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Exhibit 10.7    
    

 
 

GAS GATHERING AGREEMENT
  
    Between
  
    BITTER CREEK PIPELINES, LLC
  "GATHERER"
  
    and
  
    PINNACLE GAS RESOURCES, INC.,
  QUANECO L.L.C. and
  DOLPHIN ENERGY
CORPORATION
  Collectively "SHIPPER"
  
    HIGH PRESSURE GATHERING LINE
  
    CONTRACT # 077027    
    

 
 
 

INDEX    
    

	DEFINITIONS	 	1
	GATHERING SERVICE	 	3
	TERM OF AGREEMENT	 	4
	RATES	 	4
	QUANTITY	 	5
	FACILITIES	 	5
	NOMINATIONS AND SCHEDULING	 	6
	ALLOCATIONS	 	6
	BALANCING	 	7
	MEASUREMENT, METER EQUIPMENT AND TESTING	 	8
	PRESSURES	 	10
	QUALITY	 	10
	NOMINATION FORM	 	12
	UNAUTHORIZED GAS	 	12
	BILLING AND PAYMENT	 	12
	TAXES AND ROYALTIES	 	14
	NOTICES AND PAYMENT INFORMATION	 	14
	CONTROL AND POSSESSION	 	14
	TITLE AND AUTHORITY	 	14
	FORCE MAJEURE	 	15
	INDEMNIFICATION	 	16
	ASSIGNMENT	 	16
	ATTORNEY-IN-FACT	 	16
	INTERPRETATION AND CONTROLLING LAW; CONSENT TO VENUE, JOINT AND SEVERAL LIABILITY	 	17
	REGULATION	 	17
	WAIVER	 	17
	MODIFICATIONS AND AMENDMENTS	 	17
	AGREEMENTS BEING SUPERSEDED	 	17
	MISCELLANEOUS	 	17

APPENDIX
"A"—Primary Term; MDQ; Demand Fee; Gathering Rate; Carbon Dioxide Processing Service Fee; Rate Adjustment; Fuel, Lost & Unaccounted for Gas Quantity Reimbursement; and
Cashout Index Price 

APPENDIX
"B"—Receipt and Delivery Point(s) 

APPENDIX
"C"—Gatherer and Shipper Notification Information

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GAS GATHERING AGREEMENT    

        This
Gas Gathering Agreement ("Agreement") is made and entered into this            day
of                                    2005, between, Bitter Creek
Pipelines, LLC ("Gatherer"), a
Colorado LLC, and Pinnacle Gas Resources, Inc., Quaneco L.L.C. and Dolphin Energy Corporation (collectively "Shipper"). Gatherer and Shipper may be jointly referred to as
the "Parties." 

RECITALS

        WHEREAS,
Shipper has requested that Gatherer provide high pressure gathering services of natural gas on Shipper's behalf on Gatherer's gathering system located in Bighorn County, Montana
and Sheridan & Campbell Counties, Wyoming; and 

        WHEREAS,
Gatherer is willing to provide the services subject to the terms and conditions contained in this Agreement. 

        NOW
THEREFORE, in consideration of the premises and of the mutual promises, covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows: 

 
 

ARTICLE I
  
    DEFINITIONS    
    

        For purposes of this Agreement and except where the context otherwise indicates another or different meaning or intent, the following words and terms as used
herein shall have the meaning indicated: 

	1.01
	"Allocated
Deliveries" shall mean Gas credited to Shipper's Account at the Delivery Point.

	1.02
	"Allocated
Receipts" shall mean Gas credited to Shipper's Account at the Receipt Point.

	1.03
	"Balance"
and "Balancing" shall mean Shipper's obligation to cause deliveries to equal receipts, with due consideration given to FL&U.

	1.04
	"British
Thermal Unit (Btu)" shall mean the amount of heat required to raise the temperature of one (1) pound of water from sixty degrees Fahrenheit (60°F)
to sixty-one degrees Fahrenheit (61°F).

	1.05
	"Business
Day" shall mean any day except Saturday, Sunday or Federal Reserve Bank holidays.

	1.06
	"Capacity"
shall mean the maximum Gas volume, which any particular segment of Gatherer's system is capable of carrying or containing under then current operating conditions.

	1.07
	"Condensate"
shall mean drip gas or other free liquids collected in Gatherer's, or its designee's or affiliate's, pipelines between the Delivery Point(s) and the inlet of the
transporting pipeline.

	1.08
	"Confirmed
Nominations" is that quantity of Gas expressed in MMBtu's which Gatherer has approved to be gathered on a particular Gas Day.

	1.09
	"Controlling
Party" shall mean the owner, operator, or other controlling party of a Receipt Point or a Delivery Point.

	1.10
	"Cubic
Foot of Gas" is the amount of Gas necessary to fill one (1) cubic foot of space when the Gas is at a temperature of sixty degrees Fahrenheit (60°F)
and under an absolute pressure of fourteen and seventy-three hundredths (14.73) pounds per square inch.

	1.11
	"Dekatherm"
(See MMBtu). 

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	1.12
	"Delivery
Point(s)" shall mean the point(s) set forth on Appendix "B" attached hereto and incorporated by reference at which Gatherer delivers Gas for
Shipper's account.

	1.13
	"Facilities"
shall mean the equipment, devices and/or pipelines necessary to move Gas from the Receipt Point(s) to the Delivery Point(s).

	1.14
	"Firm
Service" shall refer to the obligation of Gatherer to make available to Shipper on a daily basis, subject to events of force majeure, high pressure gathering service for
quantities of Gas up to the MDQ as set forth on Appendix "A" hereto to be redelivered to the delivery point(s) set forth on Appendix "B".

	1.15
	"FL&U"
shall mean the combination of "Fuel Gas Quantity" and "Lost and Unaccounted for Gas Quantity" as defined in this Article.

	1.16
	"Fuel
Gas Quantity" or "Fuel" is that quantity of Shipper's Gas in MMBtu's, received by Gatherer, which is retained by Gatherer for fuel. The Fuel Gas Quantity, as set forth in
Appendix "A," is stated as that Gas actually used by Gatherer under this Agreement for Shippers' benefit and for nomination and scheduling purposes shall be stated as a percentage of the Gas delivered
by Shipper at the Receipt Point(s). Title to the Fuel Gas Quantity shall vest in Gatherer upon receipt at the Receipt Point(s) at no cost to Gatherer and free and clear of all adverse claims
and liabilities.

	1.17
	"Gas"
shall mean natural gas or any mixture of hydrocarbons or of hydrocarbons and noncombustible gases, in a gaseous state, the quantity of which shall be determined on an
MMBtu basis.

	1.18
	"Gas
Day" or "Day" shall mean a period of twenty-four (24) consecutive hours, commencing at nine o'clock a.m. Central Clock Time, and ending at nine
o'clock a.m. Central Clock Time, immediately following said consecutive twenty-four (24) hour period. The reference date for any Gas Day shall be the calendar date upon which
said twenty-four (24) hour period commences.

	1.19
	"Gathering"
or "Gathering Services" shall mean the movement of Gas through Gatherer's Facilities from the Receipt Point(s) to the Delivery Point(s).

	1.20
	"Gross
Dry Heating Value" is the number of Btu's produced by complete combustion, at a constant pressure, of the amount of Gas which would occupy a volume of one
(1) cubic foot at a temperature of sixty degrees Fahrenheit (60°F) on a water-free basis and at a pressure of fourteen and seventy-three hundredths pounds
per square inch absolute (14.73 p.s.i.a.), with air of the same temperature and pressure as the Gas, when the products of combustion are cooled to the initial temperature of the Gas and air,
and when the water formed by combustion has condensed to the liquid state.

	1.21
	"Imbalance"
shall mean the difference in MMBtu's between the quantity of Gas received by Gatherer from Shipper, or for Shipper's account, at the Receipt Point(s) less FL&U, and the
quantity of Gas delivered, as allocated by Gatherer to Shipper, or for Shipper's account, at the Delivery Point(s).

	1.22
	"Lost
and Unaccounted for Gas Quantity" or "L&U" is that volume of Shipper's Gas, in MMBtu's, received by Gatherer which is released and/or lost through piping, equipment, or
operations or is vented. The Lost and Unaccounted for Gas Quantity is stated as a percentage of the Gas delivered by Shipper at the Receipt Point(s), and is set forth on Appendix "A". Title to
the Lost and Unaccounted for Gas Quantity shall vest in Gatherer upon receipt at the Receipt Point(s) at no cost to Gatherer and free and clear of all adverse claims and liability.

	1.23
	"Mcf"
shall mean one thousand (1,000) Cubic Feet of Gas at 14.73 p.s.i.a. and 60°F. 

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	1.24
	"MDQ"
shall mean the maximum daily quantity of Gas Gatherer is obligated to deliver daily on behalf of Shipper.

	1.25
	"MMBtu"
shall mean one million (1,000,000) British Thermal Units ("Btu's"), also known as a Dekatherm.

	1.26
	"Month"
shall mean a period of time beginning on the first Gas Day of the calendar Month and ending on the first Gas Day of the next succeeding calendar Month.

	1.27
	"Monthly
Billing Period" is a Month.

	1.28
	"p.s.i.a."
shall mean pounds per square inch absolute.

	1.29
	"p.s.i.g."
shall mean pounds per square inch gauge.

	1.30
	"Receipt
Point(s)" shall mean the point(s) set forth on Appendix "B" attached hereto and incorporated by reference at which Transporter receives Gas for
Shipper's account.

	1.31
	"Shipper's
Gas" shall mean the Gas tendered by Shipper to Transporter at the Receipt Point(s) pursuant to this Agreement.

	1.32
	"Third
Party" shall mean a party other than Shipper or Transporter.

	1.33
	"Total
Thermal Energy Content" is determined by multiplying the Gross Dry Heating Value by the volume of Gas in Cubic Feet of Gas, adjusted for as-delivered water content
in accordance with Article titled "MEASUREMENT, METER EQUIPMENT AND TESTING".

	1.34
	"Transporter"
shall mean a downstream transporter who accepts Gas at a Delivery Point.

	1.35
	"Well(s)"
shall mean any oil or Gas well and the Gas reserves attributable thereto which are assigned to such Well(s) pursuant to regulations of a duly constituted governmental
authority having jurisdiction, or if no such regulations are established, then the Gas reserves attributable thereto which can reasonably be drained by such Well(s) pursuant to established spacing
practices in the field where such Well(s) are drilled.

	1.36
	"Year"
is a period of three hundred sixty-five (365) days commencing and ending at nine o'clock a.m. Central Clock Time, provided that any year which
contains the date of February 29 shall consist of three hundred sixty-six (366) days. 

 
 

ARTICLE II
  
    GATHERING SERVICE    
    

	2.01
	Bitter
Creek shall provide Firm Service for all Gas (up to the MDQ specified on Appendix "A") delivered by Shipper to the Receipt Point(s) identified in
Exhibit A attached hereto for receipt into the System. Gathering services for volumes of Gas in excess of the specified MDQ shall be performed on best efforts basis.

	2.02
	Gatherer
shall have the unqualified right to commingle Shipper's Gas received by Gatherer at the Receipt Point(s) with other Gas in Gatherer's Gathering system(s).

	2.03
	In
the event that Shipper's operations or activities cause damage to Gatherer's Facilities or operations, Shipper shall reimburse Gatherer for any direct costs and expenses,
including parts, materials, Gas replacement, labor and any third party services required in order to repair Gatherer's Facilities and resume Gatherer's normal Gathering operations.

	2.04
	Gatherer
shall have the right, with one week's notice, to cease its Gathering Services hereunder and/or to cease the operation of its Gathering systems, from time to time, as
necessary to complete repairs, to perform normal or routine maintenance, to conduct tests, 

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and/or
to alter, modify, expand or reconfigure its Gathering system. However, Gatherer shall have the right, with reasonable notice, to cease its Gathering Services hereunder and/or the operation of
its Gathering systems, from time to time, due to unexpected periods of unscheduled maintenance. 

	2.05
	It
is expressly understood and agreed to by the Parties that any Condensate or "drips" that occur in Gatherer's Gathering system shall become the property of and title thereto shall
vest in Gatherer. Gatherer shall only be obligated to deliver to Shipper the Total Thermal Energy Content of Shipper`s Gas received by Gatherer, less FL&U. 

 
 

ARTICLE III
  
    TERM OF AGREEMENT    
    

	3.01
	This
Agreement shall be effective as of the Effective Date stated above, and, unless sooner terminated pursuant to other provisions of this Agreement, shall continue in full force
and effect for the primary term specified in Appendix "A" attached hereto from and after the effective date, and thereafter on a month-to-month basis until terminated by
either Gatherer or Shipper, by giving sixty (60) days advance written notice to the other; provided, however, that the obligation of the Parties to balance receipts and deliveries of Gas shall
remain in full force and effect for such additional limited period as may be necessary to bring receipts and deliveries of Gas into Balance.

	3.02
	In
the event the Federal Energy Regulatory Commission (FERC) or any successor or other federal or state governmental agency exercises jurisdiction over the Firm Services and/or rates
provided for under this Agreement, such shall have no effect on this Agreement unless Congress shall authorize the retroactive application or specifically require the amendment of existing contracts
to conform to such agency exercise of jurisdiction. In the event Congress shall so act, Shipper and Gatherer shall renegotiate the Firm Service and/or its rates to comply with the terms and costs
associated with any such regulation.

	3.03
	Notwithstanding
anything contained in this Agreement to the contrary, if, after five (5) years from the date hereof, Gatherer, in its sole discretion, determines it is no
longer economically feasible to provide the Firm Service for all or a part of Shipper's operations, then Gatherer may terminate this Agreement upon sixty (60) days written notice as to all of
Shipper's operations or as to such facilities which it determines are uneconomical. However, during the sixty (60) day notice period, Shipper and Gatherer shall negotiate in good faith with
respect to the continuation of Firm Service to the facilities which are subject of the aforesaid written notice and if requested by Shipper, Gatherer shall provide a statement of revenue and costs for
such facilities during the periods in questions. 

 
 

ARTICLE IV
  
    RATES    
    

	4.01
	Gatherer
shall charge Shipper the Demand fee(s) as specified in Appendix "A" attached hereto beginning with the effective date of this agreement (or the first Day of
the month following sales line service availability, whichever is later) and continuing each Month thereafter. The monthly Demand payment to be paid by Shipper shall be determined by multiplying the
MDQ of Gas times the number of Days in the month times the Demand Fee as set forth on Appendix "A".

	4.02
	Gatherer
shall charge and Shipper shall pay the Gathering rate(s) specified in Appendix "A" attached hereto, commencing with receipt of Gas and each Month thereafter. The
monthly Gathering payment to be paid by Shipper shall be determined by multiplying the Mcf's 

4

 

allocated
at the Receipt Point(s) by the applicable Gathering rate and as provided for in Appendix "A". 

 
 

ARTICLE V
  
    QUANTITY    
    

	5.01
	Gatherer
agrees to receive a scheduled quantity of Shipper's Gas at the Receipt Point(s) designated in Appendix "B", attached hereto and made a part hereof, for
Gathering on a firm basis up to the MDQ as specified in Appendix "A" and subject to the Article titled "NOMINATIONS AND SCHEDULING" contained herein.

	5.02
	Gatherer
agrees to deliver for the account of Shipper at the Delivery Point(s) designated on Appendix "B", the scheduled quantity of Gas received from Shipper at the Receipt
Point(s), less FL&U, on a commercially reasonable efforts basis and subject to the Article titled "NOMINATIONS AND SCHEDULING" contained herein. Shipper shall accept, or cause acceptance of the Gas
delivered by Gatherer at the Delivery Point(s).

	5.03
	Shipper
shall arrange with Third Parties for all services upstream of the Receipt Point(s) and downstream of the Delivery Point(s) to effect the receipt and delivery of Shipper's Gas
by Transporter.

	5.04
	Shipper
shall deliver or cause to be delivered the daily quantities of Gas to be received at the Receipt Point(s) and accepted at the Delivery Point(s) at a substantially constant
rate, so that large fluctuations in the quantity of Gas flow are minimized, or at such other rate of flow as may be acceptable to Gatherer. 

 
 

ARTICLE VI
  
    FACILITIES    
    

	6.01
	Gatherer
shall construct, operate and maintain (or cause others to construct, operate, and maintain) all necessary facilities required to enable Gatherer to receive Shipper's
Gas at the Receipt Point(s) and redeliver Gas to Shipper or for Shipper's account at the Delivery Point(s) in accordance with the terms of this Agreement.

	6.02
	In
the event Gatherer installs and operates additional compression due to Shipper's flow exceeding the MDQ for Receipt Point(s) as defined in Appendix "A", Gatherer shall have
the right to recover incremental compression Fuel from Shipper.

	6.03
	Shipper
may request, in writing, that Gatherer expand Facilities or add new Receipt or Delivery Point(s) or provide additional services. Gatherer shall determine, in its sole
opinion, whether it will undertake the construction and/or expansion of its facilities or Gathering systems or provide additional services and/or add new Receipt or Delivery Point(s). 

In
the event that Shipper requests that Gatherer do so and Gatherer agrees, then Gatherer shall have the right to re-determine the rate(s) to be charged for Gathering Services hereunder
and/or to establish the rate(s) for such additional services. In the event that Shipper requests that Gatherer do so, and Gatherer disagrees with such additional services, then Gatherer shall release
that portion of Shipper's Gas covered by such request from this Agreement to allow Shipper to find alternative means of transport. 

	6.04
	Shipper
shall install and operate or cause the installation and operation of all Facilities necessary to deliver Shipper's Gas to Gatherer at the Receipt Point(s). 

5

 

 
 

ARTICLE VII
  
    NOMINATIONS AND SCHEDULING    
    

	7.01
	Each
Gas Day under this Agreement, Shipper shall submit receipt and delivery nominations of Gas, and Gatherer shall confirm such nominations, according to the nomination provisions
set forth below. Shipper shall:

	a.
	Nominate
to Gatherer by facsimile or via electronic mail at least twenty-four (24) hours before ten o'clock a.m., Central Standard Time, of the Day on which
Shipper desires Gathering Services. Gatherer shall have no obligation to gather Gas for Shipper under this Agreement if Shipper's notice (nomination) is not received timely. Nominations for
mid-month changes will be taken by exception only, submitting only those records that are being revised. Additionally, nominations will be taken Monday through Friday eight
o'clock a.m. until five o'clock p.m., Central Standard Time with weekend changes only being accepted when the interconnecting pipeline has a change in the mainline nomination.

	b.
	Include
in the nomination the quantity of Gas to be received by Gatherer including Shipper's Total Thermal Energy Content, and FL&U reimbursement quantities at each specified Receipt
Point(s), and the quantity to be delivery by Gatherer at each specified Delivery Point(s) for the Day(s) Gathering Service is requested. The total Receipt Point(s) nominations less FL&U must equal the
equivalent Total Thermal Energy Content of the Delivery Point(s) nominations. If a predetermined allocation method is relied upon by Shipper for its Delivery Point(s) nominations, then Shipper shall
so indicate in its nomination.

	c.
	If
Gatherer does not have the capacity to accept and/or deliver the requested quantities of Gas beyond Shipper's MDQ the following Day, Gatherer shall provide such notice to Shipper
via facsimile or via electronic mail by five o'clock p.m., Central Standard Time.

	d.
	For
service to begin on the first, second or third Day of the Month, nominations must be submitted to Gatherer by ten o'clock a.m., Central Standard Time, by facsimile or via
electronic mail four (4) working Days prior to the first Day of the Month. Shipper confirmations shall be sent out at the beginning of the Month and then only when a change in nomination(s)
occurs. Shipper has the option of receiving the confirmation by facsimile or via electronic mail.

	e.
	Provide
the associated contract numbers for the downstream parties, if known.

	f.
	Nominate
to no more than one (1) Delivery Point per nomination per line item. Transactions to which different rates, if any, apply shall also be nominated separately.

	7.02
	If
on any Gas Day Capacity on Gatherer's systems is restricted, Gatherer may schedule the available Capacity as Gatherer elects in its sole discretion. All firm volumes will be
allocated on a pro-rata basis based upon confirmed nominations. 

 
 

ARTICLE VIII
  
    ALLOCATIONS    
    

	8.01
	In
the event a predetermined allocation methodology is submitted by the Controlling Party of a Receipt Point, Gatherer will allocate the Gas received at that Receipt Point by that
methodology. If no predetermined allocation methodology is submitted, then the Gas received will be allocated pro rata based on scheduled quantities. 

6

 

	8.02
	In
the event a predetermined allocation methodology is submitted by the Controlling Party of a Delivery Point, Gatherer will allocate the Gas delivered at that Delivery Point based
on that methodology. If no predetermined allocation methodology is submitted, then the Gas will be allocated on a scheduled quantity basis. 

 
 

ARTICLE IX
  
    BALANCING    
    

	9.01
	It
is the intent of the Parties that nominations at the Delivery Point(s) shall be equal to receipts of Gas at the Receipt Point(s), less any applicable FL&U. If daily receipts of
Gas less FL&U do not equal confirmed daily delivery nominations at the Delivery Point(s), an Imbalance is created. Gatherer shall have the right to reduce, increase, or modify nominations to bring
Shipper into Balance. However, due to variations in operating conditions, daily and monthly nominations may be greater or less than corresponding receipts of Gas, less any applicable FL&U. Gatherer
and Shipper agree that any excess or deficiency between such Gas receipts less any applicable FL&U, and nominations shall be adjusted or corrected in the following manner: 

Within
twenty (20) Business Days after the Month of production, Gatherer shall provide Shipper with Shipper's gathering Imbalance statement by mail, facsimile or electronic mail. Shipper shall
be given an Imbalance tolerance equal to the greater of 5,000 MMBtus or 10% of actual Gas receipts. Should Shipper's Imbalance exceed its tolerance, Gatherer shall bring Shipper's Imbalance
back into tolerance by charging or crediting Shipper's account, as applicable. Such charges or credits shall be made according to a percentage of the Cashout Index Price, as stated on Appendix "A,"
applicable to the month in which the Imbalance occurred, as provided in the schedule below: 

	Imbalance as a % of Gas at Receipt Point(s) less FL&U*
 
	 	If deficient receipts Bitter Creek charges
	 	If excess receipts Bitter Creek credits

	10% or less	 	Imbalance carries forward	 	Imbalance carries forward
	Over 10% through 15%	 	105%	 	95%
	Over 15%	 	115%	 	85%

	*
	If
less than 5,000 MMBtus, then 5,000 MMBtus applies and total Imbalance carries forward

	9.02
	Shipper
recognizes that it is Shipper's responsibility to mitigate any Imbalances created on the Gathering System and Shipper will try to correct such Imbalances on a reasonable
efforts basis.

	9.03
	Gatherer
shall not be liable to Shipper or any Third Party for any nomination variance charges. Unauthorized Gas penalties, Imbalance penalties or any other costs, fees, penalties or
charges imposed on or incurred by Shipper or Gatherer as a result of a variance between the quantities of Gas scheduled by Shipper at any Receipt and/or Delivery Point(s) and the quantities actually
delivered by or for the account of Shipper at that point, except when and to the extent such penalties are directly attributable to the negligence of Gatherer. Shipper expressly assumes all
responsibility and liability for such penalties and agrees to indemnify and reimburse Gatherer for any such penalties, costs, fees or charges imposed on Gatherer, except when and to the extent such
penalties are directly attributable to the negligence of Gatherer.

	9.04
	Shipper
acknowledges and agrees that Gatherer is not responsible for eliminating any Imbalances in Gas volumes between Shipper and any Third Party upstream or downstream of 

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Gatherer's
facilities, nor is obligated to deviate from its standard operating and accounting procedures in order to reduce or eliminate any such Third Party Imbalances. 

	9.05
	Upon
termination of this Agreement, any Imbalance will be cashed out in accordance with Section 9.01. If Shipper's Imbalance is less than ten (10) percent of the prior
month's total Gas receipts, then the cashout of such Imbalance shall occur at one-hundred (100) percent of the Cashout Index Price as noted in Appendix "A"
attached hereto. 

 
 

ARTICLE X
  
    MEASUREMENT, METER EQUIPMENT AND TESTING    
    

	10.01
	The
unit of volume for measurement and for the determination of Gross Dry Heating Value shall be a Cubic Foot of Gas. Volumes of Gas measured at prevailing meter pressures and
temperatures shall be corrected to the unit of volume defined above by the procedures described below:

	a.
	Orifice
Meters: Installation and determination of volumes, measured by means of an orifice meter shall be measured in accordance with the procedures contained in ANSI-API
2530, First Edition, Second Edition, AGA Committee Report No. 5, AGA Committee Report No. 7, or revisions or amendments made thereto. Construction, installation, and volumetric
computation shall be performed per the 14.3 standards.

	10.02
	The
atmospheric pressure shall be the average atmospheric pressure as determined by elevation at the Delivery and Receipt Point(s). In the absence of recording the actual
atmospheric pressure Gatherer may assume the atmospheric pressure to be 12.7 p.s.i.a adjusted for altitude at the Receipt Point.

	10.03
	The
volume of Gas delivered through each Delivery Point(s) and Receipt Point(s) shall be corrected to a base temperature of sixty degrees Fahrenheit (60°F)
by using:

	a.
	The
arithmetic average of the hourly temperatures recorded by a properly installed, continuously operated recording thermometer: or

	b.
	A
meter containing a temperature operated device, hereinafter referred to as a temperature compensated meter, through the operation of which the meter correctly registers the volume,
corrected to sixty degrees Fahrenheit (60°F).

	10.04
	A
temperature of sixty degrees Fahrenheit (60°F) shall be assumed for any Gas flowing through a meter for which Gatherer does not elect to install a recording
thermometer or temperature compensation meter. Notwithstanding the preceding sentence, the Parties agree that Gatherer shall install a recording thermometer at each Receipt Point.

	10.05
	When
orifice meters are used, specific gravity and gross heating value of the Gas shall be determined from chromatographic results, at least semi-annually if the volumes
of Gas passing through such meter is less than 5,000 Mcf per day. If the Gas volume is larger than 5,000 Mcf per day but no greater than 15,000, Mcf per day tests shall be performed
quarterly. When the average volume is greater than 15,000 Mcf per day, these tests shall be performed monthly. These results shall be used to compute volumes.

	10.06
	The
components for determining the deviation from Boyle's Law, at the pressure and temperature under which delivered, shall be determined by chromatographic tests at intervals of
twelve (12) Months or at such shorter interval as is found necessary by Gatherer. The correction factor shall be determined by using American Gas Association "Report Number Eight." 

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	10.07
	The
Gross Dry Heating Value of the Gas delivered shall be determined by Gas samples or industry accepted recording calorimeters or chromatographs installed or caused to be installed
by Gatherer at points on Gatherer's system(s) in specified areas. The gross heating values shall be calculated per the most current edition of GPA Standard 2145 and GPA
Standard 2172.

	10.08
	The
Total Thermal Energy Content shall be calculated by adjusting the measured volume to correct for the volume of water vapor assuming saturation at the temperature and pressure of
measurement and multiplying the corrected volume by the Gross Dry Heating Value.

	10.09
	Gatherer
agrees to operate and maintain, or cause to be operated and maintained, on its system at or near the Receipt Point(s) connecting the Facilities of Gatherer and Shipper, or
at or near Delivery Point(s) connecting the Facilities of Gatherer with those of another party which is transporting the Gas on behalf of Shipper, a meter or meters of standard type and design to
measure all of the Gas to be received/delivered hereunder.

	10.10
	Shipper
may install, operate and maintain, at its own expense, check measuring equipment as it shall desire, provided that check meters and equipment shall be installed so as not to
interfere with the operation of Gatherer's meters or a meter operated on behalf of Gatherer. Gatherer shall have access to check measuring equipment at all reasonable hours, but Shipper shall perform
all calibrations and adjustments thereof and changing of charts.

	10.11
	Both
Gatherer and Shipper shall have the right to be represented at any installation, reading, cleaning, changing, repairing, inspection, calibration or adjustment done in
connection with the other's measuring equipment. The records from such measuring equipment shall remain the property of the owner of the equipment, but the owner, upon request by the other party, will
submit records, charts, and data together with calculations therefrom, for inspection and verification, subject to return within thirty (30) Gas Days after receipt.

	10.12
	The
party operating the measuring equipment shall use approved standard methods in general use in the Gas industry and shall cause adequate tests to be made to determine the quality
of the Gas delivered hereunder and the results of such testing shall be made available to the other party upon request. Meter tests shall be conducted as set forth more fully below in this Article.
Such tests shall be made frequently enough to ensure that the Gas conforms to the specifications hereof.

	10.13
	Gatherer
shall test or cause to be tested its meters at reasonable intervals. Shipper, at its sole expense, may have tests of Gatherer's meters made at reasonable times in the
presence of Gatherer's representatives.

	a.
	If,
upon any test, measuring equipment is found to be inaccurate by less than two percent (2%), previous readings of such equipment shall be used to determine the correct values in
computing deliveries of Gas. The equipment shall be properly adjusted at once to record accurately.

	b.
	If,
upon any test, any measuring equipment shall be found to be inaccurate by an amount exceeding two percent (2%) of the calculated volume, then any previous readings of such
equipment shall be corrected to zero error for any period that is known definitely or agreed upon. In case the period is not known definitely or agreed upon, such adjustment shall be for a period
extending over one-half of the time elapsed since the date of last test but not exceeding a correction period of one hundred twenty (120) Gas Days.

	10.14
	If
for any reason Gatherer's meters are out of service or not properly operating, the Gas delivered during the affected period shall be estimated and agreed upon on the basis of the
best data available, using the first of the following methods, which is feasible: 

9

 

	a.
	By
using the registration of any check meter or meters if installed and accurately registering;

	b.
	By
correcting the error if the percentage of error is ascertainable by calibration, test or mathematical calculation; or

	c.
	By
estimating the quantity of delivery by deliveries during preceding periods under similar conditions when the meter was registering accurately.

	10.15
	If
Gatherer institutes a new method or technique of Gas measurement, Gatherer may substitute such new method or technique. Gatherer shall promptly inform Shipper of the adoption of
any such new technique and the date of its implementation. Notwithstanding the preceding provisions in this section, any such change, if allowed, must be made in conformity with then current
industry standards. 

 
 

ARTICLE XI
  
    PRESSURES    
    

	11.01
	Shipper
shall deliver Gas or cause Gas to be delivered to Gatherer at the Receipt Point(s) at pressures sufficient to effect delivery of the Gas into the Gathering Facilities
against the then current operating pressures at the Receipt Point(s). Gatherer shall not be obligated to add to or modify its Gathering Facilities or expand the Capacity of its system in any manner in
order to provide lower pressures or Gathering Service to Shipper in excess of MDQ to Shipper.

	11.02
	Nothing
herein shall obligate Shipper to install compression; however, if Shipper elects to install compression prior to delivery, said installation shall be installed in a manner
that shall not induce pulsation and/or SRE (Square Root Error) in the downstream measuring devices. SRE shall be no greater than .5%. If SRE is greater than .5%, then it shall be the responsibility of
the Shipper to resolve the SRE to the satisfaction of Gatherer. All costs associated with the resolution of any problem hereunder shall be the responsibility of Shipper.

	11.03
	At
each Receipt Point(s), Shipper shall provide equipment acceptable to Gatherer that will prevent over-pressuring of the Gathering Facilities ("Pressure Regulation
Devices"). Gatherer, in its sole discretion, may require Shipper to install, operate and maintain, at its own expense, such Pressure Regulation Devices as may be necessary to regulate the pressure of
Gas prior to receipt by Gatherer. Unless otherwise manually agreed, delivery of Gas by Gatherer to Shipper at the Delivery Point(s) shall be at such varying pressures as may exist under the operating
conditions of the Gathering Facilities at the Delivery Point(s). If regulation equipment is installed on Gatherer's Gathering system, it shall be installed in a manner that does not interfere with
measurement or induce measurement errors.

	11.04
	Gatherer
shall have no obligation to otherwise modify its Gathering Facilities or operations in order to effect deliveries at the Delivery Point(s). Gatherer shall have the right,
but not the obligation, to shut-in, curtail or allocate volumes at any Receipt Point(s) or Delivery Points), as long as Shipper's MDQ and pressure conditions are met, when the pressure at
such Receipt Point(s) or Delivery Point(s) limits the flow of a Third Party's Gas. 

 
 

ARTICLE XII
  
    QUALITY    
    

	12.01
	All
Gas tendered by Shipper for Gathering at the Receipt Point(s) shall be merchantable Gas, and, unless expressly waived in writing by Gatherer in Appendix "A", shall
conform to all of the minimum quality specifications of any pertinent Transporters; however, in no event shall the Gas quality fall below the specifications set forth below. 

10

 

	a.
	At
a base pressure of fourteen and seventy-three hundredths (14.73) p.s.i.a. and a base temperature of sixty degrees Fahrenheit (60°F), such Gas shall not contain
more than:

	(1)
	One
quarter (1/4) grain of hydrogen sulfide per one hundred (100) cubic feet;

	(2)
	Two
(2) grains of total sulfur per one hundred (100) cubic feet including the sulfur in any hydrogen sulfide, mercaptan sulfides and residual sulfur;

	(3)
	One
quarter (1/4) grain of mercaptans per one hundred (100) cubic feet;

	(4)
	Four
(4) pounds of water vapor per million cubic feet;

	(5)
	Two
percent (2%) by volume of nitrogen; and

	(6)
	Ten
parts per million (0.001 percent) by volume of oxygen.

	b.
	Such
Gas shall be commercial in quality and shall be free of liquid-phase water and from any foreign material such as solids, sand, dirt, dust, gums, crude oil, iron particles, and
other objectionable substances which may be injurious to pipelines or which may interfere with its transportation, measurement or commercial utilization. Gatherer reserves the right to refuse to
accept any Gas containing any material unacceptable to pipelines downstream of Gatherer's Receipt Point(s).

	c.
	At
a base pressure of fourteen and seventy-three hundredths (14.73) p.s.i.a., the Gross Dry Heating Value of such Gas shall not be less than nine hundred fifty (950) Btu's per
cubic foot nor more than one thousand two hundred ten (1, 210) Btu's per cubic foot.

	d.
	The
temperature of such Gas shall not be less than forty degrees Fahrenheit (40°F) nor exceed one hundred and twenty degrees Fahrenheit (120°F). However, if
Gatherer agrees to dehydrate the Gas at the Receipt Point(s), then the temperature of such Gas shall not exceed ninety degrees Fahrenheit (90°F).

	e.
	The
Gas shall not contain hydrocarbons or water in the liquid state at the minimum base pressure or the pressure existing at the Receipt Point(s), if higher.

	12.02
	Gatherer,
at its sole discretion, may refuse to accept receipt of any Gas from Shipper not meeting the minimum quality specifications set forth above; thereafter, Shipper shall have
the right to conform the Gas to the above specifications. If Shipper does not elect to or cannot conform the Gas to said specifications, then Gatherer may accept Gas tendered by Shipper hereunder
which does not meet the above specifications, treat the same to conform to said specifications, and charge Shipper a fee for such service. That amount to be charged each Month and any terms and
conditions pertaining thereto shall be agreed to between all Parties prior to the time Gatherer commences to treat Shipper's Gas. If neither Gatherer nor Shipper elects to treat the Gas to conform to
the above specifications, and/or such Gas cannot be brought into conformance with the minimum quality specifications, then Gatherer may, upon thirty (30) days prior written notice to Shipper,
release from this Agreement the Well(s) from which such non-conforming Gas is produced. Any such refusal to accept non-conforming Gas hereunder may be made known by Gatherer to
Shipper by notification via facsimile or electronic media as soon as reasonably practicable after such decision has been made by Gatherer.

	12.03
	Gatherer
may elect, at its sole discretion, to accept Gas that fails to meet the specifications of this Article for a limited period of time. Gatherer's acceptance of such
non-conforming Gas shall not constitute a waiver by Gatherer of any quality specifications set forth in this Article with respect to any other Receipt or Delivery of Shipper's Gas. 

11

 

 
 

ARTICLE XIII
  
    NOMINATION FORM    
    

	13.01
	Gatherer
may make available for use by Shipper an Electronic Nomination Form to facilitate the exchange of information concerning nominations, approval or confirmation
of nominations. 

 
 

ARTICLE XIV
  
    UNAUTHORIZED GAS    
    

	14.01
	Shipper
may claim unauthorized Gas; provided, however, any claim for unauthorized Gas must be made within twelve (12) Months from the date such unauthorized Gas entered
Gatherer's Facilities. To claim unauthorized Gas, Shipper must submit written notice to Gatherer with verification of ownership.

	14.02
	Unauthorized
Gas not identified to or claimed by Shipper within twelve (12) Months of the end of the Month of delivery will be forfeited to Gatherer.

	14.03
	When
Shipper claims unauthorized Gas, the unauthorized Gas shall become part of the Monthly Volumetric Imbalance for the Month in which Shipper claims such unauthorized Gas. For
unauthorized Gas volumes in excess of five (5) MMBtu's per Gas Day, Shipper shall be charged an additional thirty cents ($0.30) per MMBtu in addition to any and all other penalties or fees for
Gathering Service or Imbalances. 

 
 

ARTICLE XV
  
    BILLING AND PAYMENT    
    

	15.01
	"Interest
Rate" shall mean the Prime Interest Rate as published in the Wallstreet Journal plus five (5) percent per annum.

	15.02
	Gatherer
shall invoice Shipper for all Gas gathered in the Month on or before the twentieth (20th) Day of the succeeding Month. The invoice shall set forth the total quantity of Gas
received and delivered by Gatherer during the preceding Month anal the total amount of all fees for Gathering Service and other charges applicable for the Month.

	15.03
	Payment
for any invoice shall be due and payable to Gatherer by Shipper twenty (20) Days from the date of receipt of Gatherer's invoice.

	15.04
	Any
payment due Gatherer of $25,000 or more shall be made by Shipper to Gatherer by wire transfer or Automated Clearinghouse) to the account indicated in Appendix "C." Any payment
due Gatherer of less than $25,000 may be made by check payable to Gatherer at the address indicated in Appendix "C".

	15.05
	Should
Shipper fail to pay part or all of any invoice when due, interest will accrue on any outstanding balance at the Interest Rate from the date due until the date payment is
received by Gatherer. If all or any part of any invoice remains unpaid for longer than thirty (30) Days, Gatherer, in addition to any other remedy it may have, may suspend Gathering Service
hereunder upon thirty (30) days written notification to Shipper.

	15.06
	Should
Shipper fail to pay part or all of any invoice when due because there are certain line items in dispute, any dispute resolution small be handled as follows:

	a.
	Shipper
shall, within ten (10) Days of receipt of such invoice, send Gatherer written notice setting forth the specific details of the disputed items.

	b.
	Upon
timely receipt of such notice, Gatherer will suspend the application of interest until such time as the disputed items are resolved to the satisfaction of both parties. At that
time, Gatherer will send Shipper written notification of such resolution. If the resolution results in an amount still due and owing to Gatherer, Shipper will then have fifteen (15) Days from
the date of such notice within which to pay the remaining balance due on the disputed invoice. If the resolution results in a credit due Shipper, Gatherer apply the credit on the next invoice to be
issued to Shipper.

	c.
	In
the event Gatherer does not receive timely notification of Shipper's disputed invoicing items, Gatherer will not suspend interest, and Section 15.05 will apply. 

12

  

	15.07
	Each
party has the right, at its sole expense and upon reasonable advance notice to the other, to examine the records of the other party during normal business hours to the extent
necessary to verify the accuracy of any statement, charge or computation made pursuant to this Agreement: provided, however, that neither party shall examine the books and records of the other more
frequently than once each year, and any such examination shall be confined to a period not exceeding two (2) years prior to the date the examination is to be conducted. This provision shall
survive any termination of this Agreement for a period of two (2) year from the date of termination.

	15.08
	As
a condition precedent to Gatherer's obligation to gather Gas hereunder and at any time during the term of this Agreement, Gatherer may request credit information concerning
Shipper, including but not limited to:

	a.
	A
copy of Shipper's bank references satisfactory to Gatherer;

	b.
	A
copy of Shipper's most recent annual report and 10-K Form, if applicable,

	c.
	A
completed credit application form furnished by Gatherer; and,

	d.
	Shipper's
Federal Identification Number.

	15.09
	As
a condition precedent to Shipper's obligation to provide Gas hereunder and at any time during the term of this Agreement, Shipper may request credit information concerning
Gatherer, including but not limited to:

	a.
	A
copy of Gatherer's bank references satisfactory to Shipper;

	b.
	A
copy of Gatherer's most recent annual report and 10-K Form, if applicable,

	c.
	A
completed credit application form furnished by Gatherer; and,

	d.
	Gatherer's
Federal Identification Number.

	15.10
	Based
upon Gatherer's review of the above credit information furnished by Shipper, Gatherer shall have the right not to proceed with the Gathering of Gas pursuant to this Agreement
if, in Gatherer's sole opinion, Shipper does not have the financial capability to perform its obligations hereunder, in which event, Gatherer may terminate this Agreement and neither party shall have
any further rights or obligation hereunder. Furthermore, during the term of this Agreement, if, at any time Gatherer becomes reasonably concerned about Shipper's financial condition or Shipper's
ability to fulfill its obligations hereunder, Gatherer may request, from time to time, supplemental credit information from Shipper, including but not limited to, the items specified above, and
Gatherer, at its sole discretion reasonable exercised, may:

	a.
	suspend
Gatherer's obligations to gather Gas hereunder until Shipper shall furnish to Gatherer a reasonably sufficient parental guarantee of Shipper's obligations under this Agreement
or Shipper shall furnish to Gatherer a reasonably sufficient bond, letter-of-credit, or other documentation satisfactory to Gatherer, evidencing Shipper's financial capability
to perform its obligations hereunder.

	b.
	If
Shipper is unable to reasonably satisfy Gatherer's reasonable concerns regarding Shipper's financial condition or Shipper's ability to fulfill its obligations hereunder in
accordance with subpart a. hereof, then Gatherer shall the right, but not the obligation, to terminate this Agreement in such event neither party shall have any further rights or obligation
hereunder, except that Shipper shall remain liable for all outstanding payments then due and payable to Gatherer hereunder. 

13

 

 
 

ARTICLE XVI
  
    TAXES AND ROYALTIES    
    

	16.01
	All
production, severance, excise, ad valorem processing, Btu and other taxes, imposed or levied by any state government or the federal government or any governmental agency on the
Gas delivered by Shipper for Gathering hereunder and any and all other taxes or fees now or hereafter so levied, assessed, or collected on such Gas shall be the liability of Shipper. In the event
Gatherer is required to collect or permit any such tax, then Gatherer may invoice Shipper monthly for the amount thereof. Shipper shall identify and hold Gatherer harmless from any and all charges,
penalties, costs and expenses of whatever kind or nature arising from Shipper's failure to pay such taxes, including, but not required to, the cost and expense of any litigation on and reasonable
attorney's fees associated therewith. Notwithstanding any provision contained herein, Shipper shall not be responsible for any tax levied against Gatherer.

	16.02
	Shipper
shall make any and all royalty or overriding royalty payments or other payments due or which may become due to any party on the Gas delivered to Gatherer hereunder under the
terms of any Lease(s) or under the terms of any assignments, contracts, or any agreements affecting Gas delivered by Shipper to Gatherer. Shipper shall indemnify and hold Gatherer harmless from any
and all charges, loss, costs or expenses of whatever kind or nature arising from Shipper's failure to make any such payments, including, but not limited to, the costs and expenses of any litigation
and reasonable attorney's fees associated therewith.

	16.03
	Shipper's
indemnification's hereunder shall survive any termination of this Agreement for all claims and liabilities arising from actions or events prior to termination of
this agreement. 

 
 

ARTICLE XVII
  
    NOTICES AND PAYMENT INFORMATION    
    

	17.01
	Except
as otherwise provided herein, any notice which either party desires to give to the other shall be in writing and shall be duly delivered when mailed or sent by successful
facsimile transmission to the party to be notified as specified on Appendix "C". 

 
 

ARTICLE XVIII
  
    CONTROL AND POSSESSION    
    

	18.01
	Shipper
shall be deemed to have control and possession of Shipper's Gas until delivered at the Receipt Point(s) hereunder and after redelivery of the Gas at the Delivery Point(s),
and shall be responsible and hold Gatherer harmless from any damage or injury caused thereby. Gatherer shall have control and possession of Shipper's Gas after such Gas has been received by Gatherer
at the Receipt Point(s) and until Gatherer delivers Shipper's Gas to Shipper at the Delivery Point(s). Gatherer will use reasonable efforts and all commonly accepted and prudent operating practices to
preserve and protect such Gas against damage or loss while in its custody, but shall not be liable to Shipper for any damage to or loss of Shipper's Gas while in Gatherer's control and possession,
unless Gatherer's gross negligence or willful misconduct caused such damage or loss. 

 
 

ARTICLE XIX
  
    TITLE AND AUTHORITY    
    

	19.01
	Shipper
warrants that it has the right and title to all Gas delivered hereunder for Gathering and that Shipper has the exclusive authority to contract to have Shipper's Gas gathered 

14

 

hereunder.
Furthermore, Shipper warrants that Shipper's Gas is free and clear of all liens, encumbrances and claims, and that Shipper has the right, power and authority to enter into this Agreement
and to grant Gatherer the rights, titles, benefits and interests created hereby. Shipper shall indemnify and hold Gatherer harmless from any and all claims, demands, losses, damages, expenses, liens,
causes of action, suits and judgments, including, but not limited to, all court costs and reasonable attorney's fees in connection therewith relating to disputes over Shipper's Gas and or title
hereto. Shipper's indemnification shall survive any termination of this Agreement. In the event any adverse claim of any character whatsoever is asserted with respect to any of Shipper's Gas, Gatherer
shall have the right to suspend Gathering Service under this Agreement until such time as Shipper's title or right to deliver is free from question, but only to the extent of such adverse claim and
then only to the extent that Shipper does not provide an adequate and reasonable indemnification to Gatherer regarding such claim. 

	19.02
	It
is expressly understood that title to all Gas delivered by Shipper to Gatherer for Gathering hereunder shall be held by Shipper and in no event shall Gatherer take title to Gas
gathered pursuant to this Agreement, except as provided for in this Agreement regarding FL&U and Balancing.

	19.03
	Gatherer
shall retain all right, title, interest and ownership in any Condensate and/or Gas liquids, which condense or are recovered in the Gatherer's Gathering System(s) through
normal pipeline, Gathering, and compression operations. 

 
 

ARTICLE XX
  
    FORCE MAJEURE    
    

	20.01
	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 terms shall likewise include, but not be limited to: Acts of God; acts, omissions to act and or delays in action of 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; arrest or restraint of rulers of peoples; civil disturbances; terrorist activities; 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 hereunder or accident, 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, 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.

	20.02
	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, including, but not limited to Shipper's payment of demand fees, it is agreed that, upon such party giving notice and full particulars of such force majeure, in
writing (which can be effected by facsimile 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 

15

 

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 or lockouts by acceding to the demands of the opposing parties
when such course is inadvisable in the discretion of the party hereto having the difficulty. 

 
 

ARTICLE XXI
  
    INDEMNIFICATION    
    

	21.01
	Each
of the Parties hereto agrees than it will assume all risk and liability for the maintenance and operation of its respective property to itself, its agents or employees, for any
injury, including death, or damages resulting in any manner from its conduct in connection with the installation, presence, maintenance and operation of its property and equipment hereunder, and shall
indemnify and hold harmless the other party for any and all losses, suits, claims or actions, costs, "including all attorneys fees and court costs", damages, demands or expenses resulting at anytime
from any and all causes due to any act or omission of itself or its agents or employees, except for those caused by gross negligence and or willful misconduct of the indemnified party. The Parties'
indemnifications hereunder shall survive any termination of this Agreement.

	21.02
	EXCEPT
FOR FAILURE OF GAS SUBJECT HERETO TO MEET THE SPECIFICATIONS STATED OR REFERENCED IN ARTICLES XI OR XII HEREOF, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL,
INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, IN TORT, CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. THE PARTIES INTEND THAT THE LIMITATIONS UNDER THIS SECTION 21.02 IMPOSED OR
REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING, WITHOUT LIMITATION, THE NEGLIGENCE OR STRICT LIABILITY OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE
SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. 

 
 

ARTICLE XXII
  
    ASSIGNMENT    
    

	22.01
	This
Agreement, and the Parties' respective rights and obligations hereunder, shall be binding upon and insure to the benefit of the Parties hereto and their respective successors
and assigns. This Agreement, including, but without limitation, any and all renewals, extensions, amendments and/or supplements hereto, and all rights, title and interest contained herein shall not be
assigned without the express written consent of the other party; provided, that said consent shall not be unreasonably withheld; and provided further that either party may assign this Agreement to any
affiliate subsidiary without the prior consent of the other. 

 
 

ARTICLE XXIII
  
    ATTORNEY-IN-FACT    
    

	23.01
	Quaneco
L.L.C. and Dolphin Energy Corporation, both of whom who are, as stated in the introductory paragraph hereof, individual shippers hereunder, hereby each name, make and
appoint Pinnacle Gas Resources, Inc. as its true and lawful attorney-in-fact for the purpose of their performance of this Agreement and hereby confer upon Pinnacle Gas
Resources, Inc., the power to nominate daily Gas volumes, to deliver Gas to the Delivery Points and to receive 

16

 

Gas
at the Receipt Points and to do and perform each and every act on their behalf under the Agreement in their name and to the same effect as if such act had been performed by them, either jointly
or separately. 

 
 

ARTICLE XXIV
  
    INTERPRETATION AND CONTROLLING LAW; CONSENT TO VENUE, JOINT AND
  SEVERAL LIABILITY    
    

	24.01
	THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WYOMING, EXCLUDING ANY CONFLICTS-OF-LAW RULE, OR PRINCIPLE
WHICH MIGHT REFER SUCH CONSTRUCTION TO THE LAWS OF ANOTHER STATE.

	24.02
	THE
PARTIES AGREE AND CONSENT THAT ANY ACTION AT LAW, SUIT IN EQUITY OR OTHER JUDICIAL PROCEEDING BROUGHT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY PROVISION THEREOF SHALL BE
INSTITUTED ONLY IN THE COURT'S LOCATED IN THE STATE OF WYOMING.

	24.03
	IN
THE EVENT EITHER PARTY HAS TO INITIATE ANY ACTION TO ENFORCE ITS RIGHTS HEREUNDER, THEN THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER ITS COSTS, INCLUDING, BUT NOT LIMITED
TO, ITS COURT COSTS AND EXPENSES AND REASONABLE ATTORNEY FEES.

	24.04
	SHIPPER
AND EACH OF THEM SHALL BE JOINTLY AND SEVERALLY LIABLE FOR ALL SHIPPER'S OBLIGATIONS HEREUNDER. 

 
 

ARTICLE XXV
  
    REGULATION    
    

	25.01
	Subject
to Gatherer's rights set forth in the Article titled "TERM OF AGREEMENT", this Agreement, and the respective rights and obligations of the Parties hereto are subject to, and
shall be varied and amended to comply with or conform to, all existing and future laws, statutes, rules, regulations, orders or directives promulgated by any duly constituted state or federal
governmental authority, regulatory body or commission having jurisdiction or control over the Parties, their respective facilities or Gas supply, this Agreement, the Gathering of Gas; or any of the
provisions hereof. 

 
 

ARTICLE XXVI
  
    WAIVER    
    

	26.01
	No
waiver by Gatherer or Shipper of any default of the other party under this Agreement shall operate as a waiver of any subsequent default, whether of a like or a
different character. 

 
 

ARTICLE XXVII
  
    MODIFICATIONS AND AMENDMENTS    
    

	27.01
	All
modifications, amendments or changes to this Agreement, whether made simultaneously with or after the execution of this Agreement, shall be in writing, executed by all
Parties hereto. 

17

 

 
 

ARTICLE XXVIII
  
    AGREEMENTS BEING SUPERSEDED    
    

	28.01
	When
this Agreement becomes effective, it shall supersede and cancel any other agreements between the Parties for the same service identified herein. 

 
 

ARTICLE XXIX
  
    MISCELLANEOUS    
    

	29.01
	The
descriptive headings for the articles, sections, and paragraphs contained in this Agreement were written and arranged for convenience only and shall not affect the meaning or
interpretation of the provisions herein.

	29.02
	Unless
otherwise specified herein, this Agreement contains the entire agreement between the Parties, and except as stated herein, there are no promises, agreements, or warranties,
obligations, assurances, or conditions precedent or otherwise, affecting it. Insofar as the Parties have had prior dealings, including the negotiations and exchanges leading up to this writing, it is
the intention of the respective Parties to negate specifically any effect of any prior dealings with respect to the writing. 

        IN
WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the Effective Date stated above. 

	BITTER CREEK PIPELINES, LLC

"GATHERER"	 	PINNACLE GAS RESOURCES, INC.

"SHIPPER"
	
 By: /s/ Paul Hopfauf
	
 	

By: /s/ Peter G. Schoonmaker

	
 Name: Paul Hopfauf
	
 	

Name: Peter G. Schoonmaker

	
 Title: Vice President & General Manager
	
 	

Title: CEO

	
 Date Signed: 12-23-2005
	
 	

Date Signed: 12/27/05

	
QUANECO L.L.C.

"SHIPPER"	
 	

DOLPHIN ENERGY CORPORATION

"SHIPPER"
	
 By: /s/ Paul J. Mysyk
	
 	

By: /s/ Cecil D. Gritz

	
 Name: Paul J. Mysyk
	
 	

Name: Cecil D. Gritz

	
 Title: CEO
	
 	

Title: COO

	
 Date Signed: 1/20/06
	
 	

Date Signed: 1/16/2006

18

 
APPENDIX "A"

TO THE

GAS GATHERING AGREEMENT

BETWEEN

BITTER CREEK PIPELINES, LLC

"GATHERER"

and

SHIPPER 

EFFECTIVE DATE:    The later of January 1, 2006 or the completion of the initial gathering system pipeline and compression facilities
necessary to begin receipt and delivery of gas. 

CONTRACT NO.:    077027 

PRIMARY TERM:    Five (5) years 

MDQ:    5; 10; 25, 50, 60 MMcf per Day in calendar years 2006, 2007, 2008, 2009, 2010, respectively. 

DEMAND FEE:    $0.062 PER Mcf. (from date of Agreement or Bitter Creek's pipeline availability, whichever is later) 

GATHERING RATE:    $0.103 per Mcf. Any volumes received in excess of the daily MDQ shall be billed at a commodity rate of
$0.165 per Mcf. 

CARBON DIOXIDE PROCESSING SERVICE FEE:    If Shipper's Gas stream delivered to Bitter Creek exceeds Transporter's allowable carbon dioxide
content by volume, then Shipper shall pay a processing fee for volumes delivered to the Delivery Point(s) of fifteen cents ($0.15) per Mcf. The processing fee will cover up to a three percent (3%)
reduction in the carbon dioxide levels. There will be an additional processing fee of three cents ($0.03) per Mcf for each incremental one percent (1%) reduction in the carbon dioxide levels required
to meet Transporter's allowable carbon dioxide content by volume. For monthly billing calculations the carbon dioxide level shall be the sampled monthly average and shall be rounded to the nearest
whole number. 

RATE ADJUSTMENT:    Effective January 1, 2007 and annually each January 1st thereafter, the demand fee, Gas gathering
rate and processing service fees shall be adjusted based on the GDP Implicit Price Deflator contained in the Gross Domestic Product, 4th quarter (final) report, published by the
U.S. Department of Commerce, Bureau of Economic Analysis, "GDP Deflator" in March of each year. For purposes of adjusting this contract, the annual rate adjustment percentage ("Escalator") will
be determined by Gatherer each April 1 by calculating the percent of increase or decrease from the previous year's GDP Deflator and the current year's GDP Deflator. 

FUEL, LOST AND UNACCOUNTED GAS QUANTITY:    The Fuel, Lost and Unaccounted For (FL&U) reimbursement rate shall be based upon the actual fuel
used plus the lost and unaccounted for volume. The monthly FL&U shall not exceed two percent (2%). The FL&U reimbursement rate shall be the difference between volumes received at Receipt Point(s) less
volumes delivered at the Delivery Pont. 

CASHOUT INDEX PRICE:    Shall be the first of the Month CIG—Rocky Mountains index price as published by McGraw Hill in the
publication of Inside FERC's Gas Market Report under "Prices of Spot Gas Delivered to Pipelines" for the Month in which the Imbalance occurred. If such price is not 

19

 

available
or Inside FERC Gas Market Report is not published the Cashout Index Price shall be determined by using an alternate pricing index as mutually agreed upon by both Parties. 

	BITTER CREEK PIPELINES, LLC

"GATHERER"	 	PINNACLE GAS RESOURCES, INC.

"SHIPPER"
	
 By: /s/ Paul Hopfauf
	
 	

By: /s/ Peter G. Schoonmaker

	
 Name: Paul Hopfauf
	
 	

Name: Peter G. Schoonmaker

	
 Title: Vice President & General Manager
	
 	

Title: CEO

	
 Date Signed: 12-23-2005
	
 	

Date Signed: 12/27/05

	
QUANECO L.L.C.

"SHIPPER"	
 	

DOLPHIN ENERGY CORPORATION

"SHIPPER"
	
 By: /s/ Paul J. Mysyk
	
 	

By: /s/ Cecil D. Gritz

	
 Name: Paul J. Mysyk
	
 	

Name: Cecil D. Gritz

	
 Title: CEO
	
 	

Title: COO

	
 Date Signed: 1/20/06
	
 	

Date Signed: 1/16/2006

This APPENDIX "A" supersedes and cancels any previously effective APPENDIX "A" to the referenced Gas Gathering Agreement

20

 
APPENDIX "B" TO THE

GAS GATHERING AGREEMENT

BETWEEN

BITTER CREEK PIPELINES, LLC

"GATHERER"

and

SHIPPER 

EFFECTIVE DATE:    The later of January 1, 2006 or the completion of the initial gathering system pipeline and compression facilities
necessary to begin receipt and delivery of gas. 

CONTRACT NO.:    077027 

RECEIPT POINT(S):    The discharge side Bitter Creek Pipeline's Deer Creek Compressor Station 

DELIVERY POINT(S):    Bitter Creek Pipeline's Landeck Compressor Station for redelivery north into Williston Basin Interstate Pipeline
Company's and/or south into Thunder Creek Gas Services, LLC, and/or any future delivery points on Bitter Creek Pipeline's system. 

	BITTER CREEK PIPELINES, LLC

"GATHERER"	 	PINNACLE GAS RESOURCES, INC.

"SHIPPER"
	
 By: /s/ Paul Hopfauf
	
 	

By: /s/ Peter G. Schoonmaker

	
 Name: Paul Hopfauf
	
 	

Name: Peter G. Schoonmaker

	
 Title: Vice President & General Manager
	
 	

Title: CEO

	
 Date Signed: 12-23-2005
	
 	

Date Signed: 12/27/05

	
QUANECO L.L.C.

"SHIPPER"	
 	

DOLPHIN ENERGY CORPORATION

"SHIPPER"
	
 By: /s/ Paul J. Mysyk
	
 	

By: /s/ Cecil D. Gritz

	
 Name: Paul J. Mysyk
	
 	

Name: Cecil D. Gritz

	
 Title: CEO
	
 	

Title: COO

	
 Date Signed: 1/20/06
	
 	

Date Signed: 1/16/2006

This APPENDIX "B" supersedes and cancels any previously effective APPENDIX "B" to the referenced Gas Gathering Agreement

21

 
APPENDIX "C" TO THE

GAS GATHERING AGREEMENT

BETWEEN

BITTER CREEK PIPELINES, LLC

"GATHERER"

and

SHIPPER 

EFFECTIVE DATE:    The later of January 1, 2006 or the completion of the initial gathering system pipeline and compression facilities
necessary to begin receipt and delivery of gas. 

CONTRACT NO.:    077027 

	NOTICE TYPE
 
	 	GATHERER
 
	 	SHIPPER
 

	CONTRACTS	 	Bitter Creek Pipelines, LLC

P.O. Box 5601

Bismarck, ND 58506-5601

Attn: Nancy Senger

Telephone: (701) 530-1585

Fax: (701) 530-1596	 	Pinnacle Gas Resources, Inc.

1000 Louisiana Suite 1500

Houston, TX 77002

Attn: Gary W. Uhland

Telephone: (713) 328-1080

Fax: (713) 328-1089
	
SCHEDULING	
 	

Bitter Creek Pipelines, LLC

P.O. Box 5601

Bismarck, ND 58506-5601

Attn: Nancy Senger

Telephone: (701) 530-1585

Fax: (701) 530-1596

Email: nancy.senger@wbip.com	
 	

Pinnacle Gas Resources, Inc.

1 E Alger Suite 206

Sheridan, WY 82801

Attn: Paul Stroud

Telephone: (307) 673-9710

Fax: (307) 673-9711
	
ACCOUNTING	
 	

Bitter Creek Pipelines, LLC

P.O. Box 5601

Bismarck, ND 58506-5601

Attn: Energy Support

Telephone: (701) 530-1580

Fax: (701) 530-1596	
 	

Pinnacle Gas Resources, Inc.

1 E Alger Suite 206

Sheridan, WY 82801

Attn: Ron Barnes

Telephone: 307-673-9710

Fax: 307-673-9711
	
PAYMENTS	
 	
BY CHECK	
 	
BY WIRE
	 	 	Bitter Creek Pipelines, LLC

Attn: Accounts Receivable

P.O. Box 5601

Bismarck, ND 58506-5601	 	Bitter Creek Pipelines, LLC

US Bank North Dakota

ABA #091300023

Account # 163095557142

22

 

	BITTER CREEK PIPELINES, LLC

"GATHERER"	 	PINNACLE GAS RESOURCES, INC.

"SHIPPER"
	
 By: /s/ Paul Hopfauf
	
 	

By: /s/ Peter G. Schoonmaker

	
 Name: Paul Hopfauf
	
 	

Name: Peter G. Schoonmaker

	
 Title: Vice President & General Manager
	
 	

Title: CEO

	
 Date Signed: 12-23-2005
	
 	

Date Signed: 12/27/05

	
 	
 	

 
	
QUANECO L.L.C.

"SHIPPER"	
 	

DOLPHIN ENERGY CORPORATION

"SHIPPER"
	
 By: /s/ Paul J. Mysyk
	
 	

By: /s/ Cecil D. Gritz

	
 Name: Paul J. Mysyk
	
 	

Name: Cecil D. Gritz

	
 Title: CEO
	
 	

Title: COO

	
 Date Signed: 1/20/06
	
 	

Date Signed: 1/16/2006

23

QuickLinks

Exhibit 10.7

GAS GATHERING AGREEMENT Between BITTER CREEK PIPELINES, LLC "GATHERER" and PINNACLE GAS RESOURCES, INC., QUANECO L.L.C. and DOLPHIN ENERGY CORPORATION Collectively "SHIPPER" HIGH PRESSURE GATHERING LINE CONTRACT #
077027

INDEX

GAS GATHERING AGREEMENT

ARTICLE I DEFINITIONS

ARTICLE II GATHERING SERVICE

ARTICLE III TERM OF AGREEMENT

ARTICLE IV RATES

ARTICLE V QUANTITY

ARTICLE VI FACILITIES

ARTICLE VII NOMINATIONS AND SCHEDULING

ARTICLE VIII ALLOCATIONS

ARTICLE IX BALANCING

ARTICLE X MEASUREMENT, METER EQUIPMENT AND TESTING

ARTICLE XI PRESSURES

ARTICLE XII QUALITY

ARTICLE XIII NOMINATION FORM

ARTICLE XIV UNAUTHORIZED GAS

ARTICLE XV BILLING AND PAYMENT

ARTICLE XVI TAXES AND ROYALTIES

ARTICLE XVII NOTICES AND PAYMENT INFORMATION

ARTICLE XVIII CONTROL AND POSSESSION

ARTICLE XIX TITLE AND AUTHORITY

ARTICLE XX FORCE MAJEURE

ARTICLE XXI INDEMNIFICATION

ARTICLE XXII ASSIGNMENT

ARTICLE XXIII ATTORNEY-IN-FACT

ARTICLE XXIV INTERPRETATION AND CONTROLLING LAW; CONSENT TO VENUE, JOINT AND SEVERAL LIABILITY

ARTICLE XXV REGULATION

ARTICLE XXVI WAIVER

ARTICLE XXVII MODIFICATIONS AND AMENDMENTS

ARTICLE XXVIII AGREEMENTS BEING SUPERSEDED

ARTICLE XXIX MISCELLANEOUSQuickLinks
 -- Click here to rapidly navigate through this document
  

 
 

Exhibit 10.8    
    

 
 

MIDSTREAM TRANSPORTATION AGREEMENT
  
    Between
  
    CLEAR CREEK NATURAL GAS, LLC
  (CCNG)
  
    And
  
    PINNACLE GAS RESOURCES, INC.
  (Producer)
  
    EFFECTIVE DATE:
DECEMBER 1, 2003    
    

THIS MIDSTREAM TRANSPORTATION AGREEMENT ("Agreement") is effective December 1, 2003 (the "Effective Date"), by and between  CLEAR CREEK NATURAL GAS,
LLC, a Wyoming Limited Liability Company, hereinafter referred to as "CCNG,"
and PINNACLE GAS RESOURCES, INC, a, Delaware Limited Liability Company, hereinafter referred to as "Producer." CCNG and Producer are sometimes herein
referred to collectively as "Parties" and singularly as "Party." 

 
 

R E C I T A L S:

        WHEREAS, Producer has available a supply of gas produced from the Powder River Basin in Campbell County,
Wyoming; and 

        WHEREAS, CCNG desires to perform services for Producer as described herein. 

        NOW THEREFORE, In consideration of the representations, covenants, and conditions herein contained, CCNG and Producer hereby agree
as follows: 

	1.
	Agreement:    This Agreement includes all of the terms of Schedule "1", entitled RATES;
Schedule "2", entitled POINT(S) OF RECEIPT AND DELIVERY; Exhibit "A", entitled GENERAL TERMS AND CONDITIONS; AND, Exhibit "B" entitled DEDICATION OF ACREAGE, each of which is
attached hereto and included herein for all purposes.

	2.
	Term: Contract Year:    This Agreement shall commence with the date first written above and shall
continue in full force and effect for a period of ten (10) years with an option to renew annually thereafter.

	3.
	Services by CCNG:    Services to be provided by CCNG under this Agreement shall consist of the
acceptance by CCNG of gas tendered by Producer to CCNG at the Point(s) of Receipt listed on Schedule 2, the compression, dehydration, and measurement of said gas, the installation of
2.5 miles of 8" steel pipeline, the construction of a WBI Grasslands Interconnect facility, and the redelivery of like quantities of gas at the Point(s) of Delivery listed on Schedule 2,
less fuel and lost & unaccounted for volumes, as follows: 

1

 

	(a)
	Compression and Discharge:    Producer shall tender and CCNG shall receive all gas and the Point(s)
of Receipt at pressures sufficient to enter CCNG's System.

	(I)
	CCNG shall provide sufficient compression to maintain a pressure of not greater than five pounds per square inch gauge
(5 Psig), under normal operating conditions at the suction of its compression facility as described in Schedule I Rates 1(b) Service Fee.
CCNG will deliver or cause to be delivered all gas for Producer's account at the pressure existing from time to time into Thunder Creek at the Point(s) of Delivery, provided such pressure does not
exceed 650 psig.

	(II)
	CCNG shall provide sufficient compression to maintain a pressure of not greater than five pounds per square inch gauge
(5 Psig), under normal operating conditions at the suction of its compression facility as described in Schedule 1 Rates 1(c) Service Fee.
CCNG will deliver or cause to be delivered all gas for Producer's account at the pressure existing from time to time into Grasslands Pipeline at the Point(s) of Delivery, provided, such pressure does
not exceed 1,440 psig.

	(III)
	CCNG, as part of meeting its obligations to provide compression services to Producer under this Agreement, shall
purchase Producer's Bobcat Compressor Station from Producer for the consideration of fifty thousand and no/100 dollars ($50,000.00). Details of CCNG's purchase of this facility from Producer
will be ratified under a Purchase and Sale Agreement ("PSA") to be executed by the Parties promptly after execution of this Agreement.

 

	(b)
	Dehydration:    CCNG shall dehydrate Producer's Gas such that it meets the delivery requirements of
Thunder Creek interconnect agreements and/or Grasslands interconnect agreements, under normal operating conditions.

	(c)
	Measurement:    CCNG's Facilities will include a meter at the discharge side of the compressor
station ("Discharge Meter"). CCNG's Facilities will include a meter to measure fuel at the compressor station ("Fuel Meter"). CCNG's measurements at the Discharge Meter and Fuel Meter shall be used
for settlement purposes; provided, however, that Producer shall be solely responsible for and shall hold CCNG harmless from the allocation of volumes of Producer's Gas back to the wellhead.

 

	4.
	Producer's Obligations: 

 
	(a)
	Free Water Removal and Disposal:    Producer shall be solely responsible for the removal and disposal of free water from
Producer's Gas prior to delivery to CCNG. The Parties agree that CCNG shall not incur any loss or penalty hereunder, nor shall it become obligated for any costs or expenses, as a result of any failure
by Producer to remove the free water.

	(b)
	Wellhead Measurement:    Producer shall be solely responsible for all wellhead measurement.
Additionally, Producer shall be responsible for and shall bear all costs of equipment, installation, maintenance, repair, replacement, calibration, integration and interest allocations associated with
wellhead measurement. Producer shall indemnify and hold harmless CCNG from all liabilities relating to Producer's furnishing of well head measurement services and allocations to the various interest
holders in each of the associated wells. 

2

 

	(c)
	Drilling Commitment:    By December 1, 2004, Producer commits to drill (including existing
wells), complete and produce a minimum of eighty (80) wells from within the dedicated acreage described in Exhibit "B".

 

	5.
	Facilities:    CCNG shall, at its sole cost, purchase existing facilities, construct or cause to be
constructed, own and operate facilities as required to perform the services described in Paragraph 3 above.

	6.
	Dedication:    Producer hereby dedicates to the performance of this Agreement for the term hereof
(a) all gas which it owns or controls in the Dedicated Acreage as hereinafter defined in Exhibit "B", as of the Effective Date of this Agreement, in
Sections 1-36 in Township 54 North, Range 73 W, and Sections 1-26 in Township 53 North, Range 73 West, and
Section 25 in Township 54 North, Range 74 West, all in Campbell County, Wyoming ("DEDICATED ACREAGE") (b) all gas which it subsequently owns or controls in the Dedicated
Acreage as hereinafter defined in Exhibit "B", as of the Effective Date of this Agreement, in Sections 1-36 in Township 54 North, Range 73 W, and
Sections 1-26 in Township 53 North, Range 73 West, and Section 25 in Township 54 North, Range 74 West, all in Campbell County, Wyoming
("DEDICATED ACREAGE"). Producer shall cause all oil and gas, which it currently or subsequently owns on controls in the Dedicated Acreage to be subject to the terms and conditions of
this Agreement.

	(a)
	Producer is currently negotiating with Redstone Resources of Wyoming for a trade in acreage. Pinnacle is considering a trade of
approximately 2,000 Pinnacle net acres to Redstone Resources of Wyoming and Redstone Resources of Wyoming is considering a trade of approximately 2,000 Redstone Resources of Wyoming net
acres in return. In this specific case, it is agreeable by both Parties that Producer may trade a total of approximately 2,000 net acres to Redstone Resources of Wyoming and that Producer shall
receive from Redstone Resources of Wyoming a total of approximately 2,000 net acres. It is further agreed by the Parties that dedication from Producer to CCNG on the traded acreage to Redstone
Resources of Wyoming will be removed from the current dedication of acreage from Producer to CCNG and acreage received from Redstone Resources of Wyoming to Producer shall be added to the dedication
of acreage from Producer as a result of this trade, which net loss of dedicated acreage to CCNG shall not exceed approximately 1000 acres, Producer shall replace that net acreage loss to CCNG
with acreage that Producer may subsequently own or control with in T54N, R73W or T53N, R73W.

 

	7.
	Notices:    CCNG shall notify Producer at such time or times when downtime is scheduled for CCNG's
Facilities. Producer shall furnish contact numbers where its personnel may be reached 24 hours/day 7 days/week. All other notices to be given hereunder shall be in writing and shall be
delivered (a) by hand delivery, (b) by U.S. mail, first class, postage prepaid, (c) by confirmed facsimile, or (d) by courier, express or package mail service, and
addressed to the Parties as follows: 

3

 

	CCNG:	 	 
	Notices:	 	Clear Creek Natural Gas, LLC

3300 E. 2nd Street

Gillette, WY 82718-0971

        Phone: (307) 686-0310

        Fax: (307) 686-9930
	
PINNACLE:	
 	

 
	Notices:	 	PINNACLE GAS RESOURCES, INC.

14701 St. Mary's Lane Suite 800

Houston, Texas 77079

        Phone: (281) 496-1352

        Fax: (281) 584-9268
	
 Invoices:	
 	

PINNACLE GAS RESOURCES, INC.

1 East Alger Suite 206

Sheridan, WY 82801

        Phone: (307) 673-9710

        Fax: (307) 673-9711

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement effective as of DECEMBER 1, 2003. 

	 	 	CLEAR CREEK NATURAL GAS, LLC
	
 	
 	

By:	

/s/  TIMOTHY S. BOLDING      
 Name: Timothy S. Bolding

Title: President
	
 	
 	
PINNACLE GAS RESOURCES, INC.
	
 	
 	

By:	

/s/  PETER G. SCHOONMAKER      
 Name: Peter G. Schoonmaker

Title: CEO

(Taxpayer ID Number) 30-0182582

4

 

State of Wyoming  

County of Sheridan  

        This instrument was acknowledged before me on November 14, 2003 by Timothy S. Bolding on behalf of Clear Creek Natural Gas, LLC. 

	
 Notary:	
 	

/s/  DONNA RANEY      
	
 	

 
	
 My commission expires: 1-11-07	
 	

 

[Notary
stamp] 

State of Wyoming  

County of Sheridan  

        This instrument was acknowledged before me on November 14, 2003 by Peter G. Schoonmaker on behalf of Pinnacle Gas Resources, Inc. 

	
 Notary:	
 	

/s/  DONNA RANEY      
	
 	

 
	
 My commission expires: 1-11-07	
 	

 

[Notary
stamp] 

5

  

 
 

SCHEDULE 1
  
    RATES
  
    To
  
    MIDSTREAM TRANSPORTATION AGREEMENT
  
    Between
  
    CLEAR CREEK NATURAL GAS, LLC
  (CCNG)
  
    AND

    PINNACLE GAS RESOURCES, INC.
  (Producer)
  
    EFFECTIVE DATE: December 1, 2003    

	1.
	TOTAL SERVICE FEE:    The total fee for services provided by CCNG to Producer hereunder
(the "Total Service Fee") shall be based on the monthly volume of Producers Gas, in Mcf, delivered to CCNG at the Points of Receipt and shall be determined using the following equation: 

Total
Service Fee = Service Fee plus (+) Escalator 

        (a)   Service Fee:    The Service Fee shall be as follows: 

        (b)   Service Fee—Pinnacle to deliver volumes at 5 PSIG to CCNG's Bobcat Station and CCNG to Deliver Gas to
Thunder Creek Pipeline: Beginning December 1, 2003 and every month, thereafter, the
Service Fee shall be determined and shall be based on the actual quantities (Mcf) of Producer's Gas which are received at the CCNG Point(s) of Receipt. The Service Fee shall be calculated based on the
total Mcf volume of gas delivered to CCNG at the Point(s) of Receipt during the current month. 

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts are equal to or less than 30 MMCF for the month, the Service Fee shall be forty five cents ($0.45)
per Mcf. 

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts are greater than 30 MMCF for the month, the Service Fee shall be forty-two center
($0.42) per Mcf. 

The
Service Fee stated above for total volumes delivered during any month shall be adjusted in accordance with the Escalator clause stated in Paragraph (d) below. 

6

 

        (c)   Service Fee—Pinnacle to deliver volumes at PSIG to CCNG's Bobcat Station and CCNG to Deliver Gas to
Grasslands Pipeline: Beginning December 1, 2003 and every month, thereafter, the Service Fee shall be determined and shall be based on the actual quantities (Mcf) of
Producer's Gas which are received at the CCNG Point(s) of Receipt. The Service Fee shall be calculated based on the total Mcf volume of gas delivered to CCNG at the Point(s) of Receipt during the
current month. 

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts are less than or equal to 30 MMCF for the month, the Service Fee shall be seventy cents ($0.70)
per Mcf. 

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts are greater than 30 MMCF and are less than or equal to 600 MMCF, the Service Fee on those
specific volumes shall be forty-seven cents ($0.47) per Mcf. 

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts in excess of 600 MMCF but are less than or equal to 900 MMCF, the Service Fee for those
specific volumes of gas shall be forty-five cents ($0.45) per Mcf. (Fees on Volumes from 30 MMCF to 600 MMCF will remain at $0.47 per MCF.) 

	Sample Fee Calculation #1	 	 
	
 Total Volume for the Month	
 	

683,257 MMCF
	Fee Calculation	 	(600,000 MCF * $0.47)

plus

(83,257 MCF * $0.45)

For
total volumes received during any month at CCNG Point(s) of Receipt which total receipts in excess of 900 MMCF, the Service Fee for those specific volumes of gas shall be forth-three cents
($0.43) per Mcf. (Fees on Volumes from 30 MMCF to 600 MMCF will remain at $0.47 per MCF.) (Fees on Volumes from 600 MMCF to 900 MMCF will remain at
$0.45 per MCF). 

	Sample Fee Calculation #2	 	 
	
 Total Volume for the Month	
 	

953,249 MMCF
	Fee Calculation	 	(600,000 MCF * $0.47)

plus

(300,000 MCF * $0.45)

plus

(53,249 MCF * $0.43)

So
long as Producer (i.e. Pinnacle Gas Resources, Inc.) meets or exceeds a minimum average deliverability in excess of 600 MMCF per month and additional producers (producers other
than Pinnacle or it's affiliates) deliver gas into the CCNG facilities, total volumes received during any month will be used to calculate Pinnacle's fee as described in  (c)—Service Fee above. 

7

 

The
Service Fee stated above for total volumes received during any month shall be adjusted in accordance with the Escalator clause stated in Paragraph (d) below. 

        (d)   Escalator:    The Service Fee shall be adjusted on the first day of the month following
the anniversary commemorating the in-service date of the Facilities and on the first day of the month following each subsequent anniversary to reflect change in the Producer Price Index
("PPI") [Series ID: PCU3563#12 N Gas Compressors]. The adjusted Service Fee shall be determined by multiplying the then effective Service Fee times one plus the
percentage increase, if any, in PPI, for the preceding twelve months. If the PPI has not increased, the Service Fee shall not be adjusted under this provision. 

	2.
	Redelivery:    CCNG shall deliver a quantity of gas to CCNG's Thunder Creek interconnect and/or to
CCNG's Grasslands interconnect equaling the volume of Producer gas received by CCNG at the Point(s) of Receipt, less lost and unaccounted for gas (L&U) and Gas consumed to perform services hereunder.
Producer quantities which are received by CCNG at the Point(s) of Receipt, but which are neither redelivered for the account of Producer nor consumed as fuel shall be considered L&U.

	3.
	Compressor Runtime Guarantee:    CCNG shall guarantee compressor runtime of 98% as further defined
below. Determination of compressor runtime shall exclude periods of Force Majeure, downtime for repairs, maintenance and equipment exchange for CCNG's Facilities, and any down time attributable to
upstream or downstream facilities. If, after adjusting pursuant to the preceding sentence, a compressor station operates at less than 98% but above 95% during any calendar Month, CCNG shall reduce the
Service Fee by four cents ($0.04) for each Mcf vented which is measured at the CCNG station inlet meter vent (based on actual vented gas measured at the CCNG vent meter), absent the compressor down
time. If, after like adjustment, a compressor station operates at less than 95% during any calendar Month, CCNG shall reduce the Service Fee by an additional four cents ($0.04) for each MCF vented
which is measured at the CCNG station inlet meter vent (based on actual vented gas measured at the CCNG vent meter), absent the compressor down time. The Service Fee reduction shall be applied to
volumes produced after the time the performance was not met. The total Service Fee reduction for Compressor Runtime Guarantee shall not be greater than eight cents ($0.08).

	4.
	Fuel and Losses:    Producer shall contribute gas quantities in kind to CCNG for all quantities of gas
consumed to perform the services enumerated hereunder, including lost and unaccounted for gas ("L&U"). Quantities of Producer's Gas which are received by CCNG, but which are neither redelivered for
the account of Producer nor consumed as fuel shall be considered L&U.

	5.
	Service Fee Redetermination:    If, in any contract Year after December 2004, the total
revenues received by CCNG from Producer are less than the sum of direct operating costs, ad valorem taxes, and depreciation expenses, CCNG may request a redetermination of the Service Fee. Notice of
Redetermination ("Notice") shall be provided at least thirty (30) days prior to the first Day of the Monthly in which new terms are desired. The date of such Notice shall represent the
commencement date of negotiations for redetermination. The Parties shall negotiate in good faith to redetermine the Service Fee and to establish the effective date for implementation of the
Redetermined Service Fee, and such redetermination shall reflect the fair market value for similar services performed in the area and shall also include a thorough economic analysis of all factors
affecting the value of the services provided. If the Parties fail to agree on a Redetermined Service Fee, the matter shall be decided pursuant to binding arbitration. 

8

 
	6.
	Payment:    Payment to CCNG for services hereunder shall be made by wire transfer to an account
designated by CCNG within thirty (30) days of receipt by Producer or Producer's gas marketing service provider of invoice. 

9

  

 
 

SCHEDULE 2
  
    POINT(S) OF RECEIPT AND DELIVERY
  
    To
  
    MIDSTREAM TRANSPORTATION AGREEMENT
  
    Between
  
    CLEAR CREEK NATURAL GAS, LLC

(CCNG)
  
    AND
  
    PRODUCER: PINNACLE GAS RESOURCES, INC.
  (Producer)
  
    EFFECTIVE DATE: December 1, 2003    

Point(s) of Receipt:

At
the inlet of the compressor(s) operated by CCNG in Section 5, Township 54 North, Range 73 West (CCNG Bob Cat Station), Campbell County, Wyoming and/or other compressor stations
built, owned and operated by CCNG in Township 53 North, Range 73, or Township 54 North, Range 73 that may receive volumes of gas from Producer. 

Point(s) of Delivery:

The
Point(s) of Delivery shall be into the facilities of either the Grasslands Pipeline and/or the Thunder Creek Pipeline system in Campbell County, Wyoming. 

10

 
 
 

EXHIBIT "A"
  GENERAL TERMS AND CONDITIONS
  
    To
  
    MIDSTREAM TRANSPORTATION AGREEMENT
  
    Between
  
    CLEAR CREEK NATURAL GAS, LLC
  (CCNG)
  

   And
  
    PRODUCER: PINNACLE GAS RESOURCES, INC.
  (Producer)
  
    EFFECTIVE DATE: December 1, 2003    

 
 

ARTICLE 1.
  DEFINITIONS AND ABBREVIATIONS    
    

        1.1    "Agreement" shall mean the Midstream Transportation Agreement executed by Producer and CCNG including any exhibits,
schedules, attachments or amendments thereto. 

        1.2    "Btu" shall mean 1 British thermal unit, which is the amount of heat required to raise the temperature of
1 pound of water 1 degree from 59 to 60 degrees Fahrenheit. 

        1.3    "Day" shall mean a period of 24 consecutive hours, beginning at 8:00 a.m., Central Clock time. Unless
otherwise stated, all times in the Agreement are Mountain Clock Time. 

        1.4    "Deliver" or "Delivered" shall mean the tender of a quantity of natural gas by CCNG to transporting pipeline(s). 

        1.5    "Delivery Quantity" shall mean the quantity, expressed in MCF, of gas delivered by CCNG at the Point(s) of Delivery for
the account of Producer. 

        1.6    "Gross Heating Value" shall mean the number of BTUs produced by the complete combustion, at a constant pressure, of the
amount of gas which would occupy a volume of 1 cubic foot at a temperature of 60 degrees Fahrenheit on a water-free basis and at a pressure of 14.73 p.s.i.a.
with air of the same temperature and pressure as the gas, when the products of combustion are cooled to the initial temperature of the gas and air, and when the water formed by combustion has
condensed to the liquid state. 

        1.7    "Mcf" shall mean 1,000 cubic feet of gas at a pressure of 14.73 p.s.i.a. and at a temperature of
60 degrees Fahrenheit. 

11

 

        1.8    "MMCF" shall mean 1,000,000 cubic feet of gas at a pressure of 14.73 p.s.i.a. and at a temperature
of 60 degrees Fahrenheit. 

        1.9    "Month" shall mean the period of time beginning at 9:00 a.m. Central Clock time on the 1st Day of a
calendar Month and ending at 9:00 a.m. Central Clock Time on the 1st Day of the succeeding calendar Month. 

        1.10    "p.s.i.a." shall mean pounds per square inch absolute. 

        1.11    "p.s.i.g." shall mean pounds per square inch gauge. 

        1.12    "Party" or "Parties" shall mean either Producer and/or CCNG. 

        1.13    "Point of Delivery" shall be that location where CCNG delivers gas for the account of Producer after gathering. 

        1.14    "Point of Receipt" shall mean that point where CCNG receives gas for the account of Producer for gathering. 

        1.15    "Products" shall mean liquid and liquefiable hydrocarbons, inerts (including, but not limited to, helium and nitrogen),
sulfur, water, and any other component of gas removed by processing or compression, or by means of drips or separators. 

        1.16    "Receipt Quantity" shall mean the quantity, expressed in MCF of gas received by CCNG at the Point(s) of Receipt for the
account of Producer. 

        1.17    "Producer" shall mean PINNACLE GAS RESOURCES, INC. 

        1.18    "Tender" shall mean making natural gas available in accordance with all of the provisions of this Agreement. 

        1.19    "Thermal Content" when applied to any volume of gas shall mean the aggregate number of Btus contained in such volume.
The Thermal Content shall be determined by multiplying the volume of gas in cubic feet by the Gross Heating Value of the Gas. 

        1.20    "CCNG" shall mean Clear Creek Natural Gas, LLC. 

 
 

ARTICLE 2.
  
    TERMINATION

        2.1    Termination of Obligation.    Termination of this Agreement shall not relieve Producer
of the obligation to pay funds due hereunder to CCNG. 

 
 

ARTICLE 3.
  
    OTHER OPERATING PROVISIONS

        3.1    Planning Information.    CCNG. may request planning information as needed from time to
time and Producer shall comply with all reasonable requests. 

12

 

        3.2    Minimum Receipt Quantity.    Receipt Quantities Tendered must be sufficient, in CCNG's
sold judgment, to safely operate CCNG's Facilities; and in the event that such quantities are not tendered, CCNG may suspend services hereunder without further obligation to Producer. 

        3.3    Right-of-Way.    The Parties hereby grant, convey, assign, and
deliver to each other such rights as needed to conduct all customary operations, including but not limited to the drilling, completion and operation of the wells, and the construction and maintenance
of pipelines and gathering lines on the leasehold or leaseholds from which the gas transported under this Agreement is produced. Any rights conveyed by Producer to CCNG pursuant to this Agreement
shall not terminate at the termination of this Agreement. 

 
 

ARTICLE 4.
  
    PRESSURE

        4.1    Pressure at the Point(s) of Receipt.    Producer shall cause the gas to be Tendered at
the Point(s) of Receipt at a pressure sufficient to enter CCNG's gathering system, provided Producer shall not, except with the agreement of CCNG, be permitted to Tender the gas at any Point of
Receipt at a pressure in excess of the maximum allowable operating pressure of CCNG's facilities. 

        4.2    Pressure at the Point(s) of Delivery.    CCNG shall cause the gas to be delivered at
the Point(s) of Delivery hereunder with sufficient pressure to enter into the receiving pipeline facilities against the pressures prevailing from time to time. CCNG, however, shall not be required to
deliver gas at pressures in excess of those specified for each Point of Delivery as set forth in the Agreement. Maximum pressure required to enter Thunder Creek is 650 psig. Maximum pressure
required to enter Grasslands is 1440 psig. 

 
 

ARTICLE 5.
  
    QUALITY SPECIFICATIONS

        5.1    Specifications.    Unless otherwise agreed, Producer warrants that all gas Tendered
hereunder at each Point of Receipt shall comply with the specifications set forth and required by Thunder Creek and/or WBI Grasslands Pipelines. In the event transporting pipelines have no
specifications, the following quality specifications will be required: 

	(a)
	At a pressure of 14.73 p.s.i.a. and a temperature of 60 degrees Fahrenheit, such gas shall not contain more than:

	(I)
	0.25 grain of hydrogen sulphide per 100 cubic feet,

	(II)
	2 grains of total sulphur per 100 cubic feet,

	(III)
	2 percent by volume of carbon dioxide, and 10 parts per million (0.001 percent) by volume of
oxygen and each Party shall use every reasonable effort to keep such gas entirely free from oxygen.

 

	(b)
	Such gas as Tendered shall contain no more than 8 lbs. per million cubic feet of free water at the required operating
pressure and temperature conditions. 

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	(c)
	All gas shall be commercial in quality and shall be free from any foreign material such as solids, lubricating oils, sand, dirt, dust,
gums, salt, crude oil, water or hydrocarbons in the liquid phase, iron particles, and other objectionable substances, including but not limited to, polychlorinated biphenyls, which may be injurious to
pipelines, people, property, or the environment, which may interfere with its gathering facilities or which makes the gas unmarketable or unacceptable for delivery from CCNG's mid
stream facilities.

	(d)
	At a pressure of 14.73 p.s.i.a. the Gross Heating Value of such gas shall not be less than 950 Btus per
cubic foot.

	(e)
	The hydrocarbon dew point of all gas tendered shall meet the quality specifications of the downstream transporter. 

        Notwithstanding
the above, unless otherwise agreed by CCNG in writing, CCNG shall not be required to receive gas at any Point of Receipt which is of a quality inferior to that required
by Producer of a third party at any Point of Delivery under the Agreement. CCNG shall not be liable to Producer or a third party for any damages incurred as a result of CCNG's refusal to receive gas
as a result of this provision. 

        5.2    Quality Tests.    The Party operating the measuring equipment, using approved standard
methods in general use in the gas industry, shall cause adequate tests to be made to determine the quality of the gas delivered hereunder. Such tests shall be made at intervals frequently enough to
ensure that the gas conforms to the specifications hereof. 

        5.3    Verification and Retesting.    The non-testing Party shall have the right
upon written request to witness any test or Gross heating Value determination, to inspect any equipment used, to obtain all relevant results, and to request a retest or redetermination. In the event a
retest or redetermination is requested and the results, for the questioned portion thereof, vary less than 2 percent from the previous test, the retesting party may recover from the requesting
Party the actual reasonable costs of performing such retest or redetermination. 

        5.4    Nonspecification Gas.    In the event that gas Tendered hereunder fails to meet the
specifications of this Article, the measuring Party shall notify the other Party of such failure. The receiving Party may refuse to accept such gas. The Party Tendering nonspecification gas,
including, but not limited to, gas containing objectionable substances, shall indemnify the receiving Party for any injury, damage, loss, or liability caused by such nonspecification gas, except to
the extent the receiving Party knowingly and willingly accepts such nonspecification gas. 

 
 

ARTICLE 6.
  
    MEASUREMENT

        6.1    Measurement Facilities.    Unless otherwise agreed, gas received hereunder shall be
measured by orifice meters to be installed and operated or caused to be installed and operated by CCNG at or near each Point of Receipt and at or near each Point of Delivery. However, if adequate
measurement facilities are already in existence at any such Point of Receipt or Point of Delivery, such existing facilities shall be used. Measurement responsibilities t Point(s) of Receipt and
Point(s) of Delivery shall be specified in the Agreement. 

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        If
the meter(s) measuring the quantities of gas received by CCNG at the Point(s) of Receipt also measure(s) other quantities of gas, the quantities of gas received for gathering shall be
determined by the allocation procedures established hereunder. If the meter(s) measuring the quantities of gas delivered by CCNG for Producer's account at the Point(s) of Delivery also measure(s)
other quantities
of gas, the quantities of gas delivered after gathering shall be determined by the allocations at the Point of Delivery on the downstream pipeline. 

        All
orifice meters shall be installed and operated in accordance with the specifications prescribed in AGA Report No. 3, entitled "Orifice Metering of Natural Gas" including any
appendices and any existing or subsequent revisions or amendments thereto. The unit of measurement for gas delivered hereunder shall be 1 MCF. Unless otherwise stated, all quantities are to be
specified in terms of such unit. The measuring Party shall determine the average atmospheric pressure at each Point of Receipt or Point of Delivery. 

        6.2    Measurement Specifications.    The quantities of gas measured hereunder shall be
computed in accordance with the specifications prescribed in AGA Report No. 3. Factors required in the computations to be made in accordance with AGA Report No. 3 shall be determined
from the following information: 

	(a)
	The temperature of the gas flowing through each meter shall be determined by the use of
a recording thermometer and the arithmetical average of the temperatures so recorded during the time gas was flowing shall be used in computing measurements.

	(b)
	The specific gravity of the gas flowing through each meter shall be determined every
6 Months by the Party operating the meter, or more frequently if found necessary in practice at each meter, in accordance with an approved method commonly accepted in the gas industry. The
regular test shall determine the specific gravity to be used in computations in the measurement of gas deliveries until the next regular test, or until changed by special test.

	(c)
	The Reynolds Number and Expansion Factor for wellhead measurement will be assumed to be
1.0 irrespective of the actual value of these factors. In all instances other than wellhead measurement, the Reynolds Number and Expansion Factor shall be determined for each meter for each
chart cycle. The average differential and static pressures recorded by each meter, each chart cycle, shall determine the value of these factors to be used in computing measurements.

	(d)
	Deviation from Boyle's Law shall be determined in accordance with AGA Report
No. 8. The arithmetic average of the pressure and temperature recorded during the time gas was flowing shall be used in the computations. The pressure and temperature data shall be used in
conjunction with data obtained from a compositional analysis of the gas which shall be verified at least once each year, or more frequently if found necessary in practice. 

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        6.3    Calibration of Equipment.    At least once each 3 Months at measurement
locations measuring an average over such period of 300 Mcf per Day or more, at least once each 6 Months at measurement locations measuring an average over such period of 100 Mcf
to 299 Mcf per Day and at least once each 12 Months at measurement locations measuring less than an average over such period of 100 Mcf per Day, the measuring equipment, including
temperature recorders, is to be calibrated and adjusted, if necessary, by the measuring party in the presence of a representative of the other party, if such other Party chooses to
be represented. 

        If
either Party at any time desires a special test of any measuring equipment, it will promptly notify the other Party, and the Parties will then cooperate to promptly secure a
calibration test and a joint observation of any adjustments. 

        6.4    Testing.    Each Party shall give to the other notice of the time of all regular tests
of measuring equipment and other tests called for herein sufficiently in advance of the holding of tests so that the other Party may conveniently have its representative present. If, upon any test,
the quantity measured by any measuring equipment if found to be inaccurate by 100 Mcf or more per Month and 2.0 percent or more, registrations thereof shall be corrected at the rate of
such inaccuracy for any period which is definitely known and agreed upon, but in case the period is not definitely known and agreed upon, then for period extending back one-half of the
time elapsed since the last date of calibration. Following any test, measuring equipment found inaccurate shall be promptly adjusted to record as accurately as possible. If for any reason measuring
equipment is out of service and/or out of repair so that the amount of gas received or delivered cannot be measured or computed from the reading thereof, the gas received or delivered during the
period such measuring equipment is out of service and/or out of repair shall be estimated and agreed upon by the Parties hereto upon the basis of the best data available, using the first of the
following methods which is feasible: 

	(a)
	By correcting the error, if the percentage of error is ascertainable by calibration, test, or mathematical calculation.

	(b)
	By using the registration of any check measuring equipment, if installed and accurately registering.

	(c)
	By estimating the quantities received or delivered based on quantities during periods of similar operating conditions when the
measuring equipment was registering accurately. 

        6.5    Check Meters.    Either Party hereto may, at its option and expense, install and
operate check meters to check the other Party's measuring equipment, but measurements of gas for the purpose of this Agreement shall be by means of the measuring equipment identified in this Article,
provided producer shall not install check meters on CCNG's Facilities. Check meters, if prescribed in this Article. Either Party's check meters shall be subject at all reasonable times to inspection
and examination by the other, but the reading, calibration and adjustment thereof, and changing of charts shall be done only by the Party installing same. 

        6.6    Measurement Review.    Each Party hereto shall, upon request, furnish to the other
Party at the earliest practicable time all charts and records of electronic measurement upon which it has based any statements of gas received or delivered. Such charts or records of electronic
measurement shall be returned to the providing Party within a 30-Day period. Each party shall have access to the other Party's records and books at all reasonable hours so far as they
affect measurement and settlement hereunder. 

16

 

        6.7    Electronic Flow Computers.    It is recognized that electronic or other types of flow
computers have been developed that permit the direct computation of gas flows without the use of charts. Additionally, the use of on-line gas chromatograph for BTU and specific gravity
determinations can be used in conjunction with electronic flow computers. Where the substitution of these devices is deemed acceptable by CCNG, their use for the measurement required herein will
be permitted. 

        6.8    New Measurement Techniques.    If, at any time during the term hereof, a new
method or technique is developed with respect to gas measurement or the determination of the factors used in such gas measurement, such new method or technique may be substituted by CCNG, CCNG shall
promptly inform Producer of any new technique adopted. 

 
 

ARTICLE 7
  
    BILLING AND PAYMENT

        7.1    Statement by Producer.    Where Producer operates the measurement facilities or where a
third party is delivering gas for the account of Producer, Producer or its agent shall submit to CCNG on or before the 5th business Day of each Month, a statement in reasonable
detail setting forth the volume and Thermal Content of gas delivered to CCNG at the Point(s) of Receipt during the preceding Month. Where Producer or its agent is delivering quantities for Producer's
account and the account of third parties, Producer or its agent is delivering quantities for producer's account and the account of third parties, Producer or its agent shall provide CCNG and such
third parties, at the time Producer nominated hereunder, with the necessary allocations required to properly account for the quantities delivered to CCNG. 

        7.2    Invoice and Payment.    Each Month CCNG shall invoice Producer for the charges payable
by producer for services provided during the preceding Month. Billing of all charges hereunder shall be based on Mcf received by CCNG at Point(s) of Receipt. Producer shall pay CCNG by wire transfer
such charges within thirty (3) days of receipt of invoice. 

        Should
Producer fail to pay all invoiced amounts when due, Producer shall pay CCNG a late charge on the unpaid balance. Such late charge shall accrue on each Day from the due date at a
rate of interest equal to two percent (2%) above the then effective prime commercial lending rate per annum announced by The Chase Manhattan Bank at its principle office in New York City;
provided that for any period such interest exceeds any applicable maximum rate permitted by law, the interest rate shall equal said applicable maximum rate. If either principal or late charges become
delinquent, any subsequent payments received shall first be applied to the late charges due, then to the previously outstanding principal due, and lastly, to the most current principal due. Any unpaid
late charges will be added to the outstanding principal balance for future late charge determination. Subject to requirements of regulatory bodies having jurisdiction and without prejudice to any
other rights and remedies available to CCNG under the law and this Agreement, CCNG shall have the right, but not the obligation, to discontinue service hereunder if any charges remain unpaid for
30 Days after the due date thereof. Gathering of gas shall be resumed upon payment by Producer of such unpaid charges. 

17

 

        7.3    Estimates.    At the request of either Party, the other Party will furnish an estimate
by the 10th Day of each Month of billing and payment data applicable to the preceding Month. In the absence of actual data, such estimate may be used as the basis for invoice and
payment. Any difference between actual data and estimated data shall be adjusted in the next Month. 

        7.4    Corrections.    If an error is discovered in any statement submitted, the party
discovering the error shall give notice thereof to the other Party promptly after discovery. The error shall be corrected within 30 Days after the amount thereof has been confirmed between the
parties. No corrections shall be made for an error unless the Party gives notice thereof within 24 Months after the error was committed. 

 
 

ARTICLE 8
  
    FORCE MAJEURE

        8.1    Force Majeure.    In the event of either Party's being rendered, wholly or in part by
Force Majeure, unable to carry out its obligations under the Agreement, it is agreed that when such Party gives notice and full particulars of such Force Majeure, in writing or by fax or telephone, to
the other Party which shall be done as soon as practicable after the occurrence of the causes relied on, then the obligations of the parties hereto, other than the obligation to make payments of
amounts due hereunder, 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. However, if quantities of producer's gas are destroyed by an event of Force Majeure while in CCNG's possession, the obligations of the Parties
under the Agreement shall terminate with respect to the quantities lost. 

        The
term "Force Majeure" as employed herein shall include, but shall not be limited to, acts of god, strikes, lockouts or other industrial disturbances, acts of the public enemy or
terrorists, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, pipeline freeing, plugging of lines, arrest and restraint of rulers
and peoples, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, sudden partial or sudden entire failure of wells, failure to obtain materials and supplies due to
governmental regulations, and causes of like or similar kind, whether herein enumerated or not, and not within the control of the Party claiming suspension, and which by the exercise of due diligence
such Party is unable to overcome; provided that the exercise of due diligence shall not require settlement of labor disputes against the better judgment of the Party having the dispute. 

        The
term "Force Majeure" as employed herein shall also include, but shall not be limited to, inability to obtain or acquire at reasonable cost, grants, servitudes,
right-of-way, permits, licenses, or any other authorizations from third parties or agencies (private or governmental) or inability to obtain or acquire at reasonable cost
necessary materials or supplies to construct, maintain, and operate any facilities required for the performance of any obligations under the Agreement, when any such inability directly or indirectly
contributes to or results in either Party's inability to perform its obligations. During events of Force Majeure, CCNG's responsibility will be limited to taking reasonable and prudent actions to
eliminate or remedy such circumstances, and CCNG shall have no liability for any losses occasioned by events of Force Majeure. 

18

 
 
 

ARTICLE 9
  
    INTERRUPTIONS OF SERVICES

        9.1    Alterations and Repairs.    CCNG shall have the right, without liability to Producer,
to interrupt the gathering of gas or other services performed under the Agreement for Producer when necessary to test, alter, modify, enlarge, or repair any facility or property comprising a part of,
or appurtenant to, its system, or otherwise related to the operation thereof. CCNG shall endeavor to cause a minimum of inconvenience to Producer. Except in cases of unforeseen emergency, CCNG shall
give Advance notice to Producer of its intention to so interrupt services, stating the anticipated timing and magnitude of each such interruption. 

 
 

ARTICLE 10
  
    TAXES

        10.1    Taxes.    All production (including ad valorem-type production taxes),
gathering, delivery, sales, severance, or other excise taxes or assessments upon the gas produced and delivered hereunder by Producer to CCNG, which are now or hereafter in existence or authorized for
collection by any state or other governmental agency or duly constituted authority, either directly or indirectly, shall be paid or caused to be paid by Producer. 

 
 

ARTICLE 11
  
    LIABILITY

        11.1    Liability.    SUBJECT TO THE PROVISIONS OF SECTIONS 9.1 AND 14.1, EACH PARTY ASSUMES FULL
RESPONSIBILITY AND LIABILITY ARISING FROM THE INSTALLATION, OWNERSHIP, AND OPERATION OF THE WELLS, PIPELINES AND FACILITIES WHICH IT OWNS OR CONTROLS AND WILL HOLD THE OTHER PARTY HARMLESS FROM ANY
CLAIM, LOSS, EXPENSE, OR LIABILITY (EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED IN THIS AGREEMENT) THAT SUCH PARTY INCURS WHICH ARISES FROM FACILITIES WHICH IT OWNS OR CONTROLS. HOWEVER, ONE PARTY WILL NOT BE LIABLE TO THE OTHER PARTY FOR, OR HOLD THE OTHER PARTY
HARMLESS FROM, ANY CLAIMS, LOSS, EXPENSE, OR LIABILITY ARISING OUT OF ACT OR OMISSIONS OF THIRD PARTIES WHEN SUCH ACTS OR OMISSIONS ARE NOT REASONABLY WITHIN THE FIRST PARTY'S CONTROL. 

        11.2    No Incidental, Consequential or Punitive Damages.    UNLESS EXPRESSLY PROVIDED FOR
HEREIN, THE PARTIES WAIVE ANY AND ALL RIGHTS, CLAIMS OR CAUSES OF ACTIONS AGAINST THE OTHER ARISING UNDER THIS AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES. ANY DAMAGES RESULTING FROM
A BREACH OF THE AGREEMENT BY EITHER PARTY SHALL BE LIMITED TO ACTUAL DIRECT DAMAGES INCURRED BY THE PARTY CLAIMING DAMAGES. 

19

 
 
 

ARTICLE 12
  
    WARRANTY

        12.1    Producer warrants to CCNG that Producer has the right to dedicate and deliver all gas tendered hereunder and Producer
agrees to indemnify, defend and hold CCNG harmless from and against any loss, claim or demand by reason of any breach of this warranty. 

        12.2    Each party warrants that the title to and right to possession of, all gas delivered to the other Party hereunder will at
the time of delivery be free from all liens and adverse claims, and each Party shall indemnify the other Party against all damages, costs, and expenses of any nature whatsoever arising from every
claim against said gas. 

 
 

ARTICLE 13
  
    RESPONSIBILITY FOR GAS

        13.1    Responsibility for Gas.    Producer shall be in exclusive control and possession of
the gas until such has been received by CCNG at the Point(s) of Receipt. CCNG shall be in exclusive control and possession of such gas while it is in CCNG's possession. Subject to the provisions of
Sections 9.1, and 13.1, the Party, which is or is deemed to be in exclusive control and possession of such gas shall be responsible for all injury, damage, loss, or liability caused thereby.
Provided, however, that CCNG's responsibility with respect to Producer's gas shall be deemed to be met if CCNG exercises ordinary care in protecting such gas. 

 
 

ARTICLE 14
  
    WAIVER

        14.1    Waiver.    The failure of either party hereto at any time to require performance by
the other Party of any provision of the Agreement shall in no way affect the right of such Party thereafter to enforce the same, nor shall the waiver by either Party of any breach of any provision
hereof by the other Party or held to be a waiver by such Party of any succeeding breach of such provision, or as a waiver of the provision itself. 

 
 

ARTICLE 15
  
    MISCELLANEOUS

        15.1    Headings.    The headings contained in the Agreement are for reference purposes only
and shall not affect the meaning or interpretation of the Agreement. 

        15.2    APPLICABLE LAW.    THE AGREEMENT SHALL BE INTERPRETED ACCORDING TO THE LAWS OF THE
STATE OF WYOMING, NOTWITHSTANDING ANY CONFLICT OF LAWS PRINCIPLES, WHICH MAY REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 

        15.3    Third Party Beneficiaries.    Neither Party intends for the provisions of the
Agreement to benefit any third party. No third party shall have any right to enforce the terms of the Agreement against Producer or CCNG. 

20

 

        15.4    Entire Agreement.    The terms and conditions contained herein constitute the full and
complete agreement between the parties and supercede any prior understandings or written or oral agreements relative to said matter. Any amendment, modification, or variation of the Agreement must be
submitted is writing and agreed to by both Parties. 

 
 

ARTICLE 16
  
    ASSIGNMENT

        16.1    Assignable Parties.    The agreement may be assigned by either of the parties, in
whole or in part upon prior written consent of the other party, which consent shall not be unreasonably withheld. 

        16.2    Assignment.    The Agreement shall be binding upon and inure to the benefit of the
successors and assignees of each of the Parties hereto. 

        16.3    Confidentiality.    The terms and conditions of the Agreement shall be held
confidential by the Parties, except to the extent that such must be disclosed pursuant to a judicial, legislative, executive or administrative order. In such event, the Party receiving such order
shall promptly advise the other Party. 

 
 

ARTICLE 17
  
    CONFLICT

        17.1    Conflict.    The terms and conditions set forth in this Exhibit A constitute a
part of the Agreement between CCNG and Producer concerning the services provided under the Agreement. In the event of a conflict between the provisions of the Agreement and this Exhibit A, the
terms and provisions of the Agreement shall govern and control; provided however, that the inclusion in this Exhibit A of terms and provisions not addressed in the Agreement shall not be deemed
conflict, and all such additional provisions contained herein shall be given full force and effect. 

21

  

 
 

EXHIBIT "B"
  
    DEDICATION OF ACREAGE    
    

        Producer hereby dedicates to the performance of this Agreement for the term hereof (a) all gas which it owns or controls in the Dedicated Acreage as
hereinafter defined in Exhibit "B", as of the Effective Date of this Agreement, in Sections 1-36 in Township 54 North, Range 73 W, and
Sections 1-26 in Township 53 North, Range 73 West, and Section 25 in Township 54 North, Range 74 West, all in Campbell County, Wyoming
("DEDICATED ACREAGE") (b) all gas which it subsequently owns or controls in the Dedicated Acreage as hereinafter defined in Exhibit "B", as of the Effective Date of this Agreement, in
Sections 1-36 in Township 54 North, Range 73 W, and Sections 1-26 in Township 53 North, Range 73 West, and
Section 25 in Township 54 North, Range 74 West, all in Campbell County, Wyoming ("DEDICATED ACREAGE"). Producer shall cause all oil and gas, which it currently or subsequently
owns or controls in the Dedicated Acreage to be subject to the terms and conditions of this Agreement. 

T54N R74W  

	Section	 	25	 	All SE 1/4 section

T54N R73W  

	Section	 	1	 	NE/NW, SE/NW
	Section	 	2	 	NW 1/4
	Section	 	3	 	NE 1/4, NW 1/4, SE 1/4
	Section	 	4	 	NE 1/4, NW 1/4
	Section	 	5	 	NE/NE, NW/NE, SE/NE, NE/SE, SW/SE, SE/SE, SW/SW, SE/SW
	Section	 	6	 	NW/SW, SW/SW, SE/SW
	Section	 	7	 	NW/NW, SW/NW, SE/NW, SW 1/4, SE 1/4
	Section	 	8	 	NW 1/4, NE 1/4, NW/SW, SW/SW, SE/SW
	Section	 	9	 	ALL
	Section	 	12	 	NW/NW, SW/NW, NW/SW, SW/SW
	Section	 	13	 	SW/NW
	Section	 	14	 	SW/NE, SE/NE, SE/SE, SW 1/4
	Section	 	15	 	SE/NE, SW/NE, SE/NW, SE 1/4, SW 1/4
	Section	 	16	 	ALL
	Section	 	17	 	NW/NE, SW/NE, SE/NE, SE 1/4, SW 1/4, NE/NW
	Section	 	18	 	NE 1/4, SE 1/4, NE/SW, NW/SW
	Section	 	19	 	NE 1/4, SE/NW, SW/NW, SW 1/4
	Section	 	20	 	NW 1/4, NW/NE, NE/NE
	Section	 	22	 	NE 1/4, NW 1/4, NE/SE, SW/SE, SE/SE
	Section	 	23	 	NE 1/4, NW 1/4, SE 1/4, NE/SW, SE/SW
	Section	 	24	 	SW/NE, NE/NW, NW/SE, SW/SE, NE/SW, SE/SW,
	Section	 	25	 	NE 1/4, NE/SE, NW/SE, SW/SE,
	Section	 	26	 	N1/2, NE, NW 1/4, SW 1/4, NW/SE, SW/SE, SE/SE
	Section	 	27	 	ALL
	Section	 	29	 	SW 1/4
	Section	 	30	 	NW 1/4, SW 1/4, SE/SE
	Section	 	31	 	NW 1/4, SW 1/4, SW/NE, SE/NE, SE 1/4
	Section	 	32	 	NW 1/4
	Section	 	34	 	NE 1/4, NE/NW, SE/NW, NW/SE, NE/SE, SW/SE, NE/SW, SE/SW SW/SW
	Section	 	35	 	NE 1/4, NW/NW, SW/NW, NW/SW
	Section	 	36	 	ALL

22

 

T53N R73W  

	Section	 	1	 	ALL
	Section	 	2	 	ALL
	Section	 	3	 	NW/NW, SW 1/4,
	Section	 	4	 	NE/NE, NW/NE, SW/NE, NW/SE, NE/SE, SW/NW, SE/NW, SW 1/4
	Section	 	5	 	ALL
	Section	 	6	 	NE/NE, NW/NE, SE/NE, NE/SE, SW/SE, SE/SE
	Section	 	7	 	NW/NW, NE/NW, SW/NW, NW/NE, SW/SE, SE/SE
	Section	 	8	 	NW 1/4, NE 1/4, SE 1/4
	Section	 	9	 	NW 1/4, SW 1/4, NW/SE, SW/SE, SE/SE
	Section	 	10	 	SW/SW, SE/SW, NE/SW, SE 1/4
	Section	 	11	 	ALL
	Section	 	12	 	NW 1/4, SW 1/4, NW/NE, NE/SE, SE/SE
	Section	 	13	 	NE/NE, NW/NE, NE/NW, NW/NW
	Section	 	14	 	SW/NE, NW 1/4, SW 1/4
	Section	 	15	 	SW/NE, SE/NE, NW/SE, NE/SE, SE/SE, NW/NW, SW/NW, SE/NW
	Section	 	16	 	NE 1/4, NW 1/4, SE 1/4
	Section	 	17	 	NW 1/4, SW 1/4
	Section	 	18	 	NE/NE, SE/NE, SE 1/4, SW 1/4
	Section	 	19	 	ALL
	Section	 	22	 	NE 1/4, NE/NW, SE/NW
	Section	 	23	 	SW/NW, NE/SW, SE/SW
	Section	 	26	 	NE/NW

23

QuickLinks

Exhibit 10.8

MIDSTREAM TRANSPORTATION AGREEMENT Between CLEAR CREEK NATURAL GAS, LLC (CCNG) And PINNACLE GAS RESOURCES, INC. (Producer) EFFECTIVE DATE: DECEMBER 1, 2003

R E C I T A L S

SCHEDULE 1 RATES To MIDSTREAM TRANSPORTATION AGREEMENT Between CLEAR CREEK NATURAL GAS, LLC (CCNG) AND PINNACLE GAS RESOURCES, INC. (Producer) EFFECTIVE DATE: December 1, 2003

SCHEDULE 2 POINT(S) OF RECEIPT AND DELIVERY To MIDSTREAM TRANSPORTATION AGREEMENT Between CLEAR CREEK NATURAL GAS, LLC (CCNG) AND PRODUCER: PINNACLE GAS RESOURCES, INC. (Producer) EFFECTIVE DATE: December 1,
2003

EXHIBIT "A" GENERAL TERMS AND CONDITIONS To MIDSTREAM TRANSPORTATION AGREEMENT Between CLEAR CREEK NATURAL GAS, LLC (CCNG) And PRODUCER: PINNACLE GAS RESOURCES, INC. (Producer) EFFECTIVE DATE: December 1,
2003

ARTICLE 1. DEFINITIONS AND ABBREVIATIONS

ARTICLE 2. TERMINATION

ARTICLE 3. OTHER OPERATING PROVISIONS

ARTICLE 4. PRESSURE

ARTICLE 5. QUALITY SPECIFICATIONS

ARTICLE 6. MEASUREMENT

ARTICLE 7 BILLING AND PAYMENT

ARTICLE 8 FORCE MAJEURE

ARTICLE 9 INTERRUPTIONS OF SERVICES

ARTICLE 10 TAXES

ARTICLE 11 LIABILITY

ARTICLE 12 WARRANTY

ARTICLE 13 RESPONSIBILITY FOR GAS

ARTICLE 14 WAIVER

ARTICLE 15 MISCELLANEOUS

ARTICLE 16 ASSIGNMENT

ARTICLE 17 CONFLICT

EXHIBIT "B" DEDICATION OF ACREAGE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00110-of-00352.parquet"}]]