**Exhibit 10.17**

**PURCHASEAND SALE AGREEMENT**

**byand between**

**PENNACOENERGY, INC. (“Seller”)**

**andPRB ENERGY, INC. (“Purchaser”)**

**As of May 1, 2006**

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**PURCHASE AND SALEAGREEMENT**

THISPURCHASE AND SALE AGREEMENT (this “**Agreement**”)****is made and entered into as of May 1,2006, by and between **Pennaco Energy, Inc.**,**a**Delaware corporation (“**Seller**”),****and **PRB Energy**,**Inc.**,****aColorado corporation (“**Purchaser**”****and, together with Seller, the “**Parties**”).

RECITALS:

A.            Seller owns and operates the wells,leases and other assets in the Powder River Basin of Wyoming defined in Section2.2 hereof.

B.            Seller desires to sell and Purchaserdesires to purchase all of Seller’s right, title and interest in and to theAssets, in accordance with and subject to the terms and conditions set forthherein.

INCONSIDERATION OF the above recitals, the benefits to be derived by each partyunder this Agreement and other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, Purchaser and Seller hereby agreeas follows:

ARTICLE IDEFINITIONS

Thefollowing terms, as used herein, have the following meanings:

“**Affiliate**”****means, with respect to any Person, any other Person directly orindirectly controlling, controlled by, or under common control with such otherPerson.

“**Governmental Authority**”****means the United States and any tribal,state, county, city or other political subdivision, agency, court orinstrumentality.

“**Knowledge**”****means with respect to a Person, the actual knowledge of that Personand, where such Person is a business entity, means the actual knowledge of eachof the supervisory personnel, officers, directors and managers of such entity,in all cases, without need for additional inquiry.

“**Legal Requirement**”****means applicable common law and anystatute, ordinance, code, law, rule, regulation, order, judgment, decree,requirement or procedure enacted, adopted, promulgated, applied or followed by,or any agreement entered into by, any Governmental Authority in force andeffect on the date hereof or on the Closing Date as defined in subsection 8.1below (including, without limitation, any Legal Requirement regarding building,zoning, subdivision, land use or other similar legal requirements).

“**Lien**”****means,with respect to any property or asset, any mortgage, lien, pledge, charge,security interest or encumbrance in respect of such property or asset. For the

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purposes of this Agreement, a Person shall be deemedto own subject to a Permitted Lien any property or asset which it has acquiredor holds subject to the interest of a vendor or lessor under any conditionalsale agreement, capital lease or other title retention agreement relating tosuch property or asset.

“**Material Adverse Effect**”****means a material adverse effect exceeding$50,000 in value on the condition (financial or otherwise), business, assets orresults of operations of the Assets (other than the Excluded Assets).

“**Ordinary Course of Business**”****means the ordinary course of the businessof Seller with respect to the Assets consistent with Seller’s past practice andcustom.

“**Permit**”****meanseach license, franchise, permit, certificate, approval or other similarauthorization affecting, or relating in any way to the Assets.

“**Permitted Liens and Encumbrances**”****shall mean any of the following:

(i)                                     anyLiens or other encumbrances described in Schedule 1(i);

(ii)                                  liensfor Taxes not yet due and payable or being contested in good faith;

(iii)                               inchoatemechanics, materialmen’s or similar liens arising in the Ordinary Course ofBusiness or being contested in good faith (and for which adequate accruals orreserves have been established by Seller, as applicable);

(iv)                              anycustomary zoning law or ordinance or any similar Legal Requirement;

(v)                                 anycustomary right reserved to any Governmental Authority or Entity to regulatethe affected property, and all applicable laws, rules and orders ofgovernmental authorities;

(vi)                              anyLien (other than Liens securing indebtedness or arising out of the obligationto pay money) which does not and shall not individually or in the aggregatewith one or more other Liens interfere with the right or ability to own, use,enjoy or operate the Assets as they are currently operated, or to convey thequality of title agreed to herein to the same (with respect to the Assets) ormaterially detract from their value;

(vii)                           preferentialrights to purchase and required third-party consents and similar agreementswith respect to which waivers or consents are obtained from the appropriateparties on or prior to the Closing Date or the appropriate time period forasserting the right has expired or has been waived on or prior to the ClosingDate without an exercise of the rights;

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(viii)                        any TitleDefects and Environmental Conditions that Purchaser shall have expressly waivedin writing or of which Purchaser shall not have given Seller timely writtennotice pursuant to Sections 3.3, 6.1 and 6.2 of this Agreement;

(ix)                                lessor’sroyalties, overriding royalties, reversionary interests and other agreements onany leasehold working interest and wells described in Exhibit A (the “**Wells**”),****ifthe net cumulative effect of the burdens does not operate to reduce Seller’sinterest in all oil and gas produced from the leasehold interests and wellsbelow the net revenue interest as set forth on Exhibit A, or if they do notincrease Purchaser’s percentage obligation to pay in excess of its workinginterest percentage;

(x)                                   allrights to consent by, required notices to, filings with or other actions bygovernmental entities in connection with the sale or conveyance of oil and gasleases or interests, which are customarily obtained after the sale orconveyance;

(xi)                                allunit agreements, communitization agreements, pooling agreements or orders, alloperating agreements, all other instruments, agreements and matters describedin the Exhibits, or made available to Purchaser by Seller in Seller’s files,whether of record or not;

“**Person**”****meansan individual, corporation, partnership, limited liability company,association, trust or other entity or organization, including a GovernmentalAuthority.

“**Reasonable Good-Faith Efforts**”****shall be deemed to require a Party toundertake reasonable efforts, but not extraordinary measures which includewithout limitation the initiation or prosecution of legal proceedings or thepayment of amounts in excess of normal and usual filing fees, and processingfees, if any.

ARTICLE IIPURCHASE AND SALE

2.1           **Purchaseand Sale**.****Subject tothe terms and conditions of this Agreement, at Closing as defined in subsection8.1 below, Seller agrees to sell, convey, transfer, assign and deliver, orcause to be sold, conveyed, transferred, assigned and delivered, free and clearof all Liens and Encumbrances created by, through or under Seller, other thanPermitted Liens and Encumbrances, to Purchaser and Purchaser agrees topurchase, acquire, accept and receive from Seller, effective as of 12:01 a.m.,Mountain time, June 30, 2006 (the “**EffectiveDate**”),****all of Seller’sright, title and interest in, to and under the Assets, whether real, personalor mixed, tangible or intangible, owned, leased, licensed, held or used in theoperation of the Assets by Seller, and all assets thereafter acquired by Sellerfor which a Purchase Price Adjustment, as defined in Section 3.2, has beenmade.

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2.2           **TheAssets.** As used herein, the term “**Assets**”shall include all of Seller’s right, title and interest in, to, under orderived from the following, including, without limitation:

(a)           the undivided working and otherinterests and net revenue interests in and to the leasehold estates created bythe oil and gas leases described in Exhibit B (the “**Leases**”), insofar as the Leases cover thelands (the “**Lands**”)****described in Exhibit B hereto;

(b)           the undivided interest in and to theoil and gas wells located on the Leases and Lands, or lands pooled or unitizedtherewith described in Exhibit A, all injection, pressure maintenance anddisposal wells on the Leases or Lands, and all flowlines and all personalproperty, inventory, facilities, equipment, improvements and fixtures now or asof the Effective Date located on, used or held for use or charged to theLeases, Land or Wells for the production, gathering, compression, treatment,transportation, processing, sale or disposal of hydrocarbons or water producedtherefrom or attributable thereto, and all other appurtenances thereuntobelonging;

(c)           all of Seller’s right, title andinterest in and to all oil, natural gas, natural gas liquids or condensateinventory produced from the Wells, the Land or attributable to the Leases, orlands pooled or unitized therewith from and after the Effective Date, including“line fill” and inventory below the pipeline connection in the storage tanks asof the Effective Date, or the proceeds thereof;

(d)           all of Seller’s right, title andinterest in and to all unitization, communitization, pooling and operatingagreements, and the units created thereby which relate to the Leases or Land,or interests therein, or which relate to any units or wells located on theLeases, including any and all units formed under orders, regulations, rules,and other official acts of the governmental authority having jurisdiction,together with any right, title and interest created thereby in the Leases andLand or lands pooled or unitized therewith;

(e)           all of Seller’s right, title andinterest in and to all gathering facilities and assets used or useful inconnection with the Leases, Land and Wells;

(f)            all of Seller’s right, title andinterest, to the extent applicable and transferable, in and to hydrocarbonsales, purchase, gathering, transportation and processing contracts, operatingagreements, partnership agreements, farm-out agreements and other contracts,agreements and instruments relating to the interests described in Sections2.2(a), (b), (c) and (d) (including without limitation the “**Material Agreements**”****as described on Exhibit C),excluding, however, any insurance contracts;

(g)           all of Seller’s surface rightsincident or appurtenant to the Leases or the Land, and all of Seller’s right,title and interest in and to all easements, rights-of-way,

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permits, licenses, servitudes or other similarinterests affecting the Wells, Leases or Land;

(h)           all of Seller’s right, title andinterest in and to claims and causes of action arising from or related to theWells, Leases or Land which Seller may now have or have in the future withrespect to Purchaser and its affiliates;

(i)            all other leasehold interests,overriding royalty interests, mineral interests and other interests, if any,owned by Seller in and to the Land, the Leases or the Wells, and in orattributable to production therefrom;

(j)            to the extent they arise or accrueon or after the Effective Date, all of Seller’s rights, claims, credits, causesof action or rights of set off against third Persons relating to the Assets,including without limitation unliquidated rights under manufacturers’ andvendors’ warranties relating to the Assets;

(k)           all prepaid expenses, including butnot limited to Property Taxes, leases and rentals attributable to or arising onor after the Effective Date; and

(l)            all deposits and amounts held insuspense, if any, relating to or associated with the Assets, including all ofSeller’s obligations and liabilities for the payment of interest, if any, onsaid amounts if properly accrued or reserved by Seller and the funds weretransferred to Purchaser; and

(m)          copies of the files, records, data andinformation relating to the items described in Sections 2.2(a) through (l)maintained by Seller (the “**Records**”),but excluding the following: (i) all of Seller’s internal appraisals andinternal interpretive data related to the Leases and Lands, (ii) allinformation and data under contractual or legal restrictions on assignment ordisclosure, (iii) all information subject to a privilege, including all ofSeller’s legal files, (iv) Seller’s corporate financial and general tax recordsthat do not relate to the Assets, (v) all accounting files that do not relateto the Assets; (vi) records and files relating to Seller’s employees; (vii)Seller’s computer programs and software; and (viii) all other files and recordswhich Seller is prohibited from assigning, conveying, or delivering toPurchaser due to third party restrictions, non-waived confidentialityprovisions, or legal prohibitions;

in the case of each ofthe foregoing, owned, held for use, leased, licensed, or used or useful in theoperation of the Assets.

2.3           **ExcludedAssets.** Notwithstanding the provisions of Section 2.2, the Assetsshall not include the following, which shall be retained by Seller (the “**Excluded Assets**”): (a) cash and cashequivalents; (b) bonds, letters of credit, surety instruments, and othersimilar items; (c) any agreement, right, asset or property owned or leased bySeller that is not used or held for use or useful in the operation of theAssets; (d) account books of original entry, general ledgers, and financialrecords used in connection with the Assets; *provided*that Seller shall provide copies of such books,

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records and ledgers pursuant to Section 2.2 to thePurchaser to the extent not confidential and related to the Assets; (e) allbooks, records, files and other materials to the extent they are or containconfidential or legally privileged information or materials; (f) all rights,claims, credits, causes of action or rights of set off against third Persons(other than the Purchaser) applicable to periods prior to the Effective Date;(g) any vehicles, tools, pulling machines, warehouse stock, equipment ormaterial temporarily located on the Lands, (h) any leased personal property,(i) any equipment, pipelines, fixtures, facilities or interests in land ownedby any contractor, purchaser or transporter of oil and/or gas from the Assets;(j) those excluded items listed at Section 2.2(m) of this Agreement; and (k)those items identified on Schedule 2.3.

**ARTICLE III PURCHASE PRICE**

3.1           **PurchasePrice and Manner of Payment; Performance Deposit.** Purchaser will paySeller a total of six hundred thousand U.S. Dollars ($600,000) (“**Purchase Price**”) adjusted as provided inSection 3.2 (the “**Adjusted Purchase Price**”).Within two business days after full execution of this Agreement, Purchasershall remit to Seller ten percent (10%) of said $600,000 (being sixty thousanddollars ($60,000) as a Performance Deposit (“**PerformanceDeposit**”). The Adjusted Purchase Price shall be paid at Closing toSeller, at Seller’s request, either by wire transfer of immediately availablefunds, certified funds, cashier’s check, or by such other method as may beagreed to by the Parties. At least five days prior to the Closing, Seller shalldeliver to Purchaser for Purchaser’s review and approval, a statement settingforth the adjustments to the Purchase Price known as of such date and theAdjusted Purchase Price resulting from such adjustments.

3.2           **Adjustmentsto the Purchase Price.** The Purchase Price shall be adjusted (the “**Purchase Price Adjustment**”) as follows:

(a)           UpwardAdjustments. The Purchase Price shall be adjusted upward by the following:

(i)            the amount of expenses, costs,Property Taxes, rents, lease payments and charges paid by Seller that areattributable to the ownership and operation of the Assets on or after theEffective Date, including but not limited to (A) the costs and expensesattributable to operation and maintenance of the Assets incurred in theOrdinary Course of Business, (B) any capital expenditures incurred in theOrdinary Course of Business or approved in writing by Purchaser, attributableto the Assets, (C) any amounts paid for the acquisition, extension or renewalof any Asset incurred in the Ordinary Course of Business, (D) any amounts paidfor the acquisition of any asset included within the Assets after the EffectiveDate and incurred in the Ordinary Course of Business or approved in writing byPurchaser, (E) all prepaid expenditures (including taxes, lease payments andrents), to the extent not otherwise included herein, made by Seller for costsand expenses directly attributable to the Assets for the period after

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the Effective Date, and (F) any amounts relating toobligations arising under the Material Agreements (other than amounts arisingas a result of Seller’s breach of such agreements); and

(ii)           any other amount agreed upon bySeller and Purchaser.

(b)           DownwardAdjustments. The Purchase Price shall be adjusted downward by thefollowing:

(i)            all amounts received by Seller fromthe Effective Date through the Closing Date (the “**Adjustment Period**”) that are attributable to the ownership andoperation of the Assets during the Adjustment Period, including, but notlimited to (A) income, revenues and proceeds received for gas gathering andrelated services and (B) for the sale, salvage or other disposition during theAdjustment Period of any property, equipment or rights included in the Assets;

(ii)           an amount equal to Property Taxesrelating to the time period prior to the Effective Date and which have not beenpaid prior to the Closing;

(iii)          the amount of any reduction referredto in Section 3.3(c) in connection with any estimated costs to cure TitleDefects;

(iv)          the amount of any reduction referredto in Section 6.3 in connection with Estimated Remediation Costs as defined inSection 6.2;

(v)           the amount of any reduction referredto in Section 7.1 in connection with any Casualty Event as defined therein;

(vi)          the Performance Deposit referred to inSection 3.1 above; and

(vii)         any other amount agreed upon by Sellerand Purchaser.

3.3           **Title Due Diligence.**

(a)           Following full execution of thisAgreement, Purchaser shall have until June 16, 2006 to complete, at Purchaser’ssole cost, risk and expense, all title examination of the Assets which itwishes to conduct. On or before such date, Purchaser shall deliver to Sellerwritten notice (“Claim of Title Defects”) of any claims that title to anyportion of the Assets is less than Defensible Title or that the Lease or Leasesare expiring within ninety days after the Closing. Within five (5) businessdays after receipt of the Claim of Title Defects, Seller shall notify Purchaserin writing as to what action Seller shall take with respect to each assertedTitle Defect, in accordance with the further provisions of this

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Article 3.3. Purchaser hereby waives and releasesSeller from any such claim not properly and timely asserted in the Claim ofTitle Defects. The Claim of Title Defects shall specify the specific propertiesaffected, and shall specify any Title Defect which, in Purchaser’s opinion,causes title to the specific affected properties to be less than DefensibleTitle. Purchaser shall be solely responsible for any costs of title examinationit undertakes, and Seller shall not be required to create or supplement anytitle documents, such as title opinions or abstracts of title. Purchaser willnot be given access to any data and records that Seller cannot legally provideto Purchaser because of third-party restrictions on Seller.

(b)           The Claim of Title Defects shallitemize Purchaser’s best estimate of the cost to cure each such Title Defect.If Seller and Purchaser do not agree upon whether a certain matter constitutesa Title Defect, or the estimated cost to cure of any such Title Defect, theParties shall engage promptly (and in any event within ten days) a Denver- orWyoming-based oil and gas attorney who is not the counsel of either Party, andwho is mutually acceptable to both Parties (the “**Independent Attorney**”). Such Independent Attorney shall renderan opinion as to whether or not the matter constitutes a Title Defect, and/orthe cost to cure such Title Defect, as the case may be. The determination ofthe Independent Attorney shall be binding on Purchaser and Seller, and the feesand expenses of such Independent Attorney shall be borne one-half each byPurchaser and Seller. If the Parties are unable to agree on an IndependentAttorney, then each Party shall select one attorney of their choosing, both ofwhich attorneys shall then select the Independent Attorney.

(c)           Seller shall review the Claim ofTitle Defects, and shall have the option of (1) curing the Title Defect, or (2)reducing the Purchase Price by an amount equal to the product of $2,500multiplied by proportionate percentage of reduction in the net revenue interestshown on Exhibit A caused by the Title Defect, for each well affected by aTitle Defect. By way of example, if Exhibit A states that Seller owns an 87.5%net revenue interest in a particular well, but, due to a Title Defect, Sellerowns only a 43.75% net revenue interest in that well, then the Purchase Priceshall be reduced by $1,250.

(d)           The Term “Title Defect” shall meanany encumbrance encroachment, irregularity, defect in or objection to Seller’stitle to the Assets which, alone or in combination with other defects, rendersSeller’s title to the affected Asset less than Defensible Title. PermittedLiens and Encumbrances shall not constitute Title Defects.

(e)           The Term “Defensible Title” shall mean:(1) Defensible Title is that which entitles Seller on a leasehold basis toreceive not less than the net revenue interest set forth on Exhibit A for alloil and gas produced, saved and marketed from the Lands as of the EffectiveDate; (2) Defensible Title is that which obligates Seller on a leasehold basisto bear the costs and expenses relating to the maintenance, development andoperation of the producing wells as

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set out on Exhibit A; (3) Defensible Title is thatwhich is free and clear of encumbrances, liens and defects that wouldconstitute Title Defects; and (4) Defensible Title is subject to PermittedLiens and Encumbrances.

(f)            Seller shall be responsible forcuring, or reducing the Purchase Price by the Closing. If the reasonableestimated reduction to the Purchase Price exceeds a total of $375,000 or more,then Seller shall have the right, at its option, to terminate this Agreement bywritten notice without further liability to the other party except for thereturn by Seller of the Performance Deposit.

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER

Onthe date hereof and the Closing Date (and on such other date as may be setforth below), Seller represents and warrants to Purchaser that:

4.1           **Organizationand Standing.**As of the Effective Date, the date hereof and theClosing Date, Seller is a corporation duly organized, validly existing and ingood standing under the laws of the State of Delaware and has all powersrequired to carry on its business as now conducted. As of the Effective Date,the date hereof and the Closing Date, Seller is duly qualified to do businessas a foreign entity and is in good standing in the state of Wyoming.

4.2           **Authority.**Seller has the power and authority to enter into and perform thisAgreement and to carry out the transactions contemplated herein. Seller has allthe requisite legal authority to own the Assets and to carry on its business asnow conducted in regard to the Assets. The execution, delivery and performanceof this Agreement and the consummation by Seller of the transactionscontemplated herein have been duly and validly authorized by all necessaryaction on the part of Seller.

4.3           **Validityof Agreement.**This Agreement is a legal, valid and bindingobligation of Seller enforceable against Seller in accordance with the terms ofthis Agreement, except as enforcement may be limited by bankruptcy, insolvencyor other similar laws affecting the enforcement of creditors’ rights ingeneral. The enforceability of Seller’s obligations under this Agreement is furthersubject to general principles of equity (regardless of whether suchenforceability is considered in a proceeding in equity or at law). Neither theexecution and delivery of this Agreement nor the consummation of thetransactions contemplated herein will conflict with or constitute a violationof, or default under, or give rise to a right of cancellation, termination oracceleration with respect to (i) any Legal Requirement; (ii) any contract,commitment, agreement, understanding, arrangement or restriction of any kind towhich Seller is a party or by which Seller is bound; or (iii) the articles offormation of Seller.

4.4           **Litigationand Claims.**Except as disclosed on Schedule 4.4. there are nogovernmental or other legal actions, claims, suits or other proceedings,pending or, to

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the Knowledge of Seller threatened, to which Seller isor would be a party and which (i) relate to any of the Assets, and (ii) which,if adversely determined, could prevent or interfere with consummation of thetransactions contemplated by this Agreement or (A) have a Material AdverseEffect, and (B) result in the modification, revocation, termination, suspensionor other limitation of any Material Agreement.

4.5           **Compliancewith Applicable Legal Requirements.**As of the Effective Date, thedate hereof and the Closing Date, except with respect to Environmental LegalRequirements (which matters are addressed in Section 4.11): Seller and theAssets are in compliance with and are not under investigation with respect toand have not been threatened to be charged with or given notice of anyviolation of, any applicable Legal Requirement in respect of the Assets.

4.6           **MaterialAgreements.**

(a)           The Material Agreements, the Landsand the Leases (A) constitute all of the material contracts relating to theAssets and Seller’s operation thereof, (B) are valid and binding agreements andare in full force and effect, and (C) may be freely assigned to Purchaser bySeller without the consent of another Person. True and complete copies of eachMaterial Agreement, the Leases and the Lands have been made available toPurchaser;

(b)           The Assets are not bound by:

(i)            any agreements for the sale orpurchase of hydrocarbons other than to Purchaser;

(ii)           any lease of personal property andequipment (except for compression);

(iii)          any agreement for the purchase ofmaterials, supplies, goods, services, equipment or other assets providing foreither (1) annual payments by Seller of $20,000 or more or (2) aggregatepayments by Seller of $20,000 or more;

(iv)          any gas transportation, natural gasliquids transportation and fractionation, gathering and processing,distribution or other similar agreement for the sale by Seller of materials,supplies, goods, services, equipment or other assets that provides for either (1)annual payments to Seller of $20,000 or more or (2) aggregate payments toSeller of $20,000 or more;

(v)           any agreement relating to theacquisition or disposition of any business or giving rise to rights to a thirdparty’s right to make any acquisition or disposition (whether by merger, saleof stock, sale of assets or otherwise);

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(vi)          any agreement relating to indebtednessfor borrowed money or the deferred purchase price of property; and

(vii)         any agency, dealer, salesrepresentative, marketing or other similar agreement.

4.7           **MaterialBreach.**

(a)           As of the Effective Date, the datehereof and the Closing Date, neither Seller nor any other party to the MaterialAgreements, the Leases and the Lands has been or is in default with respect toany obligation thereunder that would have a Material Adverse Effect, nor isSeller aware of the existence of facts that, with the passage of time or uponnotice from another party to any of the Material Agreements, the Leases and theLands, would constitute such a default that would have a Material AdverseEffect.

(b)           Seller has not received any noticethat (A) any Party to a Material Agreement will not honor the terms of anyMaterial Agreement to which it is a party at any time after the Closing Date,and (B) any such Party has otherwise threatened to take any action described inthe preceding clause as a result of the execution, delivery or performance ofthis Agreement.

4.8           **Termination.**As of the Effective Date, the date hereof and the Closing Date, noparty to any of the Material Agreements, the Leases and the Lands has givennotice to Seller of any action to terminate, cancel, rescind or procure ajudicial reformation thereof.

4.9           **Consentsand Preferential Rights.**Except as disclosed on Schedule 4.9,except to the extent same would not, in the aggregate, have a Material AdverseEffect, and except Federal and State consents to assignment normally obtainedafter closing, (i) to Seller’s Knowledge no consents are required fromGovernmental Authorities or any other Persons, including the consent of anythird party required under any contract, in connection with the transfer of anyof the Assets by Seller, and (ii) no preferential purchase rights exist withrespect to the Assets, and no consent, approval or other action by, or filingwith any Person, including the consent of any third party required under anymaterial contract, or Governmental Authority is required, in connection withthe execution, delivery and performance by Seller of this Agreement, includingconsents required under the Leases, Material Agreements, Permits andEnvironmental Permits.

4.10         **Conductof Business.**

(a)           The Assets have been operated inmaterial compliance with applicable Legal Requirements, including allEnvironmental Requirements, and in accordance with good industry practices.

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(b)           Except as incurred in the OrdinaryCourse of Business and to the extent same would have a Material Adverse Effect,there has not been:

(i)           any incurrence, assumption orguarantee by Seller of any indebtedness for borrowed money with respect to theAssets;

(ii)          any creation or other incurrence ofany Lien (other than Permitted Liens) on any Asset;

(iii)         any damage, destruction or othercasualty loss (whether or not covered by insurance) affecting any Asset;

(iv)        any transaction or commitment made, orany contract or agreement entered into, by Seller relating to any Asset(including the acquisition or disposition of any assets), or any relinquishmentby Seller of any contract or other right, in either case, material to the Assets,other than transactions and commitments contemplated by this Agreement; or

(v)         any capital expenditure, or commitmentfor a capital expenditure, for additions or improvements to property, plant andequipment in excess of $20,000 in the aggregate or that have not been approvedin writing by Purchaser.

4.11         **Compliancewith Environmental Legal Requirements.**Except as disclosed on Schedule4.11, with respect to the Assets, on the Effective Date and the ClosingDate:

(i)           Seller and the Assets have been andare in material compliance with all applicable Legal Requirements pertaining tohealth, safety, or the environment or to pollutants, contaminants, wastes orchemicals (“**Environmental Legal Requirements**”)and all permits, licenses, franchises, certificates, approvals or other similarauthorizations of Governmental Authorities relating to or required byEnvironmental Legal Requirements (“**EnvironmentalPermits**”);

(ii)          with respect to the Assets, noconditions exist that could reasonably be expected to require cleanup, removal,remedial action or other response by Seller pursuant to any Environmental LegalRequirements;

(iii)         neither Seller nor any part of theAssets is subject to any pending or threatened judgment, decree or order,notice, demand, request for information, review, investigative claim orcitation related to or arising out of Environmental Legal Requirements;

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(iv)        with respect to the Assets, Seller hasnot received any written or oral notice stating that it has been named orlisted as a potentially responsible party by any Governmental Authority in amatter arising under or relating to any Environmental Legal Requirement;

(v)         none of the Assets nor any property towhich Seller has directly or indirectly transported, or arranged for thetransportation of, Hazardous Substances (as defined in Article VI), is listedor proposed for listing on the National Priorities List promulgated pursuant tothe Comprehensive, Environmental, Response, Conservation and Liability Act of1980, as amended (“**CERCLA**”) or CERCLIS(as defined by CERCLA) or on any similar federal, state, tribal or local listof sites requiring investigation or cleanup; and

(vi)        no polychlorinated biphenyls,radioactive material, lead, asbestos-containing material, sumps, surfaceimpoundments, lagoons, landfills, septic, wastewater treatment or otherdisposal system or underground storage tanks are or have been, located on,under, at or in the Assets in violation of any Environmental Legal Requirementwhich has resulted in or could reasonably be expected to result in liabilityunder any Environmental Legal Requirement. Purchaser has been provided accessto all environmental investigations, studies and/or audits performed on theAssets owned by Seller within the last two years which are in Seller’spossession and non-confidential.

4.12         **Licensesand Permits**. Exhibit D correctly describes each Permit(including without limitation, Environmental Permits, but excluding all welldrilling permits and production permits) together with the name of the issuingGovernmental Authority and indicates with an asterisk any Permits (includingwithout limitation Environmental Permits) which by their terms are nottransferable to any third party. Except as set forth in the Exhibit E, toSeller’s Knowledge, (i) the Permits are valid and in full force and effect,(ii) Seller is not in default, and no condition exists that with notice orlapse of time or both would constitute a default, under the Permits, and (iii)except for the Permits marked with an asterisk on Exhibit E, none of thePermits will, assuming the related Required Consents have been obtained priorto the Closing Date, be terminated or impaired or become terminable, in wholeor in part, as a result of the transactions contemplated hereby.

4.13         **UndisclosedLiabilities**. There are no undisclosed liabilities that would have aMaterial Adverse Impact on the Leases, Land, Wells, rights-of-way or RelatedFacilities and that would prevent same from being functional to the extentnecessary for their operation and compliance with the Material Agreements.

4.14         **Purchaseras Successor Operator**. Seller does not represent or warrant thatPurchaser shall become successor operator of the Assets that Seller operates,since the Assets may be subject to agreements that control the appointment of asuccessor

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operator. Seller will use its best efforts to assistPurchaser in becoming a successor operator. Seller agrees that as to the Assetsit operates, where it will assist to facilitate the appointment of a successoroperator, Seller will resign as operator at Closing. Purchaser will actexpeditiously to take all reasonable measures, including, but not limited to,taking action prior to Closing if the parties hereto mutually agree that isappropriate, to have Purchaser appointed successor operator of the Assets thatSeller operates, or, if the necessary votes under the applicable agreement(s)cannot be obtained to appoint Purchaser as successor operator, to have anotherworking interest owner of such Assets appointed successor operator, accordingto the terms of any applicable agreement.

ARTICLE VREPRESENTATIONS AND WARRANTIES OF PURCHASER

Onthe date hereof and on the Closing Date (and such other date as may be setforth below), Purchaser represents and warrants to Seller that:

5.1           **Organizationand Standing**. Purchaser is a corporation duly organized, validlyexisting and in good standing under the laws of the State of Colorado and hasall corporate powers required to carry on its business as now conducted.

5.2           **Authority**.Purchaser has the power and authority to enter into and perform this Agreementand to carry out the transactions contemplated herein. The execution, deliveryand performance of this Agreement and the consummation by Purchaser of thetransactions contemplated herein have been duly and validly authorized by allnecessary action on the part of Purchaser.

5.3           **Validityof Agreement**. This Agreement is a legal, valid and bindingobligation of Purchaser enforceable against Purchaser in accordance with itsterms, except as enforcement may be limited by bankruptcy, insolvency or othersimilar laws affecting the enforcement of creditors’ rights in general. Theenforceability of Purchaser’s obligations under this Agreement is furthersubject to general principles of equity (regardless of whether enforceabilityis considered in a proceeding in equity or at law). Neither the execution anddelivery of this Agreement nor the consummation of the transactionscontemplated herein will conflict with or constitute a violation of, or defaultunder, or give rise to a right of cancellation, termination or accelerationwith respect to (i) any order, judgment, decree or applicable law, or (ii) anycontract, commitment, agreement, understanding, arrangement or restriction ofany kind to which Purchaser is a party or by which Purchaser is bound, or (iii)the certificate of incorporation or bylaws of Purchaser.

5.4           **NoConsents Required**. No consents, approvals or other action by orfiling with any Person or Governmental Authority is required in connection withthe execution, delivery and performance by Purchaser of this Agreement.

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ARTICLE VIENVIRONMENTAL MATTERS

6.1           **EnvironmentalDue Diligence Report**. Purchaser will have a Phase I environmentaldue diligence report and/or regulatory compliance review of the Assets(collectively, the “**Phase I EnvironmentalAudit**”) conducted by its consultant (“**Purchaser’s Consultant**”) and will supply the report to Selleron or before June 16, 2006. Such Phase I Environmental Audit shall consist onlyof (a) a review and assessment of the adequacy of Seller’s existing permits forthe Assets; (b) a review of historic data to determine prior land uses; (c) acompilation of pertinent information related to the Assets, includinginterpretation of analytical data in the files, except any such informationwhich Seller is prohibited from disclosing due to third-party restrictions; (d)a physical examination of the surface of the Lands to identify any surfacecontamination. The Phase I Environmental Audit shall not include soil boring,collection of samples or analysis of any material on the Assets without Seller’sprior express written consent. Purchaser shall notify Seller in writing ifPurchaser’s Consultant recommends a Phase II Environmental Audit, which shallnot be conducted without Seller’s prior written consent. If Seller does notconsent to the Phase II Environmental Audit within three (3) business daysafter such notification, Purchaser may terminate this Agreement without anyliability to Seller, and Seller shall return the Performance Deposit. If Sellerdoes consent to the Phase II Environmental Audit, Purchaser shall conduct suchAudit as quickly as practicable. Seller shall have the right to have itsdesignated representative present during the Phase I Environmental Audit, and,if allowed by Seller, the Phase II Environmental Audit, to split samples withany samples taken by Purchaser’s Consultant, and to perform its own testing andevaluations. Purchaser shall be responsible for all death, personal injury orproperty damage caused by Purchaser’s Consultant arising in connection with theEnvironmental Audit(s), and shall indemnify, defend and hold harmless Sellerfrom all Claims related thereto.

6.2           **Notificationof Environmental Conditions to be Corrected**. Purchaser will notifySeller of all Environmental Conditions (as defined below) identified during thecourse of performing the Environmental Audit(s) (which shall include allmatters discovered in the course of conducting the Environmental Audit(s) whichwould or might render Seller’s representations hereunder not true and correctas of the Closing Date), together with (i) all documents and analyses relatingto such Environmental Conditions, including the Environmental Audit and (ii)Purchaser’s Consultant’s estimate of the costs required to correct, remove orremediate such Environmental Conditions in the most reasonable cost-effectivemanner (including risk-based remediation measures) (“**Estimated Remediation Costs**”).

6.3           **Proceduresfor Correction of Environmental Conditions**. As to the****Environmental Conditions, the followingprocedures shall apply; based on their respective review of the EnvironmentalAudit(s) and such other data and information as shall be available to theParties concerning the condition of the Assets, Purchaser and Seller shall usetheir Reasonable Good-Faith Efforts to agree on the identification of

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Environmental Conditions, whether remediation of sameis required and the manner thereof, and on the Estimated Remediation Costs forwhich Seller shall be responsible. If Seller and Purchaser do not agree uponwhether a certain matter constitutes an Environmental Condition, or do notagree upon the Estimated Remediation Cost of a particular EnvironmentalCondition, then the disagreement shall be settled in the same manner assettlement of Title Defect disagreements under Section 3.3(b) of this Agreement(with the exception that an Independent Environmental Consultant shall beutilized rather than an Independent Attorney). Seller shall have the option of(a) remediating any Environmental Conditions, or (b) reducing the PurchasePrice by the Estimated Remediation Costs. If Seller elects to remediate theEnvironmental Conditions, Seller shall be solely responsible for the costs ofremediation, and shall undertake such activity promptly and diligently pursuesame, and such shall be subject to Purchaser’s Consultant’s inspection andapproval. If Seller elects to remediate, but fails to do so promptly, Purchaserhas the right, but not the obligation, to effect such remediation and billSeller therefor. Seller agrees to pay Purchaser’s bill within ten business daysafter its receipt thereof.

6.4           **Limitationson Environmental Conditions**. No individual matter shall constitutean Environmental Condition unless its reasonable Estimated Remediation Costexceeds $5,000. If the reasonable Estimated Remediation Cost of allEnvironmental Conditions exceeds $100,000, then Seller may, at its option, bywritten notice either terminate this Agreement without further liability exceptSeller’s return of the Performance Deposit to Purchaser or elect to cure suchEnvironmental Condition within ten business days.

6.5           **Definitionof Environmental Condition**. For purposes of this Article VI “EnvironmentalCondition” shall mean (i) any condition constituting, or which reasonably couldbe expected to result in, a liability, obligation or commitment under, or aviolation of, any Environmental Legal Requirement or Environmental Permit, (ii)the presence of Hazardous Substances in soil or other subsurface media, ambientair, groundwater or surface water or building at, on, in or under the Assets orAssets, or which has migrated from the Assets or Assets, in each case, in amanner or quantity (A) which is, or is reasonably likely to be, required to beremediated by or under (y) an Environmental Legal Requirement or (z) anyGovernmental Authority, or (B) that has resulted, or could reasonably beexpected to result, in any claim, demand or cause of action under EnvironmentalLegal Requirements for damage to natural resources or the environment. As usedin this Agreement “**Hazardous Substance**”means any substance, material or waste which is or will foreseeably beregulated by any Governmental Authority, including any material, substance orwaste which is defined as “hazardous waste,” “hazardous material,” “hazardoussubstance,” “extremely hazardous waste,” “contaminant,” “toxic waste” or “toxicsubstance” under any provision of Environmental Law, and including petroleum,petroleum products, asbestos, presumed asbestos-containing material orasbestos-containing material, urea formaldehyde and polychlorinated biphenyls.

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6.6           **Confidentialityof Environmental Information**.****Purchaserand Seller agree to maintain in strict confidence all of the environmentalinformation described in this Article VI, including without limitation theEnvironmental Audit(s), except in connection with the consummation of thetransactions contemplated hereby, and except as otherwise required by any LegalRequirement, in which latter event the Parties agree to promptly notify theother Party of such requirement, and give the other Party the opportunity toreview and comment in advance on the content and timing of any such disclosurethe other Party proposes to make. Purchaser will insure that Purchaser’sConsultant is also bound by this confidentiality provision. From and afterClosing, Purchaser shall have no further obligations under this subsection 6.6.If Closing does not occur, Seller shall have no further obligations under thissubsection 6.6 from and after the date of termination of this Agreement.

ARTICLE VIICOVENANTS

7.1           **CasualtyLoss**. If, prior to the Closing, all or any portion of the Assets tobe conveyed to Purchaser at the Closing are destroyed by fire or othercasualty, are taken in condemnation or under the right of eminent domain orproceedings for such purposes are pending (in each case, a “**Casualty Event**”), Purchaser may elect:

(i)            to reduce the Purchase Price by suchaggregate amount of damages as mutually agreed upon, in which case Purchaserwill not be entitled to sums paid to Seller by third parties by reason of theCasualty Events nor be entitled to be assigned, transferred or subrogated tothe right, title and interest of Seller in and to any unpaid awards or other paymentsfrom third parties arising out of the Casualty Events;

(ii)           to purchase such Assetsnotwithstanding any such destruction, taking or pending taking and the PurchasePrice shall not be adjusted; *provided*that if in Purchaser’s reasonable estimation the amount of aggregate damagecaused by one or more Casualty Events exceeds $10,000 (the “**Casualty Threshold**”), Purchaser may electto purchase the Assets notwithstanding any such Casualty Event (without reductionof the Purchase Price therefor), in which case Seller shall, at Closing, pay toPurchaser all sums paid to Seller by third parties (including insuranceproviders of Seller and its Affiliates) by reason of the Casualty Events to theextent such sums are not committed, used or applied by Seller prior to theClosing Date to repair, restore or replace such damaged Asset and shall assignand transfer to Purchaser or subrogate Purchaser to all of the right, title andinterest of Seller in and to any unpaid awards or other payments from thirdparties (including insurance providers of Seller and its Affiliates) arisingout of the Casualty Events; or

(iii)          to terminate this Agreement.

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If the amount of aggregate damage caused by one ormore Casualty Events is less than the Casualty Threshold, Seller shall, at theClosing, pay to Purchaser all sums paid to Seller by third parties by reason ofthe destruction or taking of such Assets to be assigned to Purchaser, and shallassign, transfer and set over unto Purchaser all of the right, title andinterest of Seller in and to any unpaid awards or other payments from thirdparties arising out of the destruction, taking or pending or threatened takingas to such Assets to be conveyed to Purchaser. Seller shall not voluntarilycompromise, settle or adjust any material amounts payable by reason of anymaterial destruction, taking or pending or threatened taking as to the Assetsto be conveyed to Purchaser without first obtaining the written consent ofPurchaser. Seller shall promptly notify Purchaser of any Casualty Event ofwhich Seller has Knowledge.

7.2           **Covenantsand Agreements Prior to Closing**.

(a)           Between the date hereof and theClosing Date, Seller shall:

(i)            maintain and operate the Assets inthe Ordinary Course of Business;

(ii)           continue maintenance of and compliancewith the Material Agreements in the Ordinary Course of Business; and

(iii)          maintain insurance coverage on theAssets in the amounts and of the types currently in force.

(b)           Without the written consent ofPurchaser (which shall not unreasonably be withheld, and which shall be deemedgiven if not refused within five (5) business days of request for consent),between the date hereof and the Closing Date, Seller shall not:

(i)            waive, compromise or settle anyright or claim which is in excess of Twenty-Five Thousand Dollars ($25,000);

(ii)           incur obligations with respect to orundertake any transactions relating to the Assets other than transactions inthe Ordinary Course of Business;

(iii)          enter into any new agreements orcommitments with respect to the Assets or amend any such agreements outside ofthe Ordinary Course of Business;

(iv)          terminate or amend or modify any ofthe Material Agreements except in the Ordinary Course of Business;

(v)           encumber, sell or otherwise disposeof any of the Assets (excluding inventory, natural gas, natural gas liquids oroil), other than

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property which is replaced by equivalent property (intype and value) or which is used, sold, consumed or abandoned in the OrdinaryCourse of Business; or

(vi)          with respect to the Assets, makecommitments or agreements for capital expenditures or capital additions orbetterments exceeding in aggregate $20,000, except as may be involved inordinary repair, maintenance or replacements of the Assets or in connectionwith the possible installation of vacuum pumps on the Wells.

(c)           Except as otherwise provided,notwithstanding any other provision to the contrary, and except as mayotherwise be agreed between the Parties, Seller shall use all ReasonableGood-Faith Efforts to obtain all consents, authorizations and approvals of, andto make all necessary filings, notification or registrations with, allGovernmental Authorities (including with respect to Permits and EnvironmentalPermits) which are necessary for the transfer of the Assets to Purchaser, andsupply copies thereof to the Purchaser. Except as otherwise provided, as tonotices required to be provided before the Closing, Seller shall give allnotices to third parties and take such other actions as may be required to begiven or taken by it under any Permit, Environmental Permit, lease, agreementor other instrument or any Legal Requirement in connection with thetransactions contemplated hereby (with copies thereof to the Purchaser), andshall use its commercially reasonable efforts to obtain all other consents andapprovals necessary to enable Seller to transfer the Assets. Purchaser shalluse all commercially reasonable efforts to cooperate with Seller with respectto Seller’s obligations described in the two preceding sentences. As to noticeswhich may be provided after the Closing, Purchaser shall give all notices tothird parties and take such other actions as may be required to be given ortaken by it under any Permit, Environmental Permit, lease, agreement or otherinstrument or any Legal Requirement in connection with the transactionscontemplated hereby, and Seller shall cooperate therewith.

7.3           **Compliancewith Conditions Precedent**.****EachParty shall use its commercially reasonable efforts to cause the conditionsprecedent set forth in Sections 8.3 and 8.4, applicable to such Party, to befulfilled and satisfied as soon as practicable but in any event prior toClosing.

7.4           **Preparationof Closing Documents**.****Sellershall commence the preparation of all forms of assignments, deeds, and other conveyancesand transfers pursuant to this Agreement, and the preparation of all applicableschedules and exhibits to such forms of assignments, deeds and otherconveyances, and shall begin delivering such draft forms to Purchaserreasonably promptly so that Purchaser can review such documents so that theParties can agree to any proposed changes consistent with the terms andprovisions of this Agreement prior to the Closing Date.

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7.5**           PublicAnnouncements**.****Purchaserand Seller shall agree upon the text of a press release which shall bedisseminated as soon as reasonably possible after the signing of the Purchaseand Sale Agreement and Closing. Any additional public announcements orissuances of press releases by either Party regarding the existence of this Agreement,the contents hereof or the transactions contemplated hereby shall require theconsent of the other Party which shall not be unreasonably withheld; *provided,*however, that the initial pressrelease concerning this Agreement and the transactions contemplated herebyshall be agreed to by the Parties; and provided further that the foregoingshall not restrict disclosures by either Party in compliance with applicablesecurities or other laws or in compliance with existing loan or otheragreements binding such Party, in such Party’s discretion.

7.6           **Confidentiality**.****Unless and until Closing occurs, anynon-public information that either Party may obtain from the other or which itdevelops or causes to be developed in connection with this Agreement and the transactionscontemplated hereby shall be confidential, and following Closing, each Partyshall keep confidential any non-public information that such Party may receivefrom the other in connection with this Agreement and the transactionscontemplated hereby (any such information, “**ConfidentialInformation,**”****whichterm shall not be deemed to include information that can be shown to have been(i) in the public domain through no fault of Seller or its Affiliates; (ii)later lawfully acquired by Seller or Purchaser, as the case may be, fromsources other than those related to its prior ownership of the Assets); or,(iii) was already in the possession of Seller or Purchaser, as the case may be,before the Effective Date.

EachParty shall not disclose Confidential Information to any other person or entity(other than to its Affiliates and to its and their directors, officers andemployees, and representatives of its advisors and lenders, in each case, whoseknowledge thereof is necessary or convenient in order to facilitate theconsummation of the transactions contemplated hereby, in which case such Partyshall be responsible for any breach by such person or entity) or use suchinformation to the detriment of the other; *provided*that:

(i)            such Party may use and disclose anysuch information once it has been publicly disclosed (other than by such Partyin breach of its obligations hereunder) or which, to its Knowledge, rightfullyhas come into the possession of such Party (other than from the other Party),and

(ii)           to the extent that such Party may, inthe reasonable judgment of its counsel, be compelled by an applicable LegalRequirement to disclose any of such information, such Party may disclose suchinformation if it has used commercially reasonable efforts, and has affordedthe other the opportunity, to obtain an appropriate protective order, or othersatisfactory assurance of confidential treatment for the information compelledto be disclosed.

 

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In the event oftermination of this Agreement, (A) the obligation set forth in this Sectionshall continue for a period of one year after such termination, and (B) eachParty shall cause to be delivered to the other, and shall retain no copies of,any documents, work papers or other materials obtained by such Party or on itsbehalf from the other, whether so obtained before or after execution of thisAgreement, and shall destroy all other copies thereof, including any that bearnotes or analysis, and shall certify compliance with the return/destructionobligation to the other on request.

7.7           **UpdatedExhibits and Schedules**.****EachParty shall, at least five (5) business days prior to Closing, supplement theexhibits and schedules to this Agreement with additional information that, ifexisting or known to it on the date of this Agreement, would have been requiredto have been included in one or more exhibits or schedules to this Agreement(including items identified in the course of Purchaser’s due diligence investigationincluding Environmental Audit). For purposes of determining the satisfaction ofany of the conditions to the obligations of Purchaser and Seller in Sections8.3 and 8.4 and the liability of Purchaser and Seller following Closing forbreaches of their respective representations, warranties and covenants underthis Agreement, the exhibits and schedules to this Agreement shall be deemed toinclude only (a) the information contained therein on the date of thisAgreement and (b) information added to such exhibits and schedules by writtensupplements to this Agreement delivered prior to Closing by the Party makingsuch amendment that reflect actions required by this Agreement to be takenprior to Closing (including Exhibit B and schedule supplementation described inthe first sentence of this Section 7.7; provided, however, that if any suchchange has a Material Adverse Effect on a party, then the other party mayreject such change by a written notice to the other party delivered within twobusiness days after the receipt of such change.

7.8           **Noticesof Certain Events**.****EachParty shall promptly notify the other of:

(a)           any notice or other communicationfrom any Person alleging that the consent of such Person is or may be requiredin connection with the transactions contemplated by this Agreement;

(b)           any notice or other communicationfrom any Governmental Authority in connection with the transactionscontemplated by this Agreement;

(c)           any actions, suits, claims,investigations or proceedings commenced or, to its Knowledge threatenedagainst, relating to or involving or otherwise affecting Seller or the Assetsthat, if pending on the date of this Agreement, would have been required tohave been disclosed pursuant to Section 4.4 or 4.11, or that relate to the consummationof the transactions contemplated by this Agreement; and

(d)           any matter that would represent amaterial breach of the representations and warranties under this Agreement.

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7.9           **Access****to Information**.****From the date hereof until the ClosingDate, Seller will (i) give Purchaser, its counsel, financial advisors, auditorsand other authorized representatives adequate and reasonable access, duringnormal business hours to the offices, properties, books and records of Sellerrelating to the Assets (including for the purposes of conducting theEnvironmental Audit), (ii) furnish to Purchaser, its counsel, financialadvisors, auditors and other authorized representatives such financial andoperating data and other information relating to the Assets as such Persons mayreasonably request and (iii) instruct the employees, counsel and financialadvisors of Seller to cooperate with Purchaser in its investigation of theAssets. Except as otherwise provided herein, no investigation by Purchaser orother information received by Purchaser shall operate as a waiver or otherwiseaffect any representation, warranty or agreement given or made by Sellerhereunder.

ARTICLE VIIICLOSING

8.1           **Closing****Date**.****Unless the Parties agree otherwise in writing and subject tothe conditions in this Agreement, the consummation of the transactionscontemplated hereby (the “**Closing**”)shall occur on the “**Closing Date**”****which shall be (a) on or before June 30,2006, as designated by the Purchaser, or (b) such other date as the Parties mayagree upon in writing.

8.2           **Placeof Closing**.****The Closingshall occur at Seller’s offices in Houston, Texas or at such other place asPurchaser and Seller may agree in writing.

8.3           **Conditionsto Purchaser’s Obligations**.****Theobligations of Purchaser to be performed by the Closing are, at the option ofthe Purchaser, subject to satisfaction of each of the conditions set forthbelow:

(a)           The representations and warrantiesmade by Seller in this Agreement that are not qualified by materiality orMaterial Adverse Effect shall be true, complete and accurate in all materialrespects, and those that are qualified by materiality or Material AdverseEffect shall be true, complete and accurate in all respects, in each case, onand as of the Closing Date. Seller shall also have performed or complied in allmaterial respects with all of its obligations under this Agreement, which areto be performed or complied with by it prior to or on the Closing Date.

(b)           There shall not be in existence onthe Closing Date (i) any Legal Requirement, or order, decree or ruling by anycourt or Governmental Authority, (ii) any threat thereof by any GovernmentalAuthority which is evidenced by a writing by the threatening GovernmentalAuthority, (iii) except as disclosed in Schedule 4.4, any threat thereof by anyother Person which is evidenced by a writing by the threatening Person, or (iv)any instituted or pending action or proceeding which, in any case, would (w)enjoin, restrain, make illegal or prohibit consummation of the transactions contemplatedhereby, (x) prohibit,

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render illegal or have a Material Adverse Effect uponPurchaser’s proposed ownership or use of the Assets taken as a whole, (y)compel Purchaser or any of its Affiliates to dispose of all or any materialportion of the Assets or the assets of Purchaser or any of its Affiliates or(z) seek to require divestiture by Purchaser or any of its Affiliates of anyAssets.

(c)           Purchaser shall have received allRequired Consents except those related to Federal and State Leases and rights-of-wayin each case in form and substance reasonably satisfactory to Purchaser, and nosuch consent, authorization or approval shall have been revoked.

(d)           Since the date hereof, no MaterialAdverse Effect shall have occurred.

8.4           **Conditionsto Seller’s Obligations.**The obligations of Seller to be performedon the Closing are, at the option of Seller, subject to satisfaction of each ofthe conditions set forth below:

(a)           The representations and warrantiesmade by Purchaser in this Agreement that are not qualified by materialityqualifier shall be true, complete and accurate in all material respects andthose that are qualified by materiality qualifier shall be true, complete andaccurate, in each case, on and as of the Closing Date. Purchaser shall also haveperformed or complied in all material respects with all of its obligationsunder this Agreement which are to be performed or complied with by it prior toor on the Closing Date.

(b)           There shall not be in existence onthe Closing Date (i) any Legal Requirement or order, decree or ruling by anycourt or Governmental Authority, (ii) any threat thereof by any GovernmentalAuthority or other Person which is evidenced in writing by the threateningAuthority or other threatening Person, or (iii) any instituted or pendingaction or proceeding which, in any case, would enjoin, restrain, make illegalor prohibit consummation of the transactions contemplated hereby.

(c)           Seller shall have received thefollowing documents from Purchaser:

(i)            Evidence, satisfactory to Seller,that Purchaser has substi­tuted bonds satisfactory to the State of Wyoming ithas procured for those of Seller as to the Assets;

(ii)           A Letter of Credit in the formattached hereto as Exhibit E in favor of Seller issued by Colorado StateBank & Trust Company, the Bank of Oklahoma or other banking institution, tosecure the performance of Purchaser’s obligations under Sections 8.4(c)(ii) and10.2(d) of this Agreement. Such Letter of Credit shall, subject to the termsthereof and this Article 8.4, be in the amount of $3 million for one year afterClosing,

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$2 million for the second year and $1 million for thefinal year, shall terminate three years after Closing, and is subject toreduction only as set forth below. The Letter of Credit shall be reducedannually by an amount which is equal to $10,000 times the number of wells: (1)returned to production in commercial quantities, (2) deepened in the existingwellbores to develop an additional interval, or (3) plugged and abandoned.Notwithstanding the foregoing, the Letter of Credit shall not be reduced below$1,000,000 (one million dollars) at any time during its term. During the termof the Letter of Credit, and not later than ten (10) business days before eachsix (6)**month anniversary of theEffective Date of this Agreement, Purchaser shall provide Seller sufficientlydetailed information for Seller to verify the well work which was performed byPurchaser during the previous six (6) months, in order for Seller to determinethe amount by which the Letter of Credit shall be reduced on July 1, 2007 andJuly 1, 2008. The Letter of Credit shall remain in force and effect, until itstermination and according to its terms and conditions, between Seller andPurchaser regardless of whether Purchaser has sold, assigned, or conveyed anyof the Assets to any third party or parties.

8.5           **ClosingObligations.**At Closing, the following shall occur:

(a)           Purchaser and Seller shall:

(i)            Execute and deliver a settlementstatement, prepared by Seller in accordance with this Agreement and generallyaccepted accounting principles (the “**PreliminarySettlement Statement**”).****ThePreliminary Settlement Statement shall be delivered to Purchaser by Seller atleast five (5) days before Closing, and shall be agreed to mutually by Purchaserand Seller at least two (2) days prior to Closing, and shall set forth theAdjusted Purchase Price and each adjustment and the calculation of suchadjustments used to determine such amount.

(ii)           Execute and deliver such furtheragreements, certificates and other documents as may be reasonably required tobe delivered to carry out the provisions of this Agreement and to close thetransaction provided for herein.

(b)           Seller shall:

(i)            Execute, acknowledge and deliver aby, through and under warranty assignment, bill of sale and assumptionagreement substantially in the form of Schedule 8.5(b)(i) (the “**General Assignment**”) covering all of theAssets to be assigned hereunder.

(ii)           Deliver to Purchaser exclusivepossession of the Assets, with Purchaser assuming operation of the Wellsdescribed on Exhibit A

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effective as of 12:01a.m. Mountain time on the day immediately following Closing.

(iii)          Deliver to Purchaser, if applicable,the rights in respect of casualty losses set forth in Section 7.1.

(c)           Purchaser shall:

(i)            Deliver to Seller the AdjustedPurchase Price.

(ii)           Deliver to Seller the documentsdescribed in Section 8.4.

ARTICLE IXPOST-CLOSING AGREEMENTS

9.1           **Post-ClosingAccess.** After Closing, Purchaser and Seller shall cooperate andafford each other access to their respective books and records relating to theAssets as may be needed by a Party (a) to determine any matter relating to itsrights and obligations hereunder, (b) to defend or respond to an audit, claim,lawsuit or other legal or administrative proceeding or (c) in the event a Partyrequires such information as part of a regulatory or legal disclosure,including but not limited to those required by the Securities and ExchangeCommission.

9.2           **TransitionMatters.**The Parties recognize that Purchaser will need theassistance of Seller and its personnel to effect an orderly transition of land,administration and accounting functions. If Purchaser so requests, Selleragrees to assist Purchaser in performing, on a timely basis, land,administration and accounting functions, including but not limited to paymentof production proceeds, lease rentals and shut-in royalties, and payments dueunder any Surface Use Agreements or other landowner agreements, andtransitioning these functions to Purchaser, until no later than three monthsafter closing. Purchaser shall pay Seller six thousand dollars ($6,000) foreach month, and any part of any month, during which Seller performs the landadministration and accounting functions on Purchaser’s behalf. Purchaser shallreimburse Seller for all actual amounts paid by Seller on Purchaser’s behalf tothird parties (excluding any amounts received by Seller from a third party,such as a gas purchaser, for further distribution). Purchaser agrees to defend,indemnify, and hold Seller harmless from and against any and all claims,demands, and causes of action brought by any third party or parties whichallege Seller’s non-performance or mis- performance of the land administrationand accounting functions during this period, except as are occasioned by Seller’sgross negligence or willful misconduct. Purchaser shall pay Seller within tenbusiness days after receipt of Seller’s invoice and documentation acceptable toPurchaser of any actual amounts paid by Seller on Purchaser’s behalf, or, atSeller’s option, through the post-closing adjustment procedure.

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Seller shall retain theoriginals of all files, records, data, and information (the “Records”) referredto in Section 2.2(m) of this Agreement, and Purchaser shall receive copies onlythereof. Seller has in its possession only originals of some of the Records.The cost of copying those original Records which Purchaser wishes to havecopied shall be borne by Seller. The cost of shipping copies of the Recordsfrom Seller’s offices to Purchaser’s offices shall be borne by Purchaser.Seller shall notify Purchaser when Seller is no longer under any legalobligation or corporate records retention requirement to retain the originalRecords, so that they may be transferred to Purchaser if Purchaser so desires.

9.3           **Post-ClosingAdjustment Procedure.**As soon as practicable after the Closing Date,but no later than 90 days after the Closing Date, Purchaser shall prepare anddeliver to Seller, in accordance with this Agreement and generally acceptedaccounting principles, a statement (the “**FinalSettlement Statement**”)****settingforth each adjustment in accordance with Section 3.2 and showing thecalculation of such adjustments. Within 15 days after receipt of the FinalSettlement Statement, Seller shall deliver to Purchaser a written reportcontaining any changes that Seller proposes be made to the Final SettlementStatement. The Parties shall use their Reasonable Good-Faith Efforts to agreewith respect to the amounts due pursuant to such post-closing adjustment nolater than 15 days after Purchaser has received Seller’s proposed changes. ThePurchase Price as reflected in the Final Settlement Statement shall be calledthe “**Final Purchase Price**.”****The date upon which such agreement isreached or upon which the Final Purchase Price is established shall be calledthe “**Final Settlement Date**.”

If(i) the Final Purchase Price is more than the Adjusted Purchase Price,Purchaser shall pay in immediately available federal funds the amount of suchdifference to Seller or to Seller’s account (as designated by Seller), or (ii)the Final Purchase Price is less than the Adjusted Purchase Price, Seller shallpay in immediately available federal funds the amount of such difference toPurchaser or to Purchaser’s account (as designated by Purchaser). Payment byPurchaser or Seller, as applicable, shall be made within five days after theFinal Settlement Date.

IfSeller and Purchaser are unable to agree upon the Final Settlement Statementwithin 60 days after Purchaser’s receipt of same, the Parties agree to engagepromptly (and in any event within ten days) the Denver office of an accountingfirm which is not the auditor of either Party and is mutually acceptable toboth Parties (the “**Independent Accountant**”).****Such Independent Accountant shall performsuch procedures as are agreed upon by Seller and Purchaser in order todetermine the Final Purchase Price. The determination of the IndependentAccountant that conducts the agreed upon procedures shall be binding on Purchaserand Seller, and the fees and expenses of such Independent Accountant shall beborne one-half each by Purchaser and Seller. Within five days after thedetermination of the independent accounting firm, Purchaser or Seller, as thecase may be, shall promptly make a cash payment, in immediately availablefunds, to the other equal to the amount, if any, found due by the IndependentAccountant.

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Purchaserand Seller will, and will cause their representatives to, cooperate and assistin the preparation of the Final Settlement Statement and the conduct of thereviews and audits referred to in this Section 9.3, including (withoutlimitation) making available books, records and personnel as required.

9.4           **Recording.**Purchaser shall be solely responsible for promptly recording theassignments and any other instruments related to the conveyance of the Assets,and Seller shall cooperate in providing to Purchaser any information reasonablyrequired by Purchaser to make such recording. Purchaser shall be responsible forall filings with state and federal agencies for change of owner or operator.All recording and filing fees shall be paid by Purchaser and, where paid bySeller (with the written consent of Purchaser), reimbursed by Purchaserpromptly after receipt of an invoice. Purchaser shall provide copies of allsuch recorded assignments and other instruments, and state and federal agencyfilings, to Seller as soon as reasonably practical after their recording orfiling.

9.5           **ContractsRequiring Consents.** If Seller and Purchaser should be unable toobtain any consent required for the transfer of any of the Material Agreements,Leases and Lands, other leases of Real Property and Rights-of-Way (each suchagreement, grant or lease, a “**Non-AssignedAgreement**”),****suchNon-Assigned Agreements shall be held by Seller for the benefit of Purchaserafter Closing for its term such that (a) Seller shall provide Purchaser withthe economic benefits thereof until or unless such consent is received (b)Purchaser and Seller shall cooperate in enforcing, at Purchaser’s sole cost andexpense, any and all rights of Seller against a third party with respect tosuch Non-Assigned Agreement. Purchaser shall fully indemnify, defend and holdharmless Seller from all Claims with respect to the Non-Assigned Agreements andrelated property to the extent such Claims did not arise from Seller’snegligence or misconduct. Purchaser shall be entitled to retain for its ownaccount any amounts collected pursuant to the foregoing, including any amountspayable as interest in respect thereof.

IfSeller fails to obtain such consent by December 31, 2006, and such failureresults in a Material Adverse Effect, Seller and Purchaser shall in good faithnegotiate a mutually agreeable adjustment to the Adjusted Purchase Price, whichSeller shall remit to Purchaser within ten (10) business days after suchagreement is reached. If Seller and Purchaser are unable to reach agreement,then the issue shall resolved in the same manner as resolution of Title Defectsand Environmental Conditions under Articles 3.3(b) and Article 6.3 of thisAgreement.

9.6           **FurtherAssurances.**Each Party shall, from time to time at the reasonablerequest of the other, and without further consideration, execute and deliversuch other instruments of sale, transfer, conveyance, assignment, clarificationand termination and take such other action as the Party making the request mayrequire to carry out the transaction provided for in this Agreement inaccordance with the terms hereof, including those required, to sell, transfer,convey and assign to, and vest in Purchaser, and to place Purchaser inpossession of the Assets. Seller intends to convey

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the Assets at Closing; however, in the event it isdetermined after Closing that: (i) any part of the Assets were not in factconveyed to Purchaser, and that the title to any part of the Assets isincorrectly in the name of Seller, or (ii) any asset not an Asset is conveyedto Purchaser and that the title to such asset is incorrectly in the name ofPurchaser; then each Party shall take all such action necessary to correctlyconvey such Assets to Purchaser, or such assets to Seller.

9.7           **Post-ClosingConfidentiality.**In addition to the confidentiality obliga­tionsimposed by Section 7.6, after the Closing, each Party and its Affiliates willhold, and will use reasonable efforts to cause their respective officers,directors, employees, accountants, counsel, consultants, advisors and agents tohold, in confidence, all Confidential Information, to the extent requiredhereunder. The obligation to hold any such information in confidence shall besatisfied if they exercise the same care with respect to such information asthey would take to preserve the confidentiality of their own similarinformation.

**ARTICLE X INDEMNITIES, ASSUMED LIABILITIES AND EXCLUDED LIABILITIES**

10.1         **Disclaimers.**EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THE REPRESENTATIONS AND WARRANTIESOF SELLER CONTAINED IN THIS AGREEMENT, THE ASSETS ARE TO BE SOLD BY SELLER ANDPURCHASED BY PURCHASER AS IS, WHERE IS, AND IN THEIR CURRENT CONDITION. THEEXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENTARE EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESSOR IMPLIED, STATUTORY OR OTHERWISE AND, EXCEPT AS PROVIDED IN SECTION 10.4, THEREPRESENTATIONS AND WARRANTIES CONTAINED HEREIN SHALL TERMINATE IN ALL RESPECTSUPON CLOSING. SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSOR IMPLIED, STATUTORY OR OTHERWISE RELATING TO THE ASSETS, INCLUDING WARRANTIESOF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTIES AS TOCONDITION, QUANTITY OR QUALITY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIESEXPRESSLY SET FORTH HEREIN.

10.2         **AssumedObligations.**Except as provided in Section 10.4 and subject toSection 10.3, at Closing, Purchaser shall assume, pay, discharge and performthe following (the “**Assumed Obligations**”):

(a)           other obligations and liabilities ofSeller but only to the extent that there shall have been an adjustment oraccounting adjustment entry with respect thereto pursuant to Section 3.2;

(b)           all obligations and liabilitiesrelating to, arising out of or attributable to ownership or operation of theAssets after the Effective Date

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(including all liability for plugging and abandoningany of the Wells) other than any Income Taxes of Seller (without prejudice toPurchaser’s right to enforce representations, warranties, covenants andindemnities expressly provided under this Agreement);

(c)           commencing one (1) year after theEffective Date, all obligations and liabilities relating to, arising out of orattributable to ownership or operation of the Assets regardless of whether suchobligations and liabilities arose before or after the Effective Date,(including, but not limited to those matters described in Section 10.3 (c)),other than any Income Taxes of Seller and those matters described in Sections10.3(a), 10.3(b), 10.3(d), and 10.3(e) of this Agreement (without prejudice toPurchaser’s right to enforce representations, warranties, covenants andindemnities expressly provided under this Agreement);

(d)           all responsibility, obligation, andliability to plug and abandon the Wells described on Exhibit A and to restorethe surface of the Lands, both in accordance with all applicable leases,surface use agreements, statutory and common laws, and the regulations of anygovernmental entities, and Purchaser agrees to defend, indemnify, and holdSeller harmless from and against any and all liability related thereto; and

(e)           other than with respect to title andenvironmental matters and the Excluded Obligations, any and all liabilities,obligations or commitments arising after the Effective Date in connection withor relating in any way to the use, ownership or operation of the Assets, and forproper and prompt payment of any suspended revenues, together with any interestdue thereon if properly accrued or reserved by Seller and the funds weretransferred to Purchaser.

10.3         **ExcludedObligations.**Notwithstanding any provision in this Agreement or anyother writing to the contrary, Purchaser is assuming only the AssumedObligations and is not assuming any other liability or obligation of Seller (orany predecessor of Seller or any prior owner of all or part of its businessesand assets) of whatever nature, whether presently in existence or arisinghereafter. All such other liabilities and obligations shall be retained by andremain obligations and liabilities of Seller (all such liabilities andobligations not being assumed being herein referred to as the “**Excluded Obligations**”),****and, notwithstanding anything to thecontrary in this Section 10.3 (and without limiting the generality of theforegoing), none of the following shall be Assumed Obligations for the purposesof this Agreement and all of the following shall be deemed ExcludedObligations:

(a)           any liability or obligation ofSeller, or any member of any consolidated, affiliated, combined or unitarygroup of which Seller is or has been a member, for Taxes other than PropertyTaxes and Sales. Taxes that are expressly assumed by Purchaser pursuant toSection 11.3(b) and (c);

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(b)           any liability or obligation relatingto employee benefits or compensation arrangements existing on or prior to theClosing Date, including, without limitation, any liability or obligation underany of Seller’s employee benefit agreements, plans or other employee-relatedarrangements;

(c)           except to the extent assumed byPurchaser in Section 10.2 of this Agreement, any and all liabilities (whetheraccrued, contingent, absolute, determined, determinable or otherwise),obligations or commitments relating to the time period prior to the EffectiveDate which arise under or relate in any way to any Environmental LegalRequirement and arise out of or in any way relate to (i) any of theEnvironmental Conditions set forth on Schedule 4.11, (ii) the current or formerownership, lease or operation by Seller, any operator of the Assets or any oftheir respective predecessors or Affiliates of any business, real property orfacility, other than the Assets or the Assets purchased by Purchaser hereunder,or (iii) the storage, disposal, treatment, transportation or recycling, orarrangement for any of the foregoing, of any material or substance prior to theClosing Date at any location other than the Assets.

(d)           all fines, penalties or other similarmonetary sanctions (“**Fines**”)assessed by a Governmental Authority, or any criminal, punitive or exemplarydamages **(**“**Criminal Damages**”****and together with Fines, “**Finesand Damages**”) that are payable to a Person other than a Party or anAffiliate of a Party, that arise out of or relate to the operation of theAssets or Assets prior to the Effective Date; and

(e)           any liability or obligation relatingto an Excluded Asset.

10.4         **Survivaland Indemnification.**

(a)           The representations and warranties ofthe Parties hereto contained in this Agreement or in any certificate or otherwriting delivered pursuant hereto or in connection herewith shall survive theClosing until December 31, 2006. Notwithstanding the preceding sentence, anyrepresentation, warranty, covenant or agreement which is specified as survivingClosing and in respect of which indemnity may be sought under this Agreementshall survive the time at which it would otherwise terminate pursuant to the precedingsentence, if specific notice of the inaccuracy thereof giving rise to suchright of indemnity shall have been given to the Party against whom suchindemnity may be sought prior to such time.

(b)           From and after Closing, Purchasershall indemnify, defend and hold harmless Seller and its Affiliates, and theirrespective directors, officers, employees, agents, representatives, contractorsand subcontractors from and against any and all losses, damages, claims, suits,causes of action, penalties, costs, expenses (including without limitation,reasonable expenses of investigation and reasonable attorneys’ fees andexpenses in connection with any

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action, suit or proceeding and liabilities other thanspecial or punitive damages), including, without limitation, damage toproperty, injury to or death of persons or other claims (collectively, the “**Claims**”), regardless of whether the Claimsarise as a result of the negligence, strict liability or any other liabilityunder any theory of law or equity of, arising out of or resulting from:

(i)            the breach of any of therepresentations and warranties made by Purchaser in this Agreement or in anydocument, instrument or certificate delivered in connection herewith, duringthe applicable survival period;

(ii)           any failure by Purchaser to performin all material respects any of its covenants, agreements or obligations inthis Agreement or in any document, instrument or certificate delivered inconnection herewith;

(iii)          the Assumed Obligations, except thoseset forth in Section 10.2(d) which arise under or relate to actions occurringor conditions existing prior to the Closing Date;

(iv)          Sales Taxes and Property Taxes andother Taxes for which Purchaser is liable under Article XI hereof; and

(v)           any brokerage commissions or finders’fees incurred by Purchaser in connection with this Agreement or thetransactions contemplated hereby.

(c)           Without limiting Seller’s obligationsunder this Agreement, from and after Closing, Seller shall indemnify, defendand hold harmless Purchaser and its Affiliates and Purchaser’s and theirrespective directors, officers, employees, agents, representatives, contractorsand sub-contractors from and against any Claims, regardless of whether suchClaims arise as a result of the negligence, strict liability or any otherliability under any theory of law or equity of, arising out of or resultingfrom:

(i)            the breach of any of therepresentations or warranties made by Seller in this Agreement or in anydocument, instrument or certificate delivered in connection herewith, duringthe applicable survival period;

(ii)           any failure by Seller to perform inall material respects any of its covenants, agreements or obligations in thisAgreement or in any document, instrument or certificate delivered in connectionherewith; and

(iii)          any brokerage commissions or finders’fees incurred by Seller in connection with this Agreement or the transactionscontemplated hereby.

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10.5         **Procedures**.The Party seeking indemnification under Section 10.4 (the “**Indemnified Party**”) agrees to give promptnotice to the Party against whom indemnity is sought (the “**Indemnifying Party**”) of the assertion ofany claim, or the commencement of any suit, action or proceeding in respect ofwhich indemnity may be sought under such Section 10.4. The Indemnifying Partymay with the consent of the Indemnified Party participate in and control thedefense of any such suit, action or proceeding at its own expense. TheIndemnifying Party shall not be liable under Section 10.4 for any settlementeffected without its consent of any claim, litigation or proceeding in respectof which indemnity may be sought hereunder.

ARTICLE XI TAXES

11.1         **TaxDefinitions**. The following terms, as used herein, have the followingmeanings:

“**Income Tax**” means all Taxes based upon ormeasured by or with respect to gross or net income.

“**Property Tax**” means any ad valorem, realproperty, personal property, production, excise, net proceeds, severance,windfall profit and all other Taxes and similar obligations assessed against theAssets or based upon or measured by the ownership of the Assets or thegathering or processing of hydrocarbons or the receipt or proceeds therefrom,other than Income Taxes.

“**Sales Tax**” means all excise, sales, use,value added, registration, stamp, recording, documentary, conveyance, transfer,gains and similar Taxes.

“**Tax**” means (i) any tax, governmental fee orother like assessment or charge of any kind whatsoever (including, but notlimited to, withholding on amounts paid to or by any Person), together with anyinterest, penalty, addition to tax or additional amount imposed by anyGovernmental Authority (a “**Taxing Authority**”)responsible for the imposition of any such tax (domestic or foreign), or (ii)liability for the payment of any amounts of the type described in (i) as aresult of being party to any agreement or any express or implied obligation toindemnify any other Person.

“**Tax Year**” means the twelve month periodbeginning with the Assessment Date, January 1.

11.2         **Representations**.Seller hereby represents and warrants to Purchaser that:

(a)           Except for Sales Taxes imposed inconnection with the transfer of the Assets, Seller has timely paid all Taxeswhich will have been required to be paid on or prior to the date hereof, thenon-payment of which would result in a Lien on any Asset, would otherwiseadversely affect any of the Assets or would result in Purchaser becoming liableor responsible therefor.

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(b)           Except as to Taxes for which aPurchase Price Adjustment has been made or as otherwise provided in thisAgreement, and except as would not cause a Material Adverse Effect, Seller hasestablished, in accordance with generally accepted accounting principlesapplied on a basis consistent with that of preceding periods, adequate reservesfor the payment of, and will timely pay, all Taxes which arise from or withrespect to the Assets or the operation of any of the Assets and are incurred inor attributable to any Tax period (or portion thereof) ending on or before theEffective Date, the non-payment of which would result in a Lien on any Asset,would otherwise adversely affect any of the Assets or would result in Purchaserbecoming liable therefor.

11.3         **TaxCooperation**.

(a)           Notwithstanding any other provisionof this Agreement to the contrary, Purchaser and Seller agree to furnish orcause to be furnished to each other, upon request, as promptly as practicable,such information and assistance relating to any of the Assets and the Assets(including, without limitation, access to books and records) as is reasonablynecessary for the filing of all Tax returns, the making of any electionrelating to Taxes, the preparation for any audit by any Taxing Authority, andthe prosecution or defense of any claim, suit or proceeding relating to anyTax. Purchaser and Seller shall retain all books and records with respect toTaxes pertaining to the Assets for a period of at least six years following theClosing Date.

(b)           Based on the best current informationavailable as of the Closing Date, all Property Taxes for the current Tax Yearthat are or will become due and payable in respect of the Assets shall beprorated between Seller and Purchaser as of the Effective Date. Seller’spro-rata share of the Property Taxes shall be calculated as the product of theratio of months or partial months in the period beginning with the AssessmentDate through the Effective Date times the amount of Property Taxes in respectof the Assets. The proration shall be deemed a final settlement of PropertyTaxes between the Parties. The Purchase Price shall be reduced by the unpaidportion of Seller’s pro-rata share of Property Taxes. After Closing, Purchaserexpressly assumes all obligations and liabilities for all Property Taxespayable by the Seller with respect to the Assets.

(c)           All Property Taxes and Sales Taxesshall be timely paid, and all applicable filings, reports and returns shall befiled, as required by applicable Legal Requirements or as provided herein. Thepaying Party shall be entitled to reimbursement from the non-paying Party inaccordance with Section 11.3(b) or 11.3(e), as the case may be. Upon payment ofany such Property Tax or Sales Tax, the paying Party shall present a statementto the non-paying Party setting forth the amount of reimbursement to which thepaying Party is entitled under Section 11.3(b) or 11.3(e), as the case may be,together with such supporting evidence as is reasonably necessary to calculatethe amount to be reimbursed.

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The non-paying Party shall make such reimbursementpromptly but in no event later than 10 days after the presentation of suchstatement.

(d)           *TaxProceedings.*In the event Purchaser or any of Purchaser’s Affiliatesreceives notice of any examination, claim, adjustment or other proceedingrelating to the liability for Taxes of or with respect to the Assets for anyperiod prior to the Effective Date other than obligations and liabilities forProperty Taxes and Sales Taxes assumed by Purchaser pursuant to Sections11.3(b) and 11.3(e), Purchaser shall notify Seller in writing within seven (7) daysof receiving notice thereof. The failure by Purchaser to so notify Seller shallnot relieve Seller of any liability that it may have to Purchaser under thisAgreement, except to the extent that such failure actually and materiallyprejudices Seller. As to any such Taxes for which Seller is or may be liable,Seller shall at Seller’s expense control or settle the contest of suchexamination, claim, adjustment or other proceeding; *provided*that, so long as Seller’s interests are notadversely affected thereby, Purchaser shall, at its expense, control thedefense of any examination, claim, adjustment or proceeding which would affect(i) any Tax return of Purchaser or (ii) the manner in which Purchaser or any ofits Affiliates conducts any Tax audit, suit action or proceeding with respectto such Tax return; *provided, further,*thatPurchaser shall not settle any examination, claim, adjustment or proceeding thedefense of which it has controlled without the Seller’s prior written consent.The Parties shall cooperate with each other and with their respectiveAffiliates in the negotiations and settlement of any proceeding described inthis Section 11.3.

(e)           *SalesTaxes.*All Sales Taxes incurred in connection with the transactionscontemplated by this Agreement shall be borne by Purchaser.

(f)            *Allocationof Purchase Price.*The Adjusted Purchase Price shall be allocatedamong the Assets, including contracts and other intangibles assets, by thePurchaser and Seller within 60 days following the Closing Date, subject to thefollowing:

(i)            Such allocation of the AdjustedPurchase Price will be reflected in a Form 8594 that will be filed by Purchaserand Seller in accordance with Section 1060 of the Code; and

(ii)           The Purchaser and Seller agree to usetheir best efforts to treat and report in filings under the Code (and, ifnecessary, to cause each of their respective Affiliates to so treat and report)the transactions contemplated by this Agreement in a manner consistent with oneanother.

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ARTICLE XII MISCELLANEOUS PROVISIONS

12.1         **Commissions**.Each of the Parties represents and warrants that there are no claims forbrokerage commissions or finders’ fees payable by it in connection with thetransactions contemplated by this Agreement. Seller and Purchaser each will payor discharge its own brokerage commissions or finders’ fees, if any, and willindemnify the other Party from any liability with respect thereto.

12.2         **FurtherAssurances**. From time to time, and without further considerationeach Party will execute and deliver to the other Party such documents and takesuch actions as the other Party may reasonably request in order to consummatemore effectively the transactions contemplated hereby.

12.3         **Assignment**.The terms, provisions and conditions of this Agreement shall extend to, bebinding upon and inure to the benefit of the Parties, their respectivesuccessors, permitted assigns and legal representatives. No Party shall assignthis Agreement or any of its rights hereunder, or delegate any of itsobligations hereunder, without the prior written consent of the other, suchconsent may not be unreasonably withheld except that Purchaser may assign ordelegate its rights and obligations under this Agreement or any part hereof toone or more Affiliates of Purchaser, but no such assignment shall in any wayoperate to enlarge, alter or change any obligation of or due to Seller orrelieve Purchaser of its obligations.

12.4         **EntireAgreement; Amendments**. This Agreement and the exhibits and schedulesattached hereto and incorporated by reference herein contain the entireunderstanding of the Parties with respect to its subject matter. There are norestrictions, agreements, promises, warranties, covenants or undertakings otherthan those expressly set forth herein. Notwithstanding any representations thatmay have been made by either Party in connection with the transactionscontemplated by this Agreement, each Party acknowledges that it has not reliedon any representation by the other Party with respect to such transactions orthe Assets except those contained in this Agreement or in the exhibits orschedules hereto. This Agreement may be amended only by a written instrumentduly executed by the Parties. No waiver by any Party of any one or moredefaults by the other in performance of any of the provisions of this Agreementshall operate or be construed as a waiver of any future default or defaults,whether of a like or different character.

12.5         **Severability**.Each portion of this Agreement is intended to be severable. If any term or provisionhereof is illegal or invalid for any reason whatsoever, such illegality orinvalidity shall not affect the validity of the remainder of this Agreement.

12.6         **Actions**.Without limiting its right to avail itself of rights of termination availableto it under this Agreement, Seller and Purchaser, singularly and plurally,warrant and agree that each shall use its Reasonable Good-Faith Efforts to takeor cause to be taken all such action as may be necessary to consummate and makeeffective the

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transactions as set forth in this Agreement and toassure that it will not be under any material corporate, legal or contractualrestriction that would prohibit or delay the timely consummation of suchtransaction.

12.7         **Termination**.This Agreement and the transactions contemplated hereby may be terminated inthe following instances:

(a)           By either Party upon written noticeto the other, if (x) the other (the “**BreachingParty**”) is in material breach or default of its respectivecovenants, agreements or other obligations herein or (y) any of itsrepresentations are not true and accurate in all material respects when made orwhen otherwise required by this Agreement to be true and accurate; *provided,*however, that (i) the BreachingParty is given prompt written notice which provides a reasonably detailedexplanation of the facts and circumstances surrounding such breach or defaultand (ii) the Breaching Party is given 30 days after receipt of such noticewithin which to cure such breach or default to the reasonable satisfaction ofthe non-Breaching Party. If this Agreement is terminated under this Section12.7(a) by Seller due to Purchaser’s breach, then Seller shall retain thePerformance Deposit. If this Agreement is terminated under this Section 12.7(a)by Purchaser due to Seller’s breach, then Seller shall refund the PerformanceDeposit to Purchaser within two business days after termination.

(b)           By either Party if Closing shall nothave occurred by the Closing Date as extended pursuant to the terms hereof,upon written notice to the non-terminating Party at any time following suchdate. If this Agreement is terminated under this Section 12.7(b) by Seller dueto Purchaser’s failure or refusal to close, then Seller shall retain thePerformance Deposit. If this Agreement is terminated under this Section 12.7(b)by Purchaser due to Seller’s failure or refusal to close, then Seller shallrefund the Performance Deposit to Purchaser within two business days aftertermination.

(c)           At any time by the mutual writtenagreement of Purchaser and Seller, in which event Seller shall refund thePerformance Deposit to Purchaser within two business days after termination, or

(d)           By Seller, pursuant to Sections3.3(f) and 6.4, or by Purchaser pursuant to Section 7.1. If either Seller orPurchaser exercises its right of termination under this Section 12.7(d), Sellershall refund the Performance Deposit to Purchaser within two business daysafter termination.

12.8         **LiabilitiesUpon Termination or Breach.**

(a)           If this Agreement is terminated aspermitted by Section 12.7, such termination shall be without liability ofeither Party (or any stockholder, director, officer, manager, member, employee,agent, consultant or representative of such Party) to the other Party, exceptas provided therein for refund or

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retention of the Performance Deposit; provided that ifsuch termination shall result from the (i) willful failure of either Party tofulfill a condition to the performance of the obligations of the other Party,(ii) failure to perform a covenant of this Agreement or (iii) breach by eitherParty hereto of any representation or warranty or agreement contained herein,and in any such case there is not an unqualified right of termination availableto such Party, such Party shall be fully liable for any and all Claims incurredor suffered by the other Party as a result of such failure or breach. Theprovisions of Sections 7.6, 12.8, 12.10 and 12.13 shall survive any terminationhereof pursuant to Section 12.7.

(b)           Except as provided above in thisSection 12.8, prior to Closing, nothing contained herein shall be construed tolimit Seller’s or Purchaser’s legal or equitable remedies in the event ofbreach of this Agreement, provided that neither party shall have any greaterrights or remedies before Closing than such party would have had subsequent toClosing. After Closing, the Parties’ respective rights and remedies withrespect to any material breach or default of the covenants, agreements orobligations hereunder shall be solely limited to those set forth in Article Xof this Agreement. Notwithstanding anything to the contrary contained in thisAgreement, in no event shall either Purchaser or Seller be liable to the otherfor any incidental or consequential damages.

12.9         **Counterparts.**This Agreement may be executed simultaneously in any number ofcounterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.

12.10       **GoverningLaw.**This Agreement shall be governed by, enforced in accordancewith, and interpreted under, the laws of the State of Wyoming. Each of theParties consents to venue and jurisdiction in the United States Court for theDistrict of Wyoming.

12.11       **Preparationof Agreement.**This Agreement was prepared jointly by the Parties andnot by either to the exclusion of the other.

12.12       **Noticesand Addresses.**Any notice, request, instruction, waiver or othercommunication to be given hereunder by any Party shall be in writing anddelivered personally, by registered or certified mail with postage prepaid andreturn receipt requested, by recognized overnight courier service with chargesprepaid or by facsimile transmission directed to the intended recipient asfollows:

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| Seller:    |   | Pennaco Energy, Inc.                      |
|------------|--------|-------------------------------------------|
|       |   | 5555 San Felipe Street                    |
|       |   | Houston, Texas 77056                      |
|       |   | Attention: Land Manager                   |
|       |   | Powder River Basin                        |
|       |   | Telephone: (713) 296-2335                 |
|       |   | Facsimile: (713) 296-3396                 |
|       |   | e-mail: DSchulte@Marathonoil.com          |
|       |   |                                      |
| Purchaser: |   | PRB Energy, Inc.                          |
|       |   | 1875 Lawrence Street, Suite 450           |
|       |   | Denver, Colorado 80202                    |
|       |   | Attention: William F. Hayworth, President |
|       |   | Telephone: (303)308-1330                  |
|       |   | Facsimile: (303)308-1590                  |
|       |   | e-mail: bhayworth@prbtrans.com            |

or at such other addressas either Party may designate by written notice provided in the foregoing manner.

12.13       **WAIVEROF JURY TRIAL.**EACH OF THE PARTIES HERETO HEREBY IRREVOCABLYWAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUTOF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

12.14       **Bulk Sales Legal Requirements.**Purchaserand Seller each hereby waive compliance by Seller with the provisions of the *“bulk sales,” “bulk transfer”*or similarLegal Requirements of any state. Seller agrees to indemnify and hold Purchaserharmless against any and all Claims incurred by Purchaser or any of itsAffiliates as a result of any failure by Seller to comply with any such *“bulk sales,” “bulk transfer”*or similarLegal Requirements.

12.15       **Expenses.**Except as otherwise provided herein, all costs and expenses incurredin connection with this Agreement shall be paid by the Party incurring suchcost or expense.

12.16       **Use ofPennaco’s Name.**No later than thirty (30) days after Closing,Purchaser shall remove, or cause to be removed, the names and marks used byPennaco and all variations and derivatives and logos from the Assets, ifPennaco has not already done so. Purchaser shall not make any use of Pennaco’sname, marks and logos after Closing in operation of the Assets. Pennaco shallhave the right to enter the premises and remove all signs and logos containingPennaco’s name at Purchaser’s expense should Purchaser fail to do so in atimely manner.

12.17       **ExecutionDeadline.**This Agreement shall be open for Seller’s and Purchaser’sacceptance and execution until 5:00 p.m. Mountain Time on May 18, 2006,

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and if not accepted and fully executed by such time,shall be null and void. Acceptance within the time provided shall constitute acontract of purchase and sale binding upon the Parties and their respectivesuccessors and assigns.

**IN WITNESS WHEREOF,**the Parties haveexecuted this Agreement as of the date first set forth above.
| “SELLER”        |                    | “PURCHASER” |
|---------------------------|-------------------------|-----------------------|
| **PENNACO  ENERGY, INC.** |                    | **PRB ENERGY, INC.**  |
|                      |                    |
|                      |                    |
| By:                       | /s/ Robert J.  Colosimo |                  | By: | /s/ William F.  Hayworth |
|                      | Robert J.  Colosimo     |                  | William F.  Hayworth, President |
|                      | Attorney-in-Fact        |                  |   |
|                           |                         |                       |  |  |  |

 

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