**Exhibit 10.16**

** **

**GATHERING SERVICES AGREEMENT**

 

**BETWEEN**

 

**PRB GAS TRANSPORTATION, INC****(GATHERER)**

 

**AND**

 

**STORM CAT ENERGY (USA) OPERATING CORPORATION****(OWNER)**

 

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**TABLE OFCONTENTS**

 

**GATHERINGSERVICES AGREEMENT**

 
| RECITALS                                                                | 1      |
|-------------------------------------------------------------------------|--------|
|                                                                    |   |
| ARTICLE I: OWNER’S OBLIGATIONS                                     | 1      |
| Section  1.1 Dedication of Gas                                          | 1      |
| Section  1.2 After-Acquired Interests                                   | 2      |
| Section  1.3 Owner Representation and Warranties                        | 2      |
| Section  1.4 Owner’s Reservations                                  | 2      |
|                                                                    |   |
| ARTICLE II: GATHERER’S OBLIGATIONS                                 | 2      |
| Section  2.1 Gathering Services                                         | 2      |
| Section  2.2 Gathering Facilities                                       | 2      |
| Section  2.3 Receipt Points                                             | 3      |
| Section  2.4 Delivery Points                                            | 3      |
|                                                                    |   |
| ARTICLE III: TERM OF AGREEMENT                                          | 3      |
|                                                                    |   |
| ARTICLE IV: GATHERING CHARGE AND PAYMENT                                | 3      |
| Section  4.1 Gathering Fee                                              | 3      |
| Section  4.2 Annual True-up                                             | 3      |
| Section  4.3 Gathering Fee Adjustments                                  | 4      |
| Section  4.4 Alternative Power/Fuel Source Fee                          | 5      |
| Section  4.5 Facilities Fee For Quality Monitoring and Other Facilities | 5      |
| Section  4.6 Treating and Other Fees                                    | 5      |
|                                                                    |   |
| ARTICLE V: NOTICES/INVOICES                                             | 5      |
|                                                                    |   |
| ARTICLE VI: MEMORANDUM OF AGREEMENT                                     | 6      |
|                                                                    |   |
| ARTICLE VII: GOVERNING LAW                                              | 6      |
|                                                                    |   |
| ARTICLE VIII: MISCELLANEOUS                                             | 6      |
| Section 8.1 Entire Agreement                                            | 6      |
| Section  8.2 Amendments Must Be in Writing                              | 6      |
| Section  8.3 No Waiver                                                  | 6      |
| Section  8.4 No Third-Party Rights                                      | 6      |
| Section  8.5 Limitation of Liability                                    | 7      |
| Section  8.6 Severability                                               | 7      |
| Section  8.7 Confidentiality                                            | 7      |

 

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| Section  8.8 Binding Arbitration                                          | 7 |
|---------------------------------------------------------------------------|---|
| Section  8.9 Right to Terminate in the Event of Governmental Jurisdiction | 8 |

 

**GENERAL TERMSAND CONDITIONS****TO THEGATHERING SERVICES AGREEMENT**

 
| SECTION 1: DEFINITIONS                                         | GTC - 1                                             |
|----------------------------------------------------------------|-----------------------------------------------------|
|                                                           |                                                |
| SECTION 2: NOMINATION AND  SCHEDULING                          | GTC - 3                                             |
| 2.1                                                            | Nominations                                         | GTC - 3 |
|                                                           |                                                |   |
| SECTION 3: CONTRACT BALANCING                                  |                                                |
| 3.1                                                            | Owner’s  Obligation to Maintain Balance        | GTC - 3 |
|                                                           |                                                |
| SECTION 4: OWNERSHIP AND CONTROL                               | GTC - 4                                             |
|                                                           |                                                |   |
| SECTION 5: PRESSURES                                           | GTC - 4                                             |
|                                                           |                                                |   |
| SECTION 6: GAS MEASUREMENT AND  QUALITY                        |                                                |
| 6.1                                                            | Specifications                                      | GTC - 4 |
| 6.2                                                            | Non-Conforming  Gas                                 | GTC - 5 |
| 6.3                                                            | Fuel  Usage                                         | GTC - 5 |
| 6.4                                                            | Line  Loss and Unaccounted Gas                      | GTC - 6 |
| 6.5                                                            | Audit  of Fuel Usage, Line Loss and Unaccounted Gas | GTC – 6 |
| 6.6                                                            | Online  Performance                                 | GTC – 6 |
|                                                           |                                                |
| SECTION 7: UNECONOMIC OPERATION  OF GATHERER’S FACILITIES | GTC - 6                                             |
|                                                           |                                                |
| SECTION 8: FORCE MAJEURE                                       | GTC - 7                                             |
|                                                           |                                                |
| SECTION 9: BILLING AND PAYMENT                                 | GTC - 7                                             |
| 9.1                                                            | Statements                                          | GTC - 7 |
| 9.2                                                            | Payment                                             | GTC - 7 |
| 9.3                                                            | Disputed  Statements                                | GTC - 8 |
| 9.4                                                            | Failure  to Pay Invoice                             | GTC - 8 |
| 9.5                                                            | Audit                                               | GTC – 8 |
|                                                           |                                                |
| SECTION 10: ASSIGNMENT                                         | GTC - 8                                             |
|                                                           |                                                |
| SECTION 11: TAXES                                              | GTC - 9                                             |
|                                                           |                                                |
| SECTION 12: RIGHTS OF WAY                                      | GTC - 9                                             |

 

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| EXHIBIT A: AREA OF DEDICATION AND  RESERVE COMMITMENT AREA |   |
|------------------------------------------------------------|--------|
|                                                       |   |
| EXHIBIT B: FACILITIES  DEVELOPMENT PLAN                    |   |
|                                                       |   |
| EXHIBIT C: RECEIPT POINTS                                  |   |
|                                                       |   |
| EXHIBIT D: DELIVERY POINTS                                 |   |
|                                                       |   |
| EXHIBIT D-1: VOLUME COMMITMENTS                            |   |
|                                                       |   |
| EXHIBIT E: MEASUREMENT, TESTING  AND METERING              |   |
|                                                       |   |
| EXHIBIT F: MEMORANDUM OF AGREEMENT                         |   |
|                                                       |   |
| EXHIBIT G: GATHERING FACILITY  LIMITATIONS                 |   |
|                                                       |   |
| EXHIBIT H: INITIAL FACILITIES                              |   |

 

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**GATHERINGSERVICES AGREEMENT**

 

ThisGathering Services Agreement (“Agreement”) is entered into and made this          day of               ,2006, by and between **Storm Cat Energy(USA) Operating Corporation**, a Colorado corporation (“Owner”),and**PRB Gas Transportation, Inc.**,a Nevada corporation (“Gatherer”) (each a “Party” andcollectively the “Parties”).

 

**RECITALS:**

 

WHEREAS,Owner owns, controls or is the agent with the authority to enter into thisAgreement for all right, title and interest in certain production of Gasproduced from the Area of Dedication and the Reserve Commitment Area for whichit desires to have Gathering Services performed; and

 

WHEREAS,Gatherer owns and operates the Gathering Facilities located in the vicinity ofthe Area of Dedication and Reserve Commitment Area and desires to perform suchGathering Services for Owner in the manner provided for herein; and

 

WHEREAS,the Parties have agreed that Owner shall deliver Gas to Gatherer at the ReceiptPoint(s) and Gatherer shall redeliver Equivalent Quantities of Gas, less Owner’spro-rata share of Fuel and Lost and Unaccounted for Gas, to Owner or itsAuthorized Representative at the Delivery Point(s) in accordance with the termsand conditions set forth herein; and

 

WHEREAS,terms not defined herein are as defined in the General Terms and Conditionsattached hereto:

 

NOW,THEREFORE, in consideration of the representations, covenants, and conditionsherein contained, Gatherer and Owner hereby agree as follows:

 

**ARTICLE I****OWNER’S OBLIGATIONS**

 

## 1.1                                 **Dedication of Gas**. Owner hereby dedicates and agrees to deliver forGathering Services under the terms and conditions hereof all of Owner’sReserves produced now or in the future from the Area of Dedication and theReserve Commitment Area for the Term of this Agreement.

##  

## 1.2                                 **After-Acquired Interests**. If Owner acquires any interest in Gas withinthe Reserve Commitment Area subsequent to the date of this Agreement (the “After-AcquiredInterests”), such After-Acquired Interests will likewise be dedicated tothis Agreement in accordance with Section 1.1, provided, however,if such After-Acquired Interests are already dedicated to gathering and/orcompression services by a third-party by agreement on the date of acquisitionby Owner, then at the option of Owner, in its

 

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## sole discretion, suchAfter-Acquired Interests shall become dedicated hereunder at the end of any primaryterm under prior agreement, or upon such earlier date as Owner may have anyright or option to terminate such prior agreement.

##  

## 1.3                                 **Owner Representation and Warranties**. Owner warrants that it holds title to, controls oris the agent with the authority to enter into this Agreement for all of Owner’sReserves, free and clear of all commitments, including without limitation,any dedication of such Gas for use in interstate commerce or subject tothe jurisdiction of the Federal Energy Regulatory Commission. Owner agrees totake no action, directly or indirectly, that would subject the GatheringServices or any portion thereof to the jurisdiction of the Federal EnergyRegulatory Commission or any successor authority under the Natural Gas Act.Owner represents that Gas delivered hereunder shall meet the Specifications.Owner shall indemnify, defend and hold harmless Gatherer from any and all loss,cost, expense and Claims arising from or out of a material breach of therepresentations and warranties contained herein.

##  

## 1.4                                 **Owner’s Reservations**. Owner reserves the following rights and quantitiesof Gas necessary to satisfy same as determined by Owner in its sole andreasonable discretion (“Owner’s Reservations”):

##  

### a.                                       to operate as a reasonably prudent operator, provided,in the event Owner should commence Gas flow from a new well, or work to repair,rework, or plug any well, Owner will use its commercially reasonable efforts toprovide reasonable notice of same to Gatherer; and

###  

### b.                                      to separate or process the Gas using onlymechanical, ambient temperature equipment located at surface productionfacilities at the well location; and

###  

### c.                                       to pod, pool, communitize or unitize Owner’sReserves, in which event this Agreement shall cover Owner’s interests therein.

###  

**ARTICLE IIOBLIGATIONS OF GATHERER**

 

## 2.1                                 **Gathering Services****.**In accordance with the terms and subject to therequirements of this Agreement, Gatherer, or Gatherer’s AuthorizedRepresentative, shall take delivery of 100% of Owner’s Reserves delivered toGatherer at the Receipt Point(s), now through the Term, subject only to ForceMajeure events, Normal and Routine Maintenance, and capacity constraints causedby downstream pipeline(s) and re-deliver Equivalent Quantities of Gas (lessOwner’s pro rata share of Lost and Unaccounted for Gas and Fuel) for Owner’saccount at the Delivery Point(s).

##  

## 2.2                                 **Gathering Facilities**. In order to perform the Gathering Services,Gatherer agrees to purchase, lease, build, own, operate or cause to be providedthe

 

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## Gathering Facilities as are necessary to perform the Gathering Services inaccordance with the Facilities Development Plan attached hereto as Exhibit B.

##  

## 2.3                                 **Receipt Points****.**The points at which Owner shall deliver Gas to Gatherer(“Receipt Points”) are as specified in Exhibit C attached hereto.

##  

## 2.4                                 **Delivery Points****.**The points at which Gatherer shall redeliver toOwner Equivalent Quantities of Gas delivered by Owner to the Receipt Points(less Owner’s pro rata share of Lost and Unaccounted for Gas and Fuel) (“DeliveryPoints”) are as specified in Exhibit D attached hereto. Maximumvolumes, if any, that may be redelivered to any Delivery Point shall be as setforth on Exhibit D.

##  

**ARTICLE IIITERM OF AGREEMENT**

 

ThisAgreement shall be effective on January 1, 2006 (the ”Effective Date”),and, unless otherwise terminated in accordance with the terms of this Agreementshall remain in effect for a period of ten (10) Years (the “Primary Term”),and thereafter continue in effect from Year to Year, unless terminated byeither Party upon written notice to the other Party given thirty (30) Daysprior to the end of the Primary Term or any Year thereafter. Notwithstandingthe foregoing, in the event Owner, at any time after the first five (5) yearsof this Agreement, reasonably determines, acting as a prudent operator, thatcontinued deliveries under this Agreement are uneconomic, upon ninety (90) days’advance written notice to Gatherer, Owner may terminate this Agreement withoutliability. For the purposes hereof, “uneconomic” shall mean circumstances underwhich Owner’s revenues from Owner’s Reserves are insufficient to offset Owner’soperating costs attributable to Owner’s Reserves, including the cost ofGathering Services. All indemnity, confidentiality obligations, and auditrights shall survive the termination or expiration hereof.

 

**ARTICLE IVGATHERING CHARGE AND PAYMENT**

 

## 4.1                                 **Gathering Fee**. Owner will pay Gatherer a gathering fee (“GatheringFee”) of $0.471 per Mcf, subject to Section 4.3,****of Owner’s Gas delivered to theMeasurement Points within ten (10) days after the invoice is received by Owner.Owner shall be responsible for its pro rata share of Fuel, and Lost andUnaccounted for Gas.

##  

## 4.2                                 **Annual True-up**.

##  

## 4.2.1                        *Annual True-Up*. Owner has committed to deliver the Annual VolumeCommitment as listed on Exhibit D-1 to the Measurement Points. If, at the endof each calendar Year, the actual quantity of Gas measured by Gatherer at theMeasurement Points is less than the Annual Volume Commitment for the applicableYear, Owner shall pay Gatherer an amount (the “Annual True-Up”) whichequals the difference between the Annual Volume Commitment for the

 

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## applicable Year and the actual quantity delivered by Owner to Gatherer asmeasured at the Measurement Points multiplied by the Gathering Fee.

##  

## 4.2.2                        *Interim Adjustment*. During the first three Years of this Agreement,Owner and Gatherer shall independently review, on a quarterly basis, the actualquantity of Gas measured by Gatherer at the Measurement Points to determinewhether Owner is on schedule to meet the Annual Volume Commitment for the applicableYear. Should Owner’s or Gatherer’s estimates indicate that the actual quantityof Gas to be delivered may be less than that Year’s Annual Volume Commitment,either Owner or Gatherer has the right to request consultation and negotiationwith the other Party to arrive at a mutually agreeable method to offset theestimated shortfall, which may include, without limit, payment of the estimatedshortfall multiplied by the Gathering Fee or increasing the Gathering Fee forthe remainder of the Year to offset the estimated shortfall. If the Partiesagree to payment of the estimated shortfall or elect to increase the monthlyGathering Fee, the Parties shall closely monitor, on a monthly basis, theactual deliveries of Gas for the remainder of the Year and adjust the GatheringFee as necessary to come as close as possible to that Year’s total GatheringFee due. Notwithstanding an adjustment of the Gathering Fee pursuant to this Section4.2.2, deliveries of Owner’s Gas in excess of the Annual Volume Commitmentshall be invoiced as described in Section 4.2.4.

##  

## 4.2.3                        *Statement*. On or before the fifteenth (15th) dayof January following a calendar Year in which Owner has an Annual VolumeCommitment, Gatherer will render to Owner a statement setting forth, in termsof Mcf’s, the total quantity of Gas received hereunder as measured at theMeasurement Points, the Annual Volume Commitment for the applicable calendarYear, and Annual True-Up amount due, if any. Owner agrees to pay Gatherer bywire transfer (according to the instructions set forth in the applicablestatement or invoice) the full amount payable according to such statement on orbefore ten (10) days following the receipt thereof by Owner.

##  

## 4.2.4                        *Excess Deliveries*. At the end of each calendar Year, should theactual quantity of Gas delivered by Owner to Gatherer hereunder be greater thanthe Annual Volume Commitment for the applicable Year, then the quantity that isgreater than the Annual Volume Commitment (the “Excess Volume”), shall rolloverto the following Year and be counted towards that Year’s Annual VolumeCommitment, if any.

##  

## 4.3                                 **Gathering Fee Adjustments**. When Owner has delivered the aggregate AnnualVolume Commitment or the Annual True-Up for 2008 has been received by Gatherer,whichever occurs first, then Owner’s Gathering Fee shall be reduced to$0.284/Mcf. This reduced Gathering Fee shall be adjusted on an annual basisbeginning 2010 in proportion to the percentage change, from the preceding year,in the Producer Price Index (“PPI”) for Finished Goods, as published bythe U.S. Bureau of Labor Statistics; provided, however, the annual adjustmentshall never exceed ten percent

 

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## (10%). The adjustment of the Gathering Fee shall be made effective uponeach anniversary of the Effective Date and shall reflect the percentage changein the PPI as it existed for the immediately preceding January from the PPI forthe second immediately preceding January.

##  

## 4.4                                 **Alternative Power/Fuel Source Fee**. In the event any of Owner’s Gas flows through afield compression facility or facilities powered by electrical power, or anyfuel or power source other than Gas being delivered into the GatheringFacilities (“Alternate Power Source”), Owner shall pay Gatherer itsproportionate share of the actual expense incurred by Gatherer for suchAlternate Power Source. Such costs shall be allocated to each Delivery Pointserved by such compression facility by multiplying the total Alternate PowerSource cost of each compression facility for the month by a fraction, thenumerator of which shall be the volume of Owner’s Gas flowing through thefacility attributable to the particular Delivery Point and the denominator ofwhich shall be the total volume of Gas flowing through all such compressionfacilities. Gatherer shall charge Owner, on a monthly basis, the resultantproduct.

##  

## 4.5                                 **Facilities Fee for QualityMonitoring and Other Facilities**.If additional quality monitoring equipment or other facilities arerequired to be installed, Owner agrees to pay its pro-rata share of Gatherer’sactual costs thereof.

##  

## 4.6                                 **Treating and Other Fees**. If treating of the Gas or other activitiesrequiring capital expenditures are required, Owner and Gatherer shall negotiatea mutually agreeable fee. If the Parties fail to agree on a fee withinthirty (30) days of completion of such capital expenditures, then Gatherer willbe entitled to invoice Owner for 100% of the Gatherer’s actual capital costsassociated with such treating or other activities, and Owner shall pay its prorata share of such costs.

##  

**ARTICLE VNOTICES/INVOICES**

 

## Except as may be otherwise provided,any notice, request, demand, statement or bill provided for in this Agreementor any notice which a Party may desire to give the other shall be in writingfaxed, e-mailed or otherwise delivered, as the case may be, as follows:

 
| **GATHERER:****Notices**:                                                                                                                              | ** ** | **OWNER:****Notices**:                                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                   |       |                                                                                                                                  |
| PRB  Gas Transportation, Inc.  1875 Lawrence Street, Suite 450,  Denver, CO 80202  Phone: 303-308-1330  Fax:     303-308-1590 |       | Storm  Cat Energy (USA) Operating Corporation  1125 17th Street, Suite 2310  Denver, CO 80202  Phone: 303-991-5070  Fax: 303-991-5075 |

 

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| **Nominations/Confirmations**:                                              |   |                           |
|-----------------------------------------------------------------------------|--------|--------------------------------|
| ** **                                                                  |   |                           |
| Same  as above                                                              |   |                           |
|                                                                        |   | **Nominations/Confirmations**: |
| **Invoices:**                                                               |   | Same  as above                 |
| Same  as above                                                              |   |                           |
|                                                                        |   | **Invoices:**                  |
| **Payments:**                                                               |   | **Same as above**              |
| By wire transfer                                                            |   |                           |
| to ABA Routing # 102000607,  Account #4093101                               |   |                           |
| (or  in accordance with instructions set forth in the Statement or Invoice) |   |                           |

 

**ARTICLE VIMEMORANDUM OF AGREEMENT**

 

## The Parties agree that they shallexecute a memorandum of agreement in the form attached hereto as Exhibit Fand that Gatherer may record such memorandum in the counties where the Owner’sReserves are located.

##  

**ARTICLE VIIGOVERNING LAW**

 

## This Agreement shall be interpretedby and construed in accordance with the laws of the state of Wyoming,excluding, however, any conflict-of-laws rules and principles which would applythe law of another jurisdiction.

##  

**ARTICLE VIIIMISCELLANEOUS**

 

Section8.1                                      **Entire Agreement**. This Agreement contains the entire agreementbetween the Parties hereto on the date hereof, respecting the subject matterhereof, and there are no prior or contemporaneous agreements or representationsaffecting such subject matter other than those herein expressed.

 

Section8.2                                      **Amendments Must Be In Writing**. It is further agreed that no modification orchange herein shall be enforceable unless reduced to writing and executed byboth Parties.

 

Section8.3                                      **No Waiver**. No waiver by either Party hereto of any one ormore defaults by the other in the performance of any of the provisions of thisAgreement shall operate or be construed as a waiver of any future default ordefaults whether of a like kind or different nature.

 

Section8.4                                      **No Third-Party Rights**. There is no third party beneficiary to thisAgreement and the provisions of this Agreement shall not impart rightsenforceable by

 

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any person, firm or organization not a party or notbound as a Party, or not a successor or assignee of a Party bound to thisAgreement.

 

Section8.5                                      **Limitation of Liability**. **IN NO EVENTSHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT,INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES OF ANY CHARACTER,INCLUDING WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFITS OR REVENUES, COST OFCAPITAL, CANCELLATION OF PERMITS, UNABSORBED GATHERING OR STORAGE CHARGES,TERMINATION OF CONTRACTS, TORT OR CONTRACT CLAIMS INCLUDING CONTRACT CLAIMSARISING OUT OF THIS AGREEMENT, LOST PRODUCTION OR ANY OTHER FORM OFCONSEQUENTIAL DAMAGE SUFFERED BY OWNER, AND IRRESPECTIVE OF WHETHER CLAIMS FORSUCH DAMAGES ARE BASED UPON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OROTHERWISE.**

 

Section8.6                                      **Severability**. The provisions of this Agreement are severable,and if any portion of this Agreement is deemed legally invalid or unenforceable,the remainder of this Agreement shall survive and remain in full force andeffect.

 

Section8.7                                      **Confidentiality**. Each Party shall not disclose the terms hereof toa third party (other than the Party’s and its affiliates’ employees, lenders,counsel, accountants or prospective purchasers of any rights under anytransactions who have agreed to keep such terms confidential) except in orderto comply with any applicable law, order, regulation or exchange rule;provided, each Party shall notify the other Party of any proceeding of which itis aware which may result in disclosure and use reasonable efforts to preventor limit the disclosure. The Parties shall be entitled to all remediesavailable at law or in equity to enforce, or seek relief in connection with,this confidentiality obligation.

 

Section8.8                                      **Binding Arbitration**. Any claim, demand, cause of action, dispute orcontroversy exclusively between the Parties relating to the subject matter ofthis Agreement, whether sounding in contract, tort or otherwise, at law or inequity, for damages or other relief (“Dispute”) shall be resolved bybinding arbitration if senior management of each of the Parties cannot resolvethe Dispute within ten (10) days of a notice of arbitration (“Notice”)being served by one Party upon the other. Within twenty (20) days followingservice of the Notice (if the Dispute remains unresolved by seniormanagement), the Parties shall either agree upon a single arbitrator, or ifthey have not done so, each Party shall select one arbitrator, who shalltogether select a third. The third or the single arbitrator shall have morethan eight (8) years professional experience in the natural gas gatheringindustry, be neutral, and have not worked for a Party or affiliate. The arbitrationshall be conducted according to the rules of the Federal Arbitration Act, andto the extent an issue is not addressed thereby, by the Commercial ArbitrationRules of the American Arbitration Association. The arbitration shall beconducted in Denver, Colorado. Each Party shall be entitled to a reasonableamount of

 

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pre-hearing discovery as allowed by thearbitrator(s), provided the discovery period shall not exceed thirty (30) days;the Parties and the arbitrators shall endeavor to hold the arbitration hearingwithin thirty (30) days thereafter and to render the decision within ten (10)days following the hearing. Each Party shall bear its own costs of arbitration.Interpretation of this agreement to arbitrate and procedures shall be decidedby the arbitrators, provided the award shall be consistent with this Agreement.The arbitration and the award shall be final, binding and confidential.

 

## Section 8.9                                      **Right to Terminate in the Event ofGovernmental Jurisdiction**.In the event the Federal Energy Regulatory Commission or any successor orother federal or state governmental agency exercises jurisdiction over theservices or rates provided for under this Agreement, then Gatherer, at itselection, shall have the right to terminate this Agreement upon thirty (30)Days’ advance written notice to Owner.

##  

## Exhibits A, B, C, D, D-1, E, F, G,and H attached to this Agreement are incorporated into and made a part of thisAgreement for all purposes.

##  

TheParties have executed this Agreement in counterparts all of which togethershall constitute one original and shall be effective as of the Effective Date.

 

| **GATHERER:**                 | **OWNER:**                                      |
|-------------------------------|-------------------------------------------------|
| PRB  GAS TRANSPORTATION, INC. | STORM  CAT ENERGY (USA)   OPERATING CORPORATION |
|                          |                                            |
|                          |                                            |
| By:                           |                                            | By: |   |
|                          | William  F. Hayworth                            |   | J.  Scott Zimmerman, President |
|                          | President                                       |   |   |

 

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**GENERAL TERMS AND CONDITIONS****TO THE GATHERING SERVICES AGREEMENT**

 

Forthe purposes of the Agreement, unless the context of the instrument requiresotherwise, the following definitions shall be applicable:

 

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

 

“**Accounting Period**”****except the initial Accounting Period,shall mean a period of one calendar month, commencing at 9:00 a.m.Mountain Time on the first day of each month, and ending at 9:00 a.m.Mountain Time on the first days of the succeeding calendar month. The initialAccounting Period shall commence at 9:00 a.m. Mountain Time on the date ofinitial deliveries of gas hereunder, continuing for a period of consecutive calendardays until 9:00 a.m. Mountain Time on the first day of the succeedingcalendar month.

 

“**Annual Volume Commitment**” shall mean theannual volumes Owner commits to deliver to Gatherer for Gathering Services asset forth on Exhibit D-1.

 

**“Area of Dedication”** shall mean all Gas reserves in and under orattributable to the lands shown on Exhibit A now owned by Owner.

 

“**Authorized Representative**” shall mean therepresentative of a Party that is authorized to undertake and perform certainrights or obligations of the Party hereunder on the Party’s behalf pursuant toan agency or like agreement between the Party and its AuthorizedRepresentative.

 

“**British Thermal Unit**” or “Btu” shall meanthe amount of heat required to raise the temperature of one pound of water from59 degrees Fahrenheit to 60 degrees Fahrenheit.

 

“**Claims**” means all claims or actions,threatened or filed and whether groundless, false or fraudulent, that directlyor indirectly relate to the subject matters of the indemnity, and the resultinglosses, damages, expenses, attorneys’ fees and court costs, including injury,death and damage to real and personal property, whether incurred by settlementor otherwise, and whether such are threatened or filed prior to or after thetermination hereof.

 

“**Delivery Point(s**)” shall mean the point(s)described in Exhibit D.

 

“**Equivalent Quantities**” shall mean thevolume of gas delivered hereunder for Owner’s account to the Delivery Point(s)which shall equal the thermal equivalent in MMBtu of the volume of gas receivedby Gatherer at the Measurement Points hereunder

 

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during a given period of time less compressor fuel,dehydrator fuel, and loss and shrinkage of gas required for delivery of gas tothe Delivery Point(s) hereunder during the same period of time.

 

“**Fuel**” shall mean that portion of Gas thatis delivered to the Receipt Point(s) and is consumed in the Gathering System asfuel for Gathering System Operations.

 

“**Gas**” shall mean natural gas in its naturalstate, produced from wells, including casinghead gas produced with crude oil,natural gas from gas wells, vaporized liquefied natural gas, methane and othergaseous hydrocarbons.

 

“**Gathering Facilities**” shall mean thosegathering lines and facilities and appurtenances thereto, compressors, cathodicprotection equipment and such easements and other rights in land that are to beused by Gatherer or, Gatherer’s designee or third party gathering serviceprovider in performing the gathering services.

 

“**Gathering Services**” shall mean measuring,compressing, dehydrating, treating for the removal of CO2, gathering and otherpost production operations, including third party gathering services, necessaryto receive Owner’s Gas at the Receipt Point(s) and deliver Owner’s EquivalentQuantities of Gas to the Delivery Point(s).

 

“**Lost and Unaccounted for Gas**” shall meanthe reduction in quantity of Gas flowing through the Gathering System whichresults from venting, purging, metering inaccuracies and operationalcircumstances, including the natural condensation of liquid hydrocarbons.

 

“**Mcf**” shall mean 1,000 cubic feet of Gas ata pressure of 14.73 Psia and at a temperature of 60 degrees Fahrenheit.

 

“**Measurement Points**” shall mean thedischarge meter owned by Clear Creek Gathering and the Fuel meter owned byGatherer both located downstream of the compressor applicable to each DeliveryPoint or other meter as designated by the Parties.

 

“**MMBtu**” shall mean one million BritishThermal Units.

 

“**Mountain Time**” means Mountain Time asadjusted for daylight savings time.

 

“**Normal and Routine Maintenance**” shall meanmaintenance, tests, alterations, modifications, enlargement, and repairs of theGathering Systems would normally be done by a prudent operator.

 

“**Owner’s Daily Deliverability of Gas**” meansthe Gas which is physically capable of being produced by Owner in accordancewith applicable law, rule or order

 

GTC - 2

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from wells completed within the Area of Dedicationand Reserve Commitment Area, subject only to Owner’s Reservations.

 

“**Owner’s Reserves**” shall mean all Gas thatOwner owns, controls or has the right to deliver to Gatherer that is producedfrom the Area of Dedication and the Reserve Commitment Area and is subject tothis Agreement, subject to Owner’s Reservations, as such term is defined in Section1.4 of the Gathering Services Agreement.

 

“**Psia**” shall mean pounds per square inch,absolute

 

“**Psig**” shall mean pounds per square inch,gauge.

 

“**Receipt Point(s)**” shall mean the point(s)described in Exhibit C.

 

“**Reserve Commitment Area**” shall mean all Gasreserves in and under or attributable to the lands shown on Exhibit Ahereafter acquired by Owner.

 

“**Specifications**” shall mean the systemspecifications and procedures of Gatherer, as the same may be amended andor supplemented by Gatherer from time to time, the initial specificationsof which are set forth in these General Terms and Conditions.

 

“**Year**” shall mean a calendar year beginningJanuary 1st and ending December 31st.

 

**SECTION 2. NOMINATION AND SCHEDULING**

 

2.1.                              Nominations. Five (5) business days prior to the beginning of each month, and twobusiness days prior to any change thereof during the month, Owner will submitin writing to Gatherer and to downstream pipeline(s), its total estimatedquantities of Gas to be delivered by Gatherer during such month at the DeliveryPoint(s) under this Agreement. Gatherer shall work with Owner to determineestimated Fuel, and Lost and Unaccounted for Gas to help in determiningnominations.

 

**SECTION 3. CONTRACT BALANCING**

 

3.1.                              Owner’s Obligation to Maintain Balance. Owner shall manage daily receipts and deliveriesof Gas to maintain a balance of receipts and deliveries to downstreampipeline(s). Gatherer shall not be responsible for any Imbalances. “Imbalance”shall be defined as the difference during a given month between Owner’snomination and the total Mcf’s of Gas actually received at the MeasurementPoint(s), less Fuel and Lost and Unaccounted for Gas.

 

GTC - 3

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**SECTION 4. OWNERSHIP AND CONTROL**

 

Ownershall be deemed to be in exclusive control and possession of all Gas until itis delivered to Gatherer at the Receipt Point(s) specified herein, and after ithas been delivered to Owner or for its account at the Delivery Point(s) specifiedherein. Gatherer shall be deemed to be in exclusive control and possession ofall Gas gathered hereunder after it is received by Gatherer at the ReceiptPoint(s) and until it is redelivered to Owner or for its account at theDelivery Point(s). The party deemed to be in exclusive control and possessionof the Gas gathered shall be responsible for and shall indemnify the otherparty against any injury or damage arising from such control or possession,except with regard to injury or damage caused by or arising out of the solenegligence or willful misconduct of the nonpossessory party. The parties heretounderstand and acknowledge that title to all Gas shall at all times remain withOwner.

 

**SECTION 5. PRESSURES**

 

Ownershall deliver all Gas hereunder at a pressure sufficient to enter the GatheringFacilities, Gatherer agrees to operate the Facilities in such a manner as tokeep suction pressure at or below 2 Psig. In the event Gatherer is unable tomaintain a monthly average suction pressure at or below 2 Psig, for two (2)consecutive months, Owner shall have the option to have Owner’s Gas releasedfrom the dedication of this Agreement or request Gatherer and Owner negotiate alower Gathering Fee for such case that future monthly average suction pressureis above 2 psig. Gatherer shall redeliver the Gas at a pressure sufficient tocause delivery into the Delivery Point(s).

 

Gathererwill install and maintain pressure monitoring equipment at the suction of thescrew compressor located at the Receipt Point(s). The accuracy of saidmeasurement equipment shall not be less than plus or minus 1 Psig in theexpected range of pressures. For purposes of determining compliance withthe pressure requirements, the monthly average suction pressure will be reportedas a truncated integer number obtained by truncating the decimal measuredmonthly average suction pressure. (Example: measured monthly average suctionpressure of 2.6 Psig will be truncated to 3 Psig to determinecompliance). Testing of suction pressure monitoring equipment will be performedon the same schedule as set forth in Exhibit E.

 

**SECTION 6. GAS MEASUREMENT AND QUALITY**

 

6.1                                 Specifications The Gas delivered at the Receipt Point(s) shall conform to the followingSpecifications as the same may be amended or supplemented by Gatherer from timeto time:

 

(a)                                  Have not less than 950 Btu’s per cubic foot;

 

(b)                                 Be commercially free of all dust, non-vaporoushydrocarbons liquids, suspended matter, all gums and gum-forming constituentsand any other solid or liquid matter or objectionable substances;

 

GTC - 4

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(c)                                  Contain not more than twenty (20) grains of totalsulfur, nor more than one-fourth (1/4) grain of hydrogen sulfide per onehundred (100) standard cubic feet;

 

(d)                                 Contain not more than four percent (4%) by volume ofcarbon dioxide (CO2);

 

(e)                                  Have no greater than 10 parts per million of oxygen;

 

(f)                                    Contain not more than six percent (6%) of volume oftotal inerts;

 

(g)                                 Have a temperature of not less than forty (40)degrees Fahrenheit nor greater than one hundred twenty (120) degreesFahrenheit;

 

(h)                                 Contain not more than five (5) pounds of entrainedwater vapor per Mcf of Gas and no free water; and

 

(i)                                     Have a hydrocarbon dew point no greater thantwenty-five (25) degrees Fahrenheit.

 

6.2                                 Non-Conforming Gas. Gatherer, at its option, may refuse to accept receipt of any Gas notmeeting the quality Specifications then in effect. If Gatherer refuses toaccept Owner’s non-conforming Gas, Owner shall have the right to conform theGas to the Specifications then in effect. If Owner does not elect to conformthe Gas to said Specifications, then Gatherer, in its sole discretion, mayaccept Gas tendered by Owner hereunder which does not meet the Specifications,treat same to conform to said Specifications and charge Owner a mutuallyagreeable fee. If, at any time, Owner determines that Gatherer’s treatingcosts can no longer be economically justified, Owner shall so notify Gathererin writing and in the event Gatherer is unable or unwilling to adjust suchtreating costs to a level acceptable to Owner within 30 days of the receipt ofnotice, Owner shall have the right to obtain the release of such well as to theaffected producing formation from the terms of this Agreement. If neitherGatherer nor Owner elects to treat the Gas to conform to the Specifications orsuch treatment is terminated, then Gatherer shall upon thirty (30) days’ priorwritten notice from Owner, release from the provisions of the Agreement thewell (as to the producing formation only) from which such Gas is produced. Thereceipt by Gatherer of Gas which fails to meet any one of the Specificationsshall not be held to be a waiver of Gatherer’s right to refuse future deliveryof non-conforming Gas.

 

6.3                                 Fuel Usage. Owner’s allocated Fuel volume will be prorated based upon measured Fuelmetered at the Gatherer’s compressors, using Owner’s metered volumes of Gas asmeasured at the Measurement Points minus third party volumes as measured byGatherer as the numerator, and total volumes of all Gas delivered into theGathering System as measured by Gatherer at the Measurement Points as thedenominator,

 

GTC - 5

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multiplied by total Fuel measurement. Gatherer shalluse commercially reasonably efforts to minimize Fuel and if at any time, Fuelusage exceeds ten percent (10%) of Gas volume, Gatherer and Owner shall usetheir good faith efforts to reduce the Fuel usage to a reasonable amountrelative to the Gas volume delivered to the Receipt Point; provided, however,Owner shall remain responsible for excess fuel usage.

 

6.4                                 Lost and Unaccounted for Gas. Gatherer shall use commercially reasonably effortsto minimize Lost and Unaccounted for Gas between Receipt and Delivery Point(s),which shall not exceed two percent (2%) of the Gas delivered to the GatheringSystem in any month.

 

6.5                                 Audit of Fuel Usage, Line Loss and Unaccounted Gas. The Owner will have the right, upon writtennotice, to audit during normal business hours at the Gatherer’s office the Fuelusage and Lost and Unaccounted for Gas for a period of 12 months following themonth of production.

 

6.6                                 Online Performance. Gatherer represents and warrants that the Gathering Facilities will beoperational ninety-seven percent (97%) of the hours in each Month for whichOwner delivers volumes of Gas to Gatherer in a sufficient quantity, quality,and at a pressure which do not prevent Gatherer from performing itsresponsibilities under the terms of this Agreement. Gatherer shall reduce Owner’sGathering Fee by (i) one cent ($0.01) for every one percent (1%) of onlineperformance below ninety-seven percent (97%). If Gatherer is unable to operateat or above ninety-five (95%) for 2 consecutive months Owner shall have theoption to have Owner’s Gas released from the dedication of this Agreement.

 

**SECTION 7. UNECONOMIC OPERATION OF GATHERER’S FACILITIES**

 

If,in the reasonable opinion of Gatherer, any part of the GatheringFacilities is or becomes uneconomic to operate due to its volume, quality,governmental regulation or any other cause not within Gatherer’s control, uponninety (90) days’ advance written notice to Owner, Gatherer may either modifyor suspend operations thereof, in which case Gatherer may request Owner tore-negotiate pricing or other terms of this Agreement. Gatherer shall not beobligated to take delivery of all or any portion of the Gas from Owner’s wells,so long as such uneconomic condition exists. If Owner and Gatherer areunable to agree to new pricing and/or terms within thirty (30) days of receiptof notice from Gatherer of such uneconomic operation, then Gatherer shallrelease the Gas from the dedication of this Agreement. For the purposeshereof, “uneconomic operation” shall be defined as circumstances under whichGatherer’s revenues from the Gathering Facilities are insufficient to offsetactual operating costs thereof plus a rate of return not less than fifteenpercent (15%).

 

GTC - 6

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**SECTION 8. FORCE MAJEURE**

 

Exceptfor Owner’s obligations to make payment due for Gas delivered and gatheredhereunder, neither Party shall be liable for failure to perform under the termsof this Agreement when such failure is due to Force Majeure. Force Majeureshall mean acts of God, severe weather, failure to obtain approved permits orother government approvals (provided applications have been timely and properlyfiled for such permits and approvals), strikes, lockouts, or industrialdisputes or disturbances, civil disturbances, arrests and restraints,interruptions by government or court order, present and future valid orders ofany regulatory body having proper jurisdiction, acts of the public enemy, wars,riots, insurrections, inability to secure labor or inability to secure materials,including inability to secure materials by reason of allocations promulgated byauthorized governmental agencies, epidemics, fires, explosions, breakage oraccident to machinery or lines of pipe, freezing of wells or pipelines,inability to obtain easements, right-of-way or other interests in realty(provided such rights have been timely and reasonably sought), the making ofrepairs, replacements or alterations to wellbores, lines of pipe or plants,capacity or firm transportation arrangements with third parties over whichneither Owner nor Gatherer has control, or any other cause, whether of the kindherein enumerated or otherwise, not reasonably within the control of the Partyclaiming Force Majeure.

 

Eventsof Force Majeure shall, so far as possible, be remedied with all reasonabledispatch. The settlement of labor disputes shall be within the discretion ofthe Party having the difficulty, and the requirement that Force Majeure beremedied with all reasonable dispatch shall not require the settlement of labordisputes by acceding to demands of any opposing Party when such course isinadvisable in the discretion of the Party having the difficulty.

 

**SECTION 9. BILLING AND PAYMENT**

 

9.1                                 Statements. On or before fifteen (15) days following the end of each calendar month,Gatherer will render to Owner a statement setting forth, in terms of Mcf’s ,the following information for the immediately preceding month: (i) the totalquantity of Gas delivered by Owner at the Receipt Point(s) as measured by Ownerat the wellhead; (ii) the total quantity of Gas delivered by Gatherer at theDelivery Point(s) as measured at the Measurement Points; (iii) total Fuel andLost and Unaccounted for Gas and Owner’s proportionate share thereof; and (iv)the total Gathering Fee payable therefor. Additionally, such statement shallset forth the cumulative imbalance existing at the end of such month.

 

9.2                                 Payment.Owner agrees to pay Gatherer by wire transfer (according to the instructionsset forth in the applicable statement or invoice) the full undisputed amountpayable according to such statement on or before ten (10) days following thereceipt thereof by Owner. In the event such quantities are estimated forany period, corrected statements shall be rendered by Gatherer to Owner andpaid by Owner or refunded or

 

GTC - 7

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credited by Gatherer, as the case may be,in each instance in which the actual quantity received or deliveredhereunder with respect to a month shall be determined to be at variance withthe estimated quantity theretofore made the basis of billing and paymenthereunder. Owner shall, if requested by Gatherer at any time during the term ofthis Agreement, provide Gatherer with such payment securities as may be acceptableto Gatherer.

 

9.3                                 Disputed Statements. In the event that Owner, in good faith, disputesany billing or statement, Owner shall pay Gatherer any undisputed amount whendue and shall, within thirty (30) days of receipt of the disputed statement,notify Gatherer in writing of its dispute, which notice shall include adequatedocumentation demonstrating the amount of and basis for the dispute. TheParties shall endeavor in good faith to resolve such dispute within fifteen(15) days following Gatherer’s receipt of such notice. Notwithstanding theforegoing, the Parties shall have the right to review and make corrections toany statements tendered pursuant to this Section 9, or the measurement dataassociated therewith, at any time upon written notice to the other Partyspecifying the matter requiring correction and the Parties shall endeavor ingood faith to resolve any such matter within fifteen (15) days of notificationthereof. If payment disputes cannot be resolved after fifteen (15) days, theybecome subject to the dispute resolution process set forth in Section 8.8of the Gathering Services Agreement.

 

9.4                                 Failure to Pay Invoice. In the event Owner fails to provide paymentsecurities acceptable to Gatherer within ten (10) days after requested byGatherer, Gatherer and Owner agree that Gatherer may suspend its performancehereunder until such time as Owner furnishes acceptable payment securities toGatherer. In addition to all other remedies available to Gatherer, shouldOwner fail to pay any amount when the same becomes due, interest shall accruethereon at a rate equal to the prime rate from time to time in effect andcharged by the Citibank, N.A., New York, New York, plus two percent (2%) perannum, (but in no event greater than the maximum rate of interest permitted bylaw) with adjustments in such rate to be made on the same day as any change insuch prime rate, for any period during which the same shall be overdue, suchinterest to be paid when the amount past due is paid.

 

9.5                                 Audit.Each Party hereto or its representative shall have the right at all reasonabletimes, with sixty (60) day written notice, to examine the books and records ofthe other Party to the extent necessary to verify the accuracy of anystatement, charge, computation or demand made under or pursuant to thisAgreement. Any statement shall be final as to all Parties unless questionedwithin two (2) years after payment thereof has been made.

 

**SECTION 10. ASSIGNMENT**

 

Ownershall not assign or transfer its rights hereunder without first obtainingGatherer’s written consent to such assignment or transfer, which consent shallnot be unreasonably withheld. Owner’s transfer in violation hereof shall bevoid.

 

GTC - 8

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**SECTION 11. TAXES**

 

Owner shall pay and remit to the appropriate taxing jurisdictions allexisting or new taxes imposed on Owner with respect to Owner’s Gas prior to itsdelivery to Gatherer at the Receipt Point(s) and after redelivery at theDelivery Point(s) and other taxes imposed on Owner’s facilities and operations.Gatherer shall pay and remit to appropriate taxing jurisdictions all existingor new taxes imposed on the Gathering of Owner’s Gas while such Gas is inGatherer’s control and other taxes imposed on Gatherer’s facilities andoperations. If a Party is required by law to pay any such taxes (or penaltiesor interest thereon) that are another Party’s responsibility, the responsibleParty shall timely reimburse the paying Party therefore, or, at the payingParty’s request, prepay such taxes, in addition to the other charges providedfor herein promptly upon request.

 

**SECTION 12. RIGHTS OF WAY**

 

Owner hereby grants to Gatherer, insofar as Owner has the right to doso, all requisite easements and rights-of-way over and across the premisescovered hereby, with full right of ingress and egress, for the purpose ofcarrying out the duties and terms of this Agreement and Gatherer’s obligationsthereunder. To the extent Owner’s leases or other agreements permit, Ownerhereby grants to Gatherer the right to lay and maintain pipelines and toinstall any necessary equipment on said lease and shall have the right to freeentry for any purpose incidental to the performance of its obligationshereunder. All pipelines, meters and other equipment placed by Gatherer onsaid lands shall remain the property of Gatherer and may be removed by Gathererat any time.

 

GTC - 9

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**EXHIBIT A****TO THE****GATHERING SERVICES AGREEMENT**

 

**AREA OF DEDICATION**

 

TOWNSHIP 56 NORTH, RANGE 74 WEST, 6TH P.M.

SECTION 15: LOTS 1-15 (FORMERLY DESCRIBED AS W/2, NE/4, N/2 SE/4, SW/4SE/4)

SECTION 16: ALL

SECTION 17: LOTS 1-4, 6-11, 16 (FORMERLY DESCRIBED AS NE/4, N/2 NW/4,SE/4 NW/4, NE/4 SW/4, N/2 SE/4, SE/4 SE/4)

SECTION 20: LOTS 3-9, 16 (FORMERLY DESCRIBED AS NW/4, S/2 NE/4, E/2SE/4)

SECTION 21: NE/4 NE/4, LOTS 1, 5-14 (FORMERLY DESCRIBED AS SE/4 NW/4,W/2 NE/4, SE/4 NE/4, SE/4, W/2 SW/4, SE/4 SW/4)

SECTION 22: LOTS 1-16 (ALL)

SECTION 26: LOTS 1-16 (ALL)

SECTION 27: LOTS 1-16 (ALL)

SECTION 34: LOTS 1-16 (ALL)

SECTION 35: LOTS 1-16 (ALL)

SECTION 36: ALL

 

**CAMPBELL COUNTY, WY**

 

**RESERVE COMMITMENT AREA**

 

ALL SECTIONS, TOWNSHIP 56 NORTH, RANGES 74 WEST

 

SECTIONS 5 – 8, 17 – 20, AND 29 – 32 TOWNSHIP 56 NORTH, RANGES 73

 

SECTIONS 25 – 36 TOWNSHIP 55 NORTH, RANGES 73 WEST

 

SECTIONS 1, 2, 11 – 14, 23 – 26, 35 AND 36 TOWNSHIP 56 NORTH, RANGES 75WEST

 

SECTIONS 1 – 12, TOWNSHIP 55 NORTH, RANGES 74 WEST

 

CAMPBELL COUNTY, WY

 

A-1

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**EXHIBIT B**

**TO THE**

**GATHERING SERVICES AGREEMENT**

** **

**FACILITIES DEVELOPMENT PLAN**

 

A.                                   **Initial Facilities**

 

1.                                       Owneris selling to Gatherer its existing facilities located in Sections 22 and 35,inTownship 56 North, Range 74 West which will allow Gatherer to accept Owner’sGas on a priority basis.

 

2.                                       Facilitiesinclude 2 – 3516 4 stage compressors, their leases, all equipment required forsafe and efficient operation of the compressors including the property andfacilities described in Exhibit H.

 

B.                                     **Additional Facilities**

 

1.                                       (a)New Connections to Downstream Markets – Owner and Gatherer may have the optionto make new connections from Gatherer’s Gathering Facilities to additionaldownstream pipelines for Gas developed and produced and saved by Owner on theleases described on Exhibit A. Owner may request, in writing, a proposalto connect to downstream pipelines to accommodate such Gas

 

(b) New Connections to Gathering Facilities -Gatherer shall have the option to make connections on its Gathering Facilitiesfor new Gas developed and produced and saved by Owner from the ReserveCommitment Area described on Exhibit A. Owner may request, in writing, aproposal to make such connections to accommodate such Gas

 

(c) Gathering Facilities Improvements – If Gathereris unable to perform Gathering Services for Owner’s Daily Quantity of Gas dueto existing Gathering Facility limitations, then Owner may request, in writing,a proposal to improve the Gathering Facilities to accommodate such Gas.Gatherer has identified potential system limitations on Exhibit G that maydecrease throughput and reliability of the Gathering Facilities.

 

2.                                       Throughoutthe term of the Agreement, Owner may, from time to time, notify Gatherer of itsexpected Gas deliveries, based upon Owner’s good faith reasonable estimate, andwithin fifteen (15) days after receipt of such notice, Gatherer shall submit awritten proposal to Owner to construct and install the necessary facilities togather said Gas. Owner shall have 30 days from receipt of such proposal toaccept or reject Gatherer’s proposal for Gathering Service hereunder. Failureto respond within the said 30-day time period shall be deemed an election byOwner to reject said proposal.

 

B-1

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3.                                       Uponreceipt of written acceptance of said proposal by Owner , Gatherer shallcommence, on a timely basis, but in any event within ninety (90) days, in acommercially reasonable manner construction and installation of the gatheringfacilities necessary to gather Owner’s Gas and redeliver said Gas to theDelivery Point(s) set forth on Exhibit D, as may be amended fromtime to time.

 

4                                          ShouldOwner decline the proposal set forth herein, Gatherer shall not be obligated tomake any such connection, and Owner may require Gatherer to release suchwell(s) from the Agreement.

 

B-2

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**EXHIBIT C****TO THE****GATHERING SERVICES AGREEMENT**

** **

**RECEIPT POINT(S)**

 

At the first flange of the inlet piping headers located in:

 

1.                                       Section22, Township 56 North, Range 74 WestCampbell County, Wyoming

 

2.                                       Section35, Township 56 North, Range 74 WestCampbell County, Wyoming

 

C-1

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**EXHIBIT D****TO THE****GATHERING SERVICES AGREEMENT**

** **

**DELIVERY POINT(S)**

 

At the inlet flange of the meters owned by Clear Creek Gatheringlocated at the discharge of the compressors located in:

 

1.                                       Section22, Township 56 North, Range 74 WestCampbell County, Wyoming

 

2.                                       Section35, Township 56 North, Range 74West Campbell County, Wyoming

 

D-1

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**EXHIBIT D-1****TO THE****GATHERING SERVICES AGREEMENT**

** **

**VOLUME COMMITMENTS (MCF)**

 

| **Date** | ** ** | **Annual Volumes** | ** ** |
|----------|------------|-------------------------|------------|
| 2006     |       | 2,064,600               |       |
| 2007     |       | 2,482,231               |       |
| 2008     |       | 2,040,575               |       |
| TOTAL    |       | 6,587,405               |       |

 

D-1-1

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**EXHIBIT E****TO THE****GATHERING SERVICES AGREEMENT**

 

**Measurement, Testing and Metering**

 

1.                                       Measurement.Except as otherwise agreed by Gatherer, the metering facilities to measure thevolumes of Gas delivered at each Measurement Point and Delivery Point shall bemaintained and operated or caused to be maintained and operated by Gatherer orGatherer’s designee. The Btu content of the Gas shall be determined by thefacilities at the Receipt Points and Delivery Points. Such facilities andmeasurement data with respect to the Gas covered hereby shall at all reasonabletimes be subject to joint inspection by the parties hereto. Gas volumesmeasured with the use of orifice meter(s) shall be determined in accordancewith the provisions of the Gas Measurement Committee Report No. 3 of theAmerican Gas Association (ANSI/API 2530-1991) as amended, supplemented, orrevised from time to time. Gas volumes measured with the use of positive orturbine meter(s) shall be determined on the basis of Gas Measurement CommitteeReport No. 7 of the American Gas Association as amended, supplemented, orrevised from time to time. Gas volumes measured with the use of ultrasonicmeter(s) shall be determined on the basis of Gas Measurement Committee ReportNo. 9 of the American Gas Association as amended, supplemented, or revised fromtime to time. The unit of volume for measurement of Gas delivered hereundershall be one (1) cubic foot of Gas at a base temperature of sixty degrees Fahrenheit(60°F.) and at an absolute pressure of fourteen and seventy-three onehundredths (14.73) pounds per square inch absolute. Atmospheric pressure foreach of the Receipt Points and Delivery Points shall be assumed to be 12.7 Psiairrespective of the actual atmospheric pressure at such points from time totime. Temperature shall be determined by a recording thermometer of standardmake. If recording charts are used the arithmetical average of the temperaturerecorded during periods of flow for each chart, the factor for specific gravityaccording to the latest test therefor, and the correction for deviation fromIdeal Gas Laws applicable during each chart period shall be used to make propercomputations of volumes hereunder. If electronic flow measurement is used,continuous temperature, static pressure and differential pressure monitoringwill be applicable. If electronic measurement is used in conjunction withon-site chromatograph, continuous monitoring of specific gravity will beapplicable; otherwise the volumes computed using a fixed value specific gravityfactor shall be corrected to reflect the actual specific gravity of the flowingGas as determined by a chromatographic analysis of the sample accumulatedduring the same period of flow or, in the case of spot samples, the specificgravity factor determined by chromatographic analysis shall be applied tovolumes delivered during the succeeding chart periods. The correction fordeviation from the Ideal Gas Laws shall be computed and applied to volumes calculatedby electronic measurement devices. Specific gravity and Btu shall be determinedby such methods as may be developed by Gatherer through use of a continuous Gassample accumulator, on premises analysis, or by spot samples taken at

 

E-1

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the Receipt Points and DeliveryPoints at intervals determined to be appropriate by Gatherer. Results from acontinuous sampler shall be used to calculate volumes delivered during the sameperiod in which the sample was accumulated; provided, however, that Gathererreserves the right to adopt the practice of using the Btu content measured fora period prior to the Month of Gas flow in calculating the quantity of Gastransported during a given Month. Results from a spot sample shall be used tocalculate volumes during the subsequent period until another sample is taken.The arithmetical average of the continuous temperature recorded during eachchart period, the factor for specific gravity according to the latest test therefor,and the correction for deviation from Ideal Gas Laws applicable during eachchart period shall be used to make proper computations of volumes hereunder.The gross heating value (Btu content) used shall be determined by adjusting theBtu content measured to reflect the actual water vapor content of the Gasdelivered at a temperature of sixty degrees Fahrenheit (60°F.) at an absolutepressure of fourteen and seventy-three one-hundredths (14.73) pounds per squareinch absolute. The volume of Gas measured shall be multiplied by the applicableBtu content for such Gas (either that measured for the Month of Gas flow or forthe designated period of Btu measurement that may occur prior to the actualMonth of Gas flow) to determine the total volume of Gas in MMBtu.

 

2.                                       MeterTest. At intervals determined to be appropriate by the measuring Party, butno less than quarterly, orifice and other types of meters and appurtenantinstruments shall be calibrated in the presence of representatives of the otherParty. If the aggregate error in any measurement devices is found on test toregister not more than one percent (1%) fast or slow in volume, then they shallbe deemed to be correct. All measuring devices shall be adjusted upon test toregister accurately within the tolerance allowed by their respectivemanufacturers. If the aggregate error in any measurement devices is more thanone percent (1%) fast or slow in volume, adjustments shall be made by applyingthe percentage of error to the volume involved during the time the meteringequipment was out of calibration, if this period can be ascertained. If thelength of time the metering equipment was out of calibration cannot beascertained, then the percentage of error will be applied to the volumedelivered for one-half of the time elapsed since the date of the lastcalibration. During the time any meter is out of repair or is being tested, orin the event of a sudden failure of any meter to register for any periodaccurately within the one percent (1%) variation allowed herein, and if it isnot feasible to install another meter, then the volume of Gas flowed shall beestimated with the mutual concurrence of both parties until a new or repairedmeter is installed. Adjustment and settlement shall be made at the regular Monthlyperiods on the basis of the best available data using the first of thefollowing methods which is feasible:

 

a.                                       Byusing the registration of any check measuring equipment, if installed andregistering;

 

b.                                      Bycorrecting the error if the percentage of error is ascertainable bycalibration, test or mathematical calculations; and

 

c.                                       Byestimating the quantity of deliveries by deliveries during preceding periodsunder similar conditions when the meter was registering accurately.

 

E-2

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The measuring Party shall give the other Party notice of the time ofall tests of meters and appurtenant instruments sufficiently in advance of theholding of such tests so that the other Party may conveniently have its representativespresent; provided, however, if the measuring Party has given such notice to theother Party and the other Party is not present at the time specified, then themeasuring Party may proceed with the tests as though the other Party werepresent, and the results therefrom shall be deemed correct and accurate.

 

If Gatherer determines that any measurement error results frompulsation, Owner shall or shall itself cause the person who owns the facilitiesthat are causing the pulsation to (at its or their expense), within sixty (60)Days of its receipt of notification, reduce the pulsation to a level such thatthe square root error in respect of pulsation is not greater than one percent(1%).

 

E-3

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**EXHIBIT F****MEMORANDUM OF AGREEMENT**

 

Notice is hereby given of the following Gathering Services Agreement:

 

GATHERER:         PRB Gas Transportation,Inc.

 

OWNER:                Storm Cat Energy(USA) Operating Corporation

 

COUNTY:              Campbell

 

STATE:                  Wyoming

 

DATE:                                        effectivedate

 

COMMITMENT:                 Allof Owner’s interest in the oil and gas leases described on Exhibit Aattached hereto (whether presently owned or hereafter acquired) andincorporated by reference and all of Owner’s interest in natural gas productionfrom all wells located thereon have been committed to Gatherer under andsubject to the terms of the referenced Agreement.

 

RIGHT-OF-WAY:                Tothe extent permitted under third party agreements, Owner has grantedrights-of-way and rights-of-access to Gatherer to own and operate service linesand other equipment on the described lands. Said lines and equipment remain theproperty of Gatherer during and after termination of the Agreement.

 

Further information concerning the contractis available from PRB Gas Transportation, Inc., 1875 Lawrence Street, Suite450, Denver, Colorado 80202. The parties are filing this Memorandum ofAgreement as record of the referenced agreement for all purposes at law and inequity.

 
| **RETURN THIS DOCUMENT TO:** | **William Hayworth**                |
|------------------------------|-------------------------------------|
|                         | **PRB Gas Transportation, Inc.**    |
|                         | **1875 Lawrence Street, Suite 450** |
|                         | **Denver, CO 80202**                |

 

IN WITNESS WHEREOF, Gatherer and Owner haveexecuted this Memorandum for recording the records of the described County andState.

 
| PRB GAS TRANSPORTATION, INC. |   | STORM CAT ENERGY (USA) OPERATING  CORPORATION |
|------------------------------|--------|-----------------------------------------------|
|                         |   |                                          |
| By:                          |   |                                          |   |   |
|                         |   |                                          |
| Name:                        |   |                                          | J. Scott Zimmerman, President |
|                         |   |                                          |
| Title:                       |   |                                          |   |
|                         |   |                                          |   |
| Address:                     |   | 1875 Lawrence Street, Suite 450               | Address: |   | 1125 17th Street, Suite 2310 |
|                         |   | Denver, CO 80202                              |   |   | Denver, CO 80202 |
|                              |        |                                               |  |  |  |  |  |  |  |  |

 

F-1

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| STATE OF COLORADO          | ) |   |
|----------------------------|---|--------|
|                       | ) | ss.    |
| CITY AND  COUNTY OF DENVER | ) |   |

 

The foregoing instrument was acknowledgedbefore me on                     ,2006, by                  ,the               of PRB GAS TRANSPORTATION, INC., a Nevada corporation.

 

Witness my hand and official seal.

 
|   |          |   |
|--------|---------------|--------|
|   | Notary Public |

 

My commission expires:

 

 

STATE OF                                     COLORADO)

)  ss.

CITY AND COUNTY OF DENVER                )

 

The foregoing instrument was acknowledgedbefore me on                        ,2006, by J. Scott Zimmerman, the President of Storm Cat Energy (USA)Corporation, a Colorado corporation.

 

Witness my hand and official seal.

 
|   |          |   |
|--------|---------------|--------|
|   | Notary Public |

 

My commission expires:

 

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**EXHIBIT G****TO THE****GATHERING SERVICES AGREEMENT**

 

**GATHERING FACILITY LIMITATIONS**

 

•                  Thereare no pigging facilities or drips on the pipeline between the two ReceiptPoints which may limit the ability to optimize compression.

 

•                  Theinlet header is an unconventional design utilizing low spots in the pipe tomanually dump liquids. This type of design may limit the ability to handlesignificant liquid volumes.

 

•                  Theinlet separator design is unknown and currently out of service. The suctionscrubber on the compressor skid is the only liquids handling facility inservice. This may limit the ability to handle significant liquid volumes.

 

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**EXHIBIT H****TO THE****GATHERING SERVICES AGREEMENT**

** **

**INITIAL FACILITIES**

 

**Station PRFC#6 (NW/4 NW/4, Section 35Township 56 North Range 74 West):**

 

•                  Graveledcompressor site with 4 strand barbed wire fence

 

•                  “LowSpot” headers for each of the incoming existing laterals (other than thesection 36 wells). This includes manual dump riser on each header and a crossoverriser to the common suction header

 

•                  Belowground steel pipe manifolds built for four compressors (currently oneinstalled). Includes risers and valves for each future compressor. The fourmanifolds are the suction, discharge, fuel, and drain. One of the suctionrisers is currently being used as an inlet connection for the gas line from theSection 36 wells.

 

•                  2”Fisher control valve used for recycling

 

•                  Lowpressure separator with dump/drain controls and fittings:

•                  Manufacturedin 2000 by Superior Fabrication

•                  MAWP150# at 150 degree F

•                  Serial# 001137-6

 

•                  100bbl tank:

•                  Manufacturedby Natco

•                  9’x 6’- 8”

•                  Serial# 71015513-05

 

•                  Gasfired tank heater:

•                  Manufacturedby Natco

•                  500,000BTU/HR burner

•                  Serial# 0008-146

 

•                  200gallon plastic water tank.

 

•                  Sumpwith pump, controls, and piping including 10’ x 6’ fiberglass hut and heater

 

•                  Heattracer on all exposed water lines

 

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•                  Fuelseparator/filter:

•                  Manufacturedby Perry Equipment

•                  MAWP275# at 100 degree F

•                  Serial# 138031-16

 

•                  2”fuel gas system with 2 - Fisher 627H regulators.

 

•                  Fuelmeter - 2” Daniel senior meter Serial # 00380509.

 

•                  DehydrationSkid:

•                  Tower–

•                  24”x 25’

•                  Serial# 90-378

•                  Manufacturedby Production Facilities Equipment in 1990

•                  Regenburner –

•                  250,000btu/hr

•                  Serial# SB12-8h

•                  GlycolTank on rack with containment

 

•                  Teledyneoxygen analyzer

 

•                  ScottBacharach gas detector model 4800

 

•                  Fireeye for building

 

•                  20’x 60’ red iron building with two walk-in doors and one rollup

 

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**Station PRFC#5 (SW/4 SW/4, Section 22Township 56 North Range 74 West):**

 

•                  Graveledcompressor site with 4 strand barbed wire fence

 

•                  “LowSpot” headers for each of the incoming existing laterals. This includes manualdump riser on each header and a crossover riser to the common suction header

 

•                  Belowground steel pipe manifolds built for four compressors (currently oneinstalled). Includes risers and valves for each future compressor. The fourmanifolds are the suction, discharge, fuel, and drain. One of the suctionrisers is currently being used as an inlet connection for the gas line from theSection 36 wells.

 

•                  2”Fisher control valve used for recycling

 

•                  Lowpressure separator with dump/drain controls and fittings:

•                  Manufacturedin 2000 by Superior Fabrication

•                  MAWP150# at 150 degree F

•                  Serial# 001137-7

 

•                  100bbl tank:

•                  Manufacturedby Natco

•                  9’x 6’- 8”

•                  Serial# 71015513-04

 

•                  Gasfired tank heater:

•                  Manufacturedby Natco

•                  500,000BTU/HR burner

•                  Serial# 0008-211

 

•                  200gallon plastic water tank.

 

•                  Sumpwith pump, controls, and piping including 10’ x 6’ fiberglass hut and heater

 

•                  Heattracer on all exposed water lines

 

•                  Fuelseparator/filter:

•                  Manufacturedby Perry Equipment

•                  MAWP275# at 100 degree F

 

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•                  Serial# 138031-12

 

•                  2”fuel gas system with 2 - Fisher 627H regulators.

 

•                  Fuelmeter - 2” Daniel senior meter Serial # 00380508.

 

•                  DehydrationSkid:

•                  Tower–

•                  24”x 25’

•                  Serial# 89-247C

•                  Manufacturedby Production Facilities Equipment in 1989

•                  Regenburner –

•                  250,000btu/hr

•                  Serial# unknown

•                  GlycolTank on rack with containment

 

•                  Teledyneoxygen analyzer

 

•                  ScottBacharach gas detector model 4800

 

•                  Fireeye for building

 

•                  20’x 60’ red iron building with two walk-in doors and one rollup

 

•                  Inletrelief valve – Anderson Greenwood 4” – Serial # 00/36330

 

•                  Dischargerelief valve – Anderson Greenwood 2” – Serial #00/36332

 

**Pipeline System (NW/4 NW/4 Section 35,Township 56 North, Range 74 West to SW/4 SW/4 Section 22, Township 56 North,Range 74 West)**

 

•                  12”Poly pipeline SDR 17 approximately 2 miles long

 

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