ex10_4.htm


    
      

    

    Exhibit
10.4

     

    The
Partnership has redacted certain confidential information in this agreement in
reliance upon its confidential treatment request that it has filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, In this agreement, we indicate each redaction by use of an
asterisk *.

    
 

    GAS
PURCHASE AND PROCESSING AGREEMENT

    


    BETWEEN

    


    NATURAL
GAS ASSOCIATES, A COLORADO PARTNERSHIP

    


    AND

    


    ACEITE
ENERGY CORPORATION

    


    WALKER
EXPLORATORY PROGRAM 1982-A LIMITED

    


    CREEK
CATTLE COMPANY

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      	 
      	
              INDEX

            	 
      
	 
      	 
      	 
      
	
              I.

            	
              DEFINITIONS

            	
              Page
      2

            
	
              II.

            	
              PRELIMINARY
      ACTS OF PARTIES

            	
              Page
      4

            
	
              III.

            	
              DEDICATION
      OF ACREAGE

            	
              Page
      4

            
	
              IV.

            	
              DEDICATION
      OF PLANT CAPACITY AND PIPELINE GATHERING SYSTEM .

            	
              Page
      5

            
	
              V.

            	
              RESERVATIONS
      OF SELLER

            	
              Page
      5

            
	
              VI.

            	
              QUANTITY

            	
              Page
      6

            
	
              VII.

            	
              POINT(S)
      OF DELIVERY, PRESSURE AND OWNERSHIP

            	
              Page
      7

            
	
              VIII.

            	
              GAS
      MEASUREMENT AND QUALITY

            	
              Page
      9

            
	
              IX.

            	
              ALLOCATION
      OF RESIDUE GAS AND PLANT PRODUCTS

            	
              Page
      11

            
	
              X.

            	
              PRICE

            	
              Page
      11

            
	
              XI.

            	
              BILLING

            	
              Page
      14

            
	
              XII.

            	
              REGULATORY
      BODIES

            	
              Page
      14

            
	
              XIII.

            	
              FORCE
      MAJEURE

            	
              Page
      15

            
	
              XIV.

            	
              WARRANTY
      OF TITLE TO GAS

            	
              Page
      15

            
	
              XV.

            	
              SELLER’S
      REPRESENTATIVE

            	
              Page
      16

            
	
              XVI.

            	
              NOTICES

            	
              Page
      17

            
	
              XVII.

            	
              EASEMENTS

            	
              Page
      17

            
	
              XVIII.

            	
              TERM

            	
              Page
      18

            
	
              XIX.

            	
              DEFAULTS

            	
              Page
      18

            
	
              XX.

            	
              UNECONOMIC
      WELL CONNECTIONS AND UNECONOMIC OPERATIONS OF PLANT

            	
              Page
      19

            
	
              XXI.

            	
              OPTIONS

            	
              Page
      21

            
	
              XXII.

            	
              SHRINKAGE

            	
              Page
      22

            
	
              XXIII.

            	
              SPECIAL
      PROVISIONS

            	
              Page
      22

            
	
              XXIV.

            	
              MISCELLANEOUS

            	
              Page
      23

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    GAS PURCHASE AND PROCESSING
AGREEMENT

    


    THIS
AGREEMENT, entered into this 14th day of October 1983, by and between Natural
Gas Associates, a Colorado partnership, with offices at 1200 Trinity Place,
Denver, Colorado 80202, hereinafter referred to as "Buyer/Processor", and Aceite
Energy Corporation, a Colorado corpora­tion, with offices at 1900 Grant
Street, Suite 1050, Denver, Colorado 80203; Walker Exploratory Program 1982-A
Limited, a New York limited partnership, with offices at 52 Vanderbilt Avenue,
5th Floor, New York, New York 10017; and Creek Cattle Company, a Texas
corporation, whose address is P.O. Box 9354, Amarillo, Texas 79015, hereinafter
collective­ly referred to as "Seller".

    


    WITNESSETH
THAT:

    


    WHEREAS,
Buyer/Processor has constructed or proposes to construct or' cause to be
constructed and to operate and maintain a natural gas gathering system,
compression facilities and natural gas processing facilities, all such
facilities in the aggregate hereinafter referred to as the "Facilities", said
Facilities to be located in Weld County, Colorado, to enable Buyer/Processor to
purchase and accept delivery of Seller's natural gas (including natural gasoline
and other liquefiable hydrocarbons) hereinafter referred to as "Gas", produced
and saved from the leases committed and dedicated hereunder at the Point(s) of
Delivery defined herein; and,

    


    WHEREAS,
Seller owns and holds, or has an interest or interests in certain oil and gas
leases {the "Leases") located in Weld County, Colorado, which Leases are
described and listed in Exhibits "A" (Acreage Earned and Dedicated) and "A-l"
(Acreage to be Earned and Dedicated), respectively, attached hereto and
incorporated herein by reference; and

    


    WHEREAS,
Seller desires to sell to Buyer/Processor all of the Gas owned or controlled by
Seller produced and saved from the Leases dedicated hereunder, as well as to
contract with Buyer/Processor to process all of said volumes of Gas upon the
terms and for the consideration expressed herein; and,

    


    WHEREAS,
Buyer/Processor desires to purchase and gather all of the Gas owned or
controlled by Seller saved and produced from the Leases and process such Gas
utilizing the gas processing plant (the "Plant") to be constructed and operated
by Buyer/Processor for the consideration herein expressed; and,


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    WHEREAS,
Buyer/Processor has entered into certain third-party Residue Gas Sales and
Purchase Agreement(s), which Agreement(s) (is) (are) currently in full force and
effect, and pursuant to which Buyer/Proces­sor shall sell all of the Residue
Gas resulting from Seller's Gas production dedicated and purchased
hereunder.

    


    NOW
THEREFORE, in consideration of the premises, mutual covenants and other good and
valuable consideration expressed herein, the parties hereto agree as
follows:

    


    ARTICLE
I

    DEFINITIONS

    


    For the
purpose of this Agreement, unless the context of the instrument requires
otherwise, the following terms and expressions used herein shall be defined as
follows:

    


    
      	
              1.

            	
              "Accounting
      Period", except the initial "Accounting Period", shall mean a period of
      one calendar month, commencing at 8:00 a.m. local time on the first day of
      each month, and ending at 8:00 a.m. local time on the first day of the
      succeeding calendar month. The initial "Accounting Period" shall commence
      at 8:00 a.m. local time on the date of initial deliveries of Gas
      hereunder, continuing for a period of consecutive calendar days until 8:00
      a.m. local time on the first day of the succeeding calendar
      month.

            


    

    


    
      	
              2.

            	
              "BTU"
      shall mean British Thermal Unit.

            


    

    


    
      	
              3.

            	
              "Commence
      Operations", whether in reference to Seller's original well(s), or to
      Seller's additional tie-in well(s), shall include, but not be limited to,
      any of the following acts undertaken by Seller and Buyer/Processor:
      Negotiations for the purchase of rights-of-way or easements, surveying or
      staking the course of pipeline(s), ditching and excavation, and such other
      acts not listed above which demonstrate Buyer/Processor's bona fide effort
      to tie-in Seller's well(s).

            


    

    


    
      	
              4.

            	
              "Cubic
      Foot of Gas" shall mean the amount of Gas required to fill a cubic foot of
      space when the Gas is at a base pressure of 14.65 pounds Psia and at a
      base temperature of 60°F.

            


    

    


    
      	
              5.

            	
              "Day"
      shall mean the 24-hour period commencing at 8:00 a.m. Local Time on one
      calendar day and ending at 8:00 a.m. Local Time on the following calendar
      date.

            


    


    
      
         


      

      
        - 2
-

        
          

        

      

      
         


      

    


    
      	
              6.

            	
              "Point(s)
      of Delivery " shall mean the point(s) at which Seller delivers Gas to
      Buyer/Processor at the well-site or other mutually agreeable points on the
      Buyer/Processor's Gathering System,

            


    

    


    
      	
              7.

            	
              "Gas"
      shall mean the effluent vapor stream including all of the constituents
      thereof, entrained liquids as produced from each lease or well, whether a
      gas well or an oil well dedicated hereunder and delivered by Seller to
      Buyer/Processor at the Point(s) of Delivery specified
    herein.

            


    

    


    
      	
              8.

            	
              "Mcf"
      shall mean one thousand (1,000) cubic
feet.

            


    

    


    
      	
              9.

            	
              "Month"
      shall mean the period beginning at 8:00 a.m. local time on the first day
      of a calendar month and ending at 8:00 a.m. local time on the first day of
      the next succeeding calendar month.

            


    

    


    
      	
              10.

            	
              "Psia"
      shall mean pounds per square inch
absolute.

            


    

    


    
      	
              11.

            	
              "Psig"
      shall mean pounds per square inch
gauge.

            


    

    


    
      	
              12.

            	
              "Seller's
      Gas Reserves" shall mean the total quantity of Gas attributable to
      Seller's present or future interest in, and/or which Seller has or may
      earn the right to market from the Leases described in Exhibits "A" and
      "A-l" attached hereto, as they now exist or may be hereafter
      amended.

            


    

    


    
      	
              13.

            	
              "Plant
      Products" means all liquefiable hydrocarbons extracted and saved at the
      Plant from Gas delivered by Seller to Buyer/Processor. These liquefiables
      shall include, but not be limited to, ethane, propane, butane, and natural
      gasoline, individually or as a mixture, as determined by the latest GPA
      Publication 2145.

            


    

    


    
      	
              14.

            	
              "Plant"
      shall mean Buyer/Processor's gas processing plant located in SE/4 of Sec.
      35, T4N, R66W of 6th PM, Weld County, Colorado, more particularly
      described in Exhibit "B" attached
hereto.

            


    

    


    
      	
              15.

            	
              "Residue
      Gas" shall mean that portion of the Gas remaining after the extraction
      therefrom of Plant Products, Plant fuel require­ments, and Plant
      losses or uses.

            


    

    


    
      	
              16.

            	
              "Buyer/Processor's
      Gathering System" shall mean the pipelines (including field compression)
      and appurtenances constructed by Buyer/Processor for the purpose of
      accepting delivery and transmitting Seller's Gas from the Point(s) of
      Delivery to Buyer/Processor's
Plant.

            


    


    
      
         


      

      
        - 3
-

        
          

        

      

      
         


      

    


    
      	
              17.

            	
              "Shrinkage"
      shall mean that reduction in total volumes of the Gas which results from
      the extraction of Plant Products, but exclusive of fuel
    gas.

            


    

    


    
      	
              18.

            	
              "System"
      shall mean in the aggregate that portion of Buyer/Processor's Gathering
      System constructed by Buyer/Processor for the benefit of Seller to connect
      Seller's wells to Buyer/Processor's Gathering System, together with that
      portion of the Plant capacity dedicated to Seller, as the same may be
      extended and/or expanded from time to
time.

            


    

    


    ARTICLE
II

    PRELIMINARY ACTS OF
PARTIES

    


    Seller
represents and warrants to Buyer/Processor, its successors and assigns, that
Seller owns or may earn an interest in, or has or may earn the right to market
Seller's portion of the Gas underlying the Leases described in Exhibits "A" and
"A-l" attached hereto and that Seller intends to construct, or cause to be
constructed, the facilities neces­sary, if any, to enable Seller to sell and
deliver to Buyer/Processor at the Point(s) of Delivery, as hereinafter set
forth, all Gas attributable to such interest, all in accordance with the
provisions of this Agreement.

    


    ARTICLE
III

    DEDICATION OF
ACREAGE

    


    
      	
              1.

            	
              Subject
      to the terms and conditions contained herein, Seller hereby commits and
      dedicates to the performance of this Agreement all of Seller's Gas
      Reserves from the Leases described in Exhibit "A" (as it now exists, or
      may be amended hereafter), and all of Seller's Gas Reserves attributable
      to the Leases or portions thereof described in Exhibit A-l (as it now
      exists or may be amended here­after) and earned by Seller, and to
      insure the faithful performance of the provisions of this Agreement,
      covenants to sell and deliver to Buyer/Processor at the Point(s) of
      Delivery all of Seller's Gas Reserves without other disposition except as
      herein otherwise provided.

            


    

    


    
      	
              2.

            	
              Seller
      shall operate the Leases dedicated hereunder free of any control by
      Buyer/Processor and shall not be required to produce any well or wells in
      any manner which in its sole judgment and discretion would not constitute
      good operating practice, including without limitation the right to make
      farmouts of any dedicated lease, subject to this Agreement, nor shall
      Seller be obligated to drill additional wells or to deepen, repair or
      rework any existing wells, to abandon any well and surrender any lease
      dedicated hereunder when Seller deems the same no longer capable of
      producing Gas in commercial quantities under normal methods of operation
      when in its sole judgment it would not be prudent or profitable to do
      so.

            


    


    
      
         


      

      
        - 4
-

        
          

        

      

      
         


      

    


    ARTICLE
IV

    DEDICATION OF PLANT CAPACITY
AND PIPELINE GATHERING SYSTEM

    


    
      	
              1.

            	
              In
      consideration of the sale of Gas by Seller to Buyer/Processor hereunder
      and based upon Buyer/Processor's Plant capacity of [*] MCF per day,
      buyer/Processor agrees to dedicate to Seller [*] MCF per day of such Plant
      capacity.

            


    

    


    
      	
              2.

            	
              In
      addition, Buyer/Processor agrees to construct and install, or have
      constructed and installed, for the benefit of Seller seven (7) miles of
      pipeline gathering system, specifically to connect the initial wells of
      Seller drilled and produced on Seller's acreage dedicated
      hereunder.

            


    

    


    
      	
              3.

            	
              The
      cost of construction of the System, as the same may be expanded and/or
      extended from time to time, plus interest on said capital investment at
      the rate per annum of [*] percent [*] over the prime rate charged from
      time to time by Continental Illinois National Bank and Trust Company of
      Chicago and paid by Buyer/Processor on any borrowed funds which comprise
      all or a portion of said capital investment incurred by Buyer/Processor,
      shall be utilized in determining payout, as defined herein, for the
      appropriate calculation and distribution of revenues to Seller as provided
      hereunder.

            


    

    


    ARTICLE
V

    RESERVATIONS OF
SELLER

    


    
      	
              1.

            	
              Seller,
      as a reasonable and prudent operator, hereby expressly reserves the
      following rights with respect to Seller's Gas Reserves and the Leases
      subject hereto:

            


    

    


    
      	
               
      

            	
              A.

            	
              The
      right to use the Gas produced from the Leases prior to delivery to
      Buyer/Processor for the following
purposes:

            


    

    


    
      	
               
      

            	
              1)

            	
              For
      fuel in the development and operation of the well from which the Gas was
      produced.

            


    

    


    
      	
               
      

            	
              2)

            	
              For
      delivery to the lessors of the Leases of the Gas if such lessors are
      entitled to use or take such Gas in kind under the terms of the
      Leases;

            


    


    
      
         


      

      
        - 5
-

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              3)

            	
              For
      fuel in the operation of the facilities which Seller may install in order
      to deliver Gas hereunder in accordance with the terms
    thereof.

            


    

    


    
      	
               
      

            	
              B.

            	
              The
      right to pool or unitize the Leases (or any portion thereof) with other
      lands or Leases so long as such action does not reduce Seller's Gas
      Reserves. In the event of any such pooling or unitization, the Agreement
      will cover Seller's Interest in the pool or unit and the Gas attributable
      thereto to the extent that such interest is derived from Seller's Gas
      Reserves.

            


    

    


    
      	
              2.

            	
              Seller
      shall provide to Buyer/Processor all necessary information whereby
      Buyer/Processor can make the proper allocation herein called for or
      required by Buyer/Processor's normal and customary accounting practices or
      required by Buyer/Processor's normal and customary contract administration
      practices, when different vintages of Gas are being delivered through a
      single Point of Delivery.

            


    

    


    ARTICLE
VI

    QUANTITY

    


    
      	
              1.

            	
              Commencing
      on the date Buyer/Processor first takes delivery of Gas hereunder and
      continuing thereafter for the term hereof, Buyer/Processor agrees to
      receive and purchase and Seller agrees to deliver and sell to
      Buyer/Processor from Seller's Gas Reserves, subject to the limitations and
      conditions herein elsewhere provid­ed, during each Accounting Period,
      all of the Gas available from Seller's Gas
  Reserves.

            


    

    


    
      	
              2.

            	
              Buyer/Processor
      shall receive and purchase Seller's Gas subject to the following
      limitations;

            


    

    


    
      	
               
      

            	
              A.

            	
              Buyer/
      Process or shall be required to Receive and purchase Seller's Gas up to
      [*] MCF per day.

            


    

    


    
      	
               
      

            	
              B.

            	
              Buyer/Processor
      shall receive and purchase Seller's Gas over and above the dedicated
      capacity on a capacity available
basis.

            


    

    


    
      	
               
      

            	
              C.

            	
              All
      other quantity limitations shall be in accordance with the terms and
      provisions of the Residue Gas Sales and Purchase Agreement(s) entered into
      by and between Buyer/Processor and Western Slope Gas Company dated
      December 17, 1982, including any payments required to be made to
      Buyer/Processor thereunder in the event the purchaser fails to take the
      required minimum volumes of Gas, which payments shall be passed through
      and distributed proportionately to Seller by Buyer/Processor in accordance
      with the pricing provisions contained in Article X
  hereof.

            


    


    
      
         


      

      
        - 6
-

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              D.

            	
              During
      periods that Buyer/Processor is unable to receive the total volumes of Gas
      delivered to Buyer/Processor from all of Seller's wells and Leases
      dedicated hereunder, Buyer/Processor shall receive and purchase only that
      portion of such Gas from the wells and Leases of Seller covered hereby
      which is ratable on a volumetric basis with the total volumes historically
      delivered to Buyer/Processor from all of Seller's wells and Leases
      dedicated hereunder. Buyer/Processor shall reduce or eliminate Gas
      deliveries from those wells and Leases of Seller from which Gas is being
      received on a capacity available basis prior to ratably reducing
      deliveries from Seller's producing wells whose volumes were originally
      covered by the Plant capacity dedicated to Seller
    hereunder.

            


    

    


    
      	
               
      

            	
              E.

            	
              Seller
      acknowledges and understands that Buyer/Processor will receive and
      purchase the Gas gathered from Seller's wells and Leases dedicated
      hereunder utilizing the Facilities which also receive, transmit and
      process Gas purchased by Buyer/Processor from other wells and leases
      dedicated to Buyer/Processor by other
Sellers.

            


    

    


    
      	
               
      

            	
              F.

            	
              Seller
      acknowledges and understands that Buyer/Processor reserves the right to
      receive and purchase such third-party Gas over and above the dedicated
      capacity of the Plant on a capacity available basis. Plant capacity
      priority shall be given to Seller's Gas up to the limit defined in Article
      IV.1 and Article VI.2.A.

            


    

    


    ARTICLE
VII

    POINT(S) OF DELIVERY,
PRESSURE AND OWNERSHIP

    


    
      	
              1.

            	
              The
      Point{s) of Delivery of all Gas delivered hereunder shall be at the inlet
      of Buyer/Processor's metering facilities located at Seller's lease
      separation facilities or at such other Point(s) of Delivery as may be
      mutally agreed upon in writing by the parties hereto from time to time,
      and title to said Gas (including such hydrocarbons from the Gas that have
      not been or cannot be recovered through the use of conventional mechanical
      wellhead gas-oil separa­tors) shall pass from Seller to
      Buyer/Processor at said Point(s) of
Delivery.

            


    


    
      
         


      

      
        - 7
-

        
          

        

      

      
         


      

    


    
      	
              2.

            	
              Seller,
      at its own expense, shall equip, maintain and operate all lease facilities
      to deliver Seller's Gas to Buyer/Processor at the Point(s) of Delivery,
      including, but not limited to, Installation and maintenance of separation
      equipment.

            


    

    


    
      	
              3.

            	
              Buyer/Processor
      shall construct, maintain, own and operate all necessary facilities to
      accept Seller's Gas from Seller at the Point(s) of
    Delivery.

            


    

    


    
      	
              4.

            	
              Seller
      will deliver Gas at the required pressure at the Point(s) of Delivery
      sufficient to enter Buyer/Processor's Gathering System at a maximum
      working pressure of [*] pounds Psig. However, in the event seller
      determines that such working pressure excessively limits the production of
      Seller's wells, Seller shall provide written notice thereof to
      Buyer/Processor, Upon receipt of such notice, Buyer/Processor, as soon a
      practica­ble, shall present to Seller a written proposal pursuant to
      which Buyer/Processor shall construct, own and operate such field
      com­pression facilities as may be necessary to reduce such pressure to
      a mutually acceptable level and shall disclose the charges to be assessed
      Seller therefore together with a schedule of payment. Once such proposal
      has been accepted by Seller in writing, Buy­er/Processor shall utilize
      its best efforts to construct or cause to be constructed and placed in
      operation the required field compression facilities within ninety (90)
      days of receipt of such written acceptance. In the event Seller rejects
      the proposal of Buyer/Processor, Seller, at its option and sole expense,
      may construct, own and operate such field compression facilities as Seller
      deems necessary to reduce wellhead pressure to an acceptable level subject
      to receipt of written approval of Buyer/Processor with respect to the
      location and design of such field compression facilities and the manner of
      operation thereof, which approval shall not be unreasonably
      withheld.

            


    

    


    
      	
              5.

            	
              As
      between the parties hereto, Seller shall be in possession and control of
      the Gas deliverable hereunder and responsible for any injury or damage
      caused thereby until the same shall have been delivered to
      Buyer/Processor, after which delivery Buyer/Processor shall be deemed to
      be in exclusive possession and control thereof and responsible for any
      injury or damage caused
thereby.

            


    


    
      
         


      

      
        - 8
-

        
          

        

      

      
         


      

    


    ARTICLE
VIII

    GAS MEASUREMENT AND
QUALITY

    


    
      	
              1.

            	
              Buyer/Processor
      shall furnish and install a suitable orifice meter at the Point(s) of
      Delivery of the Gas produced and saved from the Leases described herein.
      Each meter installed by Buyer/Processor shall be a meter acceptable in the
      industry and each meter shall be installed and operated in accordance with
      the physical requirements of American Gas Association Gas Measurement
      Committee Report No. 3, dated April, 1955, of the Natural Gas Department
      of the American Gas Association as amended from time to time, or by any
      other method commonly used in the industry and mutually acceptable to the
      parties. Any meter installed hereunder shall be open to inspection by
      Seller at all reasonable times. The charts and records pertain­ing to
      measurement hereunder shall be kept on file by Buyer/Proces­sor for a
      period of two (2) years for the mutual use of the par­ties. In the
      event any question arises as to the accuracy of the measurement, the meter
      or meters shall be tested upon the demand of either party. The expense of
      any such special test shall be borne by the party demanding same if the
      meter registration is found to be correct, and by Buyer/Processor if found
      to be incorrect.

            


    

    


    At least
semi-annually Buyer/Processor shall calibrate all meters installed hereunder and
make adjustments as necessary. Should Seller so desire, Buyer/Processor shall
give notice to Seller of the time of such calibrations sufficiently in advance
of holding same in order that Seller may have its representative present. With
respect to any test made hereunder, a registration within two percent (2%) of
correct shall be considered correct. However, the meter or meters, when found to
be incorrect, shall be adjusted to one hundred percent (100%) accuracy as soon
as possible. Settle­ment for any period during which the meter registration
deviates by more than two percent (2%) of correct shall be corrected at the rate
of inaccuracy for any period of inaccuracy which is definitely known or agreed
upon; but in case the period is not definitely known or agreed upon, then either
for a period of fifteen (15) days prior to the date of said test, or for a
period calculated from the beginning of the Accounting Period in which the test
was conducted, whichever is longer. The rate of the inaccuracy shall be
estimated and agreed upon by the parties hereto on the basis of the best
available data, using the first of the following methods which is
feasible:

    


    
      	
               
      

            	
              A.

            	
              By
      calibration, test, or mathematical
calculation.

            


    

    


    
      	
               
      

            	
              B.

            	
              By
      estimation based on comparison of the quantity of deliveries with
      deliveries during preceding periods under similar conditions when the
      meter was registering
accurately.

            


    


    
      
         


      

      
        - 9
-

        
          

        

      

      
         


      

    


    All
fundamental constants, observations, records and procedures involved in the
determination and/or verification of the quantity and other characteristics of
Gas measured hereunder, unless other­wise specified herein, shall be in
accordance with the standards prescribed in American Gas Association Gas
Measurement Committee Report No. 3, dated April, 1955, of the Natural Gas
Department of the American Gas Association, as amended from time to time, or by
any other method commonly used in the industry and mutually accept­able to
the parties. The average atmospheric pressure shall be assumed to be 12.3 pounds
Psia. The temperature of Gas flowing through each meter shall be determined by a
recording thermometer, installed by Buyer/Processor at its sole cost and expense
to properly record the temperature of the flowing Gas and the arith­metical
average of the temperature recorded while the Gas is flowing during each meter
chart interval shall be used in correct­ing volumes delivered hereunder to a
temperature base of sixty degrees Fahrenheit (60F) and to a pressure base of
14.65 pounds Psia.

    


    
      	
              2.

            	
              Seller
      agrees that all Gas delivered to Buyer/Processor hereunder
      shall:

            


    

    


    
      	
               
      

            	
              A.

            	
              Contain
      not more than one grain of hydrogen sulfide per one hundred (100} cubic
      feet of Gas, or more than five (5) grains of total sulfur per one hundred
      (100) cubic feet of Gas;

            


    

    


    
      	
               
      

            	
              B.

            	
              Not
      have a maximum temperature greater than one hundred twenty degrees
      Fahrenheit (120°F), or a minimum temperature less than forty degrees
      Fahrenheit (40F); and

            


    

    


    
      	
               
      

            	
              C.

            	
              Be
      commercially free of all objectionable dust or other solid or liquid or
      gaseous matters which might interfere with its merchantability or cause
      injury to or interference with proper operations of Buyer/Processor's
      Facilities through which the Gas flows;
and

            


    

    


    
      	
               
      

            	
              D.

            	
              Shall
      not deviate significantly from the Gas Analysis set forth in Exhibit C
      attached hereto and incorporated herein by reference. In the event
      Seller's Gas contains levels of C02 in excess of that set forth in Exhibit
      C, Buyer/Processor, before rejecting acceptance thereof, first agrees to
      work with Seller on a best efforts basis to alleviate any adverse
      consequences which may be attributable
thereto.

            


    

    


    Buyer/Processor
may test the Gas for adherence to the specifica­tions above set forth, such
testing to be in accordance with generally accepted industry standards and
procedures. If the Gas so delivered by Seller does not meet the specifications
set forth in Exhibit C above referenced, with the exception of C02 content above
provided for, Buyer/Processor, at its option, may refuse to accept delivery of
said Gas into its Facilities.


    
      
         


      

      
        - 10
-

        
          

        

      

      
         


      

    


    ARTICLE
IX

    ALLOCATION OF RESIDUE GAS
AND PLANT PRODUCTS

    


    
      	
              1.

            	
              For
      purposes of determining Plant Product Revenues attributable to Seller's
      Gas, Buyer/Processor shall multiply the volume in MCF's of Gas
      attributable to each of Seller's wells by the GPM (Gallons Per MCF) of
      each Plant Product contained in the well stream. Said GPM content is shown
      on Exhibit C on an estimated basis only and shall be determined by
      chromatagraph analysis taken on spot Gas samples from each of Seller's
      wells and adjusted on an annual basis. The calculated value will be the
      Total Theoretical Plant Product Content of the Seller's Gas. Said Total
      Theoretical Plant Product Content shall be divided by the Total
      Theoretical Plant Product Content of all Gas received and purchased by
      Buyer/Processor to determine the percentage of Total Plant Products
      attributable to each of Seller's wells. Division of revenues from Total
      Plant Products shall be made per the pricing provisions contained
      herein.

            


    

    


    
      	
              2.

            	
              For
      the purpose of determining Residue Gas Revenues attributable to Seller's
      Gas, Buyer/Processor shall divide the volume in MCF's of Gas attributable
      to each of Seller's wells by the total volume in MCF's of all Gas received
      and purchased by Buyer/Processor. This fraction shall be multiplied by the
      total Residue Gas Volume to determine the Residue Gas Volume attributable
      to each of Seller's wells. Division of Residue Gas Revenues between
      Buyer/Processor and Seller shall be determined pursuant to the pricing
      provisions contained herein.

            


    

    


    
      	
              3.

            	
              Buyer/Processor
      will market one hundred percent (100%) of the Plant Products upon terms
      which, in Buyer/Processor's sole judgment, are the best terms then
      available. Buyer/Processor will furnish Seller on a monthly basis with
      reports containing volumes sold by product and the price received
      therefore. Seller shall have the right at reasonable times during normal
      business hours to review the books and records of Buyer/Processor
      pertaining to the sale of Plant Products, Residue Gas and revenues
      received therefrom.

            


    

    


    ARTICLE
X

    PRICE

    


    
      	
              1.

            	
              Seller
      shall receive [*] percent [*] of the Residue Gas Revenues attributable to
      each of Seller's wells until payout of Buyer/Processor's investment in the
      System relating to the gather­ing and processing of Seller's Gas.
      After payout, Seller shall receive [*] percent [*] of the Residue Gas
      Revenues attributable to each of Seller's wells. Total Residue Gas Revenue
      attributable to each of Seller's wells shall be calculated by multiplying
      the Residue Gas Volume attributable to each of Seller's wells by the then
      effective price per MCF being received by Buy­er/Processor. All
      pricing terms and conditions shall be determined pursuant to the terms and
      provisions contained 1n the Residue Gas and Sales and Purchase Agreements)
      between Buyer/Processor and Western Slope Gas Company, dated December 17,
      1982.

            


    


    
      
         


      

      
        - 11
-

        
          

        

      

      
         


      

    


    
      	
              2.

            	
              For
      Plant Products produced and saved at the Plant, Seller shall receive a
      percentage of the value thereof calculated as
  follows:

            


    

    


    (a)  In
the event the GPM of Plant Products content of Seller's Gas is less than that
estimated on Exhibit C, but is equal to or exceeds 5.5 GPM, Seller shall receive
a value equal to [*] percent [*] of the Total plant Product Revenue attributable
to each of seller's wells until payout of Buyer/Processor's investment in the
System. After payout, Seller shall receive [*] percent [*] of the Total Plant
Product Revenue attributable to each of Seller's wells.

    


    (b)  In
the event the GPM content of Seller's Gas is less than 5.5 GPM, Seller shall
receive a value equal [*] percent [*] of the Total Plant Product Revenue above
described before payout, and [*] percent [*] after payout.

    


    As used
above, Total Plant Product Revenue shall be the Plant Product Sales Revenue
received by Buyer/Processor. Total Plant Product Revenue attributable to each of
Seller's wells shall be calculated by multiplying the percentage of Total Plant
Product attributable to each of Seller's wells by the Total Plant Product
Revenue.

    


    
      	
              3.

            	
              System
      payout shall be that point in time when Buyer/Processor's net operating
      income from Seller's Gas equals Buyer/Processor's investment, plus
      interest, attributable to the construction of Seller's System. Net
      operating income will be comprised of Buy-er/Processor's Residue Gas and
      Plant Product Revenues attributable to Seller's Gas, less Plant Operating
      Costs attributable to Sell-er's Gas. Plant Operating Costs attributable to
      Seller's Gas for the purpose of determining payout, shall be shared
      proportionately by Seller by multiplying the total Plant Operating Costs
      by the ratio of Seller's Gas delivered thereto to the total volumes of Gas
      received and purchased by Buyer/Processor at the
  Plant.

            


    


    
      
         


      

      
        - 12
-

        
          

        

      

      
         


      

    


    
      	
              4.

            	
              Buyer/Processor's
      investment attributable to Seller's System shall be determined pursuant to
      the capital account of Seller based upon the components of Seller's System
      and Buyer/Processor's investment, plus interest, attributable thereto.
      Seller shall receive a quarterly statement of the capital account
      identifying the capital costs charged to the account and the revenues
      credited thereto, as the same may be amended from time to time to reflect
      costs of construction of Plant expansion and/or extensions of
      Buyer/Proces­sor's Gathering System to connect additional wells of
      Seller and/or accept additional volumes of Gas from
  Seller.

            


    

    


    
      	
              5.

            	
              Seller
      agrees that it will supply data and information at Buy­er/Processor's
      reasonable request, and otherwise cooperate with Buyer/Processor in any
      regulatory proceeding wherein the price or other provisions set forth
      herein may be the subject of
review.

            


    

    


    
      	
              6.

            	
              It
      shall be the sole obligation of Seller to prepare, file and diligently
      pursue any application required to be filed with appli­cable state and
      federal agencies pursuant to the Natural Gas Policy Act of 1978 or
      subsequent legislation or regulation thereunder for a determination of
      eligibility for maximum lawful price categories. Seller agrees to provide
      Buyer/Processor with copies of such filings within sixty (60) days of
      connection of Seller's wells covered
thereby.

            


    

    


    
      	
              7.

            	
              Should
      Buyer/Processor make payment to Seller based on the price for any category
      of Gas subject to any governmental agency or judicial review of such
      determination, and if it is subsequently determined that the Gas for which
      payment was made was not eligible for the price upon which payment was
      based, or if the price to be paid hereunder for such Gas is determined to
      be in excess of the maximum lawful price permitted by applicable NGPA
      price categories, or if for any reason Buyer/Processor is not permitted to
      receive or retain such prices in its resale rates, then the rate
      thereafter to be paid shall be accordingly reduced and Seller will refund
      to Buyer/Processor any previous excess payments together with interest at
      the rate prescribed in 18 C.F.R. Sec. 273.302 or subsequent
      regulation.

            


    

    


    
      	
              8.

            	
              Seller
      agrees to pay, or cause to be paid, the taxes lawfully levied on the Gas
      delivered hereunder prior to its delivery to Buyer/Processor, as well as
      its proportionate share of taxes, if any, levied upon the Plant Products
      to be marketed by Buyer/Pro­cessor
  hereunder.

            


    


    
      
         


      

      
        - 13
-

        
          

        

      

      
         


      

    


    ARTICLE
XI

    BILLING

    


    
      	
              1.

            	
              After
      delivery of Seller's Gas has commenced, Buyer/Processor shall mail payment
      together with a statement to Seller indicating the quantity of Gas
      delivered during the preceding calendar month; adjustments, if any, made
      by Buyer/Processor; and the amount due and paid for all such Gas, such
      payment and statement to be mailed either on or before the last day of
      each month, for Gas purchased the preceding calendar month, or ten (10)
      days after receipt by Buyer/Processor of payment from the purchaser of the
      Gas from Buy­er/Processor, whichever is later. It shall be the
      obligation of the Seller and Seller agrees to cause proper settlement and
      accoun­ting to be made to all owners of interest in the proceeds from
      the sale of Gas delivered to Buyer/Processor hereunder. Seller hereby
      indemnifies and holds Buyer/Processor harmless of and from any and all
      claims, demands, actions, causes of action, costs, damages and expenses
      related to, arising out of or in any way stemming from such obligation of
      Seller. Buyer/Processor, at its election, may deduct from its payment to
      Seller, sums, if any, due to Buyer/Processor under the terms of this
      Agreement.

            


    

    


    
      	
              2.

            	
              Each
      party hereto shall have, at its expense, the right at all times to examine
      the books and records of the other party, during normal working hours, to
      the extent necessary to verify the accura­cy of any statement, charge,
      computation, or demand made under or pursuant to the Agreement. Each party
      agrees to keep records and books of account in accordance with generally
      accepted accounting principles in the industry. Any statement shall be
      final as to both parties unless questioned within two (2) years after
      payment thereof has been made.

            


    

    


    ARTICLE
XII

    REGULATORY
BODIES

    


    
      	
              1.

            	
              This
      Agreement is subject to all present and future valid laws and lawful
      orders of all regulatory bodies now or hereafter having jurisdiction of
      the parties, or either of them; and should either of the parties, by force
      of such law or regulation imposed at any time during the term of this
      Agreement, be ordered or required to do any act inconsistent with the
      provisions of this Agreement, the Agreement shall continue nevertheless
      and shall be deemed modified to conform with the requirements of such law
      or regulation.

            


    


    
      
         


      

      
        - 14
-

        
          

        

      

      
         


      

    


    ARTICLE
XIII

    FORCE
MAJEURE

    


    
      	
              1.

            	
              Except
      for Buyer/Processor's obligations to make payment for Gas delivered
      hereunder, neither party hereto shall be liable for any failure to perform
      the terms of this Agreement when such failure is due to "force majeure" as
      hereinafter defined.

            


    

    


    The term
"force majeure" as employed in this Agreement shall mean acts of God, strikes,
lockouts or industrial disputes or disturbances, arrests and restraints from
rulers or people, interruptions by government or court orders, present and
future valid orders of any regulatory body having proper jurisdiction, acts of
the public enemy, warss riots, blockades, insurrections, inability to secure
materials, including inability to secure materials by reason of allocations
promulgated by authorized governmental agencies, epidemics, landslides,
lightning, earthquakes, fires, storms, floods, washouts, explosions, breakage or
accident to machinery or lines of pipe, freezing of wells or pipelines,
inability to obtain easements or rights-of-way, the making of repairs or
alterations to pipelines or plants, or any other cause whether of the kind
herein enumerated or otherwise, not reasonably within the control of the party
claiming "force majeure", the same shall, so far as possible, be remedied with
all reasonable dispatch. The settlement of strikes or lockouts or industrial
disputes or disturbances shall be entirely within the discretion of the party
having the difficulty, and the above requirement that any "force majeure" shall
be remedied with all reasonable dispatch, shall not require the settle­ment
of strikes, lockouts or industrial disputes or disturbances by acceding to the
demands of any opposing party therein when such course is inadvisable in the
discretion of the party having the difficulty.

    


    ARTICLE
XIV

    WARRANTY OF TITLE TO
GAS

    


    
      	
              1.

            	
              Seller
      hereby warrants title to the Gas sold and delivered hereun­der and the
      right of Seller to sell the same; and the Seller warrants that all such
      Gas is owned by Seller, or that Seller has the right to market said Gas
      free from all liens and adverse claims, including liens to secure payments
      of production taxes, severance taxes, and other taxes. Seller agrees to
      indemnify Buyer/Processor and save it harmless from all suits, actions,
      debts, accounts, damages, costs, losses and expenses arising from or out
      of adverse claims of any and all persons, firms, or corpo­rations to
      said Gas or to royalties, overriding royalties, taxes, license fees, or
      charges thereon, which are applicable before the title to the Gas passes
      to Buyer/Processor. Buyer/Processor, at any time thereafter, when it shall
      appear to Buyer/Process or by reason of receipt of written notice of claim
      or dispute that the ownership or title to all or part of the Leases, or
      the Gas produc­ed therefrom, may be in a party or parties other than
      Seller or upon learning of any other claims, liens, taxes, royalties,
      fees, expenses or other adverse claims, may retain as security for the
      performance of Seller's obligations with respect thereto, the entire
      purchase price of the Gas until Buyer/Processor has been satisfied as to
      the amount of such claim or ownership claimed, and thereafter up to the
      amount of such ownership interest or claim until it has been finally
      determined and satisfied or until Seller shall have furnished a bond to
      Buyer/Processor in an amount and with sureties satisfactory to
      Buyer/Processor, conditioned upon the protection of Buyer/Processor with
      respect to such ownership or
claim.

            


    


    
      
         


      

      
        - 15
-

        
          

        

      

      
         


      

    


    ARTICLE
XV

    SELLER'S
REPRESENTATIVE

    


    Seller
hereby appoints Aceite Energy Corporation , the Operator of the wells drilled or
to be drilled upon the Leases dedicated hereunder and in which Seller owns an
interest, as its Representative with respect to all matters under this
Agreement, including but not limited to the following:

    


    
      	
              1.

            	
              To
      give and receive all notices;

            


    

    


    
      	
              2.

            	
              To
      make and witness any tests to be made of the Gas and measuring equipment
      and adjustments to such equipment;

            


    

    


    
      	
              3.

            	
              To
      deliver the quantities of Gas deliverable
  hereunder;

            


    

    


    
      	
              4.

            	
              To
      receive payments for such Gas and Plant Products processed therefrom,
      allocating, prorating and distributing such payments among the various
      parties Seller;

            


    

    


    
      	
              5.

            	
              To
      obtain, execute and deliver to Buyer/Processor such division order title
      opinions and division orders as may be required by Buyer/Processor
      hereunder; and

            


    

    


    
      	
              6.

            	
              To
      comply with the requirements, rules and regulations of any duly
      constituted authority having
jurisdiction.

            


    


    
      
         


      

      
        - 16
-

        
          

        

      

      
         


      

    


    Buyer/Processor
may act, and shall be fully protected in acting, in reliance upon any and all
acts and things done and performed by or agreements made with respect to all
matters dealt with herein by said Representative on behalf of Seller as fully
and with the same effect as though Seller had done, performed, made or executed
the same, and Buyer/Process or shall not be required to see to the application
of any monies paid to said Representative.

    


    Seller
may change its Representative designated above, or designate a new
Representative from time to time by delivery of written notice of change and
designation of Representative to Buyer/Processor. The Representative so
designated shall have and may exercise all power and authority therein granted
with like effect as though named as such Representative herein in the first
instance.

    


    ARTICLE
XVI

    NOTICES

    


    Any
notice or notices, request, demands, statements or payments provided for 1n this
Agreement shall be in writing and deemed to be delivered to Seller when
addressed to Seller's Representative, and to Buyer/Processor when addressed to
Buyer/Processor and deposited in the United States Mail, first class, postage
prepaid at their respective addresses as set out below, or at such address as
either party may from time to time designate as the address for such purpose by
registered or certified Tetter addressed to the other party.

     

    
      	
              TO:

            	
              Seller's
      Representative

            


    

    Aceite
Energy Corporation

    1900
Grant Street

    Suite
1050

    Denver,
Colorado 80202

    Attn:
Dearal Beddo

    


    
      	
              TO:

            	
              BUYER/PROCESSOR

            


    

    Natural
Gas Associates

    1200
Trinity Place

    1801
Broadway - P.O. Box 5660

    Denver,
Colorado 80217

    Attn: J.
C. deGraffenried

    


    


    ARTICLE
XVII

    EASEMENTS

    


    
      	
              1.

            	
              To
      the extent that it may contractually or lawfully do so under its leasehold
      interest without impairing its own similar right, Seller hereby assigns
      and transfers to Buyer/Processor any easement across the Seller's
      Lease(s), and across any adjoining lands in which Seller may have an
      interest, for the purposes of installing, using, inspecting, repairing,
      operating, replacing, and/or removing Buyer/Processor's pipe, meters,
      lines, and other equipment used or useful in the performance of this
      Agreement. It is intended that any property of Buyer/Processor placed in
      or upon any of such land shall remain the personal property of
      Buyer/Processor, subject to removal by it upon the expiration or
      termination of this Agreement for any reason. Buyer/Processor shall have a
      reasonable time after the expiration or termination of this Agreement to
      remove same. Buyer/Processor shall indemnify and hold Seller harmless of
      and from any and all claims and damages for all injuries to persons,
      including death, or damage to property arising out of or incident to
      Buyer/Processor's use of the easement hereunder transferred, only in the
      event said claim or damage shall be the result of negligence legally
      imputable to Buyer/Processor; its employees, agents, and
      representatives.

            


    


    
      
         


      

      
        - 17
-

        
          

        

      

      
         


      

    


    ARTICLE
XVIII

    TERM

    


    
      	
              1.

            	
              This
      Agreement shall be effective from the date hereof and shall continue and
      remain in full force and effect for the economic life of the Facilities,
      unless earlier terminated by mutual Agreement between the parties hereto.
      Suspension of Plant operations as defined herein shall not constitute or
      provide a basis for termina­tion of this
  Agreement.

            


    

    


    ARTICLE
XIX

    DEFAULTS

    


    
      	
              1.

            	
              It
      is covenanted and agreed that if either party shall fail to perform any of
      the covenants or obligations imposed upon it under and by virtue of this
      Agreement, the other party may terminate this Agreement by proceeding as
      follows:

            


    

    


    
      	
               
      

            	
              A.

            	
              The
      party not in default shall cause a written notice to be served on the
      other party in default, stating specifically the cause for terminating
      this Agreement, and declaring it to be the intention of the party giving
      notice to terminate the same; thereupon, the party in default shall have
      thirty (30) days after the service of the aforesaid notice in which to
      remedy or remove the cause or causes stated in the notice for terminating
      the Agreement. If within said thirty (30) days the party in default does
      so remove and remedy said cause or causes, and fully indemnifies the party
      not in default for any and all consequences of such breach, then such
      notice shall be withdrawn and this entire Agreement shall continue in full
      force and effect.

            


    


    
      
         


      

      
        - 18
-

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              B.

            	
              In
      case the party in default does not remedy and remove the cause or causes,
      or does not indemnify the party giving the notice for any and all
      consequences of such breach, within said period of thirty (30) days, then
      this Agreement shall become null and void from and after the expiration of
      said period.

            


    

    


    
      	
               
      

            	
              C.

            	
              Any
      cancellation of this Agreement pursuant to the provisions of this Article
      shall be without prejudice to the right of Seller to collect any amounts
      then due it for Gas delivered and Plant Products processed therefrom to
      the time of cancellation, and without waiver of any remedy to which the
      party not in default may be entitled for violations of this
      Agreement.

            


    

    


    ARTICLE
XX

    UNECONOMIC WEIL CONNECTIONS
AND UNECONOMIC OPERATIONS OF PLANT

    


    
      	
              1.

            	
              The
      Buyer/Processor will either install, or cause to be installed a System to
      connect and receive Gas from Seller's wells, which, in Buyer/Processor's
      sols opinion, is economically feasible to gather. If in Buyer/Processor's
      sole opinion it is uneconomic to connect one of Seller's wells to
      Buyer/Processor's Gathering System, Buy­er/Processor shall be under no
      obligation to do so, or to accept any Gas produced from said well. If
      Buyer/Processor elects not to construct a System and connect a well,
      Buyer/Processor nevertheless may, upon Seller's request, accept Gas from
      any such well or lease if Seller shall acquire and assign without charge
      to Buyer/Pro­cessor, a measuring station site on Buyer/Processor's
      existing Gathering System at a mutually agreeable point, together with all
      necessary rights of ingress and egress thereto, and shall bear the cost of
      constructing, operating, and maintaining all facilities necessary to
      deliver the Gas from such well into Buyer/Processor's Gathering System at
      said mutually agreeable point. Should Seller elect not to deliver Gas from
      such well, Buyer/Processor shall release from this Agreement such well and
      the acreage attributable
thereto.

            


    


    
      
         


      

      
        - 19
-

        
          

        

      

      
         


      

    


    Buyer/Processor
will install or cause to be installed a System to receive Seller's Gas from
Seller's wells, which, in Buyer/Proces­sor's opinion are economically
feasible to gather. An economic well shall be defined as a well which will
produce a stabilized flow after six (6) months of [*] MCF per day of Gas per mile of
pipeline installed by Buyer/Processor to receive Seller's Gas. Should
Buyer/Processor connect Seller's well and said well produces a stabilized flow
after six (6) months of less than [*] MCF per day per mile of pipeline
installed by Buyer/Processor to receive Seller's Gas, Seller shall indemnify
Buyer/Processor for all costs of said connection, adjusted for actual length of
pipeline and proportional to the ratio of actual stabilized volume at the end of
six (6) months to [*] MCF per day. The
terms of said indemnification shall be negotiated between Buyer/Processor and
Seller,

    


    Should
Buyer/Processor and Seller determine prior to connection of Seller's well that
said well will not meet the criteria for an economic well connection,
Buyer/Processor shall install the neces­sary System required to connect
Seller's well to Buyer/Processor's Gathering System upon receiving a written
indemnification from Seller of Buyer/Processor's actual cost for said System
pursuant to the terms above.

    


    
      	
              2.

            	
              If,
      in the opinion of Buyer/Processor, the Plant is or becomes uneconomic to
      operate due to its volume, quality, plant product content, governmental
      regulation or any other cause, Buyer/Pro­cessor may either modify or
      suspend Plant operations, in which case Buyer/Processor shall not be
      obligated to take delivery of, or may cease processing the Gas from
      Seller's welIs, so long as such condition exists. For the purposes hereof,
      "uneconomic operation" shall be defined as circumstances under which
      Buyer/Processor's share of net operating revenues of the Plant is
      insufficient to offset actual Plant operating costs. Should said
      modification or suspension of operation result in Seller's wells being
      shut-in for a period in excess of ninety (90) consecutive days, Seller, at
      its option, may elect to terminate this Agreement. Upon receipt of such
      written notice of termination from Seller, both parties shall be released
      from any further duties and obligations hereunder except for payment for
      Gas purchased, sold, processed, and/or transported hereunder prior to the
      effective date of such
termination.

            


    


    
      
         


      

      
        - 20
-

        
          

        

      

      
         


      

    


    
      	
              3.

            	
              During
      periods of uneconomic operation of the Plant and/or suspen­sion of
      operation of portions thereof. Buyer/Processor, at the request of the
      Seller, shall place back in service and operate such suspended portions of
      the Plant as may be necessary to accept and process Seller's Gas. In
      consideration thereof, Seller agrees to reimburse Buyer/Processor, in the
      same proportion as the ratio of the Gas volumes supplied by Seller bear to
      the total Gas volumes supplied to the Plant by other third-party sellers,
      for any losses (costs of Plant operations in excess of revenues
      attributable to Plant operations after deducting payments to all
      contributing producers for Gas delivered to and processed by the Plant)
      incurred by Buyer/Processor during such continued uneconomic operations.
      Buyer/Processor may, at its option, elect to sell the Plant rather than
      operate the same under the terms of this paragraph. In such event, Seller
      shall be given notice thereof and first right of refusal to purchase its
      proportionate share of the Plant from Buy­er/Processor based upon
      Seller's then dedicated capacity thereof upon terms to be negotiated
      between the parties.

            


    

    


    ARTICLE
XXI

    OPTIONS

    


    
      	
              1.

            	
              Crude
      Oil Purchase Option: Seller agrees to grant to Associated Natural Gas,
      Inc., as an independent contractor, the first right of refusal to purchase
      all crude oil and/or condensate produced from wells drilled on the Leases
      dedicated hereunder and which Seller owns, has an interest in, or is
      authorized to market, such purchase to be at a price equal to the highest
      published posted price of a major oil company for the area in
      question.

            


    

    


    Seller
shall notify Associated Natural Gas, Inc. in writing when Seller has crude oil
and/or condensate available on a well by well basis. Upon receipt of such
notice, Associated Natural Gas, Inc. shall have fifteen (15) days within which
to exercise its option to purchase the crude oil and/or condensate. In the event
Associated Natural
Gas, Inc. fails to exercise such option within the fifteen (15) day period,
Seller may market its crude oil and/or condensate production to any other
purchaser.

    


    In the
event Associated Natural Gas, Inc. exercises its option to purchase the crude
oil and/or condensate offered by Seller, the parties agree to enter into a Crude
Oil Purchase Agreement to be provided by Associated Natural Gas, Inc. to
Seller.


    
      
         


      

      
        - 21
-

        
          

        

      

      
         


      

    


    ARTICLE
XXII

    SHRINKAGE

    


    Buyer/Processor
agrees to use ordinary care in transporting the Gas produced by Seller and
purchased and gathered by Buyer/Processor hereun­der to its point of
delivery at the Plant, and after processing such Gas, deliver the Gas to its
purchaser at the tailgate of said Plant. However, the parties understand and
agree that certain volumetric gains and losses in the Gas will occur and shall
be shared by and among Seller and other third-party sellers, whose Gas is also
being purchased by Buyer/Processor and transported to the Plant, in the
proportion that each party delivers Gas into Buyer/Processor's Gathering System
at their respective Point(s) of Delivery.

    


    ARTICLE
XXIII

    SPECIAL
PROVISIONS

    


    After
initial start-up of the Plant referenced herein, Buyer/Processor agrees to
construct or cause to be constructed such additions to Sell­er's System as
may be necessary to connect each of Seller's wells drilled thereafter, such
connection to be made and completed on a best efforts basis within [*] days of
receipt of written notice from Seller that Seller has completed logging said
wells. Seller agrees to have said wells operational and ready for production
within [*] days of Buyer/Processor's completion of connection thereof. In the
event Buyer/Processor is unable to connect said wells within the time period
referenced, Seller, at its option, pursuant to written notice to
Buyer/Processor, may request Buyer/Processor to release the acreage attributable
to said wells from this Agreement, in which event Buyer/Processor shall utilize
its best efforts to cause such acreage to be released from the Residue Gas Sales
and Purchase Agreement referenced herein. The acreage attributable to any of
Seller's wells to be relea­sed under this provision shall be determined in
accordance with the State of Colorado approved well spacing in effect at the
time of Sell­er's request for the particular area and production zone
completed.


    
      
         


      

      
        - 22
-

        
          

        

      

      
         


      

    


    ARTICLE
XXIV

    MISCELLANEOUS

    


    
      	
              1.

            	
              No
      waiver by either Seller or Buyer/Processor of any default of the other
      under this Agreement shall operate as a waiver of any future default,
      whether of like or different character or nature, nor shall any failure to
      exercise any right hereunder be considered as a waiver of such right in
      the future.

            


    

    


    
      	
              2.

            	
              The
      parties hereto assume full responsibility and liability for the
      maintenance and operation of their respective properties and agree to
      indemnify and save harmless the other party from all liability and expense
      on account of any damages, claims or actions arising from any act or
      accident in connection with the installation, presence, maintenance or
      operation of the property or equipment of the indemnifying party;
      provided, however, that neither party shall be indemnified against damages
      resulting from its own negligence.

            


    

    


    
      	
              3.

            	
              Respecting
      the rights of third parties
hereunder:

            


    

    


    
      	
               
      

            	
              A.

            	
              This
      Agreement shall be binding upon and inure to the benefit of the parties
      hereto, their successors, assigns, heirs, administrators and/or executors.
      Either party may assign his or its right, title, and interest in, to and
      under this Agreement, including, without limitation, any and all renewals,
      extensions, amendments, and/or supplements hereto; provided, however, that
      no such assignment shall in any way operate to enlarge, alter, or change
      any obligation of the other party or parties hereto. No assignment shall
      be effective or binding until a copy of same has been furnished to the
      other party,

            


    

    


    
      	
               
      

            	
              B.

            	
              Nothing
      in this Agreement, expressed or implied, confers any rights or remedies on
      any person or entity not a party hereto other than successors and assigns,
      or heirs, administrators or executors of the parties
    hereto.

            


    


    
      
         


      

      
        - 23
-

        
          

        

      

      
         


      

    


    
      	
              4.

            	
              Seller
      agrees that Buyer/Processor, its successors and assigns, shall have the
      right, but not the obligation, at any time to redeem for Seller, its
      successors and assigns, by payment of any taxes, deeds of trust, judgments
      or other liens on the Leases described in Exhibit "A" hereto, on Seller's
      Gas Reserves or the production therefrom, in the event of default of
      payment by Seller, and be subrogated to the rights of the holder or
      holders thereof. Seller further agrees that any such redemption and
      payment by Buyer/Pro­cessor for Seller's account shall be applied by
      way of a set-off against the purchase price which Buyer/Processor would
      otherwise pay to Seller under Article X of this Agreement, such set-off to
      continue until all payments by Buyer/Processor under this Agree­ment,
      plus interest, have been fully recouped by
  Buyer/Processor.

            


    

    


    
      	
              5.

            	
              Seller
      expressly does not by the terms of this Agreement, sell, transfer or
      assign unto Buyer/Processor any title or interest whatsoever in the Leases
      or any pipe, meters, lines or other equip­ment of any nature owned or
      used by Seller in the operation of its wells and the
    Leases.

            


    

    


    
      	
              6.

            	
              Any
      notice, request, demand, statement, or payment provided for in this
      Agreement, except as otherwise herein provided, shall be given in writing,
      delivered in person or sent by U. S. Mail, postage prepaid to the parties
      at the respective addresses herein refer­enced, or at such other
      addresses as may be hereafter furnished by one party to the other party in
      writing.

            


    

    


    
      	
              7.

            	
              It
      is agreed that this Agreement may be ratified and adopted by any owner of
      an interest in the Leases subject hereto, or any leases with which the
      Leases subject hereto may be pooled or unitized, by execution and delivery
      to Buyer/Processor of a separate instrument in writing, ratifying and
      adopting this Agreement insofar as said owner's interest in any such lands
      or leases is concerned, whereup­on such owner shall become a party
      Seller under this Agreement with like force and effect and to the same
      extent as though such owner had executed this Agreement at the time of its
      original execution and delivery; and all the terms and provisions of this
      Agreement shall thereupon become binding upon Buyer/Processor and any such
      interest owner.

            


    

    


    
      	
              8.

            	
              Each
      Seller executing or ratifying this Agreement makes and enters into this
      Agreement severally and not jointly with other sellers, and they are not
      acting as partners, joint venturers, or otherwise jointly in this
      transaction, and nothing herein contained or provided shall operate to
      create, or be construed as creating, any such relationship. It is
      essentially provided that there shall never be any joint liability against
      the parties designated herein as Seller and that no single party Seller
      shall be liable for the acts or omissions of any other single party
      Seller.

            


    


    
      
         


      

      
        - 24
-

        
          

        

      

      
         


      

    


    
      	
              9.

            	
              This
      Agreement constitutes the entire agreement and understanding between the
      parties hereto and supersedes and renders null and void and of no further
      force and effect any prior understandings, nego­tiations or agreements
      between the parties relating to the subject matter hereof. No provision of
      this Agreement may be changed, modified, waived or discharged orally, and
      no change, modification, waiver or amendment of any provision will be
      effective except by written instrument to be executed and approved by the
      parties hereto.

            


    

    


    
      	
              10.

            	
              This
      Agreement shall be construed and governed by the laws of the State of
      Colorado.

            


    


    
      
         


      

      
        - 25
-

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.

    


    BUYER/PROCESSOR
- NATURAL GAS ASSOCIATES,, A PARTNERSHIP BY: ASSOCIATED NATURAL GAS, INC.,
MANAGING PARTNER

    


    


    
      	
              BY:

            	/s/
      J.C. deGraffenried	 	 
      	 
      
	 
      	
              J.C.
      deGraffenried, President

            	 	 
      	 
      
	 
      	 
      	 	 
      	 
      
	
              ATTEST:

            	 	
              SELLER
      (Corporation):

            
	 
      	 
      	 	
              ACEITE
      ENERGY CORPORATION

            
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	 
      	 
      
	
              BY:

            	/s/
      Michael Beddo	 	
              BY:

            	/s/
      Dearal Beddo
	 
      	
              MICHAEL
      BEDDO, SECRETARY

            	 	 
      	
              DEARAL
      BEDDO, PRESIDENT

            
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	
              SELLER
      (Limited Partnership):

            
	 
      	 
      	 	
              WALKER
      EXPLORATORY PROGRAM 1982-A LIMITED

            
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	
              BY:

            	
              /s/
      George Lindahl

            
	 
      	 
      	 	 
      	
              Vice
      President, GENERAL PARTNER

            
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	 
      	
              George
      L. Lindahl, III

              Walker
      Energy Group

              V.P.
      Oil & Gas Operations

            
	 
      	 
      	 	 
      	 
      
	 
      	 
      	 	
              SELLER
      (Corporation)

            
	
              ATTEST:

            	 	
              CREEK
      CATTLE COMPANY

            
	 
      	 
      	 	 
      	 
      
	
              BY:

            	/s/
      Burk
      Whittenburg	 	
              BY:

            	
              /s/
      Bart E Lalkf

            
	 
      	
              ASSISTANT
      SECRETARY

            	 	 
      	
              PRESIDENT

            
	 
      	 
      	 	 
      	 
      


    

    


    
      	
              STATE
      OF COLORADO

            	
              )

            
	 
      	
              )
      SS.

            
	
              CITY
      AND COUNTY OF DENVER

            	
              )

            


    

    


    Before
me, Dorothy
Seele, a Notary Public in and for said County and State, on this 17th day of Nov., 1983,
personally appeared J.C. deGraffenried,
known to me to be the President of Associated Natural Gas, Inc., a Colorado
corporation, the Managing Partner of Natural Gas Associates, a Colorado
partnership, on behalf of said partnership and acknowledged to me that he
executed this Agreement for the uses and purposes therein set
forth.

    


    Given
under my hand and seal of office this 17th day of November, 1983

    


    
      	 
      	 
      	
              s/ Dorothy
      Seele

            
	 
      	 
      	
              NOTARY
      PUBLIC

            
	 
      	 
      	
              10501
      Kline Way

            
	
              MY
      COMMISSION EXPIRES:

            	 
      	
              Westminster,
      Co 80030

            
	 
      	 
      	 
      
	
              March
      21, 1987

            	 
      	 
      


    


    
      
         


      

      
        - 26
-

        
          

        

      

      
         


      

    

     

    
      	
              STATE
      OF COLORADO

            	
              )

            
	 
      	
              )
      SS.

            
	
              CITY
      AND COUNTY OF DENVER

            	
              )

            


    

    


    Before
me, Belinda
Shanbacher, a .Notary Public in and for said County and State, on this
14th day of
October, 1983,
personally appeared Dearal Beddo and
Michael Beddo,
known to me to be the President and Secretary, respectively, of Aceite Energy
Corporation, a Colorado corporation, on behalf of said corporation and
acknowledged to me that they executed this Agreement for the consider­ations
end purposes therein set forth.

    


    Given
under my hand and seal of office this 14th day of October, 1983

    


    
      	 
      	 
      	
              /s/ Belinda Shanbacher

            
	 
      	 
      	
              NOTARY
      PUBLIC

            
	 
      	 
      	 
      
	
              MY
      COMMISSION EXPIRES:

            	 
      	 
      
	 
      	 
      	 
      
	
              9-14-85

            	 
      	 
      


    

    


    


    
      	
              STATE
      OF NEW YORK

            	
              )

            
	 
      	
              )
      SS.

            
	
              CITY
      AND COUNTY OF (illegible)

            	
              )

            


    

    


    Before
me, Nancy
Divito, a Notary Public, in and for said County and State, on
this 7th day
of Nov. 1983, personally appeared George A. Undent,
known to me to be the general partner of Walker Exploratory Program 1982-A
Limited, a New York limited partnership, on behalf of said limited partnership,
and acknowledged to me that he executed the same as his free act and deed and
for consider­ations and purposes therein expressed, and as the act and deed
of said partnership and in the capacity therein stated.

    


    Given
under my hand and seal of office this 7th day of November,

    


    
      	 
      	 
      	
              /s/ Nancy Divito

            
	 
      	 
      	
              NOTARY
      PUBLIC

            
	 
      	 
      	
              Nancy
      Divito

            
	
              MY
      COMMISSION EXPIRES:

            	 
      	
              Notary
      Public, State of New York

            
	 
      	 
      	
              No.
      43-4729848

            
	 
      	 
      	
              (illegible)

            
	 
      	 
      	
              Commission
      Expires March 30, 198(illegible)

            


    

    


    


    
      	
              STATE
      OF TEXAS

            	
              )

            
	 
      	
              )
      SS.

            
	
              CITY
      AND COUNTY OF POTTER

            	
              )

            


    

    


    Before
me, Gilda J.
McFarland, a Notary Public in and for said County and State, on this
14th day of
November, 1983,
personally appeared Basil E. Walker, Jr.,
and Burt
Whittenburg known to me to be the
President and Secretary, respectively, of Creek Cattle Company, a Texas
corporation, on behalf of said corporation and acknowl­edged to me that they
executed this Agreement for the considerations and purposes therein set
forth.

    


    Given
under my hand and seal of office this 14th day of November

    


    
      	 
      	 
      	
              /s/
      Gilda J. McFarland

            
	 
      	 
      	
              NOTARY
      PUBLIC

            
	 
      	 
      	 
      
	
              MY
      COMMISSION EXPIRES:

            	 
      	 
      
	 
      	 
      	 
      
	
              June 1, 1985

            	 
      	 
      


    


    
      
         


      

      
        - 27
-

        
          

        

      

      
         


      

    


    LEASE
SCHEDULE

    EXHIBIT
“A" PAGE 1
STATE OF Colorado COUNTY OF
Weld

    


    
      	 
      	 	 
      	 	 
      	 	 
      	 	
              RECORDED

            
	
              LEASE
      NO.

            	 	
              LESSOR

            	 	
              LESSEE

            	 	
              DATE

            	 	
              DESCRIPTION

            	 	
              ACRES

            	 	
              BOOK

            	 	
              PAGE

            	 	
              REC

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              L.F.
      Ranch Co.

            	 	
              Mel
      C. Bedinger

            	 	
              7/02/64

            	 	
              T3N,
      R64W

              Section
      2: S1/2

              Section
      12: S1/2

              Section
      13: All

              Section
      24: S1/2, NW1/4

              Section
      25: All

            	 	
              320

              320

              640

              480

              640

            	 	
              518

            	 	 
      	 	
              1440221

            
	 
      	 	 
      	 	 
      	 	 
      	 	
              T3N,
      R63W

              Section
      6: 5E 1/4, E1/2 SW 1/4, SW 1/2 NE1/4 SE1/4 NW1/4

              Section
      30: W1/2

            	 	
              320

               

              320

            	 	 
      	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              Two
      E Ranch

            	 	
              Mel
      C. Bedinger

            	 	
              9/08/64

            	 	
              T3N,
      R64W

              Section
      4: All

              Section
      10: N1/2

              Section
      22: NW1/4 T4N, R64W

              Section
      33: All

              Section
      34: S1/2 (No "J" Sand) NW 1/4

            	 	
              320

              320

              280

               

              320

            	 	
              523

            	 	 
      	 	
              1444837

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              Alfred
      G. Heyde & Mary M. Heyder husband & wife

            	 	
              Caribou
      Energy Inc.

            	 	
              1/21/83

            	 	
              T3N,
      R64W

              Section
      26: NE1/4

            	 	
              160

            	 	
              988

            	 	 
      	 	
              1917128
      1560586

            
	 
      	 	
               
      

            	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              Two
      E Ranches, Inc.

            	 	
              T.S.
      Pace

            	 	
              2/16/70

            	 	
              T3N,
      R64W

              Section
      26: NW1/4

            	 	
              160

            	 	
              639

            	 	 
      	 	 
      
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              1511-A

            	 	
              Carolyn
      N. & Robert D. Koerner

            	 	
              Buddy
      Baker

            	 	
              12/03/79

            	 	
              T3N,
      R64W

              Section
      24: NE1/4

            	 	
              160

            	 	
              897

            	 	 
      	 	
              1819261

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              1511-B

            	 	
              Nancy
      S. & Theodore van Ravenswaay

               

            	 	
              Buddy
      Baker

               

            	 	
              2/12/80

            	 	
              T3N,
      R64W

              Section
      24: NE1/4

            	 	
              160

            	 	
              898

            	 	 
      	 	
              1819859

            


    


    
      
         


      

      
        - 28
-

        
          

        

      

      
         


      

    


    LEASE
SCHEDULE

    EXHIBIT
“A-1” (Leases to be earned) PAGE 1 STATE OF Colorado COUNTY OF
Weld

    


    
      	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	
              RECORDED

            
	
              LEASE
      NO.

            	 	
              LESSOR

            	 	
              LESSEE

            	 	
              DATE

            	 	
              DESCRIPTION

            	 	
              ACRES

            	 	
              BOOK

            	 	
              PAGE

            	 	
              REC
      #

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              L.F.
      Ranch Col.

            	 	
              Mel
      C. Bedinger

            	 	
              7/02/64

            	 	
              T3N,
      R63W

              Section  8 :  E1/2

              Section
      18 :  SW1/4, N1/2 SE1/4

            	 	
               

              320

              240

               

            	 	
              518

            	 	 
      	 	
              1440221

               

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              State
      of Colorado

            	 	
              Donald
      C- Slawson

            	 	
              3/1679

            	 	
              T3N,
      R63W

              Section
      18 :  S1/2 SE1/4

            	 	
               

              80

            	 	
              863

            	 	 
      	 	
              1784595

            
	 
      	 	
               
      

            	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              Two
      E Ranch

            	 	
              Mel
      C. Bedinger

            	 	
              9/08/64

            	 	
              T3N,
      R64W

              Section:
      11: N1/2, except for 40 acres in the NE1/4 NE 1/4

              Section
      19: SW1/2

              Section
      20: SW1/4, E1/2

            	 	
              280

               

              160

              480

            	 	
              523

            	 	 
      	 	
              1444837

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	 
      	 	
              L.F.
      Ranch CO.

            	 	
              Aceite
      Energy Corp

            	 	
              6/09/83

            	 	
              T3N,
      R64W

              Section
      11: 40 acres in the NE1/4 NE 1/4

            	 	
              40

            	 	
              Unrecorded
      at this
      time

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              61375

            	 	
              Champlin
      Petroleum Company

            	 	
              Amoco
      Production Company

            	 	
              3/08/77

            	 	
              T3N,
      R64W

              Section
      23: S1/2

            	 	
              320

            	 	
              794

            	 	 
      	 	
              1716303

            


    


    
      
         


      

      
        - 29
-

        
          

        

      

      
         


      

    


    RECORDED
EXEMPTION NO. ________

    


    



    
      
         


      

      
        - 30
-

        
          

        

      

      
         


      

    


    
    

    EXHIBIT "C"

    
INLET GAS ANALYSIS

KERSEY PLANT

     

     

    
      	   	 	 	
               

            	
              Mole
      %

            	 	
              GPM

            
	 	 	 	 	 	 	 
	
              Hydrogen
      Sulfide

            	 	
              (H2S)

            	 
      	
              0.00

            	 	
              —

            
	
              Nitrogen

            	 	
              [N2)

            	 
      	
              0.21

            	 	
              —

            
	
              Carbon
      Dioxide

            	 	
              (C02)

            	 
      	
              2.50

            	 	
              —

            
	
              Methane

            	 	
              (C1)

            	 
      	
              74.08

            	 	
              —

            
	
              Ethane

            	 	
              (C2)

            	 
      	
              14.07

            	 	
              3.739

            
	
              Propane

            	 	
              (C3)

            	 
      	
              5.74

            	 	
              1.570

            
	
              Iso-Butane

            	 	
              (iC4)

            	 
      	
              0.80

            	 	
              .261

            
	
              Normal-Butane

            	 	
              (nC4)

            	 
      	
              1.64

            	 	
              .513

            
	
              Iso-Pentane

            	 	
              (iC5)

            	 
      	
              0.38

            	 	
              .137

            
	
              Normal-Pentane

            	 	
              {nC5)

            	 
      	
              0.35

            	 	
              .126

            
	
              Hexanes
      plus

            	 	
              (C6+)

            	 
      	
              0.23

            	 	
              .098

            
	 	 	 	 	 	 	 
	 
      	 	
               

            	 
      	
              100.00

            	 	
              6.444

            


    

     

     

     - 31 -