Document:

Exhibit
10.2

 

SECOND AMENDMENT TO SUBORDINATED CREDIT AGREEMENT

 

This SECOND AMENDMENT TO
SUBORDINATED CREDIT AGREEMENT (this “Agreement”) entered into on May 12, 2006
but made effective as of March 31, 2006 (“Effective Date”) is among Cano
Petroleum, Inc., a Delaware corporation (“Borrower”), the Guarantors (as
defined in accordance with Section 1 below), the Lenders (as defined below),
and Energy Components SPC EEP Energy Exploration and Production Segregated
Portfolio, a Cayman Islands company, as administrative agent for such Lenders
(in such capacity, the “Administrative Agent”).

 

RECITALS

 

A.            The Borrower is party to
that certain Subordinated Credit Agreement dated as of November 29, 2005, as
amended by the First Amendment to Subordinated Credit Agreement dated as of April
28, 2006 (as so amended, the “Credit Agreement”) among the Borrower, the
lenders party thereto from time to time (the “Lenders”), and the Administrative
Agent.

 

B.            The Borrower, the Lenders and the
Administrative Agent wish to, subject to the terms and conditions of this
Agreement, make certain other amendments to the Credit Agreement as provided
herein.

 

THEREFORE,
the Borrower, the Guarantors, the Lenders, and the Administrative Agent hereby
agree as follows:

 

Section 1.              Defined
Terms. As used in this Agreement, each of the terms defined
in the opening paragraph and the Recitals above shall have the meanings
assigned to such terms therein. Each term defined in the Credit Agreement and
used herein without definition shall have the meaning assigned to such term in
the Credit Agreement, unless expressly provided to the contrary.

 

Section 2.              Other
Definitional Provisions. Article, Section, Schedule,
and Exhibit references are to Articles and Sections of and Schedules and
Exhibits to this Agreement, unless otherwise specified. All references to
instruments, documents, contracts, and agreements are references to such
instruments, documents, contracts, and agreements as the same may be amended,
supplemented, and otherwise modified from time to time, unless otherwise
specified. The words “hereof”, “herein”, and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term “including” means “including,
without limitation,”. Paragraph headings have been inserted in this Agreement
as a matter of convenience for reference only and it is agreed that such
paragraph headings are not a part of this Agreement and shall not be used in
the interpretation of any provision of this Agreement.

 

1

 

Section 3.              Amendments to Credit Agreement.

 

(a)           Section 6.18 of
the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.18         Debt Coverage Ratio.
The Borrower (a) shall not permit the ratio of, as of the fiscal quarter ending
March 31, 2006, (i) the consolidated Debt of the Borrower as of such fiscal
quarter end to (ii) the consolidated EBITDA of the Borrower for the fiscal
quarter period then ended multiplied by four, to be greater than 7.50  to 1.00; (b) shall not permit the ratio of,
as of the fiscal quarter ending June 30, 2006, (i) the consolidated Debt of the
Borrower as of such fiscal quarter end to (ii) the consolidated EBITDA of the
Borrower for the two fiscal quarter period then ended multiplied by two, to be
greater than 5.25 to 1.00; (c) shall not permit the ratio of, as of the fiscal
quarter ending September 30, 2006, (i) the consolidated Debt of the Borrower as
of such fiscal quarter end to (ii) the consolidated EBITDA of the Borrower for
the three fiscal quarter period then ended multiplied by 4/3, to be greater
than 4.50 to 1.00; and (d) shall not permit the ratio of, as of each fiscal
quarter ending on or after December 31, 2006, (i) the consolidated Debt of the
Borrower as of such fiscal quarter end to (ii) the consolidated EBITDA of the
Borrower for the four fiscal quarter period then ended, to be greater than 4.00
to 1.00.

 

(b)           Section 6.19 of
the Credit Agreement is deleted in its entirety and replaced with the
following:

 

Section 6.19         Interest Coverage Ratio. The Borrower (a) shall not permit the ratio of, as of the fiscal
quarter ending March 31, 2006, (i) the consolidated EBITDA of the Borrower for
the fiscal quarter period then ended multiplied by four, to (ii) the
consolidated Interest Expense of the Borrower for the fiscal quarter period
then ended multiplied by four, to be less than 1.50 to 1.00; (b) shall not
permit the ratio of, as of the fiscal quarter ending June 30, 2006, (i) the
consolidated EBITDA of the Borrower for the two fiscal quarter period then
ended multiplied by two, to (ii) the consolidated Interest Expense of the
Borrower for the two fiscal quarter period then ended multiplied by two, to be
less than 1.75 to 1.00; (c) shall not permit the ratio of, as of the fiscal
quarter ending September 30, 2006, (i) the consolidated EBITDA of the Borrower
for the three fiscal quarter period then ended multiplied by 4/3, to (ii) the
consolidated Interest Expense of the Borrower for the three fiscal quarter
period then ended multiplied by 4/3, to be less than 2.00 to 1.00; and (d)
shall not permit the ratio of, as of the end of any fiscal quarter ending on or
after December 31, 2006, (i) the consolidated EBITDA of the Borrower calculated
for the four fiscal quarters then ended, to (ii) the consolidated Interest
Expense of the Borrower for the four fiscal quarters then ended, to be less
than 2.00 to 1.00.

 

Section 4.              Borrower Representations and Warranties. The Borrower
represents and warrants that: (a) after giving effect to this Agreement, the
representations and warranties contained in the Credit Agreement and the
representations and warranties contained in the other Loan Documents are true
and correct in all material respects on and as of the Effective Date as if made
on as and as of such date except to the extent that any such representation or warranty expressly
relates solely to an earlier date, in which case such representation or
warranty is true and correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, no Default has occurred and is continuing; (c) the execution,
delivery and

 

2

 

performance of this
Agreement are within the corporate power and authority of the Borrower and have
been duly authorized by appropriate corporate and governing action and
proceedings; (d) this Agreement constitutes the legal, valid, and binding
obligation of the Borrower enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and general principles
of equity; (e) there are no governmental or other third party consents,
licenses and approvals required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement; and (f) the Liens
under the Security Instruments are valid and subsisting and secure Borrower’s
obligations under the Loan Documents.

 

Section 5.              Guarantors Representations and Warranties. Each
Guarantor represents and warrants that: (a) after giving effect to this
Agreement, the representations and warranties contained in the Guaranty and the
representations and warranties contained in the other Loan Documents are true
and correct in all material respects on and as of the Effective Date as if made
on as and as of such date except to the extent that any such representation or warranty expressly
relates solely to an earlier date, in which case such representation or
warranty is true and correct in all material respects as of such earlier date; (b) after
giving effect to this Agreement, no Default has occurred and is continuing; (c)
the execution, delivery and performance of this Agreement are within the
corporate, limited liability company, or partnership power and authority of
such Guarantor and have been duly authorized by appropriate corporate, limited
liability company, or partnership action and proceedings; (d) this Agreement
constitutes the legal, valid, and binding obligation of such Guarantor
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the rights of creditors generally and general principles of equity; (e) there
are no governmental or other third party consents, licenses and approvals
required in connection with the execution, delivery, performance, validity and
enforceability of this Agreement; (f) it has no defenses to the enforcement of
the Guaranty; and (g) the Liens under the Security Instruments are valid and
subsisting and secure such Guarantor’s and the Borrower’s obligations under the
Loan Documents.

 

Section 6.              Conditions to Effectiveness. This Agreement
and the amendments to the Credit Agreement provided herein shall become
effective on the Effective Date and enforceable against the parties hereto upon
the occurrence of the following conditions precedent:

 

(a)           The Administrative Agent shall have received
multiple original counterparts, as requested by the Administrative Agent, of
this Agreement duly and validly executed and delivered by duly authorized
officers of the Borrower, the Guarantors, the Administrative Agent, and the
Lenders.

 

(b)           The representations
and warranties in this Agreement shall be true and correct in all material
respects.

 

(c)           The Borrower shall have paid all fees and expenses of the
Administrative Agent’s outside legal counsel and other consultants pursuant to
all invoices presented for payment on or prior to the Effective Date.

 

3

 

Section 7.              Acknowledgments and Agreements.

 

(a)           The Borrower acknowledges that on the
date hereof all Obligations are payable without defense, offset, counterclaim
or recoupment.

 

(b)           The
Administrative Agent and the Lenders hereby expressly reserve all of their
rights, remedies, and claims under the Loan Documents. Nothing in this
Agreement shall constitute a waiver or relinquishment of (i) any Default or
Event of Default under any of the Loan Documents, (ii) any of the agreements,
terms or conditions contained in any of the Loan Documents, (iii) any rights or
remedies of the Administrative Agent or any Lender with respect to the Loan
Documents, or (iv) the rights of the Administrative Agent or any Lender to
collect the full amounts owing to them under the Loan Documents.

 

(c)           Each of the
Borrower, the Guarantors, Administrative Agent, and Lenders does hereby adopt,
ratify, and confirm the Credit Agreement, as amended hereby, and acknowledges
and agrees that the Credit Agreement, as amended hereby, is and remains in full
force and effect, and the Borrower and the Guarantors acknowledge and agree
that their respective liabilities and obligations under the Credit Agreement,
as amended hereby, and the Guaranty, are not impaired in any respect by this
Agreement.

 

(d)           From and after
the Effective Date, all references to the Credit Agreement and the Loan
Documents shall mean such Credit Agreement and such Loan Documents as amended
by this Agreement.

 

(e)           This Agreement
is a Loan Document for the purposes of the provisions of the other Loan
Documents. Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement shall be a Default or Event of
Default, as applicable, under the Credit Agreement.

 

Section 8.              Reaffirmation of the Guaranty. Each Guarantor hereby
ratifies, confirms, acknowledges and agrees that its obligations under the
Guaranty are in full force and effect and that such Guarantor continues to
unconditionally and irrevocably guarantee the full and punctual payment, when
due, whether at stated maturity or earlier by acceleration or otherwise, all of
the Guaranteed Obligations (as defined in the Guaranty), as such Guaranteed
Obligations may have been amended by this Agreement, and its execution and
delivery of this Agreement does not indicate or establish an approval or
consent requirement by such Guarantor under the Guaranty in connection with the
execution and delivery of amendments, consents or waivers to the Credit
Agreement, the Notes or any of the other Loan Documents.

 

Section 9.              Counterparts. This Agreement
may be signed in any number of counterparts, each of which shall be an original
and all of which, taken together, constitute a single instrument. This
Agreement may be executed by facsimile signature and all such signatures shall
be effective as originals.

 

Section 10.            Successors
and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted pursuant to the Credit Agreement.

 

4

 

Section 11.            Invalidity. In the event
that any one or more of the provisions contained in this Agreement shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement.

 

Section 12.            Governing
Law. This Agreement shall be deemed to be a contract made
under and shall be governed by and construed in accordance with the laws of the
State of Texas.

 

Section 13.            Entire
Agreement. THIS
AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE NOTES, AND
THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

 

THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

[SIGNATURES BEGIN ON NEXT PAGE]

 

5

 

EXECUTED
effective as of the date first above written.

 

	
  BORROWER:

  	
  CANO
  PETROLEUM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  SQUARE
  ONE ENERGY, INC.

  
	
   

  	
  LADDER
  COMPANIES, INC.

  
	
   

  	
  W.O.
  ENERGY OF NEVADA, INC.

  
	
   

  	
  WO
  ENERGY, INC.

  
	
   

  	
  PANTWIST,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Each
  by:

  	
     /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  W.O.
  OPERATING COMPANY, LTD.

  
	
   

  	
  By:
   WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  W.O.
  PRODUCTION COMPANY, LTD.

  
	
   

  	
  By:
   WO Energy, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S. Jeffrey Johnson

  
	
   

  	
  S. Jeffrey Johnson

  
	
   

  	
  President

  
					

 

Signature Page for Second
Amendment

 

 

	
  LENDER
  AND

  	
   

  
	
  ADMINISTRATIVE
  AGENT:

  	
  ENERGY
  COMPONENTS SPC EEP ENERGY

  EXPLORATION AND PRODUCTION

  SEGREGATED PORTFOLIO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Margason

  
	
   

  	
  Mark Margason

  
	
   

  	
  Authorized Signer

  

 

 

	
  LENDER:

  	
  UNIONBANCAL
  EQUITIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael A. Ross

  
	
   

  	
  Michael A. Ross

  
	
   

  	
  Vice PresidentExhibit 10.16

 

GATHERING SERVICES AGREEMENT

 

BETWEEN

 

PRB GAS TRANSPORTATION, INC

(GATHERER)

 

AND

 

STORM CAT ENERGY (USA) OPERATING CORPORATION

(OWNER)

 

 

TABLE OF
CONTENTS

 

GATHERING
SERVICES AGREEMENT

 

	
  RECITALS

  	
  1

  
	
   

  	
   

  
	
  ARTICLE I: OWNER’S OBLIGATIONS

  	
  1

  
	
  Section
  1.1 Dedication of Gas

  	
  1

  
	
  Section
  1.2 After-Acquired Interests

  	
  2

  
	
  Section
  1.3 Owner Representation and Warranties

  	
  2

  
	
  Section
  1.4 Owner’s Reservations

  	
  2

  
	
   

  	
   

  
	
  ARTICLE II: GATHERER’S OBLIGATIONS

  	
  2

  
	
  Section
  2.1 Gathering Services

  	
  2

  
	
  Section
  2.2 Gathering Facilities

  	
  2

  
	
  Section
  2.3 Receipt Points

  	
  3

  
	
  Section
  2.4 Delivery Points

  	
  3

  
	
   

  	
   

  
	
  ARTICLE III: TERM OF AGREEMENT

  	
  3

  
	
   

  	
   

  
	
  ARTICLE IV: GATHERING CHARGE AND PAYMENT

  	
  3

  
	
  Section
  4.1 Gathering Fee

  	
  3

  
	
  Section
  4.2 Annual True-up

  	
  3

  
	
  Section
  4.3 Gathering Fee Adjustments

  	
  4

  
	
  Section
  4.4 Alternative Power/Fuel Source Fee

  	
  5

  
	
  Section
  4.5 Facilities Fee For Quality Monitoring and Other Facilities

  	
  5

  
	
  Section
  4.6 Treating and Other Fees

  	
  5

  
	
   

  	
   

  
	
  ARTICLE V: NOTICES/INVOICES

  	
  5

  
	
   

  	
   

  
	
  ARTICLE VI: MEMORANDUM OF AGREEMENT

  	
  6

  
	
   

  	
   

  
	
  ARTICLE VII: GOVERNING LAW

  	
  6

  
	
   

  	
   

  
	
  ARTICLE VIII: MISCELLANEOUS

  	
  6

  
	
  Section 8.1 Entire Agreement

  	
  6

  
	
  Section
  8.2 Amendments Must Be in Writing

  	
  6

  
	
  Section
  8.3 No Waiver

  	
  6

  
	
  Section
  8.4 No Third-Party Rights

  	
  6

  
	
  Section
  8.5 Limitation of Liability

  	
  7

  
	
  Section
  8.6 Severability

  	
  7

  
	
  Section
  8.7 Confidentiality

  	
  7

  

 

i

 

	
  Section
  8.8 Binding Arbitration

  	
  7

  
	
  Section
  8.9 Right to Terminate in the Event of Governmental Jurisdiction

  	
  8

  

 

GENERAL TERMS
AND CONDITIONS

TO THE
GATHERING SERVICES AGREEMENT

 

	
  SECTION 1: DEFINITIONS

  	
  GTC - 1

  
	
   

  	
   

  
	
  SECTION 2: NOMINATION AND
  SCHEDULING

  	
  GTC - 3

  
	
  2.1

  	
  Nominations

  	
  GTC - 3

  
	
   

  	
   

  	
   

  
	
  SECTION 3: CONTRACT BALANCING

  	
   

  
	
  3.1

  	
  Owner’s
  Obligation to Maintain Balance

  	
  GTC - 3

  
	
   

  	
   

  
	
  SECTION 4: OWNERSHIP AND CONTROL
  

  	
  GTC - 4

  
	
   

  	
   

  	
   

  
	
  SECTION 5: PRESSURES 

  	
  GTC - 4

  
	
   

  	
   

  	
   

  
	
  SECTION 6: GAS MEASUREMENT AND
  QUALITY

  	
   

  
	
  6.1

  	
  Specifications

  	
  GTC - 4

  
	
  6.2

  	
  Non-Conforming
  Gas

  	
  GTC - 5

  
	
  6.3

  	
  Fuel
  Usage

  	
  GTC - 5

  
	
  6.4

  	
  Line
  Loss and Unaccounted Gas

  	
  GTC - 6

  
	
  6.5

  	
  Audit
  of Fuel Usage, Line Loss and Unaccounted Gas

  	
  GTC – 6

  
	
  6.6

  	
  Online
  Performance

  	
  GTC – 6

  
	
   

  	
   

  
	
  SECTION 7: UNECONOMIC OPERATION
  OF GATHERER’S FACILITIES 

  	
  GTC - 6

  
	
   

  	
   

  
	
  SECTION 8: FORCE MAJEURE 

  	
  GTC - 7

  
	
   

  	
   

  
	
  SECTION 9: BILLING AND PAYMENT 

  	
  GTC - 7

  
	
  9.1

  	
  Statements

  	
  GTC - 7

  
	
  9.2

  	
  Payment

  	
  GTC - 7

  
	
  9.3

  	
  Disputed
  Statements

  	
  GTC - 8

  
	
  9.4

  	
  Failure
  to Pay Invoice

  	
  GTC - 8

  
	
  9.5

  	
  Audit

  	
  GTC – 8

  
	
   

  	
   

  
	
  SECTION 10: ASSIGNMENT 

  	
  GTC - 8

  
	
   

  	
   

  
	
  SECTION 11: TAXES 

  	
  GTC - 9

  
	
   

  	
   

  
	
  SECTION 12: RIGHTS OF WAY 

  	
  GTC - 9

  

 

ii

 

	
  EXHIBIT A: AREA OF DEDICATION AND
  RESERVE COMMITMENT AREA

  	
   

  
	
   

  	
   

  
	
  EXHIBIT B: FACILITIES
  DEVELOPMENT PLAN

  	
   

  
	
   

  	
   

  
	
  EXHIBIT C: RECEIPT POINTS

  	
   

  
	
   

  	
   

  
	
  EXHIBIT D: DELIVERY POINTS

  	
   

  
	
   

  	
   

  
	
  EXHIBIT D-1: VOLUME COMMITMENTS

  	
   

  
	
   

  	
   

  
	
  EXHIBIT E: MEASUREMENT, TESTING
  AND METERING

  	
   

  
	
   

  	
   

  
	
  EXHIBIT F: MEMORANDUM OF AGREEMENT

  	
   

  
	
   

  	
   

  
	
  EXHIBIT G: GATHERING FACILITY
  LIMITATIONS

  	
   

  
	
   

  	
   

  
	
  EXHIBIT H: INITIAL FACILITIES

  	
   

  

 

iii

 

GATHERING
SERVICES AGREEMENT

 

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

 

RECITALS:

 

WHEREAS,
Owner owns, controls or is the agent with the authority to enter into this
Agreement for all right, title and interest in certain production of Gas
produced from the Area of Dedication and the Reserve Commitment Area for which
it desires to have Gathering Services performed; and

 

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

 

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

 

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

 

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

 

ARTICLE I

OWNER’S OBLIGATIONS

 

1.1                                 Dedication of Gas. Owner hereby dedicates and agrees to deliver for
Gathering Services under the terms and conditions hereof all of Owner’s
Reserves produced now or in the future from the Area of Dedication and the
Reserve Commitment Area for the Term of this Agreement.

 

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

 

 

sole discretion, such
After-Acquired Interests shall become dedicated hereunder at the end of any primary
term under prior agreement, or upon such earlier date as Owner may have any
right or option to terminate such prior agreement.

 

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

 

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

 

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

 

b.                                      to separate or process the Gas using only
mechanical, ambient temperature equipment located at surface production
facilities at the well location; and

 

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

 

ARTICLE II

OBLIGATIONS OF GATHERER

 

2.1                                 Gathering Services. In accordance with the terms and subject to the
requirements of this Agreement, Gatherer, or Gatherer’s Authorized
Representative, shall take delivery of 100% of Owner’s Reserves delivered to
Gatherer at the Receipt Point(s), now through the Term, subject only to Force
Majeure events, Normal and Routine Maintenance, and capacity constraints caused
by downstream pipeline(s) and re-deliver Equivalent Quantities of Gas (less
Owner’s pro rata share of Lost and Unaccounted for Gas and Fuel) for Owner’s
account at the Delivery Point(s).

 

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

 

2

 

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

 

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

 

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

 

ARTICLE III

TERM OF AGREEMENT

 

This
Agreement shall be effective on January 1, 2006 (the ”Effective Date”),
and, unless otherwise terminated in accordance with the terms of this Agreement
shall remain in effect for a period of ten (10) Years (the “Primary Term”),
and thereafter continue in effect from Year to Year, unless terminated by
either Party upon written notice to the other Party given thirty (30) Days
prior to the end of the Primary Term or any Year thereafter. Notwithstanding
the foregoing, in the event Owner, at any time after the first five (5) years
of this Agreement, reasonably determines, acting as a prudent operator, that
continued deliveries under this Agreement are uneconomic, upon ninety (90) days’
advance written notice to Gatherer, Owner may terminate this Agreement without
liability. For the purposes hereof, “uneconomic” shall mean circumstances under
which Owner’s revenues from Owner’s Reserves are insufficient to offset Owner’s
operating costs attributable to Owner’s Reserves, including the cost of
Gathering Services. All indemnity, confidentiality obligations, and audit
rights shall survive the termination or expiration hereof.

 

ARTICLE IV

GATHERING CHARGE AND PAYMENT

 

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

 

4.2                                 Annual True-up.

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

4

 

(10%). The adjustment of the Gathering Fee shall be made effective upon
each anniversary of the Effective Date and shall reflect the percentage change
in the PPI as it existed for the immediately preceding January from the PPI for
the second immediately preceding January.

 

4.4                                 Alternative Power/Fuel Source Fee. In the event any of Owner’s Gas flows through a
field compression facility or facilities powered by electrical power, or any
fuel or power source other than Gas being delivered into the Gathering
Facilities (“Alternate Power Source”), Owner shall pay Gatherer its
proportionate share of the actual expense incurred by Gatherer for such
Alternate Power Source. Such costs shall be allocated to each Delivery Point
served by such compression facility by multiplying the total Alternate Power
Source cost of each compression facility for the month by a fraction, the
numerator of which shall be the volume of Owner’s Gas flowing through the
facility attributable to the particular Delivery Point and the denominator of
which shall be the total volume of Gas flowing through all such compression
facilities. Gatherer shall charge Owner, on a monthly basis, the resultant
product.

 

4.5                                 Facilities Fee for Quality
Monitoring and Other Facilities.
If additional quality monitoring equipment or other facilities are
required to be installed, Owner agrees to pay its pro-rata share of Gatherer’s
actual costs thereof.

 

4.6                                 Treating and Other Fees. If treating of the Gas or other activities
requiring capital expenditures are required, Owner and Gatherer shall negotiate
a mutually agreeable fee. If the Parties fail to agree on a fee within
thirty (30) days of completion of such capital expenditures, then Gatherer will
be entitled to invoice Owner for 100% of the Gatherer’s actual capital costs
associated with such treating or other activities, and Owner shall pay its pro
rata share of such costs.

 

ARTICLE V

NOTICES/INVOICES

 

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

 

	
  GATHERER:

  Notices:

  	
   

  	
  OWNER:

  Notices:

  
	
   

  	
   

  	
   

  
	
  PRB
  Gas Transportation, Inc.

  1875 Lawrence Street, Suite 450,

  Denver, CO 80202

  Phone: 303-308-1330

  Fax:     303-308-1590

  	
   

  	
  Storm
  Cat Energy (USA) Operating Corporation

  1125 17th Street, Suite 2310

  Denver, CO 80202

  Phone: 303-991-5070

  Fax: 303-991-5075

  

 

5

 

	
  Nominations/Confirmations:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Same
  as above

  	
   

  	
   

  
	
   

  	
   

  	
  Nominations/Confirmations:

  
	
  Invoices:

  	
   

  	
  Same
  as above

  
	
  Same
  as above

  	
   

  	
   

  
	
   

  	
   

  	
  Invoices:

  
	
  Payments:

  	
   

  	
  Same as above

  
	
  By wire transfer

  	
   

  	
   

  
	
  to ABA Routing # 102000607,

  Account #4093101

  	
   

  	
   

  
	
  (or
  in accordance with instructions set forth in the Statement or Invoice)

  	
   

  	
   

  

 

ARTICLE VI

MEMORANDUM OF AGREEMENT

 

The Parties agree that they shall
execute a memorandum of agreement in the form attached hereto as Exhibit F
and that Gatherer may record such memorandum in the counties where the Owner’s
Reserves are located.

 

ARTICLE VII

GOVERNING LAW

 

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

 

ARTICLE VIII

MISCELLANEOUS

 

Section
8.1                                      Entire Agreement. This Agreement contains the entire agreement
between the Parties hereto on the date hereof, respecting the subject matter
hereof, and there are no prior or contemporaneous agreements or representations
affecting such subject matter other than those herein expressed.

 

Section
8.2                                      Amendments Must Be In Writing. It is further agreed that no modification or
change herein shall be enforceable unless reduced to writing and executed by
both Parties.

 

Section
8.3                                      No Waiver. No waiver by either Party hereto of any one or
more defaults by the other in the performance of any of the provisions of this
Agreement shall operate or be construed as a waiver of any future default or
defaults whether of a like kind or different nature.

 

Section
8.4                                      No Third-Party Rights. There is no third party beneficiary to this
Agreement and the provisions of this Agreement shall not impart rights
enforceable by

 

6

 

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

 

Section
8.5                                      Limitation of Liability. IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES OF ANY CHARACTER,
INCLUDING WITHOUT LIMITATION, LOSS OF USE, LOSS OF PROFITS OR REVENUES, COST OF
CAPITAL, CANCELLATION OF PERMITS, UNABSORBED GATHERING OR STORAGE CHARGES,
TERMINATION OF CONTRACTS, TORT OR CONTRACT CLAIMS INCLUDING CONTRACT CLAIMS
ARISING OUT OF THIS AGREEMENT, LOST PRODUCTION OR ANY OTHER FORM OF
CONSEQUENTIAL DAMAGE SUFFERED BY OWNER, AND IRRESPECTIVE OF WHETHER CLAIMS FOR
SUCH DAMAGES ARE BASED UPON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE.

 

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

 

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

 

Section
8.8                                      Binding Arbitration. Any claim, demand, cause of action, dispute or
controversy exclusively between the Parties relating to the subject matter of
this Agreement, whether sounding in contract, tort or otherwise, at law or in
equity, for damages or other relief (“Dispute”) shall be resolved by
binding arbitration if senior management of each of the Parties cannot resolve
the Dispute within ten (10) days of a notice of arbitration (“Notice”)
being served by one Party upon the other. Within twenty (20) days following
service of the Notice (if the Dispute remains unresolved by senior
management), the Parties shall either agree upon a single arbitrator, or if
they have not done so, each Party shall select one arbitrator, who shall
together select a third. The third or the single arbitrator shall have more
than eight (8) years professional experience in the natural gas gathering
industry, be neutral, and have not worked for a Party or affiliate. The arbitration
shall be conducted according to the rules of the Federal Arbitration Act, and
to the extent an issue is not addressed thereby, by the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration shall be
conducted in Denver, Colorado. Each Party shall be entitled to a reasonable
amount of

 

7

 

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

 

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

 

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

 

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

 

	
  GATHERER:

  	
  OWNER:

  
	
  PRB
  GAS TRANSPORTATION, INC.

  	
  STORM
  CAT ENERGY (USA) 

  OPERATING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  By:

  	
   

  
	
   

  	
  William
  F. Hayworth

  	
   

  	
  J.
  Scott Zimmerman, President

  
	
   

  	
  President

  	
   

  	
   

  

 

8

 

GENERAL TERMS AND CONDITIONS

TO THE GATHERING SERVICES AGREEMENT

 

For
the purposes of the Agreement, unless the context of the instrument requires
otherwise, the following definitions shall be applicable:

 

SECTION 1.                            DEFINITIONS

 

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

 

“Annual Volume Commitment” shall mean the
annual volumes Owner commits to deliver to Gatherer for Gathering Services as
set forth on Exhibit D-1.

 

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

 

“Authorized Representative” shall mean the
representative of a Party that is authorized to undertake and perform certain
rights or obligations of the Party hereunder on the Party’s behalf pursuant to
an agency or like agreement between the Party and its Authorized
Representative.

 

“British Thermal Unit” or “Btu” shall mean
the amount of heat required to raise the temperature of one pound of water from
59 degrees Fahrenheit to 60 degrees Fahrenheit.

 

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

 

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

 

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

 

 

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

 

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

 

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

 

“Gathering Facilities” shall mean those
gathering lines and facilities and appurtenances thereto, compressors, cathodic
protection equipment and such easements and other rights in land that are to be
used by Gatherer or, Gatherer’s designee or third party gathering service
provider in performing the gathering services.

 

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

 

“Lost and Unaccounted for Gas” shall mean
the reduction in quantity of Gas flowing through the Gathering System which
results from venting, purging, metering inaccuracies and operational
circumstances, including the natural condensation of liquid hydrocarbons.

 

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

 

“Measurement Points” shall mean the
discharge meter owned by Clear Creek Gathering and the Fuel meter owned by
Gatherer both located downstream of the compressor applicable to each Delivery
Point or other meter as designated by the Parties.

 

“MMBtu” shall mean one million British
Thermal Units.

 

“Mountain Time” means Mountain Time as
adjusted for daylight savings time.

 

“Normal and Routine Maintenance” shall mean
maintenance, tests, alterations, modifications, enlargement, and repairs of the
Gathering Systems would normally be done by a prudent operator.

 

“Owner’s Daily Deliverability of Gas” means
the Gas which is physically capable of being produced by Owner in accordance
with applicable law, rule or order

 

GTC - 2

 

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

 

“Owner’s Reserves” shall mean all Gas that
Owner owns, controls or has the right to deliver to Gatherer that is produced
from the Area of Dedication and the Reserve Commitment Area and is subject to
this Agreement, subject to Owner’s Reservations, as such term is defined in Section
1.4 of the Gathering Services Agreement.

 

“Psia” shall mean pounds per square inch,
absolute

 

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

 

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

 

“Reserve Commitment Area” shall mean all Gas
reserves in and under or attributable to the lands shown on Exhibit A
hereafter acquired by Owner.

 

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

 

“Year” shall mean a calendar year beginning
January 1st and ending December 31st.

 

SECTION 2. NOMINATION AND SCHEDULING

 

2.1.                              Nominations. Five (5) business days prior to the beginning of each month, and two
business days prior to any change thereof during the month, Owner will submit
in writing to Gatherer and to downstream pipeline(s), its total estimated
quantities of Gas to be delivered by Gatherer during such month at the Delivery
Point(s) under this Agreement. Gatherer shall work with Owner to determine
estimated Fuel, and Lost and Unaccounted for Gas to help in determining
nominations.

 

SECTION 3. CONTRACT BALANCING

 

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

 

GTC - 3

 

SECTION 4. OWNERSHIP AND CONTROL

 

Owner
shall be deemed to be in exclusive control and possession of all Gas until it
is delivered to Gatherer at the Receipt Point(s) specified herein, and after it
has been delivered to Owner or for its account at the Delivery Point(s) specified
herein. Gatherer shall be deemed to be in exclusive control and possession of
all Gas gathered hereunder after it is received by Gatherer at the Receipt
Point(s) and until it is redelivered to Owner or for its account at the
Delivery Point(s). The party deemed to be in exclusive control and possession
of the Gas gathered shall be responsible for and shall indemnify the other
party against any injury or damage arising from such control or possession,
except with regard to injury or damage caused by or arising out of the sole
negligence or willful misconduct of the nonpossessory party. The parties hereto
understand and acknowledge that title to all Gas shall at all times remain with
Owner.

 

SECTION 5. PRESSURES

 

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

 

Gatherer
will install and maintain pressure monitoring equipment at the suction of the
screw compressor located at the Receipt Point(s). The accuracy of said
measurement equipment shall not be less than plus or minus 1 Psig in the
expected range of pressures. For purposes of determining compliance with
the pressure requirements, the monthly average suction pressure will be reported
as a truncated integer number obtained by truncating the decimal measured
monthly average suction pressure. (Example: measured monthly average suction
pressure of 2.6 Psig will be truncated to 3 Psig to determine
compliance). Testing of suction pressure monitoring equipment will be performed
on the same schedule as set forth in Exhibit E.

 

SECTION 6. GAS MEASUREMENT AND QUALITY

 

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

 

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

 

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

 

GTC - 4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.2                                 Non-Conforming Gas. Gatherer, at its option, may refuse to accept receipt of any Gas not
meeting the quality Specifications then in effect. If Gatherer refuses to
accept Owner’s non-conforming Gas, Owner shall have the right to conform the
Gas to the Specifications then in effect. If Owner does not elect to conform
the Gas to said Specifications, then Gatherer, in its sole discretion, may
accept Gas tendered by Owner hereunder which does not meet the Specifications,
treat same to conform to said Specifications and charge Owner a mutually
agreeable fee. If, at any time, Owner determines that Gatherer’s treating
costs can no longer be economically justified, Owner shall so notify Gatherer
in writing and in the event Gatherer is unable or unwilling to adjust such
treating costs to a level acceptable to Owner within 30 days of the receipt of
notice, Owner shall have the right to obtain the release of such well as to the
affected producing formation from the terms of this Agreement. If neither
Gatherer nor Owner elects to treat the Gas to conform to the Specifications or
such treatment is terminated, then Gatherer shall upon thirty (30) days’ prior
written notice from Owner, release from the provisions of the Agreement the
well (as to the producing formation only) from which such Gas is produced. The
receipt by Gatherer of Gas which fails to meet any one of the Specifications
shall not be held to be a waiver of Gatherer’s right to refuse future delivery
of non-conforming Gas.

 

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

 

GTC - 5

 

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

 

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

 

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

 

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

 

SECTION 7. UNECONOMIC OPERATION OF GATHERER’S FACILITIES

 

If,
in the reasonable opinion of Gatherer, any part of the Gathering
Facilities is or becomes uneconomic to operate due to its volume, quality,
governmental regulation or any other cause not within Gatherer’s control, upon
ninety (90) days’ advance written notice to Owner, Gatherer may either modify
or suspend operations thereof, in which case Gatherer may request Owner to
re-negotiate pricing or other terms of this Agreement. Gatherer shall not be
obligated to take delivery of all or any portion of the Gas from Owner’s wells,
so long as such uneconomic condition exists. If Owner and Gatherer are
unable to agree to new pricing and/or terms within thirty (30) days of receipt
of notice from Gatherer of such uneconomic operation, then Gatherer shall
release the Gas from the dedication of this Agreement. For the purposes
hereof, “uneconomic operation” shall be defined as circumstances under which
Gatherer’s revenues from the Gathering Facilities are insufficient to offset
actual operating costs thereof plus a rate of return not less than fifteen
percent (15%).

 

GTC - 6

 

SECTION 8. FORCE MAJEURE

 

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

 

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

 

SECTION 9. BILLING AND PAYMENT

 

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

 

9.2                                 Payment.
Owner agrees to pay Gatherer by wire transfer (according to the instructions
set forth in the applicable statement or invoice) the full undisputed amount
payable according to such statement on or before ten (10) days following the
receipt thereof by Owner. In the event such quantities are estimated for
any period, corrected statements shall be rendered by Gatherer to Owner and
paid by Owner or refunded or

 

GTC - 7

 

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

 

9.3                                 Disputed Statements. In the event that Owner, in good faith, disputes
any billing or statement, Owner shall pay Gatherer any undisputed amount when
due and shall, within thirty (30) days of receipt of the disputed statement,
notify Gatherer in writing of its dispute, which notice shall include adequate
documentation demonstrating the amount of and basis for the dispute. The
Parties shall endeavor in good faith to resolve such dispute within fifteen
(15) days following Gatherer’s receipt of such notice. Notwithstanding the
foregoing, the Parties shall have the right to review and make corrections to
any statements tendered pursuant to this Section 9, or the measurement data
associated therewith, at any time upon written notice to the other Party
specifying the matter requiring correction and the Parties shall endeavor in
good faith to resolve any such matter within fifteen (15) days of notification
thereof. If payment disputes cannot be resolved after fifteen (15) days, they
become subject to the dispute resolution process set forth in Section 8.8
of the Gathering Services Agreement.

 

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

 

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

 

SECTION 10. ASSIGNMENT

 

Owner
shall not assign or transfer its rights hereunder without first obtaining
Gatherer’s written consent to such assignment or transfer, which consent shall
not be unreasonably withheld. Owner’s transfer in violation hereof shall be
void.

 

GTC - 8

 

SECTION 11. TAXES

 

Owner shall pay and remit to the appropriate taxing jurisdictions all
existing or new taxes imposed on Owner with respect to Owner’s Gas prior to its
delivery to Gatherer at the Receipt Point(s) and after redelivery at the
Delivery Point(s) and other taxes imposed on Owner’s facilities and operations.
Gatherer shall pay and remit to appropriate taxing jurisdictions all existing
or new taxes imposed on the Gathering of Owner’s Gas while such Gas is in
Gatherer’s control and other taxes imposed on Gatherer’s facilities and
operations. If a Party is required by law to pay any such taxes (or penalties
or interest thereon) that are another Party’s responsibility, the responsible
Party shall timely reimburse the paying Party therefore, or, at the paying
Party’s request, prepay such taxes, in addition to the other charges provided
for herein promptly upon request.

 

SECTION 12. RIGHTS OF WAY

 

Owner hereby grants to Gatherer, insofar as Owner has the right to do
so, all requisite easements and rights-of-way over and across the premises
covered hereby, with full right of ingress and egress, for the purpose of
carrying out the duties and terms of this Agreement and Gatherer’s obligations
thereunder. To the extent Owner’s leases or other agreements permit, Owner
hereby grants to Gatherer the right to lay and maintain pipelines and to
install any necessary equipment on said lease and shall have the right to free
entry for any purpose incidental to the performance of its obligations
hereunder. All pipelines, meters and other equipment placed by Gatherer on
said lands shall remain the property of Gatherer and may be removed by Gatherer
at any time.

 

GTC - 9

 

EXHIBIT A

TO THE

GATHERING SERVICES AGREEMENT

 

AREA OF DEDICATION

 

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

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

SECTION 16: ALL

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

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

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

SECTION 22: LOTS 1-16 (ALL)

SECTION 26: LOTS 1-16 (ALL)

SECTION 27: LOTS 1-16 (ALL)

SECTION 34: LOTS 1-16 (ALL)

SECTION 35: LOTS 1-16 (ALL)

SECTION 36: ALL

 

CAMPBELL COUNTY, WY

 

RESERVE COMMITMENT AREA

 

ALL SECTIONS, TOWNSHIP 56 NORTH, RANGES 74 WEST

 

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

 

SECTIONS 25 – 36 TOWNSHIP 55 NORTH, RANGES 73 WEST

 

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

 

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

 

CAMPBELL COUNTY, WY

 

A-1

 

EXHIBIT B

TO THE

GATHERING SERVICES AGREEMENT

 

FACILITIES DEVELOPMENT PLAN

 

A.                                   Initial Facilities

 

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

 

2.                                       Facilities
include 2 – 3516 4 stage compressors, their leases, all equipment required for
safe and efficient operation of the compressors including the property and
facilities described in Exhibit H.

 

B.                                     Additional Facilities

 

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

 

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

 

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

 

2.                                       Throughout
the term of the Agreement, Owner may, from time to time, notify Gatherer of its
expected Gas deliveries, based upon Owner’s good faith reasonable estimate, and
within fifteen (15) days after receipt of such notice, Gatherer shall submit a
written proposal to Owner to construct and install the necessary facilities to
gather said Gas. Owner shall have 30 days from receipt of such proposal to
accept or reject Gatherer’s proposal for Gathering Service hereunder. Failure
to respond within the said 30-day time period shall be deemed an election by
Owner to reject said proposal.

 

B-1

 

3.                                       Upon
receipt of written acceptance of said proposal by Owner , Gatherer shall
commence, on a timely basis, but in any event within ninety (90) days, in a
commercially reasonable manner construction and installation of the gathering
facilities necessary to gather Owner’s Gas and redeliver said Gas to the
Delivery Point(s) set forth on Exhibit D, as may be amended from
time to time.

 

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

 

B-2

 

EXHIBIT C

TO THE

GATHERING SERVICES AGREEMENT

 

RECEIPT POINT(S)

 

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

 

1.                                       Section
22, Township 56 North, Range 74 West

Campbell County, Wyoming

 

2.                                       Section
35, Township 56 North, Range 74 West

Campbell County, Wyoming

 

C-1

 

EXHIBIT D

TO THE

GATHERING SERVICES AGREEMENT

 

DELIVERY POINT(S)

 

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

 

1.                                       Section
22, Township 56 North, Range 74 West

Campbell County, Wyoming

 

2.                                       Section
35, Township 56 North, Range 74

West Campbell County, Wyoming

 

D-1

 

EXHIBIT D-1

TO THE

GATHERING SERVICES AGREEMENT

 

VOLUME COMMITMENTS (MCF)

 

	
  Date

  	
   

  	
  Annual Volumes

  	
   

  
	
  2006

  	
   

  	
  2,064,600

  	
   

  
	
  2007

  	
   

  	
  2,482,231

  	
   

  
	
  2008

  	
   

  	
  2,040,575

  	
   

  
	
  TOTAL

  	
   

  	
  6,587,405

  	
   

  

 

D-1-1

 

EXHIBIT E

TO THE

GATHERING SERVICES AGREEMENT

 

Measurement, Testing and Metering

 

1.                                       Measurement.
Except as otherwise agreed by Gatherer, the metering facilities to measure the
volumes of Gas delivered at each Measurement Point and Delivery Point shall be
maintained and operated or caused to be maintained and operated by Gatherer or
Gatherer’s designee. The Btu content of the Gas shall be determined by the
facilities at the Receipt Points and Delivery Points. Such facilities and
measurement data with respect to the Gas covered hereby shall at all reasonable
times be subject to joint inspection by the parties hereto. Gas volumes
measured with the use of orifice meter(s) shall be determined in accordance
with the provisions of the Gas Measurement Committee Report No. 3 of the
American Gas Association (ANSI/API 2530-1991) as amended, supplemented, or
revised from time to time. Gas volumes measured with the use of positive or
turbine meter(s) shall be determined on the basis of Gas Measurement Committee
Report No. 7 of the American Gas Association as amended, supplemented, or
revised from time to time. Gas volumes measured with the use of ultrasonic
meter(s) shall be determined on the basis of Gas Measurement Committee Report
No. 9 of the American Gas Association as amended, supplemented, or revised from
time to time. The unit of volume for measurement of Gas delivered hereunder
shall be one (1) cubic foot of Gas at a base temperature of sixty degrees Fahrenheit
(60°F.) and at an absolute pressure of fourteen and seventy-three one
hundredths (14.73) pounds per square inch absolute. Atmospheric pressure for
each of the Receipt Points and Delivery Points shall be assumed to be 12.7 Psia
irrespective of the actual atmospheric pressure at such points from time to
time. Temperature shall be determined by a recording thermometer of standard
make. If recording charts are used the arithmetical average of the temperature
recorded during periods of flow for each chart, the factor for specific gravity
according to the latest test therefor, and the correction for deviation from
Ideal Gas Laws applicable during each chart period shall be used to make proper
computations of volumes hereunder. If electronic flow measurement is used,
continuous temperature, static pressure and differential pressure monitoring
will be applicable. If electronic measurement is used in conjunction with
on-site chromatograph, continuous monitoring of specific gravity will be
applicable; otherwise the volumes computed using a fixed value specific gravity
factor shall be corrected to reflect the actual specific gravity of the flowing
Gas as determined by a chromatographic analysis of the sample accumulated
during the same period of flow or, in the case of spot samples, the specific
gravity factor determined by chromatographic analysis shall be applied to
volumes delivered during the succeeding chart periods. The correction for
deviation from the Ideal Gas Laws shall be computed and applied to volumes calculated
by electronic measurement devices. Specific gravity and Btu shall be determined
by such methods as may be developed by Gatherer through use of a continuous Gas
sample accumulator, on premises analysis, or by spot samples taken at

 

E-1

 

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

 

2.                                       Meter
Test. At intervals determined to be appropriate by the measuring Party, but
no less than quarterly, orifice and other types of meters and appurtenant
instruments shall be calibrated in the presence of representatives of the other
Party. If the aggregate error in any measurement devices is found on test to
register not more than one percent (1%) fast or slow in volume, then they shall
be deemed to be correct. All measuring devices shall be adjusted upon test to
register accurately within the tolerance allowed by their respective
manufacturers. If the aggregate error in any measurement devices is more than
one percent (1%) fast or slow in volume, adjustments shall be made by applying
the percentage of error to the volume involved during the time the metering
equipment was out of calibration, if this period can be ascertained. If the
length of time the metering equipment was out of calibration cannot be
ascertained, then the percentage of error will be applied to the volume
delivered for one-half of the time elapsed since the date of the last
calibration. During the time any meter is out of repair or is being tested, or
in the event of a sudden failure of any meter to register for any period
accurately within the one percent (1%) variation allowed herein, and if it is
not feasible to install another meter, then the volume of Gas flowed shall be
estimated with the mutual concurrence of both parties until a new or repaired
meter is installed. Adjustment and settlement shall be made at the regular Monthly
periods on the basis of the best available data using the first of the
following methods which is feasible:

 

a.                                       By
using the registration of any check measuring equipment, if installed and
registering;

 

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

 

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

 

E-2

 

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

 

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

 

E-3

 

EXHIBIT F

MEMORANDUM OF AGREEMENT

 

Notice is hereby given of the following Gathering Services Agreement:

 

GATHERER:         PRB Gas Transportation,
Inc.

 

OWNER:                Storm Cat Energy
(USA) Operating Corporation

 

COUNTY:              Campbell

 

STATE:                  Wyoming

 

DATE:                                        effective
date

 

COMMITMENT:                 All
of Owner’s interest in the oil and gas leases described on Exhibit A
attached hereto (whether presently owned or hereafter acquired) and
incorporated by reference and all of Owner’s interest in natural gas production
from all wells located thereon have been committed to Gatherer under and
subject to the terms of the referenced Agreement.

 

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

 

Further information concerning the contract
is available from PRB Gas Transportation, Inc., 1875 Lawrence Street, Suite
450, Denver, Colorado 80202. The parties are filing this Memorandum of
Agreement as record of the referenced agreement for all purposes at law and in
equity.

 

	
  RETURN THIS DOCUMENT TO:

  	
  William Hayworth

  
	
   

  	
  PRB Gas Transportation, Inc.

  
	
   

  	
  1875 Lawrence Street, Suite 450

  
	
   

  	
  Denver, CO 80202

  

 

IN WITNESS WHEREOF, Gatherer and Owner have
executed this Memorandum for recording the records of the described County and
State.

 

	
  PRB GAS TRANSPORTATION, INC.

  	
   

  	
  STORM CAT ENERGY (USA) OPERATING
  CORPORATION

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  J. Scott Zimmerman, President

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  1875 Lawrence Street, Suite 450

  	
  Address:

  	
   

  	
  1125 17th Street, Suite 2310

  
	
   

  	
   

  	
  Denver, CO 80202

  	
   

  	
   

  	
  Denver, CO 80202

  
											

 

F-1

 

	
  STATE OF COLORADO

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.

  
	
  CITY AND
  COUNTY OF DENVER

  	
  )

  	
   

  

 

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

 

Witness my hand and official seal.

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  

 

My commission expires:

 

 

STATE OF                                     COLORADO)

)  ss.

CITY AND COUNTY OF DENVER                )

 

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

 

Witness my hand and official seal.

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  

 

My commission expires:

 

G-2

 

EXHIBIT G

TO THE

GATHERING SERVICES AGREEMENT

 

GATHERING FACILITY LIMITATIONS

 

•                  There
are no pigging facilities or drips on the pipeline between the two Receipt
Points which may limit the ability to optimize compression.

 

•                  The
inlet header is an unconventional design utilizing low spots in the pipe to
manually dump liquids. This type of design may limit the ability to handle
significant liquid volumes.

 

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

 

G-2

 

EXHIBIT H

TO THE

GATHERING SERVICES AGREEMENT

 

INITIAL FACILITIES

 

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

 

•                  Graveled
compressor site with 4 strand barbed wire fence

 

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

 

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

 

•                  2”
Fisher control valve used for recycling

 

•                  Low
pressure separator with dump/drain controls and fittings:

•                  Manufactured
in 2000 by Superior Fabrication

•                  MAWP
150# at 150 degree F

•                  Serial
# 001137-6

 

•                  100
bbl tank:

•                  Manufactured
by Natco

•                  9’
x 6’- 8”

•                  Serial
# 71015513-05

 

•                  Gas
fired tank heater:

•                  Manufactured
by Natco

•                  500,000
BTU/HR burner

•                  Serial
# 0008-146

 

•                  200
gallon plastic water tank.

 

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

 

•                  Heat
tracer on all exposed water lines

 

G-2

 

•                  Fuel
separator/filter:

•                  Manufactured
by Perry Equipment

•                  MAWP
275# at 100 degree F

•                  Serial
# 138031-16

 

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

 

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

 

•                  Dehydration
Skid:

•                  Tower
–

•                  24”
x 25’

•                  Serial
# 90-378

•                  Manufactured
by Production Facilities Equipment in 1990

•                  Regen
burner –

•                  250,000
btu/hr

•                  Serial
# SB12-8h

•                  Glycol
Tank on rack with containment

 

•                  Teledyne
oxygen analyzer

 

•                  Scott
Bacharach gas detector model 4800

 

•                  Fire
eye for building

 

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

 

G-2

 

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

 

•                  Graveled
compressor site with 4 strand barbed wire fence

 

•                  “Low
Spot” headers for each of the incoming existing laterals. This includes manual
dump riser on each header and a crossover riser to the common suction header

 

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

 

•                  2”
Fisher control valve used for recycling

 

•                  Low
pressure separator with dump/drain controls and fittings:

•                  Manufactured
in 2000 by Superior Fabrication

•                  MAWP
150# at 150 degree F

•                  Serial
# 001137-7

 

•                  100
bbl tank:

•                  Manufactured
by Natco

•                  9’
x 6’- 8”

•                  Serial
# 71015513-04

 

•                  Gas
fired tank heater:

•                  Manufactured
by Natco

•                  500,000
BTU/HR burner

•                  Serial
# 0008-211

 

•                  200
gallon plastic water tank.

 

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

 

•                  Heat
tracer on all exposed water lines

 

•                  Fuel
separator/filter:

•                  Manufactured
by Perry Equipment

•                  MAWP
275# at 100 degree F

 

G-2

 

•                  Serial
# 138031-12

 

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

 

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

 

•                  Dehydration
Skid:

•                  Tower
–

•                  24”
x 25’

•                  Serial
# 89-247C

•                  Manufactured
by Production Facilities Equipment in 1989

•                  Regen
burner –

•                  250,000
btu/hr

•                  Serial
# unknown

•                  Glycol
Tank on rack with containment

 

•                  Teledyne
oxygen analyzer

 

•                  Scott
Bacharach gas detector model 4800

 

•                  Fire
eye for building

 

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

 

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

 

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

 

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

 

•                  12”
Poly pipeline SDR 17 approximately 2 miles long

 

G-2

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