EX 10.7


    Exhibit
      10.7

     

     

     

    
      
        
        

      

      
        Page
          - 76

        
          

        

      

      
        
        

      

    

     

    

      NATURAL
        GAS PURCHASE
        AGREEMENT

      Date:
        December 23, 2004

      


      


      
        	Seller:
                


                BREK
                  PETROLEUM, INC.

                


                1100
                  Melville Street, Suite 600

                Vancouver
                  BC V6E 4A

                Telephone:

                Facsimile:
                  604 664 0672

                E-mail:
                  rick@jeffsco.com

                anne@dacostacorp.com

                Contact:
                  Rick
                  Jeffs

                Anne
                  McFadden

                Tax
                  ID No.: 98-0355707

              	Buyer:
                


                RIVERBEND
                  GAS GATHERING,
                  L.L.C.

                


                14
                  Inverness Drive East, Suite H-236

                Englewood,
                  Colorado 80112

                Telephone:
                  Telephone: (303) 483-0044 

                Facsimile:
                  (303) 483-0011

                E-Mail:
                   mchoury@gascoenergy.com

                Contact:
                  Marl J. Choury

                Tax
                  ID No.: 43-2049794

              


      

      
         

      

      Seller
        owns or controls quantities of natural gas which it desires to sell to Buyer,
        and Buyer desires to purchase quantities of natural gas from Seller, all
        on the
        terms and provisions set forth below. Seller and Buyer therefore agree as
        follows:

      


      1. Seller’s
        Commitment of Natural Gas. Subject
        to the terms of this Agreement and the terms and conditions set forth in
        the
        form of Confirmation Letter attached as Exhibit “A” hereto and as may be
        executed by the parties from time to time, Seller hereby commits to this
        Agreement all of Seller’s natural gas (hereinafter “Gas”) produced and saved
        from the leases and leasehold interests now owned and as described on Exhibit
        “B” and any leases and leasehold interests hereinafter acquired within the Area
        of Mutual Interests depicted on Exhibit “B-1” (hereinafter collectively “the
        Leases”) for a period of fifteen (15) years from the effective date. Thereafter,
        this Agreement and Seller’s commitment of Gas hereunder shall continue
        automatically for consecutive renewal terms of one (1) year until terminated
        by
        either party providing written notice to the other party at least ninety.
        (90)
        days prior to the expiration of the primary term, or any subsequent renewal
        term. Seller covenants and agrees to sell and deliver the same to Buyer at
        the
        points of delivery set forth in the Confirmation Letters to be executed by
        the
        parties without other disposition except as herein otherwise provided. The
        foregoing shall be covenants running with the land and any conveyance,
        assignment, sale or other transfer, including any contribution to the drilling
        and/or exploration effort of another producer, of all or a portion of the
        Leases
        covered by these covenants shall include and be subject thereto. Seller shall
        require any purchaser, assignee or transferee of any portion of Seller’s
        interest in the Leases to ratify this Agreement and to expressly assume and
        agree to the terms hereto to the extent of the portion of the Leases received
        from Seller by that party. Seller agrees to notify Buyer promptly of any
        such
        conveyance, assignment, transfer or contribution.

       

       

      2. Nomination
        Confirmation. Approximately
        ten (10) business days prior to the first day of each production month or
        at a
        time mutually agreed upon by the parties, Seller and Buyer will reach agreement
        on the quantities of natural gas to be purchased and sold during that period
        at
        the points of delivery set forth in the Confirmation Letter. Seller shall
        transmit this “nomination confirmation” via fax and e-mail to
        Buyer.

       

      3. Purchase
        Price. The
        purchase price for sold volumes shall be set forth in the Confirmation Letter(s)
        as executed by and between the parties from time to time. The purchase price,
        however, shall at all times be equal to the amount per MMBtu paid to and
        received by Gasco Energy, Inc. or any of its subsidiaries or affiliates
        (“GASCO”), on all gas sold during same timeframe from said points of delivery
        under such purchase agreements, either with Seller or with third parties
        as may
        be entered into by GASCO from time to time. Said amount shall equal the gross
        sales price of the gas sold minus: (a) a gathering and transportation fee
        of not
        more than $0.23 per MMBtu adjusted as provided herein; (b) fuel, line loss,
        shrinkage and unaccounted for gas not to exceed 6% under normal operating
        conditions; and (c) compression charges in an amount not to exceed $0.07
        per
        MMBtu per stage of compression from the points of delivery to the receipt
        point(s) on the Questar mainline, adjusted as provided herein. The parties
        acknowledge and agree that the deductions authorized under 3.(b) above may
        temporarily exceed 6% due to unavoidable losses resulting from construction,
        maintenance and other necessary and appropriate operations on the gathering
        system. In no event shall the deductions provided for in 3.(b) above exceed
        6%
        for more than 15 consecutive days or 30 days in the aggregate during any
        12
        month period or a maximum of 8%. The gathering fee and compression fee will
        be
        adjusted on an annual basis in proportion to the percentage change in the
        Consumer Price Index for All Urban Consumers (CPI-U) as published by the
        United
        States Department of Labor. The adjustment shall be made effective January
        1 of
        each year beginning January 1, 2006, and shall reflect the percentage change
        in
        the aforesaid Consumer Price Index for All Urban Consumers (CPI-U) as it
        existed
        for January of the immediately preceding year. In no event will the adjustment
        in any year be less than a 2% nor more than a 4% increase over the previous
        year’s fees.

       

      
        
          
          

        

        
          Page
            - 77

          
            

          

        

        
          
          

        

      

       

      4. Additional
        Fees.
        In
        addition, Seller shall pay its proportionate share on a leasehold basis of
        meter
        fees in the amount of $250.00 per month per well for each well up to the
        first
        50 wells connected to Seller’s gas gathering system. For each well over 50
        wells, Seller shall pay its proportionate share of a meter fee of $150.00
        per
        month per well. The metering fee will be adjusted on an annual basis in
        proportion to the percentage change in the Consumer Price Index for All Urban
        Consumers (CPI-U) as it existed for January of the immediately preceding
        year.
        In no event will the adjustment in any year be less than a 2% or more than
        a 4%
        increase over the previous year’s fees. Seller shall pay Buyer $0.03 per MMBtu
        as a marketing fee for the marketing of Seller’s gas and shall reimburse Buyer
        for Seller’s proportionate share of any third party marketing fees incurred by
        Buyer up to $0.05 per MMBtu. The combined total of such marketing fees shall
        not
        exceed $0.08 per MMBtu.

       

      5. Payment.
        Buyer
        shall pay Seller by check, using its best efforts to courier the check to
        Seller
        by the end of fourteen days following the Buyer’s receipt of payment for the
        sale of Seller’s gas. The parties will review this payment provision after six
        months. Any change to this payment provision requires the written consent
        of
        both parties. In the event of any inaccuracy in or dispute as to any billing
        or
        payment, the parties shall cooperate in good faith to resolve such matter
        expeditiously. Buyer shall send a statement to Seller with the check detailing
        the following: (a) total volume (MMBtu) and gallons per Mcf of Seller’s gas
        measured at the points of delivery and total field volume; (b) total fuel
        gas
        quantity and lost and unaccounted for gas quantity attributable to Seller’s sold
        volumes; (c) gas plant products, if any, and the volume of residue gas
        attributable to Seller’s sold volumes. At the request of Seller, or if required
        by law, rule or regulation, Buyer shall withhold from sums otherwise due
        Seller
        hereunder and shall pay all production, severance or similar taxes and all
        royalties, overriding royalties and similar burden payments levied, assessed,
        charged against, or attributable to the natural gas sold hereunder prior
        to
        delivery to Buyer hereunder. Seller shall furnish such assessments, statements,
        invoices, division orders, or other documents as Buyer may reasonably require
        for the purpose of identifying each such payment and the persons entitled
        thereto.

       

      Each
        party shall have the right, at its own expense, and upon reasonable notice
        and
        at reasonable times, to inspect and audit the books and records of the other
        party to the extent necessary to verify the accuracy of any charge, adjustment,
        payment or computation hereunder. In addition, Buyer shall make available
        upon
        request and Seller shall have the right, at its own expense and upon reasonable
        notice and at reasonable times, to inspect and audit the books, records and
        natural gas purchase and sales agreements of GASCO to the extent necessary
        to
        verify the gross sales price and net sales amounts received by GASCO, together
        with all gathering, transportation, compression, and other charges paid by
        Gasco
        for gas transported from the points of delivery common to GASCO and Seller.
        All
        charges and payments shall be conclusively deemed final unless objected to
        in
        writing within twelve months following the month of delivery of the natural
        gas
        which is the subject of such charge or payment.

       

      6. Measurement
        and Title. The
        measurement of natural gas delivered hereunder shall be performed by Buyer
        at
        the inlet of Buyer’s metering facilities located at Seller’s lease line or
        separation point or at such other points of delivery as may be mutually agreed
        upon in writing by the parties from time to time and as set forth in
        Confirmation Letter(s). Title shall pass to Buyer at said points of delivery.
        Seller shall have responsibility for and assume any liability with respect
        to
        natural gas prior to delivery to Buyer at the points of delivery, and Buyer
        shall have responsibility for and assume any liability with respect to natural
        gas after delivery to Buyer at the points of delivery. Seller warrants that
        it
        will have and deliver good and merchantable title to all natural gas sold
        hereunder, tree of all liens, claims, and encumbrances. Buyer, at its expense,
        shall furnish, install, operate, and maintain a suitable orifice meter at
        all
        points of delivery of the gas covered hereby. Each meter installed by Buyer
        shall be a meter acceptable in the industry and each meter shall be installed
        and operated in accordance with the requirements of applicable provisions
        in
        ANSI/API 2530, “Orifice Metering of Natural Gas” (American Gas Association Gas
        Measurement Committee Report No.3) of the Natural Gas Department of the American
        Gas Association as amended from time to time, or by any other method commonly
        used in the industry and mutually acceptable to the parties. In the event
        of any
        question arising as to the accuracy of any meters, the meter or meters shall
        be
        tested upon demand of either party. The expense of any such test shall be
        borne
        by the party demanding same if the meter registration is found to be correct,
        and by Buyer if found to be incorrect Seller may, at its option and sole
        expense, install, maintain, and operate check meters and other equipment
        to
        check Buyer’s meters provided, however, that such check meters and other
        equipment shall not interfere with the operation of any of Buyer’s facilities.
        At least semi--annually, Buyer shall calibrate all meters installed at Seller’s
        points of delivery in accordance with industry standards and make adjustments
        as
        necessary.

       

      7. Indemnification.
        Seller
        shall indemnify Buyer and save it harmless from all losses, costs, and
        liabilities of whatsoever nature (including, without limitation, attorneys
        fees
        and costs) arising out of claims of title, personal injury or death, and
        property damage from natural gas delivered hereunder or charges thereon which
        attach prior to the passage of title to Buyer. Buyer shall indemnify Seller
        and
        save it harmless from all losses, costs, and liabilities of whatsoever nature
        (including, without limitation, attorneys fees and costs) arising out of
        claims
        of title, personal injury or death, and property damage from natural gas
        delivered hereunder or charges thereon which attach after the passage of
        title
        to Buyer. In the event of any claim adverse to Seller’s title, Buyer may, but
        shall not be required to, withhold payment for the natural gas at issue pending
        the resolution of such claim or the posting of security in form and amount
        acceptable to Buyer.

       

      
        
          
          

        

        
          Page
            - 78

          
            

          

        

        
          
          

        

      

       

      8. Force
        Maieure. The
        term
“force majeure” as used in this Agreement shall mean any cause or causes not
        reasonably within the control of the party claiming suspension and which,
        by the
        exercise of reasonable diligence, such party is unable to prevent or overcome.
        Such term shall likewise include, but not be limited to: Acts of God; acts,
        omissions to act and or delays in action of an Indian Tribe or federal, state
        or
        local government or any agency thereof; compliance with rules, regulations
        or
        orders of any governmental authority or any office, department, agency or
        instrumentality thereof; strikes, lockouts or other industrial disturbances;
        acts of the public enemy; wars; blockades; insurrections; riots; epidemics;
        landslides; lightning; earthquake; fires; storms; floods; washouts; winter
        weather, spring thaw or other inclement weather; civil disturbances;
        interruptions by governmental or court orders; present and future valid orders
        of any regulatory body having jurisdiction; explosions; the interruption
        or
        suspension of the receipt or delivery of Gas hereunder due to the inability,
        failure or refusal of any party not a party to this Agreement to receive
        or
        deliver such gas; breakage or accident to, or routine maintenance and repair
        of,
        machinery or lines or pipes, compressors or plants; well blowouts; freezing
        of
        Wells, or lines of pipe, sudden partial or sudden entire failure of gas wells;
        failure to obtain materials and supplies due to governmental regulations;
        or the
        inability of either party to acquire, or the delays on the part of such party
        in
        acquiring at reasonable cost and after the exercise of reasonable diligence,
        materials and supplies; permits and consents, and easements and/or
        rights-of-way.

       

      In
        the
        event either party hereto is rendered, wholly or in part, by force majeure,
        unable to carry out its obligations under this Agreement other than to indemnify
        or to make payments of any amount due hereunder, it is agreed that, upon
        such
        party giving notice and full particulars of such force majeure, in writing
        (which can be effected by facsimile, an e-mail, or other electronic media)
        to
        the other party as soon as possible after the occurrence of the causes relied
        on, then the obligation of the party giving such notice, so far as they are
        affected by such force majeure, shall be suspended during the continuance
        of any
        inability so
        caused,
        but for no longer period, and such cause shall, so far as possible, be remedied
        with all reasonable dispatch; provided, however, that this provision shall
        not
        require the settlement of strikes, lockouts or litigation by acceding to
        the
        demands of the opposing parties when such course is inadvisable in the
        discretion of the party hereto having the difficulty. Notwithstanding the
        foregoing, Buyer’s inability to make payments to Seller for gas that is lost due
        to explosion, breakage or accident of Buyer’s pipelines, compressors or plants
        not reasonably within the control of Buyer or which, by the exercise of
        reasonable diligence, Buyer was unable to prevent or control, shall constitute
        an event of force majeure hereunder.

      


      9. Quality.
        All
        natural gas delivered to Buyer shall meet the quality and pressure
        specifications and requirements of the receiving pipeline. Seller shall be
        solely responsible for, and shall indemnify and save Buyer harmless against,
        all
        fees, charges, penalties, losses, costs, and liabilities of whatsoever nature
        (including without limitation, attorneys fees and costs) arising out of Seller’s
        failure to deliver natural gas meeting the applicable specifications and
        requirements. Buyer shall, concurrent with the execution of this Agreement,
        deliver to Seller, in writing, the applicable specifications and requirements
        for the gas to be delivered hereunder.

       

      Buyer
        may
        test Seller’s gas delivered hereunder for adherence to such specifications, such
        testing to be in accordance with generally accepted industry standards and
        procedures. If the gas delivered by Seller does not meet the specifications
        set
        forth above, Buyer may, at its option, refuse to accept delivery of said
        gas
        into its gathering facilities. If Seller shall deliver gas to Buyer which
        exceeds the maximum pressure specifications, or fails to meet the quality
        specifications above referenced, Seller shall be responsible for any damages
        caused to Buyer’s gathering facilities and any other damages resulting from
        Seller’s delivery of such non-conforming gas. If Seller fails to conform its gas
        to the specifications and requirements, Buyer may, at its option, elect to
        accept such non-conforming gas, condition the same to conform to the above
        specifications and charge Seller a mutually acceptable condition fee. If
        neither
        party elects to condition the gas to conform to the above specifications,
        then
        Seller, at its option and upon sixty (60) days prior written notice to Buyer,
        shall have the right to obtain the release of such non-conforming gas from
        the
        Agreement.

       

      Should
        Buyer elect to accept and pay for non-conforming gas, Buyer shall not be
        deemed
        to have waived any of its rights hereunder and shall nevertheless be entitled,
        at any time and from time to time, to enforce the quality provisions hereof
        and
        refuse to accept delivery of any volumes of non-conforming gas from
        Seller.

       

      At
        least
        semi-annually, Buyer shall take samples from each of Seller’s wells at the
        points of delivery and have such samples analyzed by chromatograph analysis
        or
        other mutually agreeable and generally accepted industry methodology to
        determine the liquids content by component and the heating value of such
        gas.
        Buyer shall have the right to take and analyze a spot gas sample prior to
        the
        regularly scheduled sampling. Additionally, upon Seller’s written request to
        Buyer and at Seller’s sole cost and expense, Buyer shall take and analyze gas
        samples more frequently. All gas samples taken hereunder shall be taken at
        such
        times as are reasonably mutually agreeable so to produce a representative
        sample
        of the gas produced and Seller shall be pennitted to be present at such sampling
        and permitted to take its own split sample. The gross heating value calculation
        of such samples will use the BTU values assigned to the various hydrocarbon
        components as adjusted and updated from time to time by using as a base those
        values set forth in the most current GPA publication 2145 in effect at the
        time
        the gross heating value calculation is derived under the provisions of this
        agreement.

       

      
        
          
          

        

        
          Page
            - 79

          
            

          

        

        
          
          

        

      

       

      10. Miscellaneous.

      a. Imbalances.
        Each
        party shall use commercially reasonable efforts to avoid the imposition of
        imbalance charges and shall be responsible for the payment of any imbalance
        charges resulting from its actions or inactions.

       

      b. Notice.
        Any notice hereunder shall be in writing any may be personally delivered,
        sent
        by recognized overnight express courier, e-mail, or by facsimile, to the
        address
        or facsimile number set forth above (or to such other address or facsimile
        number as a party may direct by written notice to the other) and shall be
        effective upon receipt.

      c. Governing
        Law.
        This
        agreement shall be construed in accordance with the laws of the State of
        Colorado, excluding any conflict of law rule, which would result in the
        application of the law of another jurisdiction.

       

      d. Waiver.
        No
        waiver of any breach of this agreement shall constitute a waiver of any other
        or
        any subsequent breach.

       

      e. Successors
        and Assigns.
        This
        agreement shall be binding upon and inure to the benefit of the respective
        successors and assigns of the parties. However, no party may assign this
        agreement, or any rights hereunder, without the prior written consent of
        the
        other party, not to be unreasonably withheld.

       

      f. Partial
        Invalidity. If any provision of this agreement is determined to be invalid
        or unenforceable, such determination shall not affect the validity or
        enforceability of any other provision of this agreement.

       

      g. Integration.
        This
        agreement together with future Exhibit “A” confirmation letter(s) sets forth the
        entire agreement of the parties as to the subject matter hereof and 10
        supersedes all prior understandings and agreements, whether oral or written.
        Any
        amendment of supplement hereto shall be in writing.

       

      Paragraph
        headings used herein are for convenience only and. shall not be used in
        construing this Agreement.

       

      h. Authority.
        Each party represents that it has full authority to enter into this agreement
        and to perform its obligations hereunder.

       

      
        
          
          

        

        
          Page
            - 80

          
            

          

        

        
          
          

        

      

       

      i. Arbitration.
        In the
        event of any dispute hereunder, an authorized representative of each of the
        parties shall endeavor in good faith to resolve the matter in a timely manner.
        Any dispute not so resolved shall be submitted to a qualified arbitrator,
        acceptable to both parties, having expertise in the subject matter of the
        dispute, in arbitration proceedings conducted in Denver, Colorado, in accordance
        with the commercial Arbitration Rules of the American Arbitration Association.
        The arbitrator may, but shall not be required to, award fees and costs
        (including attorneys’ fees and costs) to the prevailing party.

       

      j.
         Rules
        and Regulations.
        This
        agreement is subject to all laws, rules, regulations, and orders of governmental
        agencies having jurisdiction over the subject matter hereof.

       

      k. Confidentiality.
        The
        terms and provisions of this Agreement are confidential and proprietary to
        the
        parties and shall not be disclosed by either party to third persons without
        the
        prior written consent of the other party, except as may be required by
        law.

       

      l. Conflict
        with Confinnation Letter.
        In the
        event of a conflict between any term or provision of this Agreement and any
        term
        or provision of a Confirmation letter issued hereunder, the term or provision
        of
        the Confirmation Letter shall control.

      


      Executed
        as of the date written above.

      


      


      
        	 Seller:
                


                BREK
                  PETROLEUM, INC.

                


                


                By:
                  /s/ Richard N. Jeffs      

                Title:
                   President    

                


                Date:
                  December 17, 2004

              	Buyer:
                


                RIVERBEND
                  GAS GATHERING, L.L.C.

                


                


                By:
                  /s/ Michael K. Decker      

                Title:
                   Executive
                  V.P. and COO  

                


                Date:
                  December 23, 2004

              


      

      


      
         

      

      
        
          
          

        

        
          Page
            - 81

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
“A”


      CONFIRMATION
        LETTER ISSUED UNDER

      NATURAL
        GAS PURCHASE AGREEMENT

      


      Date:

      


      Seller:                       Buyer:

      


      
        	
                 

                BREK
                  PETROLEUM, INC.   

                1100
                  Melville Street, Suite 600

                Vancouver
                  BC V6E 4A6 Telephone:

                Facsimile:
                  (604) 664-0672 

                 

                E-mail:________________________________    

                 

                Contact:________________________________    

                 

                Tax
                  ID No:________________________________ 

              	
                 

                RIVERBEND
                  GAS GATHERING, L.L.C.

                14
                  Inverness Drive East, Suite H-236

                Englewood,
                  Colorado 80112

                Telephone:
                  (303) 483-0044

                Facsimile:
                  (303) 483-0011

                 

                E-mail:________________________________    

                 

                Contact:________________________________   

                 

                Tax
                  ID No:________________________________ 

                 

                 

              


      

      


      


      


      Buyer
        and
        Seller confirm the following transaction between Buyer and Seller pursuant
        to
        the Natural Gas Purchase Agreement identified above:

      


      Confirmation
        Date:________________________________     

      


      Period
        of
        Delivery:________________________________     

      


      Purchase
        Price:[insert contract price or prices, i.e. final sale price, incremental
        volumes based on index, shortfalls, etc.]

      


      Quantity:
        100% of Seller’s production from the points of delivery.

      


      Points
        of
        Delivery: Well or Lease meter facilities located at:

      


      In
        the
        event of a conflict between any terms or provision of the Natural Gas Purchase
        Agreement identified above and any term or provision of this Confirmation
        Letter, the term or provision of this Confirmation Letter shall
        control.