connection, not to exceed 110% of Producer’s estimated cost, along with the
transfer of title of the newly-constructed facilities. Gatherer shall pay the
invoice within 30 Days of receipt and concurrently obtain title. Such reimbursed
actual cost shall be subject to the Indemnity in Section 5.11 (iii).
	 
	 	(iii)	 	Indemnity. For the first 2 Years after construction of a New Well
Connection and the other necessary facilities, the Producer shall guarantee adequate
volume from each new Well according to the following procedure: during each 3-Month
period, if the Gathering and Processing Fees derived from the all Gas contracted and
received from the new Well does not equal 1/8 of 130% of the actual cost of the New
Well Connection, then Gatherer shall invoice Producer for the deficiency on its next
regular Monthly invoice. Excess volume in any 3-Month period shall apply to any
subsequent 3-Month period(s).





     5.12 For any Well located in Area “B” on Schedule 1, Producer shall provide Gatherer with
written notice of any additional Well dedicated to this Agreement that is to be gathered hereunder,
including Producer’s working interest, Well name, and Well location. Within 10 Days of receipt of
such notice, Gatherer shall provide written notice to Producer whether Gatherer will provide
gathering services hereunder for such Well. If Gatherer elects to provide such gathering service,
the costs of connecting the Well to Gatherer’s central point of the Area “B” acreage will be
indemnified by Producer under Section 5.11(iii) above; however, any costs incurred by Gatherer in
connecting Gatherer’s central point of the Area “B” acreage to the Riverbend system, in the event
Gatherer elects to construct such a connection, shall not be indemnified by Producer under Section
5.11(iii). The Maximum Operating Pressure for the system in Area “B” shall be 125 psig as measured
at Gatherer’s central point in Area “B;” provided, however, that all other terms and conditions
related to Section 5.13 shall apply. The location of the central point in the Area “B” acreage
shall be determined by the Parties in a manner that fairly apportions cost responsibility between
the Parties and best serves the objectives of each Party under this Agreement. If



13









 




Gatherer elects not to provide gathering services for that Well, that Well shall be released
from dedication hereunder.




     5.13 Pressures. Producer’s Gas shall be delivered at the Receipt Points at pressures
sufficient to effect delivery into the Gathering System at the Receipt Points, but not to exceed
the maximum allowable operating pressure of the Gathering System from time to time. Gatherer shall
provide a maximum operating pressure of 125 psig at the suction of the compression located at the
Plant site (“Maximum Operating Pressure”). The Parties acknowledge that a portion of Gatherer’s
pipeline facilities upstream of the Plant inlet is designated by Gatherer as a high pressure line
and is operated by Gatherer without compression at pressures consistently higher than 125 psig (the
“High Pressure Line”). At its option, Producer may request the connection, to such High Pressure
Line, of Wells that are capable of delivering Producer’s Gas at pressures sufficient to effect
delivery into the High Pressure Line, and Gatherer agrees to provide such connection; provided,
however, that upon 60 Day’s Notice to Gatherer, Producer may request that such Wells be
disconnected from Gatherer’s High Pressure Line and, instead, be connected to a lower pressure
portion of the Gathering System. Adequate time will be allowed Gatherer to accommodate these
volumes, pursuant to this Agreement, into its lower pressure system. Such Gas shall be excluded
from the provisions of Section 5.13(ii) during the period that such Gas is connected to the High
Pressure Line. Gatherer agrees to provide such disconnection and reconnection with as little
disruption to Gas flow as reasonably practicable.




	 	(i)	 	If Gatherer’s operating pressures exceed 110% of the Maximum Operating
Pressure, as measured as the daily operating pressure averaged over each Month,
excluding events of Force Majeure and Other Delay, Producer shall have the right,
within 30 Days following that Month, to notify Gatherer in writing of such
occurrence. Upon receipt of such Notice, Gatherer shall immediately take steps to
reduce the operating pressure to meet the Maximum Operating Pressure.
	 
	 	(ii)	 	If, after notification by Producer pursuant to Section 5.13 (i),
Gatherer fails to reduce the operating pressure within 90 Days following the 30-Day
period referenced in Section 5.13 (i) (such period to be extended for
delivery of needed equipment, rights-of-way, permitting, and the like, and for Force
Majeure and Other Delay), then for those volumes of Producer’s Gas that, despite
Gatherer’s failure to meet its Maximum Operating Pressure obligation, Gatherer is
nonetheless able to deliver into the Gathering System, Producer shall receive a
reduction in rate under Section 4.1 (i) to $0.25 per MMBtu, unadjusted
pursuant to Section 4.2, until such time as Gatherer has reduced its
operating pressure to meet its Maximum Operating Pressure obligation.




14









 











Article 6

Taxes and Warranties




     6.1 Taxes. Producer shall pay or cause to be paid, and agrees to indemnify and hold
harmless Gatherer from and against the payment of, all excise, gross production, severance, sales,
occupation, and all other taxes, charges, or impositions of every kind and character required by
statute or by any Governmental Authority with respect to Producer’s Gas and the handling thereof
prior to receipt thereof by Gatherer at the Receipt Points. Gatherer shall pay or cause to be paid
all taxes and assessments, if any, imposed upon Gatherer for the activity of gathering of
Producer’s Gas after receipt and prior to redelivery thereof by Gatherer at the Delivery Points.
Neither Party shall be responsible or liable for any taxes or other statutory charges levied or
assessed against the facilities of the other Party used for the purpose of carrying out the
provisions of this Agreement.



     6.2 Title and No Liens. Producer warrants to Gatherer good title to Producer’s Gas
delivered to the Receipt Points, free from all liens, charges, and other adverse claims or
encumbrances. Producer shall indemnify, defend, and hold harmless Gatherer from and against all
Losses arising from all such liens, charges, and adverse claims and encumbrances, including Losses
arising from claims (i) by co-working interest owners, royalty or overriding royalty owners, or
other purported owners of interests or rights in Producer’s Gas or in the Dedicated Reserves or
(ii) by Persons from whom Producer purchased or otherwise acquired Producer’s Gas prior to the
Receipt Points.



     6.3 Other Warranties. EXCEPT AS SET FORTH IN THIS ARTICLE 6 AND THE OTHER
PROVISIONS OF THIS AGREEMENT AND ITS ATTACHMENTS, NEITHER PARTY MAKES ANY OTHER WARRANTIES,
EXPRESSED OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE GAS DELIVERED AND REDELIVERED HEREUNDER.



Article 7

Control, Possession, and Waiver




     7.1 Control and Possession. As between the Parties, Producer shall be deemed to be in
exclusive control and possession of Producer’s Gas delivered hereunder and responsible for any
damage or injury caused thereby prior to the time Producer’s Gas shall have been delivered to
Gatherer at the Receipt Points and after Producer’s Gas is redelivered to or on behalf of Producer
at the Delivery Points. After delivery of Producer’s Gas to Gatherer at the Receipt Points,
Gatherer shall be deemed to be in exclusive control and possession thereof and responsible for any
injury or damage caused thereby until redelivered to or on behalf of Producer at the Delivery
Points.



15









 





     7.2 Indemnity. Producer agree to indemnify, defend, and hold harmless Gatherer and
its Affiliates from any and all Losses arising from or out of (i) personal injury or property
damage attributable to Producer’s Gas when Producer shall be deemed to be in control and possession
of Producer’s Gas as provided in Section 7.1 and (ii) the delivery by Producer of
Producer’s Gas that does not meet the quality specifications in this Agreement. Except to the
extent a Loss (or Losses) is covered by the indemnity in the preceding sentence, Gatherer agrees to
indemnify, defend, and hold harmless Producer and their Affiliates from all Losses arising from or
out of personal injury or property damage attributable to Producer’s Gas when Gatherer shall be
deemed to be in control and possession of Producer’s Gas as provided in Section 7.1. THE
INDEMNITIES SET FORTH IN THIS SECTION 7.2 ARE TO BE CONSTRUED WITHOUT REGARD TO THE CAUSES
THEREOF, INCLUDING THE NEGLIGENCE OF ANY INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT,
OR CONCURRENT, OR ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF ANY INDEMNIFIED PARTY OR OTHER
PERSON.



     7.3 Waiver of Damages. A PARTY’S LIABILITY HEREUNDER SHALL BE LIMITED TO DIRECT
ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL
OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER PARTY OR ITS AFFILIATES FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT
DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION OR SIMILAR DAMAGES, BY STATUTE, IN TORT, OR
CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE
LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR
CAUSES RELATED THERETO, INCLUDING THE STRICT LIABILITY OR NEGLIGENCE OF ANY PARTY, WHETHER SUCH
STRICT LIABILITY OR NEGLIGENCE BE SOLE, JOINT, OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT
ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES
ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS
INCONVENIENT, AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE
HARM OR LOSS.



Article 8

Allocation of Residue Gas, Plant Product, and Drip Liquids Revenue





	 	A.	 	The Residue Gas volume attributable to a particular Receipt Point for an
Accounting Period shall be determined by subtracting from the measured volume at each
Receipt Point the allocated Fuel Gas and L&U and also subtracting the allocated
thermal equivalent of






16











 






	 	 	 	Plant Products and other shrinkage, if any, attributed to a particular Receipt
Point for each Accounting Period.
	 
	 	B.	 	The quantity of Plant Products (in gallons) of a particular Component Plant
Product recovered and attributable to a particular Receipt Point shall be determined
by multiplying the Component Plant Product recovered by a fraction, the numerator of
which is the theoretical test gallons of the particular Component Plant Product
contained in the Gas delivered at such Receipt Point and the denominator of which is
the total quantity of theoretical test gallons of the particular Component Plant
Product contained in all of the Gas delivered at the receipts points on the Gathering
System, excluding transportation-only Gas.
	 
	 	C.	 	The Drip Liquids attributable to Producer’s Gas shall be owned by Gatherer.
	 
	 	D.	 	The Residue Gas Revenue attributable to Producer’s Gas for each Accounting
Period shall be calculated by multiplying the quantity of Residue Gas (in MMBtu’s)
during such Accounting Period that is attributable to Producer’s Gas delivered to
Gatherer during such Accounting Period by the Market Price per MMBtu of Residue Gas
realized by Producer during such Accounting Period for such Residue Gas.
	 
	 	E.	 	The Plant Products Revenue attributable to Producer’s Gas for each
Accounting Period shall be the sum of the products obtained by multiplying the volume
of each Component Plant Product recovered during such Accounting Period that is
attributable to Producer’s Gas delivered to Gatherer during such Accounting Period by
the Market Price realized by Gatherer at the tailgate of the Plant during such
Accounting Period for such Component Plant Product.
	 
	 	F.	 	The Drip Liquids attributable to Producer’s Gas shall be owned by Gatherer
and any revenue derived by Gatherer from the sale of such Drip Liquids shall be kept
by Gatherer for Gatherer’s own account.





Article 9

Billing and Payments




     9.1 Billing. As soon as practicable each Month, Gatherer shall invoice Producer for
volumes of Producer’s Gas received, gathered and/or processed hereunder in the preceding Month,
including any other applicable charges, and provide a statement setting forth (i) the volumes and
quantities (in Mcf’s and MMBtu’s) of Producer’s Gas received at each Receipt Point and redelivered
to each



17









 




Delivery Points, (ii) any adjustments for prior periods, (iii) all allocations made pursuant
to Article 8 and (iv) all amounts due hereunder. In the event Producer receives, pursuant
to Section 4.2 or Section 5.2 (c)(3), one or more adjustments in the Gathering and
Processing Fees set forth in Section 4.1 (i), the statement will reflect a single, blended
Section 4.1(i) Gathering and Processing Fee which prorates all fees and discounts accorded
Producer during the relevant Month across all volumes of Producer’s Gas assessed Gathering and
Processing Fees in such Month. If actual measurements of volumes of Producer’s Gas are not
available in any Month, Gatherer may prepare and submit its invoice based on estimated volumes,
which estimated volumes shall be corrected to actual volumes in the following Month or Months.




     9.2 Payment for Gathering. Subject to the Letter Agreement dated February 26, 2010,
which is hereby incorporated by reference and attached as Schedule 6, Producer shall otherwise
remit to Gatherer the remaining amount due under Section 9.1, in immediately available
funds, by the 25th Day of each Month or 10 Days from the date of Gatherer’s invoice,
whichever is later. If such due date is not a Business Day, payment is due on the next Business
Day following such date.



     9.3 Payment for Residue Gas and Plant Products. Producer shall remit to Gatherer the
amount due for Residue Gas under Section 4.1 (ii), and Gatherer shall remit to Producer the amount
due for Plant Products under Section 4.1 (iii), in immediately available funds, by the
25th of each Month.



     9.4 Dispute. If Producer, in good faith, disputes the amount of any such invoice or
any part thereof, Producer will pay such amount as it concedes to be correct. If Producer disputes
the amount due, it must provide supporting documentation acceptable in industry practice to support
the amount disputed within 20 Days of the date of such invoice. If the Parties are unable to
resolve such dispute, either Party may pursue any remedy available at law or in equity to enforce
its rights under this Agreement.



     9.5 Late Payments. If either Party fails to pay the amount of any invoice rendered by
the other Party hereunder when such amount is due, interest thereon shall accrue from, but
excluding, the due date to, and including, the date payment thereof is actually made at the lesser
of the “Prime Rate” plus 12%, computed on an annualized basis and compounded Monthly, or
the maximum rate of interest permitted by Applicable Law, not to exceed the maximum legal rate.
“Prime Rate” means the prime rate on corporate loans at large U.S. money center commercial
banks as set forth in the Wall Street Journal “Money Rates” table under the Heading
“Prime Rate,” or any successor thereto, on the first date of publication for the Month in
which payment is due. The Party which is due payment shall render a late payment charge invoice
and payment shall be due within 10 Days of the date of such invoice.



     9.6 Audit. A Party shall have the right, at its own expense, upon reasonable Notice
and at reasonable times, to examine and audit and to obtain



18









 




copies of the relevant portion of the books, records, and telephone recordings of the other
Party to the extent reasonably necessary to verify the accuracy of any statement, charge, payment,
or computation made under this Agreement. This right to examine, audit, and to obtain copies shall
not be available with respect to proprietary information not directly relevant to transactions
under this Agreement. All invoices and billings shall be conclusively presumed final and accurate
and all associated claims for underpayments or overpayments shall be deemed waived unless such
invoices or billings are objected to in writing, with adequate explanation and/or documentation,
within 2 Years after the Month of Gas delivery. All retroactive adjustments under this
Section 9.5 shall be paid in full by the Party owing payment within 30 Days of Notice and
substantiation of such inaccuracy.




     9.7 Minor Adjustments. No adjustments, retroactive or prospective, shall be made to
volumes for prior periods, whether the result of volume allocation errors or any other reason other
than meter calibration error, that involve changes that would be less than 50 Mcf’s per Month.



     9.8 Financial Responsibility. If Producer fails to pay any amounts when due under
this Agreement, then Gatherer, at its option and without limiting any other rights available to it
under this Agreement or otherwise, may, by giving Notice to Producer, (i) suspend gathering
services hereunder, (ii) require Producer to pay for the gathering of Producer’s Gas hereunder in
cash in advance of Gatherer performing such gathering services, or (iii) require Producer’s to
provide other security satisfactory to Gatherer.



Article 10

Force Majeure




     10.1 Non-Performance. If a Party is rendered unable, wholly or in part, by reason of
Force Majeure to perform its obligations under this Agreement (other than the obligation to make
payments when due hereunder), then such Party’s obligations shall be suspended to the extent
affected by Force Majeure or by Other Delay.



     10.2 “Force Majeure” means any cause or event not reasonably within the control of the Party
whose performance is sought to be excused thereby; including acts of God, strikes, lockouts, or
other industrial disputes or disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, tornadoes, hurricanes,
storms, and warnings for any of the foregoing which may necessitate the precautionary shut-down of
wells, plants, pipelines, gathering systems, or other related facilities, floods, washouts, arrests
and restraints of governments and people, civil disturbances, explosions, sabotage, breakage or
accidents to equipment, machinery, gathering systems, plants, facilities or lines of pipe, the
making of repairs or alterations to lines of pipe, gathering systems, plants or equipment, freezing
of wells or lines of pipe, electric power shortages, necessity for compliance with any court order,
or any law, statute, ordinance, regulation or order promulgated by a Governmental



19









 




Authority having or asserting jurisdiction, inclement weather that necessitates extraordinary
measures and expense to construct facilities or maintain operations and any other causes, whether
of the kind enumerated herein or otherwise, not reasonably within the control of the Party claiming
suspension. “Other Delay” shall include Producer’s inability to comply with the quality
specifications herein, the inability to secure labor or materials, the inability to obtain
servitudes, rights-of-way, grants, permits, or licenses to enable such Party to fulfill its
obligations hereunder, the inability of such Party to acquire, or delays on the part of such Party
in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes,
rights-of-way, grants, permits or licenses, and in those instances where either Party hereto is
required to furnish materials and supplies for the purpose of constructing or maintaining
facilities or is required to secure permits or permissions from any Governmental Authority to
enable such Party to fulfill its obligations hereunder, the inability of such Party to acquire, or
delays on the part of such Party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such materials, supplies, permits, and permissions. “Force Majeure Event”
also includes any event of force majeure occurring with respect to the facilities or services of
either Party’s Affiliates or service providers providing a service or providing any equipment,
goods, supplies or other items necessary to the performance of such Party’s obligations hereunder.




     10.3 Strikes. The settlement of strikes or lockouts shall be entirely within the
discretion of the Party having the difficulty, and any obligation hereunder to remedy a Force
Majeure Event or Other Delay shall not require the settlement of strikes or lockouts by acceding to
the demands of the opposing Party when such course is inadvisable in the sole discretion of the
Party having the difficulty.



     10.4 Notice. The Party whose performance is affected by a Force Majeure or Other
Delay Event must provide Notice to the other Party. Initial notice may be given orally, but
written Notice with reasonably full particulars of the Force Majeure or Other Delay Event is
required as soon as reasonably possible after the occurrence of the Force Majeure or Other Delay
Event.



     10.5 Maintenance and Other Operations. Gatherer may interrupt its performance
hereunder for the purpose of making necessary or desirable inspections, alterations, and repairs
and Gatherer shall give to Producer reasonable Notice of its intention to suspend its performance
hereunder, except in cases of emergency where such Notice is impracticable or in cases where the
operations of Producer will not be affected. Gatherer shall endeavor to arrange such interruptions
so as to inconvenience Producer as little as possible. Service interruptions on the part of either
Party that are covered by this provision are included within the definition of “Force Majeure
or Other Delay Event” for the purpose of this Agreement.



20









 





Article 11

Assignment




     11.1 Restriction on Assignment. Except as provided below, neither Party may assign or
delegate any of its rights or obligations under this Agreement, by operation of law, change of
control, or otherwise, without the prior written consent of the other Party, which consent shall
not be unreasonably withheld.



     11.2 Inurement. Subject to Section 10.1, this Agreement binds and inures to
the benefit of the Parties and their respective successors and assigns.



Article 12

Jurisdiction




     This Agreement is subject to, and each Party will comply with, all Applicable Laws of any
Governmental Authority now or hereafter having jurisdiction over either or both Parties or their
facilities.



Article 13

Notices




     13.1 Notice. All notices, invoices, payments, and other communications made under
this Agreement (“Notice”) shall be in writing and sent to:


To Producer:



Gasco Production Company



8 Inverness Drive East, Suite 100

Englewood, Colorado 80112

Attention: Mr. Michael K. Decker

Telephone: 303-483-0044

Facsimile: 303-483-0011



To Gatherer:



Monarch Natural Gas, LLC



5445 DTC Parkway, Suite P-4

Greenwood Village, Colorado 80111

Attention: Mr. Keith R. Finger

Telephone: 303-486-6904

Facsimile: 303-486-6994




     13.2 Method. All Notices required hereunder may be sent by facsimile or mutually
acceptable electronic means, a nationally recognized overnight courier service, first class mail,
or hand delivered.



21









 





     13.3 Delivery. Notice shall be given when received on a Business Day by the
addressee. In the absence of proof of the actual receipt date, the following presumptions will
apply. Notices sent by facsimile shall be deemed to have been received upon the sending Party’s
receipt of its facsimile machine’s confirmation of successful transmission. If the Day on which
such facsimile is received is not a Business Day or is after five p.m. on a Business Day, then such
facsimile shall be deemed to have been received on the next following Business Day. Notice by
overnight mail or courier shall be deemed to have been received on the next Business Day after it
was sent or such earlier time as is confirmed by the receiving Party. Notice by first class mail
shall be considered delivered 5 Business Days after mailing.



Article 14

Other Provisions




     14.1 Additional Terms. The measurement terms and conditions set forth in Exhibit
A are incorporated herein by reference.



     14.2 Governing Law. This Agreement shall be construed, enforced, and interpreted
according to the laws of the State of Colorado, without regard to the conflicts of law rules
thereof. Each Party hereby irrevocably submits to the jurisdiction of the courts of the State of
Colorado and the federal courts of the United States of America located in Arapahoe County,
Colorado over any dispute or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby, and each Party irrevocably agrees that all claims in respect of
such dispute or proceeding shall be heard and determined in such courts. Each Party hereby
irrevocably waives, to the fullest extent permitted by Applicable Law, any objection which it may
now or hereafter have to the venue of any dispute arising out of or relating to this Agreement or
any of the transactions contemplated hereby brought in such court or any defense of inconvenient
forum for the maintenance of such dispute or action. Each Party agrees that a judgment in any
dispute heard in the venue specified by this section may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by Applicable Law.



     14.3 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT.



     14.4 Representations. Each Party represents to the other Party during the term hereof
as follows: (i) there are no suits, proceedings, judgments, or orders by or before any
governmental authority that materially adversely affect its ability to perform this Agreement or
the rights of the other Parties hereunder, (ii) it is duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its formation, and it has the legal right, power and
authority and is qualified to conduct its business, and to execute and deliver this Agreement and
perform its obligations hereunder, (iii) the making and performance by it of this Agreement is



22









 




within its powers, and has been duly authorized by all necessary action on its part, (iv) this
Agreement constitutes a legal, valid, and binding act and obligation of it, enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws
affecting creditor’s rights generally, and with regard to equitable remedies, to the discretion of
the court before which proceedings to obtain same may be pending, and (v) there are no bankruptcy,
insolvency, reorganization, receivership or other arrangement proceedings pending or being
contemplated by it.




     14.5 Integrated Transaction. This Agreement is being executed and delivered by the
Parties contemporaneous with, and as a condition precedent to, the execution and delivery of the
Ancillary Agreements by the Persons that are party thereto. The Parties acknowledge that the
execution and delivery of this Agreement and the rights and obligations of the Parties hereto are
part of an integrated transaction being affected pursuant to the terms of this Agreement and the
Ancillary Agreements.



     14.6 Waiver. No waiver of any breach of this Agreement shall be held to be a waiver
of any other or subsequent breach.



     14.7 Rules of Construction. In construing this Agreement, the following principles
shall be followed:




	 	(i)	 	no consideration shall be given to the fact or presumption that one Party
had a greater or lesser hand in drafting this Agreement;
	 
	 	(ii)	 	examples shall not be construed to limit, expressly or by implication, the
matter they illustrate;
	 
	 	(iii)	 	the word “includes” and its syntactical variants mean
“includes, but is not limited to” and corresponding syntactical variant
expressions;
	 
	 	(iv)	 	a defined term has its defined meaning throughout this Agreement,
regardless of whether it appears before or after the place in this Agreement where it
is defined;
	 
	 	(v)	 	the plural shall be deemed to include the singular, and vice versa; and
	 
	 	(vi)	 	each gender shall be deemed to include the other genders.





     14.8 No Third Party Beneficiaries. There is no third party beneficiary to this
Agreement.



     14.9 Headings. The headings and subheadings contained in this Agreement are used
solely for convenience and do not constitute a part of this



23









 




Agreement between the Parties and shall not be used to construe or interpret the provisions of
this Agreement.




[Remainder of page intentionally left blank]




24









 





          IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.




	 	 	 	 	 
	 	Producer:



GASCO PRODUCTION COMPANY

 	 
	 	By:  	/s/ W. King Grant
 	 
	 	Name:  	W. King Grant 	 
	 	Title:  	President and Chief Financial Officer 	 
	 
	 	Gatherer:



MONARCH NATURAL GAS, LLC

 	 
	 	By:  	/s/ C. Judson Williams
 	 
	 	Name:  	C. Judson Williams 	 
	 	Title:  	Chief Financial Officer 	 
	 



Signature Page to Gas Gathering & Processing Agreement











 







List of Exhibits and Schedules




	 	 	 
	Exhibit A

	 	- Additional Terms and Conditions.
	 
	 	 
	Schedule 1

	 	- Description of AMI.
	Schedule 2

	 	- Receipt Points, Well Names and Locations, and Delivery Points.
	Schedule 3

	 	- Leases.
	Schedule 4

	 	- Other Agreements.
	Schedule 5

	 	- Purchase Option
	Schedule 6

	 	- Letter Agreement Regarding Payment





Gas Gathering & Processing Agreement











 





Exhibit A

ADDITIONAL TERMS AND CONDITIONS




     The following terms and conditions shall apply to the gathering of Producer’s Gas on the
Gathering System.


1. Measurement and Testing.




     (a) Receiving Transporters. The ultimate custody transfer point for Producer’s Gas
will be at the interconnection between the facilities of Gatherer and the Receiving Transporter and
therefore the volume attributable to Producer will be an allocated volume based on Producer’s pro
rata portion of all Gas delivered to the Receiving Transporter less Producer’s allocated share of
FL&U,, Plant Shrinkage, Drip Liquids shrinkage, and any other adjustments hereunder.



     (b) Meters. Producer shall own, maintain and operate custody transfer meters at each
Receipt Point installed as of the Effective Date. Electronic data from those meters shall be
provided to Gatherer at no cost, and shall be the basis for custody transfer at those Receipt
Points. Such electronic data shall be available to Gatherer on a real time basis, but in no event
shall the necessary production information be provided to Gatherer later than 5 Days after the end
of each Month. For meters installed after the Effective Date, Gatherer, or its designee, shall
own, maintain and operate those receipt meters, when installed, and also the measuring stations at
the Delivery Points. Either Gatherer or Producer may install, maintain, and operate, at their own
expense, such check measuring equipment as desired and where appropriate. Such equipment shall be
installed so as not to interfere with the operation of the other Party’s measuring equipment. At
any time during the Term hereof, Gatherer shall have the right to install its own meters at any of
the Receipt Points existing as of the Effective Date. In that event, for those Receipt Points, (i)
Gatherer’s meters will become the custody transfer meters, and (ii) the Receipt Point location will
transfer from the outlet flange to the inlet flange of the meter run.



     (c) Practices. All meters, whether owned and operated by Producer or Gatherer, shall
be constructed, installed, and operated in accordance with the following standards depending on the
type of meters used.




     (1) Orifice Meters — In accordance with American Gas Association Report Number
3, dated 2000 or the most recent edition as agreed to by Gatherer and Producer. If Gas
pulsation problems occur upstream of the Receipt Points or downstream of the Delivery
Points, Producer, or their designee, shall take whatever steps necessary to mitigate such
pulsation.




     (2) Positive Meters — In accordance with American National Standards Institute
B109.2, dated 2000 or the most recent edition as agreed to by Gatherer and Producer.




     (3) Turbine Meters — In accordance with American Gas Association Report Number
7, dated 1996 or the most recent edition as agreed to by Gatherer and Producer.



Gas Gathering & Processing Agreement




 









 






     (4) Electronic Transducers and Flow Computers (solar and otherwise) — in
accordance with the applicable American Gas Association standards, including but not limited
to American Gas Association Measurement Committee Report Nos. 3, 5, 6 and 7 and any
subsequent amendments, revisions, or modification thereof.




     (5) Ultrasonic Meters — In accordance with American Gas Association Report
Number 9, dated 2003 or the most recent edition as agreed to by Gatherer and Producer.


Notwithstanding anything contained in this Section 1(c) to the contrary, neither Party
shall be required to replace or make any alterations to its measuring equipment as a result of any
subsequent amendments, revisions, or modifications of the American Gas Association Reports cited in
Subparagraphs (1) through (5) of this Section 1(c), unless the Parties mutually agree to
such replacement or alteration.




     (d) Testing. Either Party shall give reasonable Notice to the other Party of any
cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting of its receipt meters
or the measuring equipment at the Delivery Points to permit both Parties to have a representative
present. The official records from the measuring equipment shall remain the property of Gatherer.
Upon request, Gatherer will submit its records, together with calculations therefrom, to Producer
for inspection and verification, subject to return to Gatherer or its designee within 30 Days after
receipt thereof.



     (e) Accuracy of Meters. All meters shall be verified (and calibrated) by its owner at
the following intervals: (i) if the deliveries of Gas through the meter average less than 100
Mcf/d, at least once each Year, (ii) if the deliveries of Gas through the meter average between 100
Mcf/d and 500 Mcf/d, at least once every 6 Months, (iii) if the deliveries of Gas through the meter
average between 500 Mcf/d and 5,000 Mcf/d, at least once every 3 Months, or (iv) if the deliveries
of Gas through the meter average more than 5,000 Mcf/d, at least once each Month. If, upon any
test, the measuring equipment is found to be inaccurate by 2% or less, previous readings of such
equipment will be considered correct in computing the deliveries of Producer’s Gas hereunder, but
such equipment shall immediately be adjusted to record accurately. If, upon any test, the
measuring equipment is found to be inaccurate by more than 2% of the average flow rate since the
last test, then any previous recordings of such equipment shall be corrected to zero (0) error for
any period which is known definitely or agreed upon, using the procedure set forth in Section
1(f). If such period is not known or agreed upon, such correction shall be made for a period
covering 1/2 of the time elapsed since the date of the latest test, but not to exceed 16 Days when
the equipment is tested every Month and not to exceed 45 Days when the equipment is tested every 3
Months. If either Party desires a special test of any measuring equipment, at least 72 hours
advance Notice shall be given to the other Party, and both Parties shall cooperate to secure a
prompt test of the accuracy of such equipment. If the measuring equipment so tested is found to be
inaccurate by 2% or less, the testing Party shall have the right to bill the requesting Party for
the costs incurred due to such special test, including any labor and transportation cost, and
Producer shall pay such costs promptly upon invoice thereof.



     (f) Adjustments. If, for any reason, any measurement equipment is out of adjustment,
out of service, or out of repair and the total calculated hourly flow rate through each meter run
is found to be in error by an amount of the magnitude described in Section 1(e), the



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total quantity of Producer’s Gas delivered shall be redetermined in accordance with the first
of the following methods which is feasible:





     (1) by using the registration of any check meters, if installed and accurately
registering (subject to testing as described in Section 1(e)), or




     (2) where parallel multiple meter runs exist, by calculation using the registration of
such parallel meter runs; provided that they are measuring Producer’s Gas from upstream
headers in common with the faulty metering equipment, are not controlled by separate
regulators, and are accurately registering; or




     (3) by correcting the error by straightforward application of a correcting factor to
the quantities recorded for the period (if the net percentage of error is ascertainable by
calibration, tests, or mathematical calculation); or




     (4) by estimating the quantity, based upon deliveries made during periods of similar
conditions when the meter was registering accurately.



     (g) Meter Records Retention. Gatherer shall retain and preserve for a period of at
least 2 Years all measurement results, test data and other similar records.


2. Measurement Specifications.




     (a) Units. The unit of volume for measurement shall be 1 cubic foot. Such measured
volumes shall be multiplied by their Gross Heating Value per cubic foot and divided by 1,000,000 to
determine MMBtu’s delivered hereunder.



     (b) Practices. Computations for Gas measurement shall be made in accordance with the
following depending on the type of meters used:




     (1) Orifice Meters — In accordance with American Gas Association Report Number
3, dated 2000 or the most recent edition as agreed to by Gatherer and Producer.




     (2) Positive Meters — In accordance with American National Standards Institute
B109.2, dated 2000 or the most recent edition as agreed to by Gatherer and Producer.




     (3) Turbine Meters — In accordance with American Gas Association Report Number
7, dated 1996 or the most recent edition as agreed to by Gatherer and Producer.




     (4) Electronic Transducers and Flow Computers (solar and otherwise) — in
accordance with the applicable American Gas Association standards, including but not limited
to American Gas Association Measurement Committee Report Nos. 3, 5, 6 and 7 and any
subsequent amendments, revisions, or modification thereof.




     (5) Ultrasonic Meters — In accordance with American Gas Association Report
Number 9, dated 2003 or the most recent edition as agreed to by Gatherer and Producer.



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     (c) Temperature. The temperature of Producer’s Gas typically shall be determined by a
temperature measurement device installed as part of the selected meter and flow computer
combination, or such other means of recording temperature as may be mutually agreed upon by the
Parties. The temperature so recorded, obtained while Producer’s Gas is being delivered, shall be
the applicable flowing Gas temperature for purposes of calculating the actual gas flow.



     (d) Product Composition of Producer’s Gas. Gatherer shall obtain a continuous flow
monthly composite sample or a monthly spot sample of the Gas delivered by Producer hereunder while
the Gas is being produced under normal operating conditions. Analysis of such sample shall be made
by Gatherer, at Gatherer’s election, by gas chromatography or other industry approved method, and
the results reported as mol percent along with other composition parameters.



     (e) Pressure. For purposes of measurement and meter calibration, the atmospheric
pressure for each of the Receipt Points and Delivery Points shall be assumed to be the pressure
value determined by Gatherer, or its designee, for the county elevation in which such point is
located pursuant to generally accepted industry practices irrespective of the actual atmospheric
pressure at such points from time to time. For the purposes herein, such atmospheric pressure will
be assumed to be 14.65 pounds per square inch absolute.



     (f) Gross Heating Value, Specific Gravity, and Compressibility. The Gross Heating
Value, Specific Gravity, and Compressibility of the Gas delivered at the Receipt Points and
Delivery Points shall be determined from compositional analysis as described in Section
2(d) above as outlined in Gas Processors Association Standard 2172 Calculation of Gross Heating
Value, Relative Density, and Compressibility of Natural Gas Mixtures from Compositional Analysis.



     (g) Other Contaminants. Other tests to determine water content, sulfur, hydrogen
sulfide, inert gases, and other impurities in Producer’s Gas shall be conducted whenever requested
by either Party and shall be conducted in accordance with standard industry testing procedures.


3. Quality Specifications.




     (a) Producer’s Gas. Producer’s Gas delivered at each Receipt Point shall meet the
quality specifications imposed by the Receiving Transporter, but in no event shall exceed the
specifications as follows (except for hydrocarbon dewpoint specifications for Producer’s Gas
connected to the Plant):




     (1) Water: No free water.




     (2) Hydrogen Sulfide: Producer’s Gas shall not contain more than 1/4 grain of
hydrogen sulfide per 100 cubic feet of Gas at the Receipt Points, as determined by
quantitative tests. Gatherer is not generally waiving the hydrogen sulfide specification;
however, the Parties acknowledge that: 1) Producer and Gatherer have existing hydrogen
sulfide treating capabilities on their respective systems, and 2) Producer’s Gas may
occasionally and from time-to-time exceed this specification at the Receipt Point. Gatherer
agrees to operate and maintain the existing treating facilities on its Gathering



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System, and to cooperate with the downstream transporter, to minimize the affect of
hydrogen sulfide.




     (3) Total Sulfur: Producer’s Gas shall not contain more than 5 grains of total
sulfur per 100 cubic feet of Gas at the Receipt Points.




     (4) Temperature: Producer’s Gas shall not have a temperature less than 40oF or
more than 120 oF.




     (5) Carbon Dioxide: Producer’s Gas shall not contain more than 2% by volume of
carbon dioxide.




     (6) Oxygen: Producer’s Gas shall contain no oxygen.




     (7) Nitrogen: Producer’s Gas shall not contain more than 2% by volume of
nitrogen.




     (8) Total Inert Gas: Producer’s Gas shall not contain more than 3% by volume of
total inert gases.




     (9) Objectionable Liquids and Solids and Dilution: Producer’s Gas shall be
free of all objectionable liquids and solids, including any free liquids at the Receipt
Point, and shall not contain any hydrocarbons which might condense to free liquids in the
pipeline under normal pipeline conditions and shall be commercially free from dust, gums,
gum-forming constituents, and other liquids or solid matter which might become separated
from Producer’s Gas in the course of transportation through pipelines.




     (10) Gross Heating Value: Producer’s Gas shall not have a Gross Heating Value
less than 950 Btu’s per cubic foot of Gas.



     (b) Change in Receiving Transporter’s Specifications. Notwithstanding the Gas
specifications above, if a Receiving Transporter notifies Gatherer or Producer of different or
additional quality specifications required at the Delivery Points and different from those outlined
in Section 3(a) or (b) above, Gatherer will notify Producer of any such different
or additional specifications as soon as practicable after being notified of such specifications.
Such revised specifications will be considered as the quality specifications for Producer’s Gas
under this Agreement for as long as required by the Receiving Transporter.



     (c) Failure to Meet Specifications. If Producer’s Gas delivered hereunder fails to
meet any of the quality specifications stated in Section 3(a), (b) or (c)
above, Gatherer (i) may install equipment, at Producer’s expense, on the Gathering System to treat
such nonconforming Producer’s Gas or (ii) may refuse to accept such Producer’s Gas for so long as
Producer is unable to deliver Producer’s Gas conforming to such specifications. If Gatherer, in
its sole discretion, accepts Producer’s Gas that fails to meet any of the quality specifications
stated above, Gatherer shall not be deemed to have waived Gatherer’s right to refuse to accept
non-specification Gas at a subsequent time. In addition, if Producer continues to flow any Gas
that fails to meet the quality specifications under this Section 3, Producer shall be
responsible for (i) any fees charged



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by any Receiving Transporter and (ii) any costs, expenses, damages incurred by Gatherer or
caused by such non-specification Producer’s Gas.



4. Easements.




     (a) Access. To the extent that Producer may contractually or lawfully do so under its
leasehold interests and other property rights in the Leases, Producer hereby grants, convey,
assign, and transfer to Gatherer a right of way and easement across the Leases, and across
adjoining lands in which Producer may have an interest, for the purposes of installing, using,
inspecting, repairing, operating, replacing, and removing Gatherer’s facilities (including
installation of new custody transfer meters and other equipment) used or useful in the performance
of this Agreement. Any property of Gatherer placed in or on any of such land shall remain the
property of Gatherer, subject to removal by Gatherer when necessary or desirable, in Gatherer’s
sole judgment, or upon the expiration or termination of this Agreement. Gatherer shall have a
reasonable time after the expiration or termination of this Agreement to remove its property.



     Gatherer and Producer shall cooperate to establish separate rights-of-way in Gatherer’s name
for its facilities.



     (b) Further Assurances. Producer shall execute and deliver such additional
instruments and other documents, and shall take such further actions as may be reasonably necessary
or appropriate, to effectuate, carry out, and comply with the terms of this Section 4.


5. Uneconomic Segments. At any time, Gatherer shall have the right to declare, acting
reasonably and in good faith, that the operation of all or part of any segment or segments of the
Gathering System has become uneconomic by giving Notice to Producer. Upon receipt of such Notice
by Producer, Gatherer and Producer shall negotiate in good faith to reach agreement on additional
gathering fees to be paid by Producer for Producer’s Gas gathered on such segment or segments that
would cause the operation of that segment or segments of the Gathering System to become economic to
Gatherer. If the Parties fail to reach agreement on such additional gathering fees within a
reasonable period of time, then Gatherer will have the right, upon no less than 90 Days advance
Notice to Producer, to discontinue gathering Producer’s Gas on such segment or segments of the
Gathering System. As to such discontinued services on those segment or segments of the Gathering
System, there shall be no further obligation to Producer under this Agreement, and that portion of
Producer’s Gas so affected shall be released. To the extent that any of Producer’s Gas is so
released, there shall be a corresponding proportional decrease in the Quarterly Minimum Volume
obligation for the remainder of the Term.




Gas Gathering & Processing Agreement