Document:

exv10w1

 

Exhibit 10.1

EXHIBIT (II)

FORM OF

DRILLING AND OPERATING AGREEMENT

FOR

ATLAS AMERICA SERIES 27-2006 L.P.

 

 

INDEX

	 	 	 	 	 	 	 
	Section	 	 	Page
	 
	1.

	 	Assignment of Well Locations; Representations and Indemnification Associated with the Assignment of the Lease; Designation of
Additional Well Locations; Outside Activities Are Not Restricted
	 	 	1	 
	 
	 	 	 	 	 	 
	2.

	 	Drilling of Wells; Timing; Depth; Interest of Developer; Right to Substitute Well Locations
	 	 	2	 
	 
	 	 	 	 	 	 
	3.

	 	Operator — Responsibilities in General; Covenants; Term
	 	 	3	 
	 
	 	 	 	 	 	 
	4.

	 	Operator’s Charges for Drilling and Completing Wells; Payment; Completion Determination; Dry Hole Determination; Excess Funds and Cost
Overruns – Intangible Drilling Costs; Excess Funds and Cost Overruns – Tangible Costs
	 	 	4	 
	 
	 	 	 	 	 	 
	5.

	 	Title Examination of Well Locations; Developer’s Acceptance and Liability; Additional Well Locations
	 	 	8	 
	 
	 	 	 	 	 	 
	6.

	 	Operations Subsequent to Completion of the Wells; Fee Adjustments; Extraordinary Costs; Pipelines; Price
Determinations; Plugging and Abandonment
	 	 	8	 
	 
	 	 	 	 	 	 
	7.

	 	Billing and Payment Procedure with Respect to Operation of Wells; Disbursements; Separate Account for Sale
Proceeds; Records and Reports; Additional Information
	 	 	10	 
	 
	 	 	 	 	 	 
	8.

	 	Operator’s Lien; Right to Collect From Oil or Gas Purchaser
	 	 	12	 
	 
	 	 	 	 	 	 
	9.

	 	Successors and Assigns; Transfers; Appointment of Agent
	 	 	12	 
	 
	 	 	 	 	 	 
	10.

	 	Operator’s Insurance; Subcontractors’ Insurance; Operator’s Liability
	 	 	13	 
	 
	 	 	 	 	 	 
	11.

	 	Internal Revenue Code Election; Relationship of Parties; Right to Take Production in Kind
	 	 	14	 
	 
	 	 	 	 	 	 
	12.

	 	Effect of Force Majeure; Definition of Force Majeure; Limitation
	 	 	15	 
	 
	 	 	 	 	 	 
	13.

	 	Term
	 	 	15	 
	 
	 	 	 	 	 	 
	14.

	 	Governing Law; Invalidity
	 	 	16	 
	 
	 	 	 	 	 	 
	15.

	 	Integration; Written Amendment
	 	 	16	 
	 
	 	 	 	 	 	 
	16.

	 	Waiver of Default or Breach
	 	 	16	 
	 
	 	 	 	 	 	 
	17.

	 	Notices
	 	 	16	 
	 
	 	 	 	 	 	 
	18.

	 	Interpretation
	 	 	16	 
	 
	 	 	 	 	 	 
	19.

	 	Counterparts
	 	 	17	 
	 
	 	 	 	 	 	 
	 

	 	Signature Page
	 	 	17	 

	 	 	 
	Exhibit A

	 	Description of Leases and Initial Well Locations
	Exhibits A-l through A-___

	 	Maps of Initial Well Locations
	Exhibit B

	 	Form of Assignment
	Exhibit C

	 	Form of Addendum

 

 

DRILLING AND OPERATING AGREEMENT

THIS AGREEMENT made this 7th day of November 2006, by and between ATLAS RESOURCES, LLC,
a Pennsylvania limited liability company (hereinafter referred to as “Atlas” or “Operator”),

and

ATLAS AMERICA SERIES 27-2006 L.P., a Delaware limited partnership, (hereinafter referred to as the
“Developer”).

WITNESSETH THAT:

WHEREAS, the Operator, by virtue of the Oil and Gas Leases (the “Leases”) described on Exhibit A
attached to and made a part of this Agreement, has certain rights to develop the ___
(___) initial well locations (the “Initial Well Locations”) identified on the maps attached to
and made a part of this Agreement as Exhibits A-l through A-___;

WHEREAS, the Developer, subject to the terms and conditions of this Agreement, desires to acquire
certain of the Operator’s rights to develop the Initial Well Locations and to provide for the
development on the terms and conditions set forth in this Agreement of additional well locations
(“Additional Well Locations”) that the parties may from time to time designate; and

WHEREAS, the Operator is in the oil and gas exploration and development business, and the Developer
desires that Operator, as its independent contractor, perform certain services in connection with
its efforts to develop the aforesaid Initial and Additional Well Locations (collectively the “Well
Locations”) and to operate the wells completed on the Well Locations, on the terms and conditions
set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual covenants herein contained and subject to the terms
and conditions hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:

	1.	 	Assignment of Well Locations; Representations and Indemnification Associated with the
Assignment of the Lease; Designation of Additional Well Locations; Outside Activities Are Not
Restricted.

	 	(a)	 	Assignment of Well Locations. The Operator shall execute an assignment of an
undivided percentage of Working Interest in the Well Location acreage for each well to
the Developer as shown on Exhibit A attached hereto, which assignment shall be limited
to a depth from the surface to the deepest depth penetrated at the cessation of
drilling operations.
	 
	 	 	 	The assignment shall be substantially in the form of Exhibit B attached to and made a
part of this Agreement. The amount of acreage included in each Initial Well Location
and the configuration of the Initial Well Location are indicated on the maps attached
to this Agreement as Exhibits A-l through A-___. The amount of acreage included
in each Additional Well Location and the configuration of the Additional Well
Location shall be indicated on the maps to be attached as exhibits to the applicable
addendum to this Agreement as provided in sub-section (c) below.

	 	(b)	 	Representations and Indemnification Associated with the Assignment of the
Lease. The Operator represents and warrants to the Developer that:

	 	(i)	 	the Operator is the lawful owner of the Lease and rights and
interest under the Lease and of the personal property on the Lease or used in
connection with the Lease;
	 
	 	(ii)	 	the Operator has good right and authority to sell and convey the rights, interest, and property;
	 
	 	(iii)	 	the rights, interest, and property are free and clear from all liens and encumbrances; and
	 
	 	(iv)	 	all rentals and royalties due and payable under the Lease have been duly paid.

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	 	 	 	These representations and warranties shall also be included in each recorded
assignment of the acreage included in each Initial Well Location and Additional Well
Location designated pursuant to sub-section (c) below, substantially in the form of
Exhibit B attached to and made a part of this Agreement.
	 
	 	 	 	The Operator agrees to indemnify, protect and hold the Developer and its successors
and assigns harmless from and against all costs (including but not limited to
reasonable attorneys’ fees), liabilities, claims, penalties, losses, suits, actions,
causes of action, judgments or decrees resulting from the breach of any of the above
representations and warranties. It is understood and agreed that, except as
specifically set forth above, the Operator makes no warranty or representation,
express or implied, as to its title or the title of the lessors in and to the lands
or oil and gas interests covered by said Leases.
	 
	 	(c)	 	Designation of Additional Well Locations. If the parties hereto desire to
designate Additional Well Locations to be developed in accordance with the terms and
conditions of this Agreement, then the parties shall execute an addendum substantially
in the form of Exhibit C attached to and made a part of this Agreement specifying:

	 	(i)	 	the undivided percentage of Working Interest and the Oil and Gas
Leases to be included as Leases under this Agreement;
	 
	 	(ii)	 	the amount and configuration of acreage included in each
Additional Well Location on maps attached as exhibits to the addendum; and
	 
	 	(iii)	 	their agreement that the Additional Well Locations shall be
developed in accordance with the terms and conditions of this Agreement.

	 	(d)	 	Outside Activities Are Not Restricted. It is understood and agreed that the
assignment of rights under the Leases and the oil and gas development activities
contemplated by this Agreement relate only to the Initial Well Locations and the
Additional Well Locations. Nothing contained in this Agreement shall be interpreted to
restrict in any manner the right of each of the parties to conduct, without the
participation of the other party, any additional activities relating to exploration,
development, drilling, production, or delivery of oil and gas on lands adjacent to or
in the immediate vicinity of the Well Locations or elsewhere.

	2.	 	Drilling of Wells; Timing; Depth; Interest of Developer; Right to Substitute Well Locations.

	 	(a)	 	Drilling of Wells. Operator, as Developer’s independent contractor, agrees to
drill, complete (or plug) and operate ___(___) oil and gas wells on the
___(___) Initial Well Locations in accordance with the terms and
conditions of this Agreement. Developer, as a minimum commitment, agrees to
participate in and pay the Operator’s charges for drilling and completing (or plugging)
the wells and any extra costs pursuant to Section 4 in proportion to the share of the
Working Interest owned by the Developer in the wells with respect to all initial wells.
It is understood and agreed that, subject to sub-section (e) below, Developer does not
reserve the right to decline participation in the drilling of any of the initial wells
to be drilled under this Agreement.
	 
	 	(b)	 	Timing. Operator shall begin drilling the first well within thirty (30) days
after the date of this Agreement, and shall begin drilling each of the other initial
wells for which payment is made pursuant to Section 4(b) before the close of the
90th day after the close of the calendar year in which this Agreement is
entered into by Operator and the Developer. Subject to the foregoing time limits,
Operator shall determine the timing of and the order of drilling the Initial Well
Locations.
	 
	 	(c)	 	Depth. All of the wells to be drilled under this Agreement shall be:

	 	(i)	 	drilled and completed (or plugged) in accordance with the
generally accepted and customary oil and gas field practices and techniques then
prevailing in the geographical area of the Well Locations; and

2

 

	 	(ii)	 	drilled to a depth sufficient to test thoroughly the objective
formation or the deepest assigned depth, whichever is less.

	 	(d)	 	Interest of Developer. Except as otherwise provided in this Agreement, all
costs, expenses, and liabilities incurred in connection with the drilling and other
operations and activities contemplated by this Agreement shall be borne and paid, and
all wells, gathering lines of up to approximately 2,500 feet on each Well Location in
connection with a natural gas well, equipment, materials, and facilities acquired,
constructed or installed under this Agreement shall be owned, by the Developer in
proportion to the share of the Working Interest owned by the Developer in the wells.
Subject to the payment of lessor’s royalties and other royalties and overriding
royalties, if any, production of oil and gas from the wells to be drilled under this
Agreement shall be owned by the Developer in proportion to the share of the Working
Interest owned by the Developer in the wells.
	 
	 	(e)	 	Right to Substitute Well Locations. Notwithstanding the provisions of
sub-section (a) above, if the Operator or Developer determines in good faith, with
respect to any Well Location, before operations begin under this Agreement on the Well
Location, that it would not be in the best interest of the parties to drill a well on
the Well Location, then the party making the determination shall notify the other party
of its determination and the basis for its determination and, unless otherwise
instructed by Developer, the well shall not be drilled. This determination may be based
on:

	 	(i)	 	the production or failure of production of any other wells that
may have been recently drilled in the immediate area of the Well Location;
	 
	 	(ii)	 	newly discovered title defects; or
	 
	 	(iii)	 	any other evidence with respect to the Well Location as may have
been obtained.

	 	 	 	If the well is not drilled, then Operator shall promptly propose a new Well Location
(including all information for the Well Location as Developer may reasonably request)
to be substituted for the original Well Location. Developer shall then have seven
(7) business days to either reject or accept the proposed new Well Location. If the
new Well Location is rejected, then Operator shall promptly propose another
substitute Well Location pursuant to the provisions of this sub-section.
	 
	 	 	 	Once the Developer accepts a substitute Well Location or does not reject it within
the seven (7) day period, this Agreement shall terminate as to the original Well
Location and the substitute Well Location shall become subject to the terms and
conditions of this Agreement.

	3.	 	Operator — Responsibilities in General; Covenants; Term.

	 	(a)	 	Operator — Responsibilities in General. Atlas shall be the Operator of the
wells and Well Locations subject to this Agreement and, as the Developer’s independent
contractor, shall, in addition to its other obligations under this Agreement do the
following:

	 	(i)	 	arrange for drilling and completing (or plugging) the wells and,
if a gas well, installing the necessary gas gathering line systems and
connection facilities;
	 
	 	(ii)	 	make the technical decisions required in drilling, testing,
completing (or plugging), and operating the wells;
	 
	 	(iii)	 	manage and conduct all field operations in connection with the
drilling, testing, completing (or plugging), equipping, operating, and producing
the wells;
	 
	 	(iv)	 	maintain all wells, equipment, gathering lines if a gas well, and
facilities in good working order during their useful lives; and
	 
	 	(v)	 	perform the necessary administrative and accounting functions.

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	 	 	 	In performing the work contemplated by this Agreement, Operator is an independent
contractor with authority to control and direct the performance of the details of the
work.
	 
	 	(b)	 	Covenants. Operator covenants and agrees that under this Agreement:

	 	(i)	 	it shall perform and carry on (or cause to be performed and
carried on) its duties and obligations in a good, prudent, diligent, and
workmanlike manner using technically sound, acceptable oil and gas field
practices then prevailing in the geographical area of the Well Locations;
	 
	 	(ii)	 	all drilling and other operations conducted by, for and under the
control of Operator shall conform in all respects to federal, state and local
laws, statutes, ordinances, regulations, and requirements;
	 
	 	(iii)	 	unless otherwise agreed in writing by the Developer, all work
performed pursuant to a written estimate shall conform to the technical
specifications set forth in the written estimate and all equipment and materials
installed or incorporated in the wells and facilities shall be new or used and
of good quality;
	 
	 	(iv)	 	in the course of conducting operations, it shall comply with all
terms and conditions, other than any minimum drilling commitments, of the Leases
(and any related assignments, amendments, subleases, modifications and
supplements);
	 
	 	(v)	 	it shall keep the Well Locations and all wells, equipment and
facilities located on the Well Locations free and clear of all labor, materials
and other types of liens or encumbrances arising out of operations;
	 
	 	(vi)	 	it shall file all reports and obtain all permits and bonds
required to be filed with or obtained from any governmental authority or agency
in connection with the drilling or other operations and activities; and
	 
	 	(vii)	 	it will provide competent and experienced personnel to supervise
drilling, completing (or plugging), and operating the wells and use the services
of competent and experienced service companies to provide any third party
services necessary or appropriate in order to perform its duties.

	 	(c)	 	Term. Atlas shall serve as Operator under this Agreement until the earliest
of:

	 	(i)	 	the termination of this Agreement pursuant to Section 13;
	 
	 	(ii)	 	the termination of Atlas as Operator by the Developer at any time
in the Developer’s discretion, with or without cause, on sixty (60) days’
advance written notice to the Operator; or
	 
	 	(iii)	 	the resignation of Atlas as Operator under this Agreement which
may occur on ninety (90) days’ written notice to the Developer at any time after
five (5) years from the date of this Agreement, it being expressly understood
and agreed that Atlas shall have no right to resign as Operator before the
expiration of the five-year period.

	 	 	 	Any successor Operator shall be selected by the Developer. Nothing contained in this
sub-section shall relieve or release Atlas or the Developer from any liability or
obligation under this Agreement that accrued or occurred before Atlas’ removal or
resignation as Operator under this Agreement. On any change in Operator under this
provision, the then present Operator shall deliver to the successor Operator
possession of all records, equipment, materials and appurtenances used or obtained
for use in connection with operations under this Agreement and owned by the
Developer.

4

 

	4.	 	Operator’s Charges for Drilling and Completing Wells; Payment; Completion Determination; Dry
Hole Determination; Excess Funds and Cost Overruns-Intangible Drilling Costs; Excess Funds and
Cost Overruns-Tangible Costs.

	 	(a)	 	Operator’s Charges for Drilling and Completing Wells. Each oil and gas well
that is drilled and completed under this Agreement shall be drilled and completed for
an amount equal to the sum of the following items: (i) the Cost of permits, supplies,
materials, equipment, and all other items used in the drilling and completion of a well
provided by third-parties, or if the foregoing items are provided by Affiliates of the
Developer’s Managing General Partner, then those items will be charged at competitive
rates; (ii) fees for third-party services; (iii) fees for services provided by the
Developer’s Managing General Partner’s Affiliates, which will be charged at competitive
rates; (iv) an administration and oversight fee of $15,000 per well, which will be
charged to the Developer’s investors as part of each well’s Intangible Drilling Costs,
as that term is defined below and the portion of Tangible Costs, as that term is
defined below, paid by the Developer’s investors; and (v) a mark-up in an amount equal
to 15% of the sum of (i), (ii), (iii) and (iv), above, for the Developer’s Managing
General Partner’s services as general drilling contractor as Operator under this
Agreement. “Cost” shall mean the price paid by Operator in an arm’s-length
transaction.
	 
	 	 	 	The estimated price for drilling and completing (or plugging) each of the wells shall
be set forth in an Authority for Expenditure (“AFE”), which shall be attached to this
Agreement as an Exhibit, and shall cover all ordinary costs that may be incurred in
drilling and completing (or plugging) each well. This includes without limitation,
site preparation, permits and bonds, roadways, surface damages, power at the site,
water, Operator’s compensation as set forth above, rights-of-way, drilling rigs,
equipment and materials, costs of title examinations, logging, cementing, fracturing,
casing, meters (other than utility purchase meters), connection facilities, salt
water collection tanks, separators, siphon string, rabbit, tubing, an average of
2,500 feet of gathering line per well in connection with each gas well, and
geological, geophysical and engineering services.
	 
	 	(b)	 	Payment. The Developer shall pay to Operator, in proportion to the share of
the Working Interest owned by the Developer in the wells, one hundred percent (100%) of
the estimated Intangible Drilling Costs and Tangible Costs, as those terms are defined
below, for drilling and completing all initial wells on execution of this Agreement.
Notwithstanding the foregoing, Atlas’ payments for its share of the estimated Tangible
Costs, as that term is defined below, of drilling and completing all initial wells as
the Managing General Partner of the Developer shall be paid within five (5) business
days of notice from Operator that the costs have been incurred. The Developer’s
payment shall be nonrefundable in all events in order to enable Operator to do the
following:

	 	(i)	 	commence site preparation for the initial wells;
	 
	 	(ii)	 	obtain suitable subcontractors for drilling and completing (or
plugging) the initial wells at currently prevailing prices; and
	 
	 	(iii)	 	insure the availability of equipment and materials.

	 	 	 	For purposes of this Agreement, “Intangible Drilling Costs” shall mean those
expenditures associated with property acquisition and the drilling and completion of
oil and gas wells that under present law are generally accepted as fully deductible
currently for federal income tax purposes. This includes:

	 	(i)	 	all expenditures made with respect to any well before the
establishment of production in commercial quantities for wages, fuel, repairs,
hauling, supplies and other costs and expenses incident to and necessary for the
drilling of the well and the preparation of the well for the production of oil
or gas, that are currently deductible pursuant to Section 263(c) of the Internal
Revenue Code of 1986, as amended (the “Code”), and Treasury Reg. Section
1.612-4, which are generally termed “intangible drilling and development costs”;
	 
	 	(ii)	 	the expense of plugging and abandoning any well before a
completion attempt; and

5

 

	 	(iii)	 	the costs (other than Tangible Costs and Lease acquisition
costs) to re-enter and deepen an existing well, complete the well to deeper
formations or reservoirs, or plug and abandon the well if it is nonproductive
from the targeted deeper formations or reservoirs.

	 	 	 	“Tangible Costs” shall mean those costs associated with property acquisition and the
drilling and completion of oil and gas wells that are generally accepted as capital
expenditures pursuant to the provisions of the Code. This includes:

	 	(i)	 	all costs of equipment, parts and items of hardware used in
drilling and completing (or plugging) a well;
	 
	 	(ii)	 	the costs (other than Intangible Drilling Costs and Lease
acquisition costs) to re-enter and deepen an existing well, complete the well to
deeper formations or reservoirs, or plug and abandon the well if it is
nonproductive from the targeted deeper formations or reservoirs; and
	 
	 	(iii)	 	those items necessary to deliver acceptable oil and gas
production to purchasers to the extent installed downstream from the wellhead of
any well, which are required to be capitalized under the Code and its
regulations.

	 	 	 	With respect to each additional well drilled on the Additional Well Locations, if
any, the Developer shall pay to Operator, in proportion to the share of the Working
Interest owned by the Developer in the wells, one hundred percent (100%) of the
estimated Intangible Drilling Costs and Tangible Costs for drilling and completing
the well on execution of the applicable addendum pursuant to Section l(c) above.
Notwithstanding the foregoing, Atlas’ payments for its share of the estimated
Tangible Costs of drilling and completing all additional wells as the Managing
General Partner of the Developer shall be paid within five (5) business days of
notice from Operator that the costs have been incurred. The Developer’s payment
shall be nonrefundable in all events in order to enable Operator to do the following:

	 	(i)	 	commence site preparation for the additional wells;
	 
	 	(ii)	 	obtain suitable subcontractors for drilling and completing the
additional wells at currently prevailing prices; and
	 
	 	(iii)	 	insure the availability of equipment and materials.

	 	 	 	Developer shall pay, in proportion to the share of the Working Interest owned by the
Developer in the wells, any extra costs incurred for each well pursuant to
sub-section (a) above within ten (10) business days of its receipt of Operator’s
statement for the extra costs.
	 
	 	(c)	 	Completion Determination. Operator shall determine whether or not to run the
production casing for an attempted completion or to plug and abandon any well drilled
under this Agreement. However, a well shall be completed only if Operator has made a
good faith determination that there is a reasonable possibility of obtaining commercial
quantities of oil and/or gas.
	 
	 	(d)	 	Dry Hole Determination. If Operator determines at any time during the drilling
or attempted completion of any well drilled under this Agreement, in accordance with
the generally accepted and customary oil and gas field practices and techniques then
prevailing in the geographic area of the Well Location that the well should not be
completed, then it shall promptly and properly plug and abandon the well.
	 
	 	(e)	 	Excess Funds and Cost Overruns-Intangible Drilling Costs. Any estimated
Intangible Drilling Costs (which are the Intangible Drilling Costs set forth on the
AFE) prepaid by Developer with respect to any well that exceed Operator’s price
specified in sub-section (a) above for the Intangible Drilling Costs of the
well shall be retained by Operator and shall be applied, in proportion to the share
of the Working Interest owned by the Developer in the wells, to:

	 	(i)	 	the Intangible Drilling Costs of an additional well or wells to
be drilled on the Additional Well Locations; or

6

 

	 	(ii)	 	any cost overruns owed by the Developer to Operator for
Intangible Drilling Costs on one or more of the other wells on the Well
Locations.

	 	 	 	Conversely, if Operator’s price specified in sub-section (a) above for the Intangible
Drilling Costs of any well exceeds the estimated Intangible Drilling Costs (which are
the Intangible Drilling Costs set forth on the AFE) prepaid by Developer for the
well, then:

	 	(i)	 	Developer shall pay the additional price to Operator within ten
(10) business days after notice from Operator that the additional amount is due
and owing; or
	 
	 	(ii)	 	Developer and Operator may agree to delete or reduce Developer’s
Working Interest in one or more wells to be drilled under this Agreement that
have not yet been spudded to provide funds to pay the additional amounts owed by
Developer to Operator. If doing so results in any excess prepaid Intangible
Drilling Costs, then these funds shall be applied, in proportion to the share of
the Working Interest owned by the Developer in the wells, to:

	 	(a)	 	the Intangible Drilling Costs of an additional well
or wells to be drilled on the Additional Well Locations; or
	 
	 	(b)	 	any cost overruns owed by the Developer to Operator
for Intangible Drilling Costs of one or more of the other wells on the
Well Locations.

	 	 	 	The Exhibits to this Agreement with respect to the affected wells shall be amended as
appropriate.
	 
	 	(f)	 	Excess Funds and Cost Overruns – Tangible Costs. Any estimated Tangible Costs
(which are the Tangible Costs set forth on the AFE) prepaid by Developer with respect
to any well that exceed Operator’s price specified in sub-section (a) above for the
Tangible Costs of the well shall be retained by Operator and shall be applied, in
proportion to the share of the Working Interest owned by the Developer in the wells,
to:

	 	(i)	 	the Developer’s Participants’ share of the Tangible Costs for an
additional well or wells to be drilled on the Additional Well Locations; or
	 
	 	(ii)	 	any cost overruns owed by the Developer to Operator for the
Developer’s Participants’ share of the Tangible Costs of one or more of the
other wells on the Well Locations.

	 	 	 	Conversely, if Operator’s price specified in sub-section (a) above for the
Developer’s Participants’ share of Tangible Costs of any well exceeds the estimated
Tangible Costs (which are the Tangible Costs set forth on the AFE) prepaid by
Developer for the Developer’s Participants’ share of the Tangible Costs for the well,
then:

	 	(i)	 	Developer shall pay the additional price to Operator within ten
(10) business days after notice from Operator that the additional price is due
and owing; or
	 
	 	(ii)	 	Developer and Operator may agree to delete or reduce Developer’s
Working Interest in one or more wells to be drilled under this Agreement that
have not yet been spudded to provide funds to pay the additional amounts owed by
Developer to Operator. If doing so results in any excess prepaid Tangible
Costs, then these funds shall be applied, in proportion to the share of the
Working Interest owed by the Developer in the wells, to:

	 	(a)	 	the Developer’s Participants’ share of the Tangible
Costs of an additional well or wells to be drilled on the Additional Well
Locations; or
	 
	 	(b)	 	any cost overruns owed by the Developer to Operator
for the Developer’s Participants’ share of the Tangible Costs of one or
more of the other wells on the Well Locations.

	 	(iii)	 	The Developer’s Participants’ share of the Tangible Costs of all
of the wells drilled under this Agreement and any additional wells to be drilled
on the Additional Well Locations under any

7

 

	 	 	 	Addendum to this Agreement shall be
ten percent (10%) of the total price prepaid by Developer to Operator pursuant
to Section 4(b) of this Agreement or any Addendum hereto. The Developer’s
Participants’ share of the Tangible Costs of any one well drilled under this
Agreement shall be determined, subject to the preceding sentence, taking into
account the Developer’s share of all of the Tangible Costs of all of the wells
to be drilled under this Agreement and any Addendum hereto.

	 	 	 	The Exhibits to this Agreement with respect to the affected wells shall be amended as
appropriate.

	5.	 	Title Examination of Well Locations, Developer’s Acceptance and Liability; Additional Well
Locations.

	 	(a)	 	Title Examination of Well Locations, Developer’s Acceptance and Liability. The
Developer acknowledges that Operator has furnished Developer with the title opinions
identified on Exhibit A, and other documents and information that Developer or its
counsel has requested in order to determine the adequacy of the title to the Initial
Well Locations and leased premises subject to this Agreement. The Developer accepts
the title to the Initial Well Locations and leased premises and acknowledges and agrees
that, except for any loss, expense, cost, or liability caused by the breach of any of
the warranties and representations made by the Operator in Section l(b), any loss,
expense, cost or liability whatsoever caused by or related to any defect or failure of
the title shall be the sole responsibility of and shall be borne entirely by the
Developer.
	 
	 	(b)	 	Additional Well Locations. Before beginning drilling of any well on any
Additional Well Location, Operator shall conduct, or cause to be conducted, a title
examination of the Additional Well Location, in order to obtain appropriate abstracts,
opinions and certificates and other information necessary to determine the adequacy of
title to both the applicable Lease and the fee title of the lessor to the premises
covered by the Lease. The results of the title examination and such other information
as is necessary to determine the adequacy of title for drilling purposes shall be
submitted to the Developer for its review and acceptance. No drilling on the
Additional Well Locations shall begin until the title has been accepted in writing by
the Developer. After any title has been accepted by the Developer, any loss, expense,
cost, or liability whatsoever, caused by or related to any defect or failure of the
title shall be the sole responsibility of and shall be borne entirely by the Developer,
unless such loss, expense, cost, or liability was caused by the breach of any of the
warranties and representations made by the Operator in Section l(b).

	6.	 	Operations Subsequent to Completion of the Wells; Fee Adjustments; Extraordinary Costs;
Pipelines; Price Determinations; Plugging and Abandonment.

	 	(a)	 	Operations Subsequent to Completion of the Wells. Beginning with the month in
which a well drilled under this Agreement begins to produce, Operator shall be entitled
to an operating fee of $362 per month for each well being operated under this
Agreement, which operating fee shall be proportionately reduced, on a well-by-well
basis, to the extent the Developer owns less than 100% of the Working Interest in a
well. This fee shall be in lieu of any direct charges by Operator for its services or
the provision by Operator of its equipment for normal superintendence and maintenance
of the wells and related pipelines and facilities.
	 
	 	 	 	If a third-party serves as the actual operator of a well for all of the Working
Interest owners of the well, then the operating fee payable to the Operator under
this Agreement for the well shall be $25 per month,
plus the actual third-party operator’s monthly charges. The $25 included in the
monthly operating fee for the well shall be retained by Operator each month for
reviewing the costs and expenses charged by the third-party operator and monitoring
the third-party operator’s accounting and production records for the well on behalf
of the Developer, and the remainder of the monthly operating fee for the well shall
be paid by Operator to the actual third-party operator of the well.

	 	 	 	The operating fees shall cover all normal, regularly recurring operating expenses for
the production, delivery and sale of natural gas, including without limitation:

	 	(i)	 	well tending, routine maintenance and adjustment;

8

 

	 	(ii)	 	reading meters, recording production, pumping, maintaining appropriate books and records;
	 
	 	(iii)	 	preparing reports to the Developer and government agencies; and
	 
	 	(iv)	 	collecting and disbursing revenues.

	 	 	 	The operating fees shall not cover costs and expenses related to the following:

	 	(i)	 	the production and sale of oil;
	 
	 	(ii)	 	the collection and disposal of salt water or other liquids produced by the wells;
	 
	 	(iii)	 	the rebuilding of access roads; and
	 
	 	(iv)	 	the purchase of equipment, materials or third-party services;

	 	 	 	which, subject to the provisions of sub-section (c) of this Section 6, shall be
invoiced by Operator to the Developer on a monthly basis, and shall be paid by the
Developer within ten (10) business days after notice from Operator that the
additional amounts are due and owing in proportion to the share of the Working
Interest owned by the Developer in the wells.
	 
	 	 	 	Any well that is temporarily abandoned or shut-in continuously for an entire calendar
month shall not be considered a producing well for purposes of determining the number
of wells in the month subject to the operating fee.
	 
	 	(b)	 	Fee Adjustments. The monthly operating fee set forth in sub-section (a) above
may be adjusted by Operator annually, as of the first day of January (the “Adjustment
Date”) of each year, beginning January 1, 2007. This adjustment, if any, shall not
exceed the percentage increase in the average weekly earnings of “Crude Petroleum,
Natural Gas, and Natural Gas Liquids” workers, as published by the U.S. Department of
Labor, Bureau of Labor Statistics, and shown in Employment and Earnings Publication,
Monthly Establishment Data, Hours and Earning Statistical Table C-2, Index Average
Weekly Earnings of “Crude Petroleum, Natural Gas, and Natural Gas Liquids” workers, SIC
Code #131-2, or any successor index thereto, since January l, 2006, in the case of the
first adjustment, and since the previous Adjustment Date, in the case of each
subsequent adjustment.
	 
	 	 	 	In addition, the monthly operating fee set forth in sub-section (a) above for any
given well or wells being operated under this Agreement may be increased beyond the
annual adjustment described in the prior paragraph without advance notice to the
Developer, from time to time to the competitive rate in the area where the well(s)
are situated, as determined by the Operator in its sole discretion.
	 
	 	(c)	 	Extraordinary Costs. Without the prior written consent of the Developer,
pursuant to a written estimate submitted by Operator, Operator shall not undertake any
single project or incur any extraordinary cost with respect to any well being produced
under this Agreement that is reasonably estimated to result in an expenditure of more
than $5,000, unless the project or extraordinary cost is necessary for the following:

	 	(i)	 	to safeguard persons or property; or
	 
	 	(ii)	 	to protect the well or related facilities in the event of a
sudden emergency.

	 	 	 	In no event, however, shall the Developer be required to pay for any project or
extraordinary cost arising from the negligence or misconduct of Operator, its agents,
servants, employees, subcontractors, licensees, or invitees.
	 
	 	 	 	All extraordinary costs incurred and the cost of projects undertaken under this
section with respect to a well being produced under this Agreement shall be billed to
the Developer at the invoice cost of third-party services performed or materials
purchased, together with a reasonable charge by Operator for any services performed
directly by it, in proportion to the share of the Working Interest owned by the
Developer in the

9

 

	 	 	 	well. Operator shall have the right to require the Developer to pay
in advance all or a portion of the estimated costs of a project undertaken under this
section, before undertaking the project, in proportion to the share of the Working
Interest owned by the Developer in the well or wells.
	 
	 	(d)	 	Pipelines. Developer shall have no interest in the pipeline gathering system,
which gathering system shall remain the sole property of Operator or its Affiliates and
shall be maintained at their sole cost and expense.
	 
	 	(e)	 	Price Determinations. Notwithstanding anything in this Agreement to the
contrary, the Developer shall pay all costs in proportion to the share of the Working
Interest owned by the Developer in the wells with respect to obtaining price
determinations under and otherwise complying with the Natural Gas Policy Act of 1978
and the implementing state regulations. This responsibility shall include, without
limitation, preparing, filing, and executing all applications, affidavits, interim
collection notices, reports and other documents necessary or appropriate to obtain
price certification, to effect sales of natural gas, or otherwise to comply with the
Act and the implementing state regulations.
	 
	 	 	 	Operator agrees to furnish the information and render the assistance as the Developer
may reasonably request in order to comply with the Act and the implementing state
regulations without charge for services performed by its employees.
	 
	 	(f)	 	Plugging and Abandonment. The Developer shall have the right to direct
Operator to plug and abandon any well that has been completed under this Agreement as a
producer. In addition, Operator shall not plug and abandon any well that has been
drilled and completed as a producer under this Agreement before obtaining the written
consent of the Developer. However, if the Operator determines that any well drilled
and completed under this Agreement as a producer should be plugged and abandoned in
accordance with the generally accepted and customary oil and gas field practices and
techniques then prevailing in the geographic area of the well location, and makes a
written request to the Developer for authority to plug and abandon the well and the
Developer fails to respond in writing to the request within forty-five (45) days
following the date of the request, then the Developer shall be deemed to have consented
to the plugging and abandonment of the well.
	 
	 	 	 	All costs and expenses related to plugging and abandoning wells that have been
drilled and completed under this Agreement as producing wells shall be borne and paid
by the Developer in proportion to the share of the Working Interest owned by the
Developer in the wells. Also, at any time after one (1) year from the date each well
drilled and completed under this Agreement is placed into production, Operator shall
have the right to deduct each month from the proceeds of the sale of the production
from the well up to $200, in proportion to the share of the Working Interest owned by
the Developer in the well, for the purpose of establishing a fund to cover the
Operator’s estimate of the Developer’s share of the costs of eventually plugging and
abandoning the well. All of these funds shall be deposited by Operator in a separate
interest bearing escrow account for the account of the Developer, and the total
amount so retained and deposited shall not exceed Operator’s reasonable estimate of
Developer’s share of the costs of eventually plugging and abandoning the well.

	7.	 	Billing and Payment Procedure with Respect to Operation of Wells; Disbursements; Separate
Account for Sale Proceeds; Records and Reports; Additional Information.

	 	(a)	 	Billing and Payment Procedure with Respect to Operation of Wells. Operator
shall promptly and timely pay and discharge on behalf of the Developer, in proportion
to the share of the Working Interest owned by the Developer in the wells, the
following:

	 	(i)	 	all expenses and liabilities payable and incurred by reason of
its operation of the wells in accordance with this Agreement, such as severance
taxes, royalties, overriding royalties, operating fees, and pipeline gathering
charges; and
	 
	 	(ii)	 	any third-party invoices received by Operator with respect to the
Developer’s share of the costs and expenses incurred in connection with the
operation of the wells.

10

 

	 	 	 	Operator, however, shall not be required to pay and discharge any of the above costs
and expenses that are being contested in good faith by Operator.
	 
	 	 	 	Operator shall:

	 	(i)	 	deduct the foregoing costs and expenses from the Developer’s
share of the proceeds of the oil and/or gas sold from the wells; and
	 
	 	(ii)	 	keep an accurate record of the Developer’s account, showing
expenses incurred and charges and credits made and received with respect to each
well.

	 	 	 	If the Developer’s share of the proceeds of the oil and/or gas sold from the wells is
insufficient to pay the costs and expenses described above, then Operator shall
promptly and timely pay and discharge the costs and expenses, in proportion to the
share of the Working Interest owned by the Developer in the wells, and prepare and
submit an invoice to the Developer each month for those costs and expenses. The
invoice shall be accompanied by the form of statement specified in sub-section (b)
below, and shall be paid by the Developer within ten (10) business days of its
receipt.
	 
	 	(b)	 	Disbursements. Operator shall disburse to the Developer, on a monthly basis,
the Developer’s share of the proceeds received from the sale of oil and/or gas sold
from the wells operated under this Agreement, less:

	 	(i)	 	the amounts charged to the Developer under sub-section (a); and
	 
	 	(ii)	 	the amount, if any, withheld by Operator for future plugging
costs pursuant to sub-section (f) of Section 6.

	 	 	 	Each disbursement made and/or invoice submitted to the Developer pursuant to
sub-section (a) above shall be accompanied by a statement from the Operator itemizing
with respect to each well:

	 	(i)	 	the total production of oil and/or gas since the date of the last
disbursement or invoice billing period, as the case may be, and the Developer’s
share of the production;
	 
	 	(ii)	 	the total proceeds received from any sale of the production, and
the Developer’s share of the proceeds;
	 
	 	(iii)	 	the costs and expenses deducted from the proceeds and/or being
billed to the Developer pursuant to sub-section (a) above;
	 
	 	(iv)	 	the amount withheld for future plugging costs; and
	 
	 	(v)	 	any other information as Developer may reasonably request,
including without limitation copies of all third-party invoices listed on the
statement for the period.

	 	(c)	 	Separate Account for Sale Proceeds. Operator agrees to deposit all proceeds
from the sale of oil and/or gas sold from the wells operated under this Agreement in a
separate checking account maintained by Operator. This account shall be used solely
for the purpose of collecting and disbursing funds constituting proceeds from the sale
of production under this Agreement.
	 
	 	(d)	 	Records and Reports. In addition to the statements required under sub-section
(b) above, Operator, within seventy-five (75) days after the completion of each well
drilled, shall furnish the Developer with a detailed statement itemizing with respect
to the well the total costs and charges under Section 4(a) and the Developer’s share of
the costs and charges, and any other information as is necessary to enable the
Developer:

	 	(i)	 	to allocate any extra costs incurred with respect to the well
between Tangible Costs and Intangible Drilling Costs; and

11

 

	 	(ii)	 	to determine the amount of the investment tax credit or marginal
well production tax credit, if applicable.

	 	(e)	 	Additional Information. Operator shall promptly furnish the Developer with any
additional information as it may reasonably request, including without limitation
geological, technical, and financial information, in the form as may reasonably be
requested, pertaining to any phase of the operations and activities governed by this
Agreement. The Developer and its authorized employees, agents and consultants,
including independent accountants shall, at Developer’s sole cost and expense:

	 	(i)	 	on at least ten (10) days’ written notice to Operator have access
during normal business hours to all of Operator’s records pertaining to
operations under this Agreement, including without limitation, the right to
audit the books of account of Operator relating to all receipts, costs, charges,
expenses and disbursements and information regarding the separate account
required under sub-section (c); and
	 
	 	(ii)	 	have access, at its sole risk, to any wells drilled by Operator
under this Agreement at all times to inspect and observe any machinery,
equipment and operations.

	8.	 	Operator’s Lien; Right to Collect From Oil or Gas Purchaser.

	 	(a)	 	Operator’s Lien. To secure the payment of all sums due from Developer to
Operator under this Agreement, the Developer grants Operator a first and preferred lien
on and security interest in the following:

	 	(i)	 	the Developer’s interest in the Leases covered by this Agreement;
	 
	 	(ii)	 	the Developer’s interest in oil and gas produced under this
Agreement and its share of the proceeds from the sale of the oil and gas; and
	 
	 	(iii)	 	the Developer’s interest in materials and equipment under this
Agreement.

	 	(b)	 	Right to Collect From Oil or Gas Purchaser. If the Developer fails to timely
pay any amount owing under this Agreement by it to the Operator, then Operator, without
prejudice to other existing remedies, may collect and retain from any purchaser or
purchasers of oil or gas the Developer’s share of the proceeds from the sale of the oil
and gas until the amount owed by the Developer, plus twelve percent (12%) interest on a
per annum basis, and any additional costs (including without limitation actual
attorneys’ fees and costs) resulting from the delinquency, has been paid. Each
purchaser of oil or gas shall be entitled to rely on Operator’s written statement
concerning the amount of any default.

	9.	 	Successors and Assigns; Transfers; Appointment of Agent.

	 	(a)	 	Successors and Assigns. This Agreement shall be binding on and inure to the
benefit of the undersigned parties and their respective successors and permitted
assigns. However, without the prior written consent of the Developer, the Operator may
not assign, transfer, pledge, mortgage, hypothecate, sell or otherwise dispose of any
of its interest in this Agreement, or any of its rights or obligations under this
Agreement. Notwithstanding, this consent shall not be required in connection with:

	 	(i)	 	the assignment of work to be performed for Operator to
subcontractors, it being understood and agreed, however, that any assignment to
Operator’s subcontractors shall not in any manner relieve or release Operator
from any of its obligations and responsibilities under this Agreement;
	 
	 	(ii)	 	any lien, assignment, security interest, pledge or mortgage
arising under Operator’s present or future financing arrangements; or
	 
	 	(iii)	 	the liquidation, merger, consolidation, or other corporate
reorganization or sale of substantially all of the assets of Operator.

12

 

	 	 	 	Further, in order to maintain uniformity of ownership in the wells, production,
equipment, and leasehold interests covered by this Agreement, and notwithstanding any
other provision of this Agreement to the contrary, the Developer shall not, without
the prior written consent of Operator, sell, assign, transfer, encumber, mortgage or
otherwise dispose of any of its interest in the wells, production, equipment or
leasehold interests covered by this Agreement unless the disposition encompasses
either:

	 	(i)	 	the entire interest of the Developer in all wells, production,
equipment and leasehold interests subject to this Agreement; or
	 
	 	(ii)	 	an equal undivided interest in all such wells, production,
equipment, and leasehold interests.

	 	(b)	 	Transfers. Subject to the provisions of sub-section (a) above, any sale,
encumbrance, transfer or other disposition made by the Developer of its interests in
the wells, production, equipment, and/or leasehold interests covered by this Agreement
shall be made:

	 	(i)	 	expressly subject to this Agreement;
	 
	 	(ii)	 	without prejudice to the rights of the Operator; and
	 
	 	(iii)	 	in accordance with and subject to the provisions of the Leases
covering the Well Locations.

	 	(c)	 	Appointment of Agent. If at any time the interest of the Developer is divided
among or owned by co-owners, Operator may, in its discretion, require the co-owners to
appoint a single trustee or agent with full authority to do the following:

	 	(i)	 	receive notices, reports and distributions of the proceeds from
production;
	 
	 	(ii)	 	approve expenditures;
	 
	 	(iii)	 	receive billings for and approve and pay all costs, expenses and
liabilities incurred under this Agreement;
	 
	 	(iv)	 	exercise any rights granted to the co-owners under this
Agreement;
	 
	 	(v)	 	grant any approvals or authorizations required or contemplated by
this Agreement;
	 
	 	(vi)	 	sign, execute, certify, acknowledge, file and/or record any
agreements, contracts, instruments, reports, or documents whatsoever in
connection with this Agreement or the activities contemplated by this Agreement;
and
	 
	 	(vii)	 	deal generally with, and with power to bind, the co-owners with
respect to all activities and operations contemplated by this Agreement.

	 	 	 	However, all the co-owners shall continue to have the right to enter into and execute
all contracts or agreements for their respective shares of the oil and gas produced
from the wells drilled under this Agreement in accordance with sub-section (c) of
Section 11.

	10.	 	Operator’s Insurance; Subcontractors’ Insurance; Operator’s Liability.

	 	(a)	 	Operator’s Insurance. Operator shall obtain and maintain at its own expense so
long as it is Operator under this Agreement all required Workmen’s Compensation
Insurance and comprehensive general public liability insurance in amounts and coverage
not less than $1,000,000 per person per occurrence for personal injury or death and
$1,000,000 for property damage per occurrence, which shall include coverage for
blow-outs, and total liability coverage of not less than $10,000,000.
	 
	 	 	 	Subject to the above limits, the Operator’s general public liability insurance shall
be in all respects comparable to that generally maintained in the industry with
respect to services of the type to be rendered

13

 

	 	 	 	and activities of the type to be
conducted under this Agreement. Operator’s general public liability insurance shall,
if permitted by Operator’s insurance carrier:

	 	(i)	 	name the Developer as an additional insured party; and
	 
	 	(ii)	 	provide that at least thirty (30) days’ prior notice of
cancellation and any other adverse material change in the policy shall be given
to the Developer.

	 	 	 	However, the Developer shall reimburse Operator for the additional cost, if any, of
including it as an additional insured party under the Operator’s insurance.
	 
	 	 	 	Current copies of all policies or certificates of the Operator’s insurance coverage
shall be delivered to the Developer on request. It is understood and agreed that
Operator’s insurance coverage may not adequately protect the interests of the
Developer and that the Developer shall carry at its expense the excess or additional
general public liability, property damage, and other insurance, if any, as the
Developer deems appropriate.

	 	(b)	 	Subcontractors’ Insurance. Operator shall require all of its subcontractors to
carry all required Workmen’s Compensation Insurance and to maintain such other
insurance, if any, as Operator in its discretion may require.
	 
	 	(c)	 	Operator’s Liability. Operator’s liability to the Developer as Operator under
this Agreement shall be limited to, and Operator shall indemnify the Developer and hold
it harmless from, claims, penalties, liabilities, obligations, charges, losses, costs,
damages, or expenses (including but not limited to reasonable attorneys’ fees) relating
to, caused by or arising out of:

	 	(i)	 	the noncompliance with or violation by Operator, its employees,
agents, or subcontractors of any local, state or federal law, statute,
regulation, or ordinance;
	 
	 	(ii)	 	the negligence or misconduct of Operator, its employees, agents
or subcontractors; or
	 
	 	(iii)	 	the breach of or failure to comply with any provisions of this
Agreement.

	11.	 	Internal Revenue Code Election; Relationship of Parties; Right to Take Production in Kind.

	 	(a)	 	Internal Revenue Code Election. With respect to this Agreement, each of the
parties elects under Section 761(a) of the Internal Revenue Code of 1986, as amended,
to be excluded from the provisions of Subchapter K of Chapter 1 of Subtitle A of the
Internal Revenue Code of 1986, as amended. If the income tax laws of the state or
states in which the property covered by this Agreement is located contain, or may
subsequently contain, a similar election, each of the parties agrees that the election
shall be exercised.
	 
	 	 	 	Beginning with the first taxable year of operations under this Agreement, each party
agrees that the deemed election provided by Section 1.761-2(b)(2)(ii) of the
Regulations under the Internal Revenue Code of 1986, as amended, will apply; and no
party will file an application under Section 1.761-2 (b)(3)(i) of the Regulations to
revoke the election. Each party agrees to execute the documents and make the filings
with the appropriate governmental authorities as may be necessary to effect the
election.
	 
	 	(b)	 	Relationship of Parties. It is not the intention of the parties to create, nor
shall this Agreement be construed as creating, a mining or other partnership or
association or to render the parties liable as partners or joint venturers for any
purpose. Operator shall be deemed to be an independent contractor and shall perform
its obligations as set forth in this Agreement.
	 
	 	(c)	 	Right to Take Production in Kind. Subject to the provisions of Section 8
above, the Developer shall have the exclusive right to sell or dispose of its
proportionate share of all oil and gas produced from the wells to be drilled under this
Agreement, exclusive of production:

	 	(i)	 	that may be used in development and producing operations;

14

 

	 	(ii)	 	unavoidably lost; and
	 
	 	(iii)	 	used to fulfill any free gas obligations under the terms of the
applicable Lease or Leases.

	 	 	 	Operator shall not have any right to sell or otherwise dispose of the oil and gas.
The Developer shall have the exclusive right to execute all contracts relating to the
sale or disposition of its proportionate share of the production from the wells
drilled under this Agreement.
	 
	 	 	 	Developer shall have no interest in any gas supply agreements of Operator, except the
right to receive Developer’s share of the proceeds received from the sale of any gas
or oil from wells developed under this Agreement. The Developer agrees to designate
Operator or Operator’s designated bank agent as the Developer’s collection agent in
any contracts. On request, Operator shall assist Developer in arranging the sale or
disposition of Developer’s oil and gas under this Agreement and shall promptly
provide the Developer with all relevant information that comes to Operator’s
attention regarding opportunities for selling production.
	 
	 	 	 	If Developer fails to take in kind or separately dispose of its proportionate share
of the oil and gas produced under this Agreement, then Operator shall have the right,
subject to the revocation at will by the Developer, but not the obligation, to
purchase the oil and gas or sell it to others at any time and from time to time, for
the account of the Developer at the best price obtainable in the area for the
production. Notwithstanding, Operator shall have no liability to Developer should
Operator fail to market the production.
	 
	 	 	 	Any such purchase or sale by Operator shall be subject always to the right of the
Developer to exercise at any time its right to take in-kind, or separately dispose
of, its share of oil and gas not previously delivered to a purchaser. Any purchase
or sale by Operator of the Developer’s share of oil and gas under this Agreement
shall be only for reasonable periods of time as are consistent with the minimum needs
of the oil and gas industry under the particular circumstances, but in no event for a
period in excess of one (1) year.

	12.	 	Effect of Force Majeure; Definition of Force Majeure; Limitation.

	 	(a)	 	Effect of Force Majeure. If Operator is rendered unable, wholly or in part, by
force majeure (as defined below) to carry out any of its obligations under this
Agreement, including but not limited to beginning the drilling of one or more wells by
the applicable times set forth in Section 2(b), or any Addendum to this Agreement, the
obligations of the Operator, so far as it is affected by the force majeure, shall be
suspended during but no longer than, the continuance of the force majeure. The
Operator shall give to the Developer prompt written notice of the force majeure with
reasonably full particulars concerning it. Operator shall use all reasonable diligence
to remove the force majeure as quickly as possible to the extent the same is within its
reasonable control.
	 
	 	(b)	 	Definition of Force Majeure. The term “force majeure” shall mean an act of
God, strike, lockout, or other industrial disturbance, act of the public enemy, war,
terrorist acts, blockade, public riot, lightning, fire, storm, flood, explosion,
governmental restraint, unavailability of drilling rigs, equipment or materials, plant
shut-downs, curtailments by oil and gas purchasers and any other causes whether of the
kind specifically enumerated above or otherwise, which directly preclude Operator’s
performance under this Agreement and is not reasonably within the control of the
Operator including, but not limited to, the inability of Operator to begin the drilling
of the wells subject to this Agreement by the applicable times set forth in Section
2(b) or in any Addendum to this Agreement due to decisions of third-party operators to
delay drilling the wells, poor weather conditions, inability to obtain drilling
permits, access right to the drilling site or title problems.
	 
	 	(c)	 	Limitation. The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or other
labor difficulty affecting the Operator contrary to its wishes. The method of handling
these difficulties shall be entirely within the discretion of the Operator.

15

 

	13.	 	Term.
	 
	 	 	This Agreement shall become effective when executed by Operator and the Developer. Except
as provided in sub-section (c) of Section 3, this Agreement shall continue and remain in
full force and effect for the productive lives of each well being operated under this
Agreement.

	14.	 	Governing Law; Invalidity.

	 	(a)	 	Governing Law. This Agreement shall be governed by, construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania, excluding its conflict
of law provisions.
	 
	 	(b)	 	Invalidity. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions of this Agreement, and this
Agreement shall be construed in all respects as if the invalid or unenforceable
provision were omitted.

	15.	 	Integration; Written Amendment.

	 	(a)	 	Integration. This Agreement, including the Exhibits to this Agreement,
constitutes and represents the entire understanding and agreement of the parties with
respect to the subject matter of this Agreement and supersedes all prior negotiations,
understandings, agreements, and representations relating to the subject matter of this
Agreement.
	 
	 	(b)	 	Written Amendment. No change, waiver, modification, or amendment of this
Agreement shall be binding or of any effect unless in writing duly signed by the party
against which the change, waiver, modification, or amendment is sought to be enforced.

	16.	 	Waiver of Default or Breach.
	 
	 	 	No waiver by any party to any default of or breach by any other party under this Agreement
shall operate as a waiver of any future default or breach, whether of like or different
character or nature.
	 
	17.	 	Notices.
	 
	 	 	Unless otherwise provided in this Agreement, all notices, statements, requests, or demands
that are required or contemplated by this Agreement shall be in writing and shall be
hand-delivered or sent by registered or certified mail, postage prepaid, to the following
addresses until a party’s address is changed by certified or registered letter so addressed
to the other party:

	 	(i)	 	If to the Operator, to:

Atlas Resources, LLC

311 Rouser Road

Moon Township, Pennsylvania 15108

Attention: President
	 
	 	(ii)	 	If to Developer, to:
Atlas America Series 27-2006 L.P.

c/o Atlas Resources, LLC

311 Rouser Road

Moon Township, Pennsylvania 15108

	 	 	Notices that are served by registered or certified mail on the parties in the manner
provided above shall be deemed sufficiently served or given for all purposes under this
Agreement at the time the notice is hand-delivered or mailed in any post office or branch
post office regularly maintained by the United States Postal Service or any successor. All
payments shall be hand-delivered or sent by United States mail, postage prepaid to the
addresses set forth above until a party’s address is changed by certified or registered
letter so addressed to the other party.

16

 

	18.	 	Interpretation.
	 
	 	 	The titles of the Sections in this Agreement are for convenience of reference only and shall
not control or affect the meaning or construction of any of the terms and provisions of this
Agreement. As used in this Agreement, the plural shall include the singular and the
singular shall include the plural whenever appropriate.
	 
	19.	 	Counterparts.
	 
	 	 	The parties may execute this Agreement in any number of separate counterparts, each of
which, when executed and delivered by the parties, shall have the force and effect of an
original; but all counterparts of this Agreement shall be deemed to constitute one and the
same instrument.

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

	 	 	 	 	 
	 	ATLAS RESOURCES, LLC

 	 
	 	By:  	/s/ Frank P. Carolas	 
	 	 	Frank P. Carolas, Executive Vice President 	 
	 	 	 	 
	 
	 	ATLAS AMERICA SERIES 27-2006 L.P.

By its Managing General Partner:

ATLAS RESOURCES, LLC

 	 
	 	By:  	/s/ Frank P. Carolas	 
	 	 	Frank P. Carolas, Executive Vice President 	 
	 	 	 	 
	 

17

 

DESCRIPTION OF LEASES AND INITIAL WELL LOCATIONS

[To be completed as information becomes available]

	1.	 	WELL LOCATION

	 	(a)	 	Oil and Gas Lease from
                                                                              dated
                                         and recorded in Deed Book Volume                     , Page                   in
the Recorder’s Office of County,                     , covering approximately                      acres
in                                                              Township,                    
                      County,
                                                            .
	 
	 	(b)	 	The portion of the leasehold estate constituting the
                                                                                 No.
                      Well Location is described
on the map attached hereto as Exhibit A-l.
	 
	 	(c)	 	Title Opinion of                                                             ,
                                                                                ,                                                                                 ,
                                                                             , dated                                         , 200___.
	 
	 	(d)	 	The Developer’s interest in the leasehold estate constituting this Well
Location is an undivided  % Working Interest to those oil and gas
rights from the surface to the deepest depth penetrated at the cessation of drilling
activities (which is                      feet), subject to the landowner’s royalty interest and
overriding royalty interests.

Exhibit A

 

 

Well Name, Twp.

County, State

ASSIGNMENT OF OIL AND GAS LEASE

STATE OF                                                                             

COUNTY OF                                                             

KNOW ALL MEN BY THESE PRESENTS:

     THAT the undersigned                                                                
                                                           (hereinafter called “Assignor”), for and in consideration of One Dollar and other valuable
consideration ($1.00 ovc), the receipt whereof is hereby acknowledged, does hereby sell, assign,
transfer and set over unto                                                                                                    (hereinafter called “Assignee”), an undivided
                                         in, and to, the oil and gas lease described as follows:

together with the rights incident thereto and the personal property thereto, appurtenant thereto,
or used, or obtained, in connection therewith.

     And for the same consideration, the assignor covenants with the said assignee and his or its
heirs, successors, or assigns that: assignor is the lawful owner of said lease and rights and
interest thereunder and of the personal property thereon or used in connection therewith; that the
undersigned has good right and authority to sell and convey the same; that said rights, interest
and property are free and clear from all liens and encumbrances; and that all rentals and royalties
due and payable thereunder have been duly paid.

     
In Witness Whereof, the undersigned owner ___ and
assignor ___ ha ___ signed and sealed
this instrument the ___ day of                     , 200___.

	 	 	 	 	 	 	 
	Signed and acknowledged in the presence of
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 

Exhibit B

(Page 1)

 

 

ACKNOWLEDGMENT BY INDIVIDUAL

	 	 	 	 	 	 	 
	STATE OF
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 BEFORE
ME, a Notary Public, in and for said
	COUNTY OF
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 

     County and State, on this day personally appeared who
acknowledged to me that ___ he ___ did sign the foregoing instrument and that the same is
                     free act and deed.

     In testimony whereof, I have hereunto set my hand and official seal, at
                                        ,
this ___ day of                     , A.D., 200___.

	 	 	 	 	 
	 

	 	 

Notary Public
	 	 

CORPORATION ACKNOWLEDGMENT

	 	 	 	 	 	 	 
	STATE OF
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 BEFORE
ME, a Notary Public, in and for said
	COUNTY OF
	 	 	 	 	 	 
	 

	 	 

	 	 	 	 

     County and State, on this day personally appeared known to me to be the person and officer
whose name is subscribed to the foregoing instrument and acknowledged that the same was the act of
the said                                                                              , a corporation, and that he executed the
same as the act of such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.

     In testimony whereof, I have hereunto set my hand and official seal, at
                                        ,
this ___ day of                     , A.D., 200___.

	 	 	 	 	 
	 

	 	 

Notary Public
	 	 

This instrument was prepared by:

Atlas Resources, LLC

311 Rouser Road

P.O. Box 611

Moon Township, PA 15108

Exhibit B

(Page 2)

 

 

ADDENDUM NO. __________

TO DRILLING AND OPERATING AGREEMENT

DATED ___, 200___

THIS
ADDENDUM NO. ___ made and entered into this
___ day of                     ,
200___, by and between ATLAS RESOURCES, LLC, a Pennsylvania limited liability company (hereinafter
referred to as “Operator”),

and

ATLAS AMERICA SERIES 27-2006 L.P., a Delaware limited partnership, (hereinafter referred to as the
Developer).

WITNESSETH THAT:

WHEREAS, Operator and the Developer have entered into a Drilling and Operating Agreement dated
                    , 200___, (the “Agreement”), which relates to the drilling and operating of
                     (___) wells on the                      (___) Initial Well Locations identified
on the maps attached as Exhibits A-l through A-___to the Agreement, and provides for the
development on the terms and conditions set forth in the Agreement of Additional Well Locations as
the parties may from time to time designate; and

WHEREAS, pursuant to Section l(c) of the Agreement, Operator and Developer presently desire to
designate                      Additional Well Locations described below to be developed in accordance
with the terms and conditions of the Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Addendum and intending
to be legally bound, the parties agree as follows:

1. Pursuant to Section l(c) of the Agreement, the Developer hereby authorizes Operator to
drill, complete (or plug) and operate, on the terms and conditions set forth in the Agreement and
this Addendum No.___,                      additional wells on the                      Additional
Well Locations described on Exhibit A to this Addendum and on the maps attached to this Addendum as
Exhibits A-___through A-___.

2. Operator, as Developer’s independent contractor, agrees to drill, complete (or plug) and
operate the additional wells on the Additional Well Locations in accordance with the terms and
conditions of the Agreement and further agrees to begin drilling the first additional well within
thirty (30) days after the date of this Addendum and to begin drilling all of the additional wells
before the close of the 90th day after the close of the calendar year in which the
Agreement was entered into by Operator and the Developer, or, if this Addendum is dated after that
90 day period, to begin drilling the first additional well within thirty (30) days after the date
of this Addendum and to drill and complete (or plug) all of the remaining additional wells by the
end of the calendar year in which this Addendum is dated.

3. Developer acknowledges that:

	 	(a)	 	Operator has furnished Developer with the title opinions identified on Exhibit
A to this Addendum; and
	 
	 	(b)	 	such other documents and information which Developer or its counsel has
requested in order to determine the adequacy of the title to the above Additional Well
Locations.

The Developer accepts the title to the Additional Well Locations and leased premises in accordance
with the provisions of Section 5 of the Agreement.

4. The drilling and operation of the additional wells on the Additional Well Locations shall
be in accordance with and subject to the terms and conditions set forth in the Agreement as
supplemented by this Addendum No.                      and
except as previously supplemented, all terms and conditions of the Agreement shall remain in
full force and effect as originally written.

Exhibit C

(Page 1)

 

 

	5.	 	This Addendum No.                      shall be legally binding on, and shall inure to the benefit of,
the parties and their respective successors and permitted assigns.

WITNESS the due execution of this Addendum on the day and year first above written.

	 	 	 	 	 
	 	ATLAS RESOURCES, LLC

 	 
	 	By  	 	 
	 	 	Frank P. Carolas, Executive Vice President 	 
	 	 	 	 
	 
	 	ATLAS AMERICA SERIES 27-2006 L.P.

By its Managing General Partner:

ATLAS RESOURCES, LLC

 	 
	 	By  	 	 
	 	 	Frank P. Carolas, Executive Vice President 	 
	 	 	 	 
	 

Exhibit C

(Page 2)

 

 

	 	 	 	 	 	 	 
	Well Name	 	State	 	County	 	Township
	Warrant 3707 #1

	 	PA
	 	MCKEAN
	 	CORYDON
	 
	 	 	 	 	 	 
	Holler #1

	 	PA
	 	CRAWFORD
	 	S. SHENANGO
	 
	 	 	 	 	 	 
	Warrant 3707 #7

	 	PA
	 	MCKEAN
	 	CORYDON
	 
	 	 	 	 	 	 
	Hutchinson #6

	 	PA
	 	FAYETTE
	 	WASHINGTON
	 
	 	 	 	 	 	 
	Sturrock #1

	 	PA
	 	CRAWFORD
	 	RANDOLPH
	 
	 	 	 	 	 	 
	Cline #6

	 	PA
	 	GREENE
	 	DUNKARD
	 
	 	 	 	 	 	 
	Dillon #5

	 	PA
	 	FAYETTE
	 	JEFFERSON
	 
	 	 	 	 	 	 
	Liston #6

	 	PA
	 	FAYETTE
	 	JEFFERSON
	 
	 	 	 	 	 	 
	Mattocks #1

	 	PA
	 	CRAWFORD
	 	RANDOLPH
	 
	 	 	 	 	 	 
	Wise #5

	 	PA
	 	FAYETTE
	 	SPRINGHILLexv10w2

 

EXHIBIT 10.2

GAS PURCHASE AGREEMENT DATED MARCH 31, 1999

BETWEEN NORTHEAST OHIO GAS MARKETING, INC., AND ATLAS

ENERGY GROUP, INC., ATLAS RESOURCES, INC., AND RESOURCE ENERGY, INC.

 

 

GAS PURCHASE AGREEMENT

This Agreement made and entered into as of this 31st day of March, 1999, by and between Northeast
Ohio Gas Marketing, Inc., an Ohio corporation (“Buyer”) of P. O. Box 430, Lancaster, Ohio
43130-0430 and Atlas Energy Group, Inc., an Ohio corporation, Atlas Resources, Inc., a Pennsylvania
corporation and Resource Energy, Inc., a Delaware corporation (collectively “Seller” of 311 Rouser
Road, P.O. Box 611, Coraopolis, Pennsylvania 15108.

RECITALS

WHEREAS, Buyer utilizes volumes of natural gas, hereinafter referred to as “gas”, for its customers
situated in Ohio and Pennsylvania; and

WHEREAS, Seller is in the business of developing and producing a supply of gas from gas and/or on
wells situated in Ohio and Pennsylvania; and

WHEREAS, Seller is the owner of such gas or is the authorized agent for the owner or owners of such
gas and therefore has the authority to contract for the sale of such gas; and

WHEREAS, Seller desires to sell and to agree to sell for itself and those owners for which it is
the authorized agent, all of the gas produced from the wells, and Buyer desires to purchase such
gas; and

WHEREAS, as of the date hereof, FirstEnergy Trading and Power Marketing, Inc., an affiliate of
Buyer, and AIC, Inc., an affiliate of Seller, are entering into an agreement (the “Stock Purchase
Agreement’) relating to the purchase of all of the common stock of Atlas Gas Marketing, Inc.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the
parties do hereby agree as follows:

1. AGREEMENT: Subject to the terms of this Agreement, Seller does hereby agree to sell to Buyer on
a firm basis and Buyer does hereby agree to purchase on a firm basis, during the continuing term of
this Agreement, those quantities of natural gas described in. this Agreement.

2. TERM OF AGREEMENT: The term of this Agreement shall be effective for a primary term of ten (10)
years commencing March 31, 1999 and terminating March 31, 2009. This Agreement shall automatically
renew for successive annual terms unless either party, within one hundred twenty (120) days prior
to the end of the primary term or any successive annual term, notifies the other party, in writing,
of its intent to terminate this Agreement at the end of such term. The primary term and successive
annual terms shall be considered the “term” of this Agreement. The price for gas for the first one
(1) or two (2) years of the term

1

 

of this Agreement shall be set forth on Schedule I attached hereto. The price for gas for
subsequent annual periods shall be agreed to between Buyer and Seller by November 30th of each
subsequent year for the next succeeding annual period, which period shall commence on April 1st.

Should the Buyer and Seller be unable to reach agreement as to the purchase price at any Point of
Delivery, after the initial one or two year term, as applicable, or for any subsequent annual
period, the Seller may solicit offers to purchase such gas from other third parties. In the event
Seller should receive a bona fide offer to purchase all of Seller’s gas, which is subject to this
Agreement, at a specific Point of Delivery, it shall give notice (the “Notice”) of the Point of
Delivery, the name of prospective purchaser, the term of the proposed agreement and the purchase
price to Buyer. If Buyer refuses to match such offer within five (5) business days of receipt of
the Notice from Seller, then Seller shall be free to sell such gas to a party other than Buyer on
the terms set forth in the Notice. Buyer’s future rights to purchase such gas shall be restored at
the completion of the term set forth in the Notice, subject to the provisions of this Paragraph.

3. DELIVERY POINT AND TRANSPORTATION: Subject to further provisions of this Agreement, and during
the term hereof, any gas purchased hereunder shall be sold and delivered by Seller to Buyer at the
interstate pipeline or local distribution company facilities of Tennessee Gas Pipeline Company,
East Ohio Gas Company, National Fuel Gas Distribution, National Fuel Gas Supply, Peoples Natural
Gas Company and Columbia Gas Transmission Corp., hereinafter be referred to as the “Points of
Delivery”. Additional Points of Delivery may be added by mutual agreement of Buyer and Seller.
Title to the gas delivered hereunder shall vest to Buyer upon delivery by Seller to the Points of
Delivery. Seller shall be responsible and pay for all gas transportation costs and retainage
imposed by upstream pipelines to the Points of Delivery. As between the parties hereto, Seller
shall be responsible for any damage or injury caused by the gas until the same shall have been
delivered to the Points of Delivery after which delivery Buyer shall be in exclusive control and
possession thereof and responsible for any damage or injury caused thereby.

4. QUANTITY: Seller shall exclusively make available to Buyer and Buyer agrees to purchase from
Seller, during the term of this Agreement a quantity equal to 100% of the current and future
production into the Points of Delivery. Except as otherwise provided in this Section, Seller shall
deliver all gas it develops and produces into the Points of Delivery. Unless agreed to by Buyer
Seller shall not sell any gas to any other party. It is currently estimated that Atlas Energy
Group, Inc. and Atlas Resources, Inc. will collectively deliver approximately 27,000 Mcf per day
and Resource Energy. Inc. will deliver approximately 7,000 Mcf per day at the Points of Delivery.
Buyer and Seller agree to mutually cooperate and regularly meet to establish production schedules
of gas into the Points of Delivery.

Seller shall nominate, by the 25th calendar day of the preceding month, the daily volumes to be
delivered during the following month to the Points of Delivery. Seller’s daily deliveries shall be
no greater than one hundred and ten percent (110%) or no less than ninety percent (90%) of Seller’s
daily nominated volume as long as Seller’s deliveries at each Point of Delivery are at least 500
Mcf per day, with the exception of the Wheatland Dehydration Meter, for which the minimum volume is
300 Mcf per day. If Seller’s daily volume delivery is less than ninety percent (90%) of Seller’s
daily nominated volume, then Seller’s shall pay Buyer one hundred and two percent (102%) of the
Buyer’s replacement

2

 

cost, less the price set forth on Schedule I, for the volume of gas which is the difference between
Seller’s daily volume delivery and ninety percent (90%) of Seller’s daily nominated volume. If
Seller’s daily volume delivery is more than one hundred and ten percent (110%) of Seller’s daily
nominated volume, then, regardless of other pricing provisions contained in this Agreement, Buyer
shall pay Seller ninety eight percent (98%) of the daily market price of each Point of Delivery, as
set forth on Schedule I, for the volume of gas which is the difference between Seller’s daily
volume delivery and one hundred and ten percent (110%) of Seller’s daily nominated volume.

Notwithstanding the first paragraph of this Section 4, it is understood and agreed to by the
parties that Seller shall continue to supply gas to its three (3) direct delivery customers,
Wheatland Tube Company, CSC Industries and Warren Consolidated for the life of those agreements,
including any extensions or renewals. Buyer and Seller agree that Buyer will provide all billing
services for the above three (3) customers. Buyer agrees that it will not utilize Seller’s local
production, or any other source of supply, as source of sales to the above three (3) customers of
Seller to the extent Buyer’s offer would supplant or in any manner displace the existing amount of
Seller’s direct delivery agreements throughout the term of Seller’s agreements with the above three
(3) customers, including any extensions or renewals. Seller currently delivers 2,600 Mcf per day to
the Wheatland Tube Company, 3,400 Mcf per day to CSC Industries and 325 Mcf per day to Warren
Consolidated. Seller agrees that Buyer may sell any amount, in excess of Seller’s current volumes
(so long as Seller continues to have a contact with the above three (3) customers) to such
customers. Buyer shall not be restricted in selling to any of the above three

(3) customers if Seller no longer has a contract with such customer.

Seller’s commitment to deliver all of the gas it produces to Buyer is subject to the right of
investors, including limited partnerships where Seller is acting as the General Partner, in wells
operated by Seller, to take their gas in kind. In the event a party wishes to take its gas in kind,
Seller shall promptly notify Buyer. Seller further agrees to indemnify Buyer for full losses
attributable to gas which has been taken in kind by investors in wells operated by Seller, to the
extent Buyer has incurred a loss on such gas because of a prior commitment by Buyer.

5. PURCHASE PRICE: The price to be paid by Buyer to Seller for gas delivered to Buyer at the
Point(s) of Delivery shall be as set forth on Schedule I attached hereto.

6. BILLING AND PAYMENT: Invoices shall be rendered to Buyer by the 14th calendar day of the month
for gas delivered the preceding monthly period and payment shall be made monthly to Seller not
later than the 28th calendar day of the month. Payment shall be made at the following address, or
other address that may be designated by Seller from time to time: 311 Rouser Road, P.O. Box 611,
Coraopolis, Pennsylvania 15108. Invoices shall be delivered to Buyer at: P.O. Box 430, Lancaster,
Ohio 43130-0430. The quantities invoiced by Seller will be based on the quantities delivered by
Seller at the Point(s) of Delivery. In the event the actual quantity delivered to the Point(s) of
Delivery is unavailable, the estimated volumes of gas tendered for delivery by Seller to the
Point(s) of Delivery shall be invoiced to Buyer. Any appropriate adjustment shall be made in the
following billing period. Payment not received by the twenty-eighth (28th) calendar day of the
month shall bear interest at PNC Bank, NA’s then current prime lending rate minus two percent (2%).

3

 

7. QUALITY AND MEASUREMENT: Seller warrants that gas delivered under this Agreement shall meet the
quality and measurement standards established by interstate pipeline and/or local distribution
companies receiving gas from Seller for Buyer’s account at the Point(s) of Delivery.

8. WARRANTY OF TITLE AND TAXES. Seller warrants title to all gas delivered by it and warrants that
such gas is free from all liens and adverse claims. Seller shall indemnify and save Buyer harmless
against all suits, debts, damages, costs and expenses arising from adverse claims to the gas
delivered by it or taxes, payments or other charges thereon applicable before such gas is delivered
to the Point(s) of Delivery. All present and future production, severance, gross proceeds or
assessments of a similar nature imposed or levied by any state or other governmental agency or duly
constituted authority upon the gas sold and delivered hereunder and the components thereof and the
royalty, overriding royalty, production payment and other lease burden owners, as the case may be,
shall be borne and paid by Seller. In the event Buyer is required to pay any of such taxes and
assessments, Buyer may deduct same from the payments to be made by it hereunder and may make a
reasonable charge for such service. Buyer shall be responsible for all taxes, liens and adverse
claims which may be imposed on such gas after the Point(s) of Delivery.

9. REGULATORY BODIES. This Agreement and Buyer’s and Seller’s obligation hereunder shall be subject
to all valid applicable State and Federal laws, and orders, directives, rules and regulations of
any government body or official having jurisdiction hereunder.

10. NOTICES: Whenever under the terms of this Agreement, any notice is required or permitted to be
given by one party to the other, it shall be given in writing and shall be deemed to have been
sufficiently given for all purposes hereof if sent by telegram or mailed, postage prepaid, to the
parties at the address set forth below:

	 	 	 	 	 
	 

	 	Seller:
	 	Atlas Energy Group. Inc.
	 

	 	 	 	Atlas Resources, Inc.
	 

	 	 	 	Resource Energy, Inc.
	 

	 	 	 	Attn: Contract Administrator
	 

	 	 	 	311 Rouser Road
P.O. Box 611
	 

	 	 	 	Coraopolis. Pennsylvania 15108
	 
	 	 	 	 
	 

	 	Buyer:
	 	Northeast Ohio Gas Marketing. Inc.
	 

	 	 	 	Attn: Contract Administrator
	 

	 	 	 	P. O. Box 430
	 

	 	 	 	Lancaster, Ohio 43130-0430

11. GOVERNING LAW: The interpretation and performance of this Agreement shall be in accordance
with the laws of the State of Ohio.

12. FORCE MAJEURE: If either Buyer or Seller is rendered unable, wholly or in part, by force
majeure to perform its obligations under this Agreement, other than the obligation to make payments
then or thereafter due, it is agreed that performance of the respective obligations of the parties
hereto to deliver

4

 

and receive gas, so far as they are affected by such force majeure, shall be suspended from the
inception of any such inability until it is corrected, but for no longer period. The party claiming
such inability shall give notice thereof to the other party as soon as practicable after the
occurrence of the force majeure. If such notice is first given by telephone communications, it
shall be confirmed promptly in writing giving full particulars. The party claiming such inability
shall promptly correct such inability to the extent it may be corrected through the exercise of
reasonable diligence. Force majeure as used herein shall mean acts of God, vandalism, war, civil
disturbance, rebellion, blockade, strike or other labor dispute, lightning, fire, flood, explosion,
hurricane, freezing of wells or pipelines which result in the failure of third party pipelines to
transport gas hereunder, permanent plant closing of either the Carbide Graphite plant or the
Duferco Farrell Corporation plant (during the term of the existing agreement with such party,
excluding any extensions or renewals) and other causes not within the control of the party claiming
a force majeure situation.

13. ASSIGNMENT: Neither party may assign any of its rights under this Agreement without the prior
written consent of the other party, which will not be unnecessarily withheld, except that Buyer may
assign any of its rights under this Agreement to any affiliate of Buyer, provided that Buyer
remains responsible for all financial obligations hereunder. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties.

14. SURVIVAL OBLIGATIONS: The obligation of Buyer to make payment hereunder shall survive the
termination or cancellation of this Agreement. The obligations of Seller to indemnify Buyer
pursuant to the provisions set forth under Section 8 shall survive the termination or cancellation
of this Agreement. If any provision in this Agreement is determined to be invalid, void, or made
unenforceable by any court having jurisdiction, then such determination shall not invalidate, void
or make unenforceable any other provision, agreement or covenant in this Agreement. No waiver of
any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. All
remedies afforded in this Agreement shall be taken and construed as cumulative, that is, in
addition to every other remedy provided therein or by law.

15. COMPLETE AGREEMENT: This Agreement, and the Stock Purchase Agreement, represent the complete
and entire understanding between the parties and their affiliates respecting the subject matter of
this transaction. The parties hereto declare that there are no promises, representations,
conditions, warranties or other agreements, express or implied, oral or written, made or relied
upon by either party, except those contained herein or in the Stock Purchase Agreement.

5

 

     IN WITNESS WHEREOF, the parties. or their authorized agent, hereto have caused this Agreement to be
executed on this the 31st day of March, 1999.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	Witnesses:	 	Seller: Atlas Energy Group, Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Witnesses:	 	Seller: Atlas Resources, Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Witnesses:	 	Seller: Resource Energy, Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Witnesses:	 	Buyer: Northeast Ohio Gas Marketing, Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

6

 

AMENDMENT TO GAS PURCHASE AGREEMENT

THIS AMENDMENT, dated as of February 1, 2001, by and between Atlas Resources, Inc., a Pennsylvania
corporation, Atlas Energy Group, Inc., an Ohio corporation, and Resource Energy, Inc., a Delaware
corporation (hereinafter collectively referred to as “Seller”), and FirstEnergy Services Corp., an
assign of Northeast Ohio Gas Marketing, Inc. (“Buyer”).

WHEREAS, Buyer and Seller are parties to an Agreement dated March 31, 1999 (the “Agreement”),
concerning the sale and purchase of natural gas; and

WHEREAS, Viking Resources Corporation (“Viking”), is in the business of developing and producing
natural gas from wells in Ohio and Pennsylvania, and recently became an affiliate of Seller; and

WHEREAS, Viking is the owner of such natural gas or is the authorized agent for the owner of such
natural gas and therefore has the authority to contract for the sale of such natural gas; and

WHEREAS, as an inducement for Buyer to establish a Guaranty to Seller from Buyer’s parent,
FirstEnergy Corp., Viking has offered to sell for itself and those owners for which it is the
authorized agent all of the gas produced at the meters identified on Exhibit A attached hereto, and
Buyer offered to purchase such natural gas from Viking;

NOW, THEREFORE, in consideration of the mutual covenants herein, and other good and valuable
consideration, the Seller and Buyer do hereby agree to amend the Agreement to include the purchase
and sale of Viking’s natural gas production at the meters identified on Exhibit A.

This Amendment shall become effective upon execution by the parties.

All other terms and conditions of the Agreement shall remain in full force and effect.

1

 

IN WITNESS WHEREOF, the parties have hereunto set their corporate signatures by their duly
authorized officers as of the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	WITNESS:
	 	SELLERS:
	 	ATLAS RESOURCES, INC.	 	 
	 

	 	 	 	 	 	ATLAS ENERGY GROUP, INC.	 	 
	 

	 	 	 	 	 	RESOURCE ENERGY, INC.	 	 
	 

	 	 	 	 	 	VIKING RESOURCES

CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	WITNESS:
	 	BUYER:
	 	FIRSTENERGY SERVICES CORP.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

By:

2

 

SECOND AMENDMENT TO BASE GAS PURCHASE AGREEMENT

Dated July 16, 2003

Between FirstEnergy Solutions Corp. and Atlas Energy Group, Inc., Atlas Resources, Inc. and
Resource Energy, Inc.

The criteria for the Amendment are as follows:

WHEREAS, Atlas Energy Group, Inc., Atlas Resources, Inc. and Resource Energy, Inc. (Seller) and
FirstEnergy Solutions Corp. (Buyer) have entered into a Gas Purchase Agreement dated March 31, 1999
(Agreement), and whereas the parties desire to implement certain amendments to the Base Agreement
as set forth herein;

WHEREAS, Seller represents that it is the owner of the Gas or is the authorized agent for the owner
or owners of the Gas and therefore has the authority to contract for the delivery and sale of the
Gas, and

WHEREAS, Buyer and Seller are parties to an Amendment to the Agreement dated February 1, 2001,
concerning the purchase and sale of Viking Resource Corporation’s natural gas production;

Now, therefore, in consideration of the mutual covenants and promises set forth below, the parties
hereto, intending to be legally bound, hereby covenant, promise and agree as follows:

1. In exchange for a corporate guaranty or other credit assurance reasonably acceptable in form and
substance to the Buyer, Seller may, at any time prior to Noon on the day of the applicable NYMEX
Contract closing day, notify an authorized representative of Buyer by telephone to execute
financial hedging instruments at a mutually agreed price (“Hedge Price”) then-currently traded for
that month (“Hedge Month”) on a specified volume (“Hedge Volume”). If Buyer agrees to exercises the
Hedge described in the previous sentence, Buyer will send a written notice to the Seller to confirm
the Hedge Price and Hedge Volume for the respective Hedge Month. Thereafter, the Hedge Price shall
serve in lieu of any Floating Contract Price specified in the Transaction Confirmation for Gas
delivered in the Hedge Month up to the Contract Hedge Volume. Contract Hedge Volume shall be
defined as any portion (in 10,000 Dth increments) of the volume that the Seller is obligated to
deliver pursuant to a specified Transaction Confirmation. If Seller delivers less than One Hundred
(100) Percent of the Contract Hedge Volume for a given Hedge Month and the Contract Hedge Price is
lower than the NYMEX Contract Settlement Price (as determined on the last day of trading allowed by
NYMEX for the respective contract month), Seller shall be assessed a Market Differential Cost equal
to (the NYMEX Contract Settlement Price minus Contract Hedge Price), multiplied by the undelivered
Contract Hedge Volume. The Market Differential Cost shall apply to the underproduction of Seller’s
Contract Hedge Volume, but shall not apply to the underproduction of Seller’s daily nominated gas
volumes. In the event of Seller’s underproduction of daily nominated gas volumes, Seller shall be
assessed the replacement costs set forth in paragraph 4 of the Agreement

2. Seller shall deposit with Buyer a commercial letter of credit in the aggregate amount of
$1,000,000, which letter of credit shall be in the form attached hereto as Exhibit A and issued by
a commercial bank acceptable to

1

 

Buyer, payable on presentation by Buyer to such bank of one or more sight drafts in form acceptable
to Buyer. The letter of credit to be deposited and maintained with Buyer shall be held by Buyer as
security for the full faith and performance and observance by Seller of each and every term,
covenant, and condition of the Agreement as amended.

Concurrent with the delivery of the above referenced letter of credit by the Seller to the Buyer,
Buyer shall deliver to Seller a parental corporate guaranty reasonably acceptable in form and
substance to the Seller, guaranteeing the payment in the amount fifteen million dollars
($15,000,000) in the event of non-payment by Buyer of any amounts due and owing Seller under the
Agreement and/or the Second Amendment to the Agreement. The term of Buyer’s parental guaranty shall
be for the identical term of the letter of credit Seller deposits with Buyer. This guaranty shall
supercede any existing parental guaranty that Buyer has delivered to Seller.

3. This Letter of Credit may be drawn upon if an Event of Default occurs. Event of Default shall
mean the Applicant (the “Defaulting Party”) or its guarantor fails to perform any obligation under
the Gas Purchase Agreement dated March 31, 1999, including Seller’s failure to pay Buyer, within
forty five

(45) days upon receipt of an invoice, for any assessed Market Differential Costs for Seller’s
underproduction of natural gas resulting in a net negative impact to Buyer.

IN WITNESS WHEREOF, the parties have hereunto set their signatures by their officers hereunto duly
authorized the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	FirstEnergy Solutions Corp.	 	Atlas Energy Group, Inc.
	 	 	 	 	Atlas Resources, Inc.
	 	 	 	 	Resource Energy, Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Dated:                                         	 	Dated: July 16, 2003

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Exhibit A

(Proposed form of Letter of Credit)

Beneficiary Applicant FirstEnergy Solutions Corp.

395 Ghent Road

Akron, OH 44333

Attn:

1. We hereby issue our irrevocable Letter of Credit (this “Letter of Credit”) No.                      in
your favor for $                                         U.S. Dollars available for payment at sight in immediately
available funds.

This Letter of Credit is issued at the request of the Applicant, and we hereby irrevocably
authorize you to draw on us, in accordance with the terms and conditions hereof, up to the maximum
amount of this Letter of Credit. This Letter of Credit may be drawn upon an Event of Default under
the Second Amendment to Base Gas Purchase Agreement dated July ___, 2003 between FirstEnergy
Solutions Corp. and Atlas Energy Group, Inc., Atlas Resources, Inc. and Resource Energy, Inc.

2. A partial or full drawing hereunder may be made by you on any Business Day prior to the
expiration of this Letter of Credit by delivering, by no later than 11:00 A.M. (New York, NY) on
such Business Day to Bank                                         ,                                         (address), (i) a notice
executed by you in the form of Annex 1 hereto, appropriately completed and duly signed by your
Authorized Officer and (ii) your draft in the form of Annex 2 hereto, appropriately completed and
duly signed by your Authorized Officer. Authorized Officer shall mean President, Treasurer, any
Vice President or any Assistant Treasurer.

3. This Letter of Credit expires at the counters of                      on                      (which date as
may be extended in the manner provided herein is referred to as the “termination date”). The
termination date shall be deemed automatically extended without amendments for one year from the
initial termination date and thereafter for one year from each anniversary of the initial
termination date unless at least ninety (90) days prior to the then applicable termination date we
notify you in writing by certified mail return receipt requested that we are not going to extend
the termination date. During said ninety (90) day period, this Letter of Credit shall remain in
full force and effect.

4. We hereby agree with the beneficiary drawers, endorsers, and bona fide holders of drafts and
documents drawn under and in compliance with the terms and conditions of this Letter of Credit that
same will be duly honored by us upon presentation to ourselves as specified, by payment in
accordance with the beneficiary’s payment instructions. If requested by the beneficiary, payment
under this Letter of Credit will be made by wire transfer of immediately available funds to the
beneficiary’s account at any financial institution located in the Continental United States. All
payments under this Letter of Credit will be made in our own funds.

3

 

5. This Letter of Credit is subject to the ICC Uniform Customs and Practice for Documentary Credits
(1993 Revision) International Chamber of Commerce Publication Number 500, or any revisions thereto.

6. We will send via facsimile a copy of this Letter of Credit to the beneficiary at the following
facsimile number:                     , attention:

                    , and we will send via overnight courier the original of this Letter of Credit to
the beneficiary at the above address, attention of:

                                        .

7. All bank charges are for the account of                     .

8. This letter of credit is transferable and assignable in whole or in part by beneficiary.

(Signed)

4

 

Annex 1 to Letter of Credit

DRAWING UNDER LETTER OF CREDIT NO.                    

                                        , 200__

To: (Bank)

(Address)

Attention: Standby Letter of Credit Unit

Ladies and Gentlemen:

The undersigned is making a drawing under the above-referenced Letter of Credit in the amount
specified below and herby certifies to you as follows:

1. Capitalized terms used herein are defined herein shall have the meanings ascribed thereto in the
Letter of Credit.

2. Pursuant to Paragraph 2 of the Letter of Credit No.                     , dated                     , 200___,
the undersigned is entitled to make a drawing under the Letter of Credit in the amount of
$                    , inasmuch as there is an Event of Default under the Second Amendment to Base Gas
Purchase Agreement dated July ___, 2003 between the Applicant and us.

3. We acknowledge that, upon your honoring the drawing herein requested, the amount of the Letter
of Credit available for drawing shall be automatically decreased by an amount equal to this
drawing.

Very truly yours,

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	FirstEnergy Solutions Corp.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	Date:	 	 

Cc:                                         - (Applicant)

5

 

Annex 2 to Letter of Credit

DRAWING UNDER LETTER OF CREDIT NO.                     

                                        , 200__

ON [Business Day immediately succeeding date of presentation]

PAY TO: FirstEnergy Solutions Corp.

Attn:

$                                        

For credit in the amount of $                                        .

FOR VALUE RECEIVED AND CHARGE TO ACCOUNT OF LETTER OF CREDIT NO.                      OF

(Bank)

(Address)

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	FirstEnergy Solutions Corp.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

6

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